RNS Number : 2588G
BarclaysGlbl Inv Endowment Fd II Ld
21 October 2008
21 October 2008
Barclays Global Investors Endowment Fund II Limited
Results for the year ended 31 August 2008
Barclays Global Investors Endowment Fund II Limited (BGIEF II), launched in December 1996, is a Jersey-registered closed-ended
investment company, which invests in a range of traded with-profits endowment policies. The policies, which are written by a variety of life
offices, have a diverse range of policy terms, thereby seeking to achieve for shareholders a strategic objective of an attractive level of
capital growth coupled with low investment risk. It is the Company's policy not to invest in other UK listed investment companies.
On 3 September 2008 the Company redeemed one half of its then outstanding shares. It is the intention of the Directors to commence
winding up the Company on 1 September 2009 with the liquidators distributing all the remaining proceeds to shareholders thereafter.
Financial results for the year ended 31 August 2008 include:
* Rise in Net Asset Value of 2.8% from 130.42p to 134.10p per share
* Return per ordinary share of 1.47p (2007: 12.63p )
* Change in net asset value, including effect of share redemption, of 3.68p
* Share price increased by 7.7% from 119.5p to 128.75p compared to a fall of 12.0% in the FTSE All Share Index.
Commenting on the results, Peter Bailey, Chairman said:
"The marked deterioration in economies and stock markets during the year has been predictably unfavourable for the value of with-profit
funds, and therefore also for maturity payouts. Despite this the high rating and price structure attained by the TEP market in recent years
has been upheld, and the Company's NAV continued to rise during the reporting period."
"I am pleased to say that we were able to make a payment to shareholders of 133p per share on 12 September 2008, which represents a
further significant uplift to the previous annual redemption payment of 126p per share made in September 2007."
"The Company commences its liquidation process in September next year. By then all the policies held by the Company will have matured
and these, of course, will have reflected the performance of the underlying life funds throughout the 20 years or more that they have been
in force. While the guaranteed sums backing the policies held represented 74% of our valuation of those policies at the Company's year end,
I anticipate that we will see some increase in the volatility of the Company's net asset value due to the poor state of global markets."
- Ends -
Barclays Global Investors Endowment Fund II Limited
Peter Bailey, Chairman 01534 855908
Barclays Global Investors Limited
Glenn Houchell 0207 668 8089
Weber Shandwick Financial
Alex Brown / Laura Vaughan 0207 067 0700
Chairman's Statement
Overview
Economies and stock markets have continued to deteriorate since our interim report in April this year, and few commentators now expect
any significant recovery before 2010. Until very recently the TEP market nevertheless seems to have kept its nerve and maintains a
relatively stable, if fragile, position.
Results for the year
The Company's share price rose during the year to 31 August 2008 by 7.7% from 119.5p to 128.75p. A price rise was achieved for the
second year running against a background of sharply falling stock market prices. The Company's net asset value (NAV) increased by 3.68p, or
2.8%, from 130.42p to 134.10p per share. The 3.68p increase in NAV for the year reflects an increase of 2.21p which was due purely to the
uplift in NAV that derived from the third redemption of capital in September 2007. During the same period the FTSE All Share Index declined
by 12.0 %, while the 5-15 year Government Bond Index rose by 2.6 %.
Investment background and share price performance
The marked deterioration in economies and stock markets during the year has been predictably unfavourable for the value of with-profit
funds, and therefore also for maturity payouts. Despite this the high rating and price structure attained by the TEP market in recent years
has been upheld, and the Company's NAV continued to rise during the reporting period.
Cash Management
Recent developments in the cash and bond markets have led the UK and other governments to take steps to recapitalise the global banking
system. We have reviewed our policy of investing cash in the BGI Sterling Liquidity First Fund, and your Board has concluded that this
continues to be an appropriate investment.
Cash Management
Recent developments in the cash and bond markets have led to difficulties for many banks around the globe in financing their day to day
activities, which in turn have implications for investors in bank deposits and similar instruments. In response the UK and other governments
have taken steps to recapitalise the global banking system and provide additional liquidity. As the Company approaches the end of its life,
it will have an increasing proportion of its assets in cash. We have reviewed our policy of investing in the BGI Sterling Liquidity First
Fund, and your Board has concluded that this continues to be an appropriate investment.
Capital redemption
The Directors resolved in July to redeem one half of the Company's outstanding ordinary shares in accordance with the intentions set out
in the prospectus for the fourth annual redemption of share capital. I am pleased to say that we were able to make a payment to shareholders
of 133p per share on 12 September 2008, which represents a further significant uplift to the previous annual redemption payment of 126p per
share made in September 2007. This amount compares with the 31 May 2008 NAV of 135.54p per share which was available at the date of the
decision, and with the Company's 31 August 2008 year-end NAV of 134.10p per share. In reaching their decision the Directors took into
consideration the difficulties facing economies and stock markets, and the uncertain outlook for maturity payouts that these imply.
Outlook
The continuing poor economic climate in the developed world and the weak stock markets that reflect it are likely to ensure that life
fund performances are unlikely to match historic returns for some time ahead. In any case, it seems very unlikely that we will see any
meaningful recovery in the asset shares backing our policies before the Company commences its liquidation process in September next year. By
then all the policies held by the Company will have matured and these, of course, will have reflected the performance of the underlying life
funds throughout the 20 years or more that they have been in force. While the guaranteed sums backing the policies held represented 74% of
our valuation of those policies at the Company's year end, I anticipate that we will see some increase in the volatility of the Company's
net asset value due to the poor state of global markets.
Peter Bailey, Chairman
20 October 2008
Manager's Review
Economic and market background
The global economy is undergoing a much more serious downturn than most commentators expected a few months ago. The extraordinary
developments of recent weeks resulting in the part-nationalisation of three UK banks, and similar measures being taken in a number of other
countries, are likely to overshadow the global economy for some years ahead. These developments probably reinforce the likelihood of a more
widespread decline in the global economy, with a number of countries including the US, Britain and much of Europe already in recession or
facing a more certain threat of recession.
The UK is possibly faced with more difficulties in the current downturn than most other developed economies because it has a
particularly large financial sector, and in recent years has seen exceptionally big increases in house prices that are now undergoing
correction. Forecasters suggest that no significant recovery in UK growth can be expected until 2010 at the earliest, although the inflation
rate may peak shortly.
Stock markets have been especially volatile as the effects of the credit crunch have unfolded and the likelihood of recession has
increased. Despite significant declines in the levels of most equity markets during the first half of 2008 markets have not yet formed solid
bases during the second half of the year. In particular, financial stocks are still struggling with the consequences of the credit crunch.
The severity of the downturn in major markets means that life fund values will have suffered substantial setbacks over the last year,
and it would therefore be surprising if this did not lead to bonus rate reductions in the near term. Meanwhile investors in TEPs have
enjoyed relative price stability during the year despite uncertain values for the underlying with-profits policies. The fact is that risk
discount rates reflected in TEP price quotations are still extremely low by historical standards, and it is our view that the TEP market has
been expecting payouts to rise by unrealistic amounts. However, the volume of TEP market trading has fallen considerably in recent weeks as
investors assess the deteriorating economic outlook.
Profits, investment returns and bonus trends
Despite the poor economic and stock market background in the developed nations during the last year, most of the major life offices have
probably achieved a reasonable level of profits. Although quite a few have returned lower profits than the previous year, their businesses
in the developing economies continue to expand, so providing something of an offset for declining UK sales. Those few offices with
exclusively UK business are likely to have underperformed by comparison.
Most with-profits funds achieved investment returns of 5% or more in 2007, with one or two in excess of that. The large reductions in
equity and property values since then mean that most of them will almost certainly have achieved much lower, and probably negative, returns
this year. In the last few weeks Norwich Union and Standard Life have announced cuts in maturity payouts of up to 10% while keeping their
annual bonuses unchanged. It is likely that this pattern will be repeated by the other major offices this year.
Cost-cutting and corporate restructuring
The Life Industry continues to rationalise, though this year has not seen the same volume of transactions as seen in most of the
previous five years. The regulatory environment is no longer as demanding as it used to be, but structural changes in the industry and in
the socio-economic background have put pressures on revenue accounts and balance sheets, so compelling life offices to seek ways of
expanding their sales opportunities and reducing their cost bases.
Several takeover bids or mergers have been accepted or proposed within the sector. Most recent, and probably of most significance, is
the planned union of Lloyds TSB and HBOS which will may well create the UK's largest life assurance company with an estimated combined
market share of between 13% and 17%. Other deals include the acquisition of Barclays Life for �753 million by Swiss Re, which is also
believed to be one of several possible bidders for Equitable Life's �7 billion with-profit fund. RSA is allegedly the subject of a possible
�6 billion takeover bid from AXA or Sampo, the Scandinavian group, while the Prudential has reportedly set aside �1 billion to finance an
acquisition in the US within the next few months. In the wake of the AIG rescue, it now also seems possible that a number of European
insurers, such as the Prudential, Aviva, AXA, Allianz and AEGON, will bid for the successful Asian units of AIG's business empire, while
Zurich Financial Services and Generali are expected to bid for the insurer's UK assets.
The Prudential has, in any case, confirmed that its registered office could be transferred overseas while retaining its administrative
headquarters in Britain. Similarly, both the Pearl and RSA are considering relocating their group headquarters to locations outside the UK
for tax reasons.
Friends Provident followed its abortive �8.4 billion merger with Resolution Life by seeking bidders for its wealth management firm,
Lombard, and for its 53% stake in F&C Asset Management. It now intends to close 11 area sales offices to save operating costs of at least
�40 million a year. Meanwhile, Standard Life is expected to float its Indian business later this year or in 2009, and Aviva has awarded a
�115 million deal for its offshore operations to WNS, an outsourcing company in India.
Orphan estates have been in the news again. Norwich Union announced that policyholders will receive cash windfalls averaging �1,000 per
policy in the summer of 2009 following an agreement over its �5 billion inherited estate; and the Prudential, which was developing plans to
distribute up to �8.7 billion in surplus cash to policyholders, has recently said that it would use its inherited estate to support future
bonus payments and growth plans.
Traded Endowment Policies
The appetite by UK investors for TEPs has not shown any significant recovery during the year, although the market continues to see
demand from investors in Germany as well as from the Middle and Far East. This has ensured that Pricing Discount Rates (PDRs) have continued
to ease further from last year's historically low levels for all maturity dates beyond 2009, and appear to reflect some recognition that
payouts are likely to be cut in the near future. Perhaps surprisingly, it also shows considerable confidence in substantially increased
payouts for 2010 and beyond.
For our 30 November 2006 valuation we reduced the average PDR used to value the portfolio from 6% to 4.5% in order to acknowledge in
part the sharp reduction in market PDRs that had taken place during that year. We then kept this basis of valuation unchanged until 30 June
2008, when we raised it again to 6% in the belief that PDRs quoted by market makers were unrepresentative of actual trading prices, and in
any case were unrealistically optimistic. Our advice to the Board on pricing is to be conservative and reflects our belief that the market's
price structure is fairly fragile, and is not supported by estimates of asset shares backing policies.
In view of the current lack of demand for TEPs, as well as the current lack of transparency for life funds which are likely to cut bonus
rates over the remaining life of the Company, your Board has accepted the advice of the consulting actuary to amend the basis of valuation
of the Company's portfolio. It has been agreed that this be should be adjusted from time to time in order to reflect the changing mix of
asset classes that may be held in life funds, and in the light of future receipts from maturing policies. Details of these adjustments will
be provided with future net asset value announcements by the Company.
Activity by the Fund
During the year the Company received a total of �14.60 million from 604 maturing policies. In addition 15 policies were surrendered,
raising a further �1.18 million. There were no gains during the year from claims following the deaths of lives assured, nor from
demutualisations, or from other corporate activity. The average compound return achieved on policies maturing in the year to 31 August 2008
was 5.1% p.a. over the period since purchase. No polices were sold in the course of the year and no new investment in policies was made.
Following the 31 August 2007 year-end �4.3 million was drawn down to finance payment of the Company's third redemption of shares.
Amounts were borrowed at rates between 5.95% and 7.02% p.a., incurring interest of �188,241. The proceeds of maturing policies were placed
for the short term in the BGI Sterling Liquidity First Fund. The interest rate earned on this fund was 5.8% over the year. The total amount
of interest earned during the year was �96,920. Cash flows were used to repay debt at regular intervals with the aim of minimising borrowing
costs. The loan was repaid in full during May, after which we built up the holding of the BGI Sterling Liquidity First Fund. Following the
year-end the investment in BGI Sterling Liquidity First Fund was withdrawn, and �1.0 million was borrowed under the loan facility to finance
payment of the Company's fourth redemption of shares.
Outlook
As we enter the Company's final year we are faced with a more severe deterioration in the economic and stock market climate than we have
seen for many years. While life funds are subject to the same adverse effects of the stock market as other investors, with-profit
policyholders are protected to a great extent from the worst outcomes by the guaranteed values of the sums assured and reversionary bonuses
that back their policies, and also by the application of smoothing which prevents maturity payouts being cut automatically when stock
markets fall. Although we expect some reduction in maturity payouts in the current climate, we also believe that the Company's shareholders
will be rather better protected than most investors from the impact of the current downturn.
Barclays Global Investors
20 October 2008
Income Statement
for the year ended 31 August 2008
2008 2007
Note Revenue Capital Total Revenue Capital Total
Capital � � � � � �
Realised gains on Financial 1 - 5,144,330 5,144,330 - 3,313,537 3,313,537
Assets at Fair Value
Movement in Fair Value of 6 - (4,522,752) (4,522,752) - (472,115) (472,115)
investments
Revenue
Interest income 2 96,920 - 96,920 51,570 - 51,570
Administrative expenses 3 (383,569) - (383,569) (473,027) - (473,027)
Net return before finance (286,649) 621,578 334,929 (421,457) 2,841,422 2,419,965
costs
Interest payable 8 (188,241) - (188,241) (525,982) - (525,982)
Return on ordinary 11,12, 13 (474,890) 621,578 146,688 (947,439) 2,841,422 1,893,983
activities for the
financial
year
Total return per redeemable 5 1.47p 12.63p
Ordinary Share
Redemption of redeemable 2.21p 0.82p
Ordinary Share
The total column of this statement is the profit and loss account of the Company. The revenue return and capital return columns are both
provided in accordance with guidance issued by the Association of Investment Companies. The Company has no recognised gains or losses other
than those disclosed in the Income Statement and the Reconciliation of Movement in Shareholders' Funds. Accordingly no Statement of Total
Recognised Gains or Losses is presented.
All revenue and capital items in the above statement derive from continuing operations.
Change in Net Asset Value per Share
2008
Net asset value per redeemable ordinary share as at 31 August 2007 130.42p
Revenue return per redeemable Ordinary Share (4.75)p
(comprising Interest income less Administrative expenses and Interest
payable)
Net capital gain per redeemable Ordinary Share 6.22p
(comprising Realised gains on investments and Movement in unrealised
gains on investments)
Return per redeemable Ordinary Share 1.47p
Redemption of redeemable Ordinary Shares on 5 September 2007 2.21p
Change in net asset value per redeemable Ordinary Share 3.68p
Net asset value per redeemable Ordinary Share as at 31 August 2008 134.10p
Balance Sheet as at 31 August 2008
2008 2007
Note � � � �
Fixed Assets
Financial Assets at Fair Value 6 - 7,465,290
through
profit and loss
Current Assets
Cash at Bank 286,157 209,315
Debtors 1,450,050 561,584
Investments 6 12,177,268 15,295,956
13,913,475 16,066,855
Current Liabilities
Creditors
Amounts falling due within one (228,820) (241,663)
year
Net Current Assets 13,684,655 15,825,192
Total Assets less Current 13,684,655 23,290,482
Liabilities
Creditors: Amounts falling due
after
more than one year
Accruals for liquidation (125,000) (84,000)
Bank borrowings 8 - (3,543,574)
Represented by:
Net Assets attributable to 13 13,559,655 19,662,908
holders of
both Redeemable Ordinary
Shares
and Preference Shares
Approved by the Board on 20 October 2008 and signed on its behalf by:
Peter A. N. Bailey Paul A. C. Seymour
Cash Flow Statement for the year ended 31 August 2008
2008 2007
� � � �
Net cash outflow from (1,235,086) (737,861)
operating
activities (Note i)
Capital expenditure and
financial
investment
Payments of premiums (288,364) (702,539)
Cash received from policies 14,603,117 11,080,232
ceasing
on maturity
Cash received from policies - 319,530
ceasing
on death
Cash received from policies 1,177,000 -
ceasing
on surrender
Net cash inflow from capital 15,491,753 10,697,223
expenditure
and financial investment
Net cash inflow before 14,256,667 9,959,362
management
of liquid reserves and
financing
Management of liquid resources
Net cash invested in liquidity (4,220,000) (1,080,000)
fund shares*
Financing
Decrease in loan (3,741,356) (3,300,000)
Net cash outflow from share (6,218,469) (5,795,688)
redemptions
Net cash outflow from (9,959,825) (9,095,688)
financing
Increase/decrease in cash 76,842 (216,326)
for the period
*Liquid resources comprise investments in BGI Sterling Liquidity First Fund as detailed in note 6(b).
Notes to the Cash Flow Statement
i. Reconciliation of net return before finance costs to net cash outflow from operating activities
2008 2007
� �
Total return before finance costs (286,649) (421,457)
Reinvested dividend income on liquidity fund shares (66,197) (23,492)
Increase in revenue account debtors (838,465) (334,496)
(Decrease)/increase in revenue account creditors (43,775) 41,584
Net cash outflow from operating activities (1,235,086) (737,861)
ii. Analysis of net debt
As at Non-cash flow As at
1 September 2007 Cash flows movement 31 August 2008
� � � �
Cash at bank 209,315 76,842 - 286,157
Cash invested in 1,246,020 4,220,000 66,197 5,532,217
liquidity fund
shares
Borrowings (3,543,574) 3,741,356 (197,782) -
(2,088,239) 8,038,198 (131,585) 5,818,374
Notes to the Financial Statements for the year ended 31 August 2008
Principal Accounting Policies
The financial statements have been prepared under the historical cost convention, as modified for the revaluation of investments, and in
accordance with United Kingdom Generally Accepted Accounting Principles (UK GAAP). The Directors consider that the accounting policies set
out below are suitable, have been consistently applied, and are supported by reasonable judgements and estimates.
The Company has adopted FRS 29 "Financial Instruments: Disclosures". As a result of this, additional disclosure has been provided in
Note 14 to the financial statements.
Statement of Recommended Practice
Although the Company is not a member of The Association of Investment Companies (AIC) the financial statements where appropriate have
been prepared in accordance with the Statement of Recommended Practice (SORP) issued by the AIC in January 2003 as revised in December
2005.
The reconciliation of shareholders' funds has been presented as a note to the financial statements rather than as a primary statement as
the Directors do not feel that presentation as a primary statement would provide any additional information compared to the disclosure
currently provided.
Revenue and expenses
Deposit interest and expenses are accounted for on an accruals basis.
Investments at fair value
Investments are considered to fall within the requirements of FRS 26 "Financial Statements: Measurement" and have been designated as
fair value through the profit and loss in accordance with this standard.
The Board is advised in its valuation of policies by the Manager who, in turn, is advised by its Consulting Actuary, Mr N. H. Taylor
FIA, ASA. The method used calculates a formula maturity value for each policy by reference to current reversionary bonus and terminal bonus
rates. Using standard actuarial formulae, a pricing discount rate, fixed by the Consulting Actuary, is then applied to the formula maturity
value and future premium liabilities to give the net present value of each policy. The base pricing discount rate used by the Consulting
Actuary in his valuation as at 31 August 2008 was 6.0% (2007: 4.5%). Adjustments are then made to the base pricing discount rate by the
Consulting Actuary to reflect the particular circumstances of some life offices. No allowance is made for mortality. Premiums are accounted
for on a paid basis, and are treated as an increase in the cost of investment.
The valuation of any listed investments is based on mid-market prices at the close of business on the last business day of the year.
The carrying amounts of financial assets and liabilities at the balance sheet date approximate their fair value. Receivables and
payables with a maturity of less than one year are carried at their anticipated realisable value.
Recognition of windfall gains
Windfall gains from demutualisations and other corporate activity are accrued once they receive Court or other relevant approval. Where
there is uncertainty as to the amount of any windfall the Directors' accrue on a conservative basis.
1. Realised Gains on Financial Assets at Fair Value
2008 2007
� �
Gains on policies ceasing on death of the life assured - 50,800
Gains on maturity of policies 4,940,823 3,262,737
Gains on policies ceasing on surrender 203,507 -
5,144,330 3,313,537
2. Dividend and Interest Income
2008 2007
� �
Interest on bank deposits 96,920 51,570
3. Administrative Expenses
2008 2007
� �
Management fee* 67,365 107,866
Administrative and secretarial fees 72,999 71,881
Other policy administration services 67,365 107,866
Banks' commitment fees and other charges 12,517 10,180
Directors' emoluments 29,500 29,500
Auditors' remuneration 18,496 19,273
Other expenses 115,327 126,461
383,569 473,027
*The terms of the Management agreement are set out on page 14.
Directors' emoluments disclosed above include amounts paid to:
2008 2007
� �
P. A. N. Bailey (Chairman) 7,500 7,500
H. L. Chesney 5,000 5,000
D. H. C. Hill 5,000 5,000
D. P. Nathanson 5,000 5,000
P. A. C. Seymour 7,000 7,000
The Company has no employees.
4. Taxation
The Company is currently registered in Jersey as an exempt company. The States of Jersey Income Tax Authority has granted the Company
exemption from Jersey income tax under the provision of Article 123A of the Income Tax (Jersey) Law 1961. The Company had been charged the
annual exemption fee of �600.
With effect from 1 January 2009, Jersey will abolish the exempt company regime for existing companies. At the same time the standard
rate of income tax for companies moves from 20% to 0%. Therefore from 1 January 2009 the entity will be taxed at 0%.
5. Total Return per Ordinary Share
Total Return per Ordinary Share has been calculated by dividing the total investment return for the year of �146,688 (2007: �1,893,983)
by the average number of Ordinary Shares in issue of 9,999,995 (2007: 14,999,948).
6. Financial Assets at Fair Value through Profit or Loss
(a).Endowment Policies
2008 2007
� �
Cost
Balance as at 1 September 9,541,121 14,764,888
Cost of policies ceasing on death - (253,006)
Cost of policies ceasing on surrender (869,120) -
Cost of policies ceasing on maturity (5,789,065) (4,970,761)
Balance as at 31 August 2,882,936 9,541,121
Premiums
Balance as at 1 September 5,041,394 7,201,313
Premiums paid in year 288,364 702,539
Transferred on death - (15,724)
Transferred on surrender (104,373) -
Transferred on maturity (3,873,229) (2,846,734)
Balance as at 31 August 1,352,156 5,041,394
Unrealised appreciation
Balance as at 1 September 6,932,711 7,404,826
Decrease in year (4,522,752) (472,115)
Balance as at 31 August 2,409,959 6,932,711
Valuation as at 31 August 6,645,051 21,515,226
The financial assets held by the Company are non-interest bearing.
(b). Current Asset Investments
2008 2007
Liquidity Funds � �
Cost
Balance as at 1 September 1,246,020 142,528
Cost of funds purchased during the year 12,950,000 8,130,000
Dividends reinvested in the year 66,197 23,492
Cost of funds redeemed during year (8,730,000) (7,050,000)
Balance as at 31 August 5,532,217 1,246,020
During the year the Company invested in the BGI Sterling Liquidity First Fund, a sub-fund of Barclays Global Investors Cash Selection
Funds plc., which can be redeemed at 24 hours notice. The purpose of these investments is to aim to achieve the best possible return from
shareholders' funds.
(c). Analysis of Fixed and Current Financial Asset at Fair Value through Profit or Loss
2008 2007
� �
Fixed Asset Investments - 7,465,290
Endowment policies maturing in more than one year
Current Asset Investments
Endowment policies maturing in less than one year 6,645,051 14,049,936
BGI Sterling Liquidity First Fund 5,532,217 1,246,020
Total Investments 12,177,268 22,761,246
7. Contingent Liabilities and Financial Commitments
On 24 July 2008 the company gave notice to shareholders of the redemption of one half of the shares in issue. On 3 September 2008 the
company redeemed 4,999,978 Ordinary Shares at a cost of �6,649,971. At 31 August 2008 there were no contingent liabilities.
Future premiums payable in respect of endowment policies held at 31 August 2008 were as follows:
2008 2007
� �
Due within one year 47,972 285,356
Due after more than one year - 57,748
47,972 343,104
8. Bank Facility
Under an agreement dated 21 November 1996 between the Company and Barclays Bank PLC, Barclays Bank PLC agreed to make available a
revolving credit facility, amounting initially to �22 million, for the purpose of financing, inter alia, the payment of policy premiums and
the interest, fees and ongoing management and administrative expenses payable by the Company. This facility has subsequently been reduced to
�3 million. Unless terminated earlier, the facility ends on 21 November 2009. Under its terms the Company pays interest at 0.45 per cent
over the London Inter-Bank Offered Rate on the drawn portion of the facility. The Company also pays a commitment fee of 0.225 per cent per
annum on the non utilised portion of the facility. The Company's obligations to Barclays Bank PLC under the facility are secured on the
basis of a fixed and floating charge over the Company's undertakings and assets and is repayable over the years 2005-2009.
The movement of the borrowings under the facility were as follows:
2008 2007
� �
Drawn portion of the facility as at 1 September 3,543,574 6,317,837
2007
Principal amounts drawn down in the year 4,300,000 5,200,000
Interest payable in the year 188,241 525,982
Interest accrued previous year and capitalised 9,541 9,296
during the year
Interest accrued at year end - (9,541)
Principal and interest amounts repaid in the year (8,041,356) (8,500,000)
Drawn portion of the facility as at 31 August 2008 - 3,543,574
The effective rate at which sums were borrowed during the year was 6.47 per cent per annum.
9. Called up Share Capital
2008 2007
� �
Authorised
Equity: 25,000,000 Redeemable Ordinary Shares of 1p each 250,000 250,000
Non-equity: 200,000 Preference Shares of �1 each 200,000 200,000
450,000 450,000
Allotted and fully paid
9,999,995 (2007: 14,999,948) Redeemable Ordinary Shares of 99,999 149,999
1p each
150,002 (2007: 100,002) Preference Shares of �1 each 150,002 100,002
250,001 250,001
The preference shares do not confer any rights to dividends. They do not have voting rights except where the rights of the preference
shares are to be varied but have a preferential right to return of capital on a winding up. On 5 September 2007 the Company redeemed
4,999,953 ordinary shares (6 September 2006: 4,999,939) at a value of 126.0p per share (6 September 2006: 114.5p)
10. Share Premium
2008 2007
� �
Balance as at 1 September 2007 14,125,087 19,800,087
Redemption of shares (6,249,941) (5,675,000)
Balance as at 31 August 2008 7,875,146 14,125,087
11. Capital Reserve
Realised Unrealised Total
� � �
Capital reserve at 1 September 2007 8,404,376 6,932,711 15,337,087
Realised gains on Financial Assets at 5,144,330 - 5,144,330
Fair Value
Movement in Fair Value of Investments - (4,522,752) (4,522,752)
Balance as at 31 August 2008 13,548,706 2,409,959 15,958,665
12. Revenue Reserve
2008 2007
� �
Balance as at 1 September 2007 (10,049,268) (9,101,829)
Deficit for the year (474,890) (947,439)
Balance as at 31 August 2008 (10,524,158) (10,049,268)
The Fund is not intended to generate revenue returns, and all return is in the form of capital.
13. Reconciliation of Movements in Shareholders' Funds
2008 2007
� �
Deficit for the year (474,890) (947,439)
Recognised capital gains for the year 621,578 2,841,422
Capital redemption during year (6,299,941) (5,725,000)
Issue of preference shares 50,000 50,000
Net decrease in Shareholders' Funds (6,103,253) (3,781,017)
Opening Shareholders' Funds 19,662,908 23,443,925
Closing Shareholders' Funds 13,559,655 19,662,908
Shareholders' funds are attributable to each class of share as follows:
2008 2007
� �
Equity shares 13,409,653 19,562,906
Non-equity shares 150,002 100,002
13,559,655 19,662,908
14. Financial Instruments and Risk
The Company's investment policy is to seek an attractive level of capital growth combined with low risk by investing in a range of
traded endowment policies. The policies are written by a number of life offices with a diversified range of policy terms and dates. It is
the intention of the directors to redeem one fifth of the Company's original share capital in each of the years 2005 to 2009.
To achieve this policy the Company must hold or enter into financial instruments, which may include:
* Traded endowment policies, fixed income deposits and shares in money market pooled funds;
* Cash, liquid resources and short-term debtors and creditors that arise directly from its activities; and
* Revolving credit facilities to enable the payment of policy premiums and other company expenses.
The holding of financial instruments pursuant to the above investment policy involves certain inherent risks. Events may occur that
would result in a reduction in the Company's net assets.
The main risks arising from the Company's financial instruments are listed below together with the policies adopted by the Board to
manage these risks. The policies adopted by the Board have remained substantially unchanged since the launch of the Company.
Credit Risk
The Company's principal credit risk arises from the risk that life offices may default on the payment of sums due when a traded
endowment policy matures, the amount of which crystallizes with each maturity. Details of the Company's exposure to individual life offices
is stated on page 9.
Credit risk also arises in that the Company may invest in other assets, as set out above, and have short-term debtors. An age analysis
of financial assets past due is shown below. It is the Company's policy that investments in fixed income deposits must have a minimum short
term credit rating from Moody's Investors Services of P1 and money market pooled funds must have minimum credit rating of Aaa. Details of
investments in money market funds are given in Note 6(b). There were no fixed deposits held during the year. There is no collateral held
against financial assets that are past due.
Financial assets past due 2008 2007
� �
Less than 1 month 963,099 354,353
1 to 3 months 160,051 91,534
3 months to 1 year 143,754 -
Total 1,266,904 445,887
Liquidity Risk
It is the policy of the Company to invest cash received from maturing policies and arising from deaths and demutualisations in the BGI
Sterling Liquidity First Fund, a sub-fund of Barclays Global Investors Cash Selection Funds plc, and to reduce borrowings.
The table below analyses the Company's financial liabilities as at 31 August 2008 into relevant maturity groupings based on the
remaining period at the Balance Sheet date to the contractual maturity date. The amounts in the table are the contractual undiscounted cash
flows. Balances due within 12 months equal their carrying balances, as the impact of discounting is not significant.
Financial liabilities 2008 2007
� �
Less than 1 month 201,820 214,663
1 to 3 months 27,000 27,000
3 months to 1 year - -
Greater than 1 year 125,000 3,627,574
Total 353,820 3,689,237
Interest Rate Risk
As set out in the prospectus, it is the policy of the Company to fund premiums payable on traded policies and operating expenses of the
Company with bank borrowings. It is the Company's policy to borrow at short-term interest rates. The Company, as a result of its use of
bank borrowings, is exposed to the risk of movements in interest rates. Rises in interest rates would increase the cost of the Company's
borrowings and reduce returns to shareholders. The applicable terms and rates associated with bank borrowings as at the year-end are set out
in Note 8.
At 31 August 2008 the Company had no borrowings. At 31 August 2007 borrowings were �3,543,574.
At 31 August 2008 the Company's assets included balances of �5,532,217 (2007: �1,246,020) held in the BGI Sterling Liquidity First Fund
the return on which is directly affected by the level of interest rates. If interest rates changed by 0.5% per annum the effect over 1 year
would be to change the net asset value by �27,661 (2007: �6,230).
The Directors are of the opinion that the above sensitivity analysis required under FRS29 as at the year-end is not reflective of the
Company's interest rate risk on borrowings or balances held in the BGI Sterling Liquidity First Fund. The Company borrows to part finance
redemptions of share capital, and uses the cash flow from maturing endowment policies to reduce borrowings. Liquid balances are invested in
the BGI Sterling Liquidity First Fund pending repayment of loan and future redemptions of capital. This leads to significant changes in the
liquid balances and amounts borrowed during the year. Further details of the amounts borrowed are set out in Note 8.
Assignment Risk
Investing in traded endowment policies exposes the Company to a higher than average risk that good title is not passed on acquisition of
a new policy.
It is the policy of the Company to minimise the risk by buying and selling endowment policies only through an approved market maker who
is responsible for ensuring that each assignment is legal and good title is passed to the Company.
Market Price Risk
Market price risk arises mainly from uncertainty surrounding reversionary and terminal bonus rates declared by life offices, affecting
the endowment policies held. Market values and ultimately returns to shareholders are adversely affected to the extent that life offices
reduce bonus rates, which may affect the pricing discount rates on which TEPs are valued and the amounts received at maturity.
It is the policy of the Company to minimise the risk of short-term market price fluctuations by holding policies to maturity rather than
actively trading the portfolio. However, in the long-term shareholder returns will be dependent on bonus rate declarations.
At 31 August 2008, if the value of the endowment policies held were to rise or fall by 10 per cent the Company's net asset value would
change by �664,505. This represents 6.65p per share before the Company's fourth redemption of shares on 3 September 2008, and 13.29p per
share after this redemption.
At 31 August 2007, if the value of the endowment policies held were to rise or fall by 10 per cent the Company's net asset value would
change by �2,151,523. This represents 14.3p per share before the Company's third redemption of shares on 5 September 2007, and 21.5p per
share after this redemption.
Foreign Currency Risk
It is the policy of the Company only to invest in sterling denominated with-profit endowment policies, and as a result it faces no
direct foreign currency risk. At the financial year-end all financial assets and liabilities were in sterling
15. Related Parties
Barclays Global Investors Limited is a subsidiary of Barclays Bank PLC which provides a loan facility to the Company, details of which
are set out in Note 8 to the Financial Statements.
Barclays Global Investors Ireland Limited, an associate company of the Manager, is the manager of the Barclays Global Investors Cash
Selection Funds plc in which the Company has held investments during the year. Details of these investments are set out in Note 6 (b) to the
financial statements. Arrangements have been made to ensure that there is no double charging of investment management fees.
16. Post Balance Sheet Event
During the year, the board resolved to redeem one half of the Company's Ordinary Shares, on 3 September 2008, in accordance with the
Company's prospectus. Payment was duly made to shareholders for the 4,999,978 shares redeemed at a rate of �1.33 per share on 12 September
2008. The number of Ordinary Shares in issue following this redemption was 5,000,017.
This redemption was part funded by a draw down of the Company's loan facility, which had previously been repaid using the proceeds from
maturing policies received in the year.
Distribution of Policies by Value as at 31 August 2008
Life office % Gross Assets
Aegon: Scottish Equitable 3.0
Aviva: Commercial Union 0.7
General Accident 1.1
Norwich Union 6.9
Provident Mutual 1.1
AXA: Sun Life 0.1
Cooperative 0.4
Friends Provident: 0.9
HBOS: Clerical Medical 1.6
Legal & General 4.8
Lloyds TSB: Scottish Widows 3.2
Pearl Group: London Life 0.1
Pearl 1.1
Royal Life 0.5
Scottish Mutual 0.3
Scottish Provident 0.7
Sun Alliance 0.7
Prudential: Prudential 2.2
Scottish Amicable 8.7
Royal London: Refuge 0.2
Royal London 0.2
Scottish Life 0.6
Standard Life 5.8
Sun Life of Canada 0.3
Swiss Re: National Mutual 0.4
Windsor: Gresham 0.5
Winterthur: Provident Life 0.2
Zurich: Eagle Star 1.4
Total holdings of policies 47.7
Other assets
BGI Sterling Liquidity First Fund* 39.8
Current assets 12.5
52.3
Total assets 100.0
Total number of policies held 286
Total value of policies held �6,645,051
Total assets �13,913,475
The majority of policies have original terms between 20 and 25 years
All policies mature before 31 August 2009
* A sub-fund of Barclays Global Investors Cash Selection Fund plc
The annual report and financial statements will be posted to shareholders shortly.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR FEDFISSASEDS
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