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THE DIVERSE INCOME TRUST PLCANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 MAY 2013The Directors present the Annual Financial Report of the Diverse Income Trustplc ("Company" or "Diverse") for the year ended 31 May 2013.新蒲崗迷你倉 The full AnnualReport and Accounts can be accessed via the following website:.mitongroup.com/dit or by contacting the Company Secretary on 01392 477500.RESULTS FOR THE YEAR TO 31 MAY 2013Increased dividend per shareThe dividend per share was increased from an annualised 2.02p last year to2.10p this year, representing an increase of 4%. In addition £394,000 was addedto distributable revenue reserves, and will be available to smooth dividendgrowth over the coming years.36% growth in capitalThe NAV per share rose from 47.83p to 65.12p over the year. This has beengreatly assisted by the general rise in the market, with the FTSE All-ShareIndex up 25% over the year to 31 May 2013.£61m additional capital raised to reduce the ongoing charges and add marketliquidity for shareholdersTwo C share issues, amounting to £30m in July 2012 and £31m in December 2012,resulted in total assets reaching £136m at 31 May 2013.Additional management resourceMiton has welcomed George Godber and Georgina Hamilton to its team of UK equitymanagers. They bring additional insight regarding the tangible assets andunderlying cashflow particularly of mid and larger UK companies.Diverse announced its intention to merge with Miton Income Opportunities TrustplcMIOT, formerly known as Henderson Fledgling Trust plc, appointed Miton to alignits £80m portfolio with that of Diverse so it could effect a merger with theCompany in due course. This has now been achieved and both companies areproceeding with the merger documentation. Diverse shareholders will not bearany of the costs of the transaction.Diverse wins Best New Investment Trust AwardThe Association of Investment Companies awarded Diverse the Best New InvestmentTrust Award based upon the novelty of its investment strategy versus other UKincome trusts and its strong performance since issue.SUMMARY OF RESULTS At 31 May 2013 At 31 May 2012 ChangeNet asset value per ordinary share 65.12p 47.83p 36.1%Ordinary share price (mid) 66.00p 48.75p 35.4%Premium to net asset value 1.35% 1.92%Revenue return per ordinary share 2.42p 2.32pTotal return per ordinary share 19.27p 0.43pTotal dividends per ordinary share 2.10p 2.19p??The dividend for the period to 31 May 2012 covered thirteen months, and theannualised dividend was 2.02p. Therefore, the underlying growth of the dividendin the year to 31 May 2013 was 4%. Current period revenues funded more than the4% increase and so £394,000 was added to revenue reserves for smooth dividendgrowth in the future.CHAIRMAN'S STATEMENTMarketsThe UK equity market rose steadily through the year, largely supported byliquidity injections to the financial system provided by central banks. Earlyin the year, the European Central Bank added to the actions of the Bank ofEngland and US Federal Reserve, whilst the Bank of Japan joined towards the endof the year. Over the year to 31 May 2013 the FTSE All-Share Total Return Indexrose 30.1%, and the average UK income trust appreciated by 38.3%.ResultsThe Company aims to differentiate itself from other UK income trusts bytargeting a sustainable growth of its dividend. Over the year to 31 May 2013our dividend has been increased by 4%, usefully ahead of inflation andshort-term interest rates. In addition, the Company has put £394,000 of currentperiod revenue into distributable reserves for the future.Over the year the Company has delivered a total return of 40.7% per ordinaryshare. This comprises a NAV rise of 17.29p, representing 36.1% capitalappreciation, and a dividend of 2.10p, representing a yield of 4.3% on theshare price at the start of the year. This performance has been fully reflectedin the share price rise, which has typically stood at a premium to NAV of 3.8%over the year.Overall ScaleDuring the year, the Board approved two C share offerings with the main purposeof increasing the scale of the Company, such that the fixed costs could bespread over a much larger asset base and improve the return for shareholders.In addition, a larger trust has greater market liquidity, enhancing the abilityfor shareholders to transact, which in turn the Board believes helps enhancethe rating of the Company's shares. As a result of the two C share offerings,plus the market appreciation, the Company's assets grew from just under £48m toclose to £136m at the year end.Potential Merger with Miton Income Opportunities Trust plcOn 15 February 2013, the Board announced that it had agreed proposals for afuture merger with Miton Income Opportunities Trust plc ("MIOT", formerly knownas Henderson Fledgling Trust plc). Over recent months the MIOT portfolio hasbeen reconfigured so that it is over 90% aligned with the strategy adopted byour Company. As announced on 2 July 2013, the merger documents are currentlybeing produced, and are expected to be posted to shareholders in September. Theproposals will be subject to the approval of both sets of shareholders. Thecombined portfolio would have assets of over £220m at current market levels,offering further enhancement to the market liquidity of the Company's sharesand a further reduction in the ongoing charges, which should fall to around1.3%. The transaction has been structured in such a way that the Company'sshareholders will not suffer economic dilution to their interests. TheCompany's costs and expenses will be offset by the premium at which new shareswill be issued to MIOT shareholders, and it is expected that shareholders mayeven benefit from a modest uplift in the NAV following the transaction.Under the terms of the merger, which will be recommended by the boards of bothcompanies, MIOT shareholders will receive new shares in the Company valued at apremium of 2.5% to the NAV as at the effective date of the merger. Theconsideration for the issue of new shares will be the transfer to Diverse ofthe entire investment portfolio of MIOT. There will be no cash exit offered toMIOT shareholders as part of the scheme.Articles of AssociationThe law relating to investment trusts has recently been amended to modernisethe investment trust regime. One of the changes is that that the distributionof investment profits is no longer prohibited. Accordingly, with effect from6 April 2012, the definition of "investment company" under the Companies Act 2006was amended such that the articles of association of investment companies areno longer required to prohibit the payment of capital profits as dividends. Atthe Annual General Meeting, the Board will be seeking shareholder approval toamend the Company's Articles of Association so that capital profits can bedistributed as dividends if it were to be considered to be in shareholders'interests. This will provide the Company with greater flexibility to funddividends both from revenue, as currently, as well as capital profits. However,it remains the Directors' intention that dividends should generally be fundedfrom revenue.Authority to Issue SharesAt the forthcoming Annual General Meeting, the Board will be seeking therenewal of the Company's authority to issue up to 10% of the ordinary shares.This authority is as previously approved at the 2012 Annual General Meeting.On 7 December 2012 shareholders granted the Company the authority to issue upto 300 million C shares, with such authority to expire at the 2013 AnnualGeneral Meeting. Pursuant to this authority being granted, on 17 December 2012the Company issued 62 million C shares. Accordingly, the Company is seekingshareholder approval for the renewal of the balance of this authority(238 million C shares). This will give the Company the flexibility to meetadditional demand for shares which is not met through the secondary market,will allow the Company to potentially grow its market capitalisation and willenable the Board to seek to manage the premium to NAV at which the shares tradefrom time to time. It will also enable the Company to issue further C Shares ina timely manner without shareholders being required to incur the additionalcosts of the Company convening further general meetings to approve suchissuance (the costs of convening a General Meeting are estimated to beapproximately £40,000 (excluding VAT)). The Board recognises the importance ofshareholder protections and, as indicated in the Prospectus issued in November2012, confirms that any issue of C Shares for cash under the authority set outin the resolution will be on a fully pre-emptive basis.Annual General MeetingThe Company's second Annual General Meeting is being held at 3.00 pm onTuesday, 22 October 2013 at Furniture Makers' Hall, 12 Austin Friars, LondonEX2N 2HE.ProspectsAt some point in the future, possibly even in the year ahead, the Bank ofEngland will wind down its Quantitative Easing programme, which may impact onboth market sentiment and the cash flows of companies in general. Therefore, webelieve that there will be an even greater importance to careful stockinvesting in those companies with the most robust balance sheets. Suchcompanies are clearly better placed to sustain dividends, even at times ofeconomic stress. In addition, those able to increase turnover and cashflow inthe coming years should be able to fund respectable growth in dividends. YourCompany moderates stock specific risk through a portfolio with widediversification across 107 holdings. These policies have helped the Company'sshares to trade with a relatively modest level of volatility since its launch.At the time of writing, equity markets globally are suffering a period offluctuating volatility. Nonetheless, we will continue to focus on growing thedividend income of the Company's portfolio progressively over time, which webelieve will help the Company to continue to deliver a premium investmentreturn.Michael WrobelChairman14 August 2013MANAGER'S REPORTMarketsStock market returns in the 12 months to 31 May 2013 have been pretty good. Atthe previous year end, investors were greatly concerned that Greece was likelyto leave the Euro currency in a chaotic manner. However, a statement by the EUPresident to `do whatever it takes' and the announcement of the willingness ofthe European Central Bank to buy the Government bonds of the weaker stateschanged sentiment. Meanwhile, the policy of Quantitative Easing continued to beapplied by several central banks and this encouraged banks around the world topurchase bonds generally. As a result, the bond yields of some of the morevulnerable Euroland countries improved very significantly in the period. Aparticularly fine example is Portugal, where 10 year Government bond yieldshalved from 11.65% to 5.55% over the year to 31 May 2013. Extraordinary stuff.Against a backdrop this positive, equity markets have also performed strongly.On a total return basis, the FTSE All-Share Index rose 30.1%. The FTSE 250Index once again delivered premium returns, with a rise of 39.9%. However, incontrast to the credit boom trend, many smaller companies have delivered evenbetter returns. The FTSE SmallCap Index (ex IC) rose 46.1% in the year ended31 May 2013. Not all smaller stock indices performed as well. The FTSE AIMAll-Share Index rose only 6.4% in the period as portfolio managers aggressivelysold down small exploration stocks because they are unlikely to ever paysustained dividends.These index moves underline a fundamental change of attitude coming through inthe financial markets. As anticipated, investors are beginning to move awayfrom embracing extra volatility in the hope of holding stocks that willoutperform rising indices, and instead are seeking investments in businesseswith decent dividend yields that are well-placed to sustain a growth of thatdividend into the future.This change in attitude is also being seen in the growing interest in smallercompanies that are able to pay good and growing dividends. Whereas previouslycompanies that were outside the largest 350 quoted stocks were largely ignoredby professional investors, now there is a greater willingness to consider them.The chart in the full Annual Report shows the performance of all stocks,grouped by market capitalisation, that had a yield of at least 4% at31 May 2012, and their performance in the year under review. The chartdemonstrates the strong share price performance of stocks with high yields.Since many of these high-yielding companies were already well owned, the changein attitude did not drive their share prices up very much. Many of the bestperforming income stocks in the period were further down the marketcapitalisation range. However, it will also be noted that many of the smallesthigh yield stocks missed out on the general trend. We believe that the attitudechange by investors is still at its early stages and as yet many have not beenwilling to consider those paying good and growing dividends with marketcapitalisations below £100m. At present, we are still able to invest in thesestocks at more attractive valuation metrics, and therefore we believe theystill offer some of the most attractive risk/reward ratios.The criteria used for selecting portfolio stocksThere are five criteria that the managers use to determine the scope for thebusiness to deliver good and growing dividends.The prospect of turnover growthIf a business is to sustain and grow its dividend, then the portfolio needs toinvest in companies that will generate more cash in the coming years. Withoutdecent turnover growth this is near-impossible to achieve over time.Sustained or improving marginsA business needs to deliver significant value to its customer base if it is tosustain decent margins. Unexpected cost increases cannot be charged on tocustomers if they are anything less than delighted with their suppliers.Turnover growth will not lead to improved cash generation if declining marginsoffset it.A forward-looking management teamBusinesses often need to make commercial decisions on incomplete information. Athoughtful and forward-looking team has a better chance of making betterdecisions.Robust balance sheetThere are disproportionate advantages to having the independence of a strongbalance sheet in a period of elevated economic and political risks. Conversely,corporates with imprudent borrowings can risk the total loss of shareholders'capital.Low expectation valuationMany of the most exciting stocks enjoy higher stock market valuations butalmost none can consistently beat the high expectations baked in to their shareprices. Those with low expectations tend to less vulnerable to disappointment,but conversely can enjoy excellent share price rises if they surprise on theupside.Companies that best meet these criteria on a prospective basis are believed tobe best positioned to deliver attractive returns to shareholders, as well asoffering moderated risk.These criteria, used in reverse, can also be useful in determining the timingof portfolio stocks that should be considered for divestment. So a business indanger of suffering a period of turnover declines, for example, would naturallybe expected to generate less cash flow in future years and thereby struggle tosustain their current dividend over time, let alone grow it.PerformanceThe Company holds a widely diversified list of 107 holdings. The largest 40stocks in the portfolio are listed below. It will be noted that most holdingsare around 1% of the portfolio. On occasions, when the risk/reward ratioappears particularly attractive, some holdings are purchased to take them up toaround 1.5% of the portfolio. With differential share price moves, some ofthese holdings can move up to slightly larger percentages. However, the overallvolatility of the portfolio has been well below other trusts in the UK Growthand Income sector. In part this is related to the wide diversification withinthe portfolio, and in part to the naturally lower volatility of higher incomestocks, especially those with strong balance sheets.Over the year under review, the Company delivered a total return of 40.7%.Generally the Company was largely fully invested throughout the period,although the borrowing facility was not greatly used.There were two C share issues in the period and the new capital was typicallyinvested in similar stocks to that of the original fund. Once at least 90% ofthe new capital had been invested, then the C share portfolio was merged withthat of the parent. This process ensured that shareholders' returns were notdiluted by the additional capital raised during the year.The Company launched on the Stock Exchange on 28 April 2011. Since that time,on a price basis, the FTSE All-Share Index has delivered a rise of 10.1%. TheFTSE SmallCap Index (ex IC) rose by 23.9%, although the FTSE AIM All-Share fellby 20.8%. The price return on the Company in the period was 29.4%.PortfolioThe portfolio is invested in a wide range of individual stocks that togetheroffer the prospect of good and growing dividend income. Although there are somein FTSE 100 Index which we find attractive, they are fairly limited in number.For that reason the portfolio has only 6.3% of its capital invested in thesestocks. There are a greater number in the FTSE 250 or MidCap Index andtherefore the Company holds around 23.0% in this area of the market. Overall,around one-third of the portfolio is invested in the largest 350 stocks, whichimplies that around two-thirds is invested in the remaining universe of some2,500 quoted stocks.Gervais Williams and Martin TurnerMiton Capital Partners Limited14 August 2013PORTFOLIO INFORMATION AS AT 31 MAY 2013Rank Company Sector & main Valuation % of net Yield? activity £'000 assets %1 Greencore Food Producers 2,979 2.2 2.92 St Ives Support Services 2,939 2.2 3.73 UK Mail Industrial 2,756 2.0 3.7 Transportation4 Fairpoint? General Financial 2,692 2.0 5.05 CML Microsystems Technology 2,574 1.9 0.9 Hardware & Equipment6 Beazley Non Life Insurance 2,353 1.7 3.57 Charles Taylor Consulting General Financial 2,352 1.7 5.48 Abbey Protection? Non Life Insurance 2,284 1.7 4.29 Randall & Quilter Non Life Insurance 2,218 1.6 6.6 Investment Holdings?10 Bioventix? Pharmaceuticals & 2,197 1.6 4.3 BiotechnologyTop 10 investments 25,344 18.611 4imprint Media 2,167 1.6 3.112 SQS Software? Software & 2,042 1.5 2.1 Computer13 Novae Group Non Life Insurance 1,909 1.4 4.114 Dairy Crest Food Producers 1,875 1.4 4.315 Staffline? Support Services 1,871 1.4 1.916 BT Fixed Line 1,870 1.4 3.1 Telecommunications17 Interserve Support Services 1,861 1.4 4.218 Zotefoams Chemicals 1,848 1.4 2.619 888 Holdings Travel & Leisure 1,841 1.3 4.520 KCOM Fixed Line 1,820 1.3 4.9 TelecommunicationsTop 20 investments 44,448 32.721 Brown(N) General Retailers 1,748 1.3 3.022 Secure Trust Bank? Banks 1,739 1.3 2.923 Hansard Global Life Insurance 1,704 1.3 8.624 Wilmington Media 1,689 1.2 4.325 Personal? Non Life Insurance 1,679 1.2 4.626 Huntsworth Media 1,676 1.2 5.827 Hilton Food Food Producers 1,667 1.2 3.428 Cineworld Travel & Leisure 1,664 1.2 3.629 Vodafone Mobile 1,645 1.2 5.3 Telecommunications30 Consort Medical Health Care 1,624 1.2 2.4 Equipment & ServicesTop 30 investments 61,283 45.031 Cranswick Food Producers 1,621 1.2 2.732 Segro Real Estate 1,607 1.2 5.533 Amlin Non Life Insurance 1,597 1.2 5.834 TalkTalk Telecom Fixed Line 1,588 1.2 4.6 Telecommunications35 Berendsen Support Services 1,555 1.1 3.336 Catlin Non Life Insurance 1,549 1.1 5.937 Nationwide Accident? Support Services 1,511 1.1 7.638 Cable & Wireless Comms Fixed Line 1,500 1.1 6.0 Telecommunications39 Provident Financial General Financial 1,494 1.1 5.040 Silverdell? Support Services 1,468 1.1 1.2Top 40 investments 76,773 56.4Balance held in 67 equity investments 50,926 37.5Total equity investments 127,699 93.9Fixed interest and convertible investments 1,198 0.9Total investments 128,897 94.8Cash and net assets 7,012 5.2Net assets 135,909 100.0?Source: Interactive Data. Based on historic yields. Manager's estimate whereno historical data.?AIM/ISDX listed.A copy of the full portfolio of investments as at 31 May 2013 is available onthe Company's website, .mitongroup.com/dit.Portfolio exposure by sector %Insurance & Insurance Services 16.3Consumer Services 15.7General Financial 11.6Support Services 10.5Consumer Goods 10.0Industrials 7.2Technology 6.8Telecommunications 6.2Cash and Fixed Interest/Convertibles 6.0Basic Materials 3.9Health Care 3.7Oil & Gas 1.2Utilities 0.9100.0Portfolio by asset allocation %FTSE 100 6.3FTSE 250 23.0FTSE SmallCap 24.2FTSE Fledgling 2.4AIM/ISDX 34.4Other 3.7Cash and Fixed Interest/Convertibles 6.0100.0Portfolio by spread of investment income %FTSE 100 9.7FTSE 250 29.0FTSE SmallCap 23.5FTSE Fledgling 3.4AIM/ISDX 27.5Fixed Interest and Other 6.9100.0Estimated annual income by sector? %Insurance & Insurance Services 22.8Consumer Services 15.7General Financial 14.8Support Services 11.1Telecommunications 8.1Consumer Goods 7.2Industrials 7.0Basic Materials 4.1Health Care 3.1Technology 3.0Fixed Interest/Convertibles 1.5Utilities 1.1Oil & Gas 0.5100.0?Projected income based on portfolio as at 31 May 2013.Source: Miton Capital Partners LimitedBOARD OF DIRECTORS (all non-executive)Michael Wrobel (Chairman)Paul CraigLucinda Riches (Chairman of the Management Engagement Committee)Jane Tufnell (Senior Independent Director and Chairman of the Audit Committee)CAPITAL STRUCTUREThe Company's share capital consists of redeemable ordinary shares of 0.1p eachwith one vote per share ("ordinary shares") and non-voting management shares of£1 each ("management shares").As at 31 May 2013 and the date of this report, there are 208,693,307 ordinaryshares in issue, none of which are held in treasury, and 50,000 managementshares.The Company has a redemption facility through which shareholders are entitledto request the redemption of all or part of their holding of ordinary shares onan annual basis on 31 May in each year. The Board may, at its absolutediscretion, elect not to operate the annual redemption facility in whole or inpart, although it has indicated that it is minded to approve all requests.Further details of the capital structure can be found in note 8 to thefinancial statements.INVESTMENT OBJECTIVEThe Company's investment objective is to provide shareholders with anattractive level of dividends coupled with capital growth over the long term.INVESTMENT POLICYThe Company invests primarily in quoted or traded UK companies with a widerange of market capitalisations, but a long-term bias toward small and mid-capequities. The Company may also invest in large cap companies, including FTSE100 constituents, where it is believed that this may increase shareholdervalue.The Manager adopts a stock specific approach in managing the Company'sportfolio and therefore sector weightings are of secondary consideration. As aresult of this approach, the Company's portfolio does not track any benchmarkindex.The Company may utilise derivative instruments including index-linked notes,contracts for differences, covered options and other equity-related derivativeinstruments for efficient portfolio management, gearing and investmentpurposes. Any use of derivatives for investment purposes will be made on thebasis of the same principles of risk spreading and diversification that applyto the Company's direct investments, as described below. The Company will notenter into uncovered short positions.Risk DiversificationPortfolio risk is mitigated by investing in a diversified spread ofinvestments. Investments in any one company, shall not, at the time ofacquisition, exceed 15% of the value of the Company's investment portfolio.Typically it is expected that the Company will hold a portfolio of between 80and 120 securities, predominantly most of which will represent no more than1.5% of the value of the Company's investment portfolio as at the time ofacquisition.The Company will not invest more than 10% of its gross assets, at the time ofacquisition, in other listed closed-ended investment funds, whether managed bythe Manager or not, except that this restriction shall not apply to investmentsin listed closed-ended investment funds which themselves have stated investmentpolicies to invest no more than 15% of their gross assets in other listedclosed-ended investment funds. In addition to this restriction, the Directorshave further determined that no more than 15% of the Company's gross assetswill, at the time of acquisition, be invested in other listed closed-endedinvestment funds (including investment trusts) notwithstanding whether or notsuch funds have stated policies to invest no more than 15% of their grossassets in other listed closed-ended investment funds.Unquoted InvestmentsThe Company may invest in unquoted companies from time to time subject to priorBoard approval. Investments in unquoted companies in aggregate will not exceed5% of the value of the Company's investment portfolio as at the time ofinvestment.Borrowing and Gearing PolicyThe Board considers that long-term capital growth can be enhanced by the use ofgearing which may be through bank borrowings and the use of derivativeinstruments such as contracts for differences. The Company may borrow (throughbank facilities and derivative instruments) up to 15% of net asset value("NAV") (calculated at the time of borrowing).The Board oversees the level of gearing in the Company, and reviews theposition with the Manager on a regular basis.In the event of a breach of the investment policy set out above and theinvestment and gearing restrictions set out therein, the Manager shall informthe Board upon becoming aware of the same and if the Board considers the breachto be material, notification will be made to the London Stock Exchange.No material change will be made to the investment policy without the approvalof shareholders by ordinary resolution.BUSINESS REVIEWPrincipal Activity and StatusThe principal activity of the Company is to carry on business as an investmenttrust. The Company intends at all times to conduct its affairs so as to enableit to qualify as an investment trust for the purposes of Sections 1158/1159 ofthe Corporation Tax Act 2010 ("S1158/1159"). The Directors do not envisage anychange in this activity in the foreseeable future.The Company has applied for, and been granted, approval from HM Revenue &Customs ("HMRC") as an investment trust under S1158/1159 for the period ended31 May 2012. The Company will be treated as an investment trust company foreach subsequent accounting period, subject to there being no serious breachesof the conditions for approval.The principal conditions that must be met for approval by HMRC as an investmenttrust for any given accounting period are that the Company's business shouldconsist of "investing in shares, land or other assets with the aim of spreadinginvestment risk and giving members of the company the benefit of the results"and the Company must distribute a minimum of 85% of all its income as dividendpayments. The Company must also not be a close company. The Directors are ofthe opinion that the Company has conducted its affairs for the year ended31 May 2013 so as to be able to continue to qualify as an investment trust.The Company's status as an investment trust allows it to obtain an exemptionfrom paying taxes on the profits made from the sale of its investments and allother net capital gains. Investment trusts offer a number of advantages forinvestors, including access to investment opportunities that might not be opento private investors and to professional stock selection skills at lower cost.The Company is an investment company in accordance with the provisions ofSections 832 and 833 of the Companies Act 2006.The Company has a wholly owned subsidiary, DIT Income Services Limited. Thepurpose of the subsidiary is to invest in shorter-term holdings, where thegains after corporation tax can be passed up to the parent company by way ofdividends, thus improving the position of the Company's revenue account.Investment PolicyThe Company's investment policy is set out above and contains information onthe policies which the Company follows relating to asset allocation, riskdiversification and gearing, and includes maximum exposures, where relevant.The Company invests primarily in quoted or traded UK companies with a widerange of market capitalisations but a long-term bias toward small and mid capequities with a view to achieving the Company's investment objective.The Manager adopts a stock specific approach in managing the Company'sportfolio and therefore sector weightings will be of secondary consideration.As a result of this approach, the Company's portfolio will not track anybenchmark index.Details of the largest investments are shown above.PerformanceThe Chairman's Statement and the Manager's Report above give details of theCompany's activities, performance and position during the year.The Board reviews the Company's performance by reference to a number of KeyPerformance Indicators ("KPIs") and considers that the most relevant KPIs arethose that communicate the financial performance and strength of the Company asa whole. The Board and the Manager monitor the following KPIs:● NAV performance, relative to comparable investment trusts and open-endedfunds and to various UK stockmarket indicesThe Company's total return increased by 40.7% over the year. This comparesfavourably with its peer group, where the average was a 38.2% increase. Bycomparison, the total return on the FTSE All-Share Index was 30.1%, on the FTSESmallCap Index (ex IC) was 46.1%, and on the AIM All-Share Index was 6.4%.● NAV volatilityThe Company has an objective to deliver attractive returns whilst having an eyeto constraining volatility relative to other similar investment trusts. For theyear to 31 May 2013, the Company's NAV had a volatility of 8.7%, the thirdlowest in its peer group.● Movements in the Company's share priceThe Company's share price increased by 40.9% over the year on a total returnbasis. This compares favourably with its peer group, where the average increasewas 38.2%. By comparison, the total return on the FTSE All-Share Index was30.1%, on the FTSE SmallCap Index (ex IC) was 46.1%, and on the AIM All-ShareIndex was 6.4%.● The discount of the share price in relation to the NAVThe Company has an objective to keep the discount to NAV at a minimum. Over theyear to 31 May 2013 the Company has maintained an average premium to NAV of3.8%. This compares favourably with its peer group, where the average discountwas 0.5% over the year. The premium on the NAV at 31 May 2013 was 1.4%.● The Company's dividend growth rateThe Company has an objective to deliver an attractive dividend income andgrowth in the dividend. In the year, the Company paid dividends totalling 2.1p,representing a yield of 3.6% (based on an average share price of 57.8p). TheCompany grew this dividend by 4.0% compared to the annualised total of theprevious year. This compares to its peer group, where the average growth ratewas 3.8%.● Ongoing chargesThe ongoing charges for the year to 31 May 2013 amounted to 1.45% (2012: 1.90%)of total assets.Net Asset ValueThe NAV at 31 May 2013 was 65.1p per share.DividendsDividends totalling 2.1p per ordinary share have been paid or declared inrespect of the period ended 31 May 2013 as follows:First interim dividend: 0.30p paid on 30 November 2012Second interim dividend: 0.50p paid on 28 February 2013Third interim dividend: 0.46p paid on 31 May 2013Fourth interim dividend: 0.84p payable on 31 August 2013Shareholders will have the option to vote on the dividend payment policy of theCompany at the forthcoming Annual General Meeting.Share IssuesUnder a special resolution passed on 6 April 2011, the Directors were grantedthe authority to allot up to 100,000,000 C shares. They were also granted theauthority to allot ordinary shares up to an aggregate nominal amount of£10,000, and this authority was renewed at the Annual General Meeting held on17 October 2012.On 19 July 2012, 60,000,000 C shares of 1p each were issued under a Placing andOffer for Subscription at an issue price of 50p each, raising an aggregate of£30 million of gross proceeds for the Company. These C shares were convertedinto ordinary shares at the rate of 0.9418 ordinary shares for every C share on1 October 2012, resulting in the issue of 56,507,978 new ordinary shares.At a General Meeting held on 7 December 2012, the Directors were granted theauthority to allot C shares on a fully pre-emptive basis up to an aggregatenominal amount of £3,000,000, representing 300,000,000 C shares.62,000,000 C shares of 1p each were issued on 17 December 2012 at an issueprice of 50p each under an Open Offer, Placing and Offer for Subscription for Cshares, raising an aggregate of £31 million of gross proceeds for the Company.These C shares were converted into ordinary shares at the rate of 0.8417ordinary shares for every C share on 26 March 2013, resulting in the issue of52,185,329 new ordinary shares.Following the above transactions, there are 208,693,307 ordinary shares inissue as at the year end and at the date of this Report.The remaining authorities to issue shares are due to expire at the Company'sAnnual General Meeting to be held on 22 October 2013. Proposals for theirrenewal are set out in the full Annual Report and Accounts.There are no restrictions concerning the transfer of securities in the Companyor on voting rights; no special rights with regard to control attached tosecurities; no agreements between holders of securities regarding theirtransfer known to the Company; and no agreements which the Company is party tothat might affect its control following a successful takeover bid.Purchase of Own SharesAt the Annual General Meeting of the Company held on 17 October 2012, theDirectors were granted the authority to buy back up to 14,990,000 ordinaryshares. No ordinary shares have been bought back under this authority. Theauthority will expire at the next Annual General Meeting when a resolution forits renewal will be proposed.Treasury SharesShares bought back by the Company may be held in treasury, from where theycould be re-issued at a premium to NAV quickly and cost effectively. Thisprovides the Company with additional flexibility in the management of itscapital base. No shares were purchased for, or held in, treasury during theyear.Share RedemptionsValid redemption requests were received under the Company's redemption facilityfor the 31 May 2013 Redemption Point in relation to 34,893 ordinary shares. Aspermitted under the Company's Articles of Association, these shares werematched with buyers and were sold at a calculated Redemption Price of65.16 pence.Principal RisksThe Company is exposed to a variety of risks. The principal financial risks andthe Company's policies for managing these risks and the policy and practicewith regard to financial instruments are summarised in note 17 to the financialstatements. The Board has also identified the following additional risks anduncertainties:Investment and strategyThere can be no guarantee that the investment objective of the Company will beachieved. The Company is an investment trust which invests mainly in UKequities. However, the Company has a very wide investment policy and may alsoinvest in cash and bonds, unquoted investments, derivative instruments andother investments and securities, as appropriate.The Company does not follow any benchmark. Accordingly, the portfolio ofinvestments held by the Company will not mirror the stocks and weightings thatconstitute any particular index or indices, which may lead to the Company'sshares failing to follow either the direction or extent of any moves in thefinancial markets generally (which may or may not be to the advantage ofshareholders).The Manager has in place a dedicated investment management process which isdesigned to ensure the investment objectives are achieved. The Board reviewsregular investment and financial reports from the Manager.Smaller companiesThe Company will invest primarily in quoted UK companies with a wide range ofmarket capitalisations but a long-term bias toward small and mid cap equities.Smaller companies can be expected, in comparison to larger companies, to beless mature businesses, have more restricted depth of management and a higherrisk profile. In addition, the relatively small market capitalisation of suchcompanies can make the market in their shares illiquid. Prices of smallercapitalisation stocks are often more volatile than prices of largercapitalisation stocks and the risk of insolvency of many smaller companies(with the attendant losses to investors) is higher.The Company looks to mitigate this risk by holding a spread of investments,achieved through limiting the size of new holdings at the time of investment,to a maximum of 1.5% of the portfolio. All potential investee companies areresearched by the Manager prior to investment.Sectoral diversificationThe Company is not constrained from weighting to any sector. This may lead tothe Company having significant exposure to portfolio companies from certainbusiness sectors from time to time. Greater concentration of investments in anyone sector may result in greater volatility in the value of the Company'sinvestments and consequently its NAV.The Company seeks to achieve returns by investing across the full spectrum ofcompanies meeting its criteria, covering all sectors.Unquoted companiesThe Company may invest in unquoted companies from time to time. Suchinvestments, by their nature, involve a higher degree of valuation andperformance uncertainties and liquidity risks than investments in listed andquoted securities and they may be more difficult to realise.This risk is mitigated by the requirement for the Board to prior approve anyinvestment into unquoted companies and by limiting the size of aggregateunquoted investments to less than 5% of the portfolio as at the time ofinvestment.Use of derivative instrumentsThe Company may utilise derivative instruments including index-linked notes,contracts for differences, covered options and other equity-related derivativeinstruments for efficient portfolio management, gearing and investmentpurposes. The Company will not enter into derivative contracts for speculativepurposes.DividendsThe Company's investment objective includes the aim of providing shareholderswith a dividend income. There is no guarantee that any dividends will be paidin respect of any financial year or period. The ability to pay dividends isdependent on a number of factors including the level of dividends earned fromthe portfolio and the net revenue profits available for that purpose.The redemption of shares pursuant to the redemption facility may also reducedistributable reserves to the extent that the Company is unable to paydividends.The Company maintains accounting records and produces forecasts that aredesigned to reduce the likelihood that the Company will not have sufficientdistributable resources to meet its dividend objective.Share price volatility and liquidity/marketability riskThe market price of the Company's shares, like shares in all investmentcompanies, may fluctuate independently of the NAV and thus may not reflect theunderlying NAV of the shares. The shares could trade at a discount or premiumto NAV at different times, depending on factors such as supply and demand forthe shares, market conditions and general investor sentiment.GearingThe Company's investment strategy may involve the use of gearing to enhanceinvestment returns, which exposes the Company to risks associated withborrowings. Gearing may be generated through the use of options, futures,options on futures, swaps and other synthetic or derivative financialinstruments. Such financial instruments inherently contain much greaterleverage than a non-margined purchase of the underlying security or instrument.While the use of borrowings should enhance the total return on the shares wherethe return on the Company's underlying assets is rising and exceeds the cost ofborrowing, it will have the opposite effect where the return on the Company'sunderlying assets is rising at a lower rate than the cost of borrowing orfalling, further reducing the total return on the shares. As a result, the useof borrowings by the Company may increase the volatility of the NAV per share.The Company has an overdraft facility in place, as detailed in note 15, butthis was unused at 31 May 2013 and throughout much of the period.The Company is limited to a maximum gearing of 15% of the net assets. There wasno gearing at 31 May 2013.Key man riskThe Company depends on the diligence, skill, judgement and business contacts ofthe Manager's investment professionals and its future success could depend onthe continued service of these individuals, in particular Gervais Williams.C sharesThe Directors have been authorised to issue C shares and will be seekingrenewal of this authority at the Annual General Meeting. If the Directorsdecide to issue C shares, the proportions of the voting rights held by ordinaryshareholders will be diluted on the issue of such C shares as each C sharecarries the right to one vote. The voting rights may be diluted further onconversion of the C shares depending on the applicable conversion ratio.Redemption facilityThe operation of the annual redemption facility may lead to a more concentratedand less liquid portfolio which may adversely affect the Company's performanceand value. Further, redemptions may also adversely affect the secondary marketliquidity of the ordinary shares.The Board would seek to mitigate the risk of substantial redemptions beingrequested by maintaining a regular flow of communication with shareholders andthe achievement of the investment objectives of the Company. Under the Articlesof Association, the Board may, at its absolute discretion, elect not to operatethe redemption facility on any given Redemption Point, although the Board doesnot generally expect to exercise this discretion, save in the interests ofshareholders as a whole.TaxationThe affairs of the Company are conducted so as to satisfy the conditions ofapproval as an investment trust under S1158/1159.Any change in the Company's tax status or in taxation legislation or practicegenerally could affect the value of the investments held by the Company, affectthe Company's ability to provide returns to shareholders, lead the Company tolose its exemption from tax on chargeable gains or alter the post-tax returnsto shareholders.The Board seeks to use the services of appropriately qualified professionalorganisations to ensure adherence by the Company to the taxation requirementsof an investment trust to mitigate this risk.Compliance with laws or regulationsThe Company is subject to compliance with the Companies Act 2006 and thecontinuing obligations imposed by the UK Listing Authority on investmentcompanies whose shares are listed on the Official List. A breach of any ofthese could lead to suspension of the listing of the Company's shares on theLondon Stock Exchange and/or financial penalties, with the resultingreputational implications.The Board utilises appropriately qualified service providers to carry out theday-to-day activities of the Company. The Manager also has an independentcompliance department that carries out regular monitoring of the activities ofthe Manager and provides regular reports to the Board.The Alternative Investment Fund Managers' Directive ("AIFMD") was implementedby EU member states, including the UK, on 22 July 2013. Firms already operatingin accordance with AIFMD at the date of implementation will have until 22 July2014 to register with the Financial Conduct Authority if they wish to become anAlternative Investment Fund Manager in their own right. It seems likely thatthere will be an increase, potentially a material increase, in the Company'sgovernance, administration and custodian expenses as a result of thisimplementation. The Board is in the process of discussing the requirements andthe implications with its advisers to ensure compliance by 22 July 2014.Engagement of third party advisersThe Company has no employees and the Directors have all been appointed on anon-executive basis. Whilst the Company has taken all reasonable steps toestablish and maintain adequate procedures, systems and controls to enable itto comply with its obligations, the Company is reliant upon the performance ofthird party service providers for its executive function.The Board makes appropriate enquiries before engaging third parties which areall expected to operate in accordance with written contracts and service levelagreements, if appropriate.Social, Environmental, Community and Employee IssuesThe Company does not have any employees and the Board consists entirely ofnon-executive Directors. As an investment trust, the Company has no directimpact on the community or the environment, and as such has no policies in thisarea. In carrying out its investment activities and in relationships withsuppliers, the Company aims to conduct itself responsibly, ethically andfairly.Current and Future DevelopmentsOn 15 February 2013 the Company announced that it had agreed heads of termswith the board of Henderson Fledgling Trust plc (subsequently renamed MitonIncome Opportunities Trust plc ("MIOT")) in respect of a future merger of thetwo companies (the "Scheme"). Under the Scheme, which is to be recommended bythe boards of both companies, MIOT shareholders will receive Diverse sharesvalued at a premium of 2.5% to the NAV as at the effective date of the Scheme.The consideration for the issue of new Diverse shares will be the transfer toDiverse of the entire investment portfolio of MIOT, following the setting asideof such amounts as required to meet its outstanding and contingent liabilities,by way of a scheme of reconstruction. There will be no cash exit offered aspart of the Scheme.The Scheme has a number of benefits for Diverse's shareholders, the key ones ofwhich are:● scaling up the assets of the Company will improve the liquidity of its shareson the secondary market to the benefit of all shareholders;● the acquisition of an investment portfolio which will be complementary to theCompany's existing portfolio;● introducing new investors into the Company and broadening its investor base;and● reducing the Company's fixed operating costs as a percentage of shareholderfunds.The Company will pay for its own costs of implementing the Scheme. The Schemehas been structured in a way to ensure that there will be no dilution to theCompany's NAV as a result of the Scheme.As announced on 2 July 2013, it is anticipated that a prospectus setting outfull details of the merger will be sent to shareholders in September 2013.Please refer to the Chairman's Statement and the Manager's Report above forfurther information on the likely future development of the Company.Going ConcernThe Directors consider that it is appropriate to adopt the going concern basisin preparing the financial statements. After making enquiries, and bearing inmind the nature of the Company's business and assets, the Directors considerthat the Company has adequate resources to continue in operational existencefor the foreseeable future. In arriving at this conclusion the Directors haveconsidered the liquidity of the portfolio and the Company's ability to meetobligations as they fall due for a period of at least 12 months from the datethat these financial statements were approved.Cash flow projections have been reviewed and show that the Company hassufficient funds to meet both its contracted expenditure and its discretionarycash outflows in the form of the dividend policy.STATEMENT OF DIRECTORS' RESPONSIBILITIESThe Directors are responsible for preparing the Annual Report and the Groupfinancial statements in accordance with applicable United Kingdom law and thoseInternational Financial Reporting Standards ("IFRS") as adopted by the EuropeanUnion.Under company law the Directors must not approve the financial statementsunless they are satisfied that they present fairly the financial position,financial performance and cash flows of the Group for that year.In preparing the Group financial statements, the Directors are required to:● select suitable accounting policies in accordance with IAS 8: `AccountingPolicies, Changes in Accounting Estimates and Errors' and then apply themconsistently;● present information, including accounting policies, in a manner that providesrelevant, reliable, comparable and understandable information;● provide additional disclosures when compliance with specific requirements inIFRS is insufficient to enable users to understand the impact of particulartransactions, other events and conditions on the Group's financial position andfinancial performance;● state that the Group has complied with IFRS, subject to any materialdepartures disclosed and explained in the financial statements; and● make judgements and estimates that are reasonable and prudent.The Directors are responsible for keeping adequate accounting records that aresufficient to show and explain the Company's transactions and disclose withreasonable accuracy at any time the financial position of the Group and enablethem to ensure that the Group financial statements comply with the CompaniesAct 2006 and Article 4 of the IAS Regulation. They are also responsible forsafeguarding the assets of the Group and hence for taking reasonable steps forthe prevention and detection of fraud and other irregularities.Under applicable law and regulations, the Directors are also responsible forpreparing a Directors' Report (including Business Review), Directors'Remuneration Report and Corporate Governance Statement that comply with thatlaw and those regulations, and for ensuring that the Annual Report includesinformation required by the Listing Rules of the Financial Conduct Authority.The financial statements are published on the Company's website,.mitongroup.com/dit, which is maintained on behalf of the Company by theManager, Miton Capital Partners Limited. Under the Management Agreement, theManager has agreed to maintain, host, manage and operate the Company's websiteand to ensure that it is accurate and up to date and operated in accordancewith applicable law. The work carried out by the Auditor does not involveconsideration of the maintenance and integrity of this website and accordingly,the Auditor accepts no responsibility for any changes that have occurred to thefinancial statements since they were initially presented on the website.Visitors to the website need to be aware that legislation in the United Kingdomcovering the preparation and dissemination of the financial statements maydiffer from legislation in their jurisdiction.We confirm that to the best of our knowledge:● the Group financial statements, prepared in accordance with IFRS as adoptedby the European Union, give a true and fair view of the assets, liabilities,financial position and profit of the Group; and● this Annual Report includes a fair review of the development and performanceof the business and the position of the Group together with a description ofthe principal risks and uncertainties that it faces.On behalf of the BoardMichael WrobelChairman14 August 2013NON-STATUTORY ACCOUNTSThe financial information set out below does not constitute the Company'sstatutory accounts for the year ended 31 May 2013 and the period ended 31 May2012 but is derived from those accounts. Statutory accounts for 2012 have beendelivered to the Registrar of Companies, and those for 2013 will be deliveredin due course. The Auditor has reported on those accounts; their report was(i)unqualified, (ii) did not include a reference to any matters to which theAuditor drew attention by way of emphasis without qualifying their report and(iii) did not contain a statement under Section 498 (2) or (3) of the CompaniesAct 2006. The text of the Auditor's report can be found in the Company's fullAnnual Report and Accounts at: .mitongroup.com/ditCONSOLIDATED INCOME STATEMENTYear ended Period from incorporation to 31 May 2013 31 May 2012 Revenue Capital Total Revenue Capital Total Note £'000 £'000 £'000 £'000 £'000 £'000Gains/(losses) oninvestments heldat fair valuethrough profit orloss 11 - 28,196 28,196 - (1,494) (1,494)Income 2 4,765 - 4,765 2,954 - 2,954Investment 3 (256) (767) (1,023) (132) (397) (529)management feeOther expenses 4 (532) - (532) (494) - (494)Return/(loss) onordinaryactivities beforefinance costs andtaxation 3,977 27,429 31,406 2,328 (1,891) 437Finance costmini storage -overdraftinterest paid (3) (9) (12) - - -Return/(loss) onordinaryactivities beforetaxation 3,974 27,420 31,394 2,328 (1,891) 437Taxation 5 (25) - (25) (9) - (9)Return/(loss) on 6ordinaryactivities aftertaxation 3,949 27,420 31,369 2,319 (1,891) 437pence pence pence pence pence penceReturn/(loss) per 6 2.42 16.85 19.27 2.32 (1.89) 0.43ordinary shareReturn per C 6 0.63 4.32 4.95 - - -shareThe total column of this statement is the Income Statement of the Groupprepared in accordance with IFRS, as adopted by the European Union. Thesupplementary revenue and capital columns are presented in accordance with theStatement of Recommended Practice issued by the Association of InvestmentCompanies ("AIC SORP").All revenue and capital items in the above statement derive from continuingoperations. No operations were acquired or discontinued during the year.The notes form part of these financial statements.CONSOLIDATED STATEMENTS OF CHANGES IN EQUITYShare Share premium Special Capital Revenue capital account reserve reserve reserve TotalGroup £'000 £'000 £'000 £'000 £'000 £'000As at 1 June 2012 100 - 48,558 (1,891) 1,059 47,826Total comprehensiveincome:Net return for the - - - 27,420 3,949 31,369yearTransactions withshareholders recordeddirectly to equity:Issue of ordinary 109 60,891 - - - 61,000sharesExpenses of share - (1,554) - - - (1,554)issueEquity dividends paid - - - - (2,732) (2,732)As at 31 May 2013 209 59,337 48,558 25,529 2,276 135,909Share Share premium Special Capital Revenue capital account reserve reserve reserve TotalGroup £'000 £'000 £'000 £'000 £'000 £'000As at 30 March 2011 - - - - - -(incorporation)Total comprehensiveincome:Net return for the - - - (1,891) 2,319 428periodTransactions withshareholders recordeddirectly to equity:Issue of ordinary 100 49,900 - - - 50,000sharesExpenses of share - (1,322) - - - (1,322)issueEquity dividends paid - - - - (1,260) (1,260)Transfer upon - (48,578) 48,578 - - -cancellation of sharepremium accountShare premium - - (20) - - (20)cancellation expensesAs at 31 May 2012 100 - 48,558 (1,891) 1,059 47,826The notes form part of these financial statements.PARENT COMPANY STATEMENTS OF CHANGES IN EQUITYShareCompany Share Premium Special Capital Revenue Total capital account reserve reserve reserve £'000 £'000 £'000 £'000 £'000 £'000As at 1 June 2012 100 - 48,558 (1,891) 1,002 47,769Total comprehensiveincome:Net return for the - - - 27,420 4,006 31,426yearTransactions withshareholdersrecorded directlyto equity:Issue of ordinary 109 60,891 - - - 61,000sharesExpenses of share - (1,554) - - - (1,554)issueEquity dividends - - - - (2,732) (2,732)paidAs at 31 May 2013 209 59,337 48,558 25,529 2,276 135,909Company Share Premium Special Capital Revenue Total capital account reserve reserve reserve £'000 £'000 £'000 £'000 £'000 £'000As at 30 March 2011 - - - - - -(incorporation)Total comprehensiveincome:Net return for the - - - (1,891) 2,262 371periodTransactions withshareholdersrecorded directlyto equity:Issue of ordinary 100 49,900 - - - 50,000sharesExpenses of share - (1,322) - - - (1,322)issueEquity dividends - - - - (1,260) (1,260)paidTransfer upon - (48,578) 48,578 - - -cancellation ofshare premiumaccountShare premium - - (20) - - (20)cancellationexpensesAs at 31 May 2012 100 - 48,558 (1,891) 1,002 47,769The notes form part of these financial statements.CONSOLIDATED AND PARENT COMPANY BALANCE SHEETSNote Group Group Company Company 31 May 2013 31 May 2012 31 May 2013 31 May 2012 £'000 £'000 £'000 £'000Non-current assets:Investments held at 11 128,897 46,488 128,897 46,488fair value throughprofit or lossCurrent assets:Investments held for - 151 - -tradingTrade and other 14 6,609 1,220 6,609 1,544receivablesCash and cash 893 767 893 537equivalents7,502 2,138 7,502 2,081Current liabilities:Trade and other 15 (490) (800) (490) (800)payablesNet current assets 7,012 1,338 7,012 1,281Total net assets 135,909 47,826 135,909 47,769Capital and reserves:Share capital 8 209 100 209 100Share premium account 9 59,337 - 59,337 -Special reserve 9 48,558 48,558 48,558 48,558Capital reserve 9 25,529 (1,891) 25,529 (1,891)Revenue reserve 9 2,276 1,059 2,276 1,002Shareholders' funds 135,909 47,826 135,909 47,769pence penceNet asset value per 10 65.12 47.83ordinary shareThese financial statements were approved by the Board of The Diverse IncomeTrust plc on 14 August 2013 and were signed on its behalf by:Michael WrobelChairmanCompany no.: 7584303The notes form part of these financial statements.CONSOLIDATED AND PARENT COMPANY CASH FLOW STATEMENTSGroup Group Company Company 31 May 31 May 31 May 31 May 2013 2012 2013 2012 £'000 £'000 £'000 £'000Operating activities:Net return before taxation 31,394 437 31,451 380(Gains)/losses on investments held (28,196) 1,494 (28,196) 1,494at fair valuePurchases of investments (78,718) (82,122) (78,718) (82,122)Sales of investments 19,130 34,022 19,130 34,022Increase in accrued income (7) - (7) -Increase in other receivables (508) (408) (508) (408)Increase in other payables 191 106 191 106Movement in investments by 151 (151) - -subsidiaryNet cash outflow from operating (56,563) (46,622) (56,657) (46,528)activities before taxationTaxation:Withholding tax paid (25) (9) (25) (9)Financing:Shares issued 61,000 50,000 61,000 50,000Expenses of share issues (1,554) (1,322) (1,554) (1,322)Equity dividends paid (2,732) (1,260) (2,732) (1,260)Expenses incurred on share premium - (20) - (20)account cancellationMovement in loan to subsidiary - - 324 (324)Net cash inflow from financing and 56,689 47,389 57,013 47,065taxationIncrease in cash and cash 126 767 356 537equivalentsReconciliation of net cash flow tomovements in net funds:Cash and cash equivalents at the 767 - 537 -start of the yearNet cash inflow from cash and cash 126 767 356 537equivalentsCash and cash equivalents at the 893 767 893 537end of the yearThe notes form part of these financial statements.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS1 General Information and Significant Accounting PoliciesThe Diverse Income Trust plc is a company incorporated and registered inEngland and Wales. The principal activity of the Company is that of aninvestment trust company within the meaning of Sections 1158/1159 of theCorporation Tax Act 2010.The Group's annual financial statements for the year ended 31 May 2013 havebeen prepared in conformity with IFRS as adopted by the European Union, whichcomprise standards and interpretations approved by the International AccountingStandards Board ("IASB"), and as applied in accordance with the provisions ofthe Companies Act 2006. The annual financial statements have also been preparedin accordance with the AIC SORP issued in January 2009 for the financialstatements of investment trust companies and venture capital trusts, except toany extent where it is not consistent with the requirements of IFRS.Basis of PreparationThe accounting policies adopted in preparing the current year's financialstatements are consistent with those of the previous year. In order to betterreflect the activities of an investment trust company and in accordance withguidance issued by the AIC, supplementary information which analyses the IncomeStatement between items of a revenue and capital nature has been preparedalongside the Income Statement.The financial statements have been prepared on a going concern basis and thatapproval as an investment trust company has been granted and will continue tobe met.The Directors have made an assessment of the Group's ability to continue as agoing concern and are satisfied that the Group has the resources to continue inbusiness for the foreseeable future. Furthermore, the Directors are not awareof any material uncertainties that may cast significant doubt upon the Group'sability to continue as a going concern. Therefore, the consolidated financialstatements have been prepared on the going concern basis.The financial statements are presented in sterling, which is the Group'sfunctional currency as the UK is the primary environment in which it operates,rounded to the nearest £'000, except where otherwise indicated.Basis of ConsolidationThe Group financial statements consolidate the financial statements of theCompany and its wholly-owned subsidiary, DIT Income Services Limited, drawn upto 31 May 2013.The subsidiary is consolidated from the date of its acquisition, being the dateon which the Company obtained control, and will continue to be consolidateduntil the date that such control ceases. Control comprises the power to governthe financial and operating policies of the investee so as to obtain benefitfrom its activities and is achieved through direct or indirect ownership ofvoting rights. The financial statements of the subsidiary are prepared for thesame reporting year as the parent Company, using consistent accountingpolicies. All inter-company balances and transactions, including unrealisedprofits arising from them, are eliminated.As permitted by Section 408 of the Companies Act 2006, the Company has notpresented its own Income Statement. The amount of the Company's return for thefinancial year dealt with in the financial statements of the Group is a profitafter tax of £31,426,000 (2012: £371,000).Segmental ReportingThe Directors are of the opinion that the Group is engaged in a single segmentof business, being investment business. The Group primarily invests incompanies listed in the UK.Accounting DevelopmentsThe IASB has issued the following relevant standards and interpretations whichare not effective for the year ended 31 May 2013 and have not been applied inpreparing these financial statements.International Accounting Standards (IAS/IFRSs) Effective dateIFRS 9 Financial Instruments: Classification & 1 January 2015MeasurementIFRS 10 Consolidated Financial Statements 1 January 2013IFRS 11 Joint Arrangements 1 January 2013IFRS 12 Disclosure of Interests in Other Entities 1 January 2013IFRS 13 Fair Value Measurement 1 January 2013New standards adopted during the period have had no material impact on theGroup's financial statements and the Directors do not anticipate that theinitial adoption of the above standards will have a material impact in theperiod of initial application.Critical Accounting Judgements and Key Sources of Estimation UncertaintyThe preparation of financial statements in conformity with IFRS requiresmanagement to make judgements, estimates and assumptions that affect theapplication of policies and the reported amounts in the Balance Sheet, theIncome Statement and the disclosure of contingent assets and liabilities at thedate of the financial statements. The estimates and associated assumptions arebased on historical experience and various other factors that are believed tobe reasonable under the circumstances, the results of which form the basis ofmaking judgements about carrying values of assets and liabilities that are notreadily apparent from other sources. Actual results may differ from theseestimates.The estimates and underlying assumptions are reviewed on an ongoing basis.Revisions to accounting estimates are recognised in the period in which theestimate is revised if the revision affects only that period, or in the periodof the revision and future period if the revision affects both current andfuture periods. There were no accounting estimates in the current period.Valuation of InvestmentsThe Group's business is investing in financial assets with a view to profitingfrom their total return in the form of income and capital growth. Thisportfolio of financial assets is managed and its performance evaluated on afair value basis, in accordance with a documented investment strategy, andinformation about the portfolio is provided internally on that basis to theGroup's Board of Directors. Accordingly, upon initial recognition the Groupdesignates the investments 'at fair value through profit or loss'. They areincluded initially at fair value, which is taken to be their cost (excludingexpenses incidental to the acquisition which are written off in the IncomeStatement, and allocated to 'capital' at the time of acquisition). Subsequentto initial recognition, investments are valued at fair value through profit orloss. For listed investments, this is deemed to be bid market prices or closingprices for SETS stocks sourced from the London Stock Exchange. SETS is theLondon Stock Exchange electronic trading service covering most of the marketincluding all FTSE 100 constituents and the most liquid constituents of theFTSE 250 Index along with some other securities.Gains and losses arising from changes in fair value are included in net profitor loss for the period as a capital item in the Income Statement and areultimately recognised in the capital reserve.The investment in the subsidiary company, DIT Income Services Limited, is heldat cost (£1) which is considered to be its fair value (2012: £1). Investmentsheld as current assets by the subsidiary undertaking are classified as 'heldfor trading', and are at fair value.Cash and Cash EquivalentsCash comprises cash in hand, overdrafts and demand deposits. Cash equivalentsare short-term, highly liquid investments that are readily convertible to knownamounts of cash and which are subject to insignificant risk of changes invalue.IncomeDividends received from UK registered companies are accounted for net ofimputed tax credits. Dividends from overseas companies are shown gross ofoverseas withholding tax.Dividends receivable on quoted equity shares are taken to revenue on anex-dividend basis. Dividends receivable on equity shares where no ex-dividenddate is quoted are brought into account when the Company's right to receivepayment is established. Fixed returns on non-equity shares are recognised on atime apportioned basis.Special dividends are taken to revenue or capital account depending on theirnature. In deciding whether a dividend should be regarded as a capital orrevenue receipt, the Board reviews all relevant information as to the reasonsfor the sources of the dividend on a case by case basis.All other income is accounted for on an accruals basis and is recognised in theIncome Statement.Expenses and Finance CostsAll expenses are accounted for on an accruals basis. On the basis of theBoard's expected long-term split of total returns in the form of capital andrevenue returns of 75% and 25% respectively, the Company charges 75% of itsinvestment management fee and finance costs to capital. All otheradministrative expenses are charged through the revenue column in the IncomeStatement.Expenses incurred directly in relation to placings and offers for subscriptionof shares are deducted from equity and charged to the share premium account.TaxationDeferred tax is provided on an undiscounted basis in accordance with IFRS 19 onall timing differences that have originated but not reversed by the BalanceSheet date, based on tax rates that are expected to apply in the period whenthe liability is settled or the asset is realised. Deferred tax assets are onlyrecognised if it is considered more likely than not that there will be suitableprofits from which the future reversal of timing differences can be deducted.In line with the recommendations of the SORP, the allocation method used tocalculate the tax relief on expenses charged to capital is the "marginal"basis. Under this basis, if taxable income is capable of being offset entirelyby expenses charged through the revenue account, then no tax relief istransferred to the capital account.No taxation liability arises on gains from sales of fixed asset investments bythe Company by virtue of its investment trust status. However, the net revenue(excluding UK dividend income) accruing to the Company is liable to corporationtax at the prevailing rates.Dividends Payable to ShareholdersDividends to shareholders are recognised as a liability in the period in whichthey are paid or approved in general meetings and are taken to the Statement ofChanges in Equity. Dividends declared and approved by the Company after theBalance Sheet date have not been recognised as a liability of the Company atthe Balance Sheet date.Capital ReserveGains or losses on disposal of investments and changes in the fair value ofinvestments held at the year end are recognised in the Income Statement andsubsequently transferred to the capital reserve.Also, certain other expenses are charged to this reserve in accordance with theexpenses policy above.Special ReserveThe special reserve was created by a cancellation of the share premium accountby order of the High Court in February 2012. It can be used for the repurchaseof the Company's ordinary shares and for other corporate purposes. Its mainpurpose is to allow the Company to meet annual redemption requests for ordinaryshares. The costs of repurchasing ordinary shares and meeting annual redemptionrequests, including related stamp duty and transaction costs, are also chargedto the special reserve.Share CapitalThe Company classifies financial instruments issued as financial liabilities orequity instruments in accordance with the substance of the contractual terms ofthe instruments. The share capital of the Company comprises of redeemableordinary shares ("ordinary shares"), C shares, when in issue, and managementshares.The Company is a closed-ended investment company with an unlimited life. Theordinary shares are not puttable instruments because redemption is conditionalupon certain market conditions and/or Board approval. As such they are notrequired to be classified as debt under IAS 32 - Financial Instruments:Disclosure and Presentation.As defined in the Articles of Association, redemption of ordinary shares is atthe sole discretion of the Directors, therefore the ordinary shares have beenclassified as equity.The issuance, acquisition and resale of ordinary shares are accounted for asequity transactions and no gain or loss is recognised in the Income Statement.2 Income Year ended Period to 31 May 2013 31 May 2012 £'000 £'000Income from investments:UK dividends 3,486 2,475UK REIT dividend income 57 -Unfranked dividend income 1,035 414UK fixed interest 40 -4,618 2,889Other income:Bank deposit interest 2 4Net dealing profit of subsidiary 143 57Underwriting income 2 4Total income 4,765 2,9543 Investment Management FeeYear ended Period to 31 May 2013 31 May 2012 Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000Investment management fee 256 767 1,023 132 397 529Under the terms of an agreement dated 7 April 2011, the Company has appointedMiton Capital Partners Limited as the Manager. The basic investment managementfee is calculated at the rate of one-twelfth of 1.0% of the adjusted marketcapitalisation of the Company on the last business day of each calendar month.The basic management fee accrues daily and is payable in arrears in respect ofeach calendar month. For the purpose of calculating the basic fee, the'adjusted market capitalisation' of the Company is defined as the average dailymid-market price for an ordinary share, multiplied by the number of ordinaryshares in issue, excluding those held by the Company in treasury, on the lastbusiness day of the relevant month. In addition, the Manager is entitled toreceive a management fee on any Redemption Pool, as detailed in the Report ofthe Directors in the full Annual Report.At 31 May 2013 an amount of £226,000 (2012: £41,000) was outstanding and due toMiton Capital Partners Limited in respect of management fees.4 Other Expenses Year ended Period to 31 May 2013 31 May 2012 £'000 £'000Secretarial services 120 108Auditor's remuneration for*:Audit of the Group's financial statements 28 26Other assurance related services** - 28Directors' fees (see the Directors' 105 121Remuneration Report in the full Annual Report)Other expenses 279 211532 494* Amounts paid to the Company's Auditor in connection with the review ofC share conversion ratios of £22,000 inclusive of VAT are included in share issuecosts (2012: £27,000 for launch work).** Relates to amounts paid to the Company's Auditor in connection with theaudit of the Company's initial accounts which were required to supportdividends paid during the prior period.All expenses are stated gross of irrecoverable VAT, where applicable.5 Taxation Year ended Period to 31 May 2013 31 May 2012 Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000Overseas taxation 25 - 25 9 - 9sufferedThe current taxation charge for the year is lower than the standard rate ofcorporation tax in the UK of 23%. The differences are explained below.Year ended Period to 31 May 2013 31 May 2012 Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000Return/(loss) on ordinary 3,974 27,420 31,394 2,328 (1,891) 437activities before taxationTheoretical tax at UK 947 6,534 7,481 598 (486) 112corporation tax rate of23.83% (2012: 25.69%)Effects of:- UK dividends that are (830) - (830) (636) - (636)not taxable- Overseas dividends that (247) - (247) (106) - (106)are not taxable- Other non-taxable income (2) - (2) - - -- Realised dealing gains (32) - (32) (17) - (17)- Unrealised dealing (2) - (2) 2 - 2losses- Non-taxable investment - (6,719) (6,719) - 384 384(gains)/losses- Overseas taxation 25 - 25 9 - 9suffered- Expenses not deductible 10 - 10 5 5 10for tax- Unrelieved expenses 156 185 341 154 97 251Actual current tax charge 25 - 25 9 - 9Factors That May Affect Future Tax ChargesThe Company has excess management expenses of £2,200,000 (2012: £911,000) thatare available to offset future taxable revenue. At 31 May 2013, the Group hasnot recognised a deferred tax asset of £506,000 (2012: £219,000) in respect ofthese accumulated expenses as they will only be recoverable to the extent thatthere is sufficient future taxable revenue. It is unlikely that the Companywill generate sufficient taxable income in the future to utilise these expensesto reduce future tax charges and therefore no deferred tax charge has beenrecognised.In addition, deferred tax is not provided on capital gains and losses arisingon the revaluation or disposal of investments because the Company meets (andintends to continue for the foreseeable future to meet) the conditions forapproval as an investment trust company under HMRC rules.6 Return/(Loss) per ShareOrdinary SharesThe return per ordinary share is based on the net profit after taxation of£28,343,000 (2012: £428,000) and on 147,044,788 (2012: 100,000,000) ordinaryshares, being the weighted average number of ordinary shares in issue duringthe year.The return per ordinary share detailed above can be further analysed betweenrevenue and capital as follows:Year ended Period to 31 May 2013 31 May 2012 Revenue Capital Total Revenue Capital TotalBasic and dilutedNet profit (£'000) 3,563 24,780 28,343 2,319 (1,891) 428Weighted averagenumber ofordinary sharesin issue 147,044,788 100,000,000Return per 2.42 16.85 19.27 2.32 (1.89) 0.43ordinary share(pence)C SharesThe return per C share is based on the net profit after taxation of £3,026,000(2012: £nil) and on 61,136,364 (2012: nil) C shares, being the weighted averagenumber of C shares in issue during the periods in issue.The return per C share detailed above can be further analysed between revenueand capital as follows:Year ended Period to 31 May 2013 31 May 2012Revenue Capital Total Revenue Capital TotalBasic and dilutedNet profit (£'000) 386 2,640 3,026 n/a n/a n/aWeighted average 61,136,364 n/anumber of C sharesin issueReturn per C share 0.63 4.32 4.95 n/a n/a n/a(pence)7 Dividends per Ordinary ShareAmounts recognised as distributions to equity holders in the year.Year ended Period to 31 May 2013 31 May 2012 £'000 pence £'000 pence per share per shareIn respect of the previousperiod:Fourth interim dividend 930 0.93 - -In respect of the year underreview:First interim dividend 300 0.30 300 0.30Second interim dividend 782 0.50 500 0.50Third interim dividend 720 0.46 460 0.46Dividends distributed during the 2,732 2.19 1,260 1.26yearThe Directors have declared a fourth interim dividend in respect of the yearended 31 May 2013 of 0.84p per ordinary share payable on 31 August 2013 to allshareholders on the register at close of business 28 June 2013. The totaldividends payable in respect of the financial year for the purposes of theincome retention test for Section 1158 of the Corporation Tax Act 2010 are setout below.Year ended 31 Period to May 2013 31 May 2012 £'000 £'000Revenue available for distribution by way of 3,949 2,319dividends for the yearFirst interim dividend of 0.30p per ordinary share (300) (300)Second interim dividend of 0.50p per ordinary share (782) (500)Third interim dividend of 0.46p per ordinary share (720) (460)Declared fourth interim dividend of 0.84p (2012: (1,753) (930)0.93p) per ordinary shareEstimated revenue reserve retained for the year 394 1298 Called Up Share Capital 31 May 2013 31 May 2012 number £'000 number £'000Ordinary shares 0.1peach:Opening balance 100,000,000 100 - -Issue of ordinary 108,693,307 109 100,000,000 100shares 208,693,307 209 100,000,000 100On 27 June 2012, the Company published a prospectus in relation to proposals toraise up to £50 million (before expenses) by way of a placing and offer forsubscription of C shares. Applications were received under the placing for53,905,400 C shares and under the offer for subscription for 6,094,600C shares, raising an aggregate of £30 million of gross proceeds for the Companyand resulting in the issue of 60,000,000 C shares.On 1 October 2012, the C shares were converted into ordinary shares in theratio of 0.9418 ordinary shares for every C share, based on the calculatedprevailing NAV for each share class as at 28 September 2012, resulting in theissue of 56,507,978 new ordinary shares.On 20 November 2012, the Company published a prospectus setting out details ofa target issue of in excess of 40 million C shares at 50 pence per C share byway of an open offer, placing and offer for subscription.Applications were received under the open offer for 5,675,768 C shares, underthe placing for 52,940,182 C shares and under the offer for subscription for3,384,050 C shares, raising an aggregate of £31 million of gross proceeds forthe Company and resulting in the issue of 62,000,000 C shares.On 26 March 2013, the C shares were converted into ordinary shares in the ratioof 0.8417 ordinary shares for every C share, based on the calculated prevailingNAV for each share class at 25 March 2013, resulting in the issue of 52,185,329new ordinary shares. Following the conversion and at 31 May 2013 there were208,693,307 ordinary shares in issue.Redemption of Ordinary SharesThe Company, which is a closed-ended investment company with an unlimited life,has a redemption facility through which shareholders are entitled to requestthe redemption of all or part of their holding of ordinary shares on an annualbasis on 31 May in each year. As set out in the Articles of Association, theBoard may, at its absolute discretion, elect not to operate the annualredemption facility in whole or in part. Accordingly, the ordinary shares havebeen classified as equity.At 31 May 2013, the Company had received redemption requests for 34,893ordinary shares. All of those shares were matched with buyers at the samecalculated redemption price and were settled on 14 June 2013. Following this,the issued share capital and voting rights remained unchanged at 208,693,307ordinary shares.Management SharesThe 50,000 management shares with a nominal value of £1 each were allotted toMiton Group plc on 30 March 2011, the parent company of the Manager, on thebasis of an undertaking to pay one-quarter of their nominal value on or before30 March 2016 and the balance on demand. The management shares are non-votingand non-redeemable and, upon a winding-up or on a return of capital of theCompany, shall only receive the fixed amount of capital paid up on such sharesand shall confer no right to any surplus capital or assets of the Company.As at 31 May 2013, no amounts had been paid up (2012: £nil).9 Reserves2013 Share Capital Capital premium Special reserve reserve Revenue account reserve realised unrealised reserve £'000 £'000 £'000 £'000 £'000Opening balance - 48,558 (1,173) (718) 1,059Premium on issue of 60,891 - - - -ordinary sharesExpenses of share issue (1,554) - - - -Net gains on realisation - - 1,654 - -of investmentsUnrealised net increase - - - 26,542 -in value of investmentsManagement fees/finance - - (776) - -costs charged to capitalEquity dividends paid - - - - (2,732)Revenue return on - - - - 3,949ordinary activitiesafter taxClosing balance 59,337 48,558 (295) 25,824 2,2762012 Share Capital Capital premium Special reserve reserve Revenue account reserve realised unrealised reserve £'000 £'000 £'000 £'000 £'000Opening balance - - - - -Premium on issue of 49,900 - - - -ordinary sharesCancellation of share (48,578) 48,578 - - -premium accountExpenses of share premium - (20) - - -account cancellationExpenses of share issue (1,322) - - - -Net losses on realisation - - (776) - -of investmentsUnrealised net decrease in - - - (718) -value of investmentsManagement fees/finance - - (397) - -costs charged to capitalEquity dividends paid - - - - (1,260)Revenue return on ordinary - - - - 2,319activities after taxClosing balance - 48,558 (1,773) (718) 1,059At a General Meeting of the Company held on 6 April 2011 a resolution waspassed approving the cancellation of the Company's share premium account.The Court subsequently confirmed this cancellation on 22 February 2012 and anamount of £48,578,000 was transferred from the Company's share premium accountto its special reserve. This amount can be treated as a distributable reservefor all purposes permitted by the Companies Act 2006 (as amended), and willenhance substantially the ability of the Company to meet annual redemptionrequests and to buy-back its own shares either into treasury or forcancellation.10 Net Asset Value per Ordinary ShareThe net asset value per ordinary share and the net asset values attributable atthe year end were as follows:Net asset value Net assets Net asset value Net assets per share attributable per share attributable 31 May 2013 31 May 2013 31 May 2012 31 May 2012 pence £'000 pence £'000Ordinary shares 65.12 135,909 47.83 47,826- Basic anddilutedNet asset value per ordinary share is based on net assets at the year end and208,693,307 ordinary shares (2012: 100,000,000), being the number of ordinaryshares in issue at the year end.11 InvestmentsGroup and Company 31 May 2013 31 May 2012 £'000 £'000Investment portfolio summary:Opening book cost 47,206 -Opening investment holding losses (718) -Total investments designated at fair 46,488 -valueGroup and Company 31 May 2013 31 May 2012 £'000 £'000Analysis of investment portfoliomovementsOpening valuation 46,488 -Movements in the period:Purchases at cost 78,217 82,816Sales - proceeds (24,004) (34,834)- gains/(losses) on sales 1,654 (776)Increase/(decrease) in investment holding 26,542 (718)gainsClosing valuation 128,897 46,488Closing book cost 103,073 47,206Closing investment holding gains/(losses) 25,824 (718)128,897 46,488A list of the largest portfolio holdings by their fair value is shown in theportfolio information above.31 May 2013 31 May 2012 £'000 £'000Listed: 82,115 31,161United KingdomUnlisted: 46,782 15,327United Kingdom (quoted on AIM/ISDX) 128,897 46,488The investments are all equities or bonds which are either listed on theOfficial List or quoted on AIM/ISDX in the UK and are included in the BalanceSheet at fair value.The investments are registered in the names of the nominees of HSBC Bank plc,as custodian to the Company. There were no contingent liabilities in respect ofthe investments held at the end of the year.Year ended Period to 31 May 2013 31 May 2012 £'000 £'000Transaction costsCosts on acquisitions 460 570Costs on disposals 52 74512 644Year ended Period to 31 May 2013 31 May 2012 £'000 £'000Analysis of capital gains/(losses)Gains/(losses) on sales of investments 1,654 (776)Movement in investment holding gains/ 26,542 (718)(losses) 28,196 (1,494)Fair Value HierarchyIFRS 7 requires classification of financial instruments measured at fair valueat one of three levels according to the relative reliability of the inputs usedto estimate the fair values.Classification InputLevel 1 Valued using quoted prices in active markets for identical assets or liabilities (actively traded on recognised stock exchanges)Level 2 Valued by reference to valuation techniques using observable inputs other than quoted prices included within Level 1Level 3 Valued by reference to valuation techniques using inputs that are not based on observable market dataCategorisation within the hierarchy has been determined on the basis of thelowest level input that is significant to the fair value measurement of therelevant asset.The valuation techniques used by the Company are explained in the accountingpolicies in note 1 under the heading 'Valuation of Investments'. At31 May 2013, all the Company's financial assets at fair value through profit or lossare included in Level 1 with the exception of the investment in the subsidiarywhich is classified as a Level 3 investment (2012: same).12 Substantial Share InterestsThe Company has notified interests in 3% or more of the voting rights of seveninvestee companies (none of which are closed-end investment funds). However,the Board does not consider any of the Company's other equity investments to beindividually material in the context of the financial statements.13 Investment in SubsidiaryThe Company owns the whole of the issued ordinary share capital (£1) of DITIncome Services Limited, an investment dealing company registered in Englandand Wales. The subsidiary is held at cost of £1, which is considered to be itsfair value, and has received loans from the Company amounting to £nil at31 May 2013 (2012: £324,000).14 Trade and Other ReceivablesGroup Company 31 May 2013 31 May 2012 31 May 2013 31 May 2012 £'000 £'000 £'000 £'000Amounts due from brokers 5,686 812 5,686 812Dividends receivable 893 393 893 393Accrued income 7 - 7 -Taxation recoverable 4 - 4 -Prepayments and other 19 15 19 15debtorsAmounts due from - - - 324subsidiary 6,609 1,220 6,609 1,54415 Trade and Other Payables Group Company 31 May 2013 1 May 2012 31 May 2013 31 May 2012 £'000 £'000 £'000 £'000Amounts due to brokers 193 694 193 694Other creditors 297 106 297 106490 800 490 800The Company has an uncommitted multi-currency overdraft facility agreement withHSBC Bank plc, under which the bank makes available an aggregate amount equalto the lesser of:i. £7,500,000; andii. 15% of custody assets from time to time.The purpose of the facility is for short-term liquidity and it has no fixedterm but is subject to review from time to time, at least on an annual basis.Interest is payable monthly in arrears on the amount of the facilityoutstanding at the rate of 1.75% above the applicable base rate set by thebank. In addition, a fee of £15,000 per annum is payable on each anniversarydate.The facility is secured by a floating charge over the Company's assets. Theoverdraft facility was undrawn as at 31 May 2013.16 Capital Commitments and Contingent LiabilitiesAs at 31 May 2013 there were no outstanding commitments or contingentliabilities.17 Analysis of Financial Assets and LiabilitiesInvestment Objective and PolicyThe Group's investment objective and policy are detailed above.The Group's investing activities in pursuit of its investment objective involvecertain inherent risks.The Group's financial instruments comprise:-- shares and debt securities held in accordance with the Group's investmentobjective and policies;-- cash, liquid resources and short-term debtors and creditors that arise fromits operations; and-- current asset investments held by its subsidiary.The risks identified arising from the Group's financial instruments are marketrisk (which comprises market price risk, interest rate risk and foreigncurrency exposure), liquidity risk and credit and counterparty risk. The Groupmay enter into derivative contracts to manage risk, but has not done so todate. The Board reviews and agrees policies for managing each of these risks,which are summarised below. These policies have remained unchanged since thebeginning of the accounting year.Market RiskMarket risk arises mainly from uncertainty about future prices of financialinstruments used in the Group's business. It represents the potential loss theGroup might suffer through holding market positions by way of price movements,interest rate movements and exchange rate movements. The Manager assesses theexposure to market risk when making each investment decision and these risksare monitored by the Manager on a regular basis and the Board at quarterlymeetings with the Manager.Market price riskMarket price risk (i.e. changes in market prices other than those arising fromcurrency risk or interest rate risk) may affect the value of investments.The Board manages the risks inherent in the investment portfolio by ensuringfull and timely reporting of relevant information from the Manager. Investmentperformance is reviewed at each Board meeting.The Group's exposure to other changes in market prices as at 31 May 2013 on itsequity investments held at fair value through profit or loss was£127,699,000 (2012: £46,488,000).A 10% increase in the market value of its listed equity investments at31 May 2013 would have increased net assets attributable to shareholders by£12,770,000 (2012: £4,649,000). An equal change in the opposite direction wouldhave decreased the net assets available to shareholders by an equal andopposite amount.Interest rate riskInterest rate movements may affect the level of income receivable on cashdeposits and payable on its overdraft facility. The Group's financial assetsand liabilities, excluding short-term debtors and creditors, may includeinvestment in fixed interest securities, such as UK corporate debt stock, whosefair value may be affected by movements in interest rates. The majority of theGroup's financial assets and liabilities, however, are non-interest bearing. Asa result, the Group's financial assets and liabilities are not subject tosignificant amounts of risk due to fluctuations in the prevailing levels ofmarket interest rates. There was limited exposure to interest bearingliabilities during the year ended 31 May 2013.The possible effects on the fair value and cash flows that could arise as aresult of changes in interest rates are taken into account when makinginvestment decisions. The Board imposes borrowing limits to ensure gearinglevels are appropriate to market conditions.As disclosed in note 15, during the year the Company had an uncommittedmulti-currency overdraft facility with HSBC Bank plc. The facility was not inuse as at the Balance Sheet date (2012: same).The interest rate profile of the Group (excluding short-term debtors andcreditors) was as follows:Weighted average Weighted period for average which rate interest Floating is fixed rate rate Fixed rateAs at 31 May 2013 years % £'000 £'000AssetsFixed interest securities - 5.48 6.17 - 1,198sterlingCash at bank - sterling - - 893 -893 1,198Weighted Weighted average Weighted period for average which rate interest Floating is fixed rate rate Fixed rateAs at 31 May 2012 years % £'000 £'000AssetsCash at bank - sterling - - 767 -767 -The weighted average interest rate is based on the current yield of each asset,weighted by its market value.The floating rate assets consist of cash deposits on call earning interest atprevailing market rates.If interest rates had been 500 basis points higher or lower and all othervariables were held constant, the Group's profit for the year ended 31 May 2013would decrease/increase by £45,000 (2012: decrease/increase by £38,000). Thisis attributable to the Group's exposure to interest rates on its floating ratecash balances and fixed interest securities as at the year ended 31 May 2013,and is not considered by the Directors to be representative for the year as awhole.Foreign currency riskAlthough the Company's performance is measured in sterling, a proportion of theGroup's assets may be either denominated in other currencies or are ininvestments with currency exposure. Any income denominated in foreign currencyis converted into sterling upon receipt. At the Balance Sheet date, all theGroup's assets were denominated in sterling and accordingly the only currencyexposure the Group has is through the trading activities of its investeecompanies.Liquidity RiskLiquidity risk is not considered to be significant as the Group's assetsprimarily comprise mainly cash and readily realisable securities, which canunder normal conditions be sold to meet funding commitments if necessary. Theymay however be difficult to realise in adverse market conditions. The Group canachieve short-term flexibility by the use of its overdraft facility.The maturity profile of the Group's financial liabilities of £490,000(2012: £800,000) are all due in one year or less.Credit and Counterparty RiskCredit risk is the risk of financial loss to the Group if the contractual partyto a financial instrument fails to meet its contractual obligations.The maximum exposure to credit risk as at 31 May 2013 was £2,091,000(2012: £767,000). The calculation is based on the Group's credit riskexposure as at 31 May 2013 and this may not be representative for the whole year.The Group's listed investments are held on its behalf by HSBC Bank plc actingas the Group's custodian. Bankruptcy or insolvency of the custodian may causethe Group's rights with respect to securities held by the custodian to bedelayed. The Board monitors the Group's risk by reviewing the custodian'sinternal controls report.Where the Manager makes an investment in a bond, corporate or otherwise, thecredit rating of the issuer is taken into account so as to minimise the risk tothe Group of default.Investment transactions are carried out with a number of brokers whosecreditworthiness is reviewed by the Manager. Transactions are ordinarilyundertaken on a delivery versus payment basis whereby the Group's custodianbank ensures that the counterparty to any transaction entered into by the Grouphas delivered on its obligations before any transfer of cash or securities awayfrom the Group is completed.Cash is only held at banks that have been identified by the Board as reputableand of high credit quality.None of the Group's assets are past due or impaired (2012: same).Fair Values of Financial Assets and Financial LiabilitiesAll financial assets and liabilities of the Group are either carried in theBalance Sheet at fair value through profit or loss, or the Balance Sheet amountis a reasonable approximation of fair value.Capital Management PoliciesThe Company's capital management objectives are:-- to ensure that it will be able to continue as a going concern; and-- to maximise the income and capital return over the long-term to its equityshareholders through an appropriate balance of equity capital and 'debt'.As stated in the investment policy, the Company has authority to borrow up to15% of net asset value through a mixture of bank facilities and derivativeinstruments. There were no borrowings as at 31 May 2013 (2012: £nil). Also, asa public company the minimum share capital is £50,000.The Company's capital at 31 Maycomprises 2013 2012 £'000 £'000Shareholders' funds:Equity share capital 209 100Retained earnings and other reserves 135,700 47,669Total shareholders' funds 135,909 47,769The Board with the assistance of the Manager monitors and reviews the broadstructure of the Company's capital on an ongoing basis. This review includes:-- the planned level of gearing, which takes into account the Manager's view ofthe market;-- the need to buy back shares for cancellation or treasury, which takes accountof the difference between the net asset value per share and the share price(i.e. the level of share price discount or premium);-- the need for new issues of equity shares; and-- the extent to which revenue in excess of that which is required to bedistributed should be retained.The Company's objectives, policies and processes for managing capital haveremained unchanged since its launch.18 Transactions with the Manager and Related PartiesThe amounts paid to the Manager together with details of the investmentmanagement contract are disclosed in note 3. The existence of an independentBoard of Directors demonstrates that the Company is free to pursue its ownfinancial and operating policies and therefore, under the AIC SORP, the Manageris not considered to be a related party.The Company's related parties are its Directors. Fees paid to the Company'sBoard are disclosed in the Directors' Remuneration Report in the full AnnualReport.There are no other identifiable related parties at the year end19 Post Balance Sheet EventsSince the year end and as set out in the Chairman's Statement above, inrelation to the proposed merger with Miton Income Opportunities Trust plc("MIOT") (formerly Henderson Fledgling Trust plc), the Board has been informedthat MIOT's portfolio has now been realigned so as to be consistent with theCompany's investment policy.The boards of both companies have agreed to proceed with a recommended mergerof the two companies, to be effected through a scheme of reconstruction and thewinding-up of MIOT on the terms set out in the announcement of 15 February 2013.A circular containing full details of the proposed merger is expected to beposted to shareholders in September 2013 for approval at general meetings ofboth companies to be held shortly thereafter.ANNUAL GENERAL MEETINGThe Company's Annual General Meeting will be held on Tuesday, 22 October 2013at 3.00pm at Furniture Makers' Hall, 12 Austin Friars, London EC2N 2HE.NATIONAL STORAGE MECHANISMA copy of the Annual Report and Financial Statements will be submitted shortlyto the National Storage Mechanism ("NSM") and will be available for inspectionat the NSM, which is situated at: .morningstar.co.uk/uk/nsmENDSNeither the contents of the Company's website nor the contents of any websiteaccessible from hyperlinks on this announcement (or any other website) isincorporated into, or forms part of, this announcement.XLONself storage