RNS Number:1810Y
Merrill Lynch Defined ReturnsII PLC
29 April 2004
Merrill Lynch Defined Returns II plc
Annual Report and Audited Financial Statements
For the year ended 31 December 2003
Table of Contents
General Information 3-4
Company Background 5
Investment Manager's Report 6-7
Statement of Custodian's Responsibilities and Custodians Report 8
Directors' Report 9-10
Independent Auditors' Report 11-12
Schedule of Investments 13-14
Statement of Operations 15
Statement of Assets and Liabilities 16
Statement of Changes in Net Assets 17
Statement of Cash Flow 18
Notes to the Financial Statements 19-26
General Information
Directors Peter Blessing (Irish)
Roger McGreal (Irish)
Michael Fullalove (British) (appointed 19 June 2003)
Ugo Maria Giordiano (Italian) (resigned 5 February 2003)
Company Secretary and Goodbody Secretarial Limited
Registered Office 25/28 North Wall Quay
Dublin 1
Distributor and Sponsor Merrill Lynch International
Merrill Lynch Financial Centre
2 King Edward Street
London EC1A 1HQ
England
Investment Manager Merrill Lynch Investment Managers LLC
800 Scudders Mill Road
Plainsboro
NJ 08536
USA
Administrator Citibank Ireland Financial Services plc
1 North Wall Quay
Dublin 1
Ireland
Registrar, Transfer Agent and Computershare Investor Services (Ireland) Limited
Irish Paying Agent Heron House
Corrig Road
Sandyford Industrial Estate
Dublin 18
Ireland
UK Transfer and Computershare Investor Services plc
Paying Agent The Pavillions
Bridgewater Road
Bristol BS99 7NH
England
Custodian Citibank International plc, Ireland Branch
1 North Wall Quay
Dublin 1
Ireland
Sponsoring Broker Merrill Lynch International
Merrill Lynch Financial Centre
2 King Edward Street
London EC1A 1HQ
England
General Information (continued)
Irish Legal Advisers A & L Goodbody
Solicitors
International Financial Services Centre
North Wall Quay
Dublin 1
Ireland
UK Legal Advisers Allen & Overy
One New Change
London EC4M 9QQ
England
Independent Auditors PricewaterhouseCoopers
Chartered Accountants and Registered Auditors
George's Quay
Dublin 2
Ireland
Company Background
Merrill Lynch Defined Returns II plc ("The Company") is an umbrella investment
company with variable capital incorporated on 23 July 2001 under the laws of
Ireland and authorised under Part XIII of the Companies Act, 1990, as a
designated closed-ended investment company pursuant to Section 256 of that Act.
The Company has issued two classes of shares (the "Shares"), namely the Zero
Dividend Shares, and the Income Shares. Each Class of Shares represents a
separate portfolio of assets, each a sub-fund.
The Company has a Planned Life of approximately three years to its Exit Date of
13 December 2004, following which it is expected that the Company will be
wound-up and returns paid to Shareholders.
The Investment Objective of the Company and each Fund is set out in the
Prospectus for the Company. The Investment Objective of the Company is to offer
investors a fixed return per Zero Dividend Share and a fixed dividend of GBP
8.25 pence per annum per Income Share payable quarterly in arrears and to
provide a return of Capital of GBP 100 pence per Income Share, subject to the
individual share performance of the Underlying Stocks.
The Income Shares are designed to offer a fixed dividend of GBP 8.25 pence per
Income Share per annum, payable quarterly in arrears in equal instalments on 13
March, 13 June, 13 September and 13 December in each year, the first such
instalment being payable on 13 March 2002, and to return a capital amount on the
winding up of the Company following the Exit Date of GBP 100 pence, subject to
the individual share price performance of each of the Underlying Stocks on the
Final Valuation Date (expected to be 13 December 2004 for each Class of Share).
If, in respect of any of the Underlying Stocks, the Final Stock Level is lower
than 90% of its Initial Stock Level, the Sterling Income Share Capital Return
will be reduced by GBP 0.03704 pence for each 1% that it is lower. No reduction
in the Sterling Income Share Capital Return will be incurred for any Underlying
Stock whose Final Stock Level has fallen by 10% or less and there will be no
increase for any Underlying Stock whose Final Stock Level is greater than its
Initial Stock Level.
The Zero Dividend Shares are designed to offer investors a fixed return per Zero
Share on the winding up of the Company following the Exit Date of GBP 126.85
pence, subject to the individual share price performances of the Underlying
Stocks on the Final Valuation Date. The Zero Dividend Shares will not pay
dividends.
If, in respect of any of the Underlying Stocks, the Final Stock Level is lower
than 80% of its Initial Stock Level, the Zero Dividend Share Capital Return will
be reduced by GBP 0.052854 pence for each 1% that it is lower. No reduction in
the Zero Dividend Share Capital Return will be incurred for any Underlying Stock
whose Final Stock Level has fallen by 20% or less and there will be no increase
for any Underlying Stock whose Final Stock Level is greater than its Initial
Stock Level.
The capital risk to the two Classes of Shares as a result of the linkage to the
Underlying Stocks is not the same as linkage to an index comprising the
Underlying stocks. Positive movements in one or more of the Underlying Stocks
will not compensate for falls in the Underlying Stocks, which would normally be
the case for an index.
In order to achieve the desired characteristics of each class of share, the
Company invested approximately 90% of the gross proceeds of the Offer in
portfolios of Sterling Medium Term Notes Instruments in respect of each of the
sub funds. The purpose of the Swap and Option Transactions is to enable the
Company to match more efficiently the cash flows on the portfolio to the
payments intended to be made under the investment objectives of the Company.
The Company is listed on the London Stock Exchange.
Investment Manager's Report for the year ended 31 December 2003
Sterling Zero Shares Net Asset Value
The Net Asset Value per share of the Sterling Zero Shares on 31st December 2003
was GBP #0.978(1), an increase of 2.95%, relative to an initial Net Asset Value
per Share of #0.95, since inception. The NAV has increased by 26.85% since 31st
December 2002, at which time it was equal to #0.771. Of the initial 30 stocks,
27 are below their initial value and 17 are below 80% of their initial value, as
at close of business on 31st December 2003. The stocks most affected are
Ericsson, Reuters, and Corus. Consequently, the unrealised loss on capital is
16.33 pence (on the basis of 0.052854 pence for each 1% the stock is below 80%
from the initial price level).
These shares trade on the London Stock Exchange. On 31st December 2003 the
closing share price for the Zero Shares was GBP #0.96(2), representing a
discount of (1.84)% to the prevailing Net Asset Value.
Sterling Income Shares Net Asset Value
The Net Asset Value per share of the Sterling Income Shares on 31st December
2003 was GBP #0.803(3), a decline of (15.47)%, relative to an initial Net Asset
Value per Share of #0.95, since inception. The NAV has increased by 10.30% since
31st December 2002, at which time it was equal to #0.728. Of the initial 30
stocks, 27 are below their initial value and 22 are below 90% of their initial
value as at close of business on 31st December 2003. The stocks most affected
are Ericsson, Reuters, and Corus. Consequently, the unrealised loss on capital
is 18.67 pence (on the basis of 0.03704 pence for each 1% the stock is below 90%
from the initial price level).
These shares trade on the London Stock Exchange. On 31st December 2003 the
closing share price for the Income Shares was GBP #0.775(4), representing a
discount of (3.49)% to the prevailing Net Asset Value.
The Income shares are designed to offer a fixed dividend of 8.25 pence per
annum, payable in equal quarterly instalments.
(1) Source: Citibank
(2) Source: Bloomberg
(3) Source: Citibank
(4) Source: Bloomberg
Investment Manager's Report for the year ended 31 December 2003 (Continued)
Market Review(5)
2003 marked the end of the longest and deepest equity bear market since the
Great Depression. Punctuated by better-than-expected earnings due to stunning
productivity and modest revenue growth, the equity market recorded
better-than-consensus returns. After a setback related to the start of war with
Iraq, the market did not look back and never had more than a 5% pullback. As is
common after a major bear market low, the best performers featured low-quality,
high beta and small capitalization issues as well as those with earnings losses
and low prices.
The S&P 500 Index closed at 1,111.92 on December 31st, it's high for the year,
up 232.10 points for a price return of 26.38%. The DJIA also closed the year
with its high for the period, 10,453.92, up 2,112.29 points for a price return
of 25.32%. The NASDAQ closed at 2,003.37, up 667.86 points for a price return
of 50.01%, as technology stocks outperformed the broader market.
The European markets moved upward over the year though not as dramatically as
domestic markets, with the Dow Jones STOXX 50 closing at 2,660.37, up 252.86
points or 10.50% in Euros, and the FTSE 100 closing at 4,476.90, up 536.50
points or 13.62% in Sterling. Global markets saw significant positive returns
for the year with the MSCI World closing at 1,036.32, up 244.11 points or
30.81%, in U.S. dollars.
Over the calendar year, the European Central Bank (ECB) cut rates twice from
2.75% to 2.50% and from 2.50% to 2.00%, the lowest level since 1999. Low rate
levels reflected an effort to boost Europe's struggling economy and counter the
Euro's rise, as Euro strengthening negatively affects export competitiveness.
Despite decreasing rates, the Euro appreciated 20.20% versus the U.S. Dollar
with a WM Rate of 1.2613 on 31st December 2003.
Market Outlook
Favorable liquidity conditions, stimulative fiscal policy and rising earnings
expectations have been responsible for the equity bull market that began in
October 2002. The stimulus from falling interest rates and excess liquidity is
passing at the same time the growth baton is being passed from the U.S. consumer
to the rest of the U.S. economy and the world. Recent data has reaffirmed our
confidence in global economic recovery, while growth is likely to stabilize
after sharp acceleration. Global earnings should continue to rise, although
earnings momentum is close to a peak. We expect to see interest rates rise
before the end of 2004, but inflationary pressure should not be significant.
Euro-zone economic data is starting to turn more positive, but to a much lesser
extent than for the U.S., however the Euro may push higher as the most obvious
candidate to gain on U.S. Dollar selling. Risks remain focused on the U.S.,
which will continue to drive global growth in 2004.
(5) Source for all figures in section: Bloomberg
Statement of the Custodian's Responsibilities
The Custodian is required under the Irish Financial Service Regulatory Authority
Non-UCITS Notices ("the Notices") to ensure that inter alia, it:-
* takes into its custody, or under its control, all the assets of the
Company and holds them in safekeeping for the Shareholders in accordance with
the Notices and the Memorandum and Articles of Association;
* enquires into the conduct of the Company in each accounting period and
reports thereon to the Shareholders in a report which shall contain the
matters prescribed by the Irish Financial Service Regulatory Authority
Notices.
Custodian's Report to the Shareholders of Merrill Lynch Defined Returns II plc.
We have enquired into the conduct of Company, Merrill Lynch Defined Returns II
plc for the year ended 31 December 2003 in our capacity as Custodian to the
Company.
In our opinion, Merrill Lynch Defined Returns II plc has been managed during the
year in all material respects:
a) in accordance with the limitations imposed on the investment and
borrowing powers of the Company by the Memorandum and Articles of Association
and by the Irish Financial Service Regulatory Authority ("the IFSRA") under
the powers granted to the Bank by Part XIII the Companies Act, 1990; and
b) otherwise in accordance with the provisions of the Memorandum and
Articles of Association and Part XIII the Companies Act, 1990.
Citibank International plc, Ireland Branch
1, North Wall Quay,
Dublin 1
_________________
Date 21/4/04
Directors' Report
The Directors present herewith audited financial statements for the year ended
31 December 2003.
Statement of Directors' Responsibilities
Irish company law requires the Directors to prepare financial statements for
each financial year which give a true and fair view of the state of affairs of
the Company and of the profit or loss of the Company for that period. In
preparing those financial statements, the Directors are required to:
* select suitable accounting policies and apply them consistently;
* make judgements and estimates that are reasonable and prudent;
* prepare the financial statements on the going concern basis unless it
is inappropriate to presume that the Company will continue in operation.
The Directors are responsible for keeping proper books of account which disclose
with reasonable accuracy at any time the financial position of the Company and
to enable them to ensure that the financial statements are prepared in
accordance with accounting standards generally accepted in Ireland and comply
with the Companies Acts, 1963 to 2003. They are also responsible for
safeguarding the assets of the Company and hence for taking reasonable steps for
the prevention and detection of fraud, error and other irregularities. Under the
non-Ucits Regulations, the Directors are required to entrust the assets of the
company to the Trustee for safekeeping. In carrying out this duty, the Directors
have delegated custody of the company assets to Citibank International plc,
Ireland Branch.
Proper Books of Account
The measures taken by the Directors to secure compliance with the Company's
obligation to keep proper books of account are the use of appropriate systems
and procedures and employment of competent persons. The books of account are
kept at the following address; 1 North Wall Quay, Dublin 1.
Principal activities and review of the business
The Company has been established as a closed-ended investment company, with
variable capital, incorporated with limited liability under the laws of Ireland.
The Company has issued two classes of shares each of which shall represent
interests in a defined portfolio of assets and liabilities established as a
sub-fund of the Company.
The investment objective of the Company is to provide defined returns to
investors on the two classes of Shares based on the performance of the Index.
The Index is a capitalisation weighted Index of all the companies listed on the
First Section of the Tokyo Stock Exchange, and as such is a broad based measure
of the performance of the top Japanese companies.
The business of the Company has been reviewed in the Investment Manager's Report
on pages 6 and 7.
Results and Dividend
The results for the year are set out in the statement of operations on page 15.
The Income Shares paid four quarterly dividends from the annual payment of GBP
8.25 pence per Share, amounting to GBP 1,051,875 in total. No other dividends
were paid or declared for the period under review.
Directors' Report (Continued)
Directors' and Secretary's Interests
The Directors' and Secretary and their families had no interest in the Shares of
the Company at 31 December 2003.
Directors' Remuneration
The Directors' fees are borne by the Distributor as outlined in the Distribution
and Sponsorship Agreement. The aggregate amount of the Directors' remuneration
in any one year shall not exceed GBP 10,000.
Events since the year end
There have been no significant events affecting the Company since the year end.
Independent Auditors
The auditors, PricewaterhouseCoopers, have indicated their willingness to
continue in office in accordance with S160 (2) of the Companies Act, 1963.
On behalf of the Board
_____________ _______________
Director Director
Date 21.04.04 21/4/04
Independent Auditors' Report to the Shareholders of Merrill Lynch Defined
Returns II plc
We have audited the financial statements on pages 15 to 26 and the Schedules of
Investments on pages 13 and 14 which have been prepared under the historical
cost convention as modified by the inclusion of investment at valuation, and the
accounting policies set out on page 19.
Respective responsibilities of directors and auditors
The Directors' responsibilities for preparing the annual report and the
financial statements in accordance with applicable Irish law and accounting
standards generally acceptable in Ireland are set out on page 9 in the statement
of directors' responsibilities.
Our responsibility is to audit the financial statements in accordance with
relevant legal and regulatory requirements and auditing standards issued by the
Auditing Practices Board applicable in Ireland. This report, including the
opinion, has been prepared for and only for the company's members as a body in
accordance with Section 193 of the Companies Act 1990 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 those 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 Irish Statute
comprising the Companies Acts, 1963 to 2003. We state whether we have obtained
all the information and explanations we consider necessary for the purposes of
our audit and whether the financial statements are in agreement with the books
of account. We also report to you our opinion as to:
* whether the Company has kept proper books of account; and
* whether the Directors' Report is consistent with the financial statements.
We also report to you if, in our opinion, any information required by law
regarding Directors' remuneration and transactions is not disclosed.
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 and the Directors' Report.
Basis of Audit opinion
We conducted our audit in accordance with Auditing Standards 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.
In addition we have considered the adequacy of the disclosures in note 1 to the
financial statements concerning the terms of the Prospectus of the Company
whereby the planned exit date of the Company is set for 13 December 2004. In
view of the significance of this future event we consider that it should be
drawn to your attention but out opinion is not qualified in this respect.
Independent Auditors' Report to the Shareholders of Merrill Lynch Defined
Returns II plc (Continued)
Opinion
In our opinion the financial statements give a true and fair view of the state
of the Company's affairs at 31 December 2003 and of its results, cashflows and
changes in net assets for the year then ended and have been properly prepared in
accordance with the Companies Acts, 1963 to 2003.
We have obtained all the information and explanations we consider necessary for
the purposes of our audit. In our opinion proper books of account have been kept
by the Company. The financial statements are in agreement with the books of
account.
In our opinion the information given in the Directors' Report on pages 9 and 10
is consistent with the financial statements.
PricewaterhouseCoopers
Chartered Accountants and Registered Auditors
Dublin
Date 21 April 2004
Merrill Lynch Defined Returns II Plc
Statement of Operations
for the year ended 31 December 2003
Income Zero Dividend 2003 2002
Shares Shares Total Total
GBP GBP GBP GBP
Note
Income
Interest Income 1(b) 4,034 6,014 10,048 13,618
Income on medium term notes 440,536 656,486 1,097,022 1,250,789
Less: payments under "Swap and 1(c) (442,528) (659,453) (1,101,981) (1,192,323)
Option" transaction
Income under "Swap and Option" 1(c) 1,051,875 0 1,051,875 1,051,875
transaction
1,053,917 3,047 1,056,964 1,123,959
Expenditure
Distribution and
intermediary fees 4 0 0 0 1,587,500
Operating expenses 4 63,895 95,000 158,895 166,853
63,895 95,000 158,895 1,754,353
Net gains/(losses) on 990,022 (91,953) 898,069 (630,394)
Investment activities
Net change in 1,017,987 4,028,798 5,046,785 (6,151,168)
Unrealised Gains/(Losses)
Dividends Paid 6 (1,051,875) 0 (1,051,875) (1,051,875)
Retained Gain/ Loss 956,134 3,936,845 4,892,979 (7,833,437)
for the period
There are no recognised gains or losses for the year other than those set out in the above
Statement of Operations. Net investment income arose solely from continuing operations.
The accompanying notes form an integral part of the financial statements.
Bernard Hoey 21/04/2004
Director Date
Roger McGreal 21/04/2004
Director Date
Merrill Lynch Defined Returns II Plc
Statement of Assets and Liabilities
as at 31 December 2003
Income Zero Dividend 2003 2002
Shares Shares Total Total
GBP GBP GBP GBP
Note
Assets
Investments 3 10,141,759 18,440,109 28,581,868 23,535,083
Cash 12 73,882 110,348 184,230 331,927
Debt Interest Receivable 20,700 30,847 51,547 57,656
10,236,341 18,581,304 28,817,645 23,924,666
Liabilities
Accrued expenses 4 (3,254) (4,849) (8,103) (8,103)
Net Assets at 31 December 2003 10,233,087 18,576,455 28,809,542 23,916,563
Number of shares in issue 2 12,750,000 19,000,000
Net Asset Value per Share 10 GBP 0.803 GBP 0.978
The accompanying notes form an integral part of the financial statements
Roger McGreal 21/04/2004
Director Date
Bernard Hoey 21/04/2004
Director Date
Merrill Lynch Defined Returns II Plc
Statement of Changes in Net Assets
for the year ended 31 December 2003
Income Zero Dividend 2003 2002
Shares Shares Total Total
GBP GBP GBP GBP
From Operations:
Net Investment Income / (Expenses) 990,022 (91,953) 898,069 (630,394)
Net Unrealised Gains/
(Losses) on Investments 1,017,987 4,028,798 5,046,785 (6,151,168)
Dividend Paid (1,051,875) 0 (1,051,875) (1,051,875)
Net Increase/(Decrease) in Net Assets
resulting from Operations 956,134 3,936,845 4,892,979 (7,833,437)
From Financing:
Issue of shares 0 0 0 31,750,000
Net Increase in Assets resulting
from Financing 0 0 0 31,750,000
Total Increase in Net Assets 956,134 3,936,845 4,892,979 23,916,563
Net Assets at beginning of the period 9,276,953 14,639,610 23,916,563 0
Net Assets at end of the period 10,233,087 18,576,455 28,809,542 23,916,563
The accompanying notes form an integral part of the financial statements.
Merrill Lynch Defined Returns II Plc
Statement of Cash Flow
for the year ended 31 December 2003
Income Zero 2003 2002
Shares Shares Total Total
GBP GBP GBP GBP
Operating Activities
Initial expenses 0 0 0 (1,587,500)
Interest Income net of operating expenses 380,675 567,500 948,175 1,097,553
Swap payment (442,528) (659,453) (1,101,981) (1,192,323)
Swap Income 1,051,875 0 1,051,875 1,051,875
Increase in Debt Interest Receivable 2,453 3,656 6,110 (57,656)
Increase in Accrued Expenses 1 (1) 0 8,103
Net cash inflow/(outflow)
from Operating Activities 992,476 (88,298) 904,179 (679,948)
Investing Activities
Purchase of investments 0 0 0 (29,686,250)
Sale of investments 0 0 0 0
Net cash outflow
from Investing Activities 0 0 0 (29,686,250)
Financing activities
Cash received on shares issued 0 0 0 31,750,000
Cash paid for shares redeemed 0 0 0 0
Dividends Paid (1,051,875) 0 (1,051,875) (1,051,875)
Net cash inflow
from Financing Activities (1,051,875) 0 (1,051,875) 30,698,125
Increase in cash (59,399) (88,298) (147,696) 331,927
Cash at start of period 133,281 198,646 331,927 -
Cash at end of period 73,882 110,348 184,230 331,927
Merrill Lynch Defined Returns II Plc
Zero Dividend Portfolio
Schedule of Investments
as at 31 December 2003
Fund
Value %
Holding Investments GBP of Fund
Sterling Instruments
3,420,000 Banca Intesa Floating Rate Note 13 December 2004 3,420,684 18.41%
3,420,000 Britannia Building Society Floating Rate Note 13 December 2004 3,421,026 18.42%
3,420,000 Northern Rock Floating Rate Note 13 Decemeber 2004 3,420,000 18.41%
3,420,000 Prudential Bank Floating Rate Note 13 December 2004 3,418,974 18.40%
3,420,000 SNS Bank Nederland Floating Rate Note 13 December 2004 3,420,342 18.41%
17,101,026 92.05%
Swap and Option Transaction
19,000,000 -exercise date 13 December 2004 1,339,083 7.21%
Total Value of Investments (Cost GBP 17,765,000) 18,440,109 99.26%
Cash 110,348 0.59%
Net Current Assets 25,998 0.14%
Total Value of Funds 18,576,455 100.00%
*Exercise value covered by Sterling Instruments.
The counterparty is Merrill Lynch International.
Merrill Lynch Defined Returns II Plc
Income Share Portfolio
Schedule of Investments
as at 31 December 2003
Fund
Value %
Holding Investments GBP of Fund
Sterling Instruments
2,295,000 Banca Intesa Floating Rate Note 13 December 2004 2,295,459 22.43%
2,295,000 Britannia Building Society Floating Rate Note 13 December 2004 2,295,689 22.43%
2,295,000 Northern Rock Floating Rate Note 13 Decemeber 2004 2,295,000 22.43%
2,295,000 Prudential Bank Floating Rate Note 13 December 2004 2,294,312 22.42%
2,295,000 SNS Bank Nederland Floating Rate Note 13 December 2004 2,295,230 22.43%
11,475,689 112.14%
Swap and Option Transaction
12,750,000 - exercise date 13 December 2004 (1,333,930) (13.04)%
Total Value of Investments (Cost GBP 11,921,250) 10,141,759 99.10%
Cash 73,882 0.72%
Net Current Assets 17,446 0.17%
Total Value of Funds 10,233,087 100.00%
*Exercise value covered by Sterling Instruments.
The counterparty is Merrill Lynch International.
Notes to the Financial Statements
1. Significant Accounting Policies
a) Basis of Accounting and Presentation of Financial Statements
These financial statements have been prepared in accordance with
accounting standards generally accepted in Ireland and Irish statute comprising
the Companies Acts, 1963 to 2003. Accounting standards generally accepted in
Ireland in preparing financial statements giving a true and fair view are those
published by the Institute of Chartered Accountants in Ireland and issued by the
Accounting Standards Board.
The Financial Statements are prepared under the historical cost
convention as modified to include investments at valuation.
The Profit & Loss Account is referred to as the Statement of
Operations and the Balance Sheet as the Statement of Net Assets.
The format and certain wordings of the financial statements has
been adapted from those contained in the Companies Act, 1986 and FRS 3 "
Reporting Financial Performance" so that, in the opinion of the Directors, they
more appropriately reflect the nature of the Company's business as an investment
fund.
b) Interest Income
Interest Income is recognised on an accruals basis.
c) Valuation of Investments
Sterling Instruments
The Company invests in a number of Sterling Instruments comprising medium term
notes issued by a financial institution that has a rating of at least A-, as
determined by Standard & Poor's and/or Moody's Investor Service Inc. These
Securities are valued on the basis of market prices prevailing at the balance
sheet date. The "unrealised gains/losses" resulting from the marking to market
of these investments is reflected in the Statement of Operations. It is the
intention of the Company to hold these investments until the Exit Date i.e. 13
December 2004 and consequently to date there has been no sale of investments.
Swap and Option Transactions
The Swap and Option Transactions (the "transactions") represent
"over the counter" trades and are valued by the relevant counterparty, Merrill
Lynch International, at a market value based on various criteria, which reflects
prevailing market conditions. This valuation is provided to and relied upon by
the Board of Directors as being a fair value of the transactions.
As the transactions are not readily marketable, in order to verify the valuation
provided by the counterparty under the terms of the Prospectus, the Directors
are required to have the transactions valued monthly by a party independent of
the counterparty, who is approved for such purpose by the Custodian. The
Directors on a monthly basis have obtained a quotation from Merrill Lynch
Investment Managers ("MLIM"). The Custodian has approved MLIM and the Board is
satisfied that MLIM is independent of Merrill Lynch International.
The initial premium paid on the "Swap and Option Transaction" represents the
cost of the transaction to the Fund. The resulting unrealised gain or loss is
included in unrealised appreciation of Investments in the Statement of
Operations.
Merrill Lynch International is the counterparty to the Swap and Option
Transactions as at 31 December 2003.
Notes to the Financial Statements (continued)
1. Significant Accounting Policies (continued)
d) Going Concern
The financial statements have been prepared on a termination basis in accordance
wit the terms of the Prospectus whereby the Company has a planned life of
approximately three to it exit date of 13 December 2004. The directors are
satisfied that the Assets and Liabilities are valued appropriately and that no
provisions are necessary to account for termination costs, as they are payable
by Merrill Lynch International in accordance with the prospectus and note 4.
2. Share Capital
Authorised
The Company has an authorised share capital of 500,000,000
participating shares of no par value and two subscriber shares of GBP 1.00 each.
Subscriber shares
Subscriber shares issued amount to GBP 2.00, being 2 subscriber shares of GBP
1.00 each, fully paid. The subscriber shares do not form part of the net asset
value of the Company and are thus disclosed in the financial statements by way
of this note only. In the opinion of the Directors, this disclosure reflects the
nature of the Company's business as an investment fund.
Participating shares
The issued participating share capital is at all times equal to the net asset
value of the Company. The participating shares are in substance equity shares.
Issued Share Capital
Sterling Shares
Income Shares Zero Shares Total
Number Number Number
Shares in issue at 31 December 2002 12,750,000 19,000,000 31,750,000
======= ======= =======
Shares in issue at 31 December 2003 12,750,000 19,000,000 31,750,000
======= ======= =======
Those with a holding of 10% and over as at 31 December 2003 are as follows:
Income Shares Shares
Rathbone (Nominees) Limited 1,721,045
Nutraco (Nominees) Limited 1,494,429
Zero Shares Shares
Merrill Lynch International 4,512,536
Rathbone (Nominees) Limited 3,848,000
Notes to the Financial Statements (continued)
3. Investments
Income Total Total
Shares Zero Shares 2003 2002
GBP GBP GBP GBP
Market Value beginning of year 9,123,772 14,411,311 23,535,083 -
Additions - - - 29,686,251
Unrealised movement on revaluation 1,017,987 4,028,798 5,046,785 (6,151,168)
Market Value at year end 10,141,759 18,440,109 28,581,868 23,535,083
Swap and Option Transactions
The Company entered into swap and option transactions (the "Swap and Option
Transactions") for the sub-funds comprising each of the Income Shares and the
Zero Dividend Shares. The purpose of the Swap and Option Transactions is to
enable the Company on behalf of each sub-fund 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 sub-fund and also to generate part of the
Capital Return to Shareholders following the Exit Date. The Swap and Option
Transaction for each sub fund involve the writing of 30 Individual put options
on the underlying stocks in favour of the counterparty to the Swap and Option
transaction.
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 the Sterling Instruments. The obligations arising from the "Swap and Options
Transaction" are as follows:
Income Shares
The Fund is obligated to pay the following;
An initial premium payment of GBP 446,250 and payment of the
quarterly interest received on the Sterling Instruments. The Income Shares also
pay a fixed dividend of GBP 8.25 pence per Income Share per annum (no dividend
will be paid, except out of income received from the Income Share portfolio and
the Income Share swap and option transaction).
On the Exit Date (13 December 2004) an investor is entitled to a return of
capital of GBP 100 pence subject to the following; if in respect of any of the
Underlying Stocks, the Final Stock Level is less than 90% of the Initial Stock
Level, the return of capital is reduced by GBP 0.03704 pence for each 1% that
the relevant Final Stock Level is below 90% of the relevant Initial Stock Level.
Thus for the Income Shares, the investor's capital is not protected and returns
not guaranteed.
Zero Dividend Shares
The Fund is obligated to pay the following;
Initial premium payment of GBP 665,000 and payment of the
quarterly interest received on the Sterling Instruments. No dividend is payable
on the Zero Shares.
On Exit Date (13 December 2004) an investor is entitled to a return of GBP
126.85 pence per share subject to the following; if in respect of any of the
Underlying Stocks, the Final Stock Level is less than 80% of the Initial Stock
Level, the return of capital is reduced by GBP 0.052854 pence for each 1% that
the relevant Final Stock Level is below 80% of the relevant Initial Stock Level.
Thus for the Zero Shares the investor's capital is not protected and returns not
guaranteed.
Notes to the Financial Statements (continued)
4. Fees and Expenses
The Company entered into a Distribution and Sponsorship Agreement
with the Sponsor and Distributor whereby the Sponsor and Distributor agreed (i)
to promote the Shares and procure subscribers for the Shares, and (ii) to
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. Under the Sponsorship and Distribution Agreement the
Company paid to the Sponsor and Distributor an initial fee of 2% of the issue
price of the shares.
A commission of 3% of the Issue Price of the Shares was paid to
authorised intermediaries by the Distributor and Sponsor who were reimbursed by
the Company. Following payment of the initial fees and the commission expenses,
an investor's net investment in the shares of any class was 95% of the issue
price of the shares.
The distributor and the intermediary expenses are included in the Statement of
Operations.
The Company has entered into Distribution and Sponsorship, Investment
Management, Custodian, Administration, Registrar and Paying Agency Agreements
with authorised entities in Ireland and the United Kingdom. Under the
Distribution and Sponsorship Agreement, the Distributor and Sponsor has agreed
to discharge the costs of these agreements, together with the legal,
secretarial, auditing and other professional expenses of the Company incurred
throughout its Planned Life, for which the Company will pay a capped annual fee
of up to 0.5% of the issue price (GBP 1 per share) and USD 1 per share
respectively of the shares to the distributor and sponsor. In the event that
the distributor and sponsor fail to make payment on behalf of the Company, the
Company shall remain liable for all sums due under the agreements. The charge
for the period and the amount due at the period end are shown in the Statement
of Operations and the Statement of Net Assets respectively.
5. Taxation
Under current law and practice, the Company qualifies as an investment
undertaking as defined in Section 739B of the Taxes Consolidation Act, 1997, as
amended. It is not chargeable to Irish tax on its income or capital gains.
However, Irish tax can arise on the happening of a "chargeable event" in the
Company. A chargeable event includes any distribution payments to shareholders
or any encashment, redemption or transfer of shares. No tax will arise in
respect of chargeable events in respect of;
(i) a shareholder who is not Irish resident and not ordinarily resident in
Ireland at the time of the chargeable event, provided the necessary signed
statutory declarations are held by the Company; and
(ii) certain exempted Irish resident investors who have provided the Company
with the necessary signed statutory declarations.
Transactions in respect of shares in the Company that are held on a recognised
clearing system will not be regarded as chargeable events, and as such, no Irish
taxation will be required to be deducted in respect of same.
Capital gains, dividends, and interest received by the Company may be subject to
withholding taxes imposed by the country of origin and such taxes may not be
recoverable by the Company or its shareholders. The Company qualifies as an
investment undertaking as defined in Section 739B of the Taxes Consolidation
Acts, 1997, as amended. It is not chargeable to Irish tax on its income and
gains.
Notes to the Financial Statements (continued)
6. Dividends
The Income Shares paid four quarterly dividends from the annual payment of GBP
8.25 pence per Share, amounting to GBP 1,051,875 in total. No other dividends
were paid or declared for the period under review.
7. Commitments and Contingent Liabilities
The risks associated with all Share Classes are as outlined in Note 3.
8. Directors' and Auditors' 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 GBP 10,000 plus any VAT payable
thereon.
The annual remuneration of the Directors (GBP 8,280) and Auditors (GBP 4,830) is
paid by the Sponsor and Distributor in accordance with the Prospectus, as
outlined in Note 4, for both years 2003 and 2002.
9. Portfolio Changes
There were no portfolio changes during the period.
10. Net Asset Value ('NAV') & ('NAV') Per Share
31 December 2003 31 December 2002 12 December 2001
(launch)
Income Shares 10,233,087 9,276,953 12,750,000
Net Asset Value per share 0.803 0.728 1.000
Zero Shares 18,576,455 14,639,610 19,000,000
Net Asset Value per share 0.978 0.771 1.000
11. Soft Commission Arrangements
There were no soft commission arrangements in place during the period ended 31
December 2003.
12. Cash
All monies of the Funds are held with Citibank N.A. in the name
of Citibank International plc, Ireland Branch as Custodian of the relevant
funds.
13. Financial Instruments and Derivatives
In pursuing their investment objective, as set out on page 5, the Company
invests in securities with the aim of spreading investment risk. Investments in
securities and derivatives expose the Company to various risks, including market
price, interest rate, liquidity and credit risks. A description of the specific
risks and the policies for managing these risks are included below. The
securities in which the funds may invest must generally be quoted or dealt in,
on a regulated market approved by the Irish Financial Services Regulatory
Authority or as provided for in the Articles of Association. An analysis of
these types of securities held at the period end is contained in the Schedule of
Investments. It is not proposed to borrow or leverage in respect of the Company.
Market Price Risk
Market risk arises mainly from 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 this Company, market risk will be significant, but is negated through
the Company entering swap and option transactions as set out in the accounting
policies.
Notes to the Financial Statements (continued)
Interest Rate Risk
Where the Company invests in interest paying 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. This risk is negated through the
Company entering into swap and option transactions as set out in the accounting
policies.
13. Financial Instruments and Derivatives
The interest rate profile of the financial assets, excluding cash and short-term
debtors and creditors, in the portfolios as at 31 December 2003 was:
Income Shares December 2003
Floating Rate
Financial
Financial Assets
Floating Rate Fixed Rate Assets Weighted Avg
Total Financial Interest Weighted Avg Period for which
Assets Assets Interest Rate is floating
Rate
GBP GBP GBP % yrs
11,475,689 11,475,689 0 0.00 0.95
11,475,689 11,475,689 0 0.00 0.95
Income Shares December 2002
Floating Rate
Financial
Financial Assets
Floating Rate Fixed Rate Assets Weighted Avg
Total Financial Interest Weighted Avg Period for which
Assets Assets Interest Rate is floating
Rate
GBP GBP GBP % yrs
11,453,198 11,453,198 0 0.00 1.95
11,453,198 11,453,198 0 0.00 1.95
Zero Dividend Shares December 2003
Floating Rate
Financial
Financial Assets
Floating Rate Fixed Rate Assets Weighted Avg
Total Financial Interest Weighted Avg Period for which
Assets Assets Interest Rate is floating
Rate
GBP GBP GBP % yrs
17,101,026 17,101,026 0 0.00 0.95
17,101,026 17,101,026 0 0.00 0.95
Notes to the Financial Statements (continued)
13. Financial Instruments and Derivatives (continued)
Zero Dividend Shares December 2002
Floating Rate
Financial
Financial Assets
Floating Rate Fixed Rate Assets Weighted Avg
Total Financial Interest Weighted Avg Period for which
Assets Assets Interest Rate is floating
Rate
GBP GBP GBP % yrs
17,067,510 17,067,510 0 0.00 1.95
17,067,510 17,067,510 0 0.00 1.95
Foreign Exchange Risks
The net assets of the sub funds are denominated in Sterling, the base currency
of the sub funds, hence no exposure to foreign currency risk arises.
Liquidity Risk
The Companies assets comprise mainly UK floating rate notes and
swap and option transactions. The return on the shares are largely dependent on
the individual share price performance of the 30 Underlying Stocks i.e. shares
in European blue chip companies that are split across nine broad industry
sectors.
Credit Risk
The Company will be exposed to a credit risk on the parties with
whom it trades 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- from Standard & Poor's and/or
Moody's Investor Service, Inc.
Fair value of financial assets and financial liabilities
All of the financial assets and liabilities of the Company are held at fair
value. The realised and unrealised gains and losses arising from trading in
financial assets are shown in the schedule "Statement of changes in Net Assets"
of each portfolio and as a combined figure in the Statement of Operations for
the Company.
Notes to the Financial Statements (continued)
14. Significant Agreements and transactions with related parties
The following agreements have been entered into by the Company with related
parties.
The Investment Management Agreement
Investment Management Agreement between the Company and Merrill Lynch Investment
Managers LLC under which Merrill Lynch Investment Managers LLC has been
appointed as the Investment Manager of the investments and assets of the Company
and will provide the investment management services required by the Company. In
providing these services the Investment Manager is granted a wide investment
discretion but will be subject to the overall supervision of the Directors.
The Agreement provides that the appointment of the Investment Manager will
continue unless and until terminated by either party, giving to the other not
less than 90 days notice, although in certain circumstances the agreement may be
terminated forthwith by notice in writing by either party to the other; the
Agreement also contains certain indemnities in favour of the Investment Manager
which are restricted to exclude matters arising by reason of the negligence,
fraud or wilful default of the Investment Manager in the performance of his
duties.
The Distribution and Sponsorship Agreement
The Distribution Agreement provides that the appointment of the Distributor will
continue in force unless and until terminated by either party, giving to the
other not less than 90 days written notice, although in certain circumstances
the Agreement may be terminated forthwith by notice in writing by either party
to the other. The Agreement contains certain indemnities in favour of the
Distributor, which are restricted to exclude matters arising by reason of
negligence or wilful default or from a material breach of the Distributor and
Sponsor's obligations under this Agreement. Amounts payable to the Distributor
at period end can be seen on the face of the balance sheet.
Swap and Option Transactions
The counterparties to the "Swap and Option Transaction" are Merrill Lynch
International. Details of the transaction are set out in Note 3. The payments
for the period and the amounts due at the end are shown in the Statement of
Operations and the Statement of Net Assets respectively.
15. Cross Liability
The assets of each sub fund may be exposed to the liability of other sub-funds
within the Company. At 31 December 2003, the Directors are not aware of any such
existing or contingent liability.
16. Significant Events during the Period
The Company appointed Merrill Lynch Investment Managers LLC as Investment
Manager with effect from 29 April 2003, replacing Merrill Lynch Investment
Managers Limited. The new Investment Manger's principle business office is at
800 Scudders Mill Road, Plainsboro, NJ 08536, USA.
The market price listings in the Financial Times ceased from the 1 May 2003.
Since then Investors access updated market prices form the Funds' website at
www.definedfunds.ml.com
17. Financial Statements
These Financial Statements were approved by the Directors on 21 April 2004.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SEWFAUSLSEEL
Merrill L.Z Div (LSE:MLRZ)
Gráfico Histórico do Ativo
De Abr 2024 até Mai 2024
Merrill L.Z Div (LSE:MLRZ)
Gráfico Histórico do Ativo
De Mai 2023 até Mai 2024
