RNS Number:7993S
Japanese Accelerated Perf Fund Ltd
22 April 2008
JAPANESE ACCELERATED PERFORMANCE FUND LIMITED
PRELIMINARY ANNOUNCEMENT OF ANNUAL RESULTS
The directors announce the statement of results for the year ended 31 December
2007 as follows:-
ABOUT THE COMPANY
Japanese Accelerated Performance Fund Limited is a Guernsey incorporated,
closed-ended investment company. With the exception of two Management Shares
issued for administrative reasons, the Company's issued share capital comprises
30,000,000 Participating Shares ("Shares") whose performance is designed to
depend upon the performance of the Nikkei 225 Index. The Company has an
unlimited life but the Shares will be redeemed on or around 22 December 2009
(the "Redemption Date").
Investment Objective and Policy
The investment objective of the Company is to provide shareholders, on the
Redemption Date, with five times the capital return of the Nikkei 225 Index, up
to a maximum amount (the "Final Capital Entitlement") of 200p per Share,
comprising a capital growth amount of up to a maximum of 100p per Share and a
capital amount of 100p per Share. The Final Capital Entitlement per Share is
designed to be determined by the performance of the Nikkei 225 Index over the
calculation period from 17 December 2003 to 17 December 2009.
The Shares are Sterling denominated and their value will not be affected by
changes in the Yen / Sterling exchange rate.
In accordance with the Company's investment policy, the net proceeds derived
from the issue of Shares have been invested in a portfolio of debt securities
and over-the-counter derivative instruments at prices based on the closing level
of the Nikkei Index on 17 December 2003 of 10,092.64. Therefore, if the Nikkei
225 Index rises 20% from its starting level of 10,092.64 on 17 December 2003,
which equates to a level of 12,111.17 in December 2009, the Shares are designed
to return growth of 100%.
There is full capital protection if the Nikkei 225 Index has fallen at the end
of the period (December 2009) unless the Nikkei 225 Index has closed more than
50% down during the term at 5046.32 or lower. In this case, if the Nikkei 225
Index is still below 10,092.64 at the end of the calculation period, the net
asset value of the Company will fall by an equivalent percentage. If the level
of the Nikkei 225 Index has returned above its starting level of 10,092.64 at
the close of business on 17 December 2009, then the Company will still provide
five times the return of the Nikkei 225 Index to a maximum of 100%.
The Company has invested substantially all of its net assets in medium term loan
notes ("Debt Securities") issued by financial institutions, selected by the
Manager, that, at the date of issue of the relevant Debt Security, had a rating
of at least A- or A3, as determined by Standard & Poor's and/or Moody's Investor
Services Inc. respectively and was either (a) a credit institution as defined in
Article 1 of the Council Directive of 20 March 2000 relating to the taking up
and pursuit of the business of credit institutions (No 2000/12/EC), other than
an institution referred to in Article 2(3) of that Directive, if authorised by
the competent authority of an EU Member State in relation to the credit
institution concerned; (b) a bank authorised in a Member State of the European
Economic Area; or (c) a bank authorised by a signatory state (other than an EU
Member State or a Member State of the European Economic Area) to the Basle
Capital Convergence Agreement of July 1988 (Switzerland, Canada, Japan and the
US).
To avoid over-dependency on any single issuer, the Company has acquired seven
Debt Securities. It is not anticipated that this portfolio of Debt Securities
will be varied prior to the maturity date of the Debt Securities other than in
exceptional circumstances.
The Company has also sold a put option to BNP Paribas, the proceeds of which
sale were used to finance the acquisition of the Debt Securities. The
performance of the put option is linked to the performance of the Nikkei 225
Index. At an Index value of 10,092.64 or above at the close of business on 17
December 2009, or if the Index has never closed below 5,046.32 during the
calculation period from 17 December 2003 to 17 December 2009, the put option
will be worth �Nil at maturity. If the Index has closed below 5,046.32 over the
calculation period and the Index is still below 10,092.64 on 17 December 2009,
the put option will be worth a percentage of the notional value, being
�30,000,000, equivalent to the percentage fall in the level of the Nikkei 225
Index over the calculation period, such payment payable to BNP Paribas by the
Company.
The Company has not invested and will not invest in other listed investment
companies (included listed investment trusts).
The Company may borrow up to ten percent of its net asset value for temporary
purposes. It is not, however, the current intention of the Directors to engage
in any borrowing. Without prejudice to the powers of the Company to invest in
transferable securities, the Company may not lend to, nor act as guarantor on
behalf of, third parties.
CHAIRMAN'S STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2007
At launch the net proceeds derived from the issue of Shares of the Company were
invested in a portfolio of debt securities and options at a price based on the
level of the Nikkei 225 Index at the close of business on 17 December 2003,
namely 10,092.64. On 31 December 2007, the Nikkei 225 Index closed at
15,307.78, a rise of 51.7% since launch and a fall of 11.1% over the reporting
period. Over the same periods, the total market value of the Company's shares
rose by 64.25% and 4.6% respectively.
As the Company's investment portfolio is based upon the Nikkei 225 Index, it is
possible to show the potential capital entitlements available to shareholders
based on the level of the Nikkei 225 Index on the Company's end date of 17
December 2009. These figures are for illustrative purposes only and do not
represent forecasts or take into account any unforeseen circumstances.
As at 17 December 2009:
Final Nikkei 225 Index Level Net Asset Value if Nikkei 225 Net Asset Value if Nikkei 225
Index never closes below 5,046.32* Index has closed below 5,046.32*
* *
8,000 100 79
8,500 100 84
9,000 100 89
9,500 100 94
10,000 100 99
10,500 120 120
11,000 144 144
11,500 169 169
12,000 194 194
12,500 200 200
13,000 and over 200 200
15,307.78* 200 200
* NIKKEI 225 Index level at the end of the reporting period
** On any day from 17 December 2003 to 17 December 2009
Since the financial year end the Nikkei 225 Index has continued falling as the
credit crisis has shown little sign of abating and economic weakness in the US
threatens to spark a slowdown in global growth which could be particularly
painful to the export dependent Japanese economy. On 31 March 2008, the Index
closed at 12525.54, down 18.2% from the end of December 2007.
The substantial fall in the Index in the three months since the year end has, as
may be expected, resulted in some weakness in the Company's shares. However I
can report that, over that period, thanks to the secure nature of the returns
enjoyed by its structure the shares fell by just 10.0%, considerably less than
the underlying Index. Moreover, if the Nikkei 225 Index were to close at the
level of 31 March 2008 on the Company's end date of 17 December 2009, the
redemption price would still be at its maximum of 200 pence. As at the time of
writing, the Nikkei 225 Index has recovered significantly from lower levels seen
earlier in the year.
Charles Tracy
Chairman
21 April 2008
MANAGEMENT REPORT FOR THE YEAR ENDED 31 DECEMBER 2007
A description of important events that have occurred during the financial year,
their impact on the performance of the Company as shown in the financial
statements and a description of the principal risks and uncertainties facing the
Company is given in the Manager's Report and is incorporated here by reference.
There were no material related party transactions which took place in the
financial year.
Responsibility Statement
The Board of directors jointly and severally confirm that, to the best of their
knowledge:
(a) The financial statements, prepared in accordance with International
Financial Reporting Standards, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company; and
(b) This Management Report includes or incorporates by reference a fair
review of the development and performance of the business and the position of
the Company and the undertakings included in the consolidation taken as a whole,
together with a description of the principal risks and uncertainties that they
face.
Charles P G Tracy John R Le Prevost
Director Director
21 April 2008
MANAGER'S REPORT FOR THE YEAR ENDED 31 DECEMBER 2007
Market Review
The Nikkei 225 Index fell 11.1% over the year, which was characterised by a
number of sharp corrections in the Index level, followed each time by a gradual
recovery.
The Index advanced steadily in the early part of 2007, continuing the growth
which had begun in summer 2006. At the end of February, equity markets tumbled
worldwide following a sharp drop in the Chinese market and the announcement of
some weak US indicators which shook investor confidence. Over this one week the
Nikkei 225 Index fell 8.6% to 16,642.25. The Chinese slide was triggered by
news that the Chinese government was seeking to crack down on illegal stock
market investments that had helped drive Chinese benchmarks to record highs.
The Nikkei 225 Index spent the next four months gradually regaining lost ground,
reaching a high of 18,261.98 in July. However the end of July and August saw
another rout in global equities as investors were spooked by financial
institutions' exposure to US sub-prime mortgages and CDOs, triggering a flight
to cash. The Nikkei 225 Index was particularly affected by the risk of a US
economic downturn reducing Japan's exports, and the Index plunged over 16% in a
month.
The Index recouped some of these losses as central banks around the world
stepped in as lenders of last resort, injected money into the banking system and
cut interest rates to avoid a global recession. Further concerns regarding the
potential damage to Japanese exporters due to a strengthening Yen combined with
a US recession, led to another dip in the Nikkei 225 Index in November to its
low of the period 14,837.66.
The largest drag on the Index was Advantest Corporation which produces
semiconductor testing devices. The company's shares fell on poor interim
results including falling income after makers of memory chips for personal
computers and consumer electronics scaled back spending. The biggest boost to
the Index came from Daikin Industries Ltd., a manufacturer of air conditioners,
during a year when the company predicted a seventh straight record profit,
boosted by growth in U.S. and European markets.
Market Outlook
Compared to their global competitors and following recent years of
restructuring, Japanese companies tend to be conservatively managed, with lower
levels of debt so they are well placed to outperform in 2008 amidst the fallout
from the global credit crunch. In particular Japan's financial institutions
have only seen limited impact from the subprime market's troubles so far. The
Japanese economy has nevertheless historically been especially dependent on
strong exports to the United States. During 2007 there has been a gradual shift
towards greater Asian exports in order to reduce Japan's reliance on exports to
the US. Benefiting from this diversification, in the coming months exports are
expected to expand, in particular as Japan builds its relationship (and hence
exports) with China. Nevertheless Japanese equities still remain significantly
exposed towards sentiment in the US, with potential further downside risk.
Conversely any signs of improvement on the other side of the Pacific would
therefore be likely to result in a rally in the Japanese equity markets.
Domestic economic growth was hampered in 2007 partly due to a tumble in housing
investment, blamed on stricter building regulations adopted in June. The
regulations were then relaxed, leading to a recovery in this sector and housing
construction continues to show signs of picking up in 2008. Meanwhile rising
energy and commodity prices have pushed up inflation, which in turn could hurt
consumption. This leaves the Bank of Japan in a difficult position regarding
interest rates in 2008 as it tries to balance these factors along with fragile
financial markets.
Close Investments Limited
21 April 2008
STATEMENT OF OPERATIONS for the year ended 31 December 2007
1 Jan 2007 1 Jan 2006
Notes to 31 Dec 2007 to 31 Dec 2006
GBP GBP
Net movement in unrealised appreciation on
investments 5 1,499,260 4,201,160
Unrealised (appreciation) / depreciation on value 8 (120,000) 459,000
of put option
Operating expenses 2 (269,881) (272,946)
Gain on ordinary activities before taxation 1,109,379 4,387,214
Taxation on ordinary activities - -
Net gain for the year attributable to shareholders 1,109,379 4,387,214
Earnings per Share for the year Pence Pence
- Basic and Diluted 4 3.70 14.62
Earnings per Management Share for the year
- Basic and Diluted 0.00 0.00
In arriving at the results for the financial year, all amounts above relate to
continuing operations.
There are no recognised gains or losses for the year other than those disclosed
above.
Reconciliation of earnings per Share for investment purposes to earnings per
Share per the financial statements:
Pence Pence
Earnings per Share for investment purposes 4.60 15.53
Adjustment for amortisation of debt issue costs (0.37) (0.37)
Adjustment to include expenses on an accruals basis (0.53) (0.53)
Earnings per share per the financial statements 3.70 14.62
In accordance with International Financial Reporting Standards, expenses should
be attributed to the period to which they relate.
The earnings per Share for investment purposes represents the earnings per Share
attributable to shareholders in accordance with the Prospectus, which recognises
all expenses of the Company up to and including the date that the Final Capital
Entitlement becomes payable.
NET ASSET STATEMENT as at 31 December 2007
31 Dec 2007 31 Dec 2006
Notes GBP GBP
FIXED ASSETS
Unquoted financial assets designated as fair
value through profit or loss 5 49,207,780 47,708,520
CURRENT ASSETS
Receivables 6 226,281 335,007
Cash at bank 520,400 672,141
746,681 1,007,148
CURRENT LIABILITIES
Payables - due within one year 7 24,341 14,927
NET CURRENT ASSETS 722,340 992,221
TOTAL ASSETS LESS CURRENT LIABILITIES 49,930,120 48,700,741
Non-current liabilities excluding net assets
attributable to shareholders 8 180,000 60,000
NET ASSETS ATTRIBUTABLE TO
SHAREHOLDERS 49,750,120 48,640,741
SHARES IN ISSUE 30,000,000 30,000,000
Pence Pence
NAV PER SHARE 165.83 162.14
NAV PER MANAGEMENT SHARE 100.00 100.00
Reconciliation of NAV per Share for investment purposes to NAV per Share per the
financial statements:
Pence Pence
NAV per Share for investment purposes 163.42 158.82
Adjustment for debt issue costs 0.73 1.11
Adjustment to include expenses on an accruals basis 1.68 2.21
NAV per Share per the financial statements 165.83 162.14
In accordance with International Financial Reporting Standards, expenses should
be attributed to the period to which they relate.
The NAV per Share for investment purposes represents the NAV per Share
attributable to shareholders in accordance with the Prospectus, which recognises
all expenses of the Company up to and including the date that the Final Capital
Entitlement becomes payable.
The financial statements were approved by the Board of directors on 21 April
2008 and are signed on its behalf by:
Charles P G Tracy John R
Le Prevost
Director
Director
1 Jan 2007 1 Jan 2006
to 31 Dec 2007 to 31 Dec 2006
GBP GBP
Operating activities
Net gain for the year attributable to shareholders 1,109,379 4,387,214
Less: Unrealised (appreciation) on investments (1,499,260) (4,201,160)
Add: Unrealised depreciation / (appreciation) on value of
Put option 120,000 (459,000)
Add: Amortisation of debt issue costs 112,397 112,496
Less: Interest received (32,282) (32,821)
Add: Increase / (Decrease) in accrued expenses 9,414 (8)
Less: (Increase) / Decrease in prepayments and accrued
income excluding debt issue costs (3,671) (657)
Net cash outflow from operating expenses (184,023) (193,936)
Investing activities
Interest received 32,282 32,821
Net cash inflow from investing activities 32,282 32,821
Cash at beginning of year 672,141 833,256
(Decrease) in cash and cash equivalents (151,741) (161,115)
Cash at end of year 520,400 672,141
STATEMENT OF CHANGES IN NET ASSETS ATTRIBUTABLE TO SHAREHOLDERS for the year
ended 31 December 2007
31 Dec 2007 31 Dec 2006
GBP GBP
Opening balance 48,640,741 44,253,527
Net gain for the year attributable to shareholders 1,109,379 4,387,214
Closing balance 49,750,120 48,640,741
NOTES TO THE FINANCIAL STATEMENTS as at 31 December 2007
1 ACCOUNTING POLICIES
(a) Basis of Preparation
The financial statements have been prepared in conformity with International
Financial Reporting Standards which comprise standards and interpretations
approved by the International Accounting Standards Board and International
Financial Reporting Interpretations Committee and applicable Guernsey law. The
financial statements have been prepared on a historical cost basis except for
the measurement at fair value of financial instruments.
(b) Taxation
The Company has been granted exemption under the Income Tax (Exempt Bodies)
(Guernsey) Ordinance, 1989 from Guernsey Income Tax, and is charged an annual
fee of �600.
(c) Expenses
All expenses are accounted for on an accruals basis.
(d) Debt Issue Costs
The debt issue costs incurred amounted to �675,000. Because the Company's
participating shares are redeemable on or around 22 December 2009, they are
required to be classified as debt instruments under IAS 32. Consequently, issue
costs are amortised over the life of the instrument.
(e) Interest Income
Interest income is accounted for on an accruals basis.
(f) Cash and Cash Equivalents
Cash in bank and short term deposits which are held to maturity are carried at
cost. Cash and cash equivalents are defined as call deposits, short term
deposits and highly liquid investments readily convertible to known amounts of
cash and subject to insignificant risk of changes in value. For the purposes of
the Statement of Cash Flows, cash and cash equivalents consist of cash and
deposits at bank.
(g) Investments
All investments have been designated as financial assets at "fair value through
profit and loss". Investments are initially recognised on the date of purchase
at cost, being the fair value of the consideration given. After initial
recognition, investments are measured at fair value, with unrealised gains and
losses on investments and impairment of investments recognised in the Statement
of Operations. Investments are derecognised on the date of sale. Gains and
losses on the sale of investments will be taken to the Statement of Operations.
(h) Put Option
The put option was initially recognised at the fair value of the consideration
received on the date of sale, and included within payables falling due after
more than one year. After initial recognition, the put option is measured at
fair value with unrealised gains and losses being recognised in the Statement of
Operations. The put option will be derecognised at maturity on 17 December
2009.
(i) Trade Date Accounting
All "regular way" purchases and sales of financial assets are recognised on the
"trade date", i.e. the date that the entity commits to purchase or sell the
asset. Regular way purchases or sales are purchases or sales of financial
assets that require delivery of the asset within the timeframe generally
established by regulation or convention in the market place.
(j) Segmental Reporting
The directors are of the opinion that the Company is engaged in a single segment
of business, being investment business.
2 OPERATING EXPENSES 1 Jan 2007 1 Jan 2006
to 31 Dec 2007 to 31 Dec 2006
GBP GBP
Amortisation of debt issue costs 112,397 112,496
Investment management fees (1) 105,000 105,000
Administration fees 20,000 20,000
Directors' remuneration 15,000 15,000
Registration fees 9,230 10,192
Directors' and Officers' Insurance 9,580 12,000
Audit fees 7,038 6,325
Other operating expenses 23,918 24,754
302,163 305,767
Less: Interest earned on expense provision bank
account (32,282) (32,821)
269,881 272,946
(1) The Manager is entitled to receive a fee from the Company at an annual rate
of 0.35% of the Initial Gross Proceeds.
3 DIRECTORS' REMUNERATION
The Prospectus provides that each director will be paid a fee of �5,000 per
annum by the Company. The remuneration will remain fixed over the life of the
Company. John R Le Prevost, a director of the Company, is also a director of
Anson Fund Managers Limited, the Company's Secretary and of Anson Registrars
Limited the Company's Registrar, Transfer Agent and Paying Agent.
4 EARNINGS PER SHARE
The earnings per Share is based on the net earnings attributable to shareholders
for the year of �1,109,379 (2006: �4,387,214) and on 30,000,000 (2006:
30,000,000) Shares, being the weighted average number of Shares in issue during
the year. The earnings per Management Share is based on the net gain for the
year of �0 (2006: �0) and on 2 (2006: 2) Management Shares, being the weighted
averaged number of Management Shares in issue during the year.
5 INVESTMENTS 31 Dec 2007 31 Dec 2006
GBP GBP
UNQUOTED FINANCIAL ASSETS DESIGNATED AS
FAIR VALUE THROUGH PROFIT AND LOSS
Portfolio cost 30,192,200 30,192,200
Unrealised appreciation on valuation brought forward 17,516,320 13,315,160
Unrealised appreciation on valuation for the year 1,499,260 4,201,160
Unrealised appreciation on valuation carried forward 19,015,580 17,516,320
Valuation 49,207,780 47,708,520
Valuations of investments are based on valuations provided by BNP Paribas (the "
Calculation Agent"), which are subject to a check by the Manager. The
performance of the financial assets is based on the closing level of the Nikkei
225 Index on 17 December 2009.
If on that date, the Nikkei 225 Index closes above 10,092.64 the instruments are
designed to give a return of 5 times the performance up to a maximum return of
100% of the capital.
The provided valuations are derived from proprietary models based upon
well-recognised financial principles and reasonable estimates about relevant
future market conditions.
Valuation data provided by the Calculation Agent to the Manager in connection
with the Company is provided for informational purposes only.
The Calculation Agent makes no representation or warranty (express or implied)
relating to any valuation data, including as to the accuracy, completeness,
adequacy or reliability of any such data for any purpose, and shall have no
duties or liabilities to third parties arising from the provision or use of such
data to the fullest extent permitted by law.
6 RECEIVABLES 31 Dec 2007 31 Dec 2006
GBP GBP
Accrued income 1,225 972
Prepaid debt issue costs 220,792 333,189
Prepayments 4,264 846
226,281 335,007
7 PAYABLES 31 Dec 2007 31 Dec 2006
(amounts falling due within one year) GBP GBP
Accrued administration fees 1,699 1,701
Accrued registration fees 762 1,256
Accrued investment manager fees 8,630 -
Accrued audit fees 7,000 6,825
Other accrued expenses 6,250 5,145
Expenses provision 191,720 192,920
Less: Prepaid expense provision (see note 8) (191,720) (192,920)
24,341 14,927
8 PAYABLES 31 Dec 2007 31 Dec 2006
(amounts falling due after one year) GBP GBP
Expenses provision 349,880 495,966
Less: Prepaid expenses provision (349,880) (495,966)
- -
FINANCIAL LIABILITIES 31 Dec 2007 31 Dec 2006
GBP GBP
Fair value of the put option 180,000 60,000
180,000 60,000
The prepaid expense provision represents monies set aside to meet the on-going,
annual and redemption expenses of the Company, as set out in the Prospectus.
If, at the Redemption Date, there is any surplus remaining from the expenses
provision (together with accrued interest thereon), this surplus will revert to
the Manager. In the event of redemption or repurchase of all the shares, or
upon a winding-up of the Company, in each case prior to the Redemption Date, any
balance of the expense provision (together with accrued interest thereon) other
than the investment management fee will also revert to the Manager.
The performance of the put option is linked to the performance of the Nikkei 225
Index. At an Index value of 10,092.64 or above at the close of business on 17
December 2009, or if the Index has never closed below 5,046.32 during the
calculation period from 17 December 2003 to 17 December 2009, the put option
will be worth �Nil at maturity. If the Index has closed below 5,046.32 over the
calculation period and the Index is still below 10,092.64 at 17 December 2009,
the put option will be worth a percentage of the notional value, being
�30,000,000, equivalent to the percentage fall in the level of the Nikkei 225
Index over the calculation period.
The put option is not exercisable until the maturity date of 17 December 2009.
The fair value of the put option is based on the valuation provided by BNP
Paribas. There is no active market regarding the put option.
BNP Paribas, in its capacity as the put option counterparty, has security over
the financial assets held by the Company for payment of any monies owed upon
maturity or termination of the put option contract.
The original proceeds from the sale of the put option were �2,565,000.
9 SHARE CAPITAL
SHARES GBP
Authorised
Unclassified shares of 0.01p each 200,000,000 20,000
Management shares of �1.00 each 100 100
20,100
Issued SHARES
Participating shares ("Shares") - fully paid 30,000,000
Management shares - fully paid 2
Number of Shares in issue at 31 December 2006 and
31 December 2007 30,000,002
GBP
Issued capital as at 31 December 2006 and 31 December 2007 3,002
The Shares are redeemable on or around 22 December 2009. The Company is
closed-ended and therefore shareholders have no right to request the Company to
repurchase their Shares or to redeem them prior to the redemption date. If the
Company is wound up prior to the redemption date, shareholders will be entitled
to the net asset value of the Shares on the winding up date. No dividends will
be paid on the Shares.
Management shares are not redeemable, do not carry any right to dividends and in
a winding up rank only for a return of the amount of paid up capital after
return of capital on Shares and nominal shares. Given the immateriality of the
Management shares to the net assets of the Company, they have been included in
the net assets attributable to holders of Shares.
10 SHARE PREMIUM
GBP
Share premium as at 31 December 2006 and 31 December 2007 29,997,000
11 FINANCIAL INSTRUMENTS
The Company's main financial instruments comprise:
(a) Cash and cash equivalents that arise directly from the
Company's operations; and
(b) Debt securities whose performance is based on the
performance of the Nikkei 225 Index. Details of the investments referred to
above are shown in the schedule of investments (unaudited)
(c) The Company has also sold a put option, whose performance is based on
the Nikkei 225 Index. Details of the put option contract are shown in Note 8.
12 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
The main risks arising from the Company's financial instruments are market price
risk, credit risk, liquidity risk and interest rate risk. The Board regularly
reviews and agrees policies for managing each of these risks and these are
summarised below:
(a) Market Price Risk
Market price risk arises mainly from uncertainty about future prices of
financial instruments held. It represents the potential loss the Company might
suffer through holding market positions in the face of price movements. The
Manager actively monitors market prices and reports to the Board as to the
appropriateness of the prices used for valuation purposes.
Price sensitivity
The following details the Company's sensitivity to a 10% increase or decrease in
the final market prices of its constituent financial assets and liabilities.
The final redemption value of the Shares is determined by reference to the level
of the Nikkei 225 Index on 17 December 2009 and at that date, if the Index
stands at 12,111.17 (the "Index Cap Level"), the maximum redemption entitlement
of 200 pence per Share will have been reached; any further increase in the level
of the Index will cause no further increase in that redemption entitlement.
On 31 December 2007 the Index stood at 15,307.78, whereas as explained above,
the Index Cap Level is 26.4% lower at 12,111.17. Accordingly, as at 31 December
2007 the Company had no material sensitivity to either a 10% increase or
decrease in the level of the Index.
Between 31 December 2007 and 31 March 2008 the Nikkei 225 Index fell by 18.2%
and resulted in a 10.0% decrease in the value of the company's shares.
(b) Credit Risk
Credit risk is the risk that an issuer or counterparty will be unable or
unwilling to meet a commitment that it has entered into with the Company. At
the date of this report all issuers carried an investment grade credit rating.
The Board monitors credit risk and will consider further action if the credit
rating of an issuer falls below A- or A3 as ranked by S&P and Moody's
respectively. Credit risks are mitigated in the Company because the MTN's have
been purchased from several different issuers.
The following table details the aggregate investment grade of the debt
instruments in the portfolio, as rated by well known rating agencies:
Rating 31 Dec 2007 31 Dec 2006
Aaa 14.37% 0.00%
Aa 27.51% 27.66%
A 58.12% 72.34%
The credit risk on cash transactions and transactions involving derivative
financial instruments is mitigated by transacting with counterparties that are
regulated entities subject to prudential supervision, or with high
credit-ratings assigned by international credit-rating agencies.
(c) Liquidity Risk
Liquidity risk is the risk that the Company will encounter difficulty in
realising assets or otherwise raising funds to meet financial commitments. The
Company's main financial commitments are its ongoing operating expenses and any
cash settlement due to BNP Paribas (the "Put Option Counterparty") on the
maturity of the put option (the "Put Option") sold to the Put Option
Counterparty, scheduled to occur on 17 December 2009.
Upon the issue of the Shares in December 2005 the Company created a cash reserve
(the "Expense Provision") in the amount of 3.75% of the amount raised by the
issue of the Shares (the "Initial Gross Proceeds"), such amount being estimated
in the opinion of the directors upon the advice of the Manager to be sufficient
to meet the operating expenses reasonably expected to be incurred over the life
of the Shares.
If at any time during the life of the Company the Expense Provision is exhausted
then, subject to the relevant excess expenses having been agreed by the Manager,
the Manager will make good such shortfall from its own resources, subject to a
maximum in each of the first five annual financial periods of 0.25 per cent. of
the Initial Gross Proceeds and in the last financial period preceding the
Redemption Date, of a maximum amount of �100,000. Should these expenses exceed
this cap the return to Shareholders will be adversely impacted. The directors
do not anticipate that the expenses will exceed the Expense Provision.
The Debt Securities purchased by the Company mature on 21 December 2009 (the "
Maturity Date") and are due to be redeemed at their notional face value plus
five times the performance increase between 17 December 2003 and 17 December
2009 in the Nikkei 225 Index, capped at an amount equal to 100% of the notional
face value, so that the aggregate maturity proceeds are expected to be between
�30,000,000 if the Nikkei 225 Index closes on 17 December 2009 at or below its
starting value on 17 December 2003 of 10,092.64 and a maximum of �60,000,000 if
the Nikkei 225 Index closes at or above 12,111.17 on 17 December 2009, all
subject to counterparty default.
Provided that none of issuers of the Debt Securities defaults on its obligation
to pay the maturity proceeds on the Maturity Date, the minimum maturity proceeds
of �30,000,000 due are intended to satisfy the maximum payment due to be made by
the Company to the Put Option Counterparty on the maturity of the Put Option of
�30,000.000.
The directors and the Manager monitor the credit ratings of all issuers of the
Debt Securities. In the event of any downgrading in the long-term credit rating
of any issuer below A- or A3, as determined by Standard & Poor's and/or Moody's
Investor Services Inc respectively, the Company may in its absolute discretion
seek to sell the relevant Debt Securities to third party purchasers and to
reinvest the proceeds in the purchase of Debt Securities of another issuer such
that the new Debt Securities will replicate as closely as possible the terms and
conditions of the original Debt Securities. If the purchase of such Debt
Securities is not possible, the Directors may reinvest such proceeds as they see
fit in investments which, in the opinion of the Directors, as nearly as is
practicable, replicate the investment characteristics of the Debt Securities
sold and so that the proceeds are invested, as nearly as is practicable, in
accordance with the Company's stated investment objective. As at the accounting
reference date and the date of this report, all issuers of the Debt Securities
carried an investment grade credit rating.
(d) Interest Rate Risk
Interest rate risk is the risk that fluctuations in market interest rates will
result in a reduction in deposit interest earned on cash deposits held by the
Company. The Company holds cash on fixed deposit, the return of which is
subject to fluctuations. All fixed deposits mature within three months.
The weighted average effective interest rate for cash and bank balances as at 31
December 2007 was 5.48% (2006: 4.7%).
None of the other assets or liabilities of the Company attract or incur
interest.
Interest rate sensitivity
Interest rate risk arises from the possibility that changes in interest rates
will affect future cash flows or the fair value of financial instruments.
Except for cash set aside to meet expenses, the Company's assets and liabilities
are expected to be held until the Redemption Date.
If interest rates had been 100 basis points higher and all other variables were
held constant, the Company's increase in net assets attributable for the period
ended 31 December 2007 would have been �5,204 higher (2006: �6,721) due to an
increase in the amount of interest receivable on the bank balances.
If interest rates had been 100 basis points lower and all other variables were
held constant, the Company's increase in net assets attributable for the period
ended 31 December 2007 would have been �5,204 lower (2006: �6,721) due to an
increase in the amount of interest receivable on the bank balances.
The Company's sensitivity to interest rates is lower in 2007 than in 2006
because of a decrease in the value of cash balances held.
(e) Currency Risk
As both the Shares and the Debt Securities are Sterling-denominated,
Shareholders investing for Sterling returns will not be exposed to direct
currency risk. However the value of the underlying securities comprising the
Nikkei 225 may be affected by changes in the economic, political or social
environment in Japan, as well as globally, including changes in exchange rates.
(f) Capital Management
The investment objective of the Company is to provide shareholders, on the
Redemption Date, with five times the capital return of the Nikkei 225 Index, up
to a maximum amount (the "Final Capital Entitlement") of 200p per Share,
comprising a capital growth amount of up to a maximum of 100p per Share and a
capital amount of 100p per Share. The Final Capital Entitlement per Share is
designed to be determined by the performance of the Nikkei 225 Index over the
calculation period from 17 December 2003 to 17 December 2009.
The Company has an unlimited life but the Shares will be redeemed on or around
22 December 2009. Until then, the company has a fixed capital.
(g) Collateral
Under the terms of a Credit Support Deed dated 19 December 2003 entered into
between the Company and of Put Option Counterparty, the Company as security for
the Put Option has agreed to mortgage, charge and pledge with full title
guarantee, in favour of Put Option Counterparty by way of first fixed legal
mortgage all posted collateral and has assigned with full title guarantee, the
assigned rights to the Put Option Counterparty absolutely. The collateral is
held by the Custodian in a segregated account. Where there is an event of
default in respect of the Company under the Put Option, Put Option Counterparty
will be entitled to enforce its security over the collateral.
SCHEDULE OF INVESTMENTS as at 31 December 2007
31 Dec 2007 31 Dec 2007 31 Dec 2007
NOMINAL VALUATION TOTAL NET
DEBT SECURITIES PORTFOLIO HOLDINGS GBP ASSETS
%
Britannia Building Society Plc
0% Euro Medium Term Note 21 December 2009 4,500,000 7,397,550 14.87%
Caisse Centrale du Credit Immobilier de France
0% Euro Medium Term Note 21 December 2009 4,300,000 7,068,770 14.21%
Caixa General de Depositas
0% Euro Medium Term Note 21 December 2009 4,000,000 6,575,600 13.22%
Egg Banking Plc
0% Euro Medium Term Note 21 December 2009 4,300,000 7,068,770 14.21%
Irish Permanent
0% Euro Medium Term Note 21 December 2009 4,300,000 6,959,550 13.99%
Royal Bank of Scotland Plc
0% Euro Medium Term Note 21 December 2009 4,300,000 7,068,770 14.21%
Yorkshire Building Society
0% Euro Medium Term Note 21 December 2009 4,300,000 7,068,770 14.21%
49,207,780 98.92%
The Company has also sold a put option, details of which are shown below.
NOTIONAL VALUATION
HOLDING GBP
BNP Paribas Equity Index Option
expiring 17 December 2009 (30,000,000) (180,000)
SCHEDULE OF INVESTMENTS as at 31 December 2006
31 Dec 2006 31 Dec 2006 31 Dec 2006
NOMINAL VALUATION TOTAL NET
DEBT SECURITIES PORTFOLIO HOLDINGS GBP ASSETS
%
Britannia Building Society Plc
0% Euro Medium Term Note 21 December 2009 4,500,000 7,155,450 14.71%
Caisse Centrale du Credit Immobilier de France
0% Euro Medium Term Note 21 December 2009 4,300,000 6,837,430 14.06%
Caixa General de Depositas
0% Euro Medium Term Note 21 December 2009 4,000,000 6,832,270 14.05%
Egg Banking Plc
0% Euro Medium Term Note 21 December 2009 4,300,000 6,355,600 13.07%
Irish Permanent
0% Euro Medium Term Note 21 December 2009 4,300,000 6,842,590 14.07%
Royal Bank of Scotland Plc
0% Euro Medium Term Note 21 December 2009 4,300,000 6,842,590 14.07%
Yorkshire Building Society
0% Euro Medium Term Note 21 December 2009 4,300,000 6,842,590 14.07%
47,708,520 98.10%
The Company has also sold a put option, details of which are shown below.
NOTIONAL VALUATION
HOLDING GBP
BNP Paribas Equity Index Option
expiring 17 December 2009 (30,000,000) (60,000)
A pdf version of the annual financial report will shortly be posted on the
Managers web-site www.closeinvestments.co.uk and a further announcement will be
made once the annual financial report is available to be downloaded.
For further information contact:
Anson Fund Managers Limited
Secretary.
Tel: Guernsey 01481 722260
22 April 2008
END OF ANNOUNCEMENT
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SEIFMFSASELL
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