Final Results

RNS Number : 5549X

Henderson Diversified Income Ltd

14 January 2014

 



14 January 2014

This announcement contains regulated information.

HENDERSON DIVERSIFIED INCOME LIMITED

Annual Financial Report for the year ended 31 October 2013

Financial Highlights	31 October 2013		31 October 2012
	£'000	per share	£'000	per share
Net asset value	80,889	87.9p	69,647	83.3p
Market price	-	91.5p	-	80.2p
	Year ended             31 October 2013		Year ended           31 October 2012
	£'000	per share	£'000	per share
Revenue earnings	4,588	5.32p	4,529	5.41p
(based on weighted average number of shares)
Dividends (paid and payable)	4,453	5.05p	4,183	5.00p
Performance			Year ended           31 October 2013
Net asset value (total return)*				12.0%
Share price (total return)*				20.8%
Benchmark (total return LIBOR + 1.25%)** Source: *Morningstar for the AIC              **Henderson Global Investors				1.8%

MANAGEMENT REPORT

Extract from the Chairman's Statement

The year under review saw no material change in the level of UK and European interest rates, which is a situation that is likely to continue for some time yet. Markets proved to be much more stable than has been the case in previous years and the consequential reduction in the risk premium resulted in our portfolio enjoying some capital appreciation. In addition, we have continued to beat our income target of 1.25% over 3 month sterling LIBOR and have been able to increase the fourth interim dividend by a modest amount and place a small amount of income in reserve to underpin future dividends. It is pleasing to report that your Company's net asset value total return for the year was 12.0% and the share price total return was 20.8%.

Performance

Your Company's net asset value per ordinary share increased from 83.3p to 87.9p over the year and the share price increased from 80.2p to 91.5p over the same period, reflecting the increased demand for the shares, which meant they moved from trading at a small discount to their net asset value to trading at a healthy premium.

For the year under review a performance fee of £703,000 is payable as a consequence of the Company's net asset value total return exceeding the benchmark target of the total return from LIBOR plus 1.25%.

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HENDERSON DIVERSIFIED INCOME LIMITED

Annual Financial Report for the year ended 31 October 2013

Dividends and Dividend Policy

Given the stability of LIBOR and Euribor over the year under review, dividends remained flat at 1.25p per quarter although your Board did declare a fourth interim dividend of 1.30p making a total of 5.05p for the year. This equates to a yield of 5.5% based on the year end share price of 91.5p. In the absence of an increase in interest rates, the Board expects to revert to 1.25p per quarter in the current financial year.

Gearing

Your Board maintains an active gearing policy given the attractive arbitrage between the cost of debt and the yields that can be achieved in the portfolio. Traditional financial gearing, which is funded using a loan facility provided by Scotia Bank, was 9.2% at the year-end compared to 11.6% a year ago. In addition, your Board employs synthetic gearing, being the gearing effect of investing in credit derivatives, and this rose over the year from 13.5% to 15.1%. Total gearing, being the sum of net gearing and synthetic gearing, cannot exceed 30% of net assets.

Discount Management

Your Board aims to minimise the discount at which the shares trade relative to the net asset value per share as well as to reduce volatility and increase liquidity in the shares. In seeking to achieve this, your Board believes it should maintain flexibility and therefore does not operate a fixed discount management policy. Your Board intends, however, subject always to the overall impact on the portfolio, the pricing of other trusts and overall market conditions, to consider share buy-backs in addition to share issuance within a narrow band relative to net asset value.

Share Issue

On 17 December 2013, shareholders gave the Board authority to issue a further 46,002,482 new shares on a non-pre-emptive basis, representing 50% of the total ordinary share capital in issue on 17 December 2013. A prospectus is being published simultaneously with this annual report which sets out the reasons for seeking this authority and the plans to undertake a placing and offer for subscription for new shares in early February 2014. Your Board strongly believes that it is in Shareholders' interests to expand the size of the Company. In that regard, and as I stated in my statement last year your Board will if necessary distribute capital as income to the extent it needs to in order to cover new Shareholders paying capital for current year income on subscribing for new shares. By doing this, dividends payable to existing Shareholders will not be reduced as a consequence of the issue of new shares.

Management Fee Arrangements

Further to the Company's announcement of 23 September 2013, the Board is pleased to confirm that with effect from 1 February 2014, the base management fee will be reduced from 0.75% to 0.65%. The performance fee element is being retained as your Board believes that it is in the best interests of Shareholders for there to be a performance fee element, subject to a high watermark provision, and a competitive base fee. However the overall annual cap on total fees (base fee plus performance fee) has been reduced from 1.75% to 1.5% with effect from the current financial year.

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HENDERSON DIVERSIFIED INCOME LIMITED

Annual Financial Report for the year ended 31 October 2013

Alternative Investment Fund Manager (AIFM) Directive

The UK is currently in the process of implementing the AIFM Directive, a piece of EU legislation which is targeted at the regulation of alternative investment funds and also catches within its scope all non UCITS funds including UK authorised investment trusts and offshore domiciled investment companies managed by an EU based manager. Having taken professional advice, your Board believes Shareholders' interests would be best served by fully complying with the Directive as if your Company were a UK domiciled fund. Accordingly, it is the Board's intention to appoint Henderson as its AIFM. A Depositary will also be appointed in order to complete the authorisation process by July 2014.

Outlook

We see loan prices continuing to be supported by strong investor demand for the asset class given the floating rate return whilst high yield bonds will continue to be our favoured bond asset until there is a rise in interest rates, which we do not anticipate until later in the year. In the event of an increase in interest rates, the income from our secured loan investments will rise even though potentially with a 3-6 months lag depending on how coupon payments are set by each borrower.

Annual General Meeting

Our seventh Annual General Meeting will be held on Friday 14 March 2014 at 11.00 a.m. at our registered office in Jersey. As in previous years an open presentation to Shareholders, including the opportunity to meet the Portfolio Managers, will be held on Tuesday 18 March

2014 at 10.30 a.m. at Henderson's offices in London.

Paul Manduca,

Chairman

13 January 2014

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HENDERSON DIVERSIFIED INCOME LIMITED

Annual Financial Report for the year ended 31 October 2013

MANAGEMENT REPORT (continued)

Principal Risks and Uncertainties

The Board has drawn up a matrix of risks facing the Company and has put in place a schedule of investment  limits and restrictions appropriate to the Company's investment objective and policy, in order to mitigate risks as far as practicable. The principal risks which have been identified and the steps taken by the Board to mitigate these are as follows:

• Investment Strategy

An inappropriate investment strategy, for example, in terms of asset allocation or level of gearing, may result in under performance against the companies in the peer group, and also in the Company's shares trading on a wider discount. The Board manages these risks by ensuring a diversification of investments and a regular review of the extent of borrowings. The Manager operates in accordance with an investment limits and restrictions policy determined by the Board, which includes limits on the extent to which borrowings may be employed. The Board reviews the limits and restrictions on a regular basis and the Manager confirms adherence to them every month. The Manager provides the Board with management information, including performance data and reports and shareholder analyses. The Directors monitor the implementation and results of the investment process with the Manager at each Board meeting and monitor risk factors in respect of the portfolio. Investment strategy is reviewed at each meeting.

• Market

Market risk arises from uncertainty about the future prices of the Company's investments. This is commented on in the Annual Report.

• Accounting, legal and regulatory

The Company is regulated by the Jersey Financial Services Commission and complies with the regulatory requirements in Jersey. The Company must comply with the provisions of the Companies (Jersey) Law, 1991 and since its shares are listed on the London Stock Exchange, the UKLA's Listing and Disclosure Rules. A breach of company law could result in the Company and/or the directors being fined or the subject of criminal proceedings and financial and reputational damage. A breach of the UKLA Rules could result in the suspension of the Company's shares. The Board relies on its Company Secretary and advisers to ensure adherence to company law and UKLA Rules.

• Operational

Disruption to, or the failure of, the Manager's or the Administrator's accounting, dealing, or payment systems or

the Custodian's records could prevent the accurate reporting or monitoring of the Company's financial position. The Administrator, BNP Paribas Securities Services S.C.A. Jersey Branch, sub-contracts some of the operational functions (principally relating to trade processing, investment administration and accounting) to BNP Paribas Securities Services. Details of how the Board monitors the services provided by the Manager and other suppliers, and the key elements designed to provide effective internal control, are explained further in the internal controls section of the Corporate Governance Statement.

• Financial

The financial risks faced by the Company include market price risk, interest rate risk, liquidity risk and credit risk. Further details are disclosed in Note 14 in the Annual Report.  Disclosures are provided in accordance with IFRS 7, Financial Instruments: Disclosures.

Related Party Transactions

Other than the relationship between the Company, its subsidiary and its Directors, the provision of services by Henderson is the only related party arrangement currently in place. Other than fees payable by the Company in the ordinary course of business, there have been no material transactions with these related parties affecting the financial position or the performance of the Company during the year under review.

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HENDERSON DIVERSIFIED INCOME LIMITED

Annual Financial Report for the year ended 31 October 2013

MANAGEMENT REPORT (Continued)

Statement under Disclosure and Transparency Rules

The Directors, who are listed in the Annual Report, each confirm to the best of their knowledge that:

(a)     the financial statements, prepared in accordance with applicable international financial reporting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group; and

(b)    the Annual Report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.

For and on behalf of the Board

Helen Green

Director

13 January 2014

Managers' Report:

The most salient feature of the year under review was just how calm the investing environment proved to be. Indeed, this Managers' Report is the first report in three years that does not include an extensive discussion of the latest iterations of the Euro-crisis. Draghi's "whatever it takes" speech combined with the threat of European Central Bank action proved sufficient to put a halt to speculation of a disorderly break-up of the Eurozone. As a result, recovery and a return to normality characterised the markets in which the Company invests. The reduction in risk premium caused a significant rally in the net asset value per ordinary share of the Company from 83.3p at 31 October 2012 to 87.9p at this year-end, whilst the share price ended the year trading at a premium to this NAV of 4.1%. During the year under review, the Company commenced issuing shares (at a premium to NAV) on a non pre-emptive basis in order to satisfy additional demand for shares and help grow the Company. In the year to 31 October 2013 the maximum amount of 8,364,087 ordinary shares were issued highlighting the strong underlying demand from investors.

For the first time in many years the primary cause for concern amongst the investor community proved to be the threat of rising interest rates. This is noteworthy because it reflects the substantial progress in investor psychology compared to recent years when a systemic banking crisis in Europe and insolvent peripheral governments were the focus. Fear of rising rates is driven by a stronger growth outlook and rising asset prices. These factors caused the US Federal Reserve to openly speculate on whether it might "taper" down its bond

purchases which are currently being made under their quantitative easing programme. The mere threat of this "taper" prompted a sharp sell-off in bond and equity markets which ultimately caused the US Central Bank to backtrack. The experiment proved how reliant many asset classes are on Central Bank support and that the journey to monetary policy normality (higher interest rates) will be a bumpy process.

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HENDERSON DIVERSIFIED INCOME LIMITED

Annual Financial Report for the year ended 31 October 2013

MANAGEMENT REPORT (continued)

Managers' Report (continued)

Given the ultra-low level of interest rates around the world the Company has, for a number of years, focused its investments on assets which still offer sensible diversified income prospects for its Shareholders. These assets include high yield corporate bonds, subordinated bonds issued by banks and insurance companies, floating rate loans and high yielding blue chip equities. In the case of equities, this asset allocation is best viewed as an opportunistic one given the relatively high dividend yields available and the prospect of some capital appreciation. The decision was made to increase the small equity allocation in January 2013 with the help of Job Curtis, one of Henderson's most experienced UK blue chip stock pickers. Overall, the blend of assets combined with gearing allowed the Company to provide a stable quarterly dividend of 1.25 pence per share with a small increase in the fourth interim dividend to 1.30p.

We have maintained an active gearing policy throughout the year under review given the attractive arbitrage between the cost of debt and the yields that can be achieved in the portfolio. The loan facility with Scotia Bank was renewed during the year and at the year-end financial gearing was 9.2% compared to 11.6% a year ago. In addition, we use synthetic gearing in the form of credit default swaps, which are a credit derivative, and enable us to earn additional income by taking the default risk on certain bonds. This is very carefully managed and has proved a successful strategy for the Company over the years. At the year end, synthetic gearing represented 15.1% of the portfolio compared to 13.5% a year ago. The total gearing investment limit is 30% of net assets.

The dividend paid by the Company has now been stable at 1.25p per quarter for eight successive quarters. Throughout the history of the Company we have endeavoured to pay a yield significantly in excess of the Company's income target (3 month sterling LIBOR +125 bp) which would equate to 1.8% as of 31 October 2013. Shareholders have benefited from the significantly enhanced income which continues to be provided by the high yielding fixed rate coupons on the Company's bond holdings as can be seen in Chart 1 in the Annual Report. However, it must also be noted that the income provided by these holdings will not rise as and when interest rates rise. Only the floating rate secured loan portfolio will benefit from a higher yield when this happens. At present the loan holdings are diversified across UK, European and US holdings, each of which will have differing interest rate dynamics. The managers will aim to position the Company to benefit from the variety of interest rate cycles but it should be noted that, given the high yield currently provided by the Company, the ability to see the dividend rise in line with future UK only rate hikes will not be a one-for-one relationship.

Turning to the outlook for Shareholders' capital, it should be noted that the primary driver remains the default rate on the Company's investments. Fair value profit and loss will come and go but the ultimate determinant of the NAV over the long-term will be the level of losses experienced as a result of any defaults. In this context it is reassuring to note that default rates on the riskiest types of corporate bonds (speculative rated bonds) remain at very low levels and are likely to remain so over the coming year or more. There are no signs of a material rise in animal spirits amongst corporate bond investors that would result in a binge of bad lending decisions which might sow the seeds for a future rise in default rates. Most activity in this market remains refinancing of existing debt (a healthy sign) rather than companies taking on debt in order to pay dividends or make acquisitions (relatively unhealthy behaviour).

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HENDERSON DIVERSIFIED INCOME LIMITED

Annual Financial Report for the year ended 31 October 2013

MANAGEMENT REPORT(continued)

Managers' Report (continued)

Secured Loan Portfolio:

As at 31 October 2013 53.3% of the Company's assets were floating rate (49.2% floating rate secured loans, 4.1% floating rate bonds) which can be broken down as follows:

22.2% in GBP floating rate

25,3% in EUR floating rate

5.7% in USD floating rate

0.1% in CHF floating rate

Loans have continued to provide good absolute returns given the benign default environment. Secondary prices have been supported by strong demand and prices have rallied, including loans of weaker credit quality. In the second half of the year, we tended to invest more in primary issuances (new loans issued in the primary market) taking advantage of some well-priced opportunities, such as BMC Software, coming at a coupon of LIBOR+4.5% with a base rate "floor" of 1% (meaning LIBOR can never be lower than 1% for the interest calculation). BMC Software is a global software company ranking third in their sector after IBM and Computer Associates. High cash flows underpinned by long contracts characterise their business model and this gives us comfort in their ability to service their debt.

The year has shown an interesting evolution. We went from piece-meal repayment of very large transactions, as sponsors issued equity to repay some of the debt, to full repayment of others such as Lavena (whose underlying asset is a listed German broadcaster), and Merlin Entertainment, that IPOed in the UK market. The activity also evolved from refinancing loans in the bond market (such as Takko, a German discount retailer), to refinancing loans in the loans market (such as Xerium, an industrial global company), to prepayment of expensive parts of the debt structure (such as Alliance Boots), and finally to refinancing bonds in the loans market (such as Numericable, a French cable asset). All in all we see this trend, together with a very high flow of primary deals during the year, as a positive for loans. The days in which we were talking about the maturity wall risk appear to be behind us. Mirroring investors' higher degree of comfort with the loan market, a number of borrowers have been able to re-price more favourably their outstanding debt package. As such, margins for some of the best, more stable credits in Europe have seen a decrease in the main of 0.5%.

We expect the secured loan portfolio to generate a return of approximately 4.5-5.5% in 2014, through a combination of interest income, and attractive relative value trades. We also expect loan prices to continue to be supported by strong investor demand for the asset class given the floating rate return. In the event of an increase in LIBOR, loan coupons will adjust even though potentially with a 3-6 months lag depending on how coupon payments are set by each borrower.

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HENDERSON DIVERSIFIED INCOME LIMITED

Annual Financial Report for the year ended 31 October 2013

MANAGEMENT REPORT(continued)

Managers' Report (continued)

Bond Portfolio:

The Company's holdings of bonds provided strong returns for the Company overall. The allocation to banking and insurance bonds proved particularly successful and a number of bonds were bought back by the issuers at a premium leading to some modest capital gains. Perhaps most notable were the Royal London bonds which were repurchased at 101p on the pound by the company as compared to a purchase price of 62.7p. High yield corporate bonds were also in favour during the year under review and a number of very attractive investments were added to the Company. A couple worth highlighting include the bonds issued by Automobile Association and Arqiva (broadcast towers) both with coupons of 9.5%. Given its focus on higher income opportunities the Company has had a very low exposure to bonds which are particularly sensitive to government bond prices. Credit risk rather than interest rate risk continues to characterise our approach to investment.

Small Equity Portfolio:

A mid-single digit percentage of the portfolio was invested in equities during the course of the year. The equities held were predominantly FTSE 100 companies with dividend yields of more than 4% but we also held two medium-sized companies and bought some Royal Mail in its IPO. Going forward, equities continue to offer an attractive combination of dividend yield

and growth. They should also benefit from economic growth being experienced in the UK and US economies.

Outlook:

Last year we noted the relative attractiveness of loans compared to bonds in the Managers' Report. This opportunity set rapidly disappeared as a number of loan issuers sought to reduce the margin they paid on their debt, resulting in a lower income for investors. Instead the Company increased its weighting in high yield corporate bonds and equities. Given the improvement in the UK economy an opportunity to increase the Company's holdings in sterling loans may present itself but much will depend upon the Bank of England's stance on inflation and growth. Their current forward guidance communications strategy is keen to stress that an improvement in the unemployment rate down to 7% is a necessary but not sufficient condition to raising rates. The significant weight in higher yielding fixed rate bonds will be retained until interest rates rise.

John Pattullo and Jenna Barnard

Portfolio Managers

13 January 2014

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HENDERSON DIVERSIFIED INCOME LIMITED

Annual Financial Report for the year ended 31 October 2013

MANAGEMENT REPORT(continued)

Portfolio (continued)

Summary of Portfolio

	%
Secured Loans	49.23
High Yield Bonds	33.14
Investment Grade Bonds	11.10
Equities	6.53
	--------
	100.00

Twenty Largest Holdings

These twenty investments total £29.242 million (2012: £29.926 million) representing 33.10% (2012: 38.50%) by value of the total investments.

Name of Investment	Category	Value £'000
Alliance Boots	Secured Loan	1,993
Lloyds Group	High Yield Bond	1,895
Firth Rixon	Secured Loan	1,717
Flint	Secured Loan	1,577
RBS Worldpay	Secured Loan	1,547
Iglo Birds Eye	Secured Loan	1,516
AA	High Yield Bond	1,482
Scottish Widows	Investment Grade Bond	1,431
Technicolour	Secured Loan	1,424
RAC	Secured Loan	1,411
Gala Clubs	Secured Loan	1,410
Polconcept	Secured Loan	1,408
Towergate	High Yield Bond	1,388
Vue	High Yield Bond	1,336
Barclays	Investment Grade Bond	1,330
Delachaux	Secured Loan	1,300
Ahsell	Secured Loan	1,281
Oxea	Secured Loan	1,273
Houghton	Secured Loan	1,266
Thomas cook	High Yield Bond	1,257

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HENDERSON DIVERSIFIED INCOME LIMITED

Annual Financial Report for the year ended 31 October 2013

Consolidated Statement of Comprehensive Income

for the year ended 31 October 2013

	Year ended 31 October 2013			Year ended 31 October 2012
	Revenue return	Capital return	Total	Revenue return	Capital return	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Gains on investments at fair value through profit or loss	-	5,785	5,785	-	1,651	1,651
(Losses)/Gains on foreign exchange transactions at fair value through profit or loss	-	(1,076)	(1,076)	-	3,168	3,168
Investment income (note 3)	5,493	-	5,493	5,394	-	5,394
Other income (note 4)	1	-	1	3	-	3
	---------	-----------	-----------	---------	---------	---------
Total income	5,494	4,709	10,203	5,397	4,819	10,216
	---------	-----------	-----------	---------	---------	---------
Expenses
Management and performance fee	(294)	(997)	(1,291)	(273)	(879)	(1,152)
Other expenses	(484)	-	(484)	(463)	-	(463)
	---------	-----------	-----------	---------	---------	---------
Profit before finance costs and taxation	4,716	3,712	8,428	4,661	3,940	8,601
Finance costs	(86)	(86)	(172)	(86)	(85)	(171)
	---------	-----------	-----------	---------	---------	---------
Profit before taxation	4,630	3,626	8,256	4,575	3,855	8,430
Taxation	(42)	-	(42)	(46)	-	(46)
	---------	-----------	-----------	---------	---------	---------
Profit for the year	4,588	3,626	8,214	4,529	3,855	8,384
	=====	======	=======	=====	======	======
Earnings per ordinary share (note 5)	5.32p	4.20p	9.52p	5.41p	4.61p	10.02p
	=====	======	======	=====	=====	=====

The total column of this statement represents the Consolidated Statement of Comprehensive Income, prepared in accordance with IFRS. The revenue return and capital return columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies.

All items in the above statement derive from continuing operations.

All income is attributable to the equity holders of Henderson Diversified Income Limited. There are no non-controlling interests.

The Group does not have any income or expense that is not included in the profit for the year and therefore the 'profit for the year' is also the 'total comprehensive income for the year'.

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HENDERSON DIVERSIFIED INCOME LIMITED

Annual Financial Report for the year ended 31 October 2013

Consolidated Statement of Changes in Equity

for the year ended 31 October 2013

	Stated capital	Distributable reserve	Other capital reserves	Revenue reserve	Total
Consolidated year ended 31 October 2013	£'000	£'000	£'000	£'000	£'000
Total equity at 31 October 2012	37,677	39,862	(9,740)	1,848	69,647
Total comprehensive income:
Profit for the year	-	-	3,626	4,588	8,214
Transactions with owners, recorded directly to equity:
Dividends paid (note 6)	-	-	-	(4,303)	(4,303)
Share Issues (note 7)	7,331	-	-	-	7,331
	---------	---------	---------	---------	---------
Total equity at 31 October 2013	45,008	39,862	(6,114)	2,133	80,889
	=====	=====	=====	=====	=====
	Stated capital	Distributable reserve	Other capital reserves	Revenue reserve	Total
Consolidated year ended 31 October 2012	£'000	£'000	£'000	£'000	£'000
Total equity at 31 October 2011	37,677	39,862	(13,595)	1,502	65,446
Total comprehensive income:
Profit for the year	-	-	3,855	4,529	8,384
Transactions with owners, recorded directly to equity:
Dividends paid (note 6)	-	-	-	(4,183)	(4,183)
	--------	--------	----------	----------	--------
Total equity at 31 October 2012	37,677	39,862	(9,740)	1,848	69,647
	=====	=====	======	======	=====

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HENDERSON DIVERSIFIED INCOME LIMITED

 Annual Financial Report for the year ended 31 October 2013

Consolidated Balance Sheet

at 31 October 2013

	2013 £'000	2012 £'000
Non current assets
Investments designated at fair value through profit or loss	88,347	77,723
	----------	----------
Current assets
Other receivables	3,416	2,373
Cash and cash equivalents	733	372
	----------	----------
	4,149	2,745
	----------	----------
Total assets	92,496	80,468
	----------	----------
Current liabilities
Other payables	(5,911)	(10,821)
	----------	----------
Total assets less liabilities	86,585	69,647
	----------	----------
Non current liabilities
Bank loan (net of issue costs)	(5,696)	-
	----------	----------
Net assets	80,889	69,647
	======	======
Equity attributable to equity shareholders
Stated capital	45,008	37,677
Distributable reserve	39,862	39,862
Retained earnings:
Other capital reserves	(6,114)	(9,740)
Revenue reserve	2,133	1,848
	----------	----------
Total equity	80,889	69,647
	======	======
Net asset value per ordinary share (note 8)	87.9p	83.3p
	======	======

The financial statements were approved by the Board of Directors and authorised for issue on 13 January 2014 and were signed on its behalf by:

Helen Foster Green                                                                                              Nigel Robert Parker

Director                                                                                                                  Director

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HENDERSON DIVERSIFIED INCOME LIMITED

Annual Financial Report for the year ended 31 October 2013

Consolidated Cash Flow Statement

for the year ended 31 October 2013

	2013 £'000	2012 £'000
Net profit before taxation	8,256	8,430
Add back interest paid	172	171
Less gains on investments designated as fair value through profit or loss	(5,785)	(1,651)
Add/(less): losses/(gains) on foreign exchange transactions at fair value through profit or loss	1,076	(3,168)
Decrease/(increase) in prepayments and accrued income	143	(113)
Increase in other payables	302	413
Net purchases of investments	(5,442)	(6,269)
(Increase)/decrease is sales settlement debtor	(746)	2,237
Increase/(decrease) in purchase settlement creditor	2,522	(127)
Amortisation of loan expenses	71	58
	----------	----------
Net cash inflow/(outflow) from operating activities before finance costs	569	(19)
Interest paid	(172)	(171)
Taxation on investment income	(99)	(142)
	----------	----------
Net cash inflow/(outflow) from operating activities	298	(332)
	----------	----------
Financing activities
Equity dividends paid	(4,303)	(4,183)
Issue of ordinary shares	7,331	-
Loan expenses paid	(21)	(22)
(Repayment)/drawdown of loan	(2,089)	890
	----------	----------
Net cash inflow/(outflow) from financing	918	(3,315)
	----------	----------
Increase/(decrease) in cash and cash equivalents	1,216	(3,647)
Cash and cash equivalents at the start of the year	372	732
Exchange movements	(855)	3,287
	----------	----------
Cash and cash equivalents at the year end	733	372
	======	======

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HENDERSON DIVERSIFIED INCOME LIMITED

Annual Financial Report for the year ended 31 October 2013

Notes:

1.	General Information
	The entity is a closed-ended company, registered as a no par value company under the Companies (Jersey) Law, 1991, with its shares listed on the London Stock Exchange. The Company was incorporated on 5 June 2007.
2.	Accounting Policies
	Basis of preparation
	This consolidated financial information for the year ended 31 October 2013 has been prepared in accordance with International Financial Reporting Standards ('IFRS'). These comprise standards and interpretations approved by the International Accounting Standards Board ('IASB'), together with interpretations of the International Accounting Standards and Standing Interpretations Committee approved by the International Accounting Standards Committee ('IASC') that remain in effect, to the extent that IFRS have been adopted by the European Union ('EU'). The financial statements have been prepared on the historical cost basis, except for the revaluation of certain financial instruments. The principal accounting policies adopted are set out in the Annual Report. Where consistent with IFRS the financial statements have also been prepared in accordance with the guidance set out in the Statement of Recommended Practice ('SORP') for the Financial Statements of Investment Trust Companies and Venture Capital Trusts, issued in January 2009.
	Derivative financial instruments
	The Group's activities expose it primarily to the financial risks of changes in market prices, foreign currency exchange rates and interest rates. Derivative transactions which the Group may enter into include forward foreign exchange contracts (the purpose of which is to manage currency risk arising from the Group's investing activities) and interest rate futures and swaps (the purpose of which is to take a position in relation to government bond yields). The Group may also use credit derivatives, for example buying or selling protection on credit default swaps in order to manage credit risk. The use of financial derivatives is governed by the Group's policies as approved by the Board, which has set written principles for the use of financial derivatives. Derivative financial instruments are initially recognised at fair value on the date on which the derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative. The fair value of forward currency contracts is calculated by reference to current forward exchange rates for contracts with similar maturity profiles. Changes in the fair value of derivative financial instruments are recognised in the Consolidated Statement of Comprehensive Income as they arise. If capital in nature, the associated change in value is presented as a capital item in the Consolidated Statement of Comprehensive Income.
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-14 - HENDERSON DIVERSIFIED INCOME LIMITED Annual Financial Report for the year ended 31 October 2013
3.	Investment income
				2013					2012
				£'000					£'000
	Income from investments:
	UK dividend income			147					73
	Bond and loan interest			4,833					4,808
	Premiums on credit default swaps			513					513
				---------					---------
				5,493					5,394
				======					======
4.	Other income
							2013				2012
							£'000				£'000
	Bank and other interest						1				3
							======				======
5.	Earnings per ordinary share
	The earnings per ordinary share figure is based on the net profit for the year after taxation of £8.214 million (year ended 31 October 2012: profit of £8.384 million) and on 86,285,257 (2012: 83,640,877) being the weighted average number of ordinary shares in issue during the year. The earnings per ordinary share figure detailed above can be further analysed between revenue and capital, as below. The Company has no securities in issue that could dilute the return per ordinary share. Therefore the basic and diluted earnings per ordinary share are the same.
					2013					2012
					£'000					£'000
	Net revenue profit				4,588					4,529
	Net capital profit				3,626					3,855
					-------					-------
	Net total profit				8,214					8,384
					======					======
	Weighted average number of ordinary shares in issue during the year				86,285,257					83,640,877
					2013 pence					2012 pence
	Revenue earnings per ordinary share				5.32					5.41
	Capital earnings per ordinary share				4.20					4.61
					-------					-------
	Total earnings per ordinary share				9.52					10.02
					======					======
	- MORE - -15- HENDERSON DIVERSIFIED INCOME LIMITED Annual Financial Report for the year ended 31 October 2013
6.	Dividends
								2013			2012
		Record date	Pay date					£'000			£'000
	Fourth interim dividend - 1.25p	9 December 2011	30 December 2011					-			1,046
	First interim dividend - 1.25p	9 March 2012	30 March 2012					-			1,045
	Second interim dividend - 1.25p	8 June 2012	29 June 2012					-			1,046
	Third interim dividend - 1.25p	7 September 2012	28 September 2012					-			1,046
	Fourth interim dividend - 1.25p	7 December 2012	31 December 2012					1,046			-
	First interim dividend - 1.25p	8 March 2013	28 March 2013					1,057			-
	Second interim dividend - 1.25p	7 June 2013	28 June 2013					1,095			-
	Third interim dividend - 1.25p	6 September 2013	30 September 2013					1,105			-
								-----------			-----------
								4,303			4,183
								======			======
	The fourth interim dividend has not been included as a liability in these financial statements as it was announced and paid after 31 October 2013.
	The table below sets out the total dividends paid and to be paid in respect of the financial year. The revenue available for distribution by way of dividend for the year is £4.588 million (2012: £4.529 million).
											2013
											£'000
	First interim dividend for 2013 - 1.25p										1,057
	Second interim dividend for 2013 - 1.25p										1,095
	Third interim dividend for 2013 - 1.25p										1,105
	Fourth interim dividend for 2013 - 1.30p										1,196
	(paid 31 December 2013, with a record date of 6 December 2013)										--------
											4,453
											======
7.	Stated capital					Stated Capital £'000					Number of fully paid shares issued
	As at 31 October 2012					37,677					83,640,877
	Issue of shares in year					7,331					8,364,087
						-----------					---------------
	As at 31 October 2013					45,008					92,004,964
						======					=========
8.	Net asset value per ordinary share
	The net asset value per ordinary share is based on the net asset value attributable to ordinary shareholders at the year end of £80.889 million (2012: £69.647 million) and on 92,004,964 (2012: 83,640,877) ordinary shares, being the number of ordinary shares in issue at the year end.
	- MORE - -16 -
	HENDERSON DIVERSIFIED INCOME LIMITED Annual Financial Report for the year ended 31 October 2013
9.	Statement of Going Concern
	The Directors believe that it is appropriate to continue to adopt the going concern basis in preparing the financial statements as the assets of the Group consist mainly of securities which are readily realisable and, accordingly, the Group has adequate financial resources to continue in operational existence for the foreseeable future. In reviewing the position as at the date of this report, the Board has considered the going concern and liquidity risk 'Guidance for Directors of UK Companies 2009' issued by the Financial Reporting Council in October 2009.
10.	2013 Financial information
	The figures and financial information for the year ended 31 October 2013 are compiled from an extract of the latest financial statements and do not constitute statutory accounts. These accounts included the report of the auditors which was unqualified.
11.	2012 Financial information
	The figures and financial information for the year 31 October 2012 are compiled from an extract of the latest published accounts and do not constitute the statutory accounts for that year. The accounts included the report of the auditors which was unqualified.
12.	Annual Report
	The Annual Report and Accounts will be posted to shareholders in mid January 2014 and copies will be available on the Company's website (www.hendersondiversifiedincome.com) or in hard copy format from the Company's registered office, Liberté House, 19-23 La Motte Street, St Helier, Jersey, JE2 4SY.
	For further information please contact:
	John Pattullo and Jenna Barnard
	Portfolio Managers, Henderson Diversified Income Limited
	Telephone: [phone]
	James de Sausmarez
	Director and Head of Investment Trusts, Henderson Global Investors
	Telephone: [phone]
	Sarah Gibbons-Cook
	Investor Relations and PR Manager, Henderson Global Investors
	Telephone: [phone]
	Jeremy Hamon
	BNP Paribas Securities Services S.C.A., Jersey Branch, Company Secretary
	Telephone: [phone]
Henderson Diversified Income Limited has its registered office at Liberté House, 19-23 La Motte Street, St Helier, Jersey JE2 4SY and it is regulated by the Jersey Financial Services Commission. Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement. -END-

 

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