TIDMCEAF
RNS Number : 2573B
Close European Accelerated Fund Ltd
15 February 2011
Close European Accelerated Fund Limited
Half-Yearly Financial Report
for the period ended 31 December 2010 (Unaudited) Close European
Accelerated Fund Limited (the "Company")
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 (the "Issue
Price") on 27 July 2005. Your Board, in conjunction with the
Company's Manager, was since the initial placing and offer for
subscription of Shares, successful in raising further capital for
the Company by the subsequent issue of an additional 3,550,000 new
Shares on 21 September 2006 at a price of 107.5p each. 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 100 pence 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, subject to counterparty
default.
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) (an "Index Barrier Breach").
If shareholders hold their Shares until the Redemption Date, and
an Index Barrier Breach has occurred and the End Value is not at
least equal to the Start Value, the Shares are designed to repay
the Issue Price 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 ("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 Index rises 13.5 per
cent. 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 per cent. on the
Redemption Date.
As published in each of the annual and half-yearly financial
reports of the Company and as announced on 8 October 2008, the
Company currently holds seven Debt Securities, including one issued
by Glitnir Banki HF ("Glitnir") and one issued by Kaupthing Bank HF
("Kaupthing"). These two debt securities have a nominal value of
GBP6,000,000 each and in aggregate account for approximately 30 per
cent. of the total nominal value of the Company's debt
securities.
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 debt security. In these circumstances, the
Company's assets will be reduced by 30 per cent. and so accelerate
asset erosion under the Put option or reduce the redemption
proceeds due to shareholders on the redemption of their Shares
accordingly.
In the event of both Glitnir and Kaupthing defaulting and having
a zero recovery rate 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, if the Index were to fall
to a level of approximately 1,002 at close of business on the End
Date, the redemption proceeds of the Shares would be zero. The
redemption proceeds per Share per the Company's investment
objective will not be known until after the end of the life of the
Shares when the closing value of the Index on the End Date is
known.
Any claims which are paid may be paid before or after the end of
the life of the Shares and in the case of early payment it may not
be possible to reinvest the proceeds in debt securities which
replicate the investment characteristics of the original Debt
Securities. Any claims which are paid may be paid in currencies
other than Sterling and/or in forms other than cash. Any payments
received by the Company may therefore be subject to currency
fluctuations and/or other market movements.
As any claims which are paid may be paid after the end of the
life of the Shares, your Board is in discussion with its advisors
to agree and establish arrangements whereby the Company's
entitlement to any future payments from Glitnir and Kaupthing can
be held for the benefit of its Shareholders. To give effect to
these arrangements it, may be necessary for an Extraordinary
General Meeting of all shareholders to be convened in order to vote
on proposals to amend the Company's Articles of Association.
Assuming the proposal is accepted by shareholders there will be
paid to them on the Redemption Date whatever cash entitlement is
available for distribution and they will also receive an interest
in any future payments from Glitnir and Kaupthing. The Directors
will make an announcement with further details to Shareholders as
soon as possible
Your attention is drawn to the Schedule of Investments of this
half-yearly financial report, which shows the assets held by the
Company and note 12(b) to the financial statements, which refers to
the credit risk of the issuers of these assets as at the end of the
reporting period and as at the date of this report.
Close European Accelerated Fund Limited (the "Company")
MANAGER'S REPORT FOR THE PERIOD ENDED 31 DECEMBER 2010
Investment Performance
In order to fulfil its investment objective, the Company holds
seven Debt Securities, including one issued by Glitnir and one
issued by Kaupthing. These two debt securities have a nominal value
of GBP6,000 000 each and in aggregate 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 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, may actually receive
the money at a different time than would otherwise have been the
case and the amount received may be zero. Any losses will be borne
by the Company and returns to Shareholders would be significantly
adversely affected.
The Winding-Up Boards for Glitnir and Kaupthing asked all
parties claiming debts of any sort or other rights to submit claims
by 26 November 2009 and 30 December 2009 respectively. Consequently
the Company submitted claim forms to each of Glitnir and Kaupthing,
claiming GBP10,050,000 in respect of each one of these debt
securities, such amounts being equal to the maximum redemption
proceeds of GBP1.675 per GBP1 nominal. The Winding-Up Committee of
Kaupthing has written to the Company to advise it accepts ISK
1,125,075,218 (approximately GBP6.25 million as at 31 December
2010) of the claim. The Winding-Up Board of Glitnir has postponed a
decision on the Company's claim until 14 April 2011.
Shareholders should be aware that it is likely that Kaupthing
may not pay the Company the full ISK 1,125,075,218 or, indeed,
anything at all and that Glitnir may not pay the Company the full
amount claimed or anything at all. 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 debt securities.
The amounts claimed or accepted should not be considered forecasts
of the amounts which will be due from Kaupthing or Glitnir on the
maturity of the relevant debt securities, nor are they a reflection
of the net asset value per Share. The redemption proceeds per Share
as per the Company's investment objective will not be known until
after the end of the life of the Company when the closing value of
the Index on the End Date is known and may not be the amounts
claimed or accepted.
Any claims which are paid may be paid before or after the end of
the life of the Company and in the case of early payment it may not
be possible to reinvest the proceeds in debt securities which
replicate the investment characteristics of the original Debt
Securities. Any claims which are paid may be paid in currencies
other than Sterling and/or in forms other than cash. Any payments
received by the Company may therefore be subject to currency
fluctuations and/or other market movements.
If the Index has closed down more than 50 per cent. from its
Start Value (i.e. below 1,651.49) on any Index Business Day between
the Start Date and the End Date then an Index Barrier Breach will
have occurred. In these circumstances, the amount which the Company
will be required to pay following the Index Barrier Breach will
reduce its assets by an amount which reflects the decline, if any,
in the Index between the Start Date and the End Date. As at the
date of this report, an Index Barrier Breach has not occurred.
The official closing level of the Index as at 31 December 2010
was 2 797.82. If the Index closed at this level on the End Date and
an Index Barrier Breach has not occurred, the redemption proceeds
would be 100 pence subject to there being no counterparty default
or any unforeseen circumstances, and in the event of both Glitnir
and Kaupthing defaulting and having a zero recovery rate 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 redemption proceeds would be approximately 69.5
pence, and if the Index were to fall by approximately a further 64
per cent. to a level of approximately 1,002 as at the End Date, the
redemption proceeds of the Shares would be zero.
The table below illustrates how the redemption proceeds of the
Shares might vary for different ending levels of the Index (1)
subject to there being no counterparty default or any unforeseen
circumstances, and (2) on the assumption of zero recovery in the
event of default of the debt securities issued by Glitnir and
Kaupthing 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.
If Dow Jones EuroStoxx If Dow Jones EuroStoxx
50 50
Index never closes below
1,651.49+ Index closed below 1,651.49+
Final
EuroStoxx Redemption Redemption Redemption Redemption
50 Index* Proceeds (1) Proceeds (2) Proceeds (1) Proceeds (2)
0 0.0 0.0
100 3.0 0.0
200 6.0 0.0
300 9.0 0.0
400 12.0 0.0
500 15.0 0.0
600 18.0 0.0
700 21.0 0.0
800 24.0 0.0
900 27.0 0.0
1,000 30.0 0.0
1,100 33.0 2.5
1,200 36.0 5.5
1,300 39.0 9.0
1,400 42.0 12.0
1,500 45.0 15.0
1,600 48.0 18.0
1,700 100.0 69.5 51.0 21.0
1,800 100.0 69.5 54.0 24.0
1,900 100.0 69.5 57.5 27.0
2,000 100.0 69.5 60.5 30.0
2,100 100.0 69.5 63.5 33.0
2,200 100.0 69.5 66.5 36.0
2,300 100.0 69.5 69.5 39.0
2,400 100.0 69.5 72.5 42.0
2,500 100.0 69.5 75.5 45.0
2,600 100.0 69.5 78.5 48.0
2,700 100.0 69.5 81.5 51.0
2,797.82** 100.0 69.5 84.5 54.0
2,800 100.0 69.5 84.5 54.0
2,900 100.0 69.5 87.5 57.0
3,000 100.0 69.5 90.5 60.0
3,100 100.0 69.5 93.5 63.5
3,200 100.0 69.5 96.5 66.5
3,300 100.0 69.5 99.5 69.5
3,400 114.5 79.5 114.5 79.5
3,500 129.5 90.0 129.5 90.0
3,600 144.5 100.5 144.5 100.5
3,700 160.0 111.5 160.0 111.5
3,800 167.5 116.5 167.5 116.5
3,900 167.5 116.5 167.5 116.5
* As at 26 July 2011
** Official closing level of the Dow Jones EuroStoxx 50 Index as
at 31 December 2010
+ On any day from 26 July 2005 to 26 July 2011
(1) Subject to there being no counterparty default or any
unforeseen circumstances
(2) The table contemplates default and zero recovery in respect
of the debt securities issued by Glitnir and Kaupthing. The
redemption proceeds set out in this table 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.
Market Review
The period under review was a volatile time for the Index which
ended up 8.5 per cent. over the period.
The first two months of the period were particularly volatile as
the Index fell down to just above 2,500, its low of the period,
subsequently rising c10 per cent., and then falling significantly
in August. These moves showed investors' changeable views of the
strength of the global economic recovery and resurfacing worries
surrounding the European sovereign debt crisis, following Greece's
debt problems.
September and October were much more stable months for the Index
which range traded between 2,700 and 2,900 during this time, as
market participants seemed to forget their concerns. During these
months global equity markets were buoyed by positive global
economic data and speculation of additional quantitative easing by
the US Federal Reserve boosted the Index. However Ireland's
sovereign debt crisis and expectations that a bailout from the
European Union ("EU") and the International Monetary Fund would be
required, weighed on equity markets tempering any rises.
The Index fell 7.0 per cent. in November as the Irish crisis
culminated in a Euro 85 million bailout from the EU. Despite this,
and comments from French and German leaders that this bailout had
saved the euro, financial markets looked far from convinced that
this would stop contagion spreading to other European countries
such as Portugal and Spain. However the Index recovered its losses
at the beginning of December to end the period at 2,792.82, up 8.5
per cent. over the period.
The European Central Bank ("ECB") held rates at 1.00 per cent.
throughout the period as pressure mounted to stem the worsening
sovereign debt crisis in Europe. Unconventional actions taken by
the ECB included a bond purchase programme, although this had a
limited effect as the purchases were sterilised i.e. offsetting the
purchases through sales of other bonds or money market instruments
to keep the overall money supply unaffected.
Market Outlook
The ECB is currently projecting annual real GDP growth of
between 0.7 per cent. and 2.1 per cent. and annual harmonized index
of consumer prices (i.e. inflation) of between 1.3 per cent. and
2.3 per cent. in 2011. The ECB's Governing Council's view is that
there is still high uncertainty in the European economic outlook
and that the risks remain tilted to the downside.
Uncertainty over the economic outlook may stem in part due to
the possibility of contagion and hence further sovereign debt
issues in other countries with Europe, and equity markets reactions
to this. European equity markets are also likely to react to any
changes in the ECB's interest rates and bond purchase
programme.
Close Investments Limited
14 February 2011
Close European Accelerated Fund Limited (the "Company")
INTERIM MANAGEMENT REPORT FOR THE PERIOD FROM 1 JULY TO 31
DECEMBER 2010
Detailed in the section entitled "Investment Objective and
Policy", in the Manager's Report and in the notes to the financial
statements is a description of important events that have occurred
during the first six months of 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 for the
remaining six months of the financial year.
There were no material related party transactions which took
place in the first six months of the financial year.
This half-yearly financial report has not been audited or
reviewed by auditors pursuant to the Auditing Practices Board
guidance on Review of Interim Financial Information.
Going Concern
The performance of the investments held by the Company over the
reporting period and the outlook for the future are described in
the Manager's Report. The Company's financial position, its cash
flows and liquidity position are set out in the financial
statements and the Company's financial risk management objectives
and policies, details of its financial instruments and its
exposures to market price risk, credit risk, liquidity risk,
portfolio construction risk and interest rate risk are set out at
note 12 to the financial statements.
As highlighted in the section entitled "Investment Objective and
Policy" the Manager's Report and notes 1(k), 5 and 12(d) to the
financial statements, during the previous accounting period, the
issuers of two of the debt securities, being Glitnir and Kaupthing,
suffered severe financial difficulties and were placed into
receivership. The Company has submitted claim forms to each of
Glitnir and Kaupthing claiming GBP10,050,000 in respect of each one
of these debt securities, such amounts being equal to the maximum
redemption proceeds of GBP1.675 per GBP1 nominal. The amount
claimed should not be considered a forecast of the redemption
proceeds nor is it a reflection of the net asset value per Share.
The redemption proceeds per Share per the Company's investment
objective will not be known until after the end of the life of the
Shares when the closing value of the Index on the End Date is known
and may not be the amount currently claimed.
The Winding-Up Committee of Kaupthing has since written to the
Company to advise that it accepts ISK 1,125,075,218 (approximately
GBP6.25 million as at 31 December 2010) of the claim. The
Winding-Up Board of Glitnir has postponed a decision on the
Company's claim until 14 April 2011. As such, the value of the debt
instruments issued by Glitnir cannot be ascertained with any degree
of certainty.
Although at the time of writing Kaupthing has accepted ISK
1,125,075,218 of the claim the situation still remains unclear. The
Manager and Board of directors consider it likely that Glitnir and
Kaupthing may not pay in full on their obligations and in the worst
case scenario may pay nothing at all.
In the event the Company receives a lesser amount of money than
the amount due pursuant to the terms of the debt security or in the
event the amount received may be zero, any losses will be borne by
the Company and return to Shareholders would be significantly
adversely affected. Any claims which are paid may be paid before or
after the end of the life of the Company and in the case of early
payment it may not be possible to reinvest the proceeds in debt
securities which replicate the investment characteristics of the
original Debt Securities. Any claims which are paid may be paid in
currencies other than Sterling and/or in forms other than cash. Any
payments received by the Company may therefore be subject to
currency fluctuations and/or other market movements.
The Company holds a debt security issued by the Portuguese
state-owned bank, Caixa Geral De Depositos S.A. ("Caixa") with a
nominal value of GBP6million. On 14 July 2010 Moody's lowered its
long-term counterparty credit rating to A1 from Aa3 with a stable
outlook, following its downgrade of the Portuguese sovereign debt
rating to A1 on 13 July 2010. Subsequently, on 9 December 2010
Moody's placed the senior unsecured debt ratings of Caixa on
negative outlook. Similarly, on 3 December 2010 Standard and Poor's
("S&P") placed Caixa's long and short term credit ratings on
creditwatch with negative implications, maintaining its rate of A-.
S&P noted that Portugal's macroeconomic challenges and
difficult external financing conditions will put pressure on the
banks' operating environment and that the country's ambitious
austerity plan will, in S&P's opinion, likely lead the economy
back into recession in 2011 and limit growth prospects
thereafter.
The Board monitors credit risk and will consider further action
if the credit rating of an issuer falls below A3 or A- as ranked by
Moodys and S&P respectively.
In the event of a default by an issuer of a debt security
purchased by the Company the Company would 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 (if any) and at a different time
than the proceeds anticipated at the maturity of the debt security.
Any losses would be borne by the Company and returns to
shareholders would be significantly adversely affected.
As disclosed in the section entitled "Investment Objective and
Policy", the notes to the financial statements and the schedule of
investments, the Company has sold a Put Option to J.P. Morgan Chase
Bank N.A (the "Put Option Counterparty"). The performance of the
Put Option is linked to the performance of the 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 (an "Index
Barrier Breach"), the Put Option will be worth GBPNil 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
GBP39,550,000, equivalent to the percentage fall in the level of
the Index over the calculation period. As at the accounting
reference date and as at the date of this report no Index Barrier
Breach had occurred.
The Company's contingent liability to the Put Option
Counterparty under the Put Option sold to the Put Option
Counterparty will not crystallise until the Put Option's scheduled
maturity date of 28 July 2011. Such contingent liability under the
Put Option will be calculated based on the level of the Index as at
26 July 2011. As the contingent liability under the Put Option
cannot be quantified and does not crystallise until 26 July 2011,
the directors do not consider that such contingent liability
renders the Company insolvent at this time. Only in the event that
the value of the Put Option based on the level of Index as at 26
July 2011 exceeds the value of the Company's assets on that date
might the Company be rendered insolvent.
As disclosed in the section entitled "Investment Objective and
Policy" and note 12(c) to the financial statements, upon the issue
of Shares in July 2005 the Company created a cash reserve (the
"Expense Provision") in the amount of 2.10 per cent. of the amount
raised by the issue of such shares (the "Initial Gross Proceeds")
plus GBP440,000, 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 Company.
Upon the issue of additional Shares in September 2006, an
additional 2.10 per cent. 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 Shares or
deemed unlikely to increase materially as a result of this issue of
additional Shares.
After making enquiries, the directors have a reasonable
expectation that the Company has adequate resources to continue in
operational existence for the foreseeable future. Accordingly, they
continue to adopt the going concern basis in preparing this
half-yearly financial report.
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 Interim Management Report includes or incorporates by
reference:
(i) an indication of important events that have occurred during
the first six months of the financial year and their impact on the
financial statements;
(ii) a description of the principal risks and uncertainties for
the remaining six months of the financial year;
(iii) confirmation that there were no related party transactions
in the first six months of the current financial year that have
materially affected the financial position or the performance of
the Company during that period; and
changes in the related parties transactions described in the
last annual report that could have a material effect on the
financial position or performance of the Company in the first six
months of the current financial year.
Charles Tracy Peter Niven
Director Director
14 February 2011
Close European Accelerated Fund Limited (the "Company")
UNAUDITED STATEMENT OF COMPREHENSIVE INCOME
for the period ended 31 December 2010
1 Jul 2010 1 Jul 2009
to to
31 Dec 2010 31 Dec 2009
Notes GBP GBP
Net movement in unrealised appreciation
on
investments 5 931,255 4,258,506
Unrealised depreciation on value
of Put Option 4,551,164 4,989,535
Operating expenses 2 (190,108) (197,874)
Net gain for the period attributable
to shareholders 5,292,311 9,050,167
============= =============
Pence Pence
Earnings per Share for the period 4 13.38 22.88
In arriving at the results for the financial period, all amounts
above relate to continuing operations.
There is no other comprehensive income in the period
Reconciliation of earnings per Share for investment purposes to
earnings per Share per the financial statements:
Pence Pence
Earnings per Share for investment purposes 13.86 23.38
Adjustment to include expenses on an accruals
basis (0.48) (0.50)
Earnings per Share per the financial statements 13.38 22.88
In accordance with International Financial Reporting Standards
("IFRS"), expenses should be attributed to the period to which they
relate. The adjustment to expenses to reflect the application of
this accruals basis reduces the earnings per Share of the Company
by 0.48 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 redemption proceeds becomes
payable.
Close European Accelerated Fund Limited (the "Company")
UNAUDITED STATEMENT OF FINANCIAL POSITION
as at 31 December 2010
31 Dec 2010 30 Jun 2010
Notes GBP GBP
NON-CURRENT ASSETS
Unquoted financial assets designated
as at fair value
through profit or loss 5 - 30,372,072
------------
CURRENT ASSETS
Unquoted financial assets designated
as at fair value
through profit or loss 5 31,303,327 -
Receivables 6 93,651 165,957
Cash and cash equivalents 246,006 373,942
------------ ------------
31,642,984 539,899
CURRENT LIABILITIES
Payables - due within one year 7 1,221,874 16,335
------------ ------------
1,221,874 16,335
NET CURRENT ASSETS 30,421,110 523,564
------------ ------------
TOTAL ASSETS LESS CURRENT LIABILITIES 30,421,110 30,895,636
(excluding net assets attributable
to shareholders)
Payables - due after one year (excluding
net assets
attributable to shareholders) 7 - 5,766,837
------------
NET ASSETS ATTRIBUTABLE TO SHAREHOLDERS 30,421,110 25,128,799
============ ============
SHARES IN ISSUE 39,550,000 39,550,000
Pence Pence
NAV PER SHARE 76.92 63.54
Reconciliation of NAV per Share for investment purposes to NAV
per Share per the financial statements:
31 Dec 2010 30 Jun 2010
Pence Pence
NAV per Share for investment purposes 76.07 62.21
Adjustment to include expenses on an accruals
basis 0.85 1.33
NAV per Share per the financial statements 76.92 63.54
In accordance with IFRS, 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 0.85 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 redemption proceeds becomes
payable.
The financial statements were approved by the Board of Directors
on 14 February 2011 and are signed on its behalf by:
Charles Tracy Peter Niven
Director Director
Close European Accelerated Fund Limited (the "Company")
UNAUDITED STATEMENT OF CASH FLOWS
for the period ended 31 December 2010
1 Jul 2010 1 Jul 2009
to 31 Dec to 31 Dec
2010 2009
GBP GBP
Operating activities
Net gain for the period attributable
to shareholders 5,292,311 9,050,167
Less Unrealised appreciation on investments (931,255) (4,258,506)
Less: Unrealised depreciation on value
of Put Option (4,551,164) (4,989,535)
Less: Interest received (512) (193)
(Decrease) / increase in accrued expenses (10,134) 6,674
Decrease in prepayments and accrued
income 72,306 73,807
------------ ------------
Net cash outflow from operating activities (128,448) (117,586)
------------ ------------
Investing activities
Interest received 512 193
Net cash inflow from investing activities 512 193
------------ ------------
Cash and cash equivalents at beginning
of period 373,942 616,104
Decrease in cash and cash equivalents (127,936) (117,393)
------------ ------------
Cash and cash equivalents at end of
period 246,006 498,711
============ ============
Close European Accelerated Fund Limited (the "Company")
UNAUDITED STATEMENT OF CHANGES IN NET ASSETS ATTRIBUTABLE TO
SHAREHOLDERS
for the period ended 31 December 2010
Accumulated
Share Capital Share Premium Losses Total
GBP GBP GBP GBP
Balance as at 1
July 2010 3,957 39,812,295 (14,687,453) 25,128,799
Net gain for the
period
attributable to
shareholders - - 5,292,311 5,292,311
-------------- -------------- ------------- -----------
Balance as at 31
December
2010 3,957 39,812,295 (9,395,142) 30,421,110
-------------- -------------- ------------- -----------
Accumulated
Share Capital Share Premium Losses Total
GBP GBP GBP GBP
Balance as at 1
July 2009 3,957 39,812,295 (21,023,975) 18,792,277
Net gain for the
period
attributable to
shareholders - - 6,336,522 6,336,522
-------------- -------------- ------------- -----------
Balance as at 30
June 2010 3,957 39,812,295 (14,687,453) 25,128,799
-------------- -------------- ------------- -----------
Close European Accelerated Fund Limited (the "Company")
UNAUDITED NOTES TO THE FINANCIAL STATEMENTS
as at 31 December 2010
1 ACCOUNTING POLICIES
(a) Basis of Preparation
The financial statements have been prepared in conformity with
IFRS which comprise standards and interpretations approved by the
International Accounting Standards Board ("IASB") and International
Financial Reporting Interpretations Committee ("IFRIC") and
applicable Guernsey law. As the Company's participating Shares are
due for redemption within the next twelve months, the financial
statements have been prepared on a realisable value basis. The
directors do not anticipate costs of liquidation to be material.
Such costs will be borne out of the Expense Provision described in
note 8 to the financial statements.
The following Standards or Interpretations that are expected to
affect the Company have been issued but not yet adopted by the
Company as shown below. Other Standards or Interpretations issued
by the IASB and the IFRIC are not expected to affect the
Company:
IFRS 7 Financial Instruments Disclosures effective for annual
periods beginning on or after 1 July 2011.
IFRS 9 Financial Instruments Classification and Measurement
effective for annual periods beginning on or after 1 January
2013.
IFRS 24 Related Party Disclosures effective for annual periods
beginning on or after 1 January 2011.
The directors have considered the above and are of the opinion
that the above Standards and Interpretations are not expected to
have an impact on the Company's financial statements except for the
presentation of additional disclosures and changes to the
presentation of components of the financial statements. These items
will be applied in the first financial period for which they are
required.
(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 GBP600.
(c) Expenses
All expenses are accounted for on an accruals basis.
(d) Debt Issue Costs
The debt issue costs incurred amounted to GBP810,000 on the
initial share issue and a further GBP79,609 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, excluding transaction costs associated with
the investment. After initial recognition, investments are measured
at fair value, with unrealised gains and losses on investments
being recognised in the Statement of Comprehensive Income. Fair
value is the amount for which the financial instruments could be
exchanged, or a liability settled, between knowledgeable willing
parties in an arms length transaction. Fair value also reflects the
credit quality of the issuers of the financial instruments.
Valuations of the Company's investments are based on valuations
provided to the Company by Future Value Consultants Limited ("the
Valuer"). These valuations are intended to be an indication of the
fair value of those investments, including an issuer's credit risk
designed to reflect the best estimation of the price at which they
could be sold, even though there is no guarantee that a willing
buyer might be found if the Company chose to sell the relevant
investment.
The indicative fair values of the investments are based on an
approximation of the market level of the investments. As the
investments are not traded in an active market, the indicative fair
value was determined by using valuation techniques. The Valuer used
a variety of methods and made assumptions that were based on market
conditions existing at the reporting 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.
Models use observable data, to the extent practicable. However,
areas such as credit risk, volatilities and correlations require
the Valuer to make estimates. Changes in assumptions about these
factors could affect the reported fair value of financial
instruments.
During the year ended 30 June 2009 two of the issuers of the
Company's Debt Securities, Glitnir and Kaupthing, suffered severe
financial difficulties and were placed into receivership.
Therefore for the purposes of valuation these investments had no
Credit Default Swap spreads at the reporting date. As a result, the
Valuer used pricing information about comparable and publicly
available debt securities issued by Glitnir and Kaupthing in order
to estimate the effect of credit risk on the valuation of the debt
securities.
In the previous interim financial statements, the directors
exercised their judgement in the best interests of both
shareholders and creditors to value these investments at GBPnil.
Based on new market data and recent announcements by both Glitnir
and Kaupthing, for this period and the year ended 30 June 2010 it
was the directors' opinion that the values ascribed to these two
debt securities by the Valuer comply with the definition of fair
value as defined by IFRS and are therefore more appropriate.
Different assumptions regarding these factors, combined with
different valuation techniques and models used, could lead to
different valuations of the financial instruments produced by
different parties. As at the reporting date, valuation data
provided by J.P. Morgan Securities Limited, for the Debt Securities
only, was GBP3,391,127 lower (Jun 2010: GBP1,980,757 lower) than
that provided by the Valuer. It should be noted however, that a
value has been ascribed by the Valuer to the debt instruments
issued by Glitnir and Kaupthing, but these debt securities have not
been valued by J.P. Morgan Securities Limited.
The investments will be derecognised on their redemption date.
Gains and losses on the sale of investments will be taken to the
Statement of Comprehensive Income.
(h) Put Option
The Put Option was initially recognised at the fair value of the
consideration received on the date of sale, and was included within
payables 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
Comprehensive Income. The Put Option will be derecognised at expiry
on 26 July 2011, and has therefore been included within current
liabilities.
(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) Critical accounting estimates and judgements
Management make critical accounting estimates and judgements
concerning the future. The resulting accounting estimates will, by
definition, seldom equal the related actual results. The estimates
and assumptions that have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities within
the financial period are outlined below:
Fair value of derivative financial instruments
The Company has invested in a portfolio of Debt Securities
containing embedded derivatives related to the Dow Jones EuroStoxx
50 Index. As the investments are not traded in an active market,
the fair value, based on valuations provided by the Valuer, was
determined by using valuation techniques. The Valuer used a variety
of methods and made assumptions that were based on market
conditions existing at the reporting date.
During the year ended 30 June 2009, the issuers of two of the
Debt Securities held by the Company, being Glitnir and Kaupthing,
suffered severe financial difficulties.
On 8 October 2008 the government of Iceland announced that "the
Icelandic Financial Services Authority, Fjarmalaeftirlitio (FME)
had decided to take over the powers invested in Glitnir's
shareholders meeting and Glitnir's Board of Directors". The FME has
appointed a receivership committee which has assumed the role of
the Board of Directors. By law, the action of appointing a
receivership committee does not have the effect of creating a
default under any loan documents.
On 9 October 2008, the Icelandic FME announced it had taken
control of Kaupthing under powers granted by the Icelandic
Parliament and appointed a receivership committee.
The debt securities issued by Glitnir and Kaupthing held by the
Company are senior unsecured debt. This means that they fall behind
the Icelandic government, liquidators and any secured creditors in
terms of repaying capital, but before or pari passu with all other
creditors. In the event of default, debt security holders would
likely get back some money at the "recovery rate" but in a worst
case scenario may receive nothing at all. In practice the recovery
rate is likely to be above zero but it is not possible to assign a
recovery rate to the notes at this point in time.
(k) Segmental Reporting
In the opinion of the directors the Company is engaged in a
single segment of business, being investment business in the United
Kingdom.
(l) Going Concern
After making enquiries, the directors have a reasonable
expectation that the Company has adequate resources to continue in
operational existence until the redemption of the Company's
participating Shares, which is due to take place within the next
twelve months. The directors believe the Company is well placed to
manage its business risks successfully despite the current economic
climate. Accordingly, the directors have adopted the going concern
basis in preparing the financial information.
2 OPERATING EXPENSES
1 Jul 2010 1 Jul 2009
to 31 Dec to 31 Dec
2010 2009
GBP GBP
Amortisation of debt issue costs 76,304 76,304
Investment management fees 70,251 70,251
Administration fees 11,090 11,090
Directors' remuneration 7,500 7,500
Registration fees 3,477 3,914
Directors' & Officers' Insurance 4,267 3,960
Audit fees - 4,000
Annual fees 13,186 12,200
Other operating expenses 4,545 8,848
----------- -----------
190,620 198,067
Less: Interest earned on expense
provision bank
account (512) (193)
----------- -----------
190,108 197,874
=========== ===========
(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
GBP5 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 gain for the period
of GBP5 291,311 (2009: GBP9,050,167) and on 39,550,000 Shares
(2009: 39,550,000 Shares), being the weighted average number of
Shares in issue during the period.
5 INVESTMENTS
31 Dec 2010 30 Jun 2010
GBP GBP
UNQUOTED FINANCIAL ASSETS DESIGNATED
AT
FAIR VALUE THROUGH PROFIT OR LOSS
Portfolio cost 39,889,380 39,889,380
Unrealised depreciation on valuation
brought forward (9,517,308) (12,850,827)
Unrealised appreciation on valuation
for the period 931,255 3,333,519
Unrealised depreciation on valuation
carried forward (8,586,053) (9,517,308)
Closing valuation 31,303,327 30,372,072
=========== ============
Valuations of investments are based on valuations provided by
the Valuer. The provided valuations were derived from proprietary
models based upon well-recognised financial principles and
reasonable estimates about relevant future market conditions using
suitable inputs derived from market data such as interest rates,
credit default swap spreads, foreign exchange and forward foreign
exchange rates, Dow Jones EuroStoxx 50 Index levels and the implied
volatilities of EuroStoxx options.
To comply with the definition of fair value as defined by IFRS,
the Valuer was engaged to provide valuations of the investments,
taking account of the current counterparty credit risk of the
issuers of the Debt Securities held by the Company.
As detailed in note 1(g) and 1(j) to the financial statements
and in respect of Glitnir and Kaupthing in this reporting period
and in the year ended 30 June 2010 financial statements, the
directors have used the valuations provided by the Valuer based on
limited market price information on instruments judged by the
Valuer to be reasonably comparable. In the previous interim
financial statements, the directors exercised their judgement in
the best interest of both shareholders and creditors to value these
two investments at GBPnil which valuations differ from the
valuations provided by the Valuer.
The performance of the financial assets is based on the closing
level of the Dow Jones EuroStoxx 50 Index on 29 July 2011. If the
Dow Jones EuroStoxx 50 Index closes above 3,302.98 the instruments
are designed to give a return of five times the performance up to a
maximum return of 67.5% of the capital.
Valuation data provided by the Valuer to the Company is provided
for informational purposes only and does not represent an offer to
buy or sell the Debt Securities by the Valuer or any other party.
The valuations provided are an indication of market levels and do
not imply that they can be sold at the valuation price. They are
based on assumptions and data the Valuer considers in its judgement
reasonable, but an alternative valuer might arrive at different
valuations for the same investments.
The Investments held by the Company have been classified as
Level 2, except for the two investments in notes issued by Glitnir
and Kaupthing, which have been classified as Level 3. This is in
accordance with the fair value hierarchy.
Details of the value of each classification are listed in the
table below. Values are based on the market value of the investment
as at the reporting date:
31 Dec 2010 30 Jun 2010
Market Value Market Value
Investments GBP GBP
Level 2 27,955,411 27,784,705
Level 3 3,347,916 2,587,367
------------- -------------
Total 31,303,327 30,372,072
============= =============
There have been no transfers between Level 2 and Level 3 of the
fair value hierarchy during the period under review.
The following table shows a reconciliation of all the movements
in the fair value of financial instruments categorised within Level
3 between the beginning and the end of the reporting period.
31 Dec 2010 30 Jun 2010
Unquoted Unquoted
financial financial
assets designated assets designated
as at fair as at fair
value through value through
the profit the profit
or loss or loss
Level 3 GBP GBP
Opening balance at 1 July 2,587,367 -
Total gains and losses recognised
in
Statement of Comprehensive Income 760,549 2,587,367
Closing balance as 31 December 3,347,916 2,587,367
================== ==================
Unrealised gains and losses on investments are recognised in the
Statement of Comprehensive Income. There have been no sales,
purchases or realised gains on the investments during the period
under review.
6 RECEIVABLES
31 Dec 2010 30 Jun 2010
GBP GBP
Prepayments 93,651 165,957
----------- -----------
93,651 165,957
=========== ===========
7 PAYABLES (amounts falling due within one year)
31 Dec 2010 30 Jun 2010
GBP GBP
Accrued administration fees 1,868 1,808
Accrued registration fees 572 604
Accrued audit fees - 8,500
Other accrued expenses 3,761 5,423
Expense provision 239,803 242,417
Less: Prepaid expense provision
(see Note 8) (239,803) (242,417)
----------- -----------
6,201 16,335
=========== ===========
31 Dec 2010 30 Jun 2010
FINANCIAL LIABILITIES GBP GBP
Fair value of the Put Option 1,215,673 5,766,837
----------- -----------
1,215,673 5,766,837
=========== ===========
The performance of the Put Option is linked to the performance
of the Dow Jones EuroStoxx 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 GBPNil
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 GBP39,550,000, equivalent to the percentage fall in
the level of the Dow Jones EuroStoxx 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 the Valuer. 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
GBP3,292,880.
The Put Option written by the Company has been classified as
Level 2. This is in accordance with the fair value hierarchy.
Details of the value of each classification are listed in the
table below. Values are based on the market value of the financial
instruments at the reporting date.
31 Dec 2010 30 Jun 2010
Market Value Market Value
Put Option GBP GBP
Level 2 1,215,673 5,766,837
============= =============
There have been no transfers between Level 2 and Level 3 of the
fair value hierarchy during the period.
8 PAYABLES (amounts falling due after one year)
31 Dec 2010 30 Jun 2010
GBP GBP
Expense provision - 115,190
Less: Prepaid expense provision - (115,190)
----------- -----------
- -
=========== ===========
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.
9 SHARE CAPITAL
Authorised SHARES GBP
Unclassified shares of 0.01p each 100,000,000 10,000
Management shares of GBP1.00 each 100 100
------
10,100
======
Issued 31 Dec 2010 30 Jun 2010
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
=========== ===========
31 Dec 2010 30 Jun 2010
Issued Share Capital GBP GBP
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:
Amount
Number Price per Received
Date of issue of Shares Share Pence GBP
27 July 2005 36,000,000 100.00 36,000,000
21 September 2006 3,550,000 107.50 3,816,250
The redemption proceeds for the Shares on a winding-up are
detailed within this Report.
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
31 Dec 2010 30 Jun 2010
GBP GBP
Opening and 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 EuroStoxx 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 EuroStoxx 50 Index. Details of the Put
Option contract are shown in Note 7.
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, portfolio
construction 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.
Details of the Company's Investment Objective and Policy are
given within this Report.
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.
On 31 December 2010 the Index stood at 2,792.82, a fall of
15.44% since the Start Date.
During the period from the Start Date to 31 December 2010 the
Index had not closed below 1,651.49, being 50% of the Start Value.
As the Index would need to decline by more than 40.87% from its
level as at 31 December 2010 for the redemption proceeds to be less
than 100.0 pence per Share and further as the Index would need to
rise by more than 25.50% as at the End Date for the redemption
proceeds to be more than 100.0 pence per Share, as at 31 December
2010 the Company had no material sensitivity to either a 10%
increase or decrease in the level of the Index, all provided that
no counterparty defaults on its obligations to the Counterparty and
no Index Barrier Breach.
Similarly, in the event of both Glitnir and Kaupthing defaulting
and having a zero recovery rate 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 and no Index
Barrier Breach, the Index would need to decline by more than 40.87%
from its level as at 31 December 2010 for the redemption proceeds
to be less than 69.5 pence per Share and further the Index would
need to rise by more than 25.50% as at the End Date for the
redemption proceeds to be more than 69.5 pence per Share. Hence as
at 31 December 2010 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 and at the reporting date, five of
the seven issuers carried an investment grade credit rating. The
following table details the aggregate investment grade of the debt
instruments in the portfolio based on the valuations of the
investments at 31 December 2010 (30 June 2010 for the comparative
period), as rated by Moody's Investor Services Inc.
("Moody's"):
14 February
Rating 2011 31 Dec 2010 30 Jun 2010
Aaa 0.00% 0.00% 0.00%
Aa 78.60% 78.60% 100.00%
A 21.40% 21.40% 0.00%
* Based on the value of the Company's investments at 31 December
2010.
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
Standard & Poor's and Moody's respectively.
On 8 October 2008 and 9 October 2008 the credit ratings of
Glitnir and Kaupthing respectively were downgraded to a speculative
grade and were subsequently withdrawn, so that as at the date of
signing, at the reporting date and in the comparative period these
were not included in the table. Credit risk was mitigated at launch
by the Company purchasing the Debt Securities from six different
issuers. At the time of purchase three of the issuers were rated by
Moody's at grade Aa and the remaining three were rated by Moody's
at grade A. Following the additional issue of Shares in September
2006 the Company purchased a debt security that was rated by
Moody's at grade Aa.
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.
The Company's financial assets exposed to credit risk are as
follows:
31 Dec 2010 30 Jun 2010
GBP GBP
Unquoted financial assets designated
as at fair
value through profit or loss 31,303,327 30,372,072
Receivables 93,651 165,957
Cash and cash equivalents 246,006 373,942
----------- -----------
31,642,984 30,911,971
=========== ===========
(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 GBP440,000, 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 GBP100,000. 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 GBP39,550,000 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 GBP66,246 250 if the EuroStoxx
closes at or above 3,748.89 on 26 July 2011, all provided that no
counterparty defaults on its obligations to the Company.
Provided that none of the issuers of the Debt Securities
defaults on its obligation to pay the maturity proceeds on the
Maturity Date, the minimum maturity proceeds of GBP39,550,000 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 GBP39,550,000.
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 S&P and/or Moody's 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 date of signing, the reporting date and in the
previous period, five of the seven issuers of the Debt Securities
carried an investment grade credit rating. Two of the seven issuers
of the Debt Securities carried a speculative grade credit
rating.
No assurance can be given that the Company will be able to sell
the Debt Securities, for the reasons described above or on a
winding-up of the Company, at a favourable price or at all. Even if
the Company is able to sell such Debt Securities, the sale of the
Debt Securities may result in a lower return than would have been
the case if the long term credit rating of the issuer of the
relevant Debt Securities had not been downgraded and the original
Debt Securities had been retained and were redeemed on the maturity
date.
The table below details the residual contractual maturities of
financial liabilities:
Over 1
As at 31 December 1-3 months 6-12 months year Total
2010 GBP GBP GBP GBP
Accrued expenses 6,201 - - 6,201
Derivative financial
instruments - 1,215,673 - 1,215,673
---------- ----------- ------ ---------
Total 6,201 1,215,673 - 1,221,874
========== =========== ====== =========
Over 1
1-3 months 6-12 months year Total
As at 30 June 2010 GBP GBP GBP GBP
Accrued expenses 16,335 - - 16,335
Derivative financial
instruments - - 5,766,837 5,766,837
---------- ----------- --------- ---------
Total 16,335 - 5,766,837 5,783,172
========== =========== ========= =========
d) Portfolio Construction Risk
Portfolio construction risk arises when the intended balance or
resultant effect of movements in value of assets and liabilities is
disturbed because of some unintended external event.
In the case of the Company's investment portfolio there is an
intended balance between the aggregate nominal value of the debt
instruments held and the nominal value of the Put Option and, if
one or more of the debt instrument issuers were to default, in part
or in total, there will not be a corresponding reduction in the
value of the Put Option. Thus, if such an issuer default did occur
and there was an index barrier breach which caused the Put Option
to take effect, the default would cause an acceleration in the
reduction of the final redemption value of a Share such that it
will fall to zero well before the index reaches nil.
As disclosed in note 1(j) above, in October 2008, the FME took
control of both Glitnir and Kaupthing and appointed a receivership
committee in each.
The debt securities issued by Glitnir and Kaupthing held by the
Company are senior unsecured debt. In the event of a default by
Glitnir or Kaupthing, MTN holders would likely get back some money
at the "recovery rate" rather than zero. In practice the recovery
rate is likely to be above zero, but it is not possible to assign a
recovery rate to the notes at this point in time.
Although at the time of writing the situation remains unclear,
the Manager and Board of directors consider it likely that Glitnir
and Kaupthing may not pay in full on their obligations and in the
worst case scenario may pay nothing at all. It should also be noted
that the timing and amount of recovery (if any) from Glitnir and
Kaupthing debt securities is currently uncertain. Therefore the
redemption proceeds per Share per the Company's investment
objective will not be known for some time after the scheduled end
of the life of the Shares.
(e) 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 31 December 2010 was 0.43% (June 2010: 0.34%).
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 31 December 2010 would have been
GBP1 230 greater (Jun 2010: GBP3,739) 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 assets attributable
for the period ended 31 December 2010 would have been GBP1,230 less
(Jun 2010: GBP3,739) due to a decrease in the amount of interest
receivable on the bank balances.
The Company's sensitivity to interest rates is lower in December
2010 than in June 2010 because of a decrease in the amount of cash
balances.
(f) 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 Index may be affected by
changes in the economic, political or social environment in Europe,
as well as globally, including changes in exchange rates.
(g) 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. Until then the Company has a
fixed capital.
(h) 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. GBP14 567 (Dec 2009: GBP15,004) of
costs were incurred by the Company with these related parties in
the period, of which GBP2,440 (Jun 2010: GBP2 412) was due to these
related parties as at 31 December 2010.
Close European Accelerated Fund Limited (the "Company")
UNAUDITED SCHEDULE OF INVESTMENTS
as at 31 December 2010
NOMINAL VALUATION TOTAL NET
DEBT SECURITIES PORTFOLIO HOLDINGS GBP ASSETS %
BNP Paribas 0% EMTN 28 July 2011 6,000,000 6,136,250 20.17%
Caixa Geral de Depositos 0% EMTN
28 July 2011 6,000,000 5,983,219 19.67%
Erste Bank 0% EMTN 28 July 2011 6,000,000 6,116,734 20.11%
Glitnir Banki HF 0% EMTN 28 July
2011 6,000,000 1,739,377 5.72%
Kaupthing Bank HF 0% EMTN 28
July 2011 6,000,000 1,608,539 5.29%
KBC IFIMA 0% EMTN 28 July 2011 6,000,000 6,106,309 20.07%
RBS 0% EMTN 28 July 2011 3,550,000 3,612,899 11.88%
----------- ----------
31,303,327 102.91%
=========== ==========
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 (1,215,673)
============
Close European Accelerated Fund Limited (the "Company")
UNAUDITED SCHEDULE OF INVESTMENTS
as at 30 June 2010
NOMINAL VALUATION TOTAL NET
DEBT SECURITIES PORTFOLIO HOLDINGS GBP ASSETS %
BNP Paribas 0% EMTN 28 July 2011 6,000,000 6,116,022 24.34%
Caixa Geral de Depositos 0% EMTN
28 July 2011 6,000,000 5,891,769 23.45%
Erste Bank 0% EMTN 28 July 2011 6,000,000 6,080,125 24.20%
Glitnir Banki HF 0% EMTN 28 July
2011 6,000,000 986,606 3.93%
Kaupthing Bank HF 0% EMTN 28
July 2011 6,000,000 1,598,761 6.36%
KBC IFIMA 0% EMTN 28 July 2011 6,000,000 6,111,936 24.32%
RBS 0% EMTN 28 July 2011 3,550,000 3,584,853 14.27%
----------- ----------
30,372,072 120.87%
=========== ==========
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 (5,766,837)
============
Close European Accelerated Fund Limited (the "Company")
SHAREHOLDER INFORMATION
The Company's Participating Shares are listed on the London
Stock Exchange. Company announcements and daily market closing
prices of Shares are available on Reuters, Bloomberg and on-line on
the web. The ISIN of the Shares is GB00B0DB8N84 and the London
Stock Exchange mnemonic is CEAF.
SHARE DEALING
Shares may be dealt in directly through a stockbroker or
professional adviser acting on an investor's behalf. The buying and
selling of shares may be settled through CREST.
SHAREHOLDER ENQUIRIES
The Company's registrar is Anson Registrars Limited in Guernsey
and they can be contacted on 01481 711301.
Close European Accelerated Fund Limited (the "Company")
Registered in Guernsey No 43314
DIRECTORS AND SERVICE PROVIDERS
Directors Charles Tracy (Chairman)
Peter Niven
John R Le Prevost
Manager Close Investments Limited
(Authorised and Regulated by the
Financial Services Authority)
10 Exchange Square
Primrose Street
London
England EC2A 2BY
Administrator and Secretary Anson Fund Managers Limited
PO Box 405
Anson Place, Mill Court
La Charroterie
St Peter Port
Guernsey GY1 3GF
Principal Bankers Royal Bank of Scotland International
Limited
Royal Bank Place
1 Glategny Esplanade
St Peter Port
Guernsey GY1 4BQ
Auditors Saffery Champness
La Tonnelle House
Les Banques
St Sampson
Guernsey GY1 3HS
Registrar, Transfer Agent Anson Registrars Limited
and Paying Agent PO Box 426
Anson Place
Mill Court, La Charroterie
St Peter Port
Guernsey GY1 3WX
---------------------------- -------------------------------------
UK Transfer Agent Anson Administration (UK) Limited
3500 Parkway
Solent Business Park
Whiteley, Fareham
Hampshire
England PO15 7AL
---------------------------- -------------------------------------
Corporate Broker Matrix Corporate Capital LLP
One Vine Street, London
England, W1J 1EJ
---------------------------- -------------------------------------
Registered Office of the Anson Place
Company Mill Court
La Charroterie
St Peter Port
Guernsey GY1 1EJ
---------------------------- -------------------------------------
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR GGUPGPUPGGGA
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