Annual Financial Report - Rep

RNS Number : 6622J
Edinburgh US Tracker Trust plc
01 April 2010
 



AMENDMENT

This announcement replaces the earlier announcement released on 31 March 2009) at 8.00 hrs (RNS No: 4463J)

 

Please note the amendment to note 6 regarding the proposed final dividend. 'The final dividend, subject to shareholder approval, will be paid on 21 May 2010 to shareholders on the register at the close of business on 23 April 2010.  The ex-dividend date is 21 April 2010'.

 

Please see below the correct announcement.

 

 

 

31 March 2010

 

 

EDINBURGH US TRACKER TRUST PLC

ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 JANUARY 2010

 

 

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

 

 

•     Company continues to track the performance of the S&P Composite Index

 

•     Total dividend increased to 10.0p per share for the year ended 31 January 2010 (2009 - 7.90p)

 

 

For further information, please contact:

 

David McCraw

Aberdeen Asset Managers Limited                                                        0131 528 4000

 



CHAIRMAN'S STATEMENT

 

US equities staged a powerful recovery, after a particularly weak start to the year, as investors anticipated correctly that lower interest rates and government stimulus packages would lead to a turnaround in the economy. This recovery duly transpired with the US economy growing at an annualised rate of 5.6% in the fourth quarter of 2009 following growth of 2.2% in the third quarter. The improvement in the economy was also reflected in corporate profits which were generally ahead of market expectations. The S&P500 Index rose by 30% in US dollars but the relative weakness in the US currency reduced these gains significantly for sterling based investors.

 

The Company continues to meet the objective of tracking the performance of the S&P 500 Index. In the 12 months to 31 January 2010, the net asset value per share (excluding undistributed revenue for the period) rose by 17.0% to 557.96p (NAV), compared to an increase of 17.0% 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 capital net asset values per share for the period 31 July 1997 to 31 January 2010 were 1.34% per annum compared to an annualised return of 1.12% 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 1,142,871 of its own shares for cancellation. The share price rose by 9.7% during the year (compared to the index return of 17.0%) and at 31 January 2010 the shares were standing at a discount of 3.8% to the net asset value per share (excluding the undistributed revenue of the period) compared with a premium of 2.6% at 31 January 2009.

 

Dividend

The revenue return per share rose by 1.1% to 8.02p. The slight increase in the revenue return is attributable to a more beneficial US dollar/exchange rate, over the comparative period in 2009, and a lower tax charge which more than offset lower dividends being paid by a number of companies held in the portfolio.  Most of the Company's income is derived from its overseas investments and from 1 July 2009 overseas dividends received by investment trusts were exempted from corporation tax. The full benefit of this change in taxation will be received in the year ahead. The Directors declared an interim dividend of 6.20p per share for the year to 31 January 2010 which included an additional 2.00p per share from accumulated revenue reserves. This one-off supplement recognised the non-recurring benefit to revenue reserves per share arising from the tender offer, which took place in January 2008, the increase in personal tax rates in April 2010 and the opportunity to make an increased distribution to shareholders at a time when income from equity investments has been under pressure. Your Board is recommending a final dividend of 3.80p which will take the total dividends for the year to 10.00p (2009: 7.90p).

 

Marketing

Your Board continues to contribute to the Investment 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.

 

Alternative Investment Fund Manager (AIFM) Directive 

The European Commission published the draft AIFM Directive in April 2009. Its purpose is to introduce a new authorisation and supervisory regime for all alternative investment fund managers managing alternative investment funds within the European Union. If implemented as currently drafted, the Directive would impose an onerous additional regulatory burden on investment trusts, with potentially adverse consequences. The Board supports the efforts of the Association of Investment Companies to ensure that any such proposed regulation is proportionate and appropriate in relation to investment companies. The Board will keep shareholders informed of any major further developments concerning this.

 

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 Monday 17 May 2010. 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 0.40%, 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 in the Annual General Meeting.

 

The law in relation to companies has undergone a number of changes following the introduction of new legislation in the UK under the Companies Act 2006. The changes have been implemented in stages and the final parts were implemented in October 2009. A special resolution will be proposed as special business at the Annual General Meeting to update the Articles of Association in order to reflect the latest provisions of the Act. 

 

Outlook

The US economy has rebounded strongly from the depths of recession but questions remain over the durability of this recovery in the face of the high levels of private and public debt that continue to be key features of the US. The Federal Reserve has stated that interest rates could be maintained at historically low levels for a prolonged period to assist the economic recovery and this accommodating stance to monetary policy should continue to provide support for equity markets in the months ahead. At some point, any sustained recovery in economies will require Governments to address the need for tighter monetary regimes.

 

James Ferguson

Chairman

 

 

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

 

Standard & Poor's undertakes regular reviews of the market cap guidelines for its US indices to ensure that these reflect changes in share prices. The current guidelines are:

 

-     S&P 500 Index - market cap of $3.5 billion or greater

-     S&P MidCap 400 - $850 million to $3.8 billion

-     S&P SmallCap 600 - $250 million to $1.2 billion

 

The level of activity within the portfolio reflected changes to the constituents of the Index which were the result of takeover activity (7 constituents were acquired), low market capitalisations (10 constituents were removed) and change of domicile (8 constituents were removed). The other feature of the period was the continuing need for banks to raise additional equity capital.

 

Some of the better known names to leave the S&P 500 Index as a result of takeover activity included Rohm & Haas, Centex, Wyeth, Schering Plough and Sun Microsystems. The new entrants to the index included Western Digital, Airgas, Visa, Time Warner Cable, Red Hat and Berkshire Hathaway.

 

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 1,142,871 shares were purchased during the year at a total cost of £5.9 million. 

 

The total value of purchases in the year, excluding the Company's own shares, amounted to £8.8 million while sales totalled £14.8 million. 

 

Aberdeen Asset Managers Limited

 

 

 

PERFORMANCE TABLES

Performance


1 year return

3 year return*

5 year return*


%

%

%

Capital return




Share price

9.7

-8.4

10.7

Net asset value per share

16.3

-9.0

7.4

S&P 500 Index (in sterling terms)

17.0

-8.8

7.0





Total return
(Capital return plus dividends reinvested)




Share price

12.1

-3.2

19.6

Net asset value per share

18.7

-4.0

15.6

S&P 500 Index (in sterling terms)

19.8

-2.5

18.8





* cumulative return

 

Financial Summary

 

 
31 January 2010
31 January 2009
%
change
Total Assets
£204,098,000
£181,077,000
+12.7
Equity shareholders' funds
£204,098,000
£181,042,000
+12.7
Share price (mid market)
537.00p
489.50p
+9.7
Net Asset Value per share
(including undistributed revenue for the period)
559.84p
481.50p
+16.3
Net Asset Value per share
(excluding undistributed revenue for the period)
557.96p
477.06p
+17.0
S&P 500 Index (in sterling terms)
670.16
572.85
+17.0
Premium/(Discount) (difference between share price and net asset value B )
(3.8%)
2.6%
 
 
 
 
 
Dividends and earnings
 
 
 
Revenue return per share
8.02p
7.93p
+1.1
Dividends per share
(including proposed final dividend)
10.00p
7.90p
+26.6
Dividend cover
0.80
1.00
 
Revenue reserves per share
(prior to payment of proposed final dividend)
8.27p
10.60p
 
Revenue reserves per share
(after payment of proposed final dividend)
4.47p
6.20p
 
 
 
 
 
Operating costs
 
 
 
Total expense ratio
0.40%
0.38%
 

 
 

 

 

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 2009. The Directors are of the opinion, under advice, that the Company has conducted its affairs for the year ended 31 January 2010 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. Details of the investment policy are provided in the Corporate Summary section. 

 

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 above 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, details are which are provided in the 2010 Annual Report.

 

As an investment trust, the Company has no direct social, or community responsibilities. Details of the Company's policy on socially responsible investment are set out in the Statement of Corporate Governance, which is provided in the 2010 Annual Report.

 

 

DIRECTOR'S RESPONSIBILITY STATEMENT

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

 

Company law requires the Directors to prepare financial statements for each financial year. Under that law they have elected to prepare the financial statements in accordance with UK Accounting Standards and applicable law (UK Generally Accepted Accounting Practice).

 

Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period. In preparing these financial statements, the Directors are required to:

 

-     select suitable accounting policies and then apply them consistently;

-     make 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 adequate accounting records that are sufficient to show and explain the company's transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 2006. 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 complies 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.

 

For Edinburgh US Tracker Trust plc

James Ferguson

Chairman

30 March 2010



INCOME STATEMENT (audited)

 



Year ended 31 January 2010

Year ended 31 January 2009



Revenue

Capital

Total

Revenue

Capital

Total


Notes

£'000

£'000

£'000

£'000

£'000

£'000

Net gains/(losses) on investments

8

-

30,214

30,214

-

(37,641)

(37,641)

Net currency (losses)/gains

16

-

(284)

(284)

-

1,015

1,015

Income

2

4,433

-

4,433

4,936

-

4,936

Investment management fee

3

(386)

-

(386)

(397)

-

(397)

Administrative expenses

4

(370)

-

(370)

(371)

-

(371)



______

______

______

______

______

______

Net return on ordinary activities before finance costs and taxation


3,677

29,930

33,607

4,168

(36,626)

(32,458)

Finance costs


(1)

-

(1)

-

-

-



______

______

______

______

______

______

Return on ordinary activities before taxation


3,676

29,930

33,606

4,168

(36,626)

(32,458)

Taxation

5

(687)

-

(687)

(1,180)

-

(1,180)



______

______

______

______

______

______

Return on ordinary activities after taxation


2,989

29,930

32,919

2,988

(36,626)

(33,638)



______

______

______

______

______

______









Return per share (pence)

7

8.02

80.28

88.30

7.93

(97.18)

(89.25)



______

______

______

______

______

______









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 3.80p per share (£1,344,000), making a total dividend of 10.0p per share (£3,649,000) for the year to 31 January 2010 which, if approved, will be payable on 21 May 2010 (see note 6).


For the year ended 31 January 2009, the final dividend was 4.40p per share (£1,654,000) making a total dividend of 7.90p per share (£2,970,000).

 



BALANCE SHEET (audited)

 



As at

As at



31 January 2010

31 January 2009


Notes

£'000

£'000

Fixed assets




Investments at fair value through profit or loss

8

202,656

178,452



__________

__________

Current assets




Debtors and prepayments

9

206

319

Cash and short term deposits

16

1,729

2,828



1,935

3,147





Creditors: amounts falling due within one year

10

(493)

(522)



__________

__________

Net current assets


1,442

2,625



__________

__________

Total assets less current liabilities


204,098

181,077





Provision for liabilities and charges

11

-

(35)



__________

__________

Net assets


204,098

181,042



__________

__________

Capital and reserves




Called-up share capital

12

9,114

9,400

Share premium account


32,643

32,643

Capital redemption reserve


12,981

12,695

Capital reserve

13

146,346

122,320

Revenue reserve


3,014

3,984



__________

__________

Equity shareholders' funds


204,098

181,042



__________

__________





Net asset value per share (pence)

14

559.84

481.50



__________

__________

 



RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS (audited)

 

 

For the year ended 31 January 2010








 Share

 Capital




 Share

Premium

Redemption

 Capital

Revenue


Capital

 Account

 Reserve

 Reserve

 Reserve


 £'000

 £'000

 £'000

 £'000

 £'000

Balance at 31 January 2009

9,400

32,643

12,695

122,320

3,984

Return on ordinary activities after taxation

-

-

-

29,930

2,989

Dividends paid (see note 6)

-

-

-

-

(3,959)

Purchase of own shares for cancellation

(286)

-

286

(5,904)

-


______

______

______

______

______

______

Balance at 31 January 2010

9,114

32,643

12,981

146,346

3,014

204,098


______

______

______

______

______













 For the year ended 31 January 2009








 Share

 Capital




 Share

Premium

Redemption

 Capital

Revenue


Capital

 Account

 Reserve

 Reserve

 Reserve


 £'000

 £'000

 £'000

 £'000

 £'000

Balance at 31 January 2008

9,489

32,643

12,606

160,917

5,699

Return on ordinary activities after taxation

-

-

-

(36,626)

2,988

Dividends paid (see note 6)

-

-

-

-

(4,703)

Purchase of own shares for cancellation

(89)

-

89

(2,010)

-

Over-accrual of expenses relating to the Tender Offer

-

-

-

39

-


______

______

______

______

______

Balance at 31 January 2009

9,400

32,643

12,695

122,320

3,984


______

______

______

______

______



CASH FLOW STATEMENT (audited)

 

 



Year ended

Year ended



31 January 2010

31 January 2009


Notes

£'000

£'000

£'000

£'000

Net cash inflow from operating activities

15


3,811


3,248







Servicing of finance






Interest paid



(1)


-







Taxation






UK corporation tax paid


(290)


(770)


Overseas withholding tax paid


(660)


(716)




______


______


Net tax paid



(950)


(1,486)







Financial investment






Purchases of investments


(8,666)


(8,541)


Sales of investments


14,859


12,023




______


______


Net cash inflow from financial investment



6,193


3,482







Equity dividends paid



(3,964)


(4,703)




______


______

Net cash inflow before financing



5,089


541







Financing






Buy back of Ordinary shares (including expenses)


(5,904)


(2,010)


Tender offer for own shares (including expenses)


-


39




______


______


Net cash outflow from financing



(5,904)


(1,971)




______


______

Decrease in cash



(815)


(1,430)




______


______

Reconciliation of net cash flow to movement in net funds






Decrease in cash as above



(815)


(1,430)

Exchange movements



(284)


1,015




______


______

Movement in net funds in the year



(1,099)


(415)

Opening net funds



2,828


3,243




______


______

Closing net funds

16


1,729


2,828




______


______



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 the applicable UK Accounting Standards and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (issued in January 2009). They have also been prepared on the assupmtion 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).






The Company adopted the extended disclosure requirements within FRS 29 for accounting periods beginning on or after 1 January 2009. The extended disclosure requirements introduced a fair value hierarchy and this is disclosed in Note 19.





(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



Index future contracts are accounted for as separate derivative contracts and are shown in other assets or other liabilities in the Balance Sheet at their fair value.

 



2010

2009

2.

Income

£'000

£'000


Income from investments held at fair value through profit or loss




Dividends from overseas listed investments

4,404

4,863


Stock dividends

29

-



______

______



4,433

4,863



______

______


Other income




Deposit interest

-

73



______

______


Total income

4,433

4,936



______

______

 



2010

2009

3.

Investment management fee

£'000

£'000


Investment management fee

386

397



______

______




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 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.

 



2010

2009

4.

Administrative expenses

£'000

£'000


Directors' fees

49

45


Registrar's fees

59

57


Custody and bank charges

29

25


Auditor's remuneration:




- fees payable to the Company's auditor for the audit of the annual accounts

14

14


Contribution to the Investment Trust Initiative

68

74


Printing, postage and stationery

24

18


Fees, subscriptions and publications

33

45


Standard & Poors' licence fee

18

15


Other expenses

76

78



______

______



370

371



______

______






The contribution to the Investment Trust Initiative was paid to the Manager in respect of marketing of the Company. At the year end £6,000 was due (2009 - £11,000 prepaid) to the Manager.




Included within other expenses for 2010 is an amount of £22,000 (2009 - £20,000) being 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.

 

5. 

Taxation

2010

2009


Revenue

Capital

Total

Revenue

Capital

Total


£'000

£'000

£'000

£'000

£'000

£'000

(a) Analysis of charge for the year







Corporation tax at 28% (2009 - 28.33%)

384

384

1,181


1,181

Double taxation relief

(309)

(309)

(706)

(706)


______

______

______

______

______

______


75

75

475

475

Overseas tax suffered

647

647

720

720


______

______

______

______

______

______

Current tax charge for the year

722

722

1,195

1,195

Deferred taxation

(35)

(35)

(15)

(15)


______

______

______

______

______

______

Taxation

687

687

1,180

1,180


______

______

______

______

______

______








(b) Factors affecting the tax charge for the year

The tax assessed for the year is lower than the corporation tax rate of 28% (2009 - effective rate of 28.33%). The effective rate for 2009 was calculated using a rate of 30% until 31 March 2008 and 28% from 1 April 2008. The differences are explained below.


2010

2009


Revenue

Capital

Total

Revenue

Capital

Total


£'000

£'000

£'000

£'000

£'000

£'000








Net profit on ordinary activities before taxation

3,676

29,930

33,606

4,168

(36,626)

(32,458)


______

______

______

______

______

______

Return on ordinary activities before taxation multiplied by the applicable rate of corporation tax of 28% (2009 - 28.33%)

1,029

8,381

9,410

1,181

(10,376)

(9,624)








Effects of:







Non  taxable overseas dividends

(717)

(717)

Income taxable in different periods

72

72

Overseas taxes

647

647

720

720

Double taxation relief

(309)

(309)

(706)

(706)

Capital (gains)/losses not taxable

(8,461)

(8,461)

10,664

10,664

Currency losses/(gains) not taxable

80

80

(288)

(288)


______

______

______

______

______

______

Current tax charge

722

-

722

1,195

1,195


______

______

______

______

______

______

(c)     Provision for deferred taxation

No provision for deferred taxation has been made in the current year or in the prior year. The Company has not provided for deferred tax on capital gains or losses arising on the revaluation or disposal of investments as it is exempt from tax on these items because of its status as an investment trust company.

 



2010

2009

6.

Dividends

£'000

£'000


Amounts recognised as distributions to equity holders in the year:




Final dividend for 2009 - 4.40p per share (2008 - 8.97p)

1,654

3,400


Interim dividend for 2010 - 6.20p per share (2009 - 3.50p)

2,305

1,316


Unclaimed dividends from previous years

-

(13)



_______

_______



3,959

4,703



_______

_______






The proposed final dividend for 2010 is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements. 

 

The final dividend, subject to shareholder approval, will be paid on 21 May 2010 to shareholders on the register at the close of business on 23 April 2010.  The ex-dividend date is 21 April 2010.




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 £2,989,000 (2009 - £2,988,000).







2010

2009



£'000

£'000


Interim dividend for 2010 - 6.20p per share (2009 - 3.50p)

2,305

1,316


Proposed final dividend for 2010 - 3.8p per share (2009 - 4.40p)

1,344

1,654



_______

_______



3,649

2,970



_______

_______




The amount payable for the proposed final dividend above is based on the shares in issue at the date of this report 35,370,608 and this satisfies the s.842 test.

 



2010

2010

2009

2009

7.

Return per Ordinary share

£'000

p

£'000

p


The return per Ordinary share is based on the following figures:






Revenue return

2,989

8.02

2,988

7.93


Capital return

29,930

80.28

(36,626)

(97.18)



_______

_______

_______

_______


Total return

32,919

88.30

(33,638)

(89.25)



_______

_______

_______

_______


Weighted average number of Ordinary shares in issue


37,279,331


37,687,412




________


________

 



2010

2009

8.

Investments

£'000

£'000


Fair value through profit or loss:




Opening fair value

178,452

219,664


Opening investment holdings gains

(4,546)

(41,378)



_______

_______


Opening book cost

173,906

178,286


Purchases at cost

8,824

8,477


Sales

- proceeds

(14,834)

(12,048)



- realised gains on sales

1,278

148


Loss on traded index futures contracts

-

(957)



_______

_______


Closing book cost

169,174

173,906


Closing investment holdings gains

33,482

4,546



_______

_______


Closing fair value

202,656

178,452



_______

_______


Listed on overseas stock exchanges

202,656

178,452







2010

2009


Gains/(losses) on investments

£'000

£'000


Realised gains on sales

1,278

148


Loss on traded index futures contracts

-

(957)


Movement in investment holdings gains

28,936

(36,832)



_______

_______



30,214

(37,641)



_______

_______


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:







2010

2009



£'000

£'000


Purchases

15

7


Sales

6

6



_______

_______



21

13



_______

_______

 



2010

2009

9.

Debtors: amounts falling due within one year

£'000

£'000


Dividends receivable

188

256


Amounts due from brokers

5

25


Other debtors and prepayments

13

38



_______

_______



206

319



_______

_______

 



2010

2009

10.

Creditors: amounts falling due within one year

£'000

£'000


Taxation payable

37

252


Amounts due to brokers

264

106


Investment management fee payable

102

91


Other creditors

90

73



_______

_______



493

522



_______

_______

 



2010

2009

11.

Provision for liabilities and charges

£'000

£'000


Deferred taxation provision:




Opening balance

35

50


Credited to revenue

(35)

(15)



_______

_______


Closing balance

-

35



_______

_______






The provision for deferred tax, relating to dividends receivable has been removed this year, as overseas dividends received after 1 July 2009 are now exempt from main stream corporation tax.

 



2010

2009

12.

Called-up share capital

£'000

£'000


Allotted, called-up and fully paid:




Opening balance

9,400

9,489


Shares bought back for cancellation

(286)

(89)



_______

_______


36,456,508 (2009 - 37,599,379) Ordinary shares of 25p each

9,114

9,400



_______

_______






During the year the Company bought back and cancelled 1,142,871 Ordinary shares of 25p each (2009 - 357,000) for a total consideration of £5,904,000 (2009 - £2,010,000). This represents 3% of the Company's issued share capital at 31 January 2009.




Subsequent to the year end, a further 1,085,900 Ordinary shares were bought back at a total cost of £6.18 million including expenses, leaving 35,370,608 Ordinary shares in issue at the date of this report.

 



2010

2009

13.

Capital reserve

£'000

£'000


At 1 February

122,320

160,917


Movement in fair value gains

30,214

(37,641)


Foreign exchange movements

(284)

1,015


Purchase of own shares for cancellation

(5,904)

(2,010)


Over-accrual of expenses relating to the Tender Offer

-

39



_______

_______


At 31 January

146,346

122,320



_______

_______






Included in the total above are investment holdings gains at the year end of £33,482,000 (2009 - £4,546,000).




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:







2010

2009


Net assets attributable

£204,098,000

£181,042,000


Number of Ordinary shares in issue

36,456,508

37,599,379


Net asset value per share

559.84p

481.50p

 

15.

Reconciliation of net return before finance costs and taxation to

2010

2009


net cash inflow from operating activities

£'000

£'000


Return on ordinary activities before finance costs and taxation

33,607

(32,458)


Adjustments for:




Net (gains)/losses on investments

(30,214)

37,641


Foreign exchange movements

284

(1,015)


Decrease in accrued income

81

74


Decrease in other debtors

25

21


Increase/(decrease) in other creditors

28

(1,015)



_______

_______


Net cash inflow from operating activities

3,811

3,248



_______

_______

 



At



At



1 February

Cash

Exchange

31 January



2009

flow

movements

2010

16.

Analysis of changes in net funds

£'000

£'000

£'000

£'000


Cash and short term deposits

2,828

(815)

(284)

1,729



_______

_______

_______

_______

 

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 did not enter into any 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 previous year realised a loss of £957,000, which reflected the movements in the Index. The largest position in derivative contracts held during the previous year was £8.2 million. The Company had no open positions in derivative contracts at 31 January 2010 or 2009.




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 2010 (2009 - £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 performance 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 2010 would have increased/decreased by £20,266,000 (2009 - increase/decrease of £17,845,000) 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 2010 and 2009:









Interest

Local

Foreign

Sterling



rate

currency

exchange

equivalent


As at 31 January 2010

%

'000

rate

£'000


US Dollar

0.00

2,716

1.6024

1,695


Sterling

0.25

34

-

34






_______


Total cash on deposit per Balance Sheet




1,729






_______









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






_______








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 0.25% (2009 - 1.25%) for Sterling funds, and nil (2009 - nil) for US Dollar funds at 31 January 2010. 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 2010

31 January 2009




Net

Total


Net

Total



Overseas

monetary

currency

Overseas

monetary

currency



investments

assets

exposure

investments

assets

exposure



£'000

£'000

£'000

£'000

£'000

£'000


US Dollar

202,656

1,619

204,274

178,452

2,647

181,099


Sterling

-

(177)

(176)

-

(22)

(22)



________

________

_______

________

________

________


Total

202,656

1,442

204,098

178,452

2,625

181,077



________

________

_______

________

________

________










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 2010 was as follows:







2010

2009



£'000

£'000


Debtors and prepayments

206

319


Cash and short term deposits

1,729

2,828



________

________



1,935

3,147



________

________

 

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.

Fair Value hierarchy


The Company adopted the amendments to FRS 29 'Financial Instruments: Disclosures' effective from 1 January 2009. These amendments require an entity to classify fair value measurements using a fair value hierarchy that reflects the significance of the input.




 - Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;


 - Level 2: inputs other than quoted prices included within Level 1 that are observable for the assets or liability, either directly (ie as prices) or indirectly (ie derived from prices); and


 - Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).




The financial assets and liabilities measured at fair value in the statement of financial position are grouped into the fair value hierarchy at 31 January 2010 as follows:











Level 1

Level 2

Level 3

Total



Note

£'000

£'000

£'000

£'000









Financial assets at fair value through profit or loss


Quoted Equities

a)

202,656

-

-

202,656











________

________

________

________


Net fair value


202,656

-

-

202,656




________

________

________

________









a) Quoted Equities


The fair value of the Group's investments in Quoted Equities has been determined by reference to their quoted bid prices at the reporting date. Quoted Equities included in Fair Value Level 1 are actively traded on recognised stock exchanges.

 

20.

The Annual Financial Report Announcement is not the Company's statutory accounts. The above results for the year ended 31 January 2010 have been agreed with the auditors and are an abridged version of the Company's full accounts, which have been approved and audited with an unqualified report. The 2010 and 2009 statutory accounts received unqualified reports from the Company's auditors and did not include any reference to matters to which the auditors drew attention by way of emphasis without qualifying the reports, and did not contain a statement under either section 498(2) or 498(3) of the Companies Act 2006. The financial information for 2009 is derived from the statutory accounts for 2009 which have been delivered to the Registrar of Companies. The 2010 accounts will be filed with the Registrar of Companies in due course.

 

The Annual General Meeting will be held at 40 Princes Street, Edinburgh EH2 2BY on 17 May 2010 at 11.00am.



21.

The Annual Report and Accounts will be posted to shareholders in April 2010 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.

 

By Order of the Board

Aberdeen Asset Management PLC, Secretary

 


This information is provided by RNS
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