RNS Number:7708V
Merrill Lynch FTSE100 Stpd Gwth&Inc
30 April 2007
Merrill Lynch FTSE 100 Stepped Growth and Income Limited
Investment Manager's Report
For the year from 1st January, 2006 to 31st December, 2006
Growth Shares
The Growth Shares are designed to offer investors a capital growth amount of
70.00 pence per growth share and to return a capital amount of 100.00 pence per
growth share, as long as the Underlying Index has not fallen by more than 40.0%
of the Initial Index Reference Level. If the index has fallen more then 40% an
amount of 5.0% is reduced from 70.0% for each of the remaining six monthly
period (first six month period ended on 16th December, 2002, and so on until
16th June, 2009) to the Final Reference Date.
As of 31st December, 2006, the FTSE 100 Index closed at 6,220.81, an increase of
10.71% from the level of the index at the close on 30th December, 2005. The Net
Asset Value of the Growth Shares was GBP1.47 as of 31st December, 2006, resulting
in an increase of 5.31% for the annual period (relative to a Net Asset Value of
GBP1.40 at 30th December, 2005), and an increase of 53.58% since inception
(relative to the initial Net Asset Value of GBP0.96).
Income Shares
The Income Shares pay a fixed dividend of 4.0 pence per Income Share,
semi-annually in arrears as long as the Underlying Index has not fallen by more
than 40% of the Initial Index Reference Levels at any time up to the close of
trading on Final Reference Date. If the Underlying Index has fallen by more than
40.0% of the Initial Index Reference Level at any time up to the close of
trading on the Final Reference Date then all the subsequent coupons (4.0 pence)
will cease after that date.
As of 31st December, 2006, the FTSE 100 Index closed at 6,220.81, an increase of
10.71% from the level of the index at the close on 30th December, 2005. The Net
Asset Value of the Income Shares was GBP1.05 as of 31st December, 2006, resulting
in a decrease of (1.21%) for the annual period (relative to a Net Asset Value of
GBP1.06 at 30th December, 2005), and a since inception increase of 9.08% (relative
to the initial Net Asset Value of GBP0.96).
Portfolio Objective
The portfolio met its objective of closely tracking the return of its benchmark.
Performance Summary
The FTSE 100 Index returned 10.71% for the 12-month period ended 31st December,
2006, which was in line with the portfolio's return.
Seven of the nine sectors within the FTSE 100 Index posted gains during the
year. The strongest performers included utilities (+32.3%); basic industries
(+22.2%); general industrials (+17.5%); cyclical services (+15.1%); and
financials (+14.2%). Conversely, non-cyclical consumer goods (-5.0%) and
resources (-2.9%) recorded negative returns for the period.
The rate of global economic growth, which peaked in the spring of 2006,
continued to moderate during the fourth quarter, yet the rate remained fairly
robust, hovering at or slightly above the long-term trend rate. The state of the
global economy reflected both the boom conditions that characterized the start
of the year and the fact that the slowdown was moderate rather than abrupt.
Economic conditions in Asia remained mixed, while continental Europe and the
United Kingdom exhibited only limited signs of a slowdown-even after enough time
had passed for the effects of a weaker U.S. economy to take hold.
Strong growth in corporate earnings and significant upward revisions to earnings
expectations have been major drivers of the international equity bull market
since 2003. Although the rate of upgrading has slowed from the exceptionally
strong rates seen in previous years, recent news from the major corporate
sectors has generally been upbeat. Earnings overall came in ahead of
expectations in the latest earnings rounds in Europe, Japan and the United
States, supporting the rally in equities during recent months.
Headline inflation rates in many countries have fallen sharply in recent months
following the decline in oil prices. In addition, central banks have been less
active. Fewer tightening measures have been enacted in Asia, with the exception
of India, which recently saw a rise in reserve requirements.
We expect less aggressive monetary policy moves by central banks in 2007,
particularly if growth and inflation do not diverge significantly from levels
with which policy makers are content. We believe there will be slightly higher
rates in the European and United Kingdom markets, and eventually also in Japan.
We anticipate greater diversity in the emerging markets: some bias to tightening
in India and China, for example, but further rate declines in Brazil.
In our view, there most likely will be smaller increases in corporate profits in
2007. This reflects a more moderate growth background, much diminished scope for
additional widening in profit margins, and less of a tailwind from rising
commodity prices.
Aggregate profits growth could drop to single digits, significantly lower than
the 30% annualized average since 2003.
The U.S. Dollar outperformed most major currencies in the fourth quarter,
registering gains of 3.9% and 4.6% against the euro and pound, respectively, but
declining 0.9% versus the yen.
Portfolio Strategy
The portfolio is positioned such that the risk characteristics are similar to
those of the FTSE 100 Index.
Merrill Lynch International
30th April, 2007
Total Statement of Operations
For the year from 1st January, 2006 to 31st December, 2006
Total Total
01.01.2006 01.01.2005
to 31.12.2006 to 31.12.2005
#'000 #'000
Income on medium term notes
- Interest (Libor + margin) 1,856 1,768
Receipts under "Swap and Option" transaction
- Payment in lieu of distributions 1,940 1,940
- Money due for distributor and sponsor
fees 201 310
Payments under "Swap and Option" transaction
- Interest (Libor + margin) (1,856) (1,838)
Distributor and sponsor fees (201) (310)
Other bank interest received 1 2
Other bank interest paid - (3)
---------- ----------
Net realised gains on investment activities 1,941 1,869
Movement in provision on "Swap and Option"
transactions 731 2,252
Movement in unrealised losses on
investments 19 18
---------- ----------
----------
Movement in net unrealised losses on
investments 750 2,270
---------- ----------
----------
Net gains on investment activities 2,691 4,139
---------- ----------
Finance costs
Distributions to holders of preference
shares (1,940) (1,940)
---------- ----------
Retained gain for the year 751 2,199
========== ==========
Growth Growth
Shares Shares
01.01.2006 01.01.2005
to 31.12.2006 to 31.12.2005
#'000 #'000
Income on medium term notes
- Interest (Libor + margin) 731 696
Receipts under "Swap and Option" transaction
- Payment in lieu of distributions - -
- Money due for distributor and sponsor fees 79 122
Payments under "Swap and Option" transaction
- Interest (Libor + margin) (731) (724)
Distributor and sponsor fees (79) (122)
Other bank interest received 1 2
Other bank interest paid - -
---------- ----------
Net realised gains/(losses) on investment activities 1 (26)
Movement in provision on "Swap and Option"
transactions 1,069 1,888
Movement in unrealised losses on investments 7 7
---------- ----------
Movement in net unrealised losses on investments 1,076 1,895
---------- ----------
Net gains on investment activities 1,077 1,869
---------- ----------
Finance costs
Distributions to holders of preference shares - -
---------- ----------
Retained gain for the year 1,077 1,869
========== ==========
Income Income
Shares Shares
01.01.2006 01.01.2005
to 31.12.2006 to 31.12.2005
#'000 #'000
Income on medium term notes
- Interest (Libor + margin) 1,125 1,072
Receipts under "Swap and Option" transaction
- Payment in lieu of distributions 1,940 1,940
- Money due for distributor and sponsor
fees 122 188
Payments under "Swap and Option" transaction
- Interest (Libor + margin) (1,125) (1,114)
Distributor and sponsor fees (122) (188)
Other bank interest received - -
Other bank interest paid - (3)
---------- ----------
Net realised gains on investment activities 1,940 1,895
Movement in provision on "Swap and Option"
transactions (338) 364
Movement in unrealised losses on
investments 12 11
---------- ----------
Movement in net unrealised losses on
investments (326) 375
---------- ----------
Net gains on investment activities 1,614 2,270
---------- ----------
Finance costs
Distributions to holders of preference
shares (1,940) (1,940)
---------- ----------
Retained gain/(loss) for the year (326) 330
========== ==========
Total Statement of Assets and Liabilities
As at 31st December, 2006
Total Total
31.12.2006 31.12.2005
#'000 #'000
ASSETS
Investments
Debt securities 35,947 35,928
Swap and option contract at fair value 12,605 11,874
Debtors 263 497
Cash 476 264
---------- ----------
Total assets 49,291 48,563
========== ==========
EQUITY
Ordinary share capital - -
---------- ----------
LIABILITIES
Creditors 728 497
Bank overdraft - 254
---------- ----------
Total liabilities (excluding net assets
attributable to holders of preference shares) 728 751
Net assets attributable to holders of preference
shares 48,563 47,812
---------- ----------
----------
Total equity and liabilities 49,291 48,563
========== ==========
Growth Growth
Shares Shares
31.12.2006 31.12.2005
#'000 #'000
ASSETS
Investments
Debt securities 14,154 14,147
Swap and option contract at fair value 9,023 7,954
Debtors 73 64
Cash 190 264
---------- ----------
Total assets 23,440 22,429
========== ==========
EQUITY
Ordinary share capital - -
---------- ----------
LIABILITIES
Creditors 256 322
Bank overdraft - -
---------- ----------
Total liabilities (excluding net assets
attributable to holders of preference shares) 256 322
Net assets attributable to holders of preference
shares 23,184 22,107
---------- ----------
Total equity and liabilities 23,440 22,429
========== ==========
Income Income
Shares Shares
31.12.2006 31.12.2005
#'000 #'000
ASSETS
Investments
Debt securities 21,793 21,781
Swap and option contract at fair value 3,582 3,920
Debtors 190 433
Cash 286 -
---------- ----------
Total assets 25,851 26,134
========== ==========
EQUITY
Ordinary share capital - -
---------- ----------
LIABILITIES
Creditors 472 175
Bank overdraft - 254
---------- ----------
Total liabilities (excluding net assets
attributable to holders of preference shares) 472 429
Net assets attributable to holders of preference
shares 25,379 25,705
---------- ----------
Total equity and liabilities 25,851 26,134
========== ==========
Total Statement of Changes in Net Assets Attributable to Holders of Preference
Shares
For the year from 1st January, 2006 to 31st December 2006
Total Total
01.01.2006 01.01.2005
to 31.12.2006 to 31.12.2005
#'000 #'000
From Operations
Net realised gains on investment activities
applicable to holders of preference shares 1,941 1,869
Net unrealised gains on investments
applicable to holders of preference shares 750 2,270
Distributions payable to holders of
preference shares (1,940) (1,940)
---------- ----------
Net increase resulting from operations 751 2,199
---------- ----------
Total increase in net assets attributable
to holders of preference shares for the
year 751 2,199
Net assets attributable to holders of
preference shares at the beginning of the
year 47,812 45,613
---------- ----------
Total net assets attributable to holders of
preference shares 48,563 47,812
========== ==========
Growth Growth
Shares Shares
01.01.2006 01.01.2005
to 31.12.2006 to 31.12.2005
#'000 #'000
From Operations
Net realised gains/(losses) on investment
activities applicable to holders of
preference shares 1 (26)
Net unrealised gains on investments
applicable to holders of preference shares 1,076 1,895
Distributions payable to holders of preference - -
shares ---------- ----------
Net increase resulting from operations 1,077 1,869
---------- ----------
Total increase in net assets attributable
to holders of preference shares for the
year 1,077 1,869
Net assets attributable to holders of
preference shares at the beginning of the
year 22,107 20,238
---------- ----------
Total net assets attributable to holders of
preference shares 23,184 22,107
========== ==========
Income Income
Shares Shares
01.01.2006 01.01.2005
to 31.12.2006 to 31.12.2005
#'000 #'000
From Operations
Net realised gains on investment activities
applicable to holders of preference shares 1,940 1,895
Net unrealised (losses)/gains on
investments applicable to holders of
preference shares (326) 375
Distributions payable to holders of
preference shares (1,940) (1,940)
---------- ----------
Net (decrease)/increase resulting from
operations (326) 330
---------- ----------
Total (decrease)/increase in net assets
attributable to holders of preference
shares for the year (326) 330
Net assets attributable to holders of
preference shares at the beginning of the
year 25,705 25,375
---------- ----------
Total net assets attributable to holders of
preference shares 25,379 25,705
========== ==========
Total Statement of Cash Flows
For the year from 1st January, 2006 to 31st December, 2006
Total Total
01.01.2006 01.01.2005
to 31.12.2006 to 31.12.2005
#'000 #'000
Operating Activities
Investment income 1,833 1,784
Income from counterparty for Distributor
and Sponsor fees 200 201
Net swap option receipts 572 158
Distributor and sponsor fees (200) (201)
Other interest expense/(income) 1 (1)
---------- ----------
Net cash inflow for operating activities 2,406 1,941
---------- ----------
Distributions paid to holders of preference
shares (1,940) (1,940)
---------- ----------
Increase in cash 466 1
Cash at the start of the year 10 9
---------- ----------
Cash at the end of the year 476 10
========== ==========
Growth Growth
Shares Shares
01.01.2006 01.01.2005
to 31.12.2006 to 31.12.2005
#'000 #'000
Operating Activities
Investment income 722 702
Income from counterparty for Distributor
and Sponsor fees 79 79
Net swap option payments (797) (444)
Distributor and sponsor fees (79) (79)
Other interest income 1 2
---------- ----------
Net cash outflow for operating activities (74) 260
---------- ----------
Distributions paid to holders of preference shares - -
---------- ----------
Decrease in cash (74) 260
Cash at the start of the year 264 4
---------- ----------
Cash at the end of the year 190 264
========== ==========
Income Income
Shares Shares
01.01.2006 01.01.2005
to 31.12.2006 to 31.12.2005
#'000 #'000
Operating Activities
Investment income 1,111 1,082
Income from counterparty for Distributor
and Sponsor fees 121 122
Net swap option receipts 1,369 602
Distributor and sponsor fees (121) (122)
Other interest income - (3)
---------- ----------
Net cash inflow for operating activities 2,480 1,681
---------- ----------
Distributions paid to holders of preference
shares (1,940) (1,940)
---------- ----------
Increase in cash 540 (259)
Cash at the start of the period (254) 5
---------- ----------
Cash at the end of the period 286 (254)
========== ==========
This information is provided by RNS
The company news service from the London Stock Exchange
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