Interim Results for 6 Months to 31 December 2014

Ludgate Environmental Fund Limited (the "Company")

Interim Results for the six months ended 31 December 2014

CHAIRMAN'S STATEMENT

I am pleased to report to shareholders on the performance of Ludgate Environmental Fund Limited ("LEF") in the half year ending 31st December 2014.

Financial Review

The net asset value of LEF on 31st December 2014 was £31,486,293 (2013: £37,886,299), equivalent to 59.0 (2013: 70.7) pence per share. A net loss of £4,012,922 was recorded (2013: £5,030,475). At the end of the period the cash balance was £1,188,987 (30th June 2014: £1,645,950).

Strategy and Portfolio Review

LEF is fully invested. Our purpose is to maximise the achievable value of the assets within the remaining life of the Company and return the cash proceeds of sales to shareholders. At an EGM on 1st September 2014 shareholders voted to extend the life of LEF to 30th June 2018 with the expectation that the portfolio would be mostly sold by mid 2017 and that this additional period was in the best interests of the Company to realise value for shareholders; the investing policy and management and performance fee arrangements and incentives for the Investment Adviser were amended accordingly. The AGM held on 14th November 2014 again confirmed the strategy, investing policy and financial report.

We reorganised our interest in shares of Rapid Action Packaging Limited through the conversion of CULS such that we now own the largest proportion without exercising management control. The company is performing within expectations. STX Services B.V., the broker of environmental certificates, has continued to exceed its budgets and has broadened business into the brokerage, as a regulated entity of fixed income securities. We subscribed for further shares of Tamar Energy Limited, the UK biomass generator, as disclosed in our EGM notice. The company has recently raised debt finance and the roll out of operations seems on course toward profitability. Ignis Wick has achieved effective operational performance and is expected to reach cashflow breakeven with the completion of contracts under current negotiation. Lumicity continued to realise its investments and distribute proceeds to shareholders. Micropelt is developing core products toward commercialisation. In December we wrote off our investment in ECO Plastics Limited, £2 million at the 30th September 2014 NAV date, representing 3.8p of NAV or 5.7% of net assets. The company proved too thinly capitalised to withstand the loss of an advantageous feedstock contract and falling prices in the offtake market. We continue to hold listed securities of Hydrodec Group plc and Phoslock Water Solutions Limited on an available for sale basis.

Denis Quilty resigned from the board on 27th August 2014. I should like to thank my fellow board members for their commitment and diligence in determining the value of the assets we hold and to the strategy and investing policy recommended and endorsed by shareholders at the EGM and AGM respectively.

For further information contact:

Ludgate Environmental Fund Limited +44 (0) 1534 609034

John Shakeshaft, Chairman

Ludgate Investments Limited +44 (0) 20 3478 1000

Bill Weil

PricewaterhouseCoopers LLP (Nomad) +44 (0) 20 7212 1798

Chris Clarke

Panmure Gordon (Broker) +44 (0) 20 7886 2713

Paul Fincham

NOTES TO THE FINANCIAL STATEMENTS

FOR THE PERIOD 1ST JULY 2014 TO 31ST DECEMBER 2014

1. REPORTING ENTITY

The Company was registered as a public company on 7th June 2007 with registered number 97690 under the Companies (Jersey) Law 1991. The Company joined the Alternative Investment Market ("AIM") on 2nd August 2007. The registered office of the Company is Lime Grove House, Green Street, St Helier, Jersey, JE1 2ST.

The Company was incorporated with a life of approximately eight years from admission to AIM, expiring on 30th June 2015 (the "Proposed Wind-up Date"). On 12th August 2014, the Directors recommended to the shareholders to extend the Wind-up Date until 30th June 2018 and this was approved by the shareholders at an Extraordinary General Meeting on 1st September 2014.

2. ACCOUNTING POLICIES

a) Basis of preparation

The unaudited interim financial information included in the half-year report for the six months ended 31st December 2014, has been prepared in accordance with International Accounting Standard (IAS) 34 "Interim Financial Reporting". It does not include all of the information required for full annual financial statements. The half-year report should be read in conjunction with the annual report and audited financial statements for the year ended 30th June 2014, which have been prepared in accordance with International Financial Reporting Standards ("IFRSs") as adopted by European Union ("EU"). The extra column of comparatives for the half-year ended 31st December 2013 in the statement of financial position is an AIM requirement, and notes to these accounts are not required.

The more significant policies are set out below:

New Accounting Standards, amendments to existing Accounting Standards and/or interpretations of existing Accounting Standards (separately or together, "New Accounting Requirements") adopted during the period

Amendments to IFRS 10, IFRS 12 and IAS 27 on investment entities

IFRS 10 was amended on 31st October 2012 to introduce an exception from the requirement to prepare consolidated financial statements for "Investment Entities".

The amendment to IFRS 10 defines an Investment Entity as an entity that: "(a) obtains funds from one or more investors for the purpose of providing those investor(s) with investment management services; (b) commits to its investor(s) that its business purpose is to invest funds solely for returns from capital appreciation, investment income or both; and (c) measures and evaluates the performance of substantially all of its investments on a fair value basis."

The amendment also provides examples of typical characteristics of an Investment Entity. The characteristics are: holding more than one investment; having more than one investor; having investors that are not related parties of the entity; and having ownership interests in the form of equity or similar interests. However, the absence of one or more of these characteristics will not prevent an entity from qualifying as an Investment Entity.

An entity will not be disqualified from being an Investment Entity where it carries out any of the following activities: provision of investment-related services to third parties and to its investors, even when substantial; or, providing management services and financial support to its investees, but only when these do not represent separate substantial business activity and are carried out with the objective of maximising the investment return from its investees.

New Accounting Standards, amendments to existing Accounting Standards and/or interpretations of existing Accounting Standards (separately or together, "New Accounting Requirements") adopted during the period - (continued)

Amendments to IFRS 10, IFRS 12 and IAS 27 on investment entities - (continued)

An Investment Entity is required to account for its subsidiaries at fair value through profit or loss in accordance with IFRS 9, "Financial instruments" (or IAS 39, "Financial instruments: recognition and measurement", where applicable). The only exception is for subsidiaries that provide services to an Investment Entity that are related to its investment activities, which should be consolidated.

The exception from the consolidation requirements of IFRS 10 only applies to a parent of an Investment Entity if such parent is itself an Investment Entity. If the parent is not itself an Investment Entity, then such parent is required to consolidate all of the entities that it controls, including the Investment Entity's investees.

The revised standard is effective for accounting periods commencing on or after 1st January 2014, but early adoption is permitted at any time prior to this date. The amendments were endorsed for use in the EU and were early adopted by the Company in the prior year.

At the same time as the amendment to IFRS 10 was issued, the International Accounting Standards Board ("IASB") issued corresponding amendments to IFRS 12 "Disclosures of Interests in Other Entities" and IAS 27 "Separate Financial Statements", which must be adopted concurrently with the amendment to IFRS 10, if applicable. These amendments were also endorsed for use in the EU on 20th November 2013 and were early adopted by the Company in the prior year.

The Company has a controlling holding in Ignis Biomass Limited. The Company meets the definition of an investment entity and therefore did not consolidate controlling holding in this entity. The investment in this entity is accounted for at fair value through profit or loss, on the same basis as the investment where a controlling holding is not held, which is how they are currently presented in the financial statements.

IAS 32, "Financial instruments: Presentation - Offsetting financial assets and financial liabilities" (amendments)

These amendments clarify that rights of set-off must be legally enforceable in the normal course of business and must also be enforceable in the event of default and the event of bankruptcy or insolvency of all of the counterparties to the contract, including the reporting entity itself. The amendments also clarify that rights of set-off must not be contingent on a future event. The standard is effective for annual periods beginning on or after 1st January 2014. The amendments did not have any impact on the Company's financial position or performance.

Non-mandatory New Accounting Requirements not yet adopted

The following applicable New Accounting Requirements have been issued. However, these New Accounting Requirements are not yet mandatory and have not yet been adopted by the Company. All other non-mandatory New Accounting Requirements are either not yet permitted to be adopted, or would have no material effect on the reported performance, financial position, or disclosures of the Company and consequently have neither been adopted, nor listed.

IFRS 9, "Financial Instruments"

IFRS 9 addresses the recognition, classification and measurement of financial assets and financial liabilities. It is the IASB's intention that IFRS 9 will replace IAS 39 in its entirety. The IASB has adopted a phased approach to completion of the overall standard. When the first phase was published in November 2009, IFRS 9 addressed only the classification and measurement of financial assets. In October 2010, requirements for the classification and measurement of financial liabilities were published. The phases covering impairment methodology and hedge accounting are scheduled for completion prior to the mandatory effective date.

IFRS 9 requires financial assets to be classified into two measurement categories: (i) those measured at fair value; and, (ii) those measured at amortised cost. The determination is made at initial recognition. The classification depends on the entity's business model for managing its financial instruments and the contractual cash flow characteristics of the instrument. For financial liabilities, the standard retains most of the IAS 39 requirements. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to changes in an entity's own credit risk is recorded in other comprehensive income rather than the income statement, unless this creates an accounting mismatch.

The effective date of the standard is yet to be determined in the EU.

b) Basis of measurement

These financial statements have been prepared on a historical cost basis as modified by the revaluation of financial assets and liabilities held at fair value through profit or loss. The policies have been consistently applied to both periods presented.

Financial instruments at fair value through profit or loss and derivatives at fair value though profit and loss are measured at fair value and changes therein are recognised in the statement of comprehensive income. Information about significant areas of estimation, uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amounts recognised within the financial statements are included in note 2 Section (o) 'Determination of fair values'.

c) Functional and presentation currency

These financial statements are presented in sterling, which is the Company's functional and presentation currency.

d) Use of estimates and judgements

The preparation of financial statements in accordance with IFRSs as adopted by the EU requires the Board to make judgements, estimates and assumptions that affect the application of policies and the reported amounts of assets and liabilities, income and expenses. These estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

e) Foreign currencies

Transactions in foreign currencies, other than sterling, are translated at the foreign currency exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated to sterling at the foreign currency closing exchange rate ruling at the balance sheet date. Foreign currency exchange differences arising on translation and realised gains and losses on disposals or settlements of monetary assets and liabilities are recognised in the statement of comprehensive income. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are translated to sterling at the foreign currency exchange rates ruling at the dates that the values were determined. Foreign currency differences arising on retranslation are recognised in the statement of comprehensive income.

f) Financial instruments

Financial assets and financial liabilities are initially recognised on the Company's balance sheet when the Company becomes party to the contractual provisions of a given instrument.

Purchases and sales of financial instruments are recognised on the trade date. Gains and losses are recognised from that date.

Financial assets cease to be recognised when the contractual rights to cash flows from the assets expire or the Company transfers the financial assets and substantially all of the risks and rewards of ownership have been transferred. Financial liabilities cease to be recognised when the liabilities are extinguished.

Financial instruments comprise investments in equity and debt securities, warrants, loans receivable, trade and other receivables, cash and cash equivalents, trade and other payables and performance fees retained.

Financial instruments are recognised initially at fair value. Subsequent to initial recognition financial instruments are measured as described below.

Financial assets at fair value through profit or loss

An instrument is classified at fair value through profit or loss if it is held for trading or designated as such upon initial recognition. The Company has designated its investment holdings as at fair value through profit or loss as permitted by International Accounting Standard 39 "Financial Instruments: Recognition and Measurement." These financial assets are designated on the basis that they form part of a group of financial assets which are managed and have their performance evaluated on a fair value basis. Upon initial recognition attributable transaction costs are recognised in the statement of comprehensive income when incurred. Financial instruments at fair value through profit or loss are measured at fair value, and changes therein are recognised in the statement of comprehensive income.

Derivatives at fair value through profit or loss

The warrants held by the Company are classified as derivative financial instruments held for trading. Therefore they are recognised at fair value, with realised and unrealised gains and losses being recognised in the statement of comprehensive income. The derivatives are derecognised when the rights to receive cash flows from it have expired or the Company has transferred substantially all risks and rewards of ownership.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than:

a) those that the Company intends to sell immediately or in the short-term, which are classified as held for trading, and those that the entity upon initial recognition designates as at fair value through profit or loss;

b) those that the Company upon initial recognition designates as available for sale; or

c) those for which the holder may not recover substantially all of its initial investment, other than because of credit deterioration.

Loans and receivables are initially recognised at fair value, which is the cash consideration to originate or purchase the loan including any transaction costs and measured subsequently at amortised cost using the effective interest rate method, less provision for impairment. Impairment provisions are recognised when there is objective evidence that the Company will be unable to collect all of the amounts due under the terms of the receivable. The Company's loans and receivables comprise loans receivable, trade and other receivables and cash and cash equivalents.

Cash and cash equivalents

Cash comprises fixed deposits, cash balances and call deposits with banks. Cash equivalents are short-term highly-liquid investments that are readily convertible to known amounts of cash, are subject to an insignificant risk of changes in value, and are held for the purpose of meeting short-term cash commitments rather than for investment or other purposes.

Financial liabilities

All liabilities are classified as other financial liabilities and are measured at amortised cost using the effective interest rate method.

Ordinary shares

Financial instruments issued by the Company are treated as equity only to the extent that they do not meet the definition of a financial liability.

The Ordinary Shares of the Company are treated as equity as they entitled the shareholder to a pro rata share of the Company's net assets in the event of the Company's liquidation.

g) Provisions

A provision is recognised if, as a result of a past event, the Company has a legal or constructive obligation that can be reliably estimated, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to that liability.

h) Revenue and expenses

Revenue is recognised to the extent that it is possible that economic benefits will flow to the Company and the revenue can be reliably measured. Expenses are accounted for on an accruals basis.

i) Finance income and expenses

Finance income comprises interest income on funds invested (including debt securities at fair value through profit or loss), interest income and loan interest income. Interest income and loan interest income are recognised as they accrue in the statement of comprehensive income, using the effective interest rate method. Dividend income is recognised in the statement of comprehensive income on the date the Company's right to receive payments is established which is usually the ex-dividend date.

Finance expenses comprise interest expense on borrowings and unwinding of discounts on provisions.

Foreign currency gains and losses are reported in the statement of comprehensive income on a net basis.

j) Earnings per share ("EPS") and net asset value ("NAV") per share

The Company presents basic EPS and NAV data for its ordinary shares. Basic EPS is calculated by dividing the comprehensive income attributable to equity shareholders from operations by the weighted average number of ordinary shares in issue during the period. (For further details see note 6). NAV per equity share is calculated by dividing net assets attributable to equity shareholders by the number of equity shares outstanding at the period end.

k) Transaction costs

Expenses incurred by the Company that are directly attributable to the offering of new shares have been taken to statement of changes in net assets attributable to equity shareholders.

l) Taxation

Profits arising in the Company are subject to Jersey Income Tax, currently at the rate of 0%.

The Company is registered under the Reporting Fund regime Regulation 51 of The Offshore Fund (Tax) Regulations 2009 in the United Kingdom effective 1st July 2009.

m) Dividends payable

Dividends payable to ordinary shareholders are accounted for when a legal obligation arises.

Dividends payable, if any, on ordinary shares are recognised in the statement of changes in net assets attributable to equity shareholders.

n) Offsetting

Financial assets and liabilities are offset and the net amount is reported within assets and liabilities where there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.

o) Determination of fair value

A number of the Company's accounting policies and disclosures require the determination of fair values for the financial assets and liabilities. Fair value is the price that would be received to sell an asset or paid to transfer liability in an ordinary transaction between market participants at the measurement date. Fair values have been determined for disclosure purposes based on the following methods. When applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability.

Financial assets for which quoted closing prices are available from a third party in a liquid market are valued on the basis of quoted bid prices. Where there are no available quoted prices the fair values will be determined in accordance with International Private Equity and Venture Capital Valuation Guidelines ("IPEVCV" Guidelines) as amended from time to time.

The fair value of financial assets traded in active markets are based on quoted market prices at the close of trading on the balance sheet date. Prior to 1st January 2013, the quoted market price used for financial assets held by the Company was the last traded price. The Company adopted IFRS 13, "Fair value measurement", from 1st January 2013; it did not change its fair valuation input where the last traded market price for financial assets has been utilised and such last traded price falls within the bid-ask spread.

Unquoted equities and unquoted securities are valued using a variety of methods as follows:

- Rapid Action Packaging Limited Ordinary Shares have been valued based on an EBITDA multiple in line with market multiples. This metric has been discounted to reflect the Company's unlisted status.

- STX Services B.V. Ordinary Shares have been valued based on a multiple of profit before tax for the period / year. This metric has been discounted to reflect the Company's unlisted status.

- Terra Nova's Preference Shares and Loan Notes have now been written off following the Company being placed into administration.

- ECO Plastics Limited Ordinary Shares and Loan Notes have now been written off following the Company being placed into administration.

- Emergya Wind Technologies B.V. ("Emergya") Preference Shares value was written off following the refinancing of Emergya which led to the Company's shareholding being diluted to an insignificant stake.

- Lumicity Limited Class A Preference Shares are valued on a net asset basis and the loan is valued at cost.

- Tamar Energy Limited Ordinary Shares are valued on a discounted cash flow basis in the current period and were valued at cost in the prior year. A discount of 15% has been applied to reflect the Company's unlisted status.

- Ignis Biomass Limited Ordinary Shares are valued on a discounted cash flow basis and the unsecured loan stock is valued at cost.

- Micropelt GmbH (the old company) unsecured loan stock has been written off following the Company being placed into administration.

- Micropelt GmbH (the new company) Ordinary Shares are valued at their estimated realisable value.

- Micropatent B.V. Ordinary Shares are valued at cost following its recent acquisition.

Investments are made in companies that may be subject to a high degree of operating and financial risk. The values assigned to investments are based upon available information and do not necessarily represent amounts that might ultimately be realised. Because of the inherent uncertainty of valuations, estimated carrying values may differ significantly from the values that would have been realised had a ready market for the investments existed, and these differences could be material.

The fair value of financial liabilities is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the balance sheet date.

The fair value of derivatives at fair value through profit or loss is derived using the Black Scholes Option Pricing Model.

p) Investment entity

The Directors do not believe that the Company has the power to exercise control over the investments, except for Ignis Biomass Limited, as set out in the provisions of paragraph 12 of International Accounting Standard 27 (Consolidated Financial Statements and Accounting for Investments in Subsidiaries), or under the Standard Interpretations Committee pronouncement Number 12 (SIC 12 - Consolidation: Special Purpose Entities). The Directors have arrived at this opinion because the Company in any of its investments with the exception of Ignis Biomass Limited:

- does not hold a controlling stake;

- does not have the power to govern the financial and operating policies;

- does not have the power to remove the majority of the members of the Board of Directors; and

- does not have the power to cast the majority of votes at meetings of the Board of Directors.

Ignis Biomass Limited was not consolidated in these financial statements as the Company qualified for the exemption from the requirement to prepare consolidate financial statements. The investment in this entity is accounted for at fair value through profit or loss.

q) Associates

Associates are all entities over which the Company has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights.

As the Company operates as a venture capital organisation it uses the scope exemption of IAS 28 'Investment in Associates' and designates upon initial recognition some investments that would otherwise be equity accounted as investments at fair value through profit or loss with subsequent changes in fair value recognised in the statement of comprehensive income in the period of the change.

r) Segment reporting

An operating segment is a component of the Company that engages in business activities from which it may earn revenues and incur expenses. The Directors perform regular reviews of the operating results of the Company and make decisions using financial information at the entity level only. Accordingly, the Directors believe that the Company has only one reportable operating segment.

The Directors are responsible for ensuring that the Company carries out business activities in line with the transaction documents. They may delegate some or all of the day to day management of the business, including the decisions to purchase and sell securities, to other parties both internal and external to the Company. The decisions of such parties are reviewed on a regular basis to ensure compliance with the policies and legal responsibilities of the Directors. Therefore, the Directors retain full responsibility as to the major allocation decisions of the Company.

3. PERFORMANCE FEES RETAINED AND PAYABLE

Performance fees are payable to the Adviser with reference to the increase in adjusted net asset value per share over the course of each performance period. The Adviser becomes entitled to receive a performance fee if the following conditions are met:

a) The adjusted net asset value per share at the end of the performance period exceeds the Performance Hurdle. The Performance Hurdle is an amount equal to the placing price increased at a rate of 8% per annum on a compounded basis up to the end of the relevant performance period; and

b) The adjusted net asset value per share at the end of the performance period exceeds the High Watermark. The High Watermark is the highest previously recorded adjusted net asset value per share at the end of a performance period for which a performance fee was last earned.

If the above conditions are met the Adviser is entitled to receive a fee equal to 20% of the amount by which the adjusted net asset value exceeds the higher of (i) the performance hurdle and (ii) the relevant High Watermark multiplied by the time-weighted average number of shares in issue since the end of the last performance period for which a performance fee was earned.

The conditions for payment of performance fees were not met for the performance period ended 31st December 2014 and year ended 30th June 2014.

20% of any performance fees earned by the Adviser shall be retained and deposited in a Reserve Account (see note 9).

On 21st December 2012, the Company entered into a new Investment Advisory Agreement with the Adviser in which the performance fee basis of calculation was reset from an effective date of 30th June 2012 and under the amended terms, the calculation will add back any distributions made to shareholders during any performance fee period. In the addition to the above conditions, there are also certain additional criteria which need to be met by the Adviser before any accrued performance fees are payable. Also, as a result of entering into this new agreement, the balance of the performance fee retention was released in favour of the Company.

On 1st September 2014 the shareholders approved revised performance fee arrangements for the Investment Adviser, which took effect from 1st July 2014:

- the Advisory fee is calculated at 2% of the Company's Net Asset Value, payable quarterly and any future distributions will no longer be added back for the purposes of the calculation; and

- the basis of the calculation of the performance fee has been reset to 30th June 2014 and is payable to the Adviser if certain conditions are attained.

4. EXPENSES

AUDITOR'S FEES

DIRECTORS' REMUNERATION AND INTERESTS

The details of the Directors' remuneration are as follows:

As at the balance sheet date, the following Ordinary Shares of the Company were held by the Directors, the Directors of the Adviser, the Investment Adviser and the Principals of the Investment Adviser.

Principals of Ludgate Investments Limited include Directors and senior management.

* Ocean Capital Holding II BV, T. Cooke, J.N.B. Curtis, N. Pople, C. Sebag-Montefiore and B. Weil have an interest in Ludgate Investments Limited.

** Ocean Capital Holding II BV is a company in which G. Voskamp and J. Voskamp, both directors of Ludgate Investments Limited, have 20% and 80% shareholdings, respectively.

5. DIVIDENDS

No interim dividend was paid during this period (for the six months ended 31st December 2013: nil). No special dividend was paid during this period (for the six months ended 31st December 2013: a special dividend of 5.0 pence per share at a total cost of £2,707,539).

6. EARNINGS PER SHARE

The calculation of the basic and diluted earnings per share is based on the following information:

7. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS

Further details of the investments held can be found in note 20 to these financial statements.

IFRS 13 requires the Company to classify fair value measurements using a three level fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:

Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3 - Inputs for the asset or liability that are not based on observable market data.

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 comprise 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 analyses within the fair value hierarchy the Company's financial assets measured at fair value at 31st December 2014 and 30th June 2014.

Financial assets whose values are based on quoted market prices in active markets, and therefore classified within Level 1, include mainly actively listed equities. The Company does not adjust the quoted market price for these.

7. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS - (CONTINUED)

Financial assets that trade in markets that are not considered to be active but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs are classified within Level 2. Level 2 includes mainly convertible bonds. As Level 2 bonds are not traded in an active market, valuations are based on an option valuation method which was carried out by an independent broker.

Financial assets classified within Level 3 have significant unobservable inputs, as they trade infrequently. Level 3 includes equities and convertible loan notes. As the observable prices are not available for these equities and convertible loan notes, the Company has used valuation methods as described in note 2 (o) 'Determination of fair values'.

Level 3 valuations are reviewed on a quarterly basis by the Company's Investment Adviser, Ludgate Investments Limited ("LIL"), who report to the Board of Directors on a quarterly basis. The Investment Adviser considers the appropriateness of the valuation model inputs, as well as the valuation result using various valuation methods and techniques generally recognised as standard within the industry. In selecting the most appropriate valuation model, the Investment Adviser performs back testing and considers which model's results have historically aligned most closely to actual market transactions.

The level 3 unquoted equities amounted to £25,370,165 (for the year ended 30th June 2014: £23,980,575) and the Company substantially utilises comparable trading multiples in arriving at the valuation. LIL determines comparable public companies (peers) based on industry, size, developmental stage and strategy. LIL then calculates a trading multiple for each comparable company identified. The multiple is calculated by dividing the enterprise value of the comparable company by its earnings before interest, taxes, depreciation and amortisation (EBITDA). The trading multiple is then discounted for considerations such as illiquidity and differences between the comparable companies based on company-specific facts and circumstances. The Company utilised net realisable values and discounted cash flow techniques also. On determining the discount rate, regard is given to risk rates, the specific risks of the investment and evidence of the recent transaction.

The level 3 unquoted securities amounted to £2,370,000 (for the year ended 30th June 2014: £4,844,656) and the Company valued these instruments at cost and net realisable values.

31st December 2014

30th June 2014