Select Committee on Treasury Minutes of Evidence


Annex B (continued)

Murray Global Return Trust PLC

INSTITUTIONAL REPORT

August 2002




OBJECTIVE

  To achieve both capital and income growth from a portfolio comprised principally of listed UK and international equities and fixed interest securities.

MANAGER'S REPORT

  Global stockmarkets declined precipitously at times over the past month. Corporate accounting irregularities in the United States kept anxiety levels extremely high. Weaker than expected second quarter GDP, a steep drop in the ISM survey and sub-par employment growth indicated a sluggish economic recovery at best. This re-ignited fears of a "double dip" back into recession in the US. Consequently risk aversion increased further and financial markets suffered accordingly.

Portfolio

  Despite suffering its share of severe asset erosion over the past month, the robust structure of Global Return enabled investment policy (and not debt management) to continue to dictate portfolio structure. Specific low-yielding, defensive holdings which had recently performed exceptionally were divested, such as Cadbury-Schweppes, Heineken, Posco and VSNL; the proceeds of which were reinvested in high-yielding assets which appeared significantly oversold, such as Telecom Italia, Scottish Power plus Brazilian and Hungarian Sovereign Bonds.

Performance

  Against this backdrop of significant global equity declines, split-capital investment trusts suffered badly. Trusts with highly indebted structures were required to raise liquidity and pay back debt as covenants were consistently broken. Lending banks became increasingly nervous as net assets tumbled, prompting the suspension of certain trusts. With less than £20 million in long-term debt, Global Return remained outwith this vicious circle.

Outlook

  Stock markets are likely to remain very fragile in the near term as risk aversion stays high. The re-emergence of the "double dip" threat could dent investor confidence further at a time when corporate earnings transparency and global economic growth forecasts are already under intense scrutiny. Until such time that uncertainty subsides and confidence is restored, the Trust will continue to focus on capital preservation and income flow.

Total Investments at 31 July 2002


Total investments
155

Source: Aberdeen Asset Managers Ltd.

Capital Structure as at 31 July 2002


Ordinary shares
107,402,735
ZDP shares
107,314,363

Source: Aberdeen Asset Managers Ltd.

Allocation of Expenses and Interest at 31 July 2002


Capital %
Revenue %
70
30

Source: Aberdeen Asset Managers Ltd.

Calendar
Year end31 May
AGM dateOctober
Dividend paidJanuary, April, July, October
Reorganisation dateMarch 1999
  
Trading Details
SEAQ pageMGB.L (ORD), MGBo.L (ZDP)
Bloomberg/Reuters CodeMGBB, MGB, MGBZ, MGBU
StockbrokerUBS Warburg
Market makersABN, CLS, CSCS, DMG, HSBC
Internethttp://www.murray-global.co.uk
http://www.aberdeen-asset.com



European Growth & Income Trust PLC

INSTITUTIONAL REPORT

August 2002




OBJECTIVE

  The Company's investment objectives are to provide Income Shareholders with a high quarterly income and a preferred capital entitlement on the Winding-up Date (29/11/06), Capital Shareholders with a geared capital growth and Zero Dividend Preference Shareholders with a preferred capital entitlement on the Winding-up Date, from investment in Continental European equities together with bonds and other high yielding securities, predominantly geared ordinary shares and income shares.

MANAGER'S REPORT

  On 12 July 2002, the Company released its Interim Results for the period to 31 May 2002. The Chairman said the following:

  "It is disheartening to report that since the debt repayment made on 21 December 2001 events have conspired to frustrate further the performance of the Company. The portfolio's asset value has fallen over the last six months and the income stream from the revenue portfolio has suffered significantly.

  The Company announced on 17 June 2002 its intention to repay £10 million of its existing borrowings. Following realisations within the European equity and the revenue portfolios, in addition to utilising cash held in the portfolio, the Company has today fulfilled that intention and repaid borrowings of £10 million with associated breakage costs of £0.73 million. Following this repayment, the Company will have bank debt of £23.3 million; and the ratio of bank borrowings to adjusted gross assets of £41.3 million following repayment will be approximately 56% compared to the asset cover covenant pursuant to the facility agreement of 60%.

  Following the part repayment of the bank loan, the portfolio comprises approximately of the following:


£m
%

European equity portfolio
32.9
80
Investment funds portfolio
4.7
11
Bond portfolio
3.7
9

Total
41.3
100

  The Board has examined the overall capital structure of the Company and the dividend and capital entitlement of the different classes of shareholders as part of its decision on the partial debt repayment. In considering the Company's dividend policy the Board has reviewed the anticipated levels of revenue from the adjusted portfolio available to pay future dividends, together with the level of capital growth which might reasonably be expected on the Company's reduced assets following the partial repayment."

  Following this announcement the Company has made two further repayments of debt. On 24 July 2002 the Company announced that, in the light of significant recent market weakness, it had repaid a further £7 million of its outstanding bank loan together with associated breakage costs of £0.58 million. It also stated that, owing to the continuing large falls in the share prices of European equities and split capital trusts, the Company was raising additional cash from the portfolio to reduce the level of debt further.

  On 5 August 2002 the Company announced that it had repaid a further £3 million of its outstanding bank loan together with associated breakage costs of £0.25 million.

  Following these repayments, the Company had outstanding bank debt of £13.1 million. The ratio of bank borrowings to adjusted gross assets of £24.1 million following repayment was approximately 54 per cent compared to the asset cover covenant pursuant to the loan facility agreement of not more than 60 per cent. Post this repayment the portfolio comprised approximately £19.3 million in European equities (approximately 80 per cent of gross assets), £2.7 million in the investment trust portfolio (approximately 11.3 per cent of gross assets), £2.0 million in the bond portfolio (approximately 8.3 per cent of gross assets) and £0.1 million in cash (approximately 0.4 per cent. of gross assets).

Asset Class Allocation at 31 July 2002


%
Trust

European Equities
71.6
Euro Bonds
6.9
Investment Companies—Income
9.6
Cash
11.9

Total
100.0

Source: Aberdeen Asset Managers Ltd.

Total Number of Investments Held at 31 July 2002


Total investments
104

Source: Aberdeen Asset Managers Ltd.




Murray Emerging Growth and Income Trust PLC

INSTITUTIONAL REPORT

August 2002




OBJECTIVE

  Achieving capital appreciation and a high income with the prospect of growth over the life of the company primarily through investment in quoted equities in global emerging markets and in a diversified portfolio of quoted higher yielding securities.

MANAGER'S REPORT

  Asia maintained its positive credit dynamics as South Korea was upgraded to single A.

  Events in Latin America have been dominated by draining confidence in Brazil ahead of elections in October. Local investors (in particular) are concerned that the candidates leading in the polls (Lula and Ciro Gomes) will not have the fiscal discipline of the current administration, and worse that local debt restructuring may be inevitable.

  Eastern Europe is benefitting from strong positive credit events and fiscal out performance, as large trade surpluses are adding to impressive reserves in Russia, Romania and Bulgaria.




Danae Investment Trust PLC

INSTITUTIONAL REPORT

August 2002




OBJECTIVE

  Danae Investment Trust PLC is a split-capital trust with three separate classes of shares, zero dividend preference shares, income shares and capital shares. The aim of the Company is to achieve long-term capital and income growth from a higher yielding portfolio of securities.

MANAGER'S REPORT

  Following poor performance in June, the stockmarket continued in its downward trend in July posting a further negative total return of—10.4 per cent. Fears that US economic recovery was faltering, amidst the concerns of poor accounting practices hit investor confidence sharply.

  For the first time in a long while Telecom Services outperformed the markets, largely owing to the continued rotational sector selling. Insurance stocks remained weak on fears of weak solvency ratios and mining stocks in particular fell sharply on fears of a future divestment of South African assets in support of Black Empowerment.

  Following the further falls in the stockmarket further cash was raised to protect the Company's bank covenant margin. At the time of writing cash represented some 15 per cent of the Company's total assets. As market conditions improve the managers will reinvest the cash at appropriate levels.

Allocation of Expenses and Interest at 31 July 2002


Capital %
Revenue %

25
75

Source: Aberdeen Asset Managers Ltd

Gearing at 31 July 2002


%
£m

Gross Assets
29.3
GearingDebt
17.5
Factor
4883.33
Prior charges
11.2

Debt: £17.5m fixed at 6.91 per cent until 31/5/07.


Source: Aberdeen Asset Managers Ltd.

Calendar
Year end31 May
Accounts publishedAugust
Annual General MeetingOctober
Dividends forecast to be paidJanuary, April, July, October
Launch dateMay 1972
Winding-up date31 May 2007
  
Trading Details
SEAQ Page48173 zero
SEAQ Page50806 cap
SEAQ Page50807 inc
Topic Page21331
Epic CodeDNIZ/DNIC/DNII
StockbrokerOld Mutual Securities
Market MakersABN/UBSW
Internet
http://www.danae.co.uk
http://www.aberdeen-asset.com




 
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Prepared 17 October 2002