Annual Financial Report

RNS Number : 7523S

British Empire Sec & Gen Tst PLC

12 November 2013

 



BRITISH EMPIRE SECURITIES AND GENERAL TRUST PLC

Annual Report & Accounts for the full year to 30 September 2013

A copy of the Company's Annual Report for the year ended 30 September 2013 will shortly be available to view and download from the Company's website www.british-empire.co.uk.  Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into or forms part of this announcement.

Printed copies of the Annual Report will be sent to shareholders shortly.  Additional copies may be obtained from the Corporate Secretary - Phoenix Administration services Limited, Springfield Lodge, Colchester Road, Chelmsford, Essex CM2 5PW. 

The Annual General Meeting of the Company will be held on Thursday 19 December 2013 at 12 noon.

The Directors have proposed the payment of a final dividend of 8.5p (7.5p in 2012) per Ordinary share and the payment of a special dividend of 2.5p which, if approved by shareholders at the forthcoming Annual General Meeting, will be payable on 6 January 2014 to shareholders whose names appear on the register at the close of business on 6 December 2013 (ex-dividend 4 December 2013).

The following text is copied from the Annual Report & Accounts:

Annual Report 2013

Strategic Report / Company Performance

Financial Highlights

·          Uncertain financial market conditions continue to prevail

·          Net asset value (NAV) on a total return basis increased by 13.1%

·          Benchmark^* Index increased by 18.9%

·          Total Ordinary Dividends increased by 10.5%

·          Special Dividend of 2.5p

·          At the end of the year net liquidity was 14.6%

Performance Summary

Link to graphs and tables in relation to the performance summary:

http://www.rns-pdf.londonstockexchange.com/rns/7523S_-2013-11-11.pdf

Strategic Report / Chairman's Statement

This report covers the period from 1 October 2012 to 30 September 2013.

This is the first time that the Chairman's Statement has been written under the newly introduced "narrative reporting" framework in the UK, which includes a new requirement to provide a Strategic Report with certain prescribed content. In the case of your Company, much of this prescribed content sets out points which I would naturally make in my Chairman's Statement and so we have incorporated my Chairman's Statement within the Strategic Report.

NAV Returns

For the year under review, the net asset value of the Company rose by 13.1% on a total return basis. This compares with an increase in the Morningstar Investment Trust Global Growth Index of 18.9%. This is a disappointing outcome in relative terms, but surpasses the long term aggregate compound returns in NAV since 1985 of 12%. The reasons for the under-performance are explained in the Overview of Strategy and the Investment Manager's Review but stem principally from the underperformance of two gold stocks and higher liquidity levels following the wise sale in May of a successful investment in Asia. There was also some widening of the "see through" discount in the second half of our accounting year. As I have stated in the past, the value orientated characteristics of the Investment Manager's approach mean that year-on-year performance will not relate closely to any broadly based benchmark index. The Board pays particular attention to long-term performance. Over ten years the total return of the Company has out-performed its peer group and the market, producing a net asset value total return of 188.0%, compared with a total return of 151.8% for the Morningstar Investment Trust Global Growth Index and 148.3% for the MSCI All Country World ex-US Index.

Between the year end and 4 November, the latest date for which data is available, the Company's net asset value increased by 5.0% compared with a return of 4.8% by the Morningstar Investment Trust Global Growth Index and 4.5% by the MSCI All Country World ex-US Index. At the time of writing, liquidity stands at 10.9%, compared with 14.6% at the year end and a range of 7% to 25% during the year under review.

Benchmark

There is no benchmark index which closely correlates with the Investment Manager's investment style and so the Directors monitor a variety of equity investment benchmarks. During 2013, the Directors reconsidered which equity index it should regard as its lead benchmark and concluded that this should change from the Morningstar Investment Trust Global Growth Index to the MSCI All Country World ex-US index. This revised benchmark has a full data set, which allows detailed performance attribution analysis. The Company will continue to provide in its publications the performance of the Morningstar Investment Trust Global Growth Index and of the MSCI World Index, alongside that of the MSCI All Country World ex-US Index, so that shareholders can readily monitor performance compared with these other indices.

Dividend

The Board is pleased to recommend an increased final dividend of 8.5p (2012: 7.5p), which, together with the interim dividend of 2.0p (2012: 2.0p), would bring the total Ordinary dividends for this year to 10.5p, an increase of 10.5% over last year. In addition, there have been some exceptional dividend receipts, although not as significant as last year. We are therefore proposing a special dividend this year of 2.5p, bringing total dividends for the year to 13.0p (2012: 13.0p).

As well as the Key Performance Indicators set out in the Overview of Strategy below, a secondary, but nevertheless important, measure of investment return is dividend growth. Over ten years, the ordinary dividends paid by the Company have grown by over 6.5 times, compared with growth of circa 2.5 times for members of the Morningstar Investment Trust Global Growth Index who have paid dividends for ten or more years. Total dividends paid (including special dividends) amount to 74.3 pence per share over that period.

The level of income received each year varies according to market conditions and the Company's investment stance but the Directors believe that by focusing on growth in capital this should naturally lead to long term progress in the dividend. The Directors recognise that it is important to give the Investment Managers maximum flexibility in managing the Company's assets within the confines of the overall strategy and investment style. In particular, the level of income may vary due to the occasional receipt of large, one-off, special dividends from investee companies. For this reason, the Company has paid special dividends in the past few years. There can, of course, be no guarantee that further special dividends will be paid in the future.

Management Fees

The largest component of the Company's costs is the fee paid to the Investment Manager. Following the annual review of the Company's investment management contract with AVI, it has been agreed that no further performance related fees will be payable and that the annual management fee will be 0.7% of net assets. In addition, AVI will, in due course, be appointed the Company's Alternative Investment Fund Manager under the EU's Alternative Investment Fund Managers Directive. The additional costs of compliance with the Directive will be absorbed by AVI, other than the costs of the depositary. The new, simplified, fee arrangements took effect from 1 October 2013, the first day of the Company's 2013/14 accounting year. Under the previous arrangement AVI was entitled to an annual management fee of 0.6% of the net assets of the Company as at the end of the preceding financial period. A performance fee of 6% was also payable for any outperformance in the net asset value (on a total return basis) over the benchmark at the year end, with a cap on aggregate management fees of 1% of net assets of the Company per annum. The Directors believe that these changes simplify the structure of the management fee, will result in lower potential total expenses for the Company when the previous performance fee structure is taken into account and are consistent with the trend in the closed-ended funds market, to have greater transparency in costs.

Discount

The level of discount during the year has been between 7.4% and 14.6%. During the year, the Company has bought back a total of 5.1 million shares, adding some 0.4% to the net asset value per share to the benefit of continuing shareholders. The Board continues to view share buy backs as a tool to reduce the volatility of the discount and is therefore again seeking to renew its authority to carry out share buybacks from shareholders at the forthcoming AGM.

Board

As reported last year, Rosamund Bloomfield-Smith decided not to stand for re-election at the 2012 Annual General Meeting. There have been no other changes to the Board.

In line with best practice, all of the Directors' are subject to re-election each year. The Board has completed a further Board evaluation, this year internally, and has found again the Directors' qualifications, effectiveness, performance and contribution to the Board to be of a high standard. There will be an independent review of the Board next year.

Shareholders will note that we have provided a revised Directors' Remuneration Report which sets out a Directors' Remuneration Policy and which shareholders will be asked to approve at the Company's forthcoming AGM. We have also supplied a more detailed explanation of the operation of the Company's Audit Committee in discharging its responsibilities.

Outlook

The Board monitors the Investment Manager's style and investment process carefully to ensure that there is no drift away from the core objective, which is to achieve capital growth through a focused portfolio of mainly listed investments particularly in companies which stand at a discount to the estimated underlying asset value. The Board is confident that there is good unrealised long term value in the portfolio.

The wider investment community, however, remains concerned about the scope for policy errors from Central bankers and others as the prospect of the tapering and the end of the Quantitative Easing experiment approaches. The likelihood also is that the markets will face periods of greater volatility, as necessary adjustments of value take place when the prospect of an eventual adjustment to more normal cost of money looms larger.

There has been some sign of further strengthening of economic activity in the developed countries, albeit from a low base, but there is also concerning evidence of some slowing in the growth rate in some emerging markets, accentuated by the prospect of less accommodative monetary policies in the USA in particular.

Despite this uncertainty, the Board remains confident that the Investment Manager will continue to search for, and find, individual securities which meet the AVI criteria and will provide good long term returns for shareholders.

Strone Macpherson, Chairman

11 November 2013

Strategic Report / Overview of Strategy

Aim

The Company is an investment trust. Its investment objective is to achieve capital growth through a focused portfolio of mainly listed investments, particularly in companies whose shares stand at a discount to estimated underlying net asset value.

Investment Approach

Company's assets are managed by Asset Value Investors Limited (AVI). AVI aims to deliver superior returns while minimising risks and specialises in investment in securities that for a number of reasons may be selling on anomalous valuations.

The Investment Manager has the flexibility to invest around the world and is not constrained by any fixed geographic or sector weightings but does seek to maintain a concentrated yet diversified portfolio. Over 90% of the Company's investments are in listed securities. AVI's investment philosophy, which is described in more detail on page 14 of the Annual Report, is to:-

·   Invest in companies trading on discounts to net asset value. Identify good quality underlying assets with appreciation potential at compelling valuations.

·  Focus on balance sheet strength.

·  Look for catalysts to narrow discounts.

·  Focus on bottom-up stock picking.

·  Be willing to hold cash from time to time if investments do not meet AVI's strict investment criteria.

Key Performance Indicators (KPIs)

The Company's Board of Directors meets regularly and at each meeting reviews performance against a number of key measures.

Net asset value total return

The Directors regard the Company's net asset value total return as being the overall measure of value delivered to shareholders over the long term. Total return reflects both net asset value growth of the Company and also dividends paid to shareholders. The Investment Manager's investment style is such that performance is likely to deviate materially from that of any broadly based equity index. The Board considers the most important comparator to be the MSCI All Country World ex-US Index (which has been adopted as the Company's benchmark from 1 October 2013). The Company will also continue to report performance against the Morningstar Investment Trust Global Growth Index, which is a peer group index and was the Company's benchmark index until 30 September 2013, and the MSCI World Index as it has done in previous years. The reasons for the change in benchmark are explained in the Chairman's Statement on page 4.

During the year under review the Net Asset Value per share showed a total return of 13.1%, which was ahead of our aggregate compound annual total return of 12.0% since 1985 but was some way short of the return produced by the indices against which we compare performance. The accounting year started well, with the Net Asset Value increasing and out-performing the various indices. After this positive start, our exposure to gold and mining stocks and a high cash weighting resulted in performance lagging the benchmark. While it is disappointing to report such under performance, positive returns were made over the year and the portfolio as at the end of September held a good store of value which the Investment Manager expects to be realised over time. A full description of performance and the investment portfolio is contained in the Investment Review, commencing on page 14 of the Annual Report.

The discount at which the Company's shares trade compared with net asset value

The Board believes that an important driver of an investment trust's discount or premium over the long term is investment performance. However, there can be volatility in the discount or premium during the year. Therefore, the Board takes powers each year to buy back and issue shares with a view to limiting the volatility of the share price discount or premium.

During the year under review the discount has moved in a range from 7.4% to 14.6% and, as at 30 September 2013, stood at 12.2%.

During the year under review, no new shares were issued and 5,106,097 shares were bought back and held in treasury at discounts ranging from 10.6% to 13.7% and adding an estimated 0.4% to net asset value per share to the benefit of continuing shareholders.

Value for money

The Board continues to be conscious of expenses and works hard to maintain a sensible balance between strong service and costs.

For the year ended 30 September 2013, the ongoing charges ratio was 0.69%, compared with 0.74% in 2012. This change was largely due to an increase in the size of the Company's assets, which meant that fixed costs were spread over a broader asset base.

As set out in this year's Annual Report, the Company has agreed changes to its annual management fee, the largest component of its costs. The impact of this will be some increase in ongoing charges, but it eliminates the Performance Fee which could have amounted to an additional 0.4% of net assets and which is not included in the definition of ongoing charges. Under the revised fee arrangements, the ongoing charges ratio for the year ended 30th September 2013 would have been 0.79%.

Investment Risk

When considering the total return of the investments, the Board must also take account of the risk which has been taken in order to achieve that return. There are many ways of measuring investment risk, and the Board takes the view that understanding and managing risk is much more important than setting any numerical target. The Board looks at risk from many different angles, an overview of which is set out below:

Portfolio Concentration

Conventional wisdom holds that the most effective way of reducing risk is to hold a diversified portfolio of assets. The Company typically holds 40-50 positions, which could be considered a relatively concentrated (and therefore risky) portfolio. It is important to note that, in line with its investment objective, the Company's holdings are mostly in stocks which are themselves owners of multiple underlying businesses. Thus, the portfolio is much more diversified on a look-through basis than if it were invested in companies with a single line of business, for example. For the same reason, the top 10 portfolio positions, representing 41.6% of assets at year end, are in practice highly diversified on a look-through basis. This diversification is evident at country, sector and currency levels.

Liquidity

Historically, the Company has held large cash positions when the Investment Manager cannot find sufficient value in their investment universe. This position is normally in the range of 0-25% but could be higher. This use of liquidity allows an expression of caution to be reflected in the portfolio at times of high valuation without altering the basic investment strategy. As such, it is an important mechanism for the management of overall portfolio risk. The Company is permitted to use gearing, and has a £15m Debenture, but has retained a net cash position for many years.

Statistical Techniques

A plethora of statistical tools exist to measure risk, none of which offers a complete insight into the actual risks in a portfolio, as all rely on historical data and there is no single agreed definition of what risk is. Over time, though, these tools will allow the Board to build up a broad picture of the statistical risk in the portfolio and how the issues of portfolio concentration and liquidity affect that risk. Some of these measures consider absolute levels of risk, which is usually defined as volatility; others analyse risk compared to benchmarks. The objective of using these techniques is not to be prescriptive, but to understand levels of risk and how they have changed over time.

The purpose of this focus on risk is to ensure that the returns earned are commensurate with the risks assumed. The investment approach followed by the Investment Manager has led over time to returns in excess of those given by the market, while taking less risk, broadly defined, in so doing.

Foreign Exchange

Foreign exchange risk arises if there are falls against sterling in the currencies in which the Company's investments are denominated. These risks are managed by the Investment Manager mainly by way of portfolio diversification but the Investment Manager may, with Board approval, hedge currency risk.

Other Risks

Further risks which can impact on performance are a loss of key personnel (especially within the investment management team); regulatory (principally breaches of either UKLA Listing Rules or Section 1159 of the Corporation Tax Act 2010) and failure of systems or controls. In managing these risks the Company reviews staffing, succession planning and activity levels of the Investment Manager and Administrator at least annually to ensure that there are adequate qualified staff/capacity available, and in particular requires the Investment Manager to notify promptly the Board of any changes in senior staff. The Company also reviews the systems of the Investment Manager and Administrator as part of its half yearly compliance checks.

The shares of Investment Trusts frequently trade at a discount to their published net asset value. The Board seeks to manage the risk of any widening of the discount by regularly reviewing the level of discount at which the Company's shares trade, and it will, if necessary and appropriate, limit any significant widening through measured buybacks of shares.

The value of the Company's shares will additionally be subject to the interaction of supply and demand, prevailing net asset values and the general perceptions of investors. The share price will accordingly be subject to unpredictable fluctuations and the Company cannot guarantee that the share price will appreciate in value.

The principal risks are examined in more detail in Note 18 in the Annual Accounts on pages 51 to 56.

Environmental and Social Issues

The Company recognises that social and environmental issues can have an effect on some of its investee companies.

The Company is an investment trust and so its own direct environmental impact is minimal. The Board of Directors, all of whom are based in or near to London, hold all of their meetings at the Investment Manager's offices and so the Company does not incur any significant travel. The Company's greenhouse gas emissions are therefore negligible.

The Directors do not have service contracts and the Company has no employees. There are five Directors, four male and one female. Further information on the Board's policy on recruitment of new Directors is contained on page 30.

Future Strategy

The Board and the Investment Manager have long believed in their focus on investment in high quality undervalued assets and that, over time, this style of investment is well rewarded. The Company has regularly held considerable levels of liquidity and expects that, from time to time, it will do so in the future.

The Company's overall future performance will, inter alia, be affected by: the Investment Manager's decisions; investee companies' earnings, dividends and asset values; and by stock market movements globally. Stock markets are themselves affected by a number of factors, including: economic conditions; central bank and other policymakers' decisions; political and regulatory issues; and currency movements.

The Company's performance relative to its peer group and benchmarks will depend on the Investment Manager's ability to allocate the Company's assets effectively, and manage its liquidity or gearing appropriately. More specifically, the Company's performance will be affected by the movements in the share prices of its investee companies in comparison to their own net asset values.

The overall strategy remains unchanged.

Strategic Report / Investment Portfolio

We seek to build a portfolio that is diversified in the underlying businesses in which it invests by sector, country and market capitalisation.

Investments at 30 September 2013

Company	Nature of business	% of class	Cost £000	Valuation £000	% of total assets less current liabilities
Vivendi	Media & Telecoms Conglomerate	0.3	66,370	59,668	6.94
Jardine Matheson Holdings	Investment Holding Company	0.2	31,594	50,938	5.93
Investor AB 'A'	Investment Holding Company	0.7	27,653	44,649	5.20
Orkla	Investment Holding Company	0.8	44,204	36,555	4.25
Aker	Investment Holding Company	2.4	27,720	32,144	3.74
Groupe Bruxelles Lambert	Investment Holding Company	0.4	31,354	31,520	3.67
First Pacific	Investment Holding Company	1.1	29,542	27,891	3.25
Sofina	Investment Holding Company	1.2	22,736	26,597	3.09
Dundee Corp	Investment Holding Company	1.4	27,619	25,637	2.98
Investment AB Kinnevik 'B'	Investment Holding Company	0.1	12,676	22,068	2.57
Top ten investments			321,468	357,667	41.62
Shun Tak Holdings	Investment Holding Company	1.9	15,936	19,635	2.28
Granite Real Estate	Real Estate Investment Company	1.9	16,180	19,474	2.27
Gagfah	Real Estate Company	1.2	18,511	18,984	2.21
Henderson Land Development	Investment Holding Company	0.2	19,025	18,313	2.13
NB Private Equity Partners	Investment Company	3.8	18,196	17,476	2.03
Symphony International Holdings	Investment Company	7.1	14,191	16,870	1.96
AP Alternative Assets	Investment Company	1.2	6,778	16,578	1.93
Harbourvest Global Private Equity	Investment Company	3.2	15,135	16,198	1.88
Great Eagle Holdings	Investment Holding Company	1.2	17,349	15,880	1.85
Dogan Sirketler Grubu Holdings	Investment Holding Company	3.8	17,427	14,921	1.74
Top twenty investments			480,196	531,996	61.90
Hudson's Bay	Retail Holding Company	1.1	13,131	13,700	1.59
Suntec REIT	Real Estate Investment Company	0.7	11,887	13,367	1.56
Pantheon International Participations	Investment Company	3.2	5,743	12,571	1.46
Dream Unlimited 'A'	Real Estate Company	0.4	10,980	12,156	1.42
Brookfield Canada Office Properties	Real Estate Investment Company	0.8	13,276	11,742	1.37
Dorel Industries 'B'	Consumer Goods Conglomerate	0.8	12,055	11,695	1.36
Electra Private Equity	Investment Company	1.5	6,767	11,530	1.34
Private Equity Holding AG	Investment Company	8.4	8,479	10,655	1.24
Crombie Real Estate Investment Trust	Real Estate Investment Company	2.5	11,195	10,248	1.19
Marwyn Value Investors	Investment Company	8.3	8,399	9,230	1.07
Top thirty investments			582,108	648,890	75.50

Company	Nature of business	% of class	Cost £000	Valuation £000	% of total assets less current liabilities
Soco International	Oil & Gas Company	0.7	8,936	8,961	1.04
Paris Orléans	Investment Holding Company	0.8	6,962	7,681	0.89
LMS Capital	Investment Company	3.8	6,378	7,601	0.89
Forterra Trust	Real Estate Investment Company	2.6	4,669	6,861	0.80
Mitra Energy*	Oil & Gas Company	2.2	4,234	6,122	0.71
Ashmore Global Opportunities - GBP	Investment Company	3.2	5,946	5,948	0.69
Henex	Investment Holding Company	0.9	4,747	5,604	0.65
DWS Vietnam Fund	Investment Company	3.7	4,735	4,599	0.54
Pantheon International Participations (Redeemable Shares)	Investment Company	1.0	2,079	3,861	0.45
Macquarie International Infrastructure Fund	Investment Company	3.2	2,000	3,604	0.42
Top forty investments			632,794	709,732	82.58
Crombie Real Estate Investment Trust (Subscription Receipts)	Real Estate Investment Company	1.8	2,477	2,375	0.28
Ashmore Global Opportunities - USD	Investment Company	3.9	2,221	2,169	0.25
Vietnam Property Fund	Investment Company	7.2	2,741	1,970	0.23
Resaca Exploitation*	Oil & Gas Company	9.1	5,296	61	0.01
Total equity investments			645,529	716,307	83.35
Fixed income investments
Treasury 2.25% 07/03/2014	UK Government Security	-	87,059	86,865	10.11
US Treasury T-Bill 0% 07/11/2013	US Government Security	-	45,497	43,182	5.02
Total investments			778,085	846,354	98.48
Net current assets				13,048	1.52
Total assets less current liabilities				859,402	100.00

* Unlisted Investments

Investment Review / Ten largest equity investments

The top ten equity investments make up 42% of the portfolio, with underlying businesses across a diverse range of sectors and regions.

1.  Vivendi

Nature of business - Media & Telecoms Conglomerate

Valuation - £59.7m

Valuation basis - Market price

% of total assets less current liabilities - 6.9%

A French telecommunications and media conglomerate trading on a 21% discount to the sum-of-its-parts. Vivendi is selling off non-core businesses and we expect this restructuring to ultimately eliminate the discount. Copyright / Getty images

2  Jardine Matheson Holdings

Nature of business - Investment Holding Company

Valuation - £50.9m

Valuation basis - Market price

% of total assets less current liabilities - 5.9%

An Asian holding company which controls Mandarin Oriental, Hongkong Land, Jardine Cycle and Carriage and Dairy Farm. The group also has a significant investment in insurance as well as other private investments. Jardine Matheson is trading on a 27% discount to the sum of its parts.

3.  Investor AB 'A'

Nature of business - Investment Holding Company

Valuation - £44.6m

Valuation basis - Market price

% of total assets less current liabilities - 5.2%

A Swedish industrial holding company which owns significant shareholdings in public multinational companies and private companies. Investor takes an active ownership role in many companies and at year end was on a 28% discount to NAV.

4.  Orkla

Nature of business - Investment Holding Company

Valuation - £36.6m

Valuation basis - Market price

% of total assets less current liabilities - 4.3%

A Norwegian conglomerate that has now sold most of its non-core businesses. We expect a renewed focus on its core branded consumer goods operations to drive a narrowing of the 18% discount at which its shares trade.

5.  Aker

Nature of business - Investment Holding Company

Valuation - £32.1m

Valuation basis - Market price

% of total assets less current liabilities - 3.7%

A Norwegian listed holding company which is trading on a 37% discount to its NAV. 85% of its NAV is in listed companies and cash including interests in Aker Solutions, DetNOR, Ocean Yield and Havfisk. Aker has a proven history of returning surplus capital to shareholders through special dividends.

6.  Groupe Bruxelles Lambert

Nature of business - Investment Holding Company

Valuation - £31.5m

Valuation basis - Market price

% of total assets less current liabilities - 3.7%

The listed Belgian Holding Company of Albert Frére which owns a portfolio of European blue chip companies including Total and Lafarge. It traded on a 29% discount to NAV as at the year end.

7.  First Pacific

Nature of business - Investment Holding Company

Valuation - £27.9m

Valuation basis - Market price

% of total assets less current liabilities - 3.2%

A Hong Kong listed holding company which is benefitting from continued Asian consumer growth. The company has controlling interests in listed companies which include PLDT, Metro Pacific Investments and Philex Mining in the Philippines as well as Indofood in Indonesia. The company trades on a 41% discount to its NAV.

8.  Sofina

Nature of business - Investment Holding Company

Valuation - £26.6m

Valuation basis - Market price

% of total assets less current liabilities - 3.1%

A diversified Belgian holding company trading on a 30% to estimated NAV. Sofina holds stakes in mainly listed businesses, but also has a portfolio of private equity holdings.

9.  Dundee Corp

Nature of business - Investment Holding Company

Valuation - £25.6m

Valuation basis - Market price

% of total assets less current liabilities - 3.0%

A family controlled Canadian holding company focusing on real estate, mining, oil and gas exploration and asset management. The company recently spun out their property business, DREAM Unlimited, via a listing on the Toronto Stock Exchange. The company trades on a 46% discount to the sum of its parts.

10.  Investment AB Kinnevik 'B'

Nature of business - Investment Holding Company

Valuation - £22.1m

Valuation basis - Market price

% of total assets less current liabilities - 2.6%

A Swedish holding company which invests in listed and unlisted companies and trades on an 18% discount to estimated NAV. Kinnevik invests in telecommunications, broadcasting and internet retail companies. Its largest unlisted holding is Zalando, an on line retailer in the UK and Europe.

Investment Manager's Review

Overview of AVI's Investment Philosophy

British Empire is managed by

Asset Value Investors Ltd (AVI)

The aim of AVI is to deliver superior investment returns while managing risks.

AVI specialises in investing in securities that for a number of reasons may be selling on anomalous valuations.

AVI's investment philosophy is to:

·      Invest in companies trading on discounts to net asset value. Our focus is to find listed companies that own assets such as listed securities, property, cash and other businesses. We then estimate the value of all of those assets. After deducting any liabilities such as debt or pension liabilities, we arrive at an estimate of net asset value for that company. We will consider investing in companies where the discount between the current share price and our estimate of the value of that business is wide. The types of company which we typically find include investment holding companies, conglomerates, closed end funds and property companies. Our approach naturally leads to investment in a variety of companies with diverse underlying businesses.

·      Identify good quality underlying assets with appreciation potential at compelling valuations.

There are many companies trading on discounts to net asset value. Our aim is to identify companies that own high quality businesses where there is not only a wide discount, but also where we consider there to be a reasonable likelihood of those assets appreciating in value.

·      Focus on balance sheet strength.

Debt works very well when markets are appreciating. However, debt can also destroy a lot of value when markets are falling and the business environment for a particular company deteriorates. We consider very carefully the balance sheet strength of the companies in which we invest. Factors which we look at include the actual quantum of debt relative to the assets of the companies, the maturity profile of the debt and the cashflows that the businesses generate.

·      Look for catalyst to narrow discounts.

Once we find a good quality business on an attractive valuation, we then consider whether it is likely that the discount will narrow. Many companies trade on a discount for a reason and if that reason persists, then the discount may persist. Catalysts differ for the various type of company which we invest in. For example, in the case of a closed end fund, where we are a large shareholder we can influence a board to pursue a strategy for discount narrowing. In the case of a family controlled companies where we cannot exert influence to the same extent, our analysis would involve trying to understand the interests and objectives of the controlling shareholder, and whether our interests were aligned with theirs.

·      Focus on bottom-up stock picking

We are not asset allocators attempting to invest a pool of money across various asset classes. We are equity investors focusing on a particular style of value investing. We do not hug benchmarks and we will not own a company just because it is in a benchmark. We seek to invest in companies that meet the criteria described above.

·      Be willing to hold cash if investments do not meet our criteria. Very simply put, if we cannot find companies that meet our valuation and quality criteria we will not invest our shareholders' money. We will preserve capital until an appropriate investment opportunity arises.

Our focus on buying high quality businesses on wide discounts to their net asset value has served us well over the long term. There are periods of time, however, when our style is out of favour and the types of companies in which we invest are ignored by the broader market. This requires us to be patient and to remain true to our style, so that when other investors begin to appreciate the value in those companies, we are well placed to benefit. In the short term, this means that there could be some volatility in our returns. The recent past reflects this. However, we are confident that we own high quality businesses which are trading on cheap valuations and which generate reasonable cash dividends for us as we wait for the value to be appreciated by the market.

Members of the investment team at AVI invest their own money in funds which they manage. As at 30 September 2013, AVI's directors and staff owned approximately 780,000 shares in British Empire Securities and General Trust plc.

John Pennink

John has managed the Company's portfolio for the past eleven years and is the Chief Executive Officer of Asset Value Investors Limited. He is a Chartered Financial Analyst.

Joe Bauernfreund

Joe is an Executive Director of Asset Value Investors Limited. He has been working with John Pennink in the management of the portfolio over the past six years.

Symphony International Holdings / London

Symphony International Holdings is a London-listed closed-end fund investing across Asia with a specific focus on the Healthcare and Hospitality sectors, including branded real estate. Listed in 2007, the fund has a strong track record but its low profile has led to it trading at a discount to NAV in excess of 40% with cash and listed investments alone covering the share price 1.4x times over.

The portfolio is a mixture of listed and unlisted assets, with the largest exposure being an 8% stake worth almost 40% of NAV in Minor International, a Thai-listed operator of hotels and restaurants throughout Asia. Symphony's management originally invested in the business in 1982 to build the group. Today, Minor International owns 30 hotels and manages 56 other hotels and serviced suites with over 10,800 rooms. In addition to owning hotels under the Four Seasons, St. Regis and Marriott brands, the company owns and manages hotels under its own brand names that include Anantara, Oaks, Elwana, Avani and Per AQUUM in 12 countries. The company also owns and operates 1,419 restaurants under various brands.

Groupe Bruxelles Lambert / Lafarge

Lafarge is the world's largest producer of cement, the second largest producer of aggregates and the fourth largest producer of ready-mixed concrete. Groupe Bruxelles Lambert (GBL) owns several significant positions in listed companies along with a 21% holding in Lafarge.

During the year GBL reduced its holding in Pernod Ricard, the drinks company, to 7.5% after selling 2.3% of Pernod Ricard for ~499m. GBL also sold its entire 10% holding in Arkema, the chemical company, for ~433m. GBL continues to trade at a significant discount to its sum of the parts.

Investment Manager's Review / Portfolio Review

During the year, the Company's NAV rose by 13.1%, compared with an increase of 18.9% in the benchmark Morningstar Investment Trust Global Growth Index (both on a total return basis).The MSCI World Index and The MSCI All Country World ex-US Index returned 20.6% and 16.6% respectively (both on a total return basis).

The absolute return of 13.1% is ahead of our aggregate compound annual return of 12.0% since 1985. Over 10 years your Company's NAV has grown by 188%. This compares with returns of 152%, 125% and 148% for the Morningstar Global Growth Index, the MSCI World Index and the MSCI All Country World ex-US Index (£) respectively.

Nevertheless, it is disappointing to have finished the year behind the comparative indices following a poor second half performance. The reasons for the underperformance are examined below.

We continue to pursue an investment philosophy which the returns prove has worked over the long term. Our investment objective is to invest in companies which trade on wide discounts to NAV and where we believe there to be potential for both NAV growth and for the discount to narrow. Each of these components is a factor in determining returns and the absence of either will hold performance back. In addition, from time to time we will also hold cash within the portfolio. In a rising market, cash can act as a drag on performance, as it did in the last twelve months. The ability to hold cash rather than being compelled to be fully invested at all times, helps to reduce the overall level of risk in the portfolio.

A year ago discounts were generally wide. In the first half of our accounting year we saw a greater level of corporate activity than in recent years. Investors became more confident and this encouraged them to invest in the types of companies on which we focus, where a degree of long term confidence is required. This led to a general narrowing of discounts and was a major factor in explaining our relative outperformance as at the half year stage. In the second half, fears over tapering of the US Quantitative Easing programme, particularly in May, caused a shift in investor sentiment and thus in many cases discounts widened. Whilst in aggregate there has been a small narrowing of the overall portfolio discount during the year in some cases the effects of discount narrowing were quite marked. It is pleasing to be able to report that, during the financial year, many companies within the portfolio increased their net asset value by an amount greater than the return on the broader markets and at the same time benefitted from narrowing discounts. These were the successes of the year and companies such as Investment Kinnevik AB 'B', Vivendi, Investor AB 'A', and AP Alternative Assets contributed 6.9% to the return of 13.1%. In aggregate they accounted for 16.6% of total assets as at 30 September and they remain in the portfolio because we believe that they have the potential to continue to outperform as their NAVs have upside potential and there are catalysts for their discounts to narrow further.

Other significant contributors such as Ferrovial and Jardine Strategic Holdings (which together comprised 7.3% of the portfolio at the time of sale) have been sold as they reached price levels where we felt that there was downside risk from declines in NAV and/or discount widening. The decision to sell out of these holdings was driven by valuation concerns and the timing of this proved fortuitous, particularly in the case of Jardine Strategic Holdings which has fallen by more than 20% from the time when it was sold in May of this year.

In the case of closed end funds we have benefited from the continued re-rating of the listed private equity sector, which has seen discounts narrow from an average of 24% to 16% over the year. Many of our holdings trade at attractive valuations, with wider discounts than the sector average. In addition, a number of companies which we own have implemented capital return policies and this is a very effective way of eliminating discounts and delivering strong returns to shareholders such as ourselves, who have invested at wide discount levels.

Invariably, there will at times be disappointments in investing. Gold and gold mining stocks were particularly hard hit during the second half of the Company's financial year. At the start of the year we held a total of 3% of your Company in two gold mining stocks - Detour Gold Corp. and St Barbara. The latter we received as part consideration from the takeover of Allied Gold. The exposure to gold was seen as a way of giving us some protection from easy monetary policies and the risk that these undermine fiat currencies and we felt that both of these companies were particularly good value. Despite their relatively small weighting in the portfolio, the very sharp declines in their share prices - particularly during April and May - weighed heavily on performance.

Over the course of the past 10 Years, resource stocks have been a source of considerable gain for your Company. At times we have held as much as 16% of the portfolio in resource companies. We began the year with a relatively low exposure to the sector of 10%, as we were aware that slower global GDP growth coupled with the recent increased capacity of many commodity producers were creating a less favourable environment for prices.

The key message that we want to leave shareholders with is that the overwhelming majority of the portfolio performed well. NAV growth on a look-through basis was strong. We saw discount-narrowing catalysts across the portfolio and see potential for further catalysts to drive returns elsewhere in the portfolio. Our relative performance was held back by a very small but costly holding in gold mining stocks, and by a cash weighting that, while mitigating risk and giving us flexibility to invest, held back returns in a strong market.

Weighted average discount

During the first half of the year the portfolio average discount narrowed from 30% to 25%. This coincided with the strong relative performance that was recorded during the first half of the year.

In the second half, discounts have once again widened out towards the 30% level, a move triggered by the market sell-off in May. As stocks generally have recovered their previous levels, discounts have not substantially narrowed and this has penalised relative performance in the last few months.

Portfolio Review

Sector	Local CCY Return	FX	Dividend Income	Contribution
European Holding Companies	4.8%	0.3%	1.6%	6.6%
Asian Holding Companies	1.7%	-0.3%	0.3%	1.8%
Mining & Resources	-2.1%	-0.2%	0.1%	-2.1%
Closed-end Funds	4.1%	-0.2%	0.4%	4.4%
Property	1.0%	-0.4%	0.4%	1.0%
Other (including Vivendi)	1.2%	0.4%	0.8%	2.4%
Cash/Government Bonds/Expenses	-0.9%	-0.3%	0.2%	-0.9%
Total	9.8%	-0.6%	3.9%	13.1%

Source:  Asset Value Investors. Please note that, due to rounding effects some numbers may not reconcile exactly. The attribution and returns are generated from Asset Value Investors' internal reporting system and there may be small differences between the figures shown in this table and those shown in the accounts, primarily due to differing approaches to the recognition of income.

European holding companies

Our investments in European holding companies made up 28% on average of your Company over the year. The capital invested in this part of the portfolio returned 24.8% over the financial year, and contributed approximately half of the overall return.

The biggest contribution to performance came from Investment AB Kinnevik 'B', the Swedish holding company, whose share price has increased by 59% since we first bought shares in the company in October last year. The key driver of this performance has been the success of Zalando, the leading European online fashion retailer, in which Kinnevik now holds a 38% stake. The growth of this company has been enormous over the past few years, and a possible flotation in the next 12 months has drawn interest in Kinnevik as this is the only way to access Zalando via the listed markets. Whilst Zalando made up approximately 15% of reported NAV when we first invested, we estimate its value today to have risen sharply on the back of rapid growth, and it is likely to represent a bigger share of the value today.

Investor AB 'A' was the next largest contributor from this part of the portfolio. Its share price rose 35% over the year and the discount to NAV at which it trades narrowed from 36% at the start of the year to 28%. NAV growth of 21% has come from the performance of listed assets and the disposal of a non listed asset at a significant premium to carrying value. Like many holding companies, Investor AB 'A' operates with minimal operating expenses and is focused on paying relatively high dividends. We see potential for upside in the shares from the possible sale of some of its unlisted assets above reported NAV, and also believe that the superior NAV performance over the long term, coupled with a relatively high dividend yield, warrants a narrower discount.

Another notable performer was Ferrovial. We no longer hold shares in the company. Over the period in which we held the shares its price rose by 50% and, combined with distributions, this generated an annualised total return of 32% over the 2.3 year holding period. We sold it after it reached a price that was very close to our estimated NAV, which left little scope for further upside.

The strong performance of the companies described above was not mirrored across the European holding company universe. Companies such as GBL and Sofina did not see the same scale of discount narrowing as the two Swedish companies described above and neither did they experience the same degree of NAV growth. We see scope for their discounts to narrow from present levels, and also believe that their portfolios contain companies that look to be good value.

The main disappointment in this sector came from Aker, which was the largest contributor to performance last year. Its share price was flat over the year, as the sharp rise in the first half was reversed by a profits warning at Aker Solutions in the second half of the year. We believe that the case for continuing to own Aker is that its share price is supported by its dividend, its wide discount and the potential for recovery and growth.

Investment AB Kinnevik 'B' / Sweden

Trading on an 18% discount to NAV, Investment AB Kinnevik is a Swedish-listed holding company with a portfolio of listed and unlisted stocks diversified across telecommunications, broadcasting and internet retail.

Its largest listed holding is Millicom, a Swiss-listed telecoms provider focussed on emerging markets in Latin America and Africa. Millicom's Tigo brand is recognisable to millions across the two regions, and was ranked in the top 100 most valuable telecoms brands in 2012.

For more information visit - www.kinnevik.se

Portfolio Review

Link to graphs and tables on:

·      Portfolio value on a look through basis

·      Equityportfolio value by market capitalization

·      Portfolio value by sector

http://www.rns-pdf.londonstockexchange.com/rns/7523S_1-2013-11-11.pdf

Asian holding companies

Asian holding companies returned 8.1% over the year and contributed 1.8 percentage points to overall portfolio returns.

The two Jardine companies, Jardine Strategic Holdings and Jardine Matheson Holdings, have been major contributors to performance in the ten years that we have been invested in them. Since September 2003 their share prices have increased by 878% and 663% respectively and they have generated IRRs of 43.9% and 25.1% for British Empire shareholders.

In May of this year we sold out of our entire holding in Jardine Strategic Holdings. Despite a relatively wide discount, we felt that the share prices of the underlying businesses had become overvalued. Astra international, an Indonesian conglomerate indirectly controlled by Jardine Group, in particular, was trading at extremely high multiples that we felt were no longer supported by the growth prospects of that company. Thus, we realised a substantial profit and effectively halved our exposure to the Jardine group. The timing of this proved fortuitous as the shares subsequently fell by 20%. Over the year, until the date we sold it in early May, Jardine Strategic Holdings shares rose by 19% and we therefore locked in a substantial profit.

Another strong performer within this sector was Shun Tak Holdings, the holding company of the Ho family, with property and gaming interests in Macau. This company has been heavily undervalued by the market and has traded at exceedingly wide discounts to NAV of over 60%. A combination of the continued growth of the casino industry in Macau, the completion of a number of real estate projects in Macau and the receipt of new planning consents has fuelled an increase in share price of 45% over the year.

Vivendi/other

Vivendi's share price rose by 12% over the year. This, together with the dividend income, meant that the company was the second biggest contributor to our performance. There was encouraging news from Vivendi on restructuring. It announced the disposal of two assets - Maroc Telecom and Activision Blizzard. In addition, management has recently indicated that it would be proposing to shareholders that the company be split into two separate companies by way of a spin-off of SFR, the French mobile phone business. The creation of two separately listed companies is expected to lead to a reduction in the conglomerate discount and allow the two businesses to be more appropriately valued by the market.

Closed end funds

Over the past 18 months we have focused our investments in closed end funds in the listed private equity sector. This was the one area of the closed end fund universe where we saw good value. Over the past year, this area of the portfolio has added a lot of value, contributing approximately one third of the overall returns.

The largest contributor was AP Alternative Assets, whose share price rose by 123% over the year. This was driven by a restructuring of the company's assets by way of a disposal to one of the portfolio holdings - Athene Insurance - in return for an increased stake. Subsequently, Athene has made an acquisition in the US which we believe will add enormously to the value of the company and which will be realised by AP shareholders when Athene is ultimately sold.

We sold the majority of our holding in Macquarie International Infrastructure Fund and realised a respectable profit, after management conducted a strategic review to consider ways of narrowing the discount at which the company's shares were trading, and decided to dispose of its three assets and return the proceeds to shareholders. The largest two assets were sold slightly above their carrying values in 2013. Distributions and sale proceeds already received cover our cost base 1.3 times.

We retain a small holding in the company and expect further returns of capital when the last remaining asset is sold.

Several of the holdings in this part of the portfolio are in "wind up mode". This means that they are not making any new investments and will be returning cash to shareholders as and when assets are sold. These positions were acquired at substantial discounts to NAV and we expect at least the current NAV to be realised over time, in addition to which there is the potential for NAV growth.

Mining resources

This is an area of the portfolio that has delivered excellent gains for shareholders over several years. There were mixed results in this part of the portfolio. Successful investments in Amerisur Resources and Nexen were disposed of, realising profits amounting to 0.7% of NAV, and we retain a holding in Soco International. These positive results were more than offset by the very challenging environment for gold mining stocks, where our relatively low exposure of 3% at the start of the year to two companies (Detour Gold Corp. and St Barbara) detracted from performance.

Property

Our exposure to property companies spans a variety of regions including Canada, Germany and Asia.

Overall, our investments in property companies returned 14% during the year, and with an average weighting during the year of 8.5%, roughly 8% of our overall returns came from this part of the portfolio. A key performer in this sector was Forterra Trust - a relatively small Singapore listed business trust with assets in China. Over the course of the year its share price has risen by 116%.

Liquidity

At the start of the financial year we held 20% of net liquidity. During the year the level of net liquidity has fluctuated between 7% and 25%. Whilst holding cash overall has reduced risk in the portfolio, its effect in a strong market has been to dampen returns and thus it has harmed our performance relative to comparative benchmarks.

Share buy backs

During the year we purchased 5.1m shares which are being held in treasury. The effect of the buyback was to increase NAV by 0.4%.

Outlook for the portfolio

The outlook for the portfolio is positive because both of the factors which drive returns are at attractive levels: discounts are wide by historical standards and we believe that they will narrow over time and there is scope for growth in underlying (look-through) NAVs, as companies benefit from improved economic conditions. There is a discernible and very welcome improvement in the economies of many developed countries. Of course, this is still a very fragile recovery that could be de-railed by policy miscalculations and has been achieved only with the help of unprecedented levels of monetary stimulus. Nevertheless, if economic growth follows its current path and continues to pick up, European stock markets will be well-placed because growth expectations are so low, as witnessed by the low relative valuations, that positive news could have a disproportionate effect. Emerging markets may continue to face challenges as valuations are somewhat higher and in some countries, economic imbalances have built up during the recent period of extreme monetary policy in the Western world.

Japan has performed well but the ultimate success of Abenomics is in question. In Japan, government spending represents 40% of GDP and the national debt is over 200% of GDP. Further government spending and a loosening of monetary conditions to try to create inflation could lead to a catastrophic loss of faith in the bond market at some point before the desired economic growth is achieved.

The greatest uncertainties, of course, relate to the unconventional monetary policies undertaken by central banks primarily in the US, EU, UK and Japan. We are still mired in the low growth aftermath of a bubble that burst in the financial sector in much of the developed world. Fiscal policy is constrained as an antidote to lack of demand by the already high levels of government debt. Structural reforms to unleash growth are a distant prospect due to broken or gridlocked political systems.

Quantitative Easing (QE) is continued less out of conviction that it is working and more out of desperation that something must be done and we have run out of alternatives. There is an increasing probability that the benefits of QE are more than outweighed by the potential costs and the policy is actually holding back the recovery that we need.

The negative consequences of QE potentially include:

·      Debt levels in developed countries that are now higher than they were pre-crisis

·      The creation of 'zombie' banks and companies kept alive but unable to lend or invest

·      Inflated asset prices in some markets

·      Instability in emerging markets

·      Uneven wealth distribution

·      Central Banks are losing their independence and becoming increasingly politicised

·      Low returns for savers

·      The threat of insolvency of insurance companies and pension funds

·      Governments becoming dependent on QE and lacking the will to face difficult structural reforms to create growth

The US Federal Reserve attempted to begin to 'taper' its $85bn a month QE program and then quickly backed off in September when the markets reacted badly. The problem is not going away and it is unlikely to get easier as the Fed's balance sheet is growing bigger every month. The eventual winding down of QE will cause volatility in markets as participants are unsure of the extent to which prices will need to be re-set absent the artificial buying. That cannot be avoided but, given the growing costs of the policy, it would be better to face that adjustment sooner rather than later.

Capital Structure as at 30 September 2013

The Company's capital structure comprises Ordinary Shares and Debenture Stock.

Ordinary Shares

At 30 September 2013 there were 160,014,089 (2012: 160,014,089) Ordinary Shares of 10p each in issue, of which 7,025,201 (2012: 1,919,104) were held in treasury and therefore the total voting rights attaching to Ordinary Shares in issue are 152,988,888.

Income entitlement

The profits of the Company (including accumulated revenue reserves) available for distribution and resolved to be distributed shall be distributed by way of interim, final and (where applicable) special dividends among the holders of Ordinary Shares, subject to the payment of interest to the holders of Debenture Stock.

Capital entitlement

After meeting the liabilities of the Company and the amounts due to Debenture Stock holders on a winding up, the surplus assets shall be paid to the holders of Ordinary Shares and distributed among such holders rateably according to the amounts paid up or credited as paid up on their shares.

Voting entitlement

Each Ordinary Shareholder is entitled to one vote on a show of hands and, on a poll, to one vote for every Ordinary Share held.

The Notice of Meeting and Form of Proxy stipulate the deadlines for the valid exercise of voting rights and, other than with regard to Directors not being permitted to vote their shares on matters in which they have an interest, there are no restrictions on the voting rights of Ordinary Shares.

Transfers

There are no restrictions on the transfer of the Company's shares other than a) transfers by Directors and Persons discharging Managerial Responsibilities and their connected persons during prohibited periods, under the rules of the UK Listing Authority or which may constitute insider dealing, b) transfers for more than one class of share, c) transfers to more than 4 joint transferees and d) transfers of shares which are not fully paid up or on which the Company has a lien provided that much would not prohibit dealings taking place on an open and proper basis.

The Company is not aware of any agreements between Shareholders nor any agreements or arrangements with Shareholders which would change in the event of a change of control of the Company.

Debenture Stock

At 30 September 2013 there was in issue £15,000,000 (2012: £15,000,000) 8¹/8 per cent Debenture Stock 2023, repayable on 2 July 2023.

Income entitlement

Holders of the Debenture Stock are entitled to interest paid half-yearly at the rate of 8¹/8 per cent per annum.

Capital entitlement

The Debenture Stock holders are entitled to repayment of principal and outstanding interest on the redemption date or, if earlier, on the occurrence of an event of default. The Debenture Stock is secured by a floating charge on all of the assets of the Company. If the Company is liquidated the Debenture Stock is redeemable by the Company at a price which is the higher of par and that price at which the Gross Redemption Yield on the Relevant Date is equal to the Gross Redemption Yield at 3 p.m. on that date of the 8³/⁴ per cent Treasury Stock 2017 or such other government stock as the Trustees, upon advice, may agree, together with interest accrued up to and including the date of redemption. Had the Company been liquidated on 30 September 2013, the redemption premium would have amounted to £4.4 million over and above the mid market value.

The mid-market prices of the 8¹/8 per cent Debenture Stock 2023 as at 30 September 2013 was 123.50p (2012: 123.50p).

Voting entitlement

The holders of Debenture Stock have no right to attend or to vote at general meetings of the Company.

Equities Index Unsecured Loan Stock 2013 (Index Stock)

At 30 September 2013 there were no units of Index Stock in issue (2012: 2,426,754).

Redemption

In accordance with the provisions of the Trust Deed governing the Index Stock, the Company repaid the Capital Value and the final interest amount for the quarter ending 31 March 2013 on 15 April 2013 (the tenth Stock Exchange dealing after 31 March 2013) to holders on the register at close of business on 28 March 2013.

The capital value of the Index Stock as at 31 March 2013 amounted to £3.38064 per unit. There were 2,426,754 units in issue as at 31 March 2013, therefore the total cost of the redemption was £8,203,981.64.

The capital value was calculated by taking the higher of 10 per cent of the nominal amount of £1.74338 and the Index number at the date of calculation divided by 1,000 expressed in pounds and rounded up to five decimal places.

Investment characteristics

The units of Index Stock entitled the holders to an income return that matched that of the FTSE All-Share Index (the Index) and, at maturity, a capital return that matched that of the Index. Neither the income or capital return was fixed, each moved up or down with the United Kingdom stock market.

Income entitlement

Holders of Index Stock were entitled to receive interest paid quarterly. Interest was calculated by reference to the yield on the Index having regard to the movement ex-dividend adjustment factor during the relevant quarter as published in the Financial Times. The interest paid for the period from 1 October 2012 to 15 April 2013 was £512.37 per 1,000 units.

Voting entitlement

The holders of Index Stock had no right to attend or vote at general meetings of the Company.

Investor AB 'A' / Sweden

Investor's operations are conducted in two business areas: Core Investments and Financial Investments. The mix of well established, leading companies, growth companies, wholly-owned subsidiaries and financial investments spreads risks well and provides a solid base for generating healthy long-term returns to shareholders.

SAAB (a Core Investment) serves the global market with innovative state-of-the-art products, services and solutions in many niche markets including military defence and civil security.

In December 2012 Investor announced the proposed sale of Gambro (Financial Investment), a global medical technology company. The deal completed in September 2013 with Investor receiving net proceeds of SEK10.2bln through direct and indirect holdings. Proceeds from their direct ownership amounted to SEK7.4bln versus holding value of SEK5.5bln as at June 2013.

Directors

Strone Macpherson

Independent Non-Executive Chairman

Age: 65 Length of Service: 11 years Appointed Chairman: December 2007

Experience:

Chairman of Close Brothers Group plc, Chairman of Estover Energy Limited and Trustee and Treasurer of the King's Fund. Formerly a Director at Flemings, Executive Deputy Chairman of Misys plc and Chairman of JP Morgan Smaller Companies Investment Trust.

Last re-elected to the Board: 2012

Committee membership:

Audit Committee, Management Engagement Committee (Chairman), Nomination Committee (Chairman)

Remuneration:

£35,000

Employment by the Investment Manager: None

Other connections with the Company or Investment Manager: None

Shared Directorships with any other Company Directors: None

Shareholding in Company: 40,000 Ordinary Shares

Steven Bates

Senior Independent Non-Executive Director ("SID")

Age: 56 Length of Service: 8 years Appointed SID: November 2012

Experience:

Chairman of Vietnam Opportunities Fund, of Baring Emerging Europe plc and of F&C Capital & Income Investment Trust plc and a Director of RENN Universal Growth Investment Trust plc and of Magna Umbrella Fund. He is also a Director of Zephyr Management UK Limited, an investment management company specialising in emerging markets. He sits on or is advisor to various committees in the wealth management, pension fund and charity areas. He was Head of Global Emerging Markets at JP Morgan Asset Management until 2002.

Last re-elected to the Board: 2012

Committee membership: Audit Committee, Management Engagement committee, Nomination Committee

Remuneration:

£25,300

Employment by the Investment Manager: None

Other connections with the Company or Investment Manager: None

Shared Directorships with any other Company Directors: None

Shareholding in Company: 20,000 Ordinary Shares

Andrew Robson

Independent Non-Executive Director

Age: 54 Length of Service: 5 years Appointed Audit Committee Chairman: October 2008

Experience:

Non-Executive Director of JPMorgan Smaller Companies Investment Trust plc, Shires Income plc and Mobeus Income & Growth 4 VCT plc. Also a Director of First Integrity Limited and Peckwater Limited. Formerly Group Finance Director of eFinancial Group Limited, and a Director of Robert Fleming & Co Ltd, SG Hambros and M&G Equity Investment Trust plc.

Last re-elected to the Board: 2012

Committee membership: Audit Committee (Chairman), Management Engagement Committee, Nomination Committee

Remuneration:

£27,000

Employment by the Investment Manager: None

Other connections with the Company or Investment Manager: None

Shared Directorships with any other Company Directors: None

Shareholding in Company: 2,800 Ordinary Shares

Susan Noble

Independent Non-Executive Director

Age: 56 Appointed: March 2012

Experience:

Director of the Alliance Trust plc and Associate Director of Manchester Square Partners. Trustee of the Hospice of St Francis, Berkhamsted and a member of the Finance Committee of Mencap. Formerly a Managing Director of Goldman Sachs Asset Management, Head of European Equities and Head of Global Equities. Also a Director and Senior European Portfolio Manager at Robert Fleming Asset Management.

Appointed to the Board: 2012

Committee membership: Audit Committee, Management Engagement Committee, Nomination Committee

Remuneration:

£23,000

Employment by the Investment Manager: None

Other connections with the Company or Investment Manager: None

Shared Directorships with any other Company Directors: None

Shareholding in Company: 8,628 Ordinary Shares

Nigel Rich

Independent Non-Executive Director

Age: 68 Appointed: March 2012

Experience:

Chairman of Segro plc, Non-Executive Director of Bank of the Philippine Islands (Europe) plc, Matheson & Co Ltd and Pacific Assets Trust plc. Formerly Chairman of Xchanging plc, Ocean Group/Exel plc, CP Ships Limited and Hamptons Group Limited, and also formerly Managing Director of Jardine Matheson Holdings and the Group Chief Executive, Trafalgar House plc.

Appointed to the Board: 2012

Committee membership: Audit Committee, Management Engagement Committee, Nomination Committee

Remuneration:

£23,000

Employment by the Investment Manager: None

Other connections with the Company or Investment Manager: None

Shared Directorships with any other Company Directors: None

Shareholding in Company: 15,000* Ordinary Shares

*3,000 held by Cynthia Rich

Attendance at meetings

Name	Board	Audit	Management Engagement	Nomination
Strone Macpherson	9	4	1	1
Steven Bates	9	4	1	1
Rosamund Blomfield-Smith*	4	2	-	1
Susan Noble	9	4	1	1
Nigel Rich	9	4	1	1
Andrew Robson	9	4	1	1
*retired 13 December 2012

Report of the Directors

The Directors present their report and the audited financial statements for the year ended 30 September 2013.

Status

The Company is registered as a public limited company under the Companies Acts and is an investment company under Section 833 of the Companies Act 2006. It is a member of the Association of Investment Companies.

The Company has been approved as an investment company under Sections 1158/1159 of the Corporation Tax Act 2010 for the year ended 30 September 2013. The Directors are of the opinion, under advice, that the Company continues to conduct its affairs as an Approved Investment Trust under the Investment Trust (Approved Company) (Tax) Regulations 2011.

The Company is a qualifying company for the purposes of Stocks & Shares Individual Savings Accounts.

Investment Objective, Policy and Restrictions

The objective of the Company is to achieve capital growth through a focused portfolio of investments, particularly in companies whose shares stand at a discount to estimated underlying net asset value.

Investments are principally in companies listed on recognised stock exchanges in the UK and/or overseas, which may include investment holding companies, investment trusts and other companies, the share prices of which are assessed to be below their estimated net asset value or intrinsic worth. Although listed assets make up the bulk of the portfolio the Company may also invest in unlisted assets with the prior approval of the Board.

The Company generally invests on a long-only basis but may hedge exposures through the use of derivative instruments and may also hedge its foreign currency exposures.

There are no geographic limits on exposure, as the Company invests wherever it considers that there are opportunities for capital growth. Risk is spread by investing in a number of holdings, many of which themselves are diversified companies.

The Company will not invest in any holding that would represent more than 15% of the value of its total investments at the time of investment.

Potential investments falling within the scope of the Company's investment objective will differ over the course of market cycles. The number of holdings in the portfolio will vary depending upon circumstances and opportunities within equity markets at any particular time.

The Company may gear its assets through borrowings which may vary substantially over time according to market conditions but which will not exceed twice the nominal capital and reserves of the Company.

Results and Dividends

Group profit for the year was £98,918,000 which included a profit of £21,775,000 attributable to revenue (2012: profit of £75,894,000 which included a profit of £24,050,000 attributable to revenue). The profit for the year attributable to revenue has been applied as follows.

	Company £'000	Group £'000
Revenue available for dividends	21,778	21,775
Interim dividend of 2.00p per Ordinary Share paid on 21 June 2013 Recommended final dividend payable on 6 January 2014 to Shareholders on the Register as at 6 December 2013 (ex dividend 4 December 2013): - Final dividend of 8.50p per Ordinary share - Special dividend of 2.50p per Ordinary share	(3,136) (12,924) (3,801)	(3,136) (12,924) (3,801)
	1,917	1,914

Directors

The Directors of the Company are listed on pages 24 and 25. All served throughout the period under review. Rosamund Blomfield-Smith retired from the Board on 13 December 2012.

In accordance with the recommendations of the AIC's Code of Corporate Governance Principle 3, all of the remaining Directors of the Board will retire at the forthcoming Annual General Meeting and offer themselves for re-election.

The beneficial interests of the current Directors and their connected persons in the securities of the Company as at 30 September 2013 are set out below:

	Ordinary Shares		Ordinary Shares		Loan Stock		Loan Stock
	30/9/13		1/10/12		30/9/13		1/10/12
Strone Macpherson	40,000		40,000		-		-
Steven Bates	20,000		20,000		-		-
Susan Noble	8,628		3,402		-		-
Andrew Robson	2,800		2,800		-		-
Nigel Rich†	15,000		8,000		-		-
†Includes 3,000 Ordinary Shares held by Cynthia Rich.

There were no changes to the above interests between the year end and the date of this report. No Director was a party to, or had an interest in, any contract or arrangement with the Company.

Subsidiary Companies

The Company owns one subsidiary, BEST Securities Limited. In the year to 30 September 2013, BEST Securities Limited made a loss after taxation of £2,738 (2012: loss £2,549).

Investment Manager

Asset Value Investors Limited (AVI) is the Company's appointed Investment Manager, engaged under the terms of an Investment Management Agreement (the IMA) effective from 1 October 2003 and varied with effect from 1 October 2008 and 1 October 2013. The IMA is terminable by one year's notice from either party, other than for "cause". The Investment Manager has complied with the terms of the IMA throughout the year to 30 September 2013.

Under the IMA, effective during the reporting period, the Investment Manager was entitled to a base management fee of 0.60% of the net assets of the Company at the end of the preceding financial period. Phoenix Administration Services Limited charge the Company for corporate secretarial services, the Investment Manager then refunded this fee by deducting it from their base management fee of 0.60%. A performance fee of 6% was also payable for any outperformance in the net asset value (on a total return basis) over the benchmark at the year end, with a cap on aggregate fees of 1% of net assets of the Company per annum. Any underperformance or outperformance in excess of the cap would have been carried forward for use in the next 3 years' fee calculations, after which it would lapse.

On 1 October 2013, a variation to the IMA was agreed. Under this revised IMA, the Investment Manager is entitled to an annual base management fee of 0.70% of the net assets of the Company, calculated quarterly, by reference to net assets as at the preceding quarter end and paid monthly. No further performance fees are payable following 30 September 2013 and any balance of under or over performance will be cancelled.

The above changes are based on the understanding that AVI will be British Empire's Alternative Investment Fund Manager (AIFM). There will be no additional fee for the AIFM role; AVI's costs in this regard will be met from the 0.70% management fee.

The Company adopted the Morningstar Investment Trust Global Growth Index as the benchmark against which the Company's performance is measured during the reporting period. From 1 October 2013 the benchmark was changed to the Morgan Stanley Capital International All Country World ex-US Index.

Corporate secretarial services are provided by Phoenix Administration Services Limited (Phoenix) pursuant to an Agreement dated 17 December 2009, for a fee of £42,000 per annum. The Agreement with Phoenix continues until terminated by either party on giving not less than six months' written notice. During the reporting period, the fee paid to the Investment Manager under the IMA was reduced by the amount paid to Phoenix for corporate secretarial services. From 1 October 2013, the Company will pay the costs of Company secretarial services.

Interests in Share Capital

Information on the structure, rights and restrictions relating to share capital, as required by the Takeover Directive, is given on pages 22 and 23.

At 30 September 2013 and 31 October 2013 the following holdings representing more than 3 per cent of the Company's issued share capital had been reported to the Company:

	Number held at  30 September 2013	Percentage held at 30 September 2013	Percentage held at 31 October 2013
Brewin Dolphin Limited	8,177,010	5.34	5.24
Halifax Share Dealing Services	8,138,714	5.32	5.31
1607 Capital Partners, LLC	7,648,117	5.00	5.20
Alliance Trust Savings Limited	7,020,060	4.59	4.59
HSBC Global Asset Management (UK) Limited	6,862,465	4.49	4.27
Lazard Asset Management, LLC	6,387,102	4.17	4.20
AXA Investment Management UK Limited	4,696,874	3.07	3.08

Auditor

Ernst & Young LLP have indicated their willingness to continue in office and a Resolution will be proposed at the forthcoming Annual General Meeting to re-appoint them as Auditor and authorise the Directors to determine the Auditor's remuneration for the ensuing year.

Ernst & Young LLP have held office as Auditor to the Company since June 1993. The Audit Committee periodically reviews the appointment of Ernst & Young LLP and the Board recommends their reappointment. Further information on the work of the Auditor is in the Report of the Audit Committee on pages 58 and 59.

Special Business at the Annual General Meeting

Resolution 11 - Directors' Remuneration Policy

To receive and adopt the Directors' Remuneration Policy as presented on page 60 to page 61 of the Report and Accounts.

Resolution 12 - Authority to allot Shares

The Directors seek to renew the general and unconditional authority to allot up to 22,791,734 Ordinary Shares of 10p each, representing approximately 14.99% of the issued Ordinary Share capital (excluding shares held in treasury). The Directors would only exercise this authority if they considered it to be in the best interests of the Company generally.

Resolution 13 - Authority to issue Shares outside of pre-emption rights The Directors seek to renew the authority to allot, other than on a pre-emptive basis, Ordinary Shares (including the grant of rights to subscribe for, or to convert any securities into Ordinary Shares) up to a maximum of 7,602,312 Ordinary Shares, being approximately 5% of the Ordinary Shares (excluding shares held in treasury) currently in issue, and to transfer or sell Ordinary Shares held in treasury. The Directors would only exercise this authority if they consider it to be advantageous to the Company.

Resolution 14 - Share Buy-Back Facility

This Directors seek to renew the authority to make market purchases of up to 22,791,734 Ordinary Shares (in accordance with the provisions of the Companies Act and Listing Rules) representing approximately 14.99% of the issued Ordinary Share capital (excluding shares held in treasury) at the date of this Report. Ordinary Shares bought back may be held in treasury for cancellation or sale at a future date rather than being cancelled upon purchase. The Directors would not exercise the authority granted under this Resolution unless they consider it to be in the best interests of Shareholders e.g. resulting in an increase in net asset value per Share.

Corporate Governance

The Listing Rules and the Disclosure Rules and Transparency Rules (Disclosure Rules) of the UK Listing Authority require listed companies to disclose how they have applied the principles and complied with the provisions of the corporate governance code to which the issuer is subject. The provisions of the UK Corporate Governance Code (UK Code) issued by the Financial Reporting Council (FRC) in September 2012 are applicable for the year under review. The related Code of Corporate Governance (AIC Code) issued by the Association of Investment Companies (AIC) in February 2013 provides specific corporate governance guidelines to investment trusts. The Board has considered the principles and recommendations of the AIC Code by reference to the AIC Corporate Governance Guide for investment Companies (AIC Guide). The FRC has confirmed that AIC member companies who report against the AIC Code and who follow the AIC Guide for Investment Companies will be meeting obligations in relation to the UK Code and associated disclosure requirements of the Disclosure Rules.

The AIC Code can be viewed at http://www.theaic.co.uk/sites/default/files/ AICCodeofCorporateGovernanceFeb2013.pdf

The UK Code can be viewed at http://www.frc.org.uk/our-work/ Publications/Corporate-Governance/UK-Corporate-Governance-Code-September-2012.pdf

The Board considers that reporting against the principles and recommendations of the AIC Code and the AIC Guide (which incorporates the UK Code) provides shareholders with full details of the Company's Corporate Governance compliance.

The UK Code includes provisions relating to the role of the chief executive and of the executive Directors' remuneration. However, as all of the Directors are non-executive, these provisions are not applicable. The UK Code also sets out the case for establishing an internal audit function. For the reasons set out in the AIC Guide, the Board considers that an internal audit function is not relevant to the Company, being an externally managed investment company.

Throughout the year ended 30 September 2013 the Company complied with the provisions of the AIC Guide and AIC Code.

The Principles of the AIC Code

The AIC Code is made up of twenty-one principles split into three

sections covering:

- The Board

- Board Meetings and relations with the Investment Manager

- Shareholder Communications

AIC Code Principle	Compliance Statement
1.  The Chairman should be independent.	The Chairman, Strone Macpherson, was independent of the Investment Manager at the time of his appointment and remains so. There is a clear division of responsibility between the Chairman, the Directors, the Investment Manager and the Company's other third party service providers. The Chairman is responsible for leading the Board, ensuring its effectiveness in all aspects of its role and is responsible for ensuring that all Directors receive accurate, timely and clear information.
2.  A majority of the Board should be independent of the manager.	The Board consists of five non-executive Directors, each of whom is independent of the Investment Manager. No member of the Board is a Director of another investment company managed by the Company's Investment Manager, nor has any Board member been an employee of the Company, its Investment Manager or any of its service providers. Strone Macpherson is Chairman of Close Brothers Group plc, the ultimate parent of Winterflood Securities Limited which acts as the Company's Corporate Broker and for which it receives a retainer of £25,000 per annum, paid by the Company.
3.  Directors should be submitted for re-election at regular intervals. Nomination for re-election should not be assumed but be based on disclosed procedures and continued satisfactory performance.	All Directors will submit themselves for annual re-election by shareholders. The individual performance of each Director standing for re-election is evaluated annually by the remaining members of the Board and, if considered appropriate, a recommendation is made that shareholders vote in favour of their re-election at the AGM.
4.  The Board should have a policy on tenure, which is disclosed in the annual report.	The Board, meeting as the Nomination Committee, considers the structure of the Board and recognises the need for progressive refreshing of the Board. The Board does not have a formal policy requiring that Directors should stand down after a fixed period. It considers that a long association with the Company and experience of a number of investment cycles can be valuable to its deliberations and does not compromise a Director's independence. The terms and conditions of the Directors' appointments are set out in letters of engagement which are available for inspection on request at the registered office of the Company and at the AGM.
5.  There should be full disclosure of information about the Board.	All of the Directors are resident in the UK and their biographical details, set out on pages 24 and 25 of this Report, demonstrate the wide range of skills and experience that they bring to the Board. Details of the Board's Committees and their composition are set out on page 34 of this Report. The Audit Committee membership comprises all of the Directors, all of whom are considered independent. The Chairman of the Company is a member of the Audit Committee, but does not chair it. His membership of the Audit Committee is considered appropriate given the Chairman's extensive knowledge of the financial services industry. The Board considers that, as it is comprised of non-executive Directors, it is not necessary to establish a separate Remuneration Committee. Whilst the whole Board considers Directors' remuneration, the Chairman will absent himself from the discussion on his remuneration.
6.  The Board should aim to have a balance of skills, experience, length of service and knowledge of the company.	The Nomination Committee conducts annually a skills audit to enable the Board to identify any skill shortages to be filled by new Directors. When considering new appointments, the Board reviews the skills of the Directors and seeks to add persons with complementary skills or who possess the skills and experience which fill any gaps in the Board's knowledge or experience and who can devote sufficient time to the Company to carry out their duties effectively. The experience of the current Directors is detailed in the biographies of the Directors, set out on pages 24 and 25 of this Report. The Company is committed to ensuring that any vacancies arising are filled by the most qualified candidates and recognises the value of diversity in the composition of the Board. When Board positions become available as a result of retirement or resignation, the Company will ensure that a diverse group of candidates is considered.
7.  The Board should undertake a formal and rigorous annual evaluation of its own performance and that of its committees and individual directors.	The Board, meeting as the Nomination Committee, has a formal process to evaluate its own performance and that of its Chairman annually. The Chairman leads the assessment which covers the functioning of the Board as a whole and the effectiveness of the Board Committees. Where necessary the Chairman discusses the responses with each Director individually. The Chairman absents himself from the Board's review of his effectiveness as the Company Chairman. During 2011 an independent review of the Board was undertaken, the results of which were considered by the Board. The Board has agreed that an independent review of the Board will be commissioned regularly and a further review will be commissioned in 2014. The review considered the Board's objectives and how the contributions made individually and collectively to Board meetings helped the Company to achieve its objectives. The Board's strengths and weaknesses were considered and different methodologies to address risks and opportunities were identified. The Board is satisfied that the structure, mix of skills and operation of the Board continue to be effective and relevant for the Company.
8.  Director remuneration should reflect their duties, responsibilities and the value of their time spent.	The Board periodically reviews the fees paid to the Directors and compares these with the fees paid by the Company's peer group and the investment trust industry generally, taking into account the level of commitment and responsibility of each Board member. Details on the remuneration arrangements for the Directors of the Company can be found in the Directors' Remuneration Policy Report and Directors' Remuneration Implementation Report on pages 60 to 63 and in note 3 to the Accounts. As all of the Directors are non-executive, the Board considers that it is acceptable for the Chairman of the Company to chair meetings when discussing Directors' fees. The Chairman's remuneration is determined by the Board in his absence. The Board periodically takes advice from external independent advisers on Directors' remuneration. All Directors own shares in the Company. No stock options or other performance-related elements have been awarded.
9.  The Independent Directors should take the lead in the appointment of new Directors and the process should be disclosed in the annual report.	The Nomination Committee is comprised of the whole Board which has a majority of Independent Directors and, subject to there being no conflicts of interest, all members of the Committee are entitled to vote on candidates for the appointment of new Directors and on recommending for shareholders' approval the Directors seeking re-election at the AGM.
10.  Directors should be offered relevant training and induction.	New appointees to the Board are provided with a full induction programme. The programme covers the Company's investment strategy, policies and practices. The Directors are also given key information on the Company's regulatory and statutory requirements as they arise including information on the role of the Board, matters reserved for its decision, the terms of reference for the Board Committees, the Company's corporate governance practices and procedures and the latest financial information. It is the Chairman's responsibility to ensure that the Directors have sufficient knowledge to fulfil their role and Directors are encouraged to participate in training courses where appropriate. The Directors have access to the advice and services of a Company Secretary through its appointed representative which is responsible to the Board for ensuring that Board procedures are followed and that applicable rules and regulations are complied with. The Company Secretary is also responsible for ensuring good information flows between all parties.
11.  The Chairman (and the Board) should be brought into the process of structuring a new launch at an early stage.	Principle 11 applies to the launch of new investment companies and is therefore not applicable to the Company.
Board Meetings and relations with the Investment Manager
12.  Boards and managers should operate in a supportive, co-operative and open environment.	The Board meets regularly throughout the year and a representative of the Investment Manager is in attendance. The Chairman encourages open debate to foster a supportive and open environment.   and co-operative approach for all participants.
13.  The primary focus at regular board meetings should be a review of investment performance and associated matters, such as gearing, asset allocation, marketing/investor relations, peer group information and industry issues.	The Board has agreed a schedule of matters specifically reserved for decision by the Board. This includes establishing the investment objectives, strategy and benchmarks, the permitted types or categories of investments, the markets in which transactions may be undertaken, the level of permitted gearing and borrowings, the amount or proportion of the assets that may be invested in any category of investment or in any one investment, and the Company's treasury and share buyback policies. The Board, at its regular meetings, undertakes reviews of key investment and financial data, revenue projections and expenses, analyses of asset allocation, transactions and performance comparisons, share price and net asset value performance, marketing and shareholder communication strategies, the risks associated with pursuing the investment strategy, peer group information and industry issues. The Audit and Management Engagement Committees of the Board respectively, review the Company's risk matrix and the performance and cost of the Company's third party service providers.
14.  Boards should give sufficient attention to overall strategy.	The Board is responsible for strategy and has established a predetermined annual programme of agenda items under which it reviews the objectives and strategy for the Company at each meeting. In addition to the regular Board meetings the Board meets specifically on one additional day each year to focus on strategy and any other issues that require in-depth attention.
15.  The Board should regularly review both the performance of, and contractual arrangements with, the manager (or executives of a self-managed company).	The Management Engagement Committee meets at least once a year. It reviews annually the performance of the Investment Manager. The Committee considers the quality, cost and remuneration method (including the performance fee) of the service provided by the Investment Manager against its contractual obligations and the Board receives regular reports on compliance with the Investment Restrictions which it has set. It also considers the performance analysis provided by the Investment Manager. In view of the level of data available from independent service providers, and the appraisal undertaken by the Board, the Board does not consider an independent appraisal of the Investment Manager's service to be necessary. The Audit Committee reviews the Investment Manager's compliance and control systems in operation insofar as they relate to the affairs of the Company and the Board undertakes periodic reviews of the arrangements with and the services provided by the Custodian, to ensure that the safeguarding of the Company's assets and security of the shareholders' investment is being maintained.
16.  The Board should agree policies with the manager covering key operational issues.	The Investment Management Agreement between the Company and the Investment Manager sets out the limits of the Investment Manager's authority, beyond which Board approval is required. The Board has also agreed detailed investment guidelines with the Investment Manager, which are considered at each Board meeting. A representative of the Investment Manager attends each meeting of the Board to address questions on specific matters and to seek approval for specific transactions which the Investment Manager is required to refer to the Board e.g. investing in unquoted investments. The Board has delegated discretion to the Investment Manager to exercise voting powers on its behalf, other than for contentious or sensitive matters which are to be referred to the Board for consideration. The Board has reviewed the Investment Manager's Stewardship Policy, which includes its Corporate Governance and Voting Guidelines, and which is published on the Investment Manager's web-site: www.assetvalueinvestors.com. Reports on commissions paid by the Investment Manager are submitted to the Board regularly.
17.  Boards should monitor the level of the share price discount or premium (if any) and, if desirable, take action to reduce it.	The Board considers any imbalances in the supply of and the demand for the Company's shares in the market and takes appropriate action when considered necessary. The Board considers the discount or premium to NAV of the Company's share price at each Board meeting and reviews the changes in the level of discount or premium and in the share price since the previous Board meeting and over the previous twelve months. At each meeting the Board reviews reports from the Investment Manager's marketing department on marketing and shareholder communication strategies. It also considers their effectiveness as well as measures of investor sentiment and any recommendations on share buy-backs.
18.  The Board should monitor and evaluate other service providers.	The Management Engagement Committee reviews, at least annually, the performance of all the Company's third party service providers, including the level and structure of fees payable and the length of the notice period, to ensure that they remain competitive and in the best interests of shareholders, as well as reviewing service providers' anti-bribery and corruption policies to address the provisions of the Bribery Act 2010. The Audit Committee reviews reports from the principal service providers on compliance and the internal and financial control systems in operation and relevant independent audit reports thereon.
19.  The Board should regularly monitor the shareholder profile of the company and put in place a system for canvassing shareholder views and for communicating the Board's views to shareholders.	A detailed analysis of the substantial shareholders of the Company is provided to the Directors at each Board meeting. Representatives of the Investment Manager regularly meet with institutional shareholders and private client asset managers to discuss strategy and to understand their issues and concerns and, if applicable, to discuss corporate governance issues. The results of such meetings are reported at the following Board meeting. Regular reports from the Company's broker are submitted to the Board on investor sentiment and industry issues. Shareholders wishing to communicate with the Chairman, or any other member of the Board, may do so by writing to the Company, for the attention of the Company Secretary at the Registered Office. All shareholders are encouraged to attend the AGM, where they are given the opportunity to question the Chairman, the Board and representatives of the Investment Manager. The Investment Manager will make a presentation to Shareholders covering the investment performance and strategy of the Company at the forthcoming Annual General Meeting. The Directors welcome the views of all Shareholders and place considerable importance on communications with them.
20.  The Board should normally take responsibility for, and have a direct involvement in, the content of communications regarding major corporate issues even if the manager is asked to act as spokesman.	All substantive communications regarding any major corporate issues are discussed by the Board taking into account representations from the Investment Manager, the Auditor, legal advisers, stockbroker and Company Secretary.
21.  The Board should ensure that shareholders are provided with sufficient information for them to understand the risk/reward balance to which they are exposed by holding the shares.	The Company places great importance on communication with shareholders and aims to provide them with a full understanding of the Company's investment objective, policy and activities, its performance and the principal investment risks by means of informative Annual and Half Year reports and Interim Management Statements. This is supplemented by the daily publication, through the London Stock Exchange, of the net asset value of the Company's shares. The Annual Report provides information on the Investment Manager's investment performance, portfolio risk and operational and compliance issues. Further details on the risk/reward balance are set out in the Strategic Report under Investment Risk on page 08 and in note 18 to the Accounts. The Investment Portfolio is listed on pages 10 and 11. The Company's website, www.british-empire.co.uk, is regularly updated with monthly factsheets and provides useful information about the Company including the Company's Financial Reports and Announcements.

Board Committees

The Board has agreed a schedule of matters specifically reserved for decision by the full Board subject to which the Board has delegated specific duties to Committees of the Board which operate within written terms of reference. Phoenix Administration Services Limited acts as Company Secretary to each Committee. No persons other than the Committee members are entitled to attend at Committee meetings unless formally invited by the Committee. Copies of the terms of reference for Board Committees are available from the Company Secretary.

Management Engagement Committee

The Management Engagement Committee meets at least once each year and comprises the whole Board, being independent Directors. The main functions of the Committee are to define the terms of the Investment Management Agreement, ensuring that they follow good industry practice, are competitive and are in the best interests of shareholders. The Committee monitors the Investment Manager's compliance with the terms of the Investment Management Agreement and the Investment Manager's performance. The Committee also reviews the services and performance of the Company's other third-party service providers. A review of the Investment Manager and the other service providers undertaken during the year concluded that the services provided to the Company were satisfactory and that the Agreements entered into with them were operating in the best interests of the shareholders.

Nomination Committee

The Nomination Committee comprises the whole Board and convenes to undertake the annual appraisal of the performance of the Board, its Committees and the Directors and, if agreed, to propose the re-election of the Directors, each of whom will retire at the Annual General Meeting. It also meets to consider the appointment of new Directors to the Board. Candidates for nomination may be sourced from outside the Company using third party search and selection services as well as potential candidates known to Directors through their extensive knowledge of the industry.

The Board has agreed to follow the recommendations of the AIC Code Principle 3 that the Directors of FTSE 350 companies should be subject to annual re-election by shareholders. Accordingly, at the forthcoming AGM, all of the Directors of the Board will retire and seek re-election.

Audit Committee

The Audit Committee meets at least twice each year and comprises the whole Board, being independent Directors. All members of the Committee have recent and relevant financial experience. The Audit Committee has set out a formal Report on pages 58 and 59 of the Annual Accounts.

Stewardship Policy

In principle, the Board delegates investee company communication and voting to the Investment Manager, to be managed as part of the investment management process. The Board has reviewed the Investment Manager's Stewardship Policy, which includes its Corporate Governance and Voting Guidelines, and is published on the Investment Manager's web-site: www.assetvalueinvestors.com.

Anti-Bribery and Corruption Policy

The Company has adopted an Anti-Bribery and Corruption Policy and has reviewed the statements regarding compliance with the Bribery Act 2010 by the Company's Investment Manager and key service providers. These statements are reviewed regularly by the Management Engagement Committee.

Statement of Directors' Responsibilities

The Directors are responsible for preparing the Annual Report and the Group and Company financial statements in accordance with applicable United Kingdom law and regulations. Company law requires the Directors to prepare Group and Company financial statements for each financial year. Under that law they are required to prepare Group financial statements in accordance with those International Financial Reporting Standards as adopted by the EU (IFRS) and have elected to prepare the parent Company financial statements on the same basis. They are also responsible for ensuring that the Annual Report includes information required by the Rules of the UK Listing Authority.

The Group and Company financial statements are required by law and IFRS to present fairly the financial position of the Group and Company and the financial performance and cash flows of the Group and Company for the relevant period. The Companies Act 2006 (the Act) provides, in relation to such financial statements, that references in the relevant part of the Act to financial statements giving a true and fair view are references to their achieving a fair presentation. In preparing the Group and Company financial statements the Directors are required to:

·  select suitable accounting policies and apply them consistently in accordance with IAS 8 Accounting Policies, Changing in Accounting Estimates and Errors;

·  make judgements and estimates which are reasonable and prudent;

·  state whether the financial statements have been prepared in compliance with IFRS, subject to any material departures disclosed and explained therein;

·  provide additional disclosures where compliance with the specific requirements of IFRS are considered to be insufficient to enable users to understand the impact of particular transactions, events and conditions on the financial position and performance; and

·  prepare financial statements on a going concern basis unless it is inappropriate to presume that the Group or Company will continue in business.

· 

Financial statements of the Company are published on the Company's website at www.british-empire.co.uk. The Directors are responsible for ensuring the maintenance and integrity of the information relating to the Company published on this website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

The Directors are also responsible for ensuring that the Company complies with the provisions of the Listing Rules and the Disclosure Rules and Transparency Rules of the UK Listing Authority which, with regard to corporate governance, require the Company to disclose how it has applied the principles, and complied with the provisions, of the corporate governance code applicable to the Company.

Disclosure of information to the Auditor

The Directors who held office at the date of approval of the Report of the Directors confirm that, so far as they are aware, there is no relevant audit information of which the Company's Auditor is unaware; and each Director has taken all of the steps that he ought to have taken as a Director to make himself aware of any relevant audit information and establish that the Company's Auditor is aware of that information.

Going Concern

The Directors have carefully reviewed the Group's current financial resources and the projected expenses of the Group for the next 12 months. On the basis of that review and as the majority of net assets are securities which are traded on recognised stock exchanges, the Directors are satisfied that the Company's resources are adequate for continuing in business for the foreseeable future and that it is appropriate to prepare the Group's financial statements on a going concern basis.

Declaration

The Directors listed on pages 24 and 25, being the persons responsible, hereby confirm to the best of their knowledge:

·  that the financial statements have been prepared in accordance with

applicable accounting standards and give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group;

·  that in the opinion of the Board, the Annual Report and Accounts taken as a whole, is fair, balanced and understandable and it provides the information necessary to assess the Company's performance, business model and strategy; and

·  the Strategic Report and the Investment Manager's Review include a fair review of the development and performance of the business and the position of the Group together with a description of the principal risks and uncertainties that the Group faces.

By Order of the Board

Phoenix Administration Services Limited Corporate Secretary

11 November 2013

Registered Office: Springfield Lodge Colchester Road Chelmsford, Essex CM2 5PW

Consolidated Statement of Comprehensive Income

of the Group for the year ended 30 September 2013

		2013 Revenue return	2013 Capital return	2013 Total	2012 Revenue return	2012 Capital return	2012 Total
	Notes	£'000	£'000	£'000	£'000	£'000	£'000
Income
Investment income	2	28,796	-	28,796	30,865	-	30,865
Gains on investments held at fair value	8	-	80,029	80,029	-	55,533	55,533
Unclaimed distribution monies		-	-	-	-	52	52
Losses on Equities Index Unsecured Loan
Stock 2013 held at fair value		-	(1,166)	(1,166)	-	(243)	(243)
Exchange gains/(losses) on currency balances		-	776	776	-	(1,242)	(1,242)
		28,796	79,639	108,435	30,865	54,100	84,965
Expenses
Investment management fee	3	(2,353)	(2,353)	(4,706)	(2,200)	(2,200)	(4,400)
Other expenses (including irrecoverable VAT)	3	(1,332)	(144)	(1,476)	(1,235)	(58)	(1,293)
Profit before finance costs and tax		25,111	77,142	102,253	27,430	51,842	79,272
Finance costs	4	(1,360)	(7)	(1,367)	(1,486)	(7)	(1,493)
Profit before taxation		23,751	77,135	100,886	25,944	51,835	77,779
Taxation	5	(1,976)	8	(1,968)	(1,894)	9	(1,885)
Profit for the year		21,775	77,143	98,918	24,050	51,844	75,894
Earnings per Ordinary Share	7	13.90p	49.24p	63.14p	15.06p	32.46p	47.52p

The Company did not have any income or expense that was not included in consolidated profit for the year. Accordingly, the "Profit for the year" is also the "Total Comprehensive Income for the year" for the Company, as defined in IAS 1 (revised) and no separate Statement of Comprehensive Income for the Company has been presented.

The total column of this statement is the profit and loss account of the Group. The revenue return and capital return columns are supplementary to this and are prepared under the guidance published by the Association of Investment Companies.

All items in the above statement derive from continuing operations.

All income is attributable to the equity holders of British Empire Securities and General Trust plc. There are no minority interests.

The accompanying notes are an integral part of the financial statements.

Consolidated and Company Statements of Changes in Equity

for the year ended 30 September 2013

	Ordinary share capital	Capital redemption reserve	Share premium	Capital reserve	Merger reserve	Revenue reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Group
For the year ended 30 September 2013
Balance as at 30 September 2012	16,001	2,934	28,078	664,536	41,406	38,270	791,225
Ordinary Shares bought back and held in treasury	-	-	-	(25,193)	-	-	(25,193)
Total Comprehensive Income for the year	-	-	-	77,143	-	21,775	98,918
Ordinary dividends paid (see note 6)	-	-	-	-	-	(14,972)	(14,972)
Special dividends paid (see note 6)	-	-	-	-	-	(5,523)	(5,523)
Balance as at 30 September 2013	16,001	2,934	28,078	716,486	41,406	39,550	844,455
For the year ended 30 September 2012
Balance as at 30 September 2011	16,008	2,927	28,078	620,938	41,406	31,028	740,385
Ordinary Shares bought back and cancelled	(7)	7	-	(264)	-	-	(264)
Ordinary Shares bought back and held in treasury	-	-	-	(7,982)	-	-	(7,982)
Total Comprehensive Income for the year	-	-	-	51,844	-	24,050	75,894
Ordinary dividends paid (see note 6)	-	-	-	-	-	(13,607)	(13,607)
Special dividend paid (see note 6)	-	-	-	-	-	(3,201)	(3,201)
Balance as at 30 September 2012	16,001	2,934	28,078	664,536	41,406	38,270	791,225
Company
For the year ended 30 September 2013
Balance as at 30 September 2012	16,001	2,934	28,078	666,301	41,406	36,505	791,225
Ordinary Shares bought back and held in treasury	-	-	-	(25,193)	-	-	(25,193)
Total Comprehensive Income for the year	-	-	-	77,140	-	21,778	98,918
Ordinary dividends paid (see note 6)	-	-	-	-	-	(14,972)	(14,972)
Special dividends paid (see note 6)	-	-	-	-	-	(5,523)	(5,523)
Balance as at 30 September 2013	16,001	2,934	28,078	718,248	41,406	37,788	844,455
For the year ended 30 September 2012
Balance as at 30 September 2011	16,008	2,927	28,078	622,706	41,406	29,260	740,385
Ordinary Shares bought back and cancelled	(7)	7	-	(264)	-	-	(264)
Ordinary Shares bought back and held in treasury	-	-	-	(7,982)	-	-	(7,982)
Total Comprehensive Income for the year	-	-	-	51,841	-	24,053	75,894
Ordinary dividends paid (see note 6)	-	-	-	-	-	(13,607)	(13,607)
Special dividend paid (see note 6)	-	-	-	-	-	(3,201)	(3,201)
Balance as at 30 September 2012	16,001	2,934	28,078	666,301	41,406	36,505	791,225

The accompanying notes are an integral part of the financial statements.

Consolidated and Company Balance Sheets

as at 30 September 2013

		Company		Group
		2013	2012	2013	2012
	Notes	£'000	£'000	£'000	£'000
Non-current assets
Investments held at fair value through profit or loss	8	848,366	809,196	846,354	807,181
Current assets
Other receivables	10	8,349	5,776	8,349	5,776
Cash and cash equivalents		7,124	7,778	7,126	7,780
		15,473	13,554	15,475	13,556
Total assets		863,839	822,750	861,829	820,737
Current liabilities
Other payables	11	(4,437)	(9,539)	(2,427)	(7,526)
Equities Index Unsecured Loan Stock 2013 held at fair value through profit or loss	12	-	(7,038)	-	(7,038)
Total assets less current liabilities		859,402	806,173	859,402	806,173
Non-current liabilities
81/8 per cent Debenture Stock 2023	12	(14,928)	(14,921)	(14,928)	(14,921)
Provision for deferred tax	13	(19)	(27)	(19)	(27)
Net assets		844,455	791,225	844,455	791,225
Equity attributable to equity Shareholders
Ordinary share capital	14	16,001	16,001	16,001	16,001
Capital redemption reserve	15	2,934	2,934	2,934	2,934
Share premium	15	28,078	28,078	28,078	28,078
Capital reserve	15	718,248	666,301	716,486	664,536
Merger reserve	15	41,406	41,406	41,406	41,406
Revenue reserve	15	37,788	36,505	39,550	38,270
Total equity	16	844,455	791,225	844,455	791,225
Net asset value per Ordinary Share - basic	16	551.97p	500.47p	551.97p	500.47p
Number of shares in issue excluding Treasury		152,988,888	158,094,985	152,988,888	158,094,985

The financial statements on pages 36 to 57 were approved by the Board of Directors and were authorised for issue on 11 November 2013 and were signed on its behalf by:

PSS Macpherson Chairman

The accompanying notes are an integral part of the financial statements.

Registered in England & Wales No. 28203

Consolidated and Company Cash Flow Statements

for the year ended 30 September 2013

		Company		Group
	Notes	2013 £'000	2012 £'000	2013 £'000	2012 £'000
Reconciliation of profit before taxation to net cash inflow from operating activities
Profit before taxation		100,886	77,779	100,886	77,779
Losses on Equities Index Unsecured Loan Stock 2013 held at fair value		1,166	243	1,166	243
Realised exchange (gains)/losses on currency balances		(776)	1,242	(776)	1,242
Gains on investments held at fair value through profit or loss		(80,026)	(55,530)	(80,029)	(55,533)
Purchases of investments		(711,162)	(556,735)	(711,162)	(556,735)
Sales of investments		744,465	563,194	744,465	563,194
(Increase)/decrease in other receivables		(1,620)	733	(1,620)	733
Increase in creditors		442	925	445	927
Taxation		(920)	(3,444)	(920)	(3,443)
Amortisation of Debenture issue expenses		7	7	7	7
Net cash inflow from operating activities		52,462	28,414	52,462	28,414
Financing activities
Dividends paid	6	(20,495)	(16,808)	(20,495)	(16,808)
Payments for Ordinary Shares bought back and cancelled		-	(264)	-	(264)
Payments for Ordinary Shares bought back and held in Treasury		(25,193)	(7,982)	(25,193)	(7,982)
Redemption of Equities Index Unsecured Loan Stock 2013	12	(8,204)	-	(8,204)	-
Cash outflow from financing activities		(53,892)	(25,054)	(53,892)	(25,054)
(Decrease)/increase in cash and cash equivalents		(1,430)	3,360	(1,430)	3,360
Exchange movements		776	(1,242)	776	(1,242)
Change in cash and cash equivalents		(654)	2,118	(654)	2,118
Cash and cash equivalents at beginning of year		7,778	5,660	7,780	5,662
Cash and cash equivalents at end of year	17	7,124	7,778	7,126	7,780

The accompanying notes are an integral part of the financial statements.

Notes to the Financial Statements

1. Accounting policies

The financial statements of the Group and the Company have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union. These comprise standards and interpretations approved by the International Accounting Standards Board (IASB), together with interpretations of the International Accounting Standards and Standing Interpretations Committee approved by the International Accounting Standards Committee (IASC) that remain in effect, to the extent that IFRS have been adopted by the European Union.

The functional currency of the Group is pounds sterling because this is the currency of the primary economic environment in which the Group operates. The financial statements are also presented in pounds sterling rounded to the nearest thousand, except where otherwise indicated.

(a) Basis of preparation

The principal accounting policies adopted are set out below. Where presentational guidance set out in the Statement of Recommended Practice (the SORP) for investment trusts issued by the Association of Investment Companies (the AIC) in January 2009 is consistent with the requirements of IFRS, the Directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP.

(b) Adoption of new and revised standards

At the date of authorisation of these financial statements, the following Standards which have not been applied in these financial statements were in issue but were not yet effective (and in some cases had not yet been adopted by the EU):

International Accounting Standards (IAS/IFRS)		Effective for periods beginning on or after
IAS 27	Reissued as IAS27 Consolidated and Separate Financial Statements 9 (as amended in 2011)	1 January 2014
IAS 28	Investments in Associates and Joint Ventures	1 January 2014
IFRS 9	Financial Instruments: Classification and Measurement	1 January 2015
IFRS 10	Consolidated Financial Statements	1 January 2014
IFRS 11	Joint Arrangements	1 January 2014
IFRS 12	Disclosure of Interests in Other Entities	1 January 2014
IFRS 13	Fair Value Measurement	1 January 2013

The Company does not believe that there will be a material impact on the consolidated financial statements from the adoption of these standards/ interpretations.

(c) Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiary) made up to 30 September each year. Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. All intra-group transactions, balances, income and expenses are eliminated on consolidation.

As permitted by Section 408 of the Companies Act 2006 no Company Statement of Comprehensive Income has been prepared.

(d) Presentation of Statement of Comprehensive Income

In order to reflect better the activities of an investment trust company and in accordance with guidance issued by the AIC, supplementary information which analyses the Statement of Comprehensive Income between items of a revenue and capital nature has been presented alongside the Statement of Comprehensive Income. The Company is registered as a UK Investment Company under Section 833 of the Companies Act 2006. Additionally, net revenue is the measure which the Directors believe appropriate in assessing the Company's compliance with certain requirements set out in Section 1159 of the Corporation Tax Act 2010.

(e) Use of estimates

The preparation of financial statements requires the Group to make estimates and assumptions that affect items reported in the Group and Company balance sheet and Consolidated Statement of Comprehensive Income and the disclosure of contingent assets and liabilities at the date of the financial statements. Although these estimates are based on best knowledge of current facts, circumstances and, to some extent, future events and actions, the Group's actual results may ultimately differ from those estimates, possibly significantly. Unquoted equity investments that the Group holds are not traded and, as such, the prices are more uncertain than those more widely traded securities. The unquoted investments are valued by reference to valuation techniques approved by the Directors and in accordance with the International Private Equity and Venture Capital Valuation (IPEVC) guidelines as described in note 1(i).

(f) Income

Dividends receivable on equity shares are recognised as revenue for the year on an ex-dividend basis. Where an ex-dividend date is not available, dividends received on or before the year end are treated as revenue for the year. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that discounts estimated future cash receipts through the expected life of the financial asset to the asset's net carrying amount. Interest receivable from cash and short term deposits is accrued to the end of the year.

(g) Expenses

All expenses and interest payable are accounted for on an accruals basis. Expenses have been charged to revenue except as follows:

·  The base management fee has been allocated 50% to revenue and 50% to capital within the Consolidated Statement of Comprehensive Income. The performance element of the management fee is charged 100% to capital within the Consolidated Statement of Comprehensive Income;

·  Expenses which are incidental to the purchase or sale of an investment are recognised within the Consolidated Statement of Comprehensive Income as a capital item;

·  Expenses are presented as capital where a connection with the maintenance or enhancement of the value of investments can be demonstrated.

· 

(h)   Taxation

The tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on the taxable profit for the year. Taxable profit differs from profit before tax as reported in the Consolidated Statement of Comprehensive Income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that were enacted or substantially enacted at the balance sheet date.

In line with the recommendations of the SORP, the allocation method used to calculate tax relief on expenses presented against capital returns in the supplementary information in the Consolidated Statement of Comprehensive Income is the "marginal basis". Under this basis, if taxable income is capable of being offset entirely by expenses presented in the revenue return column of the Consolidated Statement of Comprehensive Income, then no tax relief is transferred to the capital return column.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit and is accounted for using the balance sheet liability method. Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Deferred tax is charged or credited in the Consolidated Statement of Comprehensive Income, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with within equity.

Investment trusts which have approval as such under Section 1158 of the Corporation Tax Act 2010 are not liable for taxation on capital gains.

(i)     Investments held at fair value through profit or loss

When a purchase or sale is made under a contract, the terms of which require delivery within the timeframe of the relevant market, the investments concerned are recognised or derecognised on the trade date.

In accordance with IFRS recognition and measurement principles, all of the Group's investments are classified as investments designated at fair value through profit or loss and are described in these financial statements as investments held at fair value.

All investments are designated as held at fair value upon initial recognition and are measured at subsequent reporting dates at fair value, which is either the bid price or the last traded price, depending on the convention of the exchange on which the investment is quoted.

Fair values for unquoted investments, or investments for which the market is inactive, are established by using various valuation techniques in accordance with the IPEVC guidelines. These may include recent arm's length market transactions, the current fair value of another instrument which is substantially the same, discounted cash flow analysis and option pricing models. Where there is a valuation technique commonly used by market participants to price the instrument and that technique has been demonstrated to provide reliable estimates of prices obtained in actual market transactions, that technique is utilised. Where no reliable fair value can be estimated for such instruments, they are carried at cost subject to any provision for impairment.

Investments held by the subsidiary undertaking are classified as "held for trading" and are valued at fair value in accordance with the policies above for listed and unlisted holdings. Profits or losses on investments "held for trading" are taken to revenue.

Foreign exchange gains and losses for fair value through profit or loss on investments are included within the changes in their fair value.

(j)    Movements in fair value

Changes in fair value of investments not designated as held for trading are recognised in the Consolidated Statement of Comprehensive Income as a capital item. On disposal, realised gains and losses are also recognised in the Consolidated Statement of Comprehensive Income as capital items.

(k)  Cash and cash equivalents

Cash comprises cash in hand and at the bank and short term deposits. Cash equivalents are short term, highly liquid investments that are readily convertible to known amounts of cash and are subject to an insignificant risk of changes in value.

(l)   Dividends payable

Interim and final dividends are recognised in the period in which they are paid.

(m)  Foreign currency translation

Transactions in currencies other than sterling are recorded at the rates of exchange prevailing on the date of the transaction. Monetary items that are fair valued and are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Foreign exchange differences arising on translation are recognised in the Consolidated Statement of Comprehensive Income.

(n)  Equities Index Unsecured Loan Stock 2013 (Index Stock)

In accordance with IFRS recognition and measurement principles, the Index Stock is classified as a financial liability designated at fair value through profit or loss and is valued at the closing offer price. Changes in its fair value are recognised in the Consolidated Statement of Comprehensive Income as a capital item. On cancellation, gains and losses are also recognised through the Consolidated Statement of Comprehensive Income as capital items. Interest paid on the Index Stock is charged to the Consolidated Statement of Comprehensive Income as a revenue item.

(o)  Finance costs

Finance costs are accounted for on an effective interest basis and are recognised through the Consolidated Statement of Comprehensive Income as revenue items. This does not comply with the Statement of Recommended Practice for Financial Statements of Investment Trust Companies, which would require the finance costs of the Debenture Stock and the Index Stock to be allocated between revenue and capital in the same proportions as the Management Fee. However, the Directors consider that the treatment adopted, which is consistent with previous years, is the most appropriate given the liquidity of the Company and the nature of the Index Stock. Had the Company complied with the Statement of Recommended Practice, the result would have been an increase in revenue of £672,000.

(p)  Debenture pricing

The 8¹/8 per cent Debenture Stock 2023 is valued at amortised cost under the effective interest method and secured by a floating charge over all assets of the Company. Costs in relation to arranging the debt finance of the 8¹/8 per cent Debenture Stock 2023 have been capitalised and are amortised over the term of the finance. Further details of the Debenture Stock are disclosed in notes 12 and 18.

(q)  Capital Reserve

Capital reserve - other - The following are taken to this reserve:

·  Gains and losses on the disposal of investments;

·  Gains and losses on the Index Stock;

·  Amortisation of issue expenses;

·  Costs of share buybacks;

·  Exchange difference of a capital nature; and

·  Expenses, together with the related taxation effect, allocated to this reserve in accordance with the above policies.

Capital reserve - investment holding gains - The following are taken to this reserve:

·  Increase and decrease in the valuation of investments held at the year end.

(r) Segmental reporting

The Directors are of the opinion that the Group is engaged in a single segment of business, being the Investment business. Consequently, no business segmental analysis is provided.

2.   Income					2013 £'000	2012 £'000
Income from investments
Listed investments					28,709	30,849
Other income
Deposit interest					15	16
Interest received on Norwegian withholding tax reclaims					66	-
Underwriting commission					6	-
					87	16
Total income					28,796	30,865
Income from investments:
Equity securities					28,489	30,578
Fixed interest securities					220	271
					28,709	30,849
Total income comprises:
Dividends					28,489	30,578
Interest					301	287
Underwriting commission					6	-
					28,796	30,865
3.   Management fee and other expenses	2013	2013		2012	2012
	Revenue	Capital	2013	Revenue	Capital	2012
	return	return	Total	return	return	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Management fee†	2,353	2,353	4,706	2,200	2,200	4,400
Performance fee	-	-	-	-	-	-
	2,353	2,353	4,706	2,200	2,200	4,400
Other expenses:
Directors' emoluments - fees	132	-	132	129	-	129
Auditor's remuneration: - audit	24	-	24	25	-	25
Auditor's remuneration: - taxation	12	-	12	16	-	16
Auditor's remuneration: - other services to the Group	17	-	17	7	-	7
Marketing costs	204	-	204	166	-	166
Printing and postage costs	80	-	80	79	-	79
Registrar fees	100	-	100	108	-	108
Sub-custodian fees	275	-	275	264	-	264
Advisory and professional fees	149	-	149	111	-	111
Irrecoverable VAT	83	-	83	80	-	80
Other expenses	256	144*	400	250	58*	308
	1,332	144	1,476	1,235	58	1,293

†Net of the fee of £42,000 paid to Phoenix Administration Services Limited for company secretarial services, as set out on page 27.

*Other expenses charged to capital represent transaction fees incurred in relation to the share buy-backs which took place during the year.

For the year ended 30 September 2013, the fee calculated in accordance with the Investment Management Agreement amounted to 0.6%.

On 1 October 2013, a variation to the IMA was agreed. No further performance fees are payable following 30 September 2013 and any balance of under or over performance will be cancelled.

Details of the Investment Management Agreement and fees paid to the Investment Manager are contained in the Report of the Directors.

4.	Finance costs
		2013	2013			2012	2012
		Revenue	Capital		2013	Revenue	Capital	2012
		return	return		Total	return	return	Total
		£'000	£'000		£'000	£'000	£'000	£'000
	Overdraft interest	17	-		17	3	-	3
	Interest on other loans	1,343	-		1,343	1,483	-	1,483
	Amortisation of Debenture issue expenses*	-	7		7	-	7	7
	Total Finance Costs	1,360	7		1,367	1,486	7	1,493

*See note 12

5.	Taxation	2013		2013			2012			2012
		Revenue		Capital		2013	Revenue			Capital		2012
		return		return		Total	return			return		Total
		£'000		£'000		£'000	£'000			£'000		£'000
(a)	Analysis of charge in year
	Corporation tax	-		-		-	-			-		-
	Foreign Withholding tax	3,215		-		3,215	3,852			-		3,852
	Overseas tax reclaimable	(1,239)		-		(1,239)	(1,958)			-		(1,958)
	Total current tax for period (see note 5(b))	1,976		-		1,976	1,894			-		1,894
	Deferred tax	-		(8)		(8)	-			(9)		(9)
	Total deferred tax for year	-		(8)		(8)	-			(9)		(9)
	Total tax for year	1,976		(8)		1,968	1,894			(9)		1,885

(b)	Factors affecting current tax charge for the period
		2013	2012
		£'000	£'000
	Profit before taxation	100,886	77,779
	Corporation Tax at 23.52% * (2012: 25%)	23,728	19,445
	Effects of:
	- Losses on investments that are not taxable	(18,971)	(13,571)
	- Revaluation of Equities Index Unsecured Loan Stock 2013	7	7
	- Non-taxable UK dividends	-	(33)
	- Non-taxable overseas dividends	(6,701)	(7,612)
	- Overseas tax suffered	1,976	1,894
	- Movement in unutilised management expenses	6,434	1,764
	- Movement in deferred tax	(8)	(9)
	Total tax charge for the period (note 5 (a))	6,465	1,885

*Under the Finance Act 2012, the rate of Corporation Tax was lowered to 23% from 24% on 1 April 2013.  An average rate of  23.52% is applicable for the year ended 30 September 2013.

(c) Unrecognised tax losses

The Company has a tax loss of £27,351,000 carried forward at the balance sheet date which is available indefinitely for offset against future taxable profits. A deferred tax asset has not been recognised in respect of this tax loss as there is uncertainty over whether there will be sufficient future taxable profits against which this tax loss can be offset.

6.	Dividends	2013	2012
		£'000	£'000
	Amounts recognised as distributions to equity holders in the year:
	Final dividend for the year ended 30 September 2012 of 7.50p (2011: 6.50p) per Ordinary Share	11,836	10,406
	Special dividend for the year ended 30 September 2012 of 3.50p (2011: 2.00p) per Ordinary Share	5,523	3,201
	Interim dividend for the year ended 30 September 2013 of 2.00p (2012: 2.00p) per Ordinary Share	3,136	3,201
		20,495	16,808
	Set out below are the interim, final and special dividends paid or proposed on Ordinary Shares in respect of the financial year, which is the basis on which the requirements of Section 1159 of the Corporation Tax Act 2010 are considered.
	Interim dividend for the year ended 30 September 2013 of 2.00p (2012: 2.00p) per Ordinary Share	3,136	3,201
	Proposed final dividend for the year ended 30 September 2013 of 8.50p (2012: 7.50p) per Ordinary Share	12,924	11,857
	Proposed special dividend for the year ended 30 September 2013 of 2.50p (2012: 3.50p) per Ordinary Share	3,801	5,533
		19,861	20,591

International Accounting Standard (IAS) 10 "Events after the Reporting Period" requires dividends to be recognised in the period in which they are paid or approved by shareholders.

7.	Earnings per Ordinary Share	2013	2013	2013	2012	2012	2012
		Revenue	Capital	Total	Revenue	Capital	Total
	Basic	13.9	49.24	63.14	15.06	32.46	47.52

The total basic earnings per Ordinary Share is based on Group net profit for the financial year of £98,918,000 (2012: £75,894,000) and on 156,665,364 (2012: 159,727,619) Ordinary Shares, being the weighted average number of Ordinary Shares in issue (excluding shares in treasury) during the year.

The total basic earnings per Ordinary Share figures detailed above can be further analysed between revenue and capital, as below.

The basic revenue earnings per Ordinary Share is based on Group revenue after taxation for the financial year of £21,775,000 (2012: £24,050,000) and on 156,665,364 (2012: 159,727,619) Ordinary Shares, being the weighted average number of Ordinary Shares in issue (excluding shares in treasury) during the year.

The basic capital earnings per Ordinary Share is based on Group net profit for the financial year of £77,143,000 (2012: £51,844,000) and on 156,665,364 (2012: 159,727,619) Ordinary Shares, being the weighted average number of Ordinary Shares in issue (excluding shares in treasury) during the year.

8.	Investments held at fair value through profit or loss
		Listed investments	Unlisted investments	Group total investments	Investment in subsidiary	Company total investments
		£'000	£'000	£'000	£'000	£'000
(a)	Securities
	Opening book cost	757,807	4,234	762,041	250	762,291
	Opening investment holding gains	44,882	258	45,140	1,765	46,905
	Opening fair value	802,689	4,492	807,181	2,015	809,196
	Movement in the year:
	Transfer of stocks from listed to unlisted during the year	(5,296)	5,296	-	-	-
	Purchases at cost:
	Equities	341,971	-	341,971	-	341,971
	Bonds	363,647	-	363,647	-	363,647
	Sales - proceeds:
	Equities	(341,245)	-	(341,245)	-	(341,245)
	Bonds	(405,229)	-	(405,229)	-	(405,229)
	-realised gains on sales	56,900	-	56,900	-	56,900
	Movement in investment holding gains/(losses)	26,734	(3,605)	23,129	(3)	23,126
	Closing fair value	840,171	6,183	846,354	2,012	848,366
	Closing book cost	768,555	9,530	778,085	250	778,335
	Closing investment holding gains	71,616	(3,347)	68,269	1,762	70,031
	Closing fair value	840,171	6,183	846,354	2,012	848,366

	Group	Company
	£'000	£'000
(b)        Gains on investments
Gains on sales of securities based on historical cost	56,900	56,900
Movement in investment holding gains for the year	23,129	23,126
Net gains on investments	80,029	80,026

(c)            Transaction costs

Investment transaction costs on purchases and sales of investments during the year to 30 September 2013 amounted to £778,000 and £626,000 respectively (2012: £543,000 and £667,000 respectively).

9.	Subsidiary Undertaking
	The Group consists of the Company and its one subsidiary, BEST Securities Limited.
	Name of undertaking	Principal activity	Country of incorporation and operation	Description of shares held	Proportion of nominal value of issued shares and voting rights held by:
					Company (%)	Group (%)
	BEST Securities Limited	Dealing Subsidiary	England	Ordinary	100	100

10.	Other receivables	Company		Group
		2013	2012	2013	2012
		£'000	£'000	£'000	£'000
	Sales for future settlement	3,305	1,296	3,305	1,296
	Overseas tax recoverable *	2,640	3,669	2,640	3,669
	Prepayments and accrued income	2,403	782	2,403	782
	VAT recoverable	1	29	1	29
		8,349	5,776	8,349	5,776

*This relates to withholding tax in a number of countries which is in the process of being reclaimed and which the Company expects to receive in due course.

11.	Other payables	Company		Group
		2013	2012	2013	2012
		£'000	£'000	£'000	£'000
	Purchases for future settlement	90	5,634	90	5,634
	Amounts owed to subsidiary undertakings	2,013	2,016	-	-
	Other creditors	2,334	1,889	2,337	1,892
		4,437	9,539	2,427	7,526

12.	Current and non-current liabilities: Debenture Stock and Equities Index Unsecured Loan Stock		Group & Company
		2013		2012
		£'000		£'000
	8 1/8 per cent Debenture Stock 2023	14,928		14,921
	Index Stock	-		7,038
		14,928		21,959

The movement on the 8¹/8 per cent Debenture Stock 2023 represents the amortisation of issue expenses. The market value of the Debenture Stock as at 30 September 2013 was £18.5 million (2012: £18.5 million). The effect on the net asset value of deducting Debenture Stocks at market value rather than par is disclosed in note 18.

The mid-market price of the 8¹/8 per cent Debenture Stock 2023 as at 30 September 2013 was 123.50p (2012: 123.50p). The Debenture Stock is secured by a floating charge over all of the assets of the Company. Further information on the Debenture Stock is set out on page 54.

The Company did not buy back any units of the Index Stock for cancellation during the year. In accordance with the provisions of the Trust Deed governing the Index Stock, the Company repaid the Capital Value and the final interest amount for the quarter ending 31 March 2013 on 15 April 2013 to holders on the register at the close of business on 28 March 2013.

13.	Provision for deferred tax	Group & Company
		2013	2012
		£'000	£'000
	Provided
	In respect of the origination and reversal of temporary differences	(8)	(9)
	The movement in the provision for deferred taxation is as follows:
	Opening balance	27	36
	Charge to capital account	(8)	(9)
	Closing balance	19	27

		2013	2012
		£'000	£'000
	The deferred tax provision is made up as follows:
	Equities Index Unsecured Loan Stock 2013	19	27

14.	Called-up share capital (Group and Company)	Ordinary Shares of 10p each
		Shares	£'000
	Authorised:
	Balance throughout the year	245,000,000	24,500
	Allocated, called up and fully paid:
	Balance at beginning of year	160,014,089	16,001
	Cancellation of Ordinary Shares	-	-
	Balance at end of year	160,014,089	16,001
	Treasury Shares:
	Balance at beginning of year	(1,919,104)	-
	Buyback of ordinary Shares into treasury	(5,106,097)	-
	Balance at end of year	(7,025,201)	-
	Total Ordinary share capital excluding treasury shares	152,988,888	16,001

During the year 5,106,097 (2012: 1,919,104) Ordinary Shares were bought back and placed in treasury for an aggregate consideration of £25,192,951 (2012: £7,982,558) and no Ordinary Shares were bought back and cancelled (2012: 66,000 for an aggregate consideration of £263,875).

15	Reserves
		Capital Redemption Reserve	Share premium account		Capital reserve			Merger reserve	Revenue reserve
		£'000	£'000		£'000			£'000	£'000
	Group
	At 1 October 2012	2,934	28,078		664,536			41,406	38,270
	Ordinary shares bought back and cancelled	-	-		-			-	-
	Ordinary shares bought back and held in treasury	-	-		(25,193)			-	-
	Exchange losses	-	-		776			-	-
	Gains on investments held at fair value	-	-		80,029			-	-
	Losses on Equities Index Unsecured Loan Stock 2013	-	-		(1,166)			-	-
	Amortisation of debenture issue expenses	-	-		(7)			-	-
	Management fee charged to capital	-	-		(2,353)			-	-
	Capital charges	-	-		(144)			-	-
	Deferred tax charge to capital	-	-		8			-	-
	Ordinary dividends paid	-	-		-			-	(14,972)
	Special dividends paid	-		-		-				(5,523)
	Revenue profit for the year	-		-		-				21,775
	At 30 September 2013	2,934	28,078		716,486		41,406		39,550

	Capital Redemption Reserve	Share premium account	Capital reserve	Merger reserve	Revenue reserve
	£'000	£'000	£'000	£'000	£'000
Company
At 01 October 2012	2,934	28,078	666,301	41,406	36,505
Ordinary shares bought back and cancelled	-	-	-	-	-
Ordinary shares bought back and held in treasury	-	-	(25,193)	-	-
Exchange losses	-	-	776	-	-
Gains on investments held at fair value	-	-	80,026	-	-
Losses on Equities Index Unsecured Loan Stock 2013	-	-	(1,166)	-	-
Amortisation of debenture issue expenses	-	-	(7)	-	-
Management fee charged to capital	-	-	(2,353)	-	-
Capital charges	-	-	(144)	-	-
Unclaimed distributions	-	-	-	-	-
Deferred tax charge to capital	-	-	8	-	-
Ordinary dividends paid	-	-	-	-	(14,972)
Special dividends paid	-	-	-	-	(5,523)
Revenue profit for the year	-	-	-	-	21,778
At 30 September 2013	2,934	28,078	718,248	41,406	37,788

16.  Net asset value

The net asset value per share and the net asset value attributable to the Ordinary Shares at the year end are calculated in accordance with their entitlements in the Articles of Association and were as follows:

	Net asset value per Share attributable
	Group and Company
	2013	2012
	p	p
Ordinary Shares (basic)	551.97	500.47
	Net asset value attributable
	Group and Company
	2013	2012
	p	p
Ordinary Shares (basic)	844,455	791,225

17.  Analysis of cash and cash equivalents at end of year

	At			At
	1 October	Cash	Exchange	30 September
	2012	flow	movement	2013
	£'000	£'000	£'000	£'000
Group
Cash at bank and on deposit	7,780	(1,430)	776	7,126
Company
Cash at bank and on deposit	7,778	(1,430)	776	7,124

18.  Financial instruments and capital disclosures

Risk management policies and procedures

The investment objective of the Group is to achieve capital growth through a focused portfolio of investments, particularly in companies whose share prices stand at a discount to estimated underlying net asset value.

The Group's financial instruments comprise equity and fixed interest investments, cash balances and borrowings. The Group makes use of borrowings to achieve improved performance in rising markets. The risk of borrowings may be reduced by raising the level of cash balances or fixed interest investments held.

The Group may also enter into derivative transactions which comprise forward foreign exchange contracts (the purpose of which is to manage currency risk arising from the Group's investing activities) and quoted options on indices appropriate to sections of the portfolio (the purpose of which is to provide protection against falls in the capital values of the holdings). The Group has not used derivatives during the current financial year as part of its investment strategy.

The Board sets out its investment policies on page 26.

The Board and Investment Manager consider and review the risks inherent in managing the Group's assets which are detailed below.

Currency exposure	Sterling	Euro	CAD$	US$	Other	Total
	£'000	£'000	£'000	£'000	£'000	£'000
At 30 September 2013
Investments held at fair value through profit or loss that are monetary items	86,865	-	-	43,183	-	130,048
Other receivables	1,035	1,085	3,535	309	2,385	8,349
Cash and cash equivalents	6,688	-	1	-	437	7,126
Other payables	(2,337)	-	-	(90)	-	(2,427)
81/8% Debenture Stock 2023	(14,928)	-	-	-	-	(14,928)
Provision for deferred tax	(19)	-	-	-	-	(19)
Currency exposure on net monetary items	77,304	1,085	3,536	43,402	2,822	128,149
Investments held at fair value through profit or loss that are equities	59,762	150,054	107,028	132,920	266,542	716,306
Total net currency exposure	137,066	151,139	110,564	176,322	269,364	844,455

	Sterling	Euro	JPY	US$	Other	Total
	£'000	£'000	£'000	£'000	£'000	£'000
At 30 September 2012
Investments held at fair value through profit or loss that are monetary items	144,403	-	-	29,718	-	174,121
Other receivables	265	2,210	2,565	332	404	5,776
Cash and cash equivalents	7,612	1	-	-	167	7,780
Other payables	(1,739)	-	(5,217)	(567)	(3)	(7,526)
81/8% Debenture Stock 2023	(14,921)	-	-	-	-	(14,921)
Equities Index Unsecured Loan Stock 2013	(7,038)	-	-	-	-	(7,038)
Provision for deferred tax	(27)	-	-	-	-	(27)
Currency exposure on net monetary items	128,555	2,211	(2,652)	29,483	568	158,165
Investments held at fair value through profit or loss that are equities	52,248	158,062	111,284	97,584	213,882	633,060
Total net currency exposure	180,803	160,273	108,632	127,067	214,450	791,225

The value of the Group's assets and the total return earned by the Company's shareholders can be significantly affected by foreign exchange rate movements as some of the Group's assets are denominated in currencies other than sterling, the currency in which the Company's financial statements are prepared. It is not the Group's usual policy to hedge this risk. Income denominated in foreign currencies is converted to sterling upon receipt.

During the year, the Company did not enter into any forward foreign exchange contracts. There were no open forward foreign exchange contracts as at 30 September 2013.

Over the year sterling strengthened against the Group's principal investing currencies, the US Dollar by 0.28% (2012: 3.66%), the Canadian Dollar by 4.76% (2012: weakened by 2.12%), but weakened against the Group's remaining principal currency, the Euro by 4.69% (2012: strengthened by 8.10%).

A 5% rise or decline of sterling against foreign currency denominated (i.e. non sterling) assets held at the year end would have decreased/increased the total return and net asset value by £35,369,000 (2012: £30,521,000).

Interest rate risk

Interest rate movements may affect:

·  the fair value of investments in fixed-interest rate securities;

·  the level of income receivable on cash deposits;

·  the interest payable on variable rate borrowings; and

·  the fair value of the Company's long term debt in the event that the debt is repaid before maturity.

· 

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 decisions. The Company, generally, does not hold significant cash balances, with short term borrowings being used when required.

The debenture stock, issued by the Company as a planned level of gearing, pays a fixed rate of interest and is carried in the Company's balance sheet at amortised cost rather than at fair value. Hence movements in interest rates will not affect equity but may have an impact on the Company's share price and discount/premium, which is not likely to be material. Further information on the debenture stock is shown in note 12.

The exposure at 30 September of financial assets and financial liabilities to interest rate risk is shown by reference to:

· floating interest rates - when the interest rate is due to be re-set;

· fixed interest rates - when the financial instrument is due for repayment.

	At 30 September 2013 £'000	At 30 September 2012 £'000
Exposure to floating interest rates: Cash and cash equivalents	7,126	7,780

If the above level of cash was maintained for a year, a 1% increase/decrease in LIBOR would increase/decrease the revenue return and net assets by £71,000 (2012: £78,000).

		£'000
Exposure to fixed interest rates: Investments held at fair value through profit or loss 8 1/8 per cent Debenture Stock 2023 (fair value based on market prices)		130,048 (18,525)
		111,523

The maturity dates and the nominal interest rates on the investments held at fair value through profit or loss are shown in the portfolio statement on page 11. The weighted average effective interest rate on these investments is 0.20% (2012: 0.18%).

The Company's fixed income portfolio at the year end was valued at £130,048,000 (2012: £174,121,000). A 1% increase/decrease in relevant market interest rates would be expected to decrease/increase the portfolios value by approximately £378,000 (2012: £351,000), all other factors being equal.

The fair value of the Company's debenture stock at the year end was £18,525,000 (2012: £18,525,000). A 1% increase/decrease in the applicable interest rates would be expected to decrease/increase the fair values of the debenture stock by approximately £1,208,000 (2012: £1,287,000), all other factors being equal.

Market price risk

The management of market price risk is part of the fund management process and is typical of equity investment. The portfolio is managed with an awareness of the effects of adverse price movements through detailed and continuing analysis with the objective of maximising overall returns to shareholders. Further information on the investment portfolio is set out on pages 10 and 11.

If the fair value of the Group's investments at the year end increased or decreased by 10% then it would have had an effect on the Group's capital return and equity equal to £84,635,000 (2012: 80,718,000).

Liquidity risk

The Company's assets mainly comprise readily realisable securities which can be easily sold to meet funding commitments if necessary. Unlisted investments in the portfolio are subject to liquidity risk. The risk is taken into account by the Directors when arriving at their valuation of these items.

The remaining contractual payments on the Group's financial liabilities at 30 September, based on the earliest date on which payment can be required was as follows:

	In 1 year or less £'000	In more than 1 year but not more than 2 years £'000	In more than 2 years but not more than 3 years £'000	In more than 3 years but not more than 10 years £'000	Total £'000
At 30 September 2013
81/8% Debenture Stock 2023	(1,219)	(1,219)	(1,219)	(23,228)*	(26,885)
Other payables	(2,427)	-	-	-	(2,427)
Deferred tax	-	(19)	-	-	(19)
	(3,646)	(1,238)	(1,219)	(23,228)	(29,331)
		In more than	In more than	In more than
		1 year but	2 years but	3 years but
	In 1 year	not more	not more	not more
	or less £'000	than 2 years £'000	than 3 years £'000	than 11 years £'000	Total £'000
At 30 September 2012
81/8% Debenture Stock 2023	(1,219)	(1,219)	(1,219)	(24,447)*	(28,104)
Equities Index Unsecured Loan Stock 2013	(7,038)	-	-	-	(7,038)
Other payables	(7,526)	-	-	-	(7,526)
Deferred tax	-	(27)	-	-	(27)
	(15,783)	(1,246)	(1,219)	(24,447)	(42,695)

*Comprises the remaining interest payments to 2023, together with the principal to be repaid in 2023.

Credit risk

Credit risk is mitigated by diversifying the counterparties through whom the Investment Manager conducts investment transactions. The credit standing of all counterparties is reviewed periodically with limits set on amounts due from any one counterparty.

The total credit exposure of the Group at the year end as shown on the Balance Sheet and Investment Portfolio was £145,522,000 (2012: £187,677,000). Further details of the Group's credit exposure can be found within note 10 to the financial statements.

Fair values of financial assets and financial liabilities

Except for the Group's Debenture Stocks measured at amortised cost as shown below, the financial assets and financial liabilities of the Group are either carried in the balance sheet at their fair value (investments and Equities Index Unsecured Loan Stock 2013), or the balance sheet amount is a reasonable approximation of fair value (due from brokers, dividends receivable, accrued income, cash at bank and due to brokers).

		2013		2012
	Book Value £'000	Fair Value £'000	Book Value £'000	Fair Value £'000
8 1/8 per cent Debenture Stock 2023	(14,928)	(18,525)	(14,941)	(18,525)

Market values have been used to determine the fair value of the Group's Debenture Stock.

The fair value of the Group's unquoted investments is measured by the Directors using valuation methodologies in accordance with IPEVC guidelines.

Valuation of financial instruments

The Company measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements. Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant assets as follows:

· Level 1 - valued using quoted prices unadjusted in active markets for identical assets or liabilities.

· Level 2 - valued by reference to valuation techniques using observable inputs for the asset or liability other than quoted prices included within Level 1.

· Level 3 - valued by reference to valuation techniques using inputs that are not based on observable market data for the asset or liability.

·

The tables below set out fair value measurements of financial instruments as at the year end, by the level in the fair value hierarchy into which the fair value measurement is categorised.

Financial assets at fair value through profit or loss at 30 September 2013	Level 1 £'000	Level 2 £'000	Level 3 £'000	Total £'000
Equity investments	710,123	-	6,183	716,306
Fixed interest bearing securities	130,048	-	-	130,048
	840,171	-	6,183	846,354
	Level 1	Level 2	Level 3	Total
Financial assets at fair value through profit or loss at 30 September 2012	£'000	£'000	£'000	£'000
Equity investments	628,568	-	4,492	633,060
Fixed interest bearing securities	174,121	-	-	174,121
	802,689	-	4,492	807,181
	Level 1	Level 2	Level 3	Total
Financial liabilities at fair value through profit or loss at 30 September 2012	£'000	£'000	£'000	£'000
Equities Index Unsecured Loan Stock 2013	(7,038)	-	-	(7,038)
	(7,038)	-	-	(7,038)

The valuation techniques used by the Company are explained in the accounting policies note on page 41. There have been no transfers during the year between Levels 1 and 2.

A reconciliation of fair value measurements in Level 3 is set out below. Level 3 financial assets at fair value through profit or loss at 30 September	2013 £'000	2012 £'000
Opening fair value	4,492	4,972
Transfer from Level 1 to Level 3 investment	5,296	-
Purchases at cost	-	155
Sales proceeds	-	-
Total gains or losses included in gains on investments in the Consolidated Statement of Comprehensive Income
- on sold assets	-	-
- on assets held at the end of the year	(3,605)	(635)
Closing fair value	6,183	4,492

Level 3 valuations comprise an investment in Mitra Energy Limited ("Mitra") and Resaca Exploitation held at Directors' valuation. The valuation methodology which considers peer entities has been updated in 2013 to apply adjustments for contingent resources, risked resources and cash and liquidity levels. The updated valuation methodology resulted in a change of £3,605,000.

Capital management policies and procedures

The structure of the Company's capital is described in note 14 and details of the Company's reserves are shown in the statement of changes in equity on page 37.

The Company's capital management objectives are:

· to ensure that it will be able to continue as a going concern; and

· to achieve capital growth through a focused portfolio of investments, particularly in companies whose share prices stand at a discount to estimated underlying net asset value; through an appropriate balance of equity capital and debt.

The Board, with the assistance of the Investment Manager, regularly monitors and reviews the broad structure of the Group's capital on an ongoing basis. These reviews include:

· the level of gearing, which takes account of the Group's position and the Investment 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 Group's objectives, policies and processes for managing capital are unchanged from last year.

The Group is subject to externally imposed capital requirements:

a)     as a public company, the Company is required to have a minimum share capital of £50,000; and

b)     in accordance with the provisions of sections 832 and 833 of the Companies Act 2006, the Company, as an investment company:

(i)     is only able to make a dividend distribution to the extent that the assets of the Company are equal to at least one and a half times its liabilities after the dividend payment has been made; and

(ii)    is required to make a dividend distribution each year such that it does not retain more than 15% of the income that it derives from shares and securities.

These requirements are unchanged since last year and the Company has complied with them at all times.

19.  Contingencies, guarantees and financial commitments

In June 2007 the European Court of Justice ruled that investment management fees should be exempt from VAT, and in early November 2007 HM Revenue & Customs decided not to contest that ruling. The Board is taking steps to reclaim such Back VAT on investment management fees as it can and has recovered £3,603,575 up to the date of this report.

While most of the Back VAT has now been recovered, the Company is taking further steps to recover Back VAT and interest, but does not anticipate any further significant recovery in the near term.

At 30 September 2013 the Group had no financial commitments (2012: £nil).

At 30 September 2013 the Group had no contingent liability in respect of any investments carrying an obligation for future subscription or underwriting commitments (2012: £nil).

At 30 September 2013 the Group had a contingent liability pursuant to an Indemnity given to Caledonia Investments plc (Caledonia) in respect of sums received from Caledonia by way of repayment of VAT (the VAT Refund) paid by the Company between 1991 and 1995 on investment management fees to Caledonia. This Indemnity is against any amounts of VAT (including any interest or penalties) Caledonia is liable to repay to HM Revenue & Customs in respect of the VAT Refund together with all reasonable costs, charges and expenses incurred by Caledonia in enforcing its rights under the Indemnity. The Company's liability under the Indemnity shall not exceed the amount of the VAT Refund received from Caledonia which amounted to £619,178 (including simple interest of £263,337).

20.  Related party disclosure

The related party transaction pursuant to the Investment Management Agreement with Asset Value Investors Limited is set out in the Directors' Report on page 27. Management fees for the year amounted to £4,706,000 (2012: £4,400,000) and the performance fee for the year was £nil (2012: £nil).

As at the year end, the following amounts were outstanding in respect of management fees: £392,000 (2012: £367,000) and performance fees: £nil (2012: £nil).

Strone Macpherson is Chairman of Close Brothers Group plc, the ultimate parent of Winterflood Securities Limited which acts as the Company's Corporate Broker and is paid a retainer of £25,000 per annum by the Company.

21.  Post balance sheet events

Since the year end the Company has completed the following transactions in its own shares:

Shares bought back and held in treasury

Date	Number of Ordinary Shares	Cost £'000
4 October 2013	248,503	1,196
11 October 2013	291,127	1,421
18 October 2013	39,000	193
25 October 2013	62,000	309
31 October 2013	170,000	854
5 November 2013	132,000	661
	942,630	4,634

Report of the Audit Committee

Role of the Audit Committee

The Audit Committee's main functions are:

·  To monitor the internal financial control and risk management systems on which the Company is reliant;

·  To consider whether there is a need for the Company to have its own internal audit function;

·  To monitor the integrity of the half-year and annual financial statements of the Company by reviewing and challenging, where necessary, the actions and judgements of the Investment Manager;

·  To meet the independent Auditor of the Company to review their proposed audit programme of work and the subsequent Audit Report and to assess the effectiveness of the Audit process and the levels of fees paid in respect of both audit and non-audit work;

·  To make recommendations to the Board in relation to the appointment, re-appointment or removal of the Auditor, and to negotiate their remuneration and terms of engagement on audit and non-audit work;

·  To monitor and review annually the external Auditor's independence, objectivity, effectiveness, resources and qualification.

The Audit Committee meets at least twice each year and comprises the whole Board. It operates within defined terms of reference.

Composition of Audit Committee

The Audit Committee comprises the whole Board, all of whom are independent. All members of the Committee have recent and relevant financial experience and two are Chartered Accountants.

Significant issues

In planning its own work, and reviewing the audit plan of the Auditor, the Audit Committee takes account of the most significant issues and risks, both operational and financial, likely to impact on the Company's financial statements.

The valuation of the investment portfolio is a significant risk factor. Of the portfolio 97% can be verified against daily market prices. The valuation of the remainder of the portfolio is verified by the Investment Manager on a regular basis and reviewed by the Audit Committee and the Auditor.

A further significant risk control issue is to ensure that the investment portfolio accounted for in the financial statements reflects physical ownership of the relevant securities. The Company uses the services of an independent Custodian (JP Morgan Chase Bank) to hold the assets of the Company. The investment portfolio is reconciled regularly by the Administrator to the Custodian's records, and that reconciliation is also reviewed by the Auditor.

Financial statements issued by the Company need to be fair, balanced and understandable. The Audit Committee reviews the Annual Report as a whole and makes recommendations to the Board. The Committee is aware that several sections of the Annual Accounts are not subject to formal statutory audit, including the Strategic Report and Investment Manager's review. Financial information in these sections is reviewed by the Committee, and subject to a review by the Auditor.

The Company's half-yearly report is approved by the Audit Committee prior to publication, and is also reviewed by the Auditor.

The Audit Committee assesses annually whether it is appropriate to prepare the Group' s financial statements on a going concern basis, and makes its recommendation to the Board. The Board's conclusions are set out in the Report of the Directors.

Internal Controls

The Audit Committee is responsible for ensuring that suitable internal controls systems to prevent and detect fraud and error are designed and implemented by the third party service providers to the Company and is also responsible for reviewing the effectiveness of such controls. The Board confirms that there is an ongoing process for identifying, evaluating and managing the significant risks faced by the Company in line with the Financial Reporting Council's Internal Control: Guidance to Directors (the Turnbull guidance) and the FRC's Guidance on Audit Committees published in September 2012. This process has been in place for the year under review and up to the date of approval of this report, and accords with the guidance. In particular, it has reviewed and updated the process for identifying and evaluating the significant risks affecting the Company and policies by which these risks are managed. The risks of any failure of such controls are identified in a Risk Matrix which is regularly reviewed by the Board and which identifies the likelihood and severity of the impact of such risks and the controls in place to minimise the probability of such risks occurring.

The following are the key components which the Company has in place to provide effective internal control:

·  The Board has agreed clearly defined investment criteria, which specify levels of authority and exposure limits. Reports on compliance with these criteria are regularly reviewed by the Board;

·  The Board has a procedure to ensure that the Company can continue to be approved as an investment Company by complying with sections 1158/1159 of the Corporation Tax Act 2010;

·  The Investment Manager and Administrator prepare forecasts and management accounts which allow the Board to assess the Company's activities and review its performance;

·  The contractual agreements with the Investment Manager and other third party service providers, and adherence to them, are regularly reviewed;

·  The Investment Manager's Compliance Officer continually reviews the Investment Manager's operations.

Internal control systems are designed to meet the Company's particular needs and the risks to which it is exposed. They do not eliminate the risk of failure to achieve business objectives and, by their nature, can only provide reasonable and not absolute assurance against mis-statement or loss.

As neither the Company nor the Group has any employees, the Company does not have a whistleblowing policy and procedure in place. The Company delegates its main functions to third party providers, each of whom report on their policies and procedures to the Audit Committee.

The Audit Committee believes that the Company does not require an internal audit function principally because the Company delegates its day-to-day operations to third parties, which are monitored by the Committee, and which provide control reports on their operations at least annually.

External Audit process

The Audit Committee meets at least twice a year with the Auditor. The Auditor provides a planning report in advance of the annual audit, a report on the annual audit, and a report on their review of the half-year financial statements. The Committee has an opportunity to question and challenge the Auditor in respect of each of these reports.

In addition, at least once a year, the Audit Committee has an opportunity to discuss any aspect of the Auditor's work with the Auditor in the absence of the Investment Manager.

After each audit, the Audit Committee reviews the audit process and considers its effectiveness.

Auditor assessment and independence

The Company's external Auditor is Ernst & Young LLP. Ernst & Young has been the Company's auditor since 1993. During 2013 the Audit Committee conducted a full review of the services provided by the Auditor, and the related fees, and concluded that there was no need, at this stage, to conduct a competitive tender. However, the Committee is mindful of the latest Corporate Governance provisions relating to auditor tenure, and will keep this matter under consideration.

The committee also reviewed Ernst & Young's independence policies and procedures including quality assurance procedures. It was considered that those policies and procedures remained fit for purpose.

The fees for audit services were: £24,000 (2012: £25,000).

The Audit Committee has approved and implemented a policy on the engagement of the auditor to supply non-audit services, taking into account the recommendations of the Accounting Practices Board and does not believe there to be any impediment to the Auditor's objectivity and independence. All non-audit work to be carried out by the Auditor must be approved by the Audit Committee in advance. The cost of non-audit services provided by the Auditor for the financial year ended 30 September 2013 was £29,000 (2012: £23,000). This comprised £12,000 in relation to tax compliance; £6,000 in relation to the half-year review; and £11,000 in relation to other services, including the checking of the numbers in the Annual Report not subject to statutory audit. These non-audit services are assurance related, and the Committee believes Ernst & Young are best placed to provide them on a cost effective basis. The fees for non-audit services are considered not material in the context of the accounts as a whole.

The Audit Committee is satisfied that Ernst and Young remains independent. The Committee confirms that the non-audit work undertaken by the Company's Auditor satisfies and does not compromise the tests of the Auditor's independence, objectivity, effectiveness, resources and qualification. The cost of these services are considered by the Committee to be proportionate in relation to the fees for audit services.

AS Robson

Audit Committee Chairman

Directors' Remuneration Policy

This Policy provides details of the remuneration policy for the Directors and employees of the Company. All Directors are non-executive, appointed under the terms of Letters of Appointment, and none has a service contract. The Company has no employees.

A resolution to approve this Remuneration Policy will be proposed at the Annual General Meeting of the Company to be held on 19 December 2013. If the resolution is passed, the Remuneration Policy provisions set out below will apply until they are next put to shareholders for renewal of that approval, which must be at intervals of not more than three years, or the Remuneration Policy is varied in which event shareholder approval for the new Remuneration Policy will be sought.

The non-executive Directors of the Company are entitled to such rates of annual fees as the Board at its discretion shall from time to time determine, subject to the aggregate annual fees not exceeding £200,000, and reimbursement of reasonable fees and expenses incurred by them in the performance of their duties. In line with the majority of investment trusts, no component of any Director's remuneration is subject to performance factors. There are no provisions in Directors' Letters of Appointment for recovery or withholding of fees or expenses. Annual fees are pro-rated where a change takes place during a financial year.

Component	Director	Rate (annual maximum)	Purpose of reward	Operation
Annual Fee	All Directors	£23,000	For commitment as Directors of a public company	Determined by the Board at its discretion (see note 1)
Additional Fee	Chairman of the Board	£12,000	For additional responsibility and time commitment	Determined by the Board at its discretion (see note 1)
Additional Fee	Chairman of the Audit Committee	£4,000	For additional responsibility and time commitment	Determined by the Board at its discretion (see note 1)
Additional Fee	Senior Independent Director	£2,300	For additional responsibility and time commitment	Determined by the Board at its discretion (see note 1)
Expenses	All Directors	n/a	Reimbursement of expenses paid by them in order to perform their duties	Reimbursement upon submission of appropriate invoices

Notes:

1.   The Board only exercises its discretion in setting rates of fees after an analysis of fees paid to Directors of other companies having similar profiles to that of the Company, and consultation with third party advisors.

2.   The Company has no employees. Accordingly, there are no differences in policy on the remuneration of Directors and the remuneration of employees.

3.   No Director is entitled to receive any remuneration which is performance-related. As a result there are no performance conditions in relation to any elements of the Directors' remuneration in existence to set out in this Remuneration Policy.

4.   There have been no changes to the Company's remuneration policy for Directors, except the fee change below, since the issue of the Company's last annual report & accounts.

The rates of annual fees for Directors were increased with effect from 1 April 2013, from the rates prevailing for the year to 30 September 2012. The new rates were set after consideration of a report from Trust Associates, which recommended higher levels of fees than those implemented by the Board.

Trust Associates are an independent external consultancy firm with no connection to the Company, its Directors or the Investment Manager.

The table below shows the rates of annual fees payable to non-executive Directors applicable at 30 September 2013 (ie from 1 April 2013) and at30 September 2012.

Fees
	2013	2012
	£'000	£'000
Chairman	35,000	31,860
Board Member	23,000	21,240
Additional responsibilities
Chairman of Audit Committee	4,000	3,540
Senior Independent Director	2,300	N/A

Recruitment Remuneration Principles

1.   The remuneration package for any new Chairman or non-executive Director will be the same as the prevailing rates determined on the bases set out above. The fees and entitlement to reclaim reasonable expenses will be set out in Directors' Letters of Appointment

2.   The Board will not pay any introductory fee or incentive to any person to encourage them to become a Director, but may pay the fees of search and selection specialists in connection with the appointment of any new non-executive Director

3.   The Company only intends to appoint non-executive Directors for the foreseeable future

4.   The maximum aggregate fees currently payable to all Directors is £200,000.

Service Contracts - none of the Directors has a service contract with the Company. Non-executive Directors are engaged under Letters of Appointment.

Loss of Office - Directors' Letters of Appointment expressly prohibit any entitlement to payment on loss of office.

Scenarios - as the Chairman and non-executives Directors' remuneration is fixed at annual rates, and there are no other scenarios where remuneration will vary. It is accordingly not considered appropriate to provide different remuneration scenarios for each Director.

Statement of consideration of conditions elsewhere in the Company - as the Company has no employees, the process of consulting with employees on the setting of the Remuneration Policy is not relevant.

Other Items

None of the Directors has any entitlement to pensions or pension related benefits, medical or life insurance schemes, share options, long-term incentive plans, or performance related payments. No Director is entitled to any other monetary payment or any assets of the Company except in their capacity (where applicable) as shareholders of the Company.

Directors and Officers liability insurance cover is maintained by the Company, at its expense, on behalf of the Directors.

The Company has also provided indemnities to the Directors in respect of costs or other liabilities which they may incur in connection with any claims relating to their performance or the performance of the Company whilst they are Directors.

The Directors' interests in contractual arrangements with the Company are as shown in the Directors' Remuneration Report. Except as noted in the Directors' Report no Director was interested in any contracts with the Company during the period or subsequently.

Review of the Remuneration Policy

The Board has agreed that there would be a formal review before any change to remuneration policy; and at least once a year the Remuneration Policy would be reviewed to ensure that it remained appropriate.

Report on Remuneration Implementation

This Report is prepared in accordance with Schedule 8 of the Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013.

As the Company has no employees and the Board is comprised wholly of non-executive Directors, the Board has not established a separate Remuneration Committee. Directors' remuneration is determined by the Board as a whole, at its discretion within an aggregate ceiling of £200,000 per annum. Each Director abstains from voting on their own individual remuneration.

The rates of remuneration paid to Directors were changed during the year from £31,860, £24,780 and £21,240 (Chairman of the Board, Chairman of the Audit Committee, other Directors respectively) to £35,000, £27,000 and £23,000 (Chairman of the Board, Chairman of the Audit Committee, other Directors) with effect from 1 April 2013, and £25,300 for the Senior Independent Director effective from his appointment as such on 8 November 2012.

Directors' emoluments (audited information)

Directors are only entitled to fees at such rates as are determined by the Board from time to time. The rates of Directors' fees applicable for the financial year were set out in the Directors' Remuneration Report contained in the Company's 2012 Annual Report & Accounts. A non-binding Ordinary Resolution proposing adoption of that Remuneration Report was put to shareholders at the Annual General Meeting of the Company held on 13 December 2012, and was passed by 99.99% of shareholders voting on the Resolution.

None of the Directors has any entitlement to pensions or pension related benefits, medical or life insurance schemes, share options, long-term incentive plans, or performance related payments. No Director is entitled to any other monetary payment or any assets of the Company. Accordingly the Single Total Figure table below does not include columns for any of these items or their monetary equivalents.

As the Company does not have a Chief Executive Officer or any executive Directors, there are no percentage increases to disclose in respect of their total remuneration.

Directors' & Officers' insurance is maintained and paid for by the Company on behalf of the Directors.

In line with market practice the Company has agreed to indemnify the Directors in respect of costs, charges, losses, liabilities, damages and expenses, arising out of any claims or proposed claims made for negligence, default, breach of duty, breach of trust or otherwise, or relating to any application under Section 1157 of the Companies Act 2006, in connection with the performance of their duties as Directors of the Company. The indemnities would also provide financial support from the Company should the level of cover provided by the Directors' & Officers' insurance maintained by the Company be exhausted.

The Directors who served during the year received the following emoluments:

Single Total Figure Table

Name of Director	Fees paid		Taxable benefits		Total (£)
	2013	2012	2013	2012	2013
Strone Macpherson	33,430	31,860	--	--	33,430
Andrew Robson	25,890	24,780	--	--	25,890
Steven Bates	24,117	21,240	--	--	24,117
Susan Noble1	22,120	12,335	--	--	22,120
Nigel Rich2	21,120	12,254	--	--	22,120
Rosamund Blomfield-Smith3	4,275	21,240	--	--	4,275
					£131,952

¹ Appointed 4 March 2012.

² Appointed 5 March 2012.

³ Retired 13 December 2012.

Sums paid to Third Parties (audited information)

None of the fees referred to in the above table were paid to any third party in respect of the services provided by any of the Directors.

Other Benefits

Taxable Benefits - Article 117 of the Company's Articles of Association provides that Directors are entitled to be reimbursed for reasonable expenses incurred by them in connection with the performance of their duties and attendance at Board and General Meetings.

Pensions related benefits - Article 118 permits the Company to provide pension or similar benefits for Directors and employees of the Company. However, no pension schemes or other similar arrangements have been established and no Director is entitled to any pension or similar benefits.

Loss of office

Directors do not have service contracts with the Company but are engaged under Letters of Appointment. These specifically exclude any entitlement to compensation upon leaving office for whatever reason.

Share Price Total Return

Share price versus Morningstar Investment Trust Global Growth Index Total Return. The chart below illustrates the total shareholder return for a holding in the Company's shares as compared to the Morningstar Investment Trust Global Growth Index, which the Board has adopted as the measure for both the Company's performance and that of the Investment Manager for the year.

Share Price Total Return

vs Morningstar Investment Trust Global Growth Index Total Return - Five years to 30 September 2013

Relative Importance of Spend on Pay

The table below shows the proportion of the Company's income spent on pay.

	2013	2012	Difference
Spend on Directors' fees*	£131,952	£123,709	£8,243
Management fee & other expenses	£6,180,957	£5,693,589	£487,368
Distribution to Shareholders:
(a)  dividends	£19,861,309	£20,560,266	(£698,957)
(b)  share buy back	£25,192,951	£7,982,558	£17,210,393

* As the Company has no employees the total spend on remuneration comprises just the Directors' fees.

Note: the items listed in the table above are as required by the Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013 ss.20 with the exception of the management fee & other expenses which has been included because the Directors believe it will help shareholders understanding of the relative importance of the spend on pay. The figures for this measure are the same as those shown in Note 3 to these Report & Accounts.

Statement of Directors' shareholding and share interests

Neither the Company's Articles of Association nor the Directors' Letters of Appointment require a Director to own shares in the Company. The interests of the Directors and their connected persons in the equity securities of the Company at 30 September are shown in the table below:

Director	2013	2012	2013	2012
Strone Macpherson	40,000	40,000	-	-
Andrew Robson	2,800	2,800	-	-
Steven Bates	20,000	20,000	-	-
Susan Noble	8,628	3,402	-	-
Nigel Rich	15,000	8,000	-	-
Rosamund Blomfield-Smith	n/a	3,100	-	-

Annual Statement

On behalf of the Board and in accordance with Part 2 of Schedule 8 of the Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013, I confirm that the above Report on Remuneration Policy and Remuneration Implementation summarises, as applicable, for the year to 30 September 2013: -

(a)  the major decisions on Directors' remuneration;

(b)  any substantial changes relating to Directors' remuneration made during the year; and

(c)  the context in which the changes occurred and decisions have been taken.

PSS Macpherson

Chairman

Independent Auditor's Report

To the Members of British Empire Securities and General Trust plc

We have audited the financial statements of British Empire Securities and General Trust plc for the year ended 30 September 2013 which comprise the Consolidated Statement of Comprehensive Income, the Consolidated and Company Statement of Changes in Equity, the Consolidated and Company Balance Sheets, the Consolidated and Company Statement of Cash Flows and the related notes 1 to 21. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006.

This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditor

As explained more fully in the Directors' Responsibilities Statement set out on page 34, the directors are responsible for the preparation of the group and company financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the group and company financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors.

Scope of the audit of the financial statements

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the group's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

Opinion on financial statements

In our opinion:

• the financial statements give a true and fair view of the state of the group's and parent company's affairs as at 30 September 2013 and

of the group's profit for the year then ended;

• the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;

• the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as

applied in accordance with the provisions of the Companies Act 2006; and

• the financial statements have been prepared in accordance with

the requirements of the Companies Act 2006 and, as regards the group financial statements, Article 4 of the IAS Regulation.

Our assessment of risks of material misstatement

We identified the following risks of material misstatement that had the greatest effect on the overall audit strategy, the allocation of resources in the audit, and directing the efforts of the engagement team:

• existence and ownership of the group's investments; and

• valuation of the group's investments.

Our application of materiality

We apply the concept of materiality both in planning and performing the audit, and in evaluating the effect of identified misstatements on the audit and of uncorrected misstatements, if any, on the financial statements and in forming our audit opinion in the Auditor's Report.

When establishing our overall audit strategy, we determined materiality for the group to be £8.4 million, which is 1% of total equity. This provided a basis for determining the nature, timing and extent of risk assessment procedures, identifying and assessing the risk of material misstatement and determining the nature, timing and extent of further audit procedures.

On the basis of our risk assessment, together with our assessment of the group's overall control environment, our judgment was that overall performance materiality (i.e. our tolerance for misstatement in an individual account or balance) for the group should be 75% of materiality, namely £6.3 million. Our objective in adopting this approach was to ensure that total uncorrected and undetected audit differences in the financial statements did not exceed our materiality level.

We have reported to the Audit Committee all audit differences in excess of £0.4 million, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.

An overview of the scope of our audit

Our response to the risks identified above was as follows:

• we obtained independent confirmation from the custodian of the group's investments and agreed them to the books and records of the Company;

• we agreed year end prices for quoted investments to an independent

source; and

• with the assistance of our valuation experts, we considered the

appropriateness of the valuation techniques applied to unlisted

investments by reviewing the valuation model, and obtained evidence

to corroborate the inputs into the valuation model.

Opinion on other matter prescribed by the Companies Act 2006

In our opinion:

• the information given in the Strategic Report and the Directors' Report

for the financial year for which the financial statements are prepared

is consistent with the financial statements; and

• the part of the Directors' Remuneration Report to be audited has been

properly prepared in accordance with the Companies Act 2006.

Matters on which we are required to report by exception

We have nothing to report in respect of the following:

Under the ISAs (UK and Ireland), we are required to report to you if, in our opinion, information in the annual report is:

• materially inconsistent with the information in the audited financial

statements; or

• apparently materially incorrect based on, or materially inconsistent with,

our knowledge of the Group acquired in the course of performing our

audit; or

• is otherwise misleading.

In particular, we are required to consider whether we have identified any inconsistencies between our knowledge acquired during the audit and the directors' statement that they consider the annual report is fair, balanced and understandable and whether the annual report appropriately discloses those matters that we communicated to the audit committee which we consider should have been disclosed.

Under the Companies Act 2006 we are required to report to you if, in our opinion:

• adequate accounting records have not been kept by the parent

company, or returns adequate for our audit have not been received

from branches not visited by us; or

• the parent company financial statements and the part of the Directors

Remuneration Report to be audited are not in agreement with the

accounting records and returns; or

• certain disclosures of directors' remuneration specified by law are not

made; or

• we have not received all the information and explanations we require for

our audit.

Under the Listing Rules we are required to review:

• the directors' statement, set out on page 35, in relation to going

concern;

• the part of the Corporate Governance Statement relating to the

company's compliance with the nine provisions of the UK Corporate

Governance Code specified for our review; and

• certain elements of the report to shareholders by the Board on

directors' remuneration.

Ashley Coups (Senior statutory auditor)

For and on behalf of Ernst & Young LLP,

Statutory Auditor

London

11 November 2013

Notice of Annual General Meeting

Notice is hereby given that the One Hundred and Twenty Fourth Annual General Meeting of British Empire Securities and General Trust plc will be held at Grocers' Hall, Princes Street, London EC2R 8AD at 12 noon on Thursday 19 December 2013 to consider the following business:

Ordinary Business

1.   To receive and adopt the financial statements of the Company for the financial year ended 30 September 2013 together with the Reports of the Directors and the Auditor.

2.   To approve a final Ordinary Dividend of 8.50p pence per Ordinary Share.

3.   To approve a Special Dividend of 2.50p pence per Ordinary Share.

4.   To re-elect Strone Macpherson as a Director of the Company.

5.   To re-elect Steven Bates as a Director of the Company.

6.   To re-elect Andrew Robson as a Director of the Company.

7.   To re-elect Susan Noble as a Director of the Company.

8.   To re-elect Nigel Rich as a Director of the Company.

9.   To re-appoint Ernst & Young LLP as the Company's Auditor and authorise the Directors to determine the Auditor's remuneration.

10. To receive and adopt the Directors' Remuneration Implementation Report.

Special Business

To consider and, if thought fit, pass the following resolution as an Ordinary Resolution:

11. To receive and adopt the Directors' Remuneration Policy.

12. THAT, the Directors of the Company be and are hereby generally and unconditionally authorised in accordance with Section 551 of the Companies Act 2006 (the "Act") to exercise all of the powers of the Company to allot Ordinary Shares of 10p each in the capital of the Company ('Ordinary Shares') and to grant rights to subscribe for or to convert any security into Ordinary Shares in the Company up to a maximum of 22,791,734 Ordinary Shares provided that such authority shall expire on the date which is 15 months after the date of the passing of this resolution or, if earlier, at the conclusion of the next Annual General Meeting of the Company in 2014, save that the Company may before such expiry make offers or agreements which would or might require Ordinary Shares to be allotted, or rights to be granted, after such expiry and the Directors may allot Ordinary Shares, or grant such rights, in pursuance of such offers or agreements as if the authority conferred hereby had not expired; and all unexercised authorities previously granted to the Directors to allot Ordinary Shares be and are hereby revoked.

To consider and, if thought fit, pass the following resolutions as Special Resolutions:

13. THAT, subject to the passing of resolution 12 above, the Directors of the Company be and are hereby generally authorised and empowered pursuant to Sections 570 and 573 of the Companies Act 2006 (the "Act") to allot equity securities (as defined in Section 560 of the Act) (including the grant of rights to subscribe for, or to convert any securities into, Ordinary Shares in the capital of the Company ('Ordinary Shares') and the sale of Ordinary Shares held by the Company in treasury) wholly for cash pursuant to any existing authority given in accordance with Section 551 of the Act, as if Section 561 of the Act did not apply to any such allotment, provided that this power shall be limited:

(a)  to the allotment of equity securities in connection with an offer of such securities by way of rights to holders of Ordinary Shares on the register of members of the Company on a fixed record date in proportion (as nearly as may be practicable) to their respective holdings of Ordinary Shares but subject to such exclusions or other arrangements as the Directors may deem necessary or expedient in relation to treasury shares, fractional entitlements or any legal or practical problems arising under the laws of, or the requirements of, any territory or any regulatory or governmental body or authority or stock exchange; and

(b)  to the allotment (otherwise than pursuant to sub-paragraph (a) above) of equity securities equating to a maximum of 7,602,312 Ordinary Shares being approximately 5 per cent of the equity share capital currently in issue and the authority hereby granted shall expire on the date which is 15 months after the date of the passing of this resolution or, if earlier, the date of the next Annual General Meeting of the Company to be held in 2014, save that the Company may before such expiry make an offer or agreement which would or might require equity securities to be allotted after such expiry and the Directors may allot equity securities in pursuance of such an offer or agreement as if the power conferred hereby had not expired.

14. THAT, the Company be and is hereby generally and unconditionally authorised for the purposes of Section 701 of the Companies Act 2006 (the "Act") to make one or more market purchases (within the meaning of Section 693(4) of the Act) of Ordinary Shares of 10p each in the capital of the Company ('Ordinary Shares') either for cancellation or to hold as treasury shares (within the meaning of Section 724 of the Act) provided that:

(a)  the maximum aggregate number of Ordinary Shares hereby authorised to be purchased is 22,791,734;

(b)  the Directors be authorised to determine at their discretion that any Ordinary Shares purchased be cancelled or held by the Company as treasury shares

(c)   the minimum price which may be paid for a share shall be 10 pence (exclusive of associated expenses);

(d)   the maximum price which may be paid for an Ordinary Share shall equate to 105 per cent of the average of the middle market quotations of the Ordinary Shares (as derived from the Daily Official List of the London Stock Exchange) for the five business days immediately preceding the date on which the relevant share is contracted to be purchased (exclusive of associated expenses) or in the case of a series of buy-backs the greater of the last independent trade or the highest independent bid; and

(e)   unless previously varied, revoked or renewed, the authority hereby conferred shall expire on the date which is 15 months after the date of the passing of this resolution or if earlier the date of the next Annual General Meeting of the Company save that the Company may prior to such expiry enter into a contract or arrangement to purchase Ordinary Shares under this authority which will or may be completed or executed wholly or partly after the expiry of this authority and may make a purchase of ordinary shares pursuant to any such contract or arrangement as if the authority hereby conferred had not expired.

By Order of the Board

Phoenix Administration Services Limited Corporate Secretary

Springfield Lodge, Colchester Road,

Chelmsford, Essex CM2 5PW

11 November 2013

Notes

1.   Attending the Annual General Meeting in person

If you wish to attend the Annual General Meeting in person, you should sign the attendance card enclosed with this document and hand it to the Company's registrars on arrival at the Annual General Meeting.

2.   Appointment of Proxy

Members are entitled to appoint a proxy to exercise all or any of their rights to attend and to speak and vote on their behalf at the meeting. A shareholder may appoint more than one proxy in relation to the Annual General Meeting provided that each proxy is appointed to exercise the rights attached to a different share or shares held by that shareholder. A proxy need not be a shareholder of the Company.

3.   Appointment of Proxy

A proxy form which may be used to make such appointment and give proxy instructions accompanies this notice. Where two or more valid appointments of proxy are received in respect of the same share in relation to the same meeting, the one which is last sent shall be treated as replacing and revoking the other or others. If the Company is unable to determine which is last sent, the one which is last received shall be so treated. If the Company is unable to determine either which is last sent or which is last received, none of such appointments shall be treated as valid in respect of that share.

To be valid, any proxy form or other instrument appointing a proxy must be received by post or (during normal business hours only) by hand at the Company's Registrars, Equiniti Limited, Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA by 12 noon on Tuesday 17 December 2013.

The return of a completed proxy form, other such instrument or any CREST Proxy Instruction (as described in paragraph 8 below) will not prevent a shareholder attending the Annual General Meeting and voting in person if he/she wishes to do so. If you require additional proxy forms, please contact the Registrar's helpline on 0871 384 2490*

([phone] from outside the UK). Lines are open 8.30am to 5.30pm Monday to Friday.

Alternatively, you may, if you wish, register the appointment of a proxy electronically by logging on to www.sharevote.co.uk. To use this service you will need your Voting ID, Task ID and Shareholder Reference Number printed on the accompanying form of proxy. Full details of the procedure are given on the website.

To be valid, the appointment of a proxy electronically must be made by 12 noon on Tuesday 17 December 2013.

*Phone calls to this number cost 8p per minute from a BT landline. Other providers' costs may vary.

4.   Appointment of Proxy by Joint Shareholders

In the case of joint shareholders, where more than one of the joint shareholders purports to appoint one or more proxies, only the purported appointment submitted by the most senior holder will be accepted. Seniority is determined by the order in which the names of the joint shareholders appear in the Company's register of members in respect of the joint shareholding, with the first named being the most senior.

5.   Nominated Persons

Any person to whom this notice is sent who is a person nominated under section 146 of the Companies Act 2006 to enjoy information rights (a "Nominated Person") may, under an agreement between him/her and the shareholder by whom he/she was nominated, have a right to be appointed (or to have someone else appointed) as a proxy for the Annual General Meeting. If a Nominated Person has no such proxy appointment right or does not wish to exercise it, he/she may, under any such agreement, have a right to give instructions to the shareholder as to the exercise of voting rights.

The statement of the rights of shareholders in relation to the appointment of proxies does not apply to Nominated Persons as such rights can only be exercised by registered shareholders of the Company.

6.   Entitlement to Attend and Vote

To be entitled to attend and vote at the Annual General Meeting (and for the purpose of the determination by the Company of the votes they may cast), shareholders must be registered in the Register of Members of the Company at 6.00 pm on Tuesday 17 December 2013 (or, in the event of any adjournment, 6.00 pm on the date which is two days before the time of the adjourned meeting). Changes to the Register of Members after the relevant deadline shall be disregarded in determining the rights of any person to attend and vote at the meeting.

7.   Issued Share Capital and Total Voting Rights

As at 5 November 2013 the Company's issued share capital consisted of 160,014,089 Ordinary Shares, carrying one vote each, of which 7,967,831 were in treasury. Therefore, the voting rights in the Company as at 5 November 2013 equate to a total of 152,046,258 votes.

8.   CREST Members

CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so by using the procedures described in the CREST Manual. CREST Personal Members or other CREST sponsored members, and those CREST members who have appointed a service provider(s), should refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate action on their behalf.

In order for a proxy appointment or instruction made using the CREST service to be valid, the appropriate CREST message (a "CREST Proxy Instruction") must be properly authenticated in accordance with Euroclear UK & Ireland Limited's specifications, and must contain the information required for such instruction, as described in the CREST Manual (available via www.euroclear.com/CREST). The message, regardless of whether it constitutes the appointment of a proxy or is an amendment to the instruction given to a previously appointed proxy must, in order to be valid, be transmitted so as to be received by the issuer's agent (ID RA19) by 12 noon on Tuesday 17 December 2013. For this purpose, the time of receipt will be taken to be the time (as determined by the time stamp applied to the message by the CREST Application Host) from which the issuer's agent is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. After this time any change of instructions to proxies appointed through CREST should be communicated to the appointee through other means.

CREST members and, where applicable, their CREST sponsors, or voting service providers should note that Euroclear UK & Ireland Limited does not make available special procedures in CREST for any particular message. Normal system timings and limitations will, therefore, apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member, or sponsored member, or has appointed a voting service provider, to procure that his CREST sponsor or voting service provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular time. In this connection, CREST members and, where applicable, their CREST sponsors or voting system providers are referred, in particular, to those sections of the CREST Manual concerning practical limitations of the CREST system and timings.

The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities Regulations 2001.

You may not use any electronic address provided either in this Notice of Meeting or any related documents (including the Form of Proxy) to communicate with the Company for any purposes other than those expressly stated.

9. Corporate Members

Any corporation which is a member can appoint one or more corporate representatives who may exercise on its behalf all of its powers as a member provided that they do not do so in relation to the same shares.

10. Rights to publish statements under section 527 of the Companies Act 2006

Under section 527 of the Companies Act 2006, members meeting the threshold requirements set out in that section have the right to require the Company to publish on a website a statement setting out any matter relating to:

(i)   the audit of the Company's financial statements (including the auditor's report and the conduct of the audit) that are to be laid before the Annual General Meeting; or

(ii)    any circumstance connected with an auditor of the Company ceasing to hold office since the previous meeting at which annual financial statements and reports were laid in accordance with section 437 of the Companies Act 2006.

The Company may not require the shareholders requesting any such website publication to pay its expenses in complying with sections 527 or 528 of the Companies Act 2006. Where the Company is required to place a statement on a website under section 527 of the Companies Act 2006, it must forward the statement to the Company's auditor not later than the time when it makes the statement available on the website. The business which may be dealt with at the Annual General Meeting includes any statement that the Company has been required under section 527 of the Companies Act 2006 to publish on a website.

11. Questions and Answers

Any member attending the meeting has the right to ask questions. The Company must cause to be answered any such question relating to the business being dealt with at the meeting but no such answer need be given if (a) to do so would interfere unduly with the preparation for the meeting or involve the disclosure of confidential information, (b) the answer has already been given on a website in the form of an answer to a question, or (c) it is undesirable in the interests of the Company or the good order of the meeting that the question be answered.

However, where appropriate, the Chairman may offer to provide an answer to a question after the conclusion of the Annual General Meeting.

12. Information on the Company's website

In accordance with section 311A of the Companies Act 2006, the contents of this notice of meeting, details of the total number of shares in respect of which members are entitled to exercise voting rights at the AGM and, if applicable, any members' statements, members' resolutions or members' matters of business received by the Company after the date of this notice will be available on the Company's website www.british-empire.co.uk.

Shareholder Information

Dividends

Shareholders who wish to have dividends paid directly into a bank account rather than by cheque to their registered address can complete a mandate form for the purpose. Mandates may be obtained from Equiniti Limited, Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA on request. The Company operates the BACS system for the payment of dividends. Where dividends are paid directly into Shareholders' bank accounts, dividend tax vouchers are sent to Shareholders' registered addresses.

Share Prices

The Company's Ordinary Shares are listed on the London Stock Exchange under 'Investment Trusts'. Prices are given daily in The Financial Times, The Times, The Daily Telegraph, The Scotsman and The Evening Standard.

Change of Address

Communications with Shareholders are mailed to the last address held on the Share register. Any change or amendment should be notified to Equiniti Limited at the address given above, under the signature of the registered holder.

Daily Net Asset Value

The net asset value of the Company's shares can be obtained by contacting Customer Services on 0845 850 0181 or via the website: www.british-empire.co.uk

AVI ISA

The AVI Stocks and Shares Individual Savings Account (ISA) is a savings account that allows you to invest in stocks and shares in line with HM Revenue & Customs limitations.

AVI Share Plan

The AVI Share Plan is a savings plan which aims to provide a simple and low cost way for private investors to purchase shares in the British Empire Securities and General Trust. Lump sum payments or regular monthly deposits can be made to the Share Plan.

For further information contact Customer Services on 0845 850 0181

Call charges may apply

Provisional Financial Calendar 2013/2014

19 December 2013 Annual General Meeting

·  January 2014   Final and Special Dividend paid on Ordinary Shares

·  May 2014        Announcement of half year results

·  May 2014        Posting of Half Year Report

·  June 2014       Interim Dividend paid on Ordinary Shares

·  November 2014 Announcement of annual results

·  November 2014 Posting of Annual Report

·  December 2014 Annual General Meeting

Company Information

Directors

Philip Strone Stewart Macpherson

(Chairman)

Steven Andrew Ralph Bates

Andrew Stephen Robson

Susan Margaret Noble

Nigel Mervyn Sutherland Rich

Secretary

Phoenix Administration

Services Limited

Springfield Lodge

Colchester Road

Chelmsford

Essex CM2 5PW

Tel: [phone]

www.phoenixfundservices.com

[e-mail]

Registered Office Springfield Lodge Colchester Road Chelmsford

Essex CM2 5PW

Registered in England & Wales No. 28203

Investment Manager

Asset Value Investors Limited

25 Berkeley Square London W1J 6HN

Registrars and Transfer Office

Equiniti Limited

Aspect House

Spencer Road

Lancing

West Sussex BN99 6DA

Registrar's Shareholder Helpline Tel. [phone]

Calls to this number cost 8p per minute from a BT landline, other providers' costs may vary.

Lines are open 8.30am to 5.30pm, Monday to Friday.

Registrar's Broker Helpline Tel. [phone]

Calls to this number cost £1 per minute from a BT landline, other providers' costs may vary.

Lines are open 8.30am to 5.30pm, Monday to Friday.

Corporate Broker Winterflood Securities Limited The Atrium Building Cannon Bridge

25 Dowgate Hill

London EC2R 2GA

Auditor

Ernst & Young LLP

1 More London Place London SE1 2AF

Bankers and Custodian JP Morgan Chase Bank 125 London Wall London EC2Y 5AJ

Solicitors

Herbert Smith

Exchange Square Primrose Street

London EC2A 2HS

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