Risk Factors

Although the significant tax benefits available to Investors in British Smaller Companies VCT offset the risk of the investment, there are a number of risk factors of which Investors should be aware.

As with most investment products, prospective Investors should be aware that the value of Ordinary Shares, and the income from them, may go down as well as up and an Investor may not get back the amount originally invested. The price at which the Ordinary Shares are traded may not reflect the net asset value of the Company.

Having regard to the Company's investment objectives and the conditions upon which the tax reliefs are available, British Smaller Companies VCT should be considered as a long-term investment. Investing in British Smaller Companies VCT carries particular risks. All the material risk factors of which the Directors are aware are set out below:

• Past performance is no guide to future performance.
• Levels and bases of, and relief from, taxation are subject to change. Such changes could be retrospective.
• Any change of governmental, economic, fiscal, monetary or political policy could materially affect, directly or indirectly, the operation at the Company and/or its ability to achieve or maintain final VCT status.
• Investors must follow certain simple steps to receive the income tax relief. However, it is possible for Investors to lose their tax reliefs by taking or not taking certain steps. For example, if an Investor disposes of his Ordinary Shares within five years of acquisition, HMRC will claw back some or all of any income tax relief obtained on subscription. Investors are, therefore, advised to take their own independent financial advice on the tax aspects of their investment.
• There can be no guarantee that British Smaller Companies VCT will meet its objectives or that suitable investment opportunities will be identified.
• Whilst it is the intention of the Directors that British Smaller Companies VCT will be managed so as to maintain its qualification as a VCT, there can be no guarantee that such status will be maintained. A failure to meet the qualifying requirements could result in British Smaller Companies VCT losing the tax reliefs previously or prospectively obtained, resulting in adverse tax consequences for Investors, including a requirement to repay the 30% income tax relief.
• Investments made by British Smaller Companies VCT will be in companies whose shares are not readily marketable and, therefore, may be difficult to realise. The fact that a share is traded on AIM, Plus quoted or Plus traded markets or any other stock market does not guarantee its liquidity. The spread between the buying and selling price of such companies' shares may be wide.
• Whilst run as a VCT, British Smaller Companies VCT must hold at least 70% of its investments in Qualifying Holdings. To be regarded as Qualifying Holdings, the proceeds of the Offers must be invested in companies with gross assets of not more than £7 million prior to investment, with fewer than 50 full time equivalent employees and with total equity invested by VCT funds raised after 5 April 2007, Enterprise Investment Scheme investors or certain corporate funds not exceeding £2 million in any tax year. Individually, such companies generally have a higher risk profile than larger companies.
• The performance of British Smaller Companies VCT may be difficult to assess due to the frequency of British Smaller Companies VCT's net asset valuations. Prospective Investors should be aware that the net asset value of the Company will only be audited on an annual basis and, accordingly, the Ordinary Shares will frequently trade at a discount to net asset value. The unaudited net asset values will be reported at quarterly intervals and will include the audited full-year net asset value and the unaudited interim net asset values.
• Although the shares of the VCT are traded on the London Stock Exchange's market for listed securities, there is only a very limited secondary market for shares in a venture capital trust and, consequently, Investors may find it difficult to realise their investment in British Smaller Companies VCT.