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UK Select Trust Ld (UKT)

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Thursday 30 April, 2009

UK Select Trust Ld

Annual Financial Report

RNS Number : 5260R
UK Select Trust Limited
30 April 2009
 



 






UK Select Trust Limited











Annual Report for the year ended 31 December 2008












UK Select Trust Limited


 



 


Trust information


UK Select Trust Limited's shares are listed on the London Stock Exchange. They can be bought or sold by investors through a stockbroker or by asking a professional adviser e.g. lawyer, accountant or bank manager to do so on their behalf.


UK Select Trust Limited's share price is published daily under Investment Companies in the Share Information Service in the Financial Times. In addition it is published every Monday on the business pages of The Guernsey Press and Star and Jersey Evening Post.



Objectives UK Select Trust Limited


UK Select Trust Limited is registered in Guernsey and is qualified as a UK Investment Trust Company. The Company invests over 80% of its gross assets by value in the UK and the investment policy aims to provide a total return to shareholders in excess of the net total return on the FTSE All Share Index and a progressive dividend policy.


 



Financial Highlights

















31 December 2008


31 December 2007










Net asset value per share





106.97p


158.27p

Equity shareholders' interest (1)





£22.17m


£32.78m

Revenue return on ordinary activities for the financial year after taxation



£1.04m


£0.82m

Capital (loss)/return on ordinary activities for the financial year after taxation 



£(11.22)m


£0.97m

Revenue return per ordinary share




5.04p


3.96p

Capital (loss)/return per ordinary share




(54.25)p


4.67p

Dividend per ordinary share (2)





3.63p


3.40p

Share Price





86.25p


128.00p

Net asset value total return





(30.70)%


5.70%

FTSE All-Share total return





(29.93)%


5.32%










 

(1) During the year the Company purchased 202,916 ordinary shares of 10p from the market to be held in Treasury. 216,587 ordinary shares of 10p each from the shares held in Treasury were reissued during the period. 104,742 shares remain in Treasury at 31 December 2008. These are held for reissue and the Company does not intend to cancel these.


(2) The dividend figures include the proposed dividend for the relevant financial period.


Dividends  

A final dividend of 2.73p per share will be recommended for 2008 (2007: 2.55p). This is in addition to an interim dividend of 0.90p (2007: 0.85p) paid during the year.


 


Directors and Advisors


JM Le Pelley, Age 60, Non-executive Chairman. He joined the board in 1983. Other Directorships include AcenciA Debt Strategies Limited.


DR Maltwood, Age 70, Non-executive Director. He joined the board in 1997 after a career in stockbrocking in Jersey. He has held a number of positions including the Chairman and Director of a number of quoted companies.


G Ross Russell, Age 75, Non-executive Director. He joined the board in 1995. He is a Director of Forsight 3 Venture Capital Trust Plc and former Chairman of the Securities & Investment Institute and Deputy Chairman of the London Stock Exchange.

JG West FCA, Age 61, Non-executive Director. He joined the board in 1997. He is the Chairman of Gartmore Fledgling Trust Plc, Jupiter Second Enhanced Trust Plc, New City High Yield Fund Limited, and a Director of a number of public and private companies including British Assets Trust Plc and JP Morgan Income and Capital Trust plc. He is a former chief executive of Lazard Asset Management Limited.


D Warr, Age 55, Non-executive Director. He joined the board in 2006. He is an Executive Director of Fortis Reads International Management Limited, a Guernsey based fiduciary services business wholly owned by Fortis Plc. He is a fellow of the Institute of Chartered Accountants in England and Wales and has worked for the Fortis Reads Group since 1972 specialising in Trust and Corporate work. He is also Non-executive Chairman of FRM Diversified Alpha Limited and a Non-executive Director of Marwyn Materials Limited, Invista Foundation Property Trust Limited, Hemisphere Defensive HF (USD) Limited and Unigestion (Guernsey) Limited.  


Advisors 


Secretary and Registered Office                                    Registrars

Corporate Services (Guernsey) Limited                          Capita Registrars (Guernsey) Limited

Dorey Court                                                                         Longue Hougue Road

Admiral Park                                                                         St Sampson

St Peter Port                                                                          Guernsey GY2 4JN

Guernsey GY1 3BG                                                              0870 162 3100

01481 727111                                                                        Calls cost 10p per minute plus network charges


Investment Manager                                                          Stockbrokers

Scottish Widows Investment Partnership Limited        Dresdner Kleinwort (resigned 30 June 2008)

Edinburgh One                                                                    PO Box 560

Morrison Street                                                                   20 Fenchurch Street

Edinburgh EH3 8BE                                                            London EC3P 3DB

0131 655 8500                                                                       0207 623 8000

                            

Auditors                                                                               Intelli Corporate Finance Limited

Deloitte LLP                                                                         (appointed 1 October 2008)

Regency Court                                                                    29 Rutland Square

Glatengy Esplanade                                                           Edinburgh

St Peter Port                                                                         EH1 2BW

Guernsey GY1 3HW                                                            0131 222 9400

01484 724011            


Bankers and Custodian

HSBC Bank plc

8 Canada Square   

London E14 5HQ   

Chairman's Statement 


Review of 2008 Performance


This was an extraordinary year for equity markets. The banking crisis which unfolded through the year set the tone for global equity markets and created some of the most volatile conditions in stock market history. The 29.9% fall in the FTSE All Share Index represented its worst annual return for 34 years.  


While UK Select Trust's total return of -30.7% in 2008 was disappointing, the Company remains comfortably ahead of its benchmark over two, three and five years. The Company's equity portfolio outperformed the FTSE All Share Index for the fourth consecutive year driven by strong stock selection.  


Share Price and discount


The share price fell by 32% in 2008 and the discount at which your Company's shares trade relative to their net asset value stood at 19% at the end of the year. Discounts across the investment trust sector remained at historically high levels reflecting the extreme levels of volatility in underlying equity markets.  


Gearing


The investment manager significantly reduced the Company's gearing level through the year under review with an average level of 8% compared to 16% in 2007. However, this reduced borrowing level was still detrimental to performance.


Earnings and dividend per share


Earnings per share for the year amounted to 5.04p (2007: 3.96p) and, on behalf of the Board, I am pleased to recommend a final dividend of 2.73p (2007: 2.55p). This is in addition to the interim dividend of 0.90p (2006: 0.85p), bringing the total dividend for the year to 3.63p (2007: 3.40p).


Prospects


The outlook for global equity markets remains highly uncertain. The major western economies are in the grip of asset price deflation while growth rates in the key emerging markets are slowing sharply. Stability within the financial system will be central to any sustained recovery in equity markets and while de-leveraging in the banking sector is well underway, this will be a long corrective process.  


The early months of 2009 has seen further weakness in equity markets with many companies forced to raise fresh capital to shore up balance sheets. In the region of £20 billion of equity issuance has been announced already this year and this cash call on investors looks set to continue through the first half of the year, and perhaps beyond.


On a more positive note, there has been an unprecedented response from both monetary and fiscal authorities around the world. Stimulus packages combined with aggressive interest rate cuts will undoubtedly re-ignite economic growth and stoke inflationary pressures though it is difficult to predict how long this medicine will take to work. The longer term implications for the taxpayer are also a source of concern.


In this volatile environment, the investment manager will continue to manage the portfolio on a very active basis using the weakness in equity markets to build positions in companies where longer term prospects are not reflected in current share prices. 


JM Le Pelley

Chairman



3 April 2009

 

 

Investment Manager's Report


Introduction


UK equities recorded their worst calendar year performance since 1974 with the FTSE All Share Index tumbling by 29.9% in 2008. Investor sentiment during the year was dominated by the unfolding global financial crisis which triggered a series of high profile corporate collapses.  


The Company's net asset value underperformed the benchmark FTSE All-Share Index during the period, falling by 30.7% on a total return basis as a result of the Company's gearing and total expense ratio. Stock selection was positive, however, with the Trust's underlying equity portfolio outperforming the FTSE All Share Index by 2.8% during the year. 

 

Global Background


The global economic environment deteriorated markedly through 2008. The downturn in the major European and US housing markets continued to gather pace fuelled by sharply rising unemployment rates in those economies. The economic contraction in the western world also started to take its toll on Asian growth rates as exports started to slow through the latter stages of the year.  


The worsening global growth outlook was reflected in dramatic falls in commodity prices through the second half of the year. The oil price peaked at $145 per barrel in July and then proceeded to fall by over 60% to close the year at $54. Slowing demand also prompted precipitous falls in metals markets with inflation concerns replaced by the spectre of asset price deflation.  


The US economic agenda continued to be dominated by the domestic housing market and the escalating banking crisis. The demise of Wall Street stalwart, Bear Stearns, sent shock waves through global stock markets with JP Morgan stepping in to rescue the situation with an agreed take-over. However, the failure of Lehman Brothers in September marked the beginning of an unprecedented period of volatility across equity markets sending share prices sharply lower. The systemic fall out from the bankruptcy of Lehman left the global financial system teetering on the brink of collapse.


The unprecedented conditions in the financial system were matched by the response from the monetary authorities. Interest rates around the world were slashed while sovereign governments intervened directly with massive cash injections to prop up the banking system.  


The UK Stock Market


The FTSE All Share Index ended a five year winning streak posting its first annual decline since 2002. There were three key negative forces at work in equity markets during 2008. Firstly, the crisis of confidence in the banking system resulted in the banks reigning in lending practices which served to slow economic growth and prompt investors to re-appraise the appropriate capital structure for UK Plc. Secondly, a weakening global demand environment created more difficult trading conditions for many companies prompting a raft of profit warnings through the course of the year. Thirdly, the deteriorating economic outlook triggered a rotation out of risk assets including equities into lower risk investments such as cash and sovereign debt.




Investment Manager's Report (continued)


The dramatic change in mood was reflected in share price performance at the industry level. The sectors with the most defensive earnings characteristics including pharmaceuticals, beverages and tobacco generated the best equity returns in 2008 while the more economically exposed business models were hit the hardest with banks, mining and transportation stocks propping up the performance tables.

 

The largest positive contributor to the Company's performance during the year was pharmaceutical giant, Astrazeneca. The shares benefited from both a string of positive announcements from its drug portfolio as well as its financial strength and ability to grow earnings in the face of an economic slowdown. The portfolio's exposure to the structural growth opportunity in emerging market power also benefited investment performance with the holdings in Great Eastern Energy, KSK Power and Aggreko all delivering strong returns.


The position in Royal Bank of Scotland was the most detrimental to performance during the year. The position was established at the start of the fourth quarter following the completion of the company's £12 billion rescue rights issue and a series of meetings with the company's management. However, the company's confidence over its funding position proved to be misplaced as the shares tumbled on growing liquidity concerns culminating in the government's decision to step in and part-nationalise the bank. The holdings in Dolphin Capital and Cadogan Petroleum were also a drag on performance.  


Portfolio activity


The Company continues to be managed on a very active basis with portfolio construction shaped by rigorous fundamental analysis at the stock-specific level. At present this translates into overweight positions relative to the Company's benchmark in pharmaceuticals, support services and the oil & gas sectors. The major underweight positions include banks, food & drug retailers and beverages.


Balance sheet strength remains a particular focus at present with a raft of companies currently being forced to raise fresh equity as a result of both adverse trading conditions and the de-leveraging process underway within the banking sector.


Since the end of the year under review the Company has established several holdings of investment grade corporate bonds on the basis of very attractive yield levels and capital protection.  


Outlook


Global stock markets have continued to weaken in the first two months of 2009 with the FTSE All-Share Index shedding a further 12% of its value. The Company currently has no borrowings and the equity portfolio has made a good start to the year relative to its benchmark. 


The news flow surrounding the global financial system remains the key sentiment driver for equity markets. Whilst the deleveraging process in the banking system will last for years rather than months, equity valuations are already discounting a severe macro economic downturn. As and when economic news shows signs of stabilisation, the Company will shift the bias of the portfolio away from the more defensive areas of the market in favour of economically cyclical companies with strong business models.  





Scottish Widows Investment Partnership

3 April 2009





The Portfolio as at 31 December 2008



Company

Market Value

Activity







£'000














 1

AstraZeneca Plc

1,715   

One of the world's largest pharmaceutical companies. 

2

Vodafone Group Plc

1,611   

The largest mobile telecommunications network in the world.

3

GlaxoSmithKline Plc

1,585   

Large Anglo-American pharmaceutical company.

4

British American Tobacco Plc

1,160   

The world's most international tobacco group.

5

HSBC Plc

1,060  

Large UK - based financial services group.

6

BG Group Plc

971   

Formerly British Gas. Involved in oil and gas transmission and distribution, as well as power generation.

7

Great Eastern Energy Corporation Plc

928   

Indian based energy provider.


8

Ryanair plc

880  

Irish - based budget airline.


9

Imperial Energy Plc

867

Company focused on oil exploration and production in the Commonwealth of Independent States.

10

Lloyds TSB Group Plc

818   

Large UK - based financial services group, owner of Cheltenham & Gloucester and Scottish Widows.

11

Imperial Tobacco Plc

742   

Tobacco company.


12

BHP Billiton Plc

703   

World's largest mining company.


13

Centrica Plc

700   

UK - based energy provider.

14

Friends Provident Plc

638   

International financial services provider.

15

Berkeley Group Holdings Plc

612   

UK - based housebuilder and developer.


16

Tesco Plc.

528   

One of the world's leading retailers.



17

KSK Power Ventur plc

502  

Engaged in emerging opportunities in the power development market

18

Legal and General Plc

490   

UK - based financial services company.

19

Resolution Asset Management Plc

440   

Offer a broad spectrum of funds to cater for the differing investment needs.

20

Dolphin Capital Investors Ltd

403  

Real Estate Holding & Development


21

Indus Gas Plc

371   

Oil and gas exploration and development company based in India

22

Hardy Oil & Gas Plc

334   

AIM-listed oil and gas exploration company.

23

Trading Emissions Plc

312   

UK listed fund investing in a range of tradable environmental permits

24

Healthcare Locums Plc

262   

Specialist healthcare recruitment company.

25

Balfour Beatty Plc

244   

Serves the international markets for rail, road and utility systems, buildings and complex structures.

26

Ingenious Media Plc

203   

Advisory and investment firm is now Europe's largest private investor in the media sector.

27

Cadogan Petroleum Plc

164   

An independent oil and gas exploration, development and production company.

28

Trikona Trinity Capital Plc

157  

Investing in real estate and real estate related entities in India.

29

Leed Petroleum Plc

100  

Oil and gas exploration and production company focused on the Gulf of Mexico.

30

American Leisure Group Ltd

92   

Vacation resort company.

31

Persimmon Plc

73  

UK's leading housebuilder.

32

Zincox Resources Plc

69  

British based zinc mining company

33

Candover Investments Plc

56    

UK based investment firm that specialises in corporate buyouts.

34

Arden Partners Plc

54   

Institutional stockbroker specialising in small, midcap and AIM companies.


  The Portfolio as at 31 December 2008 (continued)


35

Aurora Russia Ltd

46

Investment vehicle established to make investments in small and mid-sized Russian companies.

36

Resaca Exploitation Plc

43   

US - based independent oil and gas exploitation company.


37

Innovation Group Plc

23    

Leading provider of business support services and systems to the UK insurance industry

38

Newfound NV Plc

21   

Developer and operator of up-market holiday resorts.


39

Eatonfield Group Plc

12   

Commercial and residential property developer with a focus on Wales and the North of England.












Total Valuation

19,989    

These holdings represent 100% of the total valuation.





Sector Distribution




Total

Total



2008

2007

Sector Classification

 

%

%

Resources




Oil and Gas


  17.1 

  17.2 

Oil Equipment and Services


  -  

  4.0 

 

 

  17.1 

  21.2 

Basic industrials




Construction and building materials


  4.2 

  13.6 

Mining


  3.5 

  9.4 

Chemicals


  -  

  1.2 

Electronics and electrical equipment


  -  

  4.7 

 

 

  7.7 

  28.9 

Non-cyclical consumer goods




Tobacco


  8.5 

  2.3 

Pharmaceuticals and biotechnology


  14.8 

  6.8 

 

 

  23.3 

  9.1 

Cyclical services




Support services


  1.2 

  3.7 

Leisure, entertainment and hotels


  4.5 

  7.1 

Food and Drug Retailers


  2.4 

  -  

 

 

  8.1 

  10.8 

Non-cyclical services




Telecommunication services


  7.2 

  10.2 

 

 

  7.2 

  10.2 

Utilities




Utilitiles other


  5.5 

  10.0 

 

 

  5.5 

  10.0 

Information and technology




Software and computer services


  0.1 

  -  

 

 

  0.1 

  -  

Financials




Banks


  8.5 

  8.6 

Speciality and other finance


  4.7 

  5.5 

Real Estate


  2.6 

  4.8 

Investment companies


  0.3 

  1.4 

Life assurance


  5.1 

  -  

 

 

  21.2 

  20.3 

Net current assets/(liabilities)

 

  9.8 

  5.3 

Total assets less current liabilities

 

  100.0 

  115.8 

Borrowings

 

  -  

- 15.8 

Net assets

 

  100.0 

  100.0 


Note: The distribution of investments is based on the valuations at 31 December 2008 and at 31 December 2007. All of the above are United Kingdom Investments. 


Sector Distribution (continued)


Directors' Report


The Directors have pleasure in submitting their annual report and financial statements for the year ended 31 December 2008 with comparatives for the year ended 31 December 2007.


Principal activities


The principal activity of the Company is that of an investment trust company.


Revenue 


The income statement set out on page 24 shows a deficit on ordinary activities for the financial year after taxation amounting to £10,182,000 (2007: return £1,796,000). The Directors recommend a final dividend of 2.73p which, together with the interim dividend of 0.90p makes a total of 3.63p for the year (2007: 3.40p). 


Subject to the approval by members, the final dividend will be paid on 8 May 2009, to ordinary shareholders on the register on 27 March 2009 and shares in lieu of dividend will be offered.


Assets 


At the year end the net assets attributable to the ordinary shares were £22,171,000 (2007: £32,781,000). Based on this figure the net asset value of an ordinary share was 106.97p (2007: 158.27p).


Share capital 


During the year nil shares were repurchased by the company for cancellation (2007: nil). During the year 202,916 issued ordinary shares of 10p each were purchased and held in treasury. The authority allowing the Company to purchase its own shares expires at the end of the 2009 AGM and allows the purchase of a maximum of 3,103,742 shares, representing 15% of the number of shares in issue on 31 December 2008.


During the year 216,587 ordinary shares of 10p each were issued from the treasury reserve arising from elections by ordinary shareholders to receive shares in lieu of cash dividends (2007: 191,587 new shares issued in lieu of cash dividends thereby resulting in a total of £250,000 being capitalised).


Substantial shareholdings 


At 27 March 2009 the holders of ordinary shares in excess of 3% were as follows:




27 March


25 March 



2009


2008






State Street Nominees (held on behalf of clients of Scottish Widows Investment Partnership Limited)


29.28%



29.50%

JM & Mrs AE Le Pelley


6.43%


6.31%

Mr G Green


6.11%


6.10%


So far as the Directors are aware there is no other interest of 3% or more in the ordinary shares of the Company.





Directors' Report (continued)


Crest registration


On 3 January 2003, the Company made an application for Crest registration. This was granted hence shareholders have the option to hold stock in either certificated or uncertificated form.


Directors 


The current Directors who served on the Board during the year, together with their beneficial interests and those of their families at 31 December 2008, were as follows:




2008


2007



Shares


Shares

JM Le Pelley (Chairman)


1,339,428


1,305,438

DR Maltwood


3,309


3,226

G Ross Russell


313,113


305,860

JG West


10,000


10,000

D Warr (Audit Committee Chairman)


-


-


JM Le Pelley is also a Trustee of a Trust holding 546,365 (2007: 532,594) shares, of which he does not have a beneficial interest.

There have been no changes in the Directors' interests in the shares of the Company between 31 Dec
ember 2008 and 27 March 2009.

The Company has no service contracts with the Dir
ectors.

JM Le Pelley and JG West
, retire from the board at the Annual General Meeting in accordance with Article 97 of the Articles of Association of the Company and are eligible for re-election. 


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 June 2006, which applies to all companies with accounting periods commencing on or before 1 November 2006. The Association of Investment Companies (formerly Association of Investment Trust Companies), of which the Company is a member, also published its Code of Corporate Governance for Investment Companies ('the AIC Code') in May 2007. The Combined Code on Corporate Governance is only applicable to companies incorporated in the United Kingdom and whilst this company was not incorporated in the United Kingdom the Board has sought to reflect the Code and AIC Code when reviewing its corporate governance arrangements. The Guernsey Financial Services Commission (GFSC) issued guidelines for corporate governance on 10 December 2004 which the Company complies with in full and whose underlying principles are the same as those of the Code.


 

Directors' Report (continued)


The Board 


The Company is led and controlled by a Board comprising non-executive Directors, all of whom have wide experience and are considered to be independent. The Board believes that it is in the shareholders' best interests for the Chairman to be the point of contact for all matters relating to the governance of the Company.  


Mr D Warr has been appointed as the senior independent non-executive Director for the purpose of the Codes. The appointment of Directors is considered by the Board who are the Nominations Committee. 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, and the Board has chosen to adopt best practice in relation to retirement by rotation of two Directors over the Articles of Association and as stated in the Director's Report, two Directors will stand for re-appointment so that the shareholders will have the opportunity to consider each Director's continuing involvement with the Company every third year. During the year, the Board reviewed its performance and composition, and was content.


In addition, following the evaluation of the performance of the Board, its committees and individual Directors, it is considered that the performance of both Directors who are to retire by rotation and offer themselves for re-appointment continues to be effective and that they have demonstrated commitment to their roles


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


The Directors have no service contracts. Further, they are not entitled to any minimum period of notice or to compensation in the event of their removal as a Director.


The table below lists the number of Board and Audit Committee meetings attended by each Director.


Director


Board Meetings Attended

Audit Committee Meetings Attended 

JM Le Pelley (Chairman)


4

1

DR Maltwood


5

1

G Ross Russell


5

1

JG West


5

1

D Warr (Audit Committee Chairman)


5

1


The Board has contractually delegated to Scottish Widows Investment Partnership Limited (SWIP) the management of the Company's investments. The management agreement between the Company and its investment manager, 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 include the report and accounts, communications with shareholders and decisions on strategy.


The safe custody of the Company's investments is managed by HSBC Plc and Corporate Services (Guernsey) Limited are contracted to provide the Company's administration, secretarial and accounting functions and Capita IRG (CI) Limited, its registration function. The Board reviews regularly the performance of the service provided by these companies.


In 2007 and 2008 the Company did not employ any personnel.


The Board has established itself as an Audit Committee which meets when necessary, and at least once a year, with the auditors of the Company with a view to providing further assurance of the quality and reliability of the financial information used by the Board in these financial statements. The Board has also established itself as a Nominations Committee, which will meet when necessary.

 

Directors' Report (continued)


The Board (continued)


All the Board are considered independent and non-executive and Director's fees are recommended by the full Board.


The emoluments of the Directors for the year are as follows:



2008


2007


Fees


Fees


£


£

JM Le Pelley (Chairman)

20,000


18,500

DR Maltwood

15,000


13,500

G Ross Russell

15,000


13,500

JG West

15,000


13,500

D Warr

16,000


14,000


81,000


73,000


The figures above represent emoluments earned as Directors during the relevant financial year which are paid quarterly in arrears. The Directors receive no other remuneration or benefits from the Company other than the fees stated above.


Relations with shareholders 


In conjunction with the Board, the investment manager keeps under review the register of members of the Company. Potential investors are also contacted by the investment manager.

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 the investment manager.

It is recognised that the Code requires notice of annual general meetings to be dispatched at least 20 working days before the meeting. The Company intends to comply with the Code provision in 2009.


Accountability and audit 


a) Directors' responsibilities in relation to the financial statements 


The Directors are required by the Companies (Guernsey) law, 2008 to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Company as at the end of the year and of the net return for the year. The Directors consider that in preparing the financial statements on pages 24 to 43, the Company has used appropriate accounting policies, consistently applied and supported by reasonable and prudent judgements and estimates, and that all accounting standards which they consider applicable have been followed.


The Directors have responsibility for ensuring that the Company keeps accounting records which disclose with reasonable accuracy at any time the financial position of the Company and which enable them to ensure that the financial statements comply with the Companies (Guernsey) Law, 2008. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.


b) Statement of going concern


The Directors have formed a judgement at the time of approving the financial statements that there is a reasonable expectation of the Company having adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt a going concern basis in preparing the accounts.


Directors' Report (continued)


Accountability and audit (continued)


c) 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 the approval of the financial statements.


This process involves a review by the Board of Scottish Widows Investment Partnership Limited (SWIP) internal control report and Corporate Services (Guernsey) Limited internal control report, FRAG 21, and a report covering specific internal controls operated by SWIP to ensure that the Company's requirements are met.


The Board has delegated certain aspects of the management and administration of the Company to SWIP. Further, the Company has delegated Corporate Services (Guernsey) Limited with the secretarial and accounting functions.


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


The systems are designed to ensure effectiveness 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 systems 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 systems is reviewed annually by the Board and the Audit Committee. The Audit Committee has a discussion annually with the auditor to ensure that there are no issues of concern in relation to the audit opinion on the accounts and, if necessary, representatives of the investment manager would be excluded from that discussion.


Where non-audit services are provided by auditors, these engagements are pre-approved by the audit committee to ensure that the auditors' independence and objectivity is not breached. There were no non-audit services in the year ended 31 December 2008 (2007: nil).

 

 

Directors' Report (continued)


Institutional investors


The investment manager 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 visited virtually 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 review regularly the voting decisions taken by the investment manager.


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


Statements of compliance


The Directors believe that the Company has complied with the provisions of the Combined Code on Corporate Governance 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 a Remuneration Committee and Management Engagement Committee have not been established. During 2009, the Board will give further consideration to setting up these Committees.


Investment Policy 


The Company is permitted to invest in any security listed on any recognised UK exchange in order to achieve its investment objective of outperforming the FTSE All-Share Index. 


The Company's investment universe comprises the constituents of the FTSE All- Share Index. While the Directors expect the bulk of the Company's portfolio to be within the investment universe, the Company reserves the right to invest in companies traded on any recogonised UK exchange, for example, the Alternative Investment Markets (AIM) of the London Stock exchange (and any successor market to it) which the Directors believe, because of movement in their market capitalisations or, in the case of new listings, because of their likely market capitalisations, may be considered appropriate for investment. In addition, the Company reserves the right to 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. The Investment Manager's investment approach favours a value bias, which is to identify undervalued companies in all sector of the Company's investment universe. Considerable emphasis is palced 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 the key components of a strong market position.


No holding in another Company may exceed 15% of the value of Investment Trust's portfolio. This test is applied when the investment is first acquired and subsequently, when additions are made to the holding.


In addition to the original shareholders' capital, the Company has at its disposal a Revolving Loan Facility for the amount of £2,000,000 which is subject to an agreemnt with Lloyds Banking Group and is detailed further in Note 12 to the financial statements. The interest rate on the loan is renegotiated annually and was set at a rate of LIBOR plus 0.60%. At the year end, the Company had £nil drawn down against the facility (2007: £5,200,000).


A breakdown of the risks the Company is subject to and how they are mitigated are detailed further below and in Note 17 to the Financial Statements.


Directors' Report (continued)


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 further in the Chairman's Statement and Investment Manager's Review on pages 6 to 7.


The Company's portfolio consisted of 39 Investments as at 31 December 2008 and is detailed further on pages 8 and 9. The sector distribution of the portfolio is provided on page 10. As at 31 December 2008, the portfolio only held investments issued in the United Kingdom. The top 10 holdings comprise 52.30% of total net assets (2007: 53.92%).


The Company's gearing stood at nil% as at 31 December 2008 (2007: 15.86%).


Financial risk profile


The Company's financial instruments comprise investments, cash and various items such as debtors, creditors etc that arise directly from the Company's operations. The main purpose of these instruments is the investment of shareholders' funds.


It is, and has been throughout the period under review, the Company's policy that no trading in other financial instruments shall be undertaken


Market price risk


The main risk arising from the Company's financial instruments is market price risk.


In accordance with the Company's investment objectives, the Company does not hedge against its exposure to market price risk.


The investment strategy of the Company has been delegated to the Company's Investment Manager, Scottish Widows Investment Partnership Limited under an agreement dated 25 April 2002. The Investment Manager operates under agreed parameters and the Board monitors their performance on a regular basis.


Liquidity risk


The Company's assets comprise securities that can be readily realised to meet obligations arising on the redemption of shares. As a result the Company is able to quickly liquidate its investments in these instruments at an amount close to its fair value in order to meet its liquidity requirements.


The Company has entered into a revolving 5-year loan facility explained in Note 12.


Interest rate risk


The Company's interest rate sensitive assets and liabilities mainly comprise of cash at bank and a bank loan. The cash at bank and bank loan are subject to floating rates and the loan is considered to be part of the investment strategy of the Company. No other hedging is undertaken in respect of this interest rate risk. The bank loan is due to expire on 23 September 2012.




Directors' Report (continued)


Financial risk profile (continued)


Foreign currency risk


Foreign currency risk is the risk that the value of a financial instrument will fluctuate because of changes in foreign exchange rates.


The Company's foreign currency risk in 
2008 arose from the investment portfolio and was minimal as it was principally Sterling denominated. No hedging was undertaken in respect of this foreign currency exposure. The Company had no exposure to major currencies as at 31 December 2008 (See Note 17).


Investment Manager


Scottish Widows Investment Partnership Limited (SWIP) provides investment management services to the Company.


The Board believes that in the light of the performance of the portfolio, SWIP should continue as the Investment Manager of the Company. The Directors have 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. It is SWIP's size and its expertise which gives the Board the confidence that the objectives of the Company are being met. The Directors are of the opinion that the continuing appointment of SWIP as the Company's Investment Manager on the terms agreed under the agreement dated 25 April 2002 is in the interest of shareholders as a whole. Details of the agreement are explained in Note 4.


New Fund Rules


The Company was granted consent to raise funds under The Control of Borrowing (Bailiwick of Guernsey) Ordinances 1959, as amended ('Old Rules').


With effect from 29 October 2008 all but limited sections of The Control of Borrowing (Bailiwick of Guernsey) Ordinances 1959 to 2003 have been repealed and new rules have been introduced by the Guernsey Financial Services Commission with effect from 15 December 2008 under The Protection of Investors (Bailiwick of Guernsey) Law 1987, as amended (the 'New Rules'). The Company operates in accordance with the provisions of both the Old Rules and New Rules. There is no requirement for existing Funds to comply with The New Rules immediately, but principal documents must be amended to comply by 15 December 2010 or earlier if documents are revised before that date.


With effect from 29 October 2008, the Company became regulated under the New Rules and is deemed to be an authorised closed ended investment scheme under the New Law rules with an option to elect to be treated as a registered collective investment scheme by writing to the Guernsey Financial Services Commission ('GFSC') on or before 15 April 2009.

The Company will not elect to be treated as a registered collective investment scheme. 

 

 

Directors' Report (continued)


Auditors


On 1 December 2008, Deloitte & Touche LLP changed its name to Deloitte LLP. Accordingly, Deloitte LLP have expressed their willingness to continue in office as auditors and a resolution to re-appoint them will be proposed at the forthcoming Annual General Meeting.


At the date of approval of the financial statements, the Directors confirm that:


  • so far as they are aware, there is no relevant audit information of which the Company's auditor is unaware; and

  • they have taken all steps they ought to have taken as Directors to make themselves aware of any relevant audit information and to establish that the Company's auditor is aware of that information.


This confirmation is given and should be interpreted in accordance with the provisions of section 249 of The Companies (Guernsey) Law, 2008.


By order of the Board



JM Le Pelley

D Warr

Directors


31 March 2009




Directors' Responsibilities


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


The Companies (Guernsey) Law, 2008 requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with International Financial Reporting Standards (IFRSs).


International Accounting Standard 1 requires that financial statements present fairly for each financial year the company's financial position, financial performance and cash flows. This requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the International Accounting Standards Board's 'Framework for the preparation and presentation of financial statements'. In virtually all circumstances, a fair presentation will be achieved by compliance with all applicable IFRSs. However, the Directors are also required to:


  • properly select and apply accounting policies;

  • 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 IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance; and

  • make an assessment of the company's ability to continue as a going concern.


The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with The Companies (Guernsey) Law, 2008. 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 financial statements have been prepared on the going concern basis. The Directors believe that this basis is appropriate as the Company has significant net assets, is not dependant on external finance and is expected to operate for the foreseeable future. The Directors have reviewed the cash flow and projected income and expenses over the next twelve months and deemed that the Company has adequate financial resources to meet its obligations.


Directors' responsibility statement 


We confirm to the best of our knowledge:


1.
the financial statements prepared in accordance with International Financial Reporting Standards give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and
 
 
2.
the Investment Managers 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 faced by the Company.


By order of the Board



JM Le Pelley

D Warr

Directors


3 April 2009

Independent Auditors' Report


To the members of UK Select Trust Limited


We have audited the financial statements of UK Select Trust Limited for the year ended 31 December 2008 which comprise the Income Statement, the Balance Sheet, the Statement of Changes in Equity, the Cash Flow Statement and the related notes 1 to 19. These financial statements have been prepared under the accounting policies set out therein.


This report is made solely to the Company's members, as a body, in accordance with Section 262 of The Companies (Guernsey) Law, 2008. 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


As described in the statement of Directors' responsibilities, the Company's Directors are responsible for the preparation of the financial statements in accordance with applicable Guernsey law and International Financial Reporting Standards (IFRSs). Our responsibility is to audit the financial statements 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 are properly prepared in accordance with The Companies (Guernsey) Law, 2008. We also report if, in our opinion the Company has not kept proper accounting records, or if we have not received all the information and explanations we require for our audit.


We read the Directors' report and the other information contained in the Annual Report for the above year as described in the contents section and 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 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. 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 are not required to review any Corporate Governance disclosures required by the Listing Rules of the Financial Services Authority as the Company is an overseas company.


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 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.

 


Independent Auditors' Report (continued)


Opinion


In our opinion the financial statements give a true and fair view, in accordance with IFRSs of the state of the Company's affairs as at 31 December 2008 and of its loss for the year then ended and have been properly prepared in accordance with The Companies (Guernsey) Law, 2008.




Deloitte LLP

Chartered Accountants






St Peter Port
Guernsey


3 April 2009





  Income Statement 

for the year ended 31 December 2008 







 2008



2007




Notes


Revenue


Capital


Total


Revenue


Capital


Total






£'000


£'000


£'000


£'000


£'000


£'000

(Losses)/gains on investments














Net realised (losses)/gains on financial 

assets and liabilities held at fair 

value through profit or loss               8           


-


(5,526)


(5,526)


-


3,515


3,515

Net changes in unrealised depreciation on financial assets and liabilities held at fair value through profit or loss

8


-


(5,409)


(5,409)


-


(2,088)


(2,088)

Net foreign exchange gain



-


-


-


-


1


1




-


(10,935)


(10,935)


-


1,428


1,428

Income















Other income


3


1,449


-


1,449


1,241


-


1,241

















Expenses
















Investment management fees

4


38


115


153


47


143


190

Performance fee


4


-


-


-


20


62


82

Administration fees




84


-


84


80


-


80

Registrars' fees


   


19


-


19


12


-


12

Auditors' fees





21


-


21


11


-


11

Directors' fees and expenses


  16   


82


-


82


73


-


73

Other expenses


105


-


105


91


-


91

Total operating expenses before finance costs



349


115


464


334


205


539














Operating profit/(loss) before finance costs and tax



1,100


(11,050)


(9,950)


907


1,223


2,130

















Finance costs















Interest payable


12


58


174


232


83


251


334













 

Profit/(loss) before tax



1,042


(11,224)


(10,182)


824


972


1,796

Taxation

5


-


-


-


-


-


-















Net Profit/(loss)



1,042


(11,224)


(10,182)


824


972


1,796















Basic and diluted return/(deficit) per Ordinary Share

7


5.04p


(54.25)p


(49.21)p


3.96p


4.67p


8.63p

The total column of this statement is the Income Statement of the Company, with the revenue and capital columns representing supplementary information.

All revenue and capital items in the above statement derive from continuing operations. All income is attributable to the ordinary shareholders of the Company.

The notes on pages 28 to 43 are an integral part of these financial statements.


Balance Sheet 

As at 31 December 2008 




Notes




 2008



 2007





£'000


£'000

Non-current assets






Financial assets at fair value through profit or loss

8


19,989


36,289

Total non-current assets




19,989


36,289








Current assets







Receivable from brokers




1,153


1,466

Receivables

9


76


233

Cash at bank



1,298


336

Total current assets




2,527


2,035





 


 

Total assets




22,171


38,324





 



Liabilities







Current Liabilities







Payable to brokers




224


-

Payables


11


121


343

Total current liabilities




345


343







Non-current liabilities







Borrowings

12


-


5,200

Total non-current liabilities




-


5,200







Total liabilities




345


5,543








Net assets attributable to holders of equity shares



22,171


32,781








Equity shareholders' funds




 


 

Share Capital


14


2,083


2,083

Own shares held in treasury


14


 (168)


(176)

Reserves



20,256


30,874




22,171


32,781







Number of ordinary shares in issue (net of treasury shares)

14


20,725,742


20,712,071







Net asset value per share

15


106.97p


158.27p


These financial statements were approved by the Board of Directors on 3 April 2009 and are signed on behalf of the Board by:



JM Le Pelley                    D Warr

Director                            Director

Date: 3 April 2009

The notes on pages 28 to 43 are an integral part of these financial statements.


Reconciliation of Movements in Equity Shareholders' Funds 


For the year ended 31 December 2008 



Equity share capital

Own shares held in treasury

Share premium

Capital redemption reserve

Capital reserve-realised

Capital reserve- unrealised

Revenue reserve

Total


£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

At 1 January 2008

2,083

(176)

5,422

4,308

14,139

3,281

3,724

32,781

Shares repurchased during the period

-

(280)

-

-

-

(7)

-

(287)

Premiums arising on share elections:









-2007 final dividend

-

-

-

-

-

-

(316)

(316)

-2008 interim dividend

-

-

-

-

-

-

(109)

(109)

Dividend and scrips

-

288

-

-

-

288

(288)

288

Net profit

-

-

-

-

(5,819)

(5,409)

1,042

(10,186)

At 31 December 2008

2,083

(168)

5,422

4,308

8,320

(1,847)

4,053

22,171


There are no other recognised Income and Expenses for the year ended 31 December 2008


For the year ended 31 December 2007



Equity share capital

Own shares held in treasury

Share premium

Capital redemption reserve

Capital reserve-realised

Capital reserve- unrealised

Revenue reserve

Total


£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

At 1 January 2007

2,083

-

5,422

4,308

11,079

5,369

3,578

31,839

Shares repurchased during the year

-

(426)

-

-

-

-

-

(426)

Premiums arising on share elections:









-2006 final dividend

-

189

-

-

-

-

-

189

-2007 interim dividend

-

61

-

-

-

-

(1)

60

Dividend and scrips

-

-

-

-

-

-

(677)

(677)

Net profit

-

-

-

-

3,060

(2,088)

824

1,796

At 31 December 2007

2,083

(176)

5,422

4,308

14,139

3,281

3,724

32,781


There are no other recognised Income and Expenses for the year ended 31 December 2007


The notes on pages 28 to 43 are an integral part of these financial statements.  Statement of Cash Flows

For the year ended 31 December 2008 













 2008


 2007



£'000


£'000

Cash flows from operating activities




Payment on purchase of investments


(125,206)


(120,860)

Proceeds from sale of investments


131,182


121,390

Cash received from investments


1,524


1,081

Other income


76


43

Investment management fee paid


(94)


(190)

Other cash payments


(279)


(395)






Net cash inflow from operating activities


7,203


1,069



 


 

Cash flows from financing activities





Interest paid


(336)


(301)

Share repurchase


(280)


(426)

Equity dividends paid


(425)


(428)

Repayment of long term loan


(5200)


-






Net cash outflow from financing activities


(6,241)


(1,155)



 


 

Net increase/(decrease) in cash and cash equivalents

962


(86)






Cash and cash equivalents at the beginning of the period


336


422






Cash and cash equivalents at the end of the period


1,298


336


The notes on pages 28 to 43 are an integral part of these financial statements.


Notes to the Financial Statements 


1.     General information


UK Select Trust Limited is a UK Investment Trust Company incorporated under The Companies (Guernsey) Law, 2008, with its registered office at Dorey CourtAdmiral Park, St Peter Port, Guernsey. UK Select Trust Limited's shares are listed on the London Stock exchange.


The objective of the Company is to invest over 80% of its gross assets by value in the UK and the investment policy aims to provide a total return to shareholders in excess of the net total return on the FTSE All Share Index and a progressive dividend policy.


2.     Accounting Policies


a.    Basis of presentation


The financial statements have been prepared in accordance with the applicable International Reporting Standards and interpretations adopted by the International Accounting Standards Board (IASB) and in accordance with the guidelines included in the AIC Statement of Recommended Practice for Financial Statements of Investment Trust Companies issued in January 2003 and revised in January 2009 ('AIC SORP') to the extent that it is not in conflict with IFRS. The financial information is prepared under the historical cost basis except for the revaluation of financial instruments.


In order to better reflect the activities of an investment trust company and in accordance with guidance issued by the AIC, supplementary information which analyses the Income Statement between items of a revenue and capital nature has been presented alongside the Income Statement.


The preparation of financial statements in conformity with International Financial Reporting Standards requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results may differ from those estimates.


b.    Going concern


The financial statements have been prepared on the going concern basis. The Directors believe that this basis is appropriate as the Company has significant net assets, is not dependant on external finance and is expected to operate for the foreseeable future. The Directors have reviewed the cash flow and projected income and expenses over the next twelve months and deemed that the Company has adequate financial resources to meet its obligations.

 

 


Notes to the Financial Statements (continued)


2.     Accounting Policies (continued)


c.    Standards and interpretations


In the current financial year, the Company has adopted IFRIC 11 & IFRS 2 (Group and Treasury Share Transactions) which came into force for periods commencing on or after 1 March 2007. The Directors believe that the adoption of this standard and interpretation will not have a material impact on the financial statements of the Company.


At the date of authorisation of these statements, the following standards and interpretations were in issue but not yet effective:


 IFRS 8 'Operating Segments' (Effective for annual periods beginning on or after 1 January 2009); and


 Amendments to IAS 1: 'Presentation of financial statements - A revised presentation' (Effective for annual periods beginning on or after 1 January 2009).


The Directors believe that other pronouncements, which are in issue but not yet operative or adopted by the Company, will not have a material impact on the financial statements of the Company.


d.    Other receivables


Other receivables do not carry any interest and are short-term in nature and are accordingly stated at their nominal value as reduced by appropriate allowances for estimated irrecoverable amounts.


e.    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 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 and are managed on a portfolio basis to meet the objectives of the Company, listed equities and fixed income securities are designated as fair value through profit or loss on initial recognition. The Company manages and evaluates 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 fair value, which is either 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 income statement for the period as a capital item and transaction costs on acquisition or disposal of the security are expensed as a capital item.


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


 


Notes to the Financial Statements (continued)


2.     Accounting Policies (continued)


f.    Financial liabilities and equity


Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. A financial liability is any liability that contractually obligates the Company to deliver cash or another financial asset or exchange financial assets or financial liabilities that are potentially unfavourable to the Company, or a contract that will or maybe settled in the Company's own equity instruments. An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of its liabilities. As the Ordinary shares have no fixed rights to redemption or income they are classified as equity.


g.    Financial instruments


Financial assets and financial liabilities are recognised on the Company's balance sheet when the company becomes party to the contractual provisions of the instrument. The Company shall offset financial assets and financial liabilities if the Company has a legally enforceable right to set off the recognised amounts and interests and intends to settle on a net basis.


h.    Bank borrowings


Interest bearing bank loans and overdrafts are recorded at the proceeds received, net of direct issue costs, finance charges, including premiums payable on settlement or redemption and direct issue costs. They are accounted for on an accruals basis in the income statement using the effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.


i.    Other payables


Other payables are not interest-bearing and are stated at their nominal value.


j.    Income


Dividends are brought into the Income Statement as revenue items on the ex-dividend date or, where no ex-dividend date is quoted, when the Company's right to receive payment is established. All dividends are shown gross of withholding tax and received net of imputed tax credits as the Company is exempt from Guernsey Income Tax.  


Fixed returns on non-equity investments and on debt securities are recognised as revenue items in the income statement on a time apportionment basis so as to reflect the effective yield on the investment. Other returns on non-equity shares are recognised when the right to the return is established. Deposit interest is included on an accruals basis.


Where the Company has elected to receive its dividends in the form of additional shares rather than in cash, the amount of the cash dividend is recognised as revenue in the Income Statement.


k.    Foreign exchange


The presentational and functional currency of the Company is sterling, which is the currency of the primary economic environment in which the company operates. Foreign currency monetary assets and liabilities are translated into sterling at the rate of exchange ruling at the balance sheet date. Transactions in foreign currencies are translated into sterling at the rate ruling at the date of the transaction. Realised and unrealised foreign exchange gains and losses are recognised in the income statement as capital realised, and capital reserve - unrealised, respectively.

Notes to the Financial Statements (continued)


2.     Accounting Policies (continued)


l.    Expenses


All expenses are accounted for on an accruals basis. Expenses are charged through the Income Statement as revenue except as follows:

  • expenses which are incidental to the acquisition of an investment are deducted from gains on investments through the Income Statement as capital;

  • expenses which are incidental to the disposal of an investment are deducted from the disposal proceeds of the investment; and

  • expenses are charged to the Income Statement as capital realised where a connection with the maintenance or enhancement of the value of the investments can be demonstrated. In this respect the investment manager's fee and performance fee have been allocated 75% to the capital reserve - realised and 25% to the revenue reserve in line with the Board's expected long-term split of returns in the form of capital gains and income respectively from the investment portfolio of the Company.


The Company has no employees


m.    Finance costs


Finance costs are accounted for on an accruals basis. Finance costs are allocated, insofar as they relate to the financing of the Company's investments, 75% to capital reserve - realised and 25% to revenue account, in line with the Board's expected long-term split of returns, as outlined in the expenses note above.


n.    Segment Reporting


A business segment is a distinguishable component of the Fund that is engaged in providing products and services and that is subject to risks and returns that are different from those of other business segments. A geographical segment is a distinguishable component of the Fund that is engaged in providing products and services and that is subject to risks and returns that are different from those of other economic environments. The Board of Directors is of the opinion that the Fund is organised in one main business segment, namely the management of the Fund's investments in order to achieve the Fund's investment objectives as described in Note 1 to the financial statements. The Board of Directors is further of the opinion that the Fund's secondary segment reporting format is also organised into one main geographical unit as the location of all investments is materially all within the United Kingdom.




Notes to the Financial Statements (continued)


2.     Accounting Policies (continued)



o.    Capital reserves


Capital reserve - realised


The following are accounted for in the Income Statement and then in this reserve:


  • gains and losses on the realisation of investments;

  • charged to this reserve in accordance with the above policies;

  • realised foreign exchange gains and losses; and

  • consideration paid on repurchase of own shares.


Capital reserve - unrealised


The following are accounted for in the Income Statement and then in this reserve:


  • difference between cost and valuation of investments held at the year end; and

  • unrealised foreign exchange gains and losses.


p.    Fair values of financial instruments


Many of the Company's financial instruments are measured at fair value on the balance sheet and it is usually possible to determine fair values within a reasonable range of estimates.


For all the Company's investments there is an active market and quoted market prices available.


q.    Impairment


The Company is required to evaluate the securities in its portfolio to determine if any of the securities are impaired.


As a matter of accounting policy, UK Select Trust Limited has determined that it will have intent and ability to hold a security with unrealised loss until the cost of purchases has been recovered.


Fair value and impairment estimates are made at a specific point in time based on market conditions and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgement. 


The Company invests in Listed UK equities and therefore at the balance sheet date there were no sources of significant judgement or uncertainty.



Notes to the Financial Statements (continued)


3.    Other income



2008


2007


£'000


£'000

Dividend income from investments designated at fair value through profit or loss:





Listed UK

1,373       


1,160


Listed overseas

-    


    36 


1,373


1,196

Dividend income from financial assets not at fair value through profit or loss:




Deposit interest arising on cash and cash equivalents 

54


45

Underwriting commission

22


-


76


45

Total income

1,449


1,241





Total income comprises:




Dividends

1,373


1,196

Interest

54


45

Other income

22


-

Total income

1,449   


  1,241 



4.    Investment management and performance fee





2008

2007



Revenue

Capital

Total

Revenue

Capital

Total



£'000

£'000

£'000

£'000

£'000

£'000

Investment management fee


38

115

153

47

143

190

Performance fee


-

-

-

20

62

82










The investment manager was appointed under an agreement with the Company dated 25 April 2002. The agreement may be terminated by either side giving 6 months notice. The basic remuneration of the investment manager is 0.125% quarterly in arrears, based on the value of the portfolio at 31 March, 30 June, 30 September and 31 December. The investment manager is entitled to receive a performance fee payable in arrears linked to the excess total return of the Company's net assets compared to the total return of the FTSE All Share Index. The performance fee is capped at 0.25% in any year. On this basis the maximum possible management fee in any year will be 0.75% if the average of two years outperformance equals or exceeds 2.5%. A performance fee of £nil (2007: £82,275) is due for the current year.


Where the investment manager is also manager of funds in which the Company has an investment, an arrangement is in place to avoid double charging of fees and expense.


Notes to the Financial Statements (continued)


5.    Taxation



2008


2007


£'000


£'000

Taxation

-


-






This represents withholding tax suffered on the dividends received during the year.


The Company is exempt from Guernsey Income Tax under the Income Tax (Exempt Bodies) (Guernsey) Ordinances 1989 to 1997 and is charged an annual exemption fee of £600. (2007: £600).


6.    Dividends




2008


2007



£'000


£'000

Equity dividends





Ordinary shares





Interim of 0.90p on 12,111,111 shares for 2008 paid in 2008





(2007 paid in 2007: 0.85p (gross) on 20,806,410 shares)


109


177






Final dividend for 2007: 2.55p (gross) on 12,392,157 shares paid in 2008





(2006 paid in 2007: 2.40p (gross) on 20,825,333 shares paid in 2007


316


500



425


677







7.    Basic and diluted return per ordinary share








2008

2007


Revenue

Capital

Total

Revenue

Capital

Total


£

£

£

£

£

£








Return/(loss)

5.04p

(54.25)p

(49.21)p

3.96p

4.67p

8.63p


Revenue return per ordinary share is based on the net revenue on ordinary activities of £1,042,000 (2007: return £824,000) and on 20,689,850 ordinary shares, being the weighted average number of ordinary shares in issue during the year (2007: 20,803,667).


Capital loss per ordinary share is based on a net capital loss for the financial year of £11,228,000 (2007: return £972,000) and on 20,689,850 ordinary shares, being the weighted average number of ordinary shares in issue during the period (2007: 20,803,667). 


 


Notes to the Financial Statements (continued)


8.    Investments






2008

2007






Fair Value

% of net assets

Fair Value

% of net assets

Financial assets at fair value through profit or loss


£'000


£'000
















Designated at fair value through profit or loss





- Listed equity securities


19,989    

90.16    

  36,289 

110.65






19,989

90.16    

  36,289 

110.65
















  









2008


2007







£'000


£'000










Opening book cost




33,008   


  31,125 

Opening unrealised appreciation



3,281  


  5,369 










Opening valuation




36,289   


  36,494 










Movements in the period/year:






Purchases at cost




125,431    


  121,906 

Sales - proceeds




  (130,796)


  (123,538)

  - realised (losses)/gains on sales



(5,526)    


  3,515 

Decrease in unrealised appreciation

  (5,409)


  (2,088)










Closing valuation




19,989    


  36,289 










Comprising:








Closing book cost




22,116    


  33,008 

Closing unrealised (depreciation)/appreciation


(2,127)   


  3,281 










Closing valuation




19,989    


  36,289 


 


Notes to the Financial Statements (continued)


9.    Receivables



2008


2007


£'000


£'000

Accrued income

71


223

Prepayments

5


10


76


233





The Directors consider that the carrying amount of receivables approximates their fair value.


10.    Cash at Bank


Cash at bank comprises bank balances and cash held by the Company including short-term deposits with an original maturity of three months or less. The carrying amount of these assets approximates to their fair value.


11.    Payables



2008


2007


£'000


£'000

Interest payable

-


106

Other payables

121


237


121


343





The Directors consider that the carrying amount of payables approximates their fair value.


12.    Borrowings


The Company has a revolving 5 year loan facility, secured on the assets of the Company, which is due to expire on 23 September 2012 with an aggregate principal amount of £2,000,000, for the purposes of future investment. During the year ended 31 December 2008, the previous loan facility of £5,200,000, which was fully drawn down, was repaid in full. Interest is payable at a rate of six month sterling LIBOR plus 0.6% and the borrowing is held at amortised cost. During the year, interest of £231,502 (2007: £334,634) was paid. A fee of 0.30% per annum is payable on the undrawn amount of £2,000,000 of this facility (1). Further, the Company is required to comply with the following financial covenants imposed by the bank:


  • the Company is required to ensure that the borrowing does not at any time exceed 45% of the Adjusted Gross Asset Value;

  • the Company is required to maintain the Net Worth at not less that £20,000,000; and

  • the Company is required to ensure that the investment portfolio includes holdings in not less that 30 separate businesses.


(1)     The loan is secured on the assets of the Company.


 


Notes to the Financial Statements (continued)


13.    Business and geographical segments


As described in the summary of significant accounting policies in note 2 to the financial statements the Board of Directors is of the opinion that the Comapny is organised in one main business segment, namely the management of the Company's investments in order to achieve the Company's investment objectives as described in note 1 to the financial statements, and considers this to be the primary reporting format for segment information and no further business segment information not already included in other parts of the financial statements is required.


The Board of Directors is further of the opinion that the Company's secondary segment reporting format is also organsised into one main geographical unit as the location of all of its investments is materially all within the United Kingdom.



Income


Net Assets


2008


2007


2008


2007


£'000


£'000


£'000


£'000

United Kingdom

1,449


1,241


22,171


32,796


1,449


1,241


22,171


32,796









Geographical locations are determined by the Company based on the country of primary listing for listed instruments and the country of incorporation for unlisted instruments.


14.    Share capital








2008


2007







£'000


£'000










Authorised








100,000,000 ordinary shares of 10p each

  10,000 


  10,000 





250,000 5% cumulative preference restrictive voting shares of £1 each

  250 


  250 
















  10,250 


  10,250 


The holders of the five per cent cumulative preference restrictive voting shares shall be entitled, out of profits for dividend, to a fixed cumulative preferential dividend at the rate of five per cent per annum and in a winding-up or on a return of capital shall be entitled to repayment of capital in priority to the ordinary shareholders. The ordinary shareholders carry the right to receive any surplus income and in winding-up any surplus assets, after repayment of the preference capital and dividends as above.




Notes to the Financial Statements (continued)


14.    Share capital (continued)







  2008


 2007







£'000


£'000

Issued, called up and fully paid:






20,830,484 ordinary shares of 10p each




(2007: 20,830,484)




  2,083 


  2,083 























2008







Own Shares held in treasury

Shares in issue







Shares

£'000

Shares

£'000

Balance at 1 January 2008




 118,413

  176

20,830,484

2,083

Shares purchased for cancellation



 - 

 - 

 - 

 - 

Shares issued in lieu of dividends



 - 

 - 

 - 

 - 

Shares purchased and held in treasury

 202,916

   280

 - 

 - 

Shares issued in lieu of dividends from treasury

(216,587)    

(288)    

 - 

 - 

Balance at 31 December 2008




 104,742

   168


20,830,484


2,083

















31 December 2007







Own shares held in treasury

Shares in issue







Shares

£'000

Shares

£'000

Balance at 1 January 2007




 - 

 - 

20,830,484

2,083

Shares purchased for cancellation



 - 

 - 

  - 

  - 

Shares issued in lieu of dividends



 - 

 - 

  - 

  - 

Shares purchased and held in treasury

 310,000

  426

  - 

 - 

Shares issued in lieu of dividends from treasury

(191,587)

(250)

 - 

 - 

Balance at 31 December 2007



 118,413

  176


20,830,484


2,083











During the period no shares were purchased for cancellation (2007: nil).


On 13 March 2008, 39,500 shares were purchased for Treasury at a total cost including expenses of £55,862.

On 14 May 2008, 140,000 shares were purchased for Treasury at a total cost including expenses of £191,673.

On 12 June 2008, 23,416 shares were purchased for Treasury at a total cost including expenses of £30,884.


On 2 May 2008, 152,117 shares were issued to shareholders who elected to receive them in lieu of a final cash dividend for 2007. On 6 November 2008 64,470 shares were issued to shareholders who elected to receive them in lieu of an interim dividend for 2008. Ordinary shares of 10p each, fully paid were issued to shareholders from the Treasury reserves account held by the Company. 


Notes to the Financial Statements (continued)


15.    Net asset value per share


Net asset value per ordinary share is based on net assets attributable to the ordinary shareholders of £22,171,000 (2007: £32,781,000) and on 20,725,742 (2007: 20,712,071) ordinary shares, being the number of ordinary shares in issue at the end of the year.


16.    Related party transactions 


The members of the Board of Directors are listed on page 3 of the annual report. Fees earned by the Directors of the Company during the year were £81,000 (2007: £73,000) of which £20,250 (2007: £20,250) was outstanding at the year end.


The investment manager, Scottish Widows Investment Partnership Limited has a 29.28% (2007: 29.50%) shareholding in the Company and earned investment management fees of £153,587 (2007: £190,408) during the year of which £27,958 (2007: £47,827) was outstanding at the year end and a performance fee of £nil (2007: £82,275). The basis of calculation of these fees is detailed in note 4 of the annual financial statements.


The Company has appointed Corporate Services (Guernsey) Limited to provide administrative and accounting services. Administrative fees (including the accounting fee) for the year ended 31 December 2008 totalled £84,000 (2007: £80,172) of which £38,333 (2007: £36,672) was outstanding at the year end.



Notes to the Financial Statements (continued)


17.    Financial assets and liabilities interest rate disclosure and other financial risks


A description of the financial risk profile can be seen in the Directors' report on page 18.


Capital risk management


The capital structure of the Company consists of the cash and cash equivalents and equity attributable to ordinary shareholders, comprising issued share capital, own shares held in treasury, share premium, capital redemption reserve, capital reserves and revenue reserve as disclosed in the Statement of changes in equity. The Company does not have any externally imposed capital requirements. At 31 December 2008 the Company had capital of £22.171 million (2007: £32.781 million).


The investment objective of UK Select Trust Limited is to invest over 80% of its gross assets by value in the UK and the investment policy aims to provide a total return to shareholders in excess of the net total return on the FTSE All Share Index and a progressive dividend policy.


The Company aims to deliver its objective by investing available cash and using leverage whilst maintaining sufficient liquidity to meet on-going expenses and dividend payments.


The Company's policy is to provide net income for distribution from the dividend income earned from a portfolio of UK equity securities, all of which are listed on the London Stock Exchange. Further, the Company has capitalised 75% of its investment management fee, performance fee and finance costs in respect of the loan facility in line with the Board's expectation of long-term returns in the form of capital gains from the investment portfolio of the Company.


UK Select Trust Limited uses leverage to enhance the returns to shareholders and for this purpose hadsentered into a long-term loan facility amounting to £2 million for future investments. The interest payable on borrowing is six month sterling LIBOR plus 0.6%, therefore limiting the Company's interest rate risk. The company has pledged its assets to secure such borrowings.


During the year under review, the assets of the Company were invested in accordance with the Company's Investment Manager's strategy. The Company invests in various sectors and businesses to mitigate the primary risk of the company, price risk. In addition, price-volatility levels are reviewed and monitored daily.  


As at 31 December 2008, the Company's portfolio consisted of 39 investments spread over 8 sectors. Further, the portfolio only held investments issued in the United Kingdom.


The Board has also adopted an investment restriction to manage the risk profile, that is;


  • 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.

 


Notes to the Financial Statements (continued)


17.    Financial assets and liabilities interest rate disclosure and other financial risks (continued)


Credit risk


Credit risk is the risk that an issuer or counter-party may be unable or unwilling to meet a commitment that it has entered into with the Company.


The Company's principal financial assets are bank balances and cash, other receivables and investments as set out in the balance sheet which represent the Company's maximum exposure to credit risk in relation to the financial assets.


The credit risk on bank balances is limited because the counter-parties are banks with high credit ratings of A-1+ assigned by international credit-rating agencies.


All transactions in listed securities are settled upon delivery using approved brokers. The risk of default is considered minimal as delivery of securities sold is only made once the broker has received payment. Payment is made on a purchase once the securities have been received by the broker. The trade will fail if either party fails to meet its obligations.


Liquidity risk


The Company's assets comprise securities that can be readily realised to meet obligations. As a result the Company is able to quickly liquidate its investments in these instruments at an amount close to its fair value in order to meet its liquidity requirements. Dividend income is also expected to be sufficient to cover short-term liquidity requirements.


The Company has entered into a revolving 5-year loan facility explained in Note 12, to provide leverage and enhance returns to shareholders.


The following table details the Company's liquidity analysis for its financial liabilities. The table has been drawn up based on the undiscounted gross cash flows on those financial liabilities that require gross settlement.



1-3 months


1-5 years


£'000


£'000

2008




Gross settled:




Other payables

345


-

Bank loan

-


-


345


-





2007




Gross settled:




Other payables

357


-

Bank loan

-


5,200


357


5,200






 


Notes to the Financial Statements (continued)


17.    Financial assets and liabilities interest rate disclosure and other financial risks (continued)


Market risk


Market risk is the possibility that future changes in market prices may make a financial instrument less valuable or more onerous. The Company's market risk is managed by the investment manager through diversification of the investment portfolio in accordance with the Company's investment policy.


a) Price risk


Price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices whether those changes are caused by factors specific to the individual financial instrument or its issuers, or factors affecting similar financial instruments traded in the market.


In accordance with the Company's investment objectives, the Company does not hedge against its exposure to market price risk.


The investment strategy of the Company has been delegated to the Company's Investment Manager, Scottish Widows Investment Partnership Limited under an agreement dated 25 April 2002. The Investment Manager operates under agreed parameters and the Board monitors their performance on a regular basis.


Price sensitivity


The following table details the Company's sensitivity to a 30% increase and decrease in the market prices while all other variables were held constant. 30% is the sensitivity rate used when reporting price risk internally to key management personnel and represents management's assessment of the possible change in market prices. A positive number indicates an increase in net assets attributable to holders of redeemable shares where the market price of the relevant financial instrument increases and a negative number indicates a decrease where the market price of the relevant financial instrument decreases.



Income


Net Assets


30% increase in price


30% decrease in price










Impact on financial assets at fair value through profit or loss


Impact on financial assets at fair value through profit or loss




2008


2007


2008


2007


£'000


£'000


£'000


£'000









Increase/(decrease) in net assets attributable








-Designated as at fair value through profit or loss

5,997


10,887


(5,997)


(10,887)


5,997


10,887


(5,997)


(10,887)


b) Interest rate risk


The Company's interest rate sensitive assets and liabilities mainly comprise of cash at bank and a bank loan. The cash at bank and loan are subject to floating rates and the loan is considered to be part of the investment strategy of the Company. No other hedging is undertaken in respect of this interest rate risk. As such the Board does not believe the Company suffers any material interest rate risk.



Notes to the Financial Statements (continued)


17.    Financial assets and liabilities interest rate disclosure and other financial risks (continued)


c) Currency risk


Foreign currency risk is the risk that a financial instrument will fluctuate because of changes in foreign exchange rates.

The Company's foreign currency risk in 2007 and 2008 is minimal as all of the Company's material assets and liabilities are Sterling denominated.  


18.    Parent and ultimate controlling party


The Board is of the opinion that there is no immediate parent or ultimate controlling party of the Company.



19.    Events after the balance sheet date


On 27 March 2009, the Board declared a final dividend of 2.73p per share. In accordance with the requirements of IFRS, as this was not approved until after the balance sheet date, no accrual has been reflected in these financial statements for this amount


Due to significant global turmoil in the financial markets, the Company's NAV has fallen by 10% since the end of the annual reporting period (correct as at 30 March 2009).

 



Ten Year Record







Gross revenue




Net revenue after taxation



Revenue return per ordinary share



Gross dividends per ordinary share


Ordinary share capital eligible for dividends



Net asset value of ordinary shares (Ex-div)

Year ended 31 December

£'000 (1+2)


£'000


p


p(3)


£'000


p













1999

2,528


2,053


3.56


3.06*


5,763


146.9

2000

2,216


1,733


3.04


2.77


5,663


134.2

2001

2,168


1,735


3.05


2.79


5,717


104.4

2002

1,735


1,276


2.72


2.80


4,186


76.1

2003

1,500


1,130


2.69


2.83


4,203


90.7

2004

1,536


1,117


2.77


0.83


3,858


97.9

2005

1,517


880


2.48


2.95


2,073


125.5

2006

1,041


648


3.12


3.10


2,083


152.9

2007

1,241


824


3.96


3.25


2,071


158.3

2008

1,449


1,046


5.04


3.63


2,073


106.9


Notes:

  • The information provided prior to 2006 in the above statement is prepared in accordance with UK GAAP and not IFRS.

  • Following the introduction of FRS16 (IAS 12) all dividends receivable from 1999 have been shown gross of withholding tax whereas previously they were shown net.

  • Following the introduction of FRS 21 (IAS 10) all dividends paid by the company from 2004 are accounted for in the period in which the Company is liable to pay them. Such treatment is also consistent with International Financial Reporting Standards. In previous years, the Company accrued dividends in the period in which the net revenue, to which those dividends related, were accounted for.

*    The 1999 gross dividends for ordinary shares include special dividends of 0.35p.

 


Notice of Meeting


Notice is hereby given that the Fiftieth Ordinary Annual General Meeting of UK Select Trust Limited (the 'Company') will be held at La Trelade Hotel, Forest, Guernsey, on Wednesday 29 April 2009 at 11:30am., for the following purposes:


  • To consider the Directors' report and financial statements for the year ended 31 December 2008.

  • To authorise the implementation by the Directors of the provisions of Article 133 of the Company's Articles of Association in respect of any dividend (or part thereof) declared or proposed to be declared by way of final dividend in respect of the financial year of the Company ending 31 December 2008, or by way of an interim dividend in respect of the financial year of the Company ending 31 December 2009.

  • To declare a final dividend of 2.73p gross per ordinary share of the Company payable on 8 May 2009 to ordinary shareholders registered at the close of business on 27 March 2009 in respect of all ordinary shares then registered in their respective names, provided that, if the foregoing Resolution 2 shall have been duly passed, such dividend shall not be paid in respect of which elections to receive additional ordinary shares shall have been duly lodged pursuant to the terms of the Company's circular letter dated 6 April 2009.

  • To re-elect JM Le Pelley as Director in accordance with Article 97 of the Company's Articles of Association.

  • To re-elect Mr JG West as Director in accordance with Article 97 of the Company's Articles of Association.

  • To re-appoint Deloitte LLP as Auditors.

  • To consider, and if thought fit, approve the renewal of the unconditional and general authorisation of the Company authorised by the forty-ninth Annual General Meeting held on 25 April 2008, so that the Company is generally and unconditionally authorised in accordance with the Companies (Purchase of Own Shares) Ordinance 1998 to make market purchases (within the meaning of Section 5 of the said Ordinance) of its own ordinary shares out of distributable profits subject as follows:


  • the maximum number of shares hereby authorised to be purchased is 3,103,742 (representing 14.9% of the number of shares of the Company in issue on 31 December 2008) ;

  • the maximum price which may be paid for such shares is, as for a share which the Company contracts to purchase on any day, a sum equivalent to 105% of the average of the middle market quotation for the ordinary shares of the Company in the daily official list of the London Stock Exchange or the 5 business days immediately proceeding the day;

  • any purchase of shares will be made in the market for cash at prices below the prevailing asset value per share;

  • the minimum price which may be paid for such shares is 10p; and

  • the authority conferred by this resolution shall expire at the conculsion of the fifty first Annual General Meeting of the Company or 30th September 2010, whichever is earlier.


By order of the Board


Corporate Services (Guernsey) Limited

Secretary


Dorey Court
St Peter Port
Guernsey


Note: A member entitled to be present and vote at the meeting may appoint a proxy to attend and, on a poll, to vote in his stead. Appointment of a proxy will not preclude a member from attending the meeting and voting in person. A proxy need not be a member of the Company. The Directors have no contracts with the Company.


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