CEAF Close European

    RNS Number : 6403J
  Close European Accelerated Fund Ltd
  05 December 2008
   

    Close European Accelerated Fund Limited (the "Company")

    Portfolio Update

    Shareholders of the Company are likely to be aware that the Icelandic banks Glitnir Banki HF and Kaupthing Bank HF have been in the news
recently as they have been in economic difficulty and have been placed in receivership by the Icelandic authorities.

    The Company holds seven debt securities in order to fulfil its investment objective (the "Debt Securities"), including one issued by
Glitnir Banki HF and one issued by Kaupthing Bank HF (the "Icelandic Debt Securities"). The Icelandic Debt Securities account for
approximately 30 per cent of the total nominal value of the Company's Debt Securities. In the event of a default by an issuer of a Debt
Security purchased by the Company, the Company will rank as an unsecured creditor in respect of sums due from the issuer of such Debt
Security. In such an event, the Company may (in respect of that Debt Security) receive a lesser amount of money than the amount due pursuant
to the terms of the Debt Security (the "recovery rate"), may actually receive the money at a different time than would otherwise have been
the case and the amount received may be zero (a "zero recovery rate"). 

    As a result of the reported failure of Glitnir Banki HF's and Kaupthing Bank to make payments due on other outstanding debt obligations,
the Board of the Company considers it likely that they may not pay in full on their obligations to the Company. Whilst recovery rates from
issuers that default vary, and in this case are currently unknown, the worst case scenario would see the Company receive nothing from either
institution at the maturity of the relevant Icelandic Debt Securities

    Any losses arising from default of the Icelandic Debt Securities will be borne by the Company and returns to Shareholders would be
significantly adversely affected.  The Board of the Company has announced via RNS announcements how the Final Capital Entitlement of the
Shares might vary for different ending levels of the Dow Jones EuroStoxx 50 Index on the assumption of zero recovery rate in the event of
default of the Icelandic Debt Securities and there being no insolvency of any other issuer of Debt Securities held by the Company or any
other event of default or any unforeseen circumstances.

    The Board wishes to inform Shareholders of the Company that it has conducted an in depth review of the Company's investments focusing on
potential courses of action for the Company to take, assuming a zero recovery rate in respect of the Icelandic Debt Securities. The Board
considered a number of different scenarios whereby the Company would change the terms of the other investments held by the Company or sell
them in whole or in part. The Board also took advice on the legal implications of each possible course of action and considered the
significant costs of taking such actions.

    The Board observed that, assuming a zero recovery rate in respect of the Icelandic Debt Securities, it would not be possible to
replicate the Final Capital Entitlement as stated in the Company's investment objective.  It therefore considered how the Final Capital
Entitlement of the Shares might be affected by leaving the remaining investments held by the Company unchanged or restructuring the
Company's investments in various different ways, including the winding-up of the Company.  

    If the investments held by the Company are not restructured and there is a zero recovery rate in respect of the Icelandic Debt
Securities, then the Capital Amount of the Final Capital Entitlement would be approximately 69.5 pence, the Growth Amount would be reduced
by approximately 30% such that if the Index falls to approximately 1002.2 or lower and closes at that level on the End Date then the Final
Capital Entitlement of the Shares would be zero.1  Furthermore if the Index level falls significantly such that the mark to market liability
under the Company's Put option is greater than the Company's assets, then the Company's net assets will be zero in such circumstances.

    As at close of business on 4 December 2008, if the Company was wound up, with issuers of both Icelandic Debt Securities having defaulted
with zero recovery rates, then the indicative liquidation value of the Company would be estimated to be approximately 15% below the official
closing value of the Shares, not taking into account any legal, documentation and accounting fees nor any other costs which might be
required and which would likely be very high due to the forced sale of the Debt Securities.  In addition, there is no assurance whatsoever
that there would be any market in the Debt Securities at a given point in time, irrespective of price, so the Company may not be able to
sell the Debt Securities in order to wind up the Company.  Even if the Company is able to sell the Debt Securities, it should be emphasised
that the resulting price may not resemble in any way that estimated above.

    The other scenarios examined as part of the review included those to prioritise part of the Company's investment objective, hence
focusing on a combination of: capital protection, preserving upside participation with five times gearing, preserving the maximum Growth
Amount, addressing the issue of the Company's net assets falling to zero in some circumstances prior to the end of the life of the Company,
replacing the current Put Option and buying credit protection on the remaining Debt Securities.  

    For each of these restructuring scenarios the Board currently notes the following possible effects on the Final Capital Entitlement of
the Shares as compared to leaving the remaining investments held by the Company unchanged, subject to there being no insolvency of any other
issuer of Debt Securities held by the Company or any other event of default or any unforeseen circumstances:

    1.  The Final Capital Entitlement set out is an example only and not a forecast of actual payments and is subject to there being no
insolvency of any other issuer of Debt Securities held by the Company or any other event of default or any unforeseen circumstances. The
attention of Shareholders is drawn to the section headed "Risk Factors" in the prospectus issued by the Company on 14 July 2005.

    (a)    For the scenarios focusing on capital protection, shareholders would give up the entire Growth Amount in return for an increased
Capital Amount which would still be significantly below the original Issue Price of 100 pence per Share.  

    (b)    For the scenarios focusing on preserving upside participation with five times gearing, the maximum Growth Amount would be
approximately halved or lower, such that the maximum Final Capital Entitlement of the Shares would still be significantly below the original
Issue Price of 100 pence per Share.  

    (c)    For the scenarios focusing on preserving the maximum Growth Amount, the gearing on the Growth Amount would have to be reduced
significantly, such that in order to outperform the Final Capital Entitlement if the investments are not restructured, the DJ Eurostoxx 50
Index would have to approximately double or more from its current level.  

    (d)      For the scenario addressing only the issue of the Company's net assets falling to zero in some circumstances prior to the end
of the life of the Company, the restructured assets would underperform the current assets Final Capital Entitlement in all circumstances. 

    (e)    For the scenarios focusing on replacing the current Put Option with another Put Option with either a lower barrier or a lower
strike, both of these would necessitate giving up some or all of the Growth Amount and also possibly further reducing the Capital Amount,
such that the Final Capital Entitlement, for all scenarios where the DJ Eurostoxx 50 Index has not closed down more than 50% from its start
value at any point during the Company's life, would be immediately and significantly reduced.

    (f)    Scenarios focusing on credit protection would underperform the Final Capital Entitlement of the current investments with no
restructuring in all circumstances, except in the event that one or more of the issuers of the other Debt Securities (listed below) default.
 Moreover, the Board of Directors noted that any credit default swaps purchased may not fully protect the Company in the event of default of
one of the other Debt Security issuers as the credit default swaps would be over-the-counter instruments and hence would also be subject to
counterparty risk.

    The Board of Directors also noted that if the Company were to take action to restructure its investments, this would require shareholder
approval at an Extraordinary General Meeting and there would be significant costs including transaction costs, legal, documentation and
accounting fees.  There is also no assurance that, following such an exercise, there would be any market in some or all of the Debt
Securities, so the Company may not be able to restructure them in any event.

    Throughout the review of the Company's investments, the Board recognised and was aware that Shareholders had made their investment on
the basis of the original return profile with knowledge of the risks associated with the default of a Debt Security issuer or an Index
Barrier Breach.  The Board observed that taking action to change the terms of the investments held by the Company would further change the
payoff profile of the Shares away from what Shareholders were expecting.  

    In the light of these factors and the effect on the Final Capital Entitlement of the Shares compared to leaving the assets held by the
Company unchanged, the Board has concluded that it is currently in Shareholders' best interests for the Company to continue holding the
existing investments.  The Board will continue to assess the situation on an ongoing basis.  

    Shareholders may wish to note that the other Debt Securities held by the Company, together with their Moody's and Standard and Poor's
credit ratings, as at 4 December 2008 are as follows:  BNP Paribas rated Aa1 and AA+, Caixa Geral De Depositos rated Aa1 and AA-, Erste
Group Bank AG rated Aa3 and A, KBC Bank NV rated Aa2 and A+, and Royal Bank Of Scotland Plc rated Aa1 and AA-.

    The Board will continue to monitor the issuers of the Debt Securities held by the Company and will keep Shareholders informed of any
significant developments in the Company's portfolio.

    Defined terms in this announcement shall have the meaning assigned to them in the prospectus issued by the Company on 14 July 2005.

    Capital at Risk Products 

    The Company has been advised that the Company is a Capital at Risk Product as defined by the Financial Services Authority (FSA).
Investors should refer to the FSA factsheet, which is available at
    www.moneymadeclear.fsa.gov.uk/products/investments/types/pooled/structure d_products.html

    The return of capital invested at the end of the investment period is not guaranteed and therefore the investor may get back less than
was originally invested. Investors should not enter into a transaction to purchase Shares unless they are prepared to lose some or all of
the money they have invested. 

    They should satisfy themselves that the Shares are suitable for them in the light of their circumstances and financial position, and if
in any doubt they should seek professional advice. Investors may only achieve the rate of return advertised over a set period and the return
may depend on specific conditions being met.

    The monthly factsheet is available on the website www.closeinvestments.com

    For further information contact:

    Close Investments Limited
    Manager
Tel: 0800 269 824

    Anson Fund Managers Limited 
    Secretary
    Tel: 01481 722260

    5 December 2008

    E&OE - In transmission







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The company news service from the London Stock Exchange
 
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