Legal & General US Index Trust Annual Manager s Short Report for the year ended 5 December 2009 Distribution Number 9
Investment Objective and Policy The investment objective of this Trust is to track the capital performance of the US equity market, as represented by the FTSE World USA Index, by investment in a representative sample of stocks selected from all economic sectors (including a stock or stocks reasonably expected to be shortly part of that Index). Securities in the FTSE World USA Index will be held with weightings generally proportionate to their company s market capitalisation. From time to time non-index constituents may be held as a result of corporate action and these holdings will be sold or transferred as soon as reasonably practical. Risk Profile Market Risk Market risk arises mainly from uncertainty about future prices. The Manager adheres to the investment guidelines and in this way, monitors and controls the exposure to risk from any type of security, sector or issuer. Currency Risk This Trust is invested in overseas financial securities. The performance of the Trust may therefore be affected by changes in exchange rates. This risk may be managed by the use of forward currency contracts, which aim to manage the effect of changing exchange rates. Trust Facts Period End Dates for Distributions: 5 Jun, 5 Dec Distribution Dates: 5 Aug, 5 Feb Total Expense Ratios: 5 Dec 09 5 Dec 08 R-Class 0.78% 0.78% I-Class 0.33% 0.33% The Total Expense Ratio is the ratio of the Trust s operating costs (excluding overdraft interest and VAT recoverable from predecessor fund) to the average net assets of the Trust. Portfolio Turnover Year to Year to 5 Dec 09 5 Dec 08 Total purchases for the year 207,369,881 315,065,588 Total sales for the year 224,019,227 98,615,860 Portfolio Turnover Rate (5.13%) (1.72%) The Portfolio Turnover Rate (PTR) gives an indication of how much the Trust's investments have changed during the year. As the Trust pays for any charges involved with buying and selling investments, the higher the percentage, the more costs it has paid. 1
Trust Performance Net Asset Net Asset Number Of Accounting Value Of Value Per Units Date Trust Unit In Issue 5 Dec 07 R-Class Distribution Units 453,412,871 144.24p 314,336,943 Accumulation Units 139,567,183 151.05p 92,397,833 I-Class Distribution Units 124,115,551 144.22p 86,060,585 Accumulation Units 278,467,524 152.36p 182,768,197 5 Dec 08 R-Class Distribution Units 445,300,575 119.67p 372,113,524 Accumulation Units 114,775,233 126.85p 90,479,794 I-Class Distribution Units 114,391,648 119.63p 95,620,570 Accumulation Units 357,062,416 128.45p 277,972,012 5 Dec 09 R-Class Distribution Units 486,060,734 135.20p 359,524,161 Accumulation Units 154,447,602 145.08p 106,458,687 I-Class Distribution Units 140,646,986 135.18p 104,040,545 Accumulation Units 365,190,645 147.49p 247,603,149 Past performance is not a guide to future performance. The price of units and income from them may go down as well as up. Exchange rate changes may cause the value of any overseas investments to rise or fall. Distribution Information R-Class The distribution payable on 5 February 2010 is 0.5505p net per unit for distribution units and 0.5888p net per unit for accumulation units. I-Class The distribution payable on 5 February 2010 is 0.9120p net per unit for distribution units and 0.9882p net per unit for accumulation units. 2
Portfolio Information The top 10 holdings and their associated weighting for the current and preceding year are: Top 10 Holdings at 5 December 2009 Percentage of Holding Net Asset Value Exxon Mobil 3.41% Microsoft 2.51% Procter & Gamble 1.72% Johnson & Johnson 1.68% Apple Computer 1.66% General Electric 1.61% IBM 1.58% AT&T 1.55% JPMorgan Chase & Co 1.55% Wal-Mart Stores 1.49% Top 10 Holdings at 5 December 2008 Percentage of Holding Net Asset Value Exxon Mobil 4.71% General Electric 2.25% Procter & Gamble 2.24% Microsoft 2.17% Wal-Mart Stores 2.07% AT&T 2.01% Johnson & Johnson 1.96% Chevron 1.84% JPMorgan Chase & Co 1.47% Wells Fargo & Co 1.36% Trust Holdings as at 5 December 2009 20% 17% 16% 15% 10% 12% 12% 12% 11% 10% 5% 3% 3% 3% 1% 0% Technology Financials Health Care Industrials Consumer Services Oil & Gas Consumer Goods Utilities Basic Materials Telecommunications Net Other Assets Trust Holdings as at 5 December 2008 20% 16% 15% 14% 14% 12% 11% 11% 11% 10% 5% 4% 3% 3% 0% Financials Technology Health Care Oil & Gas Consumer Services Industrials Consumer Goods Utilities Telecommunications Basic Materials 1% Net Other Assets 3
Unit Price Range and Net Revenue R-Class Units Highest Lowest Net Year Offer Bid Revenue Distribution Units 2004 125.30p 112.10p 0.7757p 2005 146.30p 117.30p 0.8610p 2006 149.10p 131.30p 1.0731p 2007 154.30p 136.10p 1.0972p 2008 147.20p 102.40p 1.2922p 2009 (2) 137.50p 98.10p 1.8156p 2010 (3) 0.5505p Accumulation Units 2004 127.40p 114.30p 0.7872p 2005 150.20p 120.10p 0.8795p 2006 153.70p 135.90p 1.0833p 2007 160.30p 141.90p 1.1451p 2008 154.10p 107.70p 1.3514p 2009 (2) 147.00p 103.90p 1.9449p 2010 (3) 0.5888p I-Class Units Highest Lowest Net Year Offer Bid Revenue Distribution Units 2005 (1) 144.10p 140.00p 2006 148.70p 131.00p 0.8695p 2007 154.70p 136.60p 1.7669p 2008 147.20p 102.50p 1.8700p 2009 (2) 138.40p 97.63p 2.2014p 2010 (3) 0.9120p Accumulation Units 2005 (1) 148.50p 144.30p 2006 153.20p 135.80p 0.8915p 2007 161.40p 143.40p 1.8152p 2008 155.50p 109.00p 2.0229p 2009 (2) 149.90p 104.90p 2.3516p 2010 (3) 0.9882p (1) From 6 December 2005. (2) The above tables show highest offer and lowest bid prices to 5 December 2009. (3) The above tables show the net revenue per unit to 5 February 2010. Past performance is not a guide to future performance. The price of units and income from them may go down as well as up. Exchange rate changes may cause the value of any overseas investments to rise or fall. 4
Manager s Investment Report During the year under review, the bid price of the Trust s R-Class distribution units rose by 18.6%. This compares to a rise in the FTSE World USA Index of 12.0%, on a price return basis in Sterling adjusted terms (Source: Bloomberg). The tracking difference is due to the fact that the Trust is valued using prevailing prices and exchange rates at 3pm UK time, whereas the Index is valued using close of business US prices and exchange rates. During the year under review, the performance of the Trust tracked the Index. Past performance is not a guide to future performance. The value of investments and income from them may go down as well as up. Exchange rate changes may cause the value of any overseas investments to rise or fall. The FTSE World USA Index is calculated by FTSE International Limited ( FTSE ). FTSE does not sponsor, endorse or promote this product. All copyright in the index values and constituent list belongs to FTSE. Legal & General (Unit Trust Managers) Limited has obtained full licence from FTSE to use such copyright in the creation of this product. FTSE TM, FT-SE and Footsie are trade marks of the London Stock Exchange Plc and The Financial Times Limited and are used by FTSE International Limited ( FTSE ) under licence. Market/Economic Review During the first six months under review, companies cut back capital spending and reduced inventories. Unemployment rose sharply, resulting in extremely muted consumer spending patterns. Corporate profits declined quite rapidly, with the deterioration spreading from the Financial sectors to a broader range of industry groups. During the second half of the year under review, economic activity finally stabilised and eventually demonstrated muted growth, due mainly to the significant stimulatory measures taken by the US administration. Against a very poor fundamental background, the US Treasury and US Federal Reserve continued to support the financial system in an effort to free up frozen credit markets and stabilise the contraction in economic activity. The administration announced a US$787 billion stimulus package, and the US Federal Reserve aggressively expanded its balance sheet by purchasing US Treasuries and Mortgage-Backed Securities.The policy of Quantitative Easing (injecting liquidity into the banking system) resulted in an improvement in credit markets and as a consequence, investor s willingness to embrace risk rose. 5
Manager s Investment Report continued Corporate profits rebounded strongly from the trough seen at the start of the year, and several major deals were announced in the period as companies were able to access credit markets again to obtain the finance. Significantly, banks were able raise the capital to repair their balance sheets, and although corporate lending remains muted, this important part of the economy is now in a position to carry out its primary function. The best performing sectors over the reporting year were Information Technology, Materials and Consumer Discretionary. The worst performing sectors were Telecom Services, Utilities and Consumer Staples. Within Technology, the semiconductor companies Advanced Micro Devices and Micron Technology were among the best performers, being the most sensitive to the production cycle. Within the Mining sector Freeport-McMoRan Copper & Gold rose sharply, as commodities rallied in response to extremely low interest rates and the weakness in the US Dollar. Within the Automobiles and Parts sector, Ford Motor and Goodyear Tire benefited from the rise in auto sales as the administration provided significant aid to the industry. The homebuilders Pulte Homes and KB Home remained weak, as the excess inventory of unsold homes depressed sales. Several major corporate transactions were announced during the year under review, as companies sought ways to create Shareholder value in an environment of subdued revenue growth. Within Technology, Dell bid for Perot Systems, Cisco bid for Tandberg and Affiliated Computer Services was acquired by Xerox. In the Industrial sector, Burlington Northern was acquired by Berkshire Hathaway. In the Pharmaceutical sector, Merck acquired Schering Plough and Pfizer bid for Wyeth in an attempt to replace their declining pipelines of new drugs. Trust Review The annual review of the Index in December 2008 saw seven additions and 36 deletions. The two largest additions being Visa and Southwestern Energy Company. During the first six months of 2009 there were significant changes within the Banking sector;wells Fargo & Co saw its weight in the Index increase after it completed its US$12.7 billion purchase of Wachovia Corp. Similarly, Bank of America completed its US$18.5 billion takeover of Merrill Lynch creating the world s largest asset management business. Genentech was deleted from the Index after the completion of its US$46.8 billion cash takeover by Roche (Switzerland), creating the world s largest biotech company. Similarly, UST was deleted from the Index after being acquired by Alteria Group for US$10.4 billion in cash and Sovereign Bancorp 6
Manager s Investment Report continued was deleted after being taken over by Banco Santander (Spain). A large number of companies including Northeast Utilities, Cameco Corp, U.S Bancorp, Principal Financial Group, MGM Mirage, Regional Financial, Bank of America and Alcoa issued additional shares to either finance acquisitions or strengthen their balance sheets and as a result saw their weight in the Index increase. The second half of 2009 continued with significant Index changes;thomson Corporation s US$18 billion purchase of UK constituent Reuters resulted in a large weight increase. US banks Citigroup, Bank of America and Legg Mason continued to raise capital in the second half of 2009 to repay the US government as part of the Troubled Asset Relief Programme (TARP) funding. The issue of new shares and reduction in government holdings resulted in weight increases to the Index. Outlook After the gains of recent months, a period of consolidation is now due in the stock market. Investors are likely to consider the sustainability of any improvement in economic growth that should emerge in the next few months. As has been the case for much of the past year further policy measures from the US Administration and US Federal Reserve will continue to play a key role in determining the financial landscape. The US Federal Reserve has made it very clear that interest rates are likely to stay low for some considerable time. With corporate profits continuing to improve, we believe further progress in the equity market is likely in 2010. Legal & General Investment Management Limited (Investment Adviser) 5 January 2010 7
Manager s Report and Accounts Copies of the most recent Interim and Annual Long Form Manager s Reports are available free of charge by telephoning 0370 050 0955 or by writing to the Manager. Call charges will vary. We may record and monitor calls. Significant Changes Registration Fees The Registrar makes a charge in respect of its services in establishing and maintaining the register and the plan sub-registers that relate to ISAs and group savings plans. Prior to 1 October 2009, this charge amounted to 14.94 per annum in respect of each holding on the unit register for the Trust and was taken from the assets of the Trust. From 1 October 2009, the Registrar s charge will be: R-Class 0.15% per annum I-Class 0.03% per annum The charge is calculated daily at unit class level based on the net asset value of the Trust using mid prices on the prior business day. The charge will be deducted from the capital/revenue assets of the Trust, depending on the policy for the deduction of expenses of the relevant Trust. Management Charges With effect from 1 October 2009, the Annual Management Charge on the R-Class will be reduced from 0.75% to 0.65%. The I-Class Annual Management Charge will remain unchanged. Other Information The information in this report is designed to enable unitholders to understand how the Trust has performed during the year under review and how it is invested at the year end. Further information on the activities and performance of the Trust can be obtained by telephoning 0370 050 0955 or by writing to the Manager. Manager: Legal & General (Unit Trust Managers) Limited, Registered in England No. 1009418 Registered office: One Coleman Street London EC2R 5AA Telephone: 0370 050 3350 Authorised and regulated by the Financial Services Authority 8
Trustee: The Royal Bank of Scotland Plc, Trustee and Depositary Services, Gogarburn, P.O. Box 1000 Edinburgh EH12 1HQ Authorised and regulated by the Financial Services Authority Independent Auditors: PricewaterhouseCoopers LLP, Hay s Galleria, 1 Hay s Lane London SE1 2RD 9
Authorised and regulated by the Financial Services Authority Legal & General (Unit Trust Managers) Limited Registered in England No. 1009418 Registered office: One Coleman Street, London EC2R 5AA www.legalandgeneral.com Q0026143