Annual Financial Report

RNS Number : 6276P

Edinburgh US Tracker Trust plc

27 March 2009

 



27 March 2009

EDINBURGH US TRACKER TRUST PLC

ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 JANUARY 2009

Edinburgh US Tracker Trust aims to achieve long term growth of capital and income by tracking the performance of the S&P 500 Index. 

For further information, please contact:

David McCraw

Aberdeen Asset Managers Limited                                                 0131 528 4000

  EDINBURGH US TRACKER TRUST PLC

ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 JANUARY 2009

CHAIRMAN'S STATEMENT

US equity markets suffered significant falls in the year to 31 January 2009 - the S&P 500 Index fell by 40% in US dollars terms although the impact on shareholders was lessened through the weakness of sterling which fell from $1.99 to $1.44. The write-downs in mortgage related assets held by banks and other financial institutions curtailed the availability of credit and sharp falls in house prices hit consumer confidence. The US economy is now officially in recession following two consecutive quarters of falling GDP figures. Interest rates were reduced regularly throughout the year and the key fed funds rate is now effectively at zero. The new President and his Administration have also implemented a massive fiscal stimulus programme. So far these measures have failed to either re-invigorate the economy or reverse the negative sentiment amongst investors and consumers.

The Company continues to meet the objective of tracking the performance of the S&P 500 Index. In the 12 months to 31 January 2009, the net asset value per share (NAV) fell by 17.4% to 481.50p, compared to a decline of 17.4% 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 0.23% per annum. The annualised returns of the Company's capital net asset values per share for the period 31 July 1997 to 31 January 2009 were 0.09% per annum compared to an annualised return of -0.15% per annum for the Index.

The Company operates a share buy-back programme with the aim of establishing a long-term level of discount of no greater than 3% and in the year bought back 357,000 of its own shares for cancellation. The share price fell by 9.9% during the year compared to the Index which fell 17.4% and at 31 January 2009 the shares were standing at a premium of 2.6% to the net asset value per share, excluding the undistributed revenue for the year.

Dividend

The revenue return per share over the year rose by 6.6% to 7.93p and reflects the favourable movement in the US dollar/sterling exchange rate rather than dividend increases from underlying investments. As outlined in the Interim Report, the Directors have reduced the disparity between the interim and final dividends and your Board is recommending a final dividend of 4.40p - the total dividend for the year will be 7.90p. The total dividend per share is lower than paid out in the previous year, which was boosted by technical factors arising from the tender offer. Shareholders participating in the tender offer in January 2008 received their pro rata share of the Company's accrued income up to the tender date as a capital distribution through the repurchase value. Continuing shareholders were therefore entitled to the full revenue return for the year, after payment of the interim dividend, and, as this was paid over a reduced number of shares in issue, it led to a significant increase in the final dividend per share that was paid in May 2008. The total dividends paid and proposed for the year to 31 January 2009 continue to reflect the revenue return for the period.

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.com.

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 Thursday 21 May 2009. 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 0.38%, 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 greater discount level to the Company's stated discount policy. Special resolutions proposing an extension of these facilities will be put to shareholders in the Annual General Meeting.

The law in relation to companies is currently undergoing a number of changes following the introduction of new legislation in the UK under the Companies Act 2006. The changes are being implemented in stages, with some parts already in force, and the final parts are due to be implemented in October 2009. A special resolution will be proposed as special business at the Annual General Meeting to adopt new Articles of Association in order to reflect certain provisions of the new Act. 

Outlook

The decline in GDP of 6.3% in the fourth quarter of 2008 provided further confirmation of the depth of the recession facing the US economy. There will undoubtedly be more negative announcements about the state of the economy and corporate profits in the weeks ahead. However, the significant cuts in interest rates, which are now close to zero, and President Obama's fiscal package are anticipated to lead to a recovery in economic activity later this year. The US is likely to recover first from the global recession and would be expected to lead any rebound in global equity markets.

James Ferguson

Chairman

27 March 2009

MANAGER'S REVIEW

Edinburgh US Tracker Trust is the only UK investment trust to track the performance of the S&P 500 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 and NASDAQ and is widely regarded as the best single gauge of the US equity market.

The constituents of the S&P 500 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

• Principal executive presence is 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 and NASDAQ

• The company should generally be considered a US company by analysts and investors

S&P adjusted the market cap guidelines for its US indices to reflect the changes in share prices in 2008. The current guidelines are:

• S&P 500 Index - market cap of $3 billion or greater

• S&P MidCap 400 - $750 million to $3.3 billion

• S&P SmallCap 600 - $200 million to $1.0 billion

The level of activity within the portfolio reflected changes to the constituents of the Index which were the result of takeover activity (20 of the constituents were acquired) and low market capitalisations (15 constituents were removed). The other feature of the period was the additional equity raised by banks and insurance companies.

Some of the better known names to leave the S&P 500 Index as a result of takeover activity included ACE, Clear Channel, Electronic Data Systems, Wm Wrigley, Anheuser-Busch, Merrill Lynch, Wachovia and UST. The new entrants to the Index included Philip Morris International, Mastercard, Invesco, Dr Pepper Snapple, NASDAQ OMX, Wynn Resorts, Dun & Bradstreet, McAfee and Iron Mountain.

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 357,000 shares were purchased at a total cost of £2.0 million.  

The total value of purchases in the year, excluding the Company's own shares, amounted to £8.5 million while sales totaled £12.0 million.

Aberdeen Asset Managers Limited

27 March 2009

RESULTS

Performance

	1 year return	3 year return*	5 year return*
	%	%	%
Capital return
Share price	-9.9	-14.1	+0.9
Net asset value per share	-16.9	-20.1	-6.9
S&P 500 Index (in sterling terms)	-17.4	-20.5	-7.8
Total return  (Capital return plus dividends reinvested)
Share price	-7.9	-10.2	+7.8
Net asset value per share	-15.6	-16.3	-0.6
S&P 500 Index (in sterling terms)	-15.4	-15.4	+1.6

* cumulative return

Financial Summary

	31 January 2009	31 January  2008	%  change
Total Assets	£181,077,000	£221,404,000	-18.2
Equity shareholders' funds	£181,042,000	£221,354,000	-18.2
Share price (mid market)	489.50p	543.50p	-9.9
Net Asset Value per share  (including undistributed revenue for the period)	481.50p	583.18p	-17.4
Net Asset Value per share  (excluding undistributed revenue for the period)	477.06p	574.19p	-16.9
S&P 500 Index (in sterling terms)	572.85	693.44	-17.4
Premium/(Discount) (difference between share price and net asset value B )	2.6%	(5.3%)
Dividends and earnings
Revenue return per share	7.93p	7.44p	+6.6
Dividends per share  (including proposed final dividend)	7.90p	11.42p	-30.8
Dividend cover	1.00	0.65
Revenue reserves per share  (prior to payment of proposed final dividend)	10.60p	15.01p
Revenue reserves per share  (after payment of proposed final dividend)	6.20p	6.04p
Operating costs
Total expense ratio	0.38%	0.33%

B Based on Net Asset Value per share (excluding undistributed revenue for the period) 

BUSINESS REVIEW

The Board has prepared this Business Review in accordance with the requirements of Section 417 of the Companies Act 2006.

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 833 of the Companies Act 2006. The Company has been approved by HM Revenue & Customs as an investment trust for the purposes of Section 842 of the Income and Corporation Taxes Act 1988 for the year ended 31 January 2008. The Directors are of the opinion, under advice, that the Company has conducted its affairs for the year ended 31 January 2009 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 Company has 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 Index, both in terms of capital and income. 

The Company's methodology in tracking the Index is full replication of the Index constituents. 

Review of Performance

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

Principal 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 Acts, 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 note 17 to the accounts.

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 500 Index (in sterling terms)

• Discount

• Total expense ratio

A record of these measures is disclosed in the Results section.  

Resource

The Company has no employees. The responsibility for the management of the Company has been delegated to Aberdeen Asset Managers Limited under the investment management agreement.

As an investment trust, the Company has no direct social, or community responsibilities. 

Results and Dividends

An interim dividend of 3.50p per Ordinary share was paid to shareholders on 24 October 2008. The Directors recommend that a final dividend per Ordinary share of 4.40p be paid on 26 May 2009 to shareholders on the register on 24 April 2009, making a total of 7.90p (2008 - 11.42p) per Ordinary share for the year ended 31 January 2009 (see Chairman's Statement). The ex-dividend date is 22 April 2009.  

DIRECTOR'S RESPONSIBILITY STATEMENT

The Directors are responsible for preparing the annual report and accounts and the financial statements, in accordance with applicable law and regulations.  

Company law 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 UK Accounting Standards.  

The financial statements are required by law to give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.  

In preparing these financial statements, the Directors are required to:  

• select suitable accounting policies and then apply them consistently;  

• make judgments and estimates that are reasonable and prudent;  

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

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

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 its financial statements comply with the Companies Act 1985. 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.  

Under applicable law and regulations, the Directors are also responsible for preparing a Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that comply with that law and those regulations.  

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

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

27 March 2009

  INCOME STATEMENT (audited)

		Year ended 31 January 2009			Year ended 31 January 2008
		Revenue	Capital	Total	Revenue	Capital	Total
	Notes	£'000	£'000	£'000	£'000	£'000	£'000
Net losses on investments	8	-	(37,641)	(37,641)	-	(26,601)	(26,601)
Net currency gains	16	-	1,015	1,015	-	114	114
Income	2	4,936	-	4,936	8,575	-	8,575
Investment management fee	3	(397)	-	(397)	(815)	-	(815)
Administrative expenses	4	(371)	-	(371)	(536)	-	(536)
		_______	_______	_______	_______	_______	_______
Net return on ordinary activities before finance costs and taxation		4,168	(36,626)	(32,458)	7,224	(26,487)	(19,263)
Finance costs		-	-	-	(1)	-	(1)
		_______	_______	_______	_______	_______	_______
Return on ordinary activities before taxation		4,168	(36,626)	(32,458)	7,223	(26,487)	(19,264)
Taxation	5	(1,180)	-	(1,180)	(2,160)	(21)	(2,181)
		_______	_______	_______	_______	_______	_______
Return on ordinary activities after taxation		2,988	(36,626)	(33,638)	5,063	(26,508)	(21,445)
		_______	_______	_______	_______	_______	_______
Return per share (pence)	7	7.93	(97.18)	(89.25)	7.44	(38.95)	(31.51)
		_______	_______	_______	_______	_______	_______
The total column of this statement represents the profit and loss account of the Company. A Statement of Total Recognised Gains and Losses has not been prepared as all gains and losses are recognised in the Income Statement. All revenue and capital items in the above statement derive from continuing operations. The accompanying notes are an integral part of the financial statements. Proposed final dividend The Board is proposing a final dividend of 4.40p per share (£1,654,000), making a total dividend of 7.90p per share (£2,970,000) for the year to 31 January 2009 which, if approved, will be payable on 26 May 2009 (see note 6). For the year ended 31 January 2008, the final dividend was 8.97p per share (£3,400,000) making a total dividend of 11.42p per share (£5,050,000).

  BALANCE SHEET (audited)

		As at	As at
		31 January 2009	31 January 2008
	Notes	£'000	£'000
Fixed assets
Investments at fair value through profit or loss	8	178,452	219,664
		__________	__________
Current assets
Debtors and prepayments	9	319	378
Cash and short term deposits	16	2,828	3,243
		__________	__________
		3,147	3,621
		__________	__________
Creditors: amounts falling due within one year	10	(522)	(1,881)
		__________	__________
Net current assets		2,625	1,740
		__________	__________
Total assets less current liabilities		181,077	221,404
Provision for liabilities and charges	11	(35)	(50)
		__________	__________
Net assets		181,042	221,354
		__________	__________
Capital and reserves
Called-up share capital	12	9,400	9,489
Share premium account		32,643	32,643
Capital redemption reserve		12,695	12,606
Capital reserve	13	122,320	160,917
Revenue reserve		3,984	5,699
		__________	__________
Equity shareholders' funds		181,042	221,354
		__________	__________
Net asset value per share (pence)	14	481.50	583.18
		__________	__________

  RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS (audited)

For the year ended 31 January 2009
		Share	Capital
	Share	premium	redemption	Capital	Revenue
	capital	account	reserve	reserve	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 31 January 2008	9,489	32,643	12,606	160,917	5,699	221,354
Return on ordinary activities after taxation	-	-	-	(36,626)	2,988	(33,638)
Dividends paid (see note 6)	-	-	-	-	(4,703)	(4,703)
Purchase of own shares for cancellation	(89)	-	89	(2,010)	-	(2,010)
Over-accrual of expenses relating to the Tender Offer	-	-	-	39	-	39
	_______	________	_________	________	________	________
Balance at 31 January 2009	9,400	32,643	12,695	122,320	3,984	181,042
	_______	________	_________	________	________	________
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 (see note 6)	-	-	-	-	(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
	_______	________	_________	________	________	________

  CASH FLOW STATEMENT (audited)

		Year ended		Year ended
		31 January 2009		31 January 2008
	Notes	£'000	£'000	£'000	£'000
Net cash inflow from operating activities	15		3,248		8,114
Servicing of finance
Interest paid			-		(1)
Taxation
UK corporation tax paid		(770)		(898)
Overseas withholding tax paid		(716)		(1,211)
		_______		_______
Net tax paid			(1,486)		(2,109)
Financial investment
Purchases of investments		(8,541)		(12,040)
Sales of investments		12,023		208,056
		_______		_______
Net cash inflow from financial investment			3,482		196,016
Equity dividends paid			(4,703)		(4,823)
			_______		_______
Net cash inflow before financing			541		197,197
Financing
Buy back of Ordinary shares (including expenses)		(2,010)		(32,254)
Tender offer for own shares (including expenses)		39		(166,468)
			_______		_______
Net cash outflow from financing			(1,971)		(198,722)
			_______		_______
Decrease in cash			(1,430)		(1,525)
			_______		_______
Reconciliation of net cash flow to movement in net funds
Decrease in cash as above			(1,430)		(1,525)
Exchange movements			1,015		114
			_______		_______
Movement in net funds in the year			(415)		(1,411)
Opening net funds			3,243		4,654
			_______		_______
Closing net funds	16		2,828		3,243
			_______		_______

  NOTES TO THE ACCOUNTS 

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 and Venture Capital Trusts' (issued January 2009). The early adoption of the January 2009 SORP had no effect on the financial statements of the Company, other than the requirement to separately disclose capital reserves that relate to the revaluation of investments held at the reporting date. These are disclosed in note 13. This new requirement replaces the previous requirement to disclose the value of the capital reserve that was unrealised. 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.
		The financial statements, and the net asset value per share figures, have been prepared in accordance with UK Generally Accepted Accounting Practice (UK GAAP).
	(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 in the Income Statement. 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 costs 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.
	(h)	Derivative financial instruments

		2009	2008
2.	Income	£'000	£'000
	Income from investments held at fair value through profit or loss
	Dividends from overseas listed investments	4,863	8,165
	Other income
	Deposit interest	73	410
		__________	__________
	Total income	4,936	8,575

		2009	2008
3.	Investment management fee	£'000	£'000
	Investment management fee	397	815
		__________	__________
	The management fee payable to Aberdeen Asset Managers Limited ('Aberdeen') is 0.05% per quarter of the total assets of the Company after deducting current liabilities and excluding commonly managed funds. 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.
	The management agreement between the Company and Aberdeen 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.

		2009	2008
4.	Administrative expenses	£'000	£'000
	Directors' fees	45	49
	Registrar's fees	57	69
	Custody and bank charges	25	57
	Auditor's remuneration:
	- fees payable to the Company's auditor for the audit of the annual accounts	14	13
	Contribution to the Investment Trust Initiative	74	153
	Printing, postage and stationery	18	27
	Fees, subscriptions and publications	45	49
	Standard & Poors' licence fee	15	44
	Other expenses	78	75
		__________	__________
		371	536
		__________	__________
	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 £11,000 had been prepaid (2008 - £13,000 due) to the Manager.
	Included within other expenses for 2009 is an amount of £20,000 (2008 - £14,000) 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.

			2009			2008
			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	1,181	-	1,181	2,167	21	2,188
		Overseas tax relief	(706)	-	(706)	(1,208)	(21)	(1,229)
			________	_______	_______	________	_______	_______
		Corporation tax payable	475	-	475	959	-	959
		Overseas tax	720	-	720	1,213	21	1,234
			________	_______	_______	________	_______	_______
		Current tax charge for the year	1,195	-	1,195	2,172	21	2,193
		Movement in deferred tax	(15)	-	(15)	(12)	-	(12)
			________	_______	_______	________	_______	_______
		Charge per Income Statement	1,180	-	1,180	2,160	21	2,181
			________	_______	_______	________	_______	_______
							2009	2008
	(b)	Factors affecting the current revenue tax charge for the year					£'000	£'000
		Revenue return on ordinary activities before taxation					4,168	7,223
							_______	_______
		Return on ordinary activities multiplied by an effective rate of corporation tax in the UK of 28.33% (2008 - 30%)					1,181	2,167
		Effects of:
		Income taxable in different periods					14	5
							_______	_______
		Current tax charge for year					1,195	2,172
							_______	_______

		2009	2008
6.	Dividends	£'000	£'000
	Amounts recognised as distributions to equity holders in the year:
	Final dividend for 2008 - 8.97p per share (2007 - 4.45p)	3,400	3,173
	Interim dividend for 2009 - 3.50p per share (2008 - 2.45p)	1,316	1,650
	Unclaimed dividends from previous years	(13)	-
		__________	__________
		4,703	4,823
		__________	__________
	The proposed final dividend for 2009 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 £2,988,000 (2008 - £5,063,000).
		2009	2008
		£'000	£'000
	Interim dividend for 2009 - 3.50p per share (2008 - 2.45p)	1,316	1,650
	Proposed final dividend for 2009 - 4.40p per share (2008 - 8.97p)	1,654	3,400
		__________	__________
		2,970	5,050
		__________	__________
	The amount payable for the proposed final dividend above is based on the shares in issue at the date of this report (37,599,379) and this satisfies the s.842 test.

		2009	2009	2008	2008
7.	Return per Ordinary share	£'000	p	£'000	p
	The return per Ordinary share is based on the following figures:
	Revenue return	2,988	7.93	5,063	7.44
	Capital return	(36,626)	(97.18)	(26,508)	(38.95)
		_________	__________	________	__________
	Total return	(33,638)	(89.25)	(21,445)	(31.51)
		_________	__________	________	__________
	Weighted average number of Ordinary shares in issue		37,687,412		68,064,361

			2009	2008
8.	Investments		£'000	£'000
	Fair value through profit or loss:
	Opening fair value		219,664	442,446
	Opening investment holdings gains		(41,378)	(105,106)
			___________	__________
	Opening book cost		178,286	337,340
	Purchases at cost		8,477	11,875
	Sales	- proceeds	(12,048)	(208,056)
		- realised gains on sales	148	37,732
	Loss on traded option contracts		(957)	(605)
			___________	__________
	Closing book cost		173,906	178,286
	Closing investment holdings gains		4,546	41,378
			___________	__________
	Closing fair value		178,452	219,664
			___________	__________
	Listed on overseas stock exchanges		178,452	219,664
			___________	__________
			2009	2008
	(Losses)/gains on investments		£'000	£'000
	Realised gains on sales		148	37,732
	Loss on traded index futures contracts		(957)	(605)
	Movement in investment holdings gains		(36,832)	(63,728)
			___________	__________
			(37,641)	(26,601)
			___________	__________
	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 losses on investments in the Income Statement. The total costs were as follows:
			2009	2008{A}
			£'000	£'000
	Purchases		7	7
	Sales		6	10
			___________	__________
			13	17
			___________	__________
	{A} The 2008 transaction costs do not include the transactions costs associated with the tender offer which were included in the Repurchase NAV.

		2009	2008
9.	Debtors: amounts falling due within one year	£'000	£'000
	Dividends receivable	256	319
	Amounts due from brokers	25	-
	Other debtors and prepayments	38	59
		___________	__________
		319	378
		___________	__________

		2009	2008
10.	Creditors: amounts falling due within one year	£'000	£'000
	Taxation payable	252	532
	Amounts due to brokers	106	170
	Investment management fee payable	91	180
	Payable on account of Tender Offer	-	905
	Other creditors	73	94
		___________	__________
		522	1,881
		___________	__________
	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).

		2009	2008
11.	Provision for liabilities and charges	£'000	£'000
	Deferred taxation provision:
	Opening balance	50	62
	Credited to revenue	(15)	(12)
		___________	__________
	Closing balance	35	50
		___________	__________
	The provision relates to the deferred tax liability in connection with the dividends receivable.

		2009	2008
12.	Called-up share capital	£'000	£'000
	Authorised:
	120,000,000 (2008 - 120,000,000) Ordinary shares of 25p each	30,000	30,000
		___________	__________
	Allotted, called-up and fully paid:
	Opening balance	9,489	18,134
	Shares bought back for cancellation	(89)	(1,343)
	Tender Offer for own shares	-	(7,302)
		___________	__________
	37,599,379 (2008 - 37,956,379) Ordinary shares of 25p each	9,400	9,489
		___________	__________
	During the year the Company bought back and cancelled 357,000 Ordinary shares of 25p each (2008 - 5,373,500) for a total consideration of £2,010,000 (2008 - £32,254,000). This represents 0.9% of the Company's issued share capital at 31 January 2008.
	During the year ended 31 January 2008 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.

		2009	2008
13.	Capital reserve	£'000	£'000
	At 1 February	160,917	386,147
	Movement in fair value gains	(37,641)	(26,601)
	Foreign exchange movements	1,015	114
	Taxation	-	(21)
	Purchase of own shares for cancellation	(2,010)	(32,254)
	Tender Offer for own shares	-	(166,468)
	Over-accrual of expenses relating to the Tender Offer	39	-
		___________	__________
	At 31 January	122,320	160,917
		___________	__________
	Included in the total above are investment holdings gains at the year end of £4,546,000 (2008 - £41,378,000).
	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:
		2009	2008
	Net assets attributable	£181,042,000	£221,354,000
	Number of Ordinary shares in issue	37,599,379	37,956,379
	Net asset value per share	481.50p	583.18p

15.	Reconciliation of net return before finance costs and taxation to	2009	2008
	net cash inflow from operating activities	£'000	£'000
	Return on ordinary activities before finance costs and taxation	(32,458)	(19,263)
	Adjustments for:
	Net losses on investments	37,641	26,601
	Foreign exchange movements	(1,015)	(114)
	Decrease in accrued income	74	28
	Decrease in other debtors	21	26
	(Decrease)/increase in other creditors	(1,015)	836
		___________	__________
	Net cash inflow from operating activities	3,248	8,114
		___________	__________

		At			At
		1 February	Cash	Exchange	31 January
		2008	flow	movements	2009
16.	Analysis of changes in net funds	£'000	£'000	£'000	£'000
	Cash and short term deposits	3,243	(1,430)	1,015	2,828

17.

Financial instruments

The Company's financial instruments, other than derivatives, comprise listed securities, cash balances, 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 £957,000 (2008 - loss of £605,000) which reflected the movements in the Index. The largest position in derivative contracts held during the year was £8.2 million (2008 - £5.8 million). The Company had no open positions in derivative contracts at 31 January 2009 or 2008.

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 2009 (2008 - £nil).

Risk management

The main risk to the Company is the failure to track closely the S&P 500 Index. The main risks associated with the Company's financial instruments are market risk (comprising price risk, interest risk and foreign currency risk), liquidity risk and credit risk.

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.

(i) Market risk

The Company's exposure to market 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 - price risk, interest rate risk and foreign currency risk

Price risk

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 Index. 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 investment movements to the Board on a regular basis. The investments held by the Company are listed on the New York Stock Exchange and NASDAQ.

Price risk sensitivity

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 2009 would have increased/decreased by £17,845,000 (2008 - increase/decrease of £21,966,000) 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.

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 US Dollar 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 2009 and 2008:

Interest

Local

Foreign

Sterling

rate

currency

exchange

equivalent

As at 31 January 2009

%

'000

rate

£'000

US Dollar

0.00

3,566

1.4417

2,473

Sterling

1.25

355

-

355

_________

Total cash on deposit per Balance Sheet

2,828

_________

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

_________

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 1.25% (2008 - 5.5%) for Sterling funds, and nil (2008 - 3.00%) for US Dollar funds at 31 January 2009. Movements in interest rates 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 Index.

Foreign currency risk exposure by currency of denomination:

31 January 2009

31 January 2008

Net

Total

Net

Total

Overseas

monetary

currency

Overseas

monetary

currency

investments

assets

exposure

investments

assets

exposure

£'000

£'000

£'000

£'000

£'000

£'000

US Dollar

178,452

2,647

181,099

219,664

1,205

220,869

Sterling

-

(22)

(22)

-

535

535

_________

_________

________

_________

_________

_________

Total

178,452

2,625

181,077

219,664

1,740

221,404

_________

_________

________

_________

_________

_________

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 comparative year's 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.

(ii) 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.

(iii) 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 Company considers credit risk not to be significant as it is actively managed as follows:

-     investment securities are safeguarded by an independent custodian;

-     investment transactions are carried out with a large number of brokers, whose credit-standing is reviewed periodically by the Manager, and limits are set on the amount that may be due from any one broker;

-     cash is held only with banks with high quality external credit ratings;

-     the Company does not undertake stocklending.

None of the Company's financial assets are secured by collateral or other credit enhancements.

Exposure to credit risk

In summary, compared to the amounts in the Balance Sheet, the exposure to credit risk at 31 January was as follows:

2009

2008

£'000

£'000

Debtors and prepayments

319

378

Cash and short term deposits

2,828

3,243

_________

_________

3,147

3,621

_________

_________

18.	Capital management policies and procedures
	The capital of the Company consists of equity, comprising issued capital, reserves and retained earnings. The Board monitors and reviews the broad structure of the Company's capital on an ongoing basis. This review includes the impact of share buybacks and the extent to which revenue should be retained. The Company is not subject to any externally imposed capital requirements.

19.

The financial information set out above does not constitute statutory accounts for the year ended 31 January 2009 in accordance with Section 240 of the Companies Act 1985. The financial information for the year ended 31 January 2008 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 2009 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 2009 at 11.00am

20.

The Annual Report and Accounts will be posted to shareholders in April 2009 and copies will be available from the investment manager or from the Company's website, www.edinburghustracker.co.uk.

 

END

 

 

FR SEAFLWSUSESD