SLPE.L Regulatory News (SLPE)

STANDARD LIFE EUROPEAN PRIVATE EQUITY TRUST PLC

ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 30 SEPTEMBER 2010

Further to the voluntary disclosure of the Company's annual results for the year ended 30 September 2010 by way of a preliminary announcement dated 6 December 2010, in accordance with the Disclosure and Transparency Rules ('the Rules') 4.1.3 and 6.3.5(2) this announcement contains the text of the preliminary announcement dated 6 December 2010 together with the additional text in compliance with the Rules.

The Company's annual report and financial statements for the year ended 30 September 2010, which have been filed with the UK Listing Authority Document Disclosure team, are attached at the end of this announcement, and are available on the website at http://privateequity.standardlifeinvestments.com/products/slepet/index.html.

Financial Summary

(1) The Company has no defined benchmark; the indices above are solely for comparative purposes.

Historical Record

Summary financial information since the Company's listing.

1 Data supplied by Fundamental Data.

2 Represents the cash dividend paid during the year, declared for the previous financial year.

3 For the period from the Company's listing until 1 July 2002, no management fee was charged on the Company's cash or money market holdings.

Chairman's Statement

Results and performance

The year ended 30 September 2010 was more positive for the Company, following the challenges experienced in the aftermath of the financial crisis in late 2008. During the financial year there was a gradual improvement in the level of activity in the European private equity market, while valuations across the Company's portfolio rose, driven by earnings growth at underlying investee companies. For the year ended 30 September 2010 the Company's NAV increased by 18.4% to 195.3p (diluted NAV - 193.3p), from 164.9p at 30 September 2009 (diluted NAV - 163.4p). Accordingly, the Company can now report five consecutive quarterly increases in NAV. At 30 September 2010 the Company's net assets were £315.2 million.

The closing mid-market price of the Company's ordinary shares on 30 September 2010 was 113.75p, compared to 112.25p a year earlier. The Company's share price was trading at a 41.2% discount to the Company's diluted NAV at the year end. The share price to NAV discount remained wide throughout the financial year, in line with most of the Company's listed European peer group.

The Company's practice is one of reinvestment and to pay a dividend marginally in excess of the minimum required to maintain investment trust status. The Board is recommending a final dividend of 0.2p per ordinary share for the financial year. Subject to shareholder approval at the forthcoming Annual General Meeting, this dividend will be paid on 28 January 2011 to shareholders on the Company's share register at 31 December 2010. Shareholders will have the opportunity to elect to receive the final dividend in the form of ordinary shares. A circular and an election form are enclosed with the Company's annual report and accounts.

Private equity is a long-term asset class. For the five years ended 30 September 2010 the Company's share price total return fell 23.5%, compared to positive returns of 24.7% in the FTSE All-Share Index and 2.1% in the MSCI Europe Index (in euros) on a total return basis. The fall in the Company's share price total return over the five year period reflects, in particular, the fall in the Company's share price in 2008-2009 and the continued wide discount to NAV. Over the same five year period, the Company's NAV total return was 41.9%.

Valuation

At 30 September 2010 the Company's portfolio comprised 39 private equity fund interests. During the financial year the value of the investment portfolio rose by 26.1%. At 30 September 2010 the value of the portfolio was £369.6 million, of which unrealised gains arising during the year were £47.9 million. This latter amount was net of £12.6 million of unrealised foreign exchange losses.

The unrealised gains before foreign exchange rate movements arose from increased profits at the underlying investee companies, enhanced by the impact of gearing within those companies. In contrast, listed comparable valuation multiples, embodied in the Company's valuation process, declined during the year. The unrealised foreign exchange losses were as a result of sterling appreciating by 5.5% relative to the euro. Of the Company's gross assets of £376.1 million at 30 September 2010, £283.8 million comprised euro denominated assets and £65.3 million dollar denominated assets.

Around 89.8% by value of the private equity funds held by the Company were valued by the relevant fund manager at 30 September 2010. In undertaking the valuations the fund managers have followed the International Private Equity and Venture Capital Valuation Guidelines. In so doing, the primary valuation methodology is to use listed comparable valuation multiples.

Investment activity

The last eighteen months has seen a rise in the number and value of new private equity investments and realisations completed in Europe. The value of all buy-out transactions completed in the European private equity market during the year ended 30 September 2010 was €51.1 billion (year ended 30 September 2008 and 2009 - €92.0 billion and €21.3 billion respectively). In particular, the mid-market segment of the European buy-out market has been active, albeit a significant number of the transactions have arisen from one private equity owner selling to another. It is expected that this trend will reverse over the coming year, as more buy and sell-side transactions are undertaken by corporate owners. 

Reflecting the gradual improvement in the European private equity market, the Company's draw downs during the year increased to £48.0 million and distributions to £23.0 million. The distributions received generated net realised gains and income of £10.1 million, equivalent to an average return on the Company's acquisition cost of the realised investments of 1.8 times. Most of the distributions received came from investments made between 2003 and 2006. It is still too early to expect significant distributions from investments made in the peak years of 2007 and 2008.

The Company's aggregate outstanding commitments were £150.3 million at 30 September 2010. Where drawn they will be funded from the Company's cash resources, distributions received from the portfolio of fund investments and the use of the Company's borrowing facility. A number of the private equity funds held by the Company have, however, completed their respective investment periods and any future draw downs are likely to be limited. Accordingly, the Manager believes that up to £30 million of the Company's existing outstanding commitments are unlikely to be drawn. At 30 September 2010 the Company's net indebtedness was £54.2 million.

The European private equity market is starting to see a number of the more experienced mid and large buy-out managers attempting to raise new funds. This is against a background of very few such funds having been raised since 2008. It is the Board's hope that, as distributions to the Company increase and the Company's net indebtedness starts to decline, the Company will be able to make new fund commitments.

During the period from 30 September 2010 to 2 December 2010 the Company funded £13.7 million of draw downs and received £10.8 million of distributions. At 2 December 2010 the Company's total outstanding commitments and net indebtedness were £134.5 million and £57.5 million respectively.

New debt facility

On 29 November 2010 the Company entered into a new £120 million syndicated revolving credit facility, led by The Royal Bank of Scotland plc. This facility expires on 31 December 2013 and is an increase on the existing £100 million facility.

Clive Sherling, who has served on the Board since December 2006, and who has subsequently increased his range of business interests, intimated some time ago, to the regret of his colleagues, that he wished to step down from the Board after the Annual General Meeting in January 2011. Clive has made a significant contribution to the Board, where his expertise was particularly valuable on private equity related matters. Clive carries with him the best wishes of the Board and the Manager for continued success in the future.

The Company has announced that Jonathan Taylor has been co-opted to the Board and will stand for election at the Annual General Meeting. Jo Taylor, who was selected with the help of recruitment consultants, worked for almost 25 years in 3i Group, where before retirement in 2008 he headed the Ventures Division and was a member of the Group management and investment committees. Jo has deep practical knowledge of the European private equity and ventures businesses and his new colleagues believe he will provide a material addition to the expertise available to the Company.

Outlook

The last year has seen a continuing recovery in the European private equity market, with an increasing number and value of new investments and realisations. Positive earnings growth at the underlying investee companies gives confidence in our investment portfolio. With the Company's funding position and outstanding commitments now in better balance, the Board believes that the building blocks for future growth are in place.

Scott Dobbie CBE

Chairman

3 December 2010

Investment policy

Objective

The objective of the Company is to achieve long-term capital gains through holding a diversified portfolio

of private equity funds investing predominantly in Europe.

Investment strategy

The principal focus of the Company is to invest in the leading European private equity funds investing in mid to large sized buy-outs, which can be categorised as transactions with enterprise values ranging between €200

million and €2.0 billion.

The Company invests in private equity funds which themselves invest principally in countries in Europe, which the Manager defines as EU Member States, EU Associate Member States and other western European countries.

However, the Company has the flexibility to invest up to 20% of its gross assets, at the time of purchase, in private equity funds which invest principally outside Europe.

The Company's policy is to maintain a broadly diversified portfolio by country, industry sector, maturity and number of underlying investments. The objective is for the portfolio to comprise around 35 - 40 "active" private

equity fund investments; this excludes funds that have recently been raised, but have not yet started investing, and funds that are close to or being wound up.

The Company invests only in private equity funds, but occasionally may hold direct private equity investments or quoted securities as a result of distributions in specie from its portfolio of fund investments. The Company's

policy is normally to dispose of such assets where they are held on an unrestricted basis.

To maximise the proportion of invested assets it is the Company's policy to follow an over-commitment strategy by making fund commitments which exceed its uninvested capital. In making such commitments, the Manager, together with the Board, will take into account the uninvested capital, the quantum and timing of expected and projected cashflows to and from the portfolio of fund investments and, from time to time, may use borrowings to meet draw downs.

The Company's non-sterling currency exposure is principally to the euro and US dollar. The Company does not seek to hedge this exposure into sterling, although any borrowings in euros and other currencies in which the Company is invested would have such a hedging effect.

Cash held pending investment is invested in short dated government bonds, money market instruments, bank deposits or other similar investments. These investments may be in sterling or such other currencies to which the Company has exposure.

Borrowings

The Company's maximum borrowing capacity is defined in its articles of association, and, unless otherwise sanctioned by an ordinary resolution of the Company, is an amount equal to the aggregate of the amount paid up on the issued share capital of the Company and the amount standing to the credit of the consolidated reserves of the Company, all based on the latest audited consolidated balance sheet. It is expected that bank borrowings

would not exceed more than 30% of the Company's net assets.

Investment trust approval

To comply with one of the conditions for approval as an investment trust, the Company will ensure that when all of its holdings in private equity funds are aggregated, no one underlying investment will represent, at the time of purchase, more than 15% by value of all of the Company's investments. The Company will not invest more than 15% of its total assets in other listed investment companies or listed investment trusts.

Benchmark

The Board has concluded, after careful consideration, that there is no currently available benchmark which is an appropriate measure of the investment performance of the Company. It has, however, resolved to review

this issue at least annually.

Information on how the Company has invested its assets with a view to spreading investment risk in accordance with its investment policy during the year under review is set out in the Portfolio Review section of the Manager's Review.

Manager's Review

The Manager

The Manager, SL Capital Partners LLP ("SL Capital"), is based in Edinburgh, United Kingdom and comprises a team of 14 investment professionals with over 185 years of combined private equity experience. This team manages approximately £5.4 billion of private equity investments on behalf of over 150 clients worldwide.

SL Capital is a limited liability partnership and is 60% owned by Standard Life plc ("Standard Life") and 40% by its eight senior private equity managers. SL Capital has acted as Manager to the Company since its inception in 2001.

With the exception of the Company, all of the Manager's funds under management are held through limited partnership vehicles, which are structured as either pooled or segregated vehicles for clients. SL Capital's

clients range from leading institutional investors in the UK, US, Canada and Europe, to family offices and high net worth individuals globally. The largest clients include Standard Life, the California Public Employees' Retirement System, a large number of UK local authorities and some significant North American pension funds. The Manager is also recommended by many institutional investment and pension fund consultants.

In addition to its Edinburgh investment office, the Manager has four investment professionals based in Boston, United States. This team selects and oversees private equity investments in North America.

SL Capital is one of the largest investors in private equity funds and coinvestments in Europe. One of the key strengths of the investment team is their extensive fund and direct deal experience, which gives the Manager

greater insight into the strategies, processes and disciplines of the funds invested in and allows better qualitative judgements to be made.

The Manager has a detailed and rigorous screening and due diligence process to identify and then evaluate the best private equity fund offerings. The Manager concentrates on opportunities in the buy-out segment of the

European private equity market, but, where it is relevant to a particular investment mandate, it also considers funds targeted on the secondaries, venture, growth and mezzanine segments, as well as funds focused on

particular sectors or geographies.

The private equity asset class has exhibited historically a wide dispersion of returns generated by fund investments and the Manager believes that appropriate portfolio construction and manager selection is vital to optimise investment performance. In that regard, the objective is for the Company's portfolio to comprise around 35-40 "active" private equity fund investments at any one time, with portfolio diversification being controlled through percentage concentration limits applied at an individual fund and manager level.

Finally, the Manager believes that as one of the largest and most experienced private equity investors in Europe, it is able to find and invest in Europe's premier private equity funds, where knowledge of and access to these funds are sometimes limited.

Market Review

European private equity activity recovered during the year, both in value and volume, from the relative low of 2009. Market conditions for realisations have improved and the last year has seen a growing number of sales completed.

European market overview

The global macro-economic environment improved during the year ended 30 September 2010, with most of the major developed economies reporting positive growth. Much of the growth in these economies has been driven

by corporate re-stocking, investment and export growth, particularly to developing countries. The pace of future growth, however, is going to be influenced by the quantum of any ongoing monetary stimulus and, for the major European economies, the impact of any fiscal tightening as governments seek to rein in annual and aggregate deficits.

The listed financial market experienced significant volatility during the year as macro-economic and political concerns impacted investor sentiment. Nevertheless, the major listed financial markets have risen year on year, with underlying corporate earnings growth being the principal driver.

As reported in the Chairman's Statement, European private equity market activity has increased, to the point where the overall enterprise value of transactions completed in 2010 should be similar to that in 2003 and more

than double that completed in 2009. This increase in activity is expected to continue into 2011, with most private equity managers reporting enhanced deal flow. In addition, there now appear to be signs of greater corporate interest in mergers and acquisitions activity, which should be positive for

new private equity investments and realisations.

Debt markets have also improved during the last year. While the multiple and proportion of total debt used to fund transactions remains at the lower end of historic norms, there has been a greater number of syndicated debt facilities and less reliance on single or small groups of banks to provide finance. In addition, although interest rate margins remain wide, there are signs that pricing is becoming more competitive and spreads narrowing. Moreover, there has been record issuance of non-investment grade bonds and this has offered a longer-term funding alternative for private equity managers.

Private equity managers have focused much of their time in the last two years on their portfolio companies, with the aim of protecting and enhancing value. Most private equity managers reduced costs quickly at their investee companies in late 2008 and early 2009 as the fall in global demand impacted sales and inventory levels. This allowed many companies to experience less pronounced falls in operating profit and, as the recovery has started, to see a more significant rise in operating profit and margins.

Market conditions for realisations have improved and the last year has seen a growing number of sales completed. Most of the investments sold were originally made in the years 2003-06 and have been companies that have performed relatively well in the recent economic downturn. The pace of realisations is expected to increase during 2011 and the breadth of the companies sold should widen, to include investments originally made in 2007-08 and companies which are less defensive and more cyclical in nature.

Finally, very few European private equity managers have raised new funds in the last year, particularly in the mid to large sized buy-out segments. With the turmoil in the macro-economic environment and financial markets many traditional private equity investors found themselves constrained in making new commitments to the asset class, while private equity managers were reluctant to raise new funds against a background of depressed valuations, problem investments and few realisations. In the last few months the European private equity market has seen a number of mid and large buy-out managers attempting to raise new funds and the pace of fund raising is expected to accelerate in 2011.

Investment Activity

During the year to 30 September 2010 the Company funded £48.0 million of draw downs and received £23.0 million of distributions. At 30 September 2010 the Company had £150.3 million of outstanding fund commitments.

Draw downs

As reported above, the Company funded £48.0 million of draw downs during the financial year. This figure is below the long-term average quantum of draw downs funded by the Company, as a result of the low level of new investment activity in the European private equity market and the impact of the reduction in the Company's outstanding fund commitments. The Manager expects the quantum of draw downs to increase during the remainder of 2010 and into 2011 as a result of increasing activity levels within the European private equity market. The private equity funds to which the Company funded the five largest draw downs during the year are set out in the table below.

Distributions, gains and income

During the year the Company's portfolio of private equity fund interests generated aggregate distributions of £23.0 million, including net realised gains of £8.4 million and income of £1.7 million. The quantum of distributions received also reflected the low level of European private equity activity during the financial year. It is encouraging to note, however, that many of the individual company realisations were at a significant premium to their last reported valuation. The Manager expects to see an increase in the quantum of distributions received by the Company during the remainder of 2010 and into 2011 as realisation activity returns to more historic norms.

Private equity managers continue to use a number of different exit routes for investments and the distributions received by the Company included proceeds from trade sales and, to a lesser extent, refinancings and secondary

buy-outs.

As shown in the bar chart on page 9 of the attached document*, the average return during the year on the Company's acquisition cost of realised investments was 1.8 times. The rise in the average return multiple between 2003 and 2009 can be attributed largely to the previous strength of the European private equity, debt and mergers and acquisitions markets and historic profit growth at underlying investee companies. The recent volatility in listed financial markets and the weaker macro-economic environment are likely to result in a reduction in the average return for realised investments. In particular, investments made during 2006 and 2007, at generally higher prices, will be most affected.

The five largest distributions, gains and income, broken down by fund, received during the year are set out in the table below.

Commitments

The Company made no new fund commitments during the year ended 30 September 2010. This represented a continuation of the cautious approach adopted in the previous financial year.

At 30 September 2010 the Company had £150.3 million of outstanding fund commitments, down from £227.8 million at 30 September 2009. The decline is the result largely of the Company having made no new fund

commitments and having funded £48.0 million of draw downs.

The Company has implemented an over-commitment strategy since late 2001, in line with the Manager's objective of maximising the invested assets. Over time this strategy has helped enhance overall returns generated by the Company.

Over the past five years the Company's outstanding fund commitments less its available liquid resources, expressed as a percentage of the Company's disclosed net asset value, has varied between 30.8% and 132.5%. The bar chart on page 10 of the attached document* shows the relevant percentages at each annual reporting date, from listing to 30 September 2010. The percentage has varied over time according to the quantum of available liquid resources held by the Company, the rate of draw downs made and distributions received and, importantly, the fund raising cycle of the leading private equity managers in Europe. Given market conditions and the Company's projected cash flows, the Manager will consider carefully the making and timing of any new fund commitments.

Portfolio Review

At 30 September 2010 the Company's net assets were £315.2 million. The Company had interests in 39 private equity funds with a value of £369.6 million. The effect of drawdowns and distributions over the year was to increase net indebtedness from £27.3 million at 30 September 2009 to £54.2 million at 30 September 2010.

Portfolio composition and performance

At 30 September 2010 the Company's portfolio comprised 39 private equity fund interests with a value of £369.6 million which, together with its current assets less liabilities, resulted in the Company having net assets of £315.2 million. This represented an undiluted NAV of 195.3p (diluted NAV - 193.3p). A breakdown of the £76.5 million movement in the Company's portfolio valuation during the year is shown in the valuation bridge on page 11 of the attached document*.

The split of the Company's portfolio by type of private equity fund is set out in the pie chart on page 11 of the attached document*. Details of all of the Company's private equity fund interests, and more detailed information on the ten largest fund investments and thirty largest underlying portfolio companies, can be found below.

The valuation of the Company's private equity fund interests at the year end was carried out by the Manager and has been approved by the Board in accordance with the accounting policies set out in note 1 to the accounts. In undertaking the valuation, the most recent valuation of each fund prepared by the relevant fund manager has been used, adjusted where necessary for subsequent cash flows. The fund valuations are prepared in accordance with the International Private Equity and Venture Capital Valuation guidelines. These guidelines require investments to be valued at "fair value", which is the price at which an orderly transaction would take place between market participants at the reporting date.

Portfolio review

Of the 39 private equity funds in which the Company is invested, 33 of the funds, or 89.8% of the portfolio by value, were valued by their fund managers at 30 September 2010. The Manager continues to believe that the use of such timely valuation information is important.

The value of the Company's portfolio of private equity fund interests increased during the year from £293.1 million at 30 September 2009 to £369.6 million at 30 September 2010. The increase in the valuation was driven by unrealised gains on the investment portfolio, at constant foreign exchange rates, of £60.5 million, together with £48.0 million of new investments and £3.8 million of net realised gains (including the disposal of fund interests). These increases were partially offset by £23.2 million of realisation proceeds and a £12.6 million negative foreign exchange movement.

Information on the valuation movement for the Company's portfolio for each of the financial years since the Company's listing is set out below. This table provides a useful summary of the individual changes and the underlying trends in the Company's portfolio over time.

During the year sterling appreciated against the euro by 5.5% and depreciated against the US dollar by 1.5%. This had a negative impact on the Company's NAV. The closing sterling/euro foreign exchange rate at 30 September 2010 was £1/€1.1543 and the closing sterling/dollar foreign exchange rate was £1/$1.5758. The combined effect of foreign exchange movements on the valuation of the portfolio over the year was a 7.8p decline in NAV.

The Manager and the Board do not believe it is appropriate for the Company to undertake any financial hedging of its foreign exchange exposure, given the irregularity in size and timing of individual cash flows to and from its fund interests. Any cash balances and bank indebtedness are generally held in sterling, euro and US dollars, broadly in proportion to the currency of the Company's outstanding fund commitments.

On 29 November 2010 the Company entered into a new £120 million committed, revolving credit facility, led by the Royal Bank of Scotland plc. This new facility expires on 31 December 2013.

Valuation and leverage multiple analysis

The bar charts on page 12 of the attached document* show the valuation and leverage multiples of the thirty largest underlying portfolio companies held by the Company's private equity fund interests at 30 June 2010. This analysis is at 30 June 2010 due to the fact that most private equity funds provide detailed information on the underlying portfolio companies twice a year, in June and December, rather than quarterly.

The valuation multiples of each underlying portfolio company are derived using the relevant listed comparable companies, adjusted where appropriate, in line with the International Private Equity and Venture Capital Valuation guidelines.

The median valuation and leverage multiples for the top thirty underlying portfolio companies are 8-9x EV/EBITDA and 4-5x Debt/EBITDA respectively. The Manager believes that these valuation and leverage multiples are in line with the European private equity market for similar sized deals and vintages.

Diversification

The Board has agreed, and regularly reviews, diversification limits with the Manager regarding the Company's net asset and commitment exposure to both individual private equity funds and their managers. The Manager

also monitors the Company's exposure to the underlying investments held by the different private equity funds in which the Company is invested. At 30 September 2010, the Company was invested in 39 different private

equity funds, which collectively had interests in a total of 510 underlying investments.

Analysis of the underlying investments held by the different private equity funds allows the Manager to track the Company's exposure by geography, industrial sector, maturity of investment and value relative to original cost. Such information is used by the Manager in reviewing the exposure of the Company's portfolio, in assisting it to make new investment decisions and in having a better understanding of the timing of prospective cash flows.

The diversification of the Company's private equity fund interests, at 30 September 2010 and 2009, is set out in the four bar charts shown on page 13 of the attached document*. The charts demonstrate the broad diversification that applies by geography and by sector within the Company's underlying portfolio of investments. The UK still remains the single largest geographic exposure, although it has fallen from 64% at the time of the Company's listing to 25% at 30 September 2010, as other European private equity markets continue to develop.

At 30 September 2010, the Company had five fund investments - Pomona Capital V, Pomona Capital VI, Coller International Partners IV, Coller International Partners V and Towerbrook Investors II - which are likely to invest a significant proportion of their capital outside Europe. In total, these funds represent 13.2% of the Company's gross assets. The broad diversification in sectors like industrials, consumer services and financial helps to mitigate the effect of volatility in any individual sector.

The chart showing the maturity exposure of underlying investments highlights the increasing maturity of the portfolio, as a result of the reduced levels of private equity activity over the last two years. The chart showing value relative to the original cost of underlying investments illustrates that, despite an increase in the percentage of investments valued below original investments cost, the portfolio remains healthy with 81% of the portfolio valued at or above cost.

SL Capital Partners LLP

3 December 2010

(* Please note that the references are provided in the 2010 Annual Report and Accounts attached to this announcement).

Fund Investments as at 30 September 2010

The private equity funds in which the Company invests usually take the form of limited partnerships. Contractual commitments are made to the funds and these are drawn down by the managers of the funds as required for investment over time. Details of all of the Company's fund investments, by valuation, and a description of the ten largest fund investments follow:

* valuation date refers to the date of the last valuation prepared by the manager of the relevant fund.

† the 510 underlying investments represent holdings in 487 separate companies.

Ten Largest Fund Investments as at 30 September 2010

Top 30 Underlying Investments at 30 September 2010

The table below summarises the top 30 underlying investments, by value, in the Company's portfolio of private equity funds. The valuations are gross, before any carry provision.

Directors' Report

The directors present their report and the audited financial statements for the year ended 30 September 2010.

Business Review

Business and Status

The Company carries on business as an investment trust and has been approved as such by HM Revenue & Customs for the year ended 30 September 2009, subject to their rights to further enquiry under the Finance Act 1998. The Company has subsequently conducted its affairs so as to enable it to continue to seek such approval. The Company is an investment company within the terms of section 833 of the Companies Act 2006. The Manager of the Company is SL Capital Partners LLP. The Board is independent of the Manager and Standard Life.

Investment Objective

The investment objective is to achieve long-term capital gains through holding a diversified portfolio of private equity funds investing predominantly in Europe. The full text of the Company's investment policy can be found above and the Portfolio Review section of the Manager's Review explains how the Company has invested its assets with a view to spreading investment risk in accordance with the Company's investment policy during the year under review.

Review of performance over one year and five years

An outline of the performance, market background, investment activity and portfolio during the year under review and the performance over the last five years, as well as the investment outlook, are provided in the Chairman's Statement and the Manager's Review.

Monitoring performance - Key Performance Indicators

At each Board meeting the directors consider a number of performance indicators to assess the Company's success in achieving its objectives, which include both absolute and relative performance compared to market indices and peer group. The key performance indicators ("KPIs") are established industry measures, covering both the Company and its fund investments, and include:

• Net asset value capital return

• Projected and actual portfolio cashflows

• Discount and discount volatility

• Share price capital return

• Expenses and expense ratio

The net asset value and share price performance for the year and five years ended 30 September 2010 and since listing are provided in the Financial Summary. The Company's expense ratio and discount levels are provided above. An analysis of the portfolio cashflows, including draw downs, distributions and fund commitments, is provided in the Investment Activity section of the Manager's Review.

Principal Risks and Uncertainties

The major focus of the Company is to invest in European private equity funds, which themselves invest in unquoted companies. The Company has the ability to invest up to 20% of its gross assets in funds that operate outside Europe. The aim is to build a portfolio of private equity fund interests diversified by country, industry sector, maturity and number of underlying investments. The financial risk management objectives and policies of the Company are contained in note 19 to the accounts. The principal risks facing the Company relate to the Company's investment activities and include the following:

• market risk

• currency risk

• over-commitment risk

• liquidity risk

• credit risk

• interest rate risk

• operating and control environment risk

An explanation of these risks and how they are managed is contained in note 19 to the accounts.

Social, Community, Employee Responsibilities and Environmental Policy

As an investment trust, the Company has no direct social, community, employee or environmental responsibilities. Its principal responsibility to shareholders is to ensure that the investment portfolio is properly invested and managed. The Company has no employees and no requirement to report separately on this area, as the management of the portfolio has been delegated to the Manager, SL Capital Partners LLP.

Statement of Directors' Responsibilities

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the financial statements in accordance with United Kingdom Generally Accepted

Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period. In preparing these financial statements, the directors are required to:

- select suitable accounting policies and then apply them consistently;

- make judgements and accounting estimates that are reasonable and prudent;

- state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements;

- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.

The directors confirm that they comply with all the above requirements. The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company's transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006. 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.

The directors are responsible for the maintenance and integrity of the company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Each of the directors confirms that, to the best of their knowledge:

- the financial statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law), give a true and fair view of the assets, liabilities, financial position and profit of the company; and

- the directors' report includes a fair review of the development and performance of the business and the position of the company, together with a description of the principal risks and uncertainties that it faces.

For Standard Life European Private Equity Trust PLC

Scott Dobbie CBE

Chairman

Edinburgh, 3 December 2010

INCOME STATEMENT (audited)

for the year ended 30 September 2010

INCOME STATEMENT (audited)

for the year ended 30 September 2009

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS (audited)

BALANCE SHEET (audited)

The financial statements were approved by the Board on 3 December 2010 and were signed on its behalf by:

SCOTT DOBBIE CBE, Chairman

3 December 2010

CASHFLOW STATEMENT (audited)