Foresight 3 VCT PLC Foresight 3 Vct Plc : Annual -2-


asset value total return. Additional key performance indicators reviewed 
by the Board include the discount of the share price relative to the net 
asset value and total expenses as a proportion of shareholders' funds. 
 
   A record of some of these indicators is contained on the following page. 
The on-going charges ratio in the period was 2.7%. Share buy-backs, 
(excluding enhanced buybacks), have been completed at discounts ranging 
from 11.9% to 32.2%. The level of these KPIs are then compared with the 
wider VCT marketplace, based on independent published information, for 
reasonableness. 
 
   A review of the Company's performance during the financial period, the 
position of the Company at the period end and the outlook for the coming 
year is contained within the Manager's Report. The Board assesses the 
performance of the Manager in meeting the Company's objective against 
the primary KPIs highlighted. 
 
   Clearly, some investments in unquoted companies at an early stage of 
their development are likely to disappoint, but investing the funds 
raised in high growth companies with the potential to become market 
leaders creates an opportunity for enhanced returns to shareholders. The 
growth of some of these companies is, however, largely dependent on the 
continuing level of expenditure on relevant products and services by 
larger corporations. 
 
   Performance over 1, 3 and 5 years 
 
 
 
 
                                                            31 March  31 March  31 March  31 March 
                                                              2014      2013      2011      2009 
                                                            Ordinary  Ordinary  Ordinary  Ordinary 
                                                             Shares    Shares    Shares    Shares 
Net asset value per share                                    74.2p     75.2p     95.8p     91.2p 
Cumulative Dividends Paid per Share since year ended           -        2.0p      4.5p     14.5p 
Net asset value total return at 31 March 2014                  -       76.2p     78.7p     88.7p 
plus cumulative dividends paid 
Performance (%) NAV Total Return                                   -      1.3%   (17.8%)    (2.7%) 
 
 
                                                            Ordinary  Ordinary  Ordinary  Ordinary 
                                                              Shares    Shares    Shares    Shares 
Share price                                                    62.5p     65.5p     87.5p     78.0p 
Share price total return at 31 March 2014 plus cumulative 
 dividends paid                                                    -     64.5p     67.0p     77.0p 
Performance (%) Share Price Total Return                           -    (1.5%)   (23.4%)    (1.3%) 
 
 
   Ordinary Shares 
 
 
 
 
 
Share price discount to NAV at 31 March 2014 stood 
 at:                                                   15.7% 
Shares bought back during the year under review:     675,000 
Decrease in net asset value during year:                1.3% 
Ongoing charges ratio:                                  2.7% 
 
 
   Strategies for achieving objectives 
 
   Investment Policy 
 
   The Investment Manager (Foresight Group) will target UK unquoted 
companies which depend to a significant extent on the application of 
scientific and technological skills or knowledge as a major source of 
competitive advantage. A proportion of realised gains will normally be 
retained for re-investment and to meet future costs. Subject to this, 
the Company will endeavour to maintain a flow of dividend payments. 
 
   Investment securities 
 
   The Company invests in a range of securities including, but not limited 
to, ordinary and preference shares, loan stock, convertible securities, 
and fixed-interest securities as well as cash. Unquoted investments are 
usually structured as a combination of ordinary shares and loan stock, 
while AIM investments are primarily held in ordinary shares. Pending 
investment in unquoted and AIM listed securities, cash is primarily held 
in interest bearing money market open ended investment companies 
(OEICs). 
 
   UK companies 
 
   Investments are primarily made in companies which are based in the UK, 
although many will trade overseas. The companies in which investments 
are made must have no more than GBP15 million of gross assets at the 
time of investment (or GBP7 million depending on when the funds being 
invested were raised) to be classed as a VCT qualifying holding. 
 
   Asset mix 
 
   The Company aims to be invested significantly in growth businesses 
subject always to the quality of investment opportunities and the timing 
of realisations. Any uninvested funds are held in cash, interest bearing 
securities and a range of non-qualifying investments. It is intended 
that the significant majority of any funds raised by the Company will be 
invested in VCT qualifying investments. 
 
   Risk diversification and maximum exposures 
 
   Risk is spread by investing in a number of different businesses within 
different industry sectors using a mixture of securities. The maximum 
amount invested in any one company is generally limited to GBP1 million 
in a fiscal year (or, if lower, 15% of the portfolio at the time of 
investment) and generally no more than GBP2.5 million over time (at 
cost) is invested in the same company (or, if lower, 15% of the 
portfolio at the time of investment). The value of an individual 
investment is expected to increase over time as a result of trading 
progress and a continuous assessment is made of its suitability for 
sale. 
 
   Investment style 
 
   Investments are selected in the expectation that the application of 
private equity disciplines, including an active management style for 
unquoted companies through the appointment of an Investor Director to 
investee company boards, will enhance value. 
 
   Borrowing powers 
 
   The Company's Articles of Association permit gearing to give a degree of 
investment flexibility. The Board's current policy is not to use 
gearing. 
 
   Co-investment 
 
   The Company aims to invest in larger, more mature, unquoted and AiM 
companies and, in order to achieve this, often invest alongside the 
other Foresight funds. Consequently, at the time of initial investment, 
the combined investment can currently total up to a maximum of GBP5.0 
million per annum for unquoted and for AIM investees. 
 
   VCT regulation 
 
   The investment policy is designed to ensure that the Company continues 
to qualify and is approved as a VCT by HM Revenue & Customs. Amongst 
other conditions, the Company may not invest more than 15% of its 
investments (by VCT value at the time of the investment) in a single 
company and must have at least 70% by value of its investments 
throughout the period in shares or securities in qualifying holdings, of 
which 30% by VCT value (70% for funds raised after 5 April 2011) in 
aggregate must be in ordinary shares which carry no preferential rights 
(although only 10% of any individual investment needs to be in the 
ordinary shares of that company). 
 
   Management 
 
   The Board has engaged Foresight Group as discretionary investment 
manager. Foresight Group also provides or procures the provision of 
company secretarial, administration and custodian services to the 
Company. Foresight Group prefers to take a lead role in the companies in 
which it invests. Larger investments may be syndicated with other 
investing institutions or strategic partners with similar investment 
criteria. In considering a prospective investment in a company, 
particular regard will be paid to: 
 
   --   Evidence of high-margin products or services capable of addressing 
fast-growing markets; 
 
   --   The company's ability to sustain a competitive advantage; 
 
   --   The strength of the management team; 
 
   --   The existence of proprietary technology; and 
 
   --   The company's prospects of being sold or achieving a flotation 
within three to five years. 
 
   A review of the investment portfolio and of market conditions during the 
period is included within the Investment Manager's Report. 
 
   Environmental, Human Rights, Employee, Social and Community Issues 
 
   The Board recognises the requirement under Section 414 of the Act to 
provide information about environmental matters (including the impact of 
the Company's business on the environment), employee, human rights, 
social and community issues; including information about any policies it 
has in relation to these matters and effectiveness of these policies. As 
the Company has no employees or policies in these matters this 
requirement does not apply. 
 
   Gender diversity 
 
   The Board comprises three male Directors, however, the Board is 
conscious of the need for diversity and will consider both male and 
female candidates when appointing new Directors. 
 
   The Manager has an equal opportunities policy and currently employs 46 
men and 23 women. 
 
   Dividend policy 
 
   A proportion of realised gains will normally be retained for 
reinvestment and to meet future costs. Subject to this, the Company will 
endeavour to maintain a flow of dividend payments. It is the intention 
to maximise the Company's tax-free income available to investors from a 
combination of dividends and interest received on investments and the 
distribution of capital gains arising from trade sales or flotations. 
 
   Purchase of own shares 
 
   It is the Company's policy, subject to adequate cash availability, to 
consider repurchasing shares when they become available in order to help 
provide liquidity to the market in the Company's shares. 
 
   Principal risks, risk management and regulatory environment 
 
   The Board believes that the principal risks faced by the Company are: 
 
   --   Economic risk 
 
   --   Loss of approval as a Venture Capital Trust 
 
   --   Investment and strategic 
 
   --   Regulatory 
 
   --   Reputational 
 
   --   Operational 
 
   --   Financial 
 
   --   Market risk 
 
   --   Liquidity risk
Foresight 3 Vct (LSE:FTD)
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