Annual Financial Report

RNS Number : 8523P

Dunedin Income Growth Inv Tst PLC

01 April 2009

 



DUNEDIN INCOME GROWTH INVESTMENT TRUST PLC ('DIGIT')

ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 JANUARY 2009

1.    CHAIRMAN'S STATEMENT

No commentary on Britain's financial performance in 2008 can fail to mention the liquidity crisis, leading to the need for extensive Government support for UK banks, and the subsequent credit contraction which has tipped economies across the world into the worst recession for many years. Investors in equities world-wide have experienced a torrid time over the past 12 months and, once the weakness of sterling is taken into account, the UK returned one of the worst performances of all major equity markets. The deepening of the financial crisis following the collapse of Lehman Brothers has seen unprecedented levels of volatility within stockmarkets and has resulted in a fall in the FTSE All-Share Index - the benchmark against which we measure ourselves - of 30.7% in capital terms. 

Furthermore, I am sorry to find myself reporting on a second year of underperformance by Dunedin Income Growth Investment Trust ('DIGIT'), which lagged significantly behind its benchmark. The move into recession has resulted in difficult trading conditions for many of the stocks in which the Company invests and, in the past year, DIGIT's net asset value ('NAV'), measured with debt priced at market value, fell by 37.6% in capital terms. This is a disappointing result; in 2007/8, performance relative to the benchmark suffered partly as a result of the Manager's decision to restrict exposure to what they - correctly, as it turns out - perceived as over-priced mining stocks and we had hoped that, in anticipating the end of the resource boom, DIGIT's relative performance would benefit.

The primary driver of underperformance came from the Company's borrowings, the majority of which is represented by our debenture stock. At a portfolio level, the Company's relative performance lagged the benchmark FTSE All-Share Index by 2.2% in total return terms; whatever the benefits of gearing in rising markets, it has an adverse effect on shareholders' equity when securities prices fall.

As set out in more detail in the Manager's report (which covers the performance of the underlying portfolio in more detail), some of this year's difficulties at a stock level derive from the behaviour of the higher-yielding shares in which we tend to invest.  Your Board has expressed its concern to the Manager regarding the recent results of the Company and, in particular, has sought to understand why the Manager's investment screening process, which is focused on quality and value, has not provided better protection to the Company. We have therefore undertaken a detailed review of the Manager's investment philosophy and its approach to risk management. The Board continues to believe that Aberdeen Asset Managers has the resources and skills to run DIGIT's portfolio for the benefit of its shareholders and it is the task of this Board to ensure that the Manager's investment process is applied in a manner which is appropriate for what is likely to remain a challenging environment for stockmarkets.

Dividend

While there is considerable uncertainty about the outlook for dividends, last year witnessed robust underlying dividend growth in our portfolio and this resulted in the revenue per share rising from 10.58p to 11.72p. This includes recognition of the benefit of an initial rebate of VAT previously charged on the Company's management fees (explained further below), which equates to 0.2p per share. On the other hand, the earnings figure has borne the impact of the change in allocation of interest and management fees charged to capital and income (also referred to below), as well as the effect of carrying a lower absolute level of debt. We are recommending an unchanged final dividend of 6.50p per share, taking the full year dividend to 10.25p (2008 - 10.00p). It is proposed that the final dividend will be paid on 22 May 2009 to shareholders on the register on 24 April 2009.

We have been able to accommodate this unchanged final dividend at the same time as adding to an already strong revenue reserve. The Board recognises that the present levels of income will not be sustained in the current year and is prepared to use the revenue reserve to defend the present level of DIGIT's dividend for the 2009/10 financial year. It should be noted that our ability to pay dividends is affected by our policy of charging to capital 60% of the management fee and interest costs. As highlighted at the interim stage, this was reduced from the previous policy of allocating 70% of these charges to capital.

Gearing 

The Company's borrowings are provided by a combination of fixed rate debenture stock (repayable in 2019) and a variable rate bank loan facility. The flexibility offered by the latter allows the Manager to adjust the level of borrowings as market conditions change. Since the end of January 2008, the amount drawn down under the variable rate facility has been reduced from £18 million to £12 million at the end of the financial year. This, coupled with the 7 ⅞% debenture, took gearing at 31 January 2009 to 12.8% with debt valued at par (15.3% with debt valued at market value). Subsequent to the year end, the amount drawn down under the facility has been reduced further and stood at £2 million as at 31 March 2009.  

While we continue to believe that some level of gearing will enhance long-term returns to shareholders, we have agreed with the Manager new guidelines to reflect current market conditions and the reduction in the absolute amount drawn down from the revolving facility reflects the Board's concern about the unprecedented level of volatility in equity markets. Furthermore, the current bank facility expires at the end of July 2009 and indications are that, should a renewal or replacement be offered, it will be on terms significantly less favourable than those enjoyed to date.

Nonetheless, the de-gearing comes at a cost to the income account; we have been able to borrow at an interest rate of less than 1.5% (including costs), while the historic yield on our portfolio is in excess of 6%.  

Discount and Share Buybacks.

The discount to NAV, with debt at market value, at which our shares trade narrowed slightly during the period, from 5.8% to 5.2%. This narrowing probably reflects the pursuit of income in the investment trust, and wider, market place. Subsequent to the year end this has tightened further to 3.4%.

We have continued to buy back shares in DIGIT when we have been able to do so and on terms that provide a tangible benefit to continuing shareholders and in order to provide some stability to the discount in otherwise volatile conditions. During the year we acquired 1.0 million shares (2008 - 2.2 million) in total. These shares are initially held in treasury, which allows them to be re-issued at a future date, provided DIGIT's share price is trading at a premium to NAV. As part of prudent housekeeping, and to prevent a significant accumulation of shares held in treasury, the Board took the decision to cancel two million of the treasury shares during the year. The remainder will be subject to review ahead of the Annual General Meeting.

Marketing

We continue to attach great importance to ensuring that the share price reflects the underlying value of the Company. Alongside share buybacks, another of the levers available to the Board is the active marketing of the Company, in order to be able to attract new shareholders. To this end, the Manager has a regular programme of visits to, and communications with, financial advisors, investors and potential investors around the country, to ensure that the market understands and is aware of the attractions of the Company. 

VAT on Management Fees

As shareholders are aware from my previous statements, in 2007 HMRC conceded defeat over the charging of VAT on the management fees incurred by UK investment trusts. Whilst progress on reclaiming all of these sums has been slower than I would have liked, these results recognise our confidence in an imminent recovery of an initial sum of £1,020,000. This represents the VAT charged on our management fees between 2004 and 2007, which is then split in accordance with the Company's accounting policy at the time of paying the VAT, with £714,000 being credited to capital and £306,000 being credited to revenue; the latter represents the 0.2p per share referred to earlier.  The Manager continues to pursue, with HMRC, the repayment of the VAT incurred on management fees during the periods 1990 - 1996 and 2001 - 2003 and we should be able to recognise further sums as and when they are received. We would expect the total amount, covering both those earlier periods, to be in excess of £1 million, plus interest, which will again be split in accordance with the prevailing accounting policy.

Outlook

Global equity markets remain very volatile and investor confidence is fragile. The near term economic newsflow continues to deteriorate, resulting in further pressure on corporate profitability. Although the policy response has been both coordinated on an international level and unprecedented in its speed and magnitude, it is not yet clear that these measures will be sufficient. It is difficult to expect any evidence of stability until the travails of the banking system are resolved and there is little sign of this at present while additional capital introduced is being consumed by write downs and the requirement to improve ratios, rather than allowing a restoration of their lending activities. There will also come a point when markets focus on the longer-term cost of the bail-outs and when the quantities of money being printed may feed through into inflation.

The immediate concern is whether, or when, these initiatives might start to have an effect. Equity markets have fallen sharply and - even taking into account the prospect of further earnings downgrades - valuation multiples are not demanding. DIGIT will continue its policy of investing primarily in well-financed companies listed on the London Stock Exchange, with a view to offering its shareholders longer-term growth of capital and income. At the time of writing, our shares offer a yield which represents a premium over what is available from sterling bank deposits which has not been seen in the UK in 50 years or more.

Annual General Meeting

The Company's Annual General Meeting takes place in Edinburgh, on 20 May 2009, and I look forward to seeing as many of you there as possible.

John Scott

Chairman

31 March 2009

2.    MANAGER'S REVIEW

To say that the year ending January 2009 has been a tumultuous year for investors would be an understatement. The period started in a relatively benign fashion as reductions in interest rates helped calm fears about the economic fallout from the credit crunch, while commodity prices remained at high levels. As events unfolded, it became apparent that the economic malaise would not be so easily remedied, with economic data deteriorating throughout the summer period. However, it was not until the collapse of Lehmans in September that the degree of stress within the financial system became evident. Liquidity all but evaporated, banks around the globe required capital injections and, in more extreme cases, full state bail-outs and equity markets collapsed. DIGIT's NAV measured with debt priced at market value, fell by 34.7% in total return terms compared to a decline in the FTSE All-Share Index of 27.8% in total return terms. 

Economic data has continued to deteriorate throughout the period, with fourth quarter GDP confirming that the UK economy was in recession. This had been replicated, to differing degrees, with no region immune. The Bank of England entered the year adopting a wait and see approach, their actions being restricted by inflation remaining above the targeted range. In the first half of the year their Monetary Policy Committee limited itself to two 25 basis point cuts in interest rates. Once the gravity of the financial crisis became clear, they announced a further 350 basis points of cuts, taking Bank Rate to 0.5% at the time of writing. Despite this, the effective closure of the wholesale finance markets has left LIBOR stubbornly above base rates, preventing the cuts from being passed on in full to UK consumers and businesses. 

This squeeze in liquidity has had a profound impact on high street sales with monthly like-for-like sales falling most months and, despite a temporary cut to the VAT rate, there was a number of very high profile casualties, alongside a slew of other names filing for administration. Likewise, the manufacturing sector witnessed significant contraction as companies focussed on preventing the build up of stock within supply chains. So far, the weakness of sterling has not provided relief. All of this has contributed to unemployment in the UK rising to circa two million at the end of December. 

Performance

Turning to the performance of the Company, in total return terms the NAV fell by 34.7%, versus a fall in the benchmark of 27.8%. The impact of the Company's gearing can be seen from the fact that gross assets fell less, by 30.0%, although this still showed an underperformance versus the benchmark.

Whilst we manage the portfolio on an absolute basis in stock weights, for comparing our performance in relation to the benchmark we will refer to sector positions in aggregate. Although we entered the year with an underweight in Banks going into the crisis, the weak capital performance of Royal Bank of Scotland and Lloyds TSB offset this position. Royal Bank's problems have been well documented, with the ill timed purchase of ABN AMRO resulting in the bank requiring government support. The performance of the Financial sector was made worse by our holding a larger weight in the portfolio in the Life Assurance sector. This sector underperformed, where Aviva in particular suffered over concerns about solvency. However, we maintained our high weighting in that sector and their full year results did go some way to alleviating solvency concerns. We offset some of this weakness through the holding in Provident Financial which has benefited from a tightening of lending criteria by high street and mainstream lenders.

As highlighted below, we chose to exit a number of stocks during the year whose poor performance had impacted upon the portfolio. In addition to Royal Bank, the four most notable were Premier Foods, Wolseley, Kesa and Barratt Developments. Combined, these five stocks represented approximately 3% of relative underperformance versus the benchmark. 

While discussing individual situations that had a particular negative impact upon performance we should discuss BT. When we construct the portfolio, each holding has a specific role to play to ensure proper diversification. BT represented a stable, albeit mature, cash generative utility-like domestic business, coupled with what appeared to be a growing international Global Services business. As such, it represented to us a defensive company with some possibility to eke out returns above those allowed by the regulator. While falling equity markets have rekindled fears about growing pension fund deficits and impacted shorter term sentiment, the real damage to the stock occurred when the new Chief Executive made the market aware that the contracts entered into in the Global Service division would not be as cash flow positive as the board had previously been led to believe, and that they would not generate an economic profit. The correct measures have been undertaken by the new management team, in focusing on cash flow, although the longer-term nature of the contracts means that this malaise will not be remedied quickly. We have subsequently reduced the holding.

In times of underperformance there is always a focus on 'why?' but within the portfolio there have also been distinct areas of better relative performance. The area which has benefited the portfolio most through the year has been our low exposure to the mining stocks. Here, we believed that the increase in commodity prices was fuelled by speculation and we were therefore unwilling to commit too much capital to the sector. Indeed, as the economic slowdown and tightening of the availability of credit has reduced the demand for and price of underlying commodities, the mining stocks have declined sharply in value. We believe that, for the longer-term investor, value has started to emerge in the higher quality names within the sector. 

The other areas that performed well for the portfolio in the year were Aerospace & Defence and Pharmaceuticals. This is unsurprising under the circumstances as investors sought safe havens in traditional defensive sectors but we already had an overweight through Cobham and AstraZeneca in the respective sectors.

Portfolio Activity

As the Chairman has reported, the rapid deterioration within the global economy has resulted in us carrying out a detailed review of all the stocks held in the portfolio, to ensure that the investment proposition remains valid in what is likely to be a very challenging landscape for some time to come. The primary theme has been on balance sheet strength, to ensure these companies are in a position to endure the current cycle. In addition, the likelihood of a prolonged period of sub-par growth for the UK has increased, given the pressures to unwind the level of Government indebtedness in coming years. As a result, a secondary theme has been investing in businesses with strong international franchises and portfolio turnover, in terms of names introduced and exited, has run at a higher level than in previous years.

Balance sheet strength will also be an important factor in determining dividend payout capacity, as those over indebted companies are likely to seek additional capital and conserve cash through reducing and cancelling payouts. With this in mind, we exited some of our more highly-geared medium sized holdings, including Johnston Press and the above-mentioned Premier Foods. Whilst, in the current environment, the outlook for both businesses is widely divergent, Johnston Press is much more cyclical, with its exposure to advertising trends. Premier Foods should be more stable, selling branded staples. Both businesses have high levels of gearing introduced through acquisitions in better times. We have exited these holdings because we believe that they will require significant additional capital. Likewise, Barratt Developments was sold, again on the back of a heavily geared balance sheet driven by the acquisition of Wilson Bowden. We did, however, replace this with Persimmon who have a stronger balance sheet and stand to benefit from the structural undersupply in the UK housing market. While this holding is perhaps counterintuitive, it stems from our belief that, in the medium term, net new household formation combined with rates of obsolescence in the housing stock will eventually stabilise the market in volume terms. Persimmon is experienced in bringing land through tight planning regimes and also benefits from a substantial land bank from which to exploit any stabilisation in the market, and we believe it will emerge in a stronger position than many of its peers. 

In respect of Kesa, the investment theme was investing in a soundly financed business exposed to the European consumer rather than the UK. As trading conditions deteriorated during 2008, profitability came under significant pressure and the stock was sold as it came apparent that this would reduce scope for its dividend paying capacity.

With dividend strength particularly important, we have exited TT Group, Wolseley and BBA, all of whom should survive the cycle but whose priority is likely to be repaying debt before rewarding shareholders. 

There was also an opportunity to take capital from strong performers and whilst it seems hard to believe now, we benefited from the takeovers of Scottish & Newcastle and TDG earlier in the year. HMV had also held up well, especially given the outlook for the UK high street, so we took the decision to sell the holding.  

The last theme surrounding sales was a desire to reduce exposure to UK financials. We exited Lloyds TSB upon the announcement of the merger with HBOS. We were concerned that the latter's exposure to the wholesale market would destabilise the solid management of Lloyds. We also exited Royal Bank of Scotland following concerns that multiple rescues would have to come from the UK government, leaving equity holders with nothing. Unfortunately, this was not before we subscribed to their first rights issue; at the time we believed that it was sufficient to recapitalise the bank but this position changed dramatically with the de-gearing that occurred post Lehmans. We did participate in the Barclays recapitalisation, buying both the convertibles and preference shares. Both of these securities have a yield that is attractive to the portfolio and allow us future participation in a globally diverse bank with an attractive capital structure.

Going forward, we believe we have a solid portfolio of companies who have the financial strength to endure the current cycle, even if it does prove to be the worst in 100 years. However, we are cognisant that circumstances change so will continue to monitor holdings to ensure that the stocks within the portfolio are the ones that will emerge from the current malaise in a stronger competitive position and are able to exploit weaknesses in their traditional competition. We believe these building blocks will form the platform for sound portfolio performance over the coming years.

Rights issues are becoming increasingly common and over the course of the year, as well as Royal Bank of Scotland, we have supported Imperial Tobacco, Centrica and Standard Chartered. These have sought to strengthen their balance sheets for different purposes. In the case of Imperial Tobacco, to fund the acquisition of Altadis; for Centrica for the potential purchase of assets of British Energy; and for Standard Chartered, to bring its Tier 1 ratio in line with the strongest of its peers.

On concerns about global aviation, Rolls Royce has been weak over the year and we have seized on the opportunity to invest in it. Whilst we do expect the global slowdown to impact hours flown, Rolls Royce's order book is more exposed to the stronger airlines and towards more fuel efficient engines. In the meantime, they have a long book of higher margin service contracts which will help insulate profitability and cash flow. 

With unemployment rising, we introduced a new holding in BPP, a professional training firm. In the past this has proven to be counter cyclical as people seek to improve their skills in a tight employment market. Whilst it is too early to say if this is indeed the case this time round, initial signs are encouraging. 

We have a limited exposure to securities not listed in the UK and during the year we added to our European holdings by purchasing Linde, an industrials gas business. They have exposure to the healthcare market and contracted volumes which should prove defensive in the current environment. 

Overall, we believe the portfolio has strength in its diversification of strong businesses with attractive positions in their end markets. While earnings and dividends will be under considerable pressure this year, the market has moved a long way to discount some of these concerns, and we believe the portfolio is in robust shape to exploit the recovery when it eventually occurs. We continue to assess opportunities that fit with both aspects of the strategy and will seek to utilise our capital to the best available opportunities whilst still seeking to invest in businesses for which we see prospects for long-term dividend growth.

Stewart Methven

Aberdeen Asset Managers Limited

31 March 2009

3.    BUSINESS REVIEW 

The Board has prepared this Business Review in accordance with the requirements of Section 417 of the Companies Act 2006.  A review of the Company's activities is given in the Corporate Summary (in the full Report and Accounts), the Chairman's Statement and the Manager's Review. This includes a review of the business of the Company and its principal activities, likely future developments of the business, recommended dividend and details of acquisition of its own shares. The Board has adopted a matrix of the key risks that affect its business. Like most other companies, the present economic conditions represent the greatest challenge, and risk, to the Company. Beyond this the major risks associated with the Company are detailed in note 19 to the Financial Statements. Other risks include:

• Performance risk: A fall in the market value of the Company's portfolio would have an adverse effect on shareholders' funds. The NAV performance relative to the Index and the underlying stock weightings in the portfolio against the Index weightings are monitored closely by the Board.

• Discount volatility: The Company's share price can trade at a discount to its underlying net asset value. The Company operates a share buyback programme which is reviewed on a continuing basis.  

• Regulatory risk: The Company operates in a complex regulatory environment and faces a number of regulatory risks. Breaches of regulations, such as Section 842 of the Income and Corporation Taxes Act 1988, the UKLA Listing Rules and the Companies Act, could lead to a number of detrimental outcomes and reputational damage. The Audit Committee monitors compliance with regulations by reviewing internal control reports from the Manager.

Monitoring Performance - Key Performance Indicators

At each Board meeting, the Directors consider a number of performance measures to assess the Company's success in achieving its objectives. Below are the main key performance indicators (KPIs) which have been identified by the Board for determining the progress of the Company:

	Year ended 31 January 2009
Net asset value	156.89p (valuing debt at market value)
FTSE All-Share Index	2078.92
Discount	5.2% (valuing debt at market value)
Share price	141.25p
Total expense ratio	0.70%

In addition the Directors also consider net asset value total return, share price total return, dividend levels and revenue return per Ordinary share when reviewing KPIs. 

4.    STATEMENT OF DIRECTORS' RESPONSIBILITIES

The Directors are responsible for preparing the annual report & accounts and the financial statements, in accordance with applicable law and regulations.  

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with UK Accounting Standards.  

The financial statements are required by law to give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.  

In preparing these financial statements, the Directors are required to:  

• select suitable accounting policies and then apply them consistently;  

• make judgments and estimates that are reasonable and prudent;  

• state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and  

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

The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that its financial statements comply with the Companies Act 1985. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.  

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

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

We confirm that to the best of our knowledge:

• the financial statements, prepared in accordance with the applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and

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

Rory Macnamara

Audit Committee Chairman

31 March 2009

5.    INCOME STATEMENT 

		Year ended 31 January 2009			Year ended 31 January 2008
		Revenue	Capital	Total	Revenue	Capital	Total
	Notes	£'000	£'000	£'000	£'000	£'000	£'000
Losses on investments	9	-	(142,934)	(142,934)	-	(61,378)	(61,378)
Currency gains		-	26	26	-	16	16
Income	2	19,998	-	19,998	18,717	-	18,717
Investment management fee	3	(542)	(812)	(1,354)	(597)	(1,393)	(1,990)
VAT recoverable on investment management fees		306	714	1,020	-	-	-
Administrative expenses	4	(804)	-	(804)	(791)	-	(791)
		_______	_______	_______	_______	_______	_______
Net return before finance costs and taxation		18,958	(143,006)	(124,048)	17,329	(62,755)	(45,426)
Finance costs	5	(1,181)	(1,771)	(2,952)	(1,081)	(2,520)	(3,601)
		_______	_______	_______	_______	_______	_______
Return on ordinary activities before taxation		17,777	(144,777)	(127,000)	16,248	(65,275)	(49,027)
Taxation	6	(77)	-	(77)	(85)	-	(85)
		_______	_______	_______	_______	_______	_______
Return on ordinary activities after taxation		17,700	(144,777)	(127,077)	16,163	(65,275)	(49,112)
		_______	_______	_______	_______	_______	_______
Return per Ordinary share (pence):	8	11.72	(95.84)	(84.12)	10.58	(42.74)	(32.16)
		_______	_______	_______	_______	_______	_______
The column of this statement headed 'Total' represents the profit and loss account of the Company. A Statement of Total Recognised Gains and Losses has not been prepared as all gains and losses are recognised in the Income Statement. All revenue and capital items in the above statement derive from continuing operations. The accompanying notes are an integral part of the financial statements.

  6.     BALANCE SHEET 

		As at	As at
		31 January 2009	31 January 2008
	Notes	£'000	£'000
Non-current assets
Investments at fair value through profit or loss	9	272,729	425,578
		_________	_________
Current assets
Loans and receivables	10	5,227	5,404
Cash and short term deposits	17	5,199	3,004
		_________	_________
		10,426	8,408
		_________	_________
Creditors: amounts falling due within one year
Bank loan	11	(12,000)	(18,000)
Other creditors	11	(744)	(852)
		_________	_________
		(12,744)	(18,852)
		_________	_________
Net current liabilities		(2,318)	(10,444)
		_________	_________
Total assets less current liabilities		270,411	415,134
Creditors: amounts falling due after more than one year	12	(28,467)	(28,454)
		_________	_________
Net assets		241,944	386,680
		_________	_________
Capital and reserves
Called-up share capital	13	38,419	38,919
Share premium account		4,543	4,543
Capital redemption reserve		1,606	1,106
Capital reserve	14	173,398	320,332
Revenue reserve		23,978	21,780
		_________	_________
Equity Shareholders' funds		241,944	386,680
		_________	_________
Adjusted net asset value per Ordinary share (pence):	18	160.45	254.74
		_________	_________

  7.    RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS 

For the year ended 31 January 2009
			Share	Capital
		Share	premium	redemption	Capital	Revenue
		capital	account	reserve	reserve	reserve	Total
	Notes	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 31 January 2008		38,919	4,543	1,106	320,332	21,780	386,680
Return on ordinary activities after taxation		-	-	-	(144,777)	17,700	(127,077)
Dividends paid	7	-	-	-	-	(15,502)	(15,502)
Purchase of own shares	13	-	-	-	(2,157)	-	(2,157)
Cancellation of treasury shares	13	(500)	-	500	-	-	-
		_____	_______	________	_______	_______	_______
Balance at 31 January 2009		38,419	4,543	1,606	173,398	23,978	241,944
		_____	_______	________	_______	_______	_______
For the year ended 31 January 2008
			Share	Capital
		Share	premium	redemption	Capital	Revenue
		capital	account	reserve	reserve	reserve	Total
	Notes	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 31 January 2007		39,412	4,543	613	391,503	19,996	456,067
Return on ordinary activities after taxation		-	-	-	(65,275)	16,163	(49,112)
Dividends paid	7	-	-	-	-	(14,379)	(14,379)
Purchase of own shares	13	-	-	-	(5,896)	-	(5,896)
Cancellation of treasury shares	13	(493)	-	493	-	-	-
		_____	_______	________	_______	_______	_______
Balance at 31 January 2008		38,919	4,543	1,106	320,332	21,780	386,680
		_____	_______	________	_______	_______	_______

  8.    CASH FLOW STATEMENT 

		Year ended		Year ended
		31 January 2009		31 January 2008
	Notes	£'000	£'000	£'000	£'000
Net cash inflow from operating activities	15		17,821		16,405
Servicing of finance
Interest paid			(3,022)		(3,504)
Taxation
Overseas withholding tax paid			(77)		(85)
Financial investment
Purchases of investments		(47,253)		(76,795)
Sales of investments		58,359		86,979
Net cash inflow from financial investment			11,106		10,184
Equity dividends paid	7		(15,502)		(14,379)
			________		________
Net cash inflow before use of liquid resources and financing			10,326		8,621
Net cash inflow from management of liquid resources			-		950
			________		________
Net cash inflow before financing			10,326		9,571
Financing
Repayment of loans		(6,000)		(2,000)
Purchase of own shares		(2,157)		(5,896)
		________		________
Net cash outflow from financing			(8,157)		(7,896)
			________		________
Increase in cash			2,169		1,675
			________		________
Reconciliation of net cash flow to movements in net funds
Increase in cash as above			2,169		1,675
Exchange movements			26		16
			________		________
Movement in net funds in the period			2,195		1,691
Opening net funds			3,004		1,313
			________		________
Closing net funds			5,199		3,004
			________		________

9.    NOTES 

1.	Accounting policies
	(a)	Basis of preparation and going concern
		The financial statements have been prepared under the historical cost convention, as modified to include the revaluation of investments and in accordance with the applicable UK Accounting Standards and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (issued in January 2009 and adopted early). The early adoption of the January 2009 SORP had no effect on the financial statements of the Company, other than the requirement to separately disclose capital reserves that relate to the revaluation of investments held at the reporting date. These are disclosed in note 14. This new requirement replaces the previous requirement to disclose the value of the capital reserve that was unrealised. They have also been prepared on the assumption that approval as an investment trust will continue to be granted. The financial statements have been prepared on a going concern basis.
		The financial statements and the net asset value per share figures have been prepared in accordance with UK Generally Accepted Accounting Practice (UK GAAP).
	(b)	Revenue, expenses and interest payable
		Income from equity investments (other than special dividends), including taxes deducted at source, is included in revenue by reference to the date on which the investment is quoted ex-dividend. Special dividends are credited to revenue or capital according to the circumstances. Foreign income is converted at the exchange rate applicable at the time of receipt. Interest receivable on AAA rated money market funds and short term deposits and expenses are accounted for on an accruals basis. Income from underwriting commission is recognised as earned. Interest payable is calculated on an effective yield basis.
		Expenses are charged to capital when they are incurred in connection with the maintenance or enhancement of the value of investments. In this respect, the investment management fee and relevant finance costs are allocated between revenue and capital in line with the Board's expectation of returns from the Company's investments over the long-term in the form of revenue and capital respectively (see note 3).
	(c)	Investments
		Investments have been designated upon initial recognition as fair value through profit or loss. Investments are recognised and de-recognised at trade date where a purchase or sale is under a contract whose terms require delivery within the timeframe established by the market concerned, and are measured initially at fair value. Subsequent to initial recognition, investments are recognised at fair value through profit or loss. For listed investments, this is deemed to be bid market prices or closing prices for SETS stocks sourced from the London Stock Exchange. SETS is the London Stock Exchange electronic trading service covering most of the market including all FTSE All-Share and the most liquid AIM constituents. Gains or losses arising from changes in fair value are included in net profit or loss for the period as a capital item in the Income Statement.
	(d)	Dividends payable
		Interim and final dividends are recognised in the period in which they are paid.
	(e)	Capital reserves
		Gains or losses on disposal of investments and changes in fair values of investments are transferred to the capital reserve. The capital element of the management fee and relevant finance costs are charged to this reserve. Any associated tax relief is also credited to this reserve.
		The ordinary share capital on the Balance Sheet relates to the number of shares in issue and in treasury. Only when the shares are cancelled, either from treasury or directly, is a transfer be made to the capital redemption reserve.
	(f)	Taxation
		Deferred taxation is recognised in respect of all temporary differences that have originated but not reversed at the Balance Sheet date where transactions or events that result in an obligation to pay more or a right to pay less tax in future have occurred at the balance sheet date measured on an undiscounted basis and based on enacted tax rates. This is subject to deferred tax assets being recognised only if it is considered more likely than not that there will be suitable profits from which the future reversal of the underlying temporary differences can be deducted. Temporary differences are differences arising between the Company's taxable profits and its results as stated in the accounts which are capable of reversal in one or more subsequent periods.
		Owing to the Company's status as an investment trust, and the intention to continue meeting the conditions required to obtain approval in the foreseeable future, the Company has not provided deferred tax on any capital gains and losses arising on the revaluation or disposal of investments.
	(g)	Foreign currency
		The Company receives a small proportion of its investment income in foreign currency. These amounts are translated at the rate ruling on the date of receipt. Assets and liabilities in foreign currencies are translated at the rates of exchange ruling on the Balance Sheet date.
	(h)	Traded options
		The Company may enter into certain derivatives (eg options) to gain exposure to the market. The option contracts are accounted for as separate derivative contracts and are therefore shown in other assets or other liabilities at their fair value ie market value adjusted for the amortisation of transaction expenses. The premium received and fair value changes in the open position are recognised in the revenue column, losses realised on the exercise of the contracts are recorded in the capital column of the Income Statement.

		2009	2008
2.	Income	£'000	£'000
	Income from investments
	UK listed - franked	17,818	17,696
	UK listed - unfranked	614	135
	Overseas listed - unfranked	795	635
	Scrip dividends	76	-
		__________	__________
		19,303	18,466
		__________	__________
	Other income
	Interest from AAA rated money market funds	24	50
	Deposit interest	158	128
	Income on derivatives	336	-
	Income from stock lending	59	70
	Underwriting commission	118	3
		__________	__________
		695	251
		__________	__________
	Total income	19,998	18,717
		__________	__________
	During the year, the Company received premiums totalling £425,000 (2008 - nil) in exchange for entering into derivative transactions.  This also includes a mark to market on derivative contracts. All derivatives utilised were based on individual FTSE 100 stocks.
	At the year end there were four open positions, valued at £89,000 (2008 - nil).

		2009			2008
		Revenue	Capital	Total	Revenue	Capital	Total
3.	Investment management fee	£'000	£'000	£'000	£'000	£'000	£'000
	Investment management fee	542	812	1,354	527	1,230	1,757
	Irrecoverable VAT (where applicable)	-	-	-	70	163	233
		________	______	______	________	______	______
		542	812	1,354	597	1,393	1,990
		________	______	______	________	______	______
	The management fee paid to Aberdeen Asset Managers Limited (the 'Manager') for the year ended 31 January 2009 is calculated at 0.45% on the first £225 million, 0.35% on the next £200 million and 0.25% on amounts over £425 million per annum of the net assets of the Company, with debt at par and excluding commonly managed funds. The management fee is chargeable 40% (2008 - 30%) to revenue and 60% (2008 - 70%) to capital. There were no commonly managed funds held in the portfolio during the year to 31 January 2009 (2008 - none).

			2009	2008
4.	Administrative expenses		£'000	£'000
	Directors' fees		98	86
	Auditors' remuneration (excluding irrecoverable VAT):
	-	fees payable to the Company's auditor for the audit of the annual accounts	15	13
	-	fees payable to the Company's auditor and its associates for other services:
	-	interim review	4	3
	Investor Relations/Marketing Initiative		339	339
	Registrar's fees		73	65
	Printing and postage		41	44
	Irrecoverable VAT		88	86
	Other expenses		146	155
			_______	_______
			804	791
			_______	_______
	A payment of £339,000 (2008 - £339,000) was made to the Manager in respect of marketing and promotion of the Company.

		2009			2008
		Revenue	Capital	Total	Revenue	Capital	Total
5.	Finance costs	£'000	£'000	£'000	£'000	£'000	£'000
	Bank loan interest	275	412	687	401	935	1,336
	Debenture Stock - repayable after 5 years	901	1,351	2,252	676	1,576	2,252
	Amortised Debenture Stock premium and issue expenses	5	8	13	4	9	13
		_______	______	______	______	______	______
		1,181	1,771	2,952	1,081	2,520	3,601
		_______	______	______	______	______	______

		2009	2008
6.	Taxation	£'000	£'000
	Withholding tax on income from overseas investments	77	85
		________	________
	There is no liability to corporation tax for the year (2008 - £nil).
	At the year end, the Company had accumulated surplus management expenses and loan relationship losses of £102,263,000 (2008 - £99,304,000). These have been generated because such a large part of the Company's income is derived from dividends from UK companies.
	These losses are not recognised as a deferred tax asset because the Company is not expected to generate taxable income in a future period in excess of deductible expenses for that future period and, accordingly, is unlikely to be able to reduce future tax liabilities by offsetting these losses.
	Due to the Company's status as an investment trust and the intention to continue to meet the conditions required to obtain approval in the foreseeable future, the Company has not provided deferred tax on capital gains and losses arising on the revaluation or disposal of investments.

				2009		2008
7.	Dividends			£'000		£'000
	Amounts recognised as distributions to equity holders in the period:
	Final dividend for the year ended 31 January 2008 - 6.50p (2007 - 5.90p) paid 23 May 2008			9,849		9,046
	Interim dividend for the year ended 31 January 2009 - 3.75p (2008 - 3.50p) paid 7 October 2008			5,653		5,333
				_________		_________
	Dividends paid in the period			15,502		14,379
				_________		_________
	The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements.
	The table below sets out the total dividends paid and proposed in respect of the financial year, which is the basis upon which the requirements of Section 842 Income and Corporation Taxes Act 1988 are considered. The revenue available for distribution by way of dividend for the year is £17,700,000 (2008 - £16,163,000).
				2009		2008
				£'000		£'000
	Interim dividend for the year ended 31 January 2009 - 3.75p (2008 - 3.50p)			5,653		5,333
	Proposed final dividend of 6.50p (2008 - 6.50p) for the year ended 31 January 2009			9,796		9,852
				_________
				15,449		15,185
				_________		_________
	There have been no shares bought back since the year end and the proposed final dividend for 2009 is based on the latest share capital of 150,706,187 shares.
		2009			2008
8.	Return per Ordinary share	£'000	p		£'000		p
	Revenue return	17,700	11.72		16,163		10.58
	Capital return	(144,777)	(95.84)		(65,275)		(42.74)
		________	________		________		________
	Total return	(127,077)	(84.12)		(49,112)		(32.16)
		________	________		________		________
	Weighted average number of Ordinary shares in issue		151,058,809				152,717,658

			Listed	Listed
			2009	2008
9.	Investments		£'000	£'000
	Fair value through profit or loss:
	Opening fair value		425,578	501,706
	Opening investment holding gains		(26,971)	(112,674)
			__________	__________
	Opening book cost		398,607	389,032
	Purchases at cost		47,174	76,538
	Sales	- proceeds	(57,089)	(91,288)
		- realised (losses)/gains	(51,557)	24,325
	Loss on traded option contracts		(169)	-
			__________	__________
	Closing book cost		336,966	398,607
	Closing investment holdings (losses)/gains		(64,237)	26,971
			__________	__________
	Closing fair value		272,729	425,578
			__________	__________
			2009	2008
	(Losses)/gains on investments		£'000	£'000
	Realised (losses)/gains on sales		(51,557)	24,325
	Loss on traded option contracts		(169)	-
	Decrease in investment holdings (losses)/gains		(91,208)	(85,703)
			__________	__________
			(142,934)	(61,378)
			__________	__________
	Transaction costs
	During the year expenses were incurred in acquiring or disposing of investments classified as fair value through profit or loss. These have been expensed through capital and are included within losses on investments in the Income Statement. The total costs were as follows:
			2009	2008
			£'000	£'000
	Purchases		215	477
	Sales		76	88
			__________	__________
			291	565
			__________	__________
			2009	2008
	Stock lending details		£'000	£'000
	Aggregate value of securities on loan at the year end		-	46,971
	Maximum aggregate value of securities on loan during the year		92,268	61,008
	Fee income (gross) from stock lending during the year		59	70
	All stocks lent under these arrangements were fully secured against collateral provided by the various counterparties involved. The value of the collateral held at 31 January 2009 was £nil which comprised overseas government stocks and corporate bonds (2008 - £51,917,000). Stock lending arrangements were suspended during the year.

		2009	2008
10.	Debtors: amounts falling due within one year	£'000	£'000
	Amounts due from stockbrokers	3,039	4,309
	Net dividends and interest receivable	1,020	1,027
	Tax recoverable	54	27
	VAT recoverable	1,020	-
	Other loans and receivables	94	41
		__________	__________
		5,227	5,404
		__________	__________

11.	Creditors: amounts falling due within one year
	(a)	Bank loan
		On 1 August 2008, the Company entered into an agreement with Royal Bank of Scotland plc to provide a loan facility for up to £30,000,000, replacing the previous agreement with ING Bank N.V.. Under this agreement £15,000,000 was drawn down at 1 August 2008 of which £3,000,000 was repaid during the year. At 31 January 2009 £12,000,000 remained drawn down which subsequent to the year end has been reduced to £2,000,000. On 27 March 2009 the loan was rolled over at a rate of 0.9037%. The covenant that gross borrowings should not exceed 30% of adjusted assets has been met throughout the year and up to the date this report was signed.
			2009	2008
	(b)	Other creditors	£'000	£'000
		Amounts due to stockbrokers	-	79
		Debenture Stock and bank loan interest	569	652
		Traded option contracts	89	-
		Sundry creditors	86	121
			__________	__________
			744	852
			__________	__________

		2009	2008
12.	Creditors: amounts falling due after more than one year	£'000	£'000
	7⅞% Debenture Stock 2019 (issued in 1997)	28,600	28,600
	Unamortised Debenture Stock premium and issue expenses	(133)	(146)
		__________	__________
	Amortised cost of Debenture Stock	28,467	28,454
		__________	__________
	The 7⅞% Debenture Stock is due to be redeemed at par on 30 April 2019 and interest is payable in half-yearly instalments in April and October. The Debenture Stock is secured by a floating charge over the whole of the assets of the Company. The Company has complied with the Debenture Stock Trust Deed that total borrowings should not be greater than adjusted capital and reserves throughout the year and up to the date this report was signed.
	The market value of the Debenture Stock as at 31 January 2009 was £33,965,000 (2008 - £33,759,000), the value being calculated per the disclosure in note 19. The effect on the net asset value of deducting the Debenture Stock at market value rather than at par is disclosed in note 18.

		2009	2008
13.	Called-up share capital	£'000	£'000
	Authorised:
	196,640,000 (2008 - 196,640,000) Ordinary shares of 25p each - equity	49,160	49,160
		__________	__________
	Allotted, called up and fully paid:
	150,706,187 (2008 - 151,732,194) Ordinary shares of 25p each - equity	37,676	37,933
	Treasury shares:
	2,971,748 (2008 - 3,945,741) Ordinary shares of 25p each - equity	743	986
		__________	__________
		38,419	38,919
		__________	__________
	During the year the Company repurchased 1,026,007 Ordinary shares (2008 - 2,237,440) at a cost of £2,157,000 (2008 - £5,896,000) including expenses. All of these shares were placed in treasury. This represents 0.68% of the Company's issued share capital at 31 January 2009.
	During the year 2,000,000 treasury shares were cancelled (2008 - 1,972,800).

		2009	2008
14.	Capital reserve	£'000	£'000
	At 31 January 2008	320,332	391,503
	Net (losses)/profits on sales of investments during the year	(51,557)	24,325
	Movement in investment holdings gains during the year	(91,208)	(85,703)
	Loss on traded option contracts	(169)	-
	Purchase of own shares	(2,157)	(5,896)
	Currency gains	26	16
	Finance costs of borrowings (note 5)	(1,771)	(2,520)
	Investment management fee	(812)	(1,393)
	VAT recoverable on management fees	714	-
		__________	__________
	At 31 January 2009	173,398	320,332
		__________	__________

15.	Reconciliation of net return before finance costs and	2009	2008
	taxation to net cash inflow from operating activities	£'000	£'000
	Net return on ordinary activities before finance costs and taxation	(124,048)	(45,426)
	Adjustment for:
	Losses on investments	142,934	61,378
	Currency gains	(26)	(16)
	Decrease in accrued income	7	479
	Increase in other debtors	(1,100)	(21)
	Increase in other creditors	54	11
		__________	__________
		17,821	16,405
		__________	__________

		Equity share capital		Equity share capital
		(including premium)	Debenture stock	(including premium)	Debenture stock
		2009	2009	2008	2008
16.	Analysis of changes in financing during the year	£'000	£'000	£'000	£'000
	Opening balance at 31 January 2008	43,462	28,454	43,955	28,441
	Movement in unamortised Debenture Stock discount and issue expenses	-	13	-	13
	Cancellation of treasury shares	(500)	-	(493)	-
		__________	__________	__________	__________
	Closing balance at 31 January 2009	42,962	28,467	43,462	28,454
		__________	__________	__________	__________
	The ordinary share capital on the Balance Sheet relates to the number of shares in issue and in treasury. Only when the shares are cancelled, either from treasury or directly, should a transfer be made to the capital redemption reserve.

		At 31 January		Amortisation of issue expenses	At 31 January
		2008	Cash flow	and premium	2009
17.	Analysis of changes in net debt	£'000	£'000	£'000	£'000
	Cash and short term deposits	3,004	2,195	-	5,199
	Debt due within one year	(18,000)	6,000	-	(12,000)
	Debt due after more that one year	(28,454)	-	(13)	(28,467)
		__________	__________	__________	__________
	Net debt	(43,450)	8,195	(13)	(35,268)
		__________	__________	__________	__________

18.	Net asset value per share
	Equity shareholders' funds have been calculated in accordance with the provisions of Financial Reporting Standard 4 'Capital Instruments'. The analysis of equity shareholders' funds on the face of the Balance Sheet does not reflect the rights under the Articles of Association of the Ordinary shareholders on a return of assets. These rights are reflected in the net asset value and the net asset value per share attributable to Ordinary shareholders at the year end, adjusted to reflect the deduction of the Debenture Stock at par. A reconciliation between the two sets of figures is as follows:
		2009	2008
	Equity shareholders' funds	£241,944,000	£386,680,000
	Adjusted net assets	£241,811,000	£386,534,000
	Number of equity shares in issue at year end{A}	150,706,187	151,732,194
	Equity shareholders' funds per share	160.54p	254.84p
	Less: Unamortised Debenture Stock premium and issue expenses	(0.09p)	(0.10p)
		___________	___________
	Adjusted net asset value per share	160.45p	254.74p
		___________	___________
	{A} excluding shares held in treasury
	The net asset value per share at 31 January 2009, adjusted to include the Debenture Stock at market value rather than at par is 156.89p (2008 - 251.35p).
	The movements during the year of the assets attributable to the Ordinary shares were as follows:
		2009	2008
		£'000	£'000
	Opening adjusted net assets	386,534	455,908
	Capital return for the year	(144,777)	(65,275)
	Revenue on ordinary activities after taxation	17,700	16,163
	Dividends appropriated in the year	(15,502)	(14,379)
	Movement in unamortised Debenture Stock premium and issue expenses	13	13
	Purchase of own shares	(2,157)	(5,896)
		___________	___________
	Closing adjusted net assets	241,811	386,534
		___________	___________

19.	Financial instruments
	The Company's financial instruments comprise securities and other investments, cash balances, loans and debtors and creditors that arise directly from its operations; for example, in respect of sales and purchases awaiting settlement, and debtors for accrued income. The Company also has the ability to enter into derivative transactions in the form of forward foreign currency contracts and futures and options for the purpose of managing currency and market risks arising from the Company's activities.
	During the year, the Company entered into certain derivative contracts. Positions closed during the year realised a capital loss of £169,000 (2008 - £nil). As disclosed in note 2 the premium received and fair value changes in respect of options written in the year was £336,000. The largest position in derivative contracts held during the year at any given time was £103,000 (2008 - £nil). The Company had four open positions in derivative contracts at 31 January 2009 valued at £89,000 (2008 - nil).
	Risk management
	The Manager has a dedicated investment management process, which ensures that the investment policy is followed. Stock selection procedures are in place based on active portfolio management and identification of stocks. The portfolio is reviewed on a periodic basis by a Senior Investment Manager and also by the Manager's Investment Committee.
	The Manager has an independent Investment Risk department for reviewing the investment risk parameters of the Company's portfolio on a regular basis. The department reports to the Manager's Performance Review Committee which is chaired by the Manager's Chief Investment Officer. The department's responsibility is to review and monitor ex-ante (predicted) portfolio risk and style characteristics using best practice, industry standard multi-factor models. During the past year these have highlighted both the highest market volatility on record and an increased correlation in equity share price movements.
	Additionally, the Manager's Compliance department continually monitors the Company's investment and borrowing powers and reports to the Manager's Risk Management Committee.
	The main risks the Company faces from its financial instruments are (i) market risk (comprising interest rate risk, currency risk and other price risk), (ii) liquidity risk and (iii) credit risk.
	The Board regularly reviews and agrees policies for managing each of these risks. The Manager's policies for managing these risks are summarised below and have been applied throughout the year. The numerical disclosures exclude short-term debtors and creditors, other than for currency disclosures.
	(i) Market risk
	The fair value or future cash flows of a financial instrument held by the Company may fluctuate because of changes in market prices. This market risk comprises three elements - interest rate risk, currency risk and other price risk.
	Interest rate risk
	Interest rate movements may affect:
	- the fair value of the investments in fixed interest rate securities;
	- the level of income receivable on cash deposits; and
	- interest payable on the Company's variable rate borrowings.
	The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account when making investment and borrowing decisions.
	Interest risk profile
	The interest rate risk profile of the portfolio of financial assets and liabilities at the Balance Sheet date was as follows:

		Weighted
		average	Weighted
		period for which	average	Fixed	Floating
		rate is fixed	interest rate	rate	rate
	At 31 January 2009	Years	%	£'000	£'000
	Assets
	Sterling	5.95	5.13	2,725	5,199
		_________	_________	_______	_______
	Total assets	-	-	2,725	5,199
		_________	_________	_______	_______
		Weighted
		average	Weighted
		period for which	average	Fixed	Floating
		rate is fixed	interest rate	rate	rate
		Years	%	£'000	£'000
	Liabilities
	Bank loans	0.02	1.86	(12,000)	-
	Debenture Stock	10.25	7.87	(28,467)	-
		_________	_________	_______	_______
	Total liabilities	-	-	(40,467)	-
		_________	_________	_______	_______
		Weighted
		average	Weighted
		period for which	average	Fixed	Floating
		rate is fixed	interest rate	rate	rate
	At 31 January 2008	Years	%	£'000	£'000
	Assets
	Sterling	-	5.50	-	3,004
		_________	_________	_______	_______
	Total assets	-	-	-	3,004
		_________	_________	_______	_______
		Weighted
		average	Weighted
		period for which	average	Fixed	Floating
		rate is fixed	interest rate	rate	rate
		Years	%	£'000	£'000
	Liabilities
	Bank loans	0.01	6.09	(18,000)	-
	Debenture Stock	11.24	7.87	(28,454)	-
		_________	_________	_______	_______
	Total liabilities	-	-	(46,454)	-
		_________	_________	_______	_______

	The weighted average interest rate is based on the current yield of each asset, weighted by its market value. The weighted average interest rate on bank loans is based on the interest rate payable, weighted by the total value of the loans. The maturity dates of the Company's borrowings are shown in notes 11 and 12 to the financial statements.
	The floating rate assets consist of cash deposits on call earning interest at prevailing market rates.
	The Company's equity portfolio and short-term debtors and creditors (excluding bank loans) have been excluded from the above tables. All financial liabilities are measured at amortised cost.
	Interest rate sensitivity
	The sensitivity analyses below have been determined based on the exposure to interest rates at the Balance Sheet date and the stipulated change taking place at the beginning of the financial year and held constant throughout the reporting period in the case of instruments that have floating rates.
	If interest rates had been 100 basis points higher and all other variables were held constant, the Company's:
	- profit before tax for the year ended 31 January 2009 would increase by £52,000 (2008 - increase by £30,000) and had interest rates been 100 basis points lower the converse would apply. This is attributable to the Company's exposure to interest rates on its floating rate cash balances.
	- the Company holds no financial instruments that will have an equity reserve impact.
	In the opinion of the Directors, the above sensitivity analyses are not representative of the year as a whole, since the level of exposure changes frequently as part of the interest rate risk management process used to meet the Company's objectives.

	Foreign currency risk
	A small proportion of the Company's investment portfolio is invested in overseas securities whose values are subject to fluctuation due to changes in foreign exchange rates. In addition, the impact of changes in foreign exchange rates upon the profits of investee companies can result, indirectly, in changes in their valuations. Consequently the Balance Sheet can be affected by movements in exchange rates and it is not the Company's policy to hedge this risk.
	The revenue account is subject to currency fluctuations arising on dividends paid in foreign currencies, and, indirectly due to the impact of foreign exchange rates upon the profits of investee companies. The Company does not hedge this currency risk.
	Foreign currency risk exposure by currency of denomination:

		31 January 2009			31 January 2008
			Net	Total		Net	Total
			monetary	currency		monetary	currency
		Investments	assets	exposure	Investments	assets	exposure
		£'000	£'000	£'000	£'000	£'000	£'000
	Euro	13,219	28	13,247	12,431	-	12,431
	Sterling	259,510	(30,946)	228,564	413,147	(39,044)	374,103
		_________	_________	_________	_________	_________	_________
	Total	272,729	(30,918)	241,811	425,578	(39,044)	386,534
		_________	_________	_________	_________	_________	_________
	The asset allocation between specific markets can vary from time to time based on the Manager's opinion of the attractiveness of the individual stocks in these markets.
	Foreign currency sensitivity
	There is no sensitivity analysis included as the Board believes the amount exposed to foreign currency denominated monetary assets to be immaterial. Where the Company's equity investments (which are non-monetary items) are priced in a foreign currency, they have been included within the other price risk sensitivity analysis so as to show the overall level of exposure.
	Other price risk
	Other price risks (ie changes in market prices other than those arising from interest rate or currency risk) may affect the value of the quoted investments.
	It is the Board's policy to hold an appropriate spread of investments in the portfolio in order to reduce the risk arising from factors specific to a particular sector. Both the allocation of assets and the stock selection process act to reduce market risk. The Manager actively monitors market prices throughout the year and reports to the Board, which meets regularly in order to review investment strategy. The investments held by the Company are listed on various stock exchanges in the UK and Europe.
	Other price risk sensitivity
	If market prices at the Balance Sheet date had been 10% higher while all other variables remained constant, the return attributable to ordinary shareholders for the year ended 31 January 2009 would have increased by £27,273,000 (2008 - increase of £42,558,000) and equity reserves would have increased by the same amount. Had market prices been 10% lower the converse would apply.
	(ii) Liquidity risk
	This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities.
	The Board imposes borrowing limits to ensure gearing levels are appropriate to market conditions and reviews these on a regular basis. Borrowings comprise Debenture Stock and a revolving facility. The Debenture Stock provides secure long-term funding while short term flexibility is achieved through the borrowing facility. It is the Board's policy to maintain a gearing level, measured on the most stringent basis of calculation after netting off cash equivalents, of less than 30% at all times. Details of borrowings at the 31 January 2009 are shown in notes 11 and 12.
	Liquidity risk is not considered to be significant as the Company's assets comprise mainly cash and listed securities, which can be sold to meet funding commitments if necessary. Short-term flexibility is achieved through the use of loan and overdraft facilities, details of which can be found in note 11. Under the terms of the loan facility, the Manager provides the lender with loan covenant reports on a monthly basis, to provide the lender with assurance that the terms of the facility are not being breached. The Manager will also review the credit rating of a lender on a regular basis. Details of the Board's policy on gearing are shown in the interest rate risk section of this note.
	Liquidity risk exposure
	At 31 January 2009 and 31 January 2008 the amortised cost of the Company's Debenture Stock was £28,467,000 and £28,454,000 respectively. This is due to be redeemed at par on 30 April 2019. At 31 January 2009 and 31 January 2008 the Company's bank loans, amounted to £12,000,000 and £18,000,000, respectively. The facility is committed until 31 July 2009 and subsequent to 31 January 2009 the amount outstanding was reduced to £2,000,000.
	(iii) Credit risk
	This is failure of the counterparty to a transaction to discharge its obligations under that transaction that could result in the Company suffering a loss.
	The Company considers credit risk not to be significant as it is actively managed as follows:
	- investment transactions are carried out with a large number of brokers, whose credit standing is reviewed periodically by the Manager, and limits are set on the amount that may be due from any one broker;
	- the risk of counterparty exposure due to failed trades causing a loss to the Company is mitigated by the review of failed trade reports on a monthly basis. In addition, the custodian carries out a stock reconciliation to third party administrators' records on a monthly basis to ensure discrepancies are picked up on a timely basis. The Manager's Compliance department carries out periodic reviews of the custodian's operations and reports its finding to the Manager's Risk Management Committee. This review will also include checks on the maintenance and security of investments held;
	- the risk of counterparty exposure due to stock lending (as detailed in note 9) is mitigated by the review of collateral positions provided daily by the various counterparties involved;
	- cash is held only with reputable banks whose credit ratings are monitored on a regular basis.
	Other than the assets which have been loaned out under the Company's stock lending programme during the year (see note 9), none of the Company's financial assets is secured by collateral or other credit enhancements.
	Credit risk exposure
	In summary, compared to the amounts in the Balance Sheet, the maximum exposure to credit risk at 31 January was as follows:

		2009		2008
		Balance	Maximum	Balance	Maximum
		Sheet	exposure	Sheet	exposure
		£'000	£'000	£'000	£'000
	Current assets
	Fixed Interest Securities	2,725	2,725	-	-
	Debtors and prepayments	5,227	5,227	5,404	5,404
	Cash and short term deposits	5,199	5,199	3,004	3,004
		_________	_________	_________	_________
		13,151	13,151	8,408	8,408
		_________	_________	_________	_________
	None of the Company's financial assets is past due or impaired.
	Fair values of financial assets and financial liabilities
	The fair value of borrowings has been calculated at £45,965,000 as at 31 January 2009 (2008 - £51,759,000) compared to an accounts value in the financial statements of £40,600,000 (2008 - £46,600,000) (note 11). The fair value of each loan is determined by aggregating the expected future cash flows for that loan discounted at a rate comprising the borrower's margin plus an average of market rates applicable to loans of a similar period of time and currency. All other assets and liabilities of the Company are included in the Balance Sheet at fair value.

20.	Contingent asset
	On 5 November 2007, the European Court of Justice ruled that management fees on investment trusts should be exempt from VAT. HMRC has announced its intention not to appeal against this ruling to the UK VAT Tribunal and therefore protective claims which have been made in relation to the Company will be processed by HMRC in due course.
	The Company has accepted the Manager's offer to refund £1,020,000 to the Company, representing all VAT charged on investment management fees for the period 1 January 2004 to 31 October 2007; this has been recognised in these financial statements and has been allocated to revenue and capital respectively, in accordance with the accounting policy of the Company for the periods in which the VAT was charged. The amount for earlier periods and the timescale for receipt are at present uncertain and the Company has therefore taken no account in these financial statements of any such repayment.
	It is expected that repayments will be made by HMRC to the Manager in respect of VAT which has been charged on the Company's investment management fees in periods prior to 1 January 2004. The Manager has undertaken to pass these amounts on to the Company, including any interest received, without undue delay. The Manager is at present awaiting HMRC's confirmation of the amounts to be received and these are expected to come in two further tranches, one for VAT paid from 2001 to 2003 and the second covering the period from 1990 to 1996. The timing of these payments is not certain, although we would expect the total amount, covering both those earlier periods, to be in excess of £1,000,000 plus interest, which will, once again, be split in accordance with the prevailing accounting policy.
	The Company has not been charged VAT on its investment management fees from 1 November 2007.

21.	Capital management policies and procedures
	The Company's capital management objectives are:
	- to ensure that the Company will be able to continue as a going concern; and
	- to maximise the return to its equity shareholders through an appropriate balance of equity capital and debt.
	The capital of the Company consists of equity, comprising issued capital, reserves and retained earnings.
	The Board monitors and reviews the broad structure of the Company's capital. This review includes the nature and planned level of gearing, which takes account of the Manager's views on the market and the extent to which revenue in excess of that which is required to be distributed should be retained. The Company is not subject to any externally imposed capital requirements.

22.    The financial information for the year ended 31 January 2008 has been extracted from the Annual Report and Accounts of the Company which have been filed with the Registrar of Companies. The auditors' report on those accounts was unqualified. We expect to deliver the 2009 statutory accounts to the Registrar of Companies following the Company's Annual General Meeting which will be held at Aberdeen Asset Management PLC, 40 Princes Street, Edinburgh EH2 2BY on Wednesday 20 May 2009 at 12 noon.

23.    The Annual Report and Accounts will be posted to shareholders mid April 2009 and copies will be available from the registered office of the Manager and on the Company's website, www.dunedinincomegrowth.co.uk.

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

 

END

 

 

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