Final Results - Replace
Edinburgh US Tracker Trust plc
28 March 2008
AMENDMENT
This announcement replaces the earlier announcement released today (28 March
2008) at 14:56hrs (RNS No: 0608R)
Please note that the website address for Edinburgh US Tracker Trust plc,
referred to in the Chairman's Statement, was noted as
www.edinburghustracker.com. The correct website address is
www.edinburghustracker.co.uk.
Please see below the correct announcement.
28 March 2008
EDINBURGH US TRACKER TRUST PLC
ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 JANUARY 2008
Edinburgh US Tracker Trust aims to achieve long term growth of capital and
income by tracking the performance of the S&P Composite 500 Index.
SUMMARY
• NAV fell by 5.2% compared to a fall of 5.6% in the S&P Composite 500 Index
• Total dividends for year up 65.5% to 11.42p (2007 -6.9p)
• Total expense ratio of 0.33% (2007 - 0.29%)
For further information, please contact:
David McCraw
Aberdeen Asset Managers Limited 0131 528 4000
Ian Massie
Aberdeen Asset Managers Limited 0131 528 4000
EDINBURGH US TRACKER TRUST PLC
MANAGEMENT REPORT
1. CHAIRMAN'S STATEMENT
The Company continues to meet the objective of tracking the performance of the S
&P 500 Composite Index. In the 12 months to 31 January 2008, the net asset value
per share (NAV) fell by 5.2% to 583.18p, compared to a decline of 5.6% in the
Index (in sterling terms).
Since the investment objective of the Company was revised in June 1997, the
capital performance has matched that of the Index to within 0.25% per annum. The
annualised returns of the Company's net asset values per share for the period 31
July 1997 to 31 January 2008 were 1.88% per annum compared to an annualised
return of 1.67% per annum for the Index.
US equity markets struggled to make progress last year. Corporate profits were
ahead of expectations but this positive news was more than offset by concerns
over the impact of defaults on sub-prime mortgages on financial institutions and
economic activity. The US Federal Reserve cut interest rates on several
occasions in the second half of the year in an effort to stabilise financial
markets and re-invigorate the US economy. Within this six month period, the Fed
Funds rate was cut from 5.25% to 3.0%.
In January 2008, the Company completed a tender offer for the purchase of up to
50 per cent of its issued share capital. The tender offer was available to all
shareholders and was put forward following discussions with MLP Investments, the
Company's then largest shareholder. The repurchase value received by
shareholders who participated in the tender offer was close to the net asset
value and included the accrued income for the period. The costs and expenses of
the tender offer were borne in full by tendering shareholders which ensured that
remaining shareholders were not disadvantaged. A total of 29,206,363 shares were
purchased for cancellation by the Company under the tender offer, representing
43.5% of the issued share capital, at a repurchase value of 559.1732p per share.
MLP Investments sold all its shares through the tender offer.
In the financial period prior to the tender offer, the Company bought back
5,373,500 of its own shares for cancellation, enhancing the NAV for continuing
shareholders by 1.73p. The Company operates a share buy-back programme with the
aim of establishing a long term level of discount of no greater then 3%.
Dividend
The revenue return per share over the year rose by 7.5% to 7.44p benefiting from
dividend increases from underlying investments which more than offset adverse
movements in the US dollar/sterling exchange rate. Your Board is recommending a
final dividend of 8.97p which will take total dividends for the year to 11.42p,
an increase of 65.5% from last year. The final dividend payment has been
affected by the tender offer. Shareholders participating in the tender offer
received their pro rata share of the Company's accrued income up to the date of
the tender offer through the repurchase value and it has therefore been treated
as a distribution of capital. For continuing shareholders, the full revenue
return for the year, after payment of the interim dividend, is therefore
available for distribution by way of a final dividend over the reduced number of
shares in issue at the year end. This explains the significant increase in the
final dividend per share over last year's payment. For the year ahead the
dividends per share paid to shareholders should not be affected by these
technical matters and will more closely reflect revenue return per share.
Marketing
Your Board continues to promote the Company through the Manager's marketing
initiative which provides a series of savings schemes through which savers can
invest in Edinburgh US Tracker Trust in a low cost and convenient manner. Up to
date information about the Company is available on the Company's website on
www.edinburghustracker.co.uk.
Corporate Governance
The Board reviews annually the performance of the Manager, the Chairman and the
Board as a whole. The Board has assessed the performance of the Manager, the
investment process and risk controls. The Board has reviewed the terms of the
management agreement during the year and believes that the continuing
appointment of the Manager, on the terms agreed, is in the interests of
shareholders. On 28 March 2008, the investment management agreement was
transferred under a novation agreement from Edinburgh Fund Managers plc, a
wholly owned subsidiary of Aberdeen Asset Management PLC, to Aberdeen Asset
Managers Ltd, also a wholly owned subsidiary of Aberdeen Asset Management PLC.
The terms of the investment management agreement, including the management fee
and notice period, remain unchanged.
Annual General Meeting
The Company's Articles of Association require shareholders to vote on the
continuation of the Company at every Annual General Meeting. Accordingly, a
resolution to this effect will be proposed as Special Business at the Annual
General Meeting to be held on Wednesday 21 May 2008. If this resolution is not
passed, a resolution to liquidate the Company will be proposed later this year.
Liquidation would result in a disposal of the Company's shares for taxation
purposes and therefore shareholders should consider carefully whether they wish
the Company to be wound up. There will be another opportunity to consider the
future of the Company at the same time next year. I believe that our investment
performance, aided by low management and administration costs, as evidenced by
the total expense ratio of 0.33%, underlines the attractions of the index
tracking approach to investors. Your Board therefore strongly recommends all
shareholders to vote in favour of the resolution.
The Directors are also seeking shareholder approval to renew the authority to
issue new shares for cash, to meet investor demand provided the subscription
price is not below the net asset value per share. Your Board also has the
authority to purchase the Company's shares for cancellation were the shares to
trade persistently at a level in excess of the Company's stated discount policy.
Special resolutions proposing an extension of these facilities will be put to
shareholders at the Annual General Meeting.
James Ferguson
Chairman
2. MANAGER'S REVIEW
Edinburgh US Tracker Trust is the only UK investment trust to track the
performance of the S&P 500 Composite Index and provides shareholders with a
diversified portfolio which is invested in the leading 500 companies across the
main industries within the US economy. The method employed by the Company to
track the index involves full replication of the index constituents. This means
that the Company's portfolio holds every stock making up the index in an amount
that equals the stock's proportionate weight in the index. The index is
calculated on the basis of the market capitalisation of its 500 constituents
which are drawn from companies listed on the New York Stock Exchange, the
American Stock Exchange and NASDAQ and is widely regarded as the best single
gauge of the US equity market.
The constituents of the S&P 500 Composite Index are controlled by the Standard &
Poor's Index Committee which employs a strict definition of a US company. To be
considered for inclusion in one of Standard and Poor's US index series, a
company is required to have the following characteristics:
• Incorporated in the US
• Financial reporting is in US GAAP, in US dollars and the company
should not be considered a foreign entity by the SEC
• A corporate governance structure consistent with US practice
• Headquartered in the US
• The US portion of revenues, operations, fixed assets and employees
should be a significant portion of the total, but need not exceed 50%
• The common stock should be listed on NYSE, Amex or NASDAQ
• The company should generally be considered a US company by analysts
and investors
The level of activity within the portfolio reflected changes to the constituents
of the index and the sale of investments to finance the purchase of the
Company's own shares. The Company bought and sold shares during the year to
reflect any changes initiated by the Committee. Most of the changes to the index
in the past year were the result of takeover activity with 28 of the
constituents being acquired and another 10 constituents being removed on the
grounds of low market capitalisation.
Some of the better known names to leave the S&P 500 Index as a result of
takeover activity included Phelps Dodge, Mellon Financial, NCR, TXU, Bausch &
Lomb, Dow Jones and Tribune. The new entrants to the index included Polo Ralph
Lauren, Kraft Foods, Precision Castparts, Discover Financial Services, Expedia,
NYSE Euronext, The Washington Post and Cameron International.
Apart from changes to the constituents of the index, additional trading activity
was generated by sales from the portfolio to finance the purchase of the
Company's own shares - a total of 5,375,000 shares were purchased at a total
cost of £32.3 million (excluding the shares repurchased under the Tender Offer).
The total value of purchases in the year, excluding the Company's own shares and
the tender offer, amounted to £11.9 million while sales totaled £208.1 million.
Aberdeen Asset Managers Limited
3. PERFORMANCE TABLES
31 January 2008 31 January 2007 % change
Total Assets £221,404,000 A £446,406,000 (50.4)
Equity shareholders' funds £221,354,000 A £446,344,000 (50.4)
Share price (mid market) 543.50p 586.50p (7.3)
Net Asset Value per share (including undistributed revenue for 583.18p 615.34p (5.2)
the period)
S&P Composite Index (in sterling terms) 693.44 734.77 (5.6)
Discount (difference between share price and net asset value B 5.3% 3.9%
)
Total expense ratio 0.33% 0.29%
Dividends and earnings
Revenue return per share 7.44p 6.92p 7.5
Dividends per share (including proposed final dividend) 11.42p 6.90p 65.5
Dividend cover 0.65 1.00
Revenue reserves per share (prior to payment of proposed final 15.01p 7.53p
dividend)
Revenue reserves per share (after payment of proposed final 6.04p 3.08p
dividend)
A The tender offer was largely responsible for the reduction in total assets of
the Company.
B Based on Net Asset Value per share (excluding undistributed revenue for the
period)
4. BUSINESS REVIEW
The Board has prepared this Business Review in accordance with the requirements
of Section 234ZZB of the Companies Act 1985.
Principal Activity and Status
The business of the Company is that of an investment trust and the Directors do
not envisage any change in this activity in the foreseeable future.
The Company is registered as a public limited company and is an investment
company as defined by Section 266 of the Companies Act 1985. The Company has
been approved by the Inland Revenue as an investment trust for the purposes of
Section 842 of the Income and Corporation Taxes Act 1988 for the year ended 31
January 2007. The Directors are of the opinion, under advice, that the Company
has conducted its affairs for the year ended 31 January 2008 so as to be able to
continue to obtain approval as an investment trust under Section 842 of the
Income and Corporation Taxes Act 1988 for that year, although approval for the
year would be subject to review were there to be any enquiry under the Corporate
Tax Self Assessment regime.
The affairs of the Company were conducted in such a way as to comply with the
qualifying equity rule as defined in the Personal Equity Plan Regulations. The
Company has also conducted its affairs so as to satisfy the requirements as a
qualifying security for Individual Savings Accounts. The Directors intend that
the Company will continue to conduct its affairs in this manner in the future.
Investment Objective and Policy
The investment objective is to invest in a portfolio designed to track closely
the S&P 500 Composite Index, both in terms of capital and income.
The Company's methodology in tracking the Index is full replication of the Index
constituents.
Performance
An outline of the performance, market background, investment activity and
portfolio strategy during the period under review, as well as the market
outlook, is provided in the Chairman's Statement and Investment Manager's
Review.
Risks and Uncertainties
The Board has reviewed the key risks that affect its business. The principal
risks are as follows:
• Market and performance risk: The Company is exposed to the effect of
variations in share prices and movements in the US$/£ exchange rate due to
the nature of its business. A fall in the market value of its portfolio
would have an adverse effect on shareholders' funds. The NAV performance
relative to the Index and the underlying stock weightings in the portfolio
against the Index weightings are monitored closely to eliminate any risk of
a significant tracking error developing.
• Discount volatility: The Company's share price can trade at a discount to
its underlying net asset value. The Company operates a share buyback
programme with the aim of establishing a long term level of discount of no
greater than 3%.
• Regulatory risk: The Company operates in a complex regulatory environment
and faces a number of regulatory risks. Breaches of regulations, such as
Section 842 of the Income and Corporation Taxes Act 1988, the UKLA Listing
Rules and the Companies Act, could lead to a number of detrimental outcomes
and reputational damage. The Audit Committee monitors compliance with
regulations by reviewing internal control reports from the Manager.
Further details on other risks relating to the Company's investment activities,
including market price, liquidity and foreign currency risks, are provided in
the notes to the accounts below.
Monitoring Performance - Key Performance Indicators
At each Board meeting, the Directors consider a number of performance measures
to assess the Company's success in achieving its objectives. The following key
performance indicators (KPIs) have been identified by the Board for determining
the progress of the Company:
• Net asset value
• S&P Composite Index (in sterling terms)
• Discount
• Total expense ratio
A record of these measures is disclosed in the above Performance section.
DIRECTOR'S RESPONSIBILITY STATEMENT
The Directors confirm to the best of their knowledge that:
• the financial statements, prepared in accordance with applicable UK
accounting standards, give a true and fair view of the assets, liabilities,
financial position and return of the Company; and
• the Directors' Report includes a fair review of the development and
performance of the business and the position of the Company together with a
description of the principal risks and uncertainties that the Company faces.
For Edinburgh US Tracker Trust plc
James Ferguson
Chairman
INCOME STATEMENT (audited)
for the year ended 31 January 2008
Year ended 31 January 2008 Year ended 31 January 2007
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Net (losses)/gains on investments - (26,601) (26,601) - 7,419 7,419
Net currency gains / (losses) - 114 114 - (680) (680)
Income 8,575 - 8,575 8,857 - 8,857
Investment management fee (815) - (815) (902) - (902)
Administrative expenses (536) - (536) (420) - (420)
_______ _______ _______ _______ _______ _______
Net return before finance costs and taxation 7,224 (26,487) (19,263) 7,535 6,739 14,274
Finance costs (1) - (1) - - -
_______ _______ _______ _______ _______ _______
Return on ordinary activities before taxation 7,223 (26,487) (19,264) 7,535 6,739 14,274
Taxation (2,160) (21) (2,181) (2,258) - (2,258)
_______ _______ _______ _______ _______ _______
Return on ordinary activities after taxation 5,063 (26,508) (21,445) 5,277 6,739 12,016
_______ _______ _______ _______ _______ _______
Return per share (pence) 7.44 (38.95) (31.51) 6.92 8.84 15.76
_______ _______ _______ _______ _______ _______
The total column of this statement represents the profit and loss account of the
Company.
No Statement of Total Recognised Gains and Losses has been prepared as all gains
and losses have been reflected in the Income Statement.
All revenue and capital items in the above statement derive from continuing
operations.
Proposed final dividend
The Board is proposing a final dividend of 8.97p per share (£3,405,000) making a
total dividend of 11.42p (£5,055,000) for the year to 31 January 2008 which, if
approved, will be payable on 23 May 2008 (see note 6).
For the year ended 31 January 2007, the final dividend was 4.45p per share
(£3,173,000) making a total dividend of 6.90p per share (£4,973,000).
BALANCE SHEET (audited)
as at 31 January
As at 31 January 2008 As at 31 January 2007
£'000 £'000 £'000 £'000
Non-current assets
Investments at fair value through profit or loss 219,664 442,446
Current assets
Debtors and prepayments 378 500
Cash and short term deposits 3,243 4,654
________ ________
3,621 5,154
Creditors: amounts falling due within one year (1,881) (1,194)
Net current assets ________ 1,740 ________ 3,960
________ ________
Total assets less current liabilities 221,404 446,406
Provision for liabilities and charges (50) (62)
________ ________
Net assets 221,354 446,344
________ ________
Capital and reserves
Called up share capital 9,489 18,134
Share premium account 32,643 32,643
Capital redemption reserve 12,606 3,961
Capital reserve 160,917 386,147
Revenue reserve 5,699 5,459
________ ________
Equity Shareholders' funds 221,354 446,344
________ ________
Net asset value per share (pence) 583.18 615.34
________ ________
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS (audited)
For the year ended 31 January 2008 Share Capital
Share premium redemption Capital Revenue
capital account reserve reserve reserve Total
£'000 £'000 £'000 £'000 £'000 £'000
Balance at 31 January 2007 18,134 32,643 3,961 386,147 5,459 446,344
Return on ordinary activities after taxation - - - (26,508) 5,063 (21,445)
Dividends paid - - - - (4,823) (4,823)
Purchase of own shares for cancellation (1,343) - 1,343 (32,254) - (32,254)
Tender offer of own shares (7,302) - 7,302 (166,468) (166,468)
________ ________ ________ ________ ________ ________
Balance at 31 January 2008 9,489 32,643 12,606 160,917 5,699 221,354
________ ________ ________ ________ ________ ________
For the year ended 31 January 2007 Share Capital
Share premium redemption Capital Revenue
capital account reserve reserve reserve Total
£'000 £'000 £'000 £'000 £'000 £'000
Balance at 31 January 2006A 20,422 32,643 1,673 430,827 4,946 490,511
Return on ordinary activities after taxation - - - 6,739 5,277 12,016
Dividends paid - - - - (4,764) (4,764)
Purchase of own shares for cancellation (2,288) - 2,288 (51,419) - (51,419)
________ ________ ________ ________ ________ ________
Balance at 31 January 2007 18,134 32,643 3,961 386,147 5,459 446,344
________ ________ ________ ________ ________ ________
A Prior year comparatives have been classified to conform with the current
year's presentation.
The revenue reserve represents the amount of the Company's reserves
distributable by way of dividend.
CASHFLOW STATEMENT (audited)
Year ended Year ended
31 January 2008 31 January 2007
£'000 £'000 £'000 £'000
Net cash inflow from operating activities 8,114 7,485
Servicing of finance
Interest paid (1) -
Taxation
UK corporation tax paid (898) (987)
Overseas tax paid (1,211) (1,257)
________ ________
Net tax paid (2,109) (2,244)
Financial investment
Purchases of investments (12,040) (13,678)
Sales of investments 208,056 64,182
________ ________
Net cash inflow from financial investment 196,016 50,504
Equity dividends paid (4,823) (4,764)
________ ________
Net cash inflow before financing 197,197 50,981
Financing
Buy back of Ordinary shares (including expenses) (32,254) (51,084)
Tender offer of own shares (including expenses) (166,468) -
________ ________
(198,722) (51,084)
________ ________
Decrease in cash (1,525) (103)
________ ________
Reconciliation of net cash flow to movement in net funds
Decrease in cash as above (1,525) (103)
Exchange movements 114 (680)
________ ________
Movement in net funds in the year (1,411) (783)
Opening net funds 4,654 5,437
________ ________
Closing net funds 3,243 4,654
________ ________
NOTES :
1. Accounting policies
A summary of the principal accounting policies, all of which have been
consistently applied throughout the year and the preceding year is set out
below.
(a) Basis of preparation and going concern
The financial statements have been prepared under the historical cost convention
as modified to include the revaluation of investments and in accordance with
applicable UK Accounting Standards and with the Statement of Recommended
Practice 'Financial Statements of Investment Trust Companies' (issued January
2003 and revised in December 2005). They have also been prepared on the
assumption that approval as an investment trust will continue to be granted. The
financial statements have been prepared on a going concern basis.
During the year the Company adopted FRS 29 'Financial Instruments: Disclosures'.
This standard primarily concern the disclosure of financial instruments and
risks. These disclosures can be found primarily in note 17.
(b) Investment income, interest receivable, expenses and interest payable
Income from investments (other than special dividends), including taxes deducted
at source, is included in revenue by reference to the date on which the
investment is quoted ex dividend. Special dividends are credited to capital or
revenue, according to the circumstances. Short term deposits, expenses and
interest payable are treated on an accruals basis. All expenses are charged to
revenue except where they directly relate to the acquisition or disposal of an
investment, in which case, they are added to the cost of the investment or
deducted from the sale proceeds.
(c) Deferred taxation
Deferred taxation is provided on all timing differences, that have originated
but not reversed at the Balance Sheet date, where transactions or events that
result in an obligation to pay more or a right to pay less tax in future have
occurred at the balance sheet date, measured on an undiscounted basis and based
on enacted tax rates. This is subject to deferred tax assets only being
recognised if it is considered more likely than not that there will be suitable
profits from which the future reversal of the underlying timing differences can
be deducted. Timing differences are differences arising between the Company's
taxable profits and its results as stated in the accounts which are capable of
reversal in one or more subsequent periods. Due to the Company's status as an
investment trust company, and the intention to continue to meet the conditions
required to obtain approval for the foreseeable future, the Company has not
provided deferred tax on any capital gains and losses arising on the revaluation
or disposal of investments.
(d) Investments
All purchases and sales of investments are recognised on the trade date, being
the date the Company commits to purchase or sell the investment. Investments are
initially recognised and subsequently re-measured at fair value. Transaction
costs on purchases and sales are expensed through the Income Statement.
(e) Dividends payable
Interim and final dividends are recognised in the period in which they are paid.
(f) Capital reserve
Gains or losses on realisation of investments and changes in fair values of
investments which are readily convertible to cash, without accepting adverse
terms, are transferred to the capital reserve. The cost of share buybacks are
also deducted from this reserve.
(g) Foreign currency
Assets and liabilities in foreign currencies are translated at the rates of
exchange ruling on the Balance Sheet date. Transactions involving foreign
currencies are converted at the rate ruling on the date of the transaction.
Gains and losses on the realisation of foreign currencies are recognised in the
Income Statement and are then transferred to the capital reserve.
2008 2007
2. Income £'000 £'000
Income from investments held at fair value through profit or loss
Dividends from overseas listed investments 8,165 8,511
Other income
Deposit interest 410 346
_______ _______
Total income 8,575 8,857
2008 2007
3. Investment management fee £'000 £'000
Investment management fee 815 902
_______ _______
The fees disclosed above were paid to Edinburgh Fund Managers plc. On 28 March
2008, the investment management agreement was transferred under a novation
agreement from Edinburgh Fund Managers plc, a wholly owned subsidiary of
Aberdeen Asset Management PLC, to Aberdeen Asset Managers Limited, also a wholly
owned subsidiary of Aberdeen Asset Management PLC. The terms of the investment
management agreement, including the management fee and notice period, remain
unchanged.
The management fee payable to Aberdeen Asset Managers Limited is 0.05% per
quarter of the total assets. The fee was subject to VAT at the appropriate rate
for the six months to July 2007, although the Company was in a position to
recover all VAT paid (2007 - fully recovered).
The management agreement between the Company and Aberdeen Asset Managers Limited
is terminable by either party on three months' notice. In the event of a
resolution being passed at the AGM to wind up the Company the Manager shall be
entitled to three months' notice from the date the resolution was passed. In the
event of termination on not less than the agreed notice period, compensation is
payable in lieu of the unexpired notice period.
2008 2007
4. Administrative expenses £'000 £'000
Directors' fees 49 50
Registrar's fees 69 54
Custody and bank charges 57 57
Auditor's remuneration:
- fees payable to the Company's auditor for the audit of the annual accounts 13 11
- fees payable to the Company's auditor and its associates for other services:
- interim review - 3
Contribution to the Investment Trust Initiative 153 100
Printing, postage and stationery 27 23
Fees, subscriptions and publications 49 25
Standard & Poors' licence fee 44 43
Other expenses 75 54
_______ _______
536 420
_______ _______
The contribution to the Investment Trust Initiative was paid to the Manager in
respect of marketing and promotion of the Company. At the year end £13,000 (2007
- £13,000) was due to the Manager.
During the year an additional amount of £21,000 was paid to KPMG for services
relating to the tender offer. This figure is reflected within the tender offer
of own shares in the Reconciliation of Movements in Shareholders' Funds.
Included within other expenses is an amount of £13,763 being Special Projects
Advisory fees payable to Noble Grossart Limited for the services of Sir Angus
Grossart who served as a Director of the Company until 23 May 2007.
2008 2007
Revenue Capital Total Revenue Capital Total
5. Taxation £'000 £'000 £'000 £'000 £'000 £'000
(a) Analysis of the tax charge for the year
Corporation tax before overseas tax relief 2,167 21 2,188 2,262 - 2,262
Overseas tax relief (1,208) (21) (1,229) (1,258) - (1,258)
________ ________ ________ ________ ________ ________
Corporation tax payable 959 - 959 1,004 - 1,004
Overseas tax 1,213 21 1,234 1,257 - 1,257
________ ________ ________ ________ ________ ________
Current tax charge for the year 2,172 21 2,193 2,261 - 2,261
Movement in deferred tax (12) - (12) (1) - (1)
Prior year adjustment - - - (2) - (2)
________ ________ ________ ________ ________ ________
Charge per Income Statement 2,160 21 2,181 2,258 - 2,258
________ ________ ________ ________ ________ ________
2008 2007
(b) Factors affecting the current revenue tax charge £'000 £'000
for the year
Revenue return on ordinary activities 7,223 7,535
before taxation
________ ________
Return on ordinary activities multiplied by standard rate of corporation tax in 2,167 2,260
the UK of 30% (2007 - 30%)
Effects of:
Income taxable in different periods 5 1
________ ________
Current tax charge for year 2,172 2,261
2008 2007
6. Dividends £'000 £'000
Amounts recognised as distributions to equity holders in the year:
Final dividend for 2007 - 4.45p per share (2006 - 3.70p) 3,173 2,964
Interim dividend for 2008 - 2.45p per share (2007 - 2.45p) 1,650 1,800
________ ________
4,823 4,764
________ ________
The proposed final dividend for 2008 is subject to approval by Shareholders at
the Annual General Meeting and has not been included as a liability in these
financial statements.
The table below sets out the total dividends paid and proposed in respect of the
financial year, which is the basis on which the requirements of Section 842
('s.842') of the Income and Corporation Taxes Act 1988 are considered. The
revenue available for distribution by way of dividend for the year is £5,063,000
(2007 - £5,277,000).
2008 2007
£'000 £'000
Interim dividend for 2008 - 2.45p per share (2007 - 2.45p) 1,650 1,800
Proposed final dividend for 2008 - 8.97p per share (2007 - 4.45p) 3,405 3,211
________ ________
5,055 5,011
________ ________
The amount payable for the proposed final dividend above is based on the current
shares in issue and this satisfies the s.842 test.
2008 2008 2007 2007
7. Return per Ordinary share £'000 p £'000 p
The return per Ordinary share is based on the following
figures:
Revenue return 5,063 7.44 5,277 6.92
Capital return (26,508) (38.95) 6,739 8.84
_________ _________ _________ _________
Total return (21,445) (31.51) 12,016 15.76
_________ _________ _________ _________
Weighted average number of Ordinary shares in issue 68,064,361 76,226,950
2008 2007
8. Investments £'000 £'000
Fair value through profit or loss:
Opening fair value 442,446 485,539
Opening unrealised appreciation (105,106) (109,071)
________ ________
Opening book cost 337,340 376,468
Purchases at cost 11,875 12,990
Sales - proceeds (208,056) (63,502)
- realised gains on sales 37,127 11,384
________ ________
Closing book cost 178,286 337,340
Closing unrealised appreciation 41,378 105,106
________ ________
Closing fair value 219,664 442,446
________ ________
Listed on overseas stock exchanges 219,664 442,446
________ ________
2008 2007
(Losses)/gains on investments £'000 £'000
Realised gains on sales 37,127 11,384
Decrease in unrealised appreciation (63,728) (3,965)
________ ________
(26,601) 7,419
________ ________
Transaction costs
During the year expenses were incurred in acquiring or disposing of investments
classified as fair value through profit or loss. These have been expensed
through capital and are included within gains on investments in the Income
Statement. The total costs were as follows:
2008 2007
£'000 £'000
Purchases 7 20
Sales 10 41
________ ________
17 61
________ ________
The above transaction costs do not include the transactions costs associated
with the tender offer which were included in the Repurchase NAV.
2008 2007
9. Debtors: amounts falling due within one year £'000 £'000
Dividends receivable 319 345
Other debtors and prepayments 59 155
________ ________
378 500
2008 2007
10. Creditors: amounts falling due within one year £'000 £'000
Taxation payable 532 516
Amounts due to brokers (including buy-backs) 170 335
Investment management fee payable 180 223
Payable on account of tender offer 905 -
Other creditors 94 120
________ ________
1,881 1,194
________ ________
Included within payable on account of tender offer is an amount of £21,000
payable to KPMG for accounting work on the tender offer (see note 12).
2008 2007
11. Provision for liabilities and charges £'000 £'000
Deferred taxation provision:
Opening balance 62 63
Credited to revenue (12) (1)
________ ________
Closing balance 50 62
________ ________
The provision relates to the deferred tax liability in connection with the
dividends receivable.
2008 2007
12. Called-up share capital £'000 £'000
Authorised:
120,000,000 (2007 - 120,000,000) Ordinary shares of 25p each 30,000 30,000
________ ________
Allotted, called-up and fully paid:
Opening balance 18,134 20,422
Shares bought back for cancellation (1,343) (2,288)
Tender offer of own shares (7,302) -
________ ________
37,956,379 (2007 - 72,536,242) Ordinary shares of 25p each 9,489 18,134
________ ________
During the year the Company bought back and cancelled 5,373,500 shares of 25p
each (2007 - 9,152,922) for a total consideration of £32,254,000 (2007 -
£51,419,000). This represents 7.4% of the Company's issued share capital at 31
January 2007.
During the year the Company announced a tender offer for up to 50% of the
Ordinary shares of the Company, which resulted in 43.49% being tendered
(29,206,363 Ordinary shares). As a result, 43.49% of the assets of the Company
(valued at £166,468,000) were allocated to a 'Tender Pool' which was
subsequently liquidated and distributed to exiting Ordinary shareholders. The
costs of the tender offer were wholly incurred by the Tender Pool.
Capital Capital Total
reserve - reserve - capital
realised unrealised reserve
13. Capital reserve £'000 £'000 £'000
Year ended 31 January 2008
At 1 February 2007 281,041 105,106 386,147
Movement in unrealised fair value gains - (63,728) (63,728)
Gains on realisation of investments at fair value 37,127 - 37,127
Foreign exchange movements 114 - 114
Taxation (21) - (21)
Purchase of own shares for cancellation (32,254) - (32,254)
Tender offer of own shares (166,468) - (166,468)
_________ _________ _________
At 31 January 2008 119,539 41,378 160,917
_________ _________ _________
Year ended 31 January 2007
At 1 February 2006 321,756 109,071 430,827
Movement in unrealised fair value gains - (3,965) (3,965)
Gains on realisation of investments at fair value 11,384 - 11,384
Foreign exchange movements (680) - (680)
Purchase of own shares for cancellation (51,419) - (51,419)
_________ _________ _________
At 31 January 2007 281,041 105,106 386,147
_________ _________ _________
The above split in capital reserve is shown in accordance with provisions of the
Statement of Recommended Practice 'Financial Statements of Investment Trust
Companies'.
The Directors regard the total capital reserve as being available to fund share
buy-backs.
14. Net asset value per equity share
The net asset value per share and the net assets attributable to the Ordinary
Shareholders at the year end were as follows:
2008 2007
Net assets attributable £221,354,000 £446,344,000
Number of Ordinary shares in issue 37,956,379 72,536,242
Net asset value per share 583.18p 615.34p
15. Reconciliation of net return before finance costs and taxation to 2008 2007
net cash inflow from operating activities £'000 £'000
Return on ordinary activities before taxation (19,263) 14,274
Adjustments for:
Net losses/(gains) on investments 26,601 (7,419)
Foreign exchange movements (114) 680
Decrease in accrued income 28 5
Decrease/(increase) in other debtors 26 (38)
Increase/(decrease) in other creditors 836 (17)
_________ _________
Net cash inflow from operating activities 8,114 7,485
________ ________
At At
1 February Cash Exchange 31 January
2007 flow movements 2008
16. Analysis of changes in net funds £'000 £'000 £'000 £'000
Cash and short term deposits 4,654 (1,525) 114 3,243
________ ________ ________ ________
17. Risk management, financial assets and liabilities
The Company's financial instruments, other than derivatives, comprise securities
and other investments, cash balances, loans and debtors and creditors that arise
directly from its operations; for example, in respect of sales and purchases
awaiting settlement, and debtors for accrued income.
During the year, the Company entered into certain derivative contracts. In
periods when the Company builds up cash, the Manager may enter into certain
derivative contracts to gain exposure to the market. Positions closed during the
year realised a loss of £605,000 (2007 - profit of £285,000) which reflected the
movements in the Index. The largest position in derivative contracts held during
the year was £5.8million (2007 - £8.5million). The Company had no open positions
in derivative contracts at 31 January 2008 or 2007.
Fixed asset investments (see note 8) are valued at closing market prices, which
equates to their fair value. The fair values of all other assets and liabilities
are represented by their carrying values in the Balance Sheet.
There were no financial liabilities, other than short term creditors, at 31
January 2008 (2007 - £nil).
Risk management
The main risk to the Company is the failure to track closely the S&P 500
Composite Index. The main risks associated with the Company's financial
instruments are liquidity risk, market price risk (comprising interest risk,
foreign currency risk and other price risk) and credit risk. The Company has
established a framework for managing these risks which is evolving continually.
The Directors have provided the Manager with guidelines for the management of
investments and financial instruments.
The Board regularly reviews and agrees policies for managing each of these
risks. The Manager's policies for managing these risks are summarised below and
have been applied throughout the year. The numerical disclosures exclude
short-term debtors and creditors.
Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting
obligations associated with financial liabilities. Liquidity risk is not
considered to be significant as the Company's assets comprise of mainly readily
realisable securities, which can be sold to meet funding commitments if
necessary.
Market price risk
The Company's exposure to market price risk comprises of changes in interest
rates, valuations awarded to equities, movements in prices and liquidity of
financial instruments. In pursuing the Company's primary objective of tracking
its benchmark index, the Company does not increase the level of cash balances
through the sale of equities.
The fair value of or future cash flows from a financial instrument held by the
Company may fluctuate because of changes in market prices. This market risk
comprises three elements - interest rate risk, foreign currency risk and other
price risk.
Interest rate risk
Interest rate movements may affect the level of income receivable on cash
deposits.
The possible effects on fair value and cash flows that could arise as a result
of changes in interest rates are taken into account when making investment
decisions.
The Company holds cash on deposit in Sterling and US Dollars. The Sterling value
of cash and short term deposits can be significantly affected by movements in
foreign exchange rates. The tables below sets out the currency exposure of the
cash and short term deposits as at 31 January 2008 and 2007:
Interest Local Foreign Sterling
rate currency exchange equivalent
As at 31 January 2008 % '000 rate £'000
US Dollar 3.00 2,099 1.9880 1,056
Sterling 5.50 2,187 - 2,187
_________
Total cash on deposit per Balance Sheet 3,243
_________
Interest Local Foreign Sterling
rate currency exchange equivalent
As at 31 January 2007 % '000 rate £'000
US Dollar 5.00 8,125 1.9574 4,151
Sterling 5.00 503 - 503
_________
Total cash on deposit per Balance Sheet 4,654
_________
Cash and short term deposits are held in floating rate accounts. The benchmark
that determines the interest received, or paid on balances, is the bank base
rate which was 5.50% (2007 - 5.00%) for Sterling funds, and 3.00% (2007 - 5.00%)
for US Dollar funds at 31 January 2008. Movements in interest rate would not
significantly affect net assets attributable to the Company's shareholders and
total profit.
Foreign currency risk
The Company's portfolio is invested in US quoted securities and the Balance
Sheet can be significantly affected by movements in foreign exchange rates. It
is not the Company's policy to hedge this risk on a continuing basis.
The revenue account is subject to currency fluctuation arising on overseas
income. The Company does not hedge this currency risk as its investment
objective is to track closely the S&P 500 Composite Index.
Foreign currency risk exposure by currency of denomination:
31 January 2008 31 January 2007
Net Total Net Total
Overseas monetary currency Overseas monetary currency
investments assets exposure investments assets exposure
£'000 £'000 £'000 £'000 £'000 £'000
US Dollar 219,664 1,205 220,869 442,446 4,496 446,942
Sterling - 535 535 - (536) (536)
_________ ________ ________ _________ ________ ________
Total 219,664 1,740 221,404 442,446 3,960 446,406
_________ ________ ________ _________ ________ ________
During the year to 31 January 2008 the Company announced a tender offer, which
resulted in 43.49% of the assets of the Company being tendered and therefore the
current year figures above do not reflect the full risk the Company faced during
the whole of the year to 31 January 2008.
The asset allocation between specific markets can vary from time to time based
on the constituents of the Company's benchmark index.
Foreign currency sensitivity
There is no sensitivity analysis included as the Company's significant foreign
currency financial instruments are in the form of equity investments, and they
have been included within the other price risk sensitivity analysis so as to
show the overall level of exposure.
Other price risk
Other price risks (i.e. changes in market prices other than those arising from
interest rate risk) may affect the value of the quoted investments. The
Company's stated objective is to track the S&P 500 Composite Index through full
replication. As a result the Company is exposed to movements in the underlying
index.
As the Company tracks its benchmark index it will hold an appropriate spread of
investments in the portfolio. This will reduce the risk arising from factors
specific to a particular sector. The Manager actively monitors market prices
throughout the year and reports to the Board, which meets regularly in order to
review investment strategy. The investments held by the Company are listed on
the New York Stock Exchange, the American Stock Exchange and NASDAQ.
If market prices at the Balance Sheet date had been 10% higher or lower while
all other variables remained constant, the return attributable to Ordinary
shareholders at the year ended 31 January 2008 would have increased/decreased by
£21,966,000 (2007 - increase/decrease of £44,245,000) and equity reserves would
have increased/decreased by the same amount. The calculations are based on the
portfolio valuations, as at the respective Balance Sheet dates, and are not
representative of the year as a whole.
Credit risk
This is the risk that a counter party to a transaction fails to discharge its
obligations under that transaction, resulting in a loss to the Company.
The risk is not significant, and is managed as follows:
- trust investments are safeguarded by RBC Dexia, a reputable and highly
rated custodian;
- investment transactions are carried out with a large number of brokers,
whose credit-standing is reviewed periodically by the investment manager, and
limits are set on the amount that may be due from any one broker;
- cash is held only with reputable banks with high quality external credit
enhancements;
- the Company does not undertake stocklending.
None of the Company's financial assets are secured by collateral or other credit
enhancements.
2008 2007
£'000 £'000
Debtors and prepayments 378 500
Cash and short term deposits 3,243 4,654
_________ _________
3,621 5,154
_________ _________
18. The financial information set out above do not constitute statutory
accounts for the year ended 31 January 2008 in accordance with Section 240 of
the Companies Act 1985. The financial information for the year ended 31 January
2007 has been extracted from the Annual Report and Accounts of the Company which
have been filed with the Registrar of Companies. The auditors' report on those
accounts as originally filed was unqualified. The statutory accounts for 2008
are unqualified and will be delivered to the Registrar of Companies following
the Company's Annual General Meeting which will be held at 40 Princes Street,
Edinburgh EH2 2BY on 21 May 2008 at 11.00am
19. The Annual Report and Accounts will be posted to shareholders in April
2008 and copies will be available from the investment manager or from the
Company's website, www.edinburghustracker.co.uk.
Please note that past performance is not necessarily a guide to the future and
that the value of investments and the income from them may fall as well as rise
and may be affected by exchange rate movements. Investors may not get back the
amount they originally invested.
For Edinburgh US Tracker Trust plc
Aberdeen Asset Management PLC, Secretary
END
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