Circ re Future of the Company

Edinburgh Small Companies Trust plc
12 October 2006



EDINBURGH SMALL COMPANIES TRUST PLC

THE FUTURE OF THE COMPANY

11 October 2006

Introduction

Further to Shareholders' approval of the resolutions proposed at the Company's
extraordinary general meeting of 14 August 2006, the Company today announces
proposals which provide a mechanism for the Company to continue whilst
recognising that some Shareholders wish to receive cash for their investment.  A
circular containing full details of the Proposals is being posted to
Shareholders today.

Background to the Proposals

On 20 July 2006 the Company announced proposals for the future of the Company
following the receipt of a requisition to convene an EGM on behalf of funds
managed by Laxey, the Company's largest Shareholder, at which a proposal for a
return of capital put forward by them was to be considered.

The Directors believe that the Company has benefited from the excellent
performance of Standard Life Investments ('SLI') as investment manager over the
last three years and concur with SLI's positive outlook for the Company's
investments and for the UK smaller companies sector.

In summary the Board's proposals are designed to:

•                     provide for the continuation of the Company which, since
the appointment of SLI as manager, has been one of the best performing trusts in
the UK smaller companies sector;

•                     provide for a Tender Offer for up to 50 per cent. of the
Shares and a proportionate reduction in the level of the Company's long term
gearing;

•                     introduce a pre-determined discount management policy for
the Company; and

•                     provide for a default mechanism whereby, if the Tender
Offer were oversubcribed such that the Company was no longer considered viable
in size, the Company would be liquidated and Shareholders offered a tax
efficient roll-over into a sub-fund of an open ended investment company with an
investment mandate similar to the Company's, or a cash exit.

These proposals were put forward both as a response to the resolution put
forward by Laxey and following discussions with other major Shareholders, the
majority of whom were supportive of the continuation of the Company with its
current investment mandate and manager, subject to the Company maintaining a
viable size.

The same EGM also granted the Board authority to apply to the Court of Session
to cancel the Company's capital redemption reserve and apply the resultant
credit towards a distributable reserve, out of which the Tender Offer would be
funded. This Court process is ongoing and is expected to be completed prior to
the proposed implementation date of the Tender Offer.

As set out in the circular of 20 July 2006, the Board considers that
Shareholders voting in favour of the resolutions at the extraordinary general
meeting on 14 August 2006 were providing approval for the Board to bring forward
the Proposals and the documentation associated with them.

The Company and its management

The Company was launched in 1993 and was originally managed by Edinburgh Fund
Managers. SLI was appointed as the Company's investment manager with effect from
1 September 2003.

The table below sets out the Company's performance record and that of the
Company's benchmark:

                                                                           Total return performance to
                                                                                  6 October 2006
                                                                      1 year       2 years      3 years
Edinburgh Small Companies NAV per Share                               37.3%        75.0%        91.7%
Hoare Govett Smaller Companies Index (excluding investment companies) 26.9%        59.1%        84.7%
Ranking of Edinburgh Small Companies NAV performance within UK        1 of 17      2 of 17      6 of 17
smaller Companies Trust sector


Source: Thompson Financial Datastream. NAV per Share calculated on a diluted
basis with the Debenture Stock at its par value.

The Proposals

Introduction

In structuring the Proposals the Board has sought to provide a mechanism to
continue the Company and provide some assurance as to its minimum size, while
also recognising that there are a number of Shareholders who wish to realise
their investment in the Company for cash. For these reasons, the Board is
proposing a tender offer for up to 50 per cent. of the Shares (which is
considered the maximum amount of capital that can be returned without
jeopardising the viability of the Company) and a default mechanism whereby,
should the Tender Offer be oversubscribed, the Company would be placed into
members' voluntary liquidation via a scheme of reconstruction.

The Tender Offer

The Tender Offer is being made for up to 33,702,373 Shares representing 50 per
cent. of the Company's issued share capital.

The Tender Offer will be satisfied by the realised value of that proportion of
the Company's net assets that matches the proportion of the Shares tendered
under the Tender Offer.  The Tender Price will therefore only be determined once
the Company's assets have been allocated between the Continuing Pool and the
Tender Pool (on the basis of valid Tender Forms received) and the assets in the
Tender Pool have been realised.

The Company has been granted the authority to redeem approximately the same
proportion of the Debenture Stock pro rata to the Shares acquired by the Company
following the Tender Offer. By this mechanism, it is intended that the gearing
level of the Company will be unchanged by the implementation of the Tender
Offer.

Discount Management Policy

If the Tender Offer is implemented and the Company continues, the Board intends
to implement a discount management policy, through the use of share buy backs,
in order to substantially and permanently reduce the level of discount at which
the Shares trade. The Board intends to seek annual share buy back authorities to
repurchase Shares, subject to its discretion and normal market conditions, with
a view to limiting to 5 per cent. the discount to Net Asset Value (with the
Debenture Stock valued at its repayment price in calculating Net Asset Value) at
which the Shares trade over the long term.

Default Scheme for Winding-up and Reconstruction

As set out above, the Board proposes that the Company should continue only if it
is of a viable size, which it has determined would require not more than 50 per
cent. of the Shares to be tendered under the Tender Offer. The Board is
therefore also putting forward resolutions seeking Shareholder approval in the
event the Tender Offer is oversubscribed to implement a default scheme whereby
the Company would be wound up and reconstructed. The Default Scheme will involve
a members' voluntary liquidation of the Company and will provide for
Shareholders to remain invested in a portfolio of UK smaller companies managed
by Standard Life Investments by rolling over some or all of their investment in
the Company into the UK Smaller Companies Fund.

Alternatively, under the Default Scheme, Shareholders may elect to receive the
realised net cash value in respect of some or all of their Shares.

UK Smaller Companies Fund

The UK Smaller Companies Fund is a sub-fund of SLIC, an open ended investment
company (OEIC), launched as a unit trust in 1997 and converted to an OEIC in
1998. The fund has net assets as at 6 October 2006 of £206.6 million. It aims to
provide capital growth over the longer term through investment in smaller
companies in the UK equity market (excluding investment companies).

Debenture Stock

The Company currently has outstanding £18.7 million nominal amount of 7.75 per
cent. Debenture Stock 2023.

If a significant proportion of the Company's capital were returned to
Shareholders through the Tender Offer, with no adjustment to the amount of
Debenture Stock outstanding, the gearing level for remaining Shareholders would,
in the Board's opinion, be unsustainably high.

The Company therefore obtained the support of a number of the largest Debenture
Stockholders for an early repayment of some or all of the Debenture Stock.

The meeting of the Debenture Stockholders required to approve this repayment was
held on 18 September 2006 and granted the Company the authority to redeem a
proportion of the Debenture Stock prior to its maturity should the Tender Offer
be implemented or to redeem the Debenture Stock in full should the Default
Scheme proceed. In each case, the Debenture Stock will be redeemed at the higher
of par and the price at which the gross redemption yield on the Debenture Stock
is equal to the gross redemption yield on the 8 per cent. Treasury Stock 2021
plus 0.1 per cent., together in each case with accrued interest. The Board has
been advised that it is reasonable to assume that the repayment value will be
modestly lower than would be payable on a full repayment of the Debenture Stock
on the terms set out in the Debenture Stock Trust Deed. For illustrative
purposes only, it is estimated that if the Company's redemption right had been
exercised as at close of business on 6 October 2006 the repayment value under
the Proposals of £100 nominal of the Debenture Stock would have been £136.47.

If the Tender Offer proceeds, the early pro rata redemption of the Debenture
Stock will occur prior to the Tender Pool Determination Date. If the Tender
Offer does not proceed and the Default Scheme is implemented, the redemption of
the full amount of the Debenture Stock will occur prior to the Second EGM.

Financial Evaluation of the Proposals

The table below shows the estimated financial effects of the Proposals based on
the diluted Net Asset Value per Share with debt at market value as at close of
business on 6 October 2006 of 117.5p and based on the other assumptions set out
below. The Default Scheme will only be implemented if the Tender Offer is
oversubscribed.

                                                       Tender Offer              Default Scheme

                                                             Discount                   Discount
                                                             to NAV                     to NAV
                                                             per Share                  per Share
                                                Estimated    with debt at  Estimated    with debt at
                                                Value        market value  Value        market value

Election for cash                               108.7p       7.5%          108.0p       8.1%

NAV for continued investment                    117.5p(1)    0.0%          113.3p(2)    3.6%


(1) - Represents estimated diluted NAV per Share with debt at market value.

(2) - Represents estimated diluted Net Asset Value per Share immediately prior to
transfer of assets under the Default Scheme.

Assumptions

In the table above, under the Tender Offer it is assumed that 50 per cent. of
the Shares are repurchased for cash and that, under the Default Scheme, 60 per
cent. of the Shares elect to receive cash. Under the Tender  Offer, the
proportion of the Debenture Stock repaid will be pro rata to the proportion of
the Shares purchased under the Tender Offer, and, under the Default Scheme, all
the Debenture Stock is repaid, in each case at 136.47p per 100p in nominal
value.

Portfolio realisation costs are assumed at 3 per cent. of the assets realised.
The other net costs of the Tender Offer are estimated as £0.51 million (which
includes stamp duty of 0.5 per cent. of the value of the Shares repurchased
under the Tender Offer); other net costs of the liquidation are estimated as
£0.89 million (which includes stamp duty of 0.5 per cent. of the value of the
assets rolled over under the Scheme and contractual termination costs). No
account has been taken of income accrued during the current financial year or of
any liquidation retention.

Account has been taken of the value due to Warrantholders in accordance with the
Deed Poll. It is assumed that holders of 50 per cent. of the Warrants elect to
participate in the Warrant Offer and that such Warrants receive a payment
representing the amount by which the diluted value attributable to each Share
tendered exceeds the Warrant exercise price. It is assumed that under the
Default Scheme Warrantholders receive a payment of 22.9p per Warrant and the
Warrants are subsequently cancelled.

Realisation of the Company's Assets

Under the Tender Offer

The Manager will seek to protect the cash value returned to Exiting Shareholders
under the Tender Offer while at the same time protecting the Net Asset Value of
ongoing Shareholders. It is intended that the assets comprising the Tender Pool
will be realised such that cash payments can be made to the relevant
Shareholders no later than 22 December 2006. However, under the Tender Offer,
the Company reserves the right to defer portfolio realisations and/or cash
payments if the Board believes this to be in the interests of Shareholders as a
whole.

Under the Default Scheme

The Manager will seek to maximise the cash value returned to those Shareholders
electing for a return of capital under the Default Scheme. It is intended that
the assets comprising the Default Scheme Cash Pool will be realised such that
cash payments in respect of the initial liquidation distribution can be made to
the relevant Shareholders no later than 22 December 2006. The Manager has agreed
to carry out the realisation of the assets comprising the Default Scheme Cash
Pool in accordance with the timetable above.

Warrants

There are 3,030,532 Warrants in existence as at 30 September 2006 entitling the
holders to subscribe for the same number of Shares at an exercise price of 100p
per Share. Such subscription rights are generally exercisable on 30 September
each year up to and including 2008. The terms of the Warrants are governed by
the Deed Poll.

Proposed Amendment to the Deed Poll and the Warrant Offer

The Deed Poll currently provides that Warrantholders will be able to participate
in the Tender Offer by exercising their subscription rights and becoming a
holder of Shares. The Board believes this is unduly cumbersome for
Warrantholders as it would involve their having to pay the subscription monies
in advance and then have to wait for a period of time until the Tender Price had
been determined and any resultant monies paid to them.

The Company is therefore proposing that the terms of the Deed Poll be amended to
enable Warrantholders to tender their Warrants through the Warrant Offer,
without having to exercise their subscription rights in advance.

Any Warrants in respect of which the Warrant Offer is accepted will be
cancelled.

Consequently, a separate Warrant Offer is being made by Winterflood to
Warrantholders. The Warrant Offer is on the same terms and conditions as the
Tender Offer, save that there will be deducted from the diluted value
attributable to each Share tendered for each Warrant the sum of 100p,
representing the current subscription price of a Warrant. As the amount payable
to Warrantholders is dependent on the Tender Price, it is expected that payments
in respect of the Warrant Offer will be made no later than the week commencing
18 December 2006.

This amendment to the Deed Poll to allow the Warrant Offer to proceed in this
way requires the approval by an extraordinary resolution of Warrantholders.

Participation in the Default Scheme

In the event that the Tender Offer is oversubscribed and the Company is
therefore to be liquidated under the Default Scheme, the Deed Poll contains
provisions intended to protect the 'time value' of the Warrants as reflected in
the market price. These provisions operate by reference to the average price of
a Warrant in the twenty days prior to any announcement that a resolution to wind
up the Company is to be proposed. An announcement to this effect was made on 20
July 2006 and the average price of a Warrant in the twenty prior dealing days
was 22.9p. As a consequence, if the Tender Offer is oversubscribed and the
Default Scheme is implemented, each Warrantholder will be entitled to a cash
payment of 22.9p per Warrant in the winding up of the Company.  It is intended
that this payment be made as soon as practicable following the Scheme Effective
Date.



Enquiries

For further information, please contact:

Gordon Humphries
Head of Investment Companies, Standard Life Investments
Tel. [phone]

Richard England
Press Manager, Standard Life Investments
Tel. [phone]

Nathan Brown/Jane Lewis
Winterflood Investment Trusts
Tel. [phone]

Expected Timetable

Latest time and date for receipt of Tender Forms                                  7 November 2006, 10am

Latest time and date for receipt of Forms of Proxy for First                      7 November 2006, 11am
EGM

Tender Offer Record Date                                                           7 November 2006, 5pm

Announcement of Tender Offer take-up level                                              9 November 2006

First EGM                                                                         9 November 2006, 11am

Tender Offer Calculation Date                                                      9 November 2006, 5pm

Announcement of Tender Price and Settlement of Tender Offer                              By 22 December
and Warrant Offer

In the event that the Tender Offer is oversubscribed it will not be implemented and the Default Scheme
will be undertaken.  If required, the Default Scheme will be implemented in accordance with the
following timetable:

Latest time and date for receipt of Scheme Forms of Election                      7 November 2006, 10am

Record Date for Default Scheme                                                     7 November 2006, 5pm

Dealings in Reclassified Shares commences                                         15 November 2006, 8am

Default Scheme Calculation Date                                                   17 November 2006, 5pm

Effective Date and commencement of liquidation                                         20 November 2006

Second EGM                                                                     20 November 2006, 9.30am

Cheques despatched to Shareholders and CREST account credited                            By 22 December
in respect of cash elections


Notes

A copy of the above document will be submitted shortly to the UK Listing
Authority and will be available for inspection at the UK Listing Authority's
Document Viewing Facility, which is situated at:

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

Winterflood Securities Limited, which is authorised and regulated in the UK by
the Financial Services Authority, is, through its division Winterflood
Investment Trusts, acting for the Company and for no-one else in connection with
the contents of this announcement and will not be responsible to anyone other
than the Company for providing the protections afforded to customers of
Winterflood Investment Trusts, or for affording advice in relation to the
contents of this announcement or any matters referred to herein.

Terms used in this announcement shall, unless the context otherwise requires,
bear the meaning given to them in the circular to the shareholders and
warrantholders of Edinburgh Small Companies Trust plc dated 11 October 2006.


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