Final Results

Glasgow Income Trust PLC
14 November 2000

 
PRELIMINARY RESULTS 
 
Glasgow Income Trust's principal objective is to provide shareholders with a
high level of income and to obtain growth in both income and capital over the
longer term. The Company is managed by Glasgow Investment Managers.
 

Preliminary Announcement of Results for Year Ended 30 September 2000

 
 
* Introduction of higher gearing through Zero Coupon Finance strategy with
the objective of increasing the yield on net assets and reducing the
discount.  
 
* Revenue per ordinary share up 28.3% reflecting introduction of higher
gearing. Final dividend of 1.55p per share which brings total dividends for
year to 3.7p, an increase of 23.3% over the corresponding period last year.  
 
* As a result of the benefit to revenue of higher gearing for a full year,
the Board intends to pay a dividend of not less than 4.7p in the year to 30
September 2001, representing a net yield of 7.2%, based on the share price of
65p at 31 October 2000. 
 
* Total return to shareholders was 0.5%. Performance relative to the
Company's benchmark, the FTSE All Share Index, was adversely affected by
underweight positions in low yielding pharmaceutical and technology stocks,
which performed well over the year. 
 
* With expectations that lower inflation in the UK will lead to a fall in
interest rates, the equity outlook is favourable, particularly for cyclical
stocks offering above average yields.  
 
For further information please contact:
 
David Williams,     Managing Director
     Glasgow Investment Managers          0141 572 2700
 
 
 
 
 
GLASGOW INCOME TRUST plc 
 
ANNUAL REPORT 
 
CHAIRMAN'S STATEMENT 
 
 
Investment Strategy 
 
In the year to 30 September 2000 the investment strategy of the Company
changed with a view principally of increasing the yield to shareholders.
Following the introduction of the new strategy, revenue per ordinary share
increased by 28.3% in the year.
 
When Glasgow Income Trust was launched, in July 1988, the initial yield on
net assets was 7.5%, which compared with a yield of 4.25% on the All-Share
Index at that time. Until 1995 the shares traded more often at a premium to
net asset value per share than at a discount. In that year, the yield on net
assets fell below 7.5% and stayed below that level. At about the same time
the share price moved below net asset value per share, where it has remained.
It appeared that the lower yield was a significant factor in the subsequent
persistence of the discount.
 
The level of the discount has been a matter of concern to the Board for some
time and several different possible strategies were reviewed. While it was
considered desirable to raise the yield on net assets with a view to
encouraging a fall in the discount, the Directors sought also to retain the
growth characteristics of the portfolio and did not wish to introduce a
complex capital structure to the Company.
 
Gearing through Zero Coupon Finance 
 
It was decided to introduce higher gearing to the Company so that the yield
on net assets might be raised. At the end of May £9.9 million of zero coupon
finance, repayable in 2005, was raised through a series of option
transactions on the FTSE 100 Index. The structure of the strategy is such
that the amount of liability is unaffected by movements of the FTSE 100 Index
in either an upward or downward direction. The counterparty in these
transactions is a leading global bank and the details of options purchased
and sold are set out in the Investment Managers' Review in the Report and
Accounts.
 
As the initial proceeds, maturity value and term of the strategy are known,
so is the annualised cost of the finance raised, 7.19% per annum. Although
the total cost of the funds raised is predetermined, its incidence over time
and the final outcome in respect of each constituent option are not, as both
are determined by market price movements.
 
As a result of the nature of this fund-raising strategy, the net movement in
the value of the options involved is a charge to capital reserve and there is
no charge to revenue.
 
This form of financing has two principal advantages over zero dividend
preference shares. It is less expensive and it can be repaid or rolled over
at or before the maturity of the strategy without the liquidation or
restructuring of the Company as may be required on the redemption of zero
dividend preference shares.
 
Investment Background 
 
The year to 30 September 2000 was a challenging and volatile period for
investors in higher-yielding UK equities. In the first half the stock market
was driven by enthusiasm for the low-yielding telecoms, media and technology
stocks in the so-called 'new economy'. The return on the FTSE Higher Yield
Index over those six months was -3.3 %, lagging some way behind the 11.2%
return on the FTSE All-Share Index. In the second half the more conventional
merits of the companies in the less fashionable 'old economy' reasserted
themselves and for the year as a whole the Higher Yield Index returned 7.0%,
a little below the 9.6% return on the All-Share Index.
 
Investment Returns 
 
The total return on net assets was 0.5%. Performance relative to benchmark
was adversely affected by the underweight positions in pharmaceutical and
technology stocks, which performed well over the year but did not offer high
yields which would contribute to the income objective, and the overweight
position in General Retailers, a sector which offered attractive yields but
which performed poorly. In the last quarter, the investments in Media stocks
suffered a setback when the Monopolies and Mergers Commission blocked the
proposed merger between United News and Carlton Communications.
 
Earnings and Dividends 
 
As a result of the introduction of the new strategy in June, the Revenue
Return per ordinary share rose by 28.3%, from 3.21p to 4.12p. The Board is
recommending a final dividend of 1.55p per share, which will bring total
dividends for the year to 3.7p, an increase of 23.3% over the level of
dividends paid last year. If approved, the final dividend will be paid on 28
February 2000 to shareholders on the register at close of business on 2
February 2001.
 
As the Company's revenues will benefit from the higher gearing being in place
for the whole year to 30 September 2001, the Board intends to pay total
dividends of not less than 4.7p per share. At the share price of 69.5p as at
30 September 2000 that would represent a net yield of 6.8%.
 
Portfolio Profile 
 
The yield on the portfolio has been raised by investing the additional
gearing in corporate fixed interest securities, which are researched and
monitored by the Managers in the same way as the portfolio of convertible
securities has been managed in the past. It is intended that the growth
characteristics of the Company's portfolio will be maintained by ensuring
that, allowing for the investment policy being followed from time to time,
the portfolio exposure to ordinary shares will be approximately equal to the
value of net assets.
 
At 30 September 2000, with the new strategy in place, total gearing was
49.7%, with exposure to ordinary shares at 97.2% and investment in fixed
income securities 52.5% all expressed as a percentage of net assets.
 
 
 
 
Discount 
 
Since the strategy was implemented the discount has fallen from 14.6% at 31
May 2000 to 5.8% at 30 September 2000.
 
 
Outlook 
 
Recent statistics show that business activity in the USA grew more slowly in
the third quarter of 2000 than for over a year and that weaker growth of
aggregate demand was accompanied by lower inflation. This seems to confirm
that higher interest rates and the rise in the oil price have combined to
restrain the economy. A similar picture is emerging in the UK, where output
growth has been less robust and inflation lower. If these developments
encourage expectations that interest rates will fall, equities are likely to
respond favourably, particularly cyclical stocks which offer above average
yields and are well represented in the Company's portfolio.
 

Annual Report and Annual General Meeting

 
The Annual Report will be mailed to shareholders on 14 November 2000 and the
Annual General Meeting will be held at Clydeport, 16 Robertson Street,
Glasgow G2 8DS on Wednesday 13 December at 12 noon.
 
 
R G Hanna
Chairman                                        14 November 2000
 
 
 
 
 
Consolidated Statement of Total Return 
(incorporating the Revenue Account*) 
for the year ended 30 September 2000 
 

                                               
                                  2000                       1999 
                                                                              
                     Revenue   Capital   Total     Revenue    Capital    Total
                      £000      £000     £000       £000        £000      £000
                                                                   0       
                                                                              
  (Losses)/Gains on                 
  investments            -     (970)     (970)       -        3,359      3,359
                                                                     
  Income             1,630       -       1,630     1,314      -          1,314
   Investment       
  management                                                                 
  fee                   80       80        160       72       72           144
  Other                                                       
  administrative                                                              
  expenses            158        -         158      171        17          188
  NET                                                                         
  RETURN BEFORE           
   FINANCE COSTS 
  AND TAXATION     1,392      (1,050)      342    1,071      3,270       4,341
                                                                    
  Finance costs of                                                   
  borrowings         102        102       204         74       74         148 
  
                                                                    
  RETURN ON                                                                   
  ORDINARY ACTIVITIES      
  BEFORE TAXATION    1,290    (1,152)     138       997      3,196      4,193
                                                                    
  Taxation            10       -           10         -         -            - 
                          
                                                        
                                                                              
  RETURN ON                                                                   
  ORDINARY ACTIVITIES 
  AFTER TAXATION FOR 
  THE FINANCIAL YEAR  1,280     (1,152)    128      997       3,196      4,193
                                                                 
  Dividends on 
  equity shares       1,148      -        1,148     931          -        931 

                                                               
  TRANSFER                                            
  TO RESERVES           132     (1,152)  (1,020)    66       3,196      3,262
                                                                     
  Return per         
  ordinary share      4.12p     (3.71)p   0.41p    3.21p    10.30p     13.51p 
                                                                   
 
  Dividends per
  ordinary share      3.70p                        3.00p
 

*     The revenue column of this statement is the consolidated revenue
account of the Group.
All revenue and capital items in the above statement derive from continuing
operations.
No operations were acquired or discontinued in the year.
There were no movements in shareholders' funds other than the amounts shown
above as transfers to reserves.
 
The financial information set out above and on the following page does not
constitute the Company's statutory accounts for the years ended 30 September
1999 and 2000 but is derived from those accounts. Statutory accounts for 1999
have been delivered to the Registrar of Companies and those for 2000 will be
delivered following the Company's annual general meeting. The auditors have
reported on those accounts; their reports were unqualified and did not
contain statements under section 237 (2) or (3) of the Companies Act 1985.
 
 
 
 
 

Distribution of Assets

 
 
                     30 September 2000     30 September 1999
                       Market     % of     Market     % of
                  Value     Shareholders'     Value     Shareholders'
                   £000     Funds             £000     Funds
 
Ordinary shares     22,261     97.2          25,247     105.5
Convertibles         2,089      9.1           3,156      13.2
Corporate Bonds      9,949     43.4               -         -
Unquoted bonds           -        -             488       2.0
                     _____     ____           _____     ____
                    34,299     149.7         28,891     120.7
 
Net current
liabilities          (1,058)   (4.6)          (4,962)  (20.7)
Zero coupon finance (10,332)  (45.1)               -       -               
                     22,909    100.0         23,929     100.0
 
Net asset value per
ordinary share       73.80p                   77.09p
 

Analysis of Portfolio

 
                                 2000     1999
                                    %       %
 
Resources                         7.7     8.5
Basic industries                  5.2     11.9
General industrials               2.8     9.7
Non-cyclical consumer goods      10.6     5.8
Cyclical services                17.2     30.4
Non-cyclical services            14.2     5.8
Utilities                         5.5     7.9
Financials and investment trusts 32.9     20.0
Information technology            3.9      - 
 
                                100.0     100.0
                                 ____     ____
 
 
The portfolio is wholly invested in the United Kingdom.