Issue of Equity

This announcement is not for release, publication or distribution in or into
the United States, Canada, Australia or Japan.

Small Companies Dividend Trust plc (the "Company") and Small Companies PLC (the
"Subsidiary") (together the "Group")

         Placing of new zero dividend preference shares, tender offer,         

   adoption of new articles and other proposals regarding the Group's future   

The Boards of the Company and the Subsidiary announce important proposals
regarding the Group's future. On 20 April 2006 the Board announced that it was
considering proposals for a restructuring the Group by extending the
Subsidiary's life and increasing the size of the Group through the placing of
further zero dividend preference shares and the issue of C shares convertible
into new ordinary shares.

After a number of weeks of marketing to existing and potential new investors in
the Group, the Board received reasonable levels of interest for zero dividend
preference shares (the "ZDP Shares") and ordinary shares (the "Ordinary
Shares") in the Company. However, the timing of these approaches also coincided
with a period of turbulent markets. Regrettably, and largely as a result of the
recent market falls, the Board has been unsuccessful in finding placees for a
sufficient number of C shares to make a C share issue viable. However, the
Group now proposes to proceed with the extension of life of the ZDP Shares
together with a placing (the "Placing") of new ZDP Shares (the "New ZDP
Shares"). In addition, the Group will simultaneously offer to buy back by way
of a tender offer (the "Tender Offer"), up to 20 per cent. of the ZDP Shares in
order to facilitate an exit for those ZDP Shareholders not wishing to remain
invested until 2014. Accordingly, the Group's proposals comprise a
restructuring by extending the life of the Subsidiary and reviewing the
Company's continuation provisions, revising the terms of the ZDP Shares,
raising up to £2.336 million (before expenses) through the Placing and
effecting the Tender Offer. The net proceeds of the Placing, after completion
of the Tender Offer, will be used in accordance with the Group's investment
objectives and policies which will remain unchanged.

The proposals described above (the "Proposals") are conditional, inter alia, on
the approval by shareholders of the resolutions to be proposed at the relevant
shareholder meetings (the "Shareholder Meetings"), which have been convened for
14 August 2006.

Background

The Company and the Subsidiary were both launched in May 1999 through the issue
of ordinary shares and zero dividend preference shares, together with bank
borrowings. The ZDP Shares were issued with a gross redemption yield of 8 per
cent. and a fixed life that ends on 30 April 2007. Under the Subsidiary's
articles of association, the directors (the "Directors") are therefore obliged
to put winding up proposals to shareholders of the Subsidiary on 30 April 2007
unless previously released from the obligation to do so.

The Group has performed well since launch and despite the volatility of global
equity markets over the last seven years, has outperformed the FTSE SmallCap
Index since mid 2001. In recognition, the Group has won awards in each of the
past four years including being short listed for the Investment Week Awards
2005 (Source: Fundamental Data (2006)).

In light of the performance of the Group to date and following discussions with
a number of ZDP Shareholders, the Board has been considering proposals for the
continuation of the Subsidiary and the restructuring of the Group beyond the
scheduled winding up date in 2007.

Benefits of the Proposals

The Board believes that the Proposals will result in the following benefits for
the Group:

● removal of uncertainty surrounding the Group's future beyond April 2007;

● an opportunity for ZDP Shareholders (other than certain overseas shareholders
(the "Restricted Shareholders")) to realise up to 20 per cent., and possibly
more, of their investment in the Group at their accrued capital entitlement;

● introducing new investors to the Group;

● the opportunity for existing ZDP Shareholders to remain invested for a
further 7 years, approximately, with a fixed capital entitlement of 291.67p on
30 April 2014 (the "Revised Winding Up Date");

● providing ongoing gearing by way of the New ZDP Shares;

● opportunities to achieve a sustained improvement in the rating of the Group's
shares by adopting an active discount management policy; and

● reducing the Group's fixed operating costs as a percentage of shareholders'
funds.

The Proposals

Summary

The Board is seeking shareholder approval for the Proposals, which mainly
comprise:

● a placing of New ZDP Shares with investors;

● extension of the Subsidiary's life to 30 April 2014 by the release of the
Directors of the Subsidiary from their obligation to put forward winding up
proposals on 30 April 2007;

● delaying shareholders' review of the Company's future until 2014;

● revision of the rights attaching to the ZDP Shares such that, as from 1 May
2007, their annual rate of accrual will reduce from 8.0 per cent. to 6.75 per
cent. and their life will continue until 30 April 2014; and

● the adoption of new articles of association (the "New Articles") for both the
Subsidiary and the Company.

In addition, the Directors are also seeking general authorities to repurchase
Ordinary Shares and ZDP Shares in the market, to hold any Ordinary Shares so
repurchased in treasury and to sell such shares out of treasury.

The Placing

The Group is seeking to raise gross proceeds of up to £2.336 million through
the issue of New ZDP Shares pursuant to the Placing. Fairfax I.S. Limited
("Fairfax"), the Group's placing agent, has received commitments with an
aggregate value at the placing price of 176p per New ZDP Share (the "Placing
Price") of approximately £2.336 million (comprising approximately 1.327 million
New ZDP Shares). The Placing is conditional, inter alia, upon shareholder
approvals at the Shareholder Meetings and upon a placing agreement between the
Company, the Subsidiary, Chelverton Asset Management Limited (the "Manager"),
Fairfax and Smith & Williamson Corporate Finance Limited ("Smith & Williamson)
becoming wholly unconditional and not being terminated in accordance with its
terms.

Extension of life of the Subsidiary

As mentioned above, in order to facilitate the return of capital due to ZDP
Shareholders in 2007, the Subsidiary's articles of association require the
Directors of the Subsidiary to put proposals to shareholders of the Subsidiary
on 30 April 2007 to wind up the Subsidiary voluntarily unless previously
released from their obligation to do so. In order to proceed with the
Proposals, the Directors are therefore proposing to extend the life of the
Subsidiary by a further seven years to 30 April 2014 and are seeking to be
released from the obligation to put such winding up proposals to shareholders
in 2007 by the proposed changes contained in the New Articles. Accordingly,
subject, inter alia, to ZDP Shareholder approval, the Directors are proposing
that the Subsidiary adopt New Articles which will contain a revised date upon
which winding up proposals are to be put to the Subsidiary's shareholders
thereby extending such date to 30 April 2014. The New Articles will also make a
number of consequential amendments to the terms of the ZDP Shares.

Review of the Company's future

To bring the Company's future into line with the extended life of the
Subsidiary, the Directors believe it is also appropriate to delay the point at
which proposals are brought to review the Company's life. Accordingly, the New
Articles of the Company contain an extension of the date upon which Ordinary
Shareholders will be given the opportunity to consider the future of the
Company from 2007 to 2014, and at regular intervals thereafter. The effect of
such provision being that the Company's Directors will be released from their
obligation to propose a continuation resolution in 2007. The Directors believe
that, assuming the Proposals are approved, such an extension is in the best
interests of the Company's shareholders as a whole. Further details of the New
Articles are set out below.

Amendment to terms of existing ZDP Shares

In addition to the extension of the Subsidiary's life, the Proposals include
the amendment of the rights attaching to the existing ZDP Shares by extending
their life and revising their redemption yield in order that their revised
terms are aligned with current market rates and those of the New ZDP Shares. In
order to ensure that the Company has a reasonable prospect of meeting the final
capital entitlement of the ZDP Shares on the Revised Winding Up Date, the Board
has reviewed the rate of accrual over such period to ensure that it reflects
current interest rates. Under the Proposals, the ZDP Shares will therefore
continue to accrue at 8 per cent. per annum until 30 April 2007 and thereafter
at 6.75 per cent. per annum until 30 April 2014, representing a final capital
entitlement as at 30 April 2014 of 291.67 pence per share. On the current net
asset value per ZDP Share of 173.68 pence (as at 14 July 2006, being the latest
practicable date prior to this announcement) this represents a gross redemption
yield of 6.88 per cent. In terms of repayment, the New ZDP Shares will rank
pari passu with the existing ZDP Shares. On the basis of the principal
assumptions set out in the appendix to this announcement (the "Assumptions"),
the final capital entitlement of the ZDP Shares will be covered 1.55 times
immediately following the Placing.

The revised terms of the ZDP Shares will be contained in the New Articles of
the Subsidiary to be adopted at the Subsidiary's EGM.

Adoption of New Articles of Association

As mentioned above, in light of the proposed changes to the life of both the
Subsidiary and the Company and the amendments to the rights attaching to the
ZDP Shares, the Directors are proposing that both the Company and the
Subsidiary adopt new articles of association to incorporate these changes. In
addition, the Directors have also taken the opportunity to update the articles
of both companies to bring them into line with current law and practice and to
incorporate a number of statutory changes which have occurred since the Group
was established.

The proposed release of the Directors from the obligation to put forward
winding up proposals to the Subsidiary's shareholders, the proposed extension
of the Subsidiary's life, the proposed changes to the rights attaching to the
ZDP Shares (all of which will be effected by the adoption of New Articles by
the Subsidiary) referred to above are subject to the prior approval of the ZDP
Shareholders and holders of the Subsidiary's preference shares of £1 each (the
"Subsidiary Preference Shares"), in each case, as a class. Therefore the
Directors have convened class meetings (the "Class Meetings") immediately prior
to the Company's EGM and Subsidiary EGM at which ZDP Shareholders and
Subsidiary Preference Shareholders will be asked to approve the Proposals.

Tender Offer

Under the Tender Offer, ZDP Shareholders (other than Restricted Shareholders)
will be able to tender up to 20 per cent. of their holdings (rounded down to
the nearest whole number of ZDP Shares) (being their "Basic Entitlement"), with
such tenders being satisfied in full. ZDP Shareholders will also be able to
tender ZDP Shares in excess of their Basic Entitlement by completing the
relevant box on the Tender Form, but such excess tenders will only be satisfied
pro rata to the extent that other ZDP Shareholders tender less than their Basic
Entitlement.

The Tender Offer is being made at a price which will equate to the then accrued
capital entitlement per ZDP Share as at 11 August 2006 (or as deferred in
accordance with the provisions of the Tender Offer). For illustrative purposes
only, had the Tender Price been calculated as at 14 July 2006, the Tender Price
would have been approximately 173.68p per ZDP Share and the maximum aggregate
consideration payable pursuant to the Tender Offer would have been
approximately £2.18 million, inclusive of stamp duty payable by the Subsidiary.

The Tender Offer is conditional, inter alia, on Shareholder approval at the
Subsidiary's EGM.

Share Repurchase Authorities and discount management policy

The Directors intend to apply an active discount management policy when
necessary with a view to maintaining and supporting the rating of the Group's
shares. The Boards of both companies are therefore proposing to obtain a
general authority from shareholders to make repurchases of Ordinary Shares and
ZDP Shares as appropriate from time to time provided that such authorities are
only exercised where the cover (i.e. the value of the Group's gross assets
(excluding current period income), divided by the aggregate of the total
liabilities of the Group) on the ZDP Shares would be maintained. The
authorities relate to 2,435,875 Ordinary Shares (representing approximately
14.99 per cent. of the total issued ordinary share capital of the Company) and
such number of ZDP Shares as shall represent 25 per cent. of the issued ZDP
Share capital immediately following the completion of the Placing and the
Tender Offer. Any repurchases of ZDP Shares will be carried out in practice by
the Company in order to simplify the arrangements under the inter-group
arrangements set out below.

The Board has no immediate plans to utilise the repurchase authorities but, if
given, repurchases would only be made where the Directors believe that they
were in the best interests of the Company and the Subsidiary (as appropriate),
taking into account the overall financial position of the Group. The Board will
only authorise repurchases at prices representing a discount greater than 5 per
cent. to net asset value ("NAV") or a discount to NAV per share which would
have the effect of enhancing the NAV per share for remaining shareholders of
the relevant class. Any Ordinary Shares repurchased may be held in treasury to
the extent permissible by law and then sold in response to market demand.
Purchases will only be made at times when Directors are permitted to do so
under the Model Code. The minimum repurchase price, in each case, would be 25p
per Ordinary Share and 0.5p per ZDP Share (the nominal value in each case) and,
in accordance with the Listing Rules, the maximum repurchase price would be the
higher of (a) 105 per cent. of the average of the middle market quotations for
a Share as derived from the Daily Official List of the London Stock Exchange
for the five business days immediately preceding the day on which that Share is
purchased; and (b) the higher of the price of the last independent trade in
shares of the class of that share and the highest then current independent bid
for such shares on the London Stock Exchange.

Re-issue of Treasury Shares

It is also proposed that the Directors be granted a general authority until the
conclusion of the Annual General Meeting in 2007 to sell any Ordinary Shares
which the Company has bought back and are held as treasury shares (up to an
aggregate nominal amount of 10 per cent. of the issued Ordinary Share capital
of the Company) for cash at a discount to the prevailing NAV per share provided
that the discount at which they are sold is less than the discount at which
they were bought back by the Company. The Board believes that the provision of
a treasury share facility is in the best interests of shareholders on the basis
that the liquidity of the Ordinary Shares would be enhanced and any reselling
of Ordinary Shares from treasury would reduce the Company's total expense
ratio. Any such re-issues out of treasury are subject to statutory pre-emption
provisions which require such shares to be first offered to existing
shareholders pro-rata. The Board is therefore seeking authority to disapply
such pre-emption rights to the extent necessary to allow the sale of shares
held in treasury. In addition, any proposed re-issue of treasury shares at a
discount to NAV requires the approval of shareholders. Accordingly, these
resolutions will be put to shareholders at the Company's EGM.

Consequences of the Proposals not being approved

In the event that none of the resolutions are approved at the Shareholder
Meetings, then the Group will continue under its existing arrangements until
2007 when the Directors will, in consultation with shareholders, consider
bringing further proposals under the terms of the existing articles for the
reconstruction or other reorganisation of the Group. If the resolution
effecting the Tender Offer is not approved at the Subsidiary's EGM, then
neither the Placing nor the Tender Offer will proceed. The Tender Offer, if
approved, is conditional upon the Placing being approved and being implemented.

Banking Arrangements

The Group currently has borrowing facilities with Lloyds TSB Bank plc ("Lloyds
TSB") totalling £10 million, represented by a fixed term loan of £5 million and
an overdraft facility for the balance of £5 million. The fixed term loan is for
the period to 30 March 2007 upon which interest is charged at a rate of 5.595
per cent. per annum and the overdraft facility is at the rate of 1 per cent.
per annum over Lloyds TSB's base rate.

The Board intends to review the existing borrowing arrangements with Lloyds
TSB, so as to limit the total amount of borrowings to 15 per cent. of gross
assets at the time of draw down following the completion of the Proposals.
There will be no further adjustments to the borrowing level or draw down of
unutilised facilities unless the asset cover of the ZDP Shares is greater than
1.5 times. The availability of additional borrowings from Lloyds TSB over and
above the existing facilities, and any early repayment of borrowings will be
reviewed by the Board following completion of the Proposals and from time to
time.

The Board, in conjunction with the Manager, will monitor the debt structure,
having regard to the proportion of fixed and temporary overdraft facilities,
and as part of the Group's risk management policy and prevailing market
conditions.

Inter-Group Arrangements

Following the establishment of the Group in 1999, the Company and the
Subsidiary entered into arrangements whereby the Subsidiary transferred the
proceeds of the issue of ZDP Shares and Subsidiary Preference Shares to the
Company in consideration for the issue of subordinated loan notes by the
Company. As a result of these arrangements all of the net assets of the Group
are held by the Company and are effectively available to meet the capital
entitlement of the ZDP Shares. It is proposed that, following the
implementation of the Placing and the passing of the Resolutions, revised
arrangements will be entered into between the companies to ensure that the
final capital entitlement due in April 2014 is met.

As part of the inter-group arrangements, the Subsidiary is structured such that
it has ZDP Shares, ordinary shares and preference shares in issue. As part of
the Subsidiary's Proposals, in order to ensure that the ratio, in nominal
value, of ZDP Shares in issue to Subsidiary Preference Shares is maintained, it
will also be necessary to issue new Subsidiary Preference Shares (the "New
Subsidiary Preference Shares") in the ratio 0.005:1 to a suitable investor,
namely Chelverton Growth Trust PLC. Chelverton Growth Trust PLC has agreed to
hold the Subsidiary Preference Shares subject to a number of undertakings in
relation to the exercise of the voting rights attaching to such shares.

Shareholder Meetings

An extraordinary general meeting of the Company together with separate class
meetings of the ZDP Shareholders and the Subsidiary Preference Shareholders and
an extraordinary general meeting of the Subsidiary, at which the resolutions
required to approve the Proposals will be proposed, are convened for 14 August
2006. The Boards of the Company and the Subsidiary will be recommending
Shareholders to vote in favour of the resolution(s).

Costs and expenses

The costs and expenses relating to the Proposals to be incurred by the Group,
including advisory costs and stamp duty, are estimated to amount to
approximately £290,000 (excluding any stamp duty that may arise from the
purchase of ZDP Shares pursuant to the Tender Offer). Based on the NAV per
Ordinary Share as at 14 July 2006, the costs and expenses relating to the
Proposals represent approximately 0.8 per cent. of the NAV per Ordinary Share.

Circular to Shareholders

A circular containing full details of the Proposals and including notices
convening the Shareholder Meetings at which the requisite approvals will be
sought will be posted by the Company to Shareholders later today. Copies of
that circular, which is dated today, will be forwarded to the UK Listing
Authority and will shortly be available for inspection at the UK Listing
Authority's Document Viewing Facility, which is situated at:

Financial Services Authority
25 The North Colonnade
Canary Wharf
London E14 5HS

Tel: [phone]

Further enquiries:

William van Heesewijk

Chelverton Asset Management Limited 020 7222 8989

Paul Richards

John Korwin Szymanowski

Fairfax I.S. Limited 020 7568 5368

Dr Azhic Basirov

Smith & Williamson Corporate Finance Limited 020 7131 4000

Fairfax I.S. Limited and Smith & Williamson Corporate Finance Limited, each of
which is authorised and regulated in the United Kingdom by the Financial
Services Authority, are acting exclusively for the Company and the Subsidiary
and for no one else in connection with the Proposals or any matter referred to
in this announcement and will not be responsible to anyone other than the
Company and the Subsidiary for providing the protections afforded to clients of
Fairfax I.S. Limited and Smith & Williamson Corporate Finance Limited or for
affording advice in relation to the Proposals or any matter referred to in this
announcement. This announcement does not constitute, or form part of, any offer
for, or any solicitation of any offer for, securities.

                                   APPENDIX                                    

The principal assumptions used in deriving the illustrative investment
statistics given in this announcement in relation to the Company's shares are
set out below:

1. The Group has 16.25 million Ordinary Shares in issue with a NAV per Ordinary
Share of 220.6p as at 14 July 2006 and 6.25 million ZDP Shares in issue with a
NAV per ZDP Share of 173.68p as at 14 July 2006. The value, at the Issue Price,
of the Placing will amount to £2.336 million, comprising approximately 1.327
million New ZDP Shares at 176p each.

2. The Group has 16.25 million Ordinary Shares in issue and will have
approximately 7.577 million ZDP Shares in issue after the Placing, assuming
that the Tender Offer is not taken up.

3. The Placing expenses will be borne by the existing Ordinary Shareholders and
will amount to 0.8 per cent. of the Ordinary Shares NAV as at 14 July 2006,
excluding the dealing costs of investing the initial portfolio.

4. The gross assets of the Group as at 14 July 2006 are £56.59 million. The
enlarged gross assets after deduction of the costs and expenses of the Placing
will be £58.63 million, assuming that the Tender Offer is not taken up

5. The Group has £9.84 million of bank debt as at 14 July 2006, of which £5
million is subject to a fixed interest rate of 5.595 per cent. and £4.84
million is subject to a floating interest rate of 100bp over LIBOR which as of
14 July 2006 was 5.56 per cent., resulting in an average interest rate of 5.6+
per cent. per annum.

6. The rate of accrual on the existing ZDP Shares is 8.0 per cent. per annum
until 30 April 2007 which reduces to 6.75 per cent. per annum until 30 April
2014. The final capital entitlement of the New ZDP Shares on 30 April 2014 is
291.67p per share.

7. The corporation tax rate is 30 per cent. and will remain constant throughout
the life of the Company.

8. The annual management fees are 1.0 per cent., plus VAT. Other administration
charges of the Group are £218,000 (plus VAT) per annum and will be charged
wholly to revenue. The annual management fees and finance costs are charged 60
per cent. to capital reserves and 40 per cent. to revenue account.

9. The portfolio yield is 5.0 per cent.

10. The forecast dividends to be paid by the Company in respect of the
financial year ending 30 April 2007 will equal its gross revenue after all
revenue expenses and after taxation.

11. Dividends on the Ordinary Shares in respect of each financial year will be
paid quarterly in June, September, December and March.

12. No taxation on capital gains will be payable by the Company.

13. The revenue account will initially receive the tax benefit of expenses
charged to the capital account. Notional tax relief, calculated as being the
corporation tax rate applied to the amount of expenses charged to the capital
account, will then be allocated from the income account to the capital account.

14. The existing ZDP Shares' repayment date is extended to 30 April 2014 and
the New ZDP Shares are also to be repaid on 30 April 2014.

15. No provision is required for any taxation charges upon the Company or any
diminution in the value of the Company's net assets arising from its winding up
or for any expenses incurred by the Company by reason of or in connection with
such winding up.

16. The Company will not issue additional share capital during its life.

17. The Group's financial year is for a period of 12 months to 30 April.

18. The effective gross redemption yield on the ZDP Shares will be 6.75 per
cent. (based upon the placing price of 176p and Admission on 15 August 2006)
and the accrual of the excess of the final capital entitlement over the Issue
Price of the ZDP Shares will be charged to capital.

19. Admission of the New ZDP Shares occurring on 15 August 2006.