Annual Financial Report

RNS Number : 3212P

Edinburgh New Income Trust plc

14 July 2010

News Release

14 July 2010

EDINBURGH NEW INCOME TRUST PLC

ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 MAY 2010

Edinburgh New Income Trust's investment objective is to provide ordinary shareholders with an attractive level of income, together with the potential for capital and income growth and its zero dividend preference shareholders with a pre-determined capital entitlement on 31 May 2011.

For further information, please contact:

James Laing, Deputy Head of UK and European Equities, Tel: 0131 528 4000

Aberdeen Asset Managers Limited

Charles Luke, Senior Investment Manager, Tel: 0207 463 6000

Aberdeen Asset Managers Limited

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

EDINBURGH NEW INCOME TRUST PLC

1. CHAIRMAN'S STATEMENT

After the turmoil of the previous year when net assets values fell substantially, I am pleased to report a significant recovery in the last 12 months. This is discussed in more detail in the Manager's Review on the following pages. The Company's net asset value per Ordinary share rose by 42.8% on a total return basis. The share price rose by 17.8% to 51.0p having been as high as 61.0p during the course of the year.

The rise in the net asset value is partly attributable to the Company's capital gearing through the ZDP shares, which means that any rise in the portfolio affects Ordinary shareholders disproportionately, and partly because the equity portfolio performed more strongly than the market as a whole, returning 30.1% in total return terms against 22.9% for the FTSE All-Share Index.

Dividends

The Board announces a fourth interim dividend of 2.1p, which will be paid on 20 August 2010 to shareholders on the register on 23 July 2010. This brings the total dividend for the year to 6.0p, the same as last year.

Looking forward, after the cuts in corporate payouts of last year, dividend prospects for the UK equity market have generally improved. Although BP has suspended its dividend payments, the diversified nature of our income stream and our accumulated revenue reserves have cushioned the impact. Subject to there being no further unforeseen developments, the Board aims to maintain the current dividend of 6.0p per share, by drawing on revenue reserves, should this be necessary, for the final year of the Company.

Gearing

The Board's decision to suspend the equity gearing limit last July when shares were at much lower levels proved timely. Holdings of cash were cut and additional monies were invested in equities. Cash and fixed interest bonds now total £10.9 million out of the total assets of £31.2 million, down from £13.4 million out of £27.8 million a year ago. These cash and bond positions should be seen in the context of the £21.5 million required to meet the redemption of the ZDP shares on 31 May 2011.

Gearing at 31 May 2010 was 184.3%, which compares with 163.2% a year earlier. Gearing will clearly be reduced as the final redemption date of the ZDPs approaches.

Outlook

We have seen a modest recovery in economic growth, though doubts are likely to remain about its sustainability for some time yet. The budget deficits of the West are at record highs and robust action is required to repair government balance sheets and unwind quantitative easing. Stockmarkets continue to react adversely to any negative developments.

While there remain considerable uncertainties about the immediate outlook, the Board and the Manager are of the view that, even after the rally of the last 12 months, equity market valuations are still at reasonable levels.

At the stock level, with the obvious exception of more recent problems at BP, we are satisfied with the progress being made in the companies in which we are invested and meetings with management are generally becoming more positive. The portfolio continues to be focused on good quality companies with strong competitive positions and robust balance sheets.

Winding-up of the Company

The Board is conscious of the winding-up provisions within the Company's Articles and the approaching redemption date of the ZDPs on 31 May 2011. As this date approaches, the Directors intend to consider options for those shareholders who may wish to continue their investment beyond that date. The Directors believe that the Company has adequate resources to continue in operational existence until 31 May 2011. However, as there is less than a year to the winding-up date provided in the Articles, the accounts have been prepared on a break-up basis. More information is provided within the Directors' Report.

Annual General Meeting

The Company's Annual General Meeting takes place in Edinburgh on 6 October 2010, and I look forward to seeing as many of you there as possible.

David Ritchie

Chairman

13 July 2010

2. MANAGER'S REVIEW

The year to the end of May 2010, while not as challenging from an investment perspective, has perhaps brought more clearly into focus the longer-term headwinds the global economy faces. While the banks have for the moment been stabilised, with massive public and shareholder support, the markets' attention has now shifted firmly to governments' balance sheets which have been stretched by the twin requirements to bail out the banks and support fragile economies. As a result of these events we have probably witnessed one of the largest transfers ever of private sector debt on to the public balance sheet. We will live with the consequences of this crisis for many years to come and traditional responses of cutting interest rates and increasing government spending are no longer viable solutions. There is fundamentally just too much outstanding debt with too many future liabilities.

Portfolio Review

During the year under review, total assets less current liabilities (excluding ZDPs) of the Company rose from £27.8 million as at 31 May 2009 to £31.2 million at 31 May 2010, a rise of 12.6%. The total return, which includes the receipt of dividends, from Edinburgh New Income's portfolio was 18.9% and compares with a total return from the FTSE All-Share Index of 22.9%. The difference is the result of the fund holding a significant proportion of its assets in cash and bonds. At the equity portfolio level the performance was pleasing, up 30.1%, which is 7.2% ahead of the FTSE All-Share Index.

As we wrote last year, our response to the extreme economic events has been to review all our stocks under the most testing of scenarios and to seek to improve the quality of the companies which we hold within the portfolio. We have continued to focus our efforts this year on building positions and introducing new names which have strong market positions, robust balance sheets and diversified geographic exposures allowing them to prosper in an uncertain economic environment.

Firstly, our sectoral underweight to both oil producers and banks helped significantly as both recovered less than the market - the former due to the lack of production growth in the larger oil companies, while the banks, which are heavily exposed to western economies, still have significant structural and regulatory issues to overcome. Secondly, there were a number of specific companies which performed strongly over the period including XP Power, Fenner and GKN which all benefited from evidence that capital spending would resume now that the worst of the economic slowdown is behind us.

As we approached the end of this financial year it appeared that corporate managements were becoming confident enough in the outlook to start buying other businesses. This has also been assisted by the return of liquidity to equity, banking and fixed interests markets which enabled businesses with sound plans and balance sheets to raise the required capital. While the Prudential offer for AIA was rejected by its own shareholders, Weir Group, Centrica and Rolls Royce have all acquired new businesses or assets.

One of our core holdings Arriva, the bus and train operator, benefited from this trend when it was subject to an approach by Deutsche Bahn. The shares have subsequently rallied very strongly and the board have recommended the cash offer of £7.75 per share. From our perspective as business investors it is disappointing that other shareholders and the Arriva board are focused on short-term value realisation rather than the long-term opportunity which the deregulation of the European transport market offers.

Portfolio Activity

The year began with the Company supporting rights issues in Rio Tinto, Land Securities and GKN, all of which we underwrote for attractive fees. Rio Tinto's $15.2bn rights issue allowed the company to secure its balance sheet after the badly timed Alcan acquisition left the group's balance sheet over geared as commodity prices temporarily slumped during the financial crisis. Since the rights issue Rio Tinto has successfully restructured its balance sheet and announced a potential JV with BHP Billiton which may lead to a combined Australian iron ore company. Land Securities has, since the rights issue, refocused its activities on a high quality shopping centre and London office portfolio. Additionally it has a number of attractive office developments which are likely to become available just as supply of prime office space is at a very low level. GKN's rights issue has enabled it to continue to restructure the automotive division and build on its leading position as an independent supplier of composite aircraft structures.

As we mentioned earlier our underweight in larger oil companies benefited the Company. With regard to BP and the recent events in the Gulf of Mexico, although we own shares in the company, our exposure has been relatively limited. We have not taken any action to date as we are keen not to crystallise a capital loss while we believe the shares to be undervalued. However, given the uncertainty over future dividend payments we are not keen to commit fresh capital to the company. Our starting position in both BP and Shell was based on analysis that indicated to us that while the oil industry is a fundamentally attractive area to invest in, given the structurally increasing demand for energy and the declining availability of easily accessible energy supplies, actually buying shares in major oil companies may not generate the returns we seek. This has been highlighted by a number of events over the last 5 years which has driven major developed oil market companies to move into more difficult operating and geopolitical environments in order to grow or hold production stable. Accordingly we have identified the oil equipment and service providers as a more attractive route into the sector. Over the year, based on this research we introduced both Wood Group and Weir Group into the portfolio. Wood Group is a leading global provider of oil service engineering and production support. Weir Group provides pumps and valves globally to the oil and mining industries and has a large amount of recurring revenue from its installed base of pumps and valves.

Our focus on companies with strong market positions, balance sheets and diversified geographic exposures led us to introduce both Pearson and Tesco during the course of the year. Pearson is an international media company providing business people with information and children and adults with educational materials. In a world increasingly driven by increased skills and knowledge as the key differentiator between success and failure the outlook for this market appears positive. Tesco offers an interesting growth opportunity, through increasing international and non-food sales and also services. In addition, over the course of the year, we increased our holdings in businesses we felt had been oversold by the market including Aviva, Whitbread, Provident Financial, Centrica, Vodafone and Close Brothers.

These purchases were funded by reductions in our positions in McBride, Millennium & Copthorne, Daily Mail & General Trust and XP Power. We also sold our entire position in Tomkins following a recovery in the share price and our reassessment of the company's long-term competitive position. Additionally Ladbrokes was exited following a number of meetings with management where we identified issues with the capital structure and business performance which subsequently led to a dividend cut after we had completed the sale of our position.

Outlook

On a fundamental basis, we continue to believe the path to sustainable economic growth remains challenging and the outlook uncertain. Record budget deficits need to be repaired, savings ratios enhanced to historic levels, inflation restrained, interest rates normalised, banking re-regulated and quantitative easing unwound. Over the past couple of months it seems as though the market is slowly becoming more cognisant of these hindrances. However, we are pleased that on an operational basis our holdings are broadly performing well and our meetings with management have generally been positive. Although by their nature, exogenous events are unpredictable, the portfolio retains exposure to good-quality companies, with strong competitive positions and robust balance sheets and we continue to believe that these attributes are the best way to ensure good absolute and relative performance.

Aberdeen Asset Managers Limited

13 July 2010

3. PERFORMANCE TABLES

	31 May 2010	31 May 2009	% change
Total assets less current liabilities^¹	£31,243,000	£27,759,000	12.6
Total equity Shareholders' funds	£10,947,000	£8,612,000	27.1

Ordinary shares
Net asset value (including undistributed revenue for the period)	53.4	42.0p	27.1
Share price	51.0	43.3p	17.8
Premium/(discount)	(4.5%)	3.1%
Total dividends for period	6.0p	6.0p	-

ZDP shares
Net asset value	133.8p	126.2p	6.0
Share price	133.3p	127.8p	4.3
Capital cover (gross assets ^² /final repayment entitlement of ZDPs)	1.41	1.24

Gearing
Equity gearing ratio (equities/ordinary shareholders' funds)	184.3%	163.2%
Potential gearing (total assets/ordinary shareholders' funds)	285.4%	322.3%
Capital gearing (ratio of borrowings (ZDPs) to gross assets)	65.0%	69.0%

Expense ratio^C (as % of average total assets less current liabilities)	1.2%	0.9%

^¹Excluding accrual for ZDP shares

^²Excluding revenue reserves, as wholly attributable to the Ordinary Shareholders.

^C 2009 would be 1.2% if VAT recoverable on investment management fees had been excluded.

Performance (total return) ^A

	1 year return	3 year return	5 year return
	%	%	%
Ordinary share price	+32.5	-49.3	-23.6%
Net asset value per Ordinary share	+42.8	-53.5	-21.4%
^ARepresents capital return plus dividends reinvested

4. DIRECTORS' REPORT

Business Review

Principal Activity and Status

The Company was incorporated as a public limited company on 22 April 2005 and was listed on the London Stock Exchange on 31 May 2005.

The Company's registration number is SC283705.

The business of the Company is that of an investment trust and the Directors do not envisage any change in this activity for the year to 31 May 2011.

The Company is registered as a public limited company and is an investment company as defined by Section 833 of the Companies Act 2006. The Company has been approved by HM Revenue & Customs as an investment trust for the purposes of Section 842 of the Income and Corporation Taxes Act 1988 (ICTA) for the year ended 31 May 2009. The Directors are of the opinion that the Company has conducted its affairs for the year ended 31 May 2010 so as to be able to continue to obtain approval as an investment trust under Section 1158 of the Corporation Tax Act 2010 (formerly Section 842 of ICTA) for that year, although approval for the year would be subject to review were there to be any enquiry under the Corporate Tax Self Assessment regime.

The Company has conducted its affairs so as to satisfy the requirements as a qualifying security for Individual Savings Accounts. The Directors intend that the Company will continue to conduct its affairs in this manner in the future.

Investment Objective and Policy

The investment objective is to provide the holders of Ordinary shares with an attractive level of income, together with the potential for both income and capital growth, and to provide holders of the ZDP shares with a pre-determined return of capital. Details of the Company's policy and investment strategy is provided in the Corporate Summary section.

Performance

An outline of the performance, market background, investment activity and portfolio strategy during the period under review, as well as the investment outlook, is provided in the Chairman's Statement and Manager's Review.

Dividends

The Company has declared dividends totalling 6.0p per Ordinary share in respect of the year to 31 May 2010 (2009 - 6.0p).

Risks and Uncertainties

The Board has adopted a matrix of the key risks that affect its business. The principal risks are as follows:

· Stockmarket risk: The Company is exposed to the effect of variations in share prices due to the nature of its business. A fall in the value of its portfolio will have an adverse effect on shareholders' funds, which will be exacerbated by the gearing effect of the ZDP shares. It is not the aim of the Board to eliminate entirely the risk of capital loss, rather it is its aim to seek capital growth so that the gearing effect will multiply the gains for Ordinary shareholders. However, the Board has to have regard to the damage which will result from a significant fall in share prices and closely monitors the level of gearing. An aim is to ensure that the future capital entitlement of the ZDP shares can always be met.

· Capital structure risk: The Company's capital structure and its accounting policies mean that the capital accrual on the ZDP shares and 50% of the management fee are charged to the capital account rather than the revenue account. While this enables a higher dividend payment than would otherwise be the case, it means that total assets have to rise by approximately 4.2% in the next twelve months in order to maintain the level of Ordinary shareholders' funds in existence at the period end.

· Income/dividend risk: The investment objective of the Company, to provide Ordinary shareholders with an attractive level of income, means that the Manager has to achieve an above average dividend yield on the investments in the portfolio. A consequence is that the performance of the equity portfolio may not always match that of the stockmarket as a whole, with a consequential impact on shareholder returns. The Board's aim is to maximise returns consistent with achieving its dividend requirements.

· Regulatory risk: The Company operates in a complex regulatory environment and faces a number of regulatory risks. A breach of Section 1158 of the Corporation Tax Act 2010 could result in the Company being subject to capital gains tax on portfolio investments. Breaches of other regulations such as the UKLA listing rules, could lead to a number of detrimental outcomes and reputational damage. Breaches of controls by service providers such as the Manager could also lead to reputational damage or loss.

· Operational risk - this is covered within the investment process on page 15 and the internal controls section within the Statement of Corporate Governance on page 24.

Further details on other risks relating to the Company's investment activities, including market, price, liquidity and foreign currency risks are provided in note 17 to the accounts.

The Directors have adopted a robust framework of control which is designed to monitor all key risks facing the Company, and to provide a monitoring system to enable the Directors to mitigate these risks as far as possible. An analysis of the Company's system of internal controls is set out in the Statement of Corporate Governance.

Monitoring Performance - Key Performance Indicators

The following key performance indicators (KPIs) have been identified by the Board for determining the progress of the Company:

	Year to 31 May 2010
Dividend per Ordinary share	6.0p
Total NAV return per Ordinary share	42.8%
ZDP cover	1.41
Discount	4.5%
Total expense ratio	1.2%

At each Board meeting, the Directors consider a number of performance measures, including the above KPIs to assess the Company's success in achieving its objectives. Although the Company has no defined benchmark the portfolio is largely drawn from the large, mid and small cap components of the FTSE All-Share Index. The total return from the FTSE All-Share Index was 22.9% for the year under review.

Resources

The Company has no employees. The management of the Company has been delegated to Aberdeen Asset Managers Limited. Details of the Management Agreement are provided on page 3.

Environmental Policy

As an investment trust, the Company has no direct social or environmental responsibilities. Its focus is on ensuring that its portfolio is properly managed and invested. The Company has, however, adopted an environmental policy, details of which are set out in the Corporate Governance Report.

Going Concern

The Company is a split capital investment trust with a planned life due to expire on 31 May 2011. The ZDP shareholders are entitled to receive a final capital entitlement of 141.85p per share, which is equivalent to an annual redemption yield of 6.0% based on its issue price of 100p. Ordinary shareholders are entitled to the remaining assets of the Company following repayment of the capital entitlement to ZDP shareholders.

In accordance with the Articles of Association, the Directors are obliged to convene a general meeting ('GM') on 31 May 2011 at which a special resolution shall be proposed to wind up the Company voluntarily. The Directors may be released from this obligation only by special resolution passed not earlier than 30 November 2010 and with the class consent of the ZDP shareholders. The Articles of Association also contain provisions designed to facilitate a reconstruction of the Company provided that its terms would still entitle shareholders to elect to receive cash, estimated by the Directors to be not less than their entitlements on a winding up in accordance with the Articles of Association. The Directors intend, as the winding up date approaches, to consider ways in which this might be achieved so that those shareholders who wish to continue their investment beyond that date, may do so and, in particular, whether a rollover vehicle might be offered. Therefore, the present expectation of the Directors is that the shareholders may be offered a continuation of their investment, although the Company itself is unlikely to continue in the same operational structure beyond 31 May 2011.

Meanwhile the Company will continue to be managed in the same way as at present with a view to paying an unchanged dividend and maximising the returns to all shareholders.

The Directors believe that the Company has adequate resources to continue in operational existence until 31 May 2011. In arriving at this conclusion, the Directors have considered the fixed life of the Company and the final capital entitlement of the ZDP shareholders. As at 31 May 2010 the total assets of the Company were £31.2 million and the portfolio had adequate liquidity to cover the £21.5 million required to redeem the ZDP shares in full. Taking into account the wind-up provisions in the Articles, the accounts have been prepared on a break-up basis. The estimated maximum break-up costs include liquidation costs of £150,000 and portfolio realisation costs of £41,000 which will be charged in the Company's 2011 accounts.

13 July 2010

5. STATEMENT OF DIRECTORS' RESPONSIBILITIES

The Directors are responsible for preparing the Annual Report & Accounts and the financial statements, in accordance with applicable law and regulations.

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

Under company law, the Directors must not approve the financial statements unless they are satisfied that they 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 proper accounting records that disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that its financial statements comply with the Companies Act 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 website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

The Directors confirm that to the best of their knowledge that:

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

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

For Edinburgh New Income Trust plc

David Ritchie

Chairman

13 July 2010

INCOME STATEMENT (audited)

		Year ended 31 May 2010
		Revenue	Capital	Total
	Notes	£'000	£'000	£'000
Gains/(losses) on investments held at fair value through profit or loss	8	-	3,817	3,817
Income	2	1,264	-	1,264
Investment management fee	3	(100)	(100)	(200)
VAT recoverable on investment management fee	19	-	-	-
Administration expenses	4	(166)	-	(166)
		_______	_______	_______
Net return/(loss) on ordinary activities before finance costs and taxation		998	3,717	4,715

Finance costs of ZDP Shareholders		-	(1,149)	(1,149)
		_______	_______	_______
Net return/(loss) on ordinary activities before and after taxation	5	998	2,568	3,566
		_______	_______	_______
Return/(loss) per Ordinary share (pence)	7	4.86	12.52	17.38
		_______	_______	_______

		Year ended 31 May 2009
		Revenue	Capital	Total
	Notes	£'000	£'000	£'000
Losses on investments held at fair value through profit or loss	8	-	(11,431)	(11,431)
Income	2	1,539	-	1,539
Investment management fee	3	(96)	(96)	(192)
VAT recoverable on investment management fee	19	54	54	108
Administration expenses	4	(170)	-	(170)
		_______	_______	_______
Net return/(loss) on ordinary activities before finance costs and taxation		1,327	(11,473)	(10,146)

Finance costs of ZDP Shareholders		-	(1,084)	(1,084)
		_______	_______	_______
Net return/(loss) on ordinary activities before and after taxation		1,327	(12,557)	(11,230)
		_______	_______	_______
Return/(loss) per Ordinary share (pence)	7	6.47	(61.20)	(54.73)
		_______	_______	_______

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.

All revenue and capital items in the above statement derive from continuing operations.

No operations were acquired or discontinued in the year.

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

BALANCE SHEET (audited)

		As at	As at
		31 May 2010	31 May 2009
	Notes	£'000	£'000
Non-current assets
Investments at fair value through profit or loss	8	-	19,314

Current assets
Investments at fair value through profit or loss	8	27,918	-
Debtors and prepayments	9	330	379
AAA Money Market funds		-	1,250
Cash and short term deposits		3,157	6,909
		____________	____________
		31,405	8,538

Creditors: amounts falling due within one year	10	(20,458)	(93)
		____________	____________
Net current assets		10,947	8,445
		____________	____________
Total assets less current liabilities		10,947	27,759

Creditors: amounts falling due in more than one year	11	-	(19,147)
		____________	____________
Net assets		10,947	8,612
		____________	____________
Share capital and reserves
Called-up share capital	12	205	205
Special reserve		20,035	20,035
Capital reserve	13	(10,227)	(12,795)
Revenue reserve		934	1,167
		____________	____________
Equity Shareholders' Funds		10,947	8,612
		____________	____________
Net asset value per Ordinary share (pence)	14	53.4	42.0
		____________	____________

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

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS (audited)

For the year ended 31 May 2010
		Share	Special	Capital	Revenue
		capital	reserve	reserve	reserve	Total
	Notes	£'000	£'000	£'000	£'000	£'000
Balance at 31 May 2009		205	20,035	(12,795)	1,167	8,612
Return on ordinary activities after taxation		-	-	2,568	998	3,566
Dividends paid	6	-	-	-	(1,231)	(1,231)
		_________	_________	_________	_________	_________
Balance at 31 May 2010		205	20,035	(10,227)	934	10,947
		_________	_________	_________	_________	_________

For the year ended 31 May 2009
		Share	Special	Capital	Revenue
		capital	reserve	reserve	reserve	Total
	Notes	£'000	£'000	£'000	£'000	£'000
Balance at 31 May 2008		205	20,035	(238)	1,318	21,320
Return/(loss) on ordinary activities after taxation		-	-	(12,557)	1,327	(11,230)
Dividends paid	6	-	-	-	(1,478)	(1,478)
		_________	_________	_________	_________	_________
Balance at 31 May 2009		205	20,035	(12,795)	1,167	8,612
		_________	_________	_________	_________	_________

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

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

CASHFLOW STATEMENT (audited)

		Year ended		Year ended
		31 May 2010		31 May 2009
	Notes	£'000	£'000	£'000	£'000
Net cash inflow from operating activities	15		1,014		1,088

Taxation
Net taxation paid		-			(1)

Financial investment
Purchases of investments		(8,748)		(7,827)
Sales of investments		3,963		12,100
		________		________
Net cash (outflow)/inflow from financial investment			(4,785)		4,273

Equity dividends paid			(1,231)		(1,478)
			________		________
Net cash (outflow)/inflow before use of liquid resources and financing			(5,002)		3,882

Net cash inflow from management of liquid resources			1,250		1,965
			________		________
(Decrease)/increase in cash			(3,752)		5,847
			________		________
Reconciliation of net cash flow to movements in net debt
(Decrease)/increase in cash as above			(3,752)		5,847
Net change in liquid resources			(1,250)		(1,965)
Net change in debt			(1,149)		(1,079)
			________		________
Movement in net debt in the year			(6,151)		2,803
Net debt as at 1 June			(10,988)		(13,791)
			________		________
Net debt as at 31 May	16		(17,139)		(10,988)
			________		________

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

Notes:

1.	Accounting policies
	A summary of the principal accounting policies, all of which have been consistently applied throughout the year and the preceding year is set out below:

	(a)	Basis of preparation
		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 be granted for the year ended 31 May 2010. As described in the Chairman's statement, the financial statements have been prepared on a break up basis. Accordingly the investments have been included as current assets and the Zero Dividend Preference shares as current liabilities since there is less than 1 year to redemption. No other adjustments exist as a result of the decision to prepare on a break up basis.

	(b)	Valuation of investments
		Investments have been designated upon initial recognition as fair value through the profit or loss. Initial fair value equals consideration receivable or payable less transaction costs. Investments are recognised and de-recognised at trade date where a purchase or sale is under a contract whose terms require delivery within the time frame established by the market concerned, and are initially measured as fair value. For listed investments, this is deemed to be bid market prices or closing prices for SETS (London Stock Exchange's electronic trading service) stocks sourced from The London Stock Exchange. 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)	Income
		Income from equity investments, including taxes deducted at source, is included as a revenue item in the Income Statement by reference to the date on which the investment is quoted ex dividend. Special dividends are credited to capital or revenue in the Income Statement, according to the circumstances, on the date on which the investment is quoted ex dividend. Short term deposit interest is dealt with on an accruals basis. Other interest entitlements and underwriting commission are also included as a revenue item in the Income Statement.

	(d)	Expenses
		All expenses are accounted for on an accruals basis. Expenses are charged through the revenue column of the Income Statement except as follows:
		- transaction costs incurred on the purchase and disposal of investments are recognised as a capital item in the Income Statement.
		- the Company charges 50% of investment management fees to capital, in accordance with the Board's expected long term return in the form of capital gains and income respectively from the investment portfolio of the Company.

	(e)	Taxation
		Deferred tax
		Deferred taxation is recognised in respect of all timing 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 timing differences can be deducted. Timing differences are differences arising between the Company's taxable profits and its results as stated in the Financial Statements which are capable of reversal in one or more subsequent periods.

		Due 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 for deferred tax on any capital gains and losses arising on the revaluation or disposal of investments.

	(f)	Capital reserve
		Gains or losses on disposal of investments and changes in fair values of investments are transferred to the capital reserve. The capital element of the management fee and relevant finance costs are charged to this reserve. Any associated tax relief is also credited to this reserve.

		The Ordinary share capital on the Balance Sheet relates to the number of shares in issue and in treasury. Only when the shares are cancelled, either from treasury or directly, is a transfer made to the capital redemption reserve.

	(g)	Zero Dividend Preference ('ZDP') shares
		ZDP shares are treated as a liability. The increase in the annual compound growth entitlement of the ZDP shares is accrued daily under the effective yield basis as a finance cost through the capital column of the Income Statement and allocated to the capital reserve.
	(h)	Cash and cash equivalents Cash comprises cash in hand and at bank and short-term deposits. Cash equivalents are highly liquid investments that are readily convertible to known amounts of cash and are subject to an insignificant risk of changes in value.
	(i)	Dividends payable Dividends are recognised on the date on which they are paid.

		2010	2009
2.	Income	£'000	£'000
	Income from investments
	UK dividend income	834	1,148
	Overseas dividends	25	20
	PID (Property Income Distributions) dividends	18	13
	Stock dividend	14	26
	Fixed interest	337	62
		_________	_________
		1,228	1,269
		_________	_________
	Other income
	AAA rated money market funds interest	3	57
	Deposit interest	13	68
	Certificates of Deposit interest	9	117
	Treasury Bill interest	2	14
	Underwriting commission	9	14
		_________	_________
		36	270
		_________	_________
	Total income	1,264	1,539
		_________	_________

		2010			2009
		Revenue	Capital	Total	Revenue	Capital	Total
3.	Investment management fee	£'000	£'000	£'000	£'000	£'000	£'000
	Investment management fee	100	100	200	96	96	192
		_______	_______	_______	_______	_______	_______

	The fees disclosed above were paid to Aberdeen Asset Managers Limited ('AAM'), a wholly owned subsidiary of Aberdeen Asset Management PLC.

	The management fee is charged at 0.65% of gross assets less the value of any investment funds managed by AAM. 50% of the management fee is charged to capital.

	The balance due to AAM at the year end was £51,000 (2009 - £46,000).

		2010			2009
		Revenue	Capital	Total	Revenue	Capital	Total
4.	Administration expenses	£'000	£'000	£'000	£'000	£'000	£'000
	Directors' fees (excluding irrecoverable VAT)	55	-	55	55	-	55
	Auditor's remuneration (excluding irrecoverable VAT):
	- fees payable to the Company's auditors for the audit of the annual accounts	19	-	19	18	-	18
	Contributions to Investment Trust Initiative	12	-	12	14	-	14
	Custody fees and bank charges	9	-	9	10	-	10
	Registrars fees	18	-	18	20	-	20
	Printing	9	-	9	13	-	13
	Other	44	-	44	40	-	40
		_______	_______	_______	_______	_______	_______
		166	-	166	170	-	170
		_______	_______	_______	_______	_______	_______

	The contribution to the Investment Trust Initiative of £12,000 (2009 - £14,000) paid to AAM was in respect of marketing and promotion of the Company. At the year end there was a prepayment of £1,000 (2009 - £1,000) to AAM.
	With the exception of the Directors' fees and Auditors' remuneration, irrecoverable VAT has been included under the relevant expense line above. Irrecoverable VAT on Directors' fees and Auditors' remuneration is included within other expenses.

	Directors' emoluments of £55,000 (2009 - £55,000) relate entirely to fees.

			2010			2009
			Revenue	Capital	Total	Revenue		Capital	Total
5.	Taxation		£'000	£'000	£'000	£'000		£'000	£'000
	(a)	Analysis of charge for year
		Total current tax (note 5(b))	-	-	-	-		-	-
			_______	_______	_______	_______		_______	_______
	(b)	Factors affecting current tax charge for year
		The tax assessed for the year is lower than the standard rate of corporation tax in the UK for a large company (28%). The differences are explained below:

			2010			2009
			Revenue	Capital	Total	Revenue	Capital			Total
			£'000	£'000	£'000	£'000	£'000			£'000
		Return on ordinary activities before taxation	998	2,568	3,566	1,327	(12,557)			(11,230)
			_______	_______	_______	_______	_______			_______
		Return on ordinary activities multiplied by the standard rate of corporation tax of 28% (2009 - 28%)	279	719	998	372	(3,516)			(3,144)
		Effects of:
		UK dividend receipts not chargeable to corporation tax	(234)	-	(234)	(321)	-			(321)
		UK scrip dividend income not chargeable to corporation tax	(4)	-	(4)	(7)	-			(7)
		Finance costs of ZDP shares	-	322	322	-	304			304
		Capital gains not subject to tax	-	(1,069)	(1,069)	-	3,200			3,200
		Non taxable overseas dividends	(5)	-	(5)
		Excess management expenses (utilised)/unutilised	(36)	28	(8)	(44)	12			(32)
			_______	_______	_______	_______	_______			_______
		Current tax charge for the year	-	-	-	-	-			-
			_______	_______	_______	_______	_______			_______

		Due to the Company's status as an investment trust, and the intention to continue meeting the conditions required to obtain approval in the foreseeable future, the Company has not provided for deferred tax on any capital gains and losses arising on the revaluation or disposal of investments.

	(c)	Provision for deferred taxation
		There was no provision for deferred taxation made for this year.

		The Company has not recognised a deferred tax asset of £223,000 (2009 - £230,000) arising as a result of excess management charges. These expenses would only be utilised if the Company has profits chargeable to corporation tax in future accounting periods.

		2010	2009
6.	Dividends	£'000	£'000
	Amounts recognised as distributions to equity holders in the period:
	Fourth interim dividend paid 21 August 2009 - 2.1p (2008 - 3.3p)	431	677
	First interim dividend paid 6 November 2009 - 1.3p (2008 - 1.3p)	267	267
	Second interim dividend paid 19 February 2010 - 1.3p (2009 - 1.3p)	267	267
	Third interim dividend paid 7 May 2010 - 1.3p (2009 - 1.3p)	266	267
		________	________
		1,231	1,478
		________	________

	The fourth interim dividend for the year of 2.1p per Ordinary share (2009 - 2.1p) will be paid on 20 August 2010. There is no final dividend proposed for the year (2009 - nil).

	The table below sets out 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 £998,000 (2009 - £1,327,000).
		2010	2009
		£'000	£'000
	First interim dividend paid 6 November 2009 - 1.3p (2008 - 1.3p)	267	267
	Second interim dividend paid 19 February 2010 - 1.3p (2009 - 1.3p)	267	267
	Third interim dividend paid 7 May 2010 - 1.3p (2009 - 1.3p)	266	267
	Fourth interim dividend payable 20 August 2010 - 2.1p (2009 - 2.1p)	431	431
		________	________
		1,231	1,232
		________	________

		2010		2009
7.	Return per share	£'000	p	£'000	p
	Revenue return	998	4.86	1,327	6.47
	Capital return	2,568	12.52	(12,557)	(61.20)
		________	________	________	________
	Total return	3,566	17.38	(11,230)	(54.73)
		________	________	________	________

	Weighted average number of Ordinary shares in issue		20,519,056		20,519,056

			2010	2009
			Listed	Listed
			in UK	in UK
8.	Investments		£'000	£'000
	Fair value through profit or loss:
	Opening fair value		19,314	34,909
	Opening fair value losses on investments held		2,824	1,171
			________	________
	Opening book cost		22,138	36,080
	Purchases at cost		8,813	7,827
	Sales	- proceeds	(4,026)	(11,987)
		- losses	(448)	(9,782)
			________	________
	Closing book cost		26,477	22,138
	Closing fair value gains/(losses) on investments held		1,441	(2,824)
			________	________
	Closing fair value		27,918	19,314
			________	________
	Investments listed on a recognised investment exchange		27,918	19,314
			________	________
	Gains/(losses) on investments
	Losses on sales		(448)	(9,782)
	Increase/(decrease) in fair value gains on investments held		4,265	(1,653)
	Increase in value of Certificate of Deposit		-	4
			________	________
			3,817	(11,431)
			________	________
	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:

			2010	2009
			£'000	£'000
	Purchases		27	11
	Sales		2	8
			________	________
			29	19
			________	________

		2010	2009
9.	Debtors: amounts falling due within one year	£'000	£'000
	Net dividends and interest receivable	244	261
	VAT recoverable on investment management fees	-	108
	Sundry debtors	23	10
	Amounts due from brokers	63	-
		________	________
		330	379
		________	________

		2010	2009
10.	Creditors: amounts falling due within one year	£'000	£'000
	Management fees	51	46
	Amount due to brokers	65	-
	Other creditors	46	47
		________	________
		162	93
		________	________
	Zero Dividend Preference shares	15,167	-
	Accrued finance costs	5,129	-
		________	________
		20,296	-
		________	________
		20,458	93
		________	________

	15,166,618 Zero Dividend Preferences shares (ZDP) were issued under a Placing and Reconstruction Scheme. The ZDP shares had an initial capital entitlement of 100p per share, growing to approximately 141.85p on 31 May 2011. The assets of the Company over which the ZDP shares have a prior ranking entitlement do not include the Company's accumulated revenue reserves, which will be attributable to the Ordinary shares.

		2010	2009
11.	Creditors: amounts falling due in more than one year	£'000	£'000
	Zero Dividend Preference shares	-	15,167
	Accrued finance costs	-	3,980
		________	________
		-	19,147
		________	________

		2010		2009
			Issued and		Issued and
		Authorised	fully paid	Authorised	fully paid
12.	Called-up share capital	£'000	£'000	£'000	£'000
	Ordinary shares of 1p each	550	205	550	205
		________	________	________	________

	As at 31 May 2010 there were 20,519,056 (2009 - 20,519,056) Ordinary shares of 1p in issue. The number of authorised ZDP shares is 37,000,000. Details of the issued number are shown in note 10.

		2010	2009
13.	Retained earnings	£'000	£'000
	Capital reserve
	At 31 May 2009	(12,795)	(238)
	Movement in investment holdings fair value losses	4,265	(1,653)
	Losses on realisation of investments at fair value	(445)	(9,782)
	Finance costs of ZDP Shareholders	(1,149)	(1,084)
	Movement in fair value of Certificate of Deposit	(3)	4
	Investment management fees	(100)	(96)
	VAT recoverable on investment management fees	-	54
		________	________
	At 31 May 2010	(10,227)	(12,795)
		________	________
	Revenue reserve
		2010	2009
		£'000	£'000
	At 31 May 2009	1,167	1,318
	Revenue	998	1,327
	Dividends paid	(1,231)	(1,478)
		________	________
	At 31 May 2010	934	1,167
		________	________

14.	Net asset value per share
	The net asset value per share and the net assets attributable to Shareholders at the period end, calculated in accordance with the Articles of Association were as follows:

		Net asset		Net asset
		value	Net asset	value	Net asset
		per share	values	per share	values
		attributable	attributable	attributable	attributable
		2010	2010	2009	2009
		p	£'000	p	£'000
	Zero Dividend Preference share	133.8	20,296	126.2	19,147
		________	________	________	________
	Ordinary share	53.4	10,947	42.0	8,612
		________	________	________	________

	The net asset value per ZDP share is based on funds attributable to ZDP Shareholders and on 15,166,618 (2009 - 15,166,618) ZDP shares, being the number of ZDP shares in issue at the year end.

	The net asset value per Ordinary share is based on funds attributable to Ordinary Shareholders and on 20,519,056 (2009 - 20,519,056) Ordinary shares, being the number of Ordinary shares in issue at the year end.

15.	Reconciliation of net total return before finance costs and	2010	2009
	taxation to net cash inflow from operating activities	£'000	£'000
	Net total return on ordinary activities before finance costs and taxation	4,715	(10,146)
	Less: (gains)/losses on investments	(3,817)	11,431
	Decrease/(increase) in accrued income	17	(70)
	Decrease/(increase) in other debtors	95	(109)
	Increase/(decrease) in other creditors	4	(18)
		________	________
	Net cash inflow from operating activities	1,014	1,088
		________	________

		At			At
		31 May		Non-cash	31 May
		2009	Cashflow	movements	2010
16.	Analysis of changes in net debt	£'000	£'000	£'000	£'000
	Cash at bank	6,909	(3,846)	94	3,157
	AAA Money Market funds	1,250	(1,250)	-	-
	Debt due	(19,147)	-	(1,149)	(20,296)
		________	________	________	________
	Net debt	(10,988)	(5,096)	(1,055)	(17,139)
		________	________	________	________

17.	Risk management, financial assets and liabilities
	The Company's financial instruments comprise debt and equity securities and other investments, cash balances, ZDP shares and debtors and creditors that arise directly from its operations; for example, in respect of sales and purchases awaiting settlement, and debtors for accrued income. The Company also has the ability to enter into derivative transactions in the form of forward foreign currency contracts and futures and options for the purpose of managing currency and market risks arising from the Company's activities.

	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. The numerical disclosures exclude short-term debtors and creditors (with the exception of the ZDP shares) on the basis their impact is considered immaterial.

	(i)	Market price risk
		The fair value or future cash flows of a financial instrument held by the Company may fluctuate because of changes in market prices. This market risk comprises three elements - interest rate risk, currency risk and other price risk.

		Interest rate risk
		Interest rate movements may affect:
		- the fair value of the investments in fixed interest rate securities;
		- the level of income receivable on cash deposits and other variable rate securities;
		- 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.

		Cash balances can be managed to reduce the effective level of gearing. The Company places funds with authorised deposit takers from time to time and is therefore potentially at risk from the failure of any such institution of which it is a creditor.

		Interest risk profile
		The interest rate risk profile of the portfolio of financial assets and liabilities at the Balance Sheet date was as follows:

					Weighted
					average			Fixed		Floating
					interest rate			rate		rate
		At 31 May 2010			%			£'000		£'000
		Assets
		Cash and short-term deposits			0.64			-		3,157
					________			________		________
		Liabilities
		Zero Dividend Preference shares			5.84			(20,296)		-
					________			________		________

					Weighted
					average			Fixed		Floating
					interest rate			rate		rate
		At 31 May 2009			%			£'000		£'000
		Assets
		Cash and short-term deposits			2.32			-		8,159
					________			________		________
		Liabilities
		Zero Dividend Preference shares			5.84			(19,147)		-
					________			________		________

		15,166,618 Zero Dividend Preferences shares (ZDP) have an initial capital entitlement of 100p per share, growing to 141.85p on 31 May 2011.
		The floating rate assets consist of cash deposits on call and money market funds earning interest at prevailing market rates.
		All financial liabilities are measured at amortised cost.

		Interest rate sensitivity
		The sensitivity analyses below have been determined based on the exposure to interest rates at the Balance Sheet date and the stipulated change taking place at the beginning of the financial year and held constant throughout the reporting period in the case of instruments that have floating rates.

		If interest rates had been 100 basis points higher or lower and all other variables were held constant, the Company's:
		- profit for the year ended 31 May 2010 would increase/decrease by £32,000 (2009 - increase/decrease by £82,000). This is mainly attributable to the Company's exposure to interest rates on its floating rate cash balances.
		- the Company holds no financial instruments that will have an equity reserve impact.

		In the opinion of the Directors, the above sensitivity analyses are not representative of the year as a whole, since the level of exposure changes frequently as part of the interest rate risk management process used to meet the Company's objectives.

		Foreign currency risk
		None of the Company's investment portfolio is invested in overseas securities and the Balance Sheet cannot be affected by movements in foreign exchange rates.

		The revenue account is subject to currency fluctuation arising on overseas income but the effect is immaterial and the Company does not hedge this currency risk.

	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, which amounted to £27,918,000 (2009 - £19,314,000) at the year end.

	The Company has two objectives, to provide Ordinary Shareholders with an attractive level of income, together with the potential for capital and income growth, and to provide ZDP Shareholders with a fixed capital return of 141.85p per share (£21,514,000) on 31 May 2011. The Company aims to achieve this through investing in a portfolio of diversified securities which, given the income requirements of the Company, are likely to yield in excess of the yield available on the broader UK equity market.

	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 for the year ended 31 May 2010 would have increased/decreased by £2,792,000 (2009 - increase/decrease of £1,931,000) and equity reserves would have increased/decreased by the same amount.

(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 fair value assets comprise readily realisable securities, which can be sold to meet funding commitments if necessary. In addition, all current assets and current liabilities are receivable/payable within 3 months. The ZDP shares are repayable on 31 May 2011 at a rate of 141.85p per share. Cash flow is equal to carrying value for all other assets.

(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 considered to be 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 rating of which 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 is reviewed periodically by the Investment Manager, and limits are set on the amount that may be due from any one broker;
	- cash is held only with reputable banks with high quality external credit enhancements; and
	- assets are ring fenced and protected in the event of custodian default.

	Credit risk exposure
	In summary, compared to the amounts in the Balance Sheet, the maximum exposure to credit risk at 31 May was as follows:

			Balance		Maximum		Balance		Maximum
			Sheet		exposure		Sheet		exposure
			2010		2010		2009		2009
			£'000		£'000		£'000		£'000
	Loans and receivables		307		307		369		369
	AAA Money Market funds		-		-		1,250		1,250
	Cash at bank and in hand		3,157		3,157		6,909		6,909
			________		________		________		________
			3,464		3,464		8,528		8,528
			________		________		________		________

	None of the Company's financial assets is past due or impaired.

	Fair values of financial assets and financial liabilities
	The fair and book value of the financial liabilities are stated below:
				Book value		Fair value^A		Book value	Fair value^A
				2010		2010		2009	2009
				£'000		£'000		£'000	£'000
	Zero Dividend Preference share			20,296		20,217		19,147	19,383
	^ABased on market value at the year end.

	All other assets and liabilities of the Company are included in the Balance Sheet at fair value.

18.	Capital management policies and procedures
	The objective of the Company is to provide Ordinary Shareholders with an attractive level of income, together with the potential for capital and income growth and to provide ZDP Shareholders with a pre-determined capital entitlement on 31 May 2011.

	The Company manages its capital to ensure that it will be able to continue as a going concern until its wind-up date in 2011 while maximising the return to shareholders through the optimisation of the debt and equity balance.

	The Board monitors and reviews the broad structure of the Company's capital on an ongoing basis. This review includes:
	- the planned level of gearing which takes account of the Investment Manager's views on the market;
	- the level of equity and ZDP shares in issue;
	- 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.

	The Company does not have any externally imposed capital requirements.

19.	Contingent assets
	On 5 November 2007, the European Court of Justice ruled that management fees on investment trusts should be exempt from VAT. HMRC has accepted the ruling and acknowledged its liability to pay claims in respect of VAT borne by investment companies.

	The Company has received a refund £108,000 representing all VAT charged on investment management fees for the period 1 June 2005 to 31 August 2007; this was recognised in the previous year's financial statements and has been allocated to revenue and capital respectively, in accordance with the accounting policy of the Company for the periods in which the VAT was charged. The amount for any interest due on recoverable amounts and the timescale for receipt are at present uncertain and the Company has therefore taken no account in these financial statements of any such repayment.

	The Company has not been charged VAT on its investment management fees from 1 September 2007.

20	Fair value hierarchy
	The Company adopted the amendments to FRS 29 'Financial Instruments: Disclosures' effective from 1 January 2009. These amendments require 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 shall have 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 liability, either directly (ie as prices) or indirectly (ie derived from prices); and
	- Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

	The financial assets and liabilities measured at fair value in the Balance Sheet are grouped into the fair value hierarchy at 31 May 2010 as follows:

			Level 1	Level 2	Level 3	Total
		Note	£'000	£'000	£'000	£'000

	Financial assets at fair value through profit or loss
	Quoted equities	a)	27,918	-	-	27,918

			_______	_______	_______	_______
	Net fair value		27,918	-	-	27,918
			_______	_______	_______	_______

	a) Quoted equities
	The fair value of the Company's investments in quoted equities have been determined by reference to their quoted bid prices at the reporting date. Quoted equities included in Fair Value Level 1 are actively traded on recognised stock exchanges.

21.	Related party disclosure
	The transactions with Aberdeen Asset Managers Limited and the year end balances are disclosed in notes 3 and 4 of the financial statements.

22. The fourth interim dividend of 2.1p per share will be paid on 20 August 2010 to shareholders on the register at the close of business on 23 July 2010. The ex-dividend date is 21 July 2010.

23. The Annual Financial Report Announcement is not the Company's statutory accounts. The above results for the year ended 31 May 2010 have been agreed with the auditors and are an abridged version of the Company's full accounts, which have been approved and audited with an unqualified report. The 2010 and 2009 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 either section 498(2) or 498(3) of the Companies Act 2006. The financial information for 2009 is derived from the statutory accounts for 2009 which have been delivered to the Registrar of Companies. The 2010 accounts will be filed with the Registrar of Companies in due course.

24. The Annual Report and Accounts will be posted to shareholders in July 2010 and copies will be available from the investment manager or from the Company's website, www.edinburghnewincome.co.uk.