Offering Circular

(Incorporated in England under the Building Societies Act 1986)

£50,000,000 13 per cent. Permanent Interest Bearing Shares

Application has been made to The International Stock Exchange of the United Kingdom and the Republic of Ireland Limited (the "London Stock Exchange") for the issue of £50,000,000 13 per cent. Permanent Interest Bearing Shares (the "New PIBS"), comprising 50,000 Permanent Interest Bearing Shares of £1,000 each, of Britannia Building Society (the "Society") to be admitted to the Official List of the London Stock Exchange. From 31st January, 1993 the New PIBS will form a single series with the £60,000,000 13 per cent. Permanent Interest Bearing Shares of the Society issued on 1st August, 1992 (the "Existing PIBS"). References in this document to the "PIBS" shall be construed on and from 31st January, 1993 as references to the Existing PIBS and the New PIBS, and prior to that date, solely as references to the New PIBS. The New PIBS will be issued in registered form on or about 29th October, 1992. It is anticipated that the New PIBS will be admitted to the Official List (subject only to the issue of the New PIBS), and official dealings are expected to commence, on 30th October, 1992.

Issue Price: 107.125 per cent.

The PIBS will be deferred shares in the Society for the purposes of section 119 of the Building Societies Act 1986 and will not be protected investments for the purposes of payments out of the Building Societies Investor Protection Fund. Attention is drawn to certain risk factors set out on page 11.

The PIBS will not be withdrawable at the option of the PIBS holders and will be repayable only in certain limited circumstances as described in "Special Conditions of Issue of the PIBS—Repayment".

Hoare Govett Corporate Finance Limited

The date of this Offering Circular is 26th October, 1992. The Directors of the Society, whose names appear on pages 20 and 21, accept responsibility for the information contained in this document. To the best of the knowledge and belief of the Directors (who have taken all reasonable care to ensure that such is the case), the information contained in this document is in accordance with the facts and does not omit anything likely to affect the import of such information. No person is authorised to give any information or to make any representation not contained herein and any information or representation not contained herein must not be relied upon as having been authorised by the Society or Hoare Govett Corporate Finance Limited (the "Arranger"). This document does not constitute an offer to sell or a solicitation of any offer to buy the PIBS in any jurisdiction to any person to whom it is unlawful to make such an offer or solicitation in such jurisdiction. Neither the delivery of this document nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Society since the date hereof. Copies of this document, which comprises approved listing particulars with regard to the Society and its subsidiaries in accordance with the listing rules made under section 142 of the Financial Services Act 1986, have been delivered to the Registrar of Companies in England and Wales for registration in accordance with section 149 of that Act. The PIBS have not been and will not be registered under the United States Securities Act of 1933 and may not be offered or sold, directly or indirectly, in the United States or to U.S. persons otherwise than in accordance with applicable U.S. securities laws and regulations. The distribution of this document and the offering of the PIBS in certain jurisdictions may be restricted by law. Persons into whose possession this document comes are required by the Society and the Arranger to inform themselves about and to observe such restrictions. For a further description of certain restrictions on offering and sales of the PIBS and on distribution of this document, see "Subscription and Sale" below. The information contained in this document is intended for sophisticated investors capable of understanding the nature of the PIBS and the risks attaching to them. In this document, unless otherwise specified or the context otherwise requires, references to "pounds", "penny", "sterling" and "£" are to the currency of Great Britain and Northern Ireland (the "United Kingdom") and to the "Act" are to the Building Societies Act 1986, which expression shall include, where applicable, any statutory modification or re-enactment thereof or any statutory instrument, order or regulation made thereunder or under any such statutory modification or re-enactment.

TABLE OF CONTENTS Page Summary of the Key Provisions of the Rules of the Society and the Act relating to the PIBS 3 Special Conditions of Issue of the PIBS 6 Use of Proceeds 10 Risk Factors 11 The Building Societies Act and the Building Societies Commission 12 Britannia Building Society 14 Financial Summary 18 Consolidated Capitalisation and Indebtedness 19 Board of Directors 20 Financial Statements 22 United Kingdom Taxation 48 Subscription and Sale 49 General Information 50

2 SUMMARY OF THE KEY PROVISIONS OF THE RULES OF THE SOCIETY AND THE ACT RELATING TO THE PIBS

The rights and restrictions attaching to the PIBS are set out in the Rules and in the special conditions of issue of the PIBS. Set out below is a summary of the key provisions of the Rules and the Act insofar as they relate to the PIBS. Terms defined in the Rules will, unless the context otherwise requires, have the same meanings when used in this summary.

1. General A PIBS holder is a member of the Society. Each PIBS holder and all persons claiming through him or on his account shall be bound by the Rules and by the provisions of the Society's Memorandum. A PIBS holder shall, on demand, be given a copy of the Rules and of the Society's Memorandum: (a) free of charge, if he has not previously been given a copy, or (b) upon payment of £1 or such other fee as may be duly prescribed from time to time by the Commission, if he has already been given a copy.

2. Register The Society shall maintain records constituting the register of members in which shall be entered the name and address of each PIBS holder. Each PIBS holder is obliged by the Rules to notify the Society immediately of any change of name or address and shall produce such evidence of any change of name as the Society may require. Transfers of PIBS shall also be registered in the records of the Society. The Society intends to appoint The Royal Bank of Scotland plc as its registrar for the New PIBS (see page 52).

3. Title Except as otherwise provided in the Rules, the Society shall be entitled to treat the registered holder of any PIBS as the absolute owner thereof and accordingly it shall not, except as ordered by a court of competent jurisdiction or as required by statute, be bound to recognise any trust or equitable or other claim to or interest in or charge on or security over such PIBS (whether partial or otherwise) on the part of any other Person whether or not it shall have express or other notice thereof nor be held responsible for omitting or neglecting to recognise any such claim.

4. Share Certificates Each PIBS holder shall be furnished with a share certificate. Every share certificate shall be issued under the common seal of the Society.

5. Replacement of Share Certificates A PIBS holder shall immediately notify the Society in writing at its Principal Office if he discovers that his PIBS Certificate is missing. If a PIBS Certificate is damaged, or is alleged to have been lost, stolen or destroyed, a new PIBS Certificate will be issued without charge to the PIBS holder upon request but subject to delivery up of the old PIBS Certificate or (if it is alleged to have been lost, stolen or destroyed) subject to compliance with such conditions as to evidence and indemnity as the Board may think fit and to the payment of any exceptional out of pocket expenses of the Society incidental to its investigation of the evidence of such alleged loss, theft or destruction. Where a holder of any PIBS has transferred part of his holding, he shall be entitled to a PIBS Certificate for the balance without charge.

6. Transfers A PIBS may be transferred to any Person and no fee shall be charged for the registration of the transfer.

3 The transfer of a PIBS may be effected in any form approved by the Board. The transferor shall remain the holder of the PIBS until the transfer is registered in the records of the Society. The Society may retain any instrument of transfer which is registered. The registration of transfers of PIBS, or of any class of PIBS, may be suspended at such times and for such periods as the Board may determine but not for more than thirty days in any year and notice of such suspension shall be given by advertisement in not less than two national daily newspapers. Two or more persons may jointly hold a PIBS but no PIBS shall be issued to holders as tenants in common. The Board may decline to issue or register a transfer of any PIBS to more than four persons jointly.

7. Meetings As members of the Society PIBS holders will, subject to the provisions of the Rules, be entitled to receive notice of, to attend, to be counted in a quorum and to vote at general meetings of the Society. A member of the Society who holds PIBS at the voting date will be entitled to vote on a resolution (whether special or ordinary) other than a Borrowing Members' Resolution if he was entered in the Register as the holder of such PIBS at: (i) the end of the financial year before the voting date; or (ii) if the voting date falls during that part of the financial year following the conclusion of the annual general meeting commenced in that year, the beginning of the period of 56 days immediately preceding the voting date for members voting in person at a special general meeting, and was a holder of PIBS with a principal amount of not less than £100 and he has not ceased to be a member at any time between the time referred to in (i) or (ii) (as applicable) and the voting date. Each PIBS holder will have one vote at general meetings of the Society regardless of the principal amount of PIBS held by that holder. At a general meeting of the Society ten members who are entitled to vote at the meeting may demand a poll. The Rules may only be altered or rescinded or added to by passing a resolution as a special resolution.

8. Winding-up and Dissolution If the Society shall be wound up or dissolved by consent (other than in connection with the transfer of the business of the Society to a company or an amalgamation of the Society or a transfer of the Society's engagements) the assets remaining after payment of the debts and liabilities of the Society and the costs of the winding up or dissolution shall be applied first, in repaying to the members the amounts paid up on the shares (including deferred shares) held by them respectively, according to their priority under their respective terms and conditions of issue. The balance (if any) shall be distributed as follows: (a) up to 20 per cent. to holders of all or some of the deferred shares (including PIBS). The proportion (if any) of such 20 per cent. to which any particular issue of deferred shares (including PIBS) is entitled shall be set forth in the terms and conditions of issue of that issue of deferred shares; and (b) the remainder of the balance will be distributed among the qualifying members (other than holders of deferred shares (including PIBS)) in proportion to the value of their shareholding. If there are insufficient assets to repay all members the amounts paid up on their shares, no repayments shall be made in respect of any deferred share (including PIBS) until after all other members have been repaid in full.

9. Unclaimed Interest In certain circumstances set out in the Rules, the Society shall be entitled to sell for the best price reasonably obtainable any PIBS in respect of which no interest has been claimed during a period of 12 years. The Society must first give written notice to the Quotations Department of the London Stock Exchange of its intention to sell the PIBS. The Society shall be obliged to account to the PIBS holder or another person entitled to the PIBS for the net proceeds of sale of the PIBS.

10. Disputes and Legal Proceedings Subject as set out below, section 85 of and Schedule 14 to the Act provide that no court other than the High Court of Justice in England shall have jurisdiction to hear and determine disputes between a

4 building society and a member in his capacity as a member or a representative of a member in that capacity in respect of any rights or obligations arising from the Rules. Pursuant to section 1 of the Courts and Legal Services Act 1990, the County Court Jurisdictional Order 1991 No. 724 has been made which empowers the High Court to transfer cases over which it has jurisdiction to the County Court.

5 SPECIAL CONDITIONS OF ISSUE OF THE PIBS

The following are the special conditions of issue of the PIBS in the form in which they will appear on the reverse of each PIBS certificate: The New PIBS (as defined below) are issued subject to, and with the benefit of, these special conditions of issue (the "Conditions").

1. General (1) The "Society" means Britannia Building Society. (2) "New PIBS" means the 13 per cent. Permanent Interest Bearing Shares of the Society issued on 29th October, 1992 and, unless the context otherwise requires, includes any further deferred shares issued pursuant to Condition 9 below and forming a single series with the PIBS. (3) "Existing PIBS" means the 13 per cent. Permanent Interest Bearing Shares of the Society issued on 1st August, 1992. References in these Conditions to "PIBS" shall be construed on and from 31st January, 1993 as references to the Existing PIBS and the New PIBS, and prior to that date, solely as references to the New PIBS. (4) Terms defined in the Rules of the Society will, unless the context otherwise requires, have the same meanings when used in these Conditions. (5) PIBS holders are entitled to the benefit of, are bound by, and are deemed to have notice of, the Rules. (6) The PIBS: (a) are deferred shares for the purposes of section 119 of the Building Societies Act 1986 or any amendment thereof (the "Act") issued under the Rules; (b) are not protected investments for the purposes of payments out of the Building Societies Investor Protection Fund; (c) are not withdrawable; and (d) are permanent interest bearing shares for the purposes of the Rules. (7) The expressions "Creditors" and "Relevant Supervisory Consent" shall have the meanings given thereto in Conditions 4(2) and 4(4) respectively. (8) Upon a transfer of a PIBS the Society will procure that the new PIBS holder is issued with a PIBS certificate within 14 days after the lodgement of the instrument of transfer.

2. Form and Denomination The PIBS are in registered form and are available and transferable in amounts and integral multiples of £1,000. The New PIBS will be consolidated and form a single series with the Existing PIBS from and including 31st January, 1993.

3. Interest (1) The PIBS bear interest from and including 29th October, 1992 at the rate of 13 per cent. per annum (less tax where appropriate) payable, subject as provided below, in arrear: (i) on 31st January, 1993 in respect of the period from and including 29th October, 1992 to but excluding 31st January, 1993 amounting to £33.48 per PIBS; and (ii) thereafter by equal half-yearly instalments on 31st January and 31st July in each year. The period from 29th October, 1992 to 31st January, 1993 and each half-yearly period thereafter is referred to as an "Interest Period". Interest on the PIBS is non-cumulative as described below. The interest payment in respect of a period of less than a half-year will be calculated on the basis of the number of days elapsed and a year of 365 days and rounding the resultant figure to the nearest penny (half a penny being rounded upwards). (2) Interest in respect of the PIBS shall not be paid or credited in respect of any Interest Period if the Society has at any time before the date for payment of the interest cancelled the payment of any interest or dividend upon:

6 (a) any other shares of any class (other than deferred shares (as defined in the Act)) of the Society; or (b) any deposit with the Society, which falls, in accordance with the terms of the share or deposit, to be paid or credited at any time before the end of the relevant Interest Period. For the purposes of this paragraph (2): (a) where the Society has deferred or suspended any payment it shall be taken to have cancelled the payment for so long as the payment remains outstanding; and (b) a payment is to be taken to fall to be paid or credited in circumstances where it would have so fallen but for any provisions relating thereto entitling the Society to cancel, defer or suspend payment. (3) Interest in respect of the PIBS shall not be paid or credited for any Interest Period specified by the Board, if the Board is of the opinion that: (a) there has been a failure by the Society to satisfy the first criterion of prudent management set out in section 45(3) of the Act and such failure is then continuing; or (b) the payment or crediting of the interest or, as the case may be, payment or crediting in full of the interest would cause or contribute to such a failure by the Society, and in such case the Board passes a resolution cancelling or, as the case may require, reducing the interest to such extent as may be necessary to secure that there will be no failure to satisfy the first criterion of prudent management and on the passing of the resolution the PIBS holder shall cease to have any right to the interest for that period so cancelled or, as the case may be, any interest other than the reduced amount payable in accordance with that resolution. (4) If and to the extent that paragraph (2) or (3) above prohibits the payment of interest, interest in respect of the PIBS will be cancelled and PIBS holders will have no rights in respect of the cancelled interest.

4. Repayment (1) The PIBS constitute permanent non-withdrawable deferred shares in the Society and have no specified final maturity. (2) The PIBS will become repayable on the date that an instrument or order is made or an effective resolution is passed for the winding up or, otherwise than by virtue of section 93(5), section 94(10), section 97(9) or section 97(10) of the Act, dissolution of the Society but only if and subject to the condition that all sums due from the Society to Creditors claiming in the winding up or dissolution have been paid in full. For the purposes of these Conditions, "Creditors" means all creditors (including all subordinated creditors) of the Society and members holding shares (other than deferred shares) as regards the principal and interest due in respect of those shares. (3) The claims of PIBS holders in a winding up or dissolution of the Society will be for the principal amount of their PIBS together, subject to Condition 3, with interest accrued to but excluding the date of repayment after all sums due from the Society to Creditors have been paid in full. PIBS holders will not be entitled to any share in any final surplus upon a winding up or dissolution of the Society. (4) The Society may, having obtained prior Relevant Supervisory Consent and, for so long as the PIBS are listed on The International Stock Exchange of the United Kingdom and the Republic of Ireland Limited (the "London Stock Exchange"), subject to and in accordance with the requirements from time to time of the London Stock Exchange, purchase any PIBS. In the case of purchases by tender, tenders shall be made available to all PIBS holders alike. For the purposes of these Conditions, "Relevant Supervisory Consent" means consent to the relevant purchase given by the Building Societies Commission. (5) All PIBS repaid or purchased by the Society as aforesaid shall be cancelled forthwith and such PIBS may not be reissued or resold.

5. Payments All payments in respect of the PIBS will be made by sterling cheque drawn on a bank in London and posted on the day (other than a Saturday or a Sunday) on which banks are open for business in London

7 immediately preceding the relevant due date, and made payable, to the sole or first named holder of the PIBS appearing in the register of members of the Society at the close of business on the fifteenth day before the relevant due date (the "Record Date") at his address shown in the register of members of the Society on the Record Date. Upon application of the sole or first named PIBS holder to the Society, in the form from time to time prescribed by the Society, not less than ten days before the due date for any payment in respect of a PIBS, the payment may be made by transfer on the due date to a sterling account maintained by the payee with a bank in London.

6. Succession and Transfers (1) Upon an amalgamation by the Society with another building society under section 93 of and Schedule 16 to the Act or a transfer of its engagements to any extent to another building society under section 94 of and Schedule 16 to the Act the PIBS shall be deferred shares in the transferee building society without any alteration in their terms. (2) Upon a transfer by the Society of the whole of its business to a successor in accordance with section 97 of the Act the successor will, in accordance with section 100(2)(a) of the Act, assume as from the vesting date a liability (subject to this paragraph (2)) to every qualifying member of the Society as in respect of a deposit made with the successor corresponding in amount to the value of the qualifying shares held by the member in the Society. The liability assumed by the successor in respect of each PIBS shall be as in respect of a non- transferable deposit carrying the same rate of interest as the PIBS (each a "Deposit"). Each Deposit will be applied on behalf of the holder in the subscription of a principal amount of perpetual subordinated bonds of the successor carrying the same rate of interest as the PIBS (the "Bonds") equivalent to the principal amount of the Deposit. This application of the Deposit will occur automatically on the date occurring five years after the vesting date or earlier subject to such conditions as the board of directors of the successor may require, including the receipt of a certificate in such form as they may reasonably require from the holder of any Deposit, that the effect of the allotment of the Bonds would not result in more than the permitted proportion (as defined in section 101 of the Act) of the total indebtedness of the successor on its debentures being held by, or by nominees for, the holder of the Deposit. The form of the certificate required will be sent to holders of PIBS prior to the vesting date. The terms of each Deposit and the terms and conditions of the Bonds will be such as to secure in the opinion of the Board that they will be: (i) treated as capital designated perpetual subordinated debt (as referred to in the Bank of England Notice to institutions authorised under the Banking Act 1987 BSD/1990/2 of December 1990 as replaced, amended or supplemented from time to time) or its equivalent (if any) as determined by the auditors of the Society for the purposes of capital adequacy regulations made from time to time by the Bank of England; and (ii) subordinated debt (as defined in the Building Societies (Designated Capital Resources) (Permanent Interest Bearing Shares) Order 1991). The terms of the Deposits and the terms and conditions of the Bonds will, not later than the time at which notice is given to members of resolutions to be proposed to approve such transfer, be available for inspection by PIBS holders at the principal office of the Society at that time and, subject as provided above, will be determined by the Board in its absolute discretion. (3) The Society undertakes to procure that any amalgamation or transfer referred to in paragraph (1) or (2) above will comply with the provisions of paragraph (1) or, as the case may be, (2) above.

7. Variation of these Conditions (1) These Conditions may be varied by the Society with the consent in writing of the holders of three- quarters in principal amount of the PIBS for the time being outstanding, or with the sanction of a resolution passed at a separate meeting of the PIBS holders held in accordance with Condition 8 by a majority of three-quarters in principal amount of such holders voting in person or by proxy at such meeting. (2) The Society undertakes not to initiate any change to the Rules that is both (a) inconsistent with the provisions of these Conditions and (b) materially prejudicial to the interests of the PIBS holders. (3) These Conditions do not limit the rights of members to change the Rules.

8 Any amendment to the Rules that is both (a) inconsistent with the provisions of these Conditions and (b) materially prejudicial to the interests of the PIBS holders, shall not limit any rights of PIBS holders to take legal proceedings against the Society in circumstances where the Society is in breach of these Conditions nor afford the Society any defence to any claim made in any such proceedings.

8. Meetings of PIBS Holders (1) The Society alone may at any time convene a meeting of the PIBS holders. Every meeting shall be held at such place as the Society may approve. (2) At least 21 clear days' notice specifying the place, day and hour of the meeting shall be given to the PIBS holders on the Society's register 35 days prior to the date specified for the meeting by sending it by post to the registered address of the sole or first named PIBS holder. The notice shall state generally the nature of the business to be transacted at the meeting and the terms of any resolution to be proposed to alter these Conditions. (3) Some person (who may but need not be a PIBS holder) nominated in writing by the Society shall be entitled to take the chair at every meeting but if no nomination is made or if at any meeting the person nominated shall not be present within fifteen minutes after the time appointed for holding the meeting the PIBS holders present shall choose one of their number to be Chairman. (4) At any meeting one or more persons present in person or by proxy and holding or representing in the aggregate not less than one-third of the principal amount of the PIBS for the time being outstanding shall form a quorum for the transaction of business and no business (other than the choosing of a Chairman) shall be transacted at any meeting unless the requisite quorum be present at the commencement of business. Every question submitted to the meeting (other than the choosing of a Chairman which will be decided by a simple majority) shall be decided by a poll by one or more persons present and holding PIBS or being proxies and representing in aggregate three- quarters of the principal amount of the PIBS represented at such meeting voting in favour of such question.

(5) If within 15 minutes after the time appointed for any meeting a quorum is not present the meeting shall stand adjourned for such period, being not less than 14 days nor more than 42 days, and at such place as may be appointed by the Chairman and at the adjourned meeting the quorum shall be the same as for the initial meeting. (6) Notice of any adjourned meeting shall be given in the same manner as notice of an initial meeting but as if 10 were substituted for 21 in paragraph (2). (7) A poll shall be taken in such manner as the Chairman directs and the result of the poll shall be deemed to be the resolution of the meeting. (8) The Chairman may with the consent of (and shall if directed by) any meeting adjourn the same from time to time and from place to place but no business shall be transacted at any adjourned meeting except business which might lawfully (but for lack of required quorum) have been transacted at the meeting from which the adjournment took place. (9) Any director or officer of the Society and its lawyers may attend and speak at any meeting. Save as provided above no person shall be entitled to attend and speak nor shall any person be entitled to vote at any meeting of the PIBS holders unless he is the sole or first named holder of a PIBS or is a proxy thereof. Neither the Society nor any of its subsidiaries shall be entitled to vote at any meeting in respect of PIBS held by it. (10) Subject as provided in paragraph (9) at any meeting every person who is present shall have one vote in respect of each £1,000 in principal amount of the PIBS so held or in respect of which he is a proxy. Any person entitled to more than one vote need not use all his votes or cast all the votes to which he is entitled in the same way. (11) A PIBS holder may by an instrument in writing in the form from time to time obtainable from the Society (a "form of proxy") signed by the PIBS holder, or, in the case of a corporation, executed under its common seal or signed on its behalf by an attorney or a duly authorised officer of the

9 corporation, appoint any person (a "proxy") to act on his or its behalf in connection with any meeting or adjourned meeting of the PIBS holders. The proxies named in any form of proxy need not be PIBS holders. (12) Any vote given in accordance with the terms of a form of proxy shall be valid notwithstanding the previous revocation or amendment of the form of proxy or of any of the PIBS holders' instructions in respect thereof, provided that no intimation in writing of the revocation or amendment shall have been received by the Society at its Principal Office at any time prior to 24 hours before the time appointed for holding the meeting or adjourned meeting at which the form of proxy is used. (13) Any resolution passed at a meeting of the PIBS holders duly convened and held hereunder shall be binding upon all the PIBS holders whether present or not present at the meeting and whether or not voting and each of them shall be bound to give effect to the resolution accordingly and the passing of any resolution shall be conclusive evidence that the circumstances justify the passing of the resolution. Notice of any resolution duly passed by the PIBS holders shall be given in writing to each sole or first named PIBS holder by the Society within 14 days of the passing of the resolution, provided that the non-publication of the notice shall not invalidate the resolution. (14) Minutes of all resolutions and proceedings at every meeting shall be made and duly entered in books to be from time to time provided for that purpose by the Society and any Minutes purporting to be signed by the Chairman of the meeting at which the resolutions were passed or proceedings had shall be conclusive evidence of the matters contained in the Minutes and until the contrary is proved every meeting in respect of the proceedings of which Minutes have been so made and signed shall be deemed to have been duly held and convened and all resolutions passed or proceedings had to have been duly passed or had.

9. Further Issues The Society shall be at liberty from time to time without the consent of the PIBS holders to create and issue further deferred shares either: (1) ranking pari passu in all respects (or in all respects save for the first payment of interest thereon) and so that the same shall be consolidated and form a single series with the outstanding deferred shares of any series (including the PIBS); or (2) upon such other special terms of issue as the Society may at the time of issue determine provided that the Society shall not issue any deferred shares ranking ahead of the PIBS.

USE OF PROCEEDS

The net proceeds of the issue of the New PIBS (estimated to amount to £53,152,500) will be applied by the Society for its general funding purposes. It is intended that the principal amount of the New PIBS (£50,000,000) will be treated for capital adequacy purposes as core capital.

10 RISK FACTORS

Investors should be aware that the terms of the PIBS vary considerably from the terms of ordinary building society share accounts. Notably: (a) the principal amount of the PIBS is not repayable and the PIBS are not withdrawable and accordingly the only way that the PIBS may be realised is by a sale at such price and on such terms as may from time to time be available in the market (which may mean that the investor does not recoup his investment) which may be subject to usual brokers' commissions; (b) in a winding up or dissolution of the Society, the claims of the PIBS holders will rank behind all other creditors of the Society and the claims of members holding shares (other than deferred shares) as to principal and interest; (c) PIBS are not protected investments for the purposes of payments out of the Building Societies Investor Protection Fund; (d) interest in respect of the PIBS shall not be payable where to make payment would result in the Society's capital falling below prescribed levels if the Directors of the Society resolve that such interest should not be paid or where the Society has not paid interest in respect of deposits or shares (other than deferred shares); and (e) if the Society does not make an interest payment in respect of the PIBS in accordance with paragraph (d) above such interest will be cancelled.

11 THE BUILDING SOCIETIES ACT AND THE BUILDING SOCIETIES COMMISSION

Amalgamation Section 93 of the Act permits a building society to amalgamate with one or more building societies by establishing a building society as their successor. Amalgamation requires approval by special resolutions of the members of each amalgamating society and by borrowing members' resolutions (as defined in Schedule 2 of the Act) of the borrowing members of each amalgamating society and confirmation by the Building Societies Commission (the "BSC"). The Act provides that on the date specified by the central office of the Registry of Friendly Societies (the "Central Office") all the property, rights and liabilities (which would include the PIBS) of each of the societies shall by virtue of the Act be transferred to and vested in the successor, whether or not otherwise capable of being transferred or assigned.

Transfer of Engagements Section 94 of the Act permits a building society to "transfer its engagements to any extent" to another building society which undertakes to fulfil such engagements. A transfer requires approval by special resolutions of the members of the transferor society and the transferee society, and by borrowing members' resolutions of the borrowing members of the transferor society and the transferee society. However, the resolutions of the transferee society are not required if the BSC consents to the transfer proceeding by a resolution of its board of directors only. The transfer must be confirmed by the BSC. The Act provides that on the date specified by the Central Office and to the extent provided in the instrument of transfer, the property, rights and liabilities of the transferor society shall by virtue of the Act be transferred to and vested in the transferee society, whether or not otherwise capable of being transferred or assigned. In the event of a transfer of all or part of the property and/or all or some of the liabilities of the Society the PIBS would, pursuant to their terms, become deferred shares in the transferee without any alteration of their terms.

Conversion Sections 97 to 102 of the Act permit a building society to transfer the whole of its business to a company which has been specially formed by the society wholly or partly for the purpose of assuming and conducting the society's business in its place or is an existing company which is to assume and conduct the society's business in its place. The transfer must be confirmed by special resolution of the members and by a borrowing members' resolution and the society must obtain the confirmation of the BSC to the transfer and its terms. If the BSC confirms the transfer then the Act provides that on the vesting date (as defined in the Act) all the property, rights and liabilities of the society making the transfer, whether or not capable of being transferred or assigned, shall by virtue of the Act and in accordance with transfer regulations (then in force) be transferred to and vested in the successor. Pursuant to section 100(2)(a) of the Act the PIBS would be converted into deposits with the successor. The terms of the PIBS provide that the deposits will be subordinated and will be applied in the subscription of perpetual subordinated bonds of the successor subject as provided therein.

On such a transfer, investing members of the society who have held their shares for at least two years may be offered a priority right to subscribe for shares in the successor. Also, all investing members' shares are converted into deposits with the successor. If the transfer is to a company specially formed by the society, shareholders of the society who were eligible to vote on the transfer, are members on the qualifying date specified in the transfer agreement and who retain a deposit with the successor must be given rights to a priority liquidation distribution (as defined by the Act) should the successor be wound up. These rights are protected by the successor granting a charge over its property or undertaking. On any such transfer, investing members of the society who were members on the qualifying date but not entitled to vote on the transfer resolution will receive a cash bonus equal to their notional share of reserves of the society. If the transfer is to an existing company, a cash distribution from reserves of the society or the successor may only be made to certain investing members of the society who have held their shares for at least two years or to the non-entitled members referred to in the preceding sentence. In effect, the society's reserves before such a transfer either will be paid out to certain of its investing members or will be protected, should the successor be wound up, by the security granted by the successor for the benefit of the society's investing members to the extent of the deposits with the successor resulting from the conversion of those investing members' shares.

12 Consequences of the Building Societies Act for PIBS holders The Society may, as a result of an amalgamation, transfer of engagements or transfer of business as described above, be replaced, as the principal obligor under all or some of the PIBS, by an entity substantially different in nature from the Society at present or with a substantially different capital position. In all cases the confirmation of the BSC is required before any such change can take place. The BSC is required to have regard to the position of the PIBS holders pursuant to the provisions of section 1 (4) of the Act which requires it to promote the protection by each building society of the investments of that building society's "shareholders", for which purpose the expression "shareholders" includes PIBS holders.

13 BRITANNIA BUILDING SOCIETY

1. History and Description of the Society The Society was formed in 1856. It was incorporated under the Building Societies Act 1874 as the Leek and Moorlands Permanent Benefit Building Society. After a merger in 1966 with the Westbourne Building Society of London, the Society changed its name to the Leek and Westbourne Building Society and, following a series of further amalgamations, adopted its present name in 1975. The address of the principal office of the Society is Britannia House, Cheadle Road, Leek, Staffordshire, ST13 5RG.

The Society was the ninth largest United Kingdom building society in terms of total consolidated assets as at 31st December, 1991. In addition, the Britannia Life Group has assets of approximately £1.2 billion which are not consolidated. As at such date, the Society had over 245 branches supplemented by 34 real estate agency branches and 171 agencies. The average number of persons employed by the Society and its subsidiaries during the year to 31st December, 1991 was 2,367 compared to 2,181 and 2,108 for the years ended 31st December, 1990 and 1989 respectively.

At 31st December, 1991, the Society had a customer base of 1,104,266 investors and 295,189 borrowers. Its total assets at the same date were approximately £8,523 million, of which mortgage assets were approximately £6,911 million.

2. Form, Status and Ownership The Society is incorporated under the Act for an unlimited duration. It operates in accordance with the Act, regulations and orders made thereunder and the Society's registered Rules and Memorandum. The Society is a building society within the meaning of the Act and is registered with the Central Office of the Registry of Friendly Societies in London, Register Number 322B. The affairs of the Society are conducted and managed by a Board of Directors who are elected and who serve in accordance with the Rules and Memorandum. The Board is responsible to the members for the proper conduct of the affairs of the Society and appoints and supervises executives who are responsible to the Board for the daily management of the Society.

The Society is a mutual organisation, with both retail investors and borrowers having membership. A member is entitled to one vote (subject to certain conditions). It is therefore possible for one person to have both an investing member's vote and a borrowing member's vote. A PIBS holder who is otherwise an investing member will only have one vote in the Society.

3. Business of the Society (a) Mortgage lending business The principal purpose of the Society, as stated in Clause 2 of its Memorandum, is to raise, primarily by the subscriptions of the members of the Society, a stock or fund for making to them advances secured on land for their residential use.

The Society obtains funds from the retail market through personal savings and deposit accounts and raises funds in the wholesale money markets. It advances funds so raised mainly to borrowers on the security of first mortgages on freehold and leasehold property.

The Society offers a variety of savings accounts and investment products to personal customers.

The Society is represented throughout the United Kingdom although, as a result of its origins and head office location in Staffordshire, there is a greater concentration of branches in the West Midlands and North West England. Apart from this historic emphasis there is no particular geographic concentration in the Society's branch network.

The Society's assets consist largely of a widely spread portfolio of relatively small residential mortgage loans and of larger value commercial loans. At 31st December, 1991 the Society's advances to residential borrowers totalled £6,523 million and to commercial borrowers totalled £388 million.

14 Applications for mortgage loans for house purchases may be submitted to any one of the Society's branches or agents and in each case the Society follows a strict procedure prior to making an offer of an advance. On receipt of an application, an inspection and valuation of the property is made by one of a panel of qualified valuers. Subject to the valuer's report and various other factors including the income of the applicant, the Society will make an offer of an advance. Where an advance exceeds 75 per cent. of the valuation or cost of a property, the Society will obtain additional protection through the use of mortgage guarantee insurance. All applications for commercial loans are submitted to the Commercial Lending Department at head office, where a financial viability assessment is performed. Applications for commercial loans for projects which do not meet the Society's suitability criteria are refused. Individual loans in excess of £1 million also require authorisation by the Credit Committee, which includes in its composition executive directors of the Society. The Commercial Lending Department has, however, significantly reduced its level of lending activity since July, 1991. In the year ended 31st December, 1991, the Society's new mortgage advances totalled approximately £1,485 million which represented an increase of 2.18 per cent. over the previous year. The number of mortgages completed in the year was 31,361. (b) Bad debt and loan loss experience on mortgage lending As at 31st December, 1991, the Society had 4,485 mortgage accounts totalling £40,169,000 which were 12 or more months in arrears. This represented 1.5 per cent. of the number of mortgage accounts at 31st December, 1991. Historically, the Society's loan losses have been low. Over the five years to 31st December, 1991 actual write-offs on mortgage lending have averaged 0.03 per cent. of the Society's annual average mortgage balances. In 1991 actual write-offs amounted to £6.6 million whilst further provisions amounting to £33.7 million were created. The total provision for loan losses at 31st December, 1991 was £47.0 million. In addition, interest of £16.6 million on non-performing loans has not been recognised in the income and expenditure account. The existing policy for providing for mortgage losses adopted by the Society is, in the belief of the Society, in line with current best practice as identified in the letters to the Chief Executives of all authorised building societies, issued by the Building Societies Commission and accordingly compliance with such letters will not result in any significant change to the basis of provisioning of the Society. (c) Other business The Society's diversification out of its core business of mortgage lending has been cautious and its adoption of powers under the Act has been selective. Since the Act came into force, the Society has taken the opportunity to introduce a number of new products to its range of non-mortgage lending financial services. These include: • Estate Agency — The Society has made modest acquisitions of real estate agents. It now has 29 real estate agency branches, held through its wholly-owned subsidiary, Britannia Estate Agents Limited. The Society's main purpose in developing a network of real estate agencies was to defend its mortgage base. • Life Assurance — The Society is an appointed representative of Britannia Life Limited for the provision of life assurance, unit trust and pension fund products. During 1991, Britannia Life Limited acquired Crusader Insurance plc. • Motor Insurance — The Society has established Britannia Motor Insurance Services Limited, a joint venture with an insurance broker. • Offshore Activities — The Society formed an Isle of Man subsidiary, Britannia (Isle of Man) Limited, in 1990 which has enabled interest to be paid gross on all investment accounts maintained with that subsidiary. • Residential Developments — The Society has two subsidiaries whose main activity is the development of residential land.

15 The Society has a qualifying capital interest in the following undertaking: (a) Name: Britannia Life Limited (b) Registered Office: 190 West George Street, Glasgow G2 2PA (c) Field of activity: Life Assurance Business (d) Proportion of capital held: 100% (e) Issued share capital: £60.4 million (f) Amount still to be paid up on shares held: nil (g) Amount of debts owed to the Society with regard to Britannia Life Limited: £5 million mortgage (h) Amount of debts owed by the Society with regard to Britannia Life Limited: £5 million time deposit (d) Sources of Income The principal source of income for the Society is interest earned on mortgage advances. In the year ended 31st December, 1991 this income totalled £821 million. Other income for the year was principally derived from the Society's investment portfolio (£152 million). In addition, insurance commission, rent and other sources generated £27 million for the year. Treasury management activities are regulated by the Securities and Investment Board under the Financial Services Act 1986. (e) Non-Retail Funding Activities Savings from the personal sector are the primary source of funds for building societies. However, the Society has taken significant steps to raise funds from the wholesale money markets principally in the form of certificates of deposit, time deposits, term bank loans, yearling bonds and floating and fixed rate notes denominated in sterling and other currencies and where the Society has raised such funds in other currencies the Society has entered into currency and interest rate swaps pursuant to which the Society has assumed floating rate sterling liabilities. The breakdown of wholesale and retail funding of the Society at 31st December, 1991 was as follows: (millions of pounds)

Certificates of deposit 264.1 Commercial paper 203.0 Time deposits 278.5 Floating rate notes 534.5 Amounts due to banks 101.0 Other deposits and loans 182.9 Shares 6,114.0

7,678.0

(f) Recent Developments and Prospects The Directors consider the Society's underlying consolidated operating profitability of £60 million for the nine months ended 30th September, 1992 to be satisfactory. The profitability of the third quarter was considerably better than each of the first two quarters of the year. The Society is confident of the prospects for the remainder of the year. Provisions to 30th September, 1992, are in accordance with the latest guidance from the Building Societies Commission dated 30th September, 1992. The final provisions for the year end will be based on the economic and market conditions prevailing at that time. Restructuring costs of £3.2 million have been treated as exceptional. These represent the costs of streamlining both the Head Office and the Estate Agency operation and it is expected that this restructuring will reduce the future operating costs of the Society.

16 The following is a summary of the Society's unaudited consolidated income and expenditure account for the nine months ended 30th September, 1992. (in millions of pounds) Net interest receivable 103.4

Income from associated bodies 6.5

Operating profit 59.7 Provisions for advances (33.6)

Profit before exceptional items 26.1 Exceptional items (3.2)

Profit on ordinary activities before tax 22.9 Tax on ordinary activities (7.8)

Profit on ordinary activities after tax 15.1

The following is a summary of the Society's unaudited consolidated balance sheet as at 30th September, 1992: (in millions of pounds) Assets: Liquid assets 1,632.3 Advances secured on residential property 6,882.6 Other advances secured on land 387.5 Other commercial assets 94.6 Fixed assets 132.2 Other assets 11.9

Total assets 9,141.1

Liabilities: Retail funds 6,697.1 Non-retail funds 1,866.5

Total 8,563.6 Other liabilities and provisions 31.3 Subordinated debt 87.0 PIBS 61.3 Total reserves 397.9

Total liabilities plus capital 9,141.1

17 FINANCIAL SUMMARY

The following is a summary of the Society's audited consolidated income and expenditure accounts for the three years ended 31st December, 1991. Year ended 31st December,

1991 1990 1989

(in millions of pounds) Interest receivable 972.0 991.6 753.5 Interest payable (827.7) (860.0) (628.2)

Net interest receivable 144.3 131.6 125.3 Other income and charges 33.9 27.3 22.7 Management expenses (91.7) (80.1) (65.2) Provisions for advances (33.7) (7.3) (0.9) Income from associated bodies 11.2 2.9 — Estate agency restructuring costs — (0.8) —

Profit on ordinary activities before tax 64.0 73.6 81.9 Tax on profit on ordinary activities (21.7) (26.4) (29.5)

Profit on ordinary activities after tax 42.3 47.2 52.4

The following is a summary of the Society's audited consolidated balance sheets as at the end of each of the three years ended 31st December, 1991: Year ended 31st December,

1991 1990 1989

(in millions of pounds) Assets: Liquid assets 1,400.4 1,263.6 960.8 Advances secured on residential property 6,523.5 5,701.4 5,015.2 Other advances secured on land 378.9 308.1 203.2 Other commercial assets 76.5 21.7 6.6 Fixed assets 130.2 119.5 97.9 Other assets 14.3 8.5 6.9

Total assets 8,523.8 7,422.8 6,290.6

Liabilities: Retail funds 6,467.7 5,461.8 4,775.2 Non-retail funds 1,547.5 1,414.8 1,090.1

Total 8,015.2 6,876.6 5,865.3 Other liabilities and provisions 38.6 143.1 123.6 Subordinated debt 86.6 51.4 — Total reserves 383.4 351.7 301.7

Total liabilities plus capital 8,523.8 7,422.8 6,290.6

Note The figures have been extracted from the accounts and have been rounded to one place of decimals for presentational purposes.

18 CONSOLIDATED CAPITALISATION AND INDEBTEDNESS

The following table is a summary of the Society's consolidated shareholders' funds and indebtedness as at 31st December, 1991 (Audited) and 30th September, 1992 (Unaudited): 30th September, 31st December, 1992 1991 (Unaudited) (Audited)

(in millions (in millions of pounds) of pounds) Shareholders' Funds: Shares 6,305 6,114 13% Permanent Interest Bearing Shares 61 — General Reserve 372 357 Revaluation Reserve 26 26

Total Shareholders' Funds 6,764 6,497

Indebtedness: Time Deposits 409 279 Deposits and Loans from Banks 201 105 Other Deposits and Loans 767 719 Certificates of Deposit 226 264 Fixed and Floating Rate Notes 656 535 Other Liabilities 31 39 Subordinated Bonds 87 86

Total Indebtedness 2,377 2,027

Total Capitalisation 9,141 8,524

Save for the issue of the New PIBS (which have not been reflected above), at the date of this Offering Circular there has been no material change in the capitalisation of the Society and its subsidiaries since 30th September, 1992. So far as is known to the Society no persons, directly or indirectly or jointly and severally, exercise or could exercise control over the Society or are interested, directly or indirectly, in 3 per cent. or more of the Society's shares. No shares of the Society or any of its subsidiaries is under option or has been agreed to be put under option to any person. Other than the issue of £60,000,000 13 per cent. Undated Mandatorily Convertible Subordinated Notes at a price of £100.423 per cent. which converted into the Existing PIBS on 1st August, 1992, there has been no change in the amount of subscribed capital of the Society during the three years preceding the date of this document. The movement in general reserves in 1992 includes a fair value adjustment of £600,000 in respect of the merger with the Mornington Building Society in 1991. The Society has a contingent liability in respect of contributions to the Building Societies Investor Protection Fund provided for by the Building Societies Act 1986. Its subsidiary, Britannia (Isle of Man) Limited, also has a contingent liability under the Depositors Compensation Scheme based on the Isle of Man.

19 BOARD OF DIRECTORS

The names of the Directors of the Society, their responsibilities within the Society, their business occupation and other directorships as at the date of this Offering Circular are given below. The business address of each of the Directors is that of the Society given at the back of this document. Responsibilities Business Occupation Name within the Society and other Directorships Trevor John Bayley Director Building Society Executive Director Chairman — Britannia New Homes Limited Chairman— The Mortgage Agency PLC Chairman — Mornington Information Technology Services Limited Director — Britannia Life Limited Director — Britannia Independent Limited Director — Britannia Motor Insurance Services Limited Director — Britannia Building Society Land & Development Company (Midlands) Limited Director — Britannia Development and Management Company Limited Director — Britannia Life Investment Managers Limited Director — Britannia Life Unit Managers Limited Director — Britannia Life Managed Pension Funds Limited Director — BL Unit Trust Managers Limited Director — Britannia Life Assurance Limited Sir David Berriman Director Company Director (non-executive) Chairman— Knightstone Group Limited Chairman— Maclntyre Chairman — Maclntyre Foundation Director — Ashenden Enterprises Ltd. Director — City Centre Communications Limited Director — EED Property Limited Director — Kent Community Housing Trust Director — KDB Bank (UK) Limited Director — Videotron Holdings Limited John Gilbert Fenton Director Building Society Executive Director Director — Britannia Independent Limited Director — Britannia (Isle of Man) Limited Director — Britannia Motor Insurance Services Limited Director — Britannia Development and Management Company Limited Director — Frazer's Financial Services Limited Mrs. Elizabeth Jill Director Management Consultant Filkin (non-executive) Director — Recycled Space Limited Charles Richard Joint Deputy Chartered Accountant and Company Director Godwin Chairman Chairman — Britannia (Isle of Man) Limited (non-executive) Chairman— Masons of Leek Limited Chairman — NWF Limited Chairman— Cartmel Investments Limited Chairman — Cartmel Management Services Limited Director — Allen PLC Director — KFC (London) Limited Director — Readicut International PLC Director — South Cumbria Health Authority Director — South Cumbria Healthcare Trust Director — WW Group Limited John Edward Heaps Deputy Managing Building Society Executive Director Director Director — Mornington Information Technology Services Limited Director — The Mortgage Agency PLC John Lawrence Hill Chairman Company Director and Chartered Engineer (non-executive) Managing Director — The Loss Prevention Certification Board Limited Director — The Arson Prevention Bureau Director — Britannia Life Limited Director — Britannia Life Assurance Limited Director — The National Approval Council for Security Systems Director — The Institute of Risk Management

20 BOARD OF DIRECTORS (continued)

Responsibilities Business Occupation Name within the Society and other Directorships Dr. Calum Alexander Director Company Director Macleod (non-executive) Chairman — Aberdeen Petroleum Company PLC Chairman — Abtrust Scotland Investment Co. PLC Chairman— Albyn of Stonehaven Limited Chairman — Ardroil Consultancy Services Limited Chairman — Ardroil Investment Company Limited Chairman — Britannia Life Investment Managers Limited Chairman— FS Assurance Limited Chairman — Glenburnie Properties Limited Chairman — Merlin Group PLC Chairman— Satrosphere Chairman — Scottish Council of Independent Schools Chairman — Templar Hotels Limited Chairman — The Harris Tweed Association Limited Director — Bank of Scotland (Aberdeen Local Board) Director — Bradstock, Blunt (Scotland) Limited Director — Britannia Life Limited Director — Britannia Life Unit Managers Limited Director — Britannia Life Trustees Limited Director — Callanish Limited Director — Countesswells Playingfield Limited Director — Grampian Television PLC Director — The Scottish Eastern Investment Trust PLC Stephen John Sebire Joint Deputy Company Director Chairman Chairman — Astbury House Limited (non-executive) Director — Berisfords Limited Director — Ennis Braces Limited Director — Jubilee House Properties Limited Director — Oak Properties Limited Director — Quality Printed Ribbons Limited Director — South and East Cheshire TEC (Development) Ltd Director — Startbright Limited Francis Michael Managing Director Building Society Executive Director Shaw Chairman — Britannia Independent Limited Chairman — Britannia Shield Property Services Limited Chairman — Britannia Motor Insurance Services Limited Chairman — Britannia Building Society Land & Development Company (Midlands) Limited Chairman — Britannia Development and Management Company Limited Chairman— Britannia Estate Agents Limited Chairman — Britannia Life Limited Director — Britannia Life Assurance Limited Director — Britannia Life Investment Managers Limited Director — Britannia Life Unit Managers Limited Director — Britannia (Isle of Man) Limited Director — Building Societies Trust Limited Director — Staffordshire Training and Enterprise Council Limited Governor — Staffordshire University Director — Britannia Conveyancing Services Limited Director — Britannia Shield Conveyancing Services Limited Director — Britannia Shield Financial Services Limited Director — Britannia (Overseas) Limited

21 The Financial Statements, Annual Business Statement and Directors' Report set out on pages 22 to 47 have been extracted from audited accounts of the Group for the years ended 31st December, 1991

FINANCIAL STATEMENTS

GROUP INCOME AND EXPENDITURE ACCOUNT

1991 1990 1989 Notes £000 £000 £000

Interest receivable 1 972,057 991,619 753,498 Interest payable 2 (827,731) (859,988) (628,173)

Net interest receivable 144,326 131,631 125,325 Other income and charges 3 33,950 27,306 22,745 Management expenses 4 (91,743) (80,161) (65,219) Provisions for loans and advances 13 (33,666) (7,330) (920) Income from associated bodies 7 11,173 2,932 — Provisions for estate agency loans 8 — (779) —

Profit on ordinary activities before tax 64,040 73,599 81,931 Tax on profit on ordinary activities 9 (21,777) (26,378) (29,476)

Profit for the financial year 24 42,263 47,221 52,455

SOCIETY INCOME AND EXPENDITURE ACCOUNT

1991 1990 1989 Notes £000 £000 £000

Interest receivable 1 973,418 992,484 753,612 Interest payable 1 (830,732) (860,985) (628,048)

Net interest receivable 142,686 131,499 125,564 Other income and charges 3 26,485 18,241 17,700 Management expenses 4 (82,960) (69,920) (57,906) Provisions for loans and advances 13 (33,666) (7,330) (920) Provisions for estate agency loans 8 (1,221) (3,805) —

Profit on ordinary activities before tax 51,324 68,685 84,438 Tax on profit on ordinary activities 9 (17,504) (25,827) (30,299)

Profit for the financial year 24 33,820 42,858 54,139

The notes on pages 27 to 47 form part of these Accounts.

22 GROUP BALANCE SHEET

ASSETS 1991 1990 1989 Notes £000 £000 £000

Liquid assets 10 1,400,406 1,263,577 960,796

Commercial assets Advances secured on residential property 11 6,523,483 5,701,479 5,015,203 Other advances secured on land 12 378,873 308,084 203,213 Other commercial assets 14 76,526 21,707 6,605

6,978,882 6,031,270 5,225,021 Fixed assets Tangible assets 16 130,184 119,523 97,928 Other assets 18 14,339 8,474 6,865

Total assets 8,523,811 7,422,844 6,290,610

LIABILITIES AND RESERVES Shares, deposits and loans Retail funds and deposits 19 6,467,734 5,461,751 4,775,205 Non-retail funds and deposits 20 1,547,486 1,414,802 1,090,098

8,015,220 6,876,553 5,865,303 Other liabilities 21 38,572 142,063 121,047 Provisions for liabilities and charges 22 — 1,019 2,612 Subordinated debt 23 86,585 51,472 —

Total liabilities 8,140,377 7,071,107 5,988,962 Revaluation reserve 24 26,458 28,275 20,407 Reserves 24 356,976 323,462 281,241

Total liabilities and reserves 8,523,811 7,422,844 6,290,610

The notes on pages 27 to 47 form part of these Accounts.

23 SOCIETY BALANCE SHEET

ASSETS 1991 1990 1989 Notes £000 £000 £000

Liquid assets 10 1,401,540 1,262,405 960,509

Commercial assets Advances secured on residential property 11 6,523,483 5,701,479 5,015,203 Other advances secured on land 12 387,749 316,190 206,232 Other commercial assets 14 86,759 35,336 9,220

6,997,991 6,053,005 5,230,655 Fixed Assets Tangible assets 17 113,214 114,561 94,387 Other assets 18 10,477 6,420 5,650

Total assets 8,523,222 7,436,391 6,291,201

LIABILITIES AND RESERVES Shares, deposits and loans Retail funds and deposits 19 6,157,480 5,192,047 4,775,205 Non-retail funds and deposits 20 1,520,495 1,425,372 1,089,991

7,677,975 6,617,419 5,865,196 Other liabilities 21 380,471 412,264 119,902 Provisions for liabilities and charges 22 — 1,019 2,612 Subordinated debt 23 86,585 51,472 —

Total liabilities 8,145,031 7,082,174 5,987,710 Revaluation reserve 24 26,458 28,275 20,407 Reserves 24 351,733 325,942 283,084

Total liabilities and reserves 8,523,222 7,436,391 6,291,201

The notes on pages 27 to 47 form part of these Accounts.

24 CONSOLIDATED STATEMENT OF SOURCE AND APPLICATION OF FUNDS

1991 1990 1989 SOURCE OF £000 £000 £000 FUNDS

Increase in freecapita l (below) 66,070 85,276 29,358 Advances and loans repaid by borrowers 683,831 655,758 627,083 Net receipts of retail funds and deposits 834,920 686,546 584,969 Net receipts of non-retail funds and deposits 128,460 326,176 302,924 Retail and non-retail funds acquired on transfer of engagements 175,400 — — (Decrease)/Increase in other liabilities (104,510) 19,423 12,543

Total source of funds 1,784,171 1,773,179 1,556,877

APPLICATION OF FUNDS Increase in liquid assets 136,829 302,781 110,537 Advances and loans made to borrowers 1,485,396 1,453,687 1,437,452 Advances and loans acquired on transfer of engagements 130,206 — — Increase in other commercial assets 54,819 15,102 6,101 Increase in other assets 5,865 1,609 2,787 Other items (being the increase in specific provisions for loans and advances) (28,944) — —

Total application of funds 1,784,171 1,773,179 1,556,877

INCREASE IN FREE CAPITAL Source of funds Profit on ordinary activities after tax 42,263 47,221 52,455 Adjustment for items not involving the movement of funds: Depreciation of tangible fixed assets 11,201 9,987 7,565 Loss (Profit) on disposal of fixed assets 89 374 (259) Increase in provision for loans and advances 4,579 6,782 790 Free capital acquired on transfer of engagements (4,093) — —

Funds generated from operations 54,039 64,364 60,551

Funds from other sources: Disposal of tangible fixed assets 5,800 1,323 1,053 Issue of subordinated debt 35,000 50,000 — Application of funds: Purchase of fixed assets: Purchase of tangible fixed assets (28,769) (25,411) (27,961) Purchase of goodwill (Note 15) — (5,000) (4,285)

Increase in free capital 66,070 85,276 29,358

The notes on pages 27 to 47for m part of these Accounts.

The Source and Application of Funds for 1991 incorporates the balances taken over following the transfer of engagements from the Mornington Building Society (Note 24).

25 ACCOUNTING POLICIES

BASIS OF ACCOUNTING The accounts are prepared under the historical cost convention as modified by the revaluation of properties and in accordance with applicable Accounting Standards.

BASIS OF CONSOLIDATION Assets, liabilities and results of subsidiaries are included in the consolidated accounts on the basis of accounts made up to 31st December, 1991, with the exception of the Britannia Life Group. In order to avoid undue delay in the preparation of these accounts, the accounts of the Britannia Life Group have been made up to 30th September, 1991. In order to present a true and fair view the results of the Britannia Life Group have been included on the equity method of accounting rather than being consolidated. This treatment was adopted because in the view of the Directors the activities of the Britannia Life Group are so dissimilar from the activities of the remainder of the Group.

GOODWILL Amounts paid for businesses in excess of the fair value of the tangible assets acquired are deducted from reserves in the year of acquisition.

LONG TERM ASSURANCE BUSINESS The value placed on the Group's long term assurance business represents a prudent valuation of policies in force, together with the net worth of the business, being the net tangible assets and the surplus retained within the long term assurance fund. This value is determined annually in consultation with independent actuaries and is included in the balance sheet. Changes in the value placed on long term assurance business are included in the income and expenditure account. For the purpose of presentation, the change in this value, which is determined on a post tax basis, is grossed up at the underlying rates of taxation in the long term assurance fund.

LIQUID ASSETS Listed securities held for trading purposes are stated at market value. U.K. Government Securities, except those held for trading purposes, are stated at cost less purchased accrued interest. Where the adjusted purchase cost differs from par value the premium or discount is amortised over the period to maturity. Other liquid assets are stated at cost. Interest is calculated on the accruals basis. Profits and losses on disposal are calculated by excluding the interest earned during the period of ownership.

TANGIBLE FIXED ASSETS AND Land and buildings are stated at open market valuation or cost if purchased since a revaluation. All the DEPRECIATION Society's land and buildings were revalued on 30th June, 1987. Since that date the Society has revalued one quarter of its properties each year. Freehold buildings are not depreciated because in the Directors' opinion their useful lives are so long that any depreciation charge would not be significant. Leasehold buildings are written off on a straight line basis over the period of the lease or 100 years, whichever is the shorter. The costs of the Society's branch refurbishment programme are included within land and buildings and are depreciated on a straight line basis over seven years. Equipment, fixtures, fittings and vehicles are stated at cost and are written-off on a straight line basis over their estimated useful lives, which range from five to ten years. Interest costs incurred in respect of major building projects are capitalised.

LEASES Assets acquired under finance leases are capitalised at fair value at the start of the lease, with the corresponding obligations being included in other liabilities on the balance sheet. The finance lease costs charged to the income and expenditure account are based on a constant periodic rate applied to the outstanding liabilities. The rentals paid for assets acquired under operating leases are charged to income and expenditure account in accordance with the terms of the individual lease.

PROVISIONS FOR Specific provisions are considered for potential losses on individual residential loans and advances which are ADVANCES AND either in possession or are three or more months in arrears. Specific provisions for commercial loans and LOANS advances are considered when the loan is first impaired. Provision has been made for unpaid interest up to the balance sheet date. General provisions are considered for potential losses on all other loans and advances based on the Directors' assessment of the recent experience of loan losses, anticipated trends for loan losses and other relevant factors. Interest on loans and advances that is considered to be irrecoverable is written off to the income and expenditure account. Allowance is made for potential recoveries under indemnity insurance arrangements, but no account is taken for potential recoveries from other third parties.

TAXATION Full provision is made for income tax on interest charged in the accounts. Corporation lax is provided at current rates on the profit for the year. Deferred tax is provided at current rates where it is considered that a liability is likely to arise in the foreseeable future.

PENSIONS The costs of providing retirement pensions and related benefits are charged to the income and expenditure account over the employees' period of service.

26 NOTES TO THE ACCOUNTS

For the year ended 31st December 1991

1 INTEREST RECEIVABLE Group Group Society Society 1991 1990 1991 1990 £000 £000 £000 £000 On secured advances 819,697 845,257 820,834 845,847 Other lending 376 664 608 822 On fixed interest liquid assets 134,598 133,099 134,598 133,216 (Loss)/profit on realisation of liquid assets (1,064) 2,709 (1,072) 2,709 On other liquid assets 18,450 9,890 18,450 9,890

972,057 991,619 973,418 992,484

2 INTEREST PAYABLE On retail funds and deposits 635,738 677,545 601,288 645,396 On non-retail funds and deposits: to associated bodies — — 39,109 23,732 to others 191,993 182,443 190,335 182,857

827,731 859,988 830,732 860,985

3 OTHER INCOME AND CHARGES Commissions receivable 20,053 17,353 15,227 12,810 Commissions payable (261) (697) (165) (655) Other operating income 14,158 10,650 10,723 6,086 Group dividend receivable — — 700 —

33,950 27,306 26,485 18,241

Other operating income includes rental income of 2,026 1,294 1,938 1,160

4 MANAGEMENT EXPENSES Staff costs Wages and salaries 31,988 27,180 27,848 23,774 Social security costs 2,367 2,096 2,013 1,806 Other pension costs 3,427 3,455 3,304 3,338 Other staff costs 2,663 3,060 2,647 3,051

40,445 35,791 35,812 31,969 Depreciation 11,201 9,987 10,584 9,350 Finance lease charges 1,306 1,066 1,300 1,051 Rents payable under property leases 2,932 2,100 2,637 1,728 Auditors' remuneration 103 119 81 86 Other expenses 35,756 31,098 32,546 25,736

91,743 80,161 82,960 69,920

27 NOTES TO THE ACCOUNTS

For the year ended 31st December 1991

5 DIRECTORS' REMUNERATION Society Society 1991 1990 £000 £000 Included in staff costs shown in note 4 are the following amounts in respect of the remuneration of the Society's directors: Fees 169 157 Other emoluments (including pension contributions) 371 299

540 456

Individual directors' emoluments (excluding pension contributions): The Chairman 45 42

Highest paid director 132 114

The other directors received remuneration in the following ranges: 1991 1990 Number Number £0– £5,000 1 £5,001 –£10,000 1 £10,001–£15,000 1 2 £15,001–£20,000 2 4 £20,001–£25,000 3 1 £40,001–£45,000 1 £45,001–£50,000 1 — £90,001–£95,000 — 1 £95,001–£100,000 1 —

6 EMPLOYEES' The average number of persons employed during the year was: Group Group Society Society 1991 1990 1991 1990 Number Number Number Number Full- Part- Full- Part- Full- Part- Full- Part- time time time time time time time time Head and administrative offices 751 17 686 16 751 17 686 16 Branch and subsidiaries' offices 1,616 510 1,495 489 1,283 369 1,219 341

2,367 527 2,181 505 2,034 386 1,905 357

The Britannia Building Society Pension Scheme provides defined staff benefits for the employees of the Society and for certain employees of subsidiary companies.

The costs have been assessed in accordance with the advice of a qualified actuary using the projected unit method. An actuarial assessment will be undertaken every three years. The latest assessment was at 6th April, 1990. The assumptions which have the most significant effect on the results of the valuation are those relating to the long term rates of yield on funds invested and of salary increases. These have been taken as 10% and 8% per annum respectively. In addition, allowances have been made for a service related salary scale and increases in post retirement benefits.

At the date of the latest valuation, the market value of the assets of the scheme was £25,579,000 and the actuarial value was sufficient to cover 87% of the accrued benefits that will be due to members, after allowing for future salary increases. The Society is maintaining a level of contributions so that the actuarial value of the fund will be equal to the value of accrued benefits within the future working life of the current membership.

28 NOTES TO THE ACCOUNTS

For the year ended 31st December 1991

7 INCOME FROM ASSOCIATED BODIES Group Group 1991 1990 £000 £000 Shared profits of associated bodies 3,491 960 increase in value of long term assurance business 7,682 1,972

11,173 2,932

The above income arises from the investment in Britannia Life Limited and its subsidiaries

8 PROVISION FOR ESTATE AGENCY LOANS Group Group Society Society 1991 1990 1991 1990 £000 £000 £000 £000 Provision for estate agency loans — 779 1,221 3,805

The continued recession in the property market has led to provisions totalling £1,221,000 (1990 £3,805,000) being made by the Society against loans granted to its estate agency subsidiaries. The amount of £779,000 for the Group in 1990 represents the net costs of the rationalisation programme undertaken in the prior year. No comparable costs were incurred in 1991.

9 TAX ON PROFIT ON ORDINARY ACTIVITIES Group Group Society Society 1991 1990 1991 1990 £000 £000 £000 £000 U.K. Corporation Tax at 33.25% (1990 35%) Current 18,997 27,971 18,523 27,420 Deferred 2,780 (1,593) (1,019) (1,593)

21,777 26,378 17,504 25,827

Included above, in respect of income from associated bodies, is deferred tax of £3,879,000 (1990 £1,026,000).

29 NOTES TO THE ACCOUNTS

For the year ended 31st December 1991

10 LIQUID ASSETS Group Group Society Society 1991 1990 1991 1990 £000 £000 £000 £000 Cash in hand and with banks In hand 3,855 7,744 3,826 7,734 With banks repayable: On demand 37,101 79,550 36,451 78,388 In not more than three months 478,550 400,622 478,550 400,622 In more than three months but not more than one year 182,000 345,060 182,000 345,060 In more than five years but not more than fifteen years 6,608 3,357 6,608 3,357

708,114 836,333 707,435 835,161

UK Government Securities Remaining maturity of: Not more than one year 49,577 53,000 49,577 53,000 More than one year but not more than five years 20,959 84,090 20,959 84,090

70,536 137,090 70,536 137,090

Other Securities Remaining maturity of: Not more than one year 332,856 68,501 332,856 68,501 More than one year but not more than five years 278,270 181,404 280,083 181,404

611,126 249,905 612,939 249,905

Accrued interest 10,630 40,249 10,630 40,249

Total liquid assets 1,400,406 1,263,577 1,401,540 1,262,405

U.K. Government securities above are all listed and have an aggregate market value of £70,183,000 (1990 £132,508,000). Other securities include £150,080,000 (1990 £94,100,000) issued by public bodies, together with listed securities whose cost and market value are £182,338,000 (1990 £134,808,000) and £181,427,000 (1990 £134,152,000) respectively.

11 ADVANCES SECURED ON RESIDENTIAL PROPERTY Group Group Society Society 1991 1990 1991 1990 £000 £000 £000 £000 Amounts outstanding 6,538,983 5,704,179 6,538,983 5,704,179 Less provisions for losses (Note 13) (15,500) (2,700) (15,500) (2,700)

6,523,483 5,701,479 6,523,483 5,701,479

12 OTHER ADVANCES SECURED ON LAND Group Group Society Society 1991 1990 1991 1990 £000 £000 £000 £000 Amounts outstanding 410,373 313,406 419,249 321,512 Less provisions for losses (Note 13) (31,500) (5,322) (31,500) (5,322)

378,873 308,084 387,749 316,190

30 NOTES TO THE ACCOUNTS

For the year ended 31st December 1991

13 PROVISIONS FOR LOSSES ON COMMERCIAL ASSETS Secured on residential Secured property on land Total £000 £000 £000 GROUP & SOCIETY At 1st January, 1991: General 1,180 1,586 2,766 Specific 1,520 3,736 5,256

2,700 5,322 8,022

Acquired on transfer of engagements General 3,232 2,223 5,455 Specific 4,426 2,012 6,438

Irrecoverable amounts written off General – – – Specific (3,669) (2,912) (6,581)

Charge to income and expenditure General (612) 5,191 4,579 Specific 9,423 19,664 29,087

8,811 24,855 33,666

At 31st December, 1991 15,500 31,500 47,000

Being: General 3,800 9,000 12,800 Specific 11,700 22,500 34,200

15,500 31,500 47,000

Interest of £16,600,000 on non-performing loans has not been recognised in the income and expenditure account. The mortgage loss provisions have been prepared on the basis that there will be no improvement in the mortgage market during 1992. Provisions acquired on transfer of engagements relate to the Mornington Building Society (Note 24).

14 OTHER COMMERCIAL ASSETS Group Group Society Society 1991 1990 1991 1990 £000 £000 £000 £000 Subsidiaries/Associated Bodies: Investments 67,000 11,906 61,400 28,825 Loans 2,496 2,622 25,359 6,511

69,496 14,528 86,759 35,336 Residential Developments in progress 7,030 7,179 —

76,526 21,707 86,759 35,336

Investments in Subsidiaries/Associated Bodies include £66,150,000 in respect of Britannia Life Limited. This represents net assets of £17,044,000 and the value of long term assurance business of £49,106,000.

The long term assurance business has been valued using the following key assumptions:

— Shareholders' risk discount rate of 12 1/2%

— Investment returns of 10.4% on fixed interest investments and 11.9% on equity investments

— Long term inflation rate of 4.9%

— The expenses, mortality and withdrawals for the future are consistent with Britannia Life's recent experience

The accounts of Britannia Life Group as at 30th September, 1991, show the amount of the Long Term Business Funds as £1,092,633,000. This liability is supported by invested assets of £1,115,814,000.

31 NOTES TO THE ACCOUNTS

For the year ended 31st December 1991

15 ASSOCIATED BODIES a) SUBSIDIARY COMPANIES

The Society has a direct interest in the ordinary share capital of the following subsidiary companies trading in the businesses indicated. They are wholly owned with the exception of Britannia Motor Insurance Services Limited and Britannia New Homes Limited, where the Society owns half the share capital represented by its holding of all the 'A' class ordinary shares. Registered in England and operating in the United Kingdom:

— Britannia Shield Property Services Limited — Estate Agency — 100 per cent owned — Britannia Building Society Land and Development Company (Midlands) Limited — Property Development — 100 per cent owned — Britannia Independent Limited — Insurance Services — 100 per cent owned — Britannia Development and Management Company Limited — Property Investment — 100 per cent owned — Britannia Motor Insurance Services Limited — General Insurance — 50 per cent owned — Britannia New Homes Limited — Property Development — 50 per cent owned — Mornington Information Technology Services Limited — Support for Banking Services — 100 per cent owned — The Mortgage Agency PLC — Mortgage Bureau Services — 100 per cent owned Registered in England and operating overseas: — Britannia (Isle of Man) Limited — Deposit Taking — 100 per cent owned Registered in Scotland: — Britannia Life Limited — Life Assurance — 100 per cent owned

Britannia Shield Property Services Limited has the following wholly owned subsidiaries, registered in England, operating in the United Kingdom trading in the businesses indicated: — Britannia Estate Agents Limited — Estate Agency — Frazer's Financial Services Limited — Insurance Services In May, 1991, Britannia Life Assurance Limited, a wholly owned subsidiary of Britannia Life Limited, acquired the long term life business of Crusader Insurance Plc for £47,000,000, which is represented by assets of £13,400,000 and an embedded value of £33,600,000. Costs of acquisition of £800,000 have been written off to the income and expenditure account. Britannia Life Assurance Limited is the only subsidiary of Britannia Life Limited which trades in the life assurance business in the United Kingdom. The company is registered in Scotland.

b) OTHER DIRECTLY HELD ASSOCIATED BODIES

The Society has the following direct associated bodies, which operate in the United Kingdom, trading in the activities indicated:

Interest in Ordinary Registered In Share Capital – Britannia Life Unit Managers Limited – Investment Managers Scotland 39.2% – Nexus Payment Systems International Limited – Banking Services England 2.3% – Northern Renewals Plc – Property Development England 0.1%

The holding in Nexus Payment Systems International Limited is in 'B' class ordinary shares.

The Society has membership rights in Link Interchange Network Limited (LINK) and Funds Transfer Sharing Limited (FTS), private companies registered in England limited by guarantee. LINK provides the Society and others with automated teller machine facilities operating throughout the United Kingdom. Both FTS and LINK are direct associated bodies of the Society. Their results have been excluded from the accounts as, in the opinion of the Directors, they are not material.

32 NOTES TO THE ACCOUNTS

For the year ended 31st December 1991

16 GROUP TANGIBLE FIXED ASSETS Equipment, Land and fixtures, fittings buildings and vehicles Total £000 £000 £000 Cost and valuation At 1st January, 1991 105,536 46,416 151,952 Transfer of engagements 865 634 1,499 Deficit on revaluation (2,449) — (2,449) Additions 20,125 8,644 28,769 Disposals (3,228) (3,143) (6,371)

120,849 52,551 173,400

Depreciation At 1st January, 1991 6,990 25,439 32,429 Transfer of engagements 23 45 68 Charge for the year 3,492 7,709 11,201 Eliminated in respect of disposals (19) (463) (482)

10,486 32,730 43,216

Net book amount At 31st December, 1991 110,363 19,821 130,184

At 31st December, 1990 98,546 20,977 119,523

Assets acquired on transfer of engagements relate to the Mornington Building Society (Note 24).

The net hook amount of land and buildings is represented by: 1991 1990 £000 £000 Freehold 97,885 88,155 Long Leasehold 6,003 4,075 Short Leasehold 6,475 6,316

110,363 98,546

Being at: Cost 24,294 10,028 Valuation 86,069 88,518

110,363 98,546

Equipment, fixtures, fittings and vehicles include the following amounts relating to finance leases: Cost 8,021 6,812 Depreciation (5,631) (4,311)

Net Book Amount 2,390 2,501

Land and buildings in the U.K. were revalued on the basis of an open market valuation for existing use at 30th June, 1987. In accordance with the accounting policy one quarter of the Group's properties have been revalued every 30th June since. All valuations were undertaken by qualified Surveyors (ARICS and FSVA).

Land and buildings include Class 3 Assets of £14,824,000 (1990 £19,042,000).

33 NOTES TO THE ACCOUNTS

For the year ended 31st December 1991

17 SOCIETY Equipment TANGIBLE fixtures FIXED ASSETS Land and fittings and buildings vehicles Total £000 £000 £000 Cost and Valuation At 1st January, 1991 101,952 43,848 145,800 Transfer of engagements 865 150 1,015 Deficit on revaluation (2,449) — (2,449) Additions 8,268 8,206 16,474 Disposals (3,162) (2,954) (6,116)

105,474 49,250 154,724

Depreciation At 1st January, 1991 6,746 24,493 31,239 Transfer of engagements 23 45 68 Charge for the year 3,411 7,173 10,584 Eliminated in respect of disposals — (381) (381)

10,180 31,330 41,510

Net Book Amount At 31st December, 1991 95,294 17,920 113,214

At 31st December, 1990 95,206 19,355 114,561

Assets acquired on transfer of engagements relate to the Mornington Building Society (Note 24).

The net book amount of land and buildings is represented by: 1991 1990 £000 £000 Freehold 83,701 85,841 Long Leasehold 5,691 3,760 Short Leasehold 5,902 5,605

95,294 95,206

Being at: Cost 9,225 6,688 Valuation 86,069 88,518

95,294 95,206

Equipment, fixtures, fittings and vehicles include the following amounts relating to finance leases: Cost 7,893 6,717 Depreciation (5,575) (4,275)

Net Book Amount 2,318 2,442

Land and buildings in the U.K. were revalued on the basis of an open market valuation for existing use at 30th June, 1987. In accordance with the accounting policy, one quarter of the Society's properties have been revalued every 30th June since. All revaluations were undertaken by qualified Surveyors (ARICS and FSVA).

Land and buildings include Class 3 Assets of £14,824,000 (1990 £19,042,000).

18 OTHER ASSETS Group Group Society Society 1991 1990 1991 1990 £000 £000 £000 £000 Amounts falling due within one year: Prepayments and accrued income 4,763 5,156 3,675 4,567 Other debtors 9,576 3,318 6,802 1,853

14,339 8,474 10,477 6,420

34 NOTES TO THE ACCOUNTS

For the year ended 31st December 1991

19 RETAIL FUNDS AND DEPOSITS Group Group Society Society 1991 1990 1991 1990 £000 £000 £000 £000 Shares 5,680,755 5,097,696 5,680,755 5,097,696 Deposits 332,478 304,323 43,398 46,004

6,013,233 5,402,019 5,724,153 5,143,700 Accrued interest 454,501 59,732 433,327 48,347

6,467,734 5,461,751 6,157,480 5,192,047

Repayable: On demand 5,753,622 4,668,027 5,548,654 4,562,502 In not more than three months 187,127 247,065 86,411 194,980 In more than three months but less than one year 522,415 546,659 522,415 434,565 In more than five years 4,570 — — —

6,467,734 5,461,751 6,157,480 5,192,047

20 NON-RETAIL FUNDS AND DEPOSITS Group Group Society Society 1991 1990 1991 1990 £000 £000 £000 £000 Amounts owed to banks 100,761 25,209 100,000 25,000 Certificates of deposit 251,750 251,834 251,750 251,834 Floating rate notes 525,573 525,573 525,573 525,573 Other deposits and loans 628,773 580,566 605,003 591,345

1,506,857 1,383,182 1,482,326 1,393,752 Accrued interest 40,629 31,620 38,169 31,620

1,547,486 1,414,802 1,520,495 1,425,372

Repayable: On demand 85,511 102,663 84,750 113,233 In not more than three months 511,028 516,878 511,028 516,878 In more than three months but not more than one year 185,389 114,370 185,389 114,370 In more than one year but not more than five years 664,517 482,089 664,517 482,089 In more than five years 101,041 198,802 74,811 198,802

1,547,486 1,414,802 1,520,495 1,425,372

21 OTHER LIABILITIES Group Group Society Society 1991 1990 1991 1990 £000 £000 £000 £000 Payable within one year: Income tax 2,304 102,912 2,304 102,912 Corporation tax 17,091 25,892 18,455 27,351 Other creditors 16,764 10,750 13,035 9,135 Finance leases 1,330 1,034 1,300 1,010 Amounts due to subsidiaries — — 344,359 270,424

37,489 140,588 379,453 410,832

Payable in more than one year: Finance leases (payable 1993/96) 1,083 1,475 1,018 1,432

38,572 142,063 380,471 412,264

35 NOTES TO THE ACCOUNTS

For the year ended 31st December 1991

22 PROVISIONS FOR LIABILITIES AND CHARGES Group Group Society Society 1991 1990 1991 1990 £000 £000 £000 £000 Deferred taxation at 33% At 1st January, 1991 1,019 2,612 1,019 2,612 Amounts provided during year (1,019) (1.593) (1,019) (1,593)

At 31st December, 1991 — 1,019 — 1,019

The amounts provided for deferred taxation are set out below: Accrued interest 1,302 1,996 1,302 1,996 Accelerated capital allowances 724 1,194 724 1,194 Other timing differences (2,026) (2,171) (2,026) (2,171)

— 1,019 — 1.019

In addition no provision has been made in respect of the estimated potential liability of £8,797,000 (1990 £8,577,000) which may arise if the land and buildings were disposed of at their revalued amounts.

23 SUBORDINATED DEBT Group Group Society Society 1991 1990 1991 1990 £000 £000 £000 £000 Floating rate subordinated notes maturing 2006 35,000 — 35,000 — Floating rate subordinated notes maturing 2015 50,000 50,000 50,000 50,000 Accrued interest 1,585 1,472 1,585 1,472

86,585 51,472 86,585 51,472

The above notes have been issued in order to increase the Society's capital base and provide capital backing tor future developments which may be undertaken. Subsequent to the year end, further undated mandatorily convertible subordinated notes for £60,000,000 have been issued.

24 RESERVES General Revaluation reserve reserve £000 £000 Group: At 1st January, 1991 323,462 28,275 Reserves acquired on transfer of engagements (8,749) 632 Deficit on fixed asset revaluations — (2,449) Profit for the financial year 42,263 —

356,976 26,458

Society: At 1st January, 1991 325,942 28,275 Reserves acquired on transfer of engagements (8,029) 632 Deficit on fixed asset revaluations — (2,449) Profit for the financial year 33,820 —

351,733 26,458

On 1st October, 1991, the Society accepted the transfer of engagements of the Mornington Buildings Society and its subsidiaries. Of its subsidiaries, only The Mortgage Agency PLC was trading at the time of the transfer.

The total assets and liabilities of the Mornington Building Society, totalling £169,516,000 and £176,913,000 respectively, acquired on transfer of engagements are incorporated with effect from the date of transfer. The General Reserve includes a deficit on reserves of £8,029,000 which was transferred in respect of the Mornington Building Society. A further deficit on General Reserve of £720,000 arose on consolidation as a result of the assets being transferred in at their fair value. The Revaluation Reserve of the Mornington Building Society of £632,000 has also been transferred in.

The General Reserve includes £7,457,000 of unrealised profits in respect of the increase in value of long term assurance business this year.

36 NOTES TO THE ACCOUNTS

For the year ended 3 1st December 1991

25 FUTURE COMMITMENTS Group Group Society Society 1991 1990 1991 1990 £000 £000 £000 £000 Capital Commitments Contracted for but not provided in the accounts 6,075 17,301 4,384 4,797

Authorised by the Directors but not contracted for 159 2,419 — 2,225

Operating leases Annual payments committed at the end of the year in respect of leases on land and buildings: Expiring 1992 143 102 142 91 Expiring between 1993 and 1996 101 106 31 85 Expiring after 1996 2,845 2,449 2,389 1,976

3,089 2,657 2,562 2,152

26 CONTINGENT LIABILITIES The Society has a contingent liability in respect of contributions to the Building Societies Investor Protection Fund provided for by the Building Societies Act 1986. Its subsidiary, Britannia (Isle of Man) Limited, also has a contingent liability under the Depositors Compensation Scheme based on the Isle of Man.

The Society is obliged under the Building Societies Act 1986 to discharge the liabilities of its subsidiary companies and certain other associated bodies in so far as those bodies are unable to discharge the liabilities out of their own assets.

27 LOANS TO DIRECTORS AND CONNECTED PERSONS Society Society 1991 1990 £000 £1000 Loans outstanding to 11 persons (1990 11) 515 365

A register of loans to and transactions with Directors and connected persons is maintained. It is available for inspection by members at the Society's Chief Office from 8th April, 1992 up to and including 22th April, 1992 and at the Annual General Meeting.

37 ANNUAL BUSINESS STATEMENT

For the year ended 31st December 1991

Section 74 of the Building Societies Act 1986 (The Act) requires that the Society prepares an annual business statement containing the information specified under the Building Societies (Accounts and Related Provisions) Regulations 1987. The information given below is in accordance with these regulations and has been prepared from the Annual Accounts.

1 STATUTORY RATIOS Statutory Limit % % Non-retail Funds and Deposits as a percentage of total Shares, Deposits and Loans 20.9 40.0 Deposits and Loans as a percentage of total Shares, Deposits and Loans 25.3 50.0 As percentages of total Commercial Assets: Advances secured on residential property (Class 1) 93.3 — Advances on land other than residential property (Class 2) 5.4 17.5 Other Commercial Assets (Class 3) 1.3 10.0 Class 2 and Class 3 Assets 6.7 20.0

NOTES 1. Non-retail funds are defined by Section 7(4) of the Act. They include transferable instruments, time deposits, and investments by corporate bodies, trade unions, charities and occupational pension schemes. The Act provides that the liabilities of the Society in respect of its non-retail funds shall be limited to 40 per cent of the total of the Society's Shares, Deposits and Loans liabilities. 2. Shares, Deposits and Loans liabilities are those shown in the Annual Accounts plus subordinated debt but excluding accrued interest. 3. The Act requires that at least 50 per cent of the funds raised by a Building Society must be in the form of Shares. The Statutory limit on non-retail funding by deposits and loans is, therefore, 50 per cent. 4. Class 1 Assets represent advances secured on residential property. These are principally defined in the Act as being advances on land to: (1) an individual, and (2) the land is for residential use, and (3) the amount advanced will not exceed the value of the basic security, and (4) no other mortgage is outstanding in favour of a person other than the Society. 5. Class 2 Assets represent other advances secured on land. The Act requires that there must be adequate security for the Society and that there is not more than one other mortgage on the land outstanding in favour of a person other than the Society. 6. Class 3 Assets represent other commercial assets permitted by Sections 15 to 18 of the Act. 7. The Statutory limit as at 31st December, 1991, for Class 3 Assets is 10 per cent of the total of Commercial Assets and for the total of Class 2 and 3 Assets is 20 per cent of the total of Commercial Assets. 8. Total Commercial Assets are those as shown in the Balance Sheet plus the Class 3 Land and Buildings shown in Note 16 to the Accounts.

2. OTHER PERCENTAGES Group Group 1991 1990 % % Gross Capital as a percentage of Shares, Deposits and Loans 6.2 5.9 Free Capital as a percentage of Shares, Deposits and Loans 4.6 4.2 Liquid Assets as a percentage of Total Assets 16.4 17.0 Profit after tax as a percentage of mean reserves 11.5 14.5 Profit after tax as a percentage of mean total assets 0.5 0.7

NOTES 1. Gross capital represents both general and revaluation reserves plus subordinated liabilities excluding accrued interest. 2. Free capital represents the aggregate of gross capital and general loss provisions, less fixed assets. 3. Shares, Deposits and Loans liabilities are those as shown in the Annual Accounts excluding accrued interest. 4. Liquid assets and profit after tax are those shown in the Annual Accounts. 5. Mean reserves represent the amount produced by halving the aggregate of general and revaluation reserves as stated in the relevant Balance Sheets. 6. Mean total assets represent the amount produced by halving the aggregate of total assets as stated in the relevant Balance Sheets.

38 ANNUAL BUSINESS STATEMENT

For the year ended 31st December 1991

3. DIRECTORS AND OTHER OFFICERS DIRECTORS Date of Date first Birth appointed Chairman J. L. Hill, MA., CEng., MIMechE., FIRM. c/o The Loss Prevention Council, 140 Aldersgate Street, London, ECIA 4HY. 21.7.1934 18.4.1984 Business Occupation Company Director and Chartered Engineer Other Directorships Managing Director — The Loss Prevention Certification Board Limited Director — The Arson Prevention Bureau Director — Britannia Estate Agents Limited Director — Britannia Shield Property Services Limited Director — Britannia Life Limited Director — The National Approval Council for Security Systems Director — The Institute of Risk Management

T. J. Bayley, FCA. "Springfield", 29 Armshead Road, Werrington, Stoke-on-Trent, Staffs., ST9 0EF. 22.9.1951 1.6.1988 Business Occupation Building Society Executive Director Other Directorships Chairman — Britannia New Homes Limited Chairman — Mornington Information Technology Services Limited Chairman — The Mortgage Agency PLC Director — Britannia Life Limited Director — Britannia Independent Limited Director — Britannia Motor Insurance Services Limited Director — Britannia Building Society Land and Development Company (Midlands) Limited Director — Britannia Development and Management Company Limited Director — Britannia Life Investment Managers Limited Director — Britannia Life Unit Managers Limited Director — Britannia Life Managed Pension Funds Limited Director — BL Unit Trust Managers Limited Director — Britannia Life Assurance Limited

Sir David Berriman, MA., FCIB., CBIM. "Ashenden", Tree Lane, Plaxtol, Nr. Sevenoaks, Kent, TN15 0QA. 20.5.1928 1.7.1983 Business Occupation Company Director Other Directorships Chairman — MacIntyre Chairman — MacIntyre Foundation Director — Ashenden Enterprises Limited Director — Britannia Estate Agents Limited Director — Britannia Shield Property Services Limited Director — Central European Property Development Limited Director — City Centre Communications Limited Director — East European Development Limited Director — Kent Community Housing Trust Director — KDB Bank (UK) Limited Director — The National Film and Television School Director — National Film School Distribution Company Limited Director — Videotron Corporation Limited Director — Videotron London Limited Director — Videotron South Limited

39 ANNUAL BUSINESS STATEMENT

For the year ended 3 1st December 1991

3 DIRECTORS AND OTHER OFFICERS DIRECTORS (continued) Date of Date first Birth appointed J. G. Fenton, FSVA. "Chestnut Tree House", Puddy Lane, Stanley, Stoke-on-Trent, Staffordshire, ST9 9LU. 8.12.1937 1.7.1991 Business Occupation Building Society Executive Director Other Directorships Director —Britanni a (Isle of Man) Limited Director —Britanni a (Isle of Man) Limited (Manx Registered) Director —Britanni a Motor Insurance Services Limited Director —Britanni a Development and Management Company Limited Director — Frazer's Financial Services Limited

C. R. Godwin, FCA. "Greencroft", Priest Lane, Cartmel, Cumbria, LA11 6PT. 23.8.1933 1.7.1990 Business Occupation Chartered Accountant and Company Director Other Directorships Chairman —Britanni a (Isle of Man) Limited Chairman —Britanni a (Isle of Man) Limited (Manx Registered) Chairman —Mason s of Leek Limited Chairman —NW F Limited Chairman — Cartmel Investments Limited Chairman — Cartmel Management Services Limited Director — Allen plc Director — KFC (London) Limited Director — Readicut International plc Director — South Cumbria Healthcare Trust Director — WW Group Limited

J. E. Heaps, ACBSI., MBIM. "Cloisters", 1 Basford Bridge Lane, Cheddleton, Staffordshire, ST13 7EQ. 24.2.1939 1.7.1991 Business Occupation Building Society Executive Director Other Directorships Director — Mornington Information Technology Services Limited Director —Th e Mortgage Agency PLC

40 ANNUAL BUSINESS STATEMENT

For the year ended 31st December 1991

3 DIRECTORS AND OTHER OFFICERS DIRECTORS (continued) Date of Date first Birth appointed C. A. MacLeod, CBE., MA., LLB., LLD. 6 Westfield Terrace, Aberdeen, AB2 4RU. 25.7.1935 18.12.1991 Business Occupation Company Director Other Directorships Chairman — Aberdeen Petroleum Company plc Chairman — Abtrust Scotland Investment Company plc Chairman — Albyn of Stonehaven Limited Chairman — Ardroil Consultancy Services Limited Chairman — Ardroil Investment Company Limited Chairman — Britannia Life Limited Chairman — Britannia Life Investment Managers Limited Chairman — Britannia Life Unit Managers Limited Chairman — Britannia Life Trustees Limited Chairman — FS Assurance Limited Chairman — Glenburnie Properties Limited Chairman — Merlin Group plc Chairman — Satrosphere Chairman — Scottish Council of Independent Schools Chairman — Templar Hotels Limited Chairman — The Harris Tweed Association Limited Director — Bank of Scotland (Aberdeen Local Board) Director — Bradstock, Blunt (Scotland) Limited Director — Callanish Limited Director — Countesswells Playingfield Limited Director — Grampian Television plc Director — The Scottish Eastern Investment Trust plc

Mrs. E. A. Ross, MA. East Burne Farm, Bickington, Newton Abbot, Devon, TQ12 6PA. 7.3.1935 24.4.1986 Business Occupation Partner — Farm Holiday Centre Other Directorships Chairman — Fruxown Investments Limited Director — Enbee Crescent Investments Limited Director — Houseley Estates Limited Director — Litrebay Limited

S. J. Sebire. Great Oak Farm, Congleton Road, Bosley, Nr. Macclesfield, Cheshire, SK11 0PW. 23.3.1937 1.7.1983 Business Occupation Company Director Other Directorships Chairman — Astbury House Limited Director — Berisfords Limited Director — Berisfords (Ribbons) Limited Director — Bridgefind Limited Director — Clare Textiles Limited Director — Ennis Braces Limited Director — Ennis Dyers Limited Director — Hewetsons Limited Director — Oak Properties Limited Director — Quality Printed Ribbons Limited Director — South and East Cheshire TEC (Development) Ltd. Director — Startbright Limited

41 ANNUAL BUSINESS STATEMENT

For the year ended 31st December 1991

3 DIRECTORS AND OTHER OFFICERS DIRECTORS (continued) Date of Date first Birth appointed F. M. Shaw. FCA., FCBSI., CBIM. "Rock House", 711 Cheadle Road, Wetley Rocks, Stoke-on-Trent, Staffordshire, ST9 0BA. 12.8.1936 1.7.1985 Business Occupation Building Society Executive Director Other Directorships Chairman —Britanni a Independent Limited Chairman — Britannia Shield Property Services Limited Chairman — Britannia Motor Insurance Services Limited Chairman —Britanni a Building Society Land & Development Company (Midlands) Limited Chairman — Britannia Development and Management Company Limited Chairman — Britannia Estate Agents Limited Director —Britanni a Life Limited Director — Britannia Life Assurance Limited Director — Britannia Life Investment Managers Limited Director — Britannia Life Unit Managers Limited Director — Britannia (Isle of Man) Limited Director — Britannia (Isle of Man) Limited (Manx Registered) Director — Building Societies Trust Limited Director — Staffordshire Training and Enterprise Council Limited Governor — Staffordshire Polytechnic Director —Britanni a Conveyancing Services Limited Director —Britanni a Shield Conveyancing Services Limited Director — Britannia Shield Financial Services Limited Director — Britannia (Overseas) Limited

The Rt. Hon. The Earl of Shrewsbury & Waterford. c/o The House of Lords, Westminster, London, SWI. 18.12.1952 18.4.1984 Business Occupation Farmer and Peer of the Realm Other Directorships Chairman and Managing Director —Sportin g Pursuits Limited Director —Richmoun t Enterprize Zone Managers Limited

OFFICERS P. Ammundsen, BA(Hons). G. E. Belfield. C.J. Bonsall, FBIM. P. H. Davis, ACIB., FCBSL, MST. B. W. Dolphin, MBCS. G.D. Fleet, ACIB. G. Gregory, BA(Hons)., MA. R. G. Hewson, FCIS., FCBSI. G. Lowe. D. Mawdsley, MBCS. P. A. Mills, BSc(Hons)., ACA. L. N. C. Mullinger, FCA., MBIM. L. Owen, FCIS., FCBSI. R. H. Parker, BSc(Hons)., ACGI., FCA. N. Rawlinson, MBIM. M.J.Sproat, MBCS. A. S. Thompson, FCBSI., MBIM.

42 ANNUAL BUSINESS STATEMENT

For the year ended 31st December 1991

4 DIRECTORS' SERVICE CONTRACTS Mr. F. M. Shaw has a service contract with the Society which, unless notice to terminate is given, continues until 31st July, 1994. From 1st January, 1992, Mr. J. E. Heaps, Mr. T. J. Bayley and Mr. J. G. Fenton each have three year service contracts with the Society which, unless notice to terminate, is given, continue to the age of 60.

5 AVERAGE RATES For the Society and its subsidiaries, the following average rates of interest were received and paid on its assets and liabilities: 1. Assets Average Amount Interest Average Outstanding Earned Yield £ millions £ millions % Liquid Assets 1,307 153 11.7 Secured Advances (Class 1 and 2 Assets) 6,456 820 12.7 2. Liabilities Average Amount Interest Average Outstanding Paid Rate Paid £ millions £ millions % Retail Funds and Deposits 5,708 636 11.1 Non-Retail Funds and Deposits 1,512 192 12.7 NOTES 1. Average amount outstanding during the financial year represents the amount obtained by halving the aggregate of the relevant asset, or liability, as stated in the relevant balance sheet, excluding accrued interest. Non-Retail Funds and Deposits have been adjusted to include subordinated liabilities excluding interest. 2. Interest earned represents the amount shown in the Income and Expenditure Account in respect of the relevant asset. 3. Interest paid represents the amount shown in the Income and Expenditure Account in respect of the relevant liability. 4. Average yield represents the percentage of interest earned on the relevant asset. 5. Average rate paid represents the percentage of interest paid net of tax, if appropriate, on the relevant liability.

6 DORMANT ASSOCIATED BODIES The Society holds 100% of the ordinary share capital of the following companies, which have been dormant since acquisition: — Britannia Conveyancing Services Limited — Britannia Shield Conveyancing Services Limited — Britannia Shield Financial Services Limited — Britannia (Overseas) Limited — The Mortgage Managers Limited — Mortgage Agency Services Limited — Britannia (Isle of Man) Limited They are all registered in England, with the exception of Britannia (Isle of Man) Limited, which is registered in the Isle of Man. Britannia Shield Property Services Limited has the following wholly owned companies, registered in England, which are now dormant having traded previously (* — dormant since acquisition): — Britannia Building Society Estate Agents Limited* — Britannia Estate Agents (East Anglia) Limited — Britannia Estate Agents (London) Limited — Hall Pain and Foster Limited — Michael Duffy Limited — Taylor Wood Limited

7 NEW POWERS The Society has not exercised any new powers during 1991.

43 DIRECTORS' REPORT

For the year ended 31st December 1991

BUSINESS OBJECTIVES The principal objective of Britannia Building Society is to continue to be a major supplier of financial products & ACTIVITIES and services to support residential house purchases and personal investment. Our aim is continuously to offer and provide superior services which meet the evolving needs of our customers and are of the best possible value. No activities have been carried on during the year which were outside the powers of the Society.

REVIEW OF THE YEAR From a strong position at the start of the year, steady growth has been achieved — particularly in market share — for both net receipts and net advances. Against a depressing backcloth of high interest rates, a stagnant residential housing market and rising unemployment, there has been sound development of mortgage and investment business. A number of initiatives have been taken during the year to contain costs and increase peripheral income, resulting in an increase in underlying profitability. However, in the depressed market place for commercial property and home ownership the Society has, in common with other lenders, found it necessary to make unprecedented provision for mortgage losses on non-performing loans. A number of major projects and programmes were successfully launched in 1991, all of which are expected to deliver significant long term benefits to the Society. In May, the Society increased its investment in the life insurance industry through Britannia Life's acquisition of Crusader Insurance, thereby increasing total funds under management by £700 million. Contributions to profits from Britannia Life increased significantly compared with 1990, and the acquisition will not only provide further economies of scale but will also help the Society to offer a wider range of products and services. In pursuance of our expansion strategy, a merger with Mornington Building Society was effected on 1st October. As a consequence, The Mortgage Agency, previously a subsidiary of the Mornington, now operates within Britannia, supporting a variety of services and products on a bureau basis for other financial institutions. Britannia Independent Limited continues to offer independent investment and financial planning advice from separate offices in Stoke-on-Trent. The Total Quality Management initiative has progressed during the year and in 1991 particularly emphasis has been placed on the quality of administrative procedures. All processes are under scrutiny to ensure they are made as efficient and effective as possible for the benefit of both customers and staff. The Society's commitment to developing its service to customers and the ability of branches to deliver profitable business is reflected in several new projects which are either in place or under way. Services introduced to customers in 1991 reflect the Society's continuing investment in the latest information technology. Britannia's new current account, REACT365, was launched with great success. A 'faster response' mortgage application system has been introduced. Customer Service Advisers have improved access to information, thus increasing their ability to service customers' enquiries at branches. New sales support teams have been introduced at Head Office, shortening lines of communication to the branches. Further office automation at Head Office is also proving to be beneficial. The Society will continue to improve branch and Head Office links by developing new systems and new channels of communication. Construction of the new Head Office complex, Britannia House, is now nearing completion and the building will be ready for occupation in April, 1992. This building, linked by a service road subway and a re-designed traffic management system to Newton House, reflects Britannia's position amongst the leading financial service organisations. It will provide additional accommodation and a range of enhanced facilities thus enabling the Society to expand to meet the ever increasing expectations of customers, and further consolidate its strong position in the marketplace. Despite the continuing difficult market conditions, Britannia has successfully supported four joint ventures with residential property developers to provide a wide range of housing. As a consequence of the low level of activity in the residential property market, the Society has further rationalised the Estate Agency network. Whilst short term costs have been minimised, the Society recognises the strategic benefits which accrue from a network of Estate Agents.

DONATIONS During the year the Society and its subsidiary companies made charitable donations totalling £20,016. No contributions were made for political purposes.

STAFF POLICIES The Society is an equal opportunity employer and all employees receive equal opportunities for training and career development. We continue to make every effort to support the employment of disabled persons wherever possible and no restriction is placed on their training, career development and promotion. Additional training has been provided to support the initiative to create Head Office teams, directly responsible for daily liaison with specific branch offices. The stronger Branch and Head Office relationships do much to improve further the quality of service to our customers. Formal negotiations and informal discussions take place with the Britannia Building Society Staff Association, which is a registered Trade Union. Training offices are now established in various parts of the country, providing direct support to branch staff in the furtherance of their day to day operational duties. The Directors record their appreciation to all Staff and Agents for their loyal service and enthusiastic support in another busy and successful year.

44 DIRECTORS' REPORT

For the year ended 31st December 1991

RESULTS

Group profits before taxation and provisions for mortgage losses were £97,706,000, representing an increase of 20.7% over last year. Profits after tax have reduced by 10.5% substantially due to increased mortgage provisions which total £33,666,000 in the year. It is a satisfactory result given the difficult mortgage market.

RESERVES (CAPITAL) The profit after tax for the year of £42,263,000 has been added to the General Reserve which now amounts to £356,976,000. This, together with the Revaluation Reserve of £26,458,000, brings the total reserves to £383,434,000. At the end of the year, the gross capital as a percentage of Shares, Deposits and Loans liabilities was 6.2% (1990 5.9%) and the free capital assessment on the same basis was 4.6% (1990 4.2%). The Society's capital position remains very strong and was strengthened further during 1991 as £35m of subordinated debt, structured in two tranches, was arranged to support the purchase of Crusader by Britannia Life.

RETAIL FUNDING A total of £834,920,000, including accrued interest, was received from members and depositors during the year. This represents an increase of 21.6% over the previous year.

NON-RETAIL Britannia continued to have a daily presence throughout 1991 in the wholesale markets in order to provide FUNDING additional funding to meet lending commitments Funding has been raised from a variety of markets throughout the year and the Society's objective has been to minimise borrowing costs and achieve better maturity matches against mortgage business written. Apart from the more routine short-term money market transactions, seven year funding has been raised by a syndicated bank loan supported by a very high quality group of banks, and by a seven year New Zealand Dollar Bond Issue. We have also continued to issue commercial paper in both sterling and US dollars. Innovative mortgage and investment products have been designed and funded using Treasury expertise and these have been well received by our customers. The Society will continue to seek to broaden its non-retail funding base covering as wide a range of markets as possible in order to diversify risk and reduce borrowing costs.

LIQUID ASSETS At 31st December, 1991, liquid assets in the form of cash, bank balances and authorised investments amount to £1,400,406,000 representing 16.4% of total assets. The objective has remained to minimise the credit risk of these investments and to maximise the return from investments placed with well proven and reputable institutions over a widely diversified range of sectors and countries.

ASSETS The assets of the Society and its subsidiary companies at 31st December, 1991, totalled £8,523,811,000, an increase during the year of £1,100,967,000 being I4.8%.

MORTGAGES Despite the stagnant residential housing market, the Society has been able to maintain its level of lending. During 1991 a total of £1,485,396,000 was advanced and the number of mortgages completed was 31,361. The Society has continued to expand its range of mortgage products to ensure that a full choice is available to our existing and potential borrowing members. At 31st December, 1991, there were 4,485 mortgage accounts which were twelve or more months in arrears and the total amount of such arrears was £40,169,000. This represents approximately 1.5% of the total number of mortgage accounts. However, in common with other lenders, difficult market and economic conditions have adversely affected the residential and commercial loan portfolios, and the Directors have judged it prudent to provide £47,000,000fo r future possible losses. The Society's lending policy is kept under constant review to ensure that all economic factors are taken into account and that losses to both borrowing members and the Society are minimised. The Society has extended its counselling service to borrowers who are in arrears on their mortgage payments. It strongly seeks to encourage those who are in financial difficulty to make contact as soon as possible and before significant problems arise.

FUTURE DEVELOPMENTS

Your Directors anticipate a continuing low level of activity in the residential mortgage market, particularly during the early part of 1992, but hope that a period of lower interest rates will lead to more activity later in the year. The Society will continue to assist first - time buyers and new mortgage products will continue to be introduced through the branch network and via our Central Lending Unit Your Directors recognise the need to make best use of computer technology. Systems to be introduced during 1992 will include a new lending system, providing a higher standard of service and improved product range to customers, and a confidential customer information system to provide a better understanding of their needs. Arrangements have also been finalised for a new ICL central computer to be installed in the new Britannia House building in 1992, thus providing the additional resources required to support our expanding business. 1992 will see the consolidation of a number of initiatives and activities which will not only form the basis for future growth and strong performance, but will also provide greater returns during the year.

45 DIRECTORS' REPORT

For the year ended 31st December 1991

DIRECTORATE The Directors of the Society during 1991 were:— Trevor John Bayley Finance Director Sir David Berriman John Gilbert Fenton Retail Operations Director Charles Richard Godwin Joint Deputy Chairman John Edward Heaps Deputy Managing Director John Lawrence Hill Chairman Calum Alexander MacLeod Elisabeth Ann Ross Stephen John Sebire Joint Deputy Chairman Francis Michael Shaw Managing Director The Rt. Hon. The Earl of Shrewsbury And Waterford The Hon. Peter Algernon Strutt (Retired 30th September, 1991) David Henry Towner (Retired 30th June, 1991 The Directors wish to record their appreciation of the respective contributions made by The Hon. P. A. Strutt and Mr. D. H. Towner during their loyal and devoted service to the Society's progressive expansion. The Directors were pleased to appoint three new Directors, Mr. J. G. Fenton, Mr. J. F. Heaps and Dr. C. A. MacLeod, to the Board during the year. In accordance with the provisions of the Building Societies Act 1986 and the Society's Rules, Mr. T J. Bayley and Sir David Berriman are due to retire by rotation at the Annual General Meeting in 1992. They are both eligible and will submit themselves for re-election. Mr. J. G. Fenton, Mr. J. E. Heaps and Dr. C. A. MacLeod, whose appointments cease at that meeting, also being eligible, seek election. The continuing support and confidence of our members is very much appreciated and ensures the successful progress of the Society. On behalf of the Board of Directors

John Hill Chairman 5th February, 1992.

46 REPORT OF THE AUDITORS TO MEMBERS

The report of the Auditors to the members of the Society on financial statements for the year ended 31st December, 1991 is reproduced below:

"We have audited the accounts on pages 16 to 40 in accordance with Auditing Standards. In our opinion the accounts give a true and fair view of the state of affairs of the Society and of the Group at 31st December, 1991, of the income and expenditure of the Society and of the Group for the year then ended, and of the manner in which the business of the Group was financed and in which the Group's financial resources were used during the year.

We have examined the annual business statement on pages 41 to 47 other than the details of directors and officers upon which we are not required to report. In our opinion the information which we have examined gives a true representation of those matters referred to therein.

We have examined the directors' report on pages 6 to 14. In our opinion the information given therein is consistent with the accounting records and the annual accounts.

In our opinion the accounts, the business statement and the directors' report have each been prepared so as to conform to the requirements of Part VIII of the Building Societies Act 1986 and regulations thereunder.

PRICE WATERHOUSE Chartered Accountants and Registered Auditor MANCHESTER 5th February, 1992"

Note: The page references in the above report refer to those contained in the Report and Accounts for the Society for the year ended 31st December, 1991.

47 UNITED KINGDOM TAXATION

The following is a summary of the Society's understanding of current law and practice in the United Kingdom relating to the taxation of the PIBS. The summary relates only to the position of persons who are the absolute beneficial owners of their PIBS and the interest on them and some aspects do not apply to certain classes of taxpayer (such as dealers). Prospective PIBS holders who are in any doubt as to their tax position or who may be subject to tax in a jurisdiction other than the United Kingdom should seek their own professional advice.

1. On payment of interest on the PIBS an amount must be withheld by the Society on account of United Kingdom income tax at the basic rate (currently 25 per cent.). Certain classes of taxpayer (such as tax exempt investors and individuals whose taxable income is below their personal allowance) may be able to reclaim all or part of any tax deducted. Holders of PIBS who are not resident in the United Kingdom may be able to recover all or part of the tax deducted pursuant to the provisions of an applicable double taxation convention and may be able to make an individual claim to the relevant tax authorities for payment of interest gross. Notwithstanding that interest is received net of a basic rate income tax deduction, holders of the PIBS who are (a) individuals (either UK resident or non-UK resident) or (b) companies (either resident in the United Kingdom or carrying on a trade in the United Kingdom through a branch or agency) may, depending on the circumstances, be liable to pay further United Kingdom tax on the interest received.

2. PIBS are within the accrued income scheme. Accordingly, a disposal of PIBS by a PIBS holder who is resident or ordinarily resident in the United Kingdom, or who carries on a trade in the United Kingdom through a branch or agency to which the PIBS are attributable, may give rise to a charge to tax on income in respect of an amount representing interest on the PIBS which has accrued since the preceding interest payment date. However, the accrued income scheme does not apply, inter alia, to individuals who do not hold securities with a nominal value of more than £5,000 at any time in both the year of assessment in which the relevant interest period on the PIBS ends and the preceding year of assessment. 3. The PIBS will constitute "qualifying corporate bonds" within the meaning of section 117 of the Taxation of Chargeable Gains Act 1992. Accordingly, a disposal by a PIBS holder will not give rise to a chargeable gain or an allowable loss for the purposes of the United Kingdom taxation of capital gains. 4. No United Kingdom stamp duty or stamp duty reserve tax is payable on the issue or transfer of the PIBS or on their redemption. 5. The rules allowing certain United Kingdom resident individual investors to receive building society interest gross on certification that such investors are unlikely to be liable to pay any amount by way of income tax for the year in which the interest is paid do not apply to interest paid on PIBS.

48 SUBSCRIPTION AND SALE

The Arranger has, pursuant to a subscription agreement dated 26th October, 1992 (the "Subscription Agreement"), agreed with the Society, subject to certain conditions, to subscribe for the New PIBS at 107.125 per cent. of the principal amount. The Society shall pay the Arranger a commission of 3/4 per cent. of the principal amount of the New PIBS for its services as manager and underwriter of the issue and reimburse certain expenses of the Arranger. The New PIBS have not been and will not be registered under the U.S. Securities Act of 1933 (the "Securities Act") and may not be offered or sold within the United States or to U.S. persons otherwise than in accordance with applicable U.S. securities laws and regulations. The Arranger has agreed that it will not offer or sell a New PIBS within the United States or to U.S. persons otherwise than in accordance with applicable U.S. securities laws and regulations. In addition, until 40 days after the commencement of the offering, an offer or sale of the New PIBS within the United States by any dealer (whether or not participating in the offering) may violate the registration requirements of the Securities Act. All applicable provisions of the Financial Services Act 1986 with respect to anything done in relation to the New PIBS in, from or otherwise involving the United Kingdom must be complied with. No document issued in connection with the issue of the New PIBS, other than any document which consists of or of part of listing particulars, supplementary listing particulars or any other document required or permitted to be published by listing rules under Part IV of the Financial Services Act 1986, may be issued or passed on in the United Kingdom to any person unless that person is of a kind described in Article 9(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1988 (as amended) or is a person to whom the document may otherwise lawfully be issued or passed on. No action has been or will be taken by the Society or the Arranger outside Great Britain that would, or is intended to, permit a public offer of the New PIBS in any country or jurisdiction where action for that purpose is required. The New PIBS may not be, directly or indirectly, offered or sold in any country or jurisdiction where action for that purpose is required. Accordingly, the New PIBS may not, directly or indirectly, be offered or sold and neither this Offering Circular (whether in its preliminary or final form) nor any other circular, prospectus, form of application, advertisement or other material may be distributed in or from, or published in, any country or jurisdiction, except under circumstances that will result in compliance with any applicable laws and regulations.

49 GENERAL INFORMATION

Material Change Save as mentioned on pages 16 and 17, there has been no significant change in the financial or trading position of the Society and its subsidiaries or any material adverse change in the prospects of the Society and its subsidiaries since 31st December, 1991, being the date to which the latest published audited accounts were made up.

Litigation There are no legal or arbitration proceedings pending or threatened against the Society or its subsidiaries which may have, or have had during the past twelve months, a significant effect on the financial position of the Society and its subsidiaries taken as a whole.

Auditors The consolidated accounts of the Society for the three years ended 31st December, 1991, have been audited, without qualification, in accordance with United Kingdom auditing standards by Price Waterhouse, Chartered Accountants and Registered Auditor, of York House, York Street, Manchester M2 4WS. The auditors have given and have not withdrawn their written consent to the issue of this Offering Circular with their report to members included in the form and context in which it appears.

Documents for Inspection Copies of the following documents may be inspected at the offices of Slaughter and May, 35 Basinghall Street, London EC2V 5DB, during usual business hours on any week day (Saturdays and public holidays excepted) during the period of 14 days from the date of this document: (i) the Rules and the Memorandum of the Society; (ii) the consolidated audited accounts of the Society and its subsidiaries for each of the years ended 31 st December, 1990 and 1991; (iii) the material contracts and Directors' service contracts referred to below; (iv) a draft (subject to modification) of the certificate in respect of the New PIBS (including the conditions of the New PIBS); (v) drafts (subject to modification) of the Supplemental Registrar's Agreement and the Subscription Agreement; and (vi) the consent of Price Waterhouse referred to above.

Resolution The issue of the New PIBS was authorised by a resolution of the Board passed on 23rd September, 1992 and by a resolution of the Treasury Funding Committee appointed by the Board passed on 26th October, 1992.

Expenses The overall cost of the issue of the New PIBS by the Society, including all commissions and expenses, is estimated to amount to £410,000.

Material Contracts The Society and its subsidiaries have not entered into any material contract (other than in the ordinary course of business) within two years immediately preceding the date of this document other than:— (i) a master agreement dated 21st March, 1991 and entered into by Crusader Insurance Plc, CIGNA Services U.K. Limited, CIGNA Insurance Company of Europe S.A.—N.V. and CIGNA Life Insurance Company of Europe S.A.—N.V. relating to the reinsurance and transfer of certain businesses previously carried on by Crusader Insurance Plc; (ii) an agreement relating to the sale and purchase of the entire issued share capital of each of Crusader Insurance Plc, Cigna Unit Trust Managers Limited and Crusader Managed Pension Funds Limited between Cigna U.K. Holdings Ltd and Britannia Life Limited dated 3rd May, 1991 pursuant to which Britannia Life Limited purchased all the shares of Crusader Insurance Plc, Cigna Unit Trust Managers Limited and Crusader Managed Pension Funds Limited for an aggregate consideration of £51,500,000;

50 (iii) a deed of guarantee dated 3rd May, 1991 pursuant to which Cigna International Holdings Ltd guaranteed to Britannia Life Limited the obligations of Cigna U.K. Holdings Ltd under the agreement referred to in paragraph (i) above; and (iv) an instrument of transfer of engagements dated 8th May, 1991 between Mornington Building Society and the Society under which the parties agreed that the engagements of Mornington Building Society be transferred to the Society pursuant to the requirements and provisions of the Act and accordingly that the Society accepted and became subject to all liabilities and obligations of Mornington Building Society, as they existed on the 1st October, 1991, and undertook to fulfil and discharge all such liabilities and obligations accordingly as and from the 1st October, 1991.

Directors' Interests The Directors of the Society have no interest in any transactions which are or were unusual in their nature or conditions or significant to the business of the Society and its subsidiaries and which were effected by the Society during the current or immediately preceding financial year or were effected by the Society during an earlier financial year and remain in any respect outstanding or unperformed.

The Directors of the Society have no interests in any securities of the Society or any subsidiary of the Society which have been notified under section 324 or section 328 of the Companies Act 1985 or are required to be registered under section 325 of that Act.

Neither any Director of the Society nor any child, stepchild (in each case under the age of 18) nor spouse of any Director of the Society has any interest in any debentures of the Society.

Guarantees and Loans The only outstanding loans granted by the Society or any of its subsidiaries to Directors of the Society are an aggregate of £515,000 mortgage loans as at 31st December, 1991 made by the Society. No guarantees have been provided by the Society or its subsidiaries for the benefit of any Director of the Society.

Employee Schemes There are no existing schemes involving the Directors or any employees of the Society or any of its subsidiaries in any capital of the Society or any of its subsidiaries.

Amounts Payable to the Directors It is estimated that an aggregate of £611,000 will be payable to Directors of the Society in respect of the financial year ending 31st December, 1992.

Directors' Service Contracts The following service contracts have been entered into between the Directors and the Society: (i) a service contract between Mr. F. M. Shaw and the Society commencing with effect from 1st January, 1992 and expiring on 30th June, 1994 or, if earlier, upon the expiry of not less than six months' written notice given by Mr. Shaw to the Society at a salary of £135,000 per annum; (ii) a service contract between Mr. J. E. Heaps and the Society commencing with effect from 1st January, 1992 and continuing until the expiry of not less than three years' written notice given by the Society to Mr. Heaps or six months' written notice given by Mr. Heaps to the Society, or if earlier, the day before the day on which Mr. Heaps attains the age of 60 at a salary of £108,000 per annum; (iii) a service contract between Mr. T. J. Bayley and the Society commencing with effect from 1st January, 1992 and continuing until the expiry of not less than three years' written notice given by the Society to Mr. Bayley or six months' written notice given by Mr. Bayley to the Society, or if earlier, the day before the day on which Mr. Bayley attains the age of 60 at a salary of £97,500 per annum; and

51 (iv) a service contract between Mr. J. G. Fenton and the Society commencing with effect from 1st January, 1992 and continuing until the expiry of not less than three years' written notice given by the Society to Mr. Fenton or six months' written notice given by Mr. Fenton to the Society, or if earlier, the day before the day on which Mr. Fenton attains the age of 60 at a salary of £97,500 per annum. Save as aforesaid, there are no service contracts existing or proposed between the Directors and the Society or any of its subsidiaries (other than contracts expiring or determinable by the employing entity, within one year without payment of compensation (other than statutory compensation)).

Registrar The Society has appointed The Royal Bank of Scotland plc (the "Registrar") at its specified office at P.O. Box 435,Owen House, 8 Bankhead Crossway North, Edinburgh EH11 4BR to maintain the register of the Existing PIBS holders and intends to appoint it to maintain the register of New PIBS holders at such specified office. The Registrar will act as the agent of the Society for the purposes of maintaining the register of PIBS holders, accepting instructions for, and effecting, transfers of PIBS, issuing PIBS certificates, receiving requests for the replacement of, and replacing, damaged, lost, stolen or destroyed PIBS certificates and making payments in respect of the PIBS as they fall due.

PIBS Certificates The Registrar will send a New PIBS certificate to each registered holder of a New PIBS (or to the first named of joint holders) by mail within one month of the issue of the New PIBS and, thereafter, following a transfer, within 14 days of the lodgement of transfers, in each case at the risk of the person entitled thereto. No temporary documents of title will be issued.

Form of Transfer Currently transfers of the PIBS may be carried out by completing a Stock Transfer Form (Companies ST1) and submitting it together with the relevant PIBS certificate to the Registrar in accordance with the Rules.

52 PRINCIPAL OFFICE OF THE SOCIETY Britannia House, Cheadle Road, Leek, Staffordshire ST13 5RG

REGISTRAR The Royal Bank of Scotland plc, P.O. Box 435, Owen House, 8 Bankhead Crossway North, Edinburgh EH11 4BR

LEGAL ADVISERS To the Society To the Arranger Slaughter and May, Allen & Overy, 35 Basinghall Street, 9 Cheapside, London EC2V 5DB London EC2V 6AD

AUDITORS Price Waterhouse, York House, York Street, Manchester M2 4WS

SPONSOR FOR LISTING Hoare Govett Corporate Finance Limited, 4 Broadgate, London EC2M 7LE

53

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