RNS Number : 6139W
Accelerated Return Fund Limited
12 June 2008
THE ACCELERATED RETURN FUND LIMITED
PRELIMINARY ANNOUNCEMENT OF ANNUAL RESULTS
The directors announce the statement of results for the year ended 31 March 2008 as follows:-
ABOUT THE COMPANY
The Accelerated Return Fund Limited is a Guernsey incorporated, closed-ended investment company. With the exception of two Management Shares
issued for administrative reasons, the Company*s issued share capital comprises 27,700,000 Participating Shares (*Shares*) whose performance
is designed to depend upon the performance of the FTSE 100 Index.
INVESTMENT OBJECTIVE AND POLICY
The investment objective of the Company is to provide shareholders, on the Redemption Date, with six times the capital return on the FTSE
100 Index, up to a maximum amount (the *Final Capital Entitlement*) of 166p per Share, comprising a capital growth amount of up to a maximum
of 66p per Share and a capital amount of 100p per Share. The Final Capital Entitlement per Share is designed to be determined by the
performance of the FTSE 100 Index over the calculation period from 7 April 2003 to 7 October 2008.
In accordance with the Company*s investment policy, the net proceeds derived by the Company from the issue of Shares have been invested in a
portfolio of debt securities and over-the-counter derivative instruments at prices based on the closing level of the FTSE 100 Index on 7
April 2003 of 3935.8. Therefore, if the FTSE 100 Index rises 11% from its starting level of 3935.80 on 7 April 2003, which equates to a
level of 4368.8 in October 2008, the Shares are designed to return growth of 66%.
There is full capital protection if the FTSE 100 Index has fallen at the end of the period (October 2008) unless the FTSE 100 Index has
closed more than 50% down during the term to 1967.9. In this case, if the FTSE 100 Index is still below 3935.8 at the end of the period, the
net asset value of the Company will fall by an equivalent percentage. If the level of the FTSE 100 Index has returned above its starting
level of 3935.8 in October 2008, then the Company will still provide six times the return of the FTSE 100 Index to a maximum of 66%.
CHAIRMAN*S STATEMENT FOR THE YEAR ENDED 31 MARCH 2008
At launch, and at each subsequent placing of Shares, the net proceeds derived from the issue of Shares of the Company were invested in a
portfolio of debt securities and options at a price based on the level of the FTSE 100 Index at the close of business on 7 April 2003,
namely 3935.8. On 31 March 2008, the FTSE 100 Index closed at 5702.1, a rise of 44.9% since launch and a fall of 9.6% over the reporting
period.
Over the same periods, the total market value of the Company rose by 53.5% and 2.7% respectively. As at the reporting date the Shares were
trading at a 0.6 % discount to net asset value.
As the Company*s investment portfolio is based upon the FTSE 100 Index, it is possible to show the potential capital entitlements available
to shareholders based on the level of the FTSE 100 Index on the Company*s winding-up date of 7 October 2008. These figures are for
illustrative purposes only and do not represent forecasts or take into account any unforeseen circumstances.
As at 7 October 2008:
Final FTSE 100 Index Level Net Asset Value if Net Asset Value if
FTSE 100 Index never FTSE 100 Index has
closes below closed below
1967.9** 1967.9**
3500 100 88
3750 100 95
4000 109 109
4250 147 147
4500 166 166
4750 166 166
5000 166 166
5250 166 166
5500 166 166
5702.1* 166 166
5750 166 166
6000 166 166
* FTSE 100 Index level at the end of the reporting period
** On any day from 7 April 2003 to 7 October 2008
You will be aware that, as part of its investment portfolio, the Company holds medium term notes issued by Northern Rock and Bradford &
Bingley. As both of these banks have been in the news recently, I thought it might be worth outlining the situation with each.
On 14 September 2007, following difficulty obtaining wholesale funding due to the ongoing global credit crunch, Northern Rock requested
emergency short-term funding from the Bank of England. The Chancellor of the Exchequer pledged on 17 September to guarantee all Northern
Rock deposits and, five months later, HM Treasury that the government will enact legislation to take the bank into temporary public
ownership. The Treasury therefore continues to guarantee all deposits, including uncollateralised, unsubordinated wholesale borrowing,
meaning that the senior unsecured medium term note issued by Northern Rock held by the Company remains guaranteed by HM Treasury.
On 2 June 2008, Bradford and Bingley released a trading statement reporting that market conditions had worsened. At the same time it
announced a restructured rights offering and that TPG Capital, a private equity investment firm, had taken a 23% stake in the Company.
Bradford & Bingley advised it has no problems with liquidity and that it has continued to fund its operations successfully and remains
funded into 2009.
Since the financial year end, the FTSE 100 Index has risen 3.6% to 5906.8 (as at 6 June 2008) as investors hoped the US Federal Reserve
orchestrated rescue of collapsed investment bank Bear Stearns marked the beginning of the end of the credit crisis. However, even if this
does prove to be the case, equity markets may struggle somewhat as economic growth is forecast to weaken whilst high inflation limits the
scope for the Bank of England to cut interest rates.
Amongst all this uncertainty, I am pleased to be able to report that the shares of the Company, which redeem this October, have risen 4.9%
whilst continuing to offer a yield well above the risk-free rate and a very sizeable negative hurdle rate.
Trevor Ash
Chairman
11 June 2008
MANAGEMENT REPORT FOR THE YEAR ENDED 31 MARCH 2008
A description of important events that have occurred during the financial year, their impact on the performance of the Company as shown in
the financial statements and a description of the principal risks and uncertainties facing the Company is given in the Manager*s Report and
is incorporated here by reference.
There were no material related party transactions which took place in the financial year.
RESPONSIBILITY STATEMENT
The Board of directors jointly and severally confirm that, to the best of their knowledge:
(a) The financial statements, prepared in accordance with International Financial Reporting Standards, give a true and fair view of
the assets, liabilities, financial position and profit or loss of the Company; and
(b) This Management Report includes or incorporates by reference 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 they face.
Trevor Ash Jon Gumpel
Director Director
11 June 2008
MANAGER*S REPORT FOR THE YEAR ENDED 31 MARCH 2008
MARKET REVIEW
The FTSE 100 Index fell 9.6% over the financial year as the US sub-prime mortgage collapse led to a wider credit crisis which is still
unfurling.
The start of the financial year saw the Index continuing its recovery from the large falls seen at the end of February 2007 as markets shook
off global fears about the US housing sector and frothy Chinese equity markets, focusing instead on strong corporate profits and M&A
activity.
This optimism was not to last, however, as modern techniques of repackaging and distributing risk, particularly US sub-prime mortgages, led
to concerns over the level of exposure and identity of various financial institutions to this risk. This lack of visibility saw credit
spreads rise appreciably as banks became increasingly unwilling to lend to each other. The FTSE 100 Index reflected this nervousness during
the summer, falling by over 800 points in July and August before recovering its losses by October as central banks around the world stepped
in as lenders of last resort to shore up the systemic risk.
Despite the huge intervention from central banks, wholesale funding remained expensive and, for some banks, impossible to obtain at all, as
witnessed by the events surrounding Northern Rock in the UK and Bear Stearns in the US, both victims of a liquidity squeeze marked by the
reluctance of banks to engage in any form of lending. From its October high, the Index proceeded to fall rapidly before rallying somewhat
into the year end as central banks again supported the market. This, however, proved to be temporary and the New Year saw the FTSE 100 Index
collapse further as investors worried over the scale of the crisis, ending the financial year at 5702.1.
Mining and energy stocks provided the biggest boost to the Index. Rio Tinto climbed 80.3% as it benefited from strong commodity prices and a
hostile takeover offer from rival BHP Billiton, which also rose by 32.0%. Gas and oil company BG Group rose 59.2% as it benefited from the
54.2% rise in oil prices over the year. Unsurprisingly, the banking sector was the weakest segment of the Index, with RBS the biggest drag
on the Index, falling 49.0% as its predominately cash offer for ABN Amro increasingly appeared overvalued to some analysts.
MARKET OUTLOOK
The credit crunch has prompted a fundamental shift in the UK economic outlook. Over the summer months, the Bank of England (*BoE*) was
primarily concerned with inflation exceeding its 2% target and market expectations were for at least one 0.25% hike in base rates. The
subsequent market turmoil led to interbank interest rates trading at considerable premiums to official rates. This unofficial rate increase
led to the BoE keeping rates unchanged and subsequently, despite continuing uncertainty over the strength of inflation, making two 0.25%
rate cuts. In the coming months, as the impact of the credit crunch on the real economy mounts, more cuts may follow.
Up to the end of December, the FTSE 100 Index showed remarkable resilience, quickly recovering its poise once central banks acted to
underpin the credit markets. Since then it has fallen to what some may consider a more realistic level given the uncertainty surrounding the
impact of the credit crisis. As the previous excesses are worked out of the financial system it may be prudent to expect larger swings in
the value of the Index.
Close Investments Limited
STATEMENT OF OPERATIONS for the year ended 31 March 2008
1 Apr 2007 to 1 Apr 2006 to
Notes 31 Mar 2008 31 Mar 2007
GBP GBP
Net movement in unrealised appreciation
on
investments 5 1,570,490 2,366,630
Operating expenses 2 (240,351) (240,225)
Gain on ordinary activities before 1,330,139 2,126,405
taxation
Taxation on ordinary activities - -
Net gain for the year attributable to
shareholders 1,330,139 2,126,405
Pence Pence
Earnings per participating share for
the year
- Basic and Diluted 4 4.80 7.68
Earnings per management share for the
year
- Basic and Diluted 0.00 0.00
In arriving at the results for the financial year, all amounts above relate to continuing operations.
There are no recognised gains or losses for the year other than those disclosed above.
Reconciliation of earnings per participating share for investment purposes to earnings per share per the financial statements:
Pence Pence
Earnings per participating share for investment purposes 5.67 8.54
Adjustment for amortisation of debt issue costs (0.28) (0.28)
Adjustment to include expenses on an accruals basis (0.59) (0.58)
Earnings per participating share per the financial statements 4.80 7.68
In accordance with International Financial Reporting Standards, expenses should be attributed to the period to which they relate. The
adjustment to expenses to reflect the application of this accruals basis decreases the earnings per share of the Company by 0.87 pence
(2007: 0.86 pence).
The earnings per participating share for investment purposes represents the earnings per participating share attributable to shareholders in
accordance with the Prospectus, which recognises all expenses of the Company up to and including the date that the Final Capital Entitlement
becomes payable.
NET ASSET STATEMENT as at 31 March 2008
31 Mar 2008 31 Mar 2007
Notes GBP GBP
NON-CURRENT ASSETS
Unquoted financial assets designated as fair
value through profit or loss 5 - 41,223,390
CURRENT ASSETS
Unquoted financial assets designated as fair
value through profit or loss 5 42,793,880 -
Receivables 6 42,499 128,300
Cash at bank 299,938 454,693
43,136,317 582,993
CURRENT LIABILITIES
Payables * due within one year 7 14,848 15,053
NET CURRENT ASSETS 43,121,469 567,940
TOTAL ASSETS LESS CURRENT
LIABILITIES 43,121,469 41,791,330
Payables * due after one year excluding net
assets attributable to shareholders 8 - -
NET ASSETS ATTRIBUTABLE TO
SHAREHOLDERS 43,121,469 41,791,330
SHARES IN ISSUE 27,700,000 27,700,000
Pence Pence
NAV PER PARTICIPATING SHARE 155.67 150.87
NAV PER MANAGEMENT SHARE 100.00 100.00
Reconciliation of NAV per participating share for investment purposes to NAV per participating share per the financial statements:
Pence Pence
NAV per participating share for investment purposes 154.49 148.82
Adjustment for debt issue costs 0.14 0.42
Adjustment to include expenses on an accruals basis 1.04 1.63
NAV per participating share per the financial statements 155.67 150.87
In accordance with International Financial Reporting Standards, expenses should be attributed to the period to which they relate.
The NAV per Fund share for investment purposes represents the NAV per Fund share attributable to shareholders in accordance with the
Prospectus, which recognises all expenses of the Company up to and including the date that the Final Capital Entitlement becomes payable.
The financial statements were approved by the Board of directors on 11 June 2008 and are signed on its behalf by:
Trevor Ash Jonathan Gumpel
Director Director
STATEMENT OF CASH FLOWS for the year ended 31 March 2008
1 Apr 2007 to 1 Apr 2006 to
31 Mar 2008 31 Mar 2007
GBP GBP
Operating activities
Net gain for the year attributable to 1,330,139 2,126,405
shareholders
Less: Unrealised (appreciation) on investments (1,570,490) (2,366,630)
Less: Interest income (21,062) (24,654)
Add: Amortisation of debt issue costs 76,672 76,862
Less: (Decrease) in accrued expenses (205) (3,557)
Add: Decrease in prepayments and accrued
income
excluding debt issue costs 9,129 667
Net cash outflow from operating expenses (175,817) (190,907)
Investing activities
Interest received 21,062 24,654
Net cash outflow from investing activities 21,062 24,654
Cash at the beginning of year 454,693 620,946
(Decrease) in cash and cash equivalents (154,755) (166,253)
Cash at end of year 299,938 454,693
STATEMENT OF CHANGES IN NET ASSETS ATTRIBUTABLE TO SHAREHOLDERS for the year ended 31 March 2008
31 Mar 2008GBP 31 Mar 2007GBP
Opening balance 41,791,330 39,664,925
Net gain for the year attributable to 1,330,139 2,126,405
shareholders
Closing balance as at 31 March 2008 43,121,469 41,791,330
Under IAS 32, the Participating Shares are classified as debt and the Management Shares are classified as equity. There were no changes in
the net assets attributable to management shares.
NOTES TO THE FINANCIAL STATEMENTS as at 31 March 2008
1 ACCOUNTING POLICIES
(a) Basis of Preparation
The financial statements have been prepared in conformity with International Financial Reporting Standards and applicable Guernsey law. The
financial statements have been prepared on an historical cost basis except for the measurement at fair value of financial instruments.
Whilst the Company has an unlimited life, the Company's Participating Shares are due to be redeemed on 10 October 2008 and therefore the
going concern basis is no longer appropriate. The financial statements have been prepared on a break-up basis, which has resulted in
the reclassification of long-term assets and liabilities as current. Any costs of cessation are considered to be immaterial and therefore no
provision has been made for these.
IFRS7 and the amended IAS1 have been adopted in the current year for the first time. The impact that this has on the financial statements is
purely in terms of additional disclosures.
(b) Taxation
The Company has been granted exemption under the Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989 from Guernsey Income Tax, and is
charged an annual fee of �600.
(c) Expenses
All expenses are accounted for on an accruals basis.
(d) Debt issue costs
The debt issue costs incurred amounted to �419,368. Because the Company*s participating shares are redeemable on or around 10 October 2008,
they are required to be classified as debt instruments under IAS 32. Consequently, issue costs are required to be amortised over the life of
the instrument.
(e) Interest Income
Interest income is accounted for on an accruals basis.
(f) Cash and Cash Equivalents
Cash at bank and short term deposits which are held to maturity are carried at cost. Cash and cash equivalents are defined as call deposits,
short term deposits and highly liquid investments readily convertible to known amounts of cash and subject to insignificant risk of changes
in value. For the purposes of the Statement of Cash Flows, cash and cash equivalents consist of cash and deposits at bank.
(g) Investments
All investments have been designated as financial assets at *fair value through profit and loss*. Investments are initially recognised on
the date of purchase at cost, being the fair value of the consideration given. After initial recognition, investments are measured at fair
value, with unrealised gains and losses on investments and impairment of investments recognised in the Statement of Operations. Investments
are derecognised on the date of sale. Gains and losses on the sale of investments will be taken to the Statement of Operations. The
indicative fair value of the investments is calculated at each month end by BNP Paribas (the *Calculation Agent*). These indicative values
are based on an approximation of the mid-market level of the instruments. As at the balance sheet date, an independent check on the
valuations of the investments is performed by the Manager. As the investments are not traded in an active market, the indicative fair value
is determined by using valuation techniques.
The Calculation Agent and Manager use a variety of methods and makes assumptions that are based on market conditions existing at the balance
sheet date. Valuation techniques used may include the use of comparable recent arm*s length transactions (where available), discounted cash
flow analysis, option pricing models and other valuation techniques commonly used by market participants. The techniques used by the Manager
are periodically reviewed by experienced personnel at the Manager.
Models use observable data, to the extent practicable. However, areas such as credit risk (both own and counterparty), volatilities and
correlations require the Calculation Agent and Manager to make estimates. Changes in assumptions about these factors could affect the
reported fair value of financial instruments.
(h) Option
The option contract consists of a call spread and put option and was initially recognised at the fair value of the consideration received on
the date of sale. After initial recognition, the option is measured at fair value with unrealised gains and losses being recognised in the
Statement of Operations. The option will be derecognised at redemption on 7 October 2008.
(i) Trade Date Accounting
All *regular way* purchases and sales of financial assets are recognised on the *trade date*, i.e. the date that the entity commits to
purchase or sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of the asset
within the timeframe generally established by regulation or convention in the market place.
(j) Segmental Reporting
The directors are of the opinion that the Company is engaged in a single segment of business, being investment in
Sterling-denominated medium term notes linked to the performance of United Kingdom market indices.
2 OPERATING EXPENSES 1 Apr 2007 to 1 Apr 2006 to
31 Mar 2008 31 Mar 2007
GBP GBP
Amortisation of debt issue costs 76,672 76,862
Investment management fees(1) 99,065 98,862
Administration fees 25,052 25,000
Directors* remuneration 15,000 15,000
Registration fees 8,669 8,125
Directors* and Officers* Insurance 9,000 9,912
Audit fees 7,597 7,450
Other operating expenses 20,358 23,668
261,413 264,879
Less: Interest earned on expenses (21,062) (24,654)
provision
240,351 240,225
(1) The Manager is entitled to receive a fee from the Company at an annual rate of 0.35% of the Initial Gross Proceeds.
3 DIRECTORS* REMUNERATION
The Prospectus provides that each director will be paid a fee of �5,000 per annum by the Company. The remuneration will remain fixed over
the life of the Company*s Participating Shares.
4 EARNINGS PER SHARE
The earnings per participating share is based on the net gain for the year attributable to Shareholders of �1,330,139 (2007: �2,126,405) and
on 27,700,000 (2007: 27,700,000) Participating Shares, being the weighted average number of Participating Shares in issue during the year.
The earnings per Management Share is based on the net gain for the year of �0 (2007: �0) and on 2 (2007: 2) Management Shares, being the
weighted average number of Management Shares in issue during the year.
5 INVESTMENTS
UNQUOTED FINANCIAL ASSETS DESIGNATED 31 Mar 2008 31 Mar 2007
AS FAIR VALUE THROUGH PROFIT OR LOSS GBP GBP
Opening portfolio cost 25,612,730 25,612,730
Unrealised appreciation on valuation brought 15,610,660 13,244,030
forward
Unrealised appreciation on valuation for the 1,570,490 2,366,630
year
Unrealised appreciation on valuation carried 17,181,150 15,610,660
forward
Closing Valuation 42,793,880 41,223,390
Valuations of investments are based on valuations provided by the Calculation Agent which are subject to a check by the Manager. The
performance of the financial assets is based on the closing level of the FTSE 100 Index on 7 October 2008. If the FTSE 100 Index closes
above 3,935.8 the instruments are designed to give a return of six times the performance up to a maximum return of 66% of the capital.
The medium term notes are zero dividend notes with a nominal value of �27,700,000 and mature on 9 October 2008. The original cost of the
medium term notes was �21,764,250.
The option contract consists of a call spread and a put option. The performance of the call spread is dependent on the FTSE 100 Index. The
nominal value is �27,700,000. If the FTSE 100 Index closes on 7 October 2008 above 3,935.8, the call spread will give a return of six times
the percentage increase in the Index, up to a maximum return of 66% of the nominal value.
The performance of the put option is linked to the performance of the FTSE 100 Index. At an Index value of 3,935.8 or above at the close of
business on 7 October 2008 or if the Index has never closed below 1,967.9 during the calculation period from 7 April 2003 to 7 October 2008
the put option will be worth �nil at maturity. If the Index has closed below 1,967.9 over the calculation period and the Index is still
below 3,935.8 at 7 October 2008 the put option will be worth a percentage of the notional value, being �27,700,000, equivalent to the
percentage fall in the level of the FTSE 100 Index over the calculation period. The put option is not exercisable until the maturity date of
7 October 2008.
The original cost of the option contract was �3,848,480. The fair value of the put option is based on the valuation provided by the
Calculation Agent. There is no active market regarding the put option. A check is performed by the Manager.
The provided valuations are derived from proprietary models based upon well-recognised financial principles and reasonable estimates about
relevant future market conditions.
Valuation data provided by the Calculation Agent to Close Investments Limited in connection with the Company is provided for information
purposes only.
The Calculation Agent makes no representation or warranty (express or implied) relating to any valuation data, including as to the accuracy,
completeness, adequacy or reliability of any such data for any purpose, and shall have no duties or liabilities to third parties arising
from the provision or use of such data to the fullest extent permitted by law.
6 RECEIVABLES
31 Mar 2008 31 Mar 2007
GBP GBP
Accrued income 477 606
Prepaid debt issue costs 40,222 116,894
Prepayments 1,800 10,800
42,499 128,300
7 PAYABLES
(amounts falling due within 31 Mar 2008 31 Mar 2007
one
year) GBP GBP
Accrued administration fees 2,333 2,521
Accrued registration fees 665 697
Accrued audit fees 7,500 7,500
Other accrued expenses 4,350 4,335
Expenses provision 287,367 180,919
Less: Prepaid expense provision (see note 8) (287,367) (180,919)
14,848 15,053
8 PAYABLES 31 Mar 2008 31 Mar 2007
(amounts falling due after one year) GBP GBP
Expenses provision - 257,400
Less: Prepaid expense provision - (257,400)
- -
The prepaid expense provision represents monies set aside to meet the on-going, annual and redemption expenses of the Company, as set out in
the Prospectus.
If, at the Redemption Date, there is any surplus remaining from the expenses provision (together with accrued interest thereon), this
surplus will revert to the Manager. In the event of redemption or repurchase of all of the Shares, or upon a winding-up of the Company, in
each case prior to the Redemption Date, any balance of the expenses provision (together with accrued interest thereon) other than the
investment management fee will also revert to the Manager.
9 SHARE CAPITAL
Authorised SHARES GBP
Unclassified shares of 0.01p each 200,000,000 20,000
Management shares of �1.00 each 100 100
20,100
Issued 31 Mar 2008 31 Mar 2007
GBP GBP
Participating shares * fully paid 27,700,000 27,700,000
Management shares * fully paid 2 2
Number of shares in issue 27,700,002 27,700,002
Issued share capital 31 Mar 2008 31 Mar 2007
GBP GBP
Participating shares 2,770 2,770
Management shares 2 2
2,772 2,772
Participating shares (*Shares*) are redeemable on or around 10 October 2008. The Company is closed-ended and therefore shareholders have no
right to request the Company to repurchase their Shares or to redeem them prior to the redemption date. If the Company is wound up prior to
the redemption date, shareholders will be entitled to the net asset value of the Shares on the winding up date. No dividends will be paid on
the Shares.
Management shares are not redeemable, do not carry any right to dividends and in a winding up rank only for a return of the amount of paid
up capital after return of capital on Shares and nominal shares. Given the immateriality of the Management shares to the net assets of the
Company, they have been included in the net assets attributable to holders of Shares.
10 SHARE PREMIUM
31 Mar 2008 31 Mar 2007
GBP GBP
Share premium 28,243,480 28,243,480
28,243,480 28,243,480
11 FINANCIAL INSTRUMENTS
The Company*s main financial instruments comprise:
(a) Cash and cash equivalents that arise directly from the Company*s operations; and
(b) Debt securities; and
(c) An option contract whose performance is based on the performance of the FTSE 100 Index.
Details of the investments referred to above are shown in the schedule of investments (unaudited).
12 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
The main risks arising from the Company*s financial instruments are market price risk, credit risk, liquidity risk, interest rate risk and
currency risk. The Board regularly reviews and agrees policies for managing each of these risks and these are summarised below:
(a) Market Price Risk
Market price risk arises mainly from uncertainty about future prices of financial instruments held. It represents the potential loss the
Company might suffer through holding market positions in the face of price movements. The investment manager actively monitors market prices
and reports to the Board as to the appropriateness of the prices used for valuation purposes. A list of investments held by the Company is
shown in the schedule of investments (unaudited).
Price sensitivity
The following details the Company*s sensitivity to a 10% increase and decrease in the final market prices of its constituent financial
assets and liabilities.
The final redemption value of the Shares is determined by reference to the level of the FTSE 100 Index on 7 October 2008 and at that date,
if the Index stands at 4,368.8 (the *Index Cap Level*), the maximum redemption entitlement of 166 pence per Share will have been reached;
any further increase in the level of the Index will cause no further increase in the redemption entitlement.
On 31 March 2008, the Index stood at 5,702.1, whereas as explained above the Index Cap Level is 23.4% lower at 4,368.8. Accordingly, as at
31 March 2008 the Company had no material sensitivity to either a 10% increase or decrease in the level of the Index.
(b) Credit Risk
Credit risk is the risk that an issuer or counterparty will be unable or unwilling to meet a commitment that it has entered into with the
Company. At the date of this report all issuers carried an investment grade credit rating. The Board monitors credit risk and will consider
further action if the credit rating of an issuer falls below A- or A3 as ranked by S&P and Moody*s respectively.
The following table details the aggregate investment grade of the debt instruments in the portfolio, as rated by well known rating
agencies:
Rating 31 Mar 2008 31 Mar 2007
Aaa 0.00% 0.00%
Aa 23.59% 23.48%
A 76.41% 76.52%
The Euro Medium Term Note issued by Northern Rock Plc, remains guaranteed by H.M Treasury, as more fully explained in the Chairman*s
Statement.
(c) Liquidity Risk
Liquidity risk is the risk that the Company will encounter difficulty in realising assets or otherwise raising funds to meet financial
commitments. The Company*s main financial commitments are its ongoing operating expenses.
Upon the issue of the Shares in April 2003 the Company created a cash reserve (the *Expense Provision*) in the amount of 3.75% of the amount
raised by the issue of the Shares (the *Initial Gross Proceeds*), such amount being estimated in the opinion of the directors upon the
advice of the Manager and Administrator to be sufficient to meet the operating expenses reasonably expected to be incurred over the life of
the Shares. Upon the issues of additional shares in June, July and October 2003, an additional 3.75% of the gross proceeds of each issue of
additional shares was set aside to cover the increase in the Manager's fee which resulted from those issues of additional Shares, all other
expenses being either fixed for the life of the Shares or deemed unlikely to increase materially as a result of those issues of additional
Shares.
If in any full accounting period of the Company the balance remaining on the Expense Provision is insufficient to meet the expenses of the
Company during that accounting period, the Manager will firstly both rebate to the Company any fees paid to it by the Company in that
accounting period and waive its remaining fee entitlement for that accounting period and, secondly, if after fully discounting the fee
entitlement the Expense Provision remains insufficient, cover the shortfall from its own resources. Such rebate is subject to a cap on these
expenses, excluding the management fee, of 0.25% per annum of the gross proceeds of all share issues, provided that during the final
accounting period prior to the Redemption Date the Manager*s liability to make up any shortfall shall be subject to a maximum of �100,000,
notwithstanding the fact that such amount may exceed 0.25 per cent of the Initial Gross Proceeds.
The Euro Medium Term Notes (the "Debt Securities") purchased by the Company mature on 9 October 2008 (the "Maturity Date") and are due to be
redeemed at their notional face value, so that the aggregate maturity proceeds are expected to be �27,700,000, subject to counterparty
default.
The Put Option contract consists of a call spread and put option. The performance of the call spread is dependent on the performance of the
FTSE 100 Index. The notional value is �27,700,000. If the FTSE 100 Index closes on 7 October 2008 above 3,935.8, the call spread will give
a return of six times the percentage increase in the level of the Index up to a maximum return of 66% of the notional value.
The performance of the Put Option is linked to the performance of the FTSE 100 Index and at an Index value of 3,935.8 or above at the close
of business on 7 October 2008 or if the Index never closed below 1,967.9 during the calculation period from 7 April 2003 to 7 October 2008,
the Put Option will be worth �nil at maturity. If the Index has closed below 1,967.9 over the calculation period and the Index is still
below 3,935.8 at 7 October 2008, the Put Option will be worth a percentage of the notional value, being �27,700,000, equivalent to the
percentage fall in the level of the FTSE 100 Index over the calculation period. The Put Option is not exercisable until the maturity date of
7 October 2008.
Provided that none of the issuers of the Debt Securities defaults on its obligation to pay the maturity proceeds of �27,700,000 due to the
Company are intended to satisfy the maximum payment due to be made by the Company to BNP Paribas *the Put Option Counterparty* on the
maturity of the Put Option of �27,700,000
The directors and the Manager monitor the credit ratings of all issuers of the Debt Securities. In the event of any downgrading in the
long-term credit rating of any issuer below A- or A3, as determined by Standard & Poor*s and/or Moody*s Investor Services Inc. respectively,
the Company may in its absolute discretion seek to sell the relevant Debt Securities to third party purchasers and to reinvest the proceeds
in the purchase of Debt Securities of another issuer such that the new Debt Securities will replicate as closely as possible the terms and
conditions of the original Debt Securities. If the purchase of such Debt Securities is not possible, the Directors may reinvest such
proceeds as they see fit in investments which, in the opinion of the Directors, as nearly as is practicable, replicate the investment
characteristics of the Debt Securities sold and so that that proceeds are invested, as nearly as is practicable, in accordance with the
Company*s stated investment objective. As at the accounting reference date and the date of this report, all issuers of the Debt Securities carried an investment grade credit rating.
(d) Interest Rate Risk
Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows or the fair value of the
financial instruments. Except for cash set aside to meet expenses, the Company*s assets and liabilities are expected to be held until the
Maturity Date.
Interest rate risk is the risk that fluctuations in market interest rates will result in a reduction in deposit interest earned on cash
deposits held by the Company. The Company holds cash on fixed deposit, the return on which is subject to fluctuations. All fixed deposits
mature within three months.
The weighted average effective interest rate for cash and bank balances as at 31 March 2008 was 5.44% (2007: 5.01%).
None of the other assets or liabilities of the Company attract or incur interest.
Interest rate sensitivity
If interest rates had been 100 basis points higher and all other variables were held constant, the Company*s net gain for the year
attributable to shareholders for the year ended 31 March 2008 would have been �2,999 (2007: �4,547) greater due to an increase in the amount
of interest receivable on the bank balances.
If interest rates had been 100 basis points lower and all other variables were held constant, the Company*s net gain for the year
attributable to shareholders for the year ended 31 March 2008 would have been �2,999 (2007: �4,547) lower due to a decrease in the amount of
interest receivable on the bank balances.
(e) Currency Risk
As both the Shares and the Debt Securities are Sterling-denominated, shareholders investing for Sterling returns will not be exposed to
direct currency risk. The value of the underlying securities comprising the FTSE 100 may be affected by changes in the economic, political
or social environment in Europe, as well as globally, including changes in exchange rates.
(f) Capital Management
The investment objective of the Company is to provide shareholders, on the Redemption Date, with a payment per Share which will comprise a
capital amount of 100p per Share and a growth amount per Share equal to six times any percentage increase in the value of the Index (the
*End Value*) as at 7 October 2008 (the *End Date*) relative to its value (the *Start Value*) as at 7 April 2003 (the *Start Date*), such
amount being expressed in pence and rounded down to the next half pence, subject to a maximum increase of 66 per cent of the issue of 100
pence per Share.
The Company has an unlimited life but the Shares will be redeemed on or around 7 October 2008. Until then, the Company has a fixed capital.
(g) Collateral
The Company has entered into an arrangement with BNP Paribas (*BNP*) as issuer of the Equity Index Option whereby BNP posts collateral in a
segregated account under the control of the Company, where such collateral represents in value terms the excess over 20% of the net asset
value of the Company of the value of the Equity Index Option in favour of the Company. Such collateral is adjusted on a monthly basis
between BNP and the Company.
SCHEDULE OF INVESTMENTS AS AT 31 MARCH 2008
DEBT SECURITIES PORTFOLIO 31 Mar 2008 31 Mar 2008 31 Mar 2008
NOMINAL VALUATION TOTAL NET
HOLDINGS GBP ASSETS
Alliance &
LeicesterBuildingSociety
0% EMTN 9 October 2008 2,100,000 2,028,390 4.70%
Bradford & Bingley plc
0% EMTN 9 October 2008 4,200,000 4,056,780 9.41%
Britannia Building Society plc
0% EMTN 9 October 2008 4,200,000 4,056,780 9.41%
Egg Banking plc
0% EMTN 9 October 2008 4,200,000 4,056,780 9.41%
Northern Rock plc
0% EMTN 9 October 2008 4,200,000 3,915,660 9.08%
Nationwide Building Society
0% EMTN 9 October 2008 4,400,000 4,249,960 9.86%
SkiptonBuildingSociety
0% EMTN 9 October 2008 4,400,000 4,249,960 9.86%
26,614,310 61.72%
NOTIONAL VALUATION
HOLDING GBP
BNP Paribas FTSE Equity Index
Option expiring 7 October 2008 27,700,000 16,179,570 37.52%
42,793,880 99.24%
SCHEDULE OF INVESTMENTS AS AT 31 MARCH 2007
DEBT SECURITIES PORTFOLIO 31 Mar 2007 31 Mar 2007 31 Mar 2007
NOMINAL VALUATION TOTAL NET
HOLDINGS GBP ASSETS
Alliance &
LeicesterBuildingSociety
0% EMTN 9 October 2008 2,100,000 1,923,810 4.60%
Bradford & Bingley plc
0% EMTN 9 October 2008 4,200,000 3,843,840 9.20%
Britannia Building Society plc
0% EMTN 9 October 2008 4,200,000 3,843,000 9.20%
Egg Banking plc
0% EMTN 9 October 2008 4,200,000 3,843,000 9.20%
Northern Rock plc
0% EMTN 9 October 2008 4,200,000 3,843,000 9.20%
Nationwide Building Society
0% EMTN 9 October 2008 4,400,000 4,028,640 9.64%
SkiptonBuildingSociety
0% EMTN 9 October 2008 4,400,000 4,026,000 9.63%
23,351,290 60.66%
NOTIONAL VALUATION
HOLDING GBP
BNP Paribas FTSE Equity Index
Option expiring 7 October 2008 27,700,000 15,872,100 37.98%
41,223,390 98.64%
A pdf version of the annual financial report will shortly be posted on the Managers web-site www.closeinvestments.co.uk and a further
announcement will be made once the annual financial report is available to be downloaded.
For further information contact:
Anson Fund Managers Limited
Secretary.
Tel: Guernsey 01481 722260
12 JUNE 2008
END OF ANNOUNCEMENT
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The company news service from the London Stock Exchange
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