RNS Number : 7825D
Close European Accelerated Fund Ltd
18 September 2008
Close European Accelerated Fund Limited
PRELIMINARY ANNOUNCEMENT OF ANNUAL RESULTS
The directors announce the statement of results for the year ended 30 June 2008 as follows:-
About the Company
Close European Accelerated Fund Limited (the *Company*) 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 39,550,000 Participating Shares (the
*Shares*) the performance of which is designed to provide investors with a geared capped exposure to the performance of the Dow Jones
EuroStoxx 50 Index (the *Index*).
Pursuant to the initial placing and offer for subscription, 36,000,000 Shares were issued at a price of 100p each on 27 July 2005. A further
3,550,000 Shares were issued at a price of 107.5p each on 21 September 2006. All 39,550,000 Shares in issue rank pari passu, have been
admitted to the Official List of the United Kingdom Listing Authority and admitted to trading on the London Stock Exchange. The Company has
an unlimited life but the Shares will be redeemed on or around 29 July 2011 (the *Redemption Date*).
INVESTMENT OBJECTIVE AND POLICY
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 five times any percentage increase in the value of the Index (the
*End Value*) as at 26 July 2011 (the *End Date*) relative to its value (the *Start Value*) as at 26 July 2005 (the *Start Date*), such
amount being expressed in pence and rounded down to the next half pence, subject to a maximum increase of 67.5 per cent. of the issue price
of 100 pence per Share.
If the End Value is lower than the Start Value, the Shares are designed to repay the full initial subscription amount of 100p per Share on
the Redemption Date provided that the value of the Index has not fallen below 50 per cent. of the Start Value at close of business on any
Index business day between the Start Date and the End Date (both dates inclusive).
If the value of the Index has fallen below 50 per cent. of the Start Value at close of business on any Index business day between the Start
Date and the End Date and the End Value is not at least equal to the Start Value, shareholders will be repaid the issue price of 100 pence
per Share as reduced by the same percentage by which the End Value is less than the Start Value.
In accordance with the Company*s investment policy, the net proceeds derived by the Company from the issue of Shares and the sale of a Put
option have been invested in a portfolio of debt securities containing embedded derivatives related to the Index at prices relative to the
value of the Index on 26 July 2005 of 3,302.98. Therefore, if the Dow Jones EuroStoxx 50 Index rises 13.5% or more from its Start Value of
3,302.98 on the Start Date, which equates to a level of 3,748.88 or higher as at the End Date, the Shares are designed to return growth of
67.5% on the Redemption Date.
The final return is subject to there being no counterparty default or any unforeseen circumstances.
CHAIRMAN*S STATEMENT FOR THE YEAR ENDED 30 JUNE 2008
At launch the net proceeds derived from the issue of Shares of the Company and the sale of a put option were invested in a portfolio of debt
securities and options at a price based on the level of the Dow Jones EuroStoxx 50 Index at the close of business on 26 July 2005, namely
3,302.98. On 30 June 2008 the Dow Jones EuroStoxx 50 Index closed at 3,352.81, a rise of 1.5% since launch and a fall of 25.3% for the year.
Over the same periods, the total market value of the Company*s shares fell by 5.0% and 18.1% respectively.
As the Company*s investment portfolio is based upon the Dow Jones EuroStoxx 50 Index, it is possible to show the potential capital
entitlements available to shareholders based on the level of the Dow Jones EuroStoxx 50 Index on 26 July 2011. These figures are for
illustrative purposes only and do not represent forecasts or take into account any unforeseen circumstances.
As at 26 July 2011:
Final Dow Jones EuroStoxx 50 Net Asset Value if Net Asset Value if
Index Index Level Dow Jones EuroStoxx Dow Jones EuroStoxx
50 Index never 50 Index has closed
closes below below 1,651.49**
1,651.49 **
2,800 100.0 84.5
2,900 100.0 87.5
3,000 100.0 90.5
3,100 100.0 93.5
3,200 100.0 96.5
3,300 100.0 99.5
3,352.81* 107.5 107.5
3,400 114.5 114.5
3,500 129.5 129.5
3,600 144.5 144.5
3,700 160.0 160.0
3,800 167.5 167.5
3,900 167.5 167.5
4,000 167.5 167.5
* Dow Jones EuroStoxx 50 Index level at the end of the reporting period
** On any day from 26 July 2005 to 26 July 2011
As part of its investment portfolio, the Company holds a debt security issued by Glitnir Banki HF (*Glitnir*) with a nominal value of �6
million and a market value, as at the reporting date, of �6,560,400. This represented 15.76 per cent of the value of the Company*s net
assets as at the reporting date.
On 21 April 2008, Standard & Poor*s Ratings Services lowered its long-term counterparty credit rating on Glitnir one notch from A- to BBB+,
with a negative outlook. Moody*s rating has remained unchanged since 28 February 2008, at A2, with a stable outlook. As a result of the
downgrade, the Board considered both the sale and the retention of the Glitnir debt security, acting in the best interests of the Company
and its shareholders.
The Board reviewed Glitnir*s Q1 2008 financial results, including its liquidity and capital adequacy position, as well as recent research
updates from the ratings agencies. Whilst Glitnir*s profitability has been, and is likely to remain, volatile due to difficult conditions in
capital markets, investment banking and the Icelandic economy, the ratings agencies noted Glitnir*s strong and sound levels of liquidity,
and its ability to meet commitments falling due over the short-to-medium term, even under comprehensive stress test conditions. They also
considered that, should systemic support ever be required from the Icelandic authorities, it would likely be forthcoming. The ratings
agencies are not, therefore, suggesting that Glitnir will likely default on its liabilities. In fact, to the contrary, a BBB+ rating is
defined by Standard & Poor*s as investment grade, with an *adequate* capacity to meet its financial commitments.
The Board also considered how the Final Capital Entitlement of the Shares might be affected by any sale of the Glitnir debt security and
noted that there could be a significant cost involved, resulting in an irreversible reduction in the possible returns to the Company*s
shareholders.
On the basis of the prevailing facts, the Board therefore concluded that it would not be in the best interests of the Company and
Shareholders to sell the Glitnir debt security, but will continue to monitor the situation.
Following the financial year end there has been further volatility in the Dow Jones Eurostoxx 50 Index on renewed concern that credit market
losses and related bank failures would spread, curbing global economic growth. By mid-July the Index had fallen 6.3% to 3142.73, a three
year low. From this level the Index bounced back, but again retreated following data showing rising US unemployment which shook equity
markets globally.
The DJ Eurostoxx 50 Index closed at 3185.83 on 5 September 2008, a fall of 5.0% since the financial year, while the Company*s shares fell
5.3% over the same period.
Talmai Morgan
17 September 2008
MANAGER*S REPORT FOR YEAR ENDED 30 JUNE 2008
Market Review
Over the period under review, the Dow Jones EuroStoxx 50 Index declined by 25.3%, as equity markets fell heavily. The US sub-prime meltdown
led to a global credit crunch which central banks struggled to contain; perhaps unsurprisingly, financial services and banking stocks were
the worst performers in the Index.
The start of the period saw the Index trading sideways before Countrywide, the largest US mortgage lender, announced disappointing earnings
and cut its 2007 forecast, citing weakness spreading from sub-prime borrowers to those with better credit histories. This sparked a
sea-change in credit risk perception and saw equity markets plummet by as much as 9.4% from the levels seen before Countrywide*s
announcement.
The US Federal Reserve attempted to ease the nervousness in the markets by cutting interest rates by 3.25% over the period. Acting in
conjunction with central banks around the world, it also provided liquidity by acting as lender of last resort to attempt to minimise any
possible systemic risk. In response to the central banks* concerted action, the Index recovered much of its losses, climbing by as much as
10.5% between its July low and the end of September. During the final three months of 2007 the Index experienced several falls and rises,
predominately due to fears over a year-end liquidity squeeze.
In January 2008 the Dow Jones EuroStoxx 50 Index fell 12.6% over one week on concerns that losses at financial companies and a US recession
would lead to a sharp contraction in earnings. There were further woes during the following week as the disclosure of subprime losses at
Societe Generale was eclipsed by the simultaneous announcement that unauthorized trades entered into by trader Jerome Kervial at the
Paris-based bank had led to losses of EUR 4.9billion.
The Index continued to fall in March, as confidence was hit when US investment bank Bear Stearns became another victim of the credit crisis,
acquired by JPMorgan at a fraction of its share price in a deal backed by $30billion of US Fed loans. The Index managed to recoup some of
these falls before dipping again to end the period at 3352.81, down 25.3% over the year.
The European Central Bank (*ECB*) kept rates steady at 4% over the period, suspending previously signalled rate rises as it sought to
balance fears over the impact of the credit crunch and the risks of higher inflation. Three-month Euribor climbed significantly above the
ECB*s minimum bid rate of 4%, due to the global credit crunch, reaching 4.95% in December. This led the ECB to expand a number of liquidity
management measures, some of which were coordinated with other central banks worldwide.
MARKET OUTLOOK
The annual rate of inflation in the Eurozone hit 3.7% in May 2008 amid higher food and fuel costs. Going forward the concern is whether
price growth will keep accelerating, and whether the European Central Bank will need to raise interest rates to slow inflation. Central
banks around the world have been struggling to keep inflation under control as food and oil prices rise. This has led to growing pressure to
increase interest rates to counteract the rising inflation. In June the ECB held interest rates for the Euro bloc at 4%, but ECB President
Jean-Claude Trichet has hinted at possible future interest rates rises in order to anchor inflation. The ECB will need to balance these
upward inflationary pressures against the likelihood that the European economy could be less resilient to a US economic downturn than
previously suggested.
Close Investments Limited
17 September 2008
MANAGEMENT REPORT FOR THE YEAR ENDED 30 JUNE 2008
A description of important events which 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 it faces.
John Le Prevost Peter Niven
Director Director
STATEMENT OF OPERATIONS
for the year ended 30 June 2008
Notes Year to30 Jun Year to30 Jun 2007GBP
2008GBP
Net movement in unrealised
(depreciation) /
appreciation on investments 5 (1,716,360) 3,159,235
Unrealised (appreciation) /
depreciation on value of
Put option (1,771,840) 1,936,165
Operating expenses 2 (328,865) (304,733)
(Loss) / Gain before financing (3,817,065) 4,790,667
costs and taxation
(Loss) / Gain on ordinary (3,817,065) 4,790,667
activities before taxation
Taxation on ordinary - -
activities
Net (loss) / gain for the year (3,817,065) 4,790,667
attributable to shareholders
Pence Pence
(Loss) / Gain per share for 4 (9.65) 12.36
the year
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 share for investment purposes to earnings per share per the financial statements:
Pence Pence
Earnings per share for investment purposes (8.81) 13.14
Adjustment to include expenses on an accruals basis (0.84) (0.78)
Earnings per share per the financial statements (9.65) 12.36
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 0.84 pence.
The earnings per share for investment purposes represents the earnings per 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 30 June 2008
Notes 30 Jun 2008GBP 30 Jun 2007GBP
NON-CURRENT ASSETS
Unquoted financial assets at fair
value through profit or
loss 5 43,357,855 45,074,215
CURRENT ASSETS
Receivables 6 469,450 625,095
Cash at bank 836,501 992,162
1,305,951 1,617,257
CURRENT LIABILITIES
Payables * due within one year 7 27,575 10,016
NET CURRENT ASSETS 1,278,376 1,607,241
TOTAL ASSETS LESS CURRENT LIABILITIES 44,636,231 46,681,456
Non-current liabilities excluding net
assets attributable to
shareholders 8 3,009,755 1,237,915
NET ASSETS ATTRIBUTABLE TO 41,626,476 45,443,541
SHAREHOLDERS
SHARES IN ISSUE 39,550,000 39,550,000
Pence Pence
NAV PER SHARE 105.25 114.90
Reconciliation of NAV per share for investment purposes to NAV per share per the financial statements:
Pence Pence
NAV per share for investment purposes 102.01 110.83
Adjustment to include expenses on an accruals basis 3.24 4.07
NAV per share per the financial statements 105.25 114.90
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 increases the NAV per share of the Company by 3.24 pence.
The NAV per share for investment purposes represents the NAV per 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.
STATEMENT OF CASH FLOWS
for the year ended 30 June 2008
Year to30 Jun Year to30 Jun 2007GBP
2008GBP
OPERATING ACTIVITIES
Net (loss) / gain for the year (3,817,065) 4,790,667
attributable to shareholders
Add: Unrealised depreciation / 1,716,360 (3,159,235)
(appreciation) on investments
Add: Unrealised appreciation /
(depreciation) on value of Put
option 1,771,840 (1,936,165)
Less: Interest received (50,982) (58,470)
Add: Increase / (Decrease) in 17,559 (3,304)
accrued expenses
Add: Decrease in prepayments 155,645 67,187
and accrued income
NET CASH OUTFLOW FROM (206,643) (299,320)
OPERATING ACTIVITIES
INVESTING ACTIVITIES
Interest received 50,982 58,470
Purchase of financial assets - (3,889,380)
Consideration received on Put - 232,880
option
NET CASH INFLOW / (OUTFLOW)
FROM INVESTING
ACTIVITIES 50,982 (3,598,030)
FINANCING ACTIVITIES
Proceeds of issue of shares - 3,816,250
NET CASH INFLOW FROM FINANCING - 3,816,250
ACTIVITIES
Cash and cash equivalents at 992,162 1,073,262
beginning of year
(Decrease) in cash and cash (155,661) (81,100)
equivalents
Cash and cash equivalents at 836,501 992,162
end of year
STATEMENT OF CHANGES IN NET ASSETS ATTRIBUTABLE TO SHAREHOLDERS
for the year ended 30 June 2008
Year to30 Jun 2008GBP Year to30 Jun 2007GBP
Opening balance 45,443,541 36,836,624
Share capital issued - 355
Share premium - 3,815,895
Net (loss) / gain for the year (3,817,065) 4,790,667
attributable to shareholders
Closing balance 41,626,476 45,443,541
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2008
1 ACCOUNTING POLICIES
(a) Basis of Preparation
The financial statements have been prepared in accordance with International Financial Reporting Standards (*IFRS*) which comprise standards
and interpretations approved by the International Accounting Standards Board. The financial statements are also prepared in accordance with
IFRS adopted by the European Union 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.
IFRS7 *Financial Instruments Disclosures* and the amended IAS1 *Capital Disclosures* have been adopted in the current year for the first
time. The impact that this has had 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) Formation Expenses
The debt issue costs incurred amounted to �810,000 on the initial share issue and a further �79,609 on the share issue on 21 September 2006.
Because the Company*s participating shares are redeemable on or around 29 July 2011, 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 and derivative financial instruments are classified as *at fair value through profit or loss*. Investments are initially
recognised at cost, being the fair value of the consideration given, including transaction costs associated with the investment. 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. The indicative fair value of the investments is calculated at each month end by J.P. Morgan
Securities Limited (the *Calculation Agent*). These indicative values are based on an approximation of the mid-market level of the
investments. As at the balance sheet date, an independent check of 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) Put Option
The Put option was initially recognised at the fair value of the consideration received on the date of sale, and included within Creditors
falling due after more than one year. After initial recognition, the Put option is measured at fair value with unrealised gains and losses
being recognised in the Statement of Operations. The Put option will be derecognised at expiry on 26 July 2011.
(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.
2 OPERATING EXPENSES
Year to30 Jun Year to30 Jun 2007GBP
2008GBP
Amortisation of debt issue 151,779 147,629
costs
Investment management 139,549 136,356
fees(1)
Administration fees 22,030 22,000
Directors* remuneration 15,000 15,000
Registration fees 12,127 10,873
Directors* & Officers* 6,644 7,704
Insurance
Audit fees 6,500 3,000
Annual fees 16,190 13,298
Other operating expenses 10,028 7,343
379,847 363,203
Less: Interest earned on (50,982) (58,470)
expense provision bank
account
328,865 304,733
(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. This remuneration will remain fixed over
the life of the Company.
4 EARNINGS PER SHARE
The earnings per share is based on the net loss for the year of �3,817,065 (2007: gain �4,790,667) and on 39,550,000 shares (2007:
38,752,466 shares), being the weighted average number of shares in issue during the year.
5 INVESTMENTS DESIGNATED AS FAIR VALUE THROUGH PROFIT OR LOSS
30 Jun 2008GBP 30 Jun 2007GBP
UNQUOTED FINANCIAL ASSETS
Portfolio cost 39,889,380 39,889,380
Unrealised appreciation on valuation 5,184,835 2,025,600
brought forward
Unrealised (depreciation) /
appreciation on valuation for
the year (1,716,360) 3,159,235
Unrealised appreciation on valuation 3,468,475 5,184,835
carried forward
Closing valuation 43,357,855 45,074,215
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 Dow Jones Euro Stoxx 50 Index on 29 July 2011. If the Dow Jones
Euro Stoxx 50 Index closes above 3,302.98 the instruments are designed to give a return of 5 times the performance up to a maximum return of
67.5% of the capital.
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 the Manager in connection with the Company is provided for informational 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
30 Jun 2008GBP 30 Jun 2007GBP
Accrued income 1,246 1,651
Prepayments 468,204 623,444
469,450 625,095
7 PAYABLES (amounts falling due within one year)
30 Jun 2008GBP 30 Jun 2007GBP
Accrued administration fees 1,803 1,808
Accrued registration fees 1,766 1,008
Accrued audit fees 5,000 4,500
Accrued investment manager*s fee 11,423 -
Other accrued expenses 7,583 2,700
Expense provision 241,127 231,132
Less: Prepaid expense provision (see Note (241,127) (231,132)
8)
27,575 10,016
8 PAYABLES (amounts falling due after one year)
30 Jun 2008GBP 30 Jun 2007GBP
Expense provision 596,045 752,665
Less: Prepaid expense provision (596,045) (752,665)
- -
FINANCIAL LIABILITIES
30 Jun 2008GBP 30 Jun 2007GBP
Fair value of the Put option 3,009,755 1,237,915
3,009,755 1,237,915
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 expense 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 expense provision (together with accrued interest thereon) other than the investment
management fee will also revert to the Manager.
The performance of the Put option is linked to the performance of the Dow Jones Euro Stoxx 50 Index. At an Index value of 3,302.98 or above
at the close of business on 26 July 2011, or if the Index has never closed below 1,651.49 during the calculation period from 26 July 2005 to
26 July 2011, the Put option will be worth �Nil at maturity. If the Index has closed below 1,651.49 over the calculation period and the
Index is still below 3,302.98 at 26 July 2011, the Put option will be worth a percentage of the notional value, being �39,550,000,
equivalent to the percentage fall in the level of the Dow Jones Euro Stoxx 50 Index over the calculation period.
The Put option is not exercisable until the maturity date of 26 July 2011.
The fair value of the Put option is based on the valuation provided by J.P. Morgan Securities Limited. There is no active market regarding
the Put option.
J.P. Morgan Chase Bank N.A., in its capacity as the Put option counterparty (the *Put Option Counterparty*), has security over the financial
assets held by the Company for payment of any monies owed upon expiry or termination of the Put option contract.
The proceeds from the sale of the Put option were �3,292,880.
9 SHARE CAPITAL
Authorised SHARES GBP
Unclassified shares of 0.01p each 100,000,000 10,000
Management shares of �1.00 each 100 100
10,100
Issued 30 Jun 2008 30 Jun 2007
Participating shares * fully paid 39,550,000 39,550,000
Management shares * fully paid 2 2
Number of shares in issue 39,550,002 39,550,002
Issued Share Capital 30 Jun 2008GBP 30 Jun 2007GBP
Participating shares * fully paid 3,955 3,955
Management shares * fully paid 2 2
3,957 3,957
The issues of Participating Shares took place as follows:
Date of issue Numberof Shares Price perShare Pence AmountReceived GBP
27 July 2005 36,000,000 100.00 36,000,000
21 September 2006 3,550,000 107.50 3,816,250
Shares are redeemable on or around 29 July 2011. 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 net assets attributable to participating shareholders.
10 SHARE PREMIUM
30 Jun 2008GBP 30 Jun 2007GBP
Opening balance 39,812,295 35,996,400
Share premium on issue of shares - 3,815,895
Closing balance 39,812,295 39,812,295
11 FINANCIAL INSTRUMENTS
The Company*s main financial instruments comprise:
(a) Cash and cash equivalents that arise directly from the Company*s operations;
(b) Debt securities whose performance is based on the performance of the Dow Jones Euro Stoxx 50 Index. Details of these investments
are shown in the schedule of investments.
(c) The Company has also sold a Put option, whose performance is based on the Dow Jones Euro Stoxx 50 Index. Details of the option
contract are shown in Note 8.
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 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.
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 Dow Jones EuroStoxx 50 Index (the *Index*) on 26
July 2011 and at that date, if the Index stands at 3,748.89 (the *Index Cap Level*), the maximum redemption entitlement of 167.5 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.
As at 30 June 2008 the level of the Dow Jones EuroStoxx 50 Index was 3,352.81. If market prices as at 30 June 2008 had been 10% higher
(equating to an Index level of 3,688.09), and assuming these values were to remain unchanged through to the end of the Company*s life, with
all other variables held constant, the increase in net assets attributable to shareholders on the Redemption Date would have been
�22,140,900 arising due to the increase in the fair value of financial assets at fair value through profit or loss of �22,140,900.
If market prices as at 30 June 2008 had been 10% lower (equating to an Index level of 3,017.53), and assuming these values were to remain
unchanged through to the end of the Company*s life, with all other variables held constant, the decrease in net assets attributable to
shareholders on the Redemption Date would have been �798,100 arising due to the decrease in the fair value of financial assets at fair value
through profit or loss of �798,100.
(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 30 Jun 2008 30 Jun 2007
Aaa 0.00% 8.99%
Aa 69.71% 91.01%
A 30.29% 0.00%
The credit risk on cash transactions and transactions involving derivative financial instruments is mitigated by transacting with
counterparties that are regulated entities subject to prudential supervision, or with high credit ratings assigned by international credit
rating agencies.
(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 and any cash settlement due to the Put Option
Counterparty on the maturity of the Put option, scheduled to occur on 26 July 2011.
Upon the issue of the Shares in July 2005 the Company created a cash reserve (the *Expense Provision*) in the amount of 2.10% of the amount
raised by the issue of the Shares (the *Initial Gross Proceeds*) plus �440,000, such amount being estimated in the opinion of the directors
upon the advice of the Administrator to be sufficient to meet the operating expenses reasonably expected to be incurred over the life of the
Shares. Upon the issue of additional Shares in September 2006 an additional 2.10% of the proceeds of that issue of additional Shares was set
aside to cover the increase in the Manager*s fee which resulted from that issue of additional Shares, all other expenses being either fixed
for the life of the Company or deemed unlikely to increase materially as a result of this issue of additional Shares.
At each quarterly Board meeting and at the end of each financial period the directors review the Expense Provision against the expected
future expenses (other than the Manager*s fee) of the Company. To the extent that the directors consider that the Expense Provision is less
than 150 per cent of the expected future expenses of the Company (other than the Manager*s fee), the directors may, having first consulted
the Manager, at their discretion reduce the amount of investment management fees payable to the Manager (subject to a maximum reduction of
50 per cent) in order to re-establish the 150 per cent cover.
If at any time during the life of the Company, notwithstanding the arrangements summarised above, the Expense Provision is exhausted then,
subject to the relevant excess expenses having been agreed by the Manager, the Manager will make good such shortfall from its own resources,
subject to a maximum in each of the first five annual financial periods of 0.25 per cent of the Initial Gross Proceeds and in the last
financial period preceding the Redemption Date, of a maximum amount of �100,000. Should these expenses exceed this cap the return to
Shareholders will be adversely impacted. The directors do not anticipate that the expenses will exceed the Expense Provision.
The Euro Medium Term Notes (the *Debt Securities*) purchased by the Company mature on 28 July 2011 (the *Maturity Date*) and are due to be
redeemed at their notional face value plus five times the performance increase between 26 July 2005 and 26 July 2011 in the EuroStoxx 50
Index, capped at an amount equal to 67.50% of the notional face value, so that the aggregate maturity proceeds are expected to be between
�39,550,000 if the EuroStoxx 50 Index closes on 26 July 2011 at or below its starting value on 26 July 2005 of 3,302.98 and a maximum of
�66,246,250 if the EuroStoxx closes at or above 3,748.89 on 26 July 2011, all subject to counterparty default.
Provided that none of issuers of the Debt Securities defaults on its obligation to pay the maturity proceeds on the Maturity Date, the
minimum maturity proceeds of �39,550,000 due are intended to satisfy the maximum payment due to be made by the Company to the Put Option
Counterparty on the maturity of the Put Option of �39,550,000.
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. The directors will only seek to sell the relevant Debt Securities if they consider on the advice
of the Manager that such would be in the best interest of the Company and its shareholders. In the event of such sales, 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 the 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
The Company holds cash on fixed deposit, the return on which is subject to fluctuations in market interest rates. All fixed
deposits mature within three months.
The weighted average effective interest rate for cash and bank balances as at 30 June 2008 was 5.74% (2007: 4.94%).
None of the other assets or liabilities of the Company attract or incur interest.
Interest rate sensitivity
Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows or the fair value of financial
instruments. Except for cash set aside to meet expenses, the Company*s assets and liabilities are expected to be held until the Redemption
Date.
If interest rates had been 100 basis points higher and all other variables were held constant, the Company's increase in net assets
attributable for the period ended 30 June 2008 would have increased by �8,365 (2007: �9,922) 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 increase in net assets
attributable for the period ended 30 June 2008 would have decreased by �8,365 (2007: �9,922) due to a decrease in the amount of interest
receivable on the bank balances.
The Company*s sensitivity to interest rates is lower in 2008 than in 2007 because of a decrease in the amount of cash balances held.
(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 Dow Jones EuroStoxx 50 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 which will comprise a capital
amount of 100p per Share and a growth amount per Share equal to five times any percentage increase in the value of the Index (the *End
Value*) as at 26 July 2011 (the *End Date*) relative to its value (the *Start Value*) as at 26 July 2005 (the *Start Date*), such amount
being expressed in pence and rounded down to the next half pence, subject to a maximum increase of 67.5 per cent of the issue price of 100
pence per Share.
The Company has an unlimited life but the Shares will be redeemed on or around 29 July 2011.
(g) Collateral
Under the terms of a Pledge Agreement dated 2 August 2005 and the amendment dated 18 September 2006 entered into between the Company and the
Put Option Counterparty, the Company has pledged the Debt Securities, and all rights, title and interest therein, and any and all proceeds
resulting from the sale or repayment of the Debt Securities as security for the Company*s contingent liability under the Put Option sold to
the Put Option Counterparty, further details of which are shown at Note 8. The collateral is held by a custodian in a segregated account in
Euroclear. Where there is an event of default in respect of the Company under the Put Option, the Put Option Counterparty will be entitled
to enforce its security over the Debt Securities.
13 RELATED PARTIES
Anson Fund Managers Limited is the Company*s Administrator and Secretary, Anson Registrars Limited is the Company*s Registrar, Transfer
Agent and Paying Agent and Anson Administration (UK) Limited is the UK Transfer Agent. John R Le Prevost is a director of Anson Fund
Managers Limited, Anson Registrars Limited and Anson Administration (UK) Limited. �34,157 (2007: �32,873) of costs were incurred by the
Company with these related parties during the year, of which �3,569 (2007: �2,816) was due to these related parties at 30 June 2008.
SCHEDULE OF INVESTMENTS
as at 30 June 2008
NOMINAL VALUATION TOTAL NET
DEBT SECURITIES PORTFOLIO HOLDINGS GBP ASSETS %
BNP Paribas 0% EMTN 28 July 2011 6,000,000 6,600,000 15.86%
Caixa Geral de Depositas 0% EMTN 28
July
2011 6,000,000 6,601,800 15.86%
Erste Bank 0% EMTN 28 July 2011 6,000,000 6,601,800 15.86%
Glitnir Banki HF 0% EMTN 28 July 2011 6,000,000 6,560,400 15.76%
Kaupthing Bunadarbanki 0% EMTN 28 6,000,000 6,574,800 15.79%
July 2011
KBC IFIMA 0% EMTN 28 July 2011 6,000,000 6,520,800 15.67%
RBS 0% EMTN 28 July 2011 3,550,000 3,898,255 9.36%
43,357,855 104.16%
The Company has also sold a Put option, details of which are shown below.
NOTIONAL VALUATION
HOLDING GBP
JPM EUROSTOXX 50 Put Option expiring 28
July 2011 39,550,000 (3,009,755)
SCHEDULE OF INVESTMENTS
as at 30 June 2007
NOMINAL VALUATION TOTAL NET
DEBT SECURITIES PORTFOLIO HOLDINGS GBP ASSETS %
BNP Paribas 0% EMTN 28 July 2011 6,000,000 6,865,800 15.11%
Caixa Geral de Depositas 0% EMTN 28
July
2011 6,000,000 6,868,200 15.11%
Erste Bank 0% EMTN 28 July 2011 6,000,000 6,868,200 15.11%
Glitnir Banki HF 0% EMTN 28 July 2011 6,000,000 6,812,400 14.99%
Kaupthing Bunadarbanki 0% EMTN 28 6,000,000 6,833,400 15.04%
July 2011
KBC IFIMA 0% EMTN 28 July 2011 6,000,000 6,774,600 14.91%
RBS 0% EMTN 28 July 2011 3,550,000 4,051,615 8.92%
45,074,215 99.19%
The Company has also sold a Put option, details of which are shown below.
NOTIONAL VALUATION
HOLDING GBP
JPM EUROSTOXX 50 Put Option expiring 28
July 2011 39,550,000 (1,237,915)
A pdf version of the annual financial report will shortly be posted on the Managers web-site www.closeinvestments.com 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
18 SEPTEMBER 2008
END OF ANNOUNCEMENT
E&OE * in transmission
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The company news service from the London Stock Exchange
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