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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Merrill L.Z Div | LSE:MLRZ | London | Ordinary Share | IE0031168184 | ZERO DIV SHS NPV |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 0.00 | - |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
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RNS Number:1465D
Merrill Lynch Defined ReturnsII PLC
20 September 2004
Merrill Lynch Defined Returns II plc
Unaudited Financial Statements
for the six months ended 30 June 2004
Table of Contents
Page
General Information 3-4
Company Background 5
Investment Manager's Report 6-7
Schedule of Investments 8-9
Statement of Operations 10
Statement of Assets and Liabilities 11
Statement of Changes in Net Assets 12
Statement of Cash Flow 13
Notes to the Financial Statements 14-21
General Information
Directors Peter Blessing (Irish)
Roger McGreal (Irish)
Michael Fullalove (British)
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 period ended 30 June 2004
Sterling Zero Shares Net Asset Value
The Net Asset Value per share of the Sterling Zero Shares on 30th June 2004 was
GBP #1.058(1), an increase of 11.37%, relative to an initial Net Asset Value per
Share of #0.95, since inception. The NAV has increased by 8.18% since 31st
December 2003, at which time it was equal to #0.978. Of the initial 30 stocks,
24 are below their initial value and 14 are below 80% of their initial value, as
at close of business on 30th June 2004. The stocks most affected are Carnival,
Ericsson, and Volvo. Consequently, the unrealised loss on capital is 14.48 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 30th June 2004 the closing
share price for the Zero Shares was GBP #1.02(2), representing a discount of
(3.59)% to the prevailing Net Asset Value.
Sterling Income Shares Net Asset Value
The Net Asset Value per share of the Sterling Income Shares on 30th June 2004
was GBP #0.817(3), a decline of (14.00)%, relative to an initial Net Asset Value
per Share of #0.95, since inception. The NAV has increased by 1.74% since 31st
December 2003, at which time it was equal to #0.8030. Of the initial 30 stocks,
24 are below their initial value and 14 are below 80% of their initial value, as
at close of business on 30th June 2004. The stocks most affected are Carnival,
Ericsson, and Volvo. Consequently, the unrealised loss on capital is 17.52 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 30th June 2004 the closing
share price for the Income Shares was GBP #0.79(4), representing a discount of
(3.30)% 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.
Market Review(5)
The second quarter of 2004 showed positive yet unimpressive returns for the
global equity markets influenced mainly by indecisive global investors. This
behavior stemmed from continued political tension in the U.S., violence in Iraq,
record high oil prices, and improving economic data over the quarter. The shift
in investor favor from low-quality, low-price, and high beta securities to
higher-quality, higher-cap and lower-beta stocks that began at the end of 1Q2004
grew stronger into 2Q2004. Politics moved to center stage as parliamentary
elections took place in the EU and the drumbeat of presidential election year
drama gradually swelled in the US.
The S&P 500 Index closed at 1,140.84 on June 30th, a price return of 2.60% for
the six months ended 30 June 2004. The DJIA closed the six month period at
10,435.48, a price return of (0.18)%. The NASDAQ closed at 2,047.79, a price
return of 2.22%.
The Dow Jones STOXX 50 closed at 2,687.68, up 1.03% in Euros, and the FTSE 100
closed at 4,464.10, down -0.29% in Sterling. The MSCI World closed at 1,062.51,
up 2.53%, in U.S. dollars.
The European Central Bank maintained interest rates at 2.0% over the six month
period ended 30th June 2004 and we saw the euro gradually lose strength over the
period. The euro depreciated (3.54%) versus the U.S. Dollar with a WM Rate of
1.2167 on 30th June 2004.
Market Outlook
The quarter ended with the US Federal Reserve's June 30th meeting where the
anticipated rate hike proved less significant than expected at a quarter point
increase. With this news, along with higher than expected
Investment Manager's Report for the period ended 30 June 2004 (continued)
Market Outlook (continued)
GDP growth figures, the quarter ended with equity markets on the rise. With
positive earnings and revenue growth continuing to surprise investors coupled
with real growth anticipated to reach five-year highs, equity markets are
expected to outperform cash and bonds for the rest of the year. As the
Presidential campaigns move closer to election date, politics will continue to
drive the market's uncertainty into the future along with the Fed's
accommodative monetary policy.
Income Share Portfolio
Schedule of Investments
as at 30 June 2004
Fund
Value
Holding Investments GBP %
June 2004 of Fund
Sterling Instruments
--------------------
2,295,000 Banca Intesa Floating Rate Note 13 December 2004 2,295,689 22.03%
2,295,000 Britannia Building Society Floating Rate Note 13 December 2004 2,295,689 22.03%
2,295,000 Northern Rock Floating Rate Note 13 December 2004 2,295,689 22.03%
2,295,000 Prudential Bank Floating Rate Note 13 December 2004 2,295,459 22.03%
2,295,000 SNS Bank Nederland Floating Rate Note 13 December 2004 2,295,917 22.03%
------------ ------------
11,478,443 110.15%
------------ ------------
12,750,000 Swap and Option Transaction * (1,122,442) (10.77)%
---------------------------
Exercise date 13 December 2004
------------ ------------
Total Value of Investments (Cost GBP 11,921,250) 10,356,001 99.38%
------------ ------------
Cash 75,462 0.72%
Net Current Liabilities (10,356) (0.10)%
------------ ------------
Total Value of Fund 10,421,107 100.00%
============ ============
* Exercise value covered by Sterling Instruments.
The counterparty is Merrill Lynch International.
Zero Dividend Portfolio
Schedule of Investments
as at 30 June 2004
Fund
Value
Holding Investments GBP %
June 2004 of Fund
Sterling Instruments
--------------------
3,420,000 Banca Intesa Floating Rate Note 13 December 2004 3,421,026 17.02%
3,420,000 Britannia Building Society Floating Rate Note 13 December 2004 3,421,026 17.02%
3,420,000 Northern Rock Floating Rate Note 13 December 2004 3,421,026 17.02%
3,420,000 Prudential Bank Floating Rate Note 13 December 2004 3,420,684 17.02%
3,420,000 SNS Bank Nederland Floating Rate Note 13 December 2004 3,421,368 17.02%
------------ ------------
17,105,130 85.10%
------------ ------------
19,000,000 Swap and Option Transaction * 2,894,942 14.41%
---------------------------
Exercise date 13 December 2004
------------ ------------
Total Value of Investments (Cost GBP 17,765,000) 20,000,072 99.51%
------------ ------------
Cash 112,675 0.57%
Net Current Liabilities (15,432) (0.08)%
------------ ------------
Total Value of Fund 20,097,315 100.00%
============ ============
Exercise value covered by Sterling Instruments.
The counterparty is Merrill Lynch International.
Statement of Operations
for the six months ended 30 June 2004
Zero
Income Dividend June 2004 June 2003
Shares Shares Total Total
Note GBP GBP GBP GBP
Income
Interest Income 1(b) 1,351 1,986 3,337 5,240
Income on medium term notes 246,604 367,489 614,093 549,995
Less:
Payments under "Swap and Option" transaction 1(c) (242,389) (361,207) (603,596) (557,193)
Income under "Swap and Option" transaction 1(c) 525,938 0 525,938 525,938
---------- ---------- ---------- ----------
531,504 8,268 539,772 523,980
---------- ---------- ---------- ----------
Expenditure
Operating expenses 5 31,788 47,371 79,159 78,723
---------- ---------- ---------- ----------
31,788 47,371 79,159 78,723
---------- ---------- ---------- ----------
Net Gains/(Losses) on Investment Activities 499,716 (39,103) 460,613 445,257
Net change in unrealised gains/(losses) on 214,242 1,559,963 1,774,205 1,386,326
investments
Dividends Paid 6 (525,938) 0 (525,938) (525,938)
---------- ---------- ---------- ----------
Retained Gain for the Period 188,020 1,520,860 1,708,880 1,305,645
========== ========== ========== ==========
There are no recognised gains or losses for the period 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
Statement of Assets and Liabilities
as at 30 June 2004
Income Zero Dividend June 2004 June 2003
Shares Shares Total Total
Note GBP GBP GBP GBP
Assets
Investments 3 10,356,001 20,000,072 30,356,073 24,921,409
Cash 12 75,462 112,675 188,137 337,737
Debt Interest Receivable 24,687 36,788 61,475 49,888
----------- ----------- ----------- -----------
10,456,150 20,149,535 30,605,685 25,309,034
----------- ----------- ----------- -----------
Liabilities ----------- ----------- ----------- -----------
Accrued expenses 5 (35,043) (52,220) (87,263) (86,826)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net Assets 30 June 2004 10,421,107 20,097,315 30,518,422 25,222,208
=========== =========== =========== ===========
Number of shares in issue 2 12,750,000 19,000,000
========== ==========
Net Asset Value per share 10 GBP 0.817 GBP 1.058
========== ==========
The accompanying notes form an integral part of the financial statements
Statement of Changes in Net Assets
for the six months ended 30 June 2004
Zero
Income Dividend June 2004 June 2003
Shares Shares Total Total
GBP GBP GBP GBP
From Operations:
Net gains/(losses) on Investment activities 499,716 (39,103) 460,613 445,257
Net change in unrealised gains/(losses) on 214,242 1,559,963 1,774,205 1,386,326
investments
Dividends Paid (525,938) 0 (525,938) (525,938)
----------- ----------- ----------- -----------
Net Increase in Net Assets resulting from 188,020 1,520,860 1,708,880 1,305,645
Operations ----------- ----------- ----------- -----------
From Financing:
Issue of shares 0 0 0 0
----------- ----------- ----------- -----------
Net Increase in Net Assets resulting from 0 0 0 0
Financing ----------- ----------- ----------- -----------
Total Increase in Net Assets 188,020 1,520,860 1,708,880 1,305,645
Net Assets at beginning of the period 10,233,087 18,576,455 28,809,542 23,916,563
----------- ----------- ----------- -----------
Net Assets at end of the period 10,421,107 20,097,315 30,518,422 25,222,208
=========== =========== ========== ===========
The accompanying notes form an integral part of the financial statements
Statement of Cash Flow
for the six months ended 30 June 2004
Zero
Income Dividend June 2004 June 2003
Shares Shares Total Total
GBP GBP GBP GBP
Operating Activities
Interest Income net of operating expenses 216,167 322,104 538,271 476,511
Swap payment (242,389) (361,207) (603,596) (557,193)
Swap Income 525,938 0 525,938 525,938
Increase in accrued expenses 31,789 47,371 79,160 78,723
(Increase)/Decrease in debt interest (3,987) (5,941) (9,928) 7,769
receivable
----------- ----------- ----------- -----------
Net cash inflow from Operating Activities 527,518 2,327 529,845 531,748
----------- ----------- ----------- -----------
Investing Activities
Purchase of investments 0 0 0 0
Sale of investments 0 0 0 0
----------- ----------- ----------- -----------
Net cash inflow/(outflow) from Investing 0 0 0 0
Activities ----------- ----------- ----------- -----------
Financing activities
Cash received on shares issued 0 0 0 0
Cash paid for shares redeemed 0 0 0 0
Dividends paid (525,938) 0 (525,938) (525,938)
----------- ----------- ----------- -----------
Net cash (outflow) from Financing Activities (525,938) 0 (525,938) (525,938)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Increase in cash 1,580 2,327 3,907 5,810
----------- ----------- ----------- -----------
Cash at start of the period 73,882 110,348 184,230 331,927
----------- ----------- ----------- -----------
Cash at end of the period 75,462 112,675 188,137 337,737
=========== =========== =========== ===========
The accompanying notes form an integral part of the financial statements
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 re0flected 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 "Net change in unrealised Gains/(Losses) on Investments" in the
Statement of Operations.
Merrill Lynch International is the counterparty to the Swap and Option
Transactions as at 30 June 2004.
Notes to the Financial Statements (continued)
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 1 January 2004 12,750,000 19,000,000 31,750,000
========== ========== ==========
Shares in issue at 30 June 2004 12,750,000 19,000,000 31,750,000
========== ========== ==========
Those with a holding of 10% and over as at 30 June 2004 are as follows:
Income Shares Number of Shares
------------- ----------------
Rathbone Nominees Limited 1,685,045
Port of Liverpool Building
Pier Head
Liverpool
L3 1NW, UK
Nutraco Nominees Limited 1,473,429
One Canada Square
London
E14 5AL, UK
Zero Share
----------
Hanover Nominees Limited 5,295,947
JP Morgan Chase
Chaseside
Bournemouth
Dorset
BH7 7DA, UK
Rathbone Nominees Limited 3,765,000
Port of Liverpool Building
Pier Head
Liverpool,
L3 1NW, UK.
Notes to the Financial Statements (continued)
3. Investments
Zero June June
Dividend 2004 2003
Income Shares Shares Total Total
GBP GBP GBP GBP
Market Value 1 January 10,141,759 18,440,109 28,581,868 23,535,083
Unrealised movement on revaluation 214,242 1,559,963 1,774,205 1,386,326
-----------------------------------------------------
Market Value at 30 June 10,356,001 20,000,072 30,356,073 24,921,409
-----------------------------------------------------
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 two quarterly dividends from the annual payment of GBP
8.25 pence per Share, amounting to GBP 525,938 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.
9. Portfolio Changes
There were no portfolio changes during the period.
10. Net Asset Value ('NAV') Per Share
30 June 2004 30 June 2003 30 June 2002
Income Shares 0.817 0.734 0.844
Zero Shares 1.058 0.835 0.863
11. Soft Commission Arrangements
There were no soft commission arrangements in place during the period ended 30
June 2004.
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 Central Bank of Ireland 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.
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.
Notes to the Financial Statements (continued)
13. Financial Instruments and Derivatives (continued)
Interest Rate Risk (continued)
The interest rate profile of the financial assets, excluding cash and short-term
debtors and creditors, in the portfolios as at 30 June 2004:
Income Shares 30 June 2004
Floating Interest
Floating Interest Rate Assets
Rate Assets Weighted Average
Total Floating Interest Fixed Interest Weighted Average Period for Which
Rate Assets Rate Assets Interest Rate Rate is Floating
GBP GBP GBP % Yrs
11,478,443 11,478,443 0 4.91 .45
============================================================================================
11,478,443 11,478,443 0 4.91 .45
============================================================================================
Income Shares 30 June 2003
Floating Interest
Floating Interest Rate Assets
Rate Assets Weighted Average
Total Floating Interest Fixed Interest Weighted Average Period for Which
Rate Assets Rate Assets Interest Rate Rate is Floating
GBP GBP GBP % Yrs
11,468,804 11,468,804 0 3.75 1.46
--------------------------------------------------------------------------------------------
11,468,804 11,468,804 0 3.75 1.46
--------------------------------------------------------------------------------------------
Zero Dividend Shares June 2004
Floating Interest
Floating Interest Rate Assets
Rate Assets Weighted Average
Total Floating Interest Fixed Interest Weighted Average Period for Which
Rate Assets Rate Assets Interest Rate Rate is Floating
GBP GBP GBP % Yrs
17,105,130 17,105,130 0 4.91 .45
--------------------------------------------------------------------------------------------
17,105,130 17,105,130 0 4.91 .45
--------------------------------------------------------------------------------------------
Zero Dividend Shares June 2003
Floating Interest
Floating Interest Rate Assets
Rate Assets Weighted Average
Total Floating Interest Fixed Interest Weighted Average Period for Which
Rate Assets Rate Assets Interest Rate Rate is Floating
GBP GBP GBP % Yrs
17,090,766 17,090,766 0 3.75 1.46
--------------------------------------------------------------------------------------------
17,090,766 17,090,766 0 3.75 1.46
--------------------------------------------------------------------------------------------
Notes to the Financial Statements (continued)
13. Financial Instruments and Derivatives (continued)
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 medium term 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.
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.
Notes to the Financial Statements (continued)
14. Significant Agreements and transactions with related parties (continued)
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 30 June 2004, the Directors are not aware of any such
existing or contingent liability.
16. Financial Statements
These financial statements are unaudited.
--------------------------
(1) Source: Citibank
(2) Source: Bloomberg
(3) Source: Citibank
(4) Source: Bloomberg
(5) Source for all figures in section: Bloomberg
This information is provided by RNS
The company news service from the London Stock Exchange
END
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