ADF Facilities Regulatory News (ADF)

18 Mar 2005 13:30

Progressive Euro Alt. Portfolio Ltd18 March 2005 Proposals for amendment of investment objective, change of management arrangements, change of name to Advance Focus Fund Limited and a placing of up to 70,000,000 new shares Following the announcement on 24 February 2005 the board of Progressive EuropeanAlternative Portfolio Limited (the "Company") is today announcing proposals toeffect the conversion of the Company into a focus fund investing in UK listedequities. The proposals consist of an amendment of investment objective, achange of management arrangements, a change of name and a placing to expand thefund. The proposals are as follows: - Amendment of investment objective. The Company will become a focusfund with an investment objective to outperform the FTSE All-Share Index. Thefund will comprise a concentrated portfolio of around twenty holdings ofundervalued stocks selected from the FTSE All-Share Index which the new managerconsiders to be on attractive valuations as a consequence of being overlooked ormisjudged by other investors; - Change of management arrangements. The Company proposes to appointProgressive European Markets Limited as the new investment manager. JamesCarthew, who manages Advance UK Trust plc, will be the lead manager and he willbe supported by Simon Toynbee and Chris Norris, two senior fund managers withinthe Progressive Group; - Change of name to Advance Focus Fund Limited reflecting the newinvestment objective; and - A placing of up to 70,000,000 new shares to provide new funds forinvestment and to expand the fund. The Board has received written confirmation from shareholders representing 45.5per cent. of the issued share capital of the Company of their current intentionto vote in favour of the proposals. Further details of the above proposals which will require approval at anextraordinary general meeting will be sent to shareholders later today. Enquiries: Progressive European Markets Limited 020 7566 5530James Carthew Marshall Securities Limited 020 7490 3788Rob Luetchford/Gary Pinkerton Proposals for amendment of investment objective, change of management arrangements, change of name and Placing of up to 70,000,000 New Shares The Proposals The proposals consist of an amendment of the investment objective of theCompany, a change of management arrangements, a change of the Company's name anda placing of up to 70,000,000 new shares. If successfully implemented, theproposals will convert the Company into a focus fund investing in UK listedequities with an enlarged fund to be managed by a new manager. The Investment Objective It is proposed that the Company's investment objective be changed to that ofoutperforming the FTSE All-Share Index with income reinvested (the "NewBenchmark Index") over the medium term. The Company will seek to achieve thisobjective by investing in a concentrated portfolio of stocks which fall withinthe New Benchmark Index and which the new manager considers to be significantlyundervalued. As a focus fund, targeting undervalued companies, the Company will have asignificantly less diversified portfolio than a conventional equities fund andits performance may not be closely correlated to the performance of the NewBenchmark Index or to market movements more generally. The Investment Approach The new manager intends to construct a concentrated portfolio of around twentyholdings selected on the basis of the new manager's analysis of undervalued FTSEAll-Share constituents. The portfolio will comprise stocks that the new managerconsiders to be on attractive valuations as a consequence of being overlooked ormisjudged by other investors. The fund will in normal conditions be fully invested and will not utilisegearing other than for short term liquidity. It is intended that each investmentwill be significant to the portfolio. However the new manager will seek toensure that no investment will represent more than ten per cent. of the assetsof the Company. All sectors of the New Benchmark Index including investmentcompanies will be considered for inclusion in the portfolio but the portfoliowill be constructed without reference to the weightings of the New BenchmarkIndex. The new manager anticipates that following the realisation of theexisting portfolio it will take approximately two to three months before thefund will become fully invested in accordance with the new investment remit.Funds awaiting investment will be invested in short term treasury bills orplaced on deposit. The new manager believes that an opportunity exists to exploit valuationanomalies which arise when investors become too pessimistic about the prospectsof a company or where investors have, as yet, failed to notice an improvement ina company's fortunes or the presence of valuable assets which are not fullyreflected in the company's balance sheet. The new manager has experience of thesubstantial re-rating which can occur when the market's perception of a stockchanges. The new manager may, where it sees an opportunity to do so, exerciseits rights and influence as an investor to encourage action by investeecompanies to effect changes which may bring about such shifts in perception. An investment review committee comprising the fund managers and other fundmanagers within the Progressive Group will be established to assist the newmanager in its selection and management of the portfolio (but will not itselftake investment decisions, which will be the sole responsibility of the newmanager). Investment Manager The Company proposes to appoint Progressive European Markets Limited ("PEML") asthe investment manager. PEML currently manages Advance UK Trust plc, aninvestment trust which invests at a discount in investment trusts andclosed-ended funds which are invested in developed markets (other than Japan).At 11 March 2005 Advance UK Trust plc had net assets of £69.97 million. The lead manager will be James Carthew, the managing director of PEML. He willbe supported by Simon Toynbee and Chris Norris, two senior fund managers withinthe Progressive Group. New Management Arrangements and termination of Existing Management Agreement Under the new management agreement PEML will be entitled to a monthly fee ofone-twelfth of one per cent. of the Company's market capitalisation calculatedat the month end, together with, if applicable, a performance fee as describedbelow. The new management agreement will be terminable by either the new manageror the Company on 6 months' notice expiring at the end of any calendar month noearlier than the first anniversary of the contract. The performance fee is based on the structure of incentives used by Advance UKTrust plc and Advance Developing Markets Trust plc. It will be payable if, inany financial period for which audited accounts are produced (or if shorter theperiod up to termination), the Company's NAV per share (before deduction of theperformance fee and treating any dividends as if reinvested in the portfolio)outperforms the New Benchmark Index. The performance fee will be 10 per cent. ofany such outperformance provided that the NAV per share has increased since theend of the last period in respect of which a performance fee was payable andsince the date of commencement of dealings in the new shares issued pursuant tothe placing. The maximum performance fee which can be paid in any financialperiod is capped at 2.5 per cent. of the net asset value before deduction of theperformance fee. Currently the Company charges all of the management fees to capital reflectingthe nature of the existing investment objective. If the proposals are approvedthe Company will charge 100 per cent. of basic management fees to revenue. Anyperformance fees payable will be charged 100 per cent. to capital. The Company has agreed with Progressive Alternative Investments Limited ("PAIL")that it will not be required to pay compensation to PAIL for early terminationof the existing management agreement but will pay any performance fee for theperiod ended 31 March 2005. Following the announcement on 24 February 2005, notice has been given to realiseall the current investments of the Company such that by the time dealings in thenew shares start the existing portfolio will comprise cash and receivables. Placing of new shares In order to provide new capital for investment and to increase the marketcapitalisation of the Company, which the board believes will improve interestand liquidity in the shares, the Company has entered into a conditionalagreement with Marshall Securities Limited for it to place up to 70,000,000 newshares. The placing is conditional, inter alia, on sufficient number of newshares being placed such that the market capitalisation of the Company at theplacing price immediately following the placing is projected to be at least£30,000,000. The price at which new shares will be allotted under the placing will beequivalent to 100/99ths of Formula NAV per share at close of business on 18April 2005. Formula NAV per share will be equivalent to NAV per share calculated accordingto the Company's existing policies, save, for the avoidance of doubt, that: (i) where a contract note for the disposal of an investment has beenissued the net proceeds on the contract note will be used in the valuation; and (ii) where no contract note has been issued the price will be thelatest issued net asset value of the underlying investment adjusted, ifconsidered necessary by the Directors in their absolute discretion, to a fairrealisable value. No party shall be under any liability by reason of the fact that a pricereasonably believed to be the appropriate price for any investment may notsubsequently be realised. As at 28 February 2005 the NAV per share was 110.5253p, the Formula NAV pershare based on that price would have been 110.53p and the placing price wouldhave been 111.65p. The estimated NAV per share, after taking account of theDirectors' estimate of the costs of the proposals and adjusted as describedabove, would have been 109.95p (if the minimum number of new shares had beenissued pursuant to the placing) and 110.10p (if the maximum number of new shareshad been issued pursuant to the placing). Dividends The new investment objective of the Company will be primarily focused on capitalgrowth and the Directors intend to reinvest a substantial proportion of anysurplus income (net of expenses). It is likely that such income will vary fromyear to year which will affect the level of surplus. Having taken these mattersinto account the Directors intend to establish a sustainable dividend policy. Tothe extent that any dividends are paid, they will be paid in accordance with anyapplicable laws and regulations. General The Company is also seeking approval for an amendment to the Company's articlesof association and an authority to allot additional shares representing 5 percent. of the share capital in issue following the placing for cash for a periodexpiring five years after the date on which the proposals are approved. Inconnection with this and with the placing the Company is seeking authority todis-apply shareholders' pre-emption rights. Timetable: 2005 Extraordinary General Meeting 11.00 a.m. on 21 April Dealings commence in new shares 8.00 a.m. on 27 April New shares in uncertificated form credited to the stock accounts 27 Aprilin CREST Definitive certificates dispatched for new shares in by 5 Maycertificated form This information is provided by RNS The company news service from the London Stock Exchange