L&G (N) Tracker Trust Annual Manager s Short Report for the year ended 30 September 2012 Distribution Number 26
Investment Objective and Policy L&G (N) Tracker Trust aims to track the capital performance of the UK equity market, as represented by the FTSE All-Share Index, by investment in a representative sample of stocks selected from all economic sectors. Securities in the FTSE All-Share Index will be held with weightings generally proportionate to their company s market capitalisation. From time to time non-index constituents may be held as a result of a corporate action and these holdings will be sold or transferred as soon as reasonably practical. Risk Profile Market risk Currency risk Market risk arises mainly from uncertainty about future prices. The Manager adheres to the investment guidelines and in this way, monitors and controls the exposure to risk from any type of security, sector or issuer. This Trust holds investments in overseas financial securities. The performance of the Trust may therefore be affected by changes in exchange rates. This risk may be managed by the use of forward currency contracts, which aim to manage the effect of changing exchange rates. 1
Trust Facts Period End Dates for Distributions: Distribution Dates: 31 Mar, 30 Sep 31 May, 30 Nov Total Expense Ratios: 30 Sep 11 Accumulation Units 1.15% CTF Accumulation Units 1.50% The Total Expense Ratio is the ratio of the Trust s operating costs (excluding overdraft interest) to the average net assets of the Trust. Ongoing Charges Figures 30 Sep 12 Accumulation Units 1.15% CTF Accumulation Units 1.50% The Ongoing Charges Figure (OCF) is the ratio of the Trust s total discloseable costs (excluding overdraft interest) to the average net assets of the Trust. The OCF is intended to provide a reliable figure which gives the most accurate measure of what it costs to invest in a trust and is calculated based on the last period s figures. The OCF will be included in all Managers Reports for periods ending 28 February 2012 onwards in accordance with the FSA Collective Investment Schemes sourcebook and the additional guidance provided for the Statement of Recommended Practice for Authorised Funds issued by the IMA in July 2011. As a result the OCF will replace the TER in all subsequent reports, however, as prior period figures have not been calculated the TER has been retained as a comparative figure. 2
Risk and Reward Profile Lower risk Higher risk Typically lower rewards Typically higher rewards 1 2 3 4 5 6 7 This risk and reward profile is based on historical data which may not be a reliable indication of the Trust s risk and reward category in the future. The category is based on the rate at which the value of the Trust has moved up and down in the past. This Trust is in category six because it invests in company shares which generally provide higher rewards and higher risks than other investments such as bonds, cash or commercial property. The Trust s category is not guaranteed to remain the same and may change over time. Even a trust in the lowest category is not a risk free investment. 3
Trust Performance Net Asset Net Asset Number Of Accounting Value Of Value Per Units Date Trust Unit In Issue 30 Sep 10 Accumulation 789,016,196 126.16p 625,384,687 CTF Accumulation 172,079,422 122.97p 139,933,402 30 Sep 11 Accumulation 733,653,096 118.92p 616,945,777 CTF Accumulation 184,872,308 115.50p 160,056,907 30 Sep 12 Accumulation 833,547,328 138.82p 600,439,096 CTF Accumulation 240,517,870 134.38p 178,985,830 Past performance is not a guide to future performance. The price of units and any income from them may go down as well as up. Exchange rate changes may cause the value of any overseas investments to rise or fall. Distribution Information Accumulation Units The distribution payable on 30 November 2012 is 1.9283p net per unit for accumulation units. CTF Accumulation Units The distribution payable on 30 November 2012 is 1.6406p net per unit for accumulation units. 4
Portfolio Information The top 10 holdings and their associated weighting for the current and preceding year are: Top 10 Holdings at Top 10 Holdings at 30 September 2012 30 September 2011 Percentage of Percentage of Holding Net Asset Value Holding Net Asset Value HSBC Holdings 5.65% Vodafone Group 4.75% BP 4.55% Royal Dutch Shell 'A' 4.35% GlaxoSmithKline 3.92% British American Tobacco 3.41% Royal Dutch Shell 'B' 3.16% Diageo 2.37% BG Group 2.30% BHP Billiton 2.19% HSBC Holdings 5.47% Vodafone Group 5.28% BP 4.63% Royal Dutch Shell A 4.50% GlaxoSmithKline 4.22% British American Tobacco 3.41% Royal Dutch Shell B 3.34% Rio Tinto 2.67% BG Group 2.58% AstraZeneca 2.43% Trust Holdings as at 30 September 2012 25% 20% 20% 16% 15% 13% 10% 5% 9% 9% 9% 7% 6% 6% 4% 1% 0% Trust Holdings as at 30 September 2011 25% 20% 20% 17% 15% 13% 10% 10% 9% 8% 8% 7% 5% 4% 2% 2% 0% 5
Unit Price Range and Net Revenue Accumulation Units Highest Lowest Net Year Price Price Revenue 2007 139.60p 122.10p 2.8537p 2008 134.10p 78.30p 3.4700p 2009 119.80p 74.46p 3.0132p 2010 136.70p 109.60p 2.4828p 2011 140.80p 114.90p 2.8376p 2012 (1) 142.40p 125.50p 3.4969p CTF Accumulation Units Highest Lowest Net Year Price Price Revenue 2007 138.10p 126.70p 2.1822p 2008 132.30p 76.96p 2.8119p 2009 117.10p 73.04p 2.5019p 2010 133.10p 106.90p 2.0045p 2011 136.90p 111.60p 2.3091p 2012 (1) 137.90p 121.60p 2.9415p (1) The above tables show the highest and lowest prices to 30 September 2012 and net revenue per unit to 30 November 2012. Past performance is not a guide to future performance. The price of units and any income from them may go down as well as up. Exchange rate changes may cause the value of any overseas investments to rise or fall. 6
Manager s Investment Report During the year under review, the bid price of the Trust s A-Class accumulation units rose by 16.81%. FTSE, the Index compiler, calculates the benchmark Index at the end of the business day using closing prices, whereas the Trust is valued using prevailing prices at 12 noon. Therefore, for tracking purposes the Trust has been revalued using closing prices. On this basis, over the review year from the close of business on 30 September 2011 to the close of business on 28 September 2012, being the last working day of the review year, the Trust rose by 13.13% on a capital only basis compared with the FTSE All-Share Index rise of 12.98% on a capital only basis (Source: Bloomberg). Past performance is not a guide to future performance. The value of investments and any income from them may go down as well as up. Exchange rate changes may cause the value of any overseas investments to rise or fall. The FTSE All-Share Index is calculated by FTSE International Limited ( FTSE ). FTSE does not sponsor, endorse or promote this product. All copyright in the Index values and constituent list belongs to FTSE. Legal & General has obtained full license from FTSE to use such copyright in the creation of this product. FTSE, FT-SE and Footsie are trade marks of the London Stock Exchange Plc and The Financial Times Limited and are used by FTSE International Limited ( FTSE ) under licence. All-Share is a trade mark of FTSE. Market/Economic Review The FTSE All-Share Index comprises the FTSE 250 Index (+19.50%), the best performing element of the FTSE All-Share Index over the review year, the FTSE 100 Index (+11.96%) and the FTSE SmallCap Index (+14.61%) (Source: Bloomberg). Over the review year, major sectors such as Chemicals (+46.78%), Beverages (+35.25%), and Forestry & Paper (+33.00%) showed the largest positive returns; the most underperforming sectors were Industrial Metals & Mining (-36.53%), Personal Goods (-14.50%) and Leisure Goods (-8.99%). The year under review has been dominated by periods of volatility, moving between periods of optimism resulting from European Central Bank (ECB) and Bank of England (BoE) intervention to pessimism due to weakening fundamentals and the sovereign (government) debt crisis returning to the forefront of investors minds. The UK officially entered recession, blaming the European Union (EU), its biggest trading partner, in July 2012. The risk-off (where less risky assets such as government bonds perform well as they are perceived to be a safer investment) sentiment caused a flight to safety that saw yields on German Bunds, US Treasuries and UK Gilts fall. The BoE responded by raising its quantitative easing programme by a further 50 billion to 375 billion. The ECB also responded by cutting interest rates from 1% to 0.75%, the lowest 7
Manager s Investment Report continued level in the eurozone s history. This sparked a stock market rally in July which continued into August. The Office for National Statistics (ONS) announced a reduction in the annual consumer price inflation (CPI) to 2.2% in September 2012, from 2.5% in August; a result of cheaper clothes and household goods. The ONS confirmed that Gross Domestic Product (GDP) grew by 1% in the third quarter of 2012, although part of this is a one-off effect due to the Olympic Games and the reversal of the drag from the Diamond Jubilee holiday in June. Trust Review At the quarterly Index review in December 2011, six companies were added to the benchmark Index (the Index ), including the construction and materials company CRH after its change of primary listing from Dublin. The Russian companies EVRAZ (steelmaker) and Polymetal International (precious metals miner) were included after both became eligible following their change of listing to London. Mouchel Group and Hampson Industries were both deleted. At the quarterly Index review in March 2012, five companies were added to the Index: miners Petra Diamonds and Avocet Mining, oil and gas producer Ruspetro, food producer Greencore Group and Bilfinger Berger Global Infrastructure. Game Group, MWB Group Holdings and Namakwa Diamonds were deleted from the Index. At the annual Index review in June 2012, the free float methodology (a method of calculating the market capitalisation of companies within an index) was enhanced from banded to actual, resulting in a free float change for over a third of the companies. Together with the review changes, which included eight additions and 14 deletions, this resulted in a 5.0% two-way Index turnover. A number of noteworthy free float adjustments were weight increases for Glencore International, Royal Bank of Scotland and PZ Cussons, and weight decreases for SABMiller, Standard Chartered and Rio Tinto. At the quarterly Index review in September 2012, the online gaming company Playtech was added to the Index. There were no other changes to the Index. Takeovers included Autonomy Corporation by US company Hewlett-Packard, Northumbrian Water Group by the consortium UK Water 2011 Ltd, oil and gas company Hansen Transmission by ZF International BV, manufacturer Charter International by US company Colefax Corp, and Collins Stewart Hawkpoint by Canaccord Financial Inc. French utility company GDF Suez SA acquired the remaining 30% of International Power that it did not own. Logica, the consultancy company, was acquired by Canadian CGI Group, whilst Vodafone acquired the remaining stake of Cable & Wireless Worldwide. Allied Gold Mining was acquired for cash and stock by Australian company St Barbara. Other acquisitions 8
Manager s Investment Report continued included the milk producer Robert Wiseman Dairies, technology firm Alterian and horse racecourse operator Arena Leisure. Capital raisings were completed in the following companies for growth reasons: DS Smiths, to fund acquisitions of packaging manufacturer SCA Packaging Holding BV and clothing manufacturer Jaeger Group; healthcare properties investor MedicX Fund, to fund further growth; Talvivaara Mining, to fund research and development and oil and gas explorer Salamander, for drilling and production development. Vodafone paid a special dividend after receiving income from its 45% holding in US company Verizon Wireless. Cairn Energy returned cash to shareholders following its sale of Cairn India to Vedanta, pharmaceuticals company GlaxoSmithKline made a repayment following the disposal of non-core activities and insurance company Old Mutual returned over 1 billion to shareholders following the sale of its Nordic business. Other capital repayments included Stagecoach, Aegis Group and European Investment Trust. At the end of the review year the Trust had holdings in all of the 600 companies in the Index. The three largest stocks in the Trust at the end of the review year were Royal Dutch Shell (7.51%), HSBC (5.65%) and Vodafone Group (4.75%). Outlook Despite a concerted attempt by leading central banks to boost credit growth and revive activity, global economic growth remains lacklustre. Markets would probably take some comfort from a stabilisation or slight improvement in economic data releases, even if they still implied insufficient medium-term growth to address the fiscal challenge of large budget deficits in the major Western economies. Globally, economies face a number of headwinds at present; the drag imposed by Europe s recession, the uncertainty surrounding China s slowdown and the risks associated with the impending fiscal cliff (the expiration of tax cuts combined with public spending cutbacks) facing the U.S. economy in 2013. However, with many cyclical areas of demand already depressed and the provision of large-scale ECB funding to support the region s stressed banking sector, the rate of contraction is unlikely to intensify further. With the recent relief provided by the central banks merely buying more time for policy makers, rather than solving the underlying problems, economic indicators and the uncertain growth outlook are likely to take centre stage again over the coming months. We envisage a more difficult backdrop for corporate earnings, making it harder for equities to make significant headway over the coming months. Legal & General Investment Management Limited (Investment Adviser) 18 October 2012 9
Manager s Report and Accounts Copies of the most recent Interim and Annual Long Form Manager s Reports are available free of charge by telephoning 0370 050 0955, by writing to the Manager or are available on the internet at www.legalandgeneral.com/investments/fundinformation/managers-reports. Call charges will vary. We may record and monitor calls. You don t have to wait until your next annual statement or manager s report to get a progress update on the performance of your selected investment Fund. If you click on www.legalandgeneral.com/investments/ fund-information/daily-fund-prices/fund-prices/lg-unit-trustprices.html or www.nationwide.co.uk/investments you ll be able to find the current daily price for your choice of investment Fund. Significant Changes Change in Fund Accountant The Fund Accountant of the Fund has changed. The Bank of New York Mellon (International) Limited ceased to be the Fund Accountant on 10 October 2011 and Northern Trust Global Services Limited has taken on responsibility thereafter. This change has had no impact upon individual client investments and no action is required from investors. Other Information The information in this report is designed to enable unitholders to understand how the Trust has performed during the year under review and how it is invested at the year end. Further information on the activities and performance of the Trust can be obtained by telephoning 0370 050 0955 or by writing to the Manager. 10
Manager Legal & General (Unit Trust Managers) Limited Registered in England No. 01009418 Registered office: One Coleman Street, London EC2R 5AA Telephone: 0370 050 3350 Authorised and regulated by the Financial Services Authority Call charges will vary. We may record and monitor calls. Trustee National Westminster Bank Plc Trustee and Depositary Services 135 Bishopsgate London EC2M 3UR Authorised and regulated by the Financial Services Authority Independent Auditors PricewaterhouseCoopers LLP 7 More London Riverside London SE1 2RT 11
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Authorised and regulated by the Financial Services Authority Legal & General (Unit Trust Managers) Limited Registered in England No. 01009418 Registered office: One Coleman Street, London EC2R 5AA www.legalandgeneral.com 104262 14