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Schroder Inc Growth (BC!)

  Print      Mail a friend       Annual reports

Friday 03 November, 2006

Schroder Inc Growth

Final Results

Schroder Income Growth Fund PLC
03 November 2006



                        Schroder Income Growth Fund plc

          UNAUDITED PRELIMINARY RESULTS FOR THE YEAR ENDED 31 AUGUST 2006

          


The Directors of Schroder Income Growth Fund plc announce the unaudited
preliminary results for the year ended 31 August 2006.



Income Statement
                                                         For the year                     For the year
                                                      ended 31 August 2006             ended 31 August 2005
                                                                                            (restated)
                                                    Revenue    Capital     Total     Revenue    Capital      Total
                                                     Return     Return    Return      Return     Return     Return

                                         Notes        £'000      £'000      £'000     £'000       £'000      £'000

Gains on investments held at fair value                   -     13,208     13,208         -      23,908     23,908

Income                                                6,381      1,857      8,238     6,214           -      6,214

Investment management fee                  2          (650)      (650)    (1,300)     (614)       (614)    (1,228)

Performance fee                            3              -        163        163         -       (149)      (149)

Administrative expenses                               (210)          -      (210)     (201)           -      (201)

Net return before finance costs and                   5,521     14,578     20,099     5,399      23,145     28,544
taxation

Interest payable and similar charges                      -          -          -

                                                                                       -         -             -
Net return on ordinary activities before              5,521     14,578     20,099     5,399      23,145     28,544
 taxation

Taxation on ordinary activities                           -          -          -         -           -          -

Net return on ordinary activities after               5,521     14,578     20,099     5,399      23,145     28,544
taxation  attributable to equity
shareholders


Net return per ordinary share              4          7.44p     19.64p     27.08p     7.16p      30.71p     37.87p



The Total Column of this statement is the profit and loss account of the
Company. The Revenue Return and Capital Return columns are both provided in
accordance with guidance issued by the Association of Investment Companies. The
Company has no recognised gains or losses other than those disclosed in the
Income Statement and the Reconciliation of Movements in Shareholders' Funds.
Accordingly no Statement of Total Recognised Gains or Losses is presented.



Comparative figures have been extracted from the statutory accounts for the year
ended 31 August 2005 and have been restated in accordance with FRS 21 in respect
of dividends and FRS 26 in respect of Financial Instruments as disclosed in Note
1.



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



The notes form an integral part of this unaudited preliminary announcement.


               Reconciliation of Movements in Shareholders' Funds




                             Share        Capital       Share       Share    Warrant   Capital    Revenue     Total
                             capital   redemption     premium    purchase   exercise   reserve    reserve
                                          reserve     account     reserve    reserve
                                £'000       £'000       £'000       £'000      £'000     £'000      £'000     £'000
Balance at 31 August 2005       7,481       1,399       7,404      47,333      1,596    79,568      2,794   147,575

Valuation adjustment from           -           -           -           -          -       (6)          -       (6)
mid to bid

Add back  accrued dividend          -           -           -           -          -         -      2,057     2,057

Balance at 31 August 2005       7,481       1,399       7,404      47,333      1,596    79,562      4,851   149,626
(restated)

Dividends paid in respect of        -           -           -           -          -         -    (2,057)   (2,057)

31 August 2005
First interim dividend of           -           -           -           -          -         -    (1,048)   (1,048)
1.40p per share paid 31
January 2006

Second interim dividend of          -           -           -           -          -         -    (1,043)   (1,043)
1.40p per share paid 30
April 2006

Third interim dividend of           -           -           -           -          -         -    (1,028)   (1,028)
1.40p per share paid 31 July
2006

Gains on investments                -           -           -           -          -    13,208          -    13,208

Capitalised dividend                -           -           -           -          -     1,857          -     1,857

Other transfer to reserves      (212)         212           -     (4,354)          -     (487)      5,521       680

Balance at 31 August 2006       7,269       1,611       7,404      42,979      1,596    94,140      5,196   160,195




Balance at 31 August 2004       7,554       1,326       7,404      48,635      1,596    56,436      2,482   125,433

Valuation adjustment from           -           -           -           -          -      (19)          -      (19)
mid to bid

Add back  accrued dividend          -           -           -           -          -         -      1,775     1,775

Balance at 31 August 2004       7,554       1,326       7,404      48,635      1,596    56,417      4,257   127,189
(restated)

Dividends paid in respect of        -           -           -           -          -         -    (1,775)   (1,775)

31 August 2004
First interim dividend of           -           -           -           -          -         -    (1,012)   (1,012)
1.34p per share paid 31
January 2005

Second interim dividend of          -           -           -           -          -         -    (1,012)   (1,012)
1.34p per share paid 30
April 2005

Third interim dividend of           -           -           -           -          -         -    (1,006)   (1,006)
1.34p per share paid 31 July
2005

Gains on investments                -           -           -           -          -    23,908          -    23,908

Other transfer to reserves       (73)          73           -     (1,302)          -     (763)      5,399     3,334

Balance at 31 August 2005       7,481       1,399       7,404      47,333      1,596    79,562      4,851   149,626
(restated)



                                 Balance Sheet

                                                                                At 31 August       At 31 August
                                                                                        2006             2005
                                                                                                     (restated)
                                                                 Notes
                                                                                       £'000              £'000
Fixed assets
Investments held at fair value through profit or loss                                155,214            146,066
Current assets
Debtors                                                                                2,170                773
Cash and cash equivalents                                                              4,014              3,526
                                                                                       6,184              4,299


Current liabilities
Creditors : amounts falling due within one year                                        1,203                739

Net current assets                                                                     4,981              3,560
Net assets                                                                           160,195            149,626

Capital and reserves:
Called up share capital                                                                7,269              7,481
Capital redemption reserve                                                             1,611              1,399
Share premium account                                                                  7,404              7,404
Share purchase reserve                                                                42,979             47,333
Warrant exercise reserve                                                               1,596              1,596
Capital reserve                                                                       94,140             79,562
Revenue reserve                                                                        5,196              4,851

EQUITY SHAREHOLDERS' FUNDS                                                           160,195            149,626


Net asset value per ordinary share                                 5                 220.39p            200.00p




Comparative figures have been extracted from the statutory accounts for the year
ended 31 August 2005 and have been restated in accordance with FRS 21 in respect
of dividends and FRS 26 in respect of Financial Instruments as disclosed in Note
1.



The notes form an integral part of this unaudited preliminary announcement.






                                                           Abridged Cash Flow Statement


                                                                 For the year ended             For the year ended
                                                                      31 August 2006                 31 August 2005
                                                                              £'000                          £'000

Net cash inflow from operating activities                                     6,222                          4,835
Net cash inflow/(outflow) from investing activities                           3,806                        (7,952)
Dividends paid                                                              (5,176)                        (4,805)
Net cash inflow/(outflow) before financing                                    4,852                        (7,922)
Net cash outflow from financing activities                                  (4,364)                        (1,116)
Net increase/(decrease) in cash and cash equivalents                            488                        (9,038)
Cash and cash equivalents at start of period                                  3,526                         12,564
Cash and cash equivalents at period end                                       4,014                          3,526



Reconciliation of profit before taxation to net cash inflow from operating
activities


                                                                 For the year ended             For the year ended
                                                                     31 August 2006      31 August 2005 (restated)
                                                                              £'000                          £'000

Net return before finance costs and taxation                                 20,099                         28,544
Gain on investments held at fair value                                     (13,208)                       (23,908)
Movement in accrued income                                                    (388)                            129
Movement in other debtors                                                     (153)                              3
Movement in accruals                                                          (128)                             67
Net cash inflow from operating activities                                     6,222                          4,835


Notes


1 Basis of accounting

These accounts have been prepared under the historical cost convention, modified
to include the revaluation of investments and in accordance with the Companies
Act 1985 and Generally Accepted Accounting Principles (UK GAAP) issued by the
Accounting Standards Board (ASB) and the Statement of Recommended Practice '
Financial Statement of Investment Trust Companies ('SORP') issued in January
2003 and revised in December 2005 by the Association of Investment Companies'.
The ASB has implemented a convergence programme with International Financial
Reporting Standards and as part of this project has introduced a number of new
and revised Accounting Standards which have been adopted in these accounts and
for which details are given below.



Changes in presentation The Statement of Total Return is now called the Income
Statement. Dividends payable to equity shareholders are no longer reflected in
the Income Statement although they continue to be shown in the Reconciliation of
Movement in Shareholders' Funds (as required by FRS 25 (Financial Instruments
disclosure and presentation) which is now presented as a primary statement.

Changes in accounting policy The Company has changed its accounting policy for
the valuation of listed investments and the recognition of dividends payable to
equity shareholders. These changes in policy are detailed below:

FRS 26 (Financial instruments: Measurement) - The Company has designated its
assets and liabilities as being measured at 'fair value through profit or loss'.
The fair value of listed investments is deemed to be the bid value of those
investments at the close of business on the relevant date. Previously, listed
investments were valued at mid value. Changes in the fair value of investments
held at fair value through profit or loss and gains and losses on disposal are
recognised in the Income Statement as 'Gains or losses on investments held at
fair value.' Transaction costs in relation to the purchase or sale of
investments, including the difference between the purchase price of an
investment and its bid price at the date of purchase are also included here. All
purchases and sales are accounted for on a trade date basis.

FRS 23 (The effects of changes in Foreign Exchange Rates) - This is a UK
domiciled company with a predominantly UK shareholder base. The Company's
assets, liabilities, income and expenditure are mainly denominated in sterling
and therefore the functional and presentational currency of this Company is
deemed to be sterling and the accounts presented accordingly.

FRS 21 (Events after the Balance Sheet Date) - Dividends paid by the Company are
recognised in the Reconciliation of Movements in Shareholders' Funds in the
period in which the Company is liable to pay them. Previously the Company
accrued dividends in the period in which the net revenue, to which those
dividends related was accounted for.

The accounts for the year ended 31 August 2005 have been restated to reflect
these changes and the impact on current and prior year is shown in note 6.

Other than the matters noted above the same accounting policies used for the
year ended 31 August 2005 have been applied in preparing the accounts for the
year ended 31 August 2006.




2 Investment management fee



The Investment Manager was entitled to a fee at a rate of 10 per cent. of the
net revenue return for the year after taxation plus 0.375 per cent. on assets up
to and including £75 million, 0.35 per cent. on the next £50 million and 0.325
per cent. on assets in excess of £125 million. These fees are apportioned on a
50:50 basis between the capital and revenue accounts respectively.



For the year ended 31 August 2006, a total fee of £1,300,000 including VAT has
been accrued under the terms of the management agreement.



3 Performance fee

With effect from 1 September 2000, an annual performance fee was introduced. The
fee is symmetrical in nature, so that the Manager will be rewarded for
out-performance but penalised for under-performance. The performance fee (or
rebate) is based on the Company's net asset value total return compared with the
total return on the FTSE All-Share Index over a rolling three-year period and is
subject to a cap of 25 per cent. of the asset-based management fee (plus VAT)
for the year then ended. The performance fee is based on a three-year rolling
period and is calculated and paid annually. The fee in respect of any period
will be calculated as 5 per cent. of the value (based on opening net assets for
the relevant period) of the outperformance / (under performance) of the
Company's Net Asset Value over the return on the FTSE

All-Share Index, with performance measured in terms of total return.



For the year ended 31 August 2006, a total rebate of £163,000 including VAT has
been accrued under the terms of the management agreement.



 4 Return per ordinary share

The basic revenue return per ordinary share is based on the net return on
ordinary activities after interest payable and taxation of £5,521,000 (2005:
£5,399,000) and on 74,221,932 (2005: 75,372,343) ordinary shares, being the
weighted average number of shares in issue in the year.

The basic capital return per ordinary share is based on the net return on
ordinary activities after interest payable and taxation of £14,578,000 (2005:
£23,145,000) and on 74,221,932 (2005: 75,372,343) ordinary shares, being the
weighted average number of shares in issue in the year.

The basic total return per ordinary share is based on the net return on ordinary
activities after interest payable and taxation of £20,099,000 (2005:
£28,544,000) and on 74,221,932 (2005: 75,372,343) ordinary shares, being the
weighted average number of shares in issue in the year.



5 Net asset value per ordinary share

Net asset value per ordinary share is based on the net assets attributable to
ordinary shares of £160,195,000 (2005: £149,626,000 (restated)) and on
72,687,343 (2005: 74,812,343) ordinary shares in issue.


6 Restatement of Opening Balances



A reconciliation is given between the closing balances per the 31 August 2005
accounts and the restated balances following adoption of revisions to UK GAAP.



(a) Balance Sheet


                                                             Previously       Adjustment            Restated
                                                               reported
                                                         31 August 2005                       31 August 2005
                                                                  £'000            £'000               £'000
Fixed assets
Investments at fair value through profit or loss                146,072              (6)             146,066 (a)

Current assets
Debtors                                                             773                -                 773
Cash and cash equivalents                                         3,526                -               3,526
                                                                  4,299                -               4,299


Creditors amounts falling due within one year                   (2,796)            2,057               (739) (b)
Net current assets                                                1,503            2,057               3,560
Net assets                                                      147,575            2,051             149,626

Capital and reserves
Called up share capital                                           7,481                -               7,481
Capital redemption reserve                                        1,399                -               1,399
Share premium account                                             7,404                -               7,404
Share purchase reserve                                           47,333                -              47,333
Warrant exercise reserve                                          1,596                -               1,596
Capital reserves                                                 79,568              (6)              79,562 (a)
Revenue reserves                                                  2,794            2,057               4,851 (b)
Total equity shareholders' funds                                147,575            2,051             149,626
Net asset value per ordinary share                              197.26p            2.74p             200.00p


Notes to the restatement of opening balances:


(a) Effect of revaluation of fixed asset investments from mid to bid value.

(b) Effect of accounting for dividends in the period when the Company becomes
    liable to pay them.



(b) Income Statement


                      Previously reported               Adjustments                          Restated
                         31 August 2005                                                   31 August 2005


                    Revenue       Capital     Total     Revenue    Capital     Total   Revenue    Capital     Total
                         £'000      £'000     £'000                                      £'000                £'000

Gains on                     -     23,895    23,895          -         13        13          -     23,908    23,908
investments held at
fair value *

Income                   6,214          -     6,214          -          -         -      6,214          -     6,214
Investment               (614)      (614)   (1,228)          -          -         -      (614)      (614)   (1,228)
management fees
Performance fee              -      (149)     (149)          -          -         -          -      (149)     (149)
Administrative           (201)          -     (201)          -          -         -      (201)          -     (201)
expenses
Net return before        5,399     23,132    28,531          -         13        13      5,399     23,145    28,544
finance costs and
taxation

Interest payable             -          -         -          -          -         -          -          -         -
and similar charges
Net return on            5,399     23,132    28,531          -         13        13      5,399     23,145    28,544
ordinary activities
before taxation

Taxation on                  -          -         -          -          -         -          -          -         -
ordinary activities
Net return on            5,399     23,132    28,531          -         13        13      5,399     23,145    28,544
ordinary activities
after taxation

attributable to
equity shareholders
Net return per           7.16p     30.69p    37.85p          -      0.02p     0.02p      7.16p     30.71p    37.87p
ordinary share




Note to the restatement of opening balances:



* Effects of revaluation of listed investments from mid to bid value.



This announcement is prepared on the basis of the accounting policies as set out
in the most recent published set of annual financial statements as amended for
the adoption of new Accounting Standards.

The above financial information is unaudited and does not constitute statutory
accounts under Section 240 of the Companies Act 1985 (as amended). Statutory
accounts for the financial year ended 31 August 2005 have been reported on by
the Company's auditors and delivered to the Registrar of Companies.  The report
of the auditors was unqualified and did not contain a statement under Section
237(2) or (3) of the Companies Act 1985.

The statutory accounts for the year ended 31 August 2006 will be finalised on
the basis of the financial information presented by the Directors in this
preliminary announcement and will be delivered to the Registrar of Companies
following the Company's Annual General Meeting.



This statement was approved by the Board of Directors on 3 November 2006.


Chairman's Statement



I am pleased to submit my first full year's Chairman's Statement since
succeeding Mr John Hignett as Chairman in December 2005.



Results for the Year and Dividends

During the year ended 31 August 2006, the Company's revenue return was 7.44
pence per share, a rise of 3.9% when compared with 7.16 pence per share for the
previous year.



The Board has declared total dividends of 6.90 pence per share for the year
ended 31 August 2006, representing an increase of 5.8% over the 6.52 pence per
share (excluding the special dividend of 0.25 pence) paid in respect of the
previous year. The increase in the Retail Price Index for the same period was
3.4%.



Investment Performance

Whilst the increase in net assets in absolute terms was once again encouraging,
the Company under-performed the FTSE All-Share Index during the year. The
Company produced a net asset value total return of 13.7%* compared with a total
return of 16.8%* from the Index. As a result of this under-performance against
the benchmark, the Company received a performance fee rebate amounting to
approximately £163,000 including VAT for the year ended 31 August 2006.



At 31 August 2006, the Company's share price was trading at a discount to net
asset value of 7.6% compared to 6.8% at the start of the year. Since the year
end, the discount has narrowed to 5.4% as at 13 October 2006. The share price
total return for the year was 13.2%*.



An outline of performance during the year may be found in the following
Investment Manager's Review.



Share Purchases and Treasury Shares

During the year ended 31 August 2006, the Board continued to operate its share
buy-back facility and a total of 2,125,000 ordinary shares were purchased for
cancellation, equal to approximately 2.8% of the shares in issue on 1 September
2005. The buy back programme was successful in managing the volatility of the
discount, which ranged between 3.6% and 7.6% during the year.



Your Directors continue to consider share buy backs as one of a number of tools
that may be used to enhance shareholder value. The Board is proposing at the
Annual General Meeting that the Company renew and expand its existing
authorities and be granted the authority to hold repurchased shares in treasury
for subsequent reissue.  The proposed authority would permit up to 10% of the
share capital (including shares held in treasury) to be issued without being
first offered to existing shareholders, an increase from the 5% limit that has
been granted until now.  A number of minor technical changes to the Articles,
designed to facilitate the proposed use of treasury shares, will also be
proposed.



The Board's intention is that shares to be held in treasury may be reissued at
any time but only at a premium to net asset value per share. Any shares held in
treasury for 12 months will be cancelled and so not reissued.



The Board believes that this proposal, if approved by shareholders, could
provide a useful source of additional liquidity for the Company's shares in the
secondary market.



Appointment of New Fund Manager

During July 2006, Sonja Schemmann took responsibility within Schroders for the
investment management of the Company's portfolio. Sonja joined Schroders in 2005
and is a senior portfolio manager specialising in equity income portfolio
management. Prior to joining Schroders, Sonja worked for DWS Investment GmbH
where she was a senior fund manager in the global equity team.



Change in Custodian

The Company changed custodian from Schroders to JPMorgan Chase Bank in August
2006.



Changes to UK Accounting Standards

As stated in the Interim Report, the Company has adopted a number of new
accounting standards as a result of the Accounting Standards Board's convergence
programme with International Accounting Standards applicable to investment
trusts which prepare their financial statements under UK Generally Accepted
Accounting Practice. These are the first full year accounts which have been
prepared pursuant to these new accounting standards and their impact is set out
in the notes to these accounts. In addition, the Directors' Report contains a
Business Review for the first time this year, as required under the European
Union's Accounts Modernisation Directive for all UK listed companies for
financial years beginning on or after 1 April 2005.



Continuation Vote

At the Annual General Meeting held on 8 December 2005, shareholders voted in
favour of the continuation of the Company as an investment trust for a further
period of five years. I should once again like to thank shareholders for
demonstrating their support. A further continuation vote will be put to
shareholders in 2010 and thereafter at five yearly intervals.



Annual General Meeting

The Company's Annual General Meeting will be held at 3.30 p.m. on 7 December
2006. As in previous years, the meeting will include a presentation by the
Investment Manager on the Company's investment strategy and market prospects.



Sir Paul Judge
Chairman



3 November 2006


* Source: Fundamental Data


Investment Manager's Review



Market Background

The UK stock market continued to show strong returns during the year despite
increasing concern over global growth, inflation and interest rates. Market
momentum was only once disrupted by a correction during May and June and that
ground was subsequently recovered. For the year to 31 August 2006 the FTSE All
Share Index returned 16.8%*.



The main contributor to performance was again the mining sector that produced an
impressive 40% return over the year. The Company's limited exposure to this
sector has resulted in capital underperformance relative to the index, but given
the sector's lack of high-yielding stocks and extended valuations, the Company
intends to maintain its underweight position. Successes from bid activity (eg
BAA and BOC) and the recovery of stocks such as Marks & Spencers were partially
offset by disappointing returns in the telecom sector (eg Cable & Wireless).



Investment Approach

The Company follows a transparent and straightforward investment approach which
remains unchanged despite the change of fund manager within the reporting
period. We continue to focus on companies that offer an attractive income
profile and a promising business model. The emphasis is the balance between
payout and reinvestment as we believe that a disciplined use of capital should
have a beneficial impact on the operational results in the long term to achieve
the Company's objective of providing an income stream growing above the rate of
inflation for its shareholders alongside a stable and sustainable performance
profile.



Outlook

The market has risen strongly over the past year but the first signs of
increased risk aversion are emerging. Investors are expecting global activity to
slow although no recession is predicted. Leading indicators have peaked and the
US housing market has weakened materially.



As the cycle matures, and companies face increasing pressure on margins, we
expect the market to focus more on the quality of individual franchises and
balance sheets. These characteristics have been overlooked recently in a market
looking mainly at bid candidates and short-term earnings growth. The shares of
some of the larger-sized companies that have been left behind in this market now
look attractive. The portfolio is full of high yielding stocks with a sound and
stable earnings profile that should outperform the market and offer some
protection against potentially rising volatility.





Schroder Investment Management Limited

3 November 2006


* Source: Fundamental Data



ANNUAL REPORT

The Annual Report and Accounts will be mailed to registered shareholders at
their registered addresses. Copies of the Annual Report will be made available
from the date of release at the Company's registered office, 31 Gresham Street,
London, EC2V 7QA.





Enquiries:                Schroder Investment Management Limited
Louise Richard                                   (020 7658 6501)



3 November 2006




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