Annual Financial Report

RNS Number : 0439R

Standard Life Equity Income Tst PLC

14 November 2012

 

STANDARD LIFE EQUITY INCOME TRUST PLC

ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 30 SEPTEMBER 2012

1. CHAIRMAN'S STATEMENT

I am pleased to report that the performance of the Company for the year ended 30 September 2012 has been strong. The Company's net asset value total return for the year was 22.3% compared with a 17.2% total return for the FTSE All Share Index and a total return of 16.1% for the FTSE 350 High Yield Index.

Income and Dividends

The revenue return per share for the year ended 30 September 2012 rose by 5.2% to 13.53p (2011 - 12.86p). Last year the Company benefited from 1.28p in respect of VAT refunds and related interest received from HMRC. Removing the effect of this, the underlying revenue return increased by 16.8%.

Strong dividend growth from the Company's underlying portfolio during 2012 has resulted in a 14.3% increase in investment income over the reporting year, including special dividends from Vodafone and Severn Trent.

An interim dividend of 3.75p was paid on 22 June 2012, an increase of 5.6% on the previous year's interim reflecting the Board's aim of rebalancing the interim and final dividends. The Board is now recommending a 1.7% increase in the final dividend to 9.00p bringing total dividends for the year to 12.75p, an increase of 2.8%. Subject to shareholder approval, the final dividend will be paid on 21 December 2012 to shareholder on the register on 30 November 2012 with an associated ex-dividend date of 28 November 2012.

Since launch in 1991, the Company has achieved a real growth in income, with dividends increasing by 270%. This compares with an increase of 80% in the Retail Price Index, and a 57% increase in the Consumer Price Index over the same period.

Quarterly Dividends

Following discussions with our major shareholders, the Board has decided that with effect from March 2013 the Company will pay quarterly dividends. Had we paid quarterly dividends in 2012 the timetable and amounts would have been as follows:

Year ended 30/09/12	Pay Date	Amount (p) per share*
Quarter 1	March 2012	3.15p
Quarter 2	June 2012	3.15p
Quarter 3	September 2012	3.15p
Quarter 4	December 2012	3.30p

*Indicative, based on total dividend for year ended 30 September 2012

Performance

The sharp improvement in relative performance compared to 2011 coincides with the selective changes that have been made to the investment portfolio over the course of the year. The portfolio has been shifted gradually to introduce a number of mid cap holdings where the investment manager has a high conviction whilst at the same time reducing the concentration risk of the top ten income contributors.  The impact of the changes can be seen in the tables below.

Portfolio spread	30 September 2012	31 March 2012	30 September 2011
FTSE 100	63.3%	70.4%	76.0%
FTSE 250	35.8%	27.8%	23.9%
FTSE Small Cap	0.9%	1.8%	0.1%

Dividend concentration	30 September 2012	31 March 2012	30 September 2011
Top 10 investments	44.6%	47.4%	50.3%

Source: Standard Life Investments

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

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

UK Growth & Income Peer Group	Three Months Total Return	One Year Total Return	Five Years Total Return
SLEIT	7/21	8/21	10/20

Source: JP Morgan Cazenove

The Company's share price total return for the year ended 30 September 2012 was 11.6%. The discount widened over the year, ending at 6.4% having started the year at a premium of 2.4%.

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

Gearing

The Company has a £20m three year revolving loan facility at a margin of 125bps above LIBOR. This expires in February 2014. The all-in interest cost is approximately 2% per annum, and as such provides effective income gearing for the Company. For the majority of the year the Company drew down £15m of this facility and over the reporting period gearing has been in the range of 5% to 12%.

Governance and Management

After serving over nine years on the Board Chris Rowlands has decided to retire at the AGM in December. I would like to thank Chris for his wise counsel as a director, deploying his wide experience while serving as our Audit Committee Chairman. Jo Dixon has now assumed the latter role; and Richard Burns has now been appointed your Senior Independent Director.

Your Board has again conducted a full annual review of strategy. It has also carried out an evaluation of itself, and did not feel that an external assessment was required at this time.

Your Board continues to consider that the main service providers to the Company perform well and are fairly rewarded.  In the year there have been several changes; firstly, within the investment manager team the appointment of Tom Moore as the lead fund manager since November 2011 has gone smoothly and we consider the Company continues to be well supported by both Standard Life Investments in its broadest context and the individual strengths of Tom; secondly on the Company Secretarial side Maven Capital Partners have taken over the reins from Aberdeen Asset Management very efficiently following the later company's departure from this area of business.

Retail Distribution Review (RDR) and Marketing

The Manager has been very active marketing the Company's ordinary shares over recent months particularly when the discount widened to over 10% in July. This provided an attractive buying opportunity for existing and potential new shareholders. Indeed a number of the directors bought additional shares. Importantly our management team also bought additional shares.

The implementation of the RDR in February 2013 presents an ideal opportunity for investment trusts to communicate their benefits to a wider investor universe since independent advisers will have to consider the full range of investment products for clients. The investment trust industry can demonstrate an investment track record at lower cost than most mutual funds, and it is hoped that our trust will in time benefit from this opportunity.

The Manager meets regularly with private client and wealth managers. In addition, the Board is always pleased to welcome private investors to the Company's AGM, to be held this year on Tuesday 18 December 2012 at the 34^th floor of our Manager's London office at 30 St Mary Axe, London EC3A 8EP (the Gherkin). The meeting will start at 11am and will include a presentation from the managers.

Alternative Investment Fund Manager Directive (AIFMD)

Additional European regulation is almost upon us with implementation into UK legislation by July 2013. In essence investment and asset managers will be obliged to set up risk management frameworks that are independent of portfolio managers. This will affect the relationship of your Board with its Manager. It will also affect the contractual relationship between the Company and the custodian. I have commented before that this is an unnecessary regulation of conventional investment trusts which are already regulated and are limited companies. With only a few months before the countries in the EU are obliged to put the Directive into law, key detail is still not available, and a central decision will have to be made by your Board as to responsibility.  Some higher costs are indicated, but the Board will ensure that these are kept to the minimum possible.

The Board has arranged to take legal advice as to the best interests of your Company.

New Investment Trust Rules and Changes to Articles

The Board has noted the changes this year to the taxation rules and the Companies Act.

The new rules permit the distribution of capital profits to shareholders by way of dividend, allowing greater flexibility in managing dividends in the future. Under previous tax and company law such distributions were prohibited and this prohibition was required to be included in the Articles of Association. Your Board believes it is prudent to be in a position to take advantage of the new regulations as and when such distributions are considered to be in the best interests of shareholders. To this end Resolution 11 in the Notice of Meeting is being proposed as a special Resolution seeking shareholders' approval to amend the Articles of Association of the Company to remove the current restriction on the distribution of realised capital profits. It should be stressed that it is not intended to change the Company's current dividend policy but these changes will provide flexibility in the future.

Outlook

Stock markets have recovered strongly since midsummer, further encouraged by the recent round of quantitative easing. Overall corporate dividends in the UK have continued their recovery from the low point of two years ago.

Your Board is conscious that well into this protracted economic cycle many uncertainties remain as to the outcome of economic policies, not least the vast distortion of official interest rates.

However we also believe that by increasing our holding of medium sized companies, where dividends have been growing well, and being selective about defensive sectors, our manager has improved the long term prospects of the Company.  The process is not yet complete.  This additional and selective focus will help underpin our mandate to secure long term growth of income and capital.

Our manager has delivered an excellent result over the year and your Company is well positioned.

Charles Wood OBE

Chairman

13 November 2012

2. MANAGER'S REPORT

Market Review

Against a backdrop of the ongoing Euro-zone debt crisis, a stagnant domestic economy and a patchy global economic recovery, UK equities made good progress in the 12 months to September 2012 as investors focused on the continued strong health of the UK listed corporate sector.

The first three months of the Company's financial year were broadly positive for UK equities, largely as a result of rising expectations for more concerted efforts toward resolving the Euro-zone's debt difficulties. In particular, the market welcomed liquidity injections from the European Central Bank (ECB), which eased anxieties that a funding crisis could lead to a major seizure across the Euro-zone's financial system.

The resulting revival in investor risk appetite ensured that UK equities enjoyed a strong start to 2012. However, investor confidence was subsequently undermined when concerns about the Euro-zone again took centre stage in the second quarter of 2012. These concerns focused in particular on the ramifications of a possible Greek exit from the Euro-zone, banking sector strains and rising tensions in the bond markets of both Italy and Spain. Investor unease was further exacerbated by evidence that the UK economy had moved into recessionary territory and also by growing unease about the resilience of the global economic recovery. The end result was that that UK equities fell back in the second quarter of 2012, with May in particular witnessing a sharp sell-off. By the early summer, some sense of equilibrium had been restored, with an EU Summit convened in late June making more progress than had been expected.

UK equities made steady gains throughout the final three months of the period, with the FTSE All-Share Index delivering positive returns in July, August and September. In particular, the market gained confidence from a range of stimulus initiatives from central banks across the globe. In July, risk appetite was bolstered by a speech from ECB President Mario Draghi in which he stated the ECB would do 'whatever it takes' to support the euro. The resulting rally was sustained into the autumn, with equities gaining a further boost from the Federal Reserve's announcement of a third round of quantitative easing in September.

The domestic economy remained sluggish for most of the Company's financial year, although there was some positive news, including surprisingly robust private sector employment trends suggesting that the UK economy returned to growth in the third quarter of 2012. CPI inflation moved lower over the 12-month period, falling to 2.5% in August 2012 from a peak of over 5% in September 2011 providing a benign backdrop for further stimulus measures from the Bank of England.

Performance

For the year to 30 September 2012, the Company's net asset value total return was 22.3%, outperforming the FTSE All-Share Index total return of 17.2% (source: Thomson Datastream). Over the reporting period, the share price rose from 276.5p to 294p.

Key positive contributors to performance included several of the Company's engineering and industrial stocks, including Bodycote and Fenner, which benefited from upgrades to earnings forecasts over the 12-month period as analysts refocused from bearish macro-economic views to strengthening corporate fundamentals. Packaging company DS Smith outperformed as it reported solid trading and a positive outlook, while also announcing the earnings-enhancing acquisition of its Swedish rival SCA's packaging assets. Telecoms company Talktalk was another strong performer, making gains on the back of good results and a positive outlook statement. Not holding Tesco was also beneficial, as the food retail group warned of tough trading conditions and operational difficulties that appear likely to affect its profit generating ability for some time.

On the negative side, insurance group Admiral reported disappointing results and an increased level of provisions, raising fears that its management had been growing the business too aggressively. We sold our holding over the period. Shares in Tullett Prebon, an inter-dealer broker, also lagged in an environment of weakening volumes due to low levels of volatility and ongoing financial sector deleveraging. In addition, our exposure to mining group Rio Tinto detracted from performance given mounting evidence that China's fixed asset investment programme is slowing more rapidly than had been anticipated. This has put pressure on the price of iron ore, to which Rio Tinto has significant exposure. However, this negative was more than offset by our lack of exposure to other mining companies, including Anglo American.

Activity

Significant purchases over the period included various Travel & Leisure stocks including cinema operator Cineworld, betting company Ladbrokes and pub operators Greene King and Marstons. All of these companies have reported better-than-expected trading and also offer attractive dividend yields underpinned by strong cash flow generation. The outlook for domestically orientated companies is showing some signs of improvement, in particular due to the increase in private sector employment. The low valuations of many of these domestic stocks would appear to suggest that these improving trends have been overlooked by the market.

During the period we also increased exposure to the fixed line telecoms sector through purchases of BT and Talktalk, both of which are benefiting from the backdrop of a benign competitive landscape. We also started a new holding in satellite telecommunications operator Inmarsat, where results showed solid operating trends in existing markets and new capital expenditure is set to accelerate growth over the medium term.

Significant sales over the period included various large cap defensive holdings where share price strength induced by the flight to safety at a time of macro risk aversion had not been matched by underlying operating progress. We reduced exposure to Vodafone, where there is evidence of some deterioration in Western European mobile and data trends. We also reduced our holding in Imperial Tobacco, which is suffering from some volume pressure due to toughening regulation and heavy exposure to the continental European market.

We reduced exposure to the utilities sector having received proceeds from the successful takeover of International Power by French utility GDF Suez. We also sold out of National Grid given our concerns around the risks from regulatory reviews in the UK and US, coupled with its stretched balance sheet.

We reduced our weighting in the mining sector during the course of the 12 month period, including Xstrata and BHP Billiton, given our concerns around the impact of slowing fixed asset investment in China and the impact of heavy capex on companies' dividend paying ability. 

The net effect of our portfolio activity, as the Chairman has noted, has been to increase the Company's exposure to mid and small cap holdings that offer the prospect of superior dividend and capital growth, at the expense of large cap holdings that offer more limited growth potential and also appear to be more fully valued. We believe that this approach will benefit the Company's total return prospects over the medium term, whilst diversifying the Company's income sources and thereby reducing its reliance on some of the largest stocks in the market.

Outlook

In the current environment of subdued economic growth, we believe that successful equity income investing requires a selective approach.

Investors remain apprehensive as a result of ongoing uncertainties stemming from the Euro-zone crisis, but they are beginning to recognise the resilience of UK corporate earnings and balance sheets, as well as the attractive valuations and dividend yields on offer. We currently see the investment opportunities as particularly rich among mid and small cap companies.

Thomas Moore

Standard Life Investments

13 November 2012

Relative Performance Attribution*	%
Stock Selection	2.0
Gearing	2.2
Interest	-0.4
Expenses	-0.4
Total	3.4
* based upon capital return NAV

Top 5 Stock Level Contributors	Relative Position (%)	Contribution (%)
D S Smith	2.3	0.7
Anglo American	-1.8	0.6
Tesco	-1.6	0.4
BG	-2.7	0.4
Bodycote	1.0	0.3
Bottom 5 Stock Level Contributors	Relative Position (%)	Contribution (%)
Diageo	-2.2	-0.5
Admiral	0.1	-0.3
Carillion	0.7	-0.3
SSE	-0.2	-0.2
Tullett Prebon	0.8	-0.2
Source: Standard Life Investments

3.    RESULTS & DIVIDENDS

At 30 September 2012	%
Total Return
Net asset value per ordinary share	22.3
FTSE All-Share Index	17.2

At 30 September	2012	2011	% change
Net asset value per ordinary share (including net revenue)	314.2p	269.9p	16.4
Net asset value per ordinary share (excluding net revenue)	304.4p	260.6p	16.8
Ordinary share price (mid market)	294.0p	276.5p	6.3
(Discount)/premium to net asset value       (including net revenue)	(6.4)%	2.4%	n/a
(Discount)/premium to net asset value (excluding net revenue)	(3.4)%	6.1%	n/a
Subscription share price (mid market)	28.0p	23.5p	19.1
FTSE All-Share Index	2,998.9	2,654.4	13.0
Total assets	£135.3m	£117.7m	15.0
Total shareholders' funds	£119.3m	£102.4m	16.5
Ongoing Charges Ratio	0.99%	0.96%	n/a
Revenue return per ordinary share	13.53p	12.86p	5.2
Dividend yield	4.3%	4.5%	n/a
Total dividends for the year (net)	12.75p	12.40p	2.8
Ordinary shares in issue (with voting rights)	37,959,305	37,954,058	-

Gearing	2012	2011
Net gearing ratio	5.7%	6.0%
Gross gearing ratio	12.6%	14.6%

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

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

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

-      select suitable accounting policies and then apply them consistently;

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

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

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

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

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

Directors' Responsibility Statement

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

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

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

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

Charles Wood, OBE

Chairman

13 November 2012

5.       BUSINESS REVIEW

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

Status and Principal Activity

The Company is an investment company within the meaning of Section 833 of the Companies Act 2006 and carries on business as an investment trust. The Company is a member of the Association of Investment Companies.

The Company has been approved by HM Revenue & Customs as an investment trust for the purposes of Sections 1158-1159 of the Corporation Tax Act 2010 for the year ended 30 September 2011. The Directors are of the opinion  that the Company has conducted its affairs so as to be able to continue to obtain approval as an investment trust under sections 1158-1159 of the Corporation Tax Act 2010 for the year ended 30 September 2012. In accordance with recent changes to the Corporation Tax Act 2010, the Company will, prior to 30 September 2013, seek ongoing approval as an investment trust for all accounting periods commencing on or after 1 October 2012. It is the Directors' intention that the Company should continue to manage its affairs so as to be a qualifying investment for inclusion in the stocks and shares component of an Individual Savings Account.

Investment Objective

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

Investment Policy

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

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

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

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

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

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

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

Performance

In the year ended 30 September 20112 the Company's net asset value total return was 22.3%, outperforming the FTSE All-Share Index total return of 17.2%. Further details on future trends and factors that may impact on the future performance of the Company are included in the Chairman's Statement and Manager's Report.

Results and Dividends

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

The total revenue return attributable to ordinary shareholders for the year ended 30 September 2012 amounted to £5,136,000 (2011 - £4,877,000). An interim dividend of 3.75 per share was paid to eligible shareholders on 22 June 2012 (2011 - 3.55 pence) and the Directors are now recommending to shareholders that a final dividend per share of 9.00 pence (2011 - 8.85 pence) be paid on 21 December 2012 to shareholders on the share register as at the close of business on 30 November 2012. The ex-dividend date is 28 November 2012.

Details of the dividends paid during the year ended 30 September 2012 may be found in Note 7 to the Financial Statements.

In respect of the financial year to 30 September 2012, the Board intends to pay quarterly dividends. It is expected that such interim dividends will be paid in March, June and September and that a final dividend will be paid in December.  This change should benefit shareholders' cash flow and also brings the Company into line with the approach taken by a number of its peers.  The first quarterly interim dividend will be paid in March 2013.

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

Monitoring Performance - Key Performance Indicators

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

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

-      Share price (capital return)

-      Premium or Discount to net asset value

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

Principal Risks and Uncertainties

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

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

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

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

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

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

-      Capital structure and gearing risk: The Company's capital structure at 30 September 20121 consisted of equity share capital comprising Ordinary shares, Subscription shares and debt in the form of a revolving credit facility with The Royal Bank of Scotland plc for up to £20m. In rising markets, the effect of the borrowings would be beneficial but in falling markets the gearing effect would adversely affect returns to shareholders. The Manager is able to increase or decrease the gearing level by repaying or drawing down periodically from the bank facility subject to Directors' overall restrictions on gearing. The bank facility is subject to regular monitoring by The Royal Bank of Scotland plc and covenants are supplied quarterly to the bank by the Company.

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

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

       There is also a further regulatory risk in the form of the Alternative Investment Fund Managers Directive ("AIFMD") which is due to be enacted in the national laws of member states of the European Union by July 2013.  The AIFMD will introduce a new authorisation and supervisory regime for all investment trust fund managers and investment companies in the European Union. This is expected to create some additional regulatory costs for the Company.

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

Going Concern

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

INCOME STATEMENT

For the year ended 30 September 2012

			2012													2011
			Revenue		Capital				Total				Revenue			Capital					Total
	Notes			£'000	£'000				£'000				£'000			£'000					£'000
Net gains/(losses) on investments at fair value		9		-	17,278				17,278				-			(10,471)					(10,471)
Income		2		5,780	-				5,780				5,257			-					5,257
Investment management fee		3		(252)	(587)				(839)				(255)			(596)					(851)
VAT recovered on investment management fees		3		-	-				-				291			-					291
Administrative expenses		4		(275)	-				(275)				(283)			(289)					(572)
NET RETURN BEFORE FINANCE COSTS AND TAXATION				5,253	16,691				21,944				5,010			(11,356)					(6,346)
Finance costs		5		(93)	(216)				(309)				(107)			(251)					(358)
RETURN ON ORDINARY ACTIVITIES BEFORE TAXATION				5,160	16,475				21,635				4,903			(11,607)					(6,704)
Taxation			6	(24)	-				(24)				(26)			-					(26)
RETURN ON ORDINARY ACTIVITIES AFTER TAXATION				5,136	16,475				21,611				4,877			(11,607)					(6,730)
RETURN PER ORDINARY SHARE			8	13.53p	43.41p				56.94p				12.86p			(30.60p)					(17.74p)
The total column of this statement represents the profit and loss account of the Company.
A Statement of Total Recognised Gains and Losses has not been prepared as all gains and losses are recognised in the Income Statement.
No operations were acquired or discontinued in the year.
All revenue and capital items in the above statement derive from continuing operations.
The accompanying notes are an integral part of the financial statements.

BALANCE SHEET

As at 30 September 2012

		2012		2011
	Notes	£'000	£'000	£'000		£'000
FIXED ASSETS
Investments designated at fair value through profit or loss	9		125,203			108,228
CURRENT ASSETS
Debtors	10	1,950		677
AAA money market funds		8,130		8,810
Cash and short term deposits		32		-
		10,112		9,487
CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
Bank loan	11	(15,000)		(15,000)
Other creditors	11	(1,042)		(293)
		(16,042)		(15,293)
NET CURRENT LIABILITIES			(5,930)			(5,806)
NET ASSETS			119,273			102,422
CAPITAL AND RESERVES
Called-up share capital	12		9,943			9,942
Share premium account			20,457			20,441
Capital redemption reserve			12,615			12,615
Capital reserve			69,697			53,222
Revenue reserve			6,561			6,202
EQUITY SHAREHOLDERS' FUNDS			119,273			102,422
NET ASSET VALUE PER ORDINARY SHARE	13		314.2p		269.9p

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

For the year ended 30 September 2012

					Share	Share	Capital	Capital	Revenue
				capital		premium	redemption	reserve	reserve
						account	reserve	realised		Total
		Notes			£'000	£'000	£'000	£'000	£'000	£'000
Balance at 30 September 2011					9,942	20,441	12,615	53,222	6,202	102,422
Issue of ordinary shares on conversion of subscription shares					1	16	-	-	-	17
Return on ordinary activities after taxation					-	-	-	16,475	5,136	21,611
Dividends paid				7	-	-	-	-	(4,777)	(4,777)
BALANCE AT 30 SEPTEMBER 2012					9,943	20,457	12,615	69,697	6,561	119,273
for the year ended 30 September 2011
						Share	Capital
					Share	premium	redemption	Capital	Revenue
					capital	account	reserve	reserve	reserve	Total
					£'000	£'000	£'000	£'000	£'000	£'000
Balance at 30 September 2010					9,935	20,373	12,615	64,829	5,949	113,701
Bonus issue of subscription shares					1	(1)	-	-	-	-
Issue of ordinary shares on conversion of subscription shares					6	69	-	-	-	75
Return on ordinary activities after taxation					-	-	-	(11,607)	4,877	(6,730)
Dividends paid				7	-	-	-	-	(4,624)	(4,624)
BALANCE AT 30 SEPTEMBER 2011					9,942	20,441	12,615	53,222	6,202	102,422

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

CASHFLOW STATEMENT

Year ended 30 September 2012

							2012			2011
			Notes				£'000		£'000	£'000	£'000
NET CASH INFLOW FROM OPERATING ACTIVITIES				14				4,586			4,123
NET CASH OUTFLOW FROM SERVICING OF FINANCE								(313)			(359)
FINANCIAL INVESTMENT
Purchases of investments						(48,312)				(21,123)
Sales of investments						48,156				26,542
NET CASH (OUTFLOW)/INFLOW FROM FINANCIAL INVESTMENT								(156)			5,419
EQUITY DIVIDENDS PAID								(4,777)			(4,624)
								(660)			4,559
MANAGEMENT OF LIQUID RESOURCES
Purchase of AAA Money Market funds						(31,633)				(26,373)
Sale of AAA Money Market funds						32,313				19,258
NET CASH INFLOW/(OUTFLOW) FROM MANAGEMENT OF LIQUID RESOURCES								680			(7,115)
NET CASH INFLOW/(OUTFLOW) BEFORE FINANCING								20			(2,556)
FINANCING
Proceeds from exercise of subscription shares						17				75
Drawdown of loan						-				2,250
NET CASH INFLOW FROM FINANCING								17			2,325
INCREASE/(DECREASE) IN CASH								37			(231)
RECONCILIATION OF NET CASH FLOW TO MOVEMENTS IN NET DEBT
Increase/(decrease) in cash as above						37				(231)
Net change in liquid resources						(680)				7,115
Drawdown of loan						-				(2,250)
MOVEMENT IN NET DEBT IN YEAR								(643)			4,634
Opening net debt								(6,195)			(10,829)
CLOSING NET DEBT				15				(6,838)			(6,195)
Notes to the Financial Statements
For the year ended 30 September 2012
1.	Accounting policies
	(a)	Basis of accounting
		The financial statements have been prepared in accordance with the applicable UK Accounting Standards and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (issued in January 2009).
		They have also been prepared on the assumption that approval as an investment trust will continue to be granted. The financial statements have been prepared on a going concern basis. The Directors believe this is appropriate for the reasons outlined in the Directors' Report.
		All values are rounded to the nearest thousand pounds (£000) except where indicated otherwise.
	(b)	Valuation of investments
		The Company's business is investing in financial assets with a view to profiting from their total return in the form of income and capital growth. This portfolio of financial assets is managed and its performance evaluated on a fair value basis, in accordance with a documented investment strategy, and information about the portfolio is provided internally on that basis to the Company's Board of Directors. Accordingly, upon initial recognition the Company designates the investments 'at fair value through profit or loss'. They are included initially at fair value, which is taken to be their cost (excluding expenses incidental to the acquisition which are written off in the Income Statement, and allocated to 'capital' at the time of acquisition). Subsequent to initial recognition, investments are valued at fair value through profit or loss. For listed investments, this is deemed to be bid market prices or closing prices for SETS stocks sourced from the London Stock Exchange. SETS is the London Stock Exchange electronic trading service covering most of the market including all FTSE 100 constituents and the most  liquid constituents of the FTSE 250 along with some other securities.
		Gains and losses arising from changes in fair value are included in net profit or loss for the period as a capital item in the Income Statement and are ultimately recognised in the capital reserve.
	(c)	AAA money market funds
		The AAA money market funds are used by the Company to provide additional short term liquidity. As they are not listed on a recognised exchange and due to their short term nature, they are recognised in the financial statements as a current asset and are included at fair value through profit or loss.
	(d)	Income
		Income from equity investments (other than special dividends), including taxes deducted at source, is included in revenue by reference to the date on which the investment is quoted ex-dividend. Special dividends are credited to revenue or capital according to the circumstances. Foreign income is converted at the exchange rate applicable at the time of receipt. Interest receivable on short term deposits is accounted for on an accruals basis.
	(e)	Expenses and interest payable
		Expenses are accounted for on an accruals basis. Expenses are charged to capital when they are incurred in connection with the maintenance or enhancement of the value of investments. In this respect, the investment management fee and relevant finance costs are allocated between revenue and capital in line with the Board's expectation of returns from the Company's investments over the long term in the form of revenue and capital respectively (see notes 3 and 5).
		Transaction costs incurred on the purchase and disposal of investments are recognised as a capital item in the Income Statement.
	(f)	Dividends payable
		In accordance with FRS21, dividends that are declared and approved by the Company after the Balance Sheet date are not recognised as a liability of the Company at the Balance Sheet date.
	(g)	Capital reserves
		Gains or losses on realisation of investments and changes in fair values of investments are included within the capital reserve. The capital element of the management fee along with any associated irrecoverable VAT and relevant finance costs are charged to this reserve. Any associated tax relief is also credited to this reserve.
	(h)	Taxation
		Deferred taxation is recognised in respect of all 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 only being recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the underlying 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 company, and the intention to continue meeting the conditions required to obtain approval in the foreseeable future, the Company has not provided deferred tax on any capital gains and losses arising on the revaluation or disposal of investments.

2.	Income
		2012	2011
		£'000	£'000
	Income from investments
	Franked investment income	5,088	4,496
	Overseas and unfranked investment income	535	401
	Stock dividends	105	114
		5,728	5,011
	Other income
	AAA money market interest	39	23
	Interest from HMRC	-	193
	Underwriting commission	13	30
		52	246
	Total income	5,780	5,257

3.	Investment management fee
		2012	2011
		£'000	£'000
	Investment management fee	839	851
	Charged to capital reserve	(587)	(596)
		252	255
	The Company has an agreement with Standard Life Investments (Corporate Funds) Limited for the provision of management services. The contract is terminable by either party on not less than six months notice.
	The fee is based on 0.65% of total assets, payable quarterly in arrears and is chargeable 30% to revenue and 70% to capital (see note 1(e)).
	On 5 November 2007, the European Court of Justice ruled that management fees should be exempt from VAT. HMRC announced its intention not to appeal against this case to the UK VAT Tribunal and therefore protective claims which have been made in relation to the Company have now been processed by HMRC.
	The VAT charged on the investment management fees has been refunded by Deutsche Asset Management (UK) Limited, the former Investment Manager, in stages.  An amount of £609,000 (excluding simple interest) relating to the period 2001 to 2005 (date of termination) was recognised in the financial statements for the year ended 30 September 2009.  A further amount of £291,000 (excluding simple interest) was recognised in the financial statements for the year ended 30 September 2011, which represents the VAT charged on investment management fees for the period 1991 to 1996.  These repayments were allocated to revenue and capital in line with the accounting policy of the Company for the periods in which the VAT was charged.
	A refund of £204,000 of VAT relating to the period 2006 to 2007 was made to the Company by Standard Life (Corporate Funds) Limited in the year to 30 September 2008. This repayment was allocated to revenue and capital in line with the accounting policy of the Company for the periods in which the VAT was charged.
	Interest of £21,000, £112,000 and £193,000 on the repaid VAT was recognised in the financial statements for the years ended 30 September 2009, 30 September 2010 and 30 September 2011, respectively.

4.	Administrative expenses
				2012	2011
				£'000	£'000
	Directors' fees			104	92
	Fees payable to the Company's Auditor (excluding VAT):
	- for the audit of the annual financial statements			20	19
	Professional fees			12	41
	Other expenses			139	131
				275	283
	In addition, during the year ended 30 September 2011, the Company incurred capital expenses amounting to £289,000 in connection with the issue of Subscription shares, including £27,000 (excluding VAT) payable to the Company's auditors for services on reporting accounts.
	With the exception of fees payable to the Company's auditor, irrecoverable VAT has been included under the relevant expense line above. Irrecoverable VAT on fees payable to the Company's auditor is included within other expenses.

5.	Finance costs
		2012	2011
		£'000	£'000
	On bank loans and overdrafts:
	Charged to revenue reserve	93	107
	Charged to capital reserve	216	251
		309	358
	Finance costs are chargeable 30% to revenue and 70% to capital (see note 1(e)).

6.	Taxation
				2012	2011
				£'000	£'000
	(a)	Analysis of charge for the year
		Overseas withholding tax		24	26
	(b)	Factors affecting current tax charge for the year
		The corporation tax rate was 26% until 31 March 2012 and 24% from 1 April 2012 giving an effective rate of 25%. The tax assessed for the year is lower than that resulting from applying the standard rate of corporation tax in the UK.
		A reconciliation of the Company's current tax charge is set out below:
		Total return on ordinary activities before taxation		21,635	(6,704)
		Return on ordinary activities at the UK standard rate of corporation tax 25% (2011 - 27%)		5,409	(1,810)
		Effects of:
		(Gains)/losses on investments not taxable		(4,320)	2,827
		Non-taxable income		(1,409)	(1,339)
		Excess management expenses and loan relationship debit expenses		319	322
		Overseas withholding tax		24	26
		Total taxation		24	26
		At 30 September 2012, the Company had unutilised management expenses and loan relationship losses of £14,233,000 (2011-£12,956,000). No deferred tax asset has been recognised on the unutilised management expenses and loan relationship losses as it is unlikely there will be suitable taxable profits from which the future reversal of the deferred tax asset could be deducted.

7.	Dividends on Ordinary shares
		2012		2011
		£'000		£'000
	Amounts recognised as distributions to equity holders in the year:
	Final dividend for 2011 of 8.85p per share (2010 - 8.65p)	3,359		3,281
	Interim dividend for 2012 of 3.75p per share (2011 - 3.55p)	1,423		1,346
	Return of unclaimed dividends	(5)		(3)
		4,777		4,624
	The proposed final dividend for 2012 is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements.
	We set out below the total dividends paid and proposed in respect of the financial year, which is the basis on which the requirements of Sections 1158-1159 of the Corporation Tax Act 2010 are considered. The revenue available for distribution by way of dividend for the year is £5,136,000 (2011 - £4,877,000).
		2012		2011
		£'000		£'000
	Interim dividend for 2012 of 3.75p per share (2011 - 3.55p)	1,423		1,346
	Proposed final dividend for 2012 of 9.00p per share (2011 - 8.85p )		3,416	3,359
		4,839		4,705

8.	Return per Ordinary share
		2012		2011
		£'000	p	£'000	p
	The returns per Ordinary share have been based on the following figures:
	Revenue return	5,136	13.53	4,877	12.86
	Capital return	16,475	43.41	(11,607)	(30.60)
	Total return	21,611	56.94	(6,730)	(17.74)
	Weighted average number of Ordinary shares in issueA		37,956,373		37,936,175
	On the basis set out in Financial Reporting Standard 22 "Earnings per Share", there is no dilutive effect on net revenue or net capital per share arising from the exercise of the Subscription shares at 30 September 2012 or 30 September 2011, as detailed in note 12.
	A Calculated excluding shares held in Treasury.

9.	Investments
			2012	2011
			£'000	£'000
	Fair value through profit or loss
	Opening book cost		108,582	112,650
	Opening fair value gains on investments held		(354)	11,672
	Opening fair value		108,228	124,322
	Movements in the year:
	Purchases at cost		49,038	20,603
	Sales	- proceeds	(49,341)	(26,226)
		- realised gains on sales	3,364	1,555
	Current year fair value gains/(losses) on investments held		13,914	(12,026)
	Closing fair value		125,203	108,228
	Closing book cost		111,643	108,582
	Closing fair value gains/(losses) on investments held		13,560	(354)
	Closing fair value		125,203	108,228
	Gains on investments held at fair value through profit or loss
	Gains on sales		3,364	1,555
	Increase/(decrease) in fair value gains on investments held		13,914	(12,026)
			17,278	(10,471)
	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 gains/(losses) on investments in the Income Statement. The total costs were as follows:
			2012	2011
			£'000	£'000
	Purchases		278	113
	Sales		74	36
	Total		352	149

10.	Debtors: amounts falling due within one year		2012	2011
		£'000		£'000
	Amounts due from brokers	1,195		10
	Net dividends and interest receivable	692		608
	Other debtors	63		59
		1,950		677

11.	Creditors: amounts falling due within one year
		2012	2011
		£'000	£'000
	Bank loan	15,000	15,000
	Other creditors
	Bank overdraft	-	5
	Amounts due to brokers	726	-
	Investment management fee payable	219	192
	Sundry creditors	97	96
		1,042	293
	As at 30 September 2012, the Company had drawn down £15 million (2011 - £15 million) of the £20 million loan facility arranged with The Royal Bank of Scotland plc, at an interest rate of 1.77125% per annum maturing on 31 October 2012. Subsequent to the year end, the £15 million loan was rolled over from 31 October 2012 to 30 November  2012 at an interest rate of 1.7571%.

12.		Called up share capital
				2012		2011
			£'000		£'000
		Issued and fully paid:
		Ordinary shares of 25p each
		Opening balance of 37,954,058 (2011 - 37,930,579) Ordinary shares		9,489		9,483
		Issue of 5,247 (2011 - 23,479) Ordinary shares on conversion of Subscription shares		1		6
		Closing balance of 37,959,305 (2011 - 37,954,058) Ordinary shares		9,490		9,489
		Subscription shares of 0.01p each
		Opening balance of 7,562,381 (2011 - 7,585,863) Subscription shares		1		1
		Conversion of 5,247 (2011 - 23,479) Subscription shares into Ordinary shares		-		-
		Closing balance of 7,557,134 (2011 - 7,562,381) Subscription shares		1		1
		Treasury shares
		Opening and closing balance of 1,807,328 Treasury shares		452		452
				9,943		9,942
	On 17 December 2010 the Company issued 7,585,860 Subscription shares of 0.01p each by way of a bonus issue to the Ordinary shareholders on the basis of one Subscription share for every five Ordinary shares.  Each Subscription share confers the right, but not the obligation, to subscribe for one Ordinary share on any subscription date, being the final business day of June and December in each year commencing June 2011 and finishing on the last business day of December in 2016, after which the rights under the Subscription shares will lapse.  The exercise price is determined as being 320p.
	During the year, shareholders have exercised their right to convert 5,247 (2011 - 23,479) Subscription shares into ordinary shares for a total consideration of £17,000 (2011 - £75,000).
	There were no shares repurchased during the year. The total shares held in Treasury is 1,807,328. Shares held in Treasury represents 4.5% of the Company's total issued share capital at 30 September 2012 (2011 - 4.5%). The number of Subscription shares in issue at 30 September 2012 is 7,557,134 (2011 - 7,562,381).

13.	Net asset value
	The net asset value per share and the net asset value attributable to the Ordinary shares at the year end calculated in accordance with the Articles of Association were as follows:
		2012	2011
	Total shareholders' funds	£119,273,000	£102,422,000
	Number of Ordinary shares in issue at year endA	37,959,305	37,954,058
	Net asset value per share	314.2p	269.9p
	On the basis set out in Financial Reporting Standard 22 "Earnings per Share", there is no dilutive effect on net revenue or net capital per share arising from the exercise of the Subscription shares at 30 September 2012 or 30 September 2011, as detailed in note 12.
	A Excludes shares in issue held in Treasury.

14.	Reconciliation of net return before finance costs and taxation to net cash inflow from operating activities
		2012	2011
		£'000	£'000
	Net return before finance costs and taxation	21,944	(6,346)
	Adjustments for:
	Net (gains)/losses on investments at fair value	(17,278)	10,471
	(Increase)/decrease in accrued income	(84)	68
	Decrease in other debtors	8	-
	Increase/(decrease) in other creditors	32	(20)
	Net overseas tax paid	(36)	(50)
	Net cash inflow from operating activities	4,586	4,123

15.	Analysis of changes in net debt
		At 30 September		At 30 September
		2011	Cashflow	2012
		£'000	£'000	£'000
	Cash at bank and in hand	(5)	37	32
	AAA money market funds	8,810	(680)	8,130
	Bank loan	(15,000)	-	(15,000)
	Net debt	(6,195)	(643)	(6,838)

16.		Financial instruments
		Risk management
		The Company's financial instruments comprise securities and other investments, cash balances, loans and debtors and creditors that arise directly from its operations; for example, in respect of sales and purchases awaiting settlement, and debtors for accrued income. The Company also has the ability to enter into derivative transactions for the purpose of managing currency and market risks arising from the Company's activities.
		The main risks the Company faces from its financial instruments are (i) market price risk (comprising interest rate risk, currency risk and other price risk), (ii) liquidity risk and (iii) credit risk.
		The Board regularly reviews and agrees policies for managing each of these risks. The Manager's policies for managing these risks are summarised below and have been applied throughout the year.
(i)	Market risk
		The fair value or future cash flows of a financial instrument held by the Company may fluctuate because of changes in market prices.
		This market risk comprises three elements - interest rate risk, currency risk and other price risk.
		Interest rate risk
		Interest rate movements may affect:
		- the fair value of the investments in fixed interest rate securities;
		- the level of income receivable on cash deposits;
		- interest payable on the Company's variable rate borrowings.
		The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account when making investment and borrowing decisions.
		It is the Company's policy to increase its exposure to equity market price risk through the judicious use of borrowings. When borrowed funds are invested in equities, the effect is to magnify the impact on Shareholders' funds of changes - both positive and negative - in the value of the portfolio.
		Interest rate profile
		The interest rate risk profile of the portfolio of financial assets and liabilities at the Balance Sheet date was as follows:
										Weighted average period for which rate is fixed				Weighted average interest rate				Fixed rate		Floating rate
		As at 30 September 2012											Years		%			£000		£000
		Assets
		AAA Money Market funds											-		0.58			-		8,130
		Cash deposits											-		-			-		32
		Total assets											-		0.58			-		8,162
		Liabilities
		Bank loans											0.1		1.77			15,000		-
		Total liabilities											0.1		1.77			15,000		-
		As at 30 September 2011
		Assets
		AAA Money Market funds											-		0.87			-		8,810
		Total assets											-		0.87			-		8,810
		Liabilities
		Bank overdraft											-		1.48			-		5
		Bank loans											0.1		1.94			15,000		-
		Total liabilities											0.1		1.94			15,000		5
		The weighted average interest rate is based on the current yield of each asset, weighted by its market value. The weighted average interest rate on bank loans is based on the interest rate payable, weighted by the total value of the loans.
		The floating rate assets consist of AAA Money Market Funds and cash deposits on call earning interest at prevailing market rates.
		All financial liabilities are measured at amortised cost.
		Maturity profile
		The Company did not hold any assets at 30 September 2012 or 30 September 2011 that had a maturity date. As detailed in note 11, the loan drawn down had a maturity date of 31 October 2012 at the Balance Sheet date. (2011 : 24 October 2011).
		Interest rate sensitivity
		The sensitivity analyses below have been determined based on the exposure to interest rates at the Balance Sheet date and with the stipulated change taking place at the beginning of the financial year and held constant throughout the reporting period in the case of instruments that have floating rates.
		If interest rates had been 100 basis points higher or lower and all other variables were held constant, the Company's :
		- profit for the year ended 30 September 2012 would increase / decrease by £68,000 (2011 : increase / decrease by £62,000). This is mainly attributable to the Company's exposure to interest rates on its fixed rate borrowings and floating rate cash balances.
		Currency risk
		All of the Company's investments are in Sterling and therefore this risk is not seen as material.
		Other price risk
		Other price risks (ie changes in market prices other than those arising from interest rate or currency risk) may affect the value of the quoted investments.
		It is the Board's policy to hold an appropriate spread of investments in the portfolio in order to reduce the risk arising from factors specific to a particular sector. The allocation of assets and the stock selection process both act to reduce market risk. The Manager actively monitors market prices throughout the year and reports to the Board, which meets regularly in order to review investment strategy.
		Other price risk sensitivity
		If market prices at the Balance Sheet date had been 10% higher or lower while all other variables remained constant, the return attributable to ordinary shareholders and equity for the year ended 30 September 2012 would have increased/decreased by £12,520,000 (2011 - increase/decrease of £10,823,000). This is based on the Company's equity portfolio held at each year end.
(ii)		Liquidity risk
		This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities.
		Liquidity risk is not considered to be significant as the Company's assets comprise mainly readily realisable securities, which can be sold to meet funding commitments if necessary. Short-term flexibility is achieved through the use of loan and overdraft facilities (note 11).
(iii)			Credit risk
		This is failure of the counter party to a transaction to discharge its obligations under that transaction that could result in the Company suffering a loss.
		The risk is not significant, and is managed as follows:
		- where the investment manager makes an investment in a bond, corporate or otherwise, the credit rating of the issuer is taken into account so as to minimise the risk to the Company of default;
		- investment transactions are carried out with a large number of brokers, whose credit-standing and credit rating is reviewed periodically by the investment manager, and limits are set on the amount that may be due from any one broker;
		- cash and money invested in AAA money market funds are held only with reputable banks with high quality external credit enhancements.
		None of the Company's financial assets are secured by collateral or other credit enhancements.
		Credit risk exposure
		In summary, compared to the amount in the Balance Sheet, the maximum exposure to credit risk at 30 September was as follows:
													2012					2011
								Balance Sheet £'000					Maximum exposure £'000			Balance Sheet £'000			Maximum exposure £'000
		Current assets
		Debtors						1,950					1,950			677			677
		AAA Money Market funds (indirect exposure)						8,130					8,130			8,810			8,810
		Cash and short term deposits						32					32			-			-
								10,112					10,112			9,487			9,487
		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 is not materially different to the accounts value in the financial statements of £15,000,000 (note 11).

17. Fair Value hierarchy
FRS 29 'Financial Instruments:Disclosures', requires an entity to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:
- Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
- Level 2: inputs other than quoted prices included within Level 1 that are observable for the assets or  liabilities, either directly (ie as prices) or indirectly (ie derived from prices); and
- Level 3: inputs for the assets or liabilities that are not based on observable market data (unobservable inputs).
The quoted investments and AAA money market funds held by the Company on 30 September 2012 and 30 September 2011 were all Level 1.

18.	Capital management policies and procedures
	The Company's capital management objectives are:
	-	to ensure that the Company will be able to continue as a going concern; and
	-	to maximise the income and capital return to its equity shareholders through an appropriate balance of equity capital and debt. The Board normally seeks to limit gearing to 15% of net assets. At the year end the Company had gearing of 5.7% of net assets (2011 - 6.0%)
	The Board monitors and reviews the broad structure of the Company's capital on an ongoing basis. This review includes the nature and planned level of gearing, which takes account of the Manager's views on the market and the extent to which revenue in excess of that which is required to be distributed should be retained.
	The Company's objectives, policies and processes for managing capital are unchanged from the preceding accounting period any year end positions are presented in the Balance Sheet.

Additional Notes to Annual Financial Report

The Annual General Meeting will be held on 18 December 2012 at 11.00a.m. at 30 St Mary Axe, London, EC3A 8EP. A separate general meeting of the holders of subscription shares will be held at the same venue at 11.15a.m. or as soon as the Annual General Meeting of the Company has concluded.

The Annual Financial Report Announcement is not the Company's statutory accounts. The above results for the year ended 30 September 2012 are an abridged version of the Company's full accounts, which have been approved and audited with an unqualified report. The 2011 and 2012 statutory accounts received unqualified reports from the Company's auditors and did not include any reference to matters to which the auditors drew attention by way of emphasis without qualifying the reports, and did not contain a statement under s.498 of the Companies Act 2006. The financial information for 2011 is derived from the statutory accounts for 2011 which have been delivered to the Registrar of Companies. The 2012 accounts will be filed with the Registrar of Companies in due course.

The Annual Report will be posted to shareholders in November 2012 and additional copies will be available from the Manager (Investor Helpline - Tel. [phone]) or by download from the Company's webpage (www.standardlifeinvestments.com/its).

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

For Standard Life Equity Income Trust PLC

Maven Capital Partners UK LLP, Secretary

For Further Information please contact:
 
Standard Life Investments - Gordon Humphries, Head of Investment Companies - Tel. [phone]

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