Annual Financial Report

RNS Number : 3893A

Edinburgh US Tracker Trust plc

30 March 2012

 



30 March 2012

EDINBURGH US TRACKER TRUST PLC

ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 JANUARY 2012

 

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

•     During the year to 31 January 2012 the Company continued to track the performance of the S&P 500 Index

For further information, please contact:

David McCraw

Aberdeen Asset Managers Limited                                               0131 528 4000

CHAIRMAN'S STATEMENT

While the corporate sector remained in good health with profits generally exceeding forecasts, investors were unsettled by a number of factors and becoming increasingly risk averse by the summer months. Tensions in Libya and in other Arab countries led to concerns about the risk to oil supplies and the impact of higher oil prices on economic growth. On-going quarrelling of politicians in Washington over the government debt ceiling created more nervousness in equity markets which was reflected in the yields on 10 year Treasury bonds falling towards 2%. Weaker economic data from the US and Europe, Standard & Poor's downgrading its credit rating of the USA, renewed concerns over the balance sheets of western banks and disappointing profits from a number of European companies combined to push equity prices sharply lower.  After falling by nearly 20% over the summer months, the S&P 500 Index started to recover at the beginning of October on signs of possible resolution of the Eurozone debt crisis and improving economic data in the USA. US equities made little progress in the first half of the reporting period and the S&P 500 Index traded in a relatively narrow range.  By the end of the financial year to 31 January 2012, the Index had recovered all its losses and was 2% ahead of its starting point for the year in local currency terms. The US dollar strengthened slightly against sterling from $1.60 to $1.58 which improved the returns 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 2012, the net asset value per share (excluding undistributed revenue for the period) rose by 4.0% to 694.79p (NAV), compared to an increase of 3.6% in the index (in sterling terms). Since the investment objective of the Company was revised in June 1997, the capital performance has slightly exceeded returns from the Index. The annualised return of the Company's capital net asset values per share for the period 31 July 1997 to 31 January 2012 was 2.70% per annum compared to an annualised return of 2.48% per annum for the Index.

The Company operates a share buy-back programme with the aim of managing the volatility and level of the discount and in the year bought back 1,621,236 of its own shares for cancellation. The share price rose by 3.9% during the year (compared to the index return of 3.6%) and at 31 January 2012 the shares were standing at a discount of 4.9% to the net asset value per share (excluding the undistributed revenue of the period) compared with a discount of 4.9% at 31 January 2011. The Directors will continue to operate the share buyback programme to manage the discount when necessary in the year ahead.

Dividend

The revenue return per share rose by 6.6% to 9.39p (2011: 8.81p). The revenue return for the year to 31 January 2011 included a VAT refund and an interest claim amounting to 0.44p per share. The Directors declared an interim dividend of 4.20p per share and are recommending a final dividend of 5.20p (2011: 4.95p) which will take the total dividends for the year to 9.40p (2011: 9.15p).

Marketing

The Board continues to promote the company through 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.com.

Corporate Governance

The Board reviews annually the performance of the Investment Manager, the Chairman and the Board as a whole. The Board has assessed the performance of the Investment Manager, the investment process and risk controls. The Board has reviewed the terms of the management agreement during the year and believes that the continuing appointment of the Investment Manager, on the terms agreed, is in the interests of shareholders. 

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 at the Annual General Meeting to be held on Tuesday 29 May 2012. 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.  Your Board strongly recommends all shareholders to vote in favour of the continuation resolution.

Shareholder authority is being sought 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 and to provide the Directors with powers to issue shares, within limits, without being required to offer them first to existing shareholders. Authority is also being sought to purchase the Company's shares to provide the Company with the flexibility to hold any shares that have been repurchased in treasury before either cancelling those shares or selling them back to the market at a later date.  Repurchased shares would only be resold at a price not less than the NAV at the relevant date.   The share buyback authority would only be exercised if to do so would increase the net asset value per Ordinary share for the remaining shareholders and is in the best interests of shareholders generally.

Proposals to change the Company's investment objective

On 21 March 2012 the Company announced proposals to seek shareholder approval to amend the Company's investment policy to provide investors with above average dividend income and long term capital growth through active management of a portfolio consisting predominantly of S&P 500 US equities and to make certain other associated changes. A General Meeting of the Company will be convened to approve the proposals and full details of the proposed changes will be included in a separate circular which will also contain the resolutions requiring shareholder approval

Outlook

Many investors have avoided investing in the United States since the sub-prime debt crisis which pushed the economy into the longest recession in decades and created high and persistent unemployment. To ignore a country that is home to some of the most innovative companies, advanced technologies and recognizable brands in the world may be limiting investment in attractive opportunities. Corporate profits as a proportion of GDP are at an all-time high as companies have cut costs and restructured to remain competitive in the face of weaker demand. US banks have been recapitalized, monetary policy is loose and companies are flush with cash. The manufacturing sector is showing encouraging signs of recovery and the unemployment rate has been falling in recent months.

The rally in share prices in recent months may reflect investors anticipating the return of more buoyant economic conditions in the US.  In addition, the shares of US companies are trading at historically low valuations and many companies are operating with solid balance sheets and positive cash flows. With expanding cash reserves, numerous US companies have announced either initial or increased dividend payments and, as a result, dividends are becoming an increasingly important component of total return to shareholders. Interest rates remain at close to zero whereas dividend income, plus the potential of capital appreciation in the longer term, provides a compelling case for investing in US equities at this time.

 James Ferguson

Chairman

29 March 2012

MANAGER'S REPORT

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:

•      File 10-K annual reports and not be considered a foreign entity by the SEC

•      The US portion of fixed assets and revenues should constitute a plurality of the total but need not exceed 50%

•      The primary listing of the common stock should be on NYSE and NASDAQ. ADRs are not eligible for inclusion

•      A corporate governance structure consistent with US practice

•      Public float of at least 50% of the stock

•      Four consecutive quarters of positive as-reported earnings

•      Initial public offerings should be seasoned for 6 to 12 months before being considered for addition to an index

Standard & Poor's undertake regular reviews of the market cap guidelines for its US indices to ensure that these reflect changes in share prices. The current guidelines, which were implemented on 16 February 2011, are:

•      S&P 500 Index - market cap of $4.0 billion or greater

•      S&P MidCap 400 - $1.0 billion to $4.4 billion

•      S&P SmallCap 600 - $300 million to $1.4 billion

The level of activity within the portfolio reflected changes to the constituents of the Index which resulted from takeover activity (11 constituents were acquired) and companies leaving the index on grounds of low market capitalisations (8 constituents were removed).

Some of the better known names to leave the S&P 500 Index as a result of takeover activity included McAfee, Genzyme, Novell, Marshall & Ilsley, National Semiconductor and Nicor. The new entrants to the index included Covidien, BlackRock, Accenture, The Mosaic Company, TE Connectivity and Cooper Industries.

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 1,621,236 shares were purchased at a total cost of £10.2 million. 

The total value of purchases in the year, excluding the Company's own shares, amounted to £4.9 million while sales totalled £14.5 million. 

Aberdeen Asset Managers Limited

29 March 2012

RESULTS

Performance

	1 year return	3 year return*	5 year return*
	%	%	%
Capital return
Share price	+3.9	+34.9	+12.6
Net asset value per share	+4.0	+45.4	+13.8
S&P 500 Index (in sterling terms)	+3.6	+45.2	+13.2
Total return (Capital return plus dividends reinvested)
Share price	+5.5	+41.8	+22.5
Net asset value per share	+5.4	+52.4	+23.3
S&P 500 Index (in sterling terms)	+5.8	+54.9	+26.1
* Cumulative return

Financial Summary

	31 January 2012	31 January 2011	% change
Total assets	£220,409,000	£222,855,000	-1.1
Equity shareholders' funds	£220,409,000	£222,855,000	-1.1
Share price (mid market)	660.50p	635.50p	+3.9
Net asset value per share (including undistributed revenue for the period)	700.19p	673.28p	+4.0
Net asset value per share (excluding undistributed revenue for the period)	694.79p	668.37p	+4.0
S&P 500 Index (in sterling terms)	831.67	802.95	+3.6
Discount (difference between share price and net asset value){A}	(4.9%)	(4.9%)
Dividends and earnings
Revenue return per share	9.39p	8.81p	+6.6
Dividends per share (including proposed final dividend)	9.40p	9.15p	+2.7
Dividend cover	1.00	0.96
Revenue reserves per share (prior to payment of proposed final dividend)	10.66p	9.95p
Revenue reserves per share (after payment of proposed final dividend)	5.46p	5.00p
Operating costs
Total expense ratio	0.38%	0.38%
{A} Based on net asset value per share (excluding undistributed revenue for the period).

DIRECTORS' REPORT

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's registration number is SC5218.

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 1158 of the Corporation Tax Act 2010 for the year ended 31 January 2011. The Directors are of the opinion, under advice, that the Company has conducted its affairs for the year ended 31 January 2012 so as to be able to continue to obtain approval as an investment trust under Section 1158 of the Corporation Tax Act 2010 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 may operate a share buyback programme when the level of discount is above 3%.

•      Regulatory risk: The Company operates in a complex regulatory environment and faces a number of regulatory risks. Breaches of regulations, such as Section 1158 of the Corporation Tax Act 2010, 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 16 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 4.20p per Ordinary share was paid to shareholders on 14 October 2011.  The Directors recommend that a final dividend per Ordinary share of 5.20p be paid on 1 June 2012 to shareholders on the register on 4 May 2012, making a total of 9.40p (2011 - 9.15p) per Ordinary share for the year ended 31 January 2012. The ex-dividend date is 2 May 2012.  A resolution in respect of the final dividend will be proposed at the Annual General Meeting.

Going Concern

In accordance with the Financial Reporting Council's guidance on Going Concern and Liquidity Risk issued in October 2009, the Directors have reviewed the Company's ability to continue as a going concern. In accordance with the Company's Articles of Association, shareholders have the right to vote annually at the Annual General Meeting on whether to continue the Company.  After enquiry, the Directors believe that the Company has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the accounts and are of the opinion that the Company will continue in operational existence for the foreseeable future.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

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.

The Directors confirm that to the best of their knowledge:

•      the financial statements, prepared in accordance with the applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss 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

29 March 2012

INCOME STATEMENT (audited)

		Year ended 31 January 2012			Year ended 31 January 2011
		Revenue	Capital	Total	Revenue	Capital	Total
	Notes	£'000	£'000	£'000	£'000	£'000	£'000
Net gains on investments	8	-	7,597	7,597	-	37,695	37,695
Net currency gains	15	-	54	54	-	20	20
Income	2	4,532	-	4,532	4,390	-	4,390
Investment management fee	3	(435)	-	(435)	(434)	-	(434)
VAT recovered on investment management fees	3	-	-	-	75	31	106
Administrative expenses	4	(399)	-	(399)	(371)	-	(371)
		______	______	_____	______	______	_____
Net return on ordinary activities before finance costs and taxation		3,698	7,651	11,349	3,660	37,746	41,406
Finance costs		-	-	-	-	-	-
		______	______	_____	______	______	_____
Return on ordinary activities before taxation		3,698	7,651	11,349	3,660	37,746	41,406
Taxation	5	(652)	-	(652)	(620)	(28)	(648)
		______	______	_____	______	______	_____
Return on ordinary activities after taxation		3,046	7,651	10,697	3,040	37,718	40,758
		______	______	_____	______	______	_____
Return per share (pence)	7	9.39	23.60	32.99	8.81	109.36	118.17
		______	______	_____	______	______	_____

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 5.20p per share (£1,637,000), making a total dividend of 9.40p per share (£2,989,000) for the year to 31 January 2012 which, if approved, will be payable on 1 June 2012 (see note 6).

For the year ended 31 January 2011, the final dividend was 4.95p per share (£1,638,000) making a total dividend of 9.15p per share (£3,055,000).

BALANCE SHEET (audited)

		As at	As at
		31 January 2012	31 January 2011
	Notes	£'000	£'000
Fixed assets
Investments at fair value through profit or loss	8	217,966	219,994
		________	________
Current assets
Debtors and prepayments	9	240	282
Cash and short term deposits	15	2,402	2,772
		________	________
		2,642	3,054
		________	________
Creditors: amounts falling due within one year	10	(199)	(193)
		________	________
Net current assets		2,443	2,861
		________	________
Net assets		220,409	222,855
		________	________
Capital and reserves
Called-up share capital	11	7,870	8,275
Share premium account		32,643	32,643
Capital redemption reserve		14,225	13,820
Capital reserve	12	162,314	164,822
Revenue reserve		3,357	3,295
		________	________
Equity shareholders' funds		220,409	222,855
		________	________
Net asset value per share (pence)	13	700.19	673.28
		________	________

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS (audited)

For the year ended 31 January 2012
		Share	Capital
	Share	premium	redemption	Capital	Revenue
	capital	account	reserve	reserve	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 31 January 2011	8,275	32,643	13,820	164,822	3,295	222,855
Return on ordinary activities after taxation	-	-	-	7,651	3,046	10,697
Dividends paid (see note 6)	-	-	-	-	(2,984)	(2,984)
Purchase of own shares for cancellation	(405)	-	405	(10,159)	-	(10,159)
	_____	______	______	______	______	______
Balance at 31 January 2012	7,870	32,643	14,225	162,314	3,357	220,409
	_____	______	______	______	______	______
For the year ended 31 January 2011
		Share	Capital
	Share	premium	redemption	Capital	Revenue
	capital	account	reserve	reserve	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 31 January 2010	9,114	32,643	12,981	146,346	3,014	204,098
Return on ordinary activities after taxation	-	-	-	37,718	3,040	40,758
Dividends paid (see note 6)	-	-	-	-	(2,759)	(2,759)
Purchase of own shares for cancellation	(839)	-	839	(19,242)	-	(19,242)
	_____	______	______	______	______	______
Balance at 31 January 2011	8,275	32,643	13,820	164,822	3,295	222,855
	_____	______	______	______	______	______
The revenue reserve represents the amount of the Company's reserves distributable by way of dividend. The accompanying notes are an integral part of the financial statements.

CASH FLOW STATEMENT (audited)

		Year ended		Year ended
		31 January 2012		31 January 2011
	Notes	£'000	£'000	£'000	£'000
Net cash inflow from operating activities	14		3,745		3,620
Taxation
UK corporation tax paid		-		(37)
Overseas withholding tax paid		(651)		(648)
		______		______
Net tax paid			(651)		(685)
Financial investment
Purchases of investments		(4,878)		(6,601)
Sales of investments		14,503		26,694
		______		______
Net cash inflow from financial investment			9,625		20,093
Equity dividends paid			(2,984)		(2,763)
			______		______
Net cash inflow before financing			9,735		20,265
Financing
Buy back of Ordinary shares (including expenses)		(10,159)		(19,242)
		______		______
Net cash outflow from financing			(10,159)		(19,242)
			______		______
(Decrease)/increase in cash			(424)		1,023
			______		______
Reconciliation of net cash flow to movement in net funds
(Decrease)/increase in cash as above			(424)		1,023
Exchange movements			54		20
			______		______
Movement in net funds in the year			(370)		1,043
Opening net funds			2,772		1,729
			______		______
Closing net funds	15		2,402		2,772
			______		______

NOTES TO THE FINANCIAL STATEMENTS

For the year ended  31 January 2012
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'. 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 Directors believe this is appropriate for the reasons outlined in the Directors' Report.
		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. Expenses and interest receivable and payable are recognised 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.

		2012	2011
2.	Income	£'000	£'000
	Income from investments held at fair value through profit or loss
	Dividends from overseas listed investments	4,532	4,311
		______	______
	Other income
	Interest on VAT recovered on investment management fees	-	78
	Deposit interest	-	1
		______	______
	Total income	4,532	4,390
		______	______

		2012	2011
3.	Investment management fee	£'000	£'000
	Investment management fee	435	434
		______	______
	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.
	During the year ended 31 January 2011 the Trust received £106,000 in relation to VAT previously charged on investment management fees.

		2012	2011
4.	Administrative expenses	£'000	£'000
	Directors' fees	51	49
	Registrar's fees	61	59
	Custody and bank charges	33	40
	Auditor's remuneration:
	fees payable to the Company's auditor for the audit of the annual accounts	15	16
	Contribution to the Investment Trust Initiative	73	67
	Printing, postage and stationery	22	23
	Fees, subscriptions and publications	35	34
	Standard & Poors' licence fee	22	22
	Other expenses	87	61
		399	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 (2011 - £6,000 due) to the Manager.

			2012			2011
			Revenue	Capital	Total	Revenue	Capital	Total
5.	Taxation		£'000	£'000	£'000	£'000	£'000	£'000
	(a)	Analysis of charge for the year
		Overseas tax suffered	652	-	652	629	19	648
		Current tax charge for the year	652	-	652	629	19	648
		Tax on capital income received	-	-	-	(9)	9	-
			_____	_____	_____	_____	_____	_____
		Taxation	652	-	652	620	28	648
			_____	_____	_____	_____	_____	_____
	(b)	Factors affecting the tax charge for the year
			2012			2011
			Revenue	Capital	Total	Revenue	Capital	Total
			£'000	£'000	£'000	£'000	£'000	£'000
		Net profit on ordinary activities before taxation	3,698	7,651	11,349	3,660	37,746	41,406
			_____	_____	_____	_____	_____	_____
		Return on ordinary activities before taxation multiplied by the applicable rate of corporation tax of 26.33% (2011 - 28%)	974	2,014	2,988	1,025	10,569	11,594
		Effects of:
		Non taxable overseas dividends	(1,186)	-	(1,186)	(1,205)	-	(1,205)
		Unutilised management expenses	215	-	215	178	(9)	169
		Income taxable in different periods	(3)	-	(3)	2	-	2
		Overseas taxes	652	-	652	629	19	648
		Revenue expenses utilised against capital income	-	-	-	(9)	9	-
		Capital gains not taxable	-	(2,000)	(2,000)	-	(10,554)	(10,554)
		Currency gains not taxable	-	(14)	(14)	-	(6)	(6)
			_____	_____	_____	_____	_____	_____
		Current tax charge	652	-	652	620	28	648
			_____	_____	_____	_____	_____	_____
	(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.

		2012	2011
6.	Dividends	£'000	£'000
	Amounts recognised as distributions to equity holders in the year:
	Final dividend for 2011 - 4.95p per share (2010 - 3.80p)	1,638	1,344
	Interim dividend for 2012 - 4.20p per share (2011 - 4.20p)	1,352	1,417
	Unclaimed dividends from previous years	(6)	(2)
		________	________
		2,984	2,759
		________	________
	The proposed final dividend for 2012 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 1 June 2012 to shareholders on the register at the close of business on 4 May 2012.  The ex-dividend date is 2 May 2012.
	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 Sections 1158-1159 of the Corporation Tax Act 2010 are considered. The revenue available for distribution by way of dividend for the year is £3,046,000 (2011 - £3,040,000).
		2012	2011
		£'000	£'000
	Interim dividend for 2012 - 4.20p per share (2011 - 4.20p)	1,352	1,417
	Proposed final dividend for 2012 - 5.20p per share (2011 - 4.95p)	1,637	1,638
	Unclaimed dividends from previous years	(6)	(2)
		________	________
		2,983	3,053
		________	________
	The amount payable for the proposed final dividend above is based on the shares in issue at the date of this report (31,478,582) and this satisfies the investment trust status test.

		2012	2012	2011	2011
7.	Return per Ordinary share	£'000	p	£'000	p
	Based on the following figures:
	Revenue return	3,046	9.39	3,040	8.81
	Capital return	7,651	23.60	37,718	109.36
	Total return	10,697	32.99	40,758	118.17
		_____	________	_____	________
	Weighted average number of Ordinary shares in issue		32,427,651		34,491,096
			________		________

		2012		2011
8.	Investments	£'000		£'000
	Fair value through profit or loss:
	Opening fair value	219,994		202,656
	Opening investment holdings gains	(64,430)		(33,482)
		________		________
	Opening book cost	155,564		169,174
	Purchases at cost	4,878		6,337
	Sales - proceeds	(14,503)		(26,694)
	Sales - realised gains	3,781		6,747
		________		________
	Closing book cost	149,720		155,564
	Closing investment holdings gains	68,246		64,430
		________		________
	Closing fair value	217,966		219,994
		________		________
	Listed on overseas stock exchanges	217,966		219,994
		________		________
		2012		2011
	Gains on investments	£'000		£'000
	Realised gains on sales	3,781		6,747
	Movement in investment holdings gains	3,816		30,948
		________		________
		7,597		37,695
		________		________
	Transaction costs
	During the year expenses were incurred in acquiring or disposing of investments classified as fair value through profit or loss. These have been expensed through capital and are included within gains on investments in the Income Statement. The total costs were as follows:
			2012		2011
			£'000		£'000
	Purchases		16		31
	Sales		3		8
			________		________
			19		39
			________		________

		2012	2011
9.	Debtors: amounts falling due within one year	£'000	£'000
	Dividends receivable	191	182
	Other debtors and prepayments	40	91
	Overpayment of dividend	9	9
		________	________
		240	282
		________	________

		2012	2011
10.	Creditors: amounts falling due within one year	£'000	£'000
	Investment management fee payable	110	111
	Other creditors	89	82
		________	________
		199	193
		________	________

		2012	2011
11.	Called-up share capital	£'000	£'000
	Allotted, called-up and fully paid:
	Opening balance	8,275	9,114
	Shares bought back for cancellation	(405)	(839)
		________	________
	31,478,582 (2011 - 33,099,818) Ordinary shares of 25p each	7,870	8,275
		________	________
	During the year the Company bought back and cancelled 1,621,236 Ordinary shares of 25p each (2011 - 3,356,690) for a total consideration of £10,159,000 (2011 - £19,242,000). This represents 5% of the Company's issued share capital at 31 January 2011.
	There have been no buy-backs of Ordinary shares since the year end, leaving 31,478,582 Ordinary shares in issue at the date of this report. ​​

		2012	2011
12.	Capital reserve	£'000	£'000
	At 1 February	164,822	146,346
	Movement in fair value gains	7,597	37,695
	Foreign exchange movements	54	20
	Purchase of own shares for cancellation	(10,159)	(19,242)
	Taxation	-	(19)
	Tax relief to revenue	-	(9)
	VAT recoverable on management fees	-	31
		________	________
	At 31 January	162,314	164,822
		________	________
	Included in the total above are investment holdings gains at the year end of £68,246,000 (2011 - £64,430,000).
	The Directors regard the total capital reserve as being available to fund share buy-backs.

13.	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:
		2012	2011
	Net assets attributable	£220,409,000	£222,855,000
	Number of Ordinary shares in issue	31,478,582	33,099,818
	Net asset value per share	700.19p	673.28p

14.	Reconciliation of net return before finance costs and taxation to	2012	2011
	net cash inflow from operating activities	£'000	£'000
	Return on ordinary activities before finance costs and taxation	11,349	41,406
	Adjustments for:
	Net gains on investments	(7,597)	(37,695)
	Foreign exchange movements	(54)	(20)
	Increase/(decrease) in accrued income	(10)	6
	(Decrease)/increase in other debtors	51	(78)
	Increase in other creditors	6	1
		________	________
	Net cash inflow from operating activities	3,745	3,620
		________	________

		At			At
		1 February	Cash	Exchange	31 January
		2011	flow	movements	2012
15.	Analysis of changes in net funds	£'000	£'000	£'000	£'000
	Cash and short term deposits	2,772	(424)	54	2,402
		________	________	________	________

16.

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 S&P 500 Index. The Company had no open positions in derivative contracts at 31 January 2012 or 2011.

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 2012 (2011 - £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 rate 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, in sterling terms, 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 2012 would have increased/decreased by £21,797,000 (2011 - increase/decrease of £21,999,000) 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 2012 and 2011:

Interest

Local

Foreign

Sterling

rate

currency

exchange

equivalent

As at 31 January 2012

%

'000

rate

£'000

US Dollar

0.00

3,755

1.5781

2,380

Sterling

0.25

22

-

22

________

Total cash on deposit per Balance Sheet

2,402

________

Interest

Local

Foreign

Sterling

rate

currency

exchange

equivalent

As at 31 January 2011

%

'000

rate

£'000

US Dollar

0.00

4,408

1.6018

2,752

Sterling

0.25

20

-

20

________

Total cash on deposit per Balance Sheet

2,772

________

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% (2011 - 0.25%) for Sterling funds, and nil (2011 - nil) for US Dollar funds at 31 January 2012. 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 2012

31 January 2011

Net

Total

Net

Total

Overseas

monetary

currency

Overseas

monetary

currency

investments

assets

exposure

investments

assets

exposure

£'000

£'000

£'000

£'000

£'000

£'000

US Dollar

217,966

2,571

220,537

219,994

2,934

222,928

Sterling

-

(128)

(128)

-

(73)

(73)

________

________

________

________

________

_______

Total

217,966

2,443

220,409

219,994

2,861

222,855

________

________

________

________

________

_______

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;

- the risk of counterparty exposure due to failed trades causing a loss to the Company is mitigated by the review of failed trade reports on a daily basis. In addition, both stock and cash reconciliations to the Custodians' records are performed on a daily basis to ensure discrepancies are investigated on a timely basis. The Manager's Compliance department carries out periodic reviews of the Custodian's operations and reports its finding to the Manager's Risk Management Committee.

- 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 2012 was as follows:

2012

2011

£'000

£'000

Debtors and prepayments

240

282

Cash and short term deposits

2,402

2,772

________

________

2,642

3,054

________

________

17.	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.

18.	Fair value hierarchy
	FRS 29 'Financial Instruments: Disclosures' requires an entity to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:
	- 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 Balance Sheet of financial position are grouped into the fair value hierarchy at 31 January 2012 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)	217,966	-	-	217,966
			_______	_______	_______	_______
	Net fair value		217,966	-	-	217,966
			_______	_______	_______	_______
	As at 31 January 2011
			Level 1	Level 2	Level 3	Total
		Note	£'000	£'000	£'000	£'000
	Financial assets at fair value through profit or loss
	Quoted equities	a)	219,994	-	-	219,994
			_______	_______	_______	_______
	Net fair value		219,994	-	-	219,994
			_______	_______	_______	_______
	a) Quoted equities
	The fair value of the Company'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.

Additional Notes to Annual Financial Report

The Annual Financial Report Announcement is not the Company's statutory accounts. The above results for the year ended 31 January 2012 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 2012 and 2011 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 2011 is derived from the statutory accounts for 2011 which have been delivered to the Registrar of Companies. The 2012 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 29 May 2012 at 11.00am.

The Annual Report and Accounts will be posted to shareholders in April 2012 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.

* Neither the Company's website nor the content of any website accessible from hyperlinks on the Company's website (or any other website) is (or is deemed to be) incorporated into, or forms (or is deemed to form) part of this announcement.

By Order of the Board

Aberdeen Asset Management PLC, Secretary

 

END

 

 

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