Investment Objectives

The Company's stated investment objectives at the launch were to: meet its banking obligations and satisfy its obligations to loan stockholders; satisfy the final capital entitlement of the Zero Dividend Preference Shareholders; and provide Ordinary Shareholders with an expected annualised dividend yield of 8.8 per cent. per annum based on the issue price of 100 pence and an increasing net asset value. The Company has currently suspended dividend payments but it is the intention of the Board to re-establish dividend payments as soon as possible although it is anticipated that the rate of dividend will be at a considerably lower than originally envisaged. In the current circumstances the Board does not envisage paying dividends for the foreseeable future although the restoration of a dividend remains a priority for the Board. The capital growth objectives remain unchanged. The portfolio is now principally invested in the UK and Irish property markets and in the European high yield securities issued by investment companies and trusts.

Duration

The Company has a planned life to 31 May 2011. However prior to that date the Directors intend to put proposals to shareholders to effect a scheme of reconstruction which will give both Ordinary and Zero Dividend Preference shareholders the option of a full cash exit on or before the planned date without the need for the Company to dispose of the entire Property Portfolio or crystallise any potential capital gains tax liability that may exist within the Group at that time or the option to extend their investment beyond the planned winding-up date.

Capital Structure

The Company has a capital structure comprising Ordinary and Zero Dividend Preference shares and units of 7.5% Convertible Unsecured Loan Stock 2011 (“CULS”). The Group also has structural gearing in the form of bank borrowings, which totalled £333.5 million at 31 December 2003.

Risk

The market price of the Company’s shares will vary to reflect supply and demand in the market which will, at least in part, be influenced by the net asset value of the Company. Investments in the Company will be subject to the general and specific risks connected with investment in real estate and high yielding securities. Additionally, as a large proportion of the Company’s assets, liabilities and income are denominated in Euros, returns to the Ordinary shareholders will be influenced by the exchange rate movement between the Euro and Sterling. Such movements would also affect market prices of the CULS.

The use of gearing is likely to increase volatility in the Company’s net asset value in that a relatively small movement in the value of the Company’s investments will result in a greater relative movement (upwards or downwards) in net asset value.

The Board of the Company notes the publication of the Investment Entities (Listing Rules and Conduct of Business) Instrument 2003 and confirms that it is the Company’s policy to invest no more than 15% of gross assets in other listed investment companies (including investment trusts).

Management Arrangements

The Manager to the Company is INVESCO International Limited, a Jersey-incorporated subsidiary of AMVESCAP PLC. INVESCO Asset Management Limited, INVESCO Real Estate Limited and Treasury Holdings Limited are investment advisers for the Income Portfolio, the UK Property Portfolio and the Irish Property Portfolio respectively.

Taxation of Dividends

There is a statutory requirement for the Company to deduct income tax from dividends paid to Jersey residents and to account for such income deducted to the Comptroller of Income Tax and, on request, to make a return of the names, addresses and shareholdings of Jersey residents shareholders. Non Jersey resident investors will be paid without deduction of Jersey income tax. UK resident individual shareholders will be liable to income tax on the amount of the dividends received. Unless exempted, an Irish resident or ordinary resident shareholder will be liable to Irish tax on the amount of any dividend received.

PEP and ISA Status

The Ordinary and Zero Dividend Preference shares and units of CULS are qualifying investments for the stocks and shares component of an ISA and eligible for inclusion in a general PEP if acquired in the market using funds contained within the PEP.

Introduction

Following what was an extremely difficult year for your Company in 2002, the year under review has seen an improvement in the Company’s asset value and the prices at which our securities trade. The Company has also put in place new management arrangements, as announced on 3 April 2003.

As at the year end the net asset value of an Ordinary share was 48.3p. This represents an increase of 33.1% over the asset value at 31 December 2002.

The Company’s assets at the year end were primarily properties based in Ireland and the UK. The Irish property portfolio comprised properties with a total value of €506.3 million (31 December 2002 – €454.6 million) and the UK and offshore property portfolio comprised properties with an aggregate value of £107.5 million after disposals of £20.0 million (31 December 2002 – £128.6 million). The Company’s income portfolio was valued at £27.6 million (31 December 2002 – £25.6 million).

Irish Economic Overview

The year began with heightened levels of uncertainty in the global economy stimulated amongst other things by the imminent war on Iraq and the outbreak of the SARS virus in
Asia. However, by the end of the first quarter, confidence levels began to improve setting the scene for a strong global recovery. This was reflected by corresponding evidence of recovery and growth in the Irish economy, which strengthened during the year to reach 3.3% in real GNP terms. This compares favourably to a growth of 0.1% in 2002. It is perceived by the European Commission that while the overall picture for Europe remains sluggish (0.4% growth in 2003) the Irish economy will continue to outperform the rest of the EU. The Commission predicts that GDP growth for Ireland will be 3.7% in 2004 (EU average is 2.4%). As before property will be one of the main beneficiaries of a global economic recovery.

The pace of consumer price inflation slowed during the course of the year to 2.2% by November 2003. This compares with an inflation rate of 4.6% in 2002. This reduction was primarily due to the appreciation of the Euro while other contributing factors include the reduction in interest rates since the beginning of the year as well as greater competition in the retail sector.

The pick-up in economic activity throughout 2003 has helped avert an anticipated reduction in employment. While overall employment grew in the first three quarters of the year the annual unemployment rate for 2003 is still expected to have risen, albeit moderately, to an average of 4.8% (more than half the Euro area average of 9%). The Economic and Social Research Institute expect the unemployment rate to rise slightly to 5.0% in 2004 as the economy underperforms relative to its potential.

Irish Property Market

We saw a sustained recovery in the performance of the Irish property market in the year and the prospects for the Irish commercial property market in 2004 are positive. The Society of Chartered Surveyors/Investment Property Databank (SCS/IPD) Index indicates an improved market return of 12.7% over the 12 months to December 2003. This compares with a return of just 2.2% on the SCS/IPD Index in 2002.

The Dublin office market experienced a challenging year in 2003 with vacancy rates reaching a high of 17.2%. The majority of available accommodation, 67%, is located in the suburbs. However, with the recovery of the global and domestic economy expected to gain momentum during 2004 the office market is showing signs of recovery as economic growth is strengthened and confidence levels are boosted. The recovery will be gradual, as the oversupply of office accommodation will take some time to be absorbed. Construction activity slowed in response to the reduced levels of demand. Despite the continued level of supply, headline rental levels in the office market have remained stable
during the year, rents in the region of e440 per sq. m. are being achieved for third generation accommodation in prime locations where demand remains strong, while those for secondhand properties are slightly lower from e335 to e370 per sq. m.

The total quantity of office accommodation taken up during 2003 was 123,600 sq. m. (1.33 million sq. ft.). Despite the slowdown in activity during the year demand
for accommodation in the prime locations of the city remained relatively robust comprising 39% of all space taken up. The suburbs also witnessed a relatively large
share of take up during the year at 42% although a significant proportion of this space was located in the South in areas adjacent to transport facilities. In particular 14% of all accommodation taken up during the year was located in Leopardstown/Sandyford, an area which will be even more enhanced by the completion of the LUAS (light railway) and the M50 Motorway further highlighting the importance of infrastructure and public transport in location decisions.

The retail market remained the most buoyant commercial sector in 2003 achieving record rents, which were underpinned by strong demand from both national and international retailers. Retail looks set to lead the way again in 2004 with continued rental growth across almost the entire market.

No new shopping centre came to the market in Dublin in
2003, however 2004 will see the opening of the extension to the Blanchardstown shopping centre, The Moore Street Plaza on the north side of the city centre and Dundrum town centre is due to open in Spring 2005.

Low interest rates, strong demand and a lack of opportunities are expected to continue underpinning confidence levels in the market over the coming year.

Activity levels in the industrial market improved slightly in 2003.

There is continuing strong demand in the housing sector especially in the first time buyer category. There was a 10% average growth in the price of new homes in 2003.

Private investors continue to be the main buyers in the Irish market. It is evident that strengthening yields in the retail and office sectors and low interest rates, albeit now trending upwards, continue to provide strong support for the market.

Irish Property Portfolio

REO’s Irish portfolio continues to show good performance with the Investment portfolio recording healthy capital appreciation and continued high occupancy levels.
Particular highlights during the year were the completion of the office block on Mespil Road, Dublin 4 comprising over 100,000 sq. ft. (9,300 sq. m.) and let to Bank of Ireland Asset Management, the successful letting of 64,000 sq. ft. (5,900 sq. m.) of office space in
Central Park to Merrill Lynch and 25,000 sq. ft. (2,300 sq. m.) in the same scheme to ABN Amro. In total, new rental income of circa A7 million p.a. was generated from these lettings.

Rent reviews are continuing to produce rental growth throughout the portfolio with the retail properties showing particularly strong performance. The rent review of the Marks & Spencer store in Cork produced growth of 108% while rent reviews of units in Stillorgan Shopping Centre continue to produce growth of 80% plus in passing rents.

In total, the Company’s rent roll from its Irish Investment Property Portfolio grew by 43% during the year. Transactions undertaken during the year included the acquisition of strategic sites in Cabinteely, south County Dublin while disposals occurred in respect of small properties in Stillorgan and in College Green, Dublin 2.

UK Property Portfolio

The strength of the property investment market that was seen in 2002 continued during 2003. With interest rates remaining at historically low levels (albeit the trend beginning to turn upwards), and alternative investment classes failing to attract certain classes of investor (particularly those looking for higher income yields), appetite from investors at all levels in the market remained strong. 2002 was characterised by the relative dominance of private and overseas investors in the UK market, however 2003 saw the gradual return of the UK institutions and property companies.

In light of the strength of demand, the continued relative lack of supply of suitable investment product contributed to sustained and in some sectors increasing values, in spite of some continued uncertainty in the occupier markets.

The Investment Property Database Monthly Index (reflecting a portfolio of properties not dissimilar to those held in the UK by the Company) showed a total return of 11.3% for the calendar year 2003. The best performing sector was retail, where strong retail sales continued to push up rental values in the best locations. Being the only sector where rents were growing (industrial rents remained broadly unchanged over the year, and office rents fell on average by 7%) investor demand focused on the sector reducing investment yields.

In spite of falling rental values across the office sectors as a whole, rental increases have been agreed during the year on four office buildings within your portfolio.

Following the completion of a number of property level issue within the portfolio during the early part of 2003, the Company took the decision to sell a number of properties into the strong investment market. The success of the 16 property sales completed during 2003 reflected that strength in the market, where the prices achieved were in aggregate 10% ahead of valuations.

The remaining portfolio, valued at in excess of £107 million as at December 2003 is currently producing an income return of 8.4% p.a.

The offshore elements of the UK portfolio, office investments in Guernsey and the Isle of Man, are well let to strong covenants, and as such provide the Company with well secured cashflow.

There are seven rent reviews dating from 2003 that have yet to be agreed, where we are hopeful of achieving uplifts during 2004, as well as five rent reviews that fall due in 2004. A number of opportunities are being pursued across the portfolio with a view to both improving the income and underlying values within the portfolio, and reducing the risk of vacancies occurring.

Since the year end markets have continued to be strong in certain sectors. We are pleased to announce the sale of a further 19 UK properties for a sum of £36 million, representing an uplift of 14% over the valuations as at 31 December 2003. Following this disposal REO will hold UK properties valued at £73.2 million as at the year end.

Income Portfolio

Following very difficult markets in 2002, high yield bonds performed strongly in 2003. Our portfolio showed good returns. To capitalise on this performance we have sold substantially all the Company’s bond investments since the year end.

While equity markets also performed well in 2003, many of our holdings in split capital trusts remain of little value.

Financing

During the year we undertook a review of debt financing of the property assets held in Castle Market Holdings. As a result €154.2 million of debt was refinanced from new facilities totalling €229.4 million. €205.0 million of the new debt is fixed with a weighted average interest rate of 5.96% and is repayable on dates between June 2012 and November 2013. The excess €75.2 million cash from this refinancing will be put to funding development activity and for further investment. A further £34.5 million was drawn down during the year from a facility secured on the office block on Mespil Road let to Bank of Ireland in connection with the completion of that development. At the end of the year
Castle Market Holdings had total bank borrowings of €351.8 million.

In the UK, borrowings of £69 million at the last year end were refinanced from a new £70.0 million term loan and £24.5 million revolving credit facility. Following sales of properties referred to above £75.0 million of borrowings were outstanding at 31 December 2003.

Since the end of the year the Company has repaid the outstanding balance of e15 million under the Income Portfolio facility which has now been cancelled. At the same time the Company broke the interest rate swap that had been taken out at launch to fix the interest rate payable on the income portfolio facility. The repayment and the break costs were funded from sales of bond investments referred to above.

During the year the Company purchased 20.81 million Ordinary shares, 2.06 million Zero Dividend Preference (ZDP) shares and £23.20 million nominal of Convertible Loan Stock. The Company will be seeking to renew at the AGM the authority to repurchase all the Company’s ZDP shares.

Case Against Aberdeen

As stated in the annual report last year, your Directors intend to seek compensation from the Company’s former manager Aberdeen Asset Managers Jersey Limited and its associated companies for those losses sustained in the income portfolio. A committee comprising directors of the Company has been appointed and is working with our legal advisers in preparing our case. We are delighted that the Rt Hon. Lord Browne-Wilkinson has agreed to act as independent chairman of that committee.

Lord Browne-Wilkinson has been a Supreme Court judge since 1977. He was promoted to the Court of Appeal in 1983 and appointed Vice-Chancellor (judge responsible for the Chancery Division of the High Court) in 1985. In 1991 he became a Law Lord and in 1998 was appointed Senior Law Lord (the UK’s most senior permanent judicial position). Lord Browne-Wilkinson retired as Senior Law Lord in 2000 but continues to act as an arbitrator.

Communication

As the contribution of the securities portfolio to investors’ total returns have diminished, the Board has reviewed the practice of publishing the Company’s NAV on a weekly basis given that our total assets consists almost entirely of the property portfolio and is only revalued every six months.

We intend in future to cease publishing weekly NAVs, believing that this conveys relatively little useful information to the market. In order to improve the market’s understanding of your Company we intend to increase the frequency of announcements of changes and developments within the Company. In addition we are pleased to announce the launch of a website providing details of the Company’s activities at www.realestateopportunities.biz.

Outlook

The Board believes that prospects for capital growth in the Company’s existing assets are greatest in some of the assets we have in Ireland. Further investment will, in many cases, be required to realise this value. The Board aims to deliver the greatest possible value to shareholders and will continue to take advantage of market opportunities to realise assets at favourable prices to fund investment for future capital growth.

The Directors believe the Company is well positioned to benefit from the expected economic growth in Ireland and that the quality of our rental covenants underpins current asset valuations.

RYF Horney
Chairman

4 May 2004

The Directors present their report on the affairs of the Company, together with the audited financial statements for the year ended 31 December 2003.

Principal activities and business review

The business of the Company is that of a public closed-ended investment company investing in the UK and Irish property markets and in the European high yield securities market, including high yield securities issued by investment companies and trusts. A review of the Company’s activities is given in the Chairman’s Statement above.

Status

The Company is a collective investment fund, as defined in the Collective Investment Funds (Jersey) Law 1988, and has been granted exempt status under Article 123A of the Income Tax (Jersey) Law 1961. Ordinary and Zero Dividend Preference shares and units of CULS are eligible for inclusion in a general PEP if acquired in the market using funds contained within the PEP. The Ordinary and Zero Dividend Preference shares and units of CULS are qualifying investments for the stocks and shares component of an ISA.

Revenue and Dividends

The Directors do not recommend the payment of a dividend on the Company’s Ordinary shares for the year (2002 : 2.2p).

Directors

The current Directors of the Company, all of whom served throughout the year, are shown with brief biographical details on pages 14 and 15.

In accordance with the Articles of Association, Mr Horney, Mr Jenkins and Mr Richardson will retire by rotation and, being eligible, offer themselves for re-election.

Mr Reed resigned as a Director of the Company on 12 March 2003.

No Director has a service contract with the Company.

Mr Barrett, Mr Ronan and Mr Teahon are directors of Treasury Holdings Limited (“Treasury”). Treasury has an agreement to provide investment advisory services in respect of the Irish Property Portfolio and to provide property management services in respect of the Irish properties to Castle Market Holdings Limited. The terms of these agreements in force during the year are disclosed in note 3 to the Financial Statements.

The Directors who held office at the year end and their beneficial interests in the Ordinary 1p shares, Zero Dividend Preference 1p shares and 7.5% Convertible Unsecured Loan Stock 2011 (“CULS”) at 31 December 2003 are shown below.

Substantial Interests

The Board has been advised that in addition to the Director's interests shown above, the following shareholders owned 3% or more of the issued Ordinary share capital of the Company as at the date of this Report.

Panel waivers

The Panel on Takeovers and Mergers agreed in 2001 to waive the requirement for Treasury Holdings and persons acting in concert with it to make a general offer pursuant to Rule 9 of the City Code on Takeovers and Mergers in circumstances where its percentage holding of Ordinary shares increased as a result of the exercise of conversion rights attaching to any of its holding of Loan Stock. This waiver continues to apply.

Share buy-backs

During the year the Company purchased the following shares in the market for cancellation:

The Company’s authority to make market purchases of up to 14.99% of its issued Ordinary shares
expired on 29 July 2003. On the same date the authority to make market purchases of all its
outstanding Zero Dividend Preference (ZDP) shares was renewed. The Company will be seeking to
renew the ZDP authority at this year’s AGM, notice of which is set out on pages 55 to 56.
In addition, the Company purchased the following £1 units of CULS 2011

Any acquisition of Ordinary shares by other means by a member of the Treasury Concert Party will be subject to the normal provisions of Rule 9 of the Code.

Financial Statements

The Directors’ responsibilities regarding the financial statements and safeguarding of assets are set out on page 25.

International Accounting Standards (IAS)

The Company is currently considering the implications of reporting under IAS with effect from1 January 2005.

Going Concern

After making enquiries, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the Financial Statements.

Relations with Shareholders

The Board maintains a regular dialogue with institutional shareholders. In addition, Board members and representatives of the Investment Advisers are available to answer shareholders’ questions at the Annual General Meeting of the Company.

Creditor Payment Policy

The Company’s policy is to pay Stock Exchange trade creditors on dates of settlement and all other creditors are normally paid within 30 days or in accordance with contracted terms.

Auditors

Our auditors KPMG have indicated to the Directors that their business is to transfer to a limited liability company, KPMG Channel Islands Limited. Accordingly, a resolution is to be proposed at the Annual General Meeting for the appointment of KPMG Channel Islands Limited as auditors of the Company.