Select Committee on Treasury Minutes of Evidence

Supplementary memorandum submitted by Aberdeen Asset Management


  Aberdeen Asset Management ("Aberdeen") is supplying supplementary written evidence following the Treasury Select Committee oral evidence session on Split Capital Investment Trusts on 29 October 2002.

  This paper seeks to clarify a number of points which were raised during the session. It is intended as a supplement to the written evidence already supplied to the Committee.


    —  Exchange between Mr James Plaskitt MP and Mr Martin Gilbert on equity market growth (561).

Other points of clarification

    —  Forecasts on the performance of the FTSE 100 index for year-end 2000, 2001 & 2002.

    —  Enhanced Zero Trust PLC: Share Plan Promotional Material 1999-2000.

    —  Cross-section of commentary on the risk of zero dividend preference shares.

    —  Cross-section of commentary on gearing & risk.

    —  Market assessment of the lower risk attributes of Zero Dividend Preference Shares prior to October 2001.


2.1  Q562: exchange between Mr James Plaskitt MP and Mr Martin Gilbert on equity market growth

Introduction to the Split Capital Investment Trusts and the current issues affecting Zero holders: Briefing document for the Treasury Select Committee, 11 July 2002

Risk Profile

  Splits cannot be assessed for risk as a class, but should be assessed upon consideration of various interrelated factors, such as the level of gearing, the nature and volatility of the underlying portfolio and the existence of cross-holdings. These factors are now being considered with the benefit of hindsight. Fund managers, investment bankers, lawyers, advisers and the listing authorities all worked to a common assumption that some form of equity market growth could be expected from equity markets in each succeeding year, as has been the case for the preceding decades.

Split Capital Trusts Briefing Document

Q  Was there overconfidence in the sectors and regions that the new splits invested in?

  A  The rise of equity values during the 1990s may well have led to sector overconfidence about continuing growth rates going forward. Difficulties arose however, when the underlying assets in which these trusts invested failed to live up to expectations. As detailed in Sector Background, these underlying assets consisted of many asset classes investing in Japan; Pacific Basin; emerging markets; US; Europe and UK as well as specialist asset classes including splits themselves and technology.

How are these two statements compatible?

  The risk profile within the supplementary evidence was referring to the historic launches of SCCEFs in 1999-2000 and what the market's view was during the period of these launches.

  The second statement as detailed on Aberdeen's website was made in retrospect with the benefit of hindsight, at a time when double-digit growth was widely predicted.


3.1  Forecasts on the performance of the FTSE 100 index for year-end 2000, 2001 & 2002

  Forecasts are typically made at the year-end by investment banks and quoted in the national newspapers.

  Some of the commentary is from individuals within firms and may differ from the actual market forecast in question. The pattern only shows that professional investors as a group tended to underestimate the length duration of the bear market in equities, with consistent expectations of a rally for the following year, each year.

  This information is derived from press sources (Reuters Press Briefing 2000-02).
Year-end forecasts for 2000 (actual year end 6,222)
Bear Stearns 8,750
DRESDNER RCM Global Investors8,000
Morgan Stanley7,500
NatWest Stockbrokers7,400
ABN Amro7,250
Goldman Sachs7,250
Scottish Equitable7200
Salomon Smith Barney7,200
Lehman Brothers7,200
Standard Life 7,000+
CCF Charterhouse7,000
Deutsche Bank7,000
Scottish Mutual Director Investments7,000
Edinburgh Fund Managers7,000
Aberdeen Asset Management6,900
Royal Bank Of Scotland6,500
Merrill Lynch6,300
Year-end Forecasts for 2001(actual year end 5,217)
Morgan Stanley Dean Witter 8,000+
David Aaron Partnership7,700
Schroder Salomon Smith Barney7,600
Grant Thornton7,400
Williams de Broe7,400
Legal & General7,250
Barclays Stockbrokers7,200
Investec Asset Management7,100
Dresdner RCM Global Investors7,050
Chase Fleming Asset Management7,000
Foreign & Colonial Investment Trust 7,000
Aberdeen Asset Managers6,900
Hargreaves Lansdown6,850
Credit Suisse Asset Management6,800
SG Asset Management6,750
Towry Law Financial Services6,700
Merrill Lynch6,600

Year-end Forecasts for 2002(4,019 as at 14/11/02)
Grant Thornton6,500
Brewin Dolphin6,300
Deutsche Bank6,200
Aberdeen Asset Management6,000 to 6,200
Morgan Stanley6,000
Lehman Brothers6,000
AXA Investment Managers6,000
Barclays stockbrokers6,000
Credit Suisse First Boston5,900
ABN Amro5,800
NatWest Stockbrokers5,800
Natwest stockbrokers5,800
Hargreaves Landsdown5,800
Killik & Co5,800
UBS Warburg5,750
Foreign & Colonial5,600
SG Asset Management5,500 to 5,750
Merrill Lynch5,350

Information is derived from press sources (Reuters Press Briefing 2000-02)


24/10/2  UBS Warburg

19981999 20002001 2002E2003EValue at
FTSE 100
As at end; 1998NA6,500 5,882.6
As at end; 1999NANA 7,1006,930.2
As at end; 2000NANA NA7,0006,222.5
As at end; 2001NANA NANA5,750 6,2505,217.4
As at end; 24 Oct 2002NA NANANANA 4,2504,103.7
As at end; 1998NA2,960 3,242.06
As at end; 2000NANA NA3,3502,983.81
As at end; 2001NANA NANA2,775 3,0252,523.90
As at end; 24 Oct 2002NA NANANANA 2,0501,964.40

  Source: UBS Warburg.

20002001 2002
Cont Europe5%16% 10%
UK5%16% 13%

  Source: Deutsche Bank.


  On 12 November 2001 we predicted the FTSE 100 in 12 months time would stand at 5,600.

  On 14 November 2000 we predicted the FTSE 100 in 12 months time would stand at 6,600.

  On 5 November 1999 we predicted the FTSE 100 in 12 months time would stand at 6,400.

  On 10 November 1998 we predicted the FTSE 100 in 12 months time would stand at 5,300.

  Source: Goldman Sachs.

Broker estimates should not be taken as forecasts.

3.2  Enhanced Zero Trust PLC: Share Plan Promotional Material 1999-2000

Enhanced Zero Trust plc ("EZT") Share Plan Fact Sheet July 1999 (Appendix II)

  The health warning on the bottom of the advertisement, as well as complying with all our compliance sign-off procedures and IMRO guidelines, explained the estimated growth assumptions which were derived from the launch prospectus dated only a few months earlier. The advertisement states that "the value of shares and the income from them can go down as well as up. Investors may not get back the amount originally invested." The claims in the copy regarding the volatility of zeros against conventional shares were accurate and true and the description of the nature of zeros as "lower risk investments similar to bonds" was also true. Zeros continue to be bought by fixed interest teams because of their fixed interest characteristics.

  When assessing the purchase of a financial product by an individual customer through a Plan, the Financial Ombudsman Service looks at the entire advising and sales process, not an advertisement alone. A customer is not permitted to invest on the information in the advertisement alone.

  In fact, the advertisement clearly states in the coupon "Please send me details of the Aberdeen Investment Trust Share Plan and the Zeros Fact Sheet". It is not possible to invest through our Share Plan without having received the key features documentation, which included the relevant risk warning in accordance with IMRO guidelines. Investors must sign and return a declaration which confirms that they have read the documentation prior to making their investment.

  The EZT Fact Sheet amply describes the investment policy of the trust, which was a geared investment trust investing in zeros with an income portfolio of 30 per cent. It covers the risk factors in considerable detail. The Share Plan itself covers the additional risk factors covering investment trust shares in its Key Features document including:

    Investment in the trust should not be regarded as short-term in nature. There can be no guarantee that the trust's objectives will be achieved. The market value of the shares can fluctuate. There is no guarantee that the market value of the shares will reflect net asset value. The use of gearing in the form of bank borrowings means that changes in the value of the investment portfolio of the trust can be expected to result in exaggerated movements in the net asset value of the shares, potentially unfavourable as well as favourable. The highly geared nature of the geared ordinary income shares which may be included in the Revenue portfolio is likely to result in movements in the market prices of such shares being magnified compared to movements in the stockmarket generally."

    [. . .]

    "The price of shares, and the income from them, may go down as well as up. The investor may not get back the sum invested when sold. Past performance is not necessarily a guide to future performance. The current UK tax regime is subject to change by the Government, and the effect of tax savings on individual investors is dictated by their personal circumstances. There is no guarantee that the market price of shares in Investment Trusts will fully reflect their underlying Net Asset Value. . . . The information contained in this fact sheet has been obtained by Aberdeen Asset Managers Limited for its own purposes and may have been acted upon independently. It is not guaranteed as to its accuracy. This document should not be considered as an offer, or solicitation, to deal in these investments. The investments detailed here should be considered as part of a balanced portfolio, of which they should not form a disproportionate part."

  Split capital trusts are investment companies and are not regulated as Collective Investment Schemes (as, for example, are authorised unit trust schemes). They are public companies whose shares are listed and traded on exchanges. This is the view of the Financial Services Authority.

  The Financial Ombudsman has stated clearly that a fall in the value of an investment does not, in itself, constitute valid grounds for complaint. Commercial decisions of investment trusts are not within their jurisdiction. It should be emphasised that the investment policy of E Z T was openly declared.

  Typically, investors through the Share Plan make their investment on an execution-only basis. Where they receive advice, remuneration is between the investor and their adviser. As AITC's own materials point out, the managers of savings schemes, which we refer to as a Share Plan, do not give advice to investors. This is also explained in the Fact Sheet.

Proposed Progressive Growth Uplift Plan

  The proposed uplift package for Progressive Growth Unit Trust does not reflect adversely upon investment trust shareholders and does not discriminate against them in any way.

  Offering the uplift package to Progressive Growth investors is a commercial decision, in order to try to restore confidence by Aberdeen Unit Trust Managers. Aberdeen Asset Managers' support for investment trust shareholders has been on the corporate level. For example, Aberdeen Asset Management has underwritten a £6 million loan to EZT and we have made every endeavour to support this client company and its shareholders in these difficult times.

Aberdeen Share Plan advertisement September 1999

  Turning to the points regarding "misleading" information in the Share Plan advertisement, the information was certainly factual to the market at the time. By September 1999, not a single zero had ever defaulted—unlike bonds, in fact—and the zeros in the market were well-covered, enjoying negative fulcrum rates after a strong decade of market growth. The "quasi-guarantee" is made by investment trust companies themselves. If there were any possibility of investors not understanding this term, the Plan documentation and accompanying fact sheet clarified it. It is our view that the 26 The Times readers who responded to the EZT Share Plan advertisement at that time were not misled, as they received a considerable amount of detail about zeros or EZT, including the risk levels reasonably associated with them, in the Share Plan literature.

  Even one year later, the AITC's own splits fact sheet described zeros as providing "a low risk opportunity for a predetermined amount of capital growth".

What is the Enhanced Zero Trust PLC?

  EZT is neither a split capital investment trust nor is it a zero dividend preference share. It is a geared conventional investment trust that uses bank borrowings to invest in a portfolio of zeros.

  Its one-year performance from September 1999 to 2000 was strong, falling only around 5 per cent in value over the year (better in fact than the return from gilts over that period). As a geared vehicle, it was not presented to prospective investors as a low risk investment. It invested in the zero sector that was widely seen throughout the market as lower risk at the time (indeed the FT's weekly publication of standard deviation demonstrates this). It was only by August 2001 that performance fell dramatically.

  The other individual zeros available in our Plan literature in 1999 explained their own different characteristics. Unlike Progressive Growth, individual zeros are not collective investments but are individually traded securities with a prior charge on a company's assets. Individual zeros themselves cannot reasonably be regarded as a collective investment: the characteristics are different.

3.3  Cross-section of commentary on the risk of zero dividend preference shares

  The following quotations from 2000-02 provide a cross-section of commentary on the risk of zero dividend preference shares. While not intended to be exhaustive, it gives a fair view of what the investment industry was saying about these shares from around the early 1990s up to 2002.

  We have reproduced each quotation verbatim, save that we have added textual emphasis to draw attention to the relevant sections.

  What this material shows is that Aberdeen's view of the risk characteristics of zero dividend preference shares was wholly consistent with the majority industry viewpoint.

November 1993—Association of Investment Trust Companies consumer factsheet

    "If you are investing a lump sum it may be worth putting part of your investment into split capital investment trusts. These trusts have various classes of capital but many offer some form of Zero Dividend Preference shares and Capital shares. The former is a low risk investment, which has a fixed redemption date. . . . You may well need a smaller lump sum than if you go into "plain vanilla" investment trusts and the Zeros will offer performance at low risk to offset the volatility of the Capitals." (AITC Factsheet No. 4, Planning for School Fees, November 1993, p 3).

March 1995—Association of Investment Trust Companies consumer factsheet

    "Zero dividend preference shares are a low risk and predetermined investment . . . Suitable for: cautious investors who need a fixed capital sum at a specific time in the future, eg school fees." (AITC, Understanding Investment Trusts Factsheet No 2, March 1995, p 1).

October 1995—Guardian

    "Only if your chosen trust puts in a truly disastrous performance will the Zero holders' return be at risk." (28 October 1995)

October 1998—Daily Mail

    "The risk of less back at maturity than you invested in a zero is very small. Stock markets would have to fall through the floor." (21 October 1998)

1999—Deloitte & Touche personal financial planning website

    "In school fees planning, zeros are a useful tool. As many parents, and grandparents, want to set aside a capital sum to meet future school fees, using zeros can provide a relatively low risk, tax efficient way of doing this." (Deloitte & Touche website: zeros.html, 1999).

June 1999—Hill Osborne Brokers Research

    "Zeros are a unique, highly attractive and tax efficient investment. They are suitable for investors who require capital growth, but are averse to risk, and are particularly attractive to high rate tax payers. Being highly predictable, they are also ideal for planning the funding of known future capital liabilities, such as school fees . . . Most zeros are adequately or very well covered, rendering them relatively low risk . . . Compared to gilts, zeros are at their most attractive level for many years. On a GRY valuation, many issues yield 200 to 300 basis points (2 per cent to 3 per cent per annum) more than their equivalent dated gilt, with only a marginal compromise to security . . . No other investments offer the same combination of high returns, low risk and tax efficiency as zeros, which are strongly recommended for consideration." (Bill Fowler, Hill Osborne & Co, Zero Dividend Preference Shares, 29 June 1999).

Around 2000—Mail on Sunday

    "Self-taught investor Anna Chilvers has unearthed a stock market gem that promises the holy grail of investment in uncertain times. Good returns with low risk . . . consequently split capital trusts and shares issued by them offer investors certainty" (quoted at the conference "The Regulation of Split Capital Closed End Funds", held on 1 February 2002 at The Insurance Hall, London).

March 2000—Association of Investment Trust Companies consumer factsheet

    "With zero dividend preference shares, on the other hand, you know what you are getting the moment you invest in them. They are a low-risk investment, which offers a fixed rate of return at the end of the life of the Investment Trust." (AITC brochure, its for children, March 2000).

    "If, for example, you would prefer to take only a minimal amount of risk, then zero dividend preference shares, [zeros] might prove to be the best choice . . . they . . . provide a low risk opportunity for a predetermined amount of capital growth." (AITC factsheet March 2000)

May 2000—Williams de Broe Brokers Research

    "Zeros usually offer a higher return than gilts, because of the risk, however slight, that they might not achieve their redemption price. Every Zero issued since they were invented in 1987 has been repaid in full, including the original two Zeros launched weeks before that Autumn's stock market crash." (Williams de Broe, Split Capital & Highly Geared Investment Trusts, May 2000, p 72).

May 2000—Bloomberg Money

    "Not only do [zeros] offer low-risk capital growth and a return you can predict with reasonable accuracy but they are tax-efficient as well . . . Although they depend on the performance of the stockmarket, zeros are best compared to low risk fixed interest investments such as gilts . . . They are less volatile than conventional shares and investors can rest easy at night knowing that there is a predetermined redemption value when a trust winds up. It is unlikely that zeros will not pay you back in full. This will be the case only in the most extreme market conditions." ("Zero in on safe options", Bloomberg Money Guide to Split Capital Investment Trusts, May 2000, editorial, p 5).

December 2000—Investment Adviser

    "Although zeros do not pay an annual income, they are often compared to government gilts. This is because they share similar risk characteristics . . . The risk of a government gilt defaulting is virtually non-existent of course. However, in terms of a zero, the risk of a holder not receiving back in full the predetermined value is relatively small as zeros are "covered" by having first claims on the assets of the company." (Investment Adviser: Split Capital Investment Trusts, 11 December 2000, p 7)

May 2001—Bloomberg Money

    "Zero dividend preference shares, often called zeros for short, are for investors who don't need an income and don't want to take big risks with their money . . . Being predictable and relatively secure investments, zeros are ideal if you are building a nest egg with a defined goal in mind, such as a special anniversary celebration or deposit for a house." ("Safe as houses", Bloomberg Money Guide to split Capital Investment Trusts, May 2001, editorial, p 8)

November 2001—Investment Week

    "Many investors are looking for equity exposure (and equity-type returns) but are nervous about the stock market. Zeros, underpinned by equities but lower risk, seem to be the answer. It is true that their returns are not guaranteed, but if the fact that no zero has ever failed to pay out since their inception in 1987 is sufficient warranty, an 8 per cent annual return treated as a capital gain and—as such tax-free using the capital gains tax (CGT) allowance—looks very attractive compared with a deposit account." ("The zeros sum game", Investment Week split caps supplement, November 2001, p 9).

February 2002—Merrill Lynch—Investment House Commentary

    "The market to date has apparently failed to interpret cross ownership correctly and as a consequence, the level of risk inherent in zero dividend shares extends from being low (some zeros are akin to high-grade bonds) to phenomenally high (akin to highly geared plays on equity markets). On creation, the perception was that all zero offerings were low risk investments (when compared with standard equity risk)." (Robert E Champney and David Curry, Merrill Lynch, Zero Dividend Preference Shares: The developing marketplace—a comparative analysis (undated), p 12).

April 2002—Kestrel Research—independent research

    "Zeros are commonly regarded as low risk investments because, well let's be frank here, up until recently they always have been. Zeros still remain low risk investments where the underlying portfolios are blue chip and, crucially, do not have additional layers of gearing." (Martyn Page, Kestrel Research, Research Bulletin: Split Capital Trusts and Zero Funds, April 2002, p 6).

May 2002—Investment Adviser

    "The FSA has painted a picture of Byzantine operations within and between many of these trusts. Yet this has certainly not been the way in which these trusts have portrayed themselves. Zero dividend preference shares have, in particular, been promoted as having as little risk as a building society account, while offering much better returns. Only a year ago, I was assured by a senior figure in one investment company heavily involved in splits that, while it was mathematically possible for zeros to fail to deliver, not one had. There was therefore no reason to fear for their future." (ISSN 1361-1593 Split Heads Could Roll, May 20, 2002)

3.4  Cross-section of commentary on gearing and risk

  The following quotations from 2000-02 provide a cross-section of commentary on gearing and risk.

March 2000—Association of Investment Trust Companies consumer factsheet

    "Gearing—Another major advantage for Investment Trusts is their ability to "gear up". This means that they are allowed to borrow money to buy more assets when interest rates look low or when a particularly attractive stock presents a good buying opportunity. For example, suppose shareholders put £50,000 of their money into an Investment Trust and that Investment Trust borrowed £50,000 for five years to invest along with the shareholders own money. The Trust has to pay £10,000 interest on the loan over the five years. This means that the Trust now has £100,000 to invest. Let's say that the investments do well and grow by 60 per cent over the five years. This means that the investments are now worth £160,000 and the Trust can pay off the loan of £50,000 and £10,000 interest and still have £100,000 left for investors. This means that investors have seen their investment grow by 100 per cent (rather than 60 per cent) due to the benefit of gearing . . . Investment Trusts also have an advantage when gearing because they can borrow at much lower interest rates than individuals and other types of companies because they are dealing in much larger sums and lenders view them as very low risk. There can be a downside of course, in that if the investments fall in value when the trust has borrowed, the negative effect is magnified. But it has been shown over the years that, over the long term, the growth in the value of equities generally has outpaced the cost of borrowing. And remember that the Investment Trust does not always have to be `geared up'—the Board of Directors and the mangers will decide if the time is right to borrow and how much." (AITC factsheet, its for investment trusts)

October 2001—Brewin Dolphin Brokers Research

    "With relatively ungeared vanilla trusts, a fall in market values of 75 to 80 per cent was needed before these safety factors came into play. At its simplest, the risk was minute. The banks used similar multiples, and even tightened them a little when split trusts insisted on using capital gearing as high as 45 and 50 per cent. But the banks also noticed that split trusts were holding the shares of other splits. They frowned on this practice, inserting new covenants or undertakings aimed at disciplining the growth in cross-holdings and the effect of gearing on gearing. The designers of new splits at the time minimised the dangers of cross holdings at the market and gearing levels of the time." (David Thomas and Jonathan Maxwell, Brewin Dolphin, Whither Split Capital Trusts? 8 October 2001, pp 2-3).

March 2002—Brewin Dolphin Brokers Research

    "The margins to breach bank covenants in cases where gearing was deliberately high were generally set at a fall of between 30 per cent and 40 per cent in the total assets of the trust in question. These `safety factors' were scrutinised by experts and, for the most part, were not found wanting. No one expected any more extreme conditions to develop . . . From the listing authorities down through the regulators, auditors, trustees, company solicitors and, of course, banks, the introduction of gearing and potential risk was carefully monitored and accepted all round on the basis that the banks' safety factors in use were an adequate precaution for all other shareholders." (Brewin Dolphin, Split Trust Shares: The End of the Tunnel Is in Sight, 19 March 2002, p 3).

3.5  Market assessment of the lower risk attributes of Zero Dividend Preference Shares prior to October 2001

  The table below details the typical valuation methods used when analysing zero dividend preference shares ("Zeros").

  Between the end of December 1998 (prior to the new Split Capital Closed End Fund "SCCEF" launches) and end of June 2001, the Gross Redemption Yields ("GRY") of both the Zero market and the Zeros which were part of a "fund of funds" SCCEF generally stayed static.

  The hurdle rates for both the general Zero market and those "fund of funds" Zeros were between—7.8 per cent and—15 per cent over the period December 1998 and June 2001. This demonstrates the lower risk attributes that were priced by the market to this class of share, as the stockmarket could fall in certain cases up to 15 per cent before this would have an impact on achieving the redemption price of the zero dividend preference shares.

  It was not until September 2001 that the GRY and Hurdle Rates (especially for those "fund of funds" Zeros) increased dramatically, causing a serious distortion in the risk profile of some Zeros.

  The table also illustrates that the impact of debt, cross-holdings and specialist asset classes on new SCCEFs launched between the end of 1999 and the end of 2000 did not significantly alter the risk profile of Zeros.

End Dec 1998
Portfolio heavily exposed to other splits 8.3%204¸11.8 5.48
Total Zero Market6.4% 168¸11.95.44
End Dec 1999
Portfolio heavily exposed to other splits 8.3%199¸12.0 4.97
Total Zero Market7.6% 187¸14.34.89
End Q1 2000
Portfolio heavily exposed to other splits 9.4%162¸8.7 4.73
Total Zero Market8.7% 189¸14.44.73
End Q2 2000
Portfolio heavily exposed to other splits 8.8%166¸9.5 4.78
Total Zero Market8.3% 200¸15.74.56
End Q3 2000
Portfolio heavily exposed to other splits 8.4%200¸11.5 4.20
Total Zero Market8.1% 192¸15.04.42
End Q4 2000
Portfolio heavily exposed to other splits 8.2%136¸9.5 4.58
Total Zero Market8.1% 154¸14.04.54
End Q1 2001
Portfolio heavily exposed to other splits 8.8%127¸7.8 4.70
Total Zero Market8.2% 143¸11.64.67
End Q2 2001
Portfolio heavily exposed to other splits 8.7%127¸8.6 4.60
Total Zero Market7.7% 143¸12.24.60
End Q3 2001
Portfolio heavily exposed to other splits 20.4%1000.3 4.67
Total Zero Market13.9% 118¸6.94.58

  Source: ABN AMRO/Aberdeen Asset Managers.


  GRY: Gross Redemption Yield. Demonstrates the annualised return per share assuming the pre-determined capital entitlement per share is paid in full on the final date. It is calculated relative to the bid price, the offer price and the offer price plus stamp duty charged at 0.5 per cent if applicable.

  Capital Cover: Measures how well the redemption price, all of the prior charges to the zero and the future costs charged against the balance sheet (assuming no growth in the company's gross assets) are covered by current gross assets. It is calculated by dividing gross assets by the final zero capital entitlement (in £m) plus the zero prior charges plus the management fees and interest charges attributable to the capital account over the remaining period to the final date.

  Hurdle/Fulcrum: Measures the annual rate at which the company's gross assets must rise (or fall) to ensure that sufficient assets are available to meet the redemption price in full on the final date.

  Life: The number of years remaining until the wind-up (or assumed wind-up) of the company.

Annex 1



5 Jan 2000 UK: The Investment Column—What the experts predict for 2000


Richard Jeffrey, CCF Charterhouse  7,000

  "I think it will be a mixed year. I don't think we can rule out a continuation of the trends of the final quarter of last year with people chasing hi-tech and Internet stocks. But at some stage the market will become more focused on rising domestic interest rates."

Richard Crehan, UK equity strategist, Morgan Stanley  7,500

  ". . . by the end of the year growth will have been restored. Growth stocks will continue to be the winners overall. So the old favourites of media, hi-tech, telecoms and business services will remain popular alongside bombed out growth stocks like Rentokil Initial."

Bob Semple, market strategist, Deutsche Bank  7,000

  ". . . The second half will be more stable."

Jeremy Batstone, NatWest Stockbrokers  7,400

  "Another reasonable year is in prospect with economic growth prospects picking up."

Philip Wolstencroft, Merrill Lynch  6,300

  "Our forecast is at the lower end of the consensus. We are concerned that the key factors that have driven the seven-year bull market (weak nominal GDP and falling bond yields) have gone into reverse."

Richard Iley, Gareth Williams, ABN Amro  7,250

  "Strong economic growth and low inflation offer a benign backdrop for equities. Steady bond yields and renewed earnings momentum will propel the FTSE to 7,250 by the year end."

Peter Sullivan, Mike Young, Goldman Sachs  7,250

Phil Isherwood, Dresdner Kleinwort Benson  7,800

  "Inflation fears will fall, especially in the second half. Bond yields will come down and the pessimism that affected the market in early new year trading will be discounted."

9 Jan 2000 UK: Investment prospects for the year 2000.

Sunday Herald

  COLIN Mackie, Scottish Mutual Director Investments  7,000

  Martin Gilbert, Chief Executive, Aberdeen Asset Management  6,900

  Jeremy Peat, Chief Economist, Royal Bank Of Scotland  6,500

  Tom Crombie, Chief Investment Manager, Scottish Equitable  7,200

  Mike Balfour, Edinburgh Fund Managers  7,000

  Ken Forman, Head Of Strategy At Standard Life  7,000+

3 Jan 2000 UK: FTSE tipped to hit  8,000.


  DRESDNER RCM Global Investors, 8,000 points in 2000

  Other analysts are less bullish about 2000, with Merrill Lynch predicting the FTSE will end the year at 6,300.

14 Dec 1999 POLL—FTSE-100 seen at 7,200 by end 2000.


  Richard Crehan, at Morgan Stanley: "We're entering a period of economic performance which is the best in a generation."

  David Thwaites of BNP: "Things are looking good. We've got through the emerging market crisis, the world economy is back on track, inflation is under control and a lot of corporate activity is still to come."

  David Brown, at Bear Stearns 8,750 by end 2000 and 10,000 by end 2001.

    "Generally, it is going to be a environment of high growth and low inflation globally which is a very positive environment for stocks." he said. "I don't think you could get a better combination for stock markets."

  Steve Russell, of HSBC in London  6,900.

"We expect to see a correction led by the U.S. in the first half (of next year) and a recovery in the UK and Europe following that."

11 Dec 1999 UK: EQUITY MARKETS—On balance, the bullish have it.

Financial Times

  Andrew Lapthorne, at Dresdner Kleinwort Benson 7,800

    "We have a very positive view on inflation which, we think, will remain subdued. That means interest rates won't rise as far as people are expecting."

  Richard Crehan, at Morgan Stanley Dean Witter 7,500

    "We see the recent bullish momentum carrying on at least through to February. Indeed, the market might reach its peak in the first quarter."

  Corey Miller, at Paribas, 7,350

    "Once the Y2K problem is out of the way, that will remove an important brake on acquisition activity."

  Gareth Williams, at ABN Amro, 7,250

    "The economic backdrop is pretty benign. Growth is picking up strongly with little sign of inflation. Base rates will peak at 6 per cent. That means the market will be driven by earnings growth."

  Jonathan Stubbs, at Salomon Smith Barney, 7,200

  Ian Scott, at Lehman Brothers, 7,200

    "Equities are fair value relative to bonds, but both interest rates and bond yields are moving higher."

  Bob Semple, at Deutsche Bank, 7,000

  Andy Hartwill, at SG 6,800-7,300

  Richard Jeffrey, at CCF Charterhouse 6,750

    "If interest rates rise further than the market expects (and he believes they will reach 7 per cent), the ratings of the high growth stocks will suffer. That would prompt FTSE to fall in the first half of the year, and rebound to its present level in the second half."

Year-end forecasts for 2001 (actual end 5,217)

31 Dec 2000 UK: Bets are on a 7000 FTSE.

The Business

  Mike Bishop, head of UK and European equities at Norwich Union  6,600—7,200

    "You have to bet on a soft landing for the economy because interest-rate policy will probably come to the rescue."

  Andrew Brough, manager of small and mid-sized company funds at Schroder Investment Management, 7,100

  He cited two developments that could help the market finally rise to his target price: lower interest rates—the great hope for 2001—and an acceleration of mergers and acquisitions, a great driver of the bull market in the past few years.

  Chris Carter, global strategist at Investec Asset Management  7,100

  Rise spurred by low gilt rates, modest profit growth and what he sees as the market's present undervaluation. "The big question is what's going to happen to corporate profits?" he said. "Eleven per cent growth does not look unreasonable under sensible assumptions of 2 per cent to 2.5 per cent GDP growth and a soft landing in the States."

  Bill Mott, head of UK retail equities at Credit Suisse Asset Management, 6,800

    "The UK market will offer tremendous opportunities for the active fund manager, despite considerable volatility. However, 2001 should produce stronger year-end returns."

  Jon Thornton, head of UK equities at Aberdeen Asset Management, highest forecast—7,250

    "I don't see a return to inflationary conditions, I don't see a recession or hard landing either. The central macro case is still in place. "This is only the second year in 10 that the market will have been down. Twelve months' forward, I can comfortably see double-digit returns, providing the central case of a soft landing is achieved."

  Chris Tracey, global strategist at Chase Fleming Asset Management, 7,000

    "Overall, 2001 is likely to start with enough concerns about growth to suggest markets will remain volatile until such time as investors can make some sort of judgement on the nature of the economic landing," he said. The good news, he added, is that "it will be some time, perhaps well beyond 2001, before central banks will worry about inflation again".

  Ian Vose, head of UK and European equities at Dresdner RCM Global Investors, 7,050

    ". . . for the first time in living memory, it looks like we're going to have successive [full term] Labour governments." That offers the prospect of a "fiscal boost" to the economy. Other pluses for the UK stock market are relatively low prices, compared with gilts and other markets and the positive effect of index rebalancing for free-float.


Mail on Sunday

  Schroder Salomon Smith Barney, 7,600

  Merrill Lynch, 6,600

30 Dec 2000 A taste of success in 2001—Our experts predict solid gains in the City

Financial Times

  Jeremy Tigue, manager of Foreign & Colonial Investment Trust, 7,000

  Robin Griffiths, chief technical analyst at banking group HSBC 7,100

  Peter Knapton, head of active fund management at Legal & General 7,250

    "The UK equity market has many defensive sectors—in particular, pharmaceuticals, financials and oil—which will protect it from the worst of the slower economic growth in 2001." He also believes that UK equities look relatively cheap. This will start to attract buyers, he says, once UK interest rates have come down.

30 Dec 2000 Stock market predictions—Things can only get better—at least, we all hope so . . .

Daily Telegraph
Diane Wilde, investment director, Aberdeeen Asset Managers 6900
Clive Scott-Hopkins, Towry Law Financial Services
"The index really should recover after a negative year in 2000 with old 6700
economy shares not over-valued at current price/earnings ratios."
Annabel Brodie-Smith, communications director at the AITC 6800
Ian Chimes, managing director of Credit Suisse Asset Management 6800
Nicola Horlick, joint managing director of SG Asset Management 6750
"The British stock market is still a good place to be. Growth in 2001 will continue but without the boom and bust we saw in the technology sector in 2000."
Andrew Jones, director at David Aaron Partnership 7700
Mark Dampier, Hargreaves Lansdown6850
Mike Warburton, Grant Thornton7400
"In my view, we are heading for a continuing period of interest rate

stability which will be particularly helpful to the small and medium-sized

companies and I again expect this sector to perform strongly in 2001."

Justin Urquhart Stewart, Barclays Stockbrokers 7200
Jeremy Tigue, a director of Foreign & Colonial Management 7000
"The index is likely to be volatile over the year but rising company profits and

lower interest rates should contribute to a rise in the market by the end

of the year."

Tim Cockerill, independent financial adviser with Chartwell 6900
Vee Montebello, Gartmore6800
Kay Lowe, partner at independent financial advisers Equal Partners 7000
Mark Chilton, managing director, Savills Private Finance 6850

30 Dec 2000 UK: Investors pay high price for wisdom.

The Herald

  A Herald poll of 12 stockbrokers and economists produced a consensus forecast that the FTSE-100 index of leading shares will climb about 800 points or 13 per cent next year to hit 7000 by Christmas. Their individual estimates ranged from 6600 to 7400.

  Williams de Broe, forecasting a 19 per cent rise the FTSE-100 to 7400

  US investment bank Merrill Lynch is the most bearish, projecting an advance of just 3 per cent to 6600.

  Archie McSporran, managing director of Glasgow stockbroker Aitken Campbell, said: "The fever which boosted the tech stocks boom at the start of this year has been contained and is unlikely to return in the short-term as the market now appears to have developed a degree of immunity."

  Steve Russell of HSBC Securities said that the market has already discounted much of the expected slowdown in the UK economy next year. He predicted a pick-up in the second half as the effect of anticipated cuts in interest rates comes into play.

  But Darren Winder of UBS Warburg reckons that Wall Street will drive a much earlier recovery in London share prices. "The US market is under-valued at present levels," he said. "We expect a strong performance from the US next year with much better equity returns than this year."
Justin Urquhart Stewart of Barclays Stockbrokers 7200

  Judith MacKenzie, of Bell Lawrie White in Glasgow, is upbeat about the coming year, although she warns of further volatility in world oil prices. "It's all very easy to feel negative, but behind this lies a picture of reasonable global economic growth."

27 Dec 2000 UK: There's good and bad news for 2001—Easy Money.

The Times
Paul Horne, equity market economist at Salomon Smith Barney 7,600
John Shelley, senior fund manager at Aberdeen Asset Managers 7,500

2 Jan 2001 UK: City pundits forecast prosperous year ahead for UK stock market.

The Independent

  Morgan Stanley Dean Witter, forecasting the FTSE 100 will rise by more than 30 per cent this year, to finish 2001 above the 8,000 points-level.

  Steve Russell, of HSBC, said: "Consensus earnings forecasts for 2001 are still too high and we expect a difficult first quarter for equities as markets digest further profit warnings and downgrades. As the year progresses, lower interest rates and recovery will gradually take over as the key themes . . . Equities should recover strongly, leaving the UK firmly in positive territory for the year as a whole."

Year-end Forecasts for 2002(4,051 as at 25/10/02)

06 Jan 2002 Hibernation time for bears.

Scotland on Sunday
Merrill Lynch5,350
Deutsche Bank6,200
Charterhouse, predicts a "volatile market" 24,500 and 6,500

  Standard Life: "equity markets should recover and outperform bonds for the first time in three years."

  Britannic: expects the global slowdown to continue but believes recovery shoots will be visible by the summer.


Mail on Sunday
Goldman Sachs and Merrill Lynch5,500

29 Dec 2001 Financial predictions—Battle of the forecasters

Daily Telegraph
Mark Durling, Brewin Dolphin6,300

    "In past recovery years, markets have risen more than 20pc. In 1993, it rose 23.4pc; in 1999, 21pc. We could get growth in the mid teens next year. If you view 5,400 as being a reasonable year end for 2001 then you're looking at an end 2002 FTSE of about 6,300."
Patrick Cooper, Head of retail, AXA Investment Managers 6,000
Clive Scott-Hopkins, director, Towry Law 5,900.

    "Markets are in recovery mode and although interest and inflation rates are historically extremely low, so stock market expectations have to be reduced."
Hilary Cook, Barclays stockbrokers6,000
Michael Karagianis, head of global strategy, AAM6,000 to 6,200
Justin Urquhart Stewart, 7 Investment Management, (a division of Killik & Co) 5,800

Top share: BAE Systems. Although civil airline business will be weak, the contracts for the Typhoon
Jeremy Tigue, Foreign & Colonial5,600
Nicola Horlick, joint MD, SG Asset Management 5500 to 5,750
Jeremy Batstone, head of research, Natwest stockbrokers 5,800
Annabel Brodie-Smith, Association of Investment Trust Companies 6,100
Mike Boles, Director, Savills Private Finance 5,900
Mark Dampier, Hargreaves Landsdown5,800

    "Based on the fact that we should see a profits recovery in 2002 and there is excess liquidity in the economy and private investors aren't buying, I am going for a figure of 5,800, although it could go over 6,000 in the year."
Kean Seager, director, Whitechurch Securities 6,200
    "An economic recovery will boost the UK economy and market sentiment."
Kay Lowe, Equal Partners (IFA)5,700
Tim Cockerill, Chartwell Investment Management (IFA) 5,780
Vee Montebello, Gartmore5,800

    "I think that markets will remain volatile but the effect of interest rate cuts that have been made this year will start to come through."
Mike Warburton, senior tax partner, Grant Thornton 6,500


Evening Standard

CSFB's Kevin Gardner


    "We reckon this winter marks the weakest point in the cycle."
Khuram Chaudhry at Merrill Lynch5,500
Gerard Lane, UBS Warburg5,750

    "If the global recovery does take place, you will see strength shifting to globally exposed stocks like mining and chemicals."
NatWest Stockbrokers and SG5,800
Morgan Stanley and Barclays6,000

15 Dec 2001 Crystal gazers still optimistic

Financial Times
Bob Semple, of Deutsche Bank6,200

    "In the first half of next year, lower interest rates and clearer evidence that the global economy is set fair on the path of recovery should prompt decent double-figure returns from UK equities."

Graham Secker, of Morgan Stanley


    "Liquidity remains strong and if we have a month or so of positive economic data, the market will quickly move to price in recovery."

Ian Scott, of Lehman Brothers


    "The valuation of the market is attractive, relative to conventional and index-linked bonds. Combined with modest growth in earnings of 3 per cent, we think the market can move higher, along with a general rally in European markets."
Kevin Gardiner, of Credit Suisse First Boston 5,900

    "we subscribe to the global recovery story and believe that valuations remain reasonably generous".
Gareth Williams, of ABN Amro5,800
Gerard Lane, of UBS Warburg5,750

    "We think there will be a global recovery in 2002 and interest rates will remain low. That will provide a better earnings environment for those companies exposed to overseas markets and corporate earnings, ex-oil, will rise by 7 per cent."
Steve Russell of HSBC5,700

    "The most likely path for the market is a struggle early in the year, in the face of disappointment about corporate earnings, followed by a rebound in the second half as investors look forward to 2003."

Michael Hartnett, of Merrill Lynch


    "We expect a soft landing in the UK economy and a global economic recovery."

November 2002

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