Annual Financial Report

RNS Number : 9813R

Standard Life Equity Income Tst PLC

14 November 2011

 



STANDARD LIFE EQUITY INCOME TRUST PLC

ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 30 SEPTEMBER 2011

1.       CHAIRMAN'S STATEMENT

Income and Dividends

The revenue return per share for the year ended 30 September 2011 rose by 16.5% to 12.86p (2010 - 11.04p). The Company benefited from 1.28p (2010 - 0.30p) in respect of VAT refunds and related interest received from HMRC. Removing the effect of this, the underlying revenue return increased by 7.8%.

Whilst the revenue account lost some ground at the end of 2010 due to the suspension of dividends from BP, strong dividend growth from the Company's underlying portfolio during 2011 has resulted in a 10.2% increase in investment income over the reporting year.

An interim dividend of 3.55p was paid on 24 June 2011, an increase of 12.7% on the previous year's interim reflecting the Board's aim of rebalancing the interim and final dividends. The Board is now recommending a 2.3% increase in the final dividend to 8.85p bringing total dividends for the year to 12.40p, an increase of 5.1%. Subject to shareholder approval, the final dividend will be paid on 21 December 2011 to shareholders on the register on 25 November 2011 with an associated ex-dividend date of 23 November 2011.

Since launch in 1991, the Company has achieved a real growth in income, with dividends increasing by 259%. This compares with an increase of 76% in the Retail Price Index, and a 53% increase in the Consumer Price Index over the same period. 

VAT on Investment Management Fees

Following negotiations between HMRC and our former manager, Deutsche Asset Management, the Board is pleased to report that a further VAT repayment of £291,000 was received in March 2011, in respect of the period since the Company's inception in 1991 to 1996. This VAT refund has been allocated to revenue, in accordance with how the VAT was originally charged in the respective financial years. In addition, the Company has received a further £193,000 of interest from HMRC in relation to the VAT refunds and this interest has also been allocated to revenue.

Performance

In contrast to a robust result on the income account, the capital performance of our investment portfolio was disappointing. For the year ended 30 September 2011, the Company's net asset value total return was -6.8% compared with a -4.4% total return for the FTSE All-Share Index and a positive total return of 2.1% for the FTSE 350 High Yield Index.

The last three months of the reporting period proved to be very difficult for the stock market in general and your Company in particular. A downgrade of US debt by ratings agency Standard & Poor's and concerns over the payment of sovereign debt in the Eurozone were the principal negative drivers for the market. The Company suffered a sharp decline in its performance during August and September. Exposure to cyclical stocks and an underweight position in defensive companies caused the Company to underperform as the UK market sold off sharply during this period.

Despite the volatility in the market, the UK corporate sector has proved resilient and offers attractive valuations where balance sheets are strong.  The Manager remains focused on the long term performance of the Company and the opportunities this market affords.

The long term performance of your Company against its peers is shown in the table below:

UK Growth & Income Peer Group	Three Years Total Return	Five YearsTotal Return
SLEIT	14/19	10/19

The Company's share price total return for the year ended 30 September 2011 was 0.4%. The discount narrowed over the year and the Company ended the reporting period on a premium of 2.4%.

The Manager's Report provides further information on the UK economy and equity market as well as a review of the portfolio of investments and activity during the year.

Gearing

In January 2011, the Manager increased the Company's borrowings to £15m and maintained a net gearing level of 10% for the first half of 2011.   This level was reduced over the latter part of the reporting period, to 6% at 30 September 2011, as the Manager retained cash rather than re-investing into the market during a period of extreme volatility. 

The Company renewed its bank loan facility in February 2011 and put in place a £20m three year credit facility at 125bps above LIBOR.

Bonus Issue of Subscription Shares

Following shareholder approval at the General Meeting held on 17 December 2010, the Company issued subscription shares to qualifying shareholders on the basis of one subscription share for every five ordinary shares held. Each subscription share confers the right to subscribe for one ordinary share and may be exercised on the last business day of June and December, up to 2016, at a price of 320p per share. A reminder notice will be sent out to subscription shareholders in advance of each exercise date.

Following the exercise of any subscription shares, the Company will have an increased number of ordinary shares in issue and this should improve the liquidity in the market for the ordinary shares. The capital base of the Company will also be increased, allowing operating costs to be spread over a larger number of ordinary shares and reducing the total expense ratio.

New Director

The Board is pleased to welcome Jo Dixon as an independent, non-executive Director to the Company. Jo was appointed on 1 May 2011 and is a Chartered Accountant whose career has included a variety of roles in the Nat West Group, Finance Director of Newcastle United plc and Commercial Director of Serco Group. Jo is also a director of Worldwide Healthcare Trust plc and Baring Emerging Europe plc.

Appointment of Joint Investment Manager

The Board is pleased to announce the appointment of Thomas Moore as joint investment manager to the Company. Thomas joined Standard Life Investments in 2002, after four years in the industry. He has been an Investment Director in the UK Equities Team since 2006. Thomas has built up a successful track record with the Standard Life UK Equity Income Unconstrained Fund and was voted number one Pan European buy side Speciality & Other Finance analyst in both 2008 and 2010 (Thomson Extel Survey).

Thomas has assisted Karen Robertson with the management of the Company's portfolio for the past two years, attending both Board meetings and the Annual General Meeting, and regularly presenting to existing and potential shareholders. The intention is that Thomas will become the lead manager during the course of the next year.  The Board will be working closely with the Manager to determine the detailed timing of the transition. 

Marketing and Shareholder Communication

The Manager meets with private client and wealth managers on an ongoing basis.  In addition, the Board is always pleased to welcome private investors to the Company's AGM, to be held this year on Thursday 15 December 2011 at the offices of J.P. Morgan Cazenove, 20 Moorgate, London, EC2R 6DA. The meeting will start at 11am and will include a joint presentation from Karen and Thomas.

Outlook

The last two months of your Company's financial year were an uncomfortable period. Rapid loss of confidence in political and economic management both in the US and in Europe drove market volatility to much higher levels. Your Board has said for some time that it believes that this is an unusually protracted economic cycle: present political uncertainties have probably extended that.

Our Managers, however, report that they continue to see confidence in demand across many sectors at their regular meetings with companies. More widely, it is still expected that overall company earnings in non banking sectors will continue to grow.

Your Company holds a range of companies expected to generate value and consistent income growth over time. The Board has been able to build up reserves which has enabled us to recommend again an increased dividend.

Charles Wood OBE

Chairman

11 November 2011

2.       MANAGER'S REPORT

 

Market Review

Against a backdrop of concerns over the global recovery, a stagnant domestic economy and the ongoing Euro-zone debt crisis, the 12-month review period was particularly volatile for UK equities.

The first quarter of the Company's financial year started well, driven by broadly positive corporate results. There was also increased confidence over the pace of the global economic recovery, and 2010 ended on a reasonably positive note. During this time though, there were signs of foreboding - November in particular saw anxiety grow over debt problems in peripheral European countries.

UK equities retreated as we moved into 2011, with investor sentiment negatively affected by the surprise news that the UK economy had shrunk during the fourth quarter of 2010. Investors were also subject to geopolitical shocks emanating from the Middle East and North Africa as well as natural disasters in Japan.  As the year progressed, investor sentiment continued to exhibit sharp swings with concerns about macroeconomic conditions, UK consumer spending as well as the ability of Euro-zone members to service their sovereign debts. However, there was positive news at this time from the corporate sector which demonstrated its resilience, with many companies continuing to post strong results.

Global economic events again exerted a malign influence over the final three months of the reporting period. In particular, sentiment was dealt a blow by news that the US had lost its coveted S&P AAA credit rating, while fears over European sovereign debt contagion continued to reverberate. European leaders did agree further financial aid for Greece, but the time taken to finalise the package's details, together with the lack of a lasting resolution, did not help to calm investors' nerves. The UK economy continued to exhibit sluggish growth, with interest rates not expected to rise until next summer.

Performance

For the year to 30 September 2011, the Company's net asset value total return was -6.8%, underperforming the FTSE All-Share Index total return of -4.4% (source: Thomson Datastream). Over the reporting period, the share price fell from 286.8p to 276.5p, a decrease of 3.6%.

Performance was impacted by an overweight exposure to mining company Vedanta Resources, which suffered due to ongoing delays to the proposed acquisition of a controlling stake in Cairn India. Another mining stock, Xstrata, also disappointed due to concerns over a possible slow down in China and a decline in metal prices. The Company's underweight position in defensive companies, such as Diageo, detracted from performance due to increased risk aversion within the market. In addition, Hays also underperformed on concerns over a slowdown in the UK recruitment market.  Transport services group Wincanton disappointed due to its French distribution business.

The Company's exposure to GKN proved beneficial over the year as its share price bounced back strongly after retreating amid fears that the Japanese earthquake might disrupt its trade. Our exposure to industrial engineer Melrose was also positive when it reported stronger-than-expected trading as a result of recovering corporate capital expenditure. In addition, industrial company Fenner performed well as demand for its products continued to improve. DS Smith, the paper and packaging company, added further value when it produced good results, reflecting a cyclical upturn as well as the strategic changes being implemented by the new management team.

Activity

Purchases during the period included engineer Weir Group, where there was potential for earnings upgrades, and oil and gas services provider Petrofac, where earnings are expected to double over the next five years. We also bought shares in Marks & Spencer as there is potential for margin improvement in their food business given new management.

A position was initiated in Close Brothers, which will benefit from decreased competition from the mainstream banks. Industrial business Cookson Group was another purchase, as it was priced for a sharp contraction in global steel demand which we do not expect to occur. In addition, we bought shares in Babcock International as the Strategic Defence Review increases outsourcing opportunities and therefore top line growth.

We reduced the Company's exposure to integrated energy company Centrica as a result of the increasing competition facing its home services business and pressures in the US. Other sales over the period included Micro Focus, following earnings downgrades, and Barratt Developments, in the wake of increasingly negative news emanating from the UK housing market.

Outlook

Our contact with company management suggests continued solid trading, with little sign of a widespread fall in demand.  Rather, we are seeing only isolated pockets of weakness in areas most sensitive to deferral of investment decisions due to uncertainty over future demand. 

While we recognise that business confidence remains fragile, the market has already priced in a significant downward correction in earnings forecasts, which should provide some cushion if the macroeconomic outlook deteriorates further.  This is a supportive environment for active stock picking and we will continue to be alert to opportunities. 

Relative Performance Attribution*	%
Stock Selection	-0.8
Gearing	-1.7
Interest	-0.4
Expenses	-0.4
Total	-3.3
* based upon capital return NAV

Top 5 Stock Level Contributors	Relative Position (%)	Contribution (%)
Fenner	1.5	0.6
Barclays	-0.9	0.4
Northumbrian Water	0.7	0.4
Imperial Tobacco	1.6	0.4
Melrose	1.6	0.3
Bottom 5 Stock Level Contributors	Relative Position (%)	Contribution (%)
Vedanta Resources	1.2	-0.6
BG	-2.6	-0.4
Diageo	-1.7	-0.3
Hays	0.7	-0.3
Wincanton	0.3	-0.3
Source: Standard Life Investments

Karen Robertson

Standard Life Investments

11 November 2011

3.    RESULTS & DIVIDENDS

At 30 September 2011	%
Total Return
Net asset value per ordinary share	-6.8
FTSE All-Share Index	-4.4

At 30 September	2011	2010	% change
Capital Return
Net asset value per ordinary share (including net revenue)	269.9p	299.8p	-10.0
Net asset value per ordinary share (excluding net revenue)	260.6p	291.9p	-10.7
Ordinary share price (mid market)	276.5p	286.8p	-3.6
Premium/(discount) of share price to net asset value (including net revenue)	2.4%	-4.3%	n/a
Premium/(discount) of share price to net asset value (excluding net revenue)	6.1%	-1.8%	n/a
FTSE All-Share Index	2,654.4	2,867.6	-7.4
At 30 September	2011	2010	% change
Total assets	£117.7m	£127.3m	-7.5
Total shareholders' funds	£102.4m	£113.7m	-9.9
Total expense ratio (AIC method)	1.0%	1.0%	n/a
Revenue return per ordinary share	12.86p	11.04p	16.5
Dividend yield	4.5%	4.1%	n/a
Total dividends for the year (net)	12.40p	11.80p	5.1
Ordinary shares in issue (with voting rights)	37,954,058	37,930,579	-

Gearing (ratio of net borrowings to net assets)	2011	2010
Actual gearing ratio	6.0%	9.5%
Potential gearing ratio	14.6%	11.5%

4.       STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE ANNUAL REPORT AND ACCOUNTS

The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with applicable law and regulations. Company law requires the Directors to prepare Financial Statements for each financial year. Under that law they have elected to prepare the Financial Statements in accordance with UK Accounting Standards. The Financial Statements are required by law to give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.

In preparing these Financial Statements, the Directors are required to:

-      select suitable accounting policies and then apply them consistently;

-      make judgments and estimates that are reasonable and prudent; and

-      state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the Financial Statements.

The Directors are responsible for keeping adequate accounting records that disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that its Financial Statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the Directors are also responsible for preparing a Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that comply with that law and those regulations.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's webpage hosted by the Manager. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Directors' Responsibility Statement

Each Director confirms, to the best of his knowledge, that:

-      the Financial Statements have been prepared in accordance with UK Accounting Standards, give a true and fair view of the assets, liabilities, financial position and profit; and that

-      the Directors' Report includes a fair review of the development and performance of the business and the position of the Company together with a description of the principal risks and uncertainties that the Company faces.

For and on behalf of the Board of Standard Life Equity Income Trust PLC

Charles Wood, OBE

Chairman

11 November 2011

5.       BUSINESS REVIEW

In conjunction with the rest of the Annual Report and Financial Statements, in particular, the Chairman's Statement and Manager's Report, this Business Review is intended to provide information about the Company's business and its results for the year.

Status and Principal Activity

The Company is an investment company within the meaning of Section 833 of the Companies Act 2006 and carries on business as an investment trust. The Company is a member of the Association of Investment Companies. The Company has been approved by HM Revenue & Customs as an investment trust for the purposes of Sections 1158-1159 of the Corporation Tax Act 2010 for the year ended 30 September 2010. The Directors are of the opinion, under advice, that the Company has conducted its affairs for the year ended 30 September 2011 so as to be able to continue to obtain approval as an investment trust under Sections 1158-1159 of the Corporation Tax Act 2010 for that year. The Company intends to manage its affairs so as to be a qualifying investment for inclusion in the stocks and shares component of an Individual Savings Account and it is the Directors' intention that the Company should continue to be a qualifying investment.

Investment Objective

The Company's investment objective is to provide shareholders with an above average income from their equity investment while also providing real growth in capital and income.

Investment Policy

The Directors intend to achieve the investment objective by investing in a diversified portfolio consisting mainly of quoted UK equities which will normally comprise between 50 and 70 individual equity holdings.

In order to reduce risk in the Company without compromising flexibility:

-      no holding within the portfolio will exceed 10% of aggregate net assets; and

-      the top ten holdings within the portfolio will not exceed 50% of net assets.

The Company may invest in convertible preference shares, convertible loan stocks, gilts and corporate bonds.

The Directors have set parameters of between 95% and 115% for the level of gearing that can be employed. The maximum level of borrowings will therefore represent 15% of net assets and the maximum cash position will be equivalent to 5% of net assets. The Directors have delegated responsibility to the Manager for the operation of the gearing level within the above parameters.

The Manager's investment process combines asset allocation, stock selection, portfolio construction, risk management and dealing. The investment process is research-intensive and is driven by the Manager's distinctive 'Focus on Change' which recognises that different factors drive individual stocks and markets at different times in the cycle. This flexible but disciplined investment process ensures that the Manager has the opportunity to perform in different market conditions.

Performance

In the year ended 30 September 2011, the Company's net asset value (capital, including income) decreased by 10.0% and the FTSE All-Share Index fell by 7.4%. Further details on future trends and factors that may impact on the future performance of the Company are included in the Chairman's Statement and Manager's Report.

Results and Dividends

Details of the Company's results are shown in the Financial Highlights.

The total revenue return attributable to ordinary shareholders for the year ended 30 September 2011 amounted to £4,877,000 (2010 - £4,189,000). An interim dividend of 3.55p per share was paid to eligible shareholders on 24 June 2011 (2010 - 3.15p) and the Directors are now recommending to shareholders that a final dividend per share of 8.85p (2010 - 8.65p) be paid on 21 December 2011 to shareholders on the share register as at the close of business on 25 November 2011. The ex-dividend date is 23 November 2011.

Details of the dividends paid during the year ended 30 September 2011 may be found in Note 7 to the Financial Statements.

An outline of the Company's performance, market background, investment activity and portfolio strategy during the year under review, as well as the Manager's investment outlook, is provided in the Manager's Report.

Monitoring Performance - Key Performance Indicators

The key performance indicators (KPIs) shown below have been identified by the Directors to determine the progress of the Company and a record of these measures, with comparatives, is disclosed in the Financial Highlights:

-      Net asset value (total return) relative to the Company's benchmark (FTSE All-Share Index
total return)

-      Share price (capital return)

-      Discount to net asset value

At each Board meeting, the Directors consider a number of performance measures, including the KPIs, to assess the Company's success in achieving its investment objective.

Principal Risks and Uncertainties

The Directors regularly review the principal risks which they have identified and the Directors have set out delegated controls designed to manage those risks. Key risks within investment and strategy, for example inappropriate stock selection or gearing, are managed through investment policy, guidelines and restrictions and by the process of oversight at each Board meeting.

The principal risks and uncertainties which give rise to specific risks which are associated with the Company, as identified by the Directors, are as follows:

-      Objective and Strategy risk: The Company and its investment objective become unattractive to investors. The Directors review regularly the Company's investment objective and investment policy in the light of investor sentiment and monitor closely whether the Company should continue in its present form. The Directors, through the Manager, hold regular discussions with major shareholders. A resolution to continue the Company in its present form will be next considered at the Annual General Meeting ("AGM") in 2016 and every fifth subsequent AGM.

-      Shareholder Profile risk: Activist shareholders, whose interests are not consistent with the long term objectives of the Company, may be attracted to the shareholder register. The Manager provides a shareholder analysis to the Directors at every meeting for their consideration of any action required in addition to regular reporting by the Company's stockbroker.

-      Resource risk: In common with most investment trusts, the Company has no employees. The Company therefore relies upon services provided by third parties. This particularly includes the Manager, to whom responsibility for the management of the Company has been delegated under an investment management agreement. The Directors review the performance of the Manager on a regular basis.

-      Investment and market risk: The Company is exposed to the effect of variations in security prices due to the nature of its business. A fall in the value of its investment portfolio will have an adverse effect on the value of shareholders' funds.

-      Capital structure and gearing risk: The Company's capital structure at 30 September 2011 consisted of equity share capital comprising Ordinary shares, Subscription shares and debt in the form of a revolving credit facility with The Royal Bank of Scotland plc for up to £20m. In rising markets, the effect of the borrowings would be beneficial but in falling markets the gearing effect would adversely affect returns to shareholders. The Manager is able to increase or decrease the gearing level by repaying or drawing down periodically from the bank facility subject to Directors' overall restrictions on gearing. The bank facility is subject to regular monitoring by The Royal Bank of Scotland plc and covenants are supplied quarterly to the bank by the Company.

-      Income and dividend risk: In view of the Company's investment objective, to provide for shareholders an above average income from their equity investment, the Manager is required to strike a balance more in favour of income return over capital growth. The Directors have adopted an accounting policy which permits 70% of the aggregate of the finance costs and investment management fees to be charged to the capital account within the Income Statement as opposed to the revenue account. This policy is reviewed regularly by the Directors in light of the expected long term split of returns between income and capital. The Directors receive frequent updates as to the progress made by the Manager towards the achievement of the income requirements of the Company's investment objective.

-      Regulatory risk: The Company operates in a regulated environment and faces a number of regulatory risks. A breach of Sections 1158-1159 of the Corporation Tax Act 2010 (formerly Section 842 of the Income and Corporation Taxes Act 1988) would result in the Company being subject to capital gains tax on any portfolio investment gains. Breaches of other regulations, including the UKLA Listing Rules or the UKLA Disclosure and Transparency Rules, could lead to a number of detrimental outcomes and reputational damage. Breaches of controls by service providers such as the Manager and Company Secretary could also lead to reputational damage or loss.

       The Directors have adopted a robust framework of controls which is designed to monitor the principal risks facing the Company and to provide a monitoring system to enable the Directors to mitigate these risks as far as possible.

-      Financial instruments and derivatives risk: further information relating to these risks may be found in Note 16 to the Financial Statements.

Going Concern

After enquiry, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. In considering this, the Directors took into account the diversified portfolio of readily realisable securities which can be used to meet short-term funding commitments, and the ability of the Company to meet all of its liabilities and ongoing expenses. Accordingly it is reasonable for the Financial Statements to continue to be prepared on a going concern basis.

INCOME STATEMENT

for the year ended 30 September 2011

		2011			2010
	Notes	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Net (losses)/gains on investments at fair value	9	-	(10,471)	(10,471)	-	8,261	8,261
Income	2	5,257	-	5,257	4,715	-	4,715
Investment management fee	3	(255)	(596)	(851)	(234)	(545)	(779)
VAT recovered on investment management fees	3	291	-	291	-	-	-
Administrative expenses	4	(283)	(289)	(572)	(226)	-	(226)
		_______	_______	_______	_______	_______	_______
NET RETURN BEFORE FINANCE COSTS AND TAXATION		5,010	(11,356)	(6,346)	4,255	7,716	11,971
Finance costs	5	(107)	(251)	(358)	(55)	(127)	(182)
		_______	_______	_______	_______	_______	_______
RETURN ON ORDINARY ACTIVITIES BEFORE TAXATION		4,903	(11,607)	(6,704)	4,200	7,589	11,789
Taxation	6	(26)	-	(26)	(11)	-	(11)
		_______	_______	_______	_______	_______	_______
RETURN ON ORDINARY ACTIVITIES AFTER TAXATION		4,877	(11,607)	(6,730)	4,189	7,589	11,778
		_______	_______	_______	_______	_______	_______
RETURN PER ORDINARY SHARE	8	12.86p	(30.60p)	(17.74p)	11.04p	20.01p	31.05p
		_______	_______	_______	_______	_______	_______

The total column of this statement represents the profit and loss account of the Company.

A Statement of Total Recognised Gains and Losses has not been prepared as all gains and losses are recognised in the Income Statement.

No operations were acquired or discontinued in the year.

All revenue and capital items in the above statement derive from continuing operations.

BALANCE SHEET

as at 30 September 2011

		2011		2010
	Notes	£'000	£'000	£'000	£'000
FIXED ASSETS
Investments designated at fair value through profit or loss	9		108,228		124,322
CURRENT ASSETS
Debtors	10	677		1,036
AAA money market funds		8,810		1,695
Cash and short term deposits		-		226
		_______		_______
		9,487		2,957
		_______		_______
CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
Bank loan	11	(15,000)		(12,750)
Other creditors	11	(293)		(828)
		_______		_______
		(15,293)		(13,578)
		_______		_______
NET CURRENT LIABILITIES			(5,806)		(10,621)
			_______		_______
NET ASSETS			102,422		113,701
			_______		_______
CAPITAL AND RESERVES
Called-up share capital	12		9,942		9,935
Share premium account			20,441		20,373
Capital redemption reserve			12,615		12,615
Capital reserve			53,222		64,829
Revenue reserve			6,202		5,949
			_______		_______
EQUITY SHAREHOLDERS' FUNDS			102,422		113,701
			_______		_______
NET ASSET VALUE PER ORDINARY SHARE	13		269.86p		299.76p
			_______		_______

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

for the year ended 30 September 2011
	Notes	Share capital £'000	Share premium account £'000	Capital redemption reserve £'000	Capital reserve £'000	Revenue reserve £'000	Total £'000
Balance at 30 September 2010		9,935	20,373	12,615	64,829	5,949	113,701
Bonus issue of Subscription shares		1	(1)	-	-	-	-
Issue of Ordinary shares on conversion of subscription shares		6	69	-	-	-	75
Return on ordinary activities after taxation		-	-	-	(11,607)	4,877	(6,730)
Dividends paid	7	-	-	-	-	(4,624)	(4,624)
		_______	_______	_______	_______	_______	_______
BALANCE AT 30 SEPTEMBER 2011		9,942	20,441	12,615	53,222	6,202	102,422
		_______	_______	_______	_______	_______	_______

for the year ended 30 September 2010
	Notes	Share capital £'000	Share premium account £'000	Capital redemption reserve £'000	Capital reserve £'000	Revenue reserve £'000	Total £'000
Balance at 30 September 2009		9,935	20,373	12,615	57,240	6,139	106,302
Return on ordinary activities after taxation		-	-	-	7,589	4,189	11,778
Dividends paid	7	-	-	-	-	(4,379)	(4,379)
		_______	_______	_______	_______	_______	_______
BALANCE AT 30 SEPTEMBER 2010		9,935	20,373	12,615	64,829	5,949	113,701
		_______	_______	_______	_______	_______	_______

The revenue reserve represents the amount of the Company's reserves distributable by way of dividend.

CASHFLOW STATEMENT

Year ended 30 September 2011

		2011		2010
	Notes	£'000	£'000	£'000	£'000
NET CASH INFLOW FROM OPERATING ACTIVITIES	14		4,123		3,498
NET CASH OUTFLOW FROM SERVICING OF FINANCE			(359)		(177)
FINANCIAL INVESTMENT
Purchases of investments		(21,123)		(29,270)
Sales of investments		26,542		27,754
		________		________
NET CASH INFLOW/(OUTFLOW) FROM FINANCIAL INVESTMENT			5,419		(1,516)
EQUITY DIVIDENDS PAID			(4,624)		(4,379)
			________		________
			4,559		(2,574)
MANAGEMENT OF LIQUID RESOURCES
Purchase of AAA Money Market funds		(26,373)		(25,083)
Sale of AAA Money Market funds		19,258		24,125
		________		________
NET CASH OUTFLOW FROM MANAGEMENT OF LIQUID RESOURCES			(7,115)		(958)
			________		________
NET CASH OUTFLOW BEFORE FINANCING			(2,556)		(3,532)
FINANCING
Proceeds from exercise of subscription shares		75		-
Drawdown of loan		2,250		3,750
		________		________
NET CASH INFLOW FROM FINANCING			2,325		3,750
			________		________
(DECREASE)/INCREASE IN CASH			(231)		218
			________		________
RECONCILIATION OF NET CASH FLOW TO MOVEMENTS IN NET DEBT
(Decrease)/increase in cash as above		(231)		218
Net change in liquid resources		7,115		958
Drawdown of loan		(2,250)		(3,750)
		________		________
Movement in net debt in year			4,634		(2,574)
Opening net debt			(10,829)		(8,255)
			________		________
CLOSING NET DEBT	15		(6,195)		(10,829)
			________		________

NOTES TO FINANCIAL STATEMENTS:

For the year ended 30 September 2011

1.

Accounting policies (a)        Basis of accounting The financial statements have been prepared in accordance with the applicable UK Accounting Standards and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (issued in January 2009). They have also been prepared on the assumption that approval as an investment trust will continue to be granted. The financial statements have been prepared on a going concern basis. All values are rounded to the nearest thousand pounds (£000) except where indicated otherwise. (b)       Valuation of investments The Company's business is investing in financial assets with a view to profiting from their total return in the form of income and capital growth. This portfolio of financial assets is managed and its performance evaluated on a fair value basis, in accordance with a documented investment strategy, and information about the portfolio is provided internally on that basis to the Company's Board of Directors. Accordingly, upon initial recognition the Company designates the investments 'at fair value through profit or loss'. They are included initially at fair value, which is taken to be their cost (excluding expenses incidental to the acquisition which are written off in the Income Statement, and allocated to 'capital' at the time of acquisition). Subsequent to initial recognition, investments are valued at fair value through profit or loss. For listed investments, this is deemed to be bid market prices or closing prices for SETS stocks sourced from the London Stock Exchange. SETS is the London Stock Exchange electronic trading service covering most of the market including all FTSE 100 constituents and most liquid FTSE 250 along with some other securities. Gains and losses arising from changes in fair value are included in net profit or loss for the period as a capital item in the Income Statement and are ultimately recognised in the capital reserve. (c)     AAA money market funds The AAA money market funds are used by the Company to provide additional short term liquidity. As they are not listed on a recognised exchange and due to their short term nature, they are recognised in the financial statements as a current asset and are included at fair value through profit or loss. (d)     Income Income from equity investments (other than special dividends), including taxes deducted at source, is included in revenue by reference to the date on which the investment is quoted ex-dividend. Special dividends are credited to revenue or capital according to the circumstances. Interest receivable on short term deposits is accounted for on an accruals basis. (e)     Expenses and interest payable Expenses are accounted for on an accruals basis. Expenses are charged to capital when they are incurred in connection with the maintenance or enhancement of the value of investments. In this respect, the investment management fee and relevant finance costs are allocated between revenue and capital in line with the Board's expectation of returns from the Company's investments over the long term in the form of revenue and capital respectively (see notes 3 and 5). Transaction costs incurred on the purchase and disposal of investments are recognised as a capital item in the Income Statement.

(f)      Dividends payable In accordance with FRS21, dividends that are declared and approved by the Company after the Balance Sheet date are not recognised as a liability of the Company at the Balance Sheet date. (g)     Capital reserves Gains or losses on disposal of investments and changes in fair values of investments are included within the capital reserve. The capital element of the management fee along with any associated irrecoverable VAT and relevant finance costs are charged to this reserve. Any associated tax relief is also credited to this reserve. (h)     Taxation          Deferred taxation is recognised in respect of all timing differences that have originated but not reversed at the Balance Sheet date where transactions or events that result in an obligation to pay more or a right to pay less tax in future have occurred at the Balance Sheet date measured on an undiscounted basis and based on enacted tax rates. This is subject to deferred tax assets only being recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the underlying timing differences can be deducted. Timing differences are differences arising between the Company's taxable profits and its results as stated in the accounts which are capable of reversal in one or more subsequent periods. Owing to the Company's status as an investment trust company, and the intention to continue meeting the conditions required to obtain approval in the foreseeable future, the Company has not provided deferred tax on any capital gains and losses arising on the revaluation or disposal of investments.

2.	Income	2011 £'000	2010 £'000
	Income from investments
	Franked investment income	4,496	4,398
	Overseas and unfranked investment income	401	151
	Stock dividends	114	-
		________	________
		5,011	4,549
		________	________
	Other income
	AAA Money Market interest	23	9
	Interest from HMRC	193	112
	Underwriting commission	30	45
		________	________
		246	166
		________	________
	Total income	5,257	4,715
		________	________

3.	Investment management fee	2011 £'000	2010 £'000
	Investment management fee	851	779
	Charged to capital reserve	(596)	(545)
		________	________
		255	234
		________	________
	The Company has an agreement with Standard Life (Corporate Funds) Limited for the provision of management services. The contract is terminable by either party on not less than six months notice. The fee is based on 0.65% of total assets, payable quarterly in arrears and is chargeable 30% to revenue and 70% to capital (see note 1(e)). On 5 November 2007, the European Court of Justice ruled that management fees should be exempt from VAT. HMRC announced its intention not to appeal against this case to the UK VAT Tribunal and therefore protective claims which have been made in relation to the Company have now been processed by HMRC.
	The VAT charged on the investment management fees has been refunded by Deutsche Asset Management (UK) Limited, the former Investment Manager, in stages.  An amount of £609,000 (excluding simple interest) relating to the period 2001 to 2005 (date of termination) was recognised in the financial statements for the year ended 30 September 2009.  A further amount of £291,000 (excluding simple interest) has been recognised in these financial statements which represents the VAT charged on investment management fees for the period 1991 to 1996.  These repayments were allocated to revenue and capital in line with the accounting policy of the Company for the periods in which the VAT was charged. A refund of £204,000 of VAT relating to the period 2006 to 2007 was made to the Company by Standard Life (Corporate Funds) Limited in the year to 30 September 2008. This repayment was allocated to revenue and capital in line with the accounting policy of the Company for the periods in which the VAT was charged. Interest of £21,000 and £112,000 on the repaid VAT was recognised in the financial statements for the years ended 30 September 2009 and 30 September 2010, respectively. A further amount of £193,000 has been recognised in these financial statements.

4.	Administrative expenses	2011 £'000	2010 £'000
	Directors' fees	92	81
	Fees payable to the Company's Auditor (excluding VAT):
	- for the audit of the annual Financial Statements	19	18
	Professional fees	41	36
	Other expenses	131	91
		________	________
		283	226
		________	________
	In addition, during the year ended 30 September 2011, the Company incurred capital expenses amounting to £289,000 (2010 - nil) in connection with the issue of Subscription shares, including £27,000 (excluding VAT) payable to the Company's auditor for services on reporting accounts. With the exception of fees payable to the Company's auditor, irrecoverable VAT has been included under the relevant expense line above. Irrecoverable VAT on fees payable to the Company's auditor is included within other expenses.

5.	Finance costs	2011 £'000	2010 £'000
	On bank loans and overdrafts:
	Allocated to revenue reserve	107	55
	Allocated to capital reserve	251	127
		________	________
		358	182
		________	________
	Finance costs are chargeable 30% to revenue and 70% to capital (see note 1(e)).

6.	Taxation	2011 £'000	2010 £'000
	(a) Analysis of charge for the year
	Overseas withholding tax	26	11
		________	________
	(b)        Factors affecting current tax charge for the year
	The corporation tax rate was 28% until 31 March 2011 and 26% from 1 April 2011 giving an effective rate of 27%. The tax assessed for the year is lower than that resulting from applying the standard rate of corporation tax in the UK. A reconciliation of the Company's current tax charge is set out below:
	Total return on ordinary activities before taxation	(6,704)	11,789
		________	________
	Return on ordinary activities at the UK standard rate of corporation tax 27% (2010 - 28%)	(1,810)	3,301
	Effects of:
	Losses/(gains) on investments not taxable	2,827	(2,313)
	Non-taxable income	(1,339)	(1,248)
	Excess management expenses and loan relationship debit expenses	322	260
	Overseas withholding tax	26	11
		________	________
	Total taxation	26	11
		________	________
	At 30 September 2011, the Company had unutilised management expenses and loan relationship losses of £12,956,000 (2010-£12,052,000). No deferred tax asset has been recognised on the unutilised management expenses and loan relationship losses as it is unlikely there will be suitable taxable profits from which the future reversal of the deferred tax asset could be deducted.

7.	Dividends on Ordinary shares	2011 £'000	2010 £'000
	Amounts recognised as distributions to equity holders in the year:
	Final dividend for 2010 of 8.65p per share (2009 - 8.40p)	3,281	3,186
	Interim dividend for 2011 of 3.55p per share (2010 - 3.15p)	1,346	1,195
	Return of unclaimed dividends	(3)	(2)
		________	________
		4,624	4,379
		________	________
	The proposed final dividend for 2011 is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements. We set out below the total dividends paid and proposed in respect of the financial year, which is the basis on which the requirements of Sections 1158-1159 of the Corporation Tax Act 2010 are considered. The revenue available for distribution by way of dividend for the year is £4,877,000 (2010 - £4,189,000).
	Interim dividend for 2011 of 3.55p per share (2010 - 3.15p)	1,346	1,195
	Proposed final dividend for 2011 of 8.85p per share (2010 - 8.65p )	3,359	3,281
		________	________
		4,705	4,476
		________	________

		2011		2010
8.	Return per Ordinary share	£'000	p	£'000	p
	The returns per Ordinary share have been based on the following figures:
	Revenue return	4,877	12.86	4,189		11.04
	Capital return	(11,607)	(30.60)	7,589		20.01
		________	________	________		________
	Total return	(6,730)	(17.74)	11,778		31.05
		________	________	________		________
	Weighted average number of Ordinary shares in issueA	37,936,175				37,930,579
	On the basis set out in Financial Reporting Standard 22 "Earnings per Share", there is no dilutive effect on net revenue or net capital per share arising from the exercise of the Subscription shares, as detailed in note 12. There was no dilution to the return per ordinary share at 30 September 2010 as there were no dilutive potential Ordinary shares in issue at that date.
	A Calculated excluding shares held in treasury.

9.	Investments	2011 £'000		2010 £'000
	Fair value through profit or loss
	Opening book cost	112,650		109,652
	Opening fair value gains on investments held	11,672		4,534
		________		________
	Opening fair value	124,322		114,186
	Movements in the year:
	Purchases at cost	20,603		29,645
	Sales  - proceeds	(26,226)		(27,770)
	- realised gains on sales	1,555		1,123
	Current year fair value (losses)/gains on investments held	(12,026)		7,138
		________		________
	Closing fair value	108,228		124,322
		________		________
	Closing book cost	108,582		112,650
	Closing fair value (losses)/gains on investments held	(354)		11,672
		________		________
	Closing fair value	108,228		124,322
		________		________
	(Losses) /gains on investments held at fair value through profit or loss
	Gains on sales	1,555		1,123
	(Decrease)/increase in fair value of investments held	(12,026)		7,138
		________		________
		(10,471)		8,261
		________		________
		2011 £'000	2010 £'000
	Transaction costs During the year, expenses were incurred in acquiring or disposing of investments classified as fair value through profit or loss. These have been expensed through capital and are included within (losses)/gains on investments in the Income Statement. The total costs were as follows:
	Purchases	113	175
	Sales	36	36
		________	________
	Total	149	211
		________	________

10.	Debtors: amounts falling due within one year	2011 £'000	2010 £'000
	Amounts due from brokers	10	326
	Net dividends and interest receivable	608	568
	Other debtors	59	142
		________	________
		677	1,036
		________	________

11.	Creditors: amounts falling due within one year	2011 £'000	2010 £'000
	Bank loan	15,000	12,750
		________	________
	Other creditors
	Bank overdraft	5	-
	Amounts due to brokers	-	520
	Investment management fee payable	192	207
	Sundry creditors	96	101
		________	________
		293	828
		________	________
	As at 30 September 2011, the Company had drawn down £15 million (2010 - £12.75 million) of the £20 million loan facility (2010 - £15 million) arranged with The Royal Bank of Scotland plc, at an interest rate of 1.93714% per annum maturing on 24 October 2011. Subsequent to the year end, the £15 million loan was rolled over from 24 October 2011 to 24 November 2011 at an interest rate of 1.96076%.

12.	Called-up share capital		2011 £'000		2010 £'000
	Issued and fully paid:
	Ordinary shares of 25p each
	Opening balance of 37,930,579 (2010 - 37,930,579) Ordinary shares		9,483		9,483
	Issue of 23,479 (2010 - nil) Ordinary shares on conversion of Subscription shares		6		-
			________		________
	Closing balance of 37,954,058 (2010 - 37,930,579) Ordinary shares		9,489		9,483
			________		________
	Subscription shares of 0.01p each
	Bonus issue of 7,585,860 Subscription shares	1		-
	Conversion of 23,479 Subscription shares into Ordinary shares	-		-
		________		________
		1		-
		________		________
	Treasury shares
	Opening and closing balance of 1,807,328 Treasury shares	452		452
		________		________
		9,942		9,935
		________		________
	On 17 December 2010 the Company issued 7,585,860 Subscription shares of 0.01p each by way of a bonus issue to the Ordinary shareholders on the basis of one Subscription share for every five Ordinary shares.  Each Subscription share confers the right, but not the obligation, to subscribe for one Ordinary share on any subscription date, being the final business day of June and December in each year commencing June 2011 and finishing on the last business day of December in 2016, after which the rights under the Subscription shares will lapse.  The subscription price has been determined as being 320p. During the year, shareholders have exercised their right to convert 23,479 Subscription shares into ordinary shares for a total consideration of £75,000. There were no shares repurchased during the year. The total shares held in treasury is 1,807,328. Shares held in treasury represent 4.8% of the Company's total issued share capital at 30 September 2011 (2010 - 4.5%). The number of Subscription shares in issue at 30 September 2011 is 7,562,381.

13.	Net asset value	2011	2010
	The net asset value per share and the net asset value attributable to the Ordinary shares at the year end calculated in accordance with the Articles of Association were as follows:
	Total shareholders' funds	£102,422,000	£113,701,000
	Number of Ordinary shares in issue at year end A	37,954,058	37,930,579
	Net asset value per share	269.86p	299.76p
	On the basis set out in Financial Reporting Standard 22 "Earnings per Share", there is no dilutive effect on net revenue or net capital per share arising from the exercise of the Subscription shares, as detailed in note 12. There was no dilution to the net asset value at 30 September 2010 as there were no dilutive potential Ordinary shares in issue at that date.
	A Excludes shares in issue held in treasury.

14.	Reconciliation of net return before finance costs and taxation to net cash inflow from operating activities	2011 £'000	2010 £'000
	Net return before finance costs and taxation	(6,346)	11,971
	Adjustments for:
	Net losses/(gains) on investments at fair value	10,471	(8,261)
	Decrease/(increase) in accrued income	68	(200)
	Increase in other debtors	-	(2)
	(Decrease)/increase in other creditors	(20)	7
	Net overseas tax paid	(50)	(17)
		________	________
	Net cash inflow from operating activities	4,123	3,498
		________	________

15.	Analysis of changes in net debt	At 30 September 2010 £'000	Cashflow  £'000	At 30 September 2011  £'000
	Cash at bank and in hand	226	(231)	(5)
	AAA money market funds	1,695	7,115	8,810
	Bank loan	(12,750)	(2,250)	(15,000)
		________	________	________
	Net debt	(10,829)	4,634	(6,195)
		________	________	________

	16.		Financial instruments
			Risk management The Company's financial instruments comprise securities and other investments, cash balances, loans and debtors and creditors that arise directly from its operations; for example, in respect of sales and purchases awaiting settlement, and debtors for accrued income. The Company also has the ability to enter into derivative transactions for the purpose of managing currency and market risks arising from the Company's activities. The main risks the Company faces from its financial instruments are (i) market price risk (comprising interest rate risk, currency risk and other price risk), (ii) liquidity risk and (iii) credit risk. The Board regularly reviews and agrees policies for managing each of these risks. The Manager's policies for managing these risks are summarised below and have been applied throughout the year.
			(i) Market risk The fair value or future cash flows of a financial instrument held by the Company may fluctuate because of changes in market prices. This market risk comprises three elements - interest rate risk, currency risk and other price risk.         Interest rate risk         Interest rate movements may affect: -     the fair value of the investments in fixed interest rate securities; -     the level of income receivable on cash deposits; -     interest payable on the Company's variable rate borrowings. The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account when making investment and borrowing decisions. It is the Company's policy to increase its exposure to equity market price risk through the judicious use of borrowings. When borrowed funds are invested in equities, the effect is to magnify the impact on Shareholders' funds of changes - both positive and negative - in the value of the portfolio. Interest rate profile The interest rate risk profile of the portfolio of financial assets and liabilities at the Balance Sheet date was as follows:
			As at 30 September 2011	Weighted average period for which rate is fixed Years	Weighted average interest rate %	Fixed rate £000	Floating rate £000
			Assets
			AAA money market funds	-	0.87	-	8,810
				________	________	________	________
			Total assets	-	0.87	-	8,810
				________	________	________	________
			Liabilities
			Bank overdraft	-	1.48	-	5
			Bank loans	0.1	1.94	15,000	-
				________	________	________	________
			Total liabilities	0.1	1.94	15,000	5
				________	________	________	________
			As at 30 September 2010
			Assets
			AAA money market funds	-	0.56	-	1,695
			Cash deposits	-	0.05	-	226
				________	________	________	________
			Total assets	-	0.50	-	1,921
				________	________	________	________
			Liabilities
			Bank loans	0.1	1.57	12,750	-
				________	________	________	________
			Total liabilities	0.1	1.57	12,750	-
				________	________	________	________
		The weighted average interest rate is based on the current yield of each asset, weighted by its market value. The weighted average interest rate on bank loans is based on the interest rate payable, weighted by the total value of the loans. The floating rate assets consist of AAA money market funds and cash deposits on call earning interest at prevailing market rates. All financial liabilities are measured at amortised cost. Maturity profile The Company did not hold any assets at 30 September 2011 or 30 September 2010 that had a maturity date. As detailed in note 11, the loan drawn down had a maturity date of 24 October 2011 at the Balance Sheet date.(2010 : 18 October 2010 and 27 October 2010). Interest rate sensitivity The sensitivity analyses below have been determined based on the exposure to interest rates at the Balance Sheet date and with the stipulated change taking place at the beginning of the financial year and held constant throughout the reporting period in the case of instruments that have floating rates. If interest rates had been 100 basis points higher or lower and all other variables were held constant, the Company's: -     profit for the year ended 30 September 2011 would increase/decrease by £62,000 (2010: increase/decrease by £108,000). This is mainly attributable to the Company's exposure to interest rates on its fixed rate borrowings and floating rate cash balances. Currency risk All of the Company's investments are in Sterling and therefore this risk is not seen as material.
		Other price risk Other price risks (ie changes in market prices other than those arising from interest rate or currency risk) may affect the value of the quoted investments. It is the Board's policy to hold an appropriate spread of investments in the portfolio in order to reduce the risk arising from factors specific to a particular sector. The allocation of assets and the stock selection process both act to reduce market risk. The Manager actively monitors market prices throughout the year and reports to the Board, which meets regularly in order to review investment strategy.  The investments held by the Company are listed on the London Stock Exchange. Other price risk sensitivity If market prices at the Balance Sheet date had been 10% higher or lower while all other variables remained constant, the return attributable to ordinary shareholders and equity for the year ended 30 September 2011 would have increased/decreased by £10,823,000 (2010 - increase/decrease of £12,432,000). This is based on the Company's equity portfolio held at each year end. (ii)        Liquidity risk This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. Liquidity risk is not considered to be significant as the Company's assets comprise mainly readily realisable securities, which can be sold to meet funding commitments if necessary. Short-term flexibility is achieved through the use of loan and overdraft facilities (note 11). iii) Credit risk This is failure of the counter party to a transaction to discharge its obligations under that transaction that could result in the Company suffering a loss. The risk is not significant, and is managed as follows: -    where the investment manager makes an investment in a bond, corporate or otherwise, the credit rating of the issuer is taken into account so as to minimise the risk to the Company of default; -    investment transactions are carried out with a large number of brokers, whose credit-standing and credit rating is reviewed periodically by the investment manager, and limits are set on the amount that may be due from any one broker; -    cash and money invested in AAA money market funds are held only with reputable banks with high quality external credit enhancements. None of the Company's financial assets are secured by collateral or other credit enhancements. Credit risk exposure In summary, compared to the amount in the Balance Sheet, the maximum exposure to credit risk at 30 September was as follows:

		2011		2010
		Balance Sheet  £'000	Maximum exposure £'000	Balance Sheet £'000	Maximum exposure £'000
	Current assets
	Debtors	677	677	1,036	1,036
	AAA money market funds (indirect exposure)	8,810	8,810	1,695	1,695
	Cash and short term deposits	-	-	226	226
		________	________	________	________
		9,487	9,487	2,957	2,957
		________	________	________	________
	None of the Company's financial assets is past due or impaired.
	Fair values of financial assets and financial liabilities The fair value of borrowings has been calculated at £15,012,000 as at 30 September 2011 (2010 - £12,757,000) compared to an accounts value in the Financial Statements of £15,000,000 (2010 - £12,750,000) (note 11). The fair value of each loan is determined by aggregating the expected future cash flows for that loan discounted at a rate comprising the borrower's margin plus an average of market rates applicable to loans of a similar period of time and currency.  All other assets and liabilities of the Company are included in the Balance Sheet at amortised cost which is equivalent to fair value.

17.	Fair value hierarchy
	FRS 29 'Financial Instruments: Disclosures', requires an entity to classify fair value measurements using a 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 assets or liabilities, either directly (ie as prices) or indirectly (ie derived from prices); and -    Level 3: inputs for the assets or liabilities that are not based on observable market data (unobservable inputs). The financial assets and liabilities measured at fair value in the Balance Sheet are grouped into the fair value hierarchy at 30 September 2011 as follows:
	30 September 2011	Level 1 £'000	Level 2 £'000	Level 3 £'000	Total £'000
	Financial assets at fair value through profit or loss
	Quoted equities	108,228	-	-	108,228
	AAA money market funds	8,810	-	-	8,810
		________	________	________	________
	Net fair value	117,038	-	-	117,038
		________	________	________	________
	30 September 2010	Level 1 £'000	Level 2 £'000	Level 3 £'000	Total £'000
	Financial assets at fair value through profit or loss
	Quoted equities	124,322	-	-	124,322
	AAA money market funds	1,695	-	-	1,695
		________	________	________	________
	Net fair value	126,017	-	-	126,017
		________	________	________	________

18.

Capital management policies and procedures

The Company's capital management objectives are: -    to ensure that the Company will be able to continue as a going concern; and -    to maximise the income and capital return to its equity shareholders through an appropriate balance of equity capital and debt. The Board normally seeks to limit gearing to 15% of net assets. At the year end the Company had gearing of 6.0% of net assets (2010 - 9.5%) The Board monitors and reviews the broad structure of the Company's capital on an ongoing basis. This review includes the nature and planned level of gearing, which takes account of the Manager's views on the market and the extent to which revenue in excess of that which is required to be distributed should be retained. The Company's objectives, policies and processes for managing capital are unchanged from the preceding accounting period and year end positions are presented in the Balance Sheet.

Additional Notes to Annual Financial Report

The Annual General Meeting will be held on 15 December 2011 at 11.00a.m. at J.P.Morgan Cazenove's offices, 20 Moorgate, London, EC2R 6DA.

The Annual Financial Report Announcement is not the Company's statutory accounts. The above results for the year ended 30 September 2011 are an abridged version of the Company's full accounts, which have been approved and audited with an unqualified report. The 2010 and 2011 statutory accounts received unqualified reports from the Company's auditors and did not include any reference to matters to which the auditors drew attention by way of emphasis without qualifying the reports, and did not contain a statement under s.498 of the Companies Act 2006. The financial information for 2010 is derived from the statutory accounts for 2010 which have been delivered to the Registrar of Companies. The 2011 accounts will be filed with the Registrar of Companies in due course.

The Annual Report will be posted to shareholders in November 2011 and additional copies will be available from the Manager (Investor Helpline - Tel. [phone]) or by download from the Company's webpage (www.standardlifeinvestments.com/its).

Please note that past performance is not necessarily a guide to the future and that the value of investments and the income from them may fall as well as rise and may be affected by exchange rate movements.  Investors may not get back the amount they originally invested.

For Standard Life Equity Income Trust PLC

Aberdeen Asset Management PLC, Secretary

END

 

END

 

 

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