Annual Report & Financial Statements 2008

Smaller Companies Value Trust plc

Annual report and financial statements for the year ended 30 April 2008

Contents

Objectives

Financial Highlights

Directors, Investment Manager and Others

Chairman’s Statement

Investment Manager’s Review

Fifty Largest Holdings

Sector Distribution

Directors’ Report

Statement of Directors’ responsibilities in

relation to the Company financial statements

Corporate Governance

Directors’ Remuneration Report

Independent Auditors’ Report

Income Statement

Balance Sheet

Reconciliation of Movements in Shareholders’ Funds

Cash Flow Statement

Notes to the Financial Statements

Notice of Meeting

Form of Proxy

Financial Calendar

Investment Manager Information

Trust Information

Smaller Companies Value Trust plc is registered in England and Wales no. 4388908 and is an investment company within the meaning of Part 23 of the Companies Act 2006.

Registered office:
10 Fleet Place
London EC4M 7RH

This document is important and requires your immediate attention.

If you are in any doubt about the action to be taken you should consult an independent financial adviser immediately. If you have sold or otherwise transferred all of your shares in Smaller Companies Value Trust plc, this document should be passed to the purchaser or transferee or to the person through whom the transfer was effected for transmission to the purchaser or transferee.

Objectives – Smaller Companies Value Trust plc

The Company invests in a diversified portfolio of quoted UK smaller companies with the objective of providing income shareholders with a dividend yield, together with the potential for dividend growth and capital shareholders with the benefit of geared capital growth.

The Board seeks to balance the interests of the holders of the income shares and capital shares at all times and the investment policy is such that the Company will be a qualifying investment trust under the Income and Corporation Taxes Act 1988 (as amended).

Information about the duration of the Company may be found in the Directors’ Report on page 8.

Financial Highlights

		Year ended		Year ended
		30-Apr		30-Apr
		2008		2007
Net asset value per package unit (Articles basis)*		189.49p		274.53p
Share price per package unit**		176.50p		248.25p
Discount per package unit		6.86%		9.57%
Net asset value per capital share (Articles basis)		132.00p		218.57p
Share price per capital share**		109.50p		183.50p
Discount per capital share		17.05%		16.05%
Net asset value per income share (Articles basis)		57.49p		55.96p
Share price per income share**		61.00p		64.75p
Premium per income share		6.11%		15.70%
Hoare Govett Smaller Companies Index
(excluding investment companies)***		7,589.10		9,401.67
Total (loss)/return on ordinary activities
before and after taxation (£’000)		-16,716		8,066
Dividend per income share		6.75p		5.47p
Net asset total (loss)/return per package unit		(74.77p)		45.17p

* A package unit comprises one capital share and one income share

** Source: Bloomberg

*** Source: Datastream

In the report and accounts, the net asset value has been calculated on both an Articles basis and Accounts basis (see Note 13).

Comparison of the total return of Smaller Companies Value Trust plc with the Hoare Govett Smaller Companies Index (excluding investment companies)

(Graphic Omitted)

Directors

Anthony Bushell

Anthony Bushell, aged 75, the chairman, joined the Bank of England in 1956 and was its chief investment manager from 1978 until 1992. He is Chairman of Eclectic Investment Trust plc. Until 2002 he was chairman of GT Japan Investment Trust plc and a director of Aberdeen Asset Management plc and, until March 2005, was a member of the advisory committee of the Pan European Smaller Companies Fund of the Scottish Widows Investment Partnership Investment Funds ICVC.

Bernard Clark

Bernard Clark, aged 66, is currently non-executive chairman of Litho Supplies plc, a non-executive director of TR European Growth Trust plc and a director of Edwina Investments Limited. Previously, he was a director of Lloyds Merchant Bank Limited and Lloyds Investment Managers Limited.

Nigel Pearson

Nigel Pearson, aged 64, qualified as a solicitor in Scotland and, until 2002, was general counsel for Rabobank International, London. He held various positions within Deutsche Bank Group between 1986 and 1998 including head of the legal and compliance departments of Deutsche Bank AG, London. He was chief legal adviser and company secretary of European Arab Bank Limited, London and then group legal counsel between 1979 and 1986. He has also occupied the position of company secretary and legal adviser to Arab Swiss Consultants Limited and Bank of America International Limited, London.

John Poulter

John Poulter, aged 65, was chairman of Spectris plc until May 2008. He was chief executive of Spectris plc from 1991 to 2001. He is also the non-executive chairman of Filtronic plc and a director of a number of private companies. His previous directorships include Kidde plc, RAC plc and the London Metal Exchange Limited. Previously he was responsible for a group of UK and US manufacturing businesses within BTR plc.

All of the Directors are members of the Nominations Committee and the Audit and Management Engagement Committee.

Investment Manager and Others

Company Secretary and registered office
Scottish Widows Investment Partnership Limited
10 Fleet Place
London EC4M 7RH
020 7203 3000

Auditors
Ernst & Young LLP
10 George Street
Edinburgh EH2 2DZ

Registrar
Equiniti Limited
Aspect House
Spencer Road
Lancing
West Sussex BN99 6DA

Broker
Landsbanki Securities (UK) Limited
Beaufort House
15 St Botolph Street
London EC3A 7QR

Banker
Lloyds TSB Scotland plc
120 George Street
Edinburgh EH2 4TS

Investment Manager
Scottish Widows Investment Partnership Limited
Edinburgh One
Morrison Street
Edinburgh EH3 8BE

Chairman’s Statement

Review

This has been a challenging period for UK equities, and particularly for those investing in smaller companies. While the total return for the FTSE 100 index fell by just over 2% during the period under review, the comparable figure for the smaller companies market, as measured by the Hoare Govett Smaller Companies Index (excluding investment companies) fell by 19.3%. During this time, the total return of the Smaller Companies Value Trust’s capital shares fell 22.9%. The leverage through the fixed bank loan inevitably had a detrimental effect on the capital shares.

Volatility has been a key feature of the market. Investors have been particularly concerned that difficulties associated with US subprime lending would affect global growth prospects. As a result, risk-adverse investors took shelter in the perceived safety of large-capitalisation stocks, and smaller companies were neglected. Deteriorating economic conditions also affected performance, since smaller companies tend to rely more heavily than their larger counterparts on a favourable domestic economic environment.

The other major impediment, of course, has been the credit crisis and its impact on the banking sector. Inevitably, sentiment has been driven by events in the US, with concerns over the financial health of Bear Stearns precipitating a share price collapse in March. Though the mood recovered somewhat in the wake of a large cut in US interest rates and encouraging news elsewhere within the sector, investors have retained a cautious outlook.

The market’s preference for large-capitalisation stocks has left many smaller companies at their most attractive valuations in years. While the Trust’s performance lagged its benchmark during this difficult period, I remain confident of the manager’s ability to identify these opportunities.

Dividend

A second interim dividend for the year ended 30 April 2008 was paid on 14 May 2008, making a total for the year of 6.75p per income share. As the balance of undistributed income for the year is small, the Board decided, as intimated in the announcement made on 24 April 2008, not to pay a final dividend.

Future of the Company

The attention of Shareholders is drawn to the paragraph on page 8 on the options available to the Board with the approach of 30 April 2009, by which date the future of the Company must be determined.

Outlook

In spite of the turmoil on the financial markets, the UK economy has held up remarkably well, but it is now slowing. In the short term, equities are likely to remain volatile amid the continued uncertainty over the impact of the credit crunch in financial markets. Investors will also be keen to see if the strength of the emerging economies is sustained. Rampant growth in the world’s developing nations will continue to affect both the UK economy and the general direction of equity markets in the months to come.

The performance of smaller companies relative to their larger counterparts depends to a considerable extent on how much further the credit crisis has to run. The key for many firms is not only if the Bank of England’s monetary policy committee is prepared to reduce interest rates again, but the extent to which financial institutions are prepared to pass such cuts on to the corporate sector and to consumers or even at a later stage should the Bank of England decide to lift rates.

Anthony Bushell
Chairman
27 June 2008

Investment Manager’s Review

Global and market background

The UK equity market traced a downward path over the twelve months. For much of the review period two concerns dominated investor sentiment: the economic outlook for the US and the knock-on effects of the credit crisis. Investors in the UK and elsewhere have been gripped by fears that the slowing American economy will tip into recession, and that the effects of the fallout from US subprime lending would begin to affect the wider economy. With this in mind, it is hardly surprising that the financial stresses affecting US activity have worked through to other major developed countries.

At the same time, though, the performance of the global economy has remained relatively robust. Industrial production has been holding up, and the developing world, headed by China and India, is still performing relatively well. Indeed, the big winners in the market over the review period proved to be mining stocks, propelled not only by the sustained growth in demand from emerging markets but by merger activity as well. The oil & gas sector, boosted by record prices for crude oil, was another strong performer. In contrast, many sectors of the market in which smaller companies play a prominent role, such as support services, struggled.

Other developments, such as the increasingly gloomy outlook for UK consumer spending and the slowing UK economy, had a detrimental effect on the share price of many smaller companies. Those with earnings linked to the public sector were adversely affected by an anticipated downturn in government spending. March’s budget statement, in which the chancellor of the exchequer was forced to admit that the UK economy was likely to grow more slowly than previously expected, heralded a reduction in government revenue and an increase in borrowing.

The other source of concern continues to be the credit crisis, which among other things prompted central banks around the world to arrange fresh injections of cash in an effort to keep the wheels of the financial system turning. While markets generally responded favourably to such intervention, banks remain wary of lending to each other, and it is likely to be some time before their confidence is fully restored.

Toward the end of 2007, a slowdown in the UK economy became apparent, prompting a change in the outlook for interest rates. On three occasions (December 2007, February 2008 and April 2008), the Bank of England’s monetary policy committee lowered the base figure by 0.25 percentage points, largely in response to slowing growth prospects and tighter credit conditions. At the same time, though, consumers have been faced with escalating utility bills, mortgage payments and food prices. The bank has thus been faced with the difficult task of balancing the risk to growth with that of domestic inflation, which threatens to rise above its targeted level. On the whole, though, the UK economy has held up remarkably well, with little downturn in business activity and companies still spending fairly healthily.

Portfolio activity

In a difficult environment for smaller companies, the Trust’s performance was disappointing. The issues surrounding Carter & Carter and Erinaceous Group, both now in administration, left their mark on performance and prompted us to dispose of our holding in each. We also disposed of Mapeley, a commercial property company, and Paragon, a provider of buy-to-let mortgages, amid the gloomy outlook for the property sector. Retailers also struggled against waning consumer confidence, and this was reflected in our holdings in Topps Tiles and Land of Leather.

The price of oil, which reached record levels during the period, was another negative factor affecting performance. Investors’ enthusiasm for this sector meant that the Trust’s underweight position relative to its benchmark detracted from performance. There is, however, considerable geopolitical risk associated with this area of the market, which we felt was not appropriate for the Trust to take.

The best performing stock during the period was Hilton Food Group, a specialist meat-packaging operator. Since its flotation, the highly cash-generative company has performed consistently well and numbers Tesco among its key customers. Other positive contributions came from Babcock International and VT Group, both of whom won a substantial number of defence contracts, and seem well-placed to do so in future. Fenner, an engineering company which purchased Prodesco, a US competitor, during the period, also performed well.

There were no significant shifts in the focus of the portfolio during the period. Transactions reflected our favourable view of healthcare and other defensive areas of the market where profits will be less affected by slowing economic growth. We participated in the float of CVS Group, a veterinary services provider, which proved one of the strongest performers in the portfolio, and established a holding in Southern Cross Healthcare, the UK’s largest provider of care homes. We also favour companies with strong links to emerging market infrastructure, such as Morgan Crucible which was another of the Trust’s strongest performers. Disposals, such as Pendragon, the UK’s largest car dealer, and Workspace Group, a commercial property provider, were indicative of our cautious economic outlook.

Outlook

Growth in the UK now looks likely to slow quite sharply this year as residential investment falls, consumers turn more cautious and business investment stops growing.

The more competitive level of sterling may give some boost to exports, but growth in GDP is likely to slow substantially.

From a global perspective, the reluctance of financial institutions to lend both to each other and to consumers will inevitably lead to slowing growth. In the short term, financial markets are likely to remain volatile amid concerns over the economic outlook for the US and the difficulties in the credit markets. Recent comments from the Bank of England and elsewhere suggesting the worst of the credit crisis may be over need to be taken with caution. Our outlook for consumer-related sectors remains guarded, something which is reflected in the position of the portfolio.

While the short-term economic outlook in the UK is far from favourable, many small and medium-sized firms are trading at their most attractive valuations in several years. Their share prices, though, may be susceptible to ongoing economic concerns.

Gregor Macdonald
Scottish Widows Investment Partnership Limited
27 June 2008

Fifty Largest Holdings at 30 April 2008

		Investment		30 April 2008 valuation £000		30 April 2007 valuation £000		Percentage of total assets less net current liabilities %		Business activity
1		Interserve		1,551		1,741		5.97		Support Services
2		Babcock International Group		1,479		1,435		5.69		Support Services
3		Intermediate Capital		1,398		807		5.39		General Financial
4		Fenner		1,395		1,269		5.38		Industrial Engineering
5		Hilton Food Group		1,377		#		5.31		Food Producers
6		Senior		1,371		#		5.28		Industrial Engineering
7		Dignity		1,350		1,245		5.20		General Retailers
8		Axon Group		1,217		1,742		4.69		Software & Computer Services
9		Atkins WS		1,193		#		4.60		Support Services
10		Cranswick		1,184		1,436		4.56		Food Producers
		Top ten investments		13,515				52.07
11		VT Group		1,153				4.44		Aerospace & Defence
12		Morgan Crucible Co		1,108				4.27		Electronic & Electrical Equipment
13		Shaftesbury		1,101				4.24		Real Estate
14		ROK		1,075				4.14		Construction & Building Materials
15		CVS Group		1,073				4.14		General Retailers
16		Kier Group		1,051				4.05		Construction & Building Materials
17		Caretec Holdings		1,034				3.98		Health Care Equipment & Service
18		Beazley Group		1,029				3.97		Non Life Insurance
19		S I G		984				3.79		Support Services
20		Taylor Nelson Sofres		972				3.75		Media & Entertainment
21		Savills		870				3.35		Real Estate
22		Cineworld Group		867				3.34		Travel & Leisure
23		Highway Insurance Holdings		862				3.32		Non Life Insurance
24		Unite Group		858				3.31		Real Estate
25		BSS Group		856				3.30		Support Services
26		Aberdeen Asset Management		851				3.28		General Financial
27		Headlam Group		840				3.24		Household Goods & Textiles
28		Spectris		840				3.24		Electronic & Electrical Equipment
29		Michael Page International		837				3.23		Support Services
30		Mouchel Group		833				3.21		Support Services
31		Elementis		825				3.18		Chemicals
32		Mitie Group		806				3.11		Support Services
33		Bovis Homes Group		756				2.91		Household Goods & Textiles
34		Tullett Prebon		736				2.84		General Financial
35		Ricardo		707				2.72		Support Services
36		Venture Production		700				2.70		Oil & Gas Producers
37		Southern Cross Heathcare Group		695				2.68		Health Care Equipment & Service
38		Clarkson		682				2.63		Industrial Transportation
39		Croda International		670				2.58		Chemicals
40		Hansard Global		624				2.40		Life Insurance
41		Rathbone Brothers		610				2.35		General Financial
42		Regus Group		521				2.01		Support Services
43		Luminar Group Holdings		513				1.98		Travel & Leisure
44		Fidessa Group		510				1.97		Software & Computer Services
45		Genus		501				1.93		Pharmaceuticals & Biotechnology
46		Melrose		474				1.83		Industrial Engineering
47		Greene King		464				1.79		Travel & Leisure
48		Topps Tiles		432				1.66		General Retailers
49		Halfords Group		351				1.35		General Retailers
50		Imperial Energy Corporation		340				1.31		Oil & Gas Producers
				44,526				171.59
		Other Equities (3)		583				2.25
		Net Current Liabilities		(19,161)				(73.84)
		Total assets less net current liabilities		25,948				100.00

# Not held at 30 April 2007.

Sector Distribution

		United Kingdom
		Total		Total
		2008		2007
Sector classification		%		%
Resources		4.01		3.46
Oil & Gas Producers		4.01		3.46
Basic Industries		13.95		7.87
Construction & Building Materials		8.19		5.16
Chemicals		5.76		2.71
General Industrials		24.44		14.46
Engineering & Machinery		12.49		8.12
Electronic & Electrical Equipment		7.51		4.62
Aerospace & Defence		4.44		1.72
Cyclical Consumer Goods		6.15		3.37
Household Goods & Textiles		6.15		3.37
Non-Cyclical Consumer Goods		18.57		4.59
Food Producers & Processors		9.87		2.25
Health		6.66		2.34
Pharmaceuticals & Biotechnology		2.04		-
Cyclical Services		64.38		36.27
Support Services		37.63		20.24
Transport		2.63		1.46
Leisure & Hotels		8.02		4.63
General Retailers		12.35		6.09
Media & Entertainment		3.75		3.85
Financials		34.45		20.90
Real Estate		10.90		7.51
Insurance		7.29		3.36
Life Assurance		2.40		2.72
General Financial		13.86		7.31
Information Technology		7.89		7.80
Software & Computer Services		7.89		7.80
Net current (liabilities)/assets		(73.84)		1.28
Total assets less net
current liabilities/assets		100.00		100.00

Sector Distribution

(Graphic Omitted)

1		Resources		4.01%
2		Basic Industries		13.95%
3		General Industrials		24.44%
4		Cyclical Consumer Goods		6.15%
5		Non-Cyclical Consumer Goods		18.57%
6		Cyclical Services		64.38%
7		Financials		34.45%
8		Information Technology		7.89%
		Net current liabilities		(73.84%)

By Sector as a Percentage

(Graphic Omitted)

Directors’ Report

Future of the Company

The Directors are obliged to convene a general meeting of the Company to be held on 30 April 2009 (the “Planned Winding Up Date”) at which an ordinary resolution will be proposed to wind up the Company voluntarily. The Directors may be exempted from this obligation by a special resolution of the Company and separate extraordinary resolutions of the holders of the Income Shares and the holders of the Capital Shares in each case passed after 30 April 2008. In the event that such special resolution is to be considered no earlier than 1 April 2009 and it contains proposals that would result in the Income Shareholders receiving not later than the Planned Winding Up Date 60p in cash (in addition to any entitlement to any undistributed revenue reserve) for each Income Share held then the Income Shareholders shall not be entitled to vote upon the special resolution and a separate extraordinary resolution of the Income Shareholders shall not be required.

All votes cast on the winding up resolution at the extraordinary general meeting on the Planned Winding Up Date shall be deemed to be cast in favour of the resolution to wind up. A winding up will enable Capital Shareholders to realise the residual capital value of their investment after the payment of the creditors, liquidation costs and the capital and dividend entitlement of the Income Shareholders.

The capital structure of the Company is outlined in Note 12 on page 26. Full details of the rights of both the Income and Capital Shares are given in the Company’s memorandum and articles of association.

The Board is reviewing the options available in relation to the future of the Company, including the possibility of recommending to Shareholders that the Directors may be exempted from the obligation to put an ordinary resolution to wind up the Company voluntarily on 30 April 2009. The Directors consider that it would be premature to make a final decision in relation to the future of the Company at this time, but on the basis that the articles of association provide for a mechanism whereby the Company may continue in existence beyond 30 April 2009, in certain circumstances, the Directors consider that it is appropriate to prepare the 2008 report and accounts on a going concern basis.

Shareholders’ attention is also drawn to Note 19 on page 31.

Status of the Company

The Company carries on the business of an investment trust as defined in section 842 of the Income and Corporation Taxes Act 1988, as amended (ICTA), and has gained approval as such for the period ended 30 April 2007. The Company has subsequently conducted its affairs so as to enable it to continue to seek such approval. The Company is an investment company as defined by Part 23 of the Companies Act 2006. The Company is not a close company according to the definition in ICTA, and there has been no change in this respect since the end of the financial year.

Results and dividends

The total loss after taxation for the year was £16,716,000 (2007: return of £8,066,000).

During the year, an interim dividend of 3.00p per income share (2007: 1.95p) was paid. A second interim dividend of 3.75p per income share (2007: nil) was paid on 14 May 2008. In 2007 a final dividend of 3.52p per income share was recommended by the Directors and paid on 13 September 2007. No further dividends will be paid in respect of the year ended 30 April 2008.

Business review

(i) Review of the business and future developments

The Company is a split capital investment trust which invests principally in smaller UK listed companies. The Company is managed by Scottish Widows Investment Partnership Limited, one of the largest UK based active fund managers with approximately £94 billion (Source: SWIP) of assets under management as at 30 April 2008.

The Company has two classes of shares: income shares and capital shares, each of which is listed on the Official List of the UK Listing Authority and traded on the main market of the London Stock Exchange.

The Company has been established with the objective of providing income shareholders with a significant dividend yield together with the potential for dividend growth, and capital shareholders with the benefit of geared capital growth in the underlying portfolio during the planned life of the Company.

In addition to the original shareholders’ capital, the Company is geared with a bank loan of £8,126,824 (2007: £8,126,824). The loan is subject to a Facilities Agreement with Lloyds TSB Scotland plc which is detailed further in Note 10 of the financial statements. The interest rate on the loan was fixed at 6.22% when the Facilities Agreement was finalised. Currently, the amount of £8,126,824 has been drawn down. Changes in the level of gearing may arise from movements in the total assets of the Company. The Company may effectively reduce the gearing level by holding cash.

(ii) Investment policy

The Company’s investment universe comprises the constituents of the Hoare Govett Smaller Companies Index (excluding investment companies) (the HGSC Index (XIC). This index represents the bottom 10% of the UK equity market by market capitalisation. While the Directors expect the bulk of the Company’s portfolio to be within the investment universe, the Company may invest in companies traded on the Alternative Investment Market (AIM) of the London Stock Exchange (and any successor market to it) whose market capitalisation falls within the range of the HGSC Index (XIC) or companies which the Directors believe, because of movements in their market capitalisations, may be considered appropriate for investment. In addition, the Company may retain an investment in any company that was within the appropriate range of market capitalisation when the investment was made but which has subsequently moved out of the investment universe as a result of changes in its market capitalisation relative to the rest of the investment universe. Typically, the Company’s portfolio will consist of approximately 50 securities.

The investment manager’s approach favours a value bias, which is to identify undervalued companies in all sectors of the Company’s investment universe. Considerable emphasis is placed on identifying companies which are well managed, have high levels of cash generation and enjoy real pricing power. The investment manager considers those attributes to be key components of a strong market position.

Subject to the prior approval of the board of directors, the Company may use derivative instruments, such as financial futures and options, but only for the purposes of efficient portfolio management.

In accordance with the requirements of section 842 ICTA, to which the Company adheres, no holding in another Company may exceed 15% of the value of the investment trust’s portfolio. This test is applied when the investment is first acquired and subsequently, when additions are made to the holding.

The Company also distributes a minimum of 85% of its investment income so as to conform with the requirements of section 842 ICTA, which permits the Company to retain its investment trust status.

A breakdown of the risks to which the Company is subject and how they are mitigated is detailed in Note 17 to the financial statements.

(iii) Principal risks and uncertainties

As an investment trust, the main risk facing the Company is market price risk which arises from uncertainty about the future prices of investments held by the Company. This is described in more detail in Note 17 on pages 28 to 30 and in the Investment Manager’s Review on pages 4 and 5.

The Company invests in UK smaller companies and is, therefore, susceptible to domestic factors in the UK economy such as inflation, interest rate movements and consumer spending. These are described in detail in the Investment Manager’s Review on pages 4 and 5.

(iv) Implementation

During the year under review, the assets of the Company were invested in accordance with the Company’s investment policy. Further details of the performance of the Company and the extent to which the Company’s objectives were achieved are detailed in the Chairman’s Statement and Investment Manager’s Review on pages 3 to 5.

The Company’s portfolio consisted of 53 investments as at 30 April 2008 and is detailed further on page 6. The sector distribution of the portfolio is provided on page 7. As at 30 April 2008, the portfolio only held investments issued in the United Kingdom. The top 10 holdings comprise 52.07% of total assets less net current liabilities/assets (2007: 24.7%).

The Company’s gearing stood at 17.43% as at 30 April 2008 (2007: 12.71%).

(v) Key performance indicators (KPIs)

The Directors have agreed KPIs with the Investment Manager that allow the effective measurement of the performance and financial position of the Company. The KPIs are monitored on a quarterly basis by the Directors at board meetings. As the Company is a split capital trust, separate KPIs have been selected to evaluate the performance of the capital and income shares. See below (c) for further details.

(a) Investment return

Performance of the net asset value against the Company’s benchmark has been chosen as the most appropriate indicator of performance. During the year to 30 April 2008 the Company’s net asset value underperformed the benchmark.

Investment Returns

Net Asset Value (Total Return) Absolute (22.90%)

HGSC Index (XIC) (Total Return) Absolute (19.28%)

Under-Performance (3.62%)

Smaller Companies Value Trust Capital Shares Performance

(Graphic Omitted)

(b) Income yield

Net yield of the income shares and package units has been used to evaluate income performance. A yield of over 7% for the income shares is notably better than the benchmark.

Yield Returns		Yield
Net Yield (Income Shares)		11.07%
Net Yield (Packaged Units)		3.82%
Hoare Govett Sector		3.23%

(c) Other key performance indicators

Other KPIs relevant to an investment trust’s performance are gearing and discount /premium to net asset value against industry average.

		Income Share		Capital Share		Package Unit
Premium/(Discount) to Net Asset Value		6.11%		(17.05%)		(6.86%)
*AIC UK Smaller Companies Discount to Net
Asset Value (%)		-		-		15.60%
Gearing (%)		-		-		17.43%
*AIC UK Smaller Companies Gearing (%)		-		-		7.00%

All figures are for the year ended 30 April 2008 unless otherwise stated.

Please also refer to the Investment Manager’s Review on pages 4 and 5 for a detailed discussion of the performance of the portfolio.

*Association of Investment Companies

Investment management fees

Scottish Widows Investment Partnership Limited (SWIP) provides investment management, administrative and company secretarial services to the Company.

The Audit and Management Engagement Committee has reported to the Board on the continued appointment of SWIP as the Investment Manager in the light of the performance of the portfolio. The Directors concurred with the view that there are significant advantages to both the Company and the shareholders as a whole by having SWIP manage the assets of the Company and provide various administrative and secretarial services. It is SWIP’s size, its expertise in the smaller companies sector and its ownership by Lloyds TSB Group plc, which give the Board confidence that the objectives of the Company are being met. Following a review of the terms of the investment management agreement, which are detailed on page 23, the Audit and Management Engagement Committee confirmed that it was content with the continued appointment of the investment manager. The Directors are of the opinion that the continuing appointment of SWIP as manager on the terms agreed is in the interests of shareholders as a whole. The investment management agreement may be terminated by either party giving six months’ notice or, in certain circumstances, by the Company giving less than six months’ notice, with compensation for early termination being calculated by reference to a formula based on the gross assets and the number of days by which the notice period falls short of six months.

Substantial share interests

At the date of this report, the register of substantial interests in shares shows that the Company has been notified of the following interests, being 3% or more of the issued share capital:

		Number of		Percentage of		Number of		Percentage of
		income shares		income shares		capital shares		capital shares
Nicholas Howard Lewis		6,683,502		32.9		-		-
Royal London Asset Management		1,860,000		9.16		1,860,000		9.16
Royal & Sun Alliance Insurance Group		1,671,702		8.23		1,671,702		8.23
RSA Life & Pensions Fund		-		-		1,011,702		4.98
Rensburg Sheppards Investment Management Limited		1,763,000		8.68		-		-
Lloyds TSB Group and Scottish Widows Group		1,216,602		5.98		10,600,418		52.17
(in respect of managed funds)
BFS Special Opportunities Trust Plc		800,000		3.93		-		-
JPMorgan Elect (Managed Income) Plc		750,000		3.69		-		-

Directors

The names of the present Directors, all of whom served throughout the year, are shown on page 2.

As stated in the corporate governance report on pages 12 to 14, the Board has considered the question of retirement by rotation of the Directors, acting on advice from the Nominations Committee, with particular reference to the articles of association and the recommendations of the Combined Code on Corporate Governance issued by the Financial Reporting Council.

The articles of association currently provide for one third of the Directors to retire by rotation each year, rather than for all Directors to retire at intervals of no more than three years, which is accepted best practice under the Combined Code. The Board, has, therefore, chosen to go beyond that which is required by the current articles of association and proposes that two Directors will retire each year. Accordingly, Mr Bushell and Mr Poulter will retire at the forthcoming annual general meeting. Both Directors, being eligible, offer themselves for re-appointment at the meeting. Following the evaluation of the performance of the Board, its committees and individual Directors, it is considered that the performance of Mr Bushell and Mr Poulter continues to be effective and that they have demonstrated commitment to their role. The interests, all beneficial, of the Directors in the shares of the Company were:

		Income shares of 1p each
		At 30 April 2008		At 1 May 2007
A F Bushell		-		-
B C Clark		13,766		13,766
N W Pearson		-		-
J W Poulter		10,000		10,000
		Capital shares of 1p each
		At 30 April 2008		At 1 May 2007
A F Bushell		40,382		40,382
B C Clark		13,766		13,766
N W Pearson		-		-

None of the Directors had any other interest in the income or capital shares of the Company at the beginning or end of the year. There have been no changes in these interests between 30 April 2008 and 27 June 2008. No Director had a material interest at any time during the year in any contract of significance with the Company. No Director has a contract of service with the Company.

Purchase of own shares

The current authority of the Company to make market purchases of up to 14.99% of its income and capital shares expires at the conclusion of this year’s annual general meeting. Whilst no shares were purchased under this authority during the financial year, resolution 7 will be proposed as a special resolution at the annual general meeting to renew the authority. The renewed authority will authorise the Company to make market purchases of up to 3,045,527 income shares and up to 3,045,527 capital shares (being 14.99% of each class of share in issue on 27 June 2008). The price payable for shares will not be less than 1p per capital share (or income share, as relevant) (being the nominal value of such shares) nor more than 5% above the average middle market quotations of those shares as derived from the Daily Official List of the London Stock Exchange for the five business days before the shares are repurchased. Purchases of shares will be made within guidelines established from time to time by the Board but the Board will only exercise this authority if, in its opinion, it would enhance the net asset value per share of the remaining capital shares and income shares (as appropriate) and if it would be in the interests of the Company to do so. The Board has no current intention of exercising its authority to purchase shares. The Directors intend, at the current time, that any shares purchased under this authority will be treated as cancelled. If shares purchased by the Company were to be cancelled rather than held in treasury, the number of shares in issue would be reduced accordingly. This authority to purchase shares will expire at the conclusion of the Company’s annual general meeting in 2009 or, if earlier, on 4 December 2009.

Disapplication of pre-emption rights

Section 89 of the Companies Act 1985 gives all shareholders the right to participate on a pro-rata basis in all issues of equity shares for cash unless they agree that this right should be set aside. Resolution 8 will, if passed, authorise the Directors to allot new shares up to an aggregate nominal amount of £20,317 (being 5% of the Company’s total issued share capital as at 27 June 2008) for cash without first offering such shares to existing shareholders or otherwise in connection with a pro-rata issue of shares to shareholders. This authority will continue in effect until the conclusion of the Company’s annual general meeting in 2009 or, if earlier, on 4 December 2009. The Directors will only allot new shares pursuant to this authority if they believe it is advantageous to the Company’s shareholders to do so and in no circumstances would they allot new shares if it would result in a dilution of net asset value per share. The Directors have no current intention to exercise their authority to issue shares.

Statement of disclosure of information to auditors

Each Director in office at the date of this report confirms that, so far as the Director is aware, there is no relevant audit information of which the Company’s auditors are unaware, and the Director has taken all the steps that he ought to have taken as a Director in order to make himself aware of any relevant audit information and to establish that the Company’s auditors are aware of that information. This confirmation is given, and should be interpreted, in accordance with the provisions of section 234ZA of the Companies Act 1985.

Suppliers payment policy

The Company’s suppliers payment policy is to agree terms of payment before business is transacted, to ensure suppliers are aware of those terms and to settle bills in accordance with them. The Company did not have any trade creditors at the year end.

Financial instruments

The Company’s financial instruments comprise its investment portfolio, income shares, cash balances, bank loan and short term debtors and creditors that arise directly from the Company’s operations. Details of the financial instruments held and the risk profile of the Company are provided in Note 17.

Auditors

Ernst & Young LLP has indicated its willingness to continue in office and resolutions concerning its re-appointment as auditors and authorising the Directors to set its remuneration will be submitted to the annual general meeting.

On behalf of the Board

Scottish Widows Investment Partnership Limited
Company Secretary
27 June 2008

Statement of Directors’ responsibilities in relation to the Company financial statements

The Directors are responsible for preparing the Annual Report and the Company financial statements in accordance with applicable United Kingdom law and UK Generally Accepted Accounting Principles (GAAP).

The Directors are required to prepare Company financial statements for each financial year which present fairly the financial position of the Company and the financial performance and cash flows of the Company for that period.

In preparing those Company financial statements the Directors are required to:

• select suitable accounting policies in accordance with FRS 18: Accounting Policies and then apply them consistently;

• present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

• provide additional disclosures when compliance with the specific requirements in UK GAAP is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Company’s financial position and financial performance; and

• state that the Company has complied with UK GAAP, subject to any material departures disclosed and explained in the financial statements.

The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the Company financial statements comply with the Companies Act 1985. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Corporate Governance

The UK Listing Authority requires all listed companies to disclose how they have applied the principles and complied with the provisions of the Combined Code on Corporate Governance (“the Code”) published in July 2003 and revised in June 2006. The Association of Investment Companies (“AIC”), of which the Company is a member also published its Code of Corporate Governance for Investment Companies (the AIC Code©) in July 2003 and revised that Code in February 2006 and May 2007. The AIC has also published the Corporate Governance Guide for Investment Companies (the “Guide”) in June 2007 which incorporates the code, the AIC code© and certain Listing Rules requirements. The following statements are, therefore, included to comply with the Code, the Guide and the AIC Code©.

The Board

The Company is led and controlled by a Board comprising four non-executive directors, all of whom have wide experience and are considered to be independent. The Chairman does not have a full-time role in any other organisation. The Board, therefore, remains satisfied that he has sufficient time available to discharge fully his responsibilities as Chairman. The Board believes that it is in the best interests of shareholders for the Chairman to be the point of contact for all matters relating to the governance of the Company and so no other Director has been nominated as the senior independent non-executive Director for the purposes of the Codes.

The appointment of Directors is considered by the Board following recommendations from the Nominations Committee. The Directors were appointed for an initial period of three years (subject to re-appointment at the first annual general meeting following their appointment) and each Director’s appointment may be renewed for further periods if that Director and the Board agree at that time. The Articles of Association stipulate that one third, or the number nearest to but not exceeding one-third, of the Directors shall retire and offer themselves for re-appointment at each annual general meeting, but the Board has chosen to adopt best practice in relation to the retirement by rotation of Directors over the Articles of Association and thus, as stated in the Directors’ report, two Directors will retire by rotation at the annual general meeting in 2008. Mr Bushell was last re-appointed by the shareholders in 2006 and Mr Poulter was re-appointed in 2005. Shareholders, therefore, have the opportunity to consider each Director’s continuing involvement with the Company at least every third year. The Nominations Committee met and recommended to the Board that the performance of the Directors who are to retire by rotation and offer themselves for re-appointment continue to be effective and that they have demonstrated commitment to their role. The Board concurred with that view. Copies of the current Directors’ letters of appointment are available for inspection on request to the Company Secretary.

During the year the Board reviewed its performance and composition, together with that of its committees, the structure of meetings and the quality and quantity of information produced to enable it to discharge its duties, by the consideration of a number of discussion points with the Investment Manager (Scottish Widows Investment Partnership Limited (“SWIP”)) and SWIP in its capacity as the Company Secretary, based on guidance issued by the AIC on board evaluation. The Directors made suggestions but confirmed that they were content. The composition of the Board is kept under constant review to ensure that there is a suitable mix of skills and experience represented to enable the Board to discharge its duties.

The Board meets quarterly, with additional meetings should it be considered appropriate to discuss specific matters.

The investment management agreement between the Company and SWIP sets out the matters over which the manager has authority and the limits above which Board approval must be sought. Other matters reserved for the approval of the Board, which are set out in a formal schedule, include approval of the report and accounts, communications with shareholders and decisions on strategy. At each meeting the Board receives information about the Company’s portfolio, its gearing, gearing strategy and the Company’s financial performance.

Regular reports are also made to the Board by SWIP about changes to industry best practice in the areas of corporate governance, company law, investment practice and accounting matters. The Directors have access to the advice and services of the Company Secretary, which is responsible to the Board for ensuring that Board procedures are followed and that it complies with applicable rules and regulations. Where it might be reasonably required, in relation to their responsibilities, the Directors may seek independent professional advice at the expense of the Company. During the year, the Company has maintained appropriate insurance cover in respect of legal action against the Directors.

Committees

The Board has an Audit and Management Engagement Committee and a Nominations Committee, which comply with the provisions of the Codes. Copies of the terms of reference of both committees are available on request to the Company Secretary. The Board does not have a Remuneration Committee for the reasons set out on page 15.

The Nominations Committee meets annually to discuss the Board composition and balance, having regard to both the present and future needs of the Company and also, as stated above, to nominate two directors to retire by rotation at the annual general meeting and seek re-appointment if appropriate. As part of this review, the Committee receives information, from the Company Secretary, about industry best practice in relation to Board composition and also about the boards of the Company’s peer group, comparing similar size investment trusts or those with similar investment policies or share structures.

The Nominations Committee is also tasked with nominating new Directors for appointment by the Board when it is appropriate to do so. During the year under review, the Committee has not met for this purpose.

The Audit and Management Engagement Committee currently meets twice a year to consider and make recommendations to the Board in relation to the annual report and accounts and the half-yearly report. It reviews the scope and results of the audit and makes recommendations regarding the remuneration of the auditor and assesses the external auditor’s independence. It also considers, on an annual basis, the performance of SWIP and the terms and conditions of its appointment, by reviewing the performance of the Trust against the Company’s benchmark and peer group and the terms of the agreement against industry best practice and similar investment management agreements. The Committee makes recommendations to the Board, following this review, about SWIP’s continued appointment and remuneration. The Committee is also charged with reviewing the internal controls of the Company and SWIP and this review is explained in further detail below.

The following table sets out the number of Board and committee meetings held during the year and the number attended by each Director.

Director		Board				Audit and Management				Nominations
						Engagement Committee				Committee
		Held		Attended		Held		Attended		Held		Attended
A F Bushell		7		7		2		2		1		1
B C Clark		7		6		2		2		1		1
N W Pearson		7		7		2		2		1		1
J W Poulter		7		7		2		2		1		1

One board meeting dealt solely with a discussion of strategic issues affecting the Company and the investment trust sector as a whole.

Relations with shareholders

In conjunction with the Board, SWIP keeps under review the register of members of the Company. It has identified the largest shareholders, to whom it makes regular presentations. Potential investors are also contacted by SWIP. In addition, the Board received regular reports from SWIP about the result of such presentations and contact.

All shareholders are encouraged to participate in the Company’s annual general meeting. All Directors normally attend the annual general meeting, at which shareholders have the opportunity to ask questions and discuss matters with the Directors and SWIP.

It is recognised that the Codes require notice of annual general meetings to be despatched at least 20 working days before the meeting. The Company intends to comply with the provisions of the Codes in this respect in 2008.

Accountability and audit

a) Statement of going concern

See Notes 1a and 19 below.

b) Internal control

The Directors acknowledge that they are responsible for establishing and maintaining the Company’s system of internal control and reviewing its effectiveness. Internal control systems are designed to manage rather than eliminate the failure to achieve business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss. They have therefore established an ongoing process designed to meet the particular needs of the Company in managing the risks to which it is exposed, consistent with the guidance provided by the Turnbull Committee. Such review procedures have been in place throughout the full financial year and up to the date of approval of the financial statements and the Board is satisfied with their effectiveness.

This process involves a review by the Audit and Management Engagement Committee and the Board of SWIP’s latest internal control report and a report covering specific internal controls operated by SWIP to ensure the Company’s requirements are met.

The Board has delegated certain aspects of the management and administration of the Company to SWIP.

SWIP maintains its own systems of internal controls, on which it has reported to the Board. The Company, in common with other investment companies, does not have an internal audit function. The Board has considered the need for an internal audit function but, because of the internal control system in place at SWIP, has decided to place reliance on SWIP’s systems and internal audit procedures.

iii) Internal control

The systems are designed to ensure effective and efficient operations, internal control and compliance with laws and regulations. In establishing the systems of internal control regard is paid to the materiality of relevant risks; the likelihood of costs being incurred and costs of control. It follows therefore that the system of internal control can only provide reasonable but not absolute assurance against the risk of material misstatement or loss.

There are well established budgeting and forecasting procedures in place and reports are presented to the Board detailing variance against budget and prior year and other performance data. The effectiveness of the internal control system is reviewed annually by the Board and the Audit and Management Engagement Committee. The Audit and Management Engagement Committee has a discussion annually with the auditors to ensure that there are no issues of concern in relation to the audit opinion on the accounts and, if necessary, representatives of SWIP would be excluded from that discussion.

Institutional investors

SWIP employs highly experienced personnel and maintains a continuous training programme for fund managers. The fund managers are constantly monitoring the portfolio and over the past twelve months they have met all the companies in which the Company has invested.

Under the terms of the management agreement, SWIP decides whether and in what manner all rights conferred by any investment shall be exercised. However, the Directors may, at any time, instruct SWIP as to the exercise of the voting and other rights attached to the Company’s investments and they regularly review the voting decisions taken by SWIP.

Institutional investors

The corporate governance of companies is one of the several elements taken into consideration by SWIP when making investment decisions.

Statements of compliance

The Directors believe that the Company has complied with the provisions of the Code and the AIC Code©, where appropriate, and that it has complied throughout the year with the provisions where the requirements are of a continuing nature, except that there is no designated senior independent Director (Code provision A3.3 and AIC Code© Principle 1) and a remuneration committee has not been established (Code Provision B2.1 and AIC Code© Principle 8). The reason why the Company does not comply in respect of Code provision A3.3 and AIC Code© Principle 1 is explained above and in the remuneration report on pages 15 and 16 in respect of Code provision B2.1 and AIC Code© Principle 8.

The Board has prepared this report, in accordance with the requirements of Schedule 7A to the Companies Act 1985. An ordinary resolution for the approval of this report will be put to members at the forthcoming annual general meeting.

The law requires your Company’s auditors to audit certain of the disclosures provided. Where disclosures have been audited, they are indicated as such. The auditors’ opinion is included in their report on page 17.

Remuneration committee

The Board consists solely of non-executive Directors and, as such, it is permitted, by provision B.2.3 of the Combined Code on Corporate Governance to determine the remuneration of the Directors within the limits set out in the articles of association. The determination of the Directors’ fees is, therefore, a matter dealt with by the whole Board, which it considers on the basis of information provided by the investment manager, comparing fees payable by other similar investment trusts.

Policy on Directors’ fees

The Board’s policy is that the remuneration of non-executive Directors should reflect the experience of the Board as a whole, be fair and comparable to that of other investment trusts that are similar in size, have a similar capital structure and have similar investment objectives. There is no present intention to change this policy.

The Company’s articles of association limit the aggregate fees payable to the Board of Directors to a total of £85,000 per annum.

The fees for the non-executive Directors are determined within the limits set out in the articles of association and Directors are not eligible for bonuses, pension benefits, share options, long term incentive schemes or other benefits.

Directors’ service contracts

None of the Directors has a service contract. However, each Director has entered into a letter of appointment with the Company for an initial period of service. Additionally, the terms of appointment of the Directors provide that each shall retire and be subject to re-appointment at the first annual general meeting following their appointment and at least every three years after that. Directors may be removed from office summarily for any of the reasons set out in the articles of association of the Company and compensation will not be payable to the Director.

The following Directors held office during the year:

				Date of
		Date of		letter of		Last		Due date for
Director		appointment		appointment		re-appointment		re-appointment*
A F Bushell		21 March 2002		25 March 2002		AGM 2006		AGM 2008
B C Clark		21 March 2002		25 March 2002		AGM 2007		AGM 2009
N W Pearson		21 March 2002		25 March 2002		AGM 2007		AGM 2009
J W Poulter		21 March 2002		25 March 2002		AGM 2005		AGM 2008

* assuming the Company’s continued existence after 30 April 2009

Company performance

Smaller Companies Value Trust share price performance vs Hoare Govett Smaller Companies Index (excluding investment companies)

(Graphic Omitted)

This chart compares the performance of the Company’s share price with the Hoare Govett Smaller Companies Index (excluding investment companies) on a total return basis (assuming all dividends are reinvested) which has been used as the Company’s benchmark.

Source: Internal

Remuneration (audited)

The Directors received the following remuneration:

		From 1 May 2007		From 1 May 2006
		to 30 April 2008		to 30 April 2007
Director		£		£
A F Bushell		28-May-46		28-Feb-42
B C Clark		15-Feb-33		11-Feb-30
N W Pearson		15-Feb-33		11-Feb-30
J W Poulter		12,100		11,000
C P T Vaughan-Johnson*		-		4,600
		53,250		53,000

No other payments are made to Directors other than the reimbursement of reasonable out-of-pocket expenses incurred in connection with attending the Company’s business.

The amounts above do not include national insurance contributions of £5,000 (2007: £5,000).

* Mr Vaughan-Johnson retired as a Director on 8 September 2006.

On behalf of the Board

Scottish Widows Investment Partnership Limited
Company Secretary
27 June 2008

Independent Auditors’ Report to the Members of Smaller Companies Value Trust plc

We have audited the financial statements of Smaller Companies Value Trust plc for the year ended 30 April 2008 which comprise the Income Statement, the Balance Sheet, the Reconciliation of Movements in Shareholders’ Funds, the Cash Flow Statement and the related notes 1 to 19. These financial statements have been prepared under the accounting policies set out therein. We have also audited the information in the Directors’ Remuneration Report that is described as having been audited.

This report is made solely to the Company’s members, as a body, in accordance with Section 235 of the Companies Act 1985. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of Directors and auditors

The Directors’ responsibilities for preparing the Annual Report, the Directors’ Remuneration Report and the financial statements in accordance with applicable United Kingdom law and Accounting Standards (United Kingdom Generally Accepted Accounting Practice) are set out in the Statement of Directors’ Responsibilities.

Our responsibility is to audit the financial statements and the part of the Directors’ Remuneration Report to be audited in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland).

We report to you our opinion as to whether the financial statements give a true and fair view and whether the financial statements and the part of the Directors’ Remuneration Report to be audited have been properly prepared in accordance with the Companies Act 1985. We also report to you whether in our opinion the information given in the Directors’ Report is consistent with the financial statements.

In addition we report to you if, in our opinion, the Company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors’ remuneration and other transactions is not disclosed.

We review whether the Corporate Governance Statement reflects the Company’s compliance with the nine provisions of the 2006 Combined Code specified for our review by the Listing Rules of the Financial Services Authority, and we report if it does not. We are not required to consider whether the board’s statements on internal control cover all risks and controls, or form an opinion on the effectiveness of the company’s corporate governance procedures or its risk and control procedures.

We read other information contained in the Annual Report and consider whether it is consistent with the audited financial statements. The other information comprises only Objectives, Financial Highlights, Directors, Investment Manager and Others, Chairman’s Statement, Investment Manager’s Review, Fifty Largest Holdings, Sector Distribution, Directors’ Report, Corporate Governance, the unaudited part of the Directors’ Remuneration Report, Notice of Meeting, Form of Proxy, Financial Calendar and Investment Manager’s Information. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information.

Basis of audit opinion

We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements and the part of the Directors’ Remuneration Report to be audited. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the company’s circumstances, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements and the part of the Directors’ Remuneration Report to be audited are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements and the part of the Directors’ Remuneration Report to be audited.

Opinion

In our opinion:

• the financial statements give a true and fair view, in accordance with United Kingdom Generally Accepted Accounting Practice, of the state of the Company’s affairs as at 30 April 2008 and of its net return for the year then ended;

• the financial statements and the part of the Directors’ Remuneration Report to be audited have been properly prepared in accordance with the Companies Act 1985; and

• the information given in the Directors’ Report is consistent with the financial statements.

In forming our opinion on the financial statements, which is not qualified, we have considered the adequacy of the disclosure made in note 1 to the financial statements concerning the basis of preparation. The company’s ability to continue as a going concern is dependent on the board developing viable proposals for the continuation of the company beyond 30 April 2009 and for these proposals to be approved by shareholders. These conditions, along with the other matters explained in note 1 to the financial statements, indicate the existence of a material uncertainty which may cast significant doubt about the company’s ability to continue as a going concern. The financial statements do not include the adjustments that would result in the event that viable proposals were not presented to shareholders or that they were not approved.

Ernst & Young LLP
Registered Auditor
Edinburgh
23 July 2008

Income Statement

For the year ended 30 April 2008

				2008						2007
				Revenue		Capital		Total		Revenue		Capital		Total
		Note		£’000		£’000		£’000		£’000		£’000		£’000
(Losses)/gains on investments
(Losses)/gains on investments		8		-		(15,918)		(15,918)		-		9,186		9,186
Transaction costs		8		-		(342		(342)		-		(330)		(330)
				-		(16,260)		(16,260)		-		8,856		8,856
Income and expenses
Income		2		1,835		-		1,835		1,510		-		1,510
Investment management fee†		3		(25)		(76)		(101)		(138)		(412)		(550)
Other expenses		4		(158)		-		(158)		(135)		-		(135)
Net return/(loss) before finance
costs and taxation				1,652		(16,336)		(14,684)		1,237		8,444		9,681
Finance costs
Interest payable		5		(127)		(380)		(507)		(126)		(378)		(504)
Income share dividends
and other appropriations		5		(1,525)		-		(1,525)		(1,111)		-		(1,111)
Total finance costs		5		(1,652)		(380)		(2,032)		(1,237		(378)		(1,615)
(Loss)/return on ordinary
activities before taxation				-		(16,716)		(16,716)		-		8,066		8,066
Taxation on ordinary activities		6		-		-		-		-		-		-
(Loss)/return on ordinary
activities after taxation				-		(16,716)		(16,716)		-		8,066		8,066
(Loss)/return per capital share		7				(82.28p)						39.70p

The total column of this statement is the profit and loss account of the Company.

All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued in the year.

A Statement of Recognised Gains and Losses is not required as all gains and losses of the Company have been reflected in the above statement.

The notes on pages 22 to 31 form part of these financial statements.

† The investment management fee for the year is lower than in previous years due to a reclaim of VAT (previously suffered on management fees) due to be refunded to the Company. This follows an announcement by HM Revenue & Customs that management fees paid by investment trusts, which were previously subject to VAT, are now exempt. This exemption has a retrospective effect.

Balance Sheet

As at 30 April 2008

				2008		2007
		Note		£’000		£’000
Non current assets
Investments at fair value through profit or loss		8		45,109		63,085
Current assets
Debtors		9		1,471		1,505
Cash at bank and in hand				3,456		432
Total current assets				4,927		1,937
Current liabilities
Creditors: amounts falling due within one year		10		(11,538)		(1,119)
Income shares		10		(12,550)		-
Total current liabilities				(24,088)		(1,119)
Net current (liabilities)/assets				(19,161)		818
Total assets less net current liabilities				25,948		63,903
Creditors: amounts falling due after more than one year
Bank loan		11		-		(8,127)
Income shares		11		-		(13,112)
				-		(21,239
Total net assets				25,948		42,664
Capital and reserves: equity interests
Called-up share capital		12		203		203
Special reserve				19,408		19,408
Capital reserve				6,337		23,053
Shareholders’ funds				25,948		42,664
Net asset value per share (Accounts basis):
Income share		13		61.77p		64.54p
Capital share		13		127.72p		209.99p

Approved and authorised for issue by the Board on 27 June 2008 and signed on its behalf by:

A F Bushell
Chairman

The notes on pages 22 to 31 form part of these financial statements.

Reconciliation of Movements in Shareholders’ Funds

For the year ended 30 April 2007

		Issued		Special		Capital
		Capital		Reserve		Reserve		Total
		£’000		£’000		£’000		£’000
Shareholders’ funds at 1 May 2006		203		19,408		14,987		34,598
Return on ordinary activities after taxation		-		-		8,066		8,066
Shareholders’ funds at 30 April 2007		203		19,408		23,053		42,664
For the year ended 30 April 2008
		Issued		Special		Capital
		Capital		Reserve		Reserve		Total
		£’000		£’000		£’000		£’000
Shareholders’ funds at 1 May 2007		203		19,408		23,053		42,664
Loss on ordinary activities after taxation		-		-		(16,716)		(16,716)
Shareholders’ funds at 30 April 2008		203		19,408		6,337		25,948

Cash Flow Statement

For the year ended 30 April 2008

				2008		2007
		Note		£’000		£’000
Operating activities
Investment income received				1,587		1,418
Other income received				2		14
Deposit interest received				91		80
Investment management fees paid				(509)		(535)
Other cash payments				(102)		(150)
Net cash inflow from operating activities		14		1,069		827
Servicing of finance
Interest paid on bank loan				(507)		(504)
Dividends paid on income shares				(1,325)		(965)
Net cash outflow from servicing of finance				(1,832)		(1,469)
Investing activities
Purchases of investments				(39,567)		(37,445)
Disposals of investments				43,229		38,203
Net cash inflow from investing activities				3,662		758
Increase in cash		15		2,899		116
Reconciliation of net cash flow to movement in net debt
Increase in cash in the year				2,899		116
Decrease/(increase) in income share liability				562		(146
Opening net debt				(20,807)		(20,777)
Closing net debt		15		(17,346)		(20,807)

The notes on pages 22 to 31 form part of these financial statements.

Notes to the Financial Statements

1 Accounting policies

A summary of the principal accounting policies is set out below.

a) Basis of preparation

The financial statements have been prepared in accordance with UK Generally Accepted Accounting Practice (GAAP) on a going concern basis and with the Statement of Recommended Practice (“SORP”) ‘Financial Statements of Investment Trust Companies’ issued in December 2005. The financial statements have been prepared on a going concern basis, which assumes that the Company will continue in operational existence for the foreseeable future and be able to meet its liabilities as they fall due. There are uncertainties that the Directors have had to consider in deciding to prepare the financial statements on this basis, which are set out below.

Under the Articles of Association the Directors are obliged to convene a general meeting of the Company on 30 April 2009 at which an Ordinary Resolution will be proposed to wind up the Company voluntarily. The Directors may be exempted from this obligation by a special resolution of the Company and separate extraordinary resolutions of the holders of the Income shares and the holders of the Capital shares in each case passed after 30 April 2008.

In the event that such special resolution is to be considered no earlier than 1 April 2009 and it contains proposals that would result in the Income Shareholders receiving not later than the Planned Winding Up Date 60p in cash (in addition to any entitlement to any undistributed revenue reserve) for each Income Share held then the Income Shareholders shall not be entitled to vote upon the special resolution and a separate extraordinary resolution of the Income Shareholders shall not be required.

The validity of the going concern basis depends upon the Board developing proposals for the continuation of the Company beyond 30 April 2009 and for these proposals to be approved by shareholders on or prior to 30 April 2009.

However, any proposals recommended by the Directors would have to be made in response to market conditions at the time and, accordingly, it would not be appropriate for the Directors to consider the available options until a time nearer to that date. Whilst the Directors believe that continuation currently remains a viable option, the Board cannot be certain that this will be the case in 2009.

Notwithstanding the above, the Directors consider that it is reasonable to prepare the financial statements on a going concern basis and not to provide for costs of liquidation until such time as the future of the Company is more certain. Further details are provided on page 8.

Were proposals not presented to shareholders, or should such proposals not be approved, adjustments would be required to reduce the balance sheet values to their recoverable amounts, reclassify non-current assets as current, and provide for further liabilities that might arise including the liquidation costs referred to in note 19.

A summary of the accounting policies, which have been consistently applied throughout the year, is set out below.

b) Income

Dividends receivable on equity shares are taken to the revenue column of the Income Statement on an ex-dividend basis. If special dividends are identified as being a return of capital, they are taken to the capital reserve - realised. Fixed returns on debt securities are recognised on a time apportionment basis so as to reflect their effective yield. Interest from short-term deposits and other income is accounted for on an accruals basis.

c) Expenses

All expenses are accounted for on an accruals basis and are charged through the revenue column of the Income Statement except where (i) they directly relate to the acquisition or disposal of an investment, and (ii) expenses are charged to the capital column of the Income Statement where a connection with maintenance or enhancement of the value of investments can be demonstrated. In this respect, the investment management fee and finance costs of debt have been allocated 75% to capital and 25% to revenue.

d) Finance costs

Finance costs are accounted for on an accruals basis. Finance costs of debt, insofar as they relate to the financing of the Company’s investments or to financing activities aimed at maintaining or enhancing the value of the Company’s investments, are allocated 75% to the capital column of the Income Statement and 25% to the revenue column of the Income Statement, in line with the Board’s expected long-term split of returns, in the form of capital gains and revenue respectively, from the investment portfolio of the Company. Finance costs arising from dividends on shares classified as financial liabilities are allocated 100% to revenue.

e) Taxation

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 the right to pay less tax in future have occurred at the balance sheet date.This is subject to deferred taxation 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 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. Deferred taxation is measured on an undiscounted basis and by reference to enacted tax rates.

f) Investments

Investments are recognised and derecognised on the trade date where a purchase or sale is under a contract whose terms require delivery within the timeframe established by the market concerned, and are initially measured at fair value.

Investments are classified as at fair value through profit or loss. As the Company’s business is investing in financial assets with a view to profiting from their total return in the form of interest, dividends or increases in fair value, listed equities and fixed income securities are designated as fair value through profit or loss on initial recognition. The Company manages and evaluates the performance of these investments on a fair value basis in accordance with an investment strategy.

Financial assets designated as fair value through profit or loss are measured at subsequent reporting dates at fair value, which is either the bid price or the last traded price, depending on the convention of the exchange on which the investment is quoted.

Where securities are designated upon initial recognition as fair value through profit or loss, gains and losses arising from changes in fair value are included in the capital column of the Income Statement for the period and transaction costs on acquisition or disposal of the security are expensed as a capital item.

Realised gains and losses on assets are calculated as the difference between the net sale proceeds and the original cost and are recognised in the capital column of the Income Statement in the period in which they arise, within gains on investments at fair value through profit or loss.

Unrealised gains and losses on assets are calculated as the difference between the current valuation of the asset at the balance sheet date and the original cost. Movements in unrealised gains and losses are recognised in the capital column of the Income Statement in the period in which they arise, within gains on investments at fair value through profit or loss. The movement in the unrealised gains and losses recognised in the year also includes the reversal of unrealised gains and losses recognised in earlier accounting periods in respect of asset disposals in the current period.

Foreign exchange gains or losses for fair value through profit or loss investments are included within the changes in their fair value.

g) Income shares

When shares are issued, any component that creates a financial liability of the Company is presented as a liability in the balance sheet measured initially at fair value net of transaction costs and thereafter at amortised cost until extinguished on redemption. The corresponding dividends relating to the liability component are charged as finance costs in the Income Statement.

2 Income

					Year ended		Year ended
					30-Apr-08		30-Apr-07
					£’000		£’000
Income from investments:
UK dividend income					1,736		1,414
Other income:
Deposit interest					97		82
Underwriting commission					2		14
Total income					1,835		1,510

3 Investment management fee

				Year ended 30 April 2008				Year ended 30 April 2007
				Revenue		Capital		Total		Revenue		Capital		Total
				£’000		£’000		£’000		£’000		£’000		£’000
Investment management fee				106		319		425		117		350		467
VAT on management fee				5		16		21		21		62		83
VAT reclaim on past management fees				(86)		(259)		(345)		-		-		-
				25		76		101		138		412		550

The investment management fee (excluding VAT) is payable quarterly in arrears to Scottish Widows Investment Partnership Limited (SWIP) the investment manager, at the rate of 0.95% per annum on the first £25m of gross assets, 0.85% per annum on gross assets between £25m and £35m and 0.625% per annum on gross assets above £35m.

The arrangement may be terminated at any time by either party giving 6 months’ notice or less in certain circumstances (detailed further on page 10).

As a result of the successful outcome of the JPMorgan Claverhouse Investment Trust plc and the Association of Investment Companies’ case against HM Revenue & Customs (HMRC) regarding the charging of VAT on management fees, SWIP (on behalf of the Company) has applied to reclaim VAT suffered on these fees. The reclaim for the amount of £345,000 has been recognised in the current year. £49,000 was received by the Company during the year from SWIP. £296,000 remains outstanding as at 30 April 2008 from HMRC (see Note 9). This will be paid directly to SWIP, who will then pass this reimbursement to the Company.

Additionally, following the outcome of the above case, VAT is no longer charged on investment management fees.

4 Other expenses

2 Income

					Year ended		Year ended
					30-Apr-08		30-Apr-07
					£’000		£’000
Directors’ fees*					58		58
Auditors’ remuneration for audit					17		15
Other expenses					83		62
					158

* The Directors’ fees include national insurance contributions.

5 Finance costs

		Year ended 30 April 2008				Year ended 30 April 2007
		Revenue	Capital	Total		Revenue	Capital	Total
		£’000	£’000	£’000		£’000	£’000	£’000
Interest payable:
Bank loan		127	380	507		126	378	504
Dividends and appropriations
Dividends on income shares
Interim of 3.00p per share (2007 - 1.95p)		610	-	610		396	-	396
Second interim of 3.75p per share		762	-	762		-	-	-
Final (2007) of 3.52p share (2006 - 2.80p)		715	-	715		569	-	569
Net return for the year*		(562)	-	(562)		146	-	146
		1,525	-	1,525		1,111	-	1,111
Total finance costs		1,652	380	2,032		1,237	378	1,615

* Net return after payment of dividends detailed above.

A second interim dividend was declared on 24 April 2008. No such dividend was declared in the year ended 30 April 2007.

6 Taxation on ordinary activities

Year ended 30 April 2008

Year ended 30 April 2007

Revenue

Capital

Total

Revenue

Capital

Total

£’000

£’000

£’000

£’000

£’000

£’000

Taxation on ordinary activities

-

-

-

-

-

-

A reconciliation of the current taxation charge is set out below:

2 Income

				Year ended		Year ended
				30-Apr-08		30-Apr-07
				£’000		£’000
				£’000		£’000
Net return before finance costs and taxation				1,652		1,237
Return on ordinary activities at the UK standard rate
of corporation tax 30% (2007: 30%)				496		371
Non-taxable UK dividend income				-521		-424
Interest payable				-38		-38
Movement in unutilised management expenses				63		91
				-		-

Capital returns are not included in the above analysis since, as an investment trust, the Company’s capital gains are not taxable.

As at 30 April 2008, the Company had unutilised management expenses and loan relationship losses of £5,329,000 (2007: £4,660,000).

7 Return per share

		Year ended 30 April 2008						Year ended 30 April 2007
		Revenue		Capital		Total		Revenue		Capital		Total
		£’000		£’000		£’000		£’000		£’000		£’000
Net return for the year		(562)		(16,716)		(17,278)		146		8,066		8,212
Add dividends in respect
of income shares		2,087		-		2,087		965		-		965
Return for the year		1,525		(16,716)		(15,191)		1,111		8,066		9,177
Return per share		7.51p		(82.28p)		(74.77p)		5.47p		39.70p		45.17p

The return per income share is based on the revenue return on ordinary activities after taxation and on 20,317,060 (2007: 20,317,060) income shares being the weighted average number of shares in issue during the year.

The return per capital share is based on the capital return on ordinary activities after taxation and on 20,317,060 (2007: 20,317,060) capital shares being the weighted average number of shares in issue during the year.

8 Investments

			Year ended		Year ended
			30-Apr-08		30-Apr-07
			£’000		£’000
Total investments listed on the London Stock Exchange			45,109		63,085
Opening book cost			47,778		41,871
Opening unrealised appreciation			15,307		13,058
Opening valuation			63,085		54,929
Movements in year
Acquisitions during the year at cost			40,762		37,895
Sales: Proceeds			(42,820)		-38,925
Realised (losses)/gains			(1,729)		6,937
(Decrease)/increase in unrealised appreciation			(14,189)		2,249
Closing valuation			45,109		63,085
Closing book cost			43,991		47,778
Closing unrealised appreciation			1,118		15,307
			45,109		63,085
Realised (losses)/gains on sales			(1,729)		6,937
(Decrease)/increase in unrealised appreciation			(14,189)		2,249
(Losses)/gains on investments			(15,918)		9,186

Transaction costs of £255,000 (2007: £245,000) were incurred during the period on the acquisition of investments and transaction costs of £87,000 (2007: £85,000) were incurred during the period on the disposal of investments.

9 Debtors

					Year ended		Year ended
					30-Apr-08		30-Apr-07
					£’000		£’000
VAT reclaim on past management fees (see Note 3)					296		-
Prepayments and accrued income					510		345
Amounts due from brokers					665		1,160
					1,471		1,505

10 Creditors: amounts falling due within one year

					Year ended		Year ended
					30-Apr-08		30-Apr-07
					£’000		£’000
Bank loan repayable on 30 April 2009					8,127		-
Income shares					12,550		-
Other creditors					134		180
Dividend payable					762		-
Amounts due to brokers					2,390		939
Bank overdraft					125		-
					24,088		1,119

The Company has entered into a Facilities Agreement with Lloyds TSB Scotland plc under which it is entitled to draw down an aggregate principal amount of up to the lower of 25 per cent of the gross proceeds of the issue (excluding the bank loan) and £20 million, at a rate calculated by reference to the Bank’s seven year lending fixed rate together with a margin of 55 basis points (6.22%) (2007: 6.22%).

11 Creditors: amounts falling due after more than one year

					Year ended		Year ended
					30-Apr-08		30-Apr-07
					£’000		£’000
Bank loan repayable on 30 April 2009					-		8,127
Income shares					-		13,112
					-		21,239

12 Called-up share capital

					Year ended		Year ended
					30-Apr-08		30-Apr-07
					£’000		£’000
Authorised:
50,000,000 Income shares of 1p each					500		500
55,000,000 Capital shares of 1p each					550		550
					1,050		1,050
Allotted, called-up and fully paid
20,317,060 Income shares of 1p each					203		203
20,317,060 Capital shares of 1p each					203		203
					406		406

Share capital and control

The Company has two classes of share: Income Shares and Capital Shares. Both classes are separately listed and the Company has an equal number of Income Shares and Capital Shares in issue.

There are no restrictions on the transfer of shares in the Company other than as set out in the articles of association and certain restrictions which may from time to time be imposed by law, regulation or the UK Listing Authority’s listing rules.

The Company is not aware of any agreements between shareholders that may result in restrictions on the transfer of securities and/or voting rights.

Information about significant direct or indirect holdings of shares in the Company may be found in the Directors’ report.

The Directors have authority to allot and issue shares and to make market purchases of shares in accordance with the articles of association. The authority for the Company to purchase, in the market, 3,045,527 Income Shares and 3,045,527 Capital Shares, expires at the annual general meeting. Shareholders will be asked, at the annual general meeting, to give a similar authority. The authority for the Directors to allot shares was renewed by shareholders in 2006 and will expire on 7 September 2011.

The principal characteristics of each class of share are set out below:

Income Shares

All net income earned by the Company is attributable to the Income Shares. The Income Shares were issued with an initial capital entitlement upon a winding up of 30p per Income Share which increases daily, from the date of issue, on a straight line basis over the whole of the planned life of the Company at such a rate as will give a final entitlement of 60p at the Planned Winding Up Date (as defined in the Directors’ report in the section “Future of the Company”). In the event that the Company is not wound up on the Planned Winding Up Date, the capital entitlement of the Income Shares will continue at a pro rata amount of 60p (up to a maximum of 60p). The Income Shares rank after repayment of the bank loan and other liabilities of the Company but before any payment on the Capital Shares.

Income Shareholders are entitled to vote at general meetings of the Company and, on a poll, to one vote for every Income Share held. In addition, the separate approval of Income Shareholders as a class is required for certain proposals which would be likely to affect their position. The rights of Income Shareholders to vote on certain resolutions in relation to the winding up, reconstruction or reorganisation of the Company are subject to the restrictions set out in the articles of association.

Capital Shares

The Capital Shares have a return which is entirely in the form of capital and they have no entitlement to income. Capital Shareholders will be entitled to all the Company’s remaining net assets at the Planned Winding Up Date after providing for payment in full of the final capital entitlement of 60p per Income Share.

Capital Shareholders are entitled to vote at general meetings of the Company and, on a poll, to one vote for every Capital Share held, except that Capital Shareholders have no entitlement to vote on any resolution declaring a dividend on the Income Shares. In addition, the separate approval of Capital Shareholders as a class is required for certain proposals which would be likely to affect their position.

The Capital Shares rank for repayment after repayment of the bank loan and the entitlements of the Income Shares.

In accordance with Financial Reporting Standard 25: Presentation (“FRS 25”), the Income Shares have been accounted for as a liability as the Company has a contractual obligation to repay income shareholders on 30 April 2009 the amount of 60p per share (see Note 11).

13 Net asset value

The net asset values per share shown on the balance sheet have been calculated in accordance with FRS 25. The shareholders’ funds attributable to each class of share have also been calculated in accordance with the articles of association. The difference between these figures relates to the rights, under the articles of association, of the shareholders on a return of assets, which gives rise to an adjustment in the finance costs of those shares. A reconciliation is given below:

		Year ended				Year ended
		30 April 2008				20 April 2007
		Net assets		Net asset		Net assets		Net asset
		attributable		value per		attributable		value per
		£’000		share (p)		£’000		share (p)
Income Shares
Final capital entitlement of 60p per share		12190		60		12190		60
Retained revenue reserves		360		1.77		922		4.54
Net asset value on an accounts basis		12550		61.77		13112		64.54
Finance cost adjustment		(870)		(4.28)		(1743)		(8.58)
Net asset value on an articles basis		11680		57.49		11369		55.96
As at 30 April 2008, 20,317,060 income shares were in issue (2007: 20,317,060 shares).
		Year ended				Year ended
		30 April 2008				30 April 2007
		Net assets		Net asset		Net assets		Net asset
		attributable		value per		attributable		value per
		£’000		share (p)		£’000		share (p)
Capital Shares
Net asset value on an accounts basis		25948		127.72		42664		209.99
Finance cost adjustment		870		4.28		1743		8.58
Net asset value on an articles basis		26818		132		44407		218.57

The capital shareholders are entitled to all other net assets of the Company after the rights of the income shareholders have been satisfied.

As at 30 April 2008, 20,317,060 capital shares were in issue (2007: 20,317,060 shares).

14 Reconciliation of net revenue before finance costs and taxation to net cash inflow from operating activities

		Year ended		Year ended
		30 April 2008		30 April 2007
		£’000		£’000
(Loss)/return on ordinary activities before finance costs and taxation		(14,684)		9,681
Losses/(gains) on investments		15,918		(9,186)
Expenses incurred in acquiring or disposing of investments		342		330
Decrease in creditors		(46)		-
(Increase)/decrease in debtors		(461)		2
		1,069		827

15 Analysis of changes in net debt

		At 1 May				At 30 April
		2007		Cash flows		2008
		£000		£’000		£’000
Cash at bank and in hand		432		3,024		3456
Bank overdraft		-		(125)		(125)
Loans repayable 30 April 2009		(8,127)		-		(8,127)
Income Shares		(13,112)		562		(12,550)
		(20,807)		3461		(17,346)

16 Related parties

Investment management and administrative services are provided to the Company by Scottish Widows Investment Partnership Limited (SWIP). The monthly fee under this contract is payable in arrears at the rate of 0.95% per annum for the first £25 million of the gross assets, 0.85% per annum on the gross assets between £25 million and £35 million and 0.625% per annum on gross assets above £35 million. This arrangement may be terminated at any time by either party giving 6 months’ notice. The total fees paid for the year ended 30 April 2008 were £446,000 (2007: £550,000) of which £86,000 (2007: £148,000) was still outstanding at the year-end.

The VAT reclaim (detailed in Note 3) totals £345,000 (2007: nil), of which £49,000 (2007: nil) has been received by the Company during the year from SWIP. The remaining £296,000 (2007: nil) was still outstanding at the year–end. This will be paid directly to SWIP from HM Revenue & Customs, who will then pass this reimbursement to the Company.

Share registration services were provided to the Company by Lloyds TSB Registrars, whose acquisition by Advent International was completed on 30 September 2007 and which now trades as Equiniti Limited. As Equiniti Limited, it is no longer deemed to be a related party to the Company as it is no longer subject to control from a common source. The charge for services provided to 30 September 2007 amounted to £1,000 (2007: £6,000) of which £1,000 (2007: £4,000) was still outstanding at the year-end.

A Facilities Agreement was entered into by the Company with Lloyds TSB Scotland plc on 7 May 2002. The Company has drawn down £8,126,824 (2007: £8,126,824). Interest paid/payable for the year ended 30 April 2008 was £507,000 (2007: £504,000). Lloyds TSB Group and Scottish Widows Group (in respect of managed funds) held 52.18% (2007: 52.17%) of the capital shares of the Company and 5.99% (2007: 5.98%) of the income shares of the Company as at 30 April 2008.

Fees (including national insurance contributions) earned by the Directors of the Company during the year were £58,000 (2007: £53,000) of which £5,000 (2007: £4,000) was still outstanding at the year-end.

Deposit interest disclosed in Note 3 includes amounts received from SWIP Global Liquidity Fund plc. The total income received amounts to £97,000 (2007: £82,000), with £9,000 (2007: £3,000) outstanding at the year end.

17 Financial instruments

a) Management of risk

The Company’s financial instruments comprise:

– Equity shares of UK listed companies;

– Cash and short term debtors and creditors that arise directly from the Company’s operations;

– Fixed interest bank loan; and

– Non-equity shares in the form of income shares which are issued by the Company in accordance with the Company’s investment objectives.

The main risks arising from the Company’s financial instruments are detailed below. The Board of Directors regularly reviews and agrees policies for managing each of these risks and they are summarised below. These policies have remained unchanged since the inception of the Company. It is, and has been throughout the period under review, the Company’s policy that no trading in derivative financial instruments shall be undertaken, see pages 8 and 9.

b) Market risk

Market risk is the risk of fair value changes in the value of assets and liabilities from fluctuations in market prices (price risk), market interest rates (interest rate risk) and foreign exchange rates (currency risk), whether such changes are caused by factors specific to the individual instrument or its issuer or factors affecting all instruments traded in the market. The Board of Directors reviews and agrees policies for managing these risks, whose policies have remained substantially unchanged from those applying in the year ended 30 April 2007. The investment manager assesses the exposure to market risk when making each investment decision, and monitors the overall level of market risk on the whole of the investment portfolio on an ongoing basis.

(i) Price risk

The Company’s exposure to price risk relates to financial assets whose value fluctuates as a result of changes in market prices other than from interest and foreign exchange fluctuations. It is the Board’s policy to hold an appropriate spread of investments in the portfolio in order to reduce both the statistical risk and the risk arising from factors specific to a particular industry sector. Stock selection covering a range of market capitalisations within the small to medium companies sector in line with the Hoare Govett Smaller Companies Index (excluding investment companies), also acts to reduce price risk. The fund manager actively monitors market prices throughout the year and reports to the Board, which meets regularly in order to consider investment strategy.

The majority of the investments’ value is in UK companies. Accordingly, there is a concentration of exposure to the UK, though it is recognised that an investment’s country of domicile or listing does not necessarily equate to its exposure to the economic conditions in that country.

The sensitivity analysis below illustrates how the fair value of future cashflows in respect of equities would fluctuate because of changes in market prices at the reporting date, assuming all other variables remain constant.

				Impact on profit and equity for the year
		30 April 2008		30 April 2007
		£’000		£’000
5% increase in equity prices		2,234		3,135
5% decrease in equity prices		(2,234)		(3,135)

The 5% increase/decrease illustrates the possible effect of the possible change in market prices over the next 12 months. A positive number indicates an increase in the profit and equity, if equity prices rise. A negative number indicates a decrease in the profit and equity, if equity prices fall.

The management fee is a percentage based fee, calculated on the value of gross assets in the Company. The management fee would increase by £13,962 (2007: £19,594) if equity prices increased by 5%. The management fee would decrease by £13,962 (2007: £19,594) if equity prices decrease by 5%.

Except for those financial liabilities measured at cost detailed below, the fair values of the financial assets and financial liabilities, are either carried in the balance sheet at their fair value (investments), or the balance sheet amount is a reasonable approximation of fair value (short-term debtors, cash at bank and in hand, short-term creditors).

		Fair value		30 April 2008 Balance sheet amount		Fair value		30 April 2007 Balance sheet amount
		£’000		£’000		£’000		£’000
Financial liabilities measured at cost
- Bank loan		8,110		8,127		8,141		8,127
- Income shares		12,393		12,550		13,155		13,112
Total financial liabilities		20,503		20,677		21,296		21,239

(ii) Interest rate risk

The Company finances its operations through retained revenues arising from operations. The Board imposes borrowing limits to ensure gearing levels are appropriate to market conditions and reviews these on a quarterly basis. Currently, the articles of association restrict any borrowings to an amount equal to two times the sum of the amount paid up on the issued share capital of the Company plus the amount standing to the credit of the reserves of the Company. The Company has no intention of entering into any other debt agreements either fixed or floating other than the existing bank loan.

The interest rate profile of the Company is as follows:

												Weighted
								Non-interest		Weighted		average period
		Total (as per		Floating				bearing		average		for which rate
		balance sheet)		rate		Fixed rate		assets		interest rate		is fixed
Type		£’000		£’000		£’000		£’000		%		Years
Assets
30 April 2008
Equities		45,109		-		-		45,109		-		-
Cash at bank - sterling		3,456		3,456		-		-		5.58		-
		48,565		3,456		-		45,109
30 April 2007
Equities		63,085		-		-		63,085		-		-
Cash at bank - sterling		432		432		-		-		4.70		-
		63,517		432		-		63,085
Liabilities and Shares
30 April 2008
Bank overdraft		125		125		-		-		7.14		-
Bank loan - sterling		8,127		-		8,127		-		6.22		1.00
Income shares		12,550		12,550		-		-		8.71		-
		20,802		12,675		8,127		-
30 April 2007
Bank loan - sterling		8,127		-		8,127		-		6.22		2.00
Income shares		13,112		13,112		-		-		9.52		-
		21,239		13,112		8,127

All other debtors and creditors (as per Notes 9 and 10) incur no interest rate risk.

Should market interest rates change, there would be no impact on the profit or loss of the Company from the loan as the interest rate is fixed until it matures on 30 April 2009.

The Company does not normally hold significant cash balances. Any excess cash is held in the SWIP Global Liquidity Fund plc and interest is earned on this holding. The following table illustrates the sensitivity of the profit after taxation for the period from this holding should market interest rates change, assuming all other variables remain constant.

				Impact on profit and equity for the year
		30 April 2008		30 April 2007
		£’000		£’000
50 basis points increase in market interest rates		17		2
50 basis points decrease in market interest rates		(17)		(2)

The 50 basis points increase/decrease illustrates the effect of the possible change in market interest rates over the next 12 months. A positive number indicates an increase in the profit and equity if market interest rates rise. A negative number indicates a decrease in the profit and equity if market interest rates fall.

(iii) Currency risk

The Company is not exposed to any currency risk as all assets are denominated in British Pounds Sterling.

c) Credit risk

Credit risk is the risk that one counterparty to a financial instrument will fail to discharge an obligation and cause the Company to incur a financial loss.

The following table sets out details of those financial instruments which bear credit risk:

		30 April 2008		30 April 2007
		£’000		£’000
Non-current Assets
Investments at fair value through profit or loss		45,109		63,085
Current Assets
Debtors (amounts due from brokers, dividends receivable and accrued income)		1,471		1,505
Cash at bank and in hand		3,456		432
		50,036		65,022

£3,441,000 (2007: £419,000) of the cash at bank and in hand was held in the SWIP Global Liquidity Fund plc which is a AAA-rated money market fund. Aside from this asset, the Company has no significant concentrations of credit risk as the investments at fair value through profit or loss are mainly held in equity securities issued in the UK. In order to qualify as an investment trust, the Company is not permitted to hold more than 15% of its investments in any one company. None of the Company’s financial assets are secured by collateral or other credit enhancements. Additionally, no financial assets are past due or impaired.

d) Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty in raising funds to meet its cash commitments as they fall due. Liquidity risk may result from either the inability to sell financial assets quickly at their fair values or from a counterparty defaulting on repayment of a contractual obligation or from the inability to generate cash inflows as required.

The Company’s assets comprise mainly readily realisable equity securities which can be sold to meet funding commitments if necessary. The Company’s current liabilities all have a remaining contractual maturity of less than 3 months with the exception of the Facilities Agreement with Lloyds TSB Scotland plc. This is due to mature on 30 April 2009. Further detailsof this facility can be found in Note 10. Additionally, the Company’s Income shareholders are due to be repaid 60p per Income Share on 30 April 2009. Further details can be found in Notes 10 and 12.

18 Capital management policies and procedures

The Company’s capital management objectives are to provide income shareholders with a dividend yield, together with the potential for dividend growth and capital shareholders with the benefit of geared capital growth.

The Company’s capital comprises:

		30 April 2008		30 April 2007
		£’000		£’000
Non-current liabilities
- Bank loan		-		8,127
- Income shares		-		13,112
Capital and reserves
- Called up share capital		203		203
- Special reserve		19,408		19,408
- Capital reserve		6,337		23,053
		25,948		63,903

The Board, with the assistance of the Investment Manager monitors and reviews the broad structure of the Company’s gearing on an ongoing basis. This review includes the gearing of the Company and the extent to which revenue in excess of that which is required to be distributed should be retained.

The Company’s objectives, policies and processes for managing capital are unchanged from the preceding accounting period.

The Company’s articles of association state that gearing undertaken by the Company may not exceed the lower of 20 per cent of the gross proceeds of the issue (excluding the bank loan) and £20 million.

The Company is subject to some externally imposed capital requirements:

- As a public company, the Company must have a minimum share capital of £50,000.

- In order to be able to pay dividends out of profits available for distribution by way of dividends, the Company has to be able to meet one of the two capital restriction tests imposed on investment companies by company law.

These requirements are unchanged since last year, and the Company has complied with them.

19 Going concern

As explained in the accounting policies on page 22 there is uncertainty regarding the continuance of the Company beyond 30 April 2009.

The Board has had preliminary discussions on this matter and considers that it would be premature to make a firm decision about the duration and future direction of the Company, especially in view of the turbulence in the markets at this time and the longer term impact of the credit crunch, both on companies and investors. The Board is keeping the situation under review and will write to shareholders in due course, setting out its proposals in this regard.

In the event of the Company being wound up on 30 April 2009 (or on any earlier date), liquidation costs will be incurred. These are estimated to amount to £231,000.

Notice of Meeting

Notice is hereby given that the annual general meeting of Smaller Companies Value Trust plc (“the Company”) will be held at the offices of Scottish Widows Investment Partnership Limited at 10 Fleet Place (off Limeburner Lane), London EC4M 7RH on Thursday 4 September 2008 at 12.30 p.m. to consider and, if thought fit, to pass the following resolutions, of which resolutions 1 to 6 will be proposed as ordinary resolutions and resolutions 7 and 8 will be proposed as special resolutions:

Ordinary resolutions

1. That the accounts and the reports of the Directors and of the auditors for the year ended 30 April 2008 be received.

2. That the Directors’ remuneration report for the year ended 30 April 2008 be approved.

3. That Mr A F Bushell, a retiring Director, be re-appointed as a Director of the Company.

4. That Mr J W Poulter, a retiring Director, be re-appointed as a Director of the Company.

5. That Ernst & Young LLP be re-appointed as auditors of the Company until the conclusion of the next general meeting at which accounts are laid before the Company.

6. That the Directors be authorised to set the remuneration of the auditors.

Special resolutions

7. That the Company be and is hereby generally and unconditionally authorised for the purposes of section 166 of the Companies Act 1985 (as amended) (the “Act”) to make market purchases (within the meaning of section 163(3) of the Act) on the London Stock Exchange of income shares of 1 pence each and/or capital shares of 1 pence each (together “Shares”) in the capital of the Company provided that:

(a) the maximum aggregate number of Shares hereby authorised to be purchased is 3,045,527 income shares of 1 pence each and 3,045,527 capital shares of 1 pence each;

(b) the minimum price which may be paid for a Share is 1 pence;

(c) the maximum price which may be paid for a Share is an amount equal to 105% of the average of the middlemarket quotations (as derived from the Daily Official List of the London Stock Exchange) for the relevant class of Share for the five business days immediately preceding the date on which the relevant Share is contracted to be purchased (exclusive of associated expenses); and

(d) unless previously varied, revoked or renewed, the authority hereby conferred shall expire at the conclusion of the Company’s next annual general meeting to be held in 2009 or, if earlier, on 4 December 2009 save that the Company may prior to such expiry enter into a contract or arrangement to purchase Shares under this authority which will or may be executed wholly or in part after the expiry of this authority and may make a purchase of Shares pursuant to any such contract or arrangement as if the authority hereby conferred had not expired.

8. That in substitution for any existing power under section 95 of the Companies Act 1985 (as amended) (the “Act”) but without prejudice to the exercise of any such power prior to the passing of this resolution, the Directors be and are hereby empowered pursuant to section 95 of the Act to allot equity securities (within the meaning of section 94(2) to section 94 (3A) of the Act) wholly for cash pursuant to any existing authority given in accordance with section 80 of the Act as if section 89(1) of the Act did not apply to any such allotment, provided that this power shall be limited to the allotment of equity securities:

(a) in connection with an offer of such securities by way of rights to holders of income shares of 1 pence each and capital shares of 1 pence each in the capital of the Company in proportion (as nearly as may be practicable) to their respective holdings of such shares, but subject to such exclusions or other arrangements as the Directors may deem necessary or expedient in relation to treasury shares, fractional entitlements or any legal or practical problems arising in connection with the laws of any territory, or the requirements of any regulatory body or stock exchange; and

(b) otherwise than pursuant to sub-paragraph (a) above up to an aggregate nominal value of £20,317;

and shall expire at the conclusion of the Company’s next annual general meeting to be held in 2009 or, if earlier, on 4 December 2009, save that the Company may before such expiry make an offer or agreement which would or might require equity securities to be allotted after such expiry and the Directors may allot equity securities in pursuance of any such offers or agreements notwithstanding that the power conferred by this resolution has expired.

This power applies in relation to a sale of shares which is an allotment of equity securities by virtue of section 94(3A) of the Act as if in the first paragraph of this resolution the words “pursuant to any existing authority given in accordance with section 80 of the Act” were omitted.

By order of the Board

Scottish Widows Investment Partnership Limited
Company Secretary
27 June 2008

Notes

1. A member entitled to attend and vote is entitled to appoint a proxy or proxies to attend, speak and vote instead of that member.

A member may appoint more than one proxy in relation to the meeting, provided that each proxy is appointed to exercise the rights attached to a different share or shares held by the member. Lodgement of the form of proxy will not prevent members from attending and voting at the meeting. A proxy need not be a member of the Company.

The right to appoint a proxy does not apply to persons whose shares are held on their behalf by another person and who have been nominated to receive communications from the company in accordance with section 146 of the Companies Act 2006 (“nominated persons”). Nominated persons may have a right under an agreement with the registered shareholder who holds the shares on their behalf to be appointed (or to have someone else appointed) as a proxy. Alternatively, if nominated persons do not have such a right, or do not wish to exercise it, they may have a right under such an agreement to give instructions to the person holding the shares as to the exercise of voting rights.

Proxy appointments may be revoked by written notice to Equiniti Limited, Aspect House, Spencer Road, Lancing, West Sussex BN99 6ZL, and must be received by 11.30 a.m. on 4 September 2008. Proxy instructions may be amended by notice received by the company in accordance with the provisions of the Companies Act 2006.

2. Forms of proxy must be delivered to the Company’s registrar not later than 12.30 p.m. on 2 September 2008 in accordance with the instructions printed on the proxy form.

3. Pursuant to regulation 41 of the Uncertificated Securities Regulations 2001, the Directors have specified that only those shareholders registered on the register of members of the Company at 6 p.m. on 2 September 2008 or, in the event that the meeting is adjourned, on the register of members 48 hours before the time of the adjourned meeting, shall be entitled to attend and vote at the meeting in respect of the num