TRUSTEES AND ADVISERS 1 TRUSTEES` REPORT 2-10 AUDITORS' REPORTS FUND ACCOUNT 14 NET ASSETS STATEMENT 15 NOTES TO THE FINANCIAL STATEMENTS 16-22

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1 THE UNIVERSITY OF BIRMINGHAM PENSION AND ASSURANCE SCHEME ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2006 CONTENTS PAGES TRUSTEES AND ADVISERS 1 TRUSTEES` REPORT 2-10 AUDITORS' REPORTS FUND ACCOUNT 14 NET ASSETS STATEMENT 15 NOTES TO THE FINANCIAL STATEMENTS ACTUARIAL STATEMENT AND CERTIFICATE INVESTMENT REPORTS 25-27

2 Trustees and Advisers who served during the year ended 31 March 2006 Trustees: D F Briggs N Cotton G Evans W J Glover R G Moore J W Nicholls M W Robinson P Ullathorne S Ward resigned 31 March 2006 Scheme Secretary: Actuaries and Consultants: Bank: Auditors: Investment Managers: T G Fuery The University of Birmingham Birmingham B15 2TT Watson Wyatt LLP Apsley House 35 Waterloo Street Birmingham B2 5TJ Lloyds TSB Bank plc 142 Edgbaston Park Road Edgbaston Birmingham B15 2TY PKF (UK) LLP New Guild House 45 Great Charles Street Queensway Birmingham B3 2LX UBS Global Asset Management Limited Triton Court 14 Finsbury Square London EC2A 1PD Solicitors: Custodians: Martineau Johnson St Philip s House St Philip s Place Birmingham B3 2PP UBS Asset Management London Limited (UBSAM) Triton Court 14 Finsbury Square London EC2A 1PD - 1 -

3 Trustees report Year ended 31 March Outline of the scheme The Scheme is a defined benefit scheme providing pension benefits based on final salary at retirement as well as death-in-service benefits to employees of The University of Birmingham. The membership of the Scheme is contracted out of the State Earnings Related Pension Scheme under the provisions of the Pension Schemes Act 1993 and the Scheme itself is an exempt approved scheme under Chapter 1, part XIV of the Income and Corporation Taxes Act The cash equivalents paid during the year were calculated and verified in accordance with the Pension Schemes Act The Scheme is currently closed to new members and its status as a closed scheme is reviewed annually by the Trustees and the principal employer (The University of Birmingham). 2 Trustee matters The Trustees have given careful consideration to the Pension Schemes Act 1993 and the Pensions Act 1995 and in consultation with the Scheme s advisers have taken all necessary steps to ensure compliance. 3 Appointment of Trustees In accordance with the Occupational Pension Schemes (Member-nominated Trustees and Directors) Regulations, four of the Trustees are nominated by the members under the rules notified to the members of the Scheme, to serve for a period of four years. The member-nominated Trustees may be removed before the end of their four-year term only by agreement of all of the remaining Trustees, although their appointment ceases if they cease to be active members of the Scheme. In accordance with the trust deed the principal employer, The University of Birmingham, has the power to appoint and remove the other trustees of the Scheme. The University of Birmingham, as principal employer, has proposed that from 1 August 2005, the composition of its representation on the trustee body should change. It has proposed that at least one of the three of the University's nominated trustees would be a lay member of Council; two could be lay Council members or appropriate lay individuals who may have a pensions or investment background that would contribute to the work of the trustee body. The fourth trustee would be a senior employee of the University. The Trustees have accepted this proposal and the necessary consultation has been undertaken with the acknowledged representatives of the members of the Scheme. In recognition of the changing profile of the membership of the Scheme the composition of the member nominated trustees has been changed such that one of the four representatives could be a pensioner member of the scheme. Future elections of member nominated trustees will as a consequence be conducted amongst both active and pensioner members of the scheme. Deferred members will not be included in the nomination or election process. The Scheme is reliant on the work of the Trustees in ensuring that its responsibilities are correctly fulfilled

4 4 Statement of Trustees responsibilities The trustees are responsible for preparing the annual report and the financial statements in accordance with applicable law and United Kingdom Generally Accepted Accounting Practice. Pension scheme regulations require the trustees to make available to scheme members, beneficiaries and certain other parties, audited financial statements for each scheme year which: show a true and fair view of the financial transactions of the scheme during the scheme year and of the amount and disposition at the end of that year of the assets and liabilities, other than liabilities to pay pensions and benefits after the end of the scheme year, and contain the information specified in the Schedule to The Occupational Pension Schemes (Requirement to obtain Audited Accounts and a Statement from the Auditor) Regulations 1996, including a statement whether the financial statements have been prepared in accordance with the Statement of Recommended Practice Financial Reports of Pension Schemes. The Trustees have supervised the preparation of the financial statements and have agreed suitable accounting policies, to be applied consistently, making any estimates and judgements on a prudent and reasonable basis. The Trustees are responsible under pension s legislation for ensuring that there is prepared, maintained and from time to time revised a schedule of contributions showing the rates of contributions payable towards the scheme by or on behalf of the employer and the active members of the scheme and the dates on or before which such contributions are to be paid. The Trustees are also responsible for keeping records in respect of contributions received in respect of any active member of the scheme and for procuring that contributions are made to the Scheme in accordance with the schedule of contributions. The Trustees also have a general responsibility for ensuring that adequate accounting records are kept and for taking such steps as are reasonably open to them to safeguard the assets of the scheme and to prevent and detect fraud and other irregularities, including the maintenance of appropriate internal controls

5 5 Contribution rates The contribution rates during the year were: By members: By University: By BLCMP (Library Services) Ltd 6% of pensionable earnings 14.0% of pensionable earnings 15.2% of total pensionable earnings of members employed by the company Additional and special contributions are being made by the Principal employer in respect of augmentation of certain benefits to individuals, and to ensure that the Minimum Funding Requirement is met as detailed in the Schedule of Contributions. Summary of Contributions paid in the year During the year, the contributions paid to the Plan under the Schedule of Contributions were as follows: 000 Employers contributions - ordinary 3,523 - additional 1,147 - special 20,250 Employees contributions - ordinary 1,500 - additional voluntary contributions 63 26,483 All contributions due to the Scheme from members and from Participating Employers were paid in full within the timescale required by the Schedule of Contributions certified by the Actuary on 18 November

6 6 Membership (a) Total members 31 March March 2005 No No Contributing members 1,470 1,618 Deferred members 2,044 2,018 Pensioners 1,804 1,762 5,318 5,398 (b) (c) Contributing members No No At 1 April ,618 New members 0 1,618 Less: Leavers 91 Retired with pension 56 Full commutation 0 Died in service At 31 March ,470 Deferred members These are members who have left service but have elected to have their benefits retained within the Scheme until they become payable. No No At 1 April ,018 Leavers 79 2,097 Less: Subsequently transferred 22 Pensions becoming payable 26 Full commutation of pensions 3 Deaths 2 53 At 31 March ,044 (d) Pensioners No No At 1 April ,769 Contributing members who have retired 56 Deferred members becoming payable 26 Spouses pensions becoming payable ,861 Less: deaths 57 At 31 March ,

7 6 Membership (continued) There are a number of pensioners for whom the Scheme has totally discharged its liabilities by the purchase of annuities from Legal & General. These pensioners are not included in the above figures. 7 Additional voluntary contributions 68 Members ( ) were paying Additional Voluntary Contributions (AVCs) during the year to increase their pension entitlement at retirement. The contributions are invested within the main fund. Statements are sent annually to members paying AVCs, in respect of their contributions and the accumulation of their funds. 8 Scheme benefits (a) Pensions increase The Scheme increases pensions in excess of the Guaranteed Minimum Pension by the same rate as the State Pension. The increase in April 2005 was 3.1%. Deferred benefits are increased as prescribed in the Scheme rules. (b) Transfer values All transfer values paid and received were calculated in accordance with the methods and assumptions determined or approved by the Actuary and offered at full-cash equivalent of early leaver s non-discretionary rights in the Scheme. Transfers into and out of the Scheme are shown in the membership statistics and the monetary values involved are shown in the financial statements, which are found later in this report. 9 Investment The investments of the Scheme comprise Stock Exchange Investments, Cash, Property and Unit Trusts. The Fund s Investment Managers are UBS Global Asset Management Limited. The Managers have full power to buy and sell on a discretionary basis. The Trustees through the Pension Fund management Sub-Committee meet the Managers at least twice a year to review the portfolio in detail, to seek advice from the Managers as to future prospects and also to consider the Investment Managers performance. The Trustees also inform the Managers of any changes to the Scheme or its objectives which may affect investment criteria

8 9 Investment (continued) The general aims laid down by the Trustees for the guidance of the Managers are to secure the maximum total return over the projected life of the Scheme consistent with the degree of prudence which the Trustees and Managers ought to observe. Additional information regarding the composition of the investment portfolio is contained in the Investment Report set out on pages 25 to 27 and note 11 to the financial statements. All the assets of the Scheme are in the safekeeping of the Custodians, UBS Asset Management London Limited. Assets are registered in the nominee name of the Custodians under a designation unique to the Scheme. The investments are considered to be marketable. In accordance with the requirements of the Pensions Act, the Trustees have produced a Statement of Investment Principles which will govern future investment policy. A copy is available on request from the Pensions Office at the address of the Scheme Secretary shown on page Expenses The Scheme bears the full cost of administration, including costs incurred in buying and selling investments, and the fees and expenses of UBS Global Asset Management Limited. UBS Global Asset Management Limited received a fixed management fee for their services to the Scheme together with performance related payments. 11 Preparation and audit of financial statements The 2006 financial statements, set out later in this annual report, provide an overview of the Scheme s income and expenditure, and its investments. They have been prepared and audited in accordance with regulations made under Sections 41(1) and (6) of the Pensions Act Administration The day to day administration of the Scheme is carried out by The University of Birmingham Pensions Section, whose address for enquiries from Members and Pensioners is: Pensions Manager The University of Birmingham Birmingham B15 2TT The University of Birmingham sought a new pension s administration system during 2004/05 with the intention of it going live in March The administration service to the Scheme was maintained during the period but there were time delays in the implementation arising from technical problems with the new software. The Trustees were kept informed of the issues by the University. 13 Actuarial Valuation and Statement H Chambers, FIA, of Watson Wyatt LLP, the independent actuary to the Scheme, completed his actuarial valuation, based on the value of the fund at 31 December 2004 in December His report confirmed that the Scheme s assets are sufficient to meet the liabilities under the rules at the date of the valuation and that the contribution rate was sufficient to provide for benefits in the future. The actuarial statement is reproduced later in the report on pages

9 13 Actuarial Valuation and Statement (continued) Following the decision of the University to change administration systems during 2004/05, with a proposed start date for use of the new software on 1 March 2005, the Trustees, after consultation with their professional advisers, decided to bring the date of the next actuarial valuation forward. The valuation was originally due based on figures as at 31 March 2005, but this was brought forward to 31 December The implementation of the new system could have impacted on the ability of the University to provide the required data to the actuary in an accurate and timely fashion and the Trustees saw this as an unacceptable risk. The University and the Trustees are in consultation on the initial outcome of the actuarial valuation. 14 Employer-related investment There were no employer-related investments during the year. transactions are set out in note 16 to the financial statements. Details of related party 15 Closure of the Scheme to new members At a meeting of The University of Birmingham Council held on 27 March 2002 the University, as Principal Employer, resolved that new members of staff eligible to join the Scheme would, with effect from 1 August 2002 and until otherwise determined by the Principal Employer, no longer be offered membership of the Scheme by the University. The Trustees were informed accordingly. 16 Appointment of Auditors On 23 May 2005, the scheme s auditors, PKF, transferred their business to PKF (UK) LLP, a limited liability partnership incorporated under the Limited Liability Partnerships Act Accordingly PKF resigned as auditors and the Trustees appointed PKF (UK) LLP as their successor. 17 Pension Tracing Services With effect from 31 March 2005, the Pension Schemes Registry ceased to exist. The pension tracing function is carried out by the Pension Tracing Service of the Department of Works and Pensions (DWP), and the levy collection function is managed in Brighton by the Pensions Regulator. The DWP s Pension Tracing Service can be contacted as follows: Pension Tracing Service The Pension Service Whitley Road Newcastle upon Tyne NE98 1BA (Tel: ) - 8 -

10 18 The Pensions Advisory Service (TPAS) This is an independent voluntary organisation with local advisers who are expert in pension matters. It was established to provide free advice at any time to Scheme Members and their dependants who have problems concerning pension rights. TPAS 11 Belgrave Road London SW1V 1RB (Tel: ) 19 Pensions Regulator On 6 April 2005, the Pensions Regulator was established as the new regulator of work-based pensions in the UK, with wider and more flexible powers under the Pensions Act It replaced the Occupational Pensions Regulatory Authority (OPRA) which ceased to exist. The new powers of the Pensions Regulator include the ability to: Issue improvement notices and third party notices, allowing the regulator to ensure problems are put right; Freeze a scheme at risk, while the regulator investigates; Disqualify trustees who are judged not fit and proper to carry out their duties; and To collect more detailed scheme information The Pensions Regulator can be contacted at: Napier Hose Trafalgar Place Brighton BN1 4DW (Tel: ) 20 Disputes Resolution Procedure Under the Pensions Act 1995 there is a requirement for the Scheme to set up its own formula procedures for resolving any dispute with the Trustees. They are to be used when a Member or potential beneficiary has a dispute which has not been satisfactorily resolved informally. At any stage of the dispute the individual can refer to TPAS for informal help. Once the disputes resolution procedure is complete, the matter can be pursued through the office of the Pensions Ombudsman or ultimately through the Courts

11 21 Pensions Ombudsman The Pensions Ombudsman investigates the complaints of injustice caused by maladministration and dispute of fact or law with the Trustees, managers or employers. The Pensions Ombudsman 11 Belgrave Road London SW1V 1RB (Tel: ) Signed on behalf of the Trustees on.. J W Nicholls M W Robinson

12 Independent auditors report to the Trustees of The University of Birmingham Pension and Assurance Scheme We have audited the financial statements of The University of Birmingham Pension and Assurance Scheme for the year ended 31 March 2006, which comprise the Fund Account, the Net Assets Statement and the related notes. These financial statements have been prepared under the accounting policies set out therein. This report is made solely to the Scheme's Trustees, as a body, in accordance with the Occupational Pension Schemes (Requirement to obtain Audited Accounts and a Statement from the Auditor) Regulations Our audit work has been undertaken so that we might state to the Trustees those matters we are required to state to them in an auditors' report on the accounts and in an auditors statement about contributions under the scheme and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Trustees, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of trustees and auditors The Trustees' responsibilities for obtaining an annual report, including audited financial statements prepared in accordance with applicable United Kingdom law and accounting standards (United Kingdom Generally Accepted Accounting Practice), are set out in the Statement of Trustees' Responsibilities on page 3. Our responsibility is to audit the financial statements in accordance with the relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the financial statements show a true and fair view and contain the information required by the relevant legislation. We also report to you if, in our opinion, we have not received all the information and explanations that we require for our audit. We read the other information contained in the Annual Report and consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. The other information comprises the Trustees' Report, the Investment Report, the actuarial statements, the Compliance Statement. Basis of audit opinion and statement about contributions We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgments made by or on behalf of the trustees in the preparation of the financial statements, and of whether the accounting policies are appropriate to the scheme's circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements

13 Independent auditors report to the Trustees of The University of Birmingham Pension and Assurance Scheme (continued) Opinion In our opinion the financial statements: give a true and fair view, in accordance with United Kingdom Generally Accepted Accounting Practice, of the financial transactions of the Scheme during the Scheme year ended 31 March 2006 and of the amount and disposition at that date of its assets and liabilities, other than the liabilities to pay pensions and benefits after the end of the year; and contain the information specified in Regulation 3 of and the Schedule to the Occupational Pension Schemes (Requirement to obtain Audited Accounts and a Statement from the Auditor) Regulations Birmingham, UK Date PKF (UK) LLP Registered Auditors

14 Independent Auditors Statement about Contributions, under section 4 of The Occupational Pension Schemes (Requirement to obtain Audited Accounts and a Statement from the Auditor) Regulations 1995, to the Trustees of The University of Birmingham Pension and Assurance Scheme We have examined the summary of contributions for the year ended 31 March 2006 which is set out in section 5 of the Trustees report. The statement is made solely to the Scheme's Trustees, as a body, in accordance with the Occupational Pension Schemes (Requirement to obtain Audited Accounts and a Statement from the Auditor) Regulations Our audit work has been undertaken so that we might state to the Trustees those matters we are required to state to them in an auditors' statement about contributions under the Scheme and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Trustees as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of trustees and auditors The Scheme s Trustees are responsible for ensuring there is prepared, maintained and from time to time revised a Schedule of Contributions which sets out the rates and due dates of certain contributions payable towards the Scheme by or on behalf of the employers and the active Members of the Scheme. The Trustees have a general responsibility for procuring that contributions are made to the Scheme in accordance with the Schedule of Contributions. It is our responsibility to provide a statement about contributions paid under the Schedule of Contributions and to report our opinion to you. Basis of audit opinion and statement about contributions We planned and performed our work so as to obtain the information and explanations which we considered necessary in order to give reasonable assurance that contributions reported in the summary of contributions have been paid in accordance with the relevant requirements. For this purpose the work that we carried out included examination, on a test basis, of evidence relevant to the amounts of contributions paid to the Scheme and the timing of those payments under the Schedule of Contributions. Our statement about contributions is required to refer to those breaches of the Schedule of Contributions that come to our attention during the course of our work. Statement about contributions under the scheme In our opinion contributions for the Scheme year ended 31 March 2006 as reported in the Summary of Contributions in section 5 of the Trustees Report have been paid in accordance with the Schedule of Contributions certified by the actuary on 31 December Birmingham, UK PKF (UK) LLP Registered Auditors

15 Fund account for the year ended 31 March 2006 Notes Contributions and benefits: Contributions receivable 3 26,483 7,624 Transfers in Other income ,620 7,769 Benefits payable 6 5,590 5,155 Payments to and on account of leavers Other payments Administrative expenses ,654 6,019 Net additions from dealings with members 19,966 1,750 Returns on investment: Investment income ,709 Change in market value of investments 11 29,485 12,975 Investment management expenses 12 (704) (416) Net returns on investments 29,339 14,268 Net increase in the fund during the year 49,305 16,018 Net assets of the Scheme at 1 April , ,373 Net assets of the Scheme at 31 March , ,

16 Net assets statement at 31 March 2006 Notes Investments 11 Fixed interest securities 59,074 53,844 Index linked securities 12,169 12,252 Equities 103,429 75,683 Cash deposits 18,862 3,865 Property 17,731 15, , ,779 Net current (liabilities)/assets 14 (569) 611 Net assets of the scheme at 31 March , ,391 These financial statements were approved and authorised for issue by the Trustees on Signed on behalf of the Trustees: J W Nicholls M W Robinson

17 Notes to the financial statements 1 Basis of preparation The financial statements have been prepared in accordance with the Occupational Pension Schemes (Requirement to obtain Audited Accounts and a Statement from the Auditor) Regulations 1996, and with the guidelines set out in the Statement of Recommended Practice, Financial Reports of Pension Schemes (Revised November 2002). The financial statements summarise the transactions of the Scheme and deal with the net assets at the disposal of the Trustees. They do not take account of obligations to pay pensions and benefits which fall due after the end of the Scheme year. The actuarial position of the Scheme, which does take account of such obligations, is dealt with in the statement by the actuary included in the annual report and these financial statements should be read in conjunction therewith. 2. Accounting policies The principal accounting policies are as follows: a. Investments and cash deposits (i) (ii) (iii) Fixed interest securities, index-linked securities and UK equities traded through the London Electronic Stock Exchange Trading Service (SETS) are valued on the basis of the latest SETS trading price at the year end date, adjusted, where applicable, by accrued interest. Other fixed interest securities, index-linked securities and equities are valued at mid market prices end date adjusted, where applicable, by accrued interest. Market values listed in overseas currencies are translated into sterling at the rates of exchange ruling at the year end date. Unit trusts, property unit trusts and managed funds are valued at mid market prices at the year end date. Cash deposits in overseas currencies are translated into sterling at the relevant rates of exchange ruling at the year end date

18 Notes to the financial statements 2 Accounting policies (continued) b. Investment income Income from investments in listed shares, unit trusts and fixed interest stocks are dealt within these financial statements on an accruals basis. c. Transfer values Transfer values represent the capital sums either received in respect of newly-joined members from the pension schemes of their previous employers or paid to the pension schemes of new employers for members who have left service. Transfer values are accounted for on a cash basis and are included in the financial statements on the basis agreed by the Actuaries. d. Benefits Refunds on withdrawal and single cash sums on retirement are accounted for on an accruals basis based on the date of leaving or retirement. e. Contributions Current service and other contributions are accounted for on an accruals basis and are in accordance with the Schedule of Contributions certified by the actuary. f. Administration expenses All costs of administering the scheme are borne by the Scheme, and are accounted for on an accruals basis. g. Foreign currencies Income received in foreign currency is translated into sterling at the exchange rate ruling on the date of receipt. Assets and liabilities in foreign currencies are expressed in sterling at the rates of exchange ruling at the year-end. Surpluses and deficits arising on conversion or translation of investments are dealt with as part of realised and unrealised investment gains and losses

19 3 Contributions receivable From employers Normal 3,523 3,872 Additional 1, Special 20,250 1,500 24,920 5,939 From members Normal 1,500 1,609 Additional voluntary contributions ,563 1,685 Total contributions 26,483 7,624 Normal contributions due for the year are at the rate recommended by the actuary. Additional contributions are being made by the employer in respect of augmentation of certain benefits to individuals. Special contributions relate to a lump sum payment made by the employer to ensure the Minimum Funding Requirement is met. Members are permitted to make additional voluntary contributions into money purchase type arrangements under which contributions received are invested on behalf of the individuals concerned to provide additional benefits within the overall limits laid down by HM Revenue and Customs. The University is responsible for administering the AVC Fund and benefits. The total value of the AVC Fund at 31 March 2006 is 883,456 (2005: 882,009). 4 Transfers in Individual transfers in from other schemes

20 5 Other income Claims on term insurance policies State scheme premiums - 1 Refund of commission on life assurance Benefits payable Pensions payable 5,000 4,620 Payments on retirement of members - commutations Payments on death of members - lump sum ,590 5,155 7 Payments to and on account of leavers Refunds of members contributions State scheme payments - 17 Individual transfers to other schemes Other payments Interest payable - Premiums on term insurance policies

21 9 Administrative expenses Actuarial fees Legal and other professional fees - 3 Administration expenses Audit fees Investment income Dividends receivable Income from fixed interest securities Income from index-linked securities Interest receivable Property unit trusts 77 - Other ,709 The investment managers were unable to provide the investment income re-invested in the fixed interest securities and index-link securities for 2006 due to practical difficulties. Therefore as afforded by the Statement of Recommended Practice, Financial Reports of Pension Schemes (Revised November 2002) this income has been reflected in the change in market value of the investments. 11 Investments UK Foreign Total UK Foreign Total Fixed interest securities 53,111 5,963 59,074 49,406 4,438 53,844 Index-linked securities 12,169-12,169 12,252-12,252 Equities 60,495 42, ,429 50,103 25,580 75,683 Property 17,731-17,731 15,135-15, ,506 48, , ,896 30, ,914 Cash deposits 18,862-18,862 3,865-3, ,368 48, , ,761 30, ,

22 11 Investments (continued) Purchases, sales and net change in market value Value at 1 April 2005 Purchases at cost Sales proceeds Change in market value Value at 31 March Fixed interest securities 53,844 12,264 (11,017) 3,982 59,074 Index-linked securities 12,252 13,164 (14,201) ,169 Equities 75,683 43,690 (37,597) 21, ,429 Properties 15,135 - (300) 2,896 17, ,914 69,118 (63,115) 29, ,403 The change in market value of investments during the year comprises all increases and decreases in the market value of investments held at any time during the year, including profits and losses realised on sales of investments during the year. It also includes the investment income re-invested in the funds during the year. 12 Investment management expenses Administration, management and custody Other advisory fees Concentration of investments The Trustees would, if required, exceptionally agree to the Investment Managers holding, in light of market conditions, more than 5% of its net assets invested in any one company or the stocks weight in the relevant index + 4%, whichever is greater. Such agreement was not required in the period under report

23 14 Net current assets Current assets: Prepayments Other debtors Cash at bank Current liabilities: Accrued expenses Tax creditor 3 3 Other creditors Net current (liabilities)/assets (569) Investment commitments At 31 March 2006, there were no investment commitments (2005: nil). 16 Related party transactions The following related party transactions arose during the year: Administration and accountancy services were provided by the principal employer, The University of Birmingham. Fees payable by the Scheme in respect of these services amounted to 116,575 for the year (2005: 132,476). Amounts outstanding at the year end amounted to nil (2005: nil). As a result of pension payments made by the principal employer exceeding contributions due during the year the scheme had a liability to the principal employer at the year end that amounted to 570,314 (2005: nil). The following members were also Trustees of the Scheme during the year: S Ward M W Robinson G Evans N Cotton It has been confirmed that these members made contributions to the Scheme at the stipulated rates

24 Actuarial statement made for the purposes of regulation 30 of the Occupational Pension Schemes (Minimum Funding Requirement and Actuarial Valuations) Regulations Name of Scheme: The University of Birmingham Pension and Assurance Scheme Effective date of valuation: 31 December Security of prospective rights In my opinion, the resources of the scheme are likely in the normal course of events to meet in full the liabilities of the scheme as they fall due. In giving this opinion, I have assumed that the following amounts will be paid to the scheme: Description of contributions Regular contributions 6% of Pensionable Earnings by members 14% of Pensionable Earnings by employers Additional contributions By 31 December 2005, a capital injection of 15.1m. on 31 July each year for 7 years from 2008, 1.5m adjusted year on year from 2003 and later years in proportion to any change in national average earnings over the preceding Scheme year subject to review at future actuarial valuations. 2. Summary of methods and assumptions used I have adopted the modified aggregate funding method, and value assets at their stated market value. The main financial assumptions for valuing the liabilities are as follows. discount rate pre retirement: 6.8% p.a. discount rate post retirement: 4.3% p.a. general pay escalation: 4.2% p.a. pensions increases (pre August 2006 accruals): 2.7% p.a. pensions increases (post July 2006 accruals): 2.25% p.a. This statement does not address the situation were the scheme to be discontinued. Further details of the methods and assumptions used are set out in my actuarial valuation report addressed to the Trustees dated 23 December 2005, together with consideration of the discontinuance position. H R Chambers Fellow of the Institute of Actuaries Partner Watson Wyatt LLP 31 December 2005 Watson House London Road Reigate Surrey RH2 9PQ

25 Actuarial certificate given for the purposes of section 57(1)(b) of the Pensions Act 1995 (Occasional or Periodical Certificate of Contributions) Name of scheme: The University of Birmingham 1. Adequacy of rates of contributions I hereby certify that, in my opinion, the rates of the contributions payable in accordance with the schedule of contributions dated 31 October 2002 are adequate for the purpose of securing that the minimum funding requirement imposed by section 56(1) of the Pensions Act 1995 will be met by the end of the period covered by the schedule of contributions. In forming this opinion I have complied with the requirements imposed by sections 56(3) and 57 of the Pensions Act 1995, the Occupational Pension Schemes (Minimum Funding Requirement and Actuarial Valuations) Regulations 1996 and the mandatory guidelines on minimum funding requirement (GN27), prepared and published by the Institute of Actuaries and the Faculty of Actuaries, and have made the assumptions prescribed by them. 2. Relevant changes since last actuarial valuation In reviewing the schedule of contributions it has been possible to take account of the preliminary results of an actuarial valuation of the scheme being carried out as at 31 December Since the last actuarial valuation of the scheme was prepared under section 57 of the Pensions Act 1995 the following changes which are relevant have occurred in 2005 the University has paid contributions in excess of those set out in the schedule of contributions investment returns have been favourable. H R Chambers Fellow of the Institute of Actuaries Partner Watson Wyatt LLP 18 November 2005 Watson House London Road Reigate Surrey RH2 9PQ Note: The certification of the adequacy of rates of contributions for the purpose of securing the meeting of the minimum funding requirement is not a certification of their adequacy for the purpose of securing the scheme s liabilities by the purchase of annuities, if the scheme were wound up

26 UBS GLOBAL MANAGEMENT LIMITED INVESTMENT REPORT FOR THE YEAR ENDED 31 MARCH 2006 Economic Background During the last 12 months, the global economy expanded at a rate consistent with its long-run average. The gap between the economies of Asia, North America and Europe still exists but has diminished. Asia continued to expand at a robust pace fuelled primarily by the rapid on-going economic expansion in China. Elsewhere, the revival in Japan s economic fortunes is still on track and the US economic backdrop remains healthy. It is encouraging to note that Continental Europe has enjoyed a re-acceleration in economic activity in recent months. During the last 12 months, UK growth has slowed to around 2.0% - slightly below its long-term trend. However, the outlook for the UK is unclear as labour market statistics point to a further deterioration in activity while leading indicators, such as recent housing market activity, suggest conditions are improving. Against this background of solid global economic activity, inflationary pressures have begun to build, albeit slowly, driven by a combination of on-going labour market tightness and rising commodity prices. Monetary policy authorities have responded to this development by tightening monetary policy. During the last 12 months, the US Federal Reserve has raised interest rates by 2% to 4.75%. It also appears that we are close to an end to the zero-interest policy long adopted by the Bank of Japan. The robust nature of corporate profit growth has been a key feature of the latest phase of global economic expansion. This has led to an increase in corporate activity and more cash being returned to shareholders. It has also led to the suggestion that there may have been a structural improvement in profitability. However, we believe that, although profits are likely to continue to grow, the rate of increase will probably slow. Market Returns During the year to 31 March 2006, global equity and bond markets enjoyed a second year of particularly strong performance. In sterling terms, equity returns were +28.0% in the UK, +23.0% in the US, +48.1% in Japan and +35.5% in Europe. UK bonds returned +7.4% and index-linked gilts returned +8.4%. Elsewhere, German bonds returned +3.9%, US bonds +11.1%, and Japanese bonds -2.1%. Property enjoyed another strong year, returning an estimated +20.9%. Investment Activity We made a number of changes to positions during the year under review, responding to price movements and valuation opportunities across equity, bond and property markets. At the start of the period, we believed that equities still offered value compared to other assets and this was reflected in an above benchmark position in equity markets and below benchmark positions in bonds and cash

27 We made several adjustments to bond positions. Early in the period, we reduced the holdings of UK index linked and switched a portion of the euro bond position into short dated Swedish fixed income instruments. We also bought short dated Japanese bonds. Towards the end of the year under review, we reduced positions in UK index linked gilts, further increasing the underweight position. We bought back a portion of these bonds towards the end of March following price falls ( and a rise in yields ). We sold a portion of the UK property holding as property continued to experience strong capital appreciation and yields fell to their lowest levels for more than 18 years. We now have an underweight position in UK property. We believe sterling is significantly overvalued against other currencies so we are underweight. We established an overweight position in US dollars assets, as we believe the currency is undervalued, and we also purchased short-dated Swedish and Japanese fixed income instruments to gain exposure to the Swedish Krona and the yen. Throughout the period, within the UK equity portfolio we were overweight in banks and telecoms shares. Both sectors underperformed during the year and we increased holdings as valuations became more attractive. We continued to underweight mining shares, which outperformed strongly as commodity prices rose. We regard current commodity price levels and valuations as unsustainable. Performance Your Scheme returned +18.1% for the year to 31 March 2006 compared with the benchmark return for the period of +19.5%. Since the inception of your new benchmark on 1 March 2004, the respective returns are +13.3% p.a. and +13.9% p.a. Outlook Higher interest rates, rising commodity prices and high levels of consumer indebtedness remain the primary downside risks preventing the global economy from sustaining its current healthy rate of economic expansion. The extent to which these factors impact growth is a key factor driving the outlook from this point onwards. Despite these downside risks, equity markets have performed extremely well and we believe most markets are now close to our estimate of fair value. An exception to this view is Japan where sustained equity market strength has pushed market levels and valuations well above where we would consider the intrinsic value to be. Despite the recent sell-off in a number of bond markets, bonds remain expensive. Overall, we expect equities to deliver higher returns than bonds in the medium term. The major valuation anomalies between asset classes have diminished, so our asset allocation views are now relatively small. We are maintaining a modest overweight position in equities, but are now underweight your benchmark in property, as we believe it is now overvalued, and have a below benchmark weightings in bonds. Our favoured equity market is the UK

28 UBS GLOBAL MANAGEMENT LIMITED INVESTMENT REPORT FOR THE YEAR ENDED 31 MARCH 2006 Portfolio distribution The position at the end of the year was as follows: 31 March 2006 % % Real Assets Equities: United Kingdom 29.7 Overseas Fixed interest and cash UK fixed interest 26.1 Overseas fixed interest 2.9 UK Indexed Linked 6.0 Property 8.7 UK cash and money market instruments Total Total value 203,571,142 Largest Holding As at 31 March 2006 the ten largest holdings, which accounted for 100% of the total value of the portfolio, were: Market Value 000 UBS Life Corporate Bond Fund A 53,110 UBS Life GBL Optimal Thirds A 41,892 UBS Life UK Equity Fund A Units 38,037 UBS Life UK Equity Tracker Fund A 22,458 UBS Life Triton Property B UTS 15,434 UBS Life UK I-L All Stocks Bond A 12,169 Capital Account 11,168 UBS Life Global Ex-UK Bond FD A 5,963 UBS Triton Property Unit Trust 2,298 UBS Global Emerging Mkts EQ J 1,042 TOTAL 203,