Lloyds TSB Offshore Gilt Fund Limited

Lloyds TSB Offshore Gilt Fund Limited.

Annual Report and Audited Financial Statements. For the year ended 30th September 2012.

Contents.

Page 2 Company Information. Page 3 Investment Objective and Policy. Page 4 Directors Profiles. Page 5 Report of the Directors. Page 8 Report of the Manager. Page 9 Report of the Custodian. Page 10 Report of the Independent Auditors. Page 11 Balance Sheet. Page 12 Statement of Comprehensive Income. Page 13 Statement of Changes in Net Assets Attributable to Holders of Participating Redeemable Preference Shares. Page 14 Cash Flow Statement. Page 15 Investment Portfolio. Page 18 Notes to the Financial Statements. Page 33 Distribution Tables (Unaudited). Page 36 Performance Records (Unaudited). Page 37 Net Asset Value Per Share (Unaudited). Page 38 Notice of Meeting. Page 39 Form of Proxy.

1 Company Information.

REGISTERED OFFICE. INVESTMENT MANAGER. PO Box 160, 25 New Street, Scottish Widows Investment Partnership St Helier, Limited, Jersey, JE4 8RG, 33 Old Broad Street, London, Channel Islands. EC2N 1HZ.

PRINCIPAL PLACE OF BUSINESS. CUSTODIAN. PO Box 311, 11 - 12 Esplanade, Capita Trust Company (Jersey) Limited, St Helier, PO Box 532, 12 Castle Street, Jersey, JE4 8ZU, St Helier, Channel Islands. Jersey, JE2 3RT, Channel Islands. DIRECTORS. c/o Registered Office SECRETARY. R. D. Willcox (Chairman) Lloyds TSB Offshore Corporate Services I. M. J. Hardy Limited, B. C. James PO Box 160, 25 New Street, N. R. Jeacock-Fewtrell St Helier, Jersey, JE4 8RG, T. J. Herbert Channel Islands. PO Box 87, 22 Grenville Street, St Helier, Jersey, JE4 8PX, INDEPENDENT AUDITORS. Channel Islands. PricewaterhouseCoopers CI LLP, Twenty Two Colomberie, MANAGER AND REGISTRAR. St Helier, Lloyds TSB Offshore Fund Managers Jersey, JE1 4XA, Limited, Channel Islands. PO Box 160, 25 New Street, St Helier, paying agent. Jersey, JE4 8RG, Lloyds TSB Offshore Limited, Channel Islands. PO Box 311, Peveril Buildings, Tel. : +44 (0) 1534 845555 Peveril Square, Douglas, LEGAL ADVISERS. Isle of Man, IM99 1JJ. In Jersey: Mourant Ozannes PO Box 87, 22 Grenville Street, St Helier, Jersey, JE4 8PX, Channel Islands. In England: Linklaters One Silk Street, London, EC2Y 8HQ.

2 Investment Objective and Policy.

The investment objective of Lloyds TSB The Company may also hold cash or monies Offshore Gilt Fund Limited (the ‘Company’) is on current or deposit accounts with certain to invest in sterling denominated government classes of institution for limited purposes. and other public securities, principally those A flexible investment policy will be pursued issued by the Government of Great Britain and by investing in varying proportions of long, those which pay interest without deduction medium and short-dated stocks depending on of tax to non residents of the country of the economic conditions. issuer. It should be remembered that the price of The Company provides an opportunity for shares and the income from them can go investors who require a good level of income down as well as up and is not guaranteed. to take advantage of a managed portfolio of Consequently, and particularly in the case of British Government Securities (‘Gilts’) which early encashment, you might not get back the also provide security and a measure of capital amount originally invested. Dividends are not protection. This level of income may be guaranteed and may fluctuate in money terms. achieved partly by purchasing Gilts at prices currently above their ultimate redemption values and could be at the expense of capital, for example, in times of stable or rising interest rates.

The main area of investment is those British Government Securities in respect of which persons ordinarily resident outside the United Kingdom (‘UK’) may receive income not subject to UK taxation. In addition, investment may be made in other sterling bonds, issued or guaranteed by or on behalf of certain governments, local authorities or international organisations.

3 DIRECTORs profiles.

Ross Davey Willcox (Chairman) – Head of Brian James – Senior Manager, Investment Investment Products Proposition, International Operations, International Wealth, Lloyds Wealth, Lloyds Banking Group. Banking Group.

Joined the Lloyds Banking Group in 1977 Joined the Lloyds Banking Group in 1988 and held a number of managerial positions and held a number of managerial positions in the UK and Internationally. Was appointed primarily in Financial Control and Risk Managing Director of the Jersey Fund Management roles. Appointed as a Director in Management Company in 1999 and is currently 1997. Current responsibilities include leading Chairman/Director of the Offshore Fund a team of specialists delivering operational Companies. Current responsibilities include the support for a range of offshore investment value proposition of all investment products products and services. A Chartered Director. for International Wealth. A qualified Banker, a Aged 51. Fellow of the Securities & Investment Institute Nigel Ross Jeacock-Fewtrell - Transaction and a Chartered Director. Aged 53. Leader, Change and Transformation, Affluent Ian Hardy - Senior Product Manager, Wealth, Lloyds Banking Group. International Wealth, Lloyds Banking Group. Joined the Lloyds Banking Group in 1985 Joined the Lloyds Banking Group in 1981 and and held a number of managerial positions held a number of managerial positions before in Jersey, UK and Hong Kong. Appointed as being appointed Managing Director of the a Director in 2002. Current responsibilities Group’s Guernsey based Fund Management include delivering a number of strategic Company in 1997 and a Director of the Fund in changes to the Group’s international business 2000. Current responsibilities include provision within the International Wealth, Change and of technical and regulatory advice on a range Transformation team. Fellow of the Institute of investment products and services. Holder of Sales and Marketing Management and of an upper second class honours degree Diploma in Company Direction. Chartered from the University of Aston in Birmingham Director, Institute of Directors. Aged 46. in Business Administration and Transport Planning. Aged 53.

Tim Herbert - Consultant, Mourant Ozannes.

Jersey born and educated. M.A. in jurisprudence Trinity College Oxford 1982. Member of Middle Temple. Joined Mourant du Feu & Jeune (now Mourant Ozannes) in May 1983. Sworn in as an advocate of the Royal Court, September 1985. Tim Herbert was a partner of Mourant Ozannes from 1987 to 2012. In July 2012 he stepped down from the partnership and is now retained by Mourant Ozannes as a consultant to the firm. He has extensive experience in corporate and commercial law and mutual funds advice. The Directors have pleasure in submitting Holds other external directorships and also acts their Annual Report together with the Audited as Honorary Consul for Finland. Aged 53. Financial Statements for the year ended 30th

4 REPORT OF THE DIRECTORS.

September 2012. same as the previous Prospectus, was issued Results. in April 2011.

The results for the year are set out in the financial Copies of the Prospectus are available, free statements on pages 11 to 32. of charge, on application to the Manager. Alternatvely they can be accessed on our Distributions. website at www.lloydstsb-offshore.com/ funds Distributions for the year are detailed in Note 5 to the financial statements. Management and administration providers. Directors. The names and addresses of management Mr R.D. Willcox (Chairman), Mr I.M.J. Hardy, and administration providers are stated on Mr T.J. Herbert, Mr B.C. James and Mr N.R. page 2. Jeacock-Fewtrell were Directors throughout the year, have since continued to act and are Comparatives Tables. willing to remain in office. The distribution table (unaudited), performance During the year ended 30th September 2012 record (unaudited) and net asset value per share and subsequently, no Director has had a (unaudited) tables are stated on pages 33 to 37. beneficial interest in the Company. Directors’ Responsibilities. No Director has a service contract with the Company and is, or was, materially interested The Directors are required by the Companies in any service or other contract entered into by (Jersey) Law 1991 to prepare financial the Company. statements for each financial year which give a true and fair view of the state of affairs of the Mr T.J. Herbert is a consultant to Mourant Company for that year and are in accordance Ozannes, the Jersey legal advisers to the with applicable laws. In preparing these Company and the Manager. Mourant Ozannes financial statements the Directors are required to: receives fees in connection with advising the • select suitable accounting policies and Company and the Manager. then apply them consistently; Investment Activities. • make judgments that are reasonable and prudent; The Report of the Manager is set out on page • state whether applicable accounting 8. standards have been followed subject Independent Auditors. to any material departures disclosed and explained in the financial statements; and PricewaterhouseCoopers CI LLP were re- • prepare the financial statements on the appointed as Independent Auditors at the going concern basis unless it is Annual General Meeting held on 28th March inappropriate to presume that the 2012 and have indicated their willingness to Company will continue in business. remain in office.

Prospectus. Directors’ Responsibilities. (continued) A revised Prospectus, which is substantially the

5 REPORT OF THE DIRECTORS. (continued)

The Directors are responsible for keeping and a number of other jurisdictions) to apply proper accounting records which disclose with the same provisions. reasonable accuracy at any time the financial As distributions and the income element of position of the Company and to enable them redemption proceeds from investments in to ensure that the financial statements comply Lloyds TSB Offshore Gilt Fund Limited fall with the Companies (Jersey) Law 1991 and within scope of the Directive, the Manager the Collective Investment Funds (Recognized applies the requirements of the Directive Funds) (Rules) (Jersey) Order 2003 (as to investments made by investors who are amended). They are also responsible for the resident in the EU for Tax purposes. safeguarding of the assets of the Company which includes the appointment of a duly Details of the identity, residence and total qualified Custodian. amount paid to investors in the Company will be supplied to the tax authorities for onward The Company holds a certificate as a communication to the investor’s home tax Recognized Securities Fund under the Collective authority. For the avoidance of doubt, details Investment Funds (Recognized Funds) (Rules) of payments of dividends and the proceeds of (Jersey) Order 2003 (as amended), and holds sales, redemptions and refunds are included in a permit under Article 7 of the Collective this exchange of information. Investment Funds (Jersey) Law, 1988.

The Directors must also ensure that they or their duly appointed agents take reasonable steps for the prevention and detection of fraud, error and non-compliance with laws and regulations.

The Directors confirm that they have complied with the above requirements in preparing the financial statements.

So far as the Directors are aware, there is no relevant audit information of which the Company’s Auditors are unaware, and each Director has taken all the steps that he ought to have taken as Director, in order to make himself aware of any relevant audit information and to establish that the Company’s Auditors are aware of that information.

European Union (Including United Kingdom) Tax Considerations.

The European Union Savings Directive (‘EUSD’) came into effect from 1st July 2005. Its purpose is to ensure that EU residents pay tax on savings income in accordance with the tax laws in their country of residence. Although the Channel Islands and Isle of Man are not part of the EU, they agreed (along with Switzerland

6 REPORT OF THE DIRECTORS. (continued)

WEBSITE. The Company is an open-ended investment Company with variable capital and shareholders The Directors have selected Lloyds TSB are not liable for the debts of the Company. Offshore Limited’s website as the host website for the Company’s financial statements and The Company is a recognised scheme under believe this selection to be a reasonable one; Section 270 of the Financial Services and the work carried out by the Auditors does Markets Act 2000 of the United Kingdom. not involve consideration of these matters The Company is listed on the Channel Islands and, accordingly, the Auditors accept no Stock Exchange and on the Malta Stock responsibility for any changes that may have Exchange. occurred to the financial statements since they were initially presented on the website. By order of the Board Lloyds TSB Offshore Corporate Services Limited Information published on the internet is Secretary accessable in many countries. Legislation in Jersey governing the preparation and 14th December 2012. dissemination of financial statements may differ from legislation in other jurisdictions.

Distributor Status - Reporting Regime.

HM Revenue & Customs accepted the entry of the Company into the Reporting Funds Regime with effect from 1st October 2010 for the purposes of regulation 51 of the Offshore Funds (Tax) Regulations 2009.

General Information.

The market value per Share of the ‘A’ class as at 1st October 2011 was 125.60p and as at 30th September 2012 was 130.80p.

The market value per Share of the ‘B’ class as at 1st October 2011 was 120.90p and as at 30th September 2012 was 125.90p.

7 REPORT OF THE MANAGER.

PERFORMANCE. in inflation linked bonds, we reduced this weighting before the sell off. Over the twelve The Company produced a return of 7.28% (monthly month period as a whole, the holding in distribution) and 7.30% (quarterly distribution) over inflation linked bonds has been beneficial the year ended 30th September 2012, compared to a for performance. Off benchmark holdings in return of 9.47% in the FTSE UK Gilts All Stocks Index. corporate and overseas government bonds BACKGROUND & STRATEGY. also boosted returns. The Fund was neutral in duration on 30th September 2012. Prices rose and yields fell throughout the review period for “core” government bonds, as OUTLOOK. troubles on the eurozone periphery encouraged Looking ahead, the underlying trend of the risk-averse investors into safe havens such as UK economy remains soft. The main problems UK Gilts. remain the weakness of exports (particularly Three themes dominated the UK government to the euro area) and the impact of fiscal bond market; a barrage of gloomy economic data, tightening. Our GDP forecasts are for a return heightened uncertainty over the future of the to growth of 1.2% next year and 1.9% in 2014. European single currency, and legislators’ efforts to These figures are weak by pre-crisis standards, revive the global economy. The ten-year Gilt yield and the UK’s recent productivity performance started the review period just over 2.40%, but had has been poor. Downward pressure on inflation fallen to 1.72% by the end of September. has not been particularly strong, and we think Consumer Price Index inflation may run at or We moved from short to neutral duration early slightly above the 2% target. Nonetheless, in the review period, reverting to short duration we expect interest rates to be held very low at the end of February on the view that yields throughout 2013 and 2014. were too low. After the markets sold off we returned to neutral. Government bond yields continue to offer very poor value. Gilts look expensive on fundamentals Throughout the review period, we maintained compared to other markets and may have benefited overweight positions in short dated inflation linked disproportionately from safe haven flows out of bonds and longer dated Gilts, and were overweight the euro area. They also remain vulnerable to in 25 year Gilts at the expense of 10 year bonds any adverse reassessment of the health of UK and ultra long-dated Gilts. This reflected our view Government finances. that short term yields would rise relative to the longer dated part of the market. We thought yields had fallen so far that short dated Gilts look very expensive by historic standards. Yield Scottish Widows Investment Partnership Limited curve positioning made a positive contribution 14th December 2012. to performance early on. However, as Gilt yields continued to fall, the yield curve positioning detracted from performance in the second half of the review period.

In September, an inconclusive review of UK retail price index calculations was taken negatively by the inflation linked market, and inflation linked bond prices fell sharply. While the Fund had been heavily overweight

8 REPORT OF THE custodian to the members of lloyds tsb offshore gilt fund limited. Statement of Custodian’s • otherwise in accordance with the provisions Responsibilities. of the Memorandum and Articles of Association and the Law. The Custodian is required under the Collective Investment Funds (Recognized Funds) (Rules) Capita Trust Company (Jersey) Limited, (Jersey) Order 2003 (as amended) (the ‘Rules’) Custodian to ensure that, inter alia, it: 12 Castle Street, • satisfies itself that the sale, issue, redemption, St Helier, cancellation and valuation of shares in the Jersey JE2 3RT Company are carried out in accordance with Channel Islands the Rules; and • takes into its custody all the assets of the 14th December 2012 Company and holds them in trust for the shareholders in accordance with the Rules; and • enquires into the conduct of the Company in each annual accounting period and reports thereon to shareholders in a report, which shall contain the matters prescribed by the Rules. The Custodian’s Report is included in this Annual Report. Report of the Custodian to the Members of Lloyd TSB Offshore Gilt Fund Limited. In accordance with Article 2.06 of the Rules, Capita Trust Company (Jersey) Limited, has acted throughout the year as independent Custodian to the Company. In accordance with Article 7.08 of the Rules we confirm, in our capacity as the Custodian, that we have enquired into the conduct of the Company for the year ended 30th September 2012 and in our opinion, to the best of our knowledge having made such enquiry, the affairs of the Company have been conducted in all material respects for the year then ended: • in accordance with the limitations imposed on the investment and borrowing powers of the Company by the Memorandum and Articles of Association, by prospectuses and by all Orders for the time being in force under Article 11 of the Collective Investment Funds (Jersey) Law 1988 (as amended) (‘the Law’); and

9 report of the independent auditors to the members of lloyds tsb offshore gilt fund limited. We have audited the financial statements of the overall presentation of the financial Lloyds TSB Offshore Gilt Fund Limited for statements. In addition, we read all the the year ended 30th September 2012 which financial and non-financial information listed comprise the balance sheet, the statement on the contents page of the Annual Report of comprehensive income, the statement of on page 1 to identify material inconsistencies changes in net assets attributable to holders with the audited financial statements. If we of participating redeemable preference become aware of any apparent material shares, the cash flow statement, and the misstatements or inconsistencies we consider related notes. The financial reporting the implications for our report. framework that has been applied in their preparation is applicable law and International Opinion. Financial Reporting Standards. In our opinion the financial statements: • give a true and fair view of the state of the Respective responsibilities of Company’s affairs as at 30th September 2012 and of directors and auditors. its movement in net assets attributable to holders As explained more fully in the Directors’ of participating redeemable preference shares from Responsibilities statement set out on pages operations and cash flows for the year then ended; 5 and 6 the Directors are responsible for the • have been properly prepared in accordance with preparation of the financial statements and International Financial Reporting Standards; and for being satisfied that they give a true and fair view. Our responsibility is to audit and • have been properly prepared in accordance with the express an opinion on the financial statements requirements of the Companies (Jersey) Law 1991 in accordance with applicable law and and the Collective Investment Funds (Recognized International Standards on Auditing (UK and Funds) (Rules) (Jersey) Order 2003 (as amended). Ireland). Those standards require us to comply Opinion on other matter. with the Auditing Practices Board’s Ethical In our opinion the information given in the Report Standards for Auditors. of the Directors for the financial year for which This report, including the opinion, has been financial statements are prepared is consistent prepared for and only for the Company’s members with the financial statements. as a body in accordance with Article 113A of the Companies (Jersey) Law 1991 and for no other Matters on which we are required purpose. We do not, in giving this opinion, accept to report by exception. or assume responsibility for any other purpose or We have nothing to report in respect of the to any other person to whom this report is shown following matters where the Companies (Jersey) or into whose hands it may come save where Law 1991 requires us to report to you if, in our expressly agreed by our prior consent in writing. opinion: Scope of the audit of the • proper accounting records have not been financial statements. kept; or An audit involves obtaining evidence about • the financial statements are not in agreement the amounts and disclosures in the financial with the accounting records; or statements sufficient to give reasonable • we have not received all the information and assurance that the financial statements are explanations we require for our audit. free from material misstatement, whether caused by fraud or error. This includes an Karl Hairon, assessment of: whether the accounting For and on behalf of PricewaterhouseCoopers CI LLP, policies are appropriate to the Company’s Chartered Accountants, circumstances and have been consistently Jersey, Channel Islands. applied and adequately disclosed; the reasonableness of significant accounting 14th December 2012. estimates made by the Directors; and

10 Balance Sheet. As at 30th September 2012. 30th September 30th September 2012 2011 Note £ £

ASSETS

Cash and cash equivalents 1,280,582 1,731,202 Outstanding creations receivable 25,375 — Investment sales receivable 5,685,568 — Financial assets at fair value through profit or loss 80,998,269 86,820,738 Other accrued income and pre-paid expenses 4 1,772,388 1,794,648 ______TOTAL ASSETS 89,762,182 90,346,588 ______

EQUITY Ordinary share capital 14 1,000 1,000 ______TOTAL EQUITY ______1,000 ______1,000

LIABILITIES

Cancellation payable 14,857 3,015 Investment purchase payable 5,690,286 — Proposed distribution 5 407,951 553,761 Accrued expenses 6 165,624 170,012 ______TOTAL LIABILITIES * ______6,278,718 ______726,788

* Excluding net assets attributable to holders of participating redeemable preference shares Net assets attributable to holders of participating redeemable preference shares 17 ______83,482,464 ______89,618,800 TOTAL LIABILITIES AND EQUITY 89,762,182 90,346,588 ______

The financial statements on pages 11 to 32 were approved by the Board of Directors on 14th December 2012 and are signed on its behalf by:

R. D. Willcox Directors B. C. James }

The notes on pages 18 to 32 form an integral part of these financial statements.

11 Statement of Comprehensive Income.

For the year ended 30th September 2012.

30th September 30th September 2012 2011 Note £ £

Operating profit

Net gain on financial assets at fair value through profit or loss 7 5,270,531 2,691,664 Investment income 1,932,641 2,635,372 Other income 8 14,110 2,176 Total operating expenses 9 (978,636) (1,016,477) ______

Operating profit ______6,238,646 ______4,312,735 Finance costs

Distributions to holders of participating redeemable preference shares 5 ______(2,478,704) ______(3,016,888)

Total finance costs ______(2,478,704) ______(3,016,888)

Profit before tax ______3,759,942 ______1,295,847 Increase in net assets attributable to holders of participating redeemable preference shares from operations 3,759,942 1,295,847 ______

The notes on pages 18 to 32 form an integral part of these financial statements.

12 Statement of Changes in Net Assets Attributable to Holders of Participating Redeemable Preference Shares.

For the year ended 30th September 2012.

30th September 30th September 2012 2011 £ £ Net assets attributable to holders of participating redeemable preference shares at the beginning of the year ______89,618,800 ______96,458,474

Creation of participating redeemable preference shares 3,005,400 2,786,487 Redemption of participating redeemable preference shares ______(12,901,678) ______(10,922,008) Net (decrease) from share transactions (9,896,278) (8,135,521) Increase in net assets attributable to holders of participating redeemable preference shares from operations ______3,759,942 ______1,295,847 Net assets attributable to holders of participating redeemable preference shares at the end of the year 83,482,464 89,618,800 ______

The notes on pages 18 to 32 form an integral part of these financial statements.

13 Cash Flow Statement.

For the year ended 30th September 2012. 30th September 30th September 2012 2011 £ £ Cash flows from operating activities

Purchase of financial assets and settlement of financial liabilities (222,132,157) (204,736,329) Proceeds from sale of investments (including realised gains and losses) 231,644,602 213,634,824 Investment income received 3,618,062 4,160,427 Interest received 14,110 2,349 Interest paid (571) (2,000) Operating expenses paid (982,453) (1,030,930) ______

Net cash inflow from operating activities 12,161,593______12,028,341______

Cash flows from financing activities

Distributions paid to holders of participating redeemable preference shares (2,624,514) (3,032,687) Proceeds received from issue of participating redeemable preference shares 2,879,561 2,694,340 Payments on redemption of participating redeemable preference shares (12,867,260) (10,901,650) ______

Net cash outflow from financing activities (12,612,213)______(11,239,997)______Net (decrease)/increase in cash and cash equivalents (450,620) 788,344 Cash and cash equivalents opening balance 1,731,202 942,858 ______Cash and cash equivalents closing balance 1,280,582 1,731,202 ______

The notes on pages 18 to 32 form an integral part of these financial statements.

14 Investment Portfolio.

Market Percentage Market Holding Holding Value of Total Value 30.09.11 30.09.12 30.09.12 Net Assets 30.09.11 £ % £ United Kingdom Government Bonds 97.01% (96.88%) Treasury 0.375% 2062 — 377,000 400,133 0.48 — Treasury 1.75% 2017 — 123,000 129,248 0.15 — Treasury 1.75% 2022 — 5,650,000 5,683,731 6.81 — Treasury 2.25% 2014 — 1,265,000 1,302,393 1.56 — Treasury 2.5% 2013 index linked 629,000 — — — 1,781,875 Treasury 2.5% 2016 index linked 1,271,000 470,000 1,612,729 1.93 4,293,756 Treasury 2.5% 2020 index linked 419,000 — — — 1,471,394 Treasury 3.75% 2021 1,193,000 2,986,000 3,562,716 4.27 1,322,691 Treasury 3.75% 2052 — 6,893,000 7,766,908 9.30 — Treasury 4% 2016 — 198,000 225,583 0.27 — Treasury 4% 2022 — 9,033,000 10,993,613 13.17 — Treasury 4% 2060 1,676,000 — — — 1,787,018 Treasury 4.25% 2027 1,863,000 1,176,000 1,484,183 1.78 2,127,397 Treasury 4.25% 2036 3,221,000 — — — 3,607,810 Treasury 4.25% 2039 — 6,098,000 7,524,749 9.01 — Treasury 4.25% 2040 457,000 — — — 508,157 Treasury 4.25% 2046 1,832,000 — — — 2,044,457 Treasury 4.25% 2049 4,774,000 417,000 517,084 0.62 5,314,417 Treasury 4.25% 2055 385,000 — — — 431,104 Treasury 4.5% 2013 — 9,633,000 9,807,743 11.75 — Treasury 4.5% 2019 149,000 979,000 1,197,660 1.43 174,457 Treasury 4.5% 2034 11,244,000 8,828,000 11,352,367 13.60 13,075,872 Treasury 4.5% 2042 460,000 1,255,204 1,614,167 1.93 534,902 Treasury 4.75% 2020 1,698,000 — — — 2,026,903 Treasury 4.75% 2030 — 112,000 149,332 0.18 — Treasury 4.75% 2038 714,000 — — — 861,334 Treasury 5% 2012 9,514,000 — — — 9,693,910 Treasury 5% 2014 271,000 271,000 296,127 0.35 303,403 Treasury 5% 2025 12,436,000 1,806,000 2,423,941 2.90 15,394,027 Treasury 6% 2028 748,000 748,000 1,129,719 1.35 1,034,738 Treasury 8% 2013 16,028,000 8,722,000 9,387,837 11.25 18,345,969 Treasury 8.75% 2017 490,000 1,751,000 ______2,436,306 ______2.92 ______685,147

Total Value of Investments 80,998,269______97.01 86,820,738______

Other Assets ______8,763,913 ______10.51 ______3,525,850 Total Value of Assets 89,762,182 107.52 90,346,588 Liabilities & Equity ______(6,279,718) _____(7.52) ______(727,788) Net assets attributable to holders of participating redeemable preference shares 83,482,464 100.00 89,618,800 ______

15 Investment Portfolio. (continued)

The total cost of investments purchased during Investments Purchased and Sold. the year ended 30th September 2012 amounted to £222,132,157 (30th September 2011: This schedule refers to investments both purchased and £204,736,329). sold during the year, which would not appear on the portfolio listing. The total proceeds from investments sold during the year ended 30th September 2012 amounted to £231,644,602 (30th September 2011: £213,634,824)

Investment Dealing. There was no dealing commission paid during the year. No transactions in the property of the Company were undertaken with or through any associates of the Manager or Custodian. During the year transactions representing more than 10% of the aggregate value of the transactions in the property of the Company were carried out by the following brokers: HSBC Securities Royal Bank of Scotland Lloyds TSB

Stock Nominal

Treasury 0.125% 2044 Index Linked 106,000 Treasury 0.50% 2050 Index Linked 321,000 Treasury 0.625% 2042 Index Linked 749,000 Treasury 1.25% 2032 Index Linked 1,300,000 Treasury 1.875% 2022 Index Linked 470,000 Treasury 2.5% 2024 Index Linked 1,197,000 Treasury 3.25% 2011 1,885,000 Treasury 4.25% 2032 1,854,000 Treasury 4.125% 2030 Index Linked 565,000 Treasury 5.25% 2012 20,187,738 Treasury 8% 2015 529,000

16 Investment Portfolio. (continued)

Summary of Material Portfolio Changes. This schedule refers to securities purchased or sold during the year which had a value of greater than 2% of the net asset value of the Company. The Directors consider that the disclosure of the 20 largest purchases and sales is sufficient to reflect the nature of the operating activity of the Company and that further disclosure of all transactions over 2% of the net assets of the Company, as required by Statement Of Recommended Practice (SORP) for financial statements of Authorised Open- Ended Investment Companies as issued by the FSA, would not add any further value.

Purchases Cost Sales Proceeds £ £ Treasury 4.25% 2039 7,030,602 Treasury 4.5% 2034 7,024,828 Treasury 4.5% 2013 6,381,136 Treasury 5% 2012 6,379,003 Treasury 3.75% 2052 5,858,726 Treasury 4% 2022 5,685,568 Treasury 1.75% 2022 5,690,285 Treasury 4.5% 2013 5,621,934 Treasury 4% 2022 5,620,038 Treasury 4.25% 2039 5,277,185 Treasury 4% 2022 4,183,915 Treasury 8% 2013 4,452,504 Treasury 3.75% 2052 3,967,366 Treasury 5% 2025 4,317,646 Treasury 4.75% 2030 3,965,520 Treasury 5% 2025 4,310,642 Treasury 4% 2022 3,693,072 Treasury 5.25% 2012 4,171,041 Treasury 4.5% 2013 3,683,429 Treasury 2.5% 2020 Index Linked 3,957,858 Treasury 4.5% 2034 3,617,263 Treasury 4.25% 2039 3,955,842 Treasury 4.5% 2034 3,606,618 Treasury 3.75% 2021 3,693,305 Treasury 5% 2025 3,566,543 Treasury 5% 2012 3,682,913 Treasury 4.25% 2039 3,462,601 Treasury 5.25% 2012 3,555,858 Treasury 5% 2012 2,978,751 Treasury 4.75% 2030 3,300,548 Treasury 3.75% 2052 2,976,058 Treasury 4.25% 2039 2,985,533 Treasury 2.5% 2024 Index Linked 2,777,555 Treasury 4.25% 2055 2,722,865 Treasury 5.25% 2012 2,734,081 Treasury 8% 2013 2,720,896 Treasury 5% 2012 2,720,027 Treasury 5% 2012 2,697,114 Treasury 4.5% 2013 2,697,707 Treasury 5% 2025 2,627,672

17 notes to the financial statements. For the year ended 30th September 2012.

1. The Company to be reasonable under the circumstances. The accounting policies deemed critical to the The Company is an open ended investment Company’s results and financial position, based company registered in Jersey, Channel Islands. upon materiality and significant judgments and Full details of the Company are stated on pages estimates, are discussed in Note 3. 2 to 8. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. 2. BASIS OF PRESENTATION. The principal accounting policies applied in The financial statements have been prepared the preparation of these financial statements in accordance with International Financial are set out below. These policies have been Reporting Standards (‘IFRS’). applied consistently to all years presented, The policies set out below have been unless otherwise stated in the following text. consistently applied to all years presented. The Directors also monitor new standards and ensure that they are applied where relevant. The financial statements have been prepared under the historical cost convention, as The Company has adopted the following modified by the revaluation of investments, and standards, amendments and interpretations as of in accordance with the Collective Investment 1st October 2011: Funds (Recognized Funds) (Rules) (Jersey) Order • IAS 24 (revised), ‘Related party disclosures’ 2003 (as amended). Jersey is not part of the (effective from 1st January 2011). The revised UK and the Company is not regulated by the Standard has a new, clearer definition of a Financial Services Authority (‘FSA’) of the UK. related party. All amounts reported in the statement of • IFRS 7 (amendment), ‘Financial instruments: comprehensive income are in respect of disclosures’ (effective from 1st July 2011). continuing activities. The following standards, amendments and interpretations are mandatory for accounting The capital of the Company comprises of two periods beginning on or after 1st January classes of Shares relating to a single portfolio 2011 but are not relevant to the Companys (‘Fund’) consisting of securities, cash, other operations: assets and liabilities. These financial statements present the balance sheet, statement of • IFRS 1 (amendment), ‘Severe hyperinflation comprehensive income, statement of changes and removal of fixed dates for first-time in net assets attributable to holders of adopters’ (effective from 1st July 2011). participating redeemable preference shares and • IAS 12 (amendment), ‘Income taxes on cash flow statement. deferred tax’ (effective from 1st January 2012). The net assets attributable to holders of The following standards, amendments and participating redeemable preference shares are interpretations have been published and are classified as financial liabilities and therefore, mandatory for the Company’s accounting in the opinion of the Directors, the Capital periods beginning on or after 1st January 2012 of the Company is only represented by the or later periods, but the Company has not early Management Shares and Nominal Shares. early adopted them. Details of Management Shares and Nominal • IFRS 9, ‘Financial instruments – classification Shares are disclosed in Notes 3(g) and 14. and measurement’ (effective from 1st January 2015). Critical accounting estimates and judgments. • IFRS 10, 12 and IAS 27 on consolidation for The Company makes assumptions and investment entities (effective 1st January estimates that affect the reported amounts of 2014). assets and liabilities within the next financial • IFRS 11, ‘Joint arrangements’ (effective from year. Estimates and judgments are continually 1st January 2013). evaluated and are based on historical • IFRS 12, ‘Disclosures of interests in other experience and other factors, including entities’ (effective from 1st January 2013). expectations of future events that are believed

18 notes to the financial statements. (continued)

• IFRS 13, ‘Fair value measurement’ (effective these financial assets on a fair value basis from 1st January 2013). together with other related financial information. • IFRS 7 (amendment), ‘Financial instruments: disclosures’, on offsetting of financial assets (b) Recognition. and financial liabilities (effective from 1st Purchases and sales are recognised on the trade January 2013). date (the date on which the Company commits • IAS 1 (amendment), ‘Presentation of to purchase or sell the asset). finanancial statements’ (effective from 1st July 2012). (c) Measurement. • IAS 32 (amendment), ‘Financial instruments: presentation’, on offsetting of financial assets Financial assets and financial liabilities at and financial liabilities (effective from 1st fair value through profit or loss are initially January 2014). recognised at fair value, and transaction costs • Annual improvements 2011 (effective from 1st for all financial assets and financial liabilities January 2013). carried at fair value through profit or loss are expensed in the statement of comprehensive Functional currency and presentation currency. income as incurred. Subsequent to initial The Company has adopted sterling as its recognition, all financial assets and financial presentational and functional currency, as liabilities at fair value through profit or loss are the Company’s primary activity is to invest in measured at fair value. sterling denominated securities, all assets and Gains and losses arising from changes in the fair liabilities are valued in sterling, the Company value of financial assets or financial liabilities at has no exposure to currency other than sterling fair value through profit or loss are recognised and its main investments are based in the UK. in the statement of comprehensive income in the year in which they arise. Segmental reporting. The Company is organised into one main (d) Revenue recognition. business segment, focusing on achieving Investment income is recognised in the returns by investing in sterling denominated statement of comprehensive income on a time government bonds and other public securities. proportionate basis for all debt instruments No additional disclosure is included in relation using the Effective Interest Rate method (‘EIR’). to segment reporting as the Company’s This is a method of calculating the amortised activities are limited to one main business and cost of a financial asset or financial liability and geographic segment. of allocating the interest income or interest Financial assets and financial liabilities at fair expense over the relevant period. The EIR is value through profit or loss. the rate that discounts estimated future cash payments or receipts through the expected life (a) Classification. of the financial asset or financial liability.

The Company classifies its investments in debt (e) Fair value estimation. and equity securities as financial assets at fair value through profit or loss. These financial As required by IAS 39 financial assets and assets and financial liabilities are designated financial liabilities at fair value through profit or by the Board of Directors at fair value through loss are valued at the bid prices ruling at 10.00 profit or loss at inception. a.m. on the last business day of the accounting year. Financial assets and financial liabilities designated at fair value through profit or loss at (f) Cash and cash equivalents. inception are those that are managed and their Cash and cash equivalents include cash in hand performance evaluated on a fair value basis in and deposits held at call with banks. accordance with the Company’s documented investment strategy. The Company’s policy is (g) Share capital. for the Investment Manager and the Board of Directors to evaluate the information about (i) The Management Shares have been

19 notes to the financial statements. (continued)

Share capital. (continued) (iv) Both issued Nominal and Participating Shares are carried at a value of £ 0.01 per share. subscribed for by the Manager and are ‘non- participating’. The holders thereof are therefore Details of the Company’s share capital and entitled only to income arising on the assets transactions are shown in Note 14. represented by the Management Shares. These Shares are classified as ordinary share capital in (h) Share premium. the balance sheet. The premium on issues and redemptions of the (ii) Unclassified Shares may be issued as either Participating Shares is accounted for within the ‘A’ class participating redeemable preference share premium account which forms part of net shares (‘A Participating Shares’) or ‘B’ class assets attributable to holders of redeemable participating redeemable preference shares participating preference shares. Details are (‘B Participating Shares’) or Nominal Shares. shown in Notes 15 and 17. Participating Shares are redeemable at the shareholder’s option and are classified as (i) Distributions payable to holders of financial liabilities. Participating Shares are participating redeemable preference shares. carried at the redemption amount that is Distributions to holders of Participating payable if the holder exercises the right to Shares are recognised in the statement of redeem shares at the balance sheet date. comprehensive income as finance costs when Participating Shares are issued and redeemed they are ratified by the Directors. at the holder’s option at prices based on the Company’s net asset value per share at the time (j) Accrued income and expenses. of issue or redemption. The Company’s net Accrued income and expenses are recognised asset value per share is calculated by dividing initially at fair value and subsequently stated at the net assets attributable to the holders of amortised cost using the EIR method. participating redeemable preference shares by the total number of Participating Shares in issue. In accordance with the provisions of the Company’s regulations, investments are valued based on the latest traded market price for the purpose of determining the net asset value per share for subscriptions and redemptions. The A and B Participating Shares rank pari passu in all respects except that their entitlements to dividends and their respective interests in the net assets of the Company are determined by reference of a notional (but not vested) unit of participation. Each holder of a Participating Share is entitled, on a poll, to one vote for each Participating Share held. Participating Shares have a right to dividends declared. (iii) Nominal Shares have been accounted for in accordance with the Companies (Jersey) Law 1991, and corresponding amounts have been included in debtors and financial liabilities. A Nominal Share will be created when a Participating Share is cancelled. A Nominal Share will be cancelled when a Participating Share is created until the number of Nominal Shares falls to zero.

20 notes to the financial statements. (continued) 4. OTHER ACCRUED INCOME AND PRE-PAID EXPENSES. 30th September 30th September 2012 2011 £ £ Accrued income 235,612 335,761 Other debtors 1,536,776 1,458,887 ______Total other accrued income 1,772,388 1,794,648 ______

5. DISTRIBUTIONS. The distributions take account of income received on the creation of shares and income paid on the cancellation of shares, and comprise: 30th September 30th September 2012 2011 £ £ 31st October 92,117 94,674 30th November 90,821 94,427 31st December 516,013 585,716 31st January 80,835 94,382 29th February 80,627 92,817 31st March 482,797 567,915 30th April 77,548 92,171 31st May 76,830 93,489 30th June 436,577 560,177 31st July 71,259 93,789 31st August 65,329 93,570 30th September (payable) 407,951 553,761 ______2,478,704 3,016,888 Income paid on cancellation of shares 15,620 13,671

Income received on creation of shares ______(65,049) ______(58,070) Net distributions for the year 2,429,275 2,972,489 ______

Details of the distributions per share are set out on pages 33 to 35.

21 notes to the financial statements. (continued) 6. ACCRUED EXPENSES. 30th September 30th September 2012 2011 £ £ Due to Manager 108,644 122,676 Due to Custodian 2,543 2,948 Other Creditors ______54,437 ______44,388 Total accrued expenses 165,624 170,012 ______

7. NET GAIN ON FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS. The net gain on investments during the year comprise:

30th September 30th September 2012 2011 £ £ Proceeds from sales of investments during the year 237,330,170 213,168,349

Original cost of investments sold during the year ______(230,326,730) ______(211,098,757) Gains realised on investments sold during the year 7,003,440 2,069,592

Net unrealised (depreciation) appreciation for the year ______(1,732,909) ______622,072 Net gain on investments 5,270,531 2,691,664 ______

8. OTHER INCOME. 30th September 30th September 2012 2011 £ £

Bank interest ______14,110 ______2,176 Total other income 14,110 2,176 ______

22 notes to the financial statements. (continued) 9. TOTAL OPERATING EXPENSES. 30th September 30th September 2012 2011 £ £ Note Payable to the Manager: Annual management fee 10(a) 741,967 767,463 Registrar fees 10(a) 112,296 123,780

Payable to the Custodian: Custodian fees 11 34,916 36,116 Safe custody fees 4,734 5,143 Other expenses: Administration expenses 75,023 74,275 Audit fees 9,700 9,700 ______Total operating expenses 978,636 1,016,477 ______

10. RELATED PARTY TRANSACTIONS.

At the year end the Manager held Participating Shares in the Company as follows:

30th September 30th September 2012 2011

A Class 6,007.02 6,009.72 B Class ______6,014.09 ______5,897.02 12,021.11 11,906,74 ______

Parties are considered to be related if one The fees received by the Manager are set party has the ability to control the other out in Note 9. The Investment Manager is party or exercise influence over the party paid by the Manager. Details of amounts in making financial or operating decisions. due to the Manager at the end of the year The following are considered by the are shown in Note 6. Directors of the Company to be related The Manager is involved in all transactions parties: in shares of the Company, the aggregate The Manager in accordance with the values of which are set out in the statement of Management Agreement. changes in net assets attributable to holders of The Investment Manager in accordance participating redeemable preference shares on with the Investment Management page 13. Agreement.

23 notes to the financial statements. (continued)

(a) Management and Registrar Fee. 12. CONTROLLING PARTY. The Manager, which is related to the Company In the opinion of the Directors, there is no by virtue of a Management Agreement, is ultimate controlling party of the Company as entitled to a daily fee equal to an annual rate defined by International Accounting Standards of 0.85% of the net asset value of the Company No.24 Related Party Disclosures. calculated daily on a mid market basis and paid monthly from the income earned by the 13. EQUALISATION. Company. The Manager, in its capacity as Registrar, is entitled The price of a share includes an equalisation to a fee payable by the Company of £12.00 for each element calculated by dividing the net shareholding which appeared on the Share Register undistributed income of the Company by the on the last business day of each annual and half number of shares in issue at the time when the yearly accounting period. prices are calculated. The payment of the first dividend after the issue of a share includes an amount of equalisation calculated by averaging (b) Directors’ Fees. the amounts received by way of equalisation Directors who are employees of the Lloyds during the year to which the dividend relates. Banking Group do not receive Director fees. All other Directors receive a fee of £5,000 per annum (2011: £5,000 per annum). The amount due at the end of the year is £1,250 (2011: £1,250).

11. CUSTODIAN. The fees received by the Custodian are set out in Note 9. Details of amounts due to the Custodian at the end of the year are shown in Note 6. The Custodian is entitled to a fee paid monthly, calculated on the following scale by reference to the net asset value of the Company: • NAV up to £100million Annual Fee 0.04% (minimum fee £25,000) • NAV over £100million and up to £150million Annual Fee £40,000 • NAV over £150million and up to £200million Annual Fee £50,000 • NAV over £200million and up to £250million Annual Fee £60,000 • NAV over £250million and up to £300million Annual Fee £67,000 • NAV over £300million and up to £350million Annual Fee £74,000 • NAV over £350million and up to £400million Annual Fee £80,000 Thereafter a further £5,000 for every additional £50million increase in the net asset value of the Company. The Custodian is also entitled to reimbursement by the Company of its expenses in connection with its duties as Custodian and to make transaction charges to cover the cost of effecting settlement of stock and cash.

24 notes to the financial statements. (continued)

14. SHARE CAPITAL. 30th September 30th September 2012 2011 £ £ Authorised Share Capital: 1,000 Management Shares of £1 1,000 1,000 749,900,000 Unclassified shares of 1p 7,499,000 7,499,000 ______7,500,000 7,500,000 ______Issued Share Capital:

Management Shares: 1,000 Management Shares 1,000 1,000 ______

Participating Shares: Shares £ Shares £ Balance brought forward 71,634,765 716,347 78,555,888 785,559 Creations 2,257,650 22,576 2,293,650 22,936 Redemptions (10,046,450) (100,463) (9,214,773) (92,148) ______

Balance carried forward ______63,845,965 ______638,460 ______71,634,765 ______716,347

Nominal Shares: Balance brought forward 145,788,793 1,457,888 138,867,670 1,388,676 Creations 10,046,450 100,463 9,214,773 92,148 Redemptions (2,257,650) (22,576) (2,293,650) (22,936) ______

Balance carried forward ______153,577,593 ______1,535,775 ______145,788,793 ______1,457,888

Total Share Capital 2,174,235 2,174,235 ______

Participating Shares in issue: A participating Class 39,785,376 44,437,876 B participating Class 24,060,589 27,196,889 ______Balance carried forward 63,845,965 71,634,765 ______

25 notes to the financial statements. (continued)

15. SHARE PREMIUM. 30th September 30th September 2012 2011 £ £

Balance brought forward 69,062,617 77,153,735 Premium on creations 2,866,739 2,657,735

Premium on redemptions ______(12,713,595) ______(10,748,853) Balance carried forward 59,215,761 69,062,617 ______

16. CAPITAL RESERVES. Realised Unrealised gains on movement on investments investments Total £ £ £ At 30th September 2011 20,087,535 3,862,225 23,949,760 Net movement in the year 7,003,440 (1,732,909) 5,270,531 ______At 30th September 2012 27,090,975 2,129,316 29,220,291 ______

17. NET ASSETS ATTRIBUTABLE TO HOLDERS OF PARTICIPATING REDEEMABLE PREFERENCE SHARES. 30th September 30th September 2012 2011 £ £ Share Capital (Note 14) 2,174,229 2,174,235 Share premium (Note 15) 59,215,761 69,062,617 Capital reserves (Note 16) 29,220,291 23,949,760 Undistributed income (7,127,817) (5,567,812) Net assets attributable to holders of ______participating redeemable preference shares 83,482,464 89,618,800 ______

The distributions detailed in Note 5 have been declared by the Directors using a dividend policy based on the accruals method of accounting for income on debt instruments, as opposed to the EIR method of accounting for investment income which is the basis used for recognition of income on debt instruments as explained in the accounting policies. Future distributions will continue to be made on the basis of the existing distribution policy. Undistributed income under the accruals method as at 30th September 2012 amounts to £36,429 (30th September 2011: £17,709).

26 notes to the financial statements. (continued) 18. TAXATION. Market price risk. The Company is liable to be charged at a tax The overall market position and therefore the rate of 0% under Schedule D of the Income Tax risk exposure for the Company is governed by (Jersey) Law 1961, as amended (the ‘Income Tax the Prospectus, the Collective Investment Funds Law’) in respect of: (Recognized Funds) (Rules) (Jersey) Order 2003 (i) the income or profits of any trade carried on (as amended) and the investment objectives for by the Company in Jersey or elsewhere, the Company. These positions are monitored on a daily basis by the Manager and are reviewed (ii) any interest of money, whether yearly or on a quarterly basis by the Board of Directors. otherwise, or other annual payment paid to the Company, whether such payment is made The Company invests principally in fixed interest within or outside of Jersey, securities. The value of fixed interest securities is not fixed and may go down as well as up. This (iii) dividends and other distributions of a may be the result of a specific factor affecting company regarded as resident in Jersey paid to the value of an individual bond or be caused the Company, by general market factors (such as interest (iv) income arising to the Company from rates, government policy or the health of the securities outside of Jersey and underlying economy) which could affect the (v) any other income of the Company that is not entire portfolio. derived from the ownership or disposal of land In line with the Company’s investment in Jersey. objectives and policies, the Company will It is not expected that the Company will be in invest in a managed portfolio of sterling fixed receipt of income charged to tax under any interest securities which have been issued by Schedule under Income Tax Law other than governments, local authorities, public utilities Schedule D. As such the Company is no longer and corporations. Under Jersey regulations subject to the payment of tax in Jersey. these securities must be approved transferable securities.

19. FINANCIAL RISK MANAGEMENT. The year end portfolio for the Company is detailed The Company’s activities expose it to a variety on page 15. of financial risks: market risk (including currency The Manager controls this risk and monitors risk, fair value interest rate risk, cash flow the movements in the bonds and interest rates interest rate risk and price risk), liquidity risk, against the relevant bond index and market counter-party risk, capital risk and certain other interest rates respectively. risks. The Company’s overall risk management The Manager considers that a reasonably programme focuses on the unpredictability possible movement in the market risk of financial markets and seeks to minimise components would be equivalent to a 5% potential adverse affects on the Company’s movement in the bond index and a 1% financial performance. The Company is able to movement in market interest rates. use derivative financial instruments to moderate certain risk exposures. The first table on the next page summarises the impact of increases/(decreases) in the bond The Company’s investment objective and index, and market interest rates on the net asset policy are stated on page 3. To achieve these value as at 30th September 2012. The analysis the Company must hold or purchase financial is based on the assumption that the bond instruments, which may include: index increases/(decreases) by 5%, and market • Investments comprising fixed income interest rates increase/(decrease) by 1%, with securities and floating rate securities. all other variables held constant. The analysis • Cash, liquid resources, short term debtors and also assumes that the movement in the portfolio creditors that arise directly from its investment of the Company is directly correlated with the activities. bond index and market interest rates. • Hedging instruments, such as traded options, which the Company may enter into for the purpose of managing the risks arising from the Company’s investment activities.

27 notes to the financial statements. (continued)

19. FINANCIAL RISK MANAGEMENT. (continued) Impact of Market Movements:

Year Value Bonds Cash £ 5% movement 1% movement in bond index in interest rates £ £

30.09.12 83,482,464 3,846,796 12,805 30.09.11 89,618,800 4,097,865 17,312

Interest rate risk. The Company receives income from investments. The income received by the Company is not The interest bearing financial assets and fixed in nature and is derived from the securities liabilities held in the Company expose it to risks held in the portfolio of the Company which may associated with the effects of fluctuations in the be varied from time to time in accordance with prevailing levels of market interest rates on its the Company’s investment objective and policy. financial position and cash flows. In accordance with the Company’s policy, the The table below summarises the effect of interest Investment Manager monitors the Company’s rate risks on the Company. It includes the overall interest rate sensitivity on a daily basis, Company’s assets and trading liabilities at fair and the Board of Directors reviews it on a values, categorised by the earlier of contractual quarterly basis. re-pricing or maturity dates. Other than those financial instruments identified above, the Interest rate profile of the Company’s financial assets and liabilities.

Fixed rate Floating rate Interest Interest Year Total interest assets interest assets free assets free liabilities £000’s £000’s £000’s £000’s £000’s

30.09.12 83,482 80,998 1,281 7,483 6,279 30.09.11 89,618 86,821 1,731 1,794 728

Weighted average rates of the Company’s financial assets and liabilities.

Year Currency Weighted Weighted Weighted average average coupon average effective period for which rate % interest rate % rate is fixed years

30.09.12 Sterling 3.91 1.40 13.96 30.09.11 Sterling 4.53 1.78 14.23

28 notes to the financial statements. (continued) 19. FINANCIAL RISK MANAGEMENT. (continued)

Credit risk. The Company takes on exposure to credit risk, which is the risk that a counter-party will be unable to pay amounts in full when due. Impairment provisions are provided for losses that have been incurred by the balance sheet date, if any. In accordance with the Company’s policy, the Manager monitors the Company’s credit position on a daily basis, and the Board of Directors reviews it on a quarterly basis. The Company only invests in sterling denominated Government and other public securities which are all AAA credit rated.

Counter-party risk. Certain transactions that the Company enters into expose it to the risk that the counter-party will not deliver the investment (purchase) or cash (sale) after the Company has fulfilled its responsibilities. It is the policy of the Manager to buy and sell investments only through approved brokers.

Capital risk. In order to achieve the desired rate of income return from the Company, the income return may be at the expense of capital growth in the value of the shares.

Capital risk management. The net assets attributable to holders of participating redeemable preference shares are classified as Financial Liabilities and therefore, in the opinion of the Directors, the Capital of the Company is only represented by the Management Shares and Nominal Shares. Details of Management Shares and Nominal Shares are disclosed in Notes 3(g) and 14. Due to the nature of the Management Shares and Nominal Shares the Directors have decided that no active capital risk management is required.

29 notes to the financial statements. (continued)

19. FINANCIAL RISK MANAGEMENT. (continued)

Liquidity risk. The Company is exposed to daily cash up to 10% of its value to ensure settlement of its redemptions of Participating Shares which are liabilities. No such borrowings have arisen during redeemed on demand at the holder’s option. It the year. therefore invests all of its assets in investments In accordance with the Company’s policy, the that are traded in an active market and can be Manager monitors the liquidity position on a daily readily disposed of, as such the Company’s basis, and the Board of Directors reviews it on a financial assets are considered to be readily quarterly basis. realisable. The Manager manages the Company’s The table below analyses the Company’s financial cash to meet its liabilities. Where investments liabilities into relevant maturity groups based on cannot be realised in time to meet any the remaining period at the balance sheet date to redemptions of Shares, the Company may borrow the contractual maturity date.

Less than 1 Month 1-3 Months £ £

As at 30th September 2012 Share Capital 83,483,464 — Cancellation payable 14,857 — Investment purchase payable 5,690,286 — Proposed distribution 69,775 338,176 Accrued expenses ______111,187 ______54,437 Total financial liabilities 89,369,569 392,613 ______

As at 30th September 2011 Share Capital 89,619,800 — Cancellation payable 3,015 — Investment purchase payable — — Proposed distribution 93,829 459,932 Accrued expenses ______125,624 ______44,388 Total financial liabilities 89,842,268 504,320 ______

30 notes to the financial statements. (continued)

19. FINANCIAL RISK MANAGEMENT. comparison with instruments recognised on (continued) the balance sheet, but they do not necessarily indicate the amounts of future cash flows Derivatives. involved or the current fair value of the instruments and do not therefore indicate Derivatives will only be used where they the Company’s exposure to credit or market accord with existing investment objectives and price risks. The derivative instruments become policy. They may not be used for the purpose favourable (assets) or unfavourable (liabilities) of reducing risk independently of investment as a result of fluctuations in market interest rates strategy in respect of the underlying physical or foreign exchange rates relative to their terms. assets or for merely speculative purposes. The aggregate contractual or notional amount Derivatives will only be used for efficient of derivative financial instruments on hand, the portfolio management. Derivatives may not be extent to which instruments are favourable or used for the purpose of gearing or leveraging unfavourable, and thus the aggregate fair values or for purposes of producing, enhancing or of derivative financial assets and liabilities can generating income. No derivative can be traded fluctuate significantly from time to time. on an OTC basis, and no uncovered positions During the year the Company did not enter into are allowed. any derivative contracts. The Company may hold the following derivatives: Fair value estimation.

(a) Futures. The fair value of financial assets and liabilities traded in active markets (such as publicly Futures are contractual obligations to buy or traded derivatives and trading securities) are sell financial instruments on a future date at based on quoted market prices at the close a specified price established in an organised of trading on the year end date. The quoted market. Any futures contracts are collateralised market price used for financial assets held by cash or marketable securities; changes in the by the Company is the current bid price; the futures contracts value are settled daily with the appropriate quoted market price for financial exchange. Interest rate futures are contractual liabilities is the current asking price. When obligations to receive or pay a net amount the Company holds derivatives with offsetting based on changes in interest rates at a future market risks, it uses mid-market prices as a basis date at a specified price, established in an for establishing fair values for the offsetting organised financial market. Futures are settled risk positions and applies this bid or asking on a net basis. price to the net open position, as appropriate. If a significant movement in fair value occurs (b) Options. subsequent to the close of trading on the year An option is a contractual arrangement under end date, valuation techniques will be applied which the seller (writer) grants the purchaser to determine the fair value. (holder) the right, but not the obligation, either A financial instrument is regarded as quoted to buy (a call option) or sell (a put option) at or in an active market if quoted prices are readily by a set date or during a set period, a specific and regularly available from an exchange, amount of securities or a financial instrument dealer, broker, industry group, pricing service, at a predetermined price. The seller receives a or regulatory agency, and those prices premium from the purchaser in consideration represent actual and regularly occurring market for the assumption of future securities prices. transactions on an arm’s length basis. Where options are held by the Company, they are exchange-traded. The Fund is exposed to credit risk on purchased options only to the extent of their carrying amount, which is their fair value. Options are settled on a gross basis. The notional amounts of certain types of financial instrument provide a basis for

31 notes to the financial statements. (continued)

19. FINANCIAL RISK MANAGEMENT. If a fair value measurement uses observable (continued) inputs that require significant adjustment based on unobservable inputs, that Fair value estimation. (continued) measurement is a level 3 measurement. Assessing the significance of a particular The Company adopted the amendment to IFRS input to the fair value measurement in its 7, effective 1st January 2009. This requires the entirety requires judgment, considering Company to classify fair value measurements factors specific to the asset or liability. using a fair value hierarchy that reflects the significance of the inputs used in making the The determination of what constitutes measurements. The fair value hierarchy has the ‘observable’ requires significant judgment following levels: by the Directors. The Directors consider observable data to be that market data that • Quoted prices (unadjusted) in active markets for is readily available, regularly distributed identical assets or liabilities (level 1). or updated, reliable and verifiable, not • Inputs other than quoted prices included within proprietary, and provided by independent level 1 that are observable for the asset or liability, sources that are actively involved in the either directly (that is, as prices) or indirectly (that relevant market. is, derived from prices) (level 2). There have been no transfers between levels. • Inputs for the asset or liability that are not based The financial assets at fair value through profit on observable market data (that is, unobservable or loss of the Company are all quoted in inputs) (level 3). active markets and therefore fall under level 1 The level in the fair value hierarchy within which as defined above. the fair value measurement is categorised in its entirety is determined on the basis of the lowest 20. Post balance sheet events level input that is significant to the fair value disclosure. measurement in its entirety. For this purpose, the significance of an input is assessed against the fair There are no post balance sheet events to value measurement in its entirety. disclose.

32 Distribution Tables - unaudited.

For the year ended 30th September 2012. Class A Shares Gross Equalisation Distribution Distribution income payable paid paid current year prior year 1st Quarter Group 1 0.99 — 0.99 0.99 Group 2 0.067 0.923 0.99 0.99

2nd Quarter Group 1 0.93 — 0.93 0.98 Group 2 0.078 0.852 0.93 0.98

3rd Quarter Group 1 0.91 — 0.91 1.005 Group 2 — 0.91 0.91 1.005

4th Quarter Group 1 0.85 — 0.85 1.035 Group 2 0.025 0.826 0.85 1.035

1st Quarter Group 1 : Shares purchased prior to 1st October 2011 Group 2 : Shares purchased between 1st October 2011 and 31st December 2011

2nd Quarter Group 1 : Shares purchased prior to 1st January 2012 Group 2 : Shares purchased between 1st January 2012 and 31st March 2012

3rd Quarter Group 1 : Shares purchased prior to 1st April 2012 Group 2 : Shares purchased between 1st April 2012 and 30th June 2012

4th Quarter Group 1 : Shares purchased prior to 1st July 2012 Group 2 : Shares purchased between 1st July 2012 and 30th September 2012

33 Distribution Tables - unaudited. (CONTINUED)

For the year ended 30th September 2012. Class B Shares Gross Equalisation Distribution Distribution income payable paid paid current year prior year 31st October 2011 Group 1 0.34 — 0.34 0.33 Group 2 — — 0.34 0.33

30th November 2011 Group 1 0.34 — 0.34 0.33 Group 2 — — 0.34 0.33

31st December 2011 Group 1 0.31 — 0.31 0.33 Group 2 — — 0.31 0.33

31st January 2012 Group 1 0.31 — 0.31 0.33 Group 2 — — 0.31 0.33

29th February 2012 Group 1 0.31 — 0.31 0.325 Group 2 — — 0.31 0.325

31st March 2012 Group 1 0.31 — 0.31 0.325 Group 2 — — 0.31 0.325

30th April 2012 Group 1 0.31 — 0.31 0.33 Group 2 — — 0.31 0.33

31st May 2012 Group 1 0.31 — 0.31 0.34 Group 2 — — 0.31 0.34

30th June 2012 Group 1 0.29 — 0.29 0.335 Group 2 — — 0.29 0.335

31st July 2012 Group 1 0.29 — 0.29 0.345 Group 2 — — 0.29 0.345

31st August 2012 Group 1 0.27 — 0.27 0.345 Group 2 — — 0.27 0.345

30th September 2012 Group 1 0.29 — 0.29 0.345 Group 2 — — 0.29 0.345

34 Distribution Tables - unaudited. (CONTINUED)

31st October 2011 Group 1 : Shares purchased prior to 1st October 2011 Group 2 : Shares purchased between 1st October 2011 and 31st October 2011

30th November 2011 Group 1 : Shares purchased prior to 1st November 2011 Group 2 : Shares purchased between 1st November 2011 and 30th November 2011

31st December 2011 Group 1 : Shares purchased prior to 1st December 2011 Group 2 : Shares purchased between 1st December 2011 and 31st December 2011

31st January 2012 Group 1 : Shares purchased prior to 1st January 2012 Group 2 : Shares purchased between 1st January 2012 and 31st January 2012

29th February 2012 Group 1 : Shares purchased prior to 1st February 2012 Group 2 : Shares purchased between 1st February 2012 and 29th February 2012

31st March 2012 Group 1 : Shares purchased prior to 1st March 2012 Group 2 : Shares purchased between 1st March 2012 and 31st March 2012

30th April 2012 Group 1 : Shares purchased prior to 1st April 2012 Group 2 : Shares purchased between 1st April 2012 and 30th April 2012

31st May 2012 Group 1 : Shares purchased prior to 1st May 2012 Group 2 : Shares purchased between 1st May 2012 and 31st May 2012

30th June 2012 Group 1 : Shares purchased prior to 1st June 2012 Group 2 : Shares purchased between 1st June 2012 and 30th June 2012

31st July 2012 Group 1 : Shares purchased prior to 1st July 2012 Group 2 : Shares purchased between 1st July 2012 and 31st July 2012

31st August 2012 Group 1 : Shares purchased prior to 1st August 2012 Group 2 : Shares purchased between 1st August 2012 and 31st August 2012

30th September 2012 Group 1 : Shares purchased prior to 1st September 2012 Group 2 : Shares purchased between 1st September 2012 and 30th September 2012

35 Performance Records - unaudited.

Share prices and dividends Shares in Lloyds TSB Offshore Gilt Fund Limited A Class were first offered to the public in November 1978 at an offer price of £1.00 per Share. Shares in Lloyds TSB Offshore Gilt Fund Limited B Class were first offered to the public in March 1988 at an offer price of £1.07 per Share.

Highest Lowest Dividends Per £1,000 offer price bid price per Share invested at 31.12.01 Year p p p £ A Class 2002 120.20 109.00xd 6.000 51.28 2003 121.70 108.90xd 5.070 43.33 2004 118.20 108.70xd 4.480 38.29 2005 121.30 110.20 4.220 36.07 2006 122.50 110.30xd 4.300 36.75 2007 111.60 104.00xd 4.210 35.98 2008 120.20 105.30xd 4.075 34.83 2009 122.00 112.80xd 4.040 34.53 2010 123.70 113.20 3.900 33.33 2011 127.00 111.20 4.010 34.27 30.09.12 128.10 121.50 3.680 31.45

B Class

2002 116.80 106.90xd 6.000 52.77 2003 118.30xd 106.30xd 5.070 44.59 2004 114.70xd 105.70xd 4.480 39.40 2005 117.70 106.90xd 4.220 37.12 2006 119.60xd 107.60xd 4.300 37.82 2007 108.10xd 101.40xd 4.210 37.03 2008 116.10 102.10xd 4.075 35.84 2009 117.80xd 109.50 4.040 35.53 2010 119.60 109.50xd 3.900 34.30 2011 132.00 115.10 4.010 35.27 30.09.12 132.90 126.20 3.680 32.37

36 Net asset value per share - unaudited.

Year Net Asset Value Net Asset Value No. of Shares of Fund per Share in issue

30.09.09 £97,648,050 117.26p 83,274,233 30.09.10 £96,458,474 122.78p 78,555,888 30.09.11 £89,618,800 125.11p 71,634,765 30.09.12 £83,482,464 130.76p 63,845,965

37 notice of meeting.

Notice is hereby given that the 35th Annual 10. RESOLUTION 8. General Meeting of Lloyds TSB Offshore Gilt To fix the remuneration of each of the Directors Fund Limited will be held at 11-12 Esplanade, at a maximum of £5,000 per annum. St. Helier, Jersey, on Wednesday, 20th February 2013 at 9.00 a.m. for the following purposes: NOTES: Agenda. A Member entitled to attend and vote at this Ordinary Business. Meeting may appoint one or more Proxies to attend and, on a poll, vote instead of him. A 1. To appoint the Chairman of the meeting. Proxy need not be a Member of the Company. 2. To read the convening notice. To be valid, completed proxy forms must be 3. RESOLUTION 1. deposited at the Company’s principal place To receive and if deemed appropriate, adopt the of business not less than 48 hours before the Annual Report and Audited Financial Statements appointed time for holding the meeting, or any of the Company for the year ended 30th adjournment thereof. September 2012. In the case of joint holders the vote of the senior shall be accepted to the exclusion of the votes of 4. RESOLUTION 2. the other joint holder(s). To consider, and if deemed appropriate, re- The quorum requirement is two members elect Ross Davey Willcox as a Director of the present in person or by proxy. If a quorum is not Company. present, the meeting shall stand adjourned to 5. RESOLUTION 3. Wednesday, 27th February 2013 at 9.00 a.m. at the same venue and at such adjourned meeting To consider, and if deemed appropriate, re-elect the shareholder’s present in person or by proxy Ian Mark Jeremie Hardy as a Director of the shall be the quorum. Company.

6. RESOLUTION 4. By Order of the Board To consider, and if deemed appropriate, re-elect Lloyds TSB Offshore Corporate Services Limited, Timothy Joseph Herbert as a Director of the Secretary, Company. PO Box 160, 7. RESOLUTION 5. 25 New Street, To consider, and if deemed appropriate, re- St. Helier, elect Brian Charles James as a Director of the Jersey JE4 8RG, Company. Channel Islands.

8. RESOLUTION 6. 14th December 2012. To consider, and if deemed appropriate, re-elect Nigel Ross Jeacock-Fewtrell as a Director of the Company.

9. RESOLUTION 7. To re-appoint PricewaterhouseCoopers CI LLP as Auditors of the Company for the ensuing year and to authorise the Directors to fix their remuneration.

38 LLOYDS TSB OFFSHORE GILT FUND LIMITED FORM OF PROXY. BLOCK LETTERS PLEASE FULL NAME(S) ...... ADDRESS ...... I/We being a Member(s) of the above named Company hereby appoint the Chairman of the Meeting ...... (see Note 1.) as my/our proxy to attend and vote for me/us on my/our behalf at the 35th Annual General Meeting of the Company to be held on Wednesday, 20th February 2013 at 9.00 a.m. and at any adjournment thereof. I/We have indicated with an “X” in the spaces below how I/we wish my/our votes to be cast in respect of the Resolutions which are set out in the Notice convening the Meeting. If no specific direction as to voting is given, then I/we authorise the Chairman of the Meeting to vote or abstain at his/her discretion.

ORDINARY RESOLUTIONS: FOR AGAINST 1. Adoption of the Annual Report & Audited Financial Statements for the year ended 30th September 2012

2. Re-election of Ross Davey Willcox as a Director of the Company

3. Re-election of Ian Mark Jeremie Hardy as a Director of the Company

4. Re-election of Timothy Joseph Herbert as a Director of the Company

5. Re-election of Brian Charles James as a Director of the Company

6. Re-election of Nigel Ross Jeacock-Fewtrell as a Director of the Company

7. Re-appoint PricewaterhouseCoopers CI LLP as Auditors and to authorise the Directors to fix their remuneration.

8. To fix the remuneration of each of the Directors at a maximum of £5,000 per annum. NOTES: 1. If you wish to appoint another person to be your proxy instead of the Chairman of the Meeting, you should delete the words “the Chairman of the Meeting”, and write the name of your proxy in the space provided and initial the alteration. 2. Except as otherwise indicated by you, the proxy will vote, or abstain from voting, at the meeting or any adjournment thereof as the proxy thinks fit. 3. In the case of a corporation, the form of proxy must be executed under its common seal or under the hand of an officer or attorney duly authorised in writing. 4. In the case of joint holders, the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the joint holders, and for this purpose seniority shall be determined by the order in which the names stand in the Register of Members. 5. To be valid, forms of proxy must reach the principal place of business of the Company, PO Box 311, 11-12 Esplanade, St. Helier, Jersey JE4 8ZU, Channel Islands, not later than 48 hours before the time appointed for the meeting (or any adjourned meeting). Any power of attorney or other authority under which the form of proxy is signed must be sent with the form of proxy.  Signature ...... Date ......