close high income properties plc

chip

Close High Income Properties PLC

Sponsored byBrewin Dolphin Securities Limited

Property Investment AdviserClose Brothers Investment Limited

Offer forSubscription

Fundamental Data Ltdwww.funddata.com

A copy of this document, which comprises a prospectus relating to Close High Income Properties PLC(the “Company”), prepared in accordance with the listing rules of the UK Listing Authority made undersection 74 of the Financial Services and Markets Act 2000, has been delivered to the Registrar ofCompanies in England and Wales for registration in accordance with section 83 of that Act.

Application has been made to the UK Listing Authority for the Ordinary Shares issued and to be issuedpursuant to the Offer to be admitted to the Official List and for the Ordinary Shares to be admitted totrading on the London Stock Exchange’s market for listed securities. It is expected that such admissionwill become effective and that dealings will commence on 27 November 2002.

A copy of this document, having attached thereto copies of the material contracts, reports and consentsmentioned herein, has been delivered to the Companies Registry maintained by the Isle of Man FinancialSupervision Commission for registration as a prospectus in accordance with section 38 of the Isle ofMan Companies Act 1931.

The Directors of the Company, whose names appear on page 4 of this document, accept responsibility forthe information contained in this document. To the best of the knowledge and belief of the Directors (whohave taken all reasonable care to ensure that such is the case) the information contained in this documentis in accordance with the facts and does not omit anything likely to affect the import of such information.

CLOSE HIGH INCOME PROPERTIES PLC

(a company incorporated in the Isle of Man with registration number 106038c)

OFFER FOR SUBSCRIPTIONof up to 50 million ordinary shares of 1p each at 100p per share

Sponsored by

Brewin Dolphin Securities Limited

Property Investment Adviser

Close Brothers Investment Limited

The Ordinary Shares to be issued pursuant to the Offer have not been, and will not be, registered underthe United States Securities Act of 1933 (as amended) or under any of the relevant securities laws ofCanada, Australia or Japan. Accordingly, the Ordinary Shares may not (unless an exemption from suchAct or such laws is available) be offered, sold or delivered, directly or indirectly, in or into the USA,Canada, Australia or Japan. The Company will not be registered under the United States InvestmentCompany Act 1940 (as amended) and investors will not be entitled to the benefits of such Act.

Brewin Dolphin Securities Limited, which is regulated by the Financial Services Authority, is thesponsor to the Company. Brewin Dolphin Securities Limited is not acting for any other person inconnection with the Offer, will not be responsible to anyone other than the Company for providing theprotections afforded to clients of Brewin Dolphin Securities Limited and is not advising any otherperson in relation to any transaction contemplated in or by this document.


CONTENTS

Expected timetable 3Offer statistics 3Directors, Property Investment Adviser and Advisers 4Definitions 5Part 1 The CompanyIntroduction 8Investment objective and policy 8An overview of the UK commercial property market 8The Initial Property Portfolio 9Dividends 10Net asset value 10Capital structure and life of the Company 10Purchase of Ordinary Shares by the Company 11Borrowings 11

Part 2 Additional InformationArrangements with the Property Subsidiaries 12Directors 12Property Investment Adviser 12Fee arrangements 14Administration and secretarial arrangements 14Annual expenses of the Group 14Accounting policies 15Reports and valuations 15The Offer 15Property ISA 16Taxation 16Investment restrictions 18Risk factors 19Principal bases and assumptions 20

Part 3 Summary of the Initial Property Portfolio 22

Part 4 Valuation Report 26

Part 5 Accountants’ Report on the Company 29

Part 6 Accountants’ Report on Beadgem Properties Limited 33

Part 7 Accountants’ Report to restate the results of Beadgem under IAS 44

Part 8 General Information 47

Part 9 Terms and Conditions of Application 64

Notes on how to complete the Application Form 70

Application Form 73

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3

EXPECTED TIMETABLE

Latest time and date for subscriptions under the Offer, unless previously extended 3:00pm on 25 November 2002Admission and dealings in the Ordinary Shares commence* 8:00am on 27 November 2002Crediting of CREST accounts in respect of the Ordinary Shares* 27 November 2002Share certificates in respect of the Ordinary Shares despatched by* 3 December 2002

*Where application is made for Ordinary Shares in respect of the Property ISA for the tax year ending 5 April2004, these shares will be allotted on 7 April 2003. The following expected timetable will then apply.

Admission and dealings in the Ordinary Shares commence 9 April 2003Crediting of CREST accounts in respect of the Ordinary Shares 9 April 2003Share certificates in respect of the Ordinary Shares despatched by 15 April 2003

The Directors reserve the right to allot and issue Ordinary Shares at any time whilst the Offer remainsopen. Share certificates will be despatched and CREST accounts credited as soon as practicablefollowing such allotments.

A maximum of 50 million Ordinary Shares are available under the Offer. In the event that subscriptionsunder the Offer reach 50 million Ordinary Shares, no further subscriptions will be accepted and theOffer will be closed.

OFFER STATISTICS

Offer Price per Ordinary Share £1.00Number of Ordinary Shares in issue following the Offer 50,000,000*Market capitalisation at the Offer Price £50,000,000*Number of Ordinary Shares being offered 50,000,000Net proceeds of the Offer to be received by the Company £47,125,000*

*On the basis that the Offer is fully subscribed


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DIRECTORS, PROPERTY INVESTMENT ADVISER AND ADVISERS

Directors Philip Peter Scales (Chairman)Geoffrey Paul Raineri BlackDonald LakeMark Glenn Bridgeman Shaw

all non-executive and of St James’s Chambers,Athol Street, Douglas, Isle of Man IM1 1JE

Company Secretary Vincent Campbell FCMA

Property Investment Adviser Close Brothers Investment Limited12 Appold Street, London EC2A 2AW

Sponsor Brewin Dolphin Securities Limited48 St Vincent Street, Glasgow G2 5TS

Administrator and Registrar Barings (Isle of Man) LimitedPO Box 174, St James’s Chambers, Athol Street,Douglas, Isle of Man IM99 1PP

UK Transfer and Paying Agent Northern Registrars LimitedNorthern House, Woodsome Park, Fenay Bridge, Huddersfield HD8 0LA

Auditors and Reporting Ernst & YoungAccountants Jubilee Buildings, Douglas, Isle of Man IM1 2SH

Tax Advisers Ernst & Young LLPRolls House, 7 Rolls Buildings, Fetter Lane, London EC4A 1NH

Property Valuers DTZ Debenham Tie Leung10 Colmore Row, Birmingham B3 2QD

Principal Bankers Bank of ScotlandSilk House Court, Tithebarn Street, Liverpool L2 2LX

Receiving Agents Close Brothers Investment Limited 12 Appold Street, London EC2A 2AW

Isle of Man Legal Advisers Cains Advocates LimitedOld Bank Chambers, 15-19 Athol Street, Douglas, Isle of Man IM1 1LB

Solicitors to the Company Osborne ClarkeHillgate House, 26 Old Bailey, London EC4M 7HW

Property Solicitors to the Company Pinsent Curtis Biddle1 Park Row, Leeds LS1 5AB

Solicitors to the Sponsor Burness 50 Lothian Road, Festival Square, Edinburgh EH3 9JW


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DEFINITIONS

The following definitions apply throughout this document unless the context otherwise requires.

“Administration and the administration and secretarial agreement betweenSecretarial Agreement” the Company, the Property Subsidiaries and the

Administrator, a summary of which is set out inparagraph 5.2 of Part 8 of this document

“Administrator” Barings (Isle of Man) Limited

“Admission” admission of the Ordinary Shares issued and to be issuedpursuant to the Offer to the Official List of the UKListing Authority and to trading on the London StockExchange, which is expected to be on 27 November 2002

“AGM” annual general meeting

“Annual Overheads” the annual overheads of the Group comprising property investment advisory fees, costs relating to themanagement of the Property Portfolio (which are notborne by the tenants), valuation fees, directors’ fees,professional and audit fees and the other overhead costsof running the Group (such as listing, registration andsecretarial fees)

“Articles” the Articles of Association of the Company, a summaryof which is set out in section 3 of Part 8 of this document

“Assumptions” the principal bases and assumptions used in thisdocument as set out on pages 20 and 21

“Bank” either Bank of Scotland or Nationwide, as the context requires

“Bank Facilities” the term loan facilities provided to the Property Subsidiariesby the Banks pursuant to the Facility Agreements

“Bank of Scotland” The Governor and Company of the Bank of Scotland

“Beadgem” Beadgem Properties Limited, a company which owns15 properties to be included within the Initial PropertyPortfolio and which Chip (Two) Limited has contractedto acquire, conditional, inter alia, upon Admission

“Board” or “Directors” the directors of the Company

“Brewin Dolphin” or “Sponsor” Brewin Dolphin Securities Limited

“CBIL” Close Brothers Investment Limited

“Company” Close High Income Properties PLC

“Enlarged Group” the Company, the Property Subsidiaries and Beadgem

“Estimated Rental Value” the rent which a valuer estimates could be charged if a property was let in the open market on the relevantvaluation date and, in the case of a property which isalready subject to a lease, on the basis that the terms of that existing lease are taken into account (other thanthe current rent)


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“Facility Agreements” the facility agreements between the Property Subsidiariesand either of Bank of Scotland or Nationwide, summariesof which are set out in paragraphs 5.3, 5.4 and 5.5 (asappropriate) of Part 8 of this document

“Group” the Company, the Property Subsidiaries and any othersubsidiary undertakings of the Company or the PropertySubsidiaries from time to time

“IAS” International Accounting Standards

“Initial Property Portfolio” the portfolio of properties either acquired or agreed to beacquired by the Group as more fully described in Part 3of this document

“IRR” the internal rate of return, being the annualised compound discount rate which, when applied to the initial investment,to subsequent distributions to Shareholders and to thevalue of their investment at a given point in time, producesa net present value of zero (expressed as a percentage)

“Law” the Isle of Man Companies Acts 1931–1993

“LIBOR” the rate (expressed as an annual percentage rate) at which Sterling deposits in an amount equal to the BankFacilities are offered in the London Inter Bank Market at or about 11:00am on the relevant day

“London Stock Exchange” London Stock Exchange plc

“Nationwide” Nationwide Building Society

“Offer” or “Offer the offer for subscription to raise an aggregate maximumfor Subscription” subscription of £50,000,000 by the issue of up to

50,000,000 Ordinary Shares at 100p each, as described in this document

“Offer Price” 100p per Ordinary Share

“Official List” the Official List of the UK Listing Authority

“Ordinary Shares” ordinary shares of 1p each in the capital of the Company

“Ordinary Shareholders” holders of the Ordinary Sharesor “Shareholders”

“Property Investment Adviser” Close Brothers Investment Limited

“Property Investment the property investment advisory agreement between Advisory Agreement” the Company, the Property Subsidiaries, Beadgem and

the Property Investment Adviser, a summary of which is set out in paragraph 5.1 of Part 8 of this document

“Property ISA” the Close High Income Properties PLC individual savingsaccount, administered by CBIL

“Property Portfolio” the property assets of the Group

“Property Subsidiaries” Chip (One) Limited, Chip (Two) Limited and Chip(Three) Limited, being private companies incorporated inthe Isle of Man which are wholly owned by the Company

“Prospectus” this document


“Taxes Act” the UK Income and Corporation Taxes Act 1988

“Total Assets” the aggregate value of the assets of the Group less thecurrent liabilities of the Group (which shall exclude any proportion of the principal amounts borrowed forinvestment which are treated as current liabilities, anyliability of an intra-Group nature and any accrual for the incentive fee payable under the Property InvestmentAdvisory Agreement)

“UK” the United Kingdom of Great Britain and Northern Ireland

“UKLA” or “UK the Financial Services Authority, acting in its capacity asListing Authority” the competent authority for the purposes of Part VI of the

Financial Services and Markets Act 2000

“Valuer” DTZ Debenham Tie Leung

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Part 1 THE COMPANY

Introduction

Close High Income Properties PLC is a closed-ended, Isle of Man registered investment company.The Company invests in UK commercial property which is held through the Property Subsidiaries.CBIL is the Property Investment Adviser to the Group. The Company, which has a single class ofshares and is geared through bank borrowings, is now seeking to raise up to £50 million under the Offer. The minimum subscription which must be raised under the Offer is £30 million.

Investment objective and policy

The Company’s investment objective and policy is to provide Ordinary Shareholders with a high levelof income together with the prospect of capital growth from investing in a diversified portfolio of UKcommercial property.

The Property Subsidiaries have acquired or contracted to acquire the Initial Property Portfolio and theGroup intends to be fully invested within approximately a further six months following Admission.Further details of the Initial Property Portfolio are set out below and in Part 3 of this document.

In the absence of unforeseen circumstances, the Company’s investment policy will be adhered to forat least three years following Admission; any material change to the investment policy within thisperiod may only be made with the approval of Shareholders.

At the annual general meeting of the Company which will be held to consider the accounts in respectof the year ending 31 December 2009, the Directors will propose an ordinary resolution to Shareholdersregarding the continuation of the Company’s investment activities. If that resolution is not passed, it isintended that an orderly disposal programme would be instituted, leading to a return of capital toinvestors.

An overview of the UK commercial property market

Investment Property Databank Limited (“IPD”) was established in 1985 and since then has produced,on an annual basis, a summary of the performance of the commercial property market covering theperiod 1970–2001. This summary shows both the annualised income and capital returns as well asthe combined return (i.e. the total return); the investment objective of the Group is designed to offerinvestors both the prospect of capital growth and a high running yield.

Income Return Capital Return Total Returnper annum per annum per annum

% % %

31 years from 1970 to 2001 6.7 5.5 12.221 years from 1980 to 2001 7.0 3.3 10.310 years from 1991 to 2001 7.8 2.5 10.37 years from 1994 to 2001 7.4 3.1 10.55 years from 1996 to 2001 7.3 4.7 12.0

Source: Investment Property Databank Limited

The above analysis of returns shows, for example, that in the 21 year period from 1980– 2001, the annualisedrate of total return from investing in the UK commercial property market was 10.3% per annum splitbetween an income return of 7.0% and a capital return of 3.3%.

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The split between the three main sectors of the commercial property market over the same periodsshows the following.

Annualised returnsSector 21 Years 10 Years 7 Years 5 Years

Retail 11.1% 10.8% 10.2% 11.2%Office 9.4% 9.5% 10.5% 12.7%Industrial 11.9% 11.5% 11.7% 13.8%Commercial propertyas a whole 10.3% 10.3% 10.5% 12.0%

Source: Investment Property Databank Limited

As shown in the tables above, UK commercial property has historically delivered attractive returnsover the medium to long term. The Valuer currently anticipates a total return of around 10% per annumfor this sector in the medium term although there can be no guarantee that this prediction will beachieved; this should not be regarded as a forecast. Investors should also be aware that the performanceof the Group’s Property Portfolio may differ from that achieved by the commercial property market asa whole.

Investors should bear in mind that property values can fall as well as rise and that the pastperformance of the commercial property market is not necessarily a guide to future performance.

The Initial Property Portfolio

Details of the Initial Property Portfolio are set out in Part 3 of this document. The Property Subsidiarieshave acquired or contracted to acquire these properties for a consideration equivalent to or less thanthe independent valuation carried out by the Valuer. The valuation confirms the following key featuresof the portfolio.

Current value £32,085,000Total annual rental income £2,955,328Opening yield on gross acquisition cost 8.94%Estimated Rental Value £3,326,927Potential yield at Estimated Rental Value on gross acquisition cost 10.01%

The valuation report in respect of the Initial Property Portfolio is set out in Part 4 of this document.

The Initial Property Portfolio comprises properties which offer a high annual income and, the Directorsbelieve, good prospects for capital growth over a 5 to 7 year period. It is intended that the Groupwill invest in freehold and long leasehold (over 60 years remaining at the time of acquisition) UKcommercial properties. The Group intends to invest in existing properties which are substantially letand will not undertake speculative property development.

The properties listed with numbers 1–15 in Part 3 are to be acquired, upon Admission, within a specialpurpose vehicle company, Beadgem, the entire share capital of which will be purchased by Chip (Two)Limited. Beadgem is owned by a company which is part owned by a member of the CBIL propertymanagement team (see page 13). The consideration for this acquisition, which will be payable in fullin cash, will be equal to the net asset value of Beadgem (subject to certain agreed adjustments) basedon the independent valuation of its property portfolio. The purchase of Beadgem, rather than theproperties owned by it, allows the Group to benefit from a saving in stamp duty. An Accountants’Report on Beadgem is set out in Part 6 of this document.

If the Offer is fully subscribed, the Group intends to buy properties with a gross acquisition cost ofapproximately £89 million, assuming that half of the cost of the properties is funded by borrowings.An average yield of approximately 8.5% on the gross acquisition cost of the Property Portfolio isanticipated. All properties are expected to have similar characteristics to those comprising the InitialProperty Portfolio.

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Dividends

Dividends on the Ordinary Shares are expected to be paid quarterly in January, April, July andOctober, commencing in January 2003. All dividends will be paid as interim dividends.

The Directors intend, on the basis of the Assumptions and in the absence of unforeseen circumstances,that the Company will pay gross dividends totalling 8.49p* per Ordinary Share in respect of the periodfrom 27 November 2002 to 31 December 2003, representing a gross yield of 7.75%* per annum onthe Offer Price over that period. No UK tax credits will be attached to dividends paid to OrdinaryShareholders. For further information on the tax treatment of an investment in the Company, pleaserefer to the section headed ‘Taxation’ in Part 2 of this document.

It is expected that the dividends in respect of the period to 31 December 2003 will be paid on theOrdinary Shares issued under the Offer as follows.

For the period ending Payment Month Gross amount per Ordinary Share*

31 December 2002 January 2003 0.7400p31 March 2003 April 2003 1.9375p30 June 2003 July 2003 1.9375p30 September 2003 October 2003 1.9375p31 December 2003 January 2004 1.9375p

TOTAL 8.49p

*These proposed dividend payments are based on the Assumptions. They should not be regarded asprofit forecasts.

If for any reason the first allotment of Ordinary Shares takes place after 26 November 2002 (i.e. if theOffer is extended) then the dividends payable in respect of those Ordinary Shares will be reduced fromthose shown above to reflect the shorter period of investment up to 31 December 2003. For example, ifAdmission occurs in February 2003, those investors who are issued with Ordinary Shares at that timewill be eligible for a first dividend payment in April 2003, the amount of which will be set accordingto the length of the period of investment from issue to 31 March 2003.

If Admission has previously occurred, any Ordinary Shares issued on or before 31 December 2002will be eligible for a first dividend payment of 1.9375p per Ordinary Share in April 2003.

If Admission has previously occurred, any Ordinary Shares issued on or after 1 January 2003 (forexample, for Property ISA investors who are applying for the tax year ending 5 April 2004) will beeligible for a first dividend payment of 1.9375p per Ordinary Share in July 2003.

The Offer may not be extended beyond 9 April 2003.

Net asset value

On the basis of the Assumptions, the net asset value per Ordinary Share immediately followingAdmission will be 94.25p.

Based upon the Assumptions, the Group’s Property Portfolio needs to achieve capital growth of1.5% per annum to reach a net asset value of 100p per Ordinary Share by 31 December 2009.

Capital structure and life of the Company

The Company’s share capital structure consists solely of Ordinary Shares which are or will be listedon the Official List and traded on the main market of the London Stock Exchange. Immediately following the Offer, and assuming that it is fully subscribed, the issued share capital of the Companywill comprise 50 million Ordinary Shares.

It is considered desirable that Shareholders should have the opportunity to review the future of theCompany at appropriate intervals. Accordingly, the Articles contain provisions requiring the Directorsto propose an ordinary resolution at the Company’s annual general meeting to consider the accounts in respect of the year ending 31 December 2009 to seek confirmation from Shareholders regarding the

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continuation of the Company’s investment activities. If that resolution is not passed, it is intended thatan orderly disposal programme would be instituted leading to a return of capital to investors. If adecision to continue is made, the Articles require a similar resolution to be proposed at five yearlyintervals thereafter.

Purchase of Ordinary Shares by the Company

The Directors have authority to buy back up to 14.99% of the Company’s Ordinary Shares in issuefollowing the Offer and will seek annual renewal of this authority from Shareholders. Any buy backof Ordinary Shares will be made subject to Isle of Man law and within guidelines established fromtime to time by the Board and the making and timing of any buy backs will be at the absolute discretionof the Board. Purchases of Ordinary Shares will only be made through the market for cash at pricesbelow the prevailing net asset value of the Ordinary Shares (as last calculated) where the Directorsbelieve such purchases will enhance Shareholder value. Such purchases will also comply with theRules of the UK Listing Authority which, inter alia, provide that the price to be paid must not be morethan 5% above the average of the middle market quotations for the Ordinary Shares over the fivebusiness days before the purchase is made.

Borrowings

The Group has the power to borrow an amount equal to 65% of the Group’s gross assets as defined inthe Articles. It is the present intention of the Directors that such borrowings will be limited to a maximumof 50% of the Group’s gross assets.

Chip (One) Limited has entered into a deposit and bridging facility with Bank of Scotland under whichit is entitled to draw down an aggregate principal amount of up to £10 million to fund the payment ofdeposit monies on the Initial Property Portfolio and up to £30 million under the bridging facility tofacilitate the acquisition of the properties within the Initial Property Portfolio (listed with numbers16–20 in Part 3), provided that the total amount drawn down under the deposit and bridging facilityshall not exceed £30 million in total. Prior to Admission, therefore, the Group’s borrowings willamount to 100% of the Group’s gross assets. Upon Admission the deposit and bridging facility will berepaid and Chip (One) Limited and Chip (Three) Limited will enter into and will be entitled to drawdown funds under the Bank of Scotland Facility described below.

The Property Subsidiaries have arranged Bank Facilities under which they are entitled to draw downan aggregate principal amount of up to £52 million. This amount comprises £42 million which willbe made available by Bank of Scotland to Chip (One) Limited and/or Chip (Three) Limited and£10 million which is being made available by Nationwide to Chip (Two) Limited. The Bank Facilitiesare repayable after ten years although they may be repayable earlier if an event of default occurs. Intereston the Bank Facilities is at an annual rate equal to LIBOR at the commencement of each interestpayment period plus an interest rate margin plus mandatory costs. The interest rate margin for the Bankof Scotland facility is 1.1% if the loan to value ratio is 50% or less, 1.175% if the loan to value ratiois greater than 50% but not more than 55% and 1.25% if the loan to value ratio is greater than 55%.The interest rate margin for the Nationwide facility is 1.1%. The Bank Facilities are or will be securedby legal charges over the property assets of the Property Subsidiaries and by debentures over thosecompanies.

It is intended that the rates of interest payable will be fixed by the Property Subsidiaries entering intointerest rate swap transactions which will cap the rates of interest payable for a period of five yearsfollowing Admission or draw down. Based on rates offered in the London Inter-Bank market fortransactions of this nature at 11:00am on 18 October 2002 (being the latest practicable date prior to thepublication of this document) and the interest rate margins set out in the Facility Agreements, theinterest rates on the Bank Facilities could have been fixed at the rate of 6.075% per annum.

Further details of the Facility Agreements are set out in paragraphs 5.3, 5.4 and 5.5 of Part 8 ofthis document.

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Part 2 ADDITIONAL INFORMATION

Arrangements with the Property Subsidiaries

Pursuant to an internal administration agreement between the Company and the Property Subsidiaries,the Property Subsidiaries will act as property investment holding companies for the Company and willacquire properties in accordance with the Company’s investment objective and policy. The Companyhas agreed to fund the Property Subsidiaries by way of share and/or loan capital in amounts to bedetermined from time to time. Further details of the internal administration agreement are set out inparagraph 5.7 of Part 8 of this document.

The Property Subsidiaries are Isle of Man incorporated companies which are wholly owned by theCompany. Their directors are the same as those of the Company. The Property Subsidiaries are alsoparties to the Property Investment Advisory Agreement and the Administration and SecretarialAgreement.

Whilst it is usually intended that all property will be owned by the Property Subsidiaries, the structureto be used upon each property acquisition will be reviewed at the time of such acquisition. TheCompany may invest in property by means of any structure which is considered to be appropriatein the circumstances of the proposed acquisition. Accordingly, the Company may, without limitation,incorporate further subsidiaries to hold property or may acquire the share capital of companies orpartnership interests in partnerships which own one or more properties.

Directors

The Directors, all of whom are non-executive and independent of the Property Investment Adviser, areresponsible for the determination of the investment policy of the Company and its overall supervision.The Directors are as follows.

Philip Scales,Chairman, (52) is a resident of the Isle of Man. He is a fellow of the Institute of CharteredSecretaries and Administrators and is managing director of the Administrator. Philip has more than25 years’ experience in corporate and mutual fund administration and is currently responsible forthe administration of funds valued at in excess of £400 million. He is the company secretary of aninvestment trust listed on the London Stock Exchange.

Geoffrey Black, (47) is a resident of the Isle of Man. He is a fellow of the Royal Institution of CharteredSurveyors and is a senior partner of Black Grace Cowley, a leading firm of commercial property agentson the Isle of Man. Geoffrey has more than 20 years’experience in both the commercial and residentialproperty markets and has acted for major UK institutions, such as Barclays Bank PLC and TheRoyal Bank of Scotland plc, and for the Isle of Man Government.

Donald Lake, (58) is a resident of the Isle of Man. He is a fellow of the Royal Institution of CharteredSurveyors and has many years of experience of the UK commercial property market both as anadviser to investment funds and as a principal.

Mark Shaw, (55) is a resident of the UK. He is a chartered accountant who specialises in the originationand management of commercial property investment transactions. Over the last decade, he has beenresponsible for the acquisition and subsequent management of more than 75 commercial properties ata total cost in excess of £450 million. He thus brings to the Board his skills in the assessment of newproperty acquisition opportunities and property portfolio management.

Property Investment Adviser

CBIL is the Property Investment Adviser to the Group and is a subsidiary of Close BrothersGroup plc, a London based merchant banking group which is listed on the Official List with a marketcapitalisation of approximately £750 million.

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CBIL manages a mixed portfolio of commercial and residential property funds. The main funds whichit currently has under management are as follows.

£Million(gross property value within each fund as at 18 October 2002)

Commercial property partnerships 200Commercial property companies 108Commercial property located within UK enterprise zones (trusts) 37Ground rents 36Residential property 79Other 20

Total £480

CBIL is familiar with developing new property investment products and structuring them within arange of investment vehicles. Over the last ten years, CBIL has been responsible for launching a widerange of different property investment products.

CBIL is responsible for managing the property assets of the Group in accordance with the investmentpolicy and, subject to the overall supervision of the Directors, has complete discretion to sell, retain,exchange or otherwise deal in the property assets for the account of the Group.

CBIL has assembled a specialist management team to undertake the property management activitieson behalf of the Group. The team comprises three main individuals as follows.

Peter Roscrow, ACA (Australian), is the deputy managing director of CBIL and is responsible for itsproperty management activities. Peter qualified as a chartered accountant in Australia prior to comingto the UK in 1988. Since then he has been responsible for establishing the property managementactivities of CBIL and is closely involved with the development of new property investment products.He has overall responsibility for the properties comprising the Initial Property Portfolio and for thesubsequent acquisitions made by the Group.

Robert Mandeville, FRICS, has over 30 years’ experience in the property market of which the last17 years have been spent in developing and trading commercial and industrial property investmentsthroughout the UK. This has been done either on his own account or jointly with other parties includingbanks and public property companies. Robert Mandeville is a minority shareholder of DovevaleLimited which has contracted to sell Beadgem to Chip (Two) Limited following Admission.

Gwynne Furlong, FRICS, has over 30 years’experience as a chartered surveyor which has particularlyfocused on investing in and managing commercial property. He has previously been the propertydirector at Enterprise plc where he was responsible for managing a portfolio valued at approximately£60 million. Also whilst at Enterprise plc, he was responsible for establishing the Mercury EnterpriseProperty Fund, a £150 million fund involving Mercury Asset Management and Nationwide (as seniordebt provider).

Robert Mandeville and Gwynne Furlong have direct responsibility for the sourcing of acquisitionopportunities for the Group and for the subsequent day to day management thereof.

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Fee arrangements

The fee arrangements for the Property Investment Adviser are as follows.

(i) An acquisition fee of 1.0% (plus VAT) of the cost of all properties acquired within the Groupout of which it will be responsible for paying the costs of all third party introductory fees andthe abortive legal and professional costs incurred on any acquisitions which do not proceed.

(ii) An annual fee of 2.0% (plus VAT) of the Total Assets out of which it will be responsible forthe costs of any managing agents appointed to run the day-to-day operations of the PropertyPortfolio.

If the total dividend to be paid by the Company in respect of a financial year would fall belowthe target level of 7.75 pence per Ordinary Share, then CBIL will rebate part of its annual fee,up to a maximum of 0.8% of Total Assets, in order to increase the level of the dividend. Onceany shortfall below the target dividend level has been made up, CBIL will not be required torebate any further amount. Any fee rebates may be made up in the two subsequent years if thefinancial position of the Company allows.

CBIL will also be entitled to retain certain third party fees relating to the managementservices provided.

(iii) An incentive fee arrangement will come into effect upon either the return in full of capital andreserves to Ordinary Shareholders or upon the date of the annual general meeting of the Companyin respect of the year ending 31 December 2009, whichever is the earlier. At that time, if thereturn to investors under the Offer exceeds an IRR of 10% per annum, then CBIL will beentitled to 20% of the excess above that target level of return. If the Property Portfolio has notbeen sold at that time, its value will be independently ascertained in order to calculate whetheror not CBIL is entitled to any incentive. The incentive will be payable as a fee to CBIL.

Further details of the Property Investment Advisory Agreement are set out in paragraph 5.1 ofPart 8 of this document.

Administration and secretarial arrangements

Barings (Isle of Man) Limited provides administration and secretarial services to the Group and registrarservices to the Company as set out in the Administration and Secretarial Agreement. The Administratorreceives an annual fee, payable quarterly in arrears, at the rate of 0.1% of the Total Assets. TheAdministration and Secretarial Agreement is terminable by either party on three months’ noticeexpiring on or after the first anniversary of Admission. Further details are set out in paragraph 5.2 ofPart 8 of this document.

The Administrator is a private company limited by shares incorporated in the Isle of Man with itsregistered office at P.O. Box 174, St James’s Chambers, Athol Street, Douglas, Isle of Man IM99 1PP.It is a wholly owned subsidiary of Baring Trustees (Guernsey) Limited which, in turn, is wholly ownedby Baring Asset Management Holdings Limited, part of the ING Group. The Administrator is theholder of an investment business licence issued by the Isle of Man Financial Supervision Commissionunder the Isle of Man Investment Business Acts 1991–1993.

Northern Registrars Limited has been appointed as the Company’s UK transfer agent. The fees ofNorthern Registrars Limited will be payable by the Company.

Annual expenses of the Group

The principal annual expenses of the Group, excluding interest, will be the fees payable to the Property Investment Adviser, the Administrator, the Valuer and the Directors. The Group will also incurregulatory fees, professional fees and audit fees. It is estimated that the Annual Overheads for theperiod ending 31 December 2003 will not exceed 2.5% of the Total Assets.

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Accounting policies

The audited accounts of the Group will be prepared under International Accounting Standards (“IAS”).Under IAS, the Group will prepare a Statement of Operations which, unlike a Statement of TotalReturns, does not differentiate between revenue and capital and also includes net investment gains.The Group’s management and administration fees, finance costs (including interest on the BankFacilities) and all other expenses will be charged through the Statement of Operations.

The Company is proposing to pay dividends, the level of which will be calculated by taking the grossrental income and interest receivable of the Group and then deducting 60% of the interest payableunder the Bank Facilities and 60% of the Annual Overheads. The result of this is intended to be equivalentto charging 40% of Annual Overheads and interest to capital and 60% to revenue. On this basis, theCompany is targeting to pay total annual dividends of not less than 7.75p per Ordinary Share.

Reports and valuations

The Company’s annual report and accounts will be prepared up to 31 December each year and it isexpected that copies will be sent to Shareholders within the following four months. Shareholders willalso receive an unaudited interim report covering the six months to 30 June in each year which isexpected to be despatched in early September each year. The first financial period of the Group willcover the period ending 31 December 2003. The first financial report and accounts that Shareholderswill receive will be the unaudited half yearly report for the period ending 30 June 2003.

Properties will be valued by the Valuer on a quarterly basis. The net asset value attributable to theOrdinary Shares will be published monthly based on the most recent valuation of the PropertyPortfolio and calculated on the basis of the Company’s normal accounting policies.

The Offer

The Offer, which is not underwritten, is conditional, inter alia, upon admission of the Ordinary Sharesto the Official List and to trading on the London Stock Exchange becoming effective. The minimumsubscription which must be raised under the Offer is £30 million.

Shares issued pursuant to the Offer will be issued in registered form and may be held either in certificatedform or settled through CREST. It is expected that definitive certificates in respect of the Ordinary Shareswill, where requested, be despatched by post by 3 December 2002. CREST accounts will also havebeen credited by that date. Temporary documents of title will not be issued. Dealings in the OrdinaryShares issued under the Offer are expected to commence on 27 November 2002. The Directors reservethe right to allot and issue Ordinary Shares at any time whilst the Offer remains open. Share certificateswill be despatched and CREST accounts credited as soon as practicable following such allotments.

On the basis of the Assumptions, 50 million Ordinary Shares will be issued and the net proceeds ofthe Offer, after estimated expenses of £2.875 million, will be £47.125 million.

The Ordinary Shares will be issued at a price of 100p each, representing a premium of 99p per shareover the nominal value of each Ordinary Share of 1p. The Offer Price is payable in full in cash uponissue of the Ordinary Shares.

Completed application forms in relation to the Offer must be posted or delivered by hand toClose Brothers Investment Limited at 12 Appold Street, London EC2A 2AW so as to be receivedby 3:00pm on 25 November 2002, unless the Offer is previously extended. A maximum of 50 million Ordinary Shares are available under the Offer. In the event that subscriptions underthe Offer reach 50 million Ordinary Shares, no further subscriptions will be accepted and theOffer will close.

It is the intention of the Board to consider raising further funds.

The Company will pay to CBIL a fee of 5.75% of the funds raised under the Offer out of which CBILwill be responsible for all professional and other costs relating thereto including commission, usuallyat a rate of 3.0%, payable to authorised investment advisers in respect of all Ordinary Shares acquiredthrough them under the Offer and the fee of 0.50% payable to the Sponsor.

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16

Property ISA

Under the terms of the Property ISA, the nominee registered holder of the Ordinary Shares held in theProperty ISA is not entitled to exercise any votes in respect of such shares without specific instructionfrom the underlying beneficial owner of such shares.

Taxation

The information below, which is of a general nature only and relates only to United Kingdom and Isle ofMan taxation, is applicable to the Company and the Property Subsidiaries and to persons who are residentor ordinarily resident in the United Kingdom (except where indicated) and who hold Ordinary Shares asan investment. It is based on existing law and practice and is subject to subsequent changes therein. Ifyou are in any doubt as to your tax position, you should consult a professional adviser without delay.

(i) The Group

The Company and the Property Subsidiaries have obtained tax exempt status in the Isle of Man pursuantto the Isle of Man Income Tax (Exempt Companies) Act 1984 for the tax year 2002/2003 and intendto apply for such status on an annual basis thereafter. As tax exempt companies, the Company and theProperty Subsidiaries will not be subject to Isle of Man income tax and the Company may pay dividendsto non-residents of the Isle of Man without deduction of any withholding tax. A fee (currently £430each per annum) is payable to the Assessor of Income Tax in the Isle of Man in respect of each company’sexempt status.

No charge to Isle of Man taxation will arise on capital gains and there is no inheritance tax or stampduty in the Isle of Man.

It is the intention of the Directors to conduct the affairs of the Group so that the management andcontrol of the Company and the Property Subsidiaries are not exercised in the United Kingdom, sothat none are resident in the United Kingdom for taxation purposes and so that none carry on any tradein the United Kingdom (whether or not through a branch or agency situated there). Accordingly, theCompany and the Property Subsidiaries will not be liable for United Kingdom taxation on their incomeor gains other than certain income deriving from a United Kingdom source.

The Property Subsidiaries will be subject to United Kingdom income tax on income arising on theProperty Portfolio after deduction of its debt financing costs and allowable expenses. Application hasbeen made to the Inland Revenue for the Property Subsidiaries to receive rental income gross.

(ii) Investors

(a) Taxation of Dividends on Ordinary Shares

Ordinary Shareholders will receive dividends without deduction of Isle of Man income tax. UKresident individual Ordinary Shareholders will be liable to income tax on the dividends received.No UK tax credit will be attached to dividends received by Ordinary Shareholders. UK residentcorporate Ordinary Shareholders will be liable to corporation tax on dividends received from the Company.

The income tax charge in respect of dividends for United Kingdom resident individual OrdinaryShareholders, other than higher rate tax payers, will be at the rate of 10%. A higher rate tax payer willbe liable to income tax on dividends received from the Company (to the extent that, taking the dividendas the top slice of his income, it falls above the threshold for the higher rate of income tax) at the rateof 32.5%. United Kingdom resident Ordinary Shareholders who are not liable to income tax on theirincome will not be subject to tax on dividends.


(b) Taxation of Capital Gains

The Company, as a closed-ended investment company, should not as at the date of this Prospectus betreated as an “offshore fund” for the purposes of United Kingdom taxation. Accordingly, the provisionsof sections 757 to 764 of the Taxes Act should not apply. Any gains on disposals by UK resident orordinarily resident holders of Ordinary Shares may, depending on their individual circumstances, giverise to a liability to United Kingdom taxation on capital gains. Ordinary Shareholders will not sufferany liability to capital gains tax in the Isle of Man.

(c) Stamp Duty, Stamp Duty Reserve Tax and Probate Fees

The following comments are intended as a guide to the general stamp duty and stamp duty reserve taxposition and do not relate to persons such as market makers, brokers, dealers, intermediaries and personsconnected with voluntary arrangements or clearance services, to whom special rules apply. No Isle ofMan or UK stamp duty, or stamp duty reserve tax, will be payable on the issue of the Ordinary Shares.United Kingdom stamp duty (at the rate of 0.5% of the amount of the value of the consideration forthe transfer rounded up where necessary to the nearest £5) is payable on any instrument of transfer ofthe Ordinary Shares executed within, or in certain cases brought into, the United Kingdom or wherethere is any other matter or thing to be done in the UK. Provided that the Ordinary Shares are notregistered in any register of the Company kept in the United Kingdom, any agreement to transfer theOrdinary Shares will not be subject to United Kingdom stamp duty reserve tax. In the event of thedeath of a sole holder of Ordinary Shares, an Isle of Man grant of probate or administration may berequired in respect of which certain fees (up to a current maximum of £500) will be payable to theIsle of Man Government.

Capital duty in the Isle of Man is calculated at the rate of 1.4% and is payable on incorporation on, oron any increase in, the nominal value of the authorised share capital of the Company and the PropertySubsidiaries up to a maximum amount of duty of £5,000 for each company.

(d) Other United Kingdom tax considerations

Transfer of Assets Abroad

The attention of individuals ordinarily resident in the United Kingdom is drawn to the provisions ofsections 739 to 745 of the Taxes Act under which the income accruing to the Company may be attributedto such a shareholder and may (in certain circumstances) be liable to UK income tax in the hands ofthe shareholder. However, the provisions do not apply if such a shareholder can satisfy the UK InlandRevenue that, either:

1. the purpose of avoiding liability to UK taxation was not the purpose or one of the purposes ofhis investment in the Company; and

2. the investment was a bona fide commercial transaction and was not designed for the purposeof avoiding UK taxation.

Controlled Foreign Companies

As it is probable that the Company will be owned by a majority of persons resident in the UK, thelegislation applying to controlled foreign companies (Sections 747 to 756 of the Taxes Act) may applyto any corporate Ordinary Shareholders who are resident in the UK. Under these rules, part of anyundistributed income accruing to the Company or the Property Subsidiaries may be attributed to sucha Shareholder, and may in certain circumstances be chargeable to UK corporation tax in the handsof the Shareholder. However, this will only apply if the apportionment to that Shareholder (whenaggregated with persons connected or associated with them) is at least 25% of the Company’s or theProperty Subsidiaries’ relevant profits.

These provisions will not, however, apply so long as the Company and the Property Subsidiaries followan acceptable distribution policy (i.e. each company distributes at least 90% of income profitsarising in each accounting period). It is the Group’s policy for the Property Subsidiaries to distributesubstantially all income profits and, therefore, it is anticipated that it will satisfy such requirement.

17


Attribution to company members of non-resident companies

This paragraph applies only to Ordinary Shareholders who are resident or ordinarily resident in theUK and whose interest (when aggregated with persons connected with them) in the chargeable gainsof the Company exceeds one-tenth. In the event that the Company would be treated as “close” if itwere resident in the UK, then part of any chargeable gain accruing to the Company or the PropertySubsidiaries may be attributed to such a Shareholder and may (in certain circumstances) be liable toUK tax on capital gains in the hands of the Shareholder. The part attributed to the Shareholdercorresponds to the shareholder’s proportionate interest in the Company.

Investment restrictions

In accordance with the Listing Rules of the UK Listing Authority:

(a) the Company’s distributable income will be principally derived from investment. Neither theCompany nor any subsidiary will conduct a trading activity which is significant in the contextof the Group as a whole;

(b) save for the purpose of funding the Property Subsidiaries in their capacity as the property holdingcompanies of the Group, not more than 20% of the gross assets of the Company will be lent toor invested in the securities of any one company or group (including loans to or shares in theCompany’s own subsidiaries) at the time the investment or loan is made; for this purpose anyexisting holding in the company concerned will be aggregated with the proposed new investment;

(c) dividends will not be paid unless they are covered by income received from underlyinginvestments and/or interest on inter company loans and, for this purpose, a share of profit ofan associated company is unavailable unless and until distributed to the Company;

(d) the distribution as dividend of surpluses arising from the realisation of investments will beprohibited;

(e) the Company will be a passive investor and will not (save in respect of the Property Subsidiariesor other subsidiary undertakings which may be established from time to time) seek to control, orbe actively involved in the management of, any companies or businesses in which it invests; and

(f) the Company will not be a dealer in investments.

As the Company is a property investment company for the purposes of the Listing Rules of the UKListing Authority, the following investment restrictions will be adhered to:

(a) the borrowings of the Group (excluding intra group loans) shall not exceed 65% of the grossassets of the Group (consolidated where applicable);

(b) no one property (including all adjacent or contiguous properties), upon acquisition, shallrepresent more than 15% of the gross assets of the Group (consolidated where applicable);

(c) income receivable from any one tenant, or tenants within the same group, in any one financialyear shall not exceed 20% of the total rental income of the Group in that financial year;

(d) at least 90% by value of properties held shall be in the form of freehold or long leasehold(over 60 years remaining at the time of acquisition) properties or the equivalent;

(e) the proportion of the Property Portfolio which is unoccupied or not producing income or whichis in the course of substantial development, redevelopment or refurbishment shall not exceed25% of the value of the portfolio (at the time of acquisition); and

(f) the Company shall not retain more than 15% of its net profits (before gains and losses on thedisposal of properties and other investments).

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Risk Factors

Investors should consider the following risk factors in relation to the Company and the Ordinary Shares.

General

The market value of, and the income derived from, the Ordinary Shares can fluctuate. There is noguarantee that the market price of the Ordinary Shares will fully reflect their underlying net assetvalue. Investors may not get back the full value of their investment. There can be no guarantee thatthe investment objectives of the Group will be met.

If property values rise significantly between the publication of this Prospectus and the time when thefunds raised under the Offer (including borrowings) are invested, the potential returns available forShareholders from subsequent acquisitions may be less than those set out in this Prospectus.

Dividend growth on the Ordinary Shares will depend principally on rental growth in the underlying assets.

There is no guarantee that the target dividend in respect of the period to 31 December 2003 will be paid.

Dividends payable may not be sustainable if funds raised pursuant to the Offer are not invested inproperties with a similar profile to those of the Initial Property Portfolio.

The Assumptions are assumptions only and may or may not be realised.

The levels of, and reliefs from, taxation may change. The tax reliefs referred to in this Prospectus arethose currently available and their value depends on the individual circumstances of investors. Anychange in the tax status or tax residence of the Group may have an adverse effect on the returns available from this investment.

Prospective investors should be aware that, whilst the use of borrowings should enhance the net assetvalue of the Ordinary Shares when the value of the Group’s underlying assets is rising, it will have theopposite effect when the underlying asset value is falling. Furthermore, any fall in the underlying assetvalue or expected revenues may result in the Group breaching the financial covenants contained in theFacility Agreements; it is estimated that the value of properties held as security would need to fall byapproximately 17% to trigger an event of default. In such circumstances, the Group may be requiredto repay such borrowings in whole or in part together with any attendant costs including the costs ofterminating any interest rate swap transaction. If the Group is required to repay all or part of itsborrowings, it may be required to sell part of the Property Portfolio at less than its market value or ata time and in circumstances where the realisation proceeds are reduced because of a downturn inproperty values generally or because there is limited time to market the property. Amounts owing underthe Bank Facilities will rank ahead of Shareholders’entitlements and, accordingly, if the Group’s assetsdo not grow at a rate sufficient to cover the costs of establishing and operating the Group, Shareholdersmay not recover the amount initially invested under the Offer.

The interest rates payable on the Bank Facilities will not be fixed until sums are drawn down. If longterm interest rates increase between the date of this Prospectus and the date that properties are acquired,the Company may not be able to meet the target dividend in respect of the period to 31 December 2003or to provide Ordinary Shareholders with the target level of income or the prospect of income andcapital growth.

There is no certainty that the Bank Facilities will be extended beyond their initial ten year period,either at all or on acceptable terms.

The market value of the Ordinary Shares, as well as being affected by their net asset value, also takesinto account their dividend yield and prevailing interest rates. As such, the market value of an OrdinaryShare may vary considerably from its underlying net asset value.

Allocating 40% of the Group’s property related expenses effectively to capital could result in a fall inthe Group’s net asset value unless there is sufficient growth in the Group’s assets to make good suchallocation.

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If under Isle of Man law there were to be a change to the basis on which dividends could be paid byIsle of Man companies, this could have an adverse effect on the Company’s ability to pay dividends.

Property

Property and property related assets are inherently difficult to value because of the individual natureof each property. As a result, valuations are subject to substantial uncertainty. There is no assurancethat the valuations of the properties will reflect the sale price achieved even where such sales occurshortly after the valuation date. The performance of the Group could be adversely affected by a downturnin the property market in terms of capital value or a weakening of rental yields. In the event of defaultby an occupational tenant, the Group will suffer a rental shortfall and incur additional cost includinglegal expenses, in maintaining, insuring and advertising the property until it is re-let. Rent reviews maynot achieve the anticipated Estimated Rental Value.

Any future property market recession could materially adversely affect the value of the PropertyPortfolio.

Returns from an investment in property depend largely upon the amount of rental income generatedfrom the property and the expenses incurred in the development or redevelopment and managementof the property, as well as upon changes in its market value.

Rental income and the market value for properties are generally affected by overall conditions in thelocal economy, such as growth in gross domestic product, employment trends, inflation and changesin interest rates. Changes in gross domestic product may also impact employment or redevelopmentand management of the property, as well as upon changes in its market value.

Both rental income and market values may also be affected by other factors specific to the propertymarket, such as competition from other property owners, the perceptions of prospective tenants ofthe attractiveness, convenience and safety of properties, the inability to collect rents because of thebankruptcy or insolvency of tenants or otherwise, the periodic need to renovate, repair and re-leasespace and the costs thereof, the costs of maintenance and insurance, and increased operating costs. Inaddition, certain specific expenditure, including operating expenses, must be met by the owner evenwhen the property is vacant.

Investments in property are relatively illiquid and more difficult to realise than equities or bonds.

Principal Bases and Assumptions

The principal bases and assumptions used in this document are that:

(a) Admission of the Ordinary Shares issued pursuant to the Offer occurs on 27 November 2002and, where applicable, the acquisition agreements in respect of the Initial Property Portfoliobecome unconditional in all respects on that day;

(b) 50 million Ordinary Shares are issued pursuant to the Offer at the Offer Price of 100p per shareto raise £47.125 million after expenses;

(c) following the acquisition of the Initial Property Portfolio, the balance of the funds availableare invested over a 6 month period following Admission in equal monthly amounts to give atotal Property Portfolio costing approximately £89 million, inclusive of the purchase costswhich are estimated at 5.75% of the property cost;

(d) a total amount of debt of £44.5 million is drawn down in acquiring the Property Portfolio,representing 50% of the total acquisition price on which interest is borne at a total annual rateof 6.075%;

(e) the total expenses and commissions relating to the Offer which are borne by the Company are5.75% of the funds raised;

(f) the Annual Overheads are 2.3% per annum of the Total Assets of the Group and are paidquarterly in arrears;

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(g) for the period ending 31 December 2003, the Company pays dividends of 8.49p on each issuedOrdinary Share in five instalments in January, April, July, October 2003 and January 2004,commencing in January 2003, and the issued share capital of the Company does not changefollowing Admission;

(h) given the availability of reliefs, neither the Company nor the Property Subsidiaries incur anyliability to taxation on income or gains and neither suffer any liability to UK withholding taxes;

(i) the initial yield on the Initial Property Portfolio is 8.94% on the gross acquisition cost, afterallowing for current voids in the Initial Property Portfolio of 6.3% (i.e. 15 units out of 238in total);

(j) the initial yield for the remainder of the Property Portfolio, acquired following the acquisitionof the Initial Property Portfolio, is 8.27% on the gross acquisition cost. The overall yield forthe Property Portfolio is 8.52% on the gross acquisition cost;

(k) Estimated Rental Value growth and, therefore, the capital growth of the Property Portfolio is1.5% per annum;

(l) an allowance is made to increase the level of voids across the Property Portfolio to 7.0% perannum following each property acquisition; and

(m) the Property Subsidiaries will be registered for UK VAT purposes, and it is usually intendedthat all properties within the Property Portfolio will be opted to tax for UK VAT purposes.

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Part 3 SUMMARY OF THE INITIAL PROPERTY PORTFOLIO

22

1. Description of the properties

Property* Approximate Squaredate of Footage

construction

1. 1-4, Falcon Business Park, Burton-upon-Trent 1980s 29,397

2. 1,2,5-8 Lowmoor Industrial Estate, Bradford 1970s 24,858

3. 3,4,5 and 6, Belgrave Industrial Estate, Oldham 1970s 23,613

4. 1A-4, Chapel Road, Worthing c.1900 3,977

5. 56-58, Terminus Road, Eastbourne 1950s 2,508

6. 32-40 and 44-46, Fretherne Road, Welwyn Garden City 1920s 9,183

7. 167-179, Crayford Road, Crayford(1) 1950s 6,109

8. Haines Park Industrial Estate, Grant Avenue, Leeds (long leasehold) 1980s 13,143

9. Units 7-12, Anglia Way, Mansfield 1970s 20,459

10. Portland Business Park, Handsworth, Sheffield (long leasehold) 1940s and 1950s 77,597

11. Roseville Business Park, Roseville Road, Leeds (long leasehold) 1990s 29,801

12. 1-4, Warneford Avenue, Ossett, Wakefield 1970s 24,410

13. 4-5, Elizabethan Way, Lutterworth 1970s 14,272

14. 1A-A2, Goodridge Avenue, Gloucester 1960s 11,614

15. Ikon Trading Estate, Hartlebury 1940 onwards 160,170

16. Webb Ellis Business Park, Rugby mid-1990s 82,939

17. Ryan and Leanne Business Park, Wareham (long leasehold) mid-1980s 43,495

18. Unit 16, Edgemead Close Business Park, Northampton 1980s 39,297

19. Bellway Industrial Estate, Newcastle upon Tyne 1980s 75,499

20. Links Estate, Weymouth 1980s 21,552

TOTAL 713,893

*All freehold unless otherwise stated.(1)This property also contains residential units above the shops.(2)The acquisition of this property is due to complete on 14 November 2002.(3)The acquisition of this property is due to complete on 6 November 2002.

All the information included has been extracted from the valuation report prepared by the Valuer

which is available for inspection as described in paragraph 7.4 of Part 8 of this document.


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Location Current Rent Estimated Current Acquisitionand Use per annum Rental Value value as at Status

per annum 19 September 2002£ £ £

Midlands Industrial 113,715 121,998 1,230,000 Exchanged 18/10/2002

Northern Industrial 84,950 89,419 820,000 Exchanged 18/10/2002


South East Shops 43,250 49,631 520,000 Exchanged 18/10/2002


South East Shops 142,000 173,358 1,880,000 Exchanged 18/10/2002



Midlands Industrial 72,050 73,937 650,000 Exchanged 18/10/2002

Northern Industrial 221,037 267,767 2,360,000 Exchanged 18/10/2002

Northern Industrial 140,560 149,821 1,330,000 Exchanged 18/10/2002


Midlands Industrial 25,000 51,379 450,000 Exchanged 18/10/2002

South West Industrial 44,500 49,360 510,000 Exchanged 18/10/2002

Midlands Industrial 468,678 525,033 4,810,000 Exchanged 18/10/2002

Midlands Industrial 493,420 575,100 5,600,000 Completed 09/10/2002

South Industrial 228,124 246,320 2,295,000 Exchanged 17/10/2002(2)

Midlands Industrial 148,000 157,000 1,580,000 Exchanged 06/09/2002(3)

Northern Industrial 300,905 329,213 3,350,000 Exchanged 17/10/2002(2)

South Industrial 99,200 115,978 1,170,000 Exchanged 17/10/2002(2)

2,955,328 3,326,927 32,085,000


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2. Summary of tenure

Of the Initial Property Portfolio, 79% by value is or will be held freehold and 21% by value is or willbe held under long leases. All freehold property is or will be wholly owned by the Group.

The periods of lease remaining on the properties acquired or contracted to be acquired by the Groupwhich are long leasehold are as follows.

Property Tenure Unexpired term in years

8. Haines Park, Grant Avenue, 125 years from 6/6/1986 Leeds @ a peppercorn rent 108

10. Portland Business Park, 200 years from 1/3/1947 Handsworth, Sheffield @ £291.50 per annum 144

11. Roseville Business Park, 125 years from 26/1/1990Roseville Road, Leeds @ a peppercorn rent 112

17. Ryan and Leanne Business Park, 99 years from 25/3/1999 Wareham @ 10% of passing rent 95

3. Diversity of tenant portfolio

The Initial Property Portfolio is intended to be broadly representative of the overall portfolio once theGroup has fully invested all its available funding.

The Initial Property Portfolio comprises 20 separate properties containing 238 units. Currently, 15units are vacant (6.3%) and the remaining 223 units are let to 165 different tenants and display thefollowing characteristics.

(i) Average annual rental per tenant £17,909 per annum

(ii) Average length of lease remaining (weighted by the amount of rent receivable) 3 years 10 months

(iii) Average rental per square foot £4.14 per sq ft

(iv) Average square footage rented by each tenant 4,327 sq ft

(v) Largest tenant by rental value £148,000 or 5.0%

(vi) Proportion of leases which are on full repairing and insuring terms 92.8%

(vii) Proportion of leases which are reversionary (i.e. leases where the current rent is below the Estimated Rental Value) 79.4%

The Property Investment Adviser considers that the diversity of the portfolio offers the followingadvantages to the Group:

(i) it is not exposed to a significant default risk from any one tenant;

(ii) in a period of economic downturn, the relatively low rental payable by its tenants may enablethe majority to trade through such a period;

(iii) in an economic recession, it should be able to attract tenants which previously occupied moreexpensive premises; and

(iv) the relatively short length of tenant leases should provide frequent opportunities for activeportfolio management with the objective of moving the level of rental income receivable uptowards the Estimated Rental Value of the properties. As at the date of this document, theexisting rents are 11.2% below the current Estimated Rental Value.


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While not all of the leases are on full repairing and insuring terms, the leases are in terms whichcould reasonably be expected for properties of the type comprising the Initial Property Portfolio. Subject to the above and viewing the Initial Property Portfolio as a whole, the leases are in generalterms institutionally acceptable.

4. Regional weightings

The regional weightings of the Initial Property Portfolio are as follows:

Region As a percentage of current capital value

South East 11.8South West 1.6Midlands 44.6Southern 10.8Northern 31.2

100.0%

5. Vendors

The vendor of Beadgem which owns properties 1–15 is Dovevale Limited of 3rd Floor, Crown House, 151 High Road, Loughton, Essex IG10 4LG.Robert Mandeville is a minority shareholder of Dovevale Limited.

The vendors of property 16 are Charterhouse Property General Partner (No. 2) Limited and IO Nominee Limited of 8 Canada Square, London E14 5HQ.

The vendor of property 17 is Merrill Lynch Ashtenne LP acting by its general partner Merrill Lynch Investment Managers No. 2 Limited of 33 King William Street, London EC4R 9AS.

The vendor of property 18 is Clover Hill Properties Limited of Ocean House, The Ring, Bracknell, Berkshire RG12 1AN.

The vendor of property 19 is Industrial Securities (Bristol) Limited of 6 Claridge House, 32 Davies Street, London W1K 4ND.

The vendors of property 20 are Mr. and Mrs. G. C. Hands of Throop House, Throop Road, Bournemouth BH8 0DL.


Part 4 VALUATION REPORT

The Directors DTZ Debenham Tie LeungClose High Income Properties PLC 10 Colmore RowSt James’s Chambers Birmingham B3 2QDAthol StreetDouglasIsle of Man IM1 1JE 25 October 2002

and

The DirectorsBrewin Dolphin Securities Limited48 St Vincent StreetGlasgow G2 5TS

Dear Sirs

Valuation on Properties to be acquired by Close High Income Properties PLC

Instructions

As instructed by the Directors of Close High Income Properties PLC (the “Company”), we have valuedthe freehold and long leasehold interests in the properties (the “Properties”) which have been or are tobe acquired by the Company and which are detailed in Part 3 of the prospectus of the Company dated25 October 2002 (the “Prospectus”).

The Properties have been valued as at 19 September 2002. The Properties were inspected between 1 July and 19 September 2002.

The valuations have been carried out on an existing use basis in compliance with the Practice Statementscontained within the Appraisal and Valuation Manual (the “Manual”) prepared by the Royal Institutionof Chartered Surveyors (“RICS”) and the UKLA Listing Rules published by the FSA.

Status of Valuer

We confirm that DTZ Debenham Tie Leung has acted in the capacity of “external” valuers as definedin the Manual. The individual valuations have been carried out by valuers who are chartered surveyorsand are qualified for the purposes required.

Basis of Valuation

The Properties are to be held as investments and have therefore been valued on the basis of “marketvalue”. This is defined in the Manual as follows:

“the estimated amount for which an asset should exchange on the date of valuation between a willingbuyer and a willing seller in an arm’s-length transaction after proper marketing wherein the partieshad each acted knowledgeably, prudently and without compulsion”.

The Properties have been valued subject to, and with the benefit of, the leases referred to in Part 3of the Prospectus.

No allowance has been made in our valuations for any expenses of realisation. Neither have we madeallowance in our valuations for the payment of any tax, including capital gains tax, whether existingor which may arise in the future. Our valuations are exclusive of VAT.

Sources of Information and Assumptions

In respect of certain of the Properties, we have been provided with copies of the reports on title preparedby the Company’s solicitors on property matters, Pinsent Curtis Biddle. In respect of the remaining

26


Properties we have been provided with copies of the historic reports on title prepared by other lawfirms and update reports prepared by Pinsent Curtis Biddle. For the purpose of our valuations wehave relied on these reports and updates for details of tenure, tenancies, planning, statutory noticesand other relevant information.

We have also relied on the floor areas supplied to us by the Company. We have assumed that theseareas have been calculated in accordance with the code of measuring practice issued by the RICS.

No planning consents have been inspected save those disclosed by the Company or the reports andit is assumed that the Properties were erected, are occupied and used in accordance with all requisiteconsents and regulations and that there are no statutory requirements or notices outstanding. Whereplanning enquiries have been instituted by us, information supplied by planning officers has been givenwithout liability on their part and accordingly responsibility for this information cannot be accepted.

We have not carried out structural surveys nor inspected those parts which are covered, unexposed, or inaccessible, including roofs and, unless informed otherwise, such parts have been assumed to bein good repair and condition. We cannot express an opinion about or advise upon the condition ofuninspected parts, and our report should not be taken as making any implied representation or statementin such matters.

We have not arranged for any investigation to be carried out to determine whether or not deleteriousmaterials have been used in the construction of the buildings, or have since been incorporated. In certaincircumstances we have received information regarding the presence of deleterious materials and thishas been taken into account but otherwise our valuations have been carried out on the assumption thatthese materials are not present.

We have not tested any of the services nor investigated the availability of services not supplied.

We have not undertaken mining, geological, soil or other comparable investigations of ground conditionsrelating to the Properties. We cannot therefore formally certify whether good ground conditions exists.We have not carried out investigations into the presence or otherwise of contaminated substances onthe Properties that may give rise to contamination in any form whatsoever. We are therefore unable toguarantee or warrant that any of the Properties have not, and never have been, subject to contaminatinguses, or are not contaminated. However, in respect of certain Properties, we have received informationregarding the presence of contaminated substances which does not have a material impact on the valueof the Properties concerned. For the avoidance of doubt, our valuations have otherwise been preparedon the assumption no contaminants are present on the Properties, or on neighbouring properties so asto affect the Properties.

Summary of Valuations

We set out below the aggregate of our opinions of the individual open market values of the Propertieslisted below.

The valuation figures represent the aggregate of the values attributable to each of the Properties andshould not be regarded as a valuation of the Properties as a whole in the context of a sale as a single lot.

27


Property Tenure Market Value £

1. 1-4 Falcon Business Park, Burton on Trent Freehold 1,230,000

2. 1,2, 5-8 Lowmoor Industrial Estate, Bradford Freehold 820,000

3. 3, 4, 5 and 6 Belgrave Industrial Estate, Oldham Freehold 490,000

4. 1A-4 Chapel Road, Worthing Freehold 520,000

5. 56-58 Terminus Road, Eastbourne Freehold 510,000

6. 32-40 and 44-46 Fretherne Road, Welwyn Garden City Freehold 1,880,000

7. 167-179 Crayford Road, Crayford Freehold 880,000

8. Haines Park Industrial Estate, Grant Avenue, Leeds Long leasehold 850,000

9. Units 7-12 Anglia Way, Mansfield Freehold 650,000

10. Portland Business Park, Handsworth, Sheffield Long leasehold 2,360,000

11. Roseville Business Park, Roseville Road, Leeds Long leasehold 1,330,000

12. 1-4 Warneford Avenue, Ossett, Wakefield Freehold 800,000

13. 4-5 Elizabethan Way, Lutterworth Freehold 450,000

14. 1A-A2 Goodridge Avenue, Gloucester Freehold 510,000

15. Ikon Trading Estate, Hartlebury Freehold 4,810,000

16. Webb Ellis Business Park, Rugby Freehold 5,600,000

17. Ryan and Leanne Business Park, Wareham Long leasehold 2,295,000

18. Unit 16, Edgemead Close Business Park, Northampton Freehold 1,580,000

19. Bellway Industrial Estate, Newcastle upon Tyne Freehold 3,350,000

20. Links Estate, Weymouth Freehold 1,170,000

32,085,000

Freehold 25,250,000

Long leasehold 6,835,000

32,085,000PublicationNeither the whole nor any part of this valuation certificate or any reference hereto may be included inany published document, circular or statement or published in any way without our written approvalof the form and context in which it may appear.

Yours faithfully

DTZ Debenham Tie Leung

28


Part 5 ACCOUNTANTS’ REPORT ON THE COMPANY

The following is the text of a report from Ernst & Young, chartered accountants, the reporting accountants.

The Directors Ernst & YoungClose High Income Properties PLC Jubilee BuildingsSt James’s Chambers DouglasAthol Street Isle of Man IM1 2SHDouglasIsle of Man IM1 1JE 25 October 2002

and

The DirectorsBrewin Dolphin Securities Limited48 St Vincent StreetGlasgow G2 5TS

Dear Sirs

1. Introduction

We report on the financial information set out in paragraphs 1 to 4 below. This financial informationhas been prepared for inclusion in the prospectus dated 25 October2002 of Close High Income PropertiesPLC (the “Prospectus”).

Basis of preparation

The financial information set out in paragraphs 1 and 4 below is based on the consolidated financialstatements of Close High Income Properties PLC (the “Company”) from incorporation to 30 September2002 and has been prepared in accordance with United Kingdom Generally Accepted AccountingPractice. The Company has not yet prepared statutory accounts. However, as required by Part II ofthe Fourth Schedule to the Isle of Man Companies Act 1931, the Directors have prepared, and wehave audited, non-statutory consolidated financial statements of the Company for the period sinceincorporation on 10 June 2002 to 30 September 2002.

Responsibility

Such financial statements are the responsibility of the Directors of the Company. The Directors of theCompany are responsible for the contents of the Prospectus in which this report is included. It is ourresponsibility to compile the financial information set out in this report from the financial statements,to form an opinion on the financial information and to report our opinion to you.

Basis of opinion

We conducted our work in accordance with the Statements of Investment Circular Reporting Standardsissued by the Auditing Practices Board. Our work included an assessment of evidence relevant to theamounts and disclosures in the financial information. It also included an assessment of significantestimates and judgements made by those responsible for the preparation of the financial statementsunderlying the financial information and of whether the accounting policies are appropriate to theentity’s circumstances, consistently applied and adequately disclosed.

We planned and performed our work so as to obtain all the information and explanations whichwe considered necessary in order to provide us with sufficient evidence to give reasonable assurancethat the financial information is free from material misstatement whether caused by fraud or otherirregularity or error.

29


Opinion

In our opinion, the financial information gives, for the purposes of the Prospectus, a true and fair viewof the state of affairs of the Company and its subsidiaries as at 30 September 2002. No adjustmentsare considered necessary for the purpose of presenting the balance sheets as at 30 September 2002 ona basis consistent in all material respects with IAS.

1. Accounting policy

1.1 The financial information has been prepared under the historical cost convention and inaccordance with United Kingdom Accounting Standards.

2. Consolidated balance sheet

As at30 September

2002Notes £

Fixed assetsTangible fixed assets 4.2 707,500

Current assetsDue from shareholder 1

Current liabilities Loans 4.4 (707,500)

Net assets 1

Capital and reservesCalled up share capital 4.5 1

Equity shareholders’ funds 1

3. Company balance sheet

As at30 September

2002Notes £

Investment in subsidiaries 4.3 4

Current assetsDue from shareholder 1

Current liabilitiesDue to subsidiaries (4)

Net current liabilities (3)

Net assets 1

Capital and reservesCalled up share capital 4.5 1

Equity shareholders’ funds 1

30


4. Notes

4.1 OperationsThe company was incorporated with limited liability in the Isle of Man as a private companywith the name “Nearby Limited” and with registered number 106038c on 10 June 2002. On 11 October 2002 a special resolution of the shareholders of the company was passed to convertit from a private to a public company and to change its name to Close High Income PropertiesPLC. The company has not traded since incorporation, no audited financial statements havebeen made up and no dividends have been declared or paid since the date of incorporation.

4.2 Tangible fixed assetsAs at

30 September2002

£Investment PropertiesDeposit for the purchase of Webb Ellis Business Park, Rugby 550,000Deposit for the purchase of Unit 16, Edgemead Close Business Park, Northampton 157,500

707,500

Chip (One) Limited, a subsidiary company, has entered into agreements to purchase Webb Ellis Business Park for £5,500,000 and Unit 16, Edgemead Close Business Park for £1,575,000.

4.3 Investments in subsidiaries

Company name Country of % of Activityincorporation Equity interest

Chip (One) Limited Isle of Man 100% Property holding companyChip (Two) Limited Isle of Man 100% DormantChip (Three) Limited Isle of Man 100% Dormant

As at30 September

2002£

As at 10 June 2002 –Additions in period 4

As at 30 September 2002 4

4.4 Loans

On 2 August 2002 and 5 September 2002, Chip (One) Limited, a wholly owned subsidiary ofthe Company, entered into short term bridging loan facilities with Close Brothers InvestmentLimited (“CBIL”) whereby CBIL agreed to provide facilities of £707,500 for the purpose offunding the deposits required to purchase the properties at Webb Ellis Business Park, Rugby,Warwickshire and at Edgemead Close Business Park, Northampton. The loans are unsecured,repayable on demand and no interest is payable under these facilities provided that they arerepaid within 30 days of demand by CBIL.

31


4.5 Share capital

As at30 September

2002£

Authorised2,000 ordinary shares of £1.00 each 2,000

Issued1 ordinary share of £1.00 1

During the period, one ordinary share of £1.00 was issued at par value.

4.6 Post balance sheet events

On 9 October 2002, Chip (One) Limited entered into a deposit and bridging loan facility withBank of Scotland under which up to £10 million may be drawn down under the deposit facilityand up to £30 million may be drawn down under the bridging facility, provided the maximumdraw down under both facilities does not exceed £30 million. Interest is payable at 1.25% overLIBOR. A total of £6.08 million has been drawn down under this facility to fund the depositmonies for the purchase of the properties at Ryan and Leanne Business Park, Wareham, BellwayIndustrial Estate, Newcastle upon Tyne and Links Estate, Weymouth and the acquisition moniesfor Webb Ellis Business Park, Rugby.

On 18 October 2002, Chip (Two) Limited, a wholly owned subsidiary of the Company, agreed,conditional, inter alia, upon the Admission of the Ordinary Shares of the Company to theOfficial List of the UK Listing Authority, to acquire the whole of the issued share capital ofBeadgem Properties Limited.

Yours faithfully

Ernst & Young

Chartered Accountants

32


Part 6 ACCOUNTANTS’ REPORT ON BEADGEM PROPERTIES LIMITED


Ernst & YoungJubilee Buildings

DouglasIsle of Man IM1 2SH

The DirectorsClose High Income Properties PLCSt James’s ChambersAthol StreetDouglasIsle of Man IM1 1JE

and

The DirectorsBrewin Dolphin Securities Limited48 St Vincent StreetGlasgow G2 5TS 25 October 2002

Dear Sirs

1 Introduction

We report on the financial information set out in paragraphs 1 to 5. This financial information hasbeen prepared for inclusion in the prospectus dated 25 October 2002 of Close High Income PropertiesPLC (the “Prospectus”).

Basis of preparation

The financial information set out in paragraphs 1 to 5 is based on the audited financial statements of Beadgem Properties Limited for the period from incorporation to 31 March 2000, for the two yearsended 31 March 2001 and 31 March 2002 respectively and for the four months ended 31 July 2002and has been prepared on the basis set out in paragraph 5.1 of this report after making such adjustmentsas we considered necessary.

Responsibility

Such financial statements are the responsibility of the directors of Beadgem Properties Limited whoapproved their issue.

The Directors of Close High Income Properties PLC are responsible for the contents of the Prospectus in which this report is included. It is our responsibility to compile the financial information set out inour report from the financial statements, to form an opinion on the financial information and to reportour opinion to you.

33


Basis of opinion

We conducted our work in accordance with the Statements of Investment Circular Reporting Standardsissued by the Auditing Practices Board. Our work included an assessment of evidence relevant to theamounts and disclosures in the financial information. The evidence included that previously obtainedby us relating to the audit of the four months ended 31 July 2002 and recorded by the auditors whoaudited the financial statements for the period ended 31 March 2000 and two years ended 31 March2001 and 31 March 2002 underlying the financial information. It also included an assessment ofsignificant estimates and judgements made by those responsible for the preparation of the financialstatements underlying the financial information and whether the accounting policies are appropriateto the entity's circumstances, consistently applied and adequately disclosed.

We planned and performed our work so as to obtain all the information and explanations which weconsidered necessary in order to provide us with sufficient evidence to give reasonable assurance thatthe financial information is free from material misstatement whether caused by fraud or other irregularityor error.

Opinion

In our opinion, the financial information gives, for the purposes of the Prospectus, a true and fair viewof the state of affairs of Beadgem Properties Limited as at the dates stated and of its profits, cashflowsand recognised gains and losses for the periods then ended.

2 Profit and loss accounts

Period Year Year 4 monthsended ended ended ended

31 March 31 March 31 March 31 July2000 2001 2002 2002

Notes £ £ £ £

Turnover 592,250 1,140,630 1,111,451 425,063Less: property outgoings (30,647) (77,560) (109,513) (21,464)

561,603 1,063,070 1,001,938 403,599Administrative expenses (45,582) (83,222) (61,046) (13,131)Other operating income – – – 165,265

Operating Profit 516,021 979,848 940,892 555,733Profit on sale of investment properties – 233,994 – –Interest receivable 463 1,112 3,883 1,301Interest payable 2 (284,510) (659,384) (670,318) (252,365)

Profit on Ordinary Activities before Taxation 3 231,974 555,570 274,457 304,669Taxation 4 (95,000) (114,496) (12,301) (84,800)

Profit for the Financial Period 136,974 441,074 262,156 219,869Dividends payable – – – (800,000)

Retained profit/(loss) transferred to reserves 136,974 441,074 262,156 (580,131)

34


Statement of Total Recognised Gains and Losses



£ £ £ £

Profit on ordinary activities for the year 136,974 441,074 262,156 219,869Unrealised surplus/(deficit) on revaluation of investment properties – – 718,480 (343,181)

Total recognised gains/(losses) for the period 136,974 441,074 980,636 (123,312)

3 Balance sheets

31 March 31 March 31 July2001 2002 2002

Notes £ £ £

Fixed AssetsTangible assets 5 10,583,323 11,604,669 16,107,250

Current AssetsDebtors due within one year 6 16,612 4,863 12,901Debtors due in more than one year 771,565 680,921 –Cash at bank 365,516 160,806 391,544

1,153,693 846,590 404,445Creditors: amounts falling due within one year 7 (468,506) (422,081) (1,795,319)

Net Current Assets/(Liabilities) 685,187 424,509 (1,390,874)

Total Assets less Current Liabilities 11,268,510 12,029,178 14,716,376

Creditors: amounts falling due after morethan one year 8 (10,565,460) (10,362,940) (13,960,038)

Provisions for Liabilities and Charges 4, 9 (125,000) (107,552) (120,964)

578,050 1,558,686 635,374

Capital and ReservesEquity interests:Called up share capital 10 2 2 2Other reserves 11 – 718,480 375,299Profit and loss account 11 578,048 840,204 260,073

Shareholders’ Funds 11 578,050 1,558,686 635,374

35


4 Cash flow statements



Notes £ £ £ £Net Cash Inflow fromOperating Activities 12 696,383 76,028 1,064,739 1,676,446

Returns on Investments and Servicing of FinanceInterest paid (196,563) (634,331) (677,318) (358,365)Interest received 463 1,112 3,883 1,301Issue costs of new loans – (150,971) – –

(196,100) (784,190) (673,435) (357,064)

TaxationCorporation tax paid – (11) 84,474 –

Capital Expenditure and Financial InvestmentPayments to acquire tangible fixed assets (8,577,516) (2,720,380) (302,866) (4,845,761)Receipts from sales of tangible fixed assets – 948,567 – –

(8,577,516) (1,771,813) (302,866) (4,845,761)

Cash Outflow/(Inflow)before Financing (8,077,233) (2,479,986) 3,964 (3,526,379)

FinancingIssue of ordinary share capital 2 – – –Movement in short term borrowings – 211,649 1,395 162,534Movement in long term borrowings 8,377,178 2,333,906 (210,069) 3,594,583

8,377,180 2,545,555 (208,674) 3,757,117

Increase/(decrease) in cash in the period 13 299,947 65,569 (204,710) 230,738

Reconciliation of net cash flow to movement in net debtPeriod Year Year 4 monthsended ended ended ended


£ £ £ £

Increase in cash in the period 299,947 65,569 (204,710) 230,738

Cash (Inflow)/Outflow from Movement in Net Debt (8,377,178) (2,545,555) 208,674 (3,757,117)

Change in net debt arising from cash flows (8,077,231) (2,479,986) 3,964 (3,526,379)Other – 145,624 (7,549) (2,515)

Movement in net debt in the period (8,077,231) (2,334,362) (3,585) (3,528,894)Net debt at beginning of period – (8,077,231) (10,411,593) (10,415,178)

Net debt at end of period 13 (8,077,231) (10,411,593) (10,415,178) (13,944,072)

36


5. Notes to the financial information

1 Accounting policies

The company was incorporated on 26 February 1999 and commenced trading at that date.The followingare the principal accounting policies adopted by the company.

Basis of accounting

The accounts are prepared under the historical cost convention, assuming the continued financial support of the joint venture partners, modified to include the revaluation of investment properties and in accordance with United Kingdom Generally Accepted Accounting Practice and applicable accountingstandards.

Investment properties

Investment properties are revalued annually. Surpluses or deficits on individual properties are transferredto the investment revaluation reserve, unless a deficit (or its reversal) is expected to be permanent, in which case it is charged (or credited) to the profit and loss account. Depreciation is not provided inrespect of freehold investment properties. The directors consider that this accounting policy, whichrepresents a departure from the statutory accounting rules, is necessary to provide a true and fair viewas required under SSAP 19. The financial effect of the departure from the statutory accounting rulescannot reasonably be quantified as depreciation is only one of many factors reflected in the annualvaluation.

Taxation

Deferred taxation is recognised in respect of all timing differences that have originated but not reversedat the balance sheet date where transactions or events have occurred at that date that will result in anobligation to pay more, or right to pay less or to receive more tax, with the following exceptions:

Provision is made for tax on gains arising from the revaluation (and similar fair value adjustments) offixed assets, or gains on disposal of fixed assets that have been rolled over into replacement assets,only to the extent that, at the balance sheet date, there is a binding agreement to dispose of the assetsconcerned. However, no provision is made where, on the basis of all available evidence at the balancesheet date, it is more likely than not that the taxable gain will be rolled over into replacement assetsand charged to tax only where the replacement assets are sold.

Deferred tax assets are recognised only to the extent that the directors consider that it is more likelythan not that there will be suitable taxable profits from which the future reversal of the underlyingtiming differences can be deducted.

Deferred tax is measured on an undiscounted basis at the tax rates that are expected to apply in theperiods in which timing differences reverse, based on tax rates and laws enacted or substantively enactedat the balance sheet date.

Turnover

Turnover comprises rental income accounted for on an accruals basis, net of VAT. Turnover is whollyderived within the British Isles.

37


2 Interest paidPeriod Year Year 4 monthsended ended ended ended


£ £ £ £

Bank loans 284,431 658,729 670,153 252,148Sundry 79 655 165 217

284,510 659,384 670,318 252,365

3 Profit on ordinary activities before taxation

Staff costs

There were no staff, other than the directors, employed by the company during the period ended31 July 2002 (period ended 31 March 2000 – nil; year ended 31 March 2001 – nil; year ended 31 March2002 – nil).

No director received any remuneration during the period ended 31 July 2002 (period ended 31 March2000 – £nil; year ended 31 March 2001 – £nil; year ended 31 March 2002 – £nil).

Auditors’ remuneration

Auditors’ remuneration for the period ended 31 July 2002 was £nil (period ended 31 March 2000 –£3,500; year ended 31 March 2001 – £3,750; year ended 31 March 2002 – £5,000).

4 Taxation(a) Analysis of charge in year:



£ £ £ £

Current tax:UK corporation tax on profit for the period 25,000 84,496 29,760 71,388Under/(over) provision in prior years – (25,000) (11) –

Total current tax 25,000 59,496 29,749 71,388

Deferred tax:Origination in respect of timing differences in respect of:Capital allowances in excess of depreciation 70,000 55,000 (17,448) 13,412

Total deferred tax 70,000 55,000 (17,448) 13,412

Taxation on profit on ordinary activities 95,000 114,496 12,301 84,800

38


4 Taxation (continued)

(b) Factors affecting tax charge for the periodThe tax assessed for the periods is lower (31 March 2000 – higher) than the standard rate of corporationtax. The differences are explained below:



£ £ £ £

Profit on ordinary activities before tax 231,974 555,570 274,457 304,669

Profit on ordinary activities multiplied bythe standard rate of corporation tax in theUK of 10%, 30%, 20% and 30% 23,197 166,671 54,891 91,401Effects of:Capital allowances in advance of depreciation (23,187) (54,069) (25,132) (13,412)Others/marginal relief (10) (28,106) (11) (6,601)Overprovision 25,000 – – –Reversal of overprovision – (25,000) – –

Current tax for the year (note 4(a)) 25,000 59,496 29,749 71,388

The tax effect in the profit and loss account relating to the exceptional items in the year ended 31 March2001, recognised below operating profit, is a charge of £70,198.

5 Tangible assetsFreehold investment property 31 March 31 March 31 July

2001 2002 2002£ £ £

Cost:At beginning of period 8,577,516 10,583,323 11,604,669Additions 2,720,380 302,866 4,845,762Revaluation – 718,480 (343,181)Disposals (714,573) – –

At end of period 10,583,323 11,604,669 16,107,250

Depreciation:At beginning and end of period – – –

Net book value:At beginning and end of period 10,583,323 11,604,669 16,107,250

Freehold investment properties are included as valued by the directors at each period end based onprofessional valuations by a qualified chartered surveyor who is a director of the company. The valuations were carried out in accordance with the Appraisal and Valuation Manual as issued by theRoyal Institution of Chartered Surveyors.

If the properties were to be sold at the revalued amount as at 31 July 2002, then an estimated corporationtax liability of £78,515 (31 March 2002 – £77,000) would arise.

The historical cost of the company’s investment properties is £15,731,951 (31 March 2001 –£10,583,323; 31 March 2002 – £10,886,189).

39


6 Debtors31 March 31 March 31 July

2001 2002 2002£ £ £

Amounts owed by related undertakings 771,565 680,921 –Other debtors 16,612 4,863 12,901

788,177 685,784 12,901

Amounts owed by related undertakings fall due after one year.

7 Creditors: amounts falling due within one year

31 March 31 March 31 July2001 2002 2002

£ £ £

Bank loan 211,649 213,044 375,578Corporation tax 84,485 29,760 101,148Other creditors 172,372 179,277 329,582Amounts due to related parties – – 189,011Dividends payable – – 800,000

468,506 422,081 1,795,319

8 Creditors: amounts falling due after more than one year31 March 31 March 31 July

2001 2002 2002£ £ £

Bank loan 8,592,782 8,390,262 10,987,360Amounts owed to related undertakings 1,972,678 1,972,678 2,972,678

10,565,460 10,362,940 13,960,038

The bank loan of £11,362,938 (31 March 2001 – £8,804,431; 31 March 2002 – £8,603,306) is securedby a charge over the company’s freehold investment properties.

Interest is charged on £7,000,000 of the loan at a five year fixed rate of 7.93%.

Interest is charged on £3,265,000 of the loan at 1.30% over LIBOR.

Interest is charged on the balance at 1.35% over LIBOR.

Bank loans and overdrafts are repayable as follows:

31 March 31 March 31 July2001 2002 2002

£ £ £

Due within one year 211,649 213,044 375,578Due between one and two years 227,173 229,405 368,762Due between two and five years 915,818 799,496 1,032,716Due over five years 7,449,791 7,499,436 9,721,442

8,950,055 8,741,381 11,498,498Less: issue costs (145,624) (138,075) (135,560)

8,804,431 8,603,306 11,362,938Less: included in creditors: amounts falling due within one year (211,649) (213,044) (375,578)

8,592,782 8,390,262 10,987,360

40


9 Provision for liabilities and charges

The movements in deferred taxation during the current period are as follows:



£ £ £ £

ProvidedAt beginning of the peroiod – 70,000 125,000 107,552Charge for the period 70,000 55,000 (17,448) 13,412

At end of the period 70,000 125,000 107,552 120,964

Not providedOther timing differences – – 77,000 78,515

– – 77,000 78,515

Deferred tax is not recognised on the revalued assets as there is no binding agreement to sell theseassets at the balance sheet date.

10 Called up share capital31 March 31 March 31 July

2001 2002 2002£ £ £

Authorised:100 ordinary shares of £1 each 100 100 100

Allotted, issued and fully paid:2 ordinary shares of £1 each 2 2 2

11 Reconciliation of shareholders’ funds and movements on reserves

Share Other Profit andcapital reserves loss account Total

£ £ £ £

At 31 March 2000 2 – 136,974 136,976Profit for the year – – 441,074 441,074

At 31 March 2001 2 – 578,048 578,050Profit for the year – – 262,156 262,156Revaluation during the year – 718,480 – 718,480

At 31 March 2002 2 718,480 840,204 1,558,686Profit for the period – – 219,869 219,869Dividend – – (800,000) (800,000)Revaluation – (343,181) – (343,181)

At 31 July 2002 2 375,299 260,073 635,374

41


12 Reconciliation of operating profit to net cash flow from operating activitiesPeriod Year Year 4 monthsended ended ended ended


£ £ £ £Operating Profit 516,021 979,848 940,892 555,733Depreciation of finance costs – 5,347 7,549 2,515(Increase)/decrease in operating debtors and prepayments (2,613) (785,564) 102,393 672,883Increase/(decrease) in operating creditors and accruals 182,975 (123,603) 13,905 445,315

Net Cash Inflow from Operating Activities 696,383 76,028 1,064,739 1,676,446

13 Analysis of net debtAt At

26 February 31 March1999 Cash flow Other 2000

£ £ £ £

Cash at bank and in hand – 299,947 – 299,947Debt due after one year – (8,377,178) – (8,377,178)

Closing net debt – (8,077,231) – (8,077,231)

At At1 April 31 March

2000 Cash flow Other 2001£ £ £ £

Cash at bank and in hand 299,947 65,569 – 365,516Debt due after one year (8,377,178) (2,188,282) – (10,565,460)Debt due within one year – (211,649) – (211,649)

Closing net debt (8,077,231) (2,334,362) – (10,411,593)

At At1 April 31 March


Cash at bank and in hand 365,516 (204,710) – 160,806Debt due after one year (10,565,460) 210,069 (7,549) (10,362,940)Debt due within one year (211,649) (1,395) – (213,044)

Closing net debt (10,411,593) 3,964 (7,549) (10,415,178)

At At1 April 31 July


Cash at bank and in hand 160,806 230,738 – 319,544Debt due after one year (10,362,940) (3,594,583) (2,515) (13,960,038)Debt due within one year (213,044) (162,534) – (375,578)

Closing net debt (10,415,178) (3,526,379) (2,515) (13,944,072)

42


14 Related party transactions

The company is jointly controlled by its joint venture partners, UK Land plc and Dovevale Limited,by virtue of their respective 50% holdings of the issued ordinary share capital.

During the period the joint venture partners or their related parties made interest free loans to BeadgemProperties Limited. The balance of these loans at 31 July 2002 was as follows:

31 March 31 March 31 July2001 2002 2002

£ £ £

UK Land plc 986,339 986,339 1,486,339

Makeval Limited 499,506 499,506 499,506Brightside Limited 486,833 486,833 986,833

986,339 986,339 1,486,339

In addition, UK Land plc has provided management services to Beadgem Properties Limitedfor which a charge of £nil was made (31 March 2000 – £nil, 31 March 2001 – £16,530; 31 March2002 – £38,836).

At 31 July 2002 the company owed £189,011 to Beadgem Limited, a company controlled by thesame parties. At 31 March 2002, the company was owed £680,921 (31 March 2001 – £771,565) byBeadgem Limited.

During the period to 31 July 2002, other income of £165,265 was received from Beadgem Limited.

15 Post balance sheet events

On 13 September 2002, Dovevale Limited agreed to acquire the shares of Beadgem Properties Limitedwhich are owned by UK Land plc.

On 18 October 2002, Chip (Two) Limited, a wholly owned subsidiary of Close High Income PropertiesPLC, agreed, conditional upon admission of the ordinary shares of Close High Income Properties PLCto the Official List of the UK Listing Authority, to acquire the whole of the issued share capital of Beadgem Properties Limited.

Yours faithfully

Ernst & Young


43


Part 7 ACCOUNTANTS’ REPORT TO RESTATE THE RESULTS OF BEADGEM UNDER IAS


Ernst & YoungJubilee Buildings

DouglasIsle of Man IM1 2SH

The DirectorsClose High Income Properties PLCSt James’s ChambersAthol StreetDouglasIsle of Man IM1 1JE

and

The DirectorsBrewin Dolphin Securities Limited48 St Vincent StreetGlasgow G2 5TS 25 October 2002

Dear Sirs

We report on the unaudited restatements from United Kingdom Generally Accepted Accounting Practice (“UK GAAP”) to International Accounting Standards (“IAS”) as applied by Close High Income Properties PLC (“the IAS restatements”) to the profit and loss accounts for the period fromincorporation to 31 March 2000, for the two years ended 31 March 2001 and 31 March 2002 respectively, and for the four months ended 31 July 2002, and the balance sheets as at 31 March 2001,31 March 2002 and 31 July 2002 of Beadgem Properties Limited (“Beadgem”) set out in paragraphs2 and 3 in Part 6 of the Prospectus dated 25 October 2002.

Responsibility

It is the responsibility solely of the Directors of Close High Income Properties PLC (“CHIP”) to prepare the IAS restatements in accordance with paragraph 12.11 of the Listing Rules of the UK Listing Authority (the “Listing Rules”). It is our responsibility to form an opinion, as required by the Listing Rules, on the IAS restatements and to report our opinion to you.

The IAS restatements incorporate significant adjustments to the historical financial statements ofBeadgem. The financial statements of Beadgem for the period ended 31 March 2000 and each of the two years ended 31 March 2001 and 31 March 2002 were prepared in accordance with UK GAAP and were audited by Chantrey Vellacott DFK who gave unqualified reports thereon. We do not takeresponsibility for the financial statements of Beadgem for these periods. The financial statements for the period ended 31 July 2002 were prepared in accordance with UK GAAP and audited by Ernst & Young.

Basis of opinion

We conducted our work in accordance with the Statements of Investment Circular Reporting Standardsissued by the Auditing Practices Board. Our work, which involved no independent examination of anyhistorical underlying financial information, consisted primarily of making enquiries of managementof Beadgem and its auditors to establish the accounting policies which were applied in the preparationof the historical underlying financial information.

We have considered the evidence supporting the IAS restatements and discussed the IAS restatementswith the Directors of CHIP.

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Opinion

In our opinion the adjustments made are those appropriate for the purpose of presenting the profit andloss accounts for the period ended 31 March 2000, for each of the years ended 31 March 2001 and 31 March 2002 and for the period ended 31 July 2002, and for presenting the balance sheets as at 31 March 2001, 31 March 2002 and 31 July 2002, on a basis consistent in all material respects withIAS and the accounting policies of CHIP. In our opinion the IAS restatements have been properlycompiled on the basis stated.

Yours faithfully

Ernst & Young


The unaudited restatements of the profit and loss accounts and balance sheets of Beadgem PropertiesLimited prepared under UK GAAP to IAS are presented as follows:

1 Profit and loss accounts



£ £ £ £Profit for the financial period under UK GAAP 136,974 441,074 262,156 219,869Unrealised surplus/(deficit) arising on revaluation of investment properties (Note 1) – – 718,480 (343,181)Deferred tax liability in respect of revalued assets (Note 2) – – (77,000) (1,515)

Profit/(loss) for the financial period under IAS 136,974 441,074 903,636 (124,827)

Notes(1) The unrealised surplus arising on the revaluation of the investment properties as at 31 March

2002 is included in the profit and loss account for the financial year, rather than the revaluationreserve, in accordance with IAS 40 “Investment Property”. The unrealised deficit arising onthe revaluation of investment properties at 31 July 2002 is included in the profit and loss accountfor the financial period, rather than the revaluation reserve, in accordance with IAS 40.

(2) The deferred tax liability arising on the revaluation of the investment properties as at 31 March2002, and subsequent revaluation at 31 July 2002, is provided in full in accordance with IAS12 “Income Taxes (Revised 2000)”, using the tax rate applicable for the period.

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2 Balance sheets

Provision for liabilities and charges31 March 31 March 31 July

2001 2002 2002£ £ £

Deferred tax liability under UK GAAP (125,000) (107,552) (120,964)Deferred tax liability in respect of revalued assets (Note 3) – (77,000) (78,515)

Profit/(loss) for the financial period under IAS (125,000) (184,552) (199,479)

Other reserves

31 March 31 March 31 July2001 2002 2002

£ £ £

Other reserves under UK GAAP – 718,480 375,299Transfer to profit and loss reserves (Note 4) – (718,480) (375,299)

Other reserves under IAS – – –

Profit & loss reserve

31 March 31 March 31 July2001 2002 2002

£ £ £

Profit & loss reserve under UK GAAP 578,048 840,204 260,073Transfer from other reserves (Note 5) – 718,480 375,299Deferred tax liability in respect of revalued assets (Note 5) – (77,000) (78,515)

Profit & loss reserve under IAS 578,048 1,481,684 556,857

Notes(3) The deferred tax provision is increased to reflect the liability arising on the revaluation of the

investment properties as at 31 March 2002, and subsequent revaluation at 31 July 2002, inaccordance with IAS 12 (as for Note 2 above).

(4) The unrealised surplus arising on the revaluation of the investment properties as at 31 March2002, and the unrealised deficit arising on the revaluation of investment properties at 31 July2002, is included in the profit for the financial period, rather than the revaluation reserve, inaccordance with IAS 40 (as for Note 1 above).

(5) The profit and loss reserve as at 31 March 2002 is increased by the unrealised surplus arisingon the revaluation of the investment properties and reduced by the provision for the deferredtax arising thereon. The profit and loss reserve as at 31 July 2002 is reduced by the inclusionof the unrealised deficit arising on the revaluation of the investment properties and an increasein the provision for deferred tax (as for Notes 1 and 2 above).

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Part 8 GENERAL INFORMATION

1. Incorporation and general

1.1 The Company was incorporated with limited liability in the Isle of Man as a private companylimited by shares under the Law with the name “Nearby Limited” and with registered number106038c on 10 June 2002. On 11 October 2002 a special resolution of the shareholders of theCompany was passed to convert it from a private to a public company and to change its nameto Close High Income Properties PLC. The Company operates under the Law and its registeredoffice is at St James’s Chambers, Athol Street, Douglas, Isle of Man IM1 1JE.

1.2 The Memorandum of Association of the Company provides that the objects of the Companyare unrestricted and the Company has, by and subject to the Law, the same rights, powers andprivileges as an individual.

The Memorandum of Association of the Company is as follows:

THE COMPANIES ACTS 1931 to 1993

ISLE OF MAN

A COMPANY LIMITED BY SHARES

MEMORANDUM OF ASSOCIATION

OF

CLOSE HIGH INCOME PROPERTIES PLC(as adopted by special resolution on 23 October 2002)

a) The name of the Company is CLOSE HIGH INCOME PROPERTIES PLC

b) The Company is a public company.

c) The liability of the members is limited.

d) Restrictions, if any, on the exercise of the rights, powers and privileges of the Company:

None unless and until decided upon by Special Resolution of the Company in accordancewith Section 6 of the Companies Act 1986.

e) The share capital of the Company is £600,000 divided into 60 million Ordinary Sharesof 1p each.

We, the subscriber to this memorandum of association

(i) wish to be formed into a Company pursuant to this memorandum;

(ii) agree to take the number of shares shown opposite our name; and

(iii) declare that all the requirements of the Companies Acts 1931 to 1993 in respectof matters relating to registration and of matters precedent and incidental theretohave been complied with.

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Name and address Signature Number ofof subscriber Shares Taken

Equity Limited15-19 Athol StreetDouglasIsle of Man R. V. Vanderplank One

Dated this 6th day of June 2002

Witness to the above signature

John Michael Killip15-19 Athol StreetDouglasIsle of Man IM1 1LB

1.3 The Property Subsidiaries were incorporated with limited liability in the Isle of Man as closed-ended investment companies under the Law with registered numbers 106027c (with the nameShave Limited) and 106028c (with the name Blade Limited) on 6 June 2002 and with registerednumber 106642c (with the name Chip (Three) Limited) on 11 September 2002 and theirregistered offices are at St James’s Chambers, Athol Street, Douglas, Isle of Man IM1 1JE. Thenames of two of the Property Subsidiaries were changed to Chip (One) Limited and Chip (Two)Limited on 13 September 2002. The Property Subsidiaries are wholly owned subsidiaries ofthe Company.

1.4 On 18 October 2002, Chip (Two) Limited agreed, conditional inter alia upon Admission, toacquire the whole of the issued share capital of Beadgem Properties Limited (registered number3725008) of 91 Jermyn Street, London SW1Y 6JT. Beadgem is a property investment companyand has issued 2 shares of £1 each, both of which are fully paid up.

1.5 Neither the Company nor the Property Subsidiaries are subject to any form of approval orregulation by the Isle of Man Financial Supervision Commission except pursuant to the Law.

1.6 Equity Limited as the subscriber to the memorandum of association was the founder of theCompany.

2. Share Capital

2.1 The authorised share capital and the issued share capital of the Company (all of which will befully paid-up) immediately following the Offer, assuming full subscription thereof, will be as follows.

Authorised Issued

No. of shares £ nominal No. of shares £ nominalOrdinary Shares 60 million £600,000 50 million £500,000

2.2 The Company was incorporated with an authorised share capital of £2,000 divided into 2,000Ordinary Shares of £1.00 each. At incorporation, one Ordinary Share was subscribed for, nilpaid, by the subscriber to the Memorandum of Association. On 11 October 2002 a specialresolution of the shareholder of the Company was passed to sub-divide the unissued sharecapital into Ordinary Shares of 1p each and to sub-divide the issued share into 100 OrdinaryShares of 1p each and which are made available, fully paid, under the Offer. On 23 October2002 a special resolution of the shareholder of the Company was passed to increase the sharecapital to £600,000 divided into 60 million Ordinary Shares of 1p each.

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2.3 Save for the subscription of the Ordinary Share referred to above in section 2.2, since the dateof incorporation no share or loan capital of the Company has been issued or agreed to be issued,or is now proposed to be issued, for cash or any other consideration and, save as described inparagraph 5.8 of this Part 8, no commissions, discounts, brokerages or other special terms havebeen granted by the Company in connection with the issue of any such capital.

2.4 There are no provisions of Isle of Man law which confer rights of pre-emption upon the issueor sale of any class of shares in the Company. There are no founders, management or deferredshares in the Company.

2.5 No share or loan capital of the Company is under option or has been agreed, conditionally orunconditionally, to be put under option.

2.6 The Ordinary Shares will be in registered form and shares will be issued or settled throughCREST. It is expected that definitive certificates, if applicable, will be posted to allottees andCREST accounts credited within 7 days of allotment. Temporary documents of title will notbe issued.

2.7 Each Ordinary Share to be issued under the Offer will be issued at a premium of 99 pence tothe nominal value of 1p per share.

2.8 On the basis that the Offer is fully subscribed, following Admission the authorised but unissuedshare capital of the Company will be £100,000 comprising 10 million Ordinary Shares.

2.9 The Property Subsidiaries each have an authorised share capital of £2,000 divided into 2,000ordinary shares of £1 each, of which one share is issued and fully paid and held by the Company.

2.10 By a special resolution passed on 23 October 2002, it was resolved to cancel any amount standing to the credit of the share premium account of the Company following the closing ofthe Offer and to reclassify it as a distributable reserve of the Company, subject to confirmationby the High Court of Justice of the Isle of Man pursuant to section 56 of the Isle of ManCompanies Act 1931.

3. Articles of Association of the Company

The Articles contain provisions, inter alia, to the following effect.

3.1 Votes of members

Subject to the restrictions referred to below and subject to any special rights or restrictions forthe time being attached to any class of shares, every member (being an individual) present inperson or by proxy or (being a corporation) present by a duly authorised representative at ageneral meeting has, on a show of hands, one vote and, on a poll, one vote for every share heldby him.

3.2 Dividends

(i) The Company in general meeting may declare a dividend but no dividend shall exceedthe amount recommended by the Directors.

(ii) No dividend shall be paid other than out of the profits of the Company available fordistribution in accordance with Isle of Man law.

(iii) The Directors may if they think fit at any time declare and pay such interim dividendsas appear to be justified by the profits of the Company available for distribution inaccordance with Isle of Man law and the position of the Company.

(iv) All dividends unclaimed for 12 months after having become payable may be investedor otherwise made use of by the Directors for the benefit of the Company until claimedand the Company shall not be constituted a trustee thereof. No dividend shall bearinterest against the Company. Any dividend unclaimed after a period of twelve yearsafter having become due for payment shall be forfeited and shall revert to the Company.

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(v) The Directors are empowered to create reserves before recommending or declaring anydividend. The Directors may also carry forward any profits which they think prudentnot to distribute by dividend.

3.3 Issue of shares

(i) Subject to the provisions of the Articles and without prejudice to any special rightsconferred on the holders of any class of shares, any share in the Company may be issuedwith or have attached thereto such preferred, deferred or other special rights, or suchrestrictions whether in regard to dividend, return of capital, voting, transfer or otherwiseas the Company may from time to time by ordinary resolution determine and, subjectto and in default of such resolution, as the Board may determine.

(ii) Subject to the Articles, the unissued shares shall be at the disposal of the Directors andthey may allot, grant options over or otherwise dispose of them to such persons, at suchtimes and generally on such terms and conditions as they determine, provided that noshares shall be issued at a discount.

(iii) The Company may on any issue of shares pay such commissions and brokerages asmay be permitted by the Law.

(iv) The Company may issue redeemable preference shares (or by special resolution convertOrdinary Shares into preference shares) which may be redeemed inter alia in accordancewith Section 46A of the Isle of Man Companies Act 1931.

3.4 Variation of rights

If at any time the capital of the Company is divided into separate classes, the special rightsattached to any class of shares may (unless otherwise provided by the terms of issue) be variedor abrogated in such manner (if any) as may be provided by such rights or, in the absence ofany such provision, with the consent in writing of the holders of not less than three-fourths innominal value of the issued shares of that class or with the sanction of a special resolutionpassed at a separate meeting of the holders of such shares. The necessary quorum shall be twopersons holding or representing by proxy at least one third of the nominal amount paid up onthe issued shares of the class. Every holder of shares of the class concerned shall be entitledat such meeting to one vote for every share held by him on a poll. The special rights conferredupon the holders of any shares or class of shares issued with preferred, deferred or other specialrights shall not be deemed to be varied or abrogated by the creation of or issue of further sharesranking pari passu therewith.

3.5 Restrictions on voting

(i) A member of the Company shall not, unless the Board otherwise determines, be entitledin respect of any share held by him to attend or vote (either personally or by representativeor by proxy) at any general meeting or separate class meeting of the Company unlessall amounts payable by him in respect of that share have been paid.

(ii) A member of the Company shall not, if the Directors so determine, be entitled in respectof any share held by him to attend or vote (either personally or by representative or byproxy) at any general meeting or separate class meeting of the Company or to exerciseany other right conferred by membership in relation to any such meeting if he or anyother person appearing to be interested in such shares has failed to comply with a noticerequiring the disclosure of shareholders’ interests and given under the Articles (seeparagraph 3.6 below) within the time period specified in such notice. The restrictionswill continue until the notice is withdrawn by the Company or at the expiry of one weekfollowing receipt by the Company of the information required by the notice or untilthe shares in question are transferred or sold in circumstances specified for this purposein the Articles.

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3.6 Notice requiring disclosure of interest in shares

The Directors may serve notice on any member requiring that member to disclose to the Companythe identity of any person (other than the member) who has an interest in the shares held bythe member and the nature of such interest. Any such notice shall require any information inresponse to such notice to be given within such period (being not less than ten and not morethan thirty days) as the Directors may determine.

If any member is in default in supplying to the Company the information required by the Companywithin the prescribed period the Directors in their absolute discretion may at any time followingfourteen days from the expiry of the date by which the information required is due to be receivedby the Board serve a disenfranchisement notice on the member. The disenfranchisement noticemay direct that in respect of the shares in respect of which the default has occurred (the “defaultshares”) the member shall not be entitled to vote at general meetings or class meetings. Wherethe default shares represent at least 0.25% in nominal value of the class of shares concernedthe disenfranchisement notice may additionally direct that dividends on such shares will beretained by the Company (without interest) and that no transfer of the shares (other than atransfer authorised under the Articles and subject, in the case of uncertificated shares, to the regulations referred to in paragraph 3.7 below) shall be registered until the default is rectified.

3.7 Transfer of shares

The Articles provide that the Directors may implement such arrangements as they may thinkfit in order for any class of shares to be admitted to settlement by means of the CREST UKsystem. If the Directors implement any such arrangements no provision of the Articles shallapply or have effect to the extent that it is in any respect inconsistent with:

(i) the holding of shares of that class in uncertificated form;

(ii) the transfer of title to shares of that class by means of the CREST UK system; or

(iii) the Isle of Man Transfer of Securities Regulations 1996.

Where any class of shares is for the time being admitted to settlement by means of the CRESTUK system such securities may be issued in uncertificated form in accordance with and subjectas provided in the Isle of Man Transfer of Securities Regulations 1996. Unless the Directorsotherwise determine, such securities held by the same holder or joint holder in both certificatedform and uncertificated form may be treated as separate holdings. Such securities may be changedfrom uncertificated to certificated form and from certificated to uncertificated form in accordancewith and subject as provided in the Isle of Man Transfer of Securities Regulations 1996.

Title to such of the shares as are recorded on the register as being held in uncertificated formmay be transferred only be means of the CREST UK system. Every transfer of shares from aCREST account of a CREST member to a CREST account of another CREST member shall vestin the transferee a beneficial interest in the shares transferred, notwithstanding any agreementsor arrangements to the contrary however and whenever arising and however expressed.

Subject as provided below, any member may transfer all or part of any of his shares which arein certificated form by instrument of transfer in any form which the Directors may approve.The instrument of transfer of a share shall be signed by or on behalf of the transferor. TheDirectors may refuse to register any transfer of certificated shares unless the instrument oftransfer is lodged at the registered office accompanied by the relevant share certificate(s) andsuch other evidence as the Director may reasonably require to show the right of the transferorto make the transfer. The Directors may refuse to register a transfer of any share which is notfully paid up or on which the Company has a lien provided that this would not prevent dealingsfrom taking place on an open and proper basis.

Subject to the provisions of the Isle of Man Transfer of Securities Regulations 1996 theregistration of transfers may be suspended at such times and for such period as the Directorsmay from time to time determine provided that such suspension shall not be for more than30 days in any year.

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3.8 Alteration of capital and purchase of shares

The Company may from time to time by ordinary resolution increase its share capital by suchsum to be divided into shares of such amount as the resolution may prescribe.

The Company may from time to time, subject to the provisions of the Law, purchase or redeemits own shares (including any redeemable shares) in any manner authorised by the Law.

The Company may by ordinary resolution: consolidate and divide all or any of its share capitalinto shares of larger amounts than its existing shares; subdivide all or any of its shares intoshares of a smaller amount than is fixed by the memorandum of association; and cancel anyshares which at the date of the resolution have not been taken or agreed to be taken and diminishthe amount of its authorised share capital by the amount of shares so cancelled.

Subject to the Law and to any rights for the time being attaching to shares, the Company mayby special resolution reduce its share capital, any redemption reserve fund or any share premiumaccount or any undistributable reserve in any manner.

3.9 Interests of Directors

(i) Save as mentioned below, a Director may not vote or be counted in the quorum on anyresolution of the Board (or a committee of the Directors) in respect of any matter inwhich he has (together with any interest of any person connected with him) a materialinterest (other than by virtue of his interest in shares or debentures or other securitiesof the Company).

(ii) A Director shall be entitled to vote (and be counted in the quorum) in respect of anyresolution concerning any of the following matters:

(1) the giving of any guarantee, security or indemnity in respect of money lent orobligations incurred by him or any other person at the request of or for thebenefit of the Company or any of its subsidiaries;

(2) the giving of any guarantee, security or indemnity in respect of a debt orobligation of the Company or any of its subsidiaries for which the Directorhimself has assumed responsibility in whole or in part and whether alone orjointly with others under a guarantee or indemnity or by giving of security;

(3) the offer of securities of the Company or its subsidiaries in which offer he is ormay be entitled to participate or in the underwriting or sub-underwriting ofwhich he is to participate;

(4) any proposal concerning any other company in which he is interested, directlyor indirectly, as an officer or shareholder or otherwise, provided that he,together with persons connected with him, is not to his knowledge the holderof or beneficially interested in one per cent or more of any class of the equityshare capital of any such company (or of any third company through which hisinterest is derived) or of the voting rights of such company;

(5) any arrangement for the benefit of employees of the Company or any of itssubsidiaries which accords to the Director only such privileges and advantagesas are generally accorded to the employees to whom the arrangement relates;or

(6) any proposal for the purchase or maintenance of insurance for the benefit ofthe Director or persons including the Directors.

(iii) Any Director may act by himself or by his firm in a professional capacity for theCompany, other than as auditor, and he or his firm shall be entitled to remunerationfor professional services as if he were not a Director.

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(iv) Any Director may continue to be or become a director, managing director, manager orother officer or a member of a company in which the Company is interested, and anysuch Director shall not be accountable to the Company for any remuneration or otherbenefits received by him.

3.10 Directors

(i) The Directors shall be remunerated for their services at such rate as the Directors shalldetermine provided that the aggregate amount of such fees shall not exceed £200,000per annum (or such sum as the Company in general meeting shall from time to timedetermine). The Directors shall also be entitled to be paid all reasonable expensesproperly incurred by them in attending general meetings, board or committee meetingsor otherwise in connection with the performance of their duties.

(ii) A Director may hold any other office or place of profit under the Company (other thanthe office of auditor) in conjunction with his office of Director on such terms as totenure of office and otherwise as the Directors may determine.

(iii) The Directors may from time to time appoint one or more of their body to the officeof managing director or to any other office for such term and at such remuneration andupon such terms as they determine.

(iv) A Director, notwithstanding his interest, may be counted in the quorum present at anymeeting whereat he or any other Director is appointed to hold any such office or placeof profit under the Company, or where the terms of appointment are arranged or anycontract in which he is interested is considered and he may vote on any such appointmentor arrangement other than his own appointment or the terms thereof.

(v) The Directors may at any time appoint any person to be a Director either to fill a casualvacancy or as an addition to the existing Directors. Any Director so appointed shall beeligible for re-election at the next general meeting following his appointment but shallnot be taken into account in determining the Directors or the number of Directors whoare to retire by rotation at the meeting if it is an annual general meeting. Withoutprejudice to those powers, the Company in general meeting may appoint any person tobe a Director either to fill a casual vacancy or as an additional Director.

(vi) At each annual general meeting, one-third of the Directors or (if their number is notthree or an integral multiple of three), the number nearest to, but (except where thereare less than three Directors) not greater than one-third, shall retire from office.

(vii) Subject to the provisions of the Articles, the Directors to retire by rotation on eachoccasion shall be those of the Directors who have been longest in office since theirlast appointment or re-appointment but, as between persons who became or were lastre-appointed Directors on the same day, those to retire shall (unless they otherwiseagree among themselves) be determined by lot.

(viii) The majority of the Directors shall at all times be resident outside the United Kingdom.

3.11 Retirement of Directors

(i) A Director shall not be required to hold any qualification shares.

(ii) There is no age limit at which a Director is required to retire.

(iii) The office of Director shall be vacated if the Director resigns his office by writtennotice, if he shall have absented himself from meetings of the Board for a consecutiveperiod of six months and the Board resolves that his office shall be vacated, if hebecomes of unsound mind or incapable, if he becomes insolvent, suspends payment orcompounds with his creditors, if he is requested to resign by written notice signed byall his co-Directors, if the Company in general meeting shall declare that he shall ceaseto be a Director, or if he becomes resident in the United Kingdom and, as a result, amajority of the Directors are resident in the United Kingdom.

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3.12 Winding-up

(i) On a winding-up, the surplus assets remaining after payment of all creditors, includingpayment of bank borrowings, shall be divided pari passu among the members inproportion to the capital paid up on the shares held at the commencement of the winding-up, subject to the rights of any shares which may be issued with special rights orprivileges.

(ii) On a winding-up, the liquidator may, with the authority of a special resolution, divideamongst the members in specie any part of the assets of the Company. The liquidatormay with like authority vest any part of the assets in trustees upon such trusts for thebenefit of members as he shall think fit but no member shall be compelled to acceptany such assets in respect of which there is any liability.

(iii) Where the Company is proposed to be or is in the course of being wound up and thewhole or part of its business or property is proposed to be transferred or sold toanother company, the liquidator may, with the sanction of a special resolution,receive in compensation, or part compensation for the transfer or sale, shares, policiesor other like interests for distribution among the members or may enter into anyother arrangements whereby the members may, in lieu of receiving cash, shares,policies or other like interests, participate in the profits of or receive any other benefitfrom the transferee.

3.13 Borrowing powers

The Board may exercise all the powers of the Group to borrow money and to give guarantees,mortgage, hypothecate, pledge or charge all or part of its undertaking, property or assets anduncalled capital and to issue debentures and other securities whether outright or as collateralsecurity for any liability or obligation of the Group or of any third party. Prior to Admission,there is no restriction on the aggregate principal amount from time to time outstanding of allborrowings by the Group (exclusive of borrowings wholly within the Group). FollowingAdmission, the aggregate principal amount from time to time outstanding of all borrowingsby the Group (exclusive of borrowings wholly within the Group) shall not exceed 65% of thegross assets of the Group.

3.14 Duration of the Company

The Directors shall put an ordinary resolution to the annual general meeting of the Companyto approve the accounts for the year ending 31 December 2009 and, if passed, to every fifthsubsequent annual general meeting, proposing that the Company should continue its investmentactivities for a further five year period. If any such resolution is not passed, the Directors shallarrange for the Group’s properties to be realised.

4 Directors’ and other interests

4.1 The aggregate of the remuneration to be paid and benefits in kind granted to the Directors bythe Group for the financial period ending 31 December 2003 will not exceed the equivalent of£30,000 per annum.

4.2 There are no service contracts in existence between any member of the Group and any of theDirectors nor are any such contracts proposed. However, each of Philip Scales, Geoffrey Black,Donald Lake and Mark Shaw has entered into a letter of appointment with the Company dated24 October 2002. The letters of appointment provide for an initial period of service expiringon 31 December 2004, subject to renewal at that time. The Company has the right to terminateeach appointment without compensation if the relevant Director is required to vacate officein accordance with the Articles, nor do the letters of appointment contain any other contractualprovisions regarding the compensation which would be payable upon early termination by theCompany. The initial fees payable are £9,000 per annum to Philip Scales, the Chairman, and£7,000 per annum to each of Geoffrey Black, Donald Lake and Mark Shaw. The fees will bereviewed annually and, subject to the Articles, may be increased in line with usual market rates.

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4.3 Save for Philip Scales’ interest in the Administrator, no Director has any interest in anytransactions which are or were unusual in their nature or significant to the business of the Groupand which were effected by any member of the Group since its date of incorporation.

4.4 No loan or guarantee has been granted or provided by any member of the Group for the benefitof any Director.

4.5 As at the date of this document, none of the Directors had any interest, beneficial or otherwise,in the share capital of the Company or options in respect of such capital, nor did any personconnected with any Director (so far as is known to, or who could with reasonable diligence beascertained by, each Director) have any interest in the share capital of the Company or optionsin respect of such capital, in each case whether or not held through another party.

4.6 The Directors have agreed to apply under the Offer for the number of Ordinary Shares set outbelow, all of which will be beneficially held.

Director Number of Ordinary Shares Percentage (%)*

Philip Scales Nil NilGeoffrey Black Nil NilDonald Lake Nil NilMark Shaw 10,000 0.02%

*On the basis of the Assumptions.

4.7 The Directors are not aware of any persons who, following the Offer, will be interested directlyor indirectly in 3% or more of any class of the issued share capital of the Company.

4.8 The Directors are not aware of any person or persons who, following the Offer, will or could,directly or indirectly, jointly or severally, exercise control over the Company.

4.9 Details of those companies and partnerships of which the Directors have been directors orpartners at any time in the last 5 years are as follows.

(i) Philip Scales

These directorships principally arise as a result of Philip Scales’position within Barings(Isle of Man) Limited which acts as the administrator to these companies. All thecompanies listed below are registered in the Isle of Man unless otherwise indicated.

Present directorships and partnerships

Achille Boroli Limited, Active Commercial Estates Limited, Al-Badour InvestmentGroup Limited, Alfaman Holdings Limited, Ambridge Nominees Limited, Amil (Isleof Man) Limited, Annisfield Limited, Applecross Limited, Armier Limited, ArmstrongInvestments Limited, ASA Consultants (Isle of Man) Limited, Atlal Limited, AttardLimited, Aurum Investments Limited, Badran Co. Limited, Ballinamore Limited, BallutaLimited, Ballyward Limited, Balzan Limited, Barfield Nominees (IOM) Limited,Barings (Isle of Man) Limited, Barnalswick Limited, BCEC I Limited, BCEC II Limited,BCEC III Limited, BCEC IV Limited, Beresford Overseas Limited, Biscoe Limited,Blue Arch Limited, Bluegrass Investments Limited, Bonsall Limited, BorchesterLimited, Bressenden Limited, Bretnor Limited, Brettonwood Limited, British Cable &Optical Fibres Limited, Bruno Limited, Bunbury Limited, Burnham Properties Limited,Business Angels Investments Limited, Buskett Limited, Callowhill Limited, CaptivaInvestments Limited, Cardale Limited, Casolam Limited, Castellucio One Limited,Casterton Limited, Champion Limited, Cherwell Limited, Choice Investments Limited,Cledford Limited, Coleshill Limited, Columb Limited, Colunas Limited, ColtagLimited,Colwall Limited, Concord International Partners Limited, Concord National InvestmentsLimited, Consultores Management Company Limited, Continental CorporateOpportunities Limited, CRC Limited, Crumpsall Limited, Curdalworth Limited, DarlandLimited, Dayem Limited, Derivatives Capital Management Limited, DFA Limited,Diamond Investments (Overseas) Limited (Cyprus), Dingli Limited, Dolphin Fund Plc,

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Drava Limited, Dukkara Limited, Eastchurch Limited, Eccleshall Limited, EPS FinanceLimited (BVI), EPS Finance (IOM) Limited, E R Investments Limited, ER Limited,Erandel Holdings Ltd. (BVI), ESN-Leader Capital Carried Interest Partner Limited,ENS-Leader Capital General Partner Limited, EU Euroinvest Fund Limited, EvidentalLimited, Faris Limited, Felpersham Limited, Fenstock Limited, FieldsonsLimited, Fraser(IOM) Limited, Fisher Limited, Flosshilde Plc, Flyford Limited, Fort AdministrationLimited, Foxgrove Limited, Freshford Limited, Fringebar Properties Limited, GallecticaEnterprises Limited, Galleone Investments Limited, Gardenia Limited, GarthewinLimited, Geryon Limited, Glaisdyke Limited, Glengarry Limited, Greenlaw Limited,Greenwich Limited, Gulf Development & Finance Limited, Gyda Limited, HackmanLimited, Haiser Limited, Haiser Limited (BVI), Hampshire Holdings Limited, HammyLimited, Harboro Limited, Hardcastle Investments Limited, Havenport Limited,Healthcare and Leisure Property Fund PLC, Heatherstone Limited, Heathwaite Limited,Hebatco Investments Limited, Higson Limited, Hindle Limited, Holmer Limited, HoveyLimited, Human Development Trademarks Limited, Hurumzi Limited, I.H. BusinessDevelopment Co. Limited, Indiahold Limited (BVI), International Fund Managers(IOM) Limited, Invenium Limited, Irudnay (IOM) Limited, I.T. Ventures – ConcordMisr (BVI) Limited (BVI), Jenigma Holdings Limited, Kallina Limited, KenelmLimited, Kittery Limited, Koby Limited, Kreon Plc, Laffan Limited, Lanlerne Limited,La Rocca Investments Limited, Lavan Limited, Ledson Limited, Lesimo Limited,Linehall Limited, Livingstone Limited, LJMC Services Limited, Lochbroom Limited,Loeven Limited, London Scottish Reinsurance Limited, Loresho Limited, L S Limited,Manchester Square (General Partner) Limited (UK), Manor Wood Limited, MaroyaLimited, Marsascala Limited, Mawgan Limited, Mediterranean Marine (IOM) Limited,Medlock Limited, Medranow Limited, Meekland Holdings Limited, Menaul Limited,Milbreck Limited, Millbank Properties Limited, Monastir Limited, Moorclose Limited,Moore Holdings Limited, MORAI Trading Limited (BVI), Mosta Limited, MullallyLimited, Narlin Limited, Neville James Fund Managers Limited, Neville James SecureCapital Growth Fund Plc, Neville James Zero Preference Fund Plc, Omega DerivativesCapital Limited, Overlord Limited, Palmayra Limited, Pan African Holdings Limited,Peake Limited, PIE R&D Limited, Pollett Limited, Portobello Limited, PoundsgateLimited, Praesepe Limited, Priyanka Limited (BVI), Qabila Limited, QuantinvestLimited, Quantinvest Management Limited, Quartz Limited, Radwell Limited, RaimanLimited (BVI), Raines Limited, Ramla Limited, Ransley Limited, Rath Dhu Limited,Rassina Limited, Red Lodge Limited, Relax Investments Limited, Relcon Limited,Retford Limited, Riameen Limited, Ricasoli Limited, Rinella Limited, Rolla AssociatesLimited, Rophi Corporation (BVI), Royalton Investments Limited, Rush Limited,Ruskin Investments Limited, Sachi Investments Company Limited, Saint IsidoreLimited, Salthouse Limited, Sardinella Limited, Sardonyx Limited, Sassoon Limited,S/D Flats Limited, Seaford Trading Limited, SEIF Limited, SEIF (IOM) Limited, SEIF-Malabar Limited, SEIF Services Limited (BVI), Selmun Limited, Senglea Limited,Sepoint Limited, SFIM UK Technology Fund plc, Shefield Trading Corp. (Panama),Shefford Limited, Shintillo Investments Limited, Skynet Limited, Snelgrove Limited,Snook Services Limited, Southfields Limited, Standhall Limited, Stonefold Limited,Stovell Limited, Stratford Limited, Subrun Investments Limited, Symi Limited, TAMA(1993) Limited, Tapton Limited, Tarland Limited, Taria Investments Limited, TashkentLimited, The With Profits Plus Fund plc (alternate director), The Wych Cross PlaceEstate Company Limited, TLT Investments Limited, Tombstone Limited, TriminghamLimited, Traffic Limited, Tullmore Limited, UVI Limited, Vale Nominees Limited,Valentia Enterprises Limited, VAM Limited, VAM Funds plc, Ventura Limited, VerdalaLimited, Versailles Properties Limited, Vieville Limited, Villocq Investments Limited,Voller Limited, Walderslade Limited, Wardara Enterprises Limited, Waymark Limited,Weatherfield Limited, White Gables Limited, Whitman Limited, Willake Limited,Wimbridge Limited, Wintney Limited, Worldwide Advisory Services Limited (BVI),Wymouth Limited, Yetminster Limited.

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Past directorships and partnerships

Aldearn Limited, Alka Limited, Amboyna Limited, Amecaro Limited, Anglian OverseasTraders Limited, Apoca Limited, Ardskerry Limited, Artichoke Limited, AtlanticMaritime Limited, Awrad Co. Limited, Ballymoney Limited, Baltic Wood Limited,Barcia Fine Arts Limited, Beachpalm Limited, Brindle Limited, Brittany Trade Limited,Caledonian Management Limited, Carbonic Limited, CAS Services Limited, CEBInvestments Limited, CEB Logistics Limited, Charter Limited, Chesterton Limited,Colindale Investments Limited, Compagnie Luxembourgeoise de la Metallurgie du FerLimited, Cougar Overseas Holdings Inc. (Panama), Crenshaw Limited, CrowhillInvestments Limited, Cumber Limited, Cuzco Investments Limited, Dart (Isle of Man)Limited, Darvel Limited, Debdale Investments Limited, Denbigh Limited, DianaLimited, DIL Dortmund Investors Limited, Drake Investments Limited, DunmoreLimited, Dunster Investments Limited, Dunvegan Limited, Dunwich Limited, EastcheapLimited, EC Cosmetics Limited, Fallowfield Limited, Ferfil Limited, Fournells Limited,Fowler Limited, Frasier Limited, Frosty Limited, Gartmore Fund Managers Limited,Gartmore Investment Management Limited, Gartmore Money Management Limited,Green Park Limited, Gondar Investments Limited, Gondar Limited, Guasta Arts Limited, Halleyville Limited, Hanseatic Gallery Limited, Holmfirth Limited, Ilminster Limited,Imperial Financial Holdings Limited, Imperial Holdings Limited, Inter-ProjectsDevelopment Limited, Irudnay Limited, J.P.W. & Sons Machinery Limited, JmingCompany Limited, Jo Co Limited, Kappara Limited, Kentish Limited, Kilmartin Limited,Kilmun Limited, La Couia Investments Limited, Langness Investments Limited, LatinAmerican Investment Group (Ireland) Limited, Lendalfoot Limited, Leo BiancoLimited, Leveson Gallery Limited, Limehurst Limited, Lyford Limited, Makedo GroupLimited, Mallin Limited, Marcar Trading Limited, Marketing Concepts Limited,Matchline Limited, Matchplay Limited, Maxima Farms Europe Limited, MedciniLimited, Medicharter Limited, Med-Yachts International Limited, Microclas Limited,MSDX Services Limited, Nordic Maritime Limited, Mint Capital Limited, MontalbanoGallery Limited, Notre Dame Limited, Novia Limited, Nuttall Limited, Paarl InvestmentsLimited, Paradise Investments Limited, Parkway Properties Limited, Paulings Limited,Petrugio Gallery Limited, Pine Grove Investments Limited, Plumstead Limited, PolicyExtra Holdings Limited, Prospect Trading Limited, Rams Bottom Investments Limited,Ranmor Limited, Rhos Investments Limited, Ringley Limited, Rudy Limited, RuthinLimited, Roscrea Limited, Sandness Limited, Sanibel Limited, Sarasota Limited,Sarpedon Limited, SCS Alliance Limited, Seaton Investment Limited, Sedan Limited,Shiraz Investments Limited, SIH Limited, Simenon Limited, SMC Consulting Limited,Spinelle Limited, Stallbridge Limited, State Street Investments, Stellen Limited,Stonykirk Limited, Stowe Limited, Surveys (Malawi) Limited, Tailu Company Limited,Takamol Investments Limited, Taranis Limited, Times Square Investments Limited,Tinas Investments Limited,Towton Limited, Trukon Limited, Trustforte ManagementLimited, Upington Limited, VAM II Limited, VAM III Limited, VAM American SpecialOpportunities Limited, VAM Growth Limited, VAM Protected STAR Limited, Vela Co.Limited, Verdala Limited, Verwood Limited, Vorley Limited, Vumba InvestmentsLimited, Wadeson Limited, Wall Street Investments Limited, Waverley Limited,Wellborne Trading Company Limited, West Sussex & Surrey Administrators Limited,Whitehead Limited.

(ii) Geoffrey Black


Active Commercial Estates Ltd, Black Grace Cowley Ltd, Black Grace CowleyFinancial Services Ltd, Black Grace Cowley Property Management Ltd, Coquina Ltd,Phildrake Ltd, J W E B Consulting (IOM) Ltd.

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Cowley Groves & Co Ltd, Mandias Group of Companies.

(iii) Mark Shaw


ABT (Developments) Limited, Aghamore Developments Limited, Alpha Homes 1997Ltd, Alwyne Scrase Dickins Developments Company Ltd, Anne Lace DevelopmentsNo. 1 Limited, Amalgamated Financial Services Limited, Avidoc II Developments Ltd,Baggie Boys Limited, Barrie Developments Limited, Beachwood EnterpriseDevelopments Ltd, Beaumont Mitchell Ltd, Beavington Developments Ltd, BecklaDevelopments Ltd, Bettor Properties Developments Ltd, BRS Developments Ltd, C &AEstates I Ltd, C & A Estates II Ltd, Cambrian Developments Ltd, CGT DevelopmentsLI Ltd, CGT Developments XXVIII Limited, CGT Developments XXXVIII Limited,CGT Developments XXXX Limited, CGT Developments XXXXIII Limited, CGTDevelopments XXXXV Limited, Charge Limited, Charlie Georgia Limited, ChestnutCourt Develompents Ltd, CNC Homes Limited, Collective Investments Limited,Collective Investments (Property Managers) Ltd, Collective Investments (TrustManagers) Limited, Cornucopia Developments Ltd, Cox Property Developments Ltd,Croy Road Developments Ltd, Culworth Developments Ltd, De Zulueta DevelopmentsLtd, Deltasale Ltd, Dev Rastogi Family Company Developments Ltd, DinmontDevelopments Limited, Dowanhill Developments Ltd, Drayton Estates Ltd, DSSDevelopments Ltd, Elfrida Hitchcock Developments Ltd, Emmel Pithyt DevelopmentsLtd, Fairefields Developments Limited, Fleming Estates Developments Limited, GGRBusiness Developments Ltd, Gillian Williams Developments Ltd, Gitta TwoDevelopments Ltd, Gostick Developments Ltd, Graimberg Ventures Ltd, GrantaxDevelopments Ltd, Grantax Hamilton Ltd, Greenhill Developments Ltd, Greenock HotelsLtd, Grosvenor House (Telford) Management Company Ltd, Grosvenor House (Telford)Nominee No 1 Ltd, Hampshire Haddaway Ltd, Hanak Developments Ltd, HeadlandEstates Ltd, Hiddleston Developments Limited, Holliday Developments Limited,Honeybrook Developments Ltd, Humberstone Developments Limited, IvanhoeDevelopments Ltd, J V P Developments Limited, JA Farr Developments Ltd, Jacob 2002Developments Ltd, Jaylin Developments Ltd, Jean May Developments Ltd, Jesco (ChrisCo) Developments Ltd, Kendall Developments Limited, Kirkbride PropertyDevelopments Limited, Knole Simpson Developments Limited, Lerwill DevelopmentsLtd, Loffey Developments Ltd, Lynco Construction Ltd, M D Ayers DevelopmentsLimited, M D Goodman Company Developments Ltd, M D Bear Developments Ltd,Magirr Developments Limited, Mile Saka Developments Ltd, Moonstone DevelopmentsLtd, Mountbray Ltd, Mr W & Mrs J Robison Developments Ltd, MSL DevelopmentsLtd, Musgrave Developments Ltd, Neilson Enterprises Ltd, Newnham DevelopmentsLimited, Newport Energy (UK) Ltd, Newsom Icer Developments Ltd, Opus Wines Ltd, OS Developments Limited, Overstall Developments Ltd, P M Robinson DevelopmentsLimited, Pane Developments Ltd, Pool Developments Ltd, Powell 1997 Ltd, Pritchards(Oswestry) Developments Ltd, Proctors Developments Ltd, Propertyparade Ltd, QuintaDevelopments Ltd, R C W Developments Limited, Radbone Developments Ltd, RoltDevelopments Ltd, Rutherford S Developments Ltd, Sands Residential DevelopmentsLtd, Sarky Developments Limited, Saxon VCT Limited, SGP Developments Ltd, ShimnaDevelopments Ltd, Stuart Developments Limited, Success Developments Limited,Sweatman Developments Limited, Sybil’s Developments Ltd, T F Construction (North)Ltd, T & H Developments Ltd, Tarbrook Company Ltd, Thorne Property DevelopmentsLtd, Tocada Limited, Touchdown Developments Limited, Tregaskes DevelopmentsLimited, Trifield Developments Ltd, Trifield Developments (North) Ltd, Tritax AssetsLimited, Tritax Management Limited, Troy Developments Ltd, Veronis DevelopmentsLimited, Walsham Estates Limited.

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Actionstate Ltd, Bevis Properties Ltd, Blackbraes Ltd, Caerau Developments Ltd, CGTDevelopments XXI Limited, CGT Developments XXXXVII Ltd, Collective Investments(General Partner) Ltd, Culdean Ltd, Dak Developments Limited, Earlpress Limited,Elle Gee Ltd, Goldmere Ltd, Gould Developments Ltd, Greys Park Developments Ltd,Hoby Developments Limited, Kerrington VCT Ltd, MK Strain Development Number1 Ltd, MK Strain Development Number 2 Ltd, MK Strain Development Number 3 Ltd,Pacedean Ltd, Portman 1997 Ltd, Scallywag Developments Limited, Somerset 1997Ltd, Spanfar Ltd, Temple 1997 Ltd, Thorpe Morieux Developments Ltd.

(iv) Donald Lake


Rosscarbery Limited, Sterling Property Fund PLC, North Cape Properties Limited,Architypes Limited and Healthcare and Leisure Property Fund PLC.


Tower Hill Property Company Limited, Sands Investment Company Limited, RockbottomSecurities Limited, Creata Services Limited, Family Investment (One) Limited, GalefieldSecurities Limited, Hillgrove Estates Limited, Oakacre Limited, Ashacre Limited,Charlton Holdings Limited.

4.10 At the date of this document none of the Directors:

(i) has any unspent convictions in relation to indictable offences; or

(ii) has been bankrupt or has entered into an individual voluntary arrangement; or

(iii) was a director with an executive function of any company at the time of or within 12 monthspreceding any receivership, compulsory liquidation, creditors voluntary liquidation,administration, company voluntary arrangement or any composition or arrangement withthat company’s creditors generally or with any class of its creditors; or

(iv) has been a partner in a partnership at the time of or within 12 months preceding anycompulsory liquidation, administration or partnership voluntary arrangement of suchpartnership; or

(v) has had his assets the subject of any receivership or has been the partner of a partnershipat the time of or within 12 months preceding any assets thereof being the subject of areceivership; or

(vi) has been subject to any public criticism by any statutory or regulatory authority(including any recognised professional body) or has ever been disqualified by a courtfrom acting as a director of a company or from acting in the management or conductof the affairs of any company.

5. Material contracts

The following contracts, not being contracts in the ordinary course of business, have been entered intoby members of the Enlarged Group within the two years immediately preceding the publication of thisdocument, or will be entered into by a member of the Enlarged Group following Admission, and are,or may be, material or contain provisions under which any member of the Enlarged Group has anobligation or entitlement which is material to the Enlarged Group as at the date of this document.

5.1 A property investment advisory agreement dated 18 October 2002 between the Company (1),the Property Investment Adviser (2), the Property Subsidiaries (3) and Beadgem (4) (the“Property Investment Advisory Agreement”) whereby CBIL is appointed to act as propertyinvestment adviser of the Group, to manage the assets of the Group in accordance with theinvestment policy of the Company and to implement the borrowing policy from time to timeapproved by the Directors. Under the terms of the Property Investment Advisory Agreement,subject to the overall supervision of the Directors, CBIL has complete discretion to buy, sell,

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retain, exchange or otherwise deal in property assets for the account of the Group. CBIL shallbe entitled to receive a fee from the Company at the annual rate of 2.0% (plus VAT) of the TotalAssets, payable quarterly in arrears. If, however, the total dividend to be paid by the Companyin respect of a financial year will fall below 7.75% per annum based upon the Offer Price, thenCBIL will rebate part of its fee, up to a maximum of 0.8% of the Total Assets, in order toincrease the level of dividend. Once any shortfall below the target level of dividend has beenmade up, CBIL will not be required to rebate any further amount. Such rebates will be calculatedat the year end, being 31 December on each occasion. Any fee rebated in this way by CBILmay be carried forward for a period of two years and if, in either of these two years, there areexcess profits over and above the profits out of which the target dividend may be paid, thenCBIL will be entitled to recover any shortfall in its fee with any such recovery given precedenceto the earlier year in which any rebate was made.

CBIL is entitled to an acquisition fee of 1.0% (plus VAT) of the cost of all properties acquiredwithin the Group out of which it will be responsible for paying the costs of all third partyintroductory fees and the abortive legal and professional costs incurred on any acquisitionswhich do not proceed.

An incentive arrangement will come into effect either upon the return in full of capital andreserves to Ordinary Shareholders or upon the date of the Annual General Meeting of theCompany at which the accounts for the year ending 31 December 2009are considered, whicheveris the earlier. At that time, if the return to investors under the Offer exceeds an IRR of 10% perannum, then CBIL will be entitled to 20% of the excess above that target level of return. If theProperty Portfolio has not been sold at that time, its value will be independently ascertainedin order to calculate whether or not CBIL is entitled to any incentive. Any amount owing underthese incentive arrangements will be payable as a fee to CBIL.

The Property Investment Advisory Agreement contains an indemnity in favour of CBIL againstclaims by third parties except to the extent that the claim is due to the negligence, wilful defaultor fraud of CBIL or any third party to whom CBIL has delegated any of its functions. TheProperty Investment Advisory Agreement may be terminated by any party giving to the othersnot less than 12 months’ notice expiring on or at any time after the fourth anniversary ofAdmission, or otherwise in circumstances, inter alia, where one of the parties has a receiverappointed over its assets or if an order is made or an effective resolution passed for the windingup of one of the parties.

5.2 An administration and secretarial agreement dated 25 October 2002 between the Company (1),the Administrator (2) and the Property Subsidiaries (3) (the “Administration and SecretarialAgreement”) whereby the Administrator is appointed to act as administrator, secretary andregistrar of the Group. The Administrator shall be entitled to receive a fee from the Companyat the annual rate of 0.1% (plus VAT) of the Total Assets payable quarterly in arrears. TheAdministrator shall also be entitled to reimbursement of fees and expenses disbursed by theAdministrator on behalf of the Company and the Property Subsidiaries. The Administrator willalso act as registrar to the Company and is entitled to appoint agents to provide CREST serviceswhose fees will be payable by the Company. The Administration and Secretarial Agreementcontains an indemnity in favour of the Administrator against claims by third parties except tothe extent that the claim is due to the bad faith, negligence, wilful default or fraud of theAdministrator. The Administration and Secretarial Agreement may be terminated by any partygiving to the others not less than three months’ notice in writing expiring on or at any timeafter the first anniversary of Admission or otherwise in circumstances, inter alia, where oneof the parties goes into liquidation.

5.3 A facility agreement to be entered into upon Admission between Bank of Scotland (1), Chip(One) Limited (2) and Chip (Three) Limited (3) whereby Bank of Scotland has agreed to makeavailable a term loan facility for up to £42 million. Interest is payable at a rate equal to theaggregate of LIBOR, the mandatory costs of Bank of Scotland and a margin of 1.1% per annumif the level of debt does not exceed 50% of the value of the relevant properties; the marginincreases by 0.075% per annum if the level of debt rises above 50% but not above 55% and

60


increases by 0.15% per annum if the level of debt rises above 55%. The facility is repayableon the business day immediately prior to the tenth anniversary of the first draw down underthe facility although if an Event of Default (as defined in the facility agreement) were triggeredit would be repayable on first demand by Bank of Scotland. The facility agreement containsstandard events of default and covenants for a bank facility of this nature. An Event of Default(as defined in the facility agreement) will be triggered if, inter alia, the amount of the loanfacility exceeds 60% but is less than 75% of the value of the underlying security for aperiod in excess of 180 days. The facility is or will be secured by legal charges over the propertyassets of Chip (One) Limited and Chip (Three) Limited and by debentures over these companies.

5.4 A facility agreement dated 23 October 2002 made between Nationwide (1) and Chip (Two)Limited (2) whereby Nationwide has agreed to make available a term loan facility for up to£10 million. Interest is payable by Chip (Two) Limited at a rate equal to the aggregate of LIBOR,and a margin of 1.1% per annum. The facility is repayable on the tenth anniversary of the dayof first draw down under the facility although if an Event of Default (as defined in the facilityagreement) were triggered it would be repayable on first demand by Nationwide. An Event ofDefault (as defined in the facility agreement) will be triggered if, inter alia, the amount of theloan facility exceeds 60% of the value of the properties over which Nationwide has securityfor a period of in excess of ninety days. The facility is or will be secured by legal charges overthe property assets of Chip (Two) Limited and by a debenture over this company.

5.5 A deposit and bridging facility agreement dated 9 October 2002 made between Bank of Scotland(1) and Chip (One) Limited (2) whereby Bank of Scotland has agreed to make available adeposit and bridging loan facility not exceeding £30 million (up to £10 million can be drawndown under the deposit facility and up to £30 million can be drawn down under the bridgingfacility provided that the maximum draw down under both facilities shall not exceed £30 million).Interest is payable at a rate equal to the aggregate of LIBOR, the mandatory costs of Bank ofScotland and a margin of 1.25% per annum. The bridging facility is initially for a period of 6 months but this may be extended by Bank of Scotland granting a grace period for repaymentof a further 6 months. An initial fee of £275,000 was payable of which £245,000 is deferreddependent upon the establishment of the senior debt facilities, as referred to in paragraph 5.3above. The deposit and bridging facility contains standard events of default and covenants for abank facility of this nature. The deposit and bridging facility is secured by legal charges overthe property assets of Chip (One) Limited and by a debenture over the company.

5.6 A valuation agreement dated 25 October 2002 between the Company (1) and the Valuer (2)(the “Valuation Agreement”). Pursuant to the Valuation Agreement the Valuer agrees to providevaluation services in respect of the assets held within the Property Portfolio. The ValuationAgreement may be terminated by either party upon three months’ written notice expiring onor after the first anniversary of Admission. Under the Valuation Agreement, the Valuer shallbe entitled to receive an annual fee equal to 0.08% (plus VAT) of the aggregate value of theProperty Portfolio together with all reasonable out of pocket expenses and a fee of 0.15% (plus VAT) of the acquisition price of each property payable at the time of purchase.

5.7 An internal administration agreement dated 25 October 2002 between the Company (1) andthe Property Subsidiaries (2) (the “Internal Administration Agreement”) whereby the PropertySubsidiaries have agreed to act as property investment holding companies of the Group and toacquire and dispose of assets within the Property Portfolio on behalf of the Group. Pursuantto the Internal Administration Agreement, the Company has agreed to fund the PropertySubsidiaries by share and/or loan capital in amounts to be determined from time to time forthe purposes of acquiring and maintaining the Property Portfolio.

5.8 An offer for subscription agreement dated 25 October 2002 (the “Offer Agreement”) betweenthe Sponsor (1), the Company (2), the Directors (3) and CBIL (4), pursuant to which the Sponsorand CBIL have agreed conditionally upon, inter alia, Admission taking place on or before8:00 am on 10 March 2003 (or such later time and/or date as the Sponsor may agree) to usereasonable endeavours to procure subscribers for the Shares proposed to be issued by theCompany pursuant to the Offer at 100p per Ordinary Share.

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The Offer Agreement contains warranties and an indemnity from the Company and CBILin favour of the Sponsor, together with provisions which enable the Sponsor to terminate theOffer Agreement in certain circumstances prior to Admission, including in circumstanceswhere any of the warranties are found not to be true or accurate in any material respect.

Under the Offer Agreement, the Company will pay CBIL a commission of 5.75% of the fundsraised under the Offer. CBIL, out of its commission, will pay the Sponsor a commission of 0.5%of the funds raised. CBIL will pay all other commissions (including 3% commission to authorisedfinancial advisers), the costs and expenses of or incidental to the Offer and the application foradmission of the Ordinary Shares to the Official List.

5.9 An acquisition agreement dated 18 October 2002 (the “Beadgem Agreement”) betweenDovevale Limited (“Dovevale”) (1) and Chip (Two) Limited (2) pursuant to which Dovevalehas agreed conditional, inter alia, upon Admission taking place, to sell the entire share capitalofBeadgem to Chip (Two) Limited for a cash consideration equal to the net asset value of Beadgem(as determined by post completion accounts of Beadgem and subject to certain agreedadjustments). The Beadgem Agreement contains warranties given by Dovevale to Chip (Two)Limited in relation to certain legal, accounting and taxation matters. The maximum aggregateof Dovevale’s liability under these warranties is limited to £6 million and Dovevale will not beliable for any breaches of warranty with an aggregate value of below £60,000. A written noticeof claim under any of the warranties must be given by Chip (Two) Limited to Beadgem onor before 30 September 2004.

6. General6.1 The minimum amount which must be raised under the Offer in order to provide for the matters

set out in paragraph 5 of Part 1 of the Fourth Schedule of the Isle of Man Companies Act 1931is £10.6 million. Otherwise, the minimum subscription for the purposes of the Listing Rulesof the UKLA is £30 million.

6.2 The subscription lists for Ordinary Shares to be issued pursuant to the Offer will open at 8:00 am on Wednesday 30 October 2002.

6.3 Save as disclosed herein, no amount has been paid or is payable to any person as commissionfor subscribing or agreeing to subscribe, or procuring or agreeing to procure subscriptions,for any shares in or debentures of the Company.

6.4 Ernst & Young, the reporting accountants have given and not withdrawn their written consentto the issue of this Prospectus with the inclusion of their reports in Part 5, Part 6 and Part 7 ofthis document and the references to them and their name in the form and context in which theyappear and have authorised the contents of their reports for the purposes of regulation 6(1)(e) ofthe Financial Services and Markets Act 2000 (Official Listing of Securities) Regulations 2001.

6.5 Brewin Dolphin has given and has not withdrawn its written consent to the issue of thisProspectus and the inclusion herein of its name and the references to it in the form and contextin which they appear.

6.6 The Valuer has given and not withdrawn its written consent to the issue of this Prospectus withthe inclusion of its report in Part 4 of this document and the references to it and to its name inthe form and context in which they appear and has authorised the contents of its report forthe purposes of regulation 6(1)(e) of the Financial Services and Markets Act 2000 (OfficialListing of Securities) Regulations 2001.

6.7 The preliminary expenses of the Group are estimated at £5,000 and are payable by CBIL. Thetotal costs and expenses of and incidental to the Offer are payable by the Company and areestimated at £2.875 million, assuming that the Offer is fully subscribed.

6.8 It is estimated that the net proceeds available for investment by the Company as a result of theOffer will be £94.25 million (including borrowings of £47.125 million and assuming 50 million

62


Ordinary Shares are issued). These net proceeds will be invested in accordance with theCompany’s investment policy described in Part 1 of this document.

6.9 The Property Investment Adviser is, or may be, a promoter of the Company. Save as disclosedexpressly herein, no cash, securities or benefits have been paid, issued or given by any memberof the Group to the Property Investment Adviser or any other person and, other than asexpressly disclosed in this Prospectus, none is proposed to be paid, issued or given to theProperty Investment Adviser or any other person in its capacity as a promoter.

6.10 The Enlarged Group is not and has not been engaged in any legal or arbitration proceedingsand, in so far as the Company is aware, there are no legal or arbitration proceedings pendingor threatened which may have, or have had during the twelve months preceding the date of thisdocument, a significant effect on the Enlarged Group’s financial position.

6.11 Save for the contracts entered into regarding the acquisition of properties relating to the InitialProperty Portfolio, as referred to on page 22 in Part 3 of this document, there has been nosignificant change in the financial or trading position of the Group since 30 September 2002 orof Beadgem since 31 July 2002, the respective dates of the reports referred to in Parts 5 and 6 of this document.

6.12 The Company owns all of the issued share capital of the Property Subsidiaries which are Isleof Man incorporated companies and which will own directly or indirectly all of the assets inthe Property Portfolio.

6.13 The Company and the Property Subsidiaries have not have any employees since theirincorporation and do not own any premises for their own business use.

6.14 The Directors confirm that the Company was incorporated and registered on the date referredto in paragraph 1.1 above. Since incorporation the Company has entered into the materialcontracts described in paragraph 5 above, subscribed for shares in the Property Subsidiaries,and as at 21 October 2002 (the latest practical date prior to publication of this document) had drawn down £6.08 million of the deposit and bridging facility regarding the acquisition of theproperties numbered 16, 17, 19 and 20 on page 22 of this document.

6.15 The financial information set out in Parts 5, 6 and 7 of this document has been audited.Savefor the financial information contained in Parts 5, 6 and 7 no other information in this documenthas been audited.

6.16 No Ordinary Shares issued pursuant to the Offer will be reserved for allocation to existingshareholders, directors or employees of the Group and there are no preferential allocationarrangements in connection with the Offer.

7. Documents available for inspection

Copies of the following documents are available for inspection during normal business hours on anyweekday (Saturdays, Sundays and public holidays excepted) at the offices of Brewin Dolphin at 5 Giltspur Street, London EC1A 9BD and of the Company at St James’s Chambers, Athol Street,Douglas, Isle of Man IM1 1JE:

7.1 the memorandum and articles of association of the Company;

7.2 the material contracts referred to in paragraph 5 above;

7.3 the written consents referred to in paragraphs 6.4 to 6.6 above;

7.4 the valuation report referred to in Part 4 of this document;

7.5 the accountants’ reports contained in Part 5, Part 6 and Part 7 of this document;

7.6 the Mini-Prospectus; and

7.7 this Prospectus.

25 October 2002

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Part 9 TERMS AND CONDITIONS OF APPLICATION

Introduction

If you apply for Ordinary Shares under the Offer, you will be agreeing with the Company, CBIL andBrewin Dolphin as follows.

Offer to acquire Ordinary Shares

1. Applications must be made on one of the Application Forms attached at the end of the Prospectusor the Mini-Prospectus or otherwise published by the Company. By completing and deliveringan Application Form, you, as the applicant, and, if you sign the Application Form on behalf ofanother person or a corporation, that person or corporation:

1.1 offer to subscribe for the number of Ordinary Shares specified in your ApplicationForm (or such lesser number for which your application is accepted) at 100pper OrdinaryShare on the terms, and subject to the conditions, set out in the Prospectus, these Termsand Conditions of Application and the Memorandum and Articles of Association ofthe Company;

1.2 agree that, in consideration for the Company and CBIL agreeing that they will not,prior to Admission, offer for subscription any Ordinary Shares to any person other thanby means of the procedures referred to in the Prospectus, your application may not berevoked until after 9 April 2003 and that this paragraph shall constitute a contractbetween you and the Company which will become binding upon despatch by post toor, in the case of delivery by hand on receipt by, CBIL of your Application Form;

1.3 undertake to pay (by cheque or bankers’ draft or such other method of payment as maybe agreed with the Company) the Offer Price for the Ordinary Shares (payable in fullon application) in respect of which your application is accepted and warrant that theremittance accompanying your Application Form will be honoured on first presentationand agree that if such remittance is not so honoured you will not be entitled to receivea share certificate or have your CREST account credited for the Ordinary Shares appliedfor or to enjoy or receive any rights or distributions in respect of such Ordinary Sharesunless and until you make payment in cleared funds for such Ordinary Shares and suchpayment is accepted by CBIL (which acceptance shall be in its absolute discretion andon the basis that you indemnify CBIL and the Company against all costs, damages,losses, expenses and liabilities arising out of or in connection with the failure of yourremittance to be honoured on first presentation) and the Company may (withoutprejudice to any other rights it may have) avoid the agreement to allot the OrdinaryShares and may allot them to some other person, in which case you will not be entitledto any refund or payment in respect thereof (other than the refund to you at your riskof any proceeds of the remittance which accompanied your Application Form, withoutinterest);

1.4 agree that any share certificate to which you or, in the case of joint applicants, any ofthe persons specified by you in your Application Form may become entitled and moneysreturnable may be retained by CBIL (or in the case of an application for Ordinary Sharesin uncertificated form, agree that any CREST account may not be credited):

1.4.1 pending clearance of your remittance;

1.4.2 pending investigation of any suspected breach of the warranties contained inparagraphs 9.1, 9.2, 9.6, 9.8, 9.9 or 9.10 below or any other suspected breachof these Terms and Conditions of Application; or

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1.4.3 pending any verification of identity which is, or which the Administratorconsiders may be, required for the purposes of the Isle of Man and the UK MoneyLaundering Regulations;

and any interest accruing on such retained moneys shall accrue to and for the benefitof the Company;

1.5 agree, on the request of CBIL, to disclose promptly in writing to it such informationas CBIL may request in connection with your application and authorise CBIL to discloseany information relating to your application which it may consider appropriate;

1.6 agree that if evidence of identity satisfactory to CBIL is not provided to CBIL withina reasonable time in the opinion of the Company following a request therefor, CBILor the Company may terminate the agreement with you to allot Ordinary Shares and,in such case, the Ordinary Shares which would otherwise have been allotted to youmay be reallotted and your application moneys will be returned to the bank or otheraccount on which the cheque or other remittance accompanying the application wasdrawn without interest;

1.7 agree that you are not applying on behalf of a person engaged in money laundering;

1.8 undertake to ensure that, in the case of an application signed by someone else on yourbehalf, the original of the relevant power of attorney (or a complete copy certified bya solicitor or a bank) is enclosed with your Application Form;

1.9 undertake to pay interest at the rate prescribed in paragraph 5 below if the remittanceaccompanying your Application Form is not honoured on first presentation;

1.10 authorise CBIL on behalf of the Company to send definitive certificates or credit CRESTaccounts in respect of the number of Ordinary Shares for which your application isaccepted, and/or a crossed cheque for any moneys returnable, by post to your address(or that of the first-named applicant) as set out in your Application Form;

1.11 confirm that you have read and complied with paragraph 12 below; and

1.12 agree that your Application Form is addressed to the Company.

2. Any application may be rejected in whole or in part at the Company’s sole discretion.

Acceptance of your offer to subscribe

3. The Company may accept your offer to subscribe if your application is received, valid (ortreated as valid), processed (and not rejected) either:

3.1 by notifying the London Stock Exchange of the basis of allocation (in which case theacceptance will be on that basis); or

3.2 by notifying acceptance to CBIL.

4. Applications must be for a minimum of 5,000 Ordinary Shares and, if for more than 5,000Ordinary Shares, must be in multiples of 1,000 Ordinary Shares. The basis of allocation willbe determined by the Company. The right is reserved notwithstanding the basis so determinedto reject in whole or in part and/or scale down any application. The right is reserved to treat asvalid any application not complying fully with these Terms and Conditions of Application ornot in all respects completed or delivered in accordance with the instructions accompanyingthe Application Form. In particular, but without limitation, the Company may accept anapplication made otherwise than by completion of an Application Form where you haveagreed with it in some other manner to apply in accordance with these Terms and Conditionsof Application. The Company reserves the right (but shall not be obliged) to acceptApplication Forms and accompanying remittances which are received later than 3:00pm on25 November 2002.

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5. The right is reserved to present all cheques for payment on receipt by CBIL and to retaindocuments of title and surplus application moneys pending clearance of successful applicants’cheques. The Company may require you to pay interest or its other resulting costs (or both) ifthe cheque accompanying your application is not honoured on first presentation. If you arerequired to pay interest you will be obliged to pay the amount determined by the Company tobe the interest on the amount of the cheque from the date on which the basis of allocation underthe Offer is publicly announced, until the date of receipt of cleared funds. The rate of interestwill be the then published bank base rate of a clearing bank selected by the Company plus 2%per annum. The right is also reserved to reject in whole or in part, or to scale down or limit,any application.

Conditions

6. The contracts created by the acceptance of applications (in whole or in part) under the Offerwill be conditional upon Admission becoming effective by 8:00 am on 27 November 2002 (or such later time or date, not being later than 8:00 am on 9 April 2003, as Brewin Dolphinmay agree).

7. You will not be entitled to exercise any remedy of rescission for innocent misrepresentation(including pre-contractual representations) at any time after acceptance. This does not affectany other right you may have.

Processing of application moneys

8. If any application is not accepted in whole, or is accepted in part only, or if any contract createdby acceptance does not become unconditional, the application moneys or, as the case may be,the balance of the amount paid on application will be returned without interest by returningyour cheque, or by crossed cheque in favour of the first-named applicant, by post at the riskof the person(s) entitled thereto. In the meantime, pending acceptance (or otherwise) applicationmoneys will be retained by CBIL in a separate account. If there is an extended period betweenthe receipt of cleared funds and the acceptance of your application and the allotment ofOrdinary Shares, being a period of in excess of 4 weeks, CBIL will make compensatorypayments in respect thereof equivalent to an amount of interest which such funds could haveearned on deposit.

Warranties

9. By completing an Application Form, you:

9.1 warrant that, if you sign the Application Form on behalf of somebody else or on behalfof a corporation, you have due authority to do so on behalf of that other person andthat such other person will be bound accordingly and will be deemed also to have giventhe confirmations, warranties and undertakings contained in these Terms and Conditionsof Application and undertake to enclose your power of attorney or other authority or acomplete copy thereof duly certified by a solicitor or a bank;

9.2 if the laws of any territory or jurisdiction outside the United Kingdom are applicableto your application, warrant that you have complied with all such laws, obtained allgovernmental and other consents which may be required, complied with all requisiteformalities and paid any issue, transfer or other taxes due in connection with yourapplication in any territory and that you have not taken any action or omitted to takeany action which will result in the Company or CBIL or any of their respective officers,agents or employees acting in breach of the regulatory or legal requirements, directlyor indirectly, of any territory or jurisdiction outside the United Kingdom in connectionwith the Offer or your application;

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9.3 confirm that in making an application you are not relying on any information orrepresentations in relation to the Group other than those contained in the Mini-Prospectus or in the Prospectus (on the basis of which alone your application is made)and accordingly you agree that no person responsible solely or jointly for the Mini-Prospectus or the Prospectus or any part thereof shall have any liability for any suchinformation or representation;

9.4 agree that, having been advised that all applications are on the basis of the Prospectusand having had the opportunity to read or obtain a copy of the Prospectus, you shall bedeemed to have had notice of all information and representations contained therein;

9.5 acknowledge that no person is authorised in connection with the Offer to give anyinformation or make any representation other than as contained in the Prospectus orthe Mini-Prospectus and, if given or made, any information or representation mustnot be relied upon as having been authorised by the Company;

9.6 warrant that you are not under the age of 18 on the date of your application;

9.7 agree that all documents and moneys sent by post to you, by or on behalf of the Company,will be sent at your risk and in the case of documents and returned moneys to be sentto you may be sent to you at your address (or, in the case of joint applicants, theaddress of the first-named applicant), as set out in your Application Form;

9.8 warrant that you are not applying as, or as nominee or agent of, a person who is ormay be a person mentioned in any of sections 67, 70, 93 or 96 of the Finance Act 1986(depositary receipts and clearance services);

9.9 confirm that you have reviewed the restrictions contained in paragraph 13 below andwarrant, to the extent relevant, that you (and any person on whose behalf you apply)comply or have complied with the provisions therein; and

9.10 warrant that you are not resident for taxation purposes in the Isle of Man (or are soresident but are exempt from taxation in the Isle of Man or otherwise able to invest inOrdinary Shares without prejudicing the Isle of Man taxation status of the Company).

Money Laundering

10. You agree that, in order to ensure compliance with the Isle of Man and the UK MoneyLaundering Regulations, the Administrator may at its absolute discretion require verificationof identity from any person lodging an Application Form who either :

10.1 tenders payment by way of banker’s draft or cheque or money order drawn on anaccount in the name of another person or persons (in which case verification of youridentity may be required); or

10.2 appears to the Administrator to be acting on behalf of some other person (in whichcase verification or identity of any persons on whose behalf you appear to be actingmay be required).

Failure to provide the necessary evidence of identity may result in application(s) being rejectedor delays in the despatch of documents.

11. Without prejudice to the generality of paragraph 10 above, verification of the identity ofapplicants may be required if the value of the Ordinary Shares applied for, whether in one ormore applications, is 15,000 Euros (approximately £9,000) or more. If, in such circumstances,you use a building society cheque, banker’s draft or money order you should ensure that thebank or building society enters the name, address and account number of the person whoseaccount is being debited on the reverse of the cheque, banker’s draft or money order and addsits stamp. If, in such circumstances, you use a cheque drawn by a third party, you may berequested to provide a copy of your passport or driving licence certified by a solicitor or arecent original bank or building society statement or utility bill in your name and showing yourcurrent address (which originals will be returned by post at the applicant’s risk).

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Overseas investors

12. If you receive a copy of the Prospectus, the Mini-Prospectus or an Application Form in anyterritory other than the United Kingdom you may not treat it as constituting an invitation oroffer to you, nor should you, in any event, use an Application Form unless, in the relevantterritory, such an invitation or offer could lawfully be made to you or an Application Formcould lawfully be used without contravention of any registration or other legal requirements.It is your responsibility, if you are outside the United Kingdom wishing to make an applicationfor Ordinary Shares under the Offer, to satisfy yourself as to full observance of the laws of anyrelevant territory or jurisdiction in connection with your application, including obtaining anyrequisite governmental or other consents, observing any other formalities requiring to beobserved in such territory and paying any issue, transfer or other taxes required to be paid insuch territory.

13. The Ordinary Shares have not been and will not be registered under the laws of Canada, Japanor Australia nor under the United States Securities Act 1933, as amended (the “Securities Act”)or with any securities regulatory authority of any state or other political subdivision of theUnited States. Accordingly, the Ordinary Shares may not be offered, sold or delivered, directlyor indirectly, within Canada, Japan, Australia or the United States or to, or for the account orbenefit of, US persons (as defined in Regulation S promulgated under the Securities Act),except in transactions which are exempt from the registration requirements under the SecuritiesAct. If you subscribe for Ordinary Shares you will, unless the Company agrees otherwise inwriting, be deemed to represent and warrant to the Company that you are not a US Person andthat you are not subscribing for such Ordinary Shares for the account of any US Person andwill not offer, sell, renounce, transfer or deliver, directly or indirectly, such Ordinary Shares inthe United States or to any US Person. As used herein, “United States” means the United Statesof America (including each of the States and the District of Columbia), its territories orpossessions or other areas subject to its jurisdiction. No application will be accepted if itbears an address in the United States or appears to have been posted from the United States.

Miscellaneous

14. To the extent permitted by law, all representations, warranties and conditions, express orimplied and whether statutory or otherwise (including, without limitation, pre-contractualrepresentations but excluding any fraudulent representations), are expressly excluded in relationto the Ordinary Shares and the Offer.

15. The rights and remedies of the Company, CBIL, the Administrator or Brewin Dolphin underthese Terms and Conditions of Application are in addition to any rights and remedies whichwould otherwise be available to them, and the exercise or partial exercise of one will not preventthe exercise of others.

16. The Company reserves the right to delay or bring forward (in the event that the Offer is fullysubscribed) the closing time of the Offer from 3:00 pm on 25 November 2002 by giving noticeto the London Stock Exchange. In this event, the revised closing time will be published in suchmanner as the Company determines subject, and having regard, to the listing requirements ofthe UK Listing Authority.

17. The Company may terminate the Offer in its absolute discretion at any time prior to Admission.If such right is exercised, the Offer will lapse and any moneys will be returned to you withoutinterest.

18. You agree that Brewin Dolphin is acting for the Company in connection with the Offer and forno-one else and that Brewin Dolphin will not treat you as its client by virtue of such applicationbeing accepted or owe you any duties concerning the price of Ordinary Shares or concerningthe suitability of Ordinary Shares for you or otherwise in relation to the Offer.

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19. You authorise the Administrator or CBIL or any person authorised by them or the Company,as your agent, to do all things necessary to effect registration of any Ordinary Shares subscribedfor by you in your name(s) and authorise any representatives of the Administrator or CBIL toexecute and/or complete any document required therefor.

20. You agree that all applications, acceptances of applications and contracts resulting therefromunder the Offer shall be governed by and construed in accordance with English law, that yousubmit to the jurisdiction of the English courts and agree that nothing shall limit the right ofthe Company to bring any action, suit or proceedings arising out of or in connection with anysuch applications, acceptances and contracts in any other manner permitted by law or in anycourt of competent jurisdiction.

21. Authorised financial intermediaries who, acting on behalf of their clients, return validApplication Forms bearing their stamp and FSA number will be paid commission, usually ata rate of 3% on the aggregate Offer Price of the Ordinary Shares allocated for such ApplicationForms. Financial intermediaries should keep a record of all Application Forms submitted bearingtheir stamp to substantiate any claim for commission. Claims for commission must be madeand substantiated on application.

Definitions used in these Terms and Conditions

22. In these Terms and Conditions of Application and the Application Form the following termshave the meanings set out below:

“Application Form” means the application form for use in connection with the Offer attachedeither at the end of the Prospectus or the Mini-Prospectus; and

“Mini-Prospectus” means the document dated 25 October2002 and entitled “Mini-Prospectus”issued by the Company in connection with the Offer.

Save where the context requires otherwise, terms used in these Terms and Conditions ofApplication bear the same meaning as where used in the Prospectus.

Availability of Prospectus

Copies of the Prospectus and Mini-Prospectus are available for inspection at the Document ViewingFacility, The Financial Services Authority, 25 The North Colonnade, Canary Wharf, London E14 5HSand, until the Offer closes, are available for collection, free of charge, from the offices of the Sponsorat 5 Giltspur Street, London EC1A 9BD and those of the Company at St James’s Chambers, AtholStreet, Douglas, Isle of Man IM1 1JE.

25 October 2002

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NOTES ON HOW TO COMPLETE THE APPLICATION FORM

Applications should be returned so as to be received by 3:00pm on 25 November 2002 (unless theOffer is previously extended).

Applicants should read notes 1–7. Note 8 should be read by joint Applicants.

1. Application

Fill in (in figures) the number of Ordinary Shares for which you wish to apply. Your applicationmust be for Ordinary Shares with a minimum aggregate Offer Price of £5,000 (5,000 Ordinary Shares)or, if more than £5,000, in multiples of £1,000.

If you wish to apply for the Property ISA, you should complete the separate ISA application form.

2. Amount Payable

Fill in (in figures) the amount payable at 100p per Ordinary Share.

3. Personal Details

For personal applicants, please fill in (in block capitals) the full name of the applicant in Box 3(i). If this application is being made jointly with other persons, please read Note 8 before completing Box 3(i).

For trustees (of, for example, SIPPs and SSAS) and companies, please complete Box 3(ii) instead ofBox 3(i).

Please then fill in the address of the applicant in the rest of the box.

4. Signature

The applicant named in Box 3 must date and sign Box 4. If more than one signature is requiredfrom Trustees, all signatures should be made in Box 4.

The Application Form may be signed by another person on your behalf if that person is duly authorisedto do so under a power of attorney. The power of attorney (or a copy duly certified by a solicitor or abank) must be enclosed for inspection. A corporation should sign under the hand of a duly authorisedofficial whose representative capacity should be stated.

5. Cheque/Bankers’ Draft Details

Attach a cheque or bankers’ draft for the exact amount shown in Box 2 to your completedApplication Form. Your cheque or bankers’ draft must be made payable to “Close BrothersInvestment Limited Client Account re: CHIP” and crossed “A/c Payee”.

Your payment must relate solely to this application. No receipt will be issued.

Your cheque or bankers’ draft must be drawn in sterling on an account at a bank branch in the UnitedKingdom, the Channel Islands or the Isle of Man and must bear a United Kingdom bank sort codenumber in the top right hand corner.

An application may be accompanied by a cheque drawn by someone other than the applicant(s), butin such case any moneys returned will be sent by cheque crossed “A/C Payee” in favour of the first-named applicant.

Applications with a value of 15,000 Euros (approximately £9,000) or greater, which are to be settled byway of a third party payment, e.g. bankers’draft, building society cheque or a cheque drawn by someoneother than the applicant, will be subject to the Isle of Man’s and the United Kingdom’s verification ofidentity requirements which are contained in the Isle of Man and the UK Money Laundering Regulationsrespectively.

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For UK applications, this may involve verification of names and addresses (only) through a reputableagency. For non-UK applicants, verification of identity may be sought from your bankers or fromanother reputable institution or professional adviser in the applicant’s country of residence.

If satisfactory evidence of identity has not been obtained within a reasonable time, and in any event(unless the Offer is extended) by 3:00pm on 25 November 2002, your application may not be accepted.

Certificates, cheques and other correspondence will be sent to the address in Box 3.

6. Dividend Payments

All future dividends will be paid directly into your bank or building society account. Consequentlyplease complete the dividend mandate information form in Box 9 on the reverse of the ApplicationForm.

7. Shares in Uncertificated Form (CREST)

If you wish your Ordinary Shares to be issued in uncertificated form you should complete theApplication Form as above and must also complete Box 6.

8. Joint Applicants

If you make a joint application, you will not be able to transfer your Ordinary Shares into an ISA. Ifyou are interested in transferring your Ordinary Shares into an ISA, you should apply in your name only.

If you do wish to apply jointly, you may do so with up to three other persons. Boxes 3 and 4 must becompleted by one applicant. All other persons who wish to join in the application must completeand sign Box 7.

Another person may sign on behalf of any joint applicant if that other person is duly authorised to doso under a power of attorney. The power of attorney (or a copy duly certified by a solicitor or a bank)must be enclosed for inspection.

Certificates, cheques and other correspondence will be sent to the address in Box 3.

Instructions for Delivery of Completed Application Forms

Completed Application Forms should be returned, by post or by hand, to CBIL at 12 Appold Street,London EC2A 2AW, so as to be received by no later than 3:00pm on 25 November 2002, unlessthe Offer is previously extended, together in each case with payment in full in respect of the application.If you post your Application Form, you are recommended to use first class post and to allow at leastthree days for delivery. Application Forms received after this date may be returned.

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APPLICATION FORM

CLOSE HIGH INCOME PROPERTIES PLC

Please send the completed form by post or by hand to Close Brothers Investment Limited at 12 Appold Street,London EC2A 2AW, so as to be received no later than 3:00pm on 25 November 2002, unless the Offer ispreviously extended.

Important – Before completing this form, you should read the accompanying notes.

ALL APPLICANTS MUST COMPLETE BOXES 1 TO 5 AND 9 (SEE NOTES 1-8 OF THE NOTES ON HOW TOCOMPLETE THIS APPLICATION FORM).

If you have a query concerning completion of this Application Form please call Close Brothers Investment Limited onFreephone 0800 328 6049.

1. Application

I/We offer to subscribe for: Ordinary Shares (at 100p each) (minimum 5,000;thereafter in multiples of 1,000)

fully paid, at 100p per Ordinary Share, subject to the Terms and Conditions of Application set out in the Prospectusdated 25 October 2002 and subject to the Memorandum and Articles of Association of the Company respectively.

2. Amount PayableI/We attach a cheque or bankers’draft for the amount payable of:

3. Personal Details (PLEASE USE BLOCK CAPITALS)

4. Signature

5. Cheque/Bankers’ Draft DetailsAttach your cheque or bankers’ draft for the exact amount shown in Box 2 made payable to “Close BrothersInvestment Limited Client Account re: CHIP” and crossed “A/c payee”.

6. Shares in Uncertificated Form (CREST)Complete this section only if you require your Ordinary Shares to be credited to your CREST account.

BOX 7 MUST ONLY BE COMPLETED BY JOINT APPLICANTS (SEE NOTE 8)

7. Joint Applicants (PLEASE USE BLOCK CAPITALS)

Mr., Mrs., Miss or Title Mr., Mrs., Miss or Title Mr., Mrs., Miss or Title

Forenames (in full) Forenames (in full) Forenames (in full)

Surname Surname Surname

Signature Signature Signature

CREST Participant ID: CREST Member Account ID:(no more than five characters) (no more than eight characters)

Dated / / Signature

(i) Mr., Mrs., Miss or Title Forenames (in full)

Surname

(ii) Name of Trustees or Company

Address (in full)

Postcode Daytime tel. no.

£


8. Due completion of the agent’s box indicates that theagent is duly authorised to transact investments of thistype under the Financial Services and Markets Act2000 and confirms that the requirements of the MoneyLaundering Regulations 1993 (as amended)for theidentification and verification of the application havebeen complied with. Commission, usually at 3% ofthe funds invested, will be paid to authorisedfinancial intermediaries.

9. Payment of dividends directly to Bank or Building Society Accounts. Dividends on Ordinary Shares heldin Close High Income Properties PLC will be paid directly into bank or building society accounts. To arrangefor all future dividend payments to be paid directly into your account, please complete the mandateinstruction form below.

Dividends paid directly to your account will be paid in cleared funds on the dividend payment date. You willreceive notification by post advising you of the payment amount and date. Your bank or building society statementwill identify details of the dividend as well as the date and amount paid.

FOR OFFICE USE ONLY1. Form number 2. Acceptance number 3. Shares allocated 4. Amount received 5. Amount payable 6. Amount returned 7. Cheque number

£ £ £

Cheque over Drawn on applicant’s Proof of identity Proof of identity Proof of identity15,000 Euro own account attached requested receivedY/N Y/N Y/N Y/N Y/N

Stamp of authorised financial intermediary(if applicable)

Authorised Ref. No.

Please forward all dividends that may from time to time become due on any Ordinary Shares nowstanding, or which may hereafter stand, in my name in the register of members of Close High IncomeProperties PLC to:

Bank or Building Society reference number and details:

(1) Sort code number

(2) Name of Bank/Building Society

Title of Branch

Address of Branch

Please quote all digits including zeros.

(3) Account number

(4) Signature

(5) Date

– –


chipClose Brothers Investment Limited Regulated by the FSA
