Full Year Results 2011

RNS Number : 6220D

JZ Capital Partners Ltd

18 May 2012

FULL YEAR RESULTS FOR THE 12 MONTHS ENDING 29 FEBRUARY 2012

~Strong NAV total return driven by five significant realisations and record dividend ~

18 May 2012

JZ Capital Partners Limited (LSE:JZCP.L or "JZCP"), the London listed private equity fund that invests in high quality US and European micro cap companies, today announces its audited results for the twelve months ending 29 February 2012.

Results Highlights

· 14th consecutive quarter of Net Asset Value (NAV) growth, now exceeding $600 million

· 7.9% NAV Total Return including:

o NAV of US$615 million, an increase of 5.85% (2010: $581m)

o A record distribution of 25.0c per share (2010: 24.5c per share)

o NAV per share increased to US$9.47 (2010: US$8.93)

· US$226.1 million of proceeds received, including US$156 million from the sale of five businesses, generating an average multiple of equity capital invested of 5.0x and an average IRR of 27%

· US$187.3 million invested including 9 investments in companies in the US and Europe with an average entry EBITDA multiple of 5.8x and average leverage of 1.3x

· New investments made in the secondary mortgage loan market using the investment adviser's experience and track record of credit investing

Significant post period end investment activity

o A US$36.2 million investment in two US industrial micro cap companies and €13.5 million in a precious metals trading business in Spain

o First co-investment in Latin America - US$6.2 million investment in BSM Engenharia, a Brazil based infrastructure service business in conjunction with ACON, a private equity group with significant Latin American experience

o A US$14.25 million investment in 100,000 square feet of retail units and forty apartments in New York City

o Additional secondary of TAL stock realizing $17.0 million

Strategic Initiatives

· Commitment to help provide a long-term solution to the discount to NAV through a new dividend policy which will provide regular and more predictable distributions at a rate of 3% of NAV per year, implying a yield at the discount (as at 16 May 2012) of 4%

· Proposed admission to trading on the London Stock Exchange's Specialist Fund Market ("SFM") and consequent cancellation of listing on the premium segment of the Official List and trading on the London Stock Exchange's main market for listed securities

- The proposal will enable the Company to have a simplified capital structure through a single class of ordinary shares which will be more appropriate to the mix of investors who own the Company's shares

- It will also remove a structural inadequacy that has restricted the Company's ability to accommodate US investors and will better reflect the Company's reported market capitalization

· Proposal to increase the Company's current investment limitations on investments in businesses outside the United States from 20 per cent to 30 per cent of the Company's gross assets

· An investment of up to US$15.0 million in a new asset management business to meet the growing demand from endowments and pension funds in the US for fiduciary management service

Outlook

· Positive - the Company has an extremely strong balance sheet and remains well positioned to take advantage of a healthy pipeline of investment and realisation opportunities within the micro cap sector

David Zalaznick, JZCP's Founder and Investment Adviser, said:

"I am pleased to announce another excellent set of full year results which includes a record distribution of 25.0c per share and another period of strong NAV appreciation.

"JZCP's micro cap portfolio continues to provide superior returns from recent realizations. Our geographical diversification includes further investments in Spain and Latin America. We have also begun to take advantage of exciting new opportunities in the credit and real estate sectors which will complement our core micro cap strategy.

"A proposed simplification of our capital structure through the transfer to the Specialist Fund Market will enable the Company to continue to grow without potential regulatory and shareholder restrictions and the change in dividend policy will benefit our shareholders with a more predictable and easy to understand dividend."

David Macfarlane, Chairman of JZCP, said:

"The results underline the Company's disciplined investment strategy and its focus on providing superior returns for shareholders. In addition, we are proposing several strategic initiatives to further enhance long-term shareholder value and pave the way for the future success of the Company. We look forward to the coming year with confidence."

There will be an analyst and investor presentation to discuss JZCP's recent financial performance and portfolio developments at 9.30am at FTI Consulting, 26 Southampton Buildings, London WC2A 1PB. It can be accessed by dialling +44(0)20 7784 1036 (UK) or +1 646 254 3364 (US) with the participant access code 7495640.

A playback facility will be available two hours after the conference call concludes. This facility may be accessed until 25 May 2012 by dialling +44 (0)20 7111 1244 or UK +1 347 366 9565 US. The code to access the playback facility is 7495640. A recording of the investor call will also be available on JZCP's website within a few days of the call.

For further information:

Neil Doyle/ Ed Berry +44 (0)20 7269 7237 / 7297

FTI Consulting

David Zalaznick +1 212 572 0800

Jordan/Zalaznick Advisers, Inc.

About JZCP

JZCP is a London listed private equity fund which invests in high quality US and European micro cap companies. Our objective is to achieve a superior overall return comprised of a current yield and significant capital appreciation. JZCP receives investment advice from Jordan/Zalaznick Advisers, Inc. ("JZAI"), founded by David Zalaznick and Jay Jordan, which has advised JZCP for twenty five years and has investment professionals and offices in New York, Chicago, London and Madrid. JZAI's experts work with the existing management of micro cap companies to help build better businesses, create value and deliver strong returns to our investors. JZCP also invests in mezzanine loans, first and second lien investments and other publicly traded securities. For more information please visit www.jzcp.com

Chairman's Statement

I am pleased to report the results of JZ Capital Partners Limited ("JZCP" or the "Company") for the twelve-month period ended 29 February 2012 and a number of strategic initiatives which are aimed at ensuring the future success of the Company and generating more stable, superior long-term returns for our shareholders.

Performance
The Company's disciplined, value-orientated investment approach has once again provided a solid platform for another strong set of full year results and has provided the 14th consecutive quarter of Net Asset Value ("NAV") growth; including dividends paid, we have shown a total NAV return for the last three years of 18%. This is an excellent achievement considering the sustained challenging trading environment, which remained unpredictable throughout the period, despite glimpses of an equity market rally towards the end of 2011.

The positive performance of the underlying assets led to a 6% increase in NAV to US$615 million (2010: US$581 million) giving rise to a NAV per share of US$9.47 per share (2010: US$8.93). The Board is pleased to announce a record full year distribution of US$16.3 million (2010: US$15.9 million) or 25.0 cents per share (2010: 24.5 cents per share), providing shareholders with a total NAV return (NAV appreciation and reinvested dividends) of 8%.

The Company has built on the heightened levels of investment activity during 2010 with further investments and realisations across the core portfolio during the period. Investing in good quality companies with strong growth prospects remains a continued focus for JZCP and the Company continues to exploit a broad range of industry verticals and geographies to originate suitable assets. At the end of the period the portfolio consisted of 44 companies across 10 industry sectors and within the US, Europe and now Latin America.

Valuations in the micro cap space, the main growth driver for JZCP, held up well relative to the rest of the private equity sector and the Company was able to make five significant realisations generating US$156 million. The US micro cap portfolio continues to form the mainstay of the Company's investment and realisation activity and 2011 was no exception, with US$53.3 million of investments made during the period, with an average entry multiple of 5.8x.

Our exposure to the European micro cap sector continues to compliment and diversify the US micro cap portfolio and is becoming a strategically important segment of the business. The challenging economic environment in Spain has provided five investment opportunities for the Company to date and we continue to explore other opportunities at distressed prices in the region and across Europe. Our European portfolio represents 12% of NAV as at 29 February 2012 (now 14% of NAV since period end).

Since the period end, we have started to exploit our value-orientated approach in Latin America, a market with a positive demographic trend that has huge growth potential and importantly it will provide our portfolio with further geographic diversification. Due to the strong performance of our European portfolio and the considerable scope for further activity in the region and further co-investment opportunities in Latin America, the Board feels that it is in the interest of all shareholders to have the option to increase the percentage of the portfolio which can be invested outside the US from 20% to 30% of the portfolio.

I'm also pleased to report some other exciting opportunities that will complement our core micro cap strategy. Our track record of investing in credit and the current dislocation in the real estate market has led us to some quality investment opportunities in the secondary mortgage loan market. These assets have the potential to provide a high yield and capital appreciation, so fit nicely within the Company's risk reward profile.

JZCP is also taking advantage of opportunities within the New York retail and commercial real estate market through a new partnership with a real estate developer.

Separately the Company is establishing a new asset management business in the US that will address the growing demand from endowments and pension funds for fiduciary management services. We look forward to updating the market on the progress of these early stage investments later in the year.

Strategic Initiatives

The Company continues to experience interest from a number of investors from the US, which are attracted by the shareholder returns generated by JZCP. With that in mind, shareholders will be receiving a communication about a proposed restructuring of the Company's Ordinary share capital, the rationale for which I would like to address briefly below.

The Company has had an equity capital structure to date which has included listed Ordinary shares and unlisted Limited Voting Ordinary shares (LVOs). This structure restricts the Company's ability to accommodate the growing number of US investors looking to invest in JZCP, as outlined above

In light of this trend and given the potentially onerous and costly US regulatory consequences caused if voting control of JZCP is owned by US shareholders, the Board feels that it is in the interest of all shareholders to devise a capital structure that resolves this issue on a permanent basis. The Board has explored a wide range of options and has concluded that this shareholder restriction be removed by a restructuring of JZCP's capital that includes a change to a single class of Ordinary shares.

Part of the proposed structure is that there are restrictions on the voting rights of shareholders who cannot or do not confirm that they are not US persons. This would mean JZCP's Ordinary shares would not be eligible for listing on the premium segment of the Official list and would be transferred, together with the ZDP shares, for admission to trading on the London Stock Exchange's Specialist Fund Market (SFM).

The new capital structure will provide the following benefits to shareholders:

- Better reflect the Company's market capitalization

- Promote a free flow of Ordinary shares giving improved access for US investors

- Provide a resolution of existing US securities laws regulatory risk

- All ordinary shareholders will hold a single class of listed Ordinary shares

- No forced conversion or sell downs as required under the current situation when the percentage of US shareholders exceeds 50%

These proposals are subject to shareholder approval and further information can be found in the Circular distributed to shareholders and in today's separate regulatory announcement.

Distributions
The Directors declared and paid an Interim Dividend of 3.5 cents per share for the six months ended 31 August 2011 and paid a Special Dividend in respect of that period of 3 cents per share. The Board recommends a final dividend for the year of 18.5 cents per share. Therefore, subject to shareholder approval of the proposed Final Dividend, the total distribution for the year will be 25.0 cents per share, compared to 24.5 cents for the year ended 28 February 2011. Much of this additional 18.5 cents is due to significant cash income generated from Paid in Kind ("PIK") interest and preferred dividends paid in cash from the realizations mentioned above.

The Board continues to be mindful of the significant discount to NAV at which the Company, and the majority of the wider listed private equity sector market is trading and continually explores options that are aimed at providing a long-term solution to narrow the discount.

Accordingly the Board is proposing to make dividend distributions that are regular and predictable, through a change in dividend policy.

Historically it has been the policy to distribute, as regular interim and final dividends, the majority of JZCP's net cash income and as special dividends non-cash income, largely PIK interest, when it is converted into cash. Whilst recently the Board has been able to say that conditions are tending to be such as to allow the payment of special dividends, their payment has been irregular in terms of amount and timing and at the same time as a result of low interest rates, net cash income is tending to reduce. Accordingly shareholders have had no certainty of yield or progression.

The distribution for the year ended 29 February 2012 has been determined on the historic basis. But for the current financial year and thereafter it will be the Directors' policy that the dividend will be calculated as 3 per cent of NAV per year (1.5 per cent at each of the interim and final stages) implying a yield at the discount (as at 16 May 2012) of approximately 4 per cent.

Outlook
The outlook for the Company continues to be positive: we are well positioned to take advantage of a healthy pipeline of investment and realisation opportunities in the micro cap sector in US and Europe whilst pursuing some exciting investments diversified by industry and geography.

As outlined above, our shareholders will have the opportunity shortly to vote on a number of strategic initiatives that have been proposed to further enhance long-term shareholder value and that the Board believes will pave the way for the future success of the Company. We look forward to the year ahead with confidence.

David Macfarlane

Chairman

17 May 2012

Report of the Directors

The Directors present their annual report together with the audited financial statements of JZ Capital Partners Limited (the "Company") for the year ended 29 February 2012.

Principal Activities

JZ Capital Partners is a closed-ended investment company with limited liability which was incorporated in Guernsey on 14 April 2008 under The Companies (Guernsey) Law, 1994. The Company is subject to the Companies (Guernsey) Law, 2008. The Company's Share Capital consists of Ordinary shares and Zero Dividend Preference ("ZDP") shares. The Ordinary and ZDP shares were admitted to the official list of the London Stock Exchange on 27 June 2008.

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

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

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

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

Business Review

The total profit attributable to Ordinary shareholders for the year was US$45,044,000 (year ended 28 February 2011: profit of US$137,243,000). The revenue return for the year was US$25,202,000 (year ended 28 February 2011: US$30,120,000), after charging administrative expenses of US$2,786,000 (year ended 28 February 2011: US$2,094,000) and Investment Adviser's base fee US$10,247,000 (year ended 28 February 2011: US$8,667,000) and an income incentive fee payable to the investment adviser of US$4,410,000 (28 February 2011: US$nil). The net asset value (NAV) of the Company at the year end was US$615,462,000 (28 February 2011: US$580,788,000) equal to US$9.47 (28 February 2011:US$8.93) per Ordinary.

For the year ended 29 February 2012, the Company had US$1,633,000 (year ended 28 February 2011: US$15,056,000) of cash inflows resulting from operating activities.

A review of the Company's activities and performance is detailed in the Chairman's Statement and the Investment Adviser's Report.

The Directors' valuation of the listed and unlisted investments is detailed in the Investment Review.

Dividends

An interim dividend of 3.5 cents per Ordinary share (total US$2,275,651) and a special dividend of 3.0 cents (total US$1,501,558) was declared by the Board on 17 October 2011 and paid on 25 November 2011.

A final dividend of 18.5 cents per Ordinary share (total US$12,028,443) was proposed by the Board on 17 May 2012.

For the year ending 28 February 2013, it will be the Board's intention to distribute substantially 3% of the Company's net assets in the form of dividends.

Directors

The Directors listed below are all non-executive and have served on the Board throughout the year and were in office at the end of the year and subsequent to the date of report.

David Macfarlane (Chairman)

David Allison

Patrick Firth

James Jordan

Tanja Tibaldi

All Directors are independent at the year end and throughout the year and to the date of this report.

*A foreign corporation shall satisfy the "qualified US person ownership test" if, for more than half the days of the corporation's taxable year:

(i) it is a CFC, and (ii) more than 50% of the total value of all the outstanding stock of the CFC is owned by one or more "qualified US persons".

Annual General Meeting

The Company's Annual General Meeting is due to be held on 3 July 2012.

Share Capital and Purchase of Own Shares

Details of the Zero Dividend Preference shares and the Ordinary shares can be found in Notes 17 and 18] respectively. During the year the Company did not buy back any of its own shares.

The beneficial interests of the Directors in the Ordinary shares of the Company are shown below.

David Allison and Patrick Firth did not hold an interest in Ordinary shares during the year. None of the Directors held any interest in the Zero Dividend Preference shares during the year. There have been no changes in the Directors' interests between 29 February 2012 and the date of this report.

	Number of Ordinary shares 1 March 2011	Ordinary shares purchased/ (sold)	Number of ordinary shares 29 February 2012

David Macfarlane	40,000	3,000	43,000
James Jordan	30,000	-	30,000
Tanja Tibaldi	2,000	-	2,000
	72,000	3,000	75,000

Directors' Statement as to the Disclosure of Information to the Auditors

All the present Directors were members of the Board at the time of approving this report, and each of the Directors confirms that:

• To the best of his/her knowledge and belief, there is no information relevant to the preparation of this report of which the Company's auditors are unaware; and

• He/she has taken all the steps a Director might reasonably be expected to have taken to be aware of relevant audit information and to establish that the Company's auditors are aware of that information.

Independent Auditor

A resolution to re-appoint Ernst & Young LLP as auditor to the Company will be proposed at the next annual general meeting.

Substantial Shareholders

As at 29 February 2012 the Company has been notified in accordance with applicable legislation of the following interests in the Ordinary share capital and Limited Voting Ordinary ("LVO") share capital of the Company:

	Ordinary shares	LVO shares	Total	% of Ordinary shares	% of total shares

Rothschild Private Management Ltd*	3,894,018	-	3,894,018	10.43%	5.99%
Abrams Capital Management, LP	3,362,450	1,030,053	4,392,503	9.01%	6.76%
John W. Jordan	2,513,280	5,251,037	7,764,317	6.73%	11.94%
David W. Zalaznick	2,466,340	5,251,037	7,717,377	6.61%	11.87%
Edgewater Growth Capital Partners	2,111,613	11,382,424	13,494,037	5.66%	20.75%
Leucadia Financial Corporation	1,941,550	2,586,013	4,527,563	5.20%	6.96%
M&G Investment Management Ltd**	1,912,504	-	1,912,504	5.12%	2.94%
Baillie Gifford***	1,822,630	-	1,822,630	4.88%	2.80%
Legal & General****	1,397,076	-	1,397,076	3.74%	2.15%

*At the date of this report (17 May 2012) Rothschild Private Management Limited held 3,921,118 Ordinary shares and no Limited Voting Ordinary shares in the Company.

**At the date of this report (17 May 2012) M&G Investment Management Ltd held 1,912,449 Ordinary shares and no Limited Voting Ordinary shares in the Company.

***At the date of this report (17 May 2012) Baillie Gifford held 1,820,523 Ordinary shares and no Limited Voting Ordinary shares in the Company.

****At the date of this report (17 May 2012) Legal & General held 1,361,458 Ordinary shares and no Limited Voting Ordinary shares in the Company.

All other holdings were the same as at the year end and 17 May 2012.

The percentage of Ordinary shares shown above represents the ownership of voting rights at the year end (LVO shares are not classed as having voting rights).

It is the responsibility of the shareholder to notify the Company of any change to their shareholdings when it reaches 3% of shares in issue and any change which moves up or down through any whole percentage figure above 3%.

Statement of Directors' Responsibilities

The Directors are responsible for preparing the Financial Statements in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRS") and the Companies (Guernsey) Law, 2008 for each financial period which give a true and fair view of the state of affairs of the Company and its profit or loss for that period. International Accounting Standard 1 requires that financial statements present fairly for each financial period the Company's financial position, financial performance and cash flows. This requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the International Accounting Standards Board's "Framework for the preparation and presentation of financial statements". In virtually all circumstances a fair presentation will be achieved by compliance with all applicable International Financial Reporting Standards.

In preparing Financial Statements the Directors are required to:

• Ensure that the Financial Statements comply with the Memorandum & Articles of Incorporation and IFRS, as published by the International Accounting Standards Board;

• Select suitable accounting policies and apply them consistently;

• Present information including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

• Make judgements and estimates that are reasonable and prudent;

• Prepare the Financial Statements on the going concern basis, unless it is inappropriate to presume that the Company will continue in business; and

• Provide additional disclosures when compliance with the specific requirements in IFRS is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Company's financial position and financial performance.

The Directors confirm that they have complied with these requirements in preparing the Financial Statements.

Responsibility Statement of the Directors in Respect of the Financial Statements

Each of the Directors confirms to the best of each person's knowledge and belief that:

• The Financial Statements, prepared in accordance with IFRS and in accordance with the requirements of the London Stock Exchange ("LSE"), give a true and fair view of the assets, liabilities, financial position and profit of the Company; and

• The Investment Advisers' Report includes a fair review of the development and performance of the business and the position of the Company together with a description of the principal risks and uncertainties faced by the Company.

The Directors are also responsible for the keeping of proper accounting records which disclose with reasonable accuracy at any time, the financial position of the Company and to enable them to ensure that the Financial Statements comply with the Companies (Guernsey) Law, 2008 and the Listing Rules of the London Stock Exchange. They are also responsible for the system of internal controls, safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are also responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the United Kingdom and Guernsey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Approved by the Board of Directors and agreed on behalf of the Board on 17 May 2012.

David Macfarlane Patrick Firth

Chairman Director

Investment Adviser's Report

We are pleased to report JZCP completed its fiscal year ending 29 February 2012 with strong investment returns, year on year growth in Net Asset Value ("NAV") and a substantial dividend distribution to shareholders. Our NAV (including dividends paid) was up 7.9%; on a per share basis the NAV went up to US$9.47 per share from US$8.93. JZCP's dividend will be 25.0 cents versus 24.5 cents last year. Our Company's balance sheet is exceptionally strong with enhanced liquidity from multiple realizations and repayment of debt investments. We received US$247.8 million in proceeds from realizations and deployed US$291.3 million in new investments over the past fourteen months.

Our NAV growth for the year was driven by (i) five successful realizations (ii) and positive performance in our underlying investments. Our robust dividend was provided in part, by realizations of the portfolio which resulted in cash payment of accrued income. Starting with this financial year ending 28 February 2013, it is the Board's intent to prescribe an annual dividend equal to 3% of JZCP's NAV; assuming this occurs, dividends, comprised of capital and income returns, will be paid to shareholders at a predictable rate that will not be subject to the dependence on realizing accrued income for a portion of the dividend.

Our investment style is relatively simple: we are value oriented investors that primarily buy already successful businesses in partnership with management at reasonable prices. We have worked with the respective management teams on strategic acquisitions, and over the years we have added operational improvements to help grow the value of our portfolio companies. We believe this is the way to achieve superior returns with less risk.

We have diversified JZCP's portfolio into many different industry sectors as well as geographically across the United States, and more recently, into Europe. As you will see in this report, we have started to add asset classes, such as real estate and distressed debt, applying the same disciplined investment approach we have always used.

Currently (May 2012), we have businesses in 10 different sectors. In addition, we have invested US$0.8 million in distressed debt, US$16.8 million in real estate and US$61.4 million in listed corporate bonds.

NAV Growth

For the twelve months ending 29 February 2012, JZCP's net assets increased from US$8.93 per share to US$9.47, a 6% increase (after the 16 cents of dividends paid in the same period), posting 14 consecutive quarters of growth. The chart below shows the source of JZCP's annual growth for this fiscal year:

Net Asset Value per Ordinary share as of 28 February 2011	US$8.93
+ Increase in underlying investments	0.52
- Decrease in listed equities	(0.09)
+ Income from investments	0.67
- ZDP dividend accrual	(0.10)
- Dividends paid	(0.16)
- Fees and expenses	(0.20)
+/- Other	(0.10)
Net Asset Value per Ordinary share as of 29 February 2012	US$9.47

Regarding the Increase in Underlying Investments above, over the course of the year, we have increased the valuation of four US micro cap businesses through both realized (20 cents) and unrealized (12 cents) means. We reduced the valuations of four US micro cap investments due to soft earnings performance (28 cents). In addition, we booked an increase in the valuation of the EuroMicrocap Fund investments, through the over-performance of Factor Energia, a Spanish power reseller (31 cents per share). Finally, the sale of Advanced Chemistry & Technology, Inc., a legacy investment contributed 8 cents to the NAV growth.

Portfolio Summary

Below is a comparison of our portfolio, comparing the year ended 29 February 2012 to previous year end. As you will note, our US micro cap portfolio decreased by US$50 million because we had two outstanding realizations (discussed below). Since 29 February 2012, we have completed three US micro cap investments (US$38.1 million), and two businesses outside the US (US$19.4 million).

	29/02/2012	28/02/2011	Change
	US$'000	US$'000	%

US micro cap portfolio	181,655	230,601	(21.2%)
European micro cap portfolio	85,129	32,899	158.8%
Mezzanine investments	29,632	48,499	(38.9%)
Legacy portfolio	25,312	42,620	(40.6%)
Total private investments	321,728	354,619	(9.3%)

Listed equity	88,639	105,016	(15.6%)
Listed corporate bonds	32,129	-	-
Bank debt	32,512	34,121	(4.7%)
Treasury gilts	33,465	-	-
Cash and cash deposits	202,481	172,267	17.5%
Total listed investments (and cash)	389,226	311,404	25.0%

Total investments (and cash)	710,954	666,023	6.7%
Other current assets	451	464	-

Total assets	711,405	666,487	6.7%

Note that we have begun a program to purchase highly rated listed corporate bonds, as a means of earning an enhanced return on our cash. The obligors of these bonds are three highly rated banks: HSBC, JP Morgan Chase and Wells Fargo and mature from 2014 to 2016.

Micro Cap Portfolio

We had significant activity in our US and European micro cap portfolio, investing US$180.4 million over the past year (including the two months past the end of the fiscal year). The average entry multiple was 5.6x and the average leverage was 1.2x.

US investments

• As part of our strategic build up in sensors, in December 2011 we invested US$22.5 million to acquire a 33% stake in Amptek, Inc., a designer and manufacturer of x-ray detectors. The investment consists of 7% preferred and common stock. We are very pleased to partner with Amptek's very accomplished and motivated management team. This is our second investment in our Sensors vertical, managed by Gerry Posner.

• In August 2011, we made our third Industrial Services vertical acquisition - Southern Parts and Engineering Company ("SPECO"), an independent supplier of aftermarket products and services for industrial air compressors. The company provides internal parts, filters, and lubricants for most reciprocating and rotary OEM brands of compressors. Our US$6.6 million investment in SPECO consists of US$4.5 million of 10% notes and US$2.1 million of preferred and common stock, representing 34% of the equity in this business.

• We acquired Nashville Chemical, in March 2011 which was the first investment into our water vertical. Nashville Chemical is a speciality water treatment, chemical and services company; which treats boilers, cooling water, and process water systems for industrial and commercial customers. Nashville Chemical's water treatment solutions remove harmful contaminants from water, which ultimately improve the efficiency and extend the life of its customer's assets.

• Our US$7.0 million investment in this entity consists of US$3.8 million in notes, and US$3.2 million of preferred and common stock representing a 33% ownership in this company.

• In June 2011, we co-invested with Baird Capital Partners in Justrite, a leading designer and manufacturer of safety products for the handling and storage of flammable and hazardous liquids. Manufacturers, laboratories, commercial buildings and other users of flammable and hazardous liquids rely on Justrite products to comply with regulatory requirements, meet safety codes and prevent catastrophic events caused by fires or spillage. We invested US$4.4 million in preferred and common stock, representing a 11% ownership in this company.

• Throughout the year we invested an additional US$10.0 million in Milestone Aviation, a helicopter leasing business, bringing our investment stake in this business' preferred and common stock to US$12.9 million. This investment represents 8% of Milestone equity.

• In April 2012, we purchased Bay Valve Service and Engineering, a Seattle Washington based refurbisher of larger valves for a variety of end users, from oil refineries to power generation plants. Bay Valve is part of our Industrial Service solutions vertical overseen by Jim Rogers. We invested US$18.7 million in debt and equity securities, including 31% of the business's equity. We are excited to add Bay Valve to the ISS family of businesses, including Horsburgh and Scott gears, MidAmerican rubber plant services, and SPECO compressors.

• In April 2012, we made an investment in Medplast/UPG, a plastic molding company specializing in high margin healthcare molded products. This business has 10 plants around the world, using a variety of proprietary techniques. Baird Capital Partners, is the lead investor in this transaction; we purchased US$17.5 million of securities, including US$10.0 of 14.5% subordinated notes and US$7.5 million of preferred and common equity. The equity represents a fully diluted 11% of the business.

• We also made a commitment of up to US$15.0 million into a new asset management portfolio company, run by David Russ. David brings with him an impressive track record as Chief Investment Officer of Dartmouth College's endowment, as well as having senior investment roles at Stanford University and the Regents of the University of California. His plan is to approach smaller endowments and pension funds who have limited resources and offer them an institutional grade investment management program; this type of asset management business is known as an "outsourced CIO/Endowment model." We are excited to be working with David and will report more on this business as developed.

European investments

JZCP is investing in the European micro cap sector through its 75% ownership of the EuroMicrocap Fund ("EMF"). Exposure to the European micro cap sector continues to compliment and diversify JZCP's existing micro cap portfolio and 2011 saw significant activity in this strategically important sector. As at 29 February 2012, the European micro cap portfolio represented 11% of total NAV, and now 14% of NAV after our investment in Oro Direct (described below) this past March.

As you may recall, we have an office in London and Madrid and an outstanding team with over ten years of investment experience in European micro cap deals. During the fiscal year ended 29 February 2012 (plus the two months following) EMF has made the following investments.

• In April 2011, EMF acquired Docout, a provider of digitalization, document processing and storage services to Spanish financial institutions, utilities and insurance companies. EMF invested €11 million in equity and JZCP directly loaned Docout €2.0 million for working capital. Docout was awarded the largest document outsourcing contract from Bank Santander just prior to its acquisition. Docout has already begun to expand its business to Latin America and the UK in conjunction with its large customers.

• In May 2011, EMF made a €12.7 million investment in Grupo Ombuds, a leading provider of security, surveillance and facility services to public sector and blue-chip clients in Spain. JZCP also loaned the company €5.0 million in a 8.0% senior debt and €3.5 million in 15% junior debt (5% cash and 8% PIK).Ombuds' service offering includes personal security protection to government officials and corporate executives, asset protection, security services to public and corporate buildings and the provision of ancillary facility services. The company is a niche player with strong growth potential and has a leading market share in Spain.

• In March 2012, EMF acquired 29.7% of Oro Direct, a leading precious metals trading business in Spain. EMF invested €13.5 million along side a co-investor, LFPI, which invested €11.5 million for 25.3% interest. Based in Valencia, Spain, Oro produces scrap gold and silver from 1,500 pawn shops and jewelers for the spot price less a commission per kilo transacted. The precious metals are then sold on to a refiner in Switzerland. This business is very scalable and opened an office in Vienna immediately after our transaction.

The EMF made two additional investments during fiscal 2011, JZCP's share through EMF of all five of its investments represented 14% of JZCP's total assets as at 29 February 2012.

Significant realisations

In July 2011, we sold one of our oldest investments, Advanced Chemistry & Technology, Inc. for a significant gain. JZCP received US$18.2 million for its US$3.4 million investment, representing a 5.6x multiple of capital invested. This sale represented a US$5.5 million increase in NAV, from the 28 February 2011 valuation.

In October 2011, JZCP realized the sale of Document Holdings Corporation, the parent of Dantom Systems, Inc. Dantom was purchased in April 2005 as a platform to acquire and manage businesses that provide integrated services to third party debt collection agencies and to other consumer billing companies. The US$40.5 million JZCP received created a 4.8x multiple of equity invested, and a 27% IRR. We realized a US$5.4 million NAV increase from this sale, versus the 28 February 2011 valuation.

In November 2011, JZCP also realized US$83.0 million from the sale of its wound care businesses, Wound Care Holdings and Sechrist. The transaction represented a multiple of equity invested of 1.9x, and an IRR of 14%. Although JZCP had been writing up these investments over time, the sale still represented a US$7.3 million NAV increase.

In January 2012, we were repaid our US$29 million debt position in Continental Cement, a cement factory in central Missouri. We were paid in full with accrued interest.

During the year ended 29 February 2012 and post year end, JZCP sold 1,023,080 shares of TAL International Group, Inc ("TAL") in three secondary offerings realizing US$37.6 million. TAL has been a very successful investment, we plan to continue realizing our remaining share stake (357,418 of shares) in the next year.

Other Sectors

Over the past year, the bulk of our Mezzanine Portfolio has been re-paid due to the strength of the high yield debt market. We currently have two mezzanine investment of size, HAAS TCM, Inc., an automobile paint system supplier company. HAAS has been performing well, and paying cash interest per its terms.

Our largest mezzanine investment is TTS LLC ("TTS") (technical facilities for mechanical services), which is a US$15.2 million note. TTS is current on all interest and principal owed to us.

The only significant Legacy Portfolio investment left is Healthcare Products, our power wheelchair company. Despite the vicissitudes of dealing with Medicare, its primary customer, this company continues to perform to plan and we're hopeful of a successful exit above its valuation of US$22.7 million in our NAV.

Our Listed Equities declined with the market: TAL (the international container leasing company) and Safety Insurance (a Massachusetts based insurance company) together accounted for a reduction of per share NAV of 26 cents or US$17 million. During the year ended 29 February 2012 and post year end (as previously mentioned), we were able to sell 51% of our position in TAL in three successful secondary share offerings, for a US$27.3 million gain.

Our approach to credit opportunities (such as mezzanine loans) has always been based on our valuation of underlying business assets. Given the current dislocation in real estate related assets, we focused on funding interest bearing opportunities that meet our risk reward criteria i.e. the credit worthiness is supported by a conservative loan to value ratio.

We have begun to invest in secondary mortgage loans at a significant discount from par. These loans are being purchased with the help of experienced managers, directly from banks and government agencies such as the Federal Reserve.

Although we are just starting, we expect to be able to deploy US$50-100 million in high yielding paper with low loan to value ratios. These will produce a high current yield (above Treasuries and bank paper) and, depending on the discount, capital appreciation. We look forward to reporting more about this in the future.

In April 2012, we completed the purchase of almost an entire square block in Williamsburg, Brooklyn one of the fastest growing neighborhoods in New York City. We purchased over 100,000 square feet of retail units and forty apartments for approximately US$64 million. JZCP invested US$14.25 million in equity for a 75% ownership position.

Finally, in April 2012 we invested US$6.2 million in BSM Engenharia, a Brazil based infrastructure service business. BSM manages ports and other transportation focused infrastructure projects for businesses such as PertroBras, the nationally-owned oil company. Our 3.7% of BSM was purchased in conjunction with ACON, a very successful private equity group with significant Latin American experience. Given the exceptionally positive demographics in Brazil and certain other Latin American countries, we plan to look at other co-investment opportunities there in conjunction with other established private equity firms in the region.

Principal Risks and Uncertainties

As an investment fund, our principal risks are those that are associated with its investment portfolio. Given the nature of the portfolio, the principal risks are associated with the financial and operating performance of the underlying investments, along with market risk associated with the publicly listed equities.

Outlook

We believe the best way to achieve superior returns is by maintaining investment discipline and investing your (and our) money in a diversified portfolio of good quality niche businesses at reasonable prices. Our value oriented investment strategy has remained consistent through the years although the value-added/ operations management component has increased significantly. We are pleased to have excellent managers as partners and together we develop growth strategies and work on operational efficiencies for the respective portfolio companies. This approach to investing offers superior risk adjusted returns for our shareholders over the long-term.

We are making good progress in building out several of our investment verticals. The verticals will continue to be the growth engines for our NAV. We also think our co-investments with other private equity firms will provide great investment returns. Most importantly, our Company has never been more diversified and we will endeavor to continue to diversify by industry sector, asset class and to a lesser degree, geography, through our increasing exposure in Europe.

Furthermore, we expect our shareholders to benefit from the new dividend policy which will provide a more predictable level of distribution based on the Company's NAV. Most importantly, we will try not to lose any money along the way.

As always, thank you for your confidence in our investment strategy. Please feel free to contact us with any ideas that might be beneficial to JZCP.

Yours faithfully,

Jordan/Zalaznick Advisers, Inc.

17 May 2012

Investment Review

Company	JZCP Book cost* US$'000	Historical Book cost** US$'000	Directors Valuation at 29 February 2012 US$'000	Carrying Value Including Accrued Interest 29 February 2012 US$'000	Percentage of portfolio %

Bank Debt First Lien Portfolio
KGB (formerly known as INFONXX, INC.) Worldwide provider of directory assistance	1,834	1,920	1,848	1,848	0.4
KINETEK, INC.*** Manufacturer of electric motors and gearboxes	3,955	4,299	4,245	4,245	0.8
WP EVENFLO HOLDINGS, INC. Manufacturer of children's products	119	139	135	135	-

Bank Debt: Second Lien Portfolio
DEKKO TECHNOLOGIES, LLC Distributor of electrical sub-components	11,418	11,368	12,862	12,971	2.6
KINETEK, INC.*** Manufacturer of electric motors and gearboxes	13,425	15,000	13,313	13,313	2.6

Total Bank Debt	30,751	32,726	32,403	32,512	6.4

Mezzanine Portfolio
GED HOLDINGS, INC. Manufacturer of windows	-	6,100	305	331	0.1
HAAS TCM GROUP, INC. Speciality chemical distribution	7,500	7,500	7,584	7,761	1.5
METPAR INDUSTRIES, INC. Manufacturer of restroom partitions	6,450	7,754	636	750	0.1
PETCO ANIMAL SUPPLIES, INC. Retailer of pet food, supplies and services	1,636	1,636	1,636	1,636	0.3
ROOFING SUPPLY GROUP, INC. Distributor of roofing products	131	1,406	3,961	3,967	0.8
TTS, LLC Provider of technical facilities for mechanical services	15,000	14,840	14,933	15,187	3.0


Total Mezzanine Porfolio	30,717	39,236	29,055	29,632	5.8

European Micro Cap Portfolio
EUROMICROCAP FUND 2010, LP Acquiror of Europe-based microcap companies	49,153	49,153	69,950	69,950	13.8
DOUCOUT, S.L. Provider of digitalisation, document processing and storage services	2,777	2,777	2,685	2,896	0.6
GRUPO OMBUDS Provider of personal security and asset protection	12,202	12,202	11,353	12,283	2.4


Total European Micro Cap Portfolio	64,132	64,132	83,988	85,129	16.8

US Micro Cap Portfolio
ACCUTEST HOLDINGS, INC. Provision of environmental testing laboratories to the US market	34,978	31,516	38,325	39,090	7.6
BG HOLDINGS, INC. Manufacturer of industrial gears	19,733	19,733	28,206	28,735	5.7
CHINA DENTAL HOLDINGS, INC. Acquiror of China-based dental labratories	1,126	1,126	1,252	1,273	0.3
DENTAL SERVICES, INC. Operator of dental laboratories	33,367	27,604	23,318	24,060	4.7
IND SERVICES SOLUTIONS (ISS#2) Acquiror of industrial equipment service businesses. Its first acquisition was Southern Parts & Engineering Co., a supplier of industrial compressor parts and services	7,374	7,374	7,580	7,706	1.5
JZ PALATINE CO-INVESTMENT, LLC . Invests in distressed debt	764	764	764	764	0.2
MILESTONE AVIATION GROUP, INC. Finance provider for helicopter and private jet owners	10,774	10,774	11,288	11,454	2.3
NATIONWIDE STUDIOS, INC. Processer of digital photos for preschoolers	16,132	16,132	4,052	4,200	0.8
NEW VITALITY HOLDINGS, INC. Direct-to-consumer provider of nutritional supplements and personal care products	4,000	4,000	4,483	4,604	0.8
SAFETY PRODUCTS, INC. Acquiror of safety product companies. Its first acquisition was Justrite, a manufacturer of industrial safety products.	4,428	4,428	4,587	4,641	0.9
SALTER LABS, INC. Developer and manufacturer of respiratory medical products and equipment for the homecare, hospital, and sleep disorder markets	19,163	19,163	11,707	11,956	2.4
SENSORS SOLUTIONS, INC. Acquiror of businesses affiliated with sensor devices or systems. Acquisitions have included Nielsen-Kellerman and Amptek, Inc.	25,285	25,285	25,633	25,994	5.1
TAP HOLDINGS, INC. Acquiror of food product manufacturers or distributors	575	575	659	669	0.1
TESTING SERVICES HOLDINGS Acquiror of laboratory testing businesses. Its first acquisition was Galson Holdings, Inc., a provider of industrial hygiene testing services	2,883	2,883	8,511	8,567	1.7
TRIWATER HOLDINGS CORPORATION Acquiror of water treatment businesses. Its first acquisition was Nashville Chemical & Equipment Co., a provide of water treatment supplies and services	7,402	7,402	7,716	7,844	1.5
US SANITATION, LLC Acquiror of janitorial and sanitorial product distributors and related chemical manufacturers and blenders.	97	97	97	98	0.0


Total US Micro Cap Portfolio	188,081	178,856	178,178	181,655	35.6

Legacy Portfolio:
ETX HOLDINGS, INC. Provider of services to the auto after sales market	392	392	602	613	0.1
HEALTHCARE PRODUCTS HOLDINGS, INC. Designer and manufacturer of motorised vehicles	13,848	17,636	21,578	22,727	4.5
JORDAN INDUSTRIES, INC. Conglomerate	-	21	-	-	0.0
JZ INTERNATIONAL, LLC Fund of European LBO investments	1,620	660	1,620	1,620	0.3
NTT ACQUISITION CORP. Technical education and training	52	946	52	52	0.0
TIGER INFORMATION SYSTEMS, INC. Provider of temporary staff and computer training	300	400	300	300	0.1


Total Legacy Portfolio	16,212	20,055	24,152	25,312	5.0

Listed Investments
Equities
SAFETY INSURANCE GROUP, INC. Provider of automobile insurance	42,223	6,816	49,363	49,363	9.7
TAL INTERNATIONAL GROUP, INC.*** Lessor of intermodal shipping containers	24,671	10,652	38,409	38,409	7.6
UNIVERSAL TECHNICAL INSTITUTE, INC. Vocational training in the automotive and marine fields	835	15	867	867	0.2


Total Listed Equity Investments	67,729	17,483	88,639	88,639	17.5

UK Gilts
UK treasury 2% - maturity 22/01/2016	32,431	32,431	33,397	33,465	6.6


Total UK Gilts	32,431	32,431	33,397	33,465	6.6

Corporate Bonds
HSBC Finance Corp, 06/01/16	13,709	13,709	13,489	13,525	2.7
JP Morgan Chase Bank NA, 06/13/16	9,273	9,273	9,257	9,276	1.8
Wachovia Bank NA, 03/15/16	9,435	9,435	9,309	9,328	1.8


Total Corporate Bonds	32,417	32,417	32,055	32,129	6.3

Total - Portfolio	462,470	417,336	501,867	508,473	100.0

Zero Dividend Preference shares				(87,281)
Cash and other net assets				194,270

Net assets attributable to Ordinary shares				615,462

* Book cost to JZCP equating to transfer value as at 1 July 2008 upon the liquidation of JZEP and adjusted for subsequent transactions. The book cost excludes the transfer value and subsequent Payment In Kind ("PIK") investments.

**Original book cost incurred by JZEP/JZCP adjusted for subsequent transactions. The book cost represents cash outflows and excludes PIK investments.

*** Invested in deals with the Resolute Fund - see note 29.

Mezzanine Portfolio includes common stock with a carrying value of US$5,471,000 and preferred shares with a carrying value of US$187,000 these investments are classified as Investments at fair value through profit or loss.

Legacy Portfolio - Investments not subject to capital incentive fee. The listed equities Safety Insurance Group, Inc and Universal Technical Institute, Inc. are also classified as legacy investments for the purpose of calculating the incentive fees payable to the Investment Adviser.

Investment Review - Major Holdings

The investments listed represent the top ten investments in terms of valuation:

EuroMicrocap Fund 2010, LP

Headquarters: London, UK

Sector: Acquiror of Europe-based microcap companies

Euro MicroCap Fund 2010, LP is a private equity fund built around the investment team at JZ International, the European private equity platform founded in 1999 with Jock Green-Armytage, the former chairman of JZEP. The fund's aim is to make investments in Europe-based micro cap companies.

	Historical Book cost* US$'000	Directors' Valuation at 29 February 2012 US$'000

LP interest	49,153	69,950

	49,153	69,950

SAFETY INSURANCE GROUP, INC.

Headquarters: Boston, Massachusetts, USA

Sector: Property and Casualty Insurance

Safety Insurance Group, Inc., which is listed on NASDAQ (NASDAQ: SAFT), provides personal property and casualty insurance focused exclusively on the Massachusetts market. The Company's principal product line is private passenger automobile insurance. In addition, Safety Insurance offers commercial automobile, homeowners, dwelling fire, umbrella and business owning policies.

	Historical Book cost* US$'000	Directors' Valuation at 29 February 2012 US$'000

Common stock	6,816	49,363

Year ended 31 December 2011 Sales		US$660.2m
Year ended 31 December 2011 Adjusted EBITDA		US$27.9m

ACCUTEST HOLDINGS, INC.

Headquarters: Dalton, New Jersey, USA

Sector: Environmental Testing Laboratories

Accutest Laboratories is a full service, independent testing laboratory successfully delivering legally defensive data for more than 50 years. Founded in 1956, they provide a full range of water, soil and air testing services to industrial, engineering/consulting and government clients throughout the United States.

	Historical Book cost* US$'000	Directors' Valuation at 29 February 2012 US$'000

12.5% Senior Subordinated Notes	7,425	8,330
10% Preferred Stock	24,052	29,995
Common stock with an equity interest of 38.7%	39	-

	31,516	38,325

Year ended 31 December 2011 Sales		US$79.9m
Year ended 31 December 2011 Adjusted EBITDA		US$12.8m

TAL INTERNATIONAL GROUP, INC

Headquarters: Purchase, New York , USA

Sector: Industrial Transportation

TAL International Group, Inc., which is listed on the New York Stock Exchange (NYSE: TAL), is one of the world's largest lessors of intermodal shipping containers with a fleet of over 945,000 standard dry freight, refrigerated and special containers which are serviced out of 225 container depots in 39 countries. The company's customers include shipping companies, distribution companies, manufacturers and transport companies.

	Historical Book cost* US$'000	Directors' Valuation at 29 February 2012 US$'000

Common stock	10,652	38,409

Year ended 31 December 2011 Sales		US$516.7m
Year ended 31 December 2011 Adjusted EBITDA		US$492.2m

BG HOLDINGS INC.

Headquarters: Cleveland, Ohio, USA

Sector: Industrial Gears

BG Holdings Inc owns The Horsburgh & Scott Co ("H&S") and Mid-American Machine & Equipment Co ("MAM"). H&S is a privately held manufacturer of highly engineered industrial gears and mechanical gear drives, with a market leading position in the large-diameter gear market. Founded in 1886, H&S offers a wide array of large gear types and engineering services for new or replacement installations, as well as custom industrial gears, repair, spare parts, heat treatment and other technical solutions. H&S also provides field service for its customers. H&S' products are used in a variety of applications in steel, mining, sugar, aluminium, and power generation among other industries. MAM is a provider of service, repair and equipment refurbishments primarily to the tyre and rubber industry.

	Historical Book cost* US$'000	Directors' Valuation at 29 February 2012 US$'000

12.5% Senior Subordinated Notes	2,624	3,200
Preferred Stock	17,031	24,969
Common stock with an equity interest of 37.3%	78	37

	19,733	28,206

Year ended 31 December 2011 Sales		US$75.8m
Year ended 31 December 2011 Adjusted EBITDA		US$12.7m

DENTAL HOLDINGS CORPORATION

Headquarters: Minneapolis, Minnesota, USA

Sector: Healthcare Equipment and Services

Dental Holdings Corporation is the parent of Dental Services Group ("DSG"). DSG is an operator of laboratories which manufacture oral appliances for dentists and dental centres. It runs both full service labs and "sale and delivery" sites in the United States, Canada and Mexico, making it one of the largest companies of its kind.

	Historical Book cost* US$'000	Directors' Valuation at 29 February 2012 US$'000

15% Senior Notes	7,500	8,667
15% Subordinated Notes	250	298
12.5% Senior Notes	8,154	10,437
8% Preferred Stock	6,713	3,916
10% Preferred Stock	4,950	-
Common stock with an equity interest of 35.4%	37	-

	27,604	23,318

Year ended 31 December 2011 Sales		US$72.7m
Year ended 31 December 2011 Adjusted EBITDA		US$1.5m

HEALTHCARE PRODUCTS HOLDINGS, INC.

Headquarters: Sarasota, Florida, USA

Sector: Healthcare Services & Equipment

Healthcare Products Holdings, Inc's operating subsidiary is Hoveround Corporation, a designer, manufacturer and distributor of motorised wheelchairs and other patented mobility vehicles. Hoveround Corporation utilizes a direct-to-the-customer marketing concept to sell and deliver its products.

	Historical Book cost** US$'000	Directors' Valuation at 29 February 2012 US$'000

12.5% Second Lien Notes	3,250	9,519
12% Subordinated Notes	8,149	8,149
14% Subordinated Notes	2,450	3,910
6% Preferred Stock	3,550	-
Common stock with an equity interest of 2%	237	-

	17,636	21,578

Year ended 31 December 2011 Sales		US$96.6m
Year ended 31 December 2011 Adjusted EBITDA		US$7.6m

SENSORS SOLUTIONS, INC.

Headquarters: Bedford, Massachusetts, USA and Boothwyn, PA

Sector: Sensors & Instrumentation

Sensors Solutions is the parent company of Nieilsen-Kellerman and Amptek, Inc. Nieilsen-Kellerman, located in Boothwyn, PA, is a producer of weather measurement devices. Amptek, Inc., located in Bedford, MA, designs and manufacturers instrumentation used in numerous non-destructive testing and elemental analysis applications.

	Historical Book cost* US$'000	Directors' Valuation at 29 February 2012 US$'000

9% Senior Notes	9,000	9,000
10% Preferred Stock	2,517	2,784
10% Preferred Stock	369	411
7% Preferred Stock	13,362	13,401
Common stock	37	37

	25,285	25,633

Year ended 31 December 2011 Sales		US$45.1m
Year ended 31 December 2011 Adjusted EBITDA		US$17.7m

TTS, LLC

Headquarters: Denver, Colorado, USA

Sector: Commercial services

TTS, LLC is the parent company of MSCH, Inc. MSCH, Inc. provides integrated energy efficiency services and contractural maintenance programs for heating, ventilation and air conditioning ("HVAC") systems, chilled water systems and building automation and controls.

	Historical Book cost* US$'000	Directors' Valuation at 29 February 2012 US$'000

12.5% Senior Subordinated Notes	14,840	14,933

	14,840	14,933

Year ended 31 December 2011 Sales		US$140.9m
Year ended 31 December 2011 Adjusted EBITDA		US$15.0m

KINETEK, INC.

Headquarters: Deerfield, Illinois, USA

Sector: Industrial Manufacturing

Kinetek, Inc. Is a provider of custom engineered control, monitor and drive system solutions for customers in the elevator/escalator, commercial floor care, material handling/aerial lift, commercial food equipment, renewable energy and medical markets.

	Historical Book cost* US$'000	Directors' Valuation at 29 February 2012 US$'000

Bank debt - First Lien	4,299	4,245
Bank debt - Second Lien	15,000	13,313

	19,299	17,558

Year ended 31 December 2011 Sales		US$400.2m
Year ended 31 December 2011 Adjusted EBITDA		US$48.0m

*Original book cost incurred by JZEP/JZCP adjusted for subsequent transactions. The book cost represents the cash outflow and excludes the notional cost of PIK investments.

Independent Auditors' Report

Independent auditors' report to the members of JZ Capital Partners Limited

We have audited the financial statements of JZ Capital Partners Limited for the year ended 29 February 2012 which comprise the Statement of Comprehensive Income, Statement of Financial Position, Statement of Changes in Equity, Statement of Cash Flows and the related Notes 1 to 32. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards as adopted by the European Union.

This report is made solely to the Company's members, as a body, in accordance with Section 262 of the Companies (Guernsey) Law, 2008. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditors' report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective Responsibilities of Directors and Auditors

As explained more fully in the Statement of Directors' Responsibilities in the Report of the Directors, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors.

Scope of the Audit of the Financial Statements

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Company's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Annual Report for the year ended 29 February 2012 to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report

Opinion

In our opinion the financial statements:

• give a true and fair view of the state of the Company's affairs as at 29 February 2012 and of its profit for the year then ended;

• have been properly prepared in accordance with International Financial Reporting Standards as adopted by the European Union; and

• have been prepared in accordance with the requirements of the Companies (Guernsey) Law, 2008.

Matters on Which We Are Required to Report by Exception

We have nothing to report in respect of the following matters where the Companies (Guernsey) Law, 2008 require us to report to you if, in our opinion:

• proper accounting records have not been kept; or

• the financial statements are not in agreement with the accounting records; or

• we have not received all the information and explanations we require for our audit.

Under the Listing Rules we are required to review the part of the Corporate Governance Statement relating to the Company's compliance with the nine provisions of the UK Corporate Governance Code specified for our review.

Michael Bane

for and on behalf of Ernst & Young LLP

Guernsey, Channel Islands

17 May 2012

Notes:

1. The maintenance and integrity of the JZ Capital Partners Limited website is the responsibility of the Directors; the work carried out by the auditor does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website. Legislation in Guernsey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions

Statement of Comprehensive Income

For the year ended 29 February 2012

		Year ended 29 February 2012			Year ended 28 February 2011
		Revenue	Capital	Total	Revenue	Capital	Total
	Notes	return	return		return	return
		US$'000	US$'000	US$'000	US$'000	US$'000	US$'000
Income
Net gain on investments at fair value through profit or loss	5	-	7,054	7,054	-	119,628	119,628
Net write back of impairments/(impairments) on loans and receivables	6	-	142	142	-	(2,019)	(2,019)
Share of associate's net income	11	-	20,797	20,797	-	-	-
Realisations from investments held in escrow accounts		-	2,093	2,093	-	2,553	2,553
Net foreign currency exchange gains/(losses)		-	1,694	1,694	-	(5,008)	(5,008)
Investment income	7	43,558	-	43,558	41,228	-	41,228
Bank and deposit interest		460	-	460	343	-	343
		44,018	31,780	75,798	41,571	115,154	156,725

Expenses
Investment Adviser's base fee	9	(10,247)	-	(10,247)	(8,667)	-	(8,667)
Investment Adviser's capital incentive fee	9	-	(5,357)	(5,357)	-	(2,093)	(2,093)
Investment Adviser's income incentive fee	9,29	(4,410)	-	(4,410)	-	-	-
Administrative expenses	9	(2,786)	-	(2,786)	(2,094)	-	(2,094)
		(17,443)	(5,357)	(22,800)	(10,761)	(2,093)	(12,854)

Operating profit		26,575	26,423	52,998	30,810	113,061	143,871

Finance costs
Finance costs in respect of Zero Dividend Preference shares	8	-	(6,581)	(6,581)	-	(5,938)	(5,938)
Profit before taxation		26,575	19,842	46,417	30,810	107,123	137,933

Withholding Taxes	10	(1,373)	-	(1,373)	(690)	-	(690)

Profit for the year		25,202	19,842	45,044	30,120	107,123	137,243

Weighted average number of Ordinary shares in issue during year	23			65,018,610			65,018,610

Basic and diluted profit per Ordinary share using the weighted average number of Ordinary shares in issue during the year		38.76c	30.52c	69.28c	46.33c	164.75c	211.08c

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

The profit for the year is attributable to the Ordinary shareholders of the Company.

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

Statement of Financial Position

As at 29 February 2012

		29 February	28 February
		2012	2011
	Notes	US$'000	US$'000
Assets
Investments at fair value through profit or loss	11	414,549	447,804
Investments classified as loans and receivables	11	23,974	45,952
Investment in an associate	11	69,950	-
Cash held on deposit	12	7,968	-
Other receivables	14	451	464
Cash and cash equivalents	13	194,513	172,267
Total assets		711,405	666,487

Liabilities
Zero Dividend Preference shares	16	87,281	82,341
Other payables	15	8,662	3,358
Total liabilities		95,943	85,699

Equity	19
Share capital account		149,269	149,269
Distributable reserve		353,528	353,528
Capital reserve		41,775	21,933
Revenue reserve		70,890	56,058
Total equity		615,462	580,788

Total liabilities and equity		711,405	666,487

Number of Ordinary shares in issue at year end	17	65,018,610	65,018,610

Net asset value per Ordinary share	24	US$ 9.47	US$ 8.93

These audited financial statements were approved by the Board of Directors and authorised for issue on 17 May 2012. They were signed on its behalf by:

David Macfarlane Patrick Firth

Chairman Director

Statement of changes in equity

For the year ended 29 February 2012

		Share
		Capital	Distributable	Capital Reserve		Revenue
	Notes	Account US$'000	Reserve US$'000	Realised US$'000	Unrealised US$'000	Reserve US$'000	Total US$'000

Balance at 1 March 2011*		149,269	353,528	14,525	7,408	56,058	580,788
Profit for the year		-	-	53,582	(33,740)	25,202	45,044
Dividends paid	30	-	-	-	-	(10,370)	(10,370)
Balance at 29 February 2012		149,269	353,528	68,107	(26,332)	70,890	615,462

*The opening balances at 1 March 2011 have been adjusted to reflect the reallocation of ZDP interest totalling US$9,826,000, from realised capital to unrealised capital reserves.

For the year ended 28 February 2011

	Share
	Capital	Distributable	Capital Reserve		Revenue
	Account US$'000	Reserve US$'000	Realised US$'000	Unrealised US$'000	Reserve US$'000	Total US$'000

Balance at 1 March 2010	149,269	353,517	(20,617)	(64,573)	39,917	457,513
Profit for the year	-	-	25,316	81,807	30,120	137,243
Dividends paid	-	-	-	-	(13,979)	(13,979)
Increase in receivables relating to JZ Equity Partners Plc	-	11	-	-	-	11
Balance at 28 February 2011	149,269	353,528	4,699	17,234	56,058	580,788

Statement of cash flows

For the year ended 29 February 2012

		1 March 2011 to 29 February 2012	1 March 2010 to 28 February 2011
	Notes	US$'000	US$'000
Operating activities
Net cash inflow from operating activities	25	1,633	15,056
Cash outflow for purchase of investments		(73,729)	(115,814)
Cash outflow for purchase of treasury and floating notes		(64,293)	(99,695)
Cash outflow for deposits with maturity date greater than 3 months		(7,901)	-
Cash outflow from capital calls in associate		(49,153)	-
Cash inflow from repayment and disposal of investments		226,059	150,694
Cash inflow from sale of US treasury notes		-	101,133
Net cash inflow before financing activities		32,616	51,374

Financing activity
Issue costs relating to the issue of Ordinary shares		-	(297)
Receipt of liquidation funds from JZEP		-	302
Distributions paid to shareholders		(10,370)	(13,979)

Net cash outflow from financing activities		(10,370)	(13,974)

Increase in cash and cash equivalents		22,246	37,400

Reconciliation of net cash flow to movements in cash and cash equivalents
Cash and cash equivalents at 1 March		172,267	134,867
Increase in cash and cash equivalents as above		22,246	37,400

Cash and cash equivalents at year end		194,513	172,267

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

Notes to the Financial Statements

1. General Information

JZ Capital Partners Limited (the "Company") is a Guernsey domiciled closed-ended investment company which was incorporated in Guernsey on 14 April 2008 under The Companies (Guernsey) Law, 1994. The Company is now subject to the Companies (Guernsey) Law, 2008. The Company's Share Capital consists of Ordinary shares, Limited Voting

Ordinary shares ("LVO") and Zero Dividend Preference ("ZDP") shares. The Ordinary shares and ZDP shares were admitted to the official list of the London Stock Exchange on 1 July 2008. The LVO shares are not listed and are not admitted to trade on or through the facilities of the London Stock Exchange.

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

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

The Company is classed as an authorised fund under the Protection of Investors (Bailiwick of Guernsey) Law 1987.

The Company's corporate objective is to create a portfolio of investments in businesses primarily in the United States, but also in Europe, providing a superior overall return comprised of a current yield and significant capital appreciation.

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

The Company has no direct employees. For its services the Investment Adviser receives a management fee and is also entitled to a performance-related fee (note 9). The Company has no ownership interest in the Investment Adviser. The Company is administered by Butterfield Fulcrum Group (Guernsey) Limited (note 9).

The financial statements are presented in US$'000 except where otherwise indicated.

2. Significant Accounting Policies

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

Statement of Compliance

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

Basis of preparation

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

Going concern

A fundamental principle of the preparation of financial statements in accordance with IFRS is the assumption that an entity will continue in existence as a going concern, which contemplates continuity of operations and the realisation of assets and settlement of liabilities occurring in the ordinary course of business.

The Directors consider the Company has adequate financial resources, in view of its holding in cash and cash equivalents and liquid investments and the income streams deriving from its investments and believe that the Company is well placed to manage its business risks successfully to continue in operational existence for the foreseeable future and that it is appropriate to prepare the financial statements on the going concern basis.

Changes in accounting policy and disclosures

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

The Company has adopted the following standards and amendments as of 1 March 2011, although they had no effect on the financial statements:

IAS 24 Related Party Disclosures (amendment) effective 1 January 2011

The IASB issued an amendment to IAS 24 that clarifies the definitions of a related party.

IAS 32 Financial Instruments: Presentation (amendment) effective 1 February 2010.

The IASB issued an amendment that alters the definition of a financial liability in IAS 32 to enable entities to classify rights issues and certain options or warrants as equity instruments.

IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments effective 1 July 2010

The interpretation clarifies that equity instruments issued to a creditor to extinguish a financial liability qualify as consideration paid.

Improvements to IFRSs (May 2010) effective either 1 July 2010 or 1 January 2011.

In May 2010, the IASB issued its third omnibus of amendments to its standards, primarily with a view to removing inconsistencies and clarifying wording.

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

IAS 27 Separate Financial Statements (as revised in 2011)

As a consequence of the new IFRS 10 and IFRS 12, what remains of IAS 27 is limited to accounting for subsidiaries, jointly controlled entities, and associates in separate financial statements. The Company does not present separate financial statements. The amendment becomes effective for annual periods beginning on or after 1 January 2013.

IAS 28 Investments in Associates and Joint Ventures (as revised in 2011)

As a consequence of the new IFRS 11 and IFRS 12, IAS 28 has been renamed IAS 28 Investments in Associates

and Joint Ventures, and describes the application of the equity method to investments in joint ventures in addition to associates. The amendment becomes effective for annual periods beginning on or after 1 January 2013.

IFRS 7 Financial Instruments: Disclosures - Enhanced Derecognition Disclosure Requirements

The amendment requires additional disclosure about financial assets that have been transferred but not derecognised to enable the user of the Company's financial statements to understand the relationship with those assets that have not been derecognised and their associated liabilities. In addition, the amendment requires disclosures about continuing involvement in derecognised assets to enable the user to evaluate the nature of, and risks associated with, the entity's continuing involvement in those derecognised assets. The amendment becomes effective for annual periods beginning on or after 1 July 2011. The amendment affects disclosure only and has no impact on the Group's financial position or performance.

IFRS 9 Financial Instruments: Classification and Measurement

The adoption of the first phase of IFRS 9 (effective for periods beginning on after 1 January 2015) will have an effect on the classification and measurement of the Company's financial assets, but will potentially have no impact on classification and measurements of financial liabilities.

IFRS 10 Consolidated Financial Statements

IFRS 10 establishes a single control model that applies to all entities including special purpose entities. The changes introduced by IFRS 10 will require management to exercise significant judgement to determine which entities are controlled, and therefore, are required to be consolidated by a parent.

IFRS 12 Disclosure of Involvement with Other Entities

IFRS 12 includes all of the disclosures that were previously in IAS 27 related to consolidated financial statements, as well as all of the disclosures that were previously included in IAS 31 and IAS 28. These disclosures relate to an entity's interests in subsidiaries, joint arrangements, associates and structured entities. A number of new disclosures are also required. This standard becomes effective for annual periods beginning on or after 1 January 2013.

IFRS 13 Fair Value Measurement

IFRS 13 establishes a single source of guidance under IFRS for all fair value measurements. IFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under IFRS when fair value is required or permitted. The Company is currently assessing the impact that this standard will have on the financial position and performance. This standard becomes effective for annual periods beginning on or after 1 January 2013.

There are certain other current standards, amendments and interpretations that are not relevant to the Company's operations.

Functional and presentational currency

Items included in the financial statements of the Company are measured in the currency of the primary economic environment in which the Company operates ("the functional currency"). The functional currency of the Company as determined in accordance with IFRS is the

US dollar because this is the currency that best reflects the economic substance of the underlying events and circumstances of the Company. The financial statements are presented in US dollars, as the Company has chosen the US dollar as its presentation currency.

Foreign exchange

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

Financial assets and financial liabilities

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

(i) Classification

The Company classifies its investments in listed investments, investments in first and second lien debt securities, other equity opportunities and other investments within its Micro Cap and Legacy portfolios as financial assets at fair value through profit or loss. These financial assets are designated by the Board of Directors as at fair value through profit or loss at inception.

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

(ii) Recognition/derecognition

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

Financial assets and liabilities at fair value through profit or loss are initially recognised at fair value. Transaction costs are expensed in the statement of comprehensive income.

Subsequent to initial recognition, all financial assets and liabilities at fair value through profit or loss are measured at fair value. Gains and losses arising from changes in the fair value of the "financial assets or financial liabilities at fair value through profit or loss" category are presented in the statement of comprehensive income in the period in which they arise.

Dividend income from financial assets at fair value through profit or loss is recognised in the statement of comprehensive income within investment income when the Company's right to receive payment is established.

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

(iii) Fair value estimation

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

Unquoted preferred shares, micro cap loans, unquoted equities and equity related securities investments are typically valued by reference to their enterprise value, which is generally calculated by applying an appropriate multiple to the last twelve months' earnings before interest, tax, depreciation and amortisation ("EBITDA"). In determining the multiple, the Directors consider inter alia, where practical, the multiples used in recent transactions in comparable unquoted companies, previous valuation multiples used and where appropriate, multiples of comparable publicly traded companies. In accordance with IPEVCA guidelines, a marketability discount is applied which reflects the discount that in the opinion of the Directors, market participants would apply in a transaction in the investment in question.

Traded loans including first and second lien term securities are valued by reference to the last indicative bid price from recognised market makers. These investments are classified in the Statement of Financial Position as Investments at fair value through profit or loss.

(b) Loans and receivables

(i) Classification

The Company classifies unquoted senior subordinated debt within Mezzanine investments as loans and receivables.

Investments are generally accounted for at amortised cost using the effective interest method except where there is deemed to be impairment in value which indicates that a provision should be made.

(ii) Recognition/derecognition

(iii) Measurement

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

(iv) Impairment

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

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

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

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

The Company's investment in its associate is accounted for using the equity method. An associate is an entity in which the Company has significant influence. An entity is regarded as a subsidiary only if the Company has control over its strategic, operating and financial policies and intends to hold the investment on a long-term basis for the purpose of securing a contribution to the Company's activities.

The Directors have determined that although the Company has over 50% economic partnership interest in Euromicrocap Fund 2010, LP (the "Partnership"), it does not have the power to govern the financial and operating policies of the partnership. Such powers are vested with the General Partner. However the Company does have significant influence over the partnership.

Under the equity method, the investment in the associate is carried in the statement of financial position at cost plus post acquisition changes in the Company's share of net assets of the associate. The income statement reflects the share of the results of operations of the associate. Where there has been a change recognised directly in the equity of the associate, the Company recognises its share of any changes and discloses this, when applicable, in the statement of changes in equity. Unrealised gains and losses resulting from transactions between the Company and the associate are eliminated to the extent of the interest in the associate. The share of profit of an associate is shown on the face of the income statement. This is the profit attributed to holders of partnership interest in the associate.

After application of the equity method, the Company determines whether it is necessary to recognise an additional impairment loss on the Company's investment in its associate. The Company determines at each reporting date whether there is any objective evidence that the investment in the associate is impaired. If this is the case the Company calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value and recognises the amount in the "share of profit of an associate" in the income statement. Upon loss of significant influence over the associate, the Company measures and recognises any retaining investment at its fair value. Any difference between the carrying amount of the associate upon loss of significant influence and the fair value of the retaining investment and proceeds from disposal is recognised in profit or loss.

d) Cash on deposit

Cash on deposits comprise bank deposits with an original maturity of three months or more.

e) Cash and cash equivalents

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

f) Other receivables and payables

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

g) Financial liabilities and equity

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

h) Zero Dividend Preference ("ZDP") shares

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

Income

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

Expenses

Investment Adviser's basic fees are allocated to revenue. The Company will also provide for a Capital Gains Incentive fee based on net unrealised investments gains.

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

Finance costs

Finance costs are interest expenses in respect of the ZDP shares and are recognised in the Statement of Comprehensive Income using the effective interest method.

Escrow accounts

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

3. Segment Information

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

· Portfolio of bank debt

· Portfolio of mezzanine investments

· Portfolio of US micro cap investments

· Portfolio of European micro cap investments

· Portfolio of legacy investments

· Portfolio of listed investments.

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

Investment in treasury gilts/notes are not considered part of any individual segment and have therefore been excluded from this segmental analysis.

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

Segmental operating profit/(loss)

For the year ended 29 February 2012

	Bank Debt US$'000	Mezzanine Portfolio US$'000	Micro Cap US US$'000	Micro Cap European US$'000	Legacy Portfolio US$'000	Listed Investments US$'000	Total US$'000
Interest revenue	2,483	5,387	24,785	1,377	4,301	-	38,333
Dividend revenue	-	-	-	-	-	4,577	4,577
Other revenue	249	-	-	-	-	-	249
Net gain/(loss) on investments at fair value through profit or loss	4,246	3,080	2,130	(576)	3,098	(5,529)	6,449
Share of associate's net income	-	-	-	20,797	-	-	20,797
Impairments on loans and receivables	-	142	-	-	-	-	142
Investment Adviser's base fee	(593)	(695)	(3,949)	(1,424)	(921)	(977)	(8,559)
Investment Adviser's capital incentive fee*	-	(63)	(3,267)	(486)	-	(1,541)	(5,357)
Investment Adviser's income incentive fee**	(104)	(255)	(3,922)	(68)	-	(61)	(4,410)
Total segmental operating profit	6,281	7,596	15,777	19,620	6,478	(3,531)	52,221

For the year ended 28 February 2011

	Bank Debt US$'000	Mezzanine Portfolio US$'000	Micro Cap US US$'000	Micro Cap European US$'000	Legacy Portfolio US$'000	Listed Investments US$'000	Total US$'000
Interest revenue	2,907	8,832	19,693	999	3,005	-	35,436
Dividend revenue	-	-	-	-	-	4,093	4,093
Other revenue	77	1,198	-	-	138	-	1,413
Net gain on investments at fair value through profit or loss	17,319	(66)	42,184	2,029	21,350	35,374	118,190
Net impairments on loans and receivables	-	(2,019)	-	-	-	-	(2,019)
Investment Adviser's base fee	(600)	(851)	(3,905)	(720)	(748)	(1,843)	(8,667)
Investment Adviser's capital incentive fee*	1,518	2,255	(5,578)	-	-	-	(1,805)
Total segmental operating profit	21,221	9,349	52,394	2,308	23,745	37,624	146,641

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

** The income incentive fee is allocated across segments in the ratio of the investment income earned during the quarter in which the fee became payable

Segmental assets

At 29 February 2012

Bank

Debt

US$'000

Mezzanine

Portfolio

US$'000

Micro Cap

US$'000

Micro Cap

European

US$'000

Legacy

Portfolio

US$'000

Listed

Investments

US$'000

Total

US$'000

Investments at fair value through profit or loss

32,512

5,658

181,655

15,179

25,312

88,639

348,955

Investments classified as loans and receivables

23,974

Investment in an associate

69,950

Total segmental assets

32,512

29,632

181,655

85,129

25,312

88,639

442,879

Segmental assets

At 28 February 2011

Bank

Debt

US$'000

Mezzanine

Portfolio

US$'000

Micro Cap

US$'000

Micro Cap

European

US$'000

Legacy

Portfolio

US$'000

Listed

Investments

US$'000

Total

US$'000

Investments at fair value through profit or loss

34,121

2,547

230,983

32,517

42,620

105,016

447,804

Investments classified as loans and receivables

45,952

Total segmental assets

34,121

48,499

230,983

32,517

42,620

105,016

493,756

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

3. Segment Information

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

	Year ended	Year ended
	29/02/2012	28/02/2011
	US$'000	US$'000

Net reportable segment profit	52,221	146,641
Net gains on treasury gilts/notes	605	2,553
Realised gains on investments held in escrow accounts	2,093	2,553
Net foreign exchange gains/(losses)	1,694	1,438
Interest on treasury notes	399	286
Interest on cash	460	(5,008)
Fees payable to investment adviser based on non segmental assets	(1,688)	343
Expenses not attributable to segments	(2,786)	(2,382)
Operating profit	52,998	143,871

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

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

	29/02/2012	28/02/2011
	US$'000	US$'000

Total segmental assets	442,879	493,756
Treasury gilts	33,465	-
Floating rate notes	32,129	-
Cash held on deposit	7,968	-
Cash and cash equivalents	194,513	172,267
Other receivables and prepayments	451	464
Total assets	711,405	666,487

Total segmental liabilities	-	-
Other payables and accrued expenses	(95,943)	(85,699)
Total liabilities	(95,943)	(85,699)

4. Critical Accounting Judgements and Key Sources of Estimation Uncertainty

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

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

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

In reaching the valuation of the unquoted equities and equity related securities the critical judgements and key sources of uncertainty are the selection of multiples for comparable companies and the discount factors used in valuation models.

Loans and receivables

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

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

	Year ended	Year ended
	29/02/2012	28/02/2011
	US$'000	US$'000

Movement in unrealised gains on investments	(11,284)	90,189

Proceeds from investments disposed/realised	197,663	216,757
Cost of investments disposed/realised	(141,696)	(181,360)
Unrealised gains in prior year now realised	(37,629)	(5,958)
Total net realised gains in year	18,338	29,439

Net gain on investments in year	7,054	119,628

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

	Year ended	Year ended
	29/02/2012	28/02/2011
	US$'000	US$'000

Net impairments on loans and receivables	(174)	(3,369)
Proceeds from investments disposed/realised	29,118	35,052
Cost of investments disposed/realised	(28,227)	(33,702)
Unrealised gains in prior year now realised	(575)	-
Net realised gain	316	1,350
Net (impairments)/write back of impairments on loans and receivables	142	(2,019)

7. Investment income

	Year ended	Year ended
	29/02/2012	28/02/2011
	US$'000	US$'000

Income from investments classified as FVTPL	38,202	32,421
Income from investments classified as loans and receivables	5,356	8,807
	43,558	41,228

Income for the year ended 29 February 2012

Preference Dividend Loan note Other Other

	Dividends US$ '000	PIK US$ '000	Cash US$ '000	PIK US$ '000	Cash US$ '000	Interest US$ '000	Income US$ '000	Total US$'000
1st and 2nd Lien bank debt	-	-	-	-	-	2,483	249	2,732
Mezzanine portfolio	-	31	-	360	4,996	-	-	5,387
US Micro Cap portfolio	-	16,595	-	3,540	4,650	-	-	24,785
European Micro Cap portfolio	-	-	-	-	1,377	-	-	1,377
Legacy portfolio	-	73	-	2,892	1,336	-	-	4,301
Listed investments	4,577	-	-	-	-	-	-	4,577
Treasury and floating rate notes	-	-	-	-	-	399	-	399
	4,577	16,699	-	6,792	12,359	2,882	249	43,558

7. Investment income

Income for the year ended 28 February 2011

Preference Dividend Loan note Other Other

	Dividends US$ '000	PIK US$ '000	Cash US$ '000	PIK US$ '000	Cash US$ '000	Interest US$ '000	Income US$ '000	Total US$'000
1st and 2nd Lien bank debt	-	-	-	-	-	2,907	77	2,984
Mezzanine portfolio	-	25	-	433	8,374	-	1,198	10,030
Micro Cap portfolio	-	11,757	365	3,485	5,085	-	-	20,692
Legacy portfolio	-	73	-	2,798	134	-	138	3,143
Listed investments	4,093	-	-	-	-	-	-	4,093
Treasury notes	-	-	-	-	-	286	-	286
	4,093	11,855	365	6,716	13,593	3,193	1,413	41,228

Interest on investments is shown net of a US$7,704,000 (year ended 28 February 2011: US$8,247,000) write down calculated in accordance with the Company's accounting and valuation policy.

8. Finance costs

	Year ended	Year ended
	29/02/2012	28/02/2011
	US$'000	US$'000

Zero Dividend Preference shares	6,581	5,938
	6,581	5,938

Finance costs arising are allocated to the Statement of Comprehensive Income using the effective interest rate method. The rights and entitlements of the ZDP shares, which are accounted for at amortised cost are described in Note 16.

9. Expenses

	Year ended	Year ended
	29/02/2012	28/02/2011
	US$'000	US$'000

Investment Adviser's base fee	10,247	8,667
Investment Adviser's capital incentive fee	5,357	2,093
Investment Adviser's income incentive fee	4,410	-
	20,014	10,760

Administrative expenses:
Legal and professional fees	1,308	556
Other expenses	504	554
Directors' remuneration	380	380
Accounting, secretarial and administration fees	400	400
Auditors' remuneration	164	194
Custodian fees	30	10
	2,786	2,094

Total expenses	22,800	12,854

Directors fees

The Chairman is entitled to a fee of US$140,000 per annum. Each of the other Directors are entitled to a fee of US$60,000 per annum. For the year ended 29 February 2012 total Directors' fees included in the Statement of Comprehensive Income were US$380,000 (year ended 28 February 2011: US$380,000), of this amount US$63,000 was outstanding at the year end (28 February 2011: US$63,000) and included within Other Payables.

Investment advisory and performance fees

The Company entered into an investment advisory and management agreement with Jordan/Zalaznick

9. Expenses (continued)

Advisers, Inc (the "Investment Adviser") in May 2008 which was then amended and restated on 20 May 2009 and again on 23 December 2010 (the "Advisory Agreement").

Pursuant to the Advisory Agreement, the Investment Adviser is entitled to a base management fee and to an incentive fee. The base management fee is an amount equal to 1.5 per cent. per annum of the average total assets under management of the Company less those assets identified by the Company as being excluded from the base management fee. The base management fee is payable quarterly in arrears; the agreement provides that payments in advance on account of the base management fee will be made.

The incentive fee has two parts. The first part is calculated by reference to the net investment income of the Company ("Income Incentive Fee") and is payable quarterly in arrears provided that the net investment income for the quarter exceeds 2 per cent of the average of the net asset value of the Company for that quarter (the "hurdle") (8 per cent. annualised). The fee is an amount equal to (a) 100 per cent of that proportion of the net investment income for the quarter as exceeds the hurdle, up to an amount equal to a hurdle of 2.5%, and (b) 20 per cent. of the net investment income of the Company above a hurdle of 2.5% in any quarter. Change in the valuation of income related (PIK) investments are also classed as an increase or decrease to investment income. Investments categorised as legacy investments and other assets identified by the Company as being excluded are excluded from the calculation of the fee. A true-up calculation is also payable at the end of each financial year to determine if further fees are payable to the Investment Adviser or if any amounts are recoverable from future income incentive fees.

For the year ended 29 February an amount of US$4,409,700 was paid on the basis that the net investment income of the Company as determined in the Advisory Agreement exceeded the third quarter hurdle rate of 2% (8% per annum). This is further discussed in Note 29.

The second part of the incentive fee is calculated by reference to the net realised capital gains ("Capital Incentive Fee") of the Company and is equal to: (a) 20 per cent. of (x) the realised capital gains of the Company for each financial year less (y) all realised capital losses of the Company for the year less (b) the aggregate of all previous capital gains incentive fees paid by the Company to the Investment Adviser. The capital gains incentive is payable in arrears within 90 days of the fiscal year end. Investments categorised as legacy investments and those assets of the Euro Microcap Fund 2010, LP are excluded from the calculation of the fee.

For the year ended 29 February 2012 total Investment advisory and management expenses, based on the average total assets of the Company, were included in the Statement of Comprehensive Income of US$10,247,000 (28 February 2011: US$8,667,000) of this amount US$1,105,000 (28 February 2011: US$713,000) was outstanding at the period end and is included within Other Payables.

The Company provides for a capital gains incentive fee based on cumulative net realised and unrealised investments gains. At 29 February 2012 the provision for the capital gains incentive fee was US$5,357,000 (28 February 2011: US$2,093,000).

	29/02/2012	28/02/2011
Provision for capital incentive fee	US$'000	US$'000

Provision based on realised gains and payable within 90 days of the fiscal year	5,357	2,093
Provision based on unrealised gains at the fiscal year end	-	-
	5,357	2,093

The value of investments included in the calculation of the capital incentive fee based on unrealised gains excludes accrued income and PIK investments.

The Advisory agreement may be terminated by the Company or the Investment Advisor upon not less than two and one-half years' (i.e. 913 days') prior notice (or such lesser period as may be agreed by the Company and Investment Adviser).

9. Expenses

Administration fees

Butterfield Fund Services (Guernsey) Limited was appointed on 12 May 2008 under an Administration, Secretarial and Registrar Agreement. Butterfield Fund Services and Fulcrum Group merged during September 2008 forming Butterfield Fulcrum Group (Guernsey) Limited (the "Administrator").

The Administrator is entitled to a quarterly fee of US$100,000 payable monthly (quarterly pre 1 October 2010) in arrears. Fees payable are subject to an annual fee review. For the year ended 29 February 2012 total expenses payable to the Administrator of US$400,000.

(28 February 2011: US$400,000) were included in the Statement of Comprehensive Income, of this amount US$67,000 (28 February 2011: US$33,000) was outstanding at the year end and is included within Other Payables.

Custodian fees

HSBC Bank (USA) N.A (the "Custodian") was appointed on 12 May 2008 under a custodian agreement. The Custodian is entitled to receive an annual fee of US$2,000 and a transaction fee of US$50 per transaction. For the year ended 29 February 2012 total expenses were included in the Statement of Comprehensive Income of US$30,000 (28 February 2011: US$10,000) of which US$nil (28 February 2011: US$1,000) was outstanding at the year end and is included within Other Payables.

Auditors remuneration

All of the auditors remuneration relates to the annual audit and half year review report. During the year ended 29 February 2012 professional fees of US$65,000 were paid in the year to Ernst & Young for taxation services.

10. Taxation

For both 2012 and 2011 the Company applied for and was granted exempt status for Guernsey tax purposes under the terms of The Income Tax (Zero 10) (Guernsey) Law, 2007.

For the year ended 29 February 2012 the Company suffered withholding tax of US$1,373,000 (28 February 2011: US$690,000) on dividend income from listed investments.

11. Investments

Categories of financial instruments

	Listed	Unlisted	Carrying Value
	29/02/2012	29/02/2012	29/02/2012
	US$ '000	US$ '000	US$ '000

Fair value through profit or loss (FVTPL)	154,233	260,316	414,549
Loans and receivables	-	23,974	23,974
Investment in an associate	-	69,950	69,950
	154,233	354,240	508,473

	Listed	Unlisted	Carrying Value
	28/02/2011	28/02/2011	28/02/2011
	US$ '000	US$ '000	US$ '000

Fair value through profit or loss (FVTPL)	105,016	342,788	447,804
Loans and receivables	-	45,952	45,952
	105,016	388,740	493,756

11. Investments

	Listed	Unlisted	Total
	29/02/2012	29/02/2012	29/02/2012
	US$ '000	US$ '000	US$ '000

Book cost at 1 March 2011	75,017	394,118	469,135
Purchases in year	64,847	73,729	138,576
Capital calls during year	-	49,153	49,153
Payment in kind ("PIK")	-	25,995	25,995
Proceeds from investments disposed/realised	(10,850)	(215,204)	(226,054)
Realised gains on disposal	3,563	53,295	56,858

Book cost at 29 February 2012	132,577	381,086	513,663
Unrealised gains(losses) at 29 February 2012	21,514	(33,310)	(11,796)
Accrued interest at 29 February 2012	142	6,464	6,606
Carrying value at 29 February 2012	154,233	354,240	508,473

The above book cost is the cost to JZCP equating to the transfer value as at 1 July 2008 upon the liquidation of JZEP and adjusted for subsequent transactions.

The cost of PIK investments is deemed to be the interest recognised in the Statement of Comprehensive Income that has not been received in cash but settled by the issue of further securities.

Investment in associate

At 29 February 2012 the Company had one associate carrying on business which affects the profits and assets of the Company. The Company's associate consists solely of limited partnership interest directly held in the Partnership, which applies accounting policies that are consistent with the Company's.

Entity	Principal activity	% Interest

EuroMicrocap Fund 2010, LP	Acquiror of Europe-based microcap companies	75%

The Company's share of the aggregated financial information of the equity accounted associate is set out below. The amounts for the year ended 29 February 2012 include the share of results and net assets in the associate from the date of establishment to 29 February 2012.

	29/02/2012	28/02/2011
	US$'000	US$'000

Share of result in associate	20,797	-

Non current assets	68,795	-
Current liabilities	1,155	-
	69,950	-

12. Cash held on deposit

	29/02/2012	28/02/2011
	US$'000	US$'000

Cash held on deposit	7,968	-

	7,968	-

Cash held on deposit includes bank deposits with an original maturity of three months or more. The carrying value of these assets approximates to their fair value.

13. Cash and cash equivalents

	29/02/2012	28/02/2011
	US$'000	US$'000

Cash at bank	194,513	172,267

	194,513	172,267

Cash and cash equivalents comprise bank balances and cash held by the Company including short-term bank deposits with an original maturity of three months or less. The carrying value of these assets approximates to their fair value.

14. Other receivables

	29/02/2012	28/02/2011
	US$'000	US$'000

Accrued dividend income on listed investments	405	405
Other prepayments	44	31
Bank and deposit interest	2	28
	451	464

15. Other payables

	29/02/2012	28/02/2011
	US$'000	US$'000

Investment Adviser's fees	6,462	2,806
Payable on unsettled trades	790	-
Provision for tax on not withheld at source on dividends received	679	-
Legal fees	300	255
Other expenses	222	133
Auditors' remuneration	79	68
Directors' remuneration	63	63
Fees due to administrator	67	33
	8,662	3,358

16. Zero Dividend Preference ("ZDP") shares

Authorised Capital

Unlimited number of ZDP shares of no par value.

	29/02/2012	28/02/2011
	US$'000	US$'000
ZDP shares redeemed 22 June 2009
Amortised cost at 1 March	82,341	71,399
Finance costs allocated to statement of comprehensive income	6,581	5,938
Unrealised currency gain on translation during the year	(1,641)	5,004
Amortised cost at year end	87,281	82,341

Total number of ZDP shares in issue	20,707,141	20,707,141
Price per ZDP share US$	US$ 4.2254	US$ 3.9892
Price per ZDP share GBP	GBP 2.6513	GBP 2.4549

16. Zero Dividend Preference ("ZDP") shares

ZDP shares were issued on 22 June 2009 at a price of 215.80 pence and are designed to provide a pre-determined final capital entitlement of 369.84 pence on 22 June 2016 which ranks behind the Company's creditors but in priority to the capital entitlements of the Ordinary shares. The ZDP shares carry no entitlement to income and the whole of their return will therefore take the form of capital. The capital appreciation of approximately 8% per annum is calculated monthly. In certain circumstances, ZDP shares carry the right to vote at general meetings of the Company as detailed in the Company's Memorandum of Articles and Association. Issue costs are deducted from the cost of the liability and allocated to the statement of comprehensive income over the life of the ZDP shares.

17. Share Capital

Authorised Capital

Unlimited number of ordinary shares of no par value.

Ordinary shares - Issued Capital

	29/02/2012	28/02/2011
	Number of shares	Number of shares

Balance at 1 March	42,913,132	42,913,132
Issued during year	1,300,000	-
Share consolidation 1 for 5	(6,893,895)	-
Total ordinary shares in issue	37,319,237	42,913,132

Limited Voting Ordinary shares - Issued Capital

	29/02/2012	28/02/2011
	Number of shares	Number of shares

Balance at 1 March	22,105,478	22,105,478
Converted to Ordinary shares	(1,300,000)	-
Converted from Ordinary shares	6,893,895	-
Total limited voting ordinary shares in issue	27,699,373	22,105,478
Total shares in issue	65,018,610	65,018,610

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

During the year ended 29 February 2012, 1,300,000 Ordinary shares were admitted to the Official List of the UK Financial Services Authority and to dealings on the London Stock Exchange's market for listed securities following the conversion of LVO shares.

On 25 August 2011, a total of 6,893,895 Ordinary shares were converted into Limited Voting Ordinary shares following the request of a number of US shareholders.

The Ordinary shares and LVO shares carry a right to receive the profits of the Company available for distribution by dividend and resolved to be distributed by way of dividend to be made at such time as determined by the Directors.

In addition to receiving the income distributed, the Ordinary shares and LVO shares are entitled to the net assets of the Company on a winding up, after all liabilities have been settled and the entitlement of the ZDP shares have been met. In addition, holders of Ordinary shares and LVO shares will be entitled on a winding up to receive any accumulated but unpaid Revenue reserves of the Company, subject to all creditors having been paid out in full but in priority to the entitlements of the ZDP shares.

17. Share Capital

Any distribution of Revenue reserves on a winding up is currently expected to be made by way of a final special dividend prior to the Company's eventual liquidation.

Holders of Ordinary shares shall have the rights to receive notice of, to attend and to vote at all general meeting of the Company.

Further issue of shares

Under the Articles, the Directors have the power to issue new shares on a non pre-emptive basis. The Directors have resolved, however, that new shares will not be issued at a discount to the prevailing Net Asset Value per Ordinary share other than where shareholders are permitted to participate in the issue pro rata to their existing holding in the Company and, therefore, will not be disadvantageous to existing shareholders. Future issues of shares will be carried out in accordance with the Listing Rules.

The Directors will consider issuing new shares at not less than the prevailing Net Asset Value per Ordinary share where there is a significant demand for further shares.

Purchase of own shares by the Company

It is the intention of the Directors to seek authority from shareholders on a regular basis to allow the Company to repurchase shares in the market to prevent the emergence of a significant discount on the Company's market price to the Company's Net Asset Value.

18. Capital management

The Company's capital is represented by the Ordinary shares, LVO shares and ZDP shares.

As a result of the ability to issue, repurchase and resell shares, the capital of the Company can vary. The Company is not subject to externally imposed capital requirements and has no restrictions on the issue, repurchase or resale of its shares.

The Company's objectives for managing capital are:

• To invest the capital in investments meeting the description, risk exposure and expected return indicated in its prospectus.

• To achieve consistent returns while safeguarding capital by investing in a diversified portfolio.

• To maintain sufficient liquidity to meet the expenses of the Company, and to meet redemption requests as they arise.

• To maintain sufficient size to make the operation of the Company cost-efficient.

The Company continues to keep under review opportunities to buy back Ordinary or ZDP shares.

The Company monitors capital by analysing the NAV per share over time and tracking the discount to the Company's share price. It also monitors the performance of the existing investments to identify opportunities for exiting at a reasonable return to the shareholders.

19. Reserves

Capital raised on formation of the Company

The Royal Court of Guernsey granted that on the admission of the Company's shares to the official list and to trading on the London Stock Exchange's market, the amount credited to the share premium account of the Company immediately following the admission of such shares be cancelled and any surplus thereby created accrue to the Company's distributable reserves to be used for all purposes permitted by the Companies Law, including the purchase of shares and the payment of dividends.

Capital raised on issue of new shares

Subsequent amounts raised by the issue of new shares, net of issue costs, are credited to a share capital account.

Distributable reserves

Subject to satisfaction of the solvency test, all of the Company's capital and reserves are distributable in accordance with the Companies (Guernsey) Law, 2008.

19. Reserves

Summary of reserves attributable to Ordinary shareholders

	29/02/2012	28/02/2011
	US$'000	US$'000

Distributable reserve	353,528	353,528
Share capital account	149,269	149,269
Capital reserve	41,775	21,933
Revenue reserve	70,890	56,058
	615,462	580,788

Distributable reserve	29/02/2012	28/02/2011
	US$'000	US$'000
	US$ '000	US$ '000

At 1 March 2011	353,528	353,517
Increase in provisions/receivables relating to JZ Equity Partners Plc	-	11
At 29 February 2012	353,528	353,528

Share capital account	29/02/2012	28/02/2011
	US$ '000	US$ '000

At 1 March 2011	149,269	149,269
At 29 February 2012	149,269	149,269

Capital reserve

All surpluses arising from the realisation or revaluation of investments and all other capital profits and accretions of capital shall be credited to the Capital reserve. Any loss arising from the realisation or revaluation of investments or any expense, loss or liability classified as capital in nature may be debited to the Capital reserve.

	Capital reserve
	Realised	Unrealised	Total
	29/02/2012	29/02/2012	29/02/2012
	US$ '000	US$ '000	US$ '000

At 1 March 2011	14,525	7,408	21,933
Net gains/(losses) on investments	56,858	(28,865)	27,993
Unrealised net foreign currency exchange gains	-	1,706	1,706
Realised gains on investments held in escrow accounts	2,093	-	2,093
Realised net foreign currency exchange losses	(12)	-	(12)
Expenses charged to capital	(5,357)	(6,581)	(5,357)
Finance costs in respect of Zero Dividend Preference	-	-	(6,581)
At 29 February 2012	68,107	(26,332)	41,775

19. Reserves

	Capital reserve
	Realised	Unrealised	Total
	28/02/2011	28/02/2011	28/02/2011
	US$ '000	US$ '000	US$ '000

At 1 March 2010	(16,729)	(68,461)	(85,190)
Net gains on investments	30,789	86,820	117,609
Unrealised net foreign currency exchange losses	-	(5,013)	(5,013)
Realised gains on investments held in escrow accounts	2,553	-	2,553
Realised net foreign currency exchange losses	5	-	5
Expenses charged to capital	(2,093)	-	(2,093)
Finance costs in respect of Zero Dividend Preference	-	(5,938)	(5,938)
At 28 February 2011	14,525	7,408	21,933

Revenue reserve	29/02/2012	28/02/2011
	US$ '000	US$ '000

At 1 March 2011	56,058	39,917
Profit for the year attributable to revenue	25,202	30,120
Dividend paid	(10,370)	(13,979)
At 29 February 2012	70,890	56,058

20. Financial Instruments

Categories of financial instruments

	Carrying Value	Carrying Value
	29/02/2012	28/02/2011
	US$ '000	US$ '000
Financial assets
Fair value through profit or loss (FVTPL)	414,549	447,804
Loans and receivables	23,974	45,952
Investment in associate	69,950	-
Other receivables	451	464
Cash held on deposit (maturity date > 3 months)	7,968	-
Cash and cash equivalents	194,513	172,267
Total assets	711,405	666,487

Financial liabilities
Valued at amortised cost
- Zero Dividend Preference ("ZDP") shares	(87,281)	(82,341)
Trade payables	(8,662)	(3,358)
Total liabilities	(95,943)	(85,699)

Loans and receivables presented above represent mezzanine loans.

Financial liabilities measured at amortised cost presented above represent ZDP shares, balances due to brokers and trade payables as detailed in the statement of financial position.

21. Financial risk and management objectives and policies

Introduction

The Company's objective in managing risk is the creation and protection of shareholder value. Risk is inherent in the Company's activities, but it is managed through a process of ongoing identification, measurement and monitoring, subject to risk limits and other controls. The process of risk management is critical to the Company's continuing profitability. The Company is exposed to market risk (which includes currency risk, interest rate risk and price risk), credit risk and liquidity risk arising from the financial instruments it holds.

21. Financial risk and management objectives and policies

Risk management structure

The Company's Investment Adviser is responsible for identifying and controlling risks. The Directors supervise the Investment Adviser and are ultimately responsible for the overall risk management approach within the Company.

Risk mitigation

The Company's prospectus sets out its overall business strategies, its tolerance for risk and its general risk management philosophy. The Company may use derivatives and other instruments for trading purposes and in connection with its risk management activities, but has not done so during the year.

Market risk

Market risk is defined as "the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in variables such as equity price, interest rate and foreign currency rate".

Market price risk

The Company's investments are subject to normal market fluctuations and there can be no assurance that no depreciation in the value of those investments will occur. There can be no guarantee that any realisation of an investment will be on a basis which necessarily reflects the Company's valuation of that investment for the purposes of calculating the Net Asset Value of the shares.

Changes in industry conditions, competition, political and diplomatic events, tax, environmental and other laws and other factors, whether affecting the United States alone or other countries and regions more widely, can substantially and either adversely or favourably affect the value of the securities in which the Company invests and, therefore, the Company's performance and prospects.

The Company's market price risk is managed through diversification of the investment portfolio across various sectors. The Investment Adviser considers each investment purchase to ensure that an acquisition will enable the Company to continue to have an appropriate spread of market risk and that an appropriate risk/reward profile is maintained.

Equity price risk (listed investments)

Equity price risk is the risk of unfavourable changes in the fair values of equity investments as the result of changes in the value of individual shares. The equity price risk exposure arises from the Company's investments in equity securities. The Company has three equity investments valued at US$88,639,000 (28 February 2011: US$105,016,000) which are listed on the NASDAQ, and NYSE.

The Company does not generally invest in liquid equity investments and the current portfolio of the listed equity investments result from the successful flotation of unlisted investments.

Management's best estimate of the effect on the net assets attributable to shareholders and on the profit for the year due to a reasonably possible change in equity indices, assuming changes in value are fully correlated to changes in the index, with all other variables held constant is indicated in the table below. In practice, the actual trading results may differ from the sensitivity analysis below and the difference could be material. An equivalent decrease in each of the indices shown below would have resulted in an equivalent, but opposite, impact.

Sensitivity analysis for change in value of listed equity resulting from increase/decrease in relevant indicies:

Markets	Change in indices	Carrying value of listed equities 29/02/2012 US$'000	Effect on the net assets attributable to shareholders 29/02/2012 US$'000

NYSE	10%	39,276	3,928
NASDAQ	10%	49,363	4,936
		88,639	8,864

21. Financial risk and management objectives and policies

Markets	Change in indices	Carrying value of listed equities 28/02/2011 US$'000	Effect on the net assets attributable to shareholders 28/02/2011 US$'000

NYSE	10%	49,335	4,933
NASDAQ	10%	55,681	5,568
		105,016	10,501

The table below analyses the Company's concentration of equity price risk by industrial distribution:

	Percentage of equity securities
	29/02/2012	28/02/2011

Property and Casualty Insurance	55.7%	53.0%
Education and Training Services	1.0%	1.2%
Rental and Leasing Services	43.3%	45.8%
	100.0%	100.0%

The Company has certain financial instruments (common stock private investments) that are recorded at fair value using valuation techniques such as an Earnings multiple model derived either from acquisition/purchase information or observable market data from comparable companies. In some cases an adjustment is made to the acquisition/purchase multiple to reflect the underlying growth of the investment. These are adjusted to reflect counter party credit risk and limitations in the model.

Equity price risk (unlisted investments)

For the financial instruments whose fair value is estimated using valuation techniques with no market observable inputs, the net unrealised amount recorded in the statement of comprehensive income in the year due to changes in the inputs amounts to losses of US$6,224,000. (28 February 2011: gains of US$20,876,000).

The table below analyses the Company's concentration of common stock private investments by industrial distribution and the effect on the net assets attributable to shareholders and on the increase/(decrease) in profit for the year due to a reasonably possible change in the value of EBITDA. In practice, the actual trading results may differ from the sensitivity analysis below and the difference could be material.

Industry	Carrying Value	Percentage of total common stock of private investments	Change in EBITDA	Effect on the net assets attributable to shareholders
	29/02/2012	29/02/2012		29/02/2012
		US$ '000		US$ '000

Testing Laboratory	5,043	37%	10% /-10%	715 / (715)
Roofing Supplies	3,780	28%	10% /-10%	690 / (690)
Industrial Investment Firms	1,809	13%	10% /-10%	N/A
Pet Supplies	1,636	12%	10% /-10%	N/A
Specialized Equipment Manufacturers	443	3%	10% /-10%	N/A
Personal Care Products	328	3%	10% /-10%	N/A
Strategic Workforce Solutions	300	2%	10% /-10%	N/A
Other	229	2%	10% /-10%	220 / 0
Sensors & Instrumentation	37	0%	10% /-10%	N/A
	13,605	100%		1,625 / (1,405)

21. Financial risk and management objectives and policies

Industry	Carrying Value	Percentage of total common stock of private investments	Change in EBITDA	Effect on the net assets attributable to shareholders
	28/02/2011	28/02/2011		28/02/2011
		US$ '000		US$ '000

Business Services	9,500	29%	10% /-10%	3,300 / (3,300)
Specialised Equipment Manufacturers	9,400	29%	10% /-10%	1,500 / (1,500)
Chemical	9,400	29%	10% /-10%	1,000 / (1,000)
Pet Supplies	1,636	5%	10% /-10%	N/A
Roofing Supplies	700	2%	10% /-10%	460 / (460)
Industrial Investment Firms	1,101	3%	10% /-10%	N/A
Personal Care Products	400	1%	10% /-10%	N/A
Strategic Workforce Solutions	300	1%	10% /-10%	N/A
Other	359	1%	10% /-10%	N/A
	32,796	100%		6,260 / (6,260)

Interest rate risk

Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows or the fair values of financial instruments. It has not been the Company's policy to use derivative instruments to mitigate interest rate risk, as the Investment Adviser believes that the effectiveness of such instruments does not justify the costs involved.

The table below summarises the Company's exposure to interest rate risks:

	Fixed rate	Floating rate	Non interest bearing	Total
	29/02/2012	29/02/2012	29/02/2012	29/02/2012
	US$ '000	US$ '000	US$ '000	US$ '000

Investments at fair value through profit or loss	247,664	64,641	102,244	414,549
Loans and receivables	23,974	-	-	23,974
Investment in an associate	-	-	69,950	69,950
Other receivables and prepayments	-	-	451	451
Cash held on deposit (maturity date > 3 months)	7,968	-	-	7,968
Cash and cash equivalents	-	194,513	-	194,513
Zero Dividend Preference shares	(87,281)	-	-	(87,281)
Other payables	-	-	(8,662)	(8,662)
Total net assets	192,325	259,154	163,983	615,462

	Fixed rate	Floating rate	Non interest bearing	Total
	28/02/2011	28/02/2011	28/02/2011	28/02/2011
	US$ '000	US$ '000	US$ '000	US$ '000

Investments at fair value through profit or loss	275,871	34,121	137,812	447,804
Loans and receivables	45,952	-	-	45,952
Other receivables and prepayments	-	-	464	464
Cash and cash equivalents	-	172,267	-	172,267
Zero Dividend Preference shares	(82,341)	-	-	(82,341)
Other payables	-	-	(3,358)	(3,358)
Total net assets	239,482	206,388	134,918	580,788

The income receivable by the Company is not subject to significant amounts of risk due to fluctuations in the prevailing levels of market interest rates. However, whilst the income received from fixed rates securities is unaffected by changes in interest rates, the investments are subject to risk in the movement of fair value. The Investment Adviser considers the risk in the movement of fair value as a result of changes in the market interest rate for fixed rate securities to be insignificant, hence no sensitivity analysis is provided.

21. Financial risk and management objectives and policies

Of the money held on deposit, US$194,513,000 (28 February 2011: US$172,267,000) earns interest at variable rates and the income may rise and fall depending on changes to interest rates.

The sensitivity of the bank debt's market value is not influenced by a change in prevailing interest rates, because they are floating rate instruments. The market value of bank debt is influenced by factors such as the performance of the issuer and bank liquidity.

Interest rate risk continued

The data below demonstrates the sensitivity of the Company's profit/(loss) for the year to a reasonably possible change in interest rates, with all other variables held constant.

The sensitivity of the profit on interest received on cash and cash equivalents is the effect of the assumed changes in the daily interest rates throughout the year to 29 February 2012 and year ended 28 February 2011, on accounts where cash is held:

The sensitivity of the profit for the year on investment income received on bank debt is the effect of the assumed changes in the 3 month Libor on which the interest paid was derived.

Change in basis points increase/(decrease)	Sensitivity of interest income increase/(decrease) receivable on cash and cash equivalents		Sensitivity of interest income increase/(decrease) receivable on bank debt
	29/02/2012	28/02/2011	29/02/2012	28/02/2011
	US$'000	US$'000	US$'000	US$'000

+25 / -25	383/ (382)	286/ (286)	101 / (101)	150 / (150)
+100 / -100	1,527/ (458)	1,143/ (343)	402 / (402)	599 / (599)

The following table analyses the Company's interest rate exposure in terms of the assets and liabilities maturity dates.

	0-3 months	4-12 months	1-2 years	2-5 years	More than 5 years	No maturity date	Non- interest bearing	Total
	29/02/2012	29/02/2012	29/02/2012	29/02/2012	29/02/2012	29/02/2012	29/02/2012	29/02/2012
	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000

Cash and cash equivalents	194,513	-	-	-	-	-	-	194,513
Cash held on deposit (maturity date > 3 months)	-	7,968	-	-	-	-	-	7,968
Financial asset at fair value through profit or loss	-	22.043	30,529	138,492	5,110	116,059	102,316	414,549
Loans and receivables	-	16,213	-	7,761	-	-	-	23,974
Investment in associate	-	-	-	-	-	-	69,950	69,950
ZD P shares	-	-	-	(87,281)	-	-	-	(87,281)
Other receivables /payables	-	-	-	-	-	-	(8,211)	(8,211)
	194,513	46,224	30,529	58,972	5,110	116,059	164,055	615,462

21. Financial risk and management objectives and policies

	28/02/2011	28/02/2011	28/02/2011	28/02/2011	28/02/2011	28/02/2011	28/02/2011	28/02/2011
	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000

Cash and cash equivalents	172,267	-	-	-	-	-	-	172,267
Financial asset at fair value through profit or loss	29,995	1,477	20,340	79,069	33,393	145,718	137,812	447,804
Loans and receivables	-	-	9,653	36,299	-	-	-	45,952
ZDP shares	-	-	-	-	(82,341)	-	-	(82,341)
Other receivables /payables	-	-	-	-	-	-	(2,894)	(2,894)
	202,262	1,477	29,993	115,368	(48,948)	145,718	134,918	580,788

The Investment Adviser monitors the Company's overall interest sensitivity on a regular basis by reference to prevailing interest rates and the level of the Company's cash balances. The Company has not used derivatives to mitigate the impact of changes in interest rates.

Credit risk

The Company takes on exposure to credit risk, which is the risk that a counterparty to a financial instrument will cause a financial loss to the Company by failing to discharge an obligation. These credit exposures exist within investment classified as FVTPL, debt investments, loans and receivables and cash [and] cash equivalents.

They may arise, for example, from a decline in the financial condition of a counterparty, from entering into derivative contracts under which counterparties have obligations to make payments to the Company. As the Company's credit exposure increases, it could have an adverse effect on the Company's business and profitability if material unexpected credit losses were to occur.

In the event of any default on the Company's loan investments by a counterparty, the Company will bear a risk of loss of principal and accrued interest of the investment, which could have a material adverse effect on the Company's income and potential to pay dividends to Shareholders and to redeem the ZDP shares.

In accordance with the Company's policy, the Investment Adviser monitors the Company's exposure to credit risk on a regular basis, by reviewing the financial statements, budgets and forecasts of underlying investee companies.

The table below analyses the Company's maximum exposure to credit risk. The maximum exposure is shown gross at the reporting date.

	Total	Total
	29/02/2012	28/02/2011
	US$ '000	US$ '000

Bank Debt	32,512	34,121
Legacy Portfolio Debt	25,312	42,620
Mezzanine Debt	29,632	48,499
US Micro Cap Debt	181,655	263,500
European Micro Cap debt	85,129	-
Cash held on deposit	7,968	-
Cash and cash equivalents	194,513	172,267
Accrued dividend income	405	405
	557,126	561,412

A proportion of micro cap and mezzanine debt held does not entitle the Company to interest payment in cash. This interest is capitalised ("PIK") and as a result has substantial credit risk as there is no return to the Company until the loan plus all the interest, is repaid in full.

21. Financial risk and management objectives and policies

Of the US$5,356,000 (28 February 2011:US$8,807,000) interest that was recognised in the statement of comprehensive income on investments classified as loans and receivables during the year US$360,000 (28 February 2011:US$432,000) was receivable in the form of PIK Investments.

There is no collateral held in respect of mezzanine debt forming the loans and receivables.

An impairment review is performed by the Investment Adviser on an investment by investment basis every quarter.

The movement in the allowance for impairment in respect of loans and receivables during the year was as follows:

	29/02/2012	28/02/2011
	US$ '000	US$ '000

Balance at beginning of year	9,119	20,303
Written off in year	-	(15,341)
Impairment	174	4,157
Balance at year end	9,293	9,119

The table below analyses the Company's loans and receivables that are either past due or impaired.

Impairment

Past due

Total

Impairment

Past due

Total

29/02/2012

28/02/2011

US$ '000

Mezzanine portfolio

9,293

9,119

Mezzanine investments typically have no or a limited trading market and therefore such investments will be illiquid, and as such the Company's ability to sell them in the short term may be limited.

The Investment Adviser closely monitors the creditworthiness of mezzanine debt counterparties and other loans and receivables and upon unfavourable change, may seek to terminate the agreement or to obtain collateral. The credit worthiness is monitored by the reviewing of quarterly covenant agreements and by the Investment Adviser having board representation on a significant number of these investees.

The Company has also diversified its portfolio across different industry sectors.

Bank debt designated at fair value through profit or loss

The Company has also invested in bank debt with investment grade credit ratings as rated by Standard and Poors detailed below.

Credit rating - Bank debt First and Second Lien	Percentage of debt instruments
	29/02/2012	28/02/2011

BB	-	8%
B	13%	3%
B-	6%	12%
CCC+	41%	-
CCC	-	40%
No rating	40%	37%
	100%	100%

21. Financial risk and management objectives and policies

The following table analyses the concentration of credit risk in the Company's debt portfolio by industrial distribution.

	29/02/2012	28/02/2011
	US$ '000	US$ '000

Healthcare Services and Equipment	26%	25%
Support Services	20%	24%
Financial General	25%	16%
Construction and Materials	1%	14%
Industrial Engineering	11%	12%
Industrial Services	3%	-
House, Leisure and Personal Goods	2%	4%
Electronic and Electrical Equipment	7%	4%
Sensors and Instrumentation	5%	1%
	100%	100%

The table below analyses the Company's deposits and cash and cash equivalents by rating agency category.

		Credit ratings
	Standard& Poor's Outlook		Fitch LT Issuer Default Rating	29/02/2012	28/02/2011
				US$ '000	US$ '000
Cash deposits
HSBC Bank USA NA	Stable		AA	8,662	-

Cash and cash equivalents
HSBC Bank USA NA	Stable		AA	142,819	120,330
Deutsche Bank	Negative		A+	51,434	51,240
Jefferies & Company, Inc.	Negative		BBB	-	405
Butterfield Bank (Guernsey) Limited	Negative		A-	260	292
				194,513	172,267

Bank debt designated at fair value through profit or loss continued

Bankruptcy or insolvency of the Banks may cause the Company's rights with respect to these assets to be delayed or limited. The Investment Adviser monitors risk by reviewing the credit rating of the Bank. If credit quality deteriorates, the Investment Adviser may move the holdings to another bank.

Liquidity risk

Liquidity risk is defined as the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. Liquidity risk arises because of the possibility that the Company could be required to pay its liabilities earlier than expected.

Many of the Company's investments are private equity, mezzanine loans and other unlisted investments. By their nature, these investments will generally be of a long term and illiquid nature and there may be no readily available market for sale of these investments.

There are partial restrictions on the saleability of the listed equity of TAL International Group, Inc.

The Company has outstanding investment commitments at the year end of US$50,430,000 (2011: US$7,154,000) see note 26. The Company manages liquidity levels to ensure these obligations can be met.

21. Financial risk and management objectives and policies

The table below analyses the Company's financial liabilities into relevant maturity groups based on the remaining period at the reporting date to the contractual maturity date. The amounts in the table are not discounted to the net present value of the future cash outflows as it is not considered significant.

	Less than 1 month	2-12 months	1-5 years	>5 years	No stated maturity
	US$'000	US$'000	US$'000	US$'000	US$'000
At 29 February 2012

Other payables	8,662	-	-	-	-
Zero Dividend Preference shares	-	-	139,100	-	-
	8,662	-	139,100	-	-

	Less than 1 month	2-12 months	1-5 years	>5 years	No stated maturity
	US$'000	US$'000	US$'000	US$'000	US$'000
At 28 February 2011

Other payables	3,358	-	-	-	-
Zero Dividend Preference shares	-	-	-	124,449	-
	3,358	-	-	124,449	-

The Company has a capital requirement to pay ZDP shareholders a pre determined final capital entitlement of 365.28 pence on 22 June 2016. As at 29 February 2012 the liability to the ZDP shareholders amounted to US$87,281,000 (28 February 2011: US$82,341,000).

Currency risk

Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates.

Zero dividend preference shares are denominated in Sterling. The Company has an obligation to redeem the ZDP shareholders on 22 June 2016. The total liability on the redemption date, 22 June 2016, will be GBP76,583,969. The Company currently has no hedge to manage this risk to Sterling.

The following table sets out the Company's exposure to foreign currency risk.

	US dollar		Euro		GB Sterling		Total
	29/02/2012		29/02/2012		29/02/2012		29/02/2012
At 29 February 2012	US$'000		US$'000		US$'000		US$'000

Assets
Financial asset at fair value through profit or loss	365,905		15,179		33,465		414,549
Loans and receivables	23,974		-		-		23,974
Investment in associate	69,950		-		-		69,950
Other receivables	405		-		46		451
Cash and cash equivalents		194,513		-		7,968		202,481

Total assets		654,747		15,179		41,479		711,405

Liabilities
ZDP shares	-		-		87,281		87,281
Other payables		8,498		-		164		8,662

Total liabilities		8,498		-		87,445		95,943

Net currency exposure		646,249		15,179		(45,966)		615,462

21. Financial risk and management objectives and policies

	US dollar		Euro		GB Sterling		Total
	28/02/2011		28/02/2011		28/02/2011		28/02/2011
At 28 February 2011	US$'000		US$'000		US$'000		US$'000

Assets
Financial asset at fair value through profit or loss	414,905		32,899		-		447,804
Loans and receivables	45,952		-		-		45,952
Other receivables	434		-		30		464
Cash and cash equivalents		172,164		-		103		172,267

Total assets		633,455		32,899		133		666,487

Liabilities
ZDP shares	-		-		82,341		82,341
Other payables		3,274		-		84		3,358

Total liabilities		3,274		-		82,425		85,699

Net currency exposure		630,181		32,899		(82,292)		580,788

22. Fair value of financial instruments

The Company classify the measurements of its financial instruments at fair value through profit or loss using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The financial assets valued at fair value through profit or loss are analysed in a fair value hierarchy based on the following levels:

· Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1).

· Those involving inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2).

· Those involving inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).

The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a level 3 measurement. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the asset or liability.

The determination of what constitutes 'observable' requires significant judgement by the Company. The Company considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market.

The following table shows financial instruments recognised at fair value, analysed between those whose fair value is based on:

	Level 1	Level 2	Level 3	Total
Financial assets at 29 February 2012	US$ '000	US$ '000	US$ '000	US$ '000

Financial assets designated at fair value through profit or loss at inception:
Listed securities	154,233	-	-	154,233
Legacy portfolio	-	-	25,312	25,312
Bank debt	-	19,541	12,971	32,512
Mezzanine portfolio	-	-	5,658	5,658
US Micro cap portfolio	-	-	181,655	181,655
European Micro cap portfolio	-	-	15,179	15,179
	154,233	19,541	240,775	414,549

Level 1

Level 2

Level 3

Total

22. Fair value of financial instruments

Financial assets at 28 February 2011	US$ '000	US$ '000	US$ '000	US$ '000

Financial assets designated at fair value through profit or loss at inception:
Listed securities	105,016	-	-	105,016
Legacy portfolio	-	-	42,620	42,620
Bank debt	-	25,039	9,082	34,121
Mezzanine portfolio	-	-	2,547	2,547
Micro cap portfolio	-	-	263,500	263,500
	105,016	25,039	317,749	447,804

When fair values of listed equity and debt securities at the reporting date are based on quoted market prices or binding dealer price quotations (bid prices for long positions), without any deduction for transaction costs, the instruments are included within level 1 of the hierarchy.

The fair values of Bank debt which is provided by a broker is classified as level 2. The fair value of bank debt which is derived from unobservable data is classified as level 3.

The fair values of investments in the micro cap, legacy and mezzanine portfolios for which there are no active market, are calculated using a valuation model which is accepted in the industry. The model calculates the fair value by applying an appropriate multiple (based on comparable quoted companies, recent acquisition prices and quotes) to the Company's last twelve months EBITDA and deducting a market liquidity discount. The multiples used and marketability discount are classified as unobservable inputs therefore investments are classified as level 3.

Transfers between levels

There were no transfers between the levels of hierarchy of financial assets recognised at fair value within the year ended 29 February 2012 and 28 February 2011.

The following table shows a reconciliation of all movements in the fair value of financial instruments categorised within level 3 between the beginning and the end of the reporting period.

	Bank debt	Mezzanine portfolio	Micro cap portfolio	Legacy portfolio	Total
At 29 February 2012	US$ '000	US$ '000	US$ '000	US$ '000	US$ '000

At 1 March 2011	9,082	2,547	263,500	42,620	317,749
Purchases	-	-	67,625	-	67,625
PIK adjusted for fair value	404	30	21,359	2,887	24,680
Cost of investments repaid or sold	-	-	(156,634)	(23,387)	(180,021)
Net gains and losses recognised in statement of comprehensive income	3,474	3,080	1,558	3,098	11,210
Movement in accrued interest recognised in statement of comprehensive income	11	1	(574)	94	(468)
At 29 February 2012	12,971	5,658	196,834	25,312	240,775

	Bank debt	Mezzanine portfolio	Micro cap portfolio	Legacy portfolio	Total
At 28 February 2011	US$ '000	US$ '000	US$ '000	US$ '000	US$ '000

At 1 March 2011	11,670	2,457	171,903	31,845	217,875
Purchases	-	131	102,349	13,334	115,814
PIK adjusted for fair value	92	20	13,514	2,557	16,183
Cost of investments repaid or sold	(10,000)	-	(70,054)	(26,705)	(106,759)
Net gains and losses recognised in statement of comprehensive income	7,300	(66)	44,213	21,350	72,797
Movement in accrued interest recognised in statement of comprehensive income	20	5	1,575	239	1,839
At 28 February 2011	9,082	2,547	263,500	42,620	317,749

The following table details the revenues and net gains included within the Statement of Comprehensive Income for investments classified at level 3 which were still held at the year end.

	Bank debt	Mezzanine portfolio	Micro cap portfolio	Legacy portfolio	Total
At 29 February 2012	US$ '000	US$ '000	US$ '000	US$ '000	US$ '000

Interest and other revenue	1,650	31	26,162	4,301	32,144
Net gain on investments at fair value through profit or loss	3,474	3,080	1,558	3,098	11,210
	5,124	3,111	27,720	7,399	43,354

	Bank debt	Mezzanine portfolio	Micro cap portfolio	Legacy portfolio	Total
At 28 February 2011	US$ '000	US$ '000	US$ '000	US$ '000	US$ '000

Interest and other revenue	1,283	25	20,692	3,143	25,143
Net gain on investments at fair value through profit or loss	7,300	-	44,213	21,350	72,863
	8,583	25	64,905	24,493	98,006

For the investments measured at level 3 at the reporting date, the Company adjusted the default rate, and discount rate assumptions within a range of reasonably possible alternatives. The extent of the adjustment varied according to the characteristics of each security.

The potential effect of using reasonably possible alternative assumptions for valuing financial instruments classified as Level 3 at the reporting date would reduce the fair value by up to US$1,405,000 (28 February 2011: US$6,260,000) or increase the fair value by US$1,625,000 (28 February 2011:US$6,260,000).

The fair value of financial assets and financial liabilities measured at amortised cost are determined as follows:

The fair value of the Zero Dividend Preference shares is deemed to be their quoted market price. As at 29 February 2012 the ask price was GBP3.09 (28 February 2011: GBP2.725 per share the total fair value of the ZDP shares was US$101,972,999 (28 February 2011: US$91,693,809) which is US$14,476,336 higher (28 February 2011: US$9,087,250 higher) than the liability recorded in the statement of financial position.

The carrying amounts of loans and receivables are recorded at amortised cost using the effective interest method in the financial statements. The fair value of loans and receivables at 29 February 2012 was US$23,974,000 (28 February 2011: US$45,952,000).

The carrying amounts of trade receivables and trade payables are deemed to be their fair value due to their short term nature.

23. Basic and Diluted Earnings per share

Basic and diluted earnings per share are calculated by dividing the earnings for the period by the weighted average number of Ordinary shares outstanding during the period.

For the years ended 29 February 2012 and 28 February 2011 the weighted average number of Ordinary shares (including Limited voting ordinary shares) outstanding during the period was 65,018,610.

24. Net Asset Value Per Share

The net asset value per Ordinary share of US$9.47 (28 February 2011: US$8.93) is based on the net assets at the year end of US$615,462,000 (28 February 2011: US$580,788,000) and on 65,018,610 (28 February 2011: 65,018,610) Ordinary shares, being the number of Ordinary shares in issue at the year end.

25. Notes to the cash flow statement

Reconciliation of the profit for the year to net cash from operating activities.

	Year ended	Year ended
	29/02/2012	28/02/2011
	US$ '000	US$ '000

Profit for the year	45,044	137,243
Increase in other payables	4,514	2,286
Decrease in receivables relating to operating activities	13	189
Net movement in unrealised gains on investments	11,284	(90,189)
Net impairments on loans and receivables	174	3,369
Share of associates income	(20,797)	-
Net unrealised foreign currency exchange losses/(gains)	(1,706)	5,002
Realised gain on investments - financing activity	(18,654)	(30,789)
Interest on investments received as PIK adjusted for increase in accrued interest	(24,124)	(17,993)
Interest receivable from treasury gilts reinvested	(696)	-
Finance costs in respect of ZDP shares	6,581	5,938

Net cash from operating activities	1,633	15,056

Investment income received during the year

	Year ended	Year ended
	29/02/2012	28/02/2011
	US$ '000	US$ '000

Interest on investments	14,459	17,648
Dividends from listed investments	3,882	3,322
Interest on short term fixed deposits	-	1,413
Bank interest	486	352
Interest on treasury notes	-	286
Other income	124	3
	18,951	23,024

Purchases and sales of investments are considered to be operating activities of the Company, given its purpose, rather than investing activities. The cash flows arising from these activities are shown in the Cash Flow Statement.

26. Commitments

At 29 February 2012 JZCP had the following financial commitments outstanding in relation to fund investments:

	Year ended	Year ended
	29/02/2012	28/02/2011
	US$ '000	US$ '000

EuroMicrocap Fund 2010, LP	33,347	-
Asset management company*	15,000	-
Milestone Aviation Group, Inc.	2,083	7,154
	50,430	7,154

*JZCP has made a commitment to invest up to US$15 million into an entity to be formed that will provide asset management services to third party clients.

27. Related Party Transactions

In 2007, JZEP invested US$250,000 in ETX Holdings, Inc. which was a spin off of Jordan Auto Aftermarket Holdings, Inc., a former co-investment with The Jordan Company. The investment was subsequently transferred to JZCP as part of the in specie transfer dated 1 July 2008. A further US$142,000 has subsequently been invested in ETX Holdings, Inc. During the years ended 29 February 2012 and 28 February 2011 the Company did not receive any income from this investment. At 29 February 2012 the investment was valued at US$602,000 (28 February 2011: US$534,000).

At 29 February 2012, JZCP has invested US$49,153,000 (28 February 2011: US$30,488,000 in the EuroMicrocap Fund 2010 LP ("The Europe Fund"). At 29 February 2012 the investment was valued at US$69,950,000 (28 February 2011: US$32,899,000). The Europe Fund is managed by JZ International LLC ("JZI"), an affiliate of JZAI, JZCP's investment manager. JZAI and JZI were each founded by David Zalaznick and Jay Jordan.

The Company has invested with The Resolute Fund, which is managed by the Jordan Company, a company in which David Zalaznick and Jay Jordan are Managing Principals. These investments include: Kinetek, Inc.; TAL International Group, Inc.; TTS, Llc and represent an aggregate value of US$71,154,000 at 29 February 2012 (28 February 2011: US$70,102,000). Woundcare Services, Inc., another co-investment with the Resolute Fund was sold during the year for US$63,918,000 (28 February 2011 value: US$41,114,000).

The Company has invested with Fund A, a Limited Partnership in a number of US micro cap buyouts. Fund A is managed by JZAI. At 29 February 2012 the total amount of these co-investments was US$53,905,000 (US$44,203,000 invested by the Company and US$9,702,000 invested by Fund A).

Jordan/Zalaznick Advisers, Inc. (JZAI), a US based company, provides advisory services to the board of Directors of the Company in exchange for management fees, paid quarterly. Fees paid by the Company to the Investment Adviser are detailed in Note 9. In addition, the Investment Adviser and its associates are entitled to a variety of fees from investee companies and transactions therein.

During the year ended 29 February 2012, the Company retained Ashurst LLP, a UK based law firm. David Macfarlane was a former Senior Corporate Partner at Ashurst until 2002.

The Directors remunerations are disclosed in Note 9.

28. Controlling Party

The issued shares of the Company are owned by a number of parties, and therefore, in the opinion of the Directors, there is no ultimate controlling party of the Company, as defined by IAS 24 - Related Party Disclosures.

29. Contingent Assets

Amounts held in escrow accounts

Investments have been disposed by the Company, of which the consideration given included contractual terms requiring that a percentage was held in an escrow account pending resolution of any indemnifiable claims that may arise. At 29 February 2012 the Company has assessed that the fair value of these escrow accounts are nil as it is not reasonably probable that they will be realised by the Company.

As at 29 February 2012, the Company had the following contingent assets held in escrow accounts which had not been recognised as assets of the Company:


	29/02/2012	28/02/2011
Company	US$ '000	US$ '000

GHW (G&H Wire)	3,031	3,031
Dantom Systems, Inc.	2,415	-
Wound Care Solutions, Llc	5,398	-
Advanced Chemistry & Technology, Inc.	1,772	-
Recycled Holdings Corporation	1,300	1,300
Apparel Ventures, Inc.	428	1,039
N&B Industries, Inc.	776	776
Gear for Sports	186	248
	15,306	6,394

29. Contingent Assets

During the year US$2,093,000 (28 February 2011: 2,553,000) was realised relating to the escrow accounts of the Company.

Income incentive fee

During the year ended 29 February 2012 an income incentive fee of $4,409,700 was paid to the Investment Adviser relating to income earned and an increase in the valuation of PIK investments during the quarter ended 30 November 2011. Under the terms of the Advisory Agreement the income earned for the year ending 29 February 2012 did not exceed the required annual hurdle for a fee to be payable to the Investment Adviser therefore the amount paid in the year is repayable to the Company on termination of the Advisory Agreement or offset against any future income incentive fees payable. As neither a date for the termination of the Advisory Agreement or the event of any future income incentive fees becoming payable can be predicted the amount of US$4,409,700 is treated as a contingent asset.

30. Dividends paid and proposed

A final dividend for the year ended 28 February 2011 of 7.5 cents per Ordinary share (total US$4,876,396) and a special dividend of 2.0 cents (total US$1,300,372) was paid 1 July 2011.

An interim dividend of 3.5 cents per Ordinary share (total US$2,275,651) and a special dividend of 3.0 cents per share (total US$1,950,558) was paid on 25 November 2011.

A final dividend of 18.5 cents per Ordinary share (total US$12,028,443) was proposed by the Board on 17 May 2012.

In accordance with the new dividend policy, it will be the Directors' intention for the year ending 28 February 2013 and thereafter to distribute substantially 3% of the Company's net assets in the form of dividends paid in US dollars (shareholders can elect to receive dividends in Sterling). Prior to the new policy, the Directors have distributed substantially all of the Company's net cash income (after expenses) in the form of dividends.

31. Subsequent events

The Company invested in Bay Valve Service and Engineering, a Seattle Washington based refurbisher of larger valves for a variety of end users, from oil refineries to power generation plants. JZCP invested US$18.7 million in debt and equity securities, including 31% of the business's equity.

An investment was made in Medplast/UPG, a plastic molding company specialising in high margin healthcare molded products. JZCP purchased US$17.5 million of securities, including US$10.0 million of 14.5% subordinated notes and US$7.5 million of preferred and common equity. The equity represents a fully diluted 11% of the business.

The Company invested US$6.2 million in BSM Engenharia, a Brazil based infrastructure service business.

Via a partnership with an experienced real estate developer, the Company completed the purchase of almost an entire square block in Williamsburg, Brooklyn one of the fastest growing neighborhoods in New York City. JZCP purchased over 100,000 square feet of retail units and forty apartments for approximately US$64 million. JZCP invested US$14.25 million in equity in this partnership.

The EuroMicrocap Fund 2010, LP ("EMF") acquired 29.7% of Oro Direct, a precious metals trading business in Spain. EMF paid €13.5 million for its share of this growing and scaleable business. JZCP has 75% ownership of EMF.

In March and May 2012, JZCP sold 708,320 shares of TAL International Group, Inc ("TAL") in two secondary offerings realising proceeds of US$26.7 million.

One of the Company's micro cap investments repaid their subordinated debt obligations, resulting in a total repayment of US$9.0 million which represented the fair value of the investment at 29 February 2012.

31. Subsequent events

The Company has made a series of proposals to Ordinary and LVO shareholders. These proposals are described in the Chairman's statement and are subject to shareholders approval.

A final dividend of 18.5 cents per Ordinary share (total US$12.0 million) was proposed by the Board.

This information is provided by RNS

The company news service from the London Stock Exchange

END

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