TIDMMLFG
RNS Number : 3253R
Merrill Lynch FTSE100 Stpd Gwth&Inc
28 April 2009
Merrill Lynch FTSE 100 Stepped Growth and Income Limited
Annual Report and Audited Financial Statements
The financial information set out in this announcement does not constitute the
Company's statutory accounts for the year ended 31 December 2008. All figures
are based on the audited financial statements for the year ended 31 December
2008.
The financial information for the year ended 31 December 2008 is derived from
the financial statements delivered to the UK Listing Authority. The Auditors
reported on those accounts, their report was unqualified and did not contain a
statement under Section 65(3) of The Company (Guernsey) Law, 1994.
The announcement is prepared on the same basis as will be set out in the annual
accounts.
Investment Manager's Report
Growth Shares
The Growth Shares are designed to offer investors a capital growth amount of
70.00 pence per growth share and to return a capital amount of 100.00 pence per
growth share, as long as the Underlying Index has not fallen by more than 40.00%
of the Initial Index Reference Level. If the Index has fallen more than 40.00%
an amount of 5.00% is reduced from 70.00% for each of the remaining six monthly
periods (first six month period ended on 16th December, 2002, and so on until
16th June, 2009) to the Final Reference Date.
As of 31st December, 2008, the FTSE 100 Index closed at 4,434.17, which
represents a decrease of 31.33% from the 31 December, 2007 close of 6,456.90 and
a 21.18% drop from 30th June, 2008. Since the inception of this series the FTSE
100 Index has lost 5.97% from it starting point of 4,715.50 (See note 13).
The Net Asset Value of the Growth Shares was GBP1.59 as of 31st December, 2008,
resulting in an increase of 4.61% for the year, (Net Asset Value of GBP1.52 as
at 31st December, 2007), and an increase of 65.63% since inception (initial Net
Asset Value of GBP0.96).
Income Shares
The Income Shares pay a fixed dividend of 4.00 pence per Income Share,
semi-annually in arrears as long as the Underlying Index has not fallen by more
than 40.00% of the Initial Index Reference Level at any time up to the close of
trading on the Final Reference Date. If the Underlying Index has fallen by more
than 40.00% of the Initial Index Reference Level at any time up to the close of
trading on the Final Reference Date then all the subsequent coupons will cease
after that date.
As of 31st December, 2008, the FTSE 100 Index closed at 4,434.17, which
represents a decrease of 31.33% from the 31 December, 2007 close of 6,456.90 and
a 21.18% drop from 30th June, 2008. Since the inception of this series the FTSE
100 Index has lost 5.97% from it starting point of 4,715.50 (See note 13).
The Net Asset Value of the Income Shares was GBP0.94 as of 31st December, 2008,
resulting in an decrease of 4.08% for the year, (Net Asset Value of GBP0.98 as
at 31st December, 2007), and an decrease of 2.08% since inception (relative to
the initial Net Asset Value of GBP0.96).
Market Review
The FTSE 100 Index followed the global decline in financial markets and closed
at 4,434.17 at 31st December, 2008 which represents a full year decline of
31.33%.
The FTSE saw little relief over the second half of the year, September and
October were the worst performing months showing declines of 13% and 11%
respectively and the lowest level of the FTSE during the year was recorded in
October at 3,852.39.
The worst performing sectors within the index over the year were, as expected,
the Financial sector (-44%), the Materials sector (-41%) and Consumer
Discretionary and Telecommunications both recording (-26%). A summary of the
FTSE sectors is presented below:
+-------------+-------------------------+--------+--------+----------+------------+
| Sector | | | | | % Movement |
+-------------+-------------------------+--------+--------+----------+------------+
| Health Care | | | | (1.54%) |
+---------------------------------------+--------+--------+----------+------------+
| Information Technology | | | | (9.25%) |
+---------------------------------------+--------+--------+----------+------------+
| Consumer Staples | | | | (15.64%) |
+---------------------------------------+--------+--------+----------+------------+
| Energy | | | | | (19.66%) |
+-------------+-------------------------+--------+--------+----------+------------+
| Industrials | | | | | (20.71%) |
+-------------+-------------------------+--------+--------+----------+------------+
| Utilities | | | | | (21.99%) |
+-------------+-------------------------+--------+--------+----------+------------+
| Telecommunication Services | | | | (26.36%) |
+---------------------------------------+--------+--------+----------+------------+
| Consumer Discretionary | | | | (26.63%) |
+---------------------------------------+--------+--------+----------+------------+
| Materials | | | | | (41.73%) |
+-------------+-------------------------+--------+--------+----------+------------+
| Financials | | | | | (44.14%) |
+-------------+-------------------------+--------+--------+----------+------------+
As expected within the Financial sector Banking groups led the decline, HBOS
declined 90%, RBS declined 86%, Lloyds declined 73% and Barclays fell 68%. The
London Stock Exchange was also hit by the turbulent economic conditions, it lost
74% of its value over the year.
The biggest drops in the Materials sector occurred in Kazakhmys plc down 83%,
Xstrata down 81%, Rio Tinto down 72%, Lonmin Plc down 71% and Vedanta Resources
Plc down 70%.
Consumer Discretionary was also heavily hit, Marks and Spencer recorded the
biggest decline, losing 61% of its value. Thomas Cook group and WPP were the
next steepest falls both recording 37%.
Telecommunications recorded significant declines with BT dropping 50% and
Vodafone losing 25%.
Within Utilities the biggest fall occurred in International Power Plc, it lost
47% of its value. This was followed by Scottish & Southern Energy which declined
25%. The utilities sector did record the biggest single stock gain, this was the
British Energy group which gained 40%.
The Industrial index had some positive results with both Experian Plc and Capita
recording gains over the year 9% and 6% respectively. The biggest losses were
recorded in Stagecoach group 51%, Wolseley 48% and First group 46%.
Merrill Lynch International
Responsibility Statement
Responsibility statement of the directors in respect of the Annual Report and
Audited Financial Statements
We confirm that to the best of our knowledge and in accordance with DTR 4.1.8
and DTR 4.1.11 of the Disclosure and Transparency Rules:
(a) The Annual Financial Statements have been prepared in accordance with
applicable United Kingdom accounting standards and give a true and fair view of
the financial position and profit or loss of the Company as at and for the year
ended 31st December, 2008.
(b) The Annual Financial Report includes information detailed in the Investment
Manager's and Directors' Reports and Notes to the Financial Statements which
provides a fair review of the development and performance of the Company during
the year; and a description of the principal risks and uncertainties that the
Company faced as at and for the year ended 31st December, 2008.
Christopher HillTrevor Ash
28th April, 2009
Investment Policy
On the investment date, the Company will invest 90 per cent. of the gross
proceeds (being the balance of such gross proceeds after deduction of initial
expenses, the reimbursement of commissions paid to independent financial
intermediaries and the payment of the initial cash premium payment) in a
portfolio of MTN instruments. The Company will acquire not less than five MTN
instruments per share class. Any MTN instruments to be acquired by the Company
must have been issued by an approved financial institution with a credit rating
at the time of such acquisition of at least A- from Standard & Poor's or
Fitch-IBCA or its equivalent as determined by Moody's.
The Company will also enter into one or more Swap and Option Transactions which
will become effective on the investment date. Swap and Option Transactions must
be made with an approved counterparty. An approved counterparty is a
counterparty who the Investment Manager is satisfied (a) has agreed to provide
the Company with a valuation of the relevant transaction at least weekly, and
(b) will close out the relevant transaction at the request of the Investment
Manager at a fair value.
The Portfolio is intended to fund payments payable by the Company under the Swap
and Option Transactions and, together with the payments due to or by the Company
under the Swap and Option Transactions, to enable the Company to meet its
investment objectives.
The Distributor and Sponsor has agreed to procure the availability of MTN
instruments and to offer to enter into Swap and Option Transactions up to a
specified level - see "Fees and Expenses - Payments in respect of surplus" in
the Principal Placing documentation.
The default by an issuer of a MTN instrument would adversely affect the
Company's ability to make the floating rate payments required under the relevant
Swap and Option Transactions as described in the Principal Placing
documentation. In addition, in the event of the early redemption of an MTN
instrument, the Company will seek to reinvest the redemption proceeds in other
MTN instruments paying interest at the same rate and on the same dates and
having the same principal amount as the MTN instrument redeemed.
If the Company is unable to acquire any such replacement MTN instruments, its
ability to make the required floating rate payments may be adversely affected.
A failure by the Company to meet its payment obligations under any of the Swap
and Option Transactions could give rise to the termination of such transactions
and to an obligation on the Company to make a termination payment. Such a
payment would adversely affect the Company's ability to meet its investment
objectives.
It is the current intention of the Directors that the Company will make less
than 20 investments. In the absence of unforeseen circumstances, the investment
objectives and policies of the Company will be adhered to throughout the planned
life of the Company. Any change to the investment objectives of the Company and
any material changes to the investment policies may only be made with the prior
approval of the Shareholders by way of special resolution. Any other changes to
the investment policies of the Company may only be made following an ordinary
resolution of the Shareholders (i.e. a simple majority of votes cast by such
Shareholders).
The Company will adhere to the investment restrictions required in respect of
admission to listing on the Official List of the UK Listing Authority and
admission to trading on the London Stock Exchange.
Investment Portfolio
+--------------------------------+--+--+--+--+--+-------------+--+----------+--+----------+----+
| Growth Shares |
+----------------------------------------------------------------------------------------------+
| | | | | | | | | | | | |
+--------------------------------+--+--+--+--+--+-------------+--+----------+--+----------+----+
| Investments | | | | | | | Market | | % of | |
| | | | | | | | Value | | | |
+-----------------------------------+--+--+--+--+-------------+--+----------+--+----------+----+
| Debt Securities | | | | | Holding | | GBP000's | | Net | |
| | | | | | | | | | Assets | |
+-----------------------------------+--+--+--+--+-------------+--+----------+--+----------+----+
| | | | | | | | | | | | |
+--------------------------------+--+--+--+--+--+-------------+--+----------+--+----------+----+
| Bradford & Bingley Floating Rate EMTN | | | | | | | |
| 06/09 | | | | | | | |
+--------------------------------------------+--+-------------+--+----------+--+----------+----+
| 18/06/2009 | | | | | | 2,835,000 | | 2,767 | | 11.08 | |
+--------------------------------+--+--+--+--+--+-------------+--+----------+--+----------+----+
| Britannia Building Society Floating Rate | | | | | | | |
| Notes 06/09 | | | | | | | |
+--------------------------------------------+--+-------------+--+----------+--+----------+----+
| 18/06/2009 | | | | | | 2,835,000 | | 2,788 | | 11.16 | |
+--------------------------------+--+--+--+--+--+-------------+--+----------+--+----------+----+
| Northern Rock Floating Rate EMTN 06/09 | | | | | | | |
+--------------------------------------------+--+-------------+--+----------+--+----------+----+
| 18/06/2009 | | | | | | 2,835,000 | | 2,812 | | 11.26 | |
+--------------------------------+--+--+--+--+--+-------------+--+----------+--+----------+----+
| Yorkshire Building Society FR MTN 06/09 | | | | | | | |
+--------------------------------------------+--+-------------+--+----------+--+----------+----+
| 18/06/2009 | | | | | | 2,835,000 | | 2,823 | | 11.30 | |
+--------------------------------+--+--+--+--+--+-------------+--+----------+--+----------+----+
| Union Bank of Norway Floating Rate Notes | | | | | | | |
| 06/09 | | | | | | | |
+--------------------------------------------+--+-------------+--+----------+--+----------+----+
| 18/06/2009 | | | | | | 2,835,000 | | 2,826 | | 11.31 | |
+--------------------------------+--+--+--+--+--+-------------+--+----------+--+----------+----+
| | | | | | | | | | | | |
+--------------------------------+--+--+--+--+--+-------------+--+----------+--+----------+----+
| | | | | | | | | | | | |
+--------------------------------+--+--+--+--+--+-------------+--+----------+--+----------+----+
| Total Debt Securities | | | | | | | 14,016 | | 56.11 | |
+-----------------------------------+--+--+--+--+-------------+--+----------+--+----------+----+
| | | | | | | | | | | | |
+--------------------------------+--+--+--+--+--+-------------+--+----------+--+----------+----+
| | | | | | | | | | | | |
+--------------------------------+--+--+--+--+--+-------------+--+----------+--+----------+----+
| | | | | | | Notional | | | | | |
| | | | | | | Amount | | | | | |
+--------------------------------+--+--+--+--+--+-------------+--+----------+--+----------+----+
| Swap and Option Transaction | | | | | | | | | |
+--------------------------------------+--+--+--+-------------+--+----------+--+----------+----+
| Maturity date - 17/09/2009 | | | | 15,750,000 | | 10,926 | | 43.74 | |
+--------------------------------------+--+--+--+-------------+--+----------+--+----------+----+
| | | | | | | | | | | | |
+--------------------------------+--+--+--+--+--+-------------+--+----------+--+----------+----+
| | | | | | | | | | | | |
+--------------------------------+--+--+--+--+--+-------------+--+----------+--+----------+----+
| Total Investments | | | | | | | 24,942 | | 99.85 | |
+-----------------------------------+--+--+--+--+-------------+--+----------+--+----------+----+
| | | | | | | | | | | | |
+--------------------------------+--+--+--+--+--+-------------+--+----------+--+----------+----+
| | | | | | | | | | | | |
+--------------------------------+--+--+--+--+--+-------------+--+----------+--+----------+----+
| Cash and cash equivalents plus other net | | | | 37 | | 0.15 | |
| assets | | | | | | | |
+--------------------------------------------+--+-------------+--+----------+--+----------+----+
| | | | | | | | | | | | |
+--------------------------------+--+--+--+--+--+-------------+--+----------+--+----------+----+
| | | | | | | | | | | | |
+--------------------------------+--+--+--+--+--+-------------+--+----------+--+----------+----+
| Total Net Assets Attributable to Holders of Preference | | 24,979 | | 100.00 | % |
| Shares | | | | | |
+-------------------------------------------------------------+--+----------+--+----------+----+
| | | | | `| | | | | | | |
+--------------------------------+--+--+--+--+--+-------------+--+----------+--+----------+----+
+--------------------------------+--+--+--+--+--+-------------+--+----------+--+----------+----+
| Income Shares |
+----------------------------------------------------------------------------------------------+
| | | | | | | | | | | | |
+--------------------------------+--+--+--+--+--+-------------+--+----------+--+----------+----+
| Investments | | | | | | | Market | | % of | |
| | | | | | | | Value | | | |
+-----------------------------------+--+--+--+--+-------------+--+----------+--+----------+----+
| Debt Securities | | | | | Holding | | GBP000's | | Net | |
| | | | | | | | | | Assets | |
+-----------------------------------+--+--+--+--+-------------+--+----------+--+----------+----+
| | | | | | | | | | | | |
+--------------------------------+--+--+--+--+--+-------------+--+----------+--+----------+----+
| Bradford & Bingley Floating Rate EMTN | | | | | | | |
| 06/09 | | | | | | | |
+--------------------------------------------+--+-------------+--+----------+--+----------+----+
| 18/06/2009 | | | | | | 4,365,000 | | 4,261 | | 18.79 | |
+--------------------------------+--+--+--+--+--+-------------+--+----------+--+----------+----+
| Britannia Building Society Floating Rate | | | | | | | |
| Notes 06/09 | | | | | | | |
+--------------------------------------------+--+-------------+--+----------+--+----------+----+
| 18/06/2009 | | | | | | 4,365,000 | | 4,292 | | 18.93 | |
+--------------------------------+--+--+--+--+--+-------------+--+----------+--+----------+----+
| Northern Rock Floating Rate EMTN 06/09 | | | | | | | |
+--------------------------------------------+--+-------------+--+----------+--+----------+----+
| 18/06/2009 | | | | | | 4,365,000 | | 4,329 | | 19.10 | |
+--------------------------------+--+--+--+--+--+-------------+--+----------+--+----------+----+
| Yorkshire Building Society FR MTN 06/09 | | | | | | | |
+--------------------------------------------+--+-------------+--+----------+--+----------+----+
| 18/06/2009 | | | | | | 4,365,000 | | 4,347 | | 19.17 | |
+--------------------------------+--+--+--+--+--+-------------+--+----------+--+----------+----+
| Union Bank of Norway Floating Rate Notes | | | | | | | |
| 06/09 | | | | | | | |
+--------------------------------------------+--+-------------+--+----------+--+----------+----+
| 18/06/2009 | | | | | | 4,365,000 | | 4,352 | | 19.20 | |
+--------------------------------+--+--+--+--+--+-------------+--+----------+--+----------+----+
| | | | | | | | | | | | |
+--------------------------------+--+--+--+--+--+-------------+--+----------+--+----------+----+
| | | | | | | | | | | | |
+--------------------------------+--+--+--+--+--+-------------+--+----------+--+----------+----+
| Total Debt Securities | | | | | | | 21,581 | | 95.19 | |
+-----------------------------------+--+--+--+--+-------------+--+----------+--+----------+----+
| | | | | | | | | | | | |
+--------------------------------+--+--+--+--+--+-------------+--+----------+--+----------+----+
| | | | | | | | | | | | |
+--------------------------------+--+--+--+--+--+-------------+--+----------+--+----------+----+
| | | | | | | Notional | | | | | |
| | | | | | | Amount | | | | | |
+--------------------------------+--+--+--+--+--+-------------+--+----------+--+----------+----+
| | | | | | | | | | | | |
+--------------------------------+--+--+--+--+--+-------------+--+----------+--+----------+----+
| Swap and Option Transaction | | | | | | | | | |
+--------------------------------------+--+--+--+-------------+--+----------+--+----------+----+
| Maturity date - 17/09/2009 | | | | 24,250,000 | | 1,029 | | 4.54 | |
+--------------------------------------+--+--+--+-------------+--+----------+--+----------+----+
| | | | | | | | | | | | |
+--------------------------------+--+--+--+--+--+-------------+--+----------+--+----------+----+
| | | | | | | | | | | | |
+--------------------------------+--+--+--+--+--+-------------+--+----------+--+----------+----+
| Total Investments | | | | | | | 22,610 | | 99.73 | |
+-----------------------------------+--+--+--+--+-------------+--+----------+--+----------+----+
| | | | | | | | | | | | |
+--------------------------------+--+--+--+--+--+-------------+--+----------+--+----------+----+
| | | | | | | | | | | | |
+--------------------------------+--+--+--+--+--+-------------+--+----------+--+----------+----+
| Cash and cash equivalents plus other net | | | | 61 | | 0.27 | |
| assets | | | | | | | |
+--------------------------------------------+--+-------------+--+----------+--+----------+----+
| | | | | | | | | | | | |
+--------------------------------+--+--+--+--+--+-------------+--+----------+--+----------+----+
| | | | | | | | | | | | |
+--------------------------------+--+--+--+--+--+-------------+--+----------+--+----------+----+
| Total Net Assets Attributable to Holders of Preference | | 22,671 | | 100.00 | % |
| Shares | | | | | |
+-------------------------------------------------------------+--+----------+--+----------+----+
| | | | | `| | | | | | | |
+--------------------------------+--+--+--+--+--+-------------+--+----------+--+----------+----+
Directors' Report
The Directors of Merrill Lynch FTSE 100 Stepped Growth and Income Limited (the
"Company") present their Annual Report and Audited Financial Statements for the
year ended 31st December, 2008.
Background
The Company was incorporated in Guernsey on 12th April, 2002 and commenced
activities on 18th June, 2002. The Company plans to cease trading on 17th June,
2009. The Company is a closed ended investment company and is registered under
the provisions of The Companies (Guernsey) Law, 1994.
Principal Activity
The principal activity of the Company is to issue two classes of preference
shares, Income Shares and Growth Shares (together, the "Shares" and each "Class
of Shares"), each of which is intended to achieve separate investment objectives
as described in the Principal Placing documents and referred to in Note 13 to
the Financial Statements. Both classes of preference share were issued on 18th
June, 2002.
Significant Shareholdings
As at 31st December, 2008, all of the preference shares in issue were held by
Computershare Investor Services (Channel Islands) Limited.
Listing
The Shares of the Company were admitted to the Official List of The London Stock
Exchange on 18th June, 2002.
Results and Distributions
It is the intention of the Company during the Dividend Period to distribute
semi-annual dividends in respect of the Income Shares. The Company does not
intend to distribute dividends in respect of the Growth Shares.
The results for the year are set out in the Total Statement of Operations.
Details of all distributions declared and paid to holders of preference shares
in the Income Shares Class during the year are set out in Note 5 to the
Financial Statements.
Directors
The Directors of the Company during the year are set out in the financial
statements.
Directors' Responsibilities
The Directors are required by The Companies (Guernsey) Law, 1994, to prepare
Financial Statements for each financial period which give a true and fair view
of the state of affairs of the Company and of the gains and losses of the
Company for that period. In preparing those Financial Statements the Directors
are required to:
* select suitable accounting policies and then apply them consistently;
* make judgements and estimates that are reasonable and prudent;
* state whether applicable United Kingdom accounting standards have been followed,
subject to any material departures disclosed and explained in the Financial
Statements; and
* prepare the Financial Statements on a going concern basis unless it is
inappropriate to presume that the Company will continue in business.
The Directors confirm that they have complied with the above requirements in
preparing the Financial Statements.
The Directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
Company and to enable them to ensure that the Financial Statements comply with
the Companies (Guernsey) Law, 1994. They are also responsible for safeguarding
the assets of the Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
On 1st July, 2008, The Companies (Guernsey) Law, 1994 was superseded by The
Companies (Guernsey) Law, 2008. Under the transitional provisions permitted by
The Companies (Guernsey) Law, 2008, the Company has prepared the Financial
Statements in accordance with The Companies (Guernsey) Law, 1994.
Corporate Governance
As a Guernsey incorporated entity, the Company is not required to comply with
the Code of Best Practice published by the UK Committee of Corporate Governance
(the "Combined Code"). The Directors, however attach a high degree of importance
to the maintenance of high standards of corporate governance.
Going Concern
In accordance with the Principal Placing documentation the Company will be
winding up it's operations around 17th June, 2009.Accordingly, these Financial
Statements are prepared on a break up basis of accounting where all assets are
classified as current and are stated at their estimated recoverable amounts and
all creditors are classified as falling due within one year. Accordingly, the
going concern basis of accounting is no longer appropriate. As the assets of the
Company are already stated at amounts which approximate their fair values this
has not resulted in any adjustment to the Net Asset Value of the Company. The
Directors believe that fair value equates to recoverable amounts.
Independent Auditors
The independent auditors, PricewaterhouseCoopers CI LLP, have indicated their
willingness to continue in office. Accordingly, a resolution to reappoint
PricewaterhouseCoopers CI LLP will be proposed at the next Annual General
Meeting to continue in office up to the date the Directors propose to wind up
the affairs of the Company, expected to be around 17th June, 2009.
Roundings
Amounts in the Financial Statements have been rounded off to the nearest
thousand pound except where noted. The Directors believe that this aids the
presentation of financial information.
Christopher Hill Trevor Ash
28th April, 2009
Independent Auditor's Report
To the Members of Merrill Lynch FTSE 100 Stepped Growth and Income Limited
We have audited the Financial Statements of Merrill Lynch FTSE 100 Stepped
Growth and Income Limited for the year ended 31st December, 2008, which comprise
the Total Statement of Operations, the Total Statement of Assets and
Liabilities, Total Statement of Changes in Net Assets Attributable to Holders of
Preference Shares, Total Statement of Cash Flows and the related notes. These
Financial Statements have been prepared under the accounting policies set out
therein.
Respective responsibilities of directors and auditors
The Directors' responsibilities for preparing the Financial Statements in
accordance with applicable Guernsey law and United Kingdom Accounting Standards
are set out in the Statement of Directors' Responsibilities.
Our responsibility is to audit the Financial Statements in accordance with
relevant legal and regulatory requirements and International Standards on
Auditing (UK and Ireland). This report, including the opinion, has been prepared
for and only for the Company's Members as a body in accordance with Section 64
of The Companies (Guernsey) Law, 1994 and for no other purpose. We do not, in
giving this opinion, accept or assume responsibility for any other purpose or to
any other person to whom this report is shown or into whose hands it may come
save where expressly agreed by our prior consent in writing.
We report to you our opinion as to whether the Financial Statements give a true
and fair view and are properly prepared in accordance with The Companies
(Guernsey) Law, 1994. We also report to you whether in our opinion the
information given in the Directors' Report is consistent with the Financial
Statements.
In addition we report to you if, in our opinion, the Company has not kept proper
accounting records or if we have not received all the information and
explanations we require for our audit.
We read the other information contained in the Annual Report and consider the
implications for our report if we become aware of any apparent misstatements or
material inconsistencies with the Financial Statements. The other information
comprises only the Investment Manager's Report, the Responsibility Statement,
the Investment Policy, the Investment Portfolio and the Directors' Report.
Basis of audit opinion
We conducted our audit in accordance with International Standards on Auditing
(UK and Ireland) issued by the Auditing Practices Board. An audit includes
examination, on a test basis, of evidence relevant to the amounts and
disclosures in the Financial Statements. It also includes an assessment of the
significant estimates and judgements made by the directors in the preparation of
the financial statements, and of whether the accounting policies are appropriate
to the Company's circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the Financial Statements.
Opinion
In our opinion:
* the Financial Statements give a true and fair view, in accordance with United
Kingdom Accounting Standards, of the state of the Company's affairs as at 31st
December, 2008 and of its loss and cash flows for the year then ended;
* the Financial Statements have been properly prepared in accordance with The
Companies (Guernsey) Law, 1994; and
* the information given in the Directors' Report is consistent with the Financial
Statements.
Basis of preparation
We draw your attention to note 1 which explains that following the year end the
Directors have decided that the Company will cease trading. Accordingly the
going concern basis of accounting is no longer appropriate. As the assets of the
Company are already stated at amounts which approximate their fair values this
has not resulted in any adjustment to the Net Asset Value of the Company.
Adjustments have been made to classify all assets and long-term liabilities as
current assets and liabilities. Our opinion is not qualified in this respect.
PricewaterhouseCoopers CI LLP
Chartered Accountants
Guernsey, Channel Islands
28th April, 2009
+-----------------------------+--+--+--+--+--+-------+--+--+--+------------+--+------------+
| Total Statement of Operations |
+------------------------------------------------------------------------------------------+
| For the year ended 31st December, 2008 |
+------------------------------------------------------------------------------------------+
| | | | | | | | | | | | | |
+-----------------------------+--+--+--+--+--+-------+--+--+--+------------+--+------------+
| | | | | | | | | | | Total | | Total |
+-----------------------------+--+--+--+--+--+-------+--+--+--+------------+--+------------+
| | | | | | | | | | | 01.01.2008 | | 01.01.2007 |
| | | | | | | | | | | | | |
+-----------------------------+--+--+--+--+--+-------+--+--+--+------------+--+------------+
| | | | | | | | | | | to | | to |
| | | | | | | | | | | 31.12.2008 | | 31.12.2007 |
+-----------------------------+--+--+--+--+--+-------+--+--+--+------------+--+------------+
| | | | | | |Notes | | | | GBP 000's | | GBP 000's |
| | | | | | | | | | | | | |
+-----------------------------+--+--+--+--+--+-------+--+--+--+------------+--+------------+
| Income on medium term notes | | | | | | | | | | | | |
+-----------------------------+--+--+--+--+--+-------+--+--+--+------------+--+------------+
| - Interest (Libor + | | | | | | | | | | 2,194 | | 2,174 |
| margin) | | | | | | | | | | | | |
+-----------------------------+--+--+--+--+--+-------+--+--+--+------------+--+------------+
| | | | | | | | | | | | | |
+-----------------------------+--+--+--+--+--+-------+--+--+--+------------+--+------------+
| Receipts under "Swap and Option" | | | | | | | | |
| Transaction | | | | | | | | |
+-----------------------------------------+--+-------+--+--+--+------------+--+------------+
| - Payment in lieu of | | | | | | | | | 1,940 | | 1,940 |
| distributions | | | | | | | | | | | |
+--------------------------------+--+--+--+--+-------+--+--+--+------------+--+------------+
| - Money due for distributor and | | | | | | | 200 | | 200 |
| sponsor fees | | | | | | | | | |
+--------------------------------------+--+--+-------+--+--+--+------------+--+------------+
| Payments under "Swap and Option" | | | | | | | | |
| Transaction | | | | | | | | |
+-----------------------------------------+--+-------+--+--+--+------------+--+------------+
| - Interest (Libor + | | | | | | | | | | (2,194) | | (2,174) |
| margin) | | | | | | | | | | | | |
+-----------------------------+--+--+--+--+--+-------+--+--+--+------------+--+------------+
| | | | | | | | | | | | | |
+-----------------------------+--+--+--+--+--+-------+--+--+--+------------+--+------------+
| Distributor and sponsor | | | | | | 2 | | | | (200) | | (200) |
| fees | | | | | | | | | | | | |
+-----------------------------+--+--+--+--+--+-------+--+--+--+------------+--+------------+
| | | | | | | | | | | | | |
+-----------------------------+--+--+--+--+--+-------+--+--+--+------------+--+------------+
| Other bank interest | | | | | | | | | | 46 | | 41 |
| received | | | | | | | | | | | | |
+-----------------------------+--+--+--+--+--+-------+--+--+--+------------+--+------------+
| | | | | | | | | | | | | |
+-----------------------------+--+--+--+--+--+-------+--+--+--+------------+--+------------+
| | | | | | | | | | | | | |
+-----------------------------+--+--+--+--+--+-------+--+--+--+------------+--+------------+
| Net realised gains on investment | | | | | | | 1,986 | | 1,981 |
| activities | | | | | | | | | |
+--------------------------------------+--+--+-------+--+--+--+------------+--+------------+
| | | | | | | | | | | | | |
+-----------------------------+--+--+--+--+--+-------+--+--+--+------------+--+------------+
| Movement in unrealised gains on | | | | | | | | | |
| "Swap and | | | | | | | | | |
+--------------------------------------+--+--+-------+--+--+--+------------+--+------------+
| Option" Transactions | | | | | | 6 | | | | (1,064) | | 414 |
+-----------------------------+--+--+--+--+--+-------+--+--+--+------------+--+------------+
| Movement in unrealised losses on Debt | | 6 | | | | 877 | | (1,227) |
| Securities | | | | | | | | |
+-----------------------------------------+--+-------+--+--+--+------------+--+------------+
| | | | | | | | | | | | | |
+-----------------------------+--+--+--+--+--+-------+--+--+--+------------+--+------------+
| Movement in net unrealised losses on | | | | | | (187) | | (813) |
| investments | | | | | | | | |
+-----------------------------------------+--+-------+--+--+--+------------+--+------------+
| | | | | | | | | | | | | |
+-----------------------------+--+--+--+--+--+-------+--+--+--+------------+--+------------+
| | | | | | | | | | | | | |
+-----------------------------+--+--+--+--+--+-------+--+--+--+------------+--+------------+
| Net gains on investment | | | | | | | | | 1,799 | | 1,168 |
| activities | | | | | | | | | | | |
+--------------------------------+--+--+--+--+-------+--+--+--+------------+--+------------+
| | | | | | | | | | | | | |
+-----------------------------+--+--+--+--+--+-------+--+--+--+------------+--+------------+
| | | | | | | | | | | | | |
+-----------------------------+--+--+--+--+--+-------+--+--+--+------------+--+------------+
| Finance costs | | | | | | | | | | | | |
+-----------------------------+--+--+--+--+--+-------+--+--+--+------------+--+------------+
| Distributions to Holders of | | | 5 | | | | (1,940) | | (1,940) |
| Preference Shares | | | | | | | | | |
+--------------------------------------+--+--+-------+--+--+--+------------+--+------------+
| | | | | | | | | | | | | |
+-----------------------------+--+--+--+--+--+-------+--+--+--+------------+--+------------+
| | | | | | | | | | | | | |
+-----------------------------+--+--+--+--+--+-------+--+--+--+------------+--+------------+
| Retained loss for the year | | | | | | | | | | (141) | | (772) |
+-----------------------------+--+--+--+--+--+-------+--+--+--+------------+--+------------+
| | | | | | | | | | | | | |
+-----------------------------+--+--+--+--+--+-------+--+--+--+------------+--+------------+
All activities consist of ongoing operations.
The Company has no other recognised gains or losses other than those shown above
and accordingly no separate Statement of Total Recognised Gains and Losses has
been presented.
+------------------------+--+--+--+-------+--+------------+--+------------+--+------------+--+------------+
| Total Statement of Operations |
+---------------------------------------------------------------------------------------------------------+
| For the year ended 31st December, 2008 |
+---------------------------------------------------------------------------------------------------------+
| | | | | | | | | | | | | |
+------------------------+--+--+--+-------+--+------------+--+------------+--+------------+--+------------+
| | | | | | | | | | | | | |
+------------------------+--+--+--+-------+--+------------+--+------------+--+------------+--+------------+
| | | | | | | Growth | | Growth | | Income | | Income |
+------------------------+--+--+--+-------+--+------------+--+------------+--+------------+--+------------+
| | | | | | | Shares | | Shares | | Shares | | Shares |
+------------------------+--+--+--+-------+--+------------+--+------------+--+------------+--+------------+
| | | | | | | 01.01.2008 | | 01.01.2007 | | 01.01.2008 | | 01.01.2007 |
| | | | | | | | | | | | | |
+------------------------+--+--+--+-------+--+------------+--+------------+--+------------+--+------------+
| | | | | | | to | | to | | to | | to |
| | | | | | | 31.12.2008 | | 31.12.2007 | | 31.12.2008 | | 31.12.2007 |
+------------------------+--+--+--+-------+--+------------+--+------------+--+------------+--+------------+
| | | | |Notes | | GBP | | GBP | | GBP | | GBP 000's |
| | | | | | | 000's | | 000's | | 000's | | |
+------------------------+--+--+--+-------+--+------------+--+------------+--+------------+--+------------+
| | | | | | | | | | | | | |
+------------------------+--+--+--+-------+--+------------+--+------------+--+------------+--+------------+
| Income on medium term | | | | | | | | | | | | |
| notes | | | | | | | | | | | | |
+------------------------+--+--+--+-------+--+------------+--+------------+--+------------+--+------------+
| - Interest (Libor + | | | | | | 864 | | 856 | | 1,330 | | 1,318 |
| margin) | | | | | | | | | | | | |
+------------------------+--+--+--+-------+--+------------+--+------------+--+------------+--+------------+
| | | | | | | | | | | | | |
+------------------------+--+--+--+-------+--+------------+--+------------+--+------------+--+------------+
| Receipts under "Swap and Option" | | | | | | | | |
| Transaction | | | | | | | | |
+-----------------------------------------+--+------------+--+------------+--+------------+--+------------+
| - Payment in lieu of | | | | | - | | - | | 1,940 | | 1,940 |
| distributions | | | | | | | | | | | |
+---------------------------+--+--+-------+--+------------+--+------------+--+------------+--+------------+
| - Money due for | | | 79 | | 79 | | 121 | | 121 |
| distributor and | | | | | | | | | |
| sponsor fees | | | | | | | | | |
+---------------------------------+-------+--+------------+--+------------+--+------------+--+------------+
| Payments under "Swap and Option" | | | | | | | | |
| Transaction | | | | | | | | |
+-----------------------------------------+--+------------+--+------------+--+------------+--+------------+
| - Interest (Libor + | | | | | | (864) | | (856) | | (1,330) | | (1,318) |
| margin) | | | | | | | | | | | | |
+------------------------+--+--+--+-------+--+------------+--+------------+--+------------+--+------------+
| | | | | | | | | | | | | |
+------------------------+--+--+--+-------+--+------------+--+------------+--+------------+--+------------+
| Distributor and | | | | 2 | | (79) | | (79) | | (121) | | (121) |
| sponsor fees | | | | | | | | | | | | |
+------------------------+--+--+--+-------+--+------------+--+------------+--+------------+--+------------+
| | | | | | | | | | | | | |
+------------------------+--+--+--+-------+--+------------+--+------------+--+------------+--+------------+
| Other bank interest | | | | | | 14 | | 16 | | 32 | | 25 |
| received | | | | | | | | | | | | |
+------------------------+--+--+--+-------+--+------------+--+------------+--+------------+--+------------+
| | | | | | | | | | | | | |
+------------------------+--+--+--+-------+--+------------+--+------------+--+------------+--+------------+
| | | | | | | | | | | | | |
+------------------------+--+--+--+-------+--+------------+--+------------+--+------------+--+------------+
| Net realised gains on | | | 14 | | 16 | | 1,972 | | 1,965 |
| investment activities | | | | | | | | | |
+---------------------------------+-------+--+------------+--+------------+--+------------+--+------------+
| | | | | | | | | | | | | |
+------------------------+--+--+--+-------+--+------------+--+------------+--+------------+--+------------+
| Movement in unrealised gains on "Swap | | | | | | | | |
| and | | | | | | | | |
+-----------------------------------------+--+------------+--+------------+--+------------+--+------------+
| Option" Transactions | | | 6 | | 682 | | 1,221 | | (1,746) | | (807) |
+------------------------+--+--+----------+--+------------+--+------------+--+------------+--+------------+
| Movement in unrealised | | | | | | | | | | | |
| losses on | | | | | | | | | | | |
+---------------------------+--+--+-------+--+------------+--+------------+--+------------+--+------------+
| Debt Securities | | | | 6 | | 345 | | (483) | | 532 | | (744) |
+------------------------+--+--+--+-------+--+------------+--+------------+--+------------+--+------------+
| | | | | | | | | | | | | |
+------------------------+--+--+--+-------+--+------------+--+------------+--+------------+--+------------+
| | | | | | | | | | | | | |
+------------------------+--+--+--+-------+--+------------+--+------------+--+------------+--+------------+
| Movement in net unrealised gains/(losses) | 1,027 | | 738 | | (1,214) | | (1,551) |
| on investments | | | | | | | |
+--------------------------------------------+------------+--+------------+--+------------+--+------------+
| | | | | | | | | | | | | |
+------------------------+--+--+--+-------+--+------------+--+------------+--+------------+--+------------+
| | | | | | | | | | | | | |
+------------------------+--+--+--+-------+--+------------+--+------------+--+------------+--+------------+
| | | | | | | | | | | | | |
+------------------------+--+--+--+-------+--+------------+--+------------+--+------------+--+------------+
| Net gains on investment | | | | | 1,041 | | 754 | | 758 | | 414 |
| activities | | | | | | | | | | | |
+---------------------------+--+--+-------+--+------------+--+------------+--+------------+--+------------+
| | | | | | | | | | | | | |
+------------------------+--+--+--+-------+--+------------+--+------------+--+------------+--+------------+
| | | | | | | | | | | | | |
+------------------------+--+--+--+-------+--+------------+--+------------+--+------------+--+------------+
| Finance costs | | | | | | | | | | | | |
+------------------------+--+--+--+-------+--+------------+--+------------+--+------------+--+------------+
| Distributions to Holders of | 5 | | - | | - | | (1,940) | | (1,940) |
| Preference Shares | | | | | | | | | |
+---------------------------------+-------+--+------------+--+------------+--+------------+--+------------+
| | | | | | | | | | | | | |
+------------------------+--+--+--+-------+--+------------+--+------------+--+------------+--+------------+
| | | | | | | | | | | | | |
+------------------------+--+--+--+-------+--+------------+--+------------+--+------------+--+------------+
| Retained gain/(loss) for | | | | | 1,041 | | 754 | | (1,182) | | (1,526) |
| the year | | | | | | | | | | | |
+---------------------------+--+--+-------+--+------------+--+------------+--+------------+--+------------+
| | | | | | | | | | | | | |
+------------------------+--+--+--+-------+--+------------+--+------------+--+------------+--+------------+
| | | | | | | | | | | | | |
+------------------------+--+--+--+-------+--+------------+--+------------+--+------------+--+------------+
All activities consist of ongoing operations.
The Company has no other recognised gains or losses other than those shown above
and accordingly no separate Statement of Total Recognised Gains and Losses has
been presented.
+------------------------------+--+--+--+--+--+-------+--+--+--+-----------+--+-----------+
| Total Statement of Assets and Liabilities |
+-----------------------------------------------------------------------------------------+
| As at 31st December, 2008 |
+-----------------------------------------------------------------------------------------+
| | | | | | | | | | | | | |
+------------------------------+--+--+--+--+--+-------+--+--+--+-----------+--+-----------+
| | | | | | | | | | | Total | | Total |
+------------------------------+--+--+--+--+--+-------+--+--+--+-----------+--+-----------+
| | | | | | | | | | | 31.12.08 | | 31.12.07 |
+------------------------------+--+--+--+--+--+-------+--+--+--+-----------+--+-----------+
| | | | | | |Notes | | | | GBP 000's | | GBP 000's |
| | | | | | | | | | | | | |
+------------------------------+--+--+--+--+--+-------+--+--+--+-----------+--+-----------+
| ASSETS | | | | | | | | | | | | |
+------------------------------+--+--+--+--+--+-------+--+--+--+-----------+--+-----------+
| | | | | | | | | | | | | |
+------------------------------+--+--+--+--+--+-------+--+--+--+-----------+--+-----------+
| Investments at fair value through profit or | | | | | | | |
| loss | | | | | | | |
+---------------------------------------------+-------+--+--+--+-----------+--+-----------+
| - Debt Securities | | | | | | 6 | | | | 35,597 | | 34,720 |
+------------------------------+--+--+--+--+--+-------+--+--+--+-----------+--+-----------+
| - Swap and Option contract | | | | 6 | | | | 11,955 | | 13,019 |
+------------------------------------+--+--+--+-------+--+--+--+-----------+--+-----------+
| Debtors | | | | | | 7 | | | | 230 | | 277 |
+------------------------------+--+--+--+--+--+-------+--+--+--+-----------+--+-----------+
| Cash | | | | | | | | | | 100 | | 52 |
+------------------------------+--+--+--+--+--+-------+--+--+--+-----------+--+-----------+
| | | | | | | | | | | | | |
+------------------------------+--+--+--+--+--+-------+--+--+--+-----------+--+-----------+
| | | | | | | | | | | | | |
+------------------------------+--+--+--+--+--+-------+--+--+--+-----------+--+-----------+
| Total assets | | | | | | | | | | 47,882 | | 48,068 |
+------------------------------+--+--+--+--+--+-------+--+--+--+-----------+--+-----------+
| | | | | | | | | | | | | |
+------------------------------+--+--+--+--+--+-------+--+--+--+-----------+--+-----------+
| | | | | | | | | | | | | |
+------------------------------+--+--+--+--+--+-------+--+--+--+-----------+--+-----------+
| EQUITY | | | | | | | | | | | | |
+------------------------------+--+--+--+--+--+-------+--+--+--+-----------+--+-----------+
| | | | | | | | | | | | | |
+------------------------------+--+--+--+--+--+-------+--+--+--+-----------+--+-----------+
| Ordinary share capital | | | | | | 10 | | | | - | | - |
+------------------------------+--+--+--+--+--+-------+--+--+--+-----------+--+-----------+
| | | | | | | | | | | | | |
+------------------------------+--+--+--+--+--+-------+--+--+--+-----------+--+-----------+
| | | | | | | | | | | | | |
+------------------------------+--+--+--+--+--+-------+--+--+--+-----------+--+-----------+
| LIABILITIES | | | | | | | | | | | | |
+------------------------------+--+--+--+--+--+-------+--+--+--+-----------+--+-----------+
| | | | | | | | | | | | | |
+------------------------------+--+--+--+--+--+-------+--+--+--+-----------+--+-----------+
| Creditors | | | | | | 8 | | | | 232 | | 277 |
+------------------------------+--+--+--+--+--+-------+--+--+--+-----------+--+-----------+
| | | | | | | | | | | | | |
+------------------------------+--+--+--+--+--+-------+--+--+--+-----------+--+-----------+
| Total liabilities (Excluding Net | | | | | | | | | |
| Assets | | | | | | | | | |
+---------------------------------------+--+--+-------+--+--+--+-----------+--+-----------+
| Attributable to Holders of Preference | | | | | 232 | | 277 |
| Shares) | | | | | | | |
+---------------------------------------------+-------+--+--+--+-----------+--+-----------+
| | | | | | | | | | | | | |
+------------------------------+--+--+--+--+--+-------+--+--+--+-----------+--+-----------+
| | | | | | | | | | | | | |
+------------------------------+--+--+--+--+--+-------+--+--+--+-----------+--+-----------+
| Net Assets Attributable to Holders | | | | | | | | | | |
+------------------------------------+--+--+--+-------+--+--+--+-----------+--+-----------+
| of Preference Shares | | | | | | | | | | 47,650 | | 47,791 |
+------------------------------+--+--+--+--+--+-------+--+--+--+-----------+--+-----------+
| | | | | | | | | | | | | |
+------------------------------+--+--+--+--+--+-------+--+--+--+-----------+--+-----------+
| | | | | | | | | | | | | |
+------------------------------+--+--+--+--+--+-------+--+--+--+-----------+--+-----------+
| Total equity and liabilities | | | | | | | | | 47,882 | | 48,068 |
+---------------------------------+--+--+--+--+-------+--+--+--+-----------+--+-----------+
| | | | | | | | | | | | | |
+------------------------------+--+--+--+--+--+-------+--+--+--+-----------+--+-----------+
| | | | | | | | | | | | | |
+------------------------------+--+--+--+--+--+-------+--+--+--+-----------+--+-----------+
The Financial Statements were approved at the meeting of the Board of Directors
held on 28th April, 2009 and signed on its behalf by:-
Christopher Hill Trevor Ash
+----------------------------+--+--+--+-------+--+----------+--+----------+--+----------+--+----------+
| Total Statement of Assets and Liabilities |
+-----------------------------------------------------------------------------------------------------+
| As at 31st December, 2008 |
+-----------------------------------------------------------------------------------------------------+
| | | | | | | | | | | | | |
+----------------------------+--+--+--+-------+--+----------+--+----------+--+----------+--+----------+
| | | | | | | Growth | | Growth | | Income | | Income |
| | | | | | | | | | | | | |
+----------------------------+--+--+--+-------+--+----------+--+----------+--+----------+--+----------+
| | | | | | | Shares | | Shares | | Shares | | Shares |
| | | | | | | | | | | | | |
+----------------------------+--+--+--+-------+--+----------+--+----------+--+----------+--+----------+
| | | | | | | 31.12.08 | | 31.12.07 | | 31.12.08 | | 31.12.07 |
| | | | | | | | | | | | | |
+----------------------------+--+--+--+-------+--+----------+--+----------+--+----------+--+----------+
| | | | |Notes | | GBP | | GBP | | GBP | | GBP |
| | | | | | | 000's | | 000's | | 000's | | 000's |
+----------------------------+--+--+--+-------+--+----------+--+----------+--+----------+--+----------+
| ASSETS | | | | | | | | | | | | |
+----------------------------+--+--+--+-------+--+----------+--+----------+--+----------+--+----------+
| | | | | | | | | | | | | |
+----------------------------+--+--+--+-------+--+----------+--+----------+--+----------+--+----------+
| Investments at fair value through profit or | | | | | | | |
| loss | | | | | | | |
+------------------------------------------------+----------+--+----------+--+----------+--+----------+
| - Debt Securities | | | | 6 | | 14,016 | | 13,671 | | 21,581 | | 21,049 |
+----------------------------+--+--+--+-------+--+----------+--+----------+--+----------+--+----------+
| - Swap and Option contract | | 6 | | 10,926 | | 10,244 | | 1,029 | | 2,775 |
+----------------------------------+--+-------+--+----------+--+----------+--+----------+--+----------+
| Debtors | | | | 7 | | 60 | | 78 | | 170 | | 199 |
+----------------------------+--+--+--+-------+--+----------+--+----------+--+----------+--+----------+
| Cash | | | | | | 38 | | 23 | | 62 | | 29 |
+----------------------------+--+--+--+-------+--+----------+--+----------+--+----------+--+----------+
| | | | | | | | | | | | | |
+----------------------------+--+--+--+-------+--+----------+--+----------+--+----------+--+----------+
| | | | | | | | | | | | | |
+----------------------------+--+--+--+-------+--+----------+--+----------+--+----------+--+----------+
| Total assets | | | | | | 25,040 | | 24,016 | | 22,842 | | 24,052 |
+----------------------------+--+--+--+-------+--+----------+--+----------+--+----------+--+----------+
| | | | | | | | | | | | | |
+----------------------------+--+--+--+-------+--+----------+--+----------+--+----------+--+----------+
| | | | | | | | | | | | | |
+----------------------------+--+--+--+-------+--+----------+--+----------+--+----------+--+----------+
| EQUITY | | | | | | | | | | | | |
+----------------------------+--+--+--+-------+--+----------+--+----------+--+----------+--+----------+
| | | | | | | | | | | | | |
+----------------------------+--+--+--+-------+--+----------+--+----------+--+----------+--+----------+
| Ordinary share capital | | | | 10 | | - | | - | | - | | - |
+----------------------------+--+--+--+-------+--+----------+--+----------+--+----------+--+----------+
| | | | | | | | | | | | | |
+----------------------------+--+--+--+-------+--+----------+--+----------+--+----------+--+----------+
| | | | | | | | | | | | | |
+----------------------------+--+--+--+-------+--+----------+--+----------+--+----------+--+----------+
| LIABILITIES | | | | | | | | | | | | |
+----------------------------+--+--+--+-------+--+----------+--+----------+--+----------+--+----------+
| | | | | | | | | | | | | |
+----------------------------+--+--+--+-------+--+----------+--+----------+--+----------+--+----------+
| Creditors | | | | 8 | | 61 | | 78 | | 171 | | 199 |
+----------------------------+--+--+--+-------+--+----------+--+----------+--+----------+--+----------+
| | | | | | | | | | | | | |
+----------------------------+--+--+--+-------+--+----------+--+----------+--+----------+--+----------+
| Total liabilities (Excluding Net | | | | | | | | | |
| Assets | | | | | | | | | |
+-------------------------------------+-------+--+----------+--+----------+--+----------+--+----------+
| Attributable to Holders of Preference Shares) | 61 | | 78 | | 171 | | 199 |
+------------------------------------------------+----------+--+----------+--+----------+--+----------+
| | | | | | | | | | | | | |
+----------------------------+--+--+--+-------+--+----------+--+----------+--+----------+--+----------+
| | | | | | | | | | | | | |
+----------------------------+--+--+--+-------+--+----------+--+----------+--+----------+--+----------+
| Net Assets Attributable to | | | | | | | | | | |
| Holders | | | | | | | | | | |
+----------------------------------+--+-------+--+----------+--+----------+--+----------+--+----------+
| of Preference Shares | | | | | | 24,979 | | 23,938 | | 22,671 | | 23,853 |
+----------------------------+--+--+--+-------+--+----------+--+----------+--+----------+--+----------+
| | | | | | | | | | | | | |
+----------------------------+--+--+--+-------+--+----------+--+----------+--+----------+--+----------+
| | | | | | | | | | | | | |
+----------------------------+--+--+--+-------+--+----------+--+----------+--+----------+--+----------+
| Total equity and liabilities | | | | | 25,040 | | 24,016 | | 22,842 | | 24,052 |
+-------------------------------+--+--+-------+--+----------+--+----------+--+----------+--+----------+
| | | | | | | | | | | | | |
+----------------------------+--+--+--+-------+--+----------+--+----------+--+----------+--+----------+
| | | | | | | | | | | | | |
+----------------------------+--+--+--+-------+--+----------+--+----------+--+----------+--+----------+
+--------------------------------+--+--+--+--+-------+--+--+--+--------------+--+-------------+
| Total Statement of Changes in Net Assets Attributable to Holders of Preference Shares |
+---------------------------------------------------------------------------------------------+
| For the year ended 31st December, 2008 |
+---------------------------------------------------------------------------------------------+
| | | | | | | | | | | | |
+--------------------------------+--+--+--+--+-------+--+--+--+--------------+--+-------------+
| | | | | | | | | | | | |
+--------------------------------+--+--+--+--+-------+--+--+--+--------------+--+-------------+
| | | | | | | | | | Total | | Total |
+--------------------------------+--+--+--+--+-------+--+--+--+--------------+--+-------------+
| | | | | | | | | | 01.01.2008 | | 01.01.2007 |
| | | | | | | | | | to | | to |
+--------------------------------+--+--+--+--+-------+--+--+--+--------------+--+-------------+
| | | | | | | | | | 31.12.2008 | | 31.12.2007 |
+--------------------------------+--+--+--+--+-------+--+--+--+--------------+--+-------------+
| | | | |Notes | | | | GBP 000's | | GBP 000's |
+--------------------------------+--+--+-----+-------+--+--+--+--------------+--+-------------+
| | | | | | | | | | | | |
+--------------------------------+--+--+--+--+-------+--+--+--+--------------+--+-------------+
| | | | | | | | | | | | |
+--------------------------------+--+--+--+--+-------+--+--+--+--------------+--+-------------+
| From Operations | | | | | | | | | | | |
+--------------------------------+--+--+--+--+-------+--+--+--+--------------+--+-------------+
| | | | | | | | | | | | |
+--------------------------------+--+--+--+--+-------+--+--+--+--------------+--+-------------+
| Net realised gains on investment | | | | | | | | |
| activities | | | | | | | | |
+-----------------------------------------+--+-------+--+--+--+--------------+--+-------------+
| applicable to Holders of Preference | | 11 | | | | 1,986 | | 1,981 |
| Shares | | | | | | | | |
+-----------------------------------------+--+-------+--+--+--+--------------+--+-------------+
| | | | | | | | | | | | |
+--------------------------------+--+--+--+--+-------+--+--+--+--------------+--+-------------+
| Net unrealised losses on investments | | | | | | | | | |
+--------------------------------------+--+--+-------+--+--+--+--------------+--+-------------+
| applicable to Holders of Preference | | 6 | | | | (187) | | (813) |
| Shares | | | | | | | | |
+-----------------------------------------+--+-------+--+--+--+--------------+--+-------------+
| | | | | | | | | | | | |
+--------------------------------+--+--+--+--+-------+--+--+--+--------------+--+-------------+
| Distributions payable to Holders | | | | | | | | | | |
+-----------------------------------+--+--+--+-------+--+--+--+--------------+--+-------------+
| of Preference Shares | | | | | 5 | | | | (1,940) | | (1,940) |
+--------------------------------+--+--+--+--+-------+--+--+--+--------------+--+-------------+
| | | | | | | | | | | | |
+--------------------------------+--+--+--+--+-------+--+--+--+--------------+--+-------------+
| | | | | | | | | | | | |
+--------------------------------+--+--+--+--+-------+--+--+--+--------------+--+-------------+
| Net decrease resulting from operations | | | | | | (141) | | (772) |
+-----------------------------------------+--+-------+--+--+--+--------------+--+-------------+
| | | | | | | | | | | | |
+--------------------------------+--+--+--+--+-------+--+--+--+--------------+--+-------------+
| | | | | | | | | | | | |
+--------------------------------+--+--+--+--+-------+--+--+--+--------------+--+-------------+
| | | | | | | | | | | | |
+--------------------------------+--+--+--+--+-------+--+--+--+--------------+--+-------------+
| Total decrease in Net Assets | | | | | | | | |
| Attributable to | | | | | | | | |
+-----------------------------------------+--+-------+--+--+--+--------------+--+-------------+
| Holders of Preference Shares for the | | | | | | (141) | | (772) |
| year | | | | | | | | |
+-----------------------------------------+--+-------+--+--+--+--------------+--+-------------+
| | | | | | | | | | | | |
+--------------------------------+--+--+--+--+-------+--+--+--+--------------+--+-------------+
| Net Assets Attributable to Holders of | | | | | | | | |
+-----------------------------------------+--+-------+--+--+--+--------------+--+-------------+
| Preference Shares at beginning of the | | | | | | 47,791 | | 48,563 |
| year | | | | | | | | |
+-----------------------------------------+--+-------+--+--+--+--------------+--+-------------+
| | | | | | | | | | | | |
+--------------------------------+--+--+--+--+-------+--+--+--+--------------+--+-------------+
| | | | | | | | | | | | |
+--------------------------------+--+--+--+--+-------+--+--+--+--------------+--+-------------+
| Total Net Assets Attributable to | | | | | | | | |
| Holders | | | | | | | | |
+-----------------------------------------+--+-------+--+--+--+--------------+--+-------------+
| of Preference Shares at the end of the | | | | | | 47,650 | | 47,791 |
| year | | | | | | | | |
+-----------------------------------------+--+-------+--+--+--+--------------+--+-------------+
| | | | | | | | | | | | |
+--------------------------------+--+--+--+--+-------+--+--+--+--------------+--+-------------+
| | | | | | | | | | | | |
+--------------------------------+--+--+--+--+-------+--+--+--+--------------+--+-------------+
+----------------------------+--+--+--+-------+------------+--+------------+--+------------+--+------------+
| Total Statement of Changes in Net Assets Attributable to Holders of Preference Shares |
| (continued) |
+----------------------------------------------------------------------------------------------------------+
| For the year ended 31st December, 2008 |
+----------------------------------------------------------------------------------------------------------+
| | | | | | | | | | | | |
+----------------------------+--+--+--+-------+------------+--+------------+--+------------+--+------------+
| | | | | | | | | | | | |
+----------------------------+--+--+--+-------+------------+--+------------+--+------------+--+------------+
| | | | | | Growth | | Growth | | Income | | Income |
+----------------------------+--+--+--+-------+------------+--+------------+--+------------+--+------------+
| | | | | | Shares | | Shares | | Shares | | Shares |
+----------------------------+--+--+--+-------+------------+--+------------+--+------------+--+------------+
| | | | | | 01.01.2008 | | 01.01.2007 | | 01.01.2008 | | 01.01.2007 |
| | | | | | to | | to | | to | | to |
+----------------------------+--+--+--+-------+------------+--+------------+--+------------+--+------------+
| | | | | | 31.12.2008 | | 31.12.2007 | | 31.12.2008 | | 31.12.2007 |
| | | | | | | | | | | | |
+----------------------------+--+--+--+-------+------------+--+------------+--+------------+--+------------+
| | | | | Notes | GBP | | GBP | | GBP | | GBP |
| | | | | | 000's | | 000's | | 000's | | 000's |
+----------------------------+--+--+--+-------+------------+--+------------+--+------------+--+------------+
| | | | | | | | | | | | |
+----------------------------+--+--+--+-------+------------+--+------------+--+------------+--+------------+
| | | | | | | | | | | | |
+----------------------------+--+--+--+-------+------------+--+------------+--+------------+--+------------+
| From Operations | | | | | | | | | | | |
+----------------------------+--+--+--+-------+------------+--+------------+--+------------+--+------------+
| | | | | | | | | | | | |
+----------------------------+--+--+--+-------+------------+--+------------+--+------------+--+------------+
| Net realised gains on investment | | | | | | | | |
| activities | | | | | | | | |
+-------------------------------------+-------+------------+--+------------+--+------------+--+------------+
| applicable to Holders of Preference | 11 | 14 | | 16 | | 1,972 | | 1,965 |
| Shares | | | | | | | | |
+-------------------------------------+-------+------------+--+------------+--+------------+--+------------+
| | | | | | | | | | | | |
+----------------------------+--+--+--+-------+------------+--+------------+--+------------+--+------------+
| Net unrealised gains/(losses) on | | | | | | | | |
| investments | | | | | | | | |
+-------------------------------------+-------+------------+--+------------+--+------------+--+------------+
| applicable to Holders of Preference | 6 | 1,027 | | 738 | | (1,214) | | (1,551) |
| Shares | | | | | | | | |
+-------------------------------------+-------+------------+--+------------+--+------------+--+------------+
| | | | | | | | | | | | |
+----------------------------+--+--+--+-------+------------+--+------------+--+------------+--+------------+
| Distributions payable to | | | | | | | | | | |
| Holders | | | | | | | | | | |
+-------------------------------+--+--+-------+------------+--+------------+--+------------+--+------------+
| of Preference Shares | | | | 5 | - | | - | | (1,940) | | (1,940) |
+----------------------------+--+--+--+-------+------------+--+------------+--+------------+--+------------+
| | | | | | | | | | | | |
+----------------------------+--+--+--+-------+------------+--+------------+--+------------+--+------------+
| | | | | | | | | | | | |
+----------------------------+--+--+--+-------+------------+--+------------+--+------------+--+------------+
| Net increase/(decrease) resulting from | 1,041 | | 754 | | (1,182) | | (1,526) |
| operations | | | | | | | |
+---------------------------------------------+------------+--+------------+--+------------+--+------------+
| | | | | | | | | | | | |
+----------------------------+--+--+--+-------+------------+--+------------+--+------------+--+------------+
| | | | | | | | | | | | |
+----------------------------+--+--+--+-------+------------+--+------------+--+------------+--+------------+
| | | | | | | | | | | | |
+----------------------------+--+--+--+-------+------------+--+------------+--+------------+--+------------+
| Total increase/(decrease) in Net Assets | | | | | | | |
| Attributable | | | | | | | |
+---------------------------------------------+------------+--+------------+--+------------+--+------------+
| to Holders of Preference Shares for | | 1,041 | | 754 | | (1,182) | | (1,526) |
| the year | | | | | | | | |
+-------------------------------------+-------+------------+--+------------+--+------------+--+------------+
| | | | | | | | | | | | |
+----------------------------+--+--+--+-------+------------+--+------------+--+------------+--+------------+
| Net Assets Attributable to Holders | | | | | | | | |
| of | | | | | | | | |
+-------------------------------------+-------+------------+--+------------+--+------------+--+------------+
| Preference Shares at beginning of | | 23,938 | | 23,184 | | 23,853 | | 25,379 |
| the year | | | | | | | | |
+-------------------------------------+-------+------------+--+------------+--+------------+--+------------+
| | | | | | | | | | | | |
+----------------------------+--+--+--+-------+------------+--+------------+--+------------+--+------------+
| | | | | | | | | | | | |
+----------------------------+--+--+--+-------+------------+--+------------+--+------------+--+------------+
| Total Net Assets Attributable to | | | | | | | | |
| Holders | | | | | | | | |
+-------------------------------------+-------+------------+--+------------+--+------------+--+------------+
| of Preference Shares at the end of | | 24,979 | | 23,938 | | 22,671 | | 23,853 |
| the year | | | | | | | | |
+-------------------------------------+-------+------------+--+------------+--+------------+--+------------+
| | | | | | | | | | | | |
+----------------------------+--+--+--+-------+------------+--+------------+--+------------+--+------------+
| | | | | | | | | | | | |
+----------------------------+--+--+--+-------+------------+--+------------+--+------------+--+------------+
+----------------------------+--+--+--+--+-------+--+--+--+-------------+--+-------------+
| Total Statement of Cash Flows |
+----------------------------------------------------------------------------------------+
| For the year ended 31st December, 2008 |
+----------------------------------------------------------------------------------------+
| | | | | | | | | | | | |
+----------------------------+--+--+--+--+-------+--+--+--+-------------+--+-------------+
| | | | | | | | | | Total | | Total |
+----------------------------+--+--+--+--+-------+--+--+--+-------------+--+-------------+
| | | | | | | | | | 01.01.2008 | | 01.01.2007 |
| | | | | | | | | | to | | to |
+----------------------------+--+--+--+--+-------+--+--+--+-------------+--+-------------+
| | | | | | | | | | 31.12.2008 | | 31.12.2007 |
+----------------------------+--+--+--+--+-------+--+--+--+-------------+--+-------------+
| | | | | |Notes | | | | GBP 000's | | GBP 000's |
+----------------------------+--+--+--+--+-------+--+--+--+-------------+--+-------------+
| Operating Activities | | | | | | | | | | | |
+----------------------------+--+--+--+--+-------+--+--+--+-------------+--+-------------+
| | | | | | | | | | | | |
+----------------------------+--+--+--+--+-------+--+--+--+-------------+--+-------------+
| Investment income | | | | | | | | | 2,241 | | 2,160 |
+----------------------------+--+--+--+--+-------+--+--+--+-------------+--+-------------+
| Income from counterparty for | | | | | | | | | |
| Distributor | | | | | | | | | |
+----------------------------------+--+--+-------+--+--+--+-------------+--+-------------+
| and Sponsor fees | | | | | 2 | | | | 200 | | 200 |
+----------------------------+--+--+--+--+-------+--+--+--+-------------+--+-------------+
| Net Swap Option payments | | | | | | | | | (299) | | (685) |
+----------------------------+--+--+--+--+-------+--+--+--+-------------+--+-------------+
| Distributor and Sponsor fees | | | | 2 | | | | (200) | | (200) |
+-------------------------------+--+--+--+-------+--+--+--+-------------+--+-------------+
| Other interest income | | | | | | | | | 46 | | 41 |
+----------------------------+--+--+--+--+-------+--+--+--+-------------+--+-------------+
| | | | | | | | | | | | |
+----------------------------+--+--+--+--+-------+--+--+--+-------------+--+-------------+
| | | | | | | | | | | | |
+----------------------------+--+--+--+--+-------+--+--+--+-------------+--+-------------+
| Net cash inflow from Operating | | | 11 | | | | 1,988 | | 1,516 |
| Activities | | | | | | | | | |
+----------------------------------+--+--+-------+--+--+--+-------------+--+-------------+
| | | | | | | | | | | | |
+----------------------------+--+--+--+--+-------+--+--+--+-------------+--+-------------+
| | | | | | | | | | | | |
+----------------------------+--+--+--+--+-------+--+--+--+-------------+--+-------------+
| Distributions paid to Holders of | | 5 | | | | (1,940) | | (1,940) |
| Preference Shares | | | | | | | | |
+-------------------------------------+--+-------+--+--+--+-------------+--+-------------+
| | | | | | | | | | | | |
+----------------------------+--+--+--+--+-------+--+--+--+-------------+--+-------------+
| | | | | | | | | | | | |
+----------------------------+--+--+--+--+-------+--+--+--+-------------+--+-------------+
| Increase/(decrease) in cash | | | | | | | | 48 | | (424) |
+-------------------------------+--+--+--+-------+--+--+--+-------------+--+-------------+
| | | | | | | | | | | | |
+----------------------------+--+--+--+--+-------+--+--+--+-------------+--+-------------+
| Cash at start of year | | | | | | | | | 52 | | 476 |
+----------------------------+--+--+--+--+-------+--+--+--+-------------+--+-------------+
| | | | | | | | | | | | |
+----------------------------+--+--+--+--+-------+--+--+--+-------------+--+-------------+
| | | | | | | | | | | | |
+----------------------------+--+--+--+--+-------+--+--+--+-------------+--+-------------+
| Cash at end of year | | | | | | | | | 100 | | 52 |
+----------------------------+--+--+--+--+-------+--+--+--+-------------+--+-------------+
| | | | | | | | | | | | |
+----------------------------+--+--+--+--+-------+--+--+--+-------------+--+-------------+
| | | | | | | | | | | | |
+----------------------------+--+--+--+--+-------+--+--+--+-------------+--+-------------+
+---------------------------+--+--+-------+--+------------+--+------------+--+------------+--+------------+
| Total Statement of Cash Flows (continued) |
+---------------------------------------------------------------------------------------------------------+
| For the year ended 31st December, 2008 |
+---------------------------------------------------------------------------------------------------------+
| | | | | | | | | | | | |
+---------------------------+--+--+-------+--+------------+--+------------+--+------------+--+------------+
| | | | | | | | | | | | |
+---------------------------+--+--+-------+--+------------+--+------------+--+------------+--+------------+
| | | | | | Growth | | Growth | | Income | | Income |
+---------------------------+--+--+-------+--+------------+--+------------+--+------------+--+------------+
| | | | | | Shares | | Shares | | Shares | | Shares |
+---------------------------+--+--+-------+--+------------+--+------------+--+------------+--+------------+
| | | | | | 01.01.2008 | | 01.01.2007 | | 01.01.2008 | | 01.01.2007 |
| | | | | | to | | to | | to | | to |
+---------------------------+--+--+-------+--+------------+--+------------+--+------------+--+------------+
| | | | | | 31.12.2008 | | 31.12.2007 | | 31.12.2008 | | 31.12.2007 |
| | | | | | | | | | | | |
+---------------------------+--+--+-------+--+------------+--+------------+--+------------+--+------------+
| | | |Notes | | GBP | | GBP | | GBP | | GBP |
| | | | | | 000's | | 000's | | 000's | | 000's |
+---------------------------+--+--+-------+--+------------+--+------------+--+------------+--+------------+
| | | | | | | | | | | | |
+---------------------------+--+--+-------+--+------------+--+------------+--+------------+--+------------+
| Operating Activities | | | | | | | | | | | |
+---------------------------+--+--+-------+--+------------+--+------------+--+------------+--+------------+
| | | | | | | | | | | | |
+---------------------------+--+--+-------+--+------------+--+------------+--+------------+--+------------+
| Investment income | | | | | 882 | | 851 | | 1,359 | | 1,309 |
+---------------------------+--+--+-------+--+------------+--+------------+--+------------+--+------------+
| Income from counterparty for | | | | | | | | | |
| Distributor | | | | | | | | | |
+---------------------------------+-------+--+------------+--+------------+--+------------+--+------------+
| and Sponsor fees | | | 2 | | 79 | | 79 | | 121 | | 121 |
+---------------------------+--+--+-------+--+------------+--+------------+--+------------+--+------------+
| Net Swap Option | | | (881) | | (1,034) | | 582 | | 349 |
| (payments)/receipts | | | | | | | | | |
+---------------------------------+-------+--+------------+--+------------+--+------------+--+------------+
| Distributor and Sponsor fees | | 2 | | (79) | | (79) | | (121) | | (121) |
+------------------------------+--+-------+--+------------+--+------------+--+------------+--+------------+
| Other interest income | | | | | 14 | | 16 | | 32 | | 25 |
+---------------------------+--+--+-------+--+------------+--+------------+--+------------+--+------------+
| | | | | | | | | | | | |
+---------------------------+--+--+-------+--+------------+--+------------+--+------------+--+------------+
| | | | | | | | | | | | |
+---------------------------+--+--+-------+--+------------+--+------------+--+------------+--+------------+
| Net cash inflow/(outflow) | | | | | | | | | | |
| from | | | | | | | | | | |
+------------------------------+--+-------+--+------------+--+------------+--+------------+--+------------+
| Operating Activities | | | 11 | | 15 | | (167) | | 1,973 | | 1,683 |
+---------------------------+--+--+-------+--+------------+--+------------+--+------------+--+------------+
| | | | | | | | | | | | |
+---------------------------+--+--+-------+--+------------+--+------------+--+------------+--+------------+
| | | | | | | | | | | | |
+---------------------------+--+--+-------+--+------------+--+------------+--+------------+--+------------+
| Distributions paid to | | | | | | | | | | |
| Holders | | | | | | | | | | |
+------------------------------+--+-------+--+------------+--+------------+--+------------+--+------------+
| of Preference Shares | | | 5 | | - | | - | | (1,940) | | (1,940) |
+---------------------------+--+--+-------+--+------------+--+------------+--+------------+--+------------+
| | | | | | | | | | | | |
+---------------------------+--+--+-------+--+------------+--+------------+--+------------+--+------------+
| | | | | | | | | | | | |
+---------------------------+--+--+-------+--+------------+--+------------+--+------------+--+------------+
| Increase/(decrease) in cash | | | | 15 | | (167) | | 33 | | (257) |
+------------------------------+--+-------+--+------------+--+------------+--+------------+--+------------+
| | | | | | | | | | | | |
+---------------------------+--+--+-------+--+------------+--+------------+--+------------+--+------------+
| Cash at start of year | | | | | 23 | | 190 | | 29 | | 286 |
+---------------------------+--+--+-------+--+------------+--+------------+--+------------+--+------------+
| | | | | | | | | | | | |
+---------------------------+--+--+-------+--+------------+--+------------+--+------------+--+------------+
| | | | | | | | | | | | |
+---------------------------+--+--+-------+--+------------+--+------------+--+------------+--+------------+
| Cash at end of year | | | | | 38 | | 23 | | 62 | | 29 |
+---------------------------+--+--+-------+--+------------+--+------------+--+------------+--+------------+
| | | | | | | | | | | | |
+---------------------------+--+--+-------+--+------------+--+------------+--+------------+--+------------+
| | | | | | | | | | | | |
+---------------------------+--+--+-------+--+------------+--+------------+--+------------+--+------------+
Notes to the Financial Statements
For the year ended 31st December, 2008
1. Principal Accounting Policies
The following accounting policies have been applied consistently in dealing with
items which are considered to be material in relation to the Company's Financial
Statements.
Basis of Accounting
The Company is due to be wound up around 17th June, 2009 as set out in the
Principal Placing documentation. Accordingly, these Financial Statements are
prepared on a break up basis of accounting where all assets are classified as
current and are stated at their estimated recoverable amounts and all creditors
are classified as falling due within one year. Accordingly, the going concern
basis of accounting is no longer appropriate. As the assets of the Company are
already stated at amounts which approximate their fair values this has not
resulted in any adjustment to the Net Asset Value of the Company. The Directors
believe that fair value equates to recoverable amounts.
These Financial Statements have been properly prepared in accordance with
applicable United Kingdom accounting standards and under the historical cost
convention as modified by the revaluation of Investments and Swap and Option
Transactions.
The Profit and Loss Account is referred to as the Total Statement of Operations
and the Balance Sheet as the Total Statement of Assets and Liabilities.
Unrealised profits and losses are shown in the Total Statement of Operations as
in the opinion of the Directors this treatment fairly presents the results of
the Company.
All items dealt within the Total Statement of Operations relate to continuing
operations.
The Financial Statements have been prepared showing the Total Statement of
Operations, the Total Statement of Assets and Liabilities, the Total Statement
of Changes in Net Assets Attributable to Holders of Preference Shares and the
Total Statement of Cash Flows for the Company as a whole. These primary
Financial Statements have also been split to show each class of shares'
allocation of income and expenditure, assets and liabilities and cash flows.
Amounts in the Financial Statements have been rounded off to the nearest
thousand pound except where noted.
Fair value of financial instruments
All financial instruments are recognised on the Statement of Assets and
Liabilities when the Company becomes a party to the contractual provisions of
the instrument and are initially recognised at cost.
After initial measurement, the Company measures financial instruments, which are
classified as at fair value, through profit or loss at fair value. Fair value is
the amount for which an asset could be exchanged, or a liability settled,
between knowledgeable, willing parties in an arm's length transaction.
The fair value of financial instruments traded in active markets at the
Statement of Net Assets and Liabilities date is based on their quoted price or
dealer price quotations, without any deduction for transaction costs.
For all other financial instruments not listed in an active market, the fair
value is determined by using appropriate valuation techniques. Valuation
techniques include net present value techniques, comparison to similar
instruments for which market observable prices exist, options pricing model and
other relevant valuation models.
Receivables and payables are measured at amortised cost. Receivables and
payables are non-derivative financial instruments with fixed or determinable
payments that are not quoted in an active market. Receivables are included in
current assets and payables are included as current liabilities.
Investments at fair value through profit or loss
The Company invests in a number of Debt Securities comprising medium term notes
issued by financial institutions that have a rating of at least A- at the time
of acquisition, as determined by Standards & Poor's and/or Moody's Investor
Service Inc. These Securities are valued on the basis of market prices
prevailing at the Statement of Net Assets and Liabilities date.
The "unrealised gains/(losses)" resulting from the marking to market of these
investments are reflected in the Total Statement of Operations in the period
they arise. It is the intention of the Company to hold these investments until
its winding up date, expected to be around 17th June, 2009 and consequently to
date there has been no sale of investments.
Derecognition of financial instruments
A financial asset is derecognised when: (a) the rights to receive cash flows
from the asset have expired, (b) the Company retains the right to receive cash
flows from the asset, but has assumed an obligation to pay them in full without
material delay to a third party under a "pass through arrangement"; or (c) the
Company has transferred substantially all the risks and rewards of the asset, or
has neither transferred nor retained substantially all the risks and rewards of
the asset, but has transferred control of the asset.
A financial liability is derecognised when the obligation under the liability is
discharged or cancelled.
Income
Investment income is recognised on an accruals basis.
Derivative Financial Instruments and Hedging Activities
Derivatives are initially accounted and measured at fair value. Any gain or loss
on re-measurement is taken to the Total Statement of Operations, except where
the derivatives are a designated cash flow hedging instrument. The Company's
derivative instruments do not qualify for hedge accounting and changes in fair
value are recognised immediately in the Total Statement of Operations.
Swap and Option Transactions
The Company entered into swap and option transactions (the "Swap and Option
Transactions") for the share classes comprising each of the Growth Shares and
the Income Shares.
The purpose of the Swap and Option Transactions is to enable the Company on
behalf of each share class to match more efficiently the cash flow on the
Portfolio to the payments intended to be made under the investment objectives of
the Company and each share class and also to generate part of the intended
Capital Return to Shareholders following the redemption date.
The Company's ongoing cash payment obligations under the Swap and Option
Transactions will be equal to the aggregate interest received from the holding
of Debt Securities. The obligations arising from the "Swap and Option
Transactions" are as follows:
Growth Shares
The Company is obliged to pay Merrill Lynch International (the "Counterparty")
an initial payment of 3.0% of the gross proceeds of the Offer of Growth Shares
in respect of the commission payable to the Authorised Intermediaries. Under the
terms of the Growth Swap and Option Transactions, the Company is required to
make floating rate payments, expressed as a margin above Sterling 3-month LIBOR
rates payable to the Counterparty every three months in arrears, and the amounts
of such payments will be equal to the aggregate interest received under the
Sterling medium term note ("MTN") Instruments comprising the Growth Portfolio.
The Counterparty is obliged to pay 1.0% of the gross proceeds of the Offer of
the Growth Shares to the Company so as to enable the Company to pay the amount
payable to the Distributor and Sponsor in terms of the Distribution and
Sponsorship agreement in respect of initial fees.
The Counterparty is also required to make annual payments to the Company of an
amount equal to 0.5% of the gross proceeds of the Offer of the Growth Shares so
as to enable the Company to make the proposed annual payments to the Distributor
and Sponsor under the Distribution and Sponsorship Agreement in respect of
annual costs and expenses of the Company.
The Counterparty is required to make a payment to the Company on the expected
liquidation date of 17th June, 2009 equal to 70.0% of the gross proceeds of the
Offer of the Growth Shares unless the Index Level is lower than 60% of the Index
Level on the initial Index Valuation Date thus causing an Index Barrier Breach,
in which case this payment will be reduced as described in Note 13.
The Counterparty is also obliged to make a payment to the Company on the
expected liquidation date of 17th June, 2009 of 10% of the gross proceeds of the
Offer of the Growth Shares.
Income Shares
The Company is obliged to make an initial payment of 3.0% of the gross proceeds
of the Offer of Income Shares in respect of the commission payable to the
Authorised Intermediaries. Under the terms of the Income Swap and Option
Transactions, the Company is required to make floating rate payments, expressed
as a margin above Sterling 3-month LIBOR rates payable to the Counterparty every
three months in arrears, and the amounts of such payments will be equal to the
aggregate interest received under the Sterling MTN Instruments comprising the
Income Portfolio.
The Counterparty was obliged to pay 1.0% of the gross proceeds of the Offer of
the Growth Shares to the Company so as to enable the Company to pay the amount
payable to the Distributor and Sponsor in terms of the Distribution and
Sponsorship agreement in respect of initial fees.
The Counterparty is also required to make annual payments to the Company of an
amount equal to 0.5% of the gross proceeds of the Offer of the Growth Shares so
as to enable the Company to make the proposed annual payments to the Distributor
and Sponsor under the Distribution and Sponsorship Agreement in respect of the
annual costs and expenses of the Company.
The Counterparty is also required to make semi-annual payments to the Company of
an amount equal to 4.0% of the gross proceeds of the Offer of the Income Shares
so as to enable the Company to make the proposed semi-annual distributions to
holders of preference shares under the Income Shares.
The Counterparty is also obliged to make a payment to the Company on the
expected liquidation date of 17th June, 2009 of 10% of the gross proceeds of the
Offer of the Income Shares.
Swap and Option Transactions are valued monthly by the relevant counterparties
to the swap transactions. The valuation of the Swap and Option Transactions is
reflected at a fair value, based on prevailing market conditions. When valuing
the Swap and Option Transaction the following criteria are used:
* the exercise price;
* the performance of any securities or securities index to which the Swap and
Option Transactions are linked;
* the degree of volatility;
* the remaining maturity;
* the interest receivable; and
* the expected yield of the underlying investments and prevailing UK interest
rates or other relevant rates.
The movement on the unrealised gains/losses resulting from carrying these
investments at fair value is reflected in the Total Statement of Operations.
The Company has contracted with an independent valuer to provide valuations of
the Derivative Contracts at the year end. Where the valuations provided by the
counterparties to the Derivative Contracts and the independent valuer are
significantly different (a level set by the Directors at 5% of Contract value),
the Derivative Contracts are stated at the arithmetic mean of the valuations
provided. As at December 31, 2008, there were no significant differences between
the valuation provided by the counterparties to the derivative contracts and the
independent valuer.
Distributions to Holders of Preference Shares
Distributions payable to Holders of Income Shares are accrued on a daily basis.
Preference Shares
As the Company's Preference Shares are redeemable, they are required to be
classified as debt instruments under FRS 25. The preference shares are listed on
the London Stock Exchange and their trading values are based on their quoted
price, may or may not equal to the actual Net Asset Value of the Company.
2. Fees and Expenses
The Company entered into a Distribution and Sponsorship Agreement with the
Distributor and Sponsor, Merrill Lynch International, dated 23rd April, 2002
whereby the Distributor and Sponsor agreed to:
i) Promote the issue of the Company's shares and procure subscribers for those
shares.
ii) Discharge all of the formation and issue costs of the Company, including
registration fees, printing costs, legal and accounting fees and marketing and
distribution expenses.
A commission of 3.0% of the Issue Price of Shares was paid to authorised
intermediaries by the individual share classes who were reimbursed by Merrill
Lynch International.
Under the Distribution and Sponsorship Agreement, the Distributor and Sponsor
has agreed to discharge the costs payable by the Company under the Investment
Management Agreement, the Administration Agreement, the Transfer and Paying
Agency Agreement and the Custodian Agreement, together with the legal,
secretarial, auditing and other professional expenses of the Company incurred
throughout its Planned Life and up to its winding up (including winding up
expenses) as well as the Directors' remuneration and expenses. In return, the
Company has agreed to pay 0.5% of the gross proceeds of the Offer, payable on
each anniversary of 16th June ending on and including the anniversary in 2009.
This payment will be financed by the payment to the Company of an equivalent
amount by the Counterparty under the Swap and Option Transactions.
3. Directors' Remuneration
The Articles of Association provide that the Directors shall be entitled to a
fee in remuneration for their services at a rate to be determined from time to
time by the Directors. The aggregate amount of the Directors' remuneration in
any one year shall not exceed GBP10,000.
The remuneration of the Directors and Auditors is borne by the Investment
Adviser in accordance with the Investment Advisory Agreement.
4. Taxation
The Company is exempt from Guernsey income tax under The Income Tax (Exempt
Bodies) (Guernsey) Ordinance 1989 and accordingly is charged an annual exemption
fee of GBP600, which is borne by the Investment Adviser in accordance with the
Investment Advisory Agreement. With effect from 1 January, 2008, Guernsey's
corporate tax regime changed. There is however no effect on the Company's tax
position as a result of this change as the Company will continue to register as
tax exempt and will continue to pay an annual exemption fee of GBP600.
5. Distributions to Holders of Preference Shares
The Income Shares pay a fixed distribution of 4 pence per Share semi-annually in
arrears on 17th June and 17th December of each year for the life of the Company.
At 31st December, 2008 an amount of GBP77,068 (31st December 2007: GBP77,068)
was shown as a creditor in respect of distributions accrued but not yet payable
on the Income Shares. Distributions of GBP1,940,000 (31st December, 2007:
GBP1,940,000) were declared and paid on the Income Shares during the year. The
fixed distributions on the income shares may not be met and are subject to the
performance of the FTSE 100 Index. A more detailed description of the risks to
the income return of investors is contained in Note 13. No distributions were
proposed for the period in respect of the Growth Shares.
6. Investments at fair value through profit or loss
+-------------------------------------+--+--+--+--+--+---+------------+--+---------+--+---------+
| | | | Total | | Growth | | Income |
| | | | | | | | |
+-------------------------------------------------+--+---+------------+--+---------+--+---------+
| | | | | | | | 31.12.2008 | | Shares | | Shares |
| | | | | | | | | | | | |
+-------------------------------------+--+--+--+--+--+---+------------+--+---------+--+---------+
| | | | | | | | GBP | | GBP | | GBP |
| | | | | | | | 000's | | 000's | | 000's |
+-------------------------------------+--+--+--+--+--+---+------------+--+---------+--+---------+
| | | | | | | | | | | | |
+-------------------------------------+--+--+--+--+--+---+------------+--+---------+--+---------+
| Cost of Debt Securities at 31st December, | | | | 36,000 | | 14,175 | | 21,825 |
| 2008 | | | | | | | | |
+----------------------------------------------+--+--+---+------------+--+---------+--+---------+
| Cumulative unrealised loss on revaluation of Debt | | (403) | | (159) | | (244) |
| Securities | | | | | | |
+----------------------------------------------------+---+------------+--+---------+--+---------+
| | | | | | | | | | | | |
+-------------------------------------+--+--+--+--+--+---+------------+--+---------+--+---------+
| | | | | | | | | | | | |
+-------------------------------------+--+--+--+--+--+---+------------+--+---------+--+---------+
| Fair Value of Debt Securities at 31st December, | | | 35,597 | | 14,016 | | 21,581 |
| 2008 | | | | | | | |
+-------------------------------------------------+--+---+------------+--+---------+--+---------+
| | | | | | | | | | | | |
+-------------------------------------+--+--+--+--+--+---+------------+--+---------+--+---------+
| | | | | | | | | | | | |
+-------------------------------------+--+--+--+--+--+---+------------+--+---------+--+---------+
| Fair Value of Debt Securities at 31st December, | | | 34,720 | | 13,671 | | 21,049 |
| 2007 | | | | | | | |
+-------------------------------------------------+--+---+------------+--+---------+--+---------+
| | | | | | | | | | | | |
+-------------------------------------+--+--+--+--+--+---+------------+--+---------+--+---------+
| | | | | | | | | | | | |
+-------------------------------------+--+--+--+--+--+---+------------+--+---------+--+---------+
| Cumulative unrealised gain on revaluation of Swap and | 11,955 | | 10,926 | | 1,029 |
| Options | | | | | |
+--------------------------------------------------------+------------+--+---------+--+---------+
| | | | | | | | | | | | |
+-------------------------------------+--+--+--+--+--+---+------------+--+---------+--+---------+
| | | | | | | | | | | | |
+-------------------------------------+--+--+--+--+--+---+------------+--+---------+--+---------+
| Fair Value of Swap and Option contracts at 31st | 11,955 | | 10,926 | | 1,029 |
| December, 2008 | | | | | |
+--------------------------------------------------------+------------+--+---------+--+---------+
| | | | | | | | | | | | |
+-------------------------------------+--+--+--+--+--+---+------------+--+---------+--+---------+
| | | | | | | | | | | | |
+-------------------------------------+--+--+--+--+--+---+------------+--+---------+--+---------+
| Fair Value of Swap and Option contracts at 31st | 13,019 | | 10,244 | | 2,775 |
| December, 2007 | | | | | |
+--------------------------------------------------------+------------+--+---------+--+---------+
| | | | | | | | | | | | |
+-------------------------------------+--+--+--+--+--+---+------------+--+---------+--+---------+
| | | | | | | | | | | | |
+-------------------------------------+--+--+--+--+--+---+------------+--+---------+--+---------+
| Cumulative unrealised loss on revaluation of Debt | | | | | | |
| Securities | | | | | | |
+----------------------------------------------------+---+------------+--+---------+--+---------+
| at 1st January, 2008 | | | | | | | (1,280) | | (504) | | (776) |
+-------------------------------------+--+--+--+--+--+---+------------+--+---------+--+---------+
| Cumulative unrealised loss on revaluation of Debt | | | | | | |
| Securities | | | | | | |
+----------------------------------------------------+---+------------+--+---------+--+---------+
| at 31st December, 2008 | | | | | | | (403) | | (159) | | (244) |
+-------------------------------------+--+--+--+--+--+---+------------+--+---------+--+---------+
| | | | | | | | | | | | |
+-------------------------------------+--+--+--+--+--+---+------------+--+---------+--+---------+
| | | | | | | | | | | | |
+-------------------------------------+--+--+--+--+--+---+------------+--+---------+--+---------+
| Movement in unrealised losses on revaluation of | | | | | | | |
| Debt | | | | | | | |
+-------------------------------------------------+--+---+------------+--+---------+--+---------+
| Securities in the year | | | | | | | 877 | | 345 | | 532 |
+-------------------------------------+--+--+--+--+--+---+------------+--+---------+--+---------+
| | | | | | | | | | | | |
+-------------------------------------+--+--+--+--+--+---+------------+--+---------+--+---------+
| | | | | | | | | | | | |
+-------------------------------------+--+--+--+--+--+---+------------+--+---------+--+---------+
| Cumulative unrealised gain on revaluation of Swap and | | | | | |
| Options | | | | | |
+--------------------------------------------------------+------------+--+---------+--+---------+
| at 1st January, 2008 | | | | | | | 13,019 | | 10,244 | | 2,775 |
+-------------------------------------+--+--+--+--+--+---+------------+--+---------+--+---------+
| Cumulative unrealised gain on revaluation of Swap and | | | | | |
| Options | | | | | |
+--------------------------------------------------------+------------+--+---------+--+---------+
| at 31st December, 2008 | | | | | | | 11,955 | | 10,926 | | 1,029 |
+-------------------------------------+--+--+--+--+--+---+------------+--+---------+--+---------+
| | | | | | | | | | | | |
+-------------------------------------+--+--+--+--+--+---+------------+--+---------+--+---------+
| | | | | | | | | | | | |
+-------------------------------------+--+--+--+--+--+---+------------+--+---------+--+---------+
| Movement in unrealised gains on revaluation of | | | | | | | |
| Swap | | | | | | | |
+-------------------------------------------------+--+---+------------+--+---------+--+---------+
| and Option contracts in the year | | | | | (1,064) | | 682 | | (1,746) |
+-------------------------------------------+--+--+--+---+------------+--+---------+--+---------+
| | | | | | | | | | | | |
+-------------------------------------+--+--+--+--+--+---+------------+--+---------+--+---------+
| | | | | | | | | | | | |
+-------------------------------------+--+--+--+--+--+---+------------+--+---------+--+---------+
| Total movement on unrealised gains/losses on | | (187) | | 1,027 | | (1,214) |
| investments | | | | | | |
+----------------------------------------------------+---+------------+--+---------+--+---------+
| | | | | | | | | | | | |
+-------------------------------------+--+--+--+--+--+---+------------+--+---------+--+---------+
| | | | | | | | | | | | |
+-------------------------------------+--+--+--+--+--+---+------------+--+---------+--+---------+
7. Debtors
+--------------------+--+--------+----+------+---+-------+------------+--+--------+--+--------+
| | | | | | | | Total | | Growth | | Income |
| | | | | | | | | | | | |
+--------------------+--+--------+----+------+---+-------+------------+--+--------+--+--------+
| | | | | | | | 31.12.2008 | | Shares | | Shares |
| | | | | | | | | | | | |
+--------------------+--+--------+----+------+---+-------+------------+--+--------+--+--------+
| | | | | | | | GBP | | GBP | | GBP |
| | | | | | | | 000's | | 000's | | 000's |
+--------------------+--+--------+----+------+---+-------+------------+--+--------+--+--------+
| | | | | | | | | | | | |
+--------------------+--+--------+----+------+---+-------+------------+--+--------+--+--------+
| Investment income | | | | | | 43 | | 17 | | 26 |
| receivable | | | | | | | | | | |
+-----------------------+--------+----+------+---+-------+------------+--+--------+--+--------+
| Amounts due from Swap and Option | | | 187 | | 43 | | 144 |
| Counterparty | | | | | | | |
+--------------------------------------------+---+-------+------------+--+--------+--+--------+
| | | | | | | | | | | | |
+--------------------+--+--------+----+------+---+-------+------------+--+--------+--+--------+
| | | | | | | | | | | | |
+--------------------+--+--------+----+------+---+-------+------------+--+--------+--+--------+
| | | | | | | | 230 | | 60 | | 170 |
+--------------------+--+--------+----+------+---+-------+------------+--+--------+--+--------+
| | | | | | | | | | | | |
+--------------------+--+--------+----+------+---+-------+------------+--+--------+--+--------+
+-------------------+--+---------------+--+------+------+------------+--+--------+--+--------+
| | | | | | | Total | | Growth | | Income |
| | | | | | | | | | | |
+-------------------+--+---------------+--+------+------+------------+--+--------+--+--------+
| | | | | | | 31.12.2007 | | Shares | | Shares |
| | | | | | | | | | | |
+-------------------+--+---------------+--+------+------+------------+--+--------+--+--------+
| | | | | | | GBP | | GBP | | GBP |
| | | | | | | 000's | | 000's | | 000's |
+-------------------+--+---------------+--+------+------+------------+--+--------+--+--------+
| | | | | | | | | | | |
+-------------------+--+---------------+--+------+------+------------+--+--------+--+--------+
| Investment income receivable | | | | 90 | | 35 | | 55 |
+--------------------------------------+--+------+------+------------+--+--------+--+--------+
| Amounts due from Swap and Option | | | | 187 | | 43 | | 144 |
| Counterparty | | | | | | | | |
+--------------------------------------+--+------+------+------------+--+--------+--+--------+
| | | | | | | | | | | |
+-------------------+--+---------------+--+------+------+------------+--+--------+--+--------+
| | | | | | | 277 | | 78 | | 199 |
+-------------------+--+---------------+--+------+------+------------+--+--------+--+--------+
| | | | | | | | | | | |
+-------------------+--+---------------+--+------+------+------------+--+--------+--+--------+
| | | | | | | | | | | |
+-------------------+--+---------------+--+------+------+------------+--+--------+--+--------+
8. Creditors
+-------------------+--+---------------+--+------+-----+------------+--+--------+--+--------+
| | | | | | | Total | | Growth | | Income |
| | | | | | | | | | | |
+-------------------+--+---------------+--+------+-----+------------+--+--------+--+--------+
| | | | | | | 31.12.2008 | | Shares | | Shares |
| | | | | | | | | | | |
+-------------------+--+---------------+--+------+-----+------------+--+--------+--+--------+
| | | | | | | GBP | | GBP | | GBP |
| | | | | | | 000's | | 000's | | 000's |
+-------------------+--+---------------+--+------+-----+------------+--+--------+--+--------+
| | | | | | | | | | | |
+-------------------+--+---------------+--+------+-----+------------+--+--------+--+--------+
| Amounts due from Swap and Option | | | | 155 | | 61 | | 94 |
| Counterparty | | | | | | | | |
+--------------------------------------+--+------+-----+------------+--+--------+--+--------+
| Distributions | | | | | | 77 | | - | | 77 |
| payable | | | | | | | | | | |
+-------------------+--+---------------+--+------+-----+------------+--+--------+--+--------+
| | | | | | | | | | | |
+-------------------+--+---------------+--+------+-----+------------+--+--------+--+--------+
| | | | | | | | | | | |
+-------------------+--+---------------+--+------+-----+------------+--+--------+--+--------+
| | | | | | | 232 | | 61 | | 171 |
+-------------------+--+---------------+--+------+-----+------------+--+--------+--+--------+
| | | | | | | | | | | |
+-------------------+--+---------------+--+------+-----+------------+--+--------+--+--------+
| | | | | | | | | | | |
+-------------------+--+---------------+--+------+-----+------------+--+--------+--+--------+
| | | | | | | Total | | Growth | | Income |
| | | | | | | | | | | |
+-------------------+--+---------------+--+------+-----+------------+--+--------+--+--------+
| | | | | | | 31.12.2007 | | Shares | | Shares |
| | | | | | | | | | | |
+-------------------+--+---------------+--+------+-----+------------+--+--------+--+--------+
| | | | | | | GBP | | GBP | | GBP |
| | | | | | | 000's | | 000's | | 000's |
+-------------------+--+---------------+--+------+-----+------------+--+--------+--+--------+
| | | | | | | | | | | |
+-------------------+--+---------------+--+------+-----+------------+--+--------+--+--------+
| Amounts due from Swap and Option | | | | 200 | | 78 | | 122 |
| Counterparty | | | | | | | | |
+--------------------------------------+--+------+-----+------------+--+--------+--+--------+
| Distributions | | | | | | 77 | | - | | 77 |
| payable | | | | | | | | | | |
+-------------------+--+---------------+--+------+-----+------------+--+--------+--+--------+
| | | | | | | | | | | |
+-------------------+--+---------------+--+------+-----+------------+--+--------+--+--------+
| | | | | | | | | | | |
+-------------------+--+---------------+--+------+-----+------------+--+--------+--+--------+
| | | | | | | 277 | | 78 | | 199 |
+-------------------+--+---------------+--+------+-----+------------+--+--------+--+--------+
| | | | | | | | | | | |
+-------------------+--+---------------+--+------+-----+------------+--+--------+--+--------+
| | | | | | | | | | | |
+-------------------+--+---------------+--+------+-----+------------+--+--------+--+--------+
9. Net Assets attributable to Holders of Preference Shares
+------+------+------+------+------+------+------+--+----------+-----+----------+-----+---------+
| | | | | Growth | | Income |
+------------------------------------------------+--+----------+-----+----------+-----+---------+
| | | | | | | | | | | Shares | | |
| | | | | | | | | | | | | Shares |
+------+------+------+------+------+------+------+--+----------+-----+----------+-----+---------+
| | | | | | | | | | | | | |
+------+------+------+------+------+------+------+--+----------+-----+----------+-----+---------+
| NAV per Share at end of the year for valuation | | | | | | |
| purposes: | | | | | | |
+------------------------------------------------+--+----------+-----+----------+-----+---------+
| | | - at 31st December, 2008 | | | GBP | 1.586 | GBP | 0.938 |
+------+------+----------------------------------+--+----------+-----+----------+-----+---------+
| | | - at 31st December, 2007 | | | GBP | 1.549 | GBP | 1.016 |
+------+------+----------------------------------+--+----------+-----+----------+-----+---------+
| | | | | | | | | | | | | |
+------+------+------+------+------+------+------+--+----------+-----+----------+-----+---------+
| NAV per Share at end of the year attributable to holders of | | | | |
| Preference Shares: | | | | |
+--------------------------------------------------------------+-----+----------+-----+---------+
| | | - at 31st December, 2008 | | | GBP | 1.586 | GBP | 0.935 |
+------+------+----------------------------------+--+----------+-----+----------+-----+---------+
| | | - at 31st December, 2007 | | | GBP | 1.520 | GBP | 0.984 |
+------+------+----------------------------------+--+----------+-----+----------+-----+---------+
| | | | | | | | | | | | | |
+------+------+------+------+------+------+------+--+----------+-----+----------+-----+---------+
The difference in NAV per share for valuation and accounting purposes is due to
the accrual of distributions, not yet payable at the end of the year.
10. Share Capital
+-------------------+--+---------------+--+------+--+----------+--+--------+---+---------+
| Authorised | | | | | | | | | | GBP |
+-------------------+--+---------------+--+------+--+----------+--+--------+---+---------+
| 500,000,000 Ordinary Shares of 0.01 | | | | | | | | 50,000 |
| pence each | | | | | | | | |
+--------------------------------------+--+------+--+----------+--+--------+---+---------+
| | | | | | | | | | | |
+-------------------+--+---------------+--+------+--+----------+--+--------+---+---------+
| | | | | | | | | | | |
+-------------------+--+---------------+--+------+--+----------+--+--------+---+---------+
The Ordinary Shares are termed as such pending issue. Two classes of preference
shares have been issued, Growth Shares and Income Shares, each with a separate
investment objective. All classes of shares carry a right to vote at general
meetings.
Shareholders have no right to require the Company to repurchase nor redeem their
shares. The Company may purchase shares in the secondary market, but only at the
discretion of the Directors.
The Growth Shares are designed to offer investors a capital growth amount of 70
pence per Growth share and to return a capital amount of 100 pence per Growth
share upon the winding up of the Company following 17th June, 2009. No
distributions will be paid on the Growth shares.
The Income Shares are designed to offer investors a fixed distribution during
the period of seven years commencing on 18th June, 2002 and ending on 17th June,
2009 of 8 pence per Income Share per annum, payable semi-annually in arrears in
equal instalments on 17th June and 17th December each year, the first such
distribution date falling on 17th December, 2002.
The above investment objectives on the Income Shares may not be met and are
subject to the performance of the FTSE 100. A more detailed description of the
risks to the income and capital return of investors is contained in Note 13.
As at 31st December, 2008, all the preference shares in issue were held by
Computershare Investor Services (Channel Islands) Limited.
+--------------+---+--+---+--+---+--+---+---+---+--+---+--------+---------+---+--+---+----------+--+-------+-----+---+
| | | | | | | Total | | Growth | | Income |
| | | | | | | | | | | |
+------------------+--+----------+--+-------+----------+------------------+----------+----------+----------+---------+
| | | | | | | 31.12.2008 | | Shares | | Shares |
| | | | | | | | | | | |
+------------------+--+----------+--+-------+----------+------------------+----------+----------+----------+---------+
| Equity Share | | | | | | GBP | | GBP | | GBP |
| Capital | | | | | | 000's | | 000's | | 000's |
+------------------+--+----------+--+-------+----------+------------------+----------+----------+----------+---------+
| | | | | | | | | | | |
+------------------+--+----------+--+-------+----------+------------------+----------+----------+----------+---------+
| Ordinary Shares of 0.01 pence | | | | | | | | |
| per share | | | | | | | | |
+--------------------------------+--+-------+----------+------------------+----------+----------+----------+---------+
| | | | | | | | | | | |
+------------------+--+----------+--+-------+----------+------------------+----------+----------+----------+---------+
| Balance at 1st January, 2008 and balance at 31st | - | | - | | - |
| December, 2008 | | | | | |
+------------------------------------------------------+------------------+----------+----------+----------+---------+
| | | | | | | | | | | |
+------------------+--+----------+--+-------+----------+------------------+----------+----------+----------+---------+
| | | | | | | | | | | |
+------------------+--+----------+--+-------+----------+------------------+----------+----------+----------+---------+
| | | | | | | Total | | Growth | | Income |
| | | | | | | | | | | |
+------------------+--+----------+--+-------+----------+------------------+----------+----------+----------+---------+
| | | | | | | 31.12.2008 | | Shares | | Shares |
| | | | | | | | | | | |
+------------------+--+----------+--+-------+----------+------------------+----------+----------+----------+---------+
| Preference Share Liability - | | | | GBP | | GBP | | GBP |
| Capital | | | | 000's | | 000's | | 000's |
+--------------------------------+--+-------+----------+------------------+----------+----------+----------+---------+
| | | | | | | | | | | |
+------------------+--+----------+--+-------+----------+------------------+----------+----------+----------+---------+
| Issued Preference Shares of | | | | | | | | |
| 0.01 pence per share | | | | | | | | |
+--------------------------------+--+-------+----------+------------------+----------+----------+----------+---------+
| | | | | | | | | | | |
+------------------+--+----------+--+-------+----------+------------------+----------+----------+----------+---------+
| Balance at 1st January, 2008 and balance at 31st | 4 | | 2 | | 2 |
| December, 2008 | | | | | |
+------------------------------------------------------+------------------+----------+----------+----------+---------+
| | | | | | | | | | | |
+------------------+--+----------+--+-------+----------+------------------+----------+----------+----------+---------+
| | | | | | | | | | | |
+------------------+--+----------+--+-------+----------+------------------+----------+----------+----------+---------+
| | | | | | | Total | | Growth | | Income |
| | | | | | | | | | | |
+------------------+--+----------+--+-------+----------+------------------+----------+----------+----------+---------+
| | | | | | | 31.12.2008 | | Shares | | Shares |
| | | | | | | | | | | |
+------------------+--+----------+--+-------+----------+------------------+----------+----------+----------+---------+
| Preference Share Liability - | | | | GBP | | GBP | | GBP |
| Premium | | | | 000's | | 000's | | 000's |
+--------------------------------+--+-------+----------+------------------+----------+----------+----------+---------+
| | | | | | | | | | | |
+------------------+--+----------+--+-------+----------+------------------+----------+----------+----------+---------+
| Issued Preference Shares of | | | | | | | | |
| 0.01 pence per share | | | | | | | | |
+--------------------------------+--+-------+----------+------------------+----------+----------+----------+---------+
| | | | | | | | | | | |
+------------------+--+----------+--+-------+----------+------------------+----------+----------+----------+---------+
| Balance at 1st January, 2008 and balance at 31st | 38,396 | | 15,118 | | 23,278 |
| December, 2008 | | | | | |
+------------------------------------------------------+------------------+----------+----------+----------+---------+
| | | | | | | | | | | |
+------------------+--+----------+--+-------+----------+------------------+----------+----------+----------+---------+
| | | | | | | | | | | |
+------------------+--+----------+--+-------+----------+------------------+----------+----------+----------+---------+
| | | | | | | Total | | Growth | | Income |
| | | | | | | | | | | |
+-------------------------+--+----------+-------+--+------------+-------------+--+--------------+--+-------------+
| | | | | | | | 31.12.2008 | | Shares | | Shares |
| | | | | | | | | | | | |
+--------------+----------+--+----------+-------+--+------------+-------------+--+--------------+--+-------------+
| | | | | | | | | | | | |
+--------------+----------+--+----------+-------+--+------------+-------------+--+--------------+--+-------------+
| Number of Ordinary | | | | | | | | | | |
| Shares | | | | | | | | | | |
+-------------------------+--+----------+-------+--+------------+-------------+--+--------------+--+-------------+
| | | | | | | | | | | | |
+--------------+----------+--+----------+-------+--+------------+-------------+--+--------------+--+-------------+
| Balance at 1st January, 2008 and balance at 31st | 2 | | 1 | | 1 |
| December, 2008 | | | | | |
+---------------------------------------------------------------+-------------+--+--------------+--+-------------+
| | | | | | | | | | | | |
+--------------+----------+--+----------+-------+--+------------+-------------+--+--------------+--+-------------+
| | | | | | | | | | | | |
+--------------+----------+--+----------+-------+--+------------+-------------+--+--------------+--+-------------+
| | | | | | | | Total | | Growth | | Income |
| | | | | | | | | | | | |
+--------------+----------+--+----------+-------+--+------------+-------------+--+--------------+--+-------------+
| | | | | | | | 31.12.2008 | | Shares | | Shares |
| | | | | | | | | | | | |
+--------------+----------+--+----------+-------+--+------------+-------------+--+--------------+--+-------------+
| | | | | | | | | | | | |
+--------------+----------+--+----------+-------+--+------------+-------------+--+--------------+--+-------------+
| Number of Preference | | | | | | | | | | |
| Shares | | | | | | | | | | |
+-------------------------+--+----------+-------+--+------------+-------------+--+--------------+--+-------------+
| | | | | | | | | | | | |
+--------------+----------+--+----------+-------+--+------------+-------------+--+--------------+--+-------------+
| Balance at 1st January, 2008 and balance at 31st | 40,000,000 | | 15,750,000 | | 24,250,000 |
| December, 2008 | | | | | |
+---------------------------------------------------------------+-------------+--+--------------+--+-------------+
| | | | | | | | | | | | |
+--------------+----------+--+----------+-------+--+------------+-------------+--+--------------+--+-------------+
| | | | | | | | | | | | |
+--------------+---+--+---+--+---+--+---+---+---+--+---+--------+---------+---+--+---+----------+--+-------+-----+---+
11. Reconciliation of net realised gains on investment activities to net cash
inflow from operating activities
+------------------+--------+--+------------+--+--+--+------------+--+----------+--+---------+
| | | | | | | | Total | | | | |
+------------------+--------+--+------------+--+--+--+------------+--+----------+--+---------+
| | | | | | | | 1.01.2008 | | Growth | | Income |
| | | | | | | | to | | | | |
+------------------+--------+--+------------+--+--+--+------------+--+----------+--+---------+
| | | | | | | | 31.12.2008 | | Shares | | Shares |
| | | | | | | | | | | | |
+------------------+--------+--+------------+--+--+--+------------+--+----------+--+---------+
| | | | | | | | GBP | | GBP | | GBP |
| | | | | | | | 000's | | 000's | | 000's |
+------------------+--------+--+------------+--+--+--+------------+--+----------+--+---------+
| | | | | | | | | | | | |
+------------------+--------+--+------------+--+--+--+------------+--+----------+--+---------+
| Net realised gains on investment | | | | 1,986 | | 14 | | 1,972 |
| activities | | | | | | | | |
+-------------------------------------------+--+--+--+------------+--+----------+--+---------+
| | | | | | | | | | | | |
+------------------+--------+--+------------+--+--+--+------------+--+----------+--+---------+
| Adjustment for non-cash | | | | | | | | | | |
| items: | | | | | | | | | | |
+---------------------------+--+------------+--+--+--+------------+--+----------+--+---------+
| | | | | | | | | | | | |
+------------------+--------+--+------------+--+--+--+------------+--+----------+--+---------+
| Increase in debtors and | | | | | | 2 | | 1 | | 1 |
| creditors | | | | | | | | | | |
+---------------------------+--+------------+--+--+--+------------+--+----------+--+---------+
| | | | | | | | | | | | |
+------------------+--------+--+------------+--+--+--+------------+--+----------+--+---------+
| | | | | | | | | | | | |
+------------------+--------+--+------------+--+--+--+------------+--+----------+--+---------+
| Net cash inflow from | | | | | 1,988 | | 15 | | 1,973 |
| operating activities | | | | | | | | | |
+------------------------------+------------+--+--+--+------------+--+----------+--+---------+
| | | | | | | | | | | | |
+------------------+--------+--+------------+--+--+--+------------+--+----------+--+---------+
| | | | | | | | | | | | |
+------------------+--------+--+------------+--+--+--+------------+--+----------+--+---------+
| | | | | | | | Total | | | | |
+------------------+--------+--+------------+--+--+--+------------+--+----------+--+---------+
| | | | | | | 1.01.2007 | | Growth | | Income |
| | | | | | | to | | | | |
+------------------+--------+--+------------+--+--+---------------+--+----------+--+---------+
| | | | | | | | 31.12.2007 | | Shares | | Shares |
| | | | | | | | | | | | |
+------------------+--------+--+------------+--+--+--+------------+--+----------+--+---------+
| | | | | | | | GBP | | GBP | | GBP |
| | | | | | | | 000's | | 000's | | 000's |
+------------------+--------+--+------------+--+--+--+------------+--+----------+--+---------+
| | | | | | | | | | | | |
+------------------+--------+--+------------+--+--+--+------------+--+----------+--+---------+
| Net realised gains on investment | | | | 1,981 | | 16 | | 1,965 |
| activities | | | | | | | | |
+-------------------------------------------+--+--+--+------------+--+----------+--+---------+
| | | | | | | | | | | | |
+------------------+--------+--+------------+--+--+--+------------+--+----------+--+---------+
| Adjustment for non-cash | | | | | | | | | | |
| items: | | | | | | | | | | |
+---------------------------+--+------------+--+--+--+------------+--+----------+--+---------+
| | | | | | | | | | | | |
+------------------+--------+--+------------+--+--+--+------------+--+----------+--+---------+
| Decrease in debtors and | | | | | | (465) | | (183) | | (282) |
| creditors | | | | | | | | | | |
+---------------------------+--+------------+--+--+--+------------+--+----------+--+---------+
| | | | | | | | | | | | |
+------------------+--------+--+------------+--+--+--+------------+--+----------+--+---------+
| | | | | | | | | | | | |
+------------------+--------+--+------------+--+--+--+------------+--+----------+--+---------+
| Net cash inflow from operating activities | | | | 1,516 | | (167) | | 1,683 |
+-------------------------------------------+--+--+--+------------+--+----------+--+---------+
| | | | | | | | | | | | |
+------------------+--------+--+------------+--+--+--+------------+--+----------+--+---------+
| | | | | | | | | | | | |
+------------------+--------+--+------------+--+--+--+------------+--+----------+--+---------+
12. Financial Risk Management
In pursuing the investment objective, the Company invests in securities with the
aim of spreading investment risk. Each individual share class in issue is
constructed to follow a certain investment objective and the financial
instruments held are determined in order to achieve these stated objectives.
Investments in securities and derivatives expose the Company to various risks,
including market price (movements in the value of investments holdings caused by
factors other than interest rate movement), interest rate, liquidity and credit
risks. Descriptions of the specific risks and policies for managing these risks
are included below. The securities in which the Company may invest must be
quoted or dealt in, on a regulated market as provided for in the Articles of
Association. An analysis of these types of securities held at the end of the
year is contained in the Investment Portfolios.
The Company has the power to borrow up to 10 per cent of its assets.
Market risk
Market risk is the risk that the value of the investments will fluctuate as a
result of changes in market prices, whether caused by factors specific to an
individual investment, its issuer or all factors affecting instruments in the
traded market. The Investment Manager monitors market fluctuations in pursuance
of the investment objectives and policies. Adherence to investment guidelines
and to investment and borrowing powers as set out in the Principal Placing
documentation mitigates the risk of excessive exposure to any particular type of
security or issuer.
Market Price Risk
Market Price risk arises mainly from the uncertainty about future prices of
financial instruments held. It represents the potential loss the Company may
suffer through holding market positions in the face of price movements. In the
case of the Company, market risk will be significant and is concentrated in
derivative instruments held in Swap and Option transactions. These expose the
Company to market risk depending on the movement of the FTSE 100 Index as
referred to in the investment objectives. These derivative instruments are held
so as to hedge the risks faced in delivering the anticipated returns to
investors in respect of the share classes but may also expose both share classes
to capital losses.
Market Price Sensitivity Analysis
The Company's Debt Securities comprising medium term notes and swap and option
contract are issued by financial institutions that had a credit rating of at
least A- as at the date of acquisition, as determined by Standards & Poor's
and/or Moody's Investor Service Inc. A 1 bps increase in the Interest rate Curve
at 31st December, 2008 and 31st December, 2007 would have decreased the Net
Assets Attributable to Holders of Preference Shares by GBP1,491 (2007: increase
of GBP12,828), an equal change in the opposite direction would have increased
the Net Assets Attributable to Holders of Preference Shares by an equal opposite
amount. A 10% increase in the Bonds' credit Spread at 31st December, 2008 and
31st December, 2007 would have decreased the Net Assets Attributable to Holders
of Preference Shares by GBP45,075 (2007: decrease of GBP67,812), an equal change
in the opposite direction would have increased the Net Assets Attributable to
Holders of Preference Shares by an equal opposite amount. A 1 unit increase in
the FTSE 100 at 31st December, 2008 and 31st December, 2007 would have increased
the Net Assets Attributable to Holders of Preference Shares by GBP304,584 (2007:
increase of GBP102,848), an equal change in the opposite direction would have
decreased the Net Assets Attributable to Holders of Preference Shares by an
equal opposite amount.
The magnitude of any change in the net asset value of the portfolio arising from
market price movements is increased by the Company's policy of employing
gearing. The above increase/decrease in the market prices of investments would
have resulted in a net increase of 0.44% and 0.64% (2007: 0.07% and 0.10%),
respectively in the Net Asset value per Preference Share for the Growth Shares
and Income Shares as at the Statement of Asset and Liabilities date.
Foreign Exchange Risks
The material financial instruments of the Company are denominated in Sterling,
the base currency of the Company, hence no exposure to foreign currency risk
arises.
Interest Rate Risk
Where the Company invests in interest bearing securities, it is exposed to
interest rate risk where the value of these securities may fluctuate as a result
of a change in interest rates. It is the intention of the Company to hold the
portfolio of interest bearing securities to maturity as these are intended, in
normal circumstances, to provide the capital necessary to fund the capital
payments of 100 pence per share on winding up of the Company. The Company has
various commitments in respect of stated distributions and the interest flows
from the portfolio of interest bearing securities is swapped for predetermined
fixed rate flows in order to provide the necessary liquidity to meet these
commitments. The effect of the swaps is to enhance the fixed interest element of
the income from the portfolio for the income share classes.
The interest rate profile of the financial assets in the portfolios as at 31st
December, 2008 was as follows:
+--------------------+---------+--+----------+--+------------+--+---------+--+----------+--+----------+
| Financial Assets (excluding Net Assets Attributable to Holders | | | | |
| of Preference Shares) | | | | |
+-------------------------------------------------------------------------+--+----------+--+----------+
| | | | | | | | | | | | |
+--------------------+---------+--+----------+--+------------+--+---------+--+----------+--+----------+
| As at 31st December, 2008 | | | | | | | | Fixed | | Fixed |
| | | | | | | | | Interest | | Interest |
+------------------------------+--+----------+--+------------+--+---------+--+----------+--+----------+
| | | | | | No | | | | Weighted | | Weighted |
| | | | | | Interest | | | | | | |
+--------------------+---------+--+----------+--+------------+--+---------+--+----------+--+----------+
| | Fixed | | Floating | | Rate | | | | Average | | Average |
| | | | | | | | | | | | |
+--------------------+---------+--+----------+--+------------+--+---------+--+----------+--+----------+
| | Rate | | Rate | | Associated | | Total | | Interest | | Period |
| | | | | | | | | | Rate | | |
+--------------------+---------+--+----------+--+------------+--+---------+--+----------+--+----------+
| | GBP | | GBP | | GBP | | GBP | | % | | Weeks |
| | 000's | | 000's | | 000's | | 000's | | | | |
+--------------------+---------+--+----------+--+------------+--+---------+--+----------+--+----------+
| | | | | | | | | | | | |
+--------------------+---------+--+----------+--+------------+--+---------+--+----------+--+----------+
| Investments at | | | | | | | | | | | |
| fair value | | | | | | | | | | | |
+--------------------+---------+--+----------+--+------------+--+---------+--+----------+--+----------+
| through profit or | 35,597 | | - | | 11,955 | | 47,552 | | 3.1450 | | 13 |
| loss | | | | | | | | | | | |
+--------------------+---------+--+----------+--+------------+--+---------+--+----------+--+----------+
| Other net assets | - | | - | | 98 | | 98 | | - | | - |
+--------------------+---------+--+----------+--+------------+--+---------+--+----------+--+----------+
| | | | | | | | | | | | |
+--------------------+---------+--+----------+--+------------+--+---------+--+----------+--+----------+
| | | | | | | | | | | | |
+--------------------+---------+--+----------+--+------------+--+---------+--+----------+--+----------+
| As at 31st December, 2007 | | | | | | | | Fixed | | Fixed |
| | | | | | | | | Interest | | Interest |
+------------------------------+--+----------+--+------------+--+---------+--+----------+--+----------+
| | | | | | No | | | | Weighted | | Weighted |
| | | | | | Interest | | | | | | |
+--------------------+---------+--+----------+--+------------+--+---------+--+----------+--+----------+
| | Fixed | | Floating | | Rate | | | | Average | | Average |
| | | | | | | | | | | | |
+--------------------+---------+--+----------+--+------------+--+---------+--+----------+--+----------+
| | Rate | | Rate | | Associated | | Total | | Interest | | Period |
| | | | | | | | | | Rate | | |
+--------------------+---------+--+----------+--+------------+--+---------+--+----------+--+----------+
| | GBP | | GBP | | GBP | | GBP | | % | | Weeks |
| | 000's | | 000's | | 000's | | 000's | | | | |
+--------------------+---------+--+----------+--+------------+--+---------+--+----------+--+----------+
| | | | | | | | | | | | |
+--------------------+---------+--+----------+--+------------+--+---------+--+----------+--+----------+
| Investments at | | | | | | | | | | | |
| fair value | | | | | | | | | | | |
+--------------------+---------+--+----------+--+------------+--+---------+--+----------+--+----------+
| through profit | 34,720 | | - | | 13,019 | | 47,739 | | 6.5300 | | 11 |
| or loss | | | | | | | | | | | |
+--------------------+---------+--+----------+--+------------+--+---------+--+----------+--+----------+
| Other net assets | - | | - | | 52 | | 52 | | - | | - |
+--------------------+---------+--+----------+--+------------+--+---------+--+----------+--+----------+
| | | | | | | | | | | | |
+--------------------+---------+--+----------+--+------------+--+---------+--+----------+--+----------+
The fair value of the Swap and Option contracts have been included under the "No
Interest Rate Associated" category. There is however an interest element to the
Swap contracts which has the effect of fixing the overall annual interest rate
on the portfolio of MTN's at 0% and 8% for the Growth and Income Shares
respectively. These interest rates have not been taken into account when
calculating the Fixed Interest Weighted Average Interest Rate above, which
comprises only of the interest rate attached to the MTN's.
Liquidity Risk
Liquidity risk is the risk that the Company will encounter in realising assets
or otherwise raising funds to meet financial commitments on time or at
reasonable price. Due to the closed ended nature of the Company there are no
liquidity risks faced as a result of shareholder redemption requests. The
Company does face ongoing liquidity risks in meeting its annual running expenses
and in generating the flows necessary to support the pre-determined levels of
dividends in certain of the share classes. These liquidity needs are satisfied
by the income flows from the portfolio of securities held and the derivative
swap and option contracts entered into by the Company with Merrill Lynch
International. The portfolio of securities held are due to mature on or before
the expected winding up of the Company and therefore the capital amounts
received on maturity are intended, subject to the specified objectives and the
risks stated above, to fund the redemption payments to both shareholder classes.
The Swap and Options contracts are also intended, subject to market risk, to
provide any necessary additional liquidity to fund any additional capital
amounts payable to shareholders in excess of the paid up capital of the shares.
The Company expects to cease trading around the 17th June, 2009 and make a final
payment to Shareholders after the assets have been disposed.
+---------------------------+--+--+---------+--+--------+--+--+--+--------+--+---------+--+----------+
| As at 31st December, 2008 | | | | | | | | | | |
+------------------------------+--+---------+--+--------+-----+-----------+--+---------+--+----------+
| | | | | | | | | | | | |
+---------------------------+--+--+---------+--+--------+-----+-----------+--+---------+--+----------+
| Growth Shares | | | On | | 1-3 | | 3-12 | | > 12 | | Total |
| | | | Demand | | months | | months | | months | | |
+---------------------------+--+--+---------+--+--------+-----+-----------+--+---------+--+----------+
| | | | GBP | | GBP | | GBP 000's | | GBP | | GBP |
| | | | 000's | | 000's | | | | 000's | | 000's |
+---------------------------+--+--+---------+--+--------+-----+-----------+--+---------+--+----------+
| | | | | | | | | | | | |
+---------------------------+--+--+---------+--+--------+-----+-----------+--+---------+--+----------+
| Amounts due to Swap and | | | | | | | | | | |
| Option | | | | | | | | | | |
+------------------------------+--+---------+--+--------+-----+-----------+--+---------+--+----------+
| Counterparty | | | - | | 61 | | - | | - | | 61 |
+---------------------------+--+--+---------+--+--------+-----+-----------+--+---------+--+----------+
| Net Assets Attributable to | | | | | | | | | | |
| Holders | | | | | | | | | | |
+------------------------------+--+---------+--+--------+-----+-----------+--+---------+--+----------+
| of Preference Shares | | | - | | - | | 24,979 | | - | | 24,979 |
+---------------------------+--+--+---------+--+--------+-----+-----------+--+---------+--+----------+
| | | | | | | | | | | | |
+---------------------------+--+--+---------+--+--------+-----+-----------+--+---------+--+----------+
| | | | | | | | | | | | |
+---------------------------+--+--+---------+--+--------+-----+-----------+--+---------+--+----------+
| | | | - | | 61 | | 24,979 | | - | | 25,040 |
+---------------------------+--+--+---------+--+--------+-----+-----------+--+---------+--+----------+
| | | | | | | | | | | | |
+---------------------------+--+--+---------+--+--------+-----+-----------+--+---------+--+----------+
| | | | | | | | | | | | |
+---------------------------+--+--+---------+--+--------+-----+-----------+--+---------+--+----------+
| | | | | | | | | | | | |
+---------------------------+--+--+---------+--+--------+-----+-----------+--+---------+--+----------+
| Income Shares | | | On | | 1-3 | | 3-12 | | > 12 | | Total |
| | | | Demand | | months | | months | | months | | |
+---------------------------+--+--+---------+--+--------+-----+-----------+--+---------+--+----------+
| | | | GBP | | GBP | | GBP 000's | | GBP | | GBP |
| | | | 000's | | 000's | | | | 000's | | 000's |
+---------------------------+--+--+---------+--+--------+-----+-----------+--+---------+--+----------+
| | | | | | | | | | | | |
+---------------------------+--+--+---------+--+--------+-----+-----------+--+---------+--+----------+
| Amounts due to Swap and | | | | | | | | | | |
| Option | | | | | | | | | | |
+------------------------------+--+---------+--+--------+-----+-----------+--+---------+--+----------+
| Counterparty | | | - | | 94 | | - | | - | | 94 |
+---------------------------+--+--+---------+--+--------+-----+-----------+--+---------+--+----------+
| Distributions payable | | | - | | 77 | | - | | - | | 77 |
+---------------------------+--+--+---------+--+--------+-----+-----------+--+---------+--+----------+
| Net Assets Attributable to | | | | | | | | | | |
| Holders | | | | | | | | | | |
+------------------------------+--+---------+--+--------+-----+-----------+--+---------+--+----------+
| of Preference Shares | | | - | | - | | 22,671 | | - | | 22,671 |
+---------------------------+--+--+---------+--+--------+-----+-----------+--+---------+--+----------+
| | | | | | | | | | | | |
+---------------------------+--+--+---------+--+--------+-----+-----------+--+---------+--+----------+
| | | | | | | | | | | | |
+---------------------------+--+--+---------+--+--------+-----+-----------+--+---------+--+----------+
| | | | - | | 171 | | 22,671 | | - | | 22,842 |
+---------------------------+--+--+---------+--+--------+-----+-----------+--+---------+--+----------+
| | | | | | | | | | | | |
+---------------------------+--+--+---------+--+--------+-----+-----------+--+---------+--+----------+
| | | | | | | | | | | | |
+---------------------------+--+--+---------+--+--------+-----+-----------+--+---------+--+----------+
| Total | | | On | | 1-3 | | 3-12 | | > 12 | | Total |
| | | | Demand | | months | | months | | months | | |
+---------------------------+--+--+---------+--+--------+-----+-----------+--+---------+--+----------+
| | | | GBP | | GBP | | GBP 000's | | GBP | | GBP |
| | | | 000's | | 000's | | | | 000's | | 000's |
+---------------------------+--+--+---------+--+--------+-----+-----------+--+---------+--+----------+
| | | | | | | | | | | | |
+---------------------------+--+--+---------+--+--------+-----+-----------+--+---------+--+----------+
| Amounts due to Swap and | | | | | | | | | | |
| Option | | | | | | | | | | |
+------------------------------+--+---------+--+--------+-----+-----------+--+---------+--+----------+
| Counterparty | | | - | | 155 | | - | | - | | 155 |
+---------------------------+--+--+---------+--+--------+-----+-----------+--+---------+--+----------+
| Distributions payable | | | - | | 77 | | - | | - | | 77 |
+---------------------------+--+--+---------+--+--------+-----+-----------+--+---------+--+----------+
| Net Assets Attributable to | | | | | | | | | | |
| Holders | | | | | | | | | | |
+------------------------------+--+---------+--+--------+-----+-----------+--+---------+--+----------+
| of Preference Shares | | | - | | - | | 47,650 | | - | | 47,650 |
+---------------------------+--+--+---------+--+--------+-----+-----------+--+---------+--+----------+
| | | | | | | | | | | | |
+---------------------------+--+--+---------+--+--------+-----+-----------+--+---------+--+----------+
| | | | | | | | | | | | |
+---------------------------+--+--+---------+--+--------+-----+-----------+--+---------+--+----------+
| | | | - | | 232 | | 47,650 | | - | | 47,882 |
+---------------------------+--+--+---------+--+--------+-----+-----------+--+---------+--+----------+
| | | | | | | | | | | | |
+---------------------------+--+--+---------+--+--------+-----+-----------+--+---------+--+----------+
| | | | | | | | | | | | |
+---------------------------+--+--+---------+--+--------+-----+-----------+--+---------+--+----------+
| As at 31st December, 2007 | | | | | | | | | | |
+------------------------------+--+---------+--+--------+-----+-----------+--+---------+--+----------+
| | | | | | | | | | | | |
+---------------------------+--+--+---------+--+--------+-----+-----------+--+---------+--+----------+
| Growth Shares | | | On | | 1-3 | | 3-12 | | > 12 | | Total |
| | | | Demand | | months | | months | | months | | |
+---------------------------+--+--+---------+--+--------+-----+-----------+--+---------+--+----------+
| | | | GBP | | GBP | | GBP 000's | | GBP | | GBP |
| | | | 000's | | 000's | | | | 000's | | 000's |
+---------------------------+--+--+---------+--+--------+-----+-----------+--+---------+--+----------+
| | | | | | | | | | | | |
+---------------------------+--+--+---------+--+--------+-----+-----------+--+---------+--+----------+
| Amounts due to Swap and | | | | | | | | | | |
| Option | | | | | | | | | | |
+------------------------------+--+---------+--+--------+-----+-----------+--+---------+--+----------+
| Counterparty | | | - | | 78 | | - | | - | | 78 |
+---------------------------+--+--+---------+--+--------+-----+-----------+--+---------+--+----------+
| Net Assets Attributable to | | | | | | | | | | |
| Holders | | | | | | | | | | |
+------------------------------+--+---------+--+--------+-----+-----------+--+---------+--+----------+
| of Preference Shares | | | - | | - | | - | | 23,938 | | 23,938 |
+---------------------------+--+--+---------+--+--------+-----+-----------+--+---------+--+----------+
| | | | | | | | | | | | |
+---------------------------+--+--+---------+--+--------+-----+-----------+--+---------+--+----------+
| | | | | | | | | | | | |
+---------------------------+--+--+---------+--+--------+-----+-----------+--+---------+--+----------+
| | | | - | | 78 | | - | | 23,938 | | 24,016 |
+---------------------------+--+--+---------+--+--------+-----+-----------+--+---------+--+----------+
| | | | | | | | | | | | |
+---------------------------+--+--+---------+--+--------+-----+-----------+--+---------+--+----------+
| | | | | | | | | | | | |
+---------------------------+--+--+---------+--+--------+-----+-----------+--+---------+--+----------+
| Income Shares | | | On | | 1-3 | | 3-12 | | > 12 | | Total |
| | | | Demand | | months | | months | | months | | |
+---------------------------+--+--+---------+--+-----------+-----+--------+--+---------+--+----------+
| | | | GBP | | GBP | | GBP | | GBP | | GBP |
| | | | 000's | | 000's | | 000's | | 000's | | 000's |
+---------------------------+--+--+---------+--+-----------+-----+--------+--+---------+--+----------+
| | | | | | | | | | | | |
+---------------------------+--+--+---------+--+-----------+-----+--------+--+---------+--+----------+
| Amounts due to Swap and | | | | | | | | | | |
| Option | | | | | | | | | | |
+------------------------------+--+---------+--+-----------+-----+--------+--+---------+--+----------+
| Counterparty | | | - | | 122 | | - | | | | 122 |
+---------------------------+--+--+---------+--+-----------+-----+--------+--+---------+--+----------+
| Distributions payable | | | - | | 77 | | - | | - | | 77 |
+---------------------------+--+--+---------+--+-----------+-----+--------+--+---------+--+----------+
| Net Assets Attributable to | | | | | | | | | | |
| Holders | | | | | | | | | | |
+------------------------------+--+---------+--+-----------+-----+--------+--+---------+--+----------+
| of Preference Shares | | | - | | - | | - | | 23,853 | | 23,853 |
+---------------------------+--+--+---------+--+-----------+-----+--------+--+---------+--+----------+
| | | | | | | | | | | | |
+---------------------------+--+--+---------+--+-----------+-----+--------+--+---------+--+----------+
| | | | | | | | | | | | |
+---------------------------+--+--+---------+--+-----------+-----+--------+--+---------+--+----------+
| | | | - | | 199 | | - | | 23,853 | | 24,052 |
+---------------------------+--+--+---------+--+-----------+-----+--------+--+---------+--+----------+
| | | | | | | | | | | | |
+---------------------------+--+--+---------+--+-----------+-----+--------+--+---------+--+----------+
| | | | | | | | | | | | |
+---------------------------+--+--+---------+--+-----------+-----+--------+--+---------+--+----------+
| Total | | | On | | 1-3 | | 3-12 | | > 12 | | Total |
| | | | Demand | | months | | months | | months | | |
+---------------------------+--+--+---------+--+-----------+-----+--------+--+---------+--+----------+
| | | | GBP | | GBP | | GBP | | GBP | | GBP |
| | | | 000's | | 000's | | 000's | | 000's | | 000's |
+---------------------------+--+--+---------+--+-----------+-----+--------+--+---------+--+----------+
| | | | | | | | | | | | |
+---------------------------+--+--+---------+--+-----------+-----+--------+--+---------+--+----------+
| Amounts due to Swap and | | | | | | | | | | |
| Option | | | | | | | | | | |
+------------------------------+--+---------+--+-----------+-----+--------+--+---------+--+----------+
| Counterparty | | | - | | 200 | | - | | - | | 200 |
+---------------------------+--+--+---------+--+-----------+-----+--------+--+---------+--+----------+
| Distributions payable | | | - | | 77 | | - | | - | | 77 |
+---------------------------+--+--+---------+--+-----------+-----+--------+--+---------+--+----------+
| Net Assets Attributable to | | | | | | | | | | |
| Holders | | | | | | | | | | |
+------------------------------+--+---------+--+-----------+-----+--------+--+---------+--+----------+
| of Preference Shares | | | - | | - | | - | | 47,791 | | 47,791 |
+---------------------------+--+--+---------+--+-----------+-----+--------+--+---------+--+----------+
| | | | | | | | | | | | |
+---------------------------+--+--+---------+--+-----------+-----+--------+--+---------+--+----------+
| | | | | | | | | | | | |
+---------------------------+--+--+---------+--+-----------+-----+--------+--+---------+--+----------+
| | | | - | | 277 | | - | | 47,791 | | 48,068 |
+---------------------------+--+--+---------+--+-----------+-----+--------+--+---------+--+----------+
| | | | | | | | | | | | |
+---------------------------+--+--+---------+--+-----------+-----+--------+--+---------+--+----------+
| | | | | | | | | | | | |
+---------------------------+--+--+---------+--+--------+--+--+--+--------+--+---------+--+----------+
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. The
Company's exposure to credit risk is limited to the carrying amount of financial
assets recognised at the Statement of Net Assets and Liabilities date.
Credit Risk Analysis
The Company will be exposed to credit risk on the parties with whom it trades
including the issuers of debt securities and counterparties to the derivative
contracts, and will also bear the risk of settlement default. The Company
minimises credit risk by undertaking transactions with financial institutions
that have received a credit rating of at least A- at the time of acquisition,
from Standard & Poor's and/or Moody's Investor Service Inc. It is the opinion of
the Board of Directors that the carrying amounts of these financial assets
represent the maximum credit risk exposure as at the Statement of Assets and
Liabilities date.
+-------------------------------+--+--+--+--+----------+--+------------+--+---------+--+---------+
| The Company's maximum exposure to credit risk is as | | | | | | |
| follows; | | | | | | |
+------------------------------------------------------+--+------------+--+---------+--+---------+
| | | | | | | | Total | | Growth | | Income |
| | | | | | | | | | | | |
+-------------------------------+--+--+--+--+----------+--+------------+--+---------+--+---------+
| | | | | | | | 31.12.2008 | | Shares | | Shares |
| | | | | | | | | | | | |
+-------------------------------+--+--+--+--+----------+--+------------+--+---------+--+---------+
| | | | | | | | GBP | | GBP | | GBP |
| | | | | | | | 000's | | 000's | | 000's |
+-------------------------------+--+--+--+--+----------+--+------------+--+---------+--+---------+
| | | | | | | | | | | | |
+-------------------------------+--+--+--+--+----------+--+------------+--+---------+--+---------+
| Debt Securities | | | | | | | 35,597 | | 14,016 | | 21,581 |
+-------------------------------+--+--+--+--+----------+--+------------+--+---------+--+---------+
| Swap and Option contract at fair | | | | | | 11,955 | | 10,926 | | 1,029 |
| value | | | | | | | | | | |
+----------------------------------+--+--+--+----------+--+------------+--+---------+--+---------+
| Debtors | | | | | | | 230 | | 60 | | 170 |
+-------------------------------+--+--+--+--+----------+--+------------+--+---------+--+---------+
| Cash | | | | | | | 100 | | 38 | | 62 |
+-------------------------------+--+--+--+--+----------+--+------------+--+---------+--+---------+
| | | | | | | | | | | | |
+-------------------------------+--+--+--+--+----------+--+------------+--+---------+--+---------+
| | | | | | | | | | | | |
+-------------------------------+--+--+--+--+----------+--+------------+--+---------+--+---------+
| | | | | | | | 47,882 | | 25,040 | | 22,842 |
+-------------------------------+--+--+--+--+----------+--+------------+--+---------+--+---------+
| | | | | | | | | | | | |
+-------------------------------+--+--+--+--+----------+--+------------+--+---------+--+---------+
| | | | | | | | | | | | |
+-------------------------------+--+--+--+--+----------+--+------------+--+---------+--+---------+
+---------------------------+--+--+--+--+--------------+--+------------+--+---------+--+---------+
| | | | | | | | Total | | Growth | | Income |
| | | | | | | | | | | | |
+---------------------------+--+--+--+--+--------------+--+------------+--+---------+--+---------+
| | | | | | | | 31.12.2007 | | Shares | | Shares |
| | | | | | | | | | | | |
+---------------------------+--+--+--+--+--------------+--+------------+--+---------+--+---------+
| | | | | | | | GBP | | GBP | | GBP |
| | | | | | | | 000's | | 000's | | 000's |
+---------------------------+--+--+--+--+--------------+--+------------+--+---------+--+---------+
| | | | | | | | | | | | |
+---------------------------+--+--+--+--+--------------+--+------------+--+---------+--+---------+
| Debt Securities | | | | | | | 34,720 | | 13,671 | | 21,049 |
+---------------------------+--+--+--+--+--------------+--+------------+--+---------+--+---------+
| Swap and Option contract at | | | | | 13,019 | | 10,244 | | 2,775 |
| fair value | | | | | | | | | |
+---------------------------------+--+--+--------------+--+------------+--+---------+--+---------+
| Debtors | | | | | | | 277 | | 78 | | 199 |
+---------------------------+--+--+--+--+--------------+--+------------+--+---------+--+---------+
| Cash | | | | | | | 52 | | 23 | | 29 |
+---------------------------+--+--+--+--+--------------+--+------------+--+---------+--+---------+
| | | | | | | | | | | | |
+---------------------------+--+--+--+--+--------------+--+------------+--+---------+--+---------+
| | | | | | | | | | | | |
+---------------------------+--+--+--+--+--------------+--+------------+--+---------+--+---------+
| | | | | | | | 48,068 | | 24,016 | | 24,052 |
+---------------------------+--+--+--+--+--------------+--+------------+--+---------+--+---------+
| | | | | | | | | | | | |
+---------------------------+--+--+--+--+--------------+--+------------+--+---------+--+---------+
| | | | | | | | | | | | |
+---------------------------+--+--+--+--+--------------+--+------------+--+---------+--+---------+
The Moody's Credit ratings of the of the issuers of Debt Securities and
counterparties to the Swap and Option contracts as at 31st December, 2008 and
2007 were as follows:
+-------------------+--------+--+------------------+--+--------+--+------------+---+------------+
| | | | | | | | 31.12.2008 | | 31.12.2007 |
| | | | | | | | | | |
+-------------------+--------+--+------------------+--+--------+--+------------+---+------------+
| Counterparties | | | | | | | | | |
+-------------------+--------+--+------------------+--+--------+--+------------+---+------------+
| Bank of America | | | | | | | A2 | | AA* |
+-------------------+--------+--+------------------+--+--------+--+------------+---+------------+
| Merrill Lynch | | | | | | A2 | * | A+ |
| International | | | | | | | | |
+----------------------------+--+------------------+--+--------+--+------------+---+------------+
| | | | | | | | | | |
+-------------------+--------+--+------------------+--+--------+--+------------+---+------------+
| Debt Securities | | | | | | | | | |
+-------------------+--------+--+------------------+--+--------+--+------------+---+------------+
| Bradford & Bingley Floating Rate EMTN18/ 06/09 | | | | | | |
+--------------------------------------------------+--+--------+--+------------+---+------------+
| 18/06/2009 | | | | | | | Baa3 | | A1 |
+-------------------+--------+--+------------------+--+--------+--+------------+---+------------+
| Britannia Building Society Floating Rate Notes | | | | | | |
| 06/09 | | | | | | |
+--------------------------------------------------+--+--------+--+------------+---+------------+
| 18/06/2009 | | | | | | | A2 | | A2 |
+-------------------+--------+--+------------------+--+--------+--+------------+---+------------+
| Northern Rock Floating Rate EMTN 06/09 | | | | | | |
+--------------------------------------------------+--+--------+--+------------+---+------------+
| 18/06/2009 | | | | | | | A2 | | Aa3 |
+-------------------+--------+--+------------------+--+--------+--+------------+---+------------+
| Yorkshire Building Society FR MTN 06/09 | | | | | | |
+--------------------------------------------------+--+--------+--+------------+---+------------+
| 18/06/2009 | | | | | | | A2 | | A2 |
+-------------------+--------+--+------------------+--+--------+--+------------+---+------------+
| Union Bank of Norway Floating Rate Notes 06/09 | | | | | | |
+--------------------------------------------------+--+--------+--+------------+---+------------+
| 18/06/2009 | | | | | | | Aa1 | | Aa1 |
+-------------------+--------+--+------------------+--+--------+--+------------+---+------------+
* During 2008 Bank of America acquired Merrill Lynch International
Fair value of financial assets and financial liabilities
In the opinion of the Directors all of the financial assets and liabilities of
the Company are held at fair value. The realised and unrealised gains and losses
arising from the financial assets are shown in the Total Statement of Changes in
Net Assets Attributable to Holders of Preference Shares and in the Total
Statement of Operations for the Company.
13. Investment Objectives
Growth Shares
The investment objective of the Growth Shares is to offer investors a return of
a capital amount on the winding up of the Company which is anticipated to be 170
pence per Growth Share. This capital amount is not guaranteed and is subject to
additional market risk in respect of the FTSE 100 Index held through the Swap
and Options derivative transactions. This additional market risk is described
below.
The return of the capital amount at 100 pence to investors on the winding up of
the Company and the additional anticipated capital return at 70 pence per Growth
Share are exposed to market risk based on the level of the FTSE 100 Index
throughout the life of the Company. The additional capital return will be
reduced by 5 pence for each incomplete or partial semi-annual period ending on
16th June or 16th December that remains until the anticipated winding up of the
Company around 17th June, 2009 should the level of the FTSE Index 100 be lower
than 60% of the index level on commencement of the investment period or at any
point throughout the lifetime of the Company. The capital amount of 100 pence
per share will be reduced by a percentage equal to the percentage shortfall on
the FTSE 100 Index where the final level of the Index on winding up of the
Company is lower than the Index level on commencement of the investment period.
+-------------------+--------+--+----------------+--+------------+--+------------+--+----------+
| Index | | | | | 18.06.2002 | | 31.12.2008 | | Movement |
| | | | | | | | | | |
+-------------------+--------+--+----------------+--+------------+--+------------+--+----------+
| | | | | | Level | | Level | | % |
+-------------------+--------+--+----------------+--+------------+--+------------+--+----------+
| | | | | | | | | | |
+-------------------+--------+--+----------------+--+------------+--+------------+--+----------+
| FTSE 100 | | | | | 4,715.50 | | 4,434.17 | | (5.97) |
+-------------------+--------+--+----------------+--+------------+--+------------+--+----------+
Income Shares
The investment objective of the Income Shares is to offer investors a fixed
distribution of 8 pence per Share per annum, payable semi-annually in arrears in
equal instalments on 17th June and 17th December in each year, the first such
distribution being paid on 17th December, 2002, and to return a capital amount
on the winding up of the Company of 100 pence per share. Neither the fixed
distribution nor the capital amount are guaranteed and both are subject to
additional market risk based on the level of the FTSE 100 Index throughout the
life of the Company. No further distribution shall become payable should the
level of the FTSE 100 Index fall below 60% of the index level on commencement of
the investment period or at any point throughout the lifetime of the Company.
The capital amount of 100 pence per share will be reduced by a percentage equal
to the percentage shortfall on the FTSE 100 Index where the final level of the
Index on winding up of the Company is lower than the Index level on commencement
of the investment period.
+-------------------+--------+--+----------------+--+------------+--+------------+--+----------+
| Index | | | | | 18.06.2002 | | 31.12.2008 | | Movement |
| | | | | | | | | | |
+-------------------+--------+--+----------------+--+------------+--+------------+--+----------+
| | | | | | Level | | Level | | % |
+-------------------+--------+--+----------------+--+------------+--+------------+--+----------+
| | | | | | | | | | |
+-------------------+--------+--+----------------+--+------------+--+------------+--+----------+
| FTSE 100 | | | | | 4,715.50 | | 4,434.17 | | (5.97) |
+-------------------+--------+--+----------------+--+------------+--+------------+--+----------+
14. Capital Management
The Company's objectives when managing capital are to safeguard the Company's
ability to continue as a going concern in order to provide returns for
shareholders and benefits to other stakeholders and to maintain an optimal
capital structure to reduce the cost of capital.
15. Related Parties
The Directors consider the following to be related parties:
* Northern Trust International Fund Administration Services (Guernsey) Limited
(Administrator)
* Northern Trust (Guernsey) Limited (Custodian)
* BlackRock Merrill Lynch Investment Managers (Investment Manager)
* Merrill Lynch International (Investment Adviser, Distributor and Sponsor)
The terms of specific transactions entered into with these related parties are
disclosed in Notes 1, 2 and 3.
16. Subsequent Events
There have been no subsequent events.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SEUFMASUSEIL
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