ECCLESIASTICAL - Fixed Income Investor

LISTING PARTICULARS dated 13 September 1995

ECCLESIASTICAL ECCLESIASTICAL INSURANCE OFFICE plc

(Incorporated in England as a limited company under the Companies Acts 1862 to 1886 with registered number 24869)

Placing of 15,000,000 8.625 per cent.

Non-Cumulative

Irredeemable Preference Shares

of £1 each

at 100.466 pence per share

Application has been made to The International Stock Exchange of the United Kingdom and the Republic of Ireland Limited for all of the Preference Shares to be issued pursuant to the Placing described herein to be admitted to the Official List. It is expected that such admission will become effective and that dealings will commence on 21 September 1995.

The Directors, whose names appear on page 6 of this document, 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.

A copy of this document, which comprises listing particulars relating to Ecclesiastical Insurance Office plc and the Preference Shares to be admitted to the Official List in accordance with the listing rules made under Section 142 of the Financial Services Act 1986 (as amended by the Public Offers of Securities Regulations 1995) has been delivered for registration to the Registrar of Companies in England and Wales in accordance with section 149 of that Act.

Persons receiving this document should note that, in connection with the Placing, James Capel & Co. Limited which is regulated by The Securities and Futures Authority and is a member of the London Stock Exchange, is acting for the Company in connection with the Placing and will not be responsible to any other person for providing the protections afforded to customers of James Capel & Co. Limited or providing advice in connection with the Placing.

JAMES CAPEL & CO. LIMITED

CONTENTS Page

Definitions 3

PART I — Ecclesiastical Insurance Office plc 4 1. Introduction 4 2. General insurance business 4 3. Life assurance 4 4. Reinsurance 4 5. Segmental analysis 5 6. Shareholders' funds 5 7. Current trading and prospects 5 8. Directors 6 9. Reasons for the placing 6

PART II — Description of the rights attaching to the Preference Shares 7

PART III — Financial information 12

PART IV — The Placing 34

PART V — Further information 35

EXPECTED TIMETABLE OF EVENTS 1995

Initial dealings commence in "when issued" form 14 September

Payment from placees 20 September

Definitive Preference Share certificates despatched 20 September

Official dealings commence, fully paid, for rolling settlement 21 September

Settlement for initial dealings 22 September

First dividend payment on the Preference Shares 31 December

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DEFINITIONS The following definitions apply th roughout this document unless the context requires otherwise:

"Act" the Companies Act 1985 (as amended);

"Allchurches Life" Allchurches Life Assurance Limited, a wholly-owned subsidiary of EIO;

"Allchurches Trust" Allchurches Trust Limited;

"Articles of Association" the articles of association of the Company;

"Board" or "Directors" the directors of the Company;

"EIG" Ecclesiastical Insurance Group plc;

"EIO" or "Company" Ecclesiastical Insurance Office plc;

"First Preference Shares" the existing authorised and issued 250,000 2.8 per cent. First Cumulative Preference Shares of £1 each in the Company;

"Group" the Company and its subsidiary undertakings (as defined in the Act);

"James Cape!" James Capel &c Co. Limited;

"London Stock Exchange" The International Stock Exchange of the United Kingdom and the Republic of Ireland Limited;

"Official List" the Official List of the London Stock Exchange;

"Ordinary Shares" the existing authorised 30,000,000 ordinary shares of 50p each in the Company of which 24,000,000 have been issued at the date of this document;

"Placing" the placing of 15,000,000 Preference Shares as described in this document;

"Placing Agreement" an agreement dated 13 September 1995 between the Company and James Capel relating to the Placing;

"Placing Price" 100.466 pence per Preference Share to be issued pursuant to the Placing;

"Preference Shares" the 25,000,000 8.625 per cent, non-cumulative irredeemable preference shares of £1 each in the Company and of which 15,000,000 are to be issued pursuant to the Placing;

"Second Preference Shares" the existing authorised and issued 3,000,000 10 per cent. Redeemable Second Cumulative Preference Shares of £1 each in the Company;

"Sterling Preference Shares" the existing authorised but unissued 25,000,000 sterling preference shares of £1 each in the Company;

"Third Preference Shares" the existing authorised and issued 16,000,000 9%. per cent. Redeemable Non-Cumulative Third Preference Shares of £1 each in the Company.

In this document, all references to "£", "sterling", "pence" and "p" are to the lawful currency of, and all references to "UK" are to, the United Kingdom.

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PART I

ECCLESIASTICAL INSURANCE OFFICE plc

1. INTRODUCTION

The principal activity of EIO is the transaction of general and long term insurance business in the UK and overseas. EIO was founded in 1887 and its origins are closely linked with the provision of property insurance services to the Church of England. EIO has maintained a pre-eminent position in this field since that time but has also diversified into domestic and commercial property insurance, motor insurance and life assurance.

All of the Company's issued Ordinary Shares, Third Preference Shares and 15.6 per cent. of the First Preference Shares are owned by EIG. The ultimate parent company is Allchurches Trust, a company incorporated in England with liability limited by guarantee and a registered charity.

2. GENERAL INSURANCE BUSINESS

EIO's general insurance business is mainly transacted in the UK but includes portfolios controlled by branches in Canada and Ireland. The Company is authorised to write all classes of general insurance business, except marine aviation and transport. While EIO writes a diversified portfolio of fire, accident, motor insurance and reinsurance, the Company's business mix is strongly influenced by its church origins so that it is a specialist insurer of churches, schools, retirement homes and charitable institutions. The Company's strategy is to curtail its exposure to "long tail" liability business, particularly environmental risk.

3. LIFE ASSURANCE

Life assurance is offered on a mutual basis by EIO and on a proprietary basis by its subsidiary, Allchurches Life.

Contracts written through EIO stem mainly from the clergy and church market and the portfolio largely consists of "with profits" endowment and pension policies. The distribution system is through direct marketing and a small specialist direct sales force.

The focus within Allchurches Life is on developing specialist products which can be marketed through independent financial advisers and by the direct sales force. Products include school fees capital plans, homeowners income plans and pension contracts.

4. REINSURANCE

The bias towards the insurance of property, often involving high value buildings of specialist construction, makes the Group an important purchaser of reinsurance protection. Accordingly, the Group has a comprehensive reinsurance programme, a major part of which is with leading reinsurance companies.

The programme, which includes liability and catastrophe covers, is placed internationally. In many cases, long-standing direct relationships have been established with participating reinsurers.

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5. SEGMENTAL ANALYSIS

The table below provides an analysis of insurance business by type and by geographical source (based on location of office).

Unaudited Six months

ended Audited 30 June Year ended 31 December

1995 1994 1993 1992 £'000 £'000 £'000 £'000

Turnover Gross written premiums

General Insurance Business ________ Property damage 65,252 124,347 115,324 102,167 Other 23,696 40,827 37,120 32,053

88,948 165,174 152,444 134,220 Long term business Mutual 5,382 11,607 13,022 11,396 Non-mutual 1,968 6,029 10,169 8,750

7,350 17,636 23,191 20,146

96,298 182,810 175,635 154,366

Geographical analysis of turnover United Kingdom 86,641 168,539 164,274 144,821 Canada 7,919 11,282 9,368 7,563 Other overseas 1,738 2,989 1,993 1,982

96,298 182,810 175,635 154,366

Profit before taxation United Kingdom 9,803 13,841 13,883 6,487 Canada 939 850 1,203 1,094 Other overseas 41 205 (18) 336

10,783 14,896 15,068 7,917

Solvency margin 84% 77% 81% 63%

6. SHAREHOLDERS' FUNDS

The Group's unaudited net assets as at 30 June 1995 were £96 million (31 December 1994: £85 million).

7. CURRENT TRADING AND PROSPECTS

In the Chairman's Statement in the Report and Accounts for the year ended 31 December 1994, the Chairman stated that EIO had made excellent progress during the year influenced by a favourable out-turn in two key disciplines, underwriting and investment.

The Group pursued a cautious strategy through the year which helped maintain its strong financial position. Gross premiums in the long term business, particularly for single premium contracts, fell sharply as a result of adverse market conditions.

EIO has responded to the problems in the pensions transfer business highlighted by the Securities and Investment Board and, based on the advice of consulting actuaries, has made a prudent provision for the foreseeable costs of regulatory action.

EIO announced its interim results for the six months ended 30 June 1995 on 4 September 1995. They are reproduced on pages 32 to 33 of this document.

The interim results show that the Group has continued to increase turnover and profit and demonstrate EIO's ability to increase its general insurance business, in chosen market segments, while maintaining satisfactory profit margins.

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The Directors feel confident that, in the longer term, the special features of EIO's business, which have generated consistent real premium growth and satisfactory margins, will enable the Company to grow profitably over the ensuing years. The extra capital now being raised will increase EIO's already strong solvency ratio and thus enhance the Company's ability to attract additional quality business.

8. DIRECTORS

The Directors of EIO, their functions and their principal outside activities of significance to EIO, are as follows:

Mark Ralph Cornwall-Jones MA, Chairman Chairman of Govett Oriental Investment Trust ACIS plc and a director of St Andrew Trust plc,

Halifax Financial Services (Holdings) Ltd and other companies.

William Hugh Yates FRICS Deputy Chairman Senior Partner of Knight Frank & Rutley and a director of the Woolwich Building Society.

Bernard Victor Day* BA, LLB, Managing Director Chairman of Wright Underwriting Group Ltd FCII and a director of St Andrew Trust plc, URC

Insurance Co. Ltd and Pool Re Ltd. A past President of the Chartered Insurance Institute.

Graham Vincent Doswell* FCII General Manager, UK and Director of Wright Underwriting Group Ltd. International

The Very Reverend Thomas Director The Dean of St. Pauls. Director of the London Eric Evans MA Festival Orchestra and a former Chairman of

the Council for the Care of Churches. Dean of the Order of St Michael and St George and the Order of the British Empire.

The Venerable Reginald Brian Director The Archdeacon of Manchester. Director of Harris MA the Manchester Diocesan Board of Finance Ltd

and The Selcare (Greater Manchester) Trust.

John David McArdell ACII Director Member of the Council for the Care of Churches and a director of Westonbirt School Ltd.

George Andrew Prescott* BA, General Manager, Finance Director of St Andrew Trust plc. FCA and Investment

Miles Crispin Dean Roberts MA, Director A partner in KPMG until 1991. He now acts as CA a consultant with KPMG and is Treasurer of

Guildford Cathedral.

Hugh Hedley Scurfield MA, FIA Director Director of Halifax Financial Services (Holdings) Ltd and the Royal Shrewsbury Hospital NHS Trust and a past President of the Institute of Actuaries.

Dennis Raoul Whitehall Silk JP, Director Warden of Radley College until 1991. MA Chairman of the TCCB and a past President of

the M.C.C.

The Very Reverend John Director The Dean of Canterbury. Chairman of the Arthur Simpson MA Board of Governors of the King's School

Canterbury.

Give Benjamin Thomson* JP General Manager, Financial Chairman of East Gloucestershire NHS Services Trust.

* Denotes executive Director.

The business address for all the Directors is Beaufort House, Brunswick Road, Gloucester, GL1 1JZ.

9. REASONS FOR THE PLACING

The proceeds from the issue of the Preference Shares will strengthen the Group's capital base and permit the Group to take advantage of opportunities which may present themselves for securing additional premium income. EIO has no present intention of redeeming any of its Second Preference Shares.

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PART II

DESCRIPTION OF THE RIGHTS ATTACHING TO THE PREFERENCE SHARES

The rights of the Preference Shares and the limitations and restrictions to which they are subject are contained in the Articles of Association and in a resolution of a duly authorised committee of the Board passed on 12 September 1995 and are as set out below. Words and expressions defined in or for the purposes of the Articles of Association shall bear the same meanings in this Part II. In the event of any conflict between the definitions used in the Articles of Association and those set out on page 3 of this document, the former shall prevail.

1. PRIORITY

The Preference Shares shall rank pari passu with each other and in priority to the Ordinary Shares and the Third Preference Shares (together referred to as the "After Ranking Shares") but after the First Preference Shares, the Second Preference Shares and such other shares in the Company which by their terms of issue rank in priority to the Preference Shares (together referred to as the "Prior Ranking Shares").

2. DENOMINATION AND FORM

The Preference Shares have a nominal value of £1 each and will be issued at 100.466 pence per Preference Share fully paid for cash. The Preference Shares will be in registered form.

Transfers of the Preference Shares must be in writing in the usual or common form or in such other form as the Directors may approve signed by the transferor and (in the case of a partly paid Preference Share) the transferee. The Directors may, in their absolute discretion and without assigning any reason therefor, decline to register any transfer of Preference Shares not being fully paid and any Preference Shares on which the Company has a lien and may also refuse to register a transfer if:

2.1 the instrument of transfer is not lodged at the registered office of the Company or such other place as the Directors may from time to time determine, duly stamped, accompanied by the certificate for the Preference Shares to which it relates, and such other evidence as the Directors may reasonably require to show the right of the transferor to make the transfer and, if executed by some other person on the transferor's behalf, the authority of that person to do so;

2.2 the transfer is in respect of more than one class of share; or

2.3 in the case of a transfer to joint holders, the number of joint holders to whom the Preference Shares are to be transferred exceeds four.

3. INCOME

3.1 The holders of the Preference Shares shall be entitled, in priority to any payment of dividend to the holders of the After Ranking Shares but after any payment of dividend to the holders of Prior Ranking Shares, to be paid out of the profits available for distribution under the Act and permitted by law to be distributed when, as and if declared by the Directors, a non-cumulative preferential dividend payable at the rate of 8.625 per cent. per annum of the nominal amount of each Preference Share (exclusive of any associated tax credit) in sterling which will be payable in equal half-yearly instalments in arrears on 30 June and 31 December in each year (each a "Dividend Payment Date") save that the first dividend instalment will be payable on 31 December 1995, in respect of the period from and including 20 September 1995 up to but excluding 31 December 1995. If any Dividend Payment Date is not a day on which banks in the City of London are open for business ( a "Business Day"), then payment of the dividend otherwise payable on such Dividend Payment Date will be made on the next succeeding Business Day and without any interest or other payment in respect of such delay. Dividends payable on the Preference Shares in respect of any period shorter or longer than a full dividend period will be calculated on the basis of a 365 day year and the actual number of days elapsed in such period. Dividends remaining unclaimed after a period of 12 years after having been declared shall be forfeited and shall revert to the Company.

3.2 If on any Dividend Payment Date the profits of the Company available for distribution are, in the opinion of the Directors, insufficient to enable payment in full to be made of the dividend which would

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otherwise fall to be payable on the Preference Shares on such Dividend Payment Date (the "relevant dividend"), then none of the relevant dividend shall be payable.

3.3 If, in the opinion of the Directors, the payment of any dividend on the Preference Shares would or might breach or cause a breach of the margins of solvency prescribed for the business of the Company pursuant to the Insurance Companies Regulations 1994 (as amended from time to time) or any replacement or similar legislation or such payment would prevent the Company from lending monies or other assets of the Company to any subsidiary or associated undertaking of the Company which in the opinion of the Directors requires such monies or assets to prevent a breach of the margins of solvency (prescribed as aforesaid) for the business of that subsidiary or associated undertaking, then none of such dividend shall be payable.

3.4 If it shall subsequently appear that any such dividend which has been paid should not, in accordance with the provisions of sub-paragraphs 3.2 or 3.3, have been so paid then provided the Directors shall have acted in good faith they shall not incur any liability for any loss which any shareholder may suffer in consequence of such payment having been made.

3.5 If a dividend or any part thereof on the Preference Shares is not paid for the reasons specified in sub-paragraphs 3.2 or 3.3 above, the holders of the Preference Shares shall have no claim in respect of such non-payment.

3.6 In any calendar year, whether or not any dividend on the Preference Shares has been paid in full and notwithstanding any provision of the Articles of Association, the Directors may if they so resolve and subject to the Act, pay (or set aside a sufficient sum for payment of) a special dividend of 0.1 p per share on any shares in the capital of the Company in respect of which no dividend has previously been paid in that calendar year. References elsewhere in this Part II to any dividend payable on any preference shares shall not be treated as including a reference to any special dividend paid on any preference shares pursuant to this sub-paragraph 3.6.

4. CAPITAL

4.1 The Preference Shares will not be redeemable.

4.2 On a return of capital on a winding up or otherwise (other than a redemption or purchase by the Company of any of its issued shares), the holders of the Preference Shares shall be entitled to receive out of the surplus assets of the Company remaining after payment of its liabilities an amount per Preference Share equal to the aggregate of:

4.2.1 the nominal amount of a Preference Share together with any premium paid on issue; and

4.2.2 an amount equal to any dividend accrued on a Preference Share for the then current dividend period up to and including the date of the commencement of the winding up, but only to the extent that any such amount was, or would have been, payable as a cash dividend; and

4.2.3 an amount equal to any dividend which has been declared by the Directors as payable on a Preference Share but which remains unpaid.

4.3 The Preference Shares (and all other shares of the Company ranking pari passu) shall rank on a return of capital as described in sub-paragraph 4.2 above in priority to the holders of After Ranking Shares but after the holders of Prior Ranking Shares.

4.4 If, upon a return of capital as described in sub-paragraph 4.2 above, the amounts available for payment are insufficient to cover the amounts payable in full on the Preference Shares and any other shares expressed to rank pari passu therewith as regards participation in assets, then the holders of the Preference Shares and such other shares will share rateably in the distribution of surplus assets (if any) in proportion to the full respective preferential amount to which they are entitled.

5. VOTING AND GENERAL MEETINGS

5.1 The holders of the Preference Shares shall not be entitled to receive notice of, attend, speak and vote at a general meeting of the Company except:

5.1.1 where, at the date of the notice convening such meeting, the dividend on such shares which is (or, but for the provisions described in sub-paragraphs 3.2 and 3.3 above would be) most recently payable on such shares shall not have been paid in full; or

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5.1.2 where a resolution is to be proposed abrogating, varying or modifying any of the rights or privileges of the holders of the Preference Shares, or for the winding up of the Company or for the reduction of capital of the Company (otherwise than on a redemption or purchase by the Company of any of its issued shares), in which case they shall be entitled only to speak and vote on such resolution but not on any other resolution which may be proposed at that general meeting.

5.2 Whenever the holders of the Preference Shares are entitled to vote at a general meeting of the Company upon any resolution proposed at such a general meeting, on a show of hands every holder thereof who is present in person or (being a corporation) by a duly authorised representative shall have one vote and on a poll every holder thereof who is present in person or by proxy or (being a corporation) by a duly authorised representative shall have one vote in respect of each Preference Share registered in the name of such holder.

6. LIMITATIONS

No Preference Share shall:

6.1 confer any right to participate in the profits or assets of the Company other than as set out in paragraphs 3 and 4 above;

6.2 subject to the Act, confer any right to participate in any offer or invitation by way of rights or otherwise to subscribe for additional shares in the Company;

6.3 confer any right of conversion; or

6.4 confer any right to participate in any issue of bonus shares.

7. PURCHASE

7.1 Subject to the Act and to sub-paragraph 4.2 above (if applicable) the Company may at any time purchase any Preference Shares upon such terms as the Directors shall determine.

7.2 Following the purchase of any Preference Shares the nominal amount of such shares comprised in the capital of the Company may be divided by resolution of the Directors into, or reclassified as, shares of any other class in the capital of the Company without any further resolution or consent.

8. FURTHER ISSUES AND VARIATION OF RIGHTS

8.1 Save with such consent or sanction on the part of the holders of the Preference Shares as is required for a variation of the rights attached to such shares, the Directors shall not authorise or create, or increase the amount of, any shares of any class, or any securities convertible into any shares of any class, ranking as regards participation in the profits or assets of the Company (otherwise than on a redemption or purchase by the Company of any such share) in priority to the Preference Shares.

8.2 Subject to the provisions of sub-paragraph 8.3 below, the rights attached to any Preference Shares allotted or in issue shall (unless otherwise provided by their terms of issue) be deemed not to be varied or abrogated by the allotment or issue of any further preference shares (in this paragraph called "Further Preference Shares") ranking as regards participation in the profits and assets of the Company pari passu with (but not in priority to) the Preference Shares. Any Further Preference Shares may either carry rights and restrictions as regards participation in the profits and assets of the Company which are identical in all respects with those attaching to the Preference Shares or any other series of Further Preference Shares or carry rights and restrictions differing therefrom in any respect including, but without prejudice to the generality of the foregoing:

8.2.1 the rate of and/or the basis of calculation of dividend may differ and may be cumulative or non-cumulative;

8.2.2 Further Preference Shares may rank for dividend from such date as may be provided by the terms of issue thereof and the dates for payment of dividend may differ from those for the Preference Shares;

8.2.3 a premium may be payable on a return of capital or there may be no such premium;

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8.2.4 Further Preference Shares may be redeemable on such terms and conditions as may be prescribed by the terms of issue thereof or may be non-redeemable;

8.2.5 Further Preference Shares may be convertible into any class of shares ranking as regards participation in the profits and assets of the Company pari passu with or after the Preference Shares in each case on such terms and conditions as may be determined by the terms of issue thereof; and

8.2.6 Further Preference Shares may be denominated in any currency or, if permitted by law, any basket of currencies.

8.3 The rights attached to any Preference Shares allotted or in issue shall (unless otherwise provided by their terms of issue) be deemed to be varied by the allotment or issue of Further Preference Shares where at the date of the allotment of such Further Preference Shares (the "Relevant Date"), the aggregate of the nominal amount (together with any premium paid or payable on issue) of the Preference Shares, and of any other shares ranking pari passu with or in priority to the Preference Shares allotted or in issue on the Relevant Date and, immediately following such issue, of the Further Preference Shares exceeds a sum equal to one-third (to be calculated to two decimal places) of the Adjusted Share Capital and Reserves, immediately following such issue.

For these purposes "Adjusted Share Capital and Reserves" shall mean the aggregate of the nominal amount paid up or credited as paid up (or deemed to be paid up) on the issued share capital of the Company and the total of the capital, general and revenue reserves of the Group (which expression for the purposes of this definition shall mean the Company and its subsidiary undertakings for the time being) (including any amount credited to share premium account, capital redemption reserve, revaluation reserve and credit balance on the profit and loss account and including any reserve (the "Long term insurance business reserve") fixed by the Directors following an evaluation by the Company's actuary of the assets and liabilities of the Group's proprietary life assurance business (such reserve being currently referred to as the "Long term insurance business reserve" in the notes to the Group's consolidated balance sheet)), in each case whether or not such amounts are available for distribution, all as shown in the latest audited consolidated balance sheet of the Group but after:

8.3.1 making such adjustments as may be appropriate in respect of any variation in interests in subsidiary undertakings and to take account of any subsidiary undertaking which shall have become or ceased to be a subsidiary undertaking since the date as at which such balance sheet was prepared and in the amount paid up on the issued share capital or share premium account or capital redemption reserve since the date of such latest audited consolidated balance sheet and so that for this purpose if any issue or proposed issue of shares for cash or otherwise has been underwritten or otherwise agreed to be subscribed (for cash or otherwise) then, at any time when the underwriting of such shares or other agreement as aforesaid shall be unconditional, such shares shall be deemed to have been issued and the amount (including any premium) payable (or which would be credited as payable) in respect thereof (not being moneys payable later than six months after the date of allotment) shall be deemed to have been paid up to the extent that the underwriters or other persons are liable therefor;

8.3.2 deducting (to the extent included) any amounts distributed or proposed to be distributed or charitable grants made or proposed to be made by the Group (but not provided in such latest audited consolidated balance sheet) other than distributions attributable to the Company or any subsidiary undertaking and any amounts attributable to goodwill (including goodwill arising only on consolidation) or other intangible assets provided always that the Long term insurance business reserve shall not be so deducted;

8.3.3 excluding any sums set aside for taxation and any amounts attributable to outside shareholders in subsidiary undertakings of the Company;

8.3.4 deducting any debit balance on the profit and loss account; and

8.3.5 making such further adjustments (if any) as the auditors may consider appropriate (and so that no amount shall be included or excluded more than once).

A certificate or report by the auditors as to the amount or estimated amount of the Adjusted Share Capital and Reserves immediately prior to such issue shall be conclusive evidence of such amount.

8.4 The rights attached to any Preference Shares allotted or in issue shall (unless otherwise provided by their terms of issue) be deemed not to be varied by the consolidation and division and/or sub-division

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of any Ordinary Shares into shares of a larger or smaller amount in accordance with the Act, or, save as provided in paragraph 9 below, by the redemption of any shares in accordance with the Act.

8.5 The rights attached to the Preference Shares allotted or in issue may be varied or abrogated with the written consent of the holders of three-quarters in nominal value of such Preference Shares and any shares hereafter issued of the same class then in issue ranking pari passu in all respects with the Preference Shares then in issue (together referred to as the "Class Shares") or with the sanction of an extraordinary resolution passed at a class meeting of the holders of such shares. All the provisions of the Articles of Association relating to general meetings shall apply to every such meeting but so that the quorum thereat shall be members holding or representing by proxy at least one-third of the nominal amount of the Class Shares. Article 7 of the Articles of Association shall not apply to the Class Shares.

9. RESTRICTIONS ON THE COMPANY

Save with such consent or sanction on the part of the holders of the Preference Shares as is required for a variation or abrogation of the rights attached to such shares, the Directors shall not capitalise any part of the profits of the Company available for distribution or purchase or redeem any shares in the Company if either (i) the dividend on the Preference Shares for the dividend payment period immediately prior to the date of the proposed capitalisation, purchase or redemption has been declared and not been paid in full or such dividend has not been declared for a reason described in sub-paragraph 3.2 or 3.3 above or (ii) after such capitalisation, purchase or redemption the amount of the profits of the Company and its subsidiary undertakings available for distribution would be less than five times the aggregate amount of the annual dividend (exclusive of any associated tax credit) payable on the Preference Shares and any other shares of the Company then in issue ranking as regards dividends pari passu with or in priority to the Preference Shares.

The Directors are authorised to consolidate and divide and/or sub-divide any Preference Shares into shares of a larger or smaller amount (so that the provisions of Article 51 of the Articles of Association shall, where relevant, apply to such consolidation, division or sub-division).

As used in this Part II "subsidiary undertaking" means a subsidiary undertaking of the Company which is required by the Act to be included in consolidated Group accounts.

The Company shall not make, and shall procure that none of its subsidiary undertakings shall make, any Charitable Donation unless (after making such proposed Charitable Donation) a dividend on the Preference Shares equal to twice the amount of the next half yearly dividend on such Preference Shares could lawfully be paid by reference to accounts of the Company relevant for the purposes of section 270 Companies Act 1985 and in respect of which the statutory requirements (as referred to in sub-section (5) of that section) have been complied with.

In this paragraph the expressions:

"Charitable Donation" means a single donation for charitable purposes (not being part of a series of donations made or to be made pursuant to any deed of covenant or other instrument); and

"Preference Shares" means the present issue of preference shares plus any further shares subsequently issued and ranking pari passu with the present issue.

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PART III

FINANCIAL INFORMATION

The financial information set out below in respect of the Group has been extracted from the published audited consolidated accounts of the Group for each of the three years ended 31 December 1994 and from the unaudited interim results for the six months ended 30 June 1995.

The financial information contained in this Part III does not constitute full statutory accounts as defined in section 240 of the Act, Statutory consolidated accounts for the Group for each of the three years ended 31 December 1994 have been delivered to the Registrar of Companies in England and Wales. The auditors reported under section 235 of the Act in respect of each such set of audited consolidated accounts and each such report was an unqualified report and did not contain a statement under section 237(2) or (3) of the Act.

Consolidated Revenue Accounts for the years ended 31 December

General Insurance Revenue Account

Gross written premiums Less: Reinsurance

Net written premiums Increase in unearned premiums

Net earned premiums Less: Claims incurred Expenses and commission

Underwriting result

Long Term Insurance Revenue Account

Gross written premiums Less: Reassurance

Net written premiums Investment return on long term funds

Less: Claims and surrenders Annuities Expenses and commission Taxation

Excess of income over expenditure

Transfer (to)/from revaluation reserve Transfer from/(to) consolidated profit and loss account

Notes 1994 £'000

1993 £'000

1992 £'000

3

165,174 61,820

152,444 53,387

134,220 47,368

103,354 2,246

101,108

66,624 29,538

96,162

4,946

4

17,636 302

17,334 16,426

33,760

10,709 17,999 2,980

7 742

32,430

1,330

(1,710) 2,400

99,057 5,359

93,698

62,288 28,609

90,897

2,801

23,191 315

22,876 19,229

42,105

10,795 17,165 3,038 387

31,385

10,720

13,153

86,852 3,048

83,804

57,002 27,342

84,344

(540)

20,146 260

19,886 19,231

39,117

8,171 16,387 3,054 677

28,289

10,828

9,092 (4)

Increase in funds 2,020 23,873 19,916

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Consolidated Profit and Loss Account for the years ended 31 December

Investment income Realised investment gains Underwriting result

Operating profit Transfer (to)/from non mutual long term fund

Profit on ordinary activities before taxation Taxation

Profit on ordinary activities after taxation Minority interests

Profit attributable to shareholders for the financial year

Dividends Charitable grants net of tax relief

Retained profit for the financial year

tes 1994

£'000 1993

£'000 1992

£'000

6 6

11,451 899

4,946

10,229 2,038 2,801

8,268 185

(540)

5 17,296 (2,400)

15,068 7,913 4

7 14,896

3,987 15,068 4,722

7,917 1,828

2 15

10,909 1,371

10,346 1,288

6,089

9,538 9,058 6,089

8 9

1,652 1,500

2,452 1,500

2,040

3,152 3,952 2,040

6,386 5,106 4,049

Non-equity interests included in minority interests and dividends are disclosed in notes 15 and 8 to the accounts.

Statement of Total Recognised Gains and Losses for the years ended 31 December

Profit attributable to shareholders for the financial year Discount on acquisition of shares in a subsidiary undertaking Unrealised (deficit)/surplus on revaluation of investments Realised investment gains of an investment trust subsidiary Revaluation of long term insurance business Currency translation differences

Total recognised gains and (losses) for the financial year

1994 1993 1992 £'000 £'ooo £'000

9,538 9,058 6,089 43 1,089 —

(14,519) 16,350 7,446 3,300 3,399 — 1,000 (1,500) —

(1,022) (263) 1,143

(1,660) 28,133 14,678

The cumulative effect of the prior year adjustment, disclosed in note 11 to the accounts, is to reduce retained profits by £1,096,000 and to increase profits for the preceding period by £63,000.

13

Balance Sheets at 31 December

Notes

1994 Group Company £'000 £'000



31,250

6,000 25,345 10,000 12,608

31,250

6,000 28,784 10,000

9,169

26,250

5,000 36,577 10,000 7,188

26,250

5,000 40,848 10,000 2,917

26,250

6,500 15,817 8,000 4,267

26,250

6,500 17,477 8,000 2,607

Share Capital 10 Reserves 11 Long term insurance business reserve Revaluation and other reserves General reserve Retained profits

Shareholders' funds 85,203 85,203 85,015 85,015 60,834 60,834 Minority interests 15 51,129 — 53,227 — — — Insurance funds 3 121,815 121,815 104,254 104,254 93,288 93,288 Other liabilities 14 29,377 25,196 27,393 26,299 24,893 24,841 Long term insurance accounts (see

separate balance sheets below) 258,857 153,099 271,255 162,945 231,069 134,380

546,381 385,313 541,144 378,513 410,084 313,343

Investments 13 194,692 78,469 185,389 66,588 60,547 49,598 Subsidiary undertakings 19 — 68,146 — 72,809 — 11,996 Associated undertaking — — — — 31,303 31,091 Fixed assets 6,290 6,290 7,621 7,621 8,015 8,015 Value of long term insurance

business 6,000 6,000 5,000 5,000 6,500 6,500 Other assets 14 80,542 73,309 71,879 63,550 72,650 7\,763 Long term insurance accounts (see

separate balance sheets below) 258,857 153,099 271,255 162,945 231,069 134,380

546,381 385,313 541,144 378,513 410,084 313,343

Non-equity interests included in Shareholders' funds and minority interests are disclosed in notes 16 and 15 to the accounts.

Long Term Business Balance Sheets at 31 December 1994 1993 1992

Group Company Group Company Group Company £'000 £'000 £'000 £'000 £'000 £'000

Long term insurance funds and reserves 12 255,578 151,101 268,648 161,575 229,232 133,437

Other liabilities 14 3,279 1,998 2,607 1,370 1,837 943

258,857 153,099 271,255 162,945 231,069 134,380

Investments 13 249,897 150,540 263,185 158,240 219,524 124,912 Fixed assets 1,313 1,311 1,088 1,085 1,065 1,061 Other assets 14 7,647 1,248 6,982 3,620 10,480 8,407

258,857 153,099 271,255 162,945 231,069 134,380

14

Cash Flow Statement for the years ended 31 December (excluding long term insurance business)

1994 1993 1992 Notes £'000 £'000 £'000

Net cash inflow from operating activities (a) 30,848 23,216 17,088 Servicing of finance _ _ _ _ _ _

Charitable grants paid (1,500) (1,500) — Dividends paid (2,452) (2,402) (1,290) Dividends paid to minority shareholders (1,300) (1,518) — Interest paid (103) (84) (5)

Net cash outflow from servicing of finance (5,355) (5,504) (1,295)

Taxation (2,811) 303 (55)

Investing activities

Purchases of liquid investments (64,526) (77,848) (10,335) Sales of liquid investments 42,511 67,277 9,485 Purchases of tangible fixed assets (561) (301) (739) Sales of tangible fixed assets 8 107 1,084 Purchase of investment trust subsidiary (e) — (6,152) — Reduction in minority interests (77) — —

Net cash outflow from investing activities (22,645) (16,917) (505)

Net cash inflow before financing 37 1,098 15,233

Financing activities _ _ _ _

Issue of 9.5% Redeemable Third Non-Cumulative Preference Shares 5,000 — 5,000

Capital element of lease purchase rental payments (247) (215) (14)

Net cash inflow/(outflow) from financing 4,753 (215) 4,986

Increase in cash and cash equivalents (b) 4,790 883 20,219

The notes on pages 16 and 17 are an integral part of the cash flow statement.

15

Notes to the Cash Flow Statement

(a) Reconciliation of operating profit to net cash inflow from operating activities

1994 1993 1992 £'000 £'000 £'000

Operating profit 17,296 15,068 7,913 Depreciation charges 1,441 1,273 1,461 Realised investment gains (899) (2,038) (255) Loss/(profit) on sale of tangible fixed assets 616 (71) (70) Increase in insurance funds and net outstanding claims 17,561 10,966 7,630 Tax credit on franked investment income (1,063) (548) (630) Movements in debtors less creditors (4,207) (1,518) 1,192 Earnings retained in associated undertakings — — (158) Lease purchase interest payable 103 84 5

30,848 23,216 17,088

(b) Analysis of changes in cash and cash equivalents and other liquid investments during the year

1994 1993 1992 £'000 £'000 £'000

Balance 1 January 221,687 127,129 99,884 Net cash inflow 4,790 883 20,219 Purchase of investments excluding cash deposits 64,526 77,848 10,335 Sales of investments excluding cash deposits (42,511) (67,277) (9,485) Investments of a subsidiary undertaking acquired — 52,977 — Transfer to parent company — — (3,274) Changes in market values and other non-cash items (11,515) 30,390 8,307 Movements on exchange (1,022) (263) 1,143

Balance 31 December 235,955 221,687 127,129

(c) Analysis of the balances of cash and cash equivalents and other liquid investments as shown in the balance sheet

1994 1993 1992 £'000 £'000 £'000

Cash at bank 41,263 36,298 35,279 Other liquid investments 194,692 185,389 91,850

235,955 221,687 127,129

(d) Analysis of changes in financing during the year

1994 1993 1992 Share Lease Share Lease Share Lease

Capital Contracts Capital Contracts Capital Contracts £'000 £'000 £'000 £'000 £'000 £'000

Balance 1 January 26,250 916 26,250 517 21,250 — Cash inflow/(outflow) from

financing 5,000 (247) — (215) 5,000 (14) Inception of lease contracts — 173 — 614 — 531

Balance 31 December 31,250 842 26,250 916 26,250 517

16

Notes to the Cash Flow Statement (continued)

(e) Analysis of the net outflow of cash and cash equivalents in respect of the purchase of an investment trust subsidiary

1994 1993 1992 £'000 £'000 £'000

Cash consideration — 13,719 — Cash at bank and in hand acquired — (7,567) —

Net outflow of cash and cash equivalents — 6,152 —

Accounting Policies

(a) Change in accounting policy

Claims discounting The accounting policy for providing for outstanding claims has been changed from a discounted to a non-discounted basis. The change has been dealt with as a prior year adjustment.

(b) Accounting and disclosure requirements

The accounts of the company and the Group are drawn up in accordance with Sections 255 and 255A and Schedule 9A of the Companies Act 1985. As permitted by Section 230 of the Act a separate profit and loss account for the Company is not presented. The accounting policies continue to reflect United Kingdom Statements of Standard Accounting Practice and Financial Reporting Standards appropriate to an insurance company. Certain supplementary information is provided in the notes to the accounts in accordance with the Statement of Recommended Practice on Accounting issued by the Association of British Insurers.

(c) Basis of consolidation

The assets, liabilities and results of subsidiary undertakings are included in the consolidated accounts on the basis of accounts made up to 31 December.

Investments in subsidiary undertakings are stated at net asset value.

(d) Exchange rates

Foreign currency revenue transactions and assets, liabilities and reserves are translated at rates of exchange ruling at the balance sheet date except for certain revenue transactions which are translated at the actual rate obtained on exchanging each currency for sterling. Surpluses and deficits arising from the translation at those rates of exchange of the branch current accounts are taken directly to non-distributable reserves as being outside the company's normal trading activities. Exchange profits and losses which arise from normal trading activities are taken to distributable reserves.

(e) Insurance funds

Unearned premiums represent the proportion of general business premiums written in the year which relate to cover provided thereafter. An allowance is made for deferred acquisition costs according to the class of business.

In addition to unearned premiums, when considered necessary, amounts are set aside for unexpired risks to meet future claims on business in force at the end of the year.

Outstanding claims are calculated by reference to individual cases and include amounts for claims incurred but not reported, an allowance for claims handling expenses and the balances of the 'open year' accounts for London Market and inwards reinsurance business.

A claims equalisation reserve has been set up to offset any technical deficit or above average claims ratio arising in any class of business.

(f) Value of long term insurance business

This item represents the amount which the directors consider to be a prudent value of the group's long term insurance business. The same amount is credited to long term insurance business reserve.

17

Accounting Policies (continued)

(g) Investment income and return

In the consolidated profit and loss account investment income, comprising dividends, interest and rent, is stated after charging investment expenses and is credited in the year in which received.

Income from fixed interest securities of the investment trust subsidiary is accounted for under the provisions of the Accrued Income Scheme.

In the long term insurance revenue account investment return, comprising net realised gains, dividends, interest and rent is stated after charging investment expenses and is credited in the year in which received.

(h) Pensions

Pension costs are charged so as to spread the long term cost over the expected service lives of employees.

(i) Premiums written

Net written premiums comprise gross direct business and reinsurance accepted (on determined years) after taking into account reinsurance ceded and portfolio transfers.

(j) Reinsurance accepted and London Market operations

London Market and certain other reinsurance which, due to the nature of the business, is subject to delayed receipt of accounts, is carried forward in an 'open year' fund until fully reported. It is included in outstanding claims in the balance sheet. Where appropriate this is closed at the end of the second or third year of account following the year of account to which that business relates.

(k) Fixed assets and depreciation

Capital expenditure on premises, computer equipment, motor vehicles, furniture and office equipment is capitalised and depreciated over the estimated useful lives of the assets. Land is not depreciated.

(1) Leasing commitments

Assets obtained under lease purchase contracts are capitalised as tangible fixed assets and are depreciated over the period of the lease.

Obligations under such agreements are included in creditors net of finance charges allocated to future periods. The interest element of the lease payments is charged to the profit and loss account over the period of the lease.

(m) Revaluation and other reserves

This comprises surpluses on revaluation of investments and gains less losses on movements in exchange, together with non-distributable realised gains and losses of an investment trust subsidiary.

(n) Taxation

UK and overseas taxation charged in the profit and loss and long term insurance revenue accounts is based on profits and income of the year as determined in accordance with the relevant tax legislation. Provision is not made for tax payable on unrealised appreciation of investments at the balance sheet date. Deferred tax is calculated on the liability method and consists of the estimated relief which is expected to arise in the foreseeable future from material timing differences.

(o) Goodwill

Goodwill arising on the acquisition of subsidiary undertakings is written off directly to reserves.

18

Notes to the Accounts

1. Exchange rates

The principal rates of exchange used for translation are:

1994 1993 1992

United States of America US$1.56 US$1.48 US$1.52 Canada C$2.19 C$1.96 C$1.93 Republic of Ireland IR£1.01 IR£1.05 IR£0.93

2. Profit after taxation

Of the group profit after taxation £10,370,000 (1993: £6,448,000; 1992: £5,187,000) has been dealt with in the accounts of the Company.

3. General insurance business

In the consolidated revenue account premiums and claims are made up as follows:

1994 1993 1992 £'000 £'000 £'000

(a) Gross written premiums Property damage 124,347 115,324 102,167 Other classes 40,827 37,120 32,053

165,174 152,444 134,220

(b) Premiums earned Premiums written less reinsurance 103,354 99,057 86,852 Increase in unearned premiums (2,688) (6,438) (3,672) Increase in deferred acquisition costs 442 1,079 624

101,108 93,698 83,804

(c) Claims incurred Gross incurred 86,373 83,589 82,906 Reinsurance recoveries (19,749) (21,301) (25,904)

66,624 62,288 57,002

In the consolidated balance sheet insurance funds are made up as follows:

(d) Unearned premiums Gross of reinsurance 64,717 60,913 52,295 Reinsurance ceded (20,393) (19,013) (16,748) Deferred acquisition costs (8,151) (7,762) (6,704)

36,173 34,138 28,843

(e) Outstanding claims Gross of reinsurance 123,923 109,691 102,460 Reinsurance recoverable (38,281) (39,575) (38,015)

85,642 70,116 64,445

Total insurance funds 121,815 104,254 93,288

(f) Included in outstanding claims is a claims equalisation reserve of 6,000 3,000

19

Notes to the Accounts (continued)

4. Long term insurance business

In the consolidated revenue account the movement in funds is made up as follows:

Mutual Non Mutual Total 1994 1993 1992 1994 1993 1992 1994 1993 1992

£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000

Income Life assurance and

endowment certain premiums 6,872 6,807 6,445 101 180 147 6,973 6,987 6,592

Consideration for annuities granted 2,084 3,572 2,535 3,082 6,831 6,189 5,166 10,403 8,724

Pension fund premiums 2,461 2,424 2,253 2,734 3,062 2,317 5,195 5,486 4,570

11,417 12,803 11,233 5,917 10,073 8,653 17,334 22,876 19,886 Investment return

(see note 6) 8,128 9,485 9,836 8,298 9,744 9,395 16,426 19,229 19,231

19,545 22,288 21,069 14,215 19,817 18,048 33,760 42,105 39,117

Expenditure Claims incurred 9,079 9,634 6,465 267 243 282 9,346 9,877 6,747 Surrenders 1,061 702 1,255 302 216 169 1,363 918 1,424 Annuities 4,434 4,006 3,980 13,565 13,159 12,407 17,999 17,165 16,387

14,574 14,342 11,700 14,134 13,618 12,858 28,708 27,960 24,558 Expenses 1,680 1,747 1,779 1,300 1,291 1,275 2,980 3,038 3,054 Taxation 741 387 527 1 — 150 742 387 677

16,995 16,476 14,006 15,435 14,909 14,283 32,430 31,385 28,289

Excess/(deficit) of income over expenditure 2,550 5,812 7,063 (1,220) 4,908 3,765 1,330 10,720 10,828

Transfer from/(to) revaluation reserve 2,250 8,500 1,750 (3,960) 4,653 7,342 (1,710) 13,153 9,092

Transfer from/(to) shareholders' funds — — — 2,400 — (4) 2,400 — (4)

Funds at beginning of year 116,805 102,493 93,680 104,480 94,919 83,816 221,285 197,412 177,496

Funds at end of year (see note 12) 121,605 116,805 102,493 101,700 104,480 94,919 223,305 221,285 197,412

New Business Annualised Total

Regular Premiums Single Premiums Premiums Written 1994 1993 1992 1994 1993 1992 1994 1993 1992

£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000

(a) Gross written premiums by class

Life policies 568 894 711 597 64 33 7,033 7,070 6,636 Annuities — — — 5,167 10,403 8,709 5,167 10,403 8,724 Pensions 641 911 882 803 1,577 1,363 5,272 5,563 4,634 Endowment certain — — — — — — 164 155 152

1,209 1,805 1,593 6,567 12,044 10,105 17,636 23,191 20,146

(b) Claims and surrenders Gross of reassurance 11,285 11,291 8,208 Reassurance recoveries (576) (496) (37)

10,709 10,795 8,171

20


5. Segmental analysis 1994 1993 1992 (a) Class of business £'000 £'000 £'000

Turnover General business 165,174 152,444 134,220 Long term business 17,636 23,191 20,146

182,810 175,635 154,366

Profit before taxation General business 16,561 13,219 6,647 Transfer (to)/from non mutual long term fund (2,400) — 4 Subsidiary undertakings 735 1,849 1,266

14,896 15,068 7,917

Net assets General business 76,864 75,048 51,751 Long term business 6,000 5,000 6,500 Subsidiary undertakings 2,339 4,967 2,583

85,203 85,015 60,834

(b) Geographical turnover

The tables below have been compiled on the basis of location of office.

Turnover United Kingdom 168,539 164,274 144,821 Canada 11,282 9,368 7,563 Other overseas 2,989 1,993 1,982

182,810 175,635 154,366

Profit before taxation United Kingdom 13,841 13,883 6,487 Canada 850 1,203 1,094 Other overseas 205 (18) 336

14,896 15,068 7,917

Net assets United Kingdom 77,344 76,850 52,656 Canada 7,449 7,857 7,738 Other overseas 410 308 440

85,203 85,015 60,834

21


6. Investment income and return

Long Term Business General Business Mutual Non Mutual

1994 £'000

1993 £'000

1992 £'000

1994 £'000

1993 £'000

1992 £'000

1994 £'000

1993 £'000

1992 £'000

Investment income 7,752 7,719 8,193 8,320 8,551 8,206 12,257 10,786 7,238 Associated undertaking — — — — — — — 139 1,382 Less expenses (290) (271) (254) (73) (57) (63) (806) (696) (352)

7,462 7,448 7,939 8,247 8,494 8,143 11,451 10,229 8,268 Realised investment gains 666 2,037 1,897 51 1,250 1,252 899 2,038 185

8,128 9,485 9,836 8,298 9,744 9,395 12,350 12,267 8,453

7. Taxation

The charges for the year and any adjustments for prior years are:

Long Term Business General Business Mutual Non Mutual

1994 £'000

1993 £'000

1992 £'000

1994 £'000

1993 £'000

1992 £'000

1994 £'000

1993 £'000

1992 £'000

UK corporation tax 165 — 127 — — 146 3,327 3,960 982 Less relief for overseas taxation 14 20 24 — — — 386 336 235

151 (20) 103 — — 146 2,941 3,624 747 Overseas taxation 21 29 24 — — — 392 336 238

Tax credit on franked 172 9 127 — — 146 3,333 3,960 985

investment income 513 430 581 1 — 8 788 766 321 Share of associated

undertaking's taxation 36 345 Deferred taxation — — — — — — — — 275

685 439 708 1 — 154 4,121 4,762 1,926 Prior years 56 (52) (181) — — (4) (134) (40) (98)

741 387 527 1 — 150 3,987 4,722 1,828

The long term funds are charged to tax on the bases applicable to life assurance and annuity business. General business corporation tax is a charge of £3,327,000 at 33% (1993: £3,960,000 at 33%; 1992: £982,000 at 33%).

Capital gains

If the investments of the group were realised at the amounts at which they are included in the accounts a liability to corporation tax of approximately £11.9 million (1993: £14.4 million; 1992: £11.7 million) would arise. Of this £4.7 million (1993: £7.3 million; 1992: £7.7 million) would relate to the shareholders' funds and £7.2 million (1993: £7.1 million; 1992: £4.0 million) to the long term funds.

22


8. Dividends

1994 1993 1992 £'000 £'000 £'000

Equity Ordinary shares _ _ _ _

Interim paid 2.5p (1993: 2.5p; 1992: 6.7p) 300 300 800 Final proposed Nil (1993: 6.7p; 1992: 2.1p) — 800 250

300 1,100 1,050 Non-equity _ _ _ _ _

First Cumulative Preference shares 7 7 7 Redeemable Second Cumulative Preference shares 300 300 300 Redeemable Third Non-Cumulative Preference shares 1,045 1,045 683

1,352 1,352 990

1,652 2,452 2,040

9. Charitable grants

Charitable grants consist of gift aid payments to the ultimate parent company, Allchurches Trust.

10. Share capital

Authorised Issued 1994 1993

£'000 £'000

Ordinary share capital 12,000,000 shares of £1 each 12,000 12,000

Preference share capital 250,000 2.8% First Cumulative Preference shares of £1 each 250 250 3,000,000 10% Redeemable Second Cumulative Preference shares of

£1 each 3,000 3,000 36,000,000 9.5% Redeemable Third Non-Cumulative Preference

shares of £1 each 16,000 11,000

31,250 26,250

The Company has the right to redeem all or any of the 10% Redeemable Second Cumulative Preference shares at par together with a premium as follows: The Company has the right to redeem all or any of the 10% Redeemable Second Cumulative Preference shares at par together with a premium as follows:

Year of Redemption Premium

1995 to 1997 7 1/2 per cent. 1998 to 2002 5 per cent. 2003 to 2007 2 1/2 per cent. 2008 to 2012 Nil

Any of these preference shares not previously redeemed will be redeemed at par on 31 December 2012. Any of these preference shares not previously redeemed will be redeemed at par on 31 December 2012.

23


During 19904 the following changes were made in the Company's 9.5% Redeemable Third Cumulative Preference shares of £1 each:

(i) the shares were converted to 9.5% Redeemable Third Non-Cumulative Preference shares on 15 June 1994.

(ii) the authorised capital of the 9.5% Redeemable Third Non-Cumulative Preference shares of £1 each was increased from £12,000,000 to £36,000,000 by the creation of a further 24,000,000 shares on 19 December 1994.

(iii) the issued capital of the 9.5% Redeemable Third Non-Cumulative Preference shares of £1 each was increased by £5,000,000 by the issue of a further 5,000,000 shares on 19 December 1994 in order to increase working capital.

The Company may redeem the issued 16,000,000 9.5% Redeemable Third Non-Cumulative Preference shares at par on or at any time after 30 June 2012. Final redemption date is 30 June 2018.

On a winding-up, the assets of the Company remaining after payment of its liabilities are to be applied to holders of the First, then the Second, then the Third Preference Shares in repaying the nominal capital sum paid up on the shares and (except for holders of the Third Preference Shares) an amount equal to all arrears of accrued and unpaid dividends up to the date of commencement of the winding-up.

24


11. Reserves

1994 £'000

1993 £'000

Long term insurance business reserve Balance 1 January 5,000 6,500 Movement in year 1,000 (1,500)

Balance 31 December 6,000 5,000

Revaluation and other reserves Balance 1 January 36,577 15,817 Currency translation differences (56) (78) Discount on acquisition of shares in a subsidiary undertaking 43 1,089 (Deficit)/surplus arising from revaluation of securities (14,552) 16,305 Surplus arising from revaluation of property 33 45 Realised investment gains of an investment trust subsidiary 3,300 3,399


The revaluation reserve includes an amount of £342,000 (1993: £309,000) in respect of properties.

General reserves Balance 1 January 10,000 8,000 Transfer from retained profits — 2,000


Retained profits As previously reported 8,284 5,426 Prior year adjustment (1,096) (1,159)

As restated 1 January 7,188 4,267 Currency translation differences (966) (185) Transfer to general reserve — (2,000) Profit for the financial year 6,386 5,106


Total reserves 53,953 58,765

12. Long term insurance funds and reserves

Insurance funds and reserves shown in the long term business balance sheet are as follows:

1994 1993 Group £'000

Company £'000

Group £'000

Company £'000

Mutual funds 121,605 121,605 116,805 116,805 Non mutual funds 101,700 773 104,480 707

223,305 122,378 221,285 117,512 Revaluation reserves 32,273 28,723 47,363 44,063

255,578 151,101 268,648 161,575

25


13. Investments

Listed investments are at mid-market value, properties are valued at open market value (net of realisation costs) by independent chartered surveyors and other investments (mortgages and loans) are at valuation reflecting year end interest rates.

1994 1993 Long Long Term General Term General £'000 £'000 £'000 £'000

Company British Government and British Government

guaranteed securities 16,785 23,404 19,951 14,321 United Kingdom municipal, county and public

boards securities 104 — 120 — Government, provincial and municipal

securities other than United Kingdom 2,438 8,608 3,913 9,700 Debentures and loan stocks 12,796 12,176 14,364 10,897 Preference shares 5,084 4,300 3,701 2,129 Ordinary stocks and shares 104,522 28,260 104,318 27,811 Other investments, including mortgages and

loans 567 163 570 422 Freehold and leasehold properties 8,244 1,558 11,303 1,308

150,540 78,469 158,240 66,588

Group British Government and British Government

guaranteed securities 23,218 30,065 29,209 18,320 United Kingdom municipal, county and public

boards securities 104 — 120 — Government, provincial and municipal

securities other than United Kingdom 2,581 8,608 4,083 9,700 Debentures and loan stocks 22,007 17,341 26,462 15,409 Preference shares 5,753 5,748 4,439 3,433 Ordinary stocks and shares 114,868 130,900 113,134 136,396 Other investments, including mortgages and

loans 73,122 163 74,435 422 Freehold and leasehold properties 8,244 1,867 11,303 1,709

249,897 194,692 263,185 185,389

Included in ordinary stocks and shares of the long term fund is an amount of £6,060,000 (1993: £5,820,000) representing 5.8% of the issued ordinary share capital of St Andrew Trust plc, a Group subsidiary undertaking.

26


14. Other assets and liabilities

1994 1993 Long Long Term General Term General £'000 £'000 £'000 £'000

Other assets

Company Agents and other insurance debts 77 33,975 139 30,920 Other debtors 491 1,185 1,396 1,293 Taxation 322 — 502 — Group balances — 1,094 — 1,809 Cash at bank and in hand 358 37,055 1,583 29,528

1,248 73,309 3,620 63,550

Group Agents and other insurance debts 2,746 33,975 2,453 30,920 Other debtors 552 2,952 1,808 1,772 Taxation 322 294 502 53 Group balances 2,400 2,000 — 2,809 Cash at bank and in hand 1,627 41,321 2,219 36,325

7,647 80,542 6,982 71,879

Other liabilities

Company Outstanding claims 1,046 — 879 — Due to other insurance companies 15 15,311 14 17,905 Dividends — 7 — 807 Other creditors 937 5,781 477 4,188 Taxation — 4,045 — 3,343 Group balances — 52 — 56

1,998 25,196 1,370 26,299

Group Outstanding claims 1,064 — 886 — Due to other insurance companies 19 15,311 17 17,905 Dividends — 884 — 1,635 Other creditors 1,490 6,914 966 4,421 Taxation 706 3,759 738 3,405 Bank overdraft (repayable within one year) — 58 — 27 Group balances — 2,451 — —

3,279 29,377 2,607 27,393

Included in other creditors are obligations under lease purchase contracts due:

In 1 year or less 82 257 78 259 Between 2 and 5 years 151 585 187 657

233 842 265 916

27


15. Minority interests

Minority interests comprise preference and ordinary share capital and attributable profits in a subsidiary undertaking.

Profit and Loss Account Balance Sheet 1994

£'000 1993

£'000 1992

£'000 1994

£'000 1993

£'000

Equity interests St Andrew Trust plc

ordinary shares of £1 each 1,354 1,270 — 50,791 52,769 Non-equity interests St Andrew Trust plc

5 1/4% Cumulative Preference stock 17 18 — 338 458

1,371 1,288 — 51,129 53,227

16. Reconciliation of movements in shareholders' funds

1994 1993 £'000 £'000

Profit for the financial year 9,538 9,058 Other recognised gains and losses (11,198) 19,075

Dividends (1,660) (1,652)

28,133 (2,452)

Charitable grants net of tax relief (1,500) (1,500) New capital subscribed 5,000 —

Net addition to shareholders' funds 188 24,181 Opening shareholders' funds 85,015 61,993 Restatement — (1,159)

Closing shareholders' funds 85,203 85,015

Shareholders' funds comprise £65,953,000 (1993: £70,765,000) equity interests and £19,250,000 (1993: £14,250,000) non-equity interests.

17. Operating leases

Annual commitments and payments under non-cancellable operating leases were as follows:

1994 1993 Premises

£'000 Equipment

£'000 Premises

£'000 Equipment

£'000

Commitments Expiring:

Within 1 year 7 28 7 Between 2 and 5 years 85 — 92 100 Over 5 years 868 — 706 —

960 28 805 100

Payments 599 47 680 47

28


18. Capital commitments

At 31 December 1994 there were no outstanding contracts for capital expenditure (1993: £0.1 million). There was no capital expenditure authorised by the directors but not contracted for (1993: £nil).

19. Parent and subsidiary undertakings

The Company is a wholly owned subsidiary of Ecclesiastical Insurance Group plc.

The Company's ultimate parent company is Allchurches Trust. Both companies are incorporated in Great Britain and registered in England. Copies of the accounts for all companies are available from the registered office as shown on page 44.

In the Company balance sheet interests in subsidiaries comprise shares at net asset value.

All the subsidiaries listed are included within the consolidated financial statements.

Subsidiary undertakings Share capital Holdings of shares by: Parent Subsidiary

Incorporated in Great Britain, registered and operating in England, engaged in investment, insurance and financial services or other insurance related business:

Allchurches Life Assurance Limited ordinary shares 100%

Blaisdon Properties Limited deferred shares 100% ordinary shares 100%

In addition, there are two other wholly owned subsidiary undertakings whose assets and contribution to group income are not significant.

Incorporated in Great Britain and registered in Scotland, engaged in investment trust business:

St Andrew Trust plc ordinary shares 56.6% 2.0% 51/4 per cent. Cumulative Preference stock (now 3.675 per cent. plus tax credit) 48.8%

Of the 56.6 per cent. holding of ordinary shares in St Andrew Trust plc, 5.8% is held by the mutual life fund.

The Company holds 250,000 6% Non-Cumulative Redeemable Preference shares in Allchurches Mortgage Company Limited which is a wholly owned subsidiary of Allchurches Trust Limited.

20. Directors' interests

The interests of the directors, all of which are beneficial, in the First Preference Shares of EIO are as follows:

Interest at 1.1.1994

Interest at or date of Directors 31.12.1994 appointment

M. R. Cornwall-Jones 500 500 W. H. Yates 500 500 M. J. Burns 500 500 B. V. Day 3,220 3,220 The Very Revd. T. E. Evans the Dean of St Paul's 2,900 2,900 The Venerable R. B. Harris the Archdeacon of Manchester 500 500 J. D. McArdell 1,000 1,000 M. C. D. Roberts 500 500 H. H. Scurfield 500 500 D. R. W. Silk 500 500 The Very Revd. J. A. Simpson the Dean of Canterbury 500 500 C. B. Thomson 500 500

29


20. Directors' interest (continued)

No director had an interest in any other shares or debentures of the Group.

No contract subsisted during or at the end of each financial year in which a director was or is materially interested.

21. Directors' emoluments

The aggregate emoluments of the directors were: 1994 1993 1992 £ £ £

In respect of services as directors 116,894 109,999 101,075 Other emoluments including pension contributions 428,314 476,208 466,699

£545,208 £586,207 £567,774

In addition, ex gratia payments of £36,000 (1993: £30,000; 1992: £nil) were made to retiring directors.

Chairman's fees 22,000 18,000 18,500

The chairman also received £7,500 as a director of St Andrew Trust plc (£3,250 for the six months ended 31 December 1993).

Highest paid director Basic salary and benefits 148,435 133,693 132,562 Discretionary bonus:

1993 13,930 — — 1994 7,500 — —

Pension contributions 29,050 25,950 25,200

Charged in accounts 198,915 159,643 157,762 Discretionary bonus for 1993 reallocated (13,930) 13,930 —

Total attributable to each year 184,985 173,573 157,762

Other directors, excluding pension contributions No. No. No. Up to £5,000 1 1 — £5,001 to £10,000 4 8 7 £10,001 to £15,000 4 1 1 £15,001 to £20,000 — — 1 £35,001 to £40,000 1 — — £75,001 to £80,000 — 1 1 £80,001 to £85,000 1 1 1 £95,001 to £100,000 — — 1 £100,001 to £105,000 — 1 — £110,001 to £115,000 1 — —

The chairman has been reimbursed £7,765 in respect of the cost of running his office and the provision of secretarial assistance (£3,900 for the six months ended 31 December 1993).

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22. Pensions

The Group's main scheme is a defined benefit scheme for UK employees. The assets of the scheme are held separately from those of the Group by the Ecclesiastical Insurance Office plc Staff Retirement Benefit Fund.

Pension costs for this scheme are determined, on the basis of triennial valuations, by a qualified actuary who is an employee of the Group, using the aggregate method. The most recent valuation was at 31 August 1992.

The assumptions which have the greatest effect on the valuation results are those related to the rate of return on investment and the rate of increase in salaries. It is assumed that there will be a margin of 2% between investment return and salary growth. Other that in respect of statutory pension increases no allowance was made for pension increases as these are separately funded by the company.

The most recent actuarial valuation showed that the market value of the scheme's assets was £22,245,000 and that the actuarial value of the assets was sufficient to cover 99.5% of the benefits that had accrued to members, after allowing for expected future increases in earnings. The contribution of the Group to the fund will remain at 20% of pensionable salary, plus additional amounts in accordance with recommendations by the Appointed Actuary.

The scheme is registered with the Registry of Pension Schemes.

Canadian pension liabilities are dealt with by payment to a Canadian Trustee Fund.

Republic of Ireland pension liabilities are dealt with by payment to an Irish life office.

The total funding cost for the year was £2,178,000 (1993: £2,402,000; 1992: £1,903,000). Of this £2,145,000 (1993: £2,366,000; 1992: £1,832,000) related to the UK scheme.

23. Auditors' remuneration

The remuneration of the auditors of the Group for audit work amounted to £104,693 (1993: £91,734; 1992: £94,126). Other fees were £7,403 (1993: £nil, 1992: £85,000).

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Interim results for the six months to 30 June 1995

There follows the unaudited interim results for the Group in respect of the six months ended 30 June 1995.

"Consolidated Profit and Loss Account

6 months 6 months 12 months 30.6.95 30.6.94 31.12.94

£'000 £'000 £'000

Investment Income 7,447 5,625 11,451 Realised Investment Gains 128 252 899 General Business Underwriting Result 3,208 2,303 4,946 Transfer to Non Mutual Long Term Fund — — (2,400)

Profit before Taxation 10,783 8,180 14,896 Taxation 3,819 2,509 3,987

Profit after Taxation 6,964 5,671 10,909 Minority Interests 690 610 1,371

6,274 5,061 9,538

Gross Written Premiums

General Business 88,948 86,237 165,174 Long Term Business 7,350 8,880 17,636

Total 96,298 95,117 182,810

Notes:

(i) The Group results for the 6 months to 30 June 1995 and 30 June 1994 are estimated and unaudited.

(ii) The results for 12 months ended 31 December 1994 are an abridged version of the full accounts which received an unqualified auditors' report and which have been filed with the Registrar of Companies.

General Insurance Business

Gross written premiums rose by 3% despite increased competition in the market. Underwriting results remained satisfactory.

Long Term Business

The decrease in long term business premiums is due to a shortfall in single premium business. No transfer was made to or from Life revenue account.

The Ecclesiastical's Life Fund operates on a mutual basis with all profits reserved for "with profits" policyholders, whereas Allchurches Life Assurance Limited, a subsidiary, is a conventional proprietary life office.

Dividends

The following dividends have been paid:

£

2.8% First Cumulative Preference shares 7,000 10% Redeemable Second Cumulative Preference shares 150,000 9.5% Redeemable Third Non-Cumulative Preference shares 760,000

£917,000

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An interim dividend of 2.75p (net) per share on the Ordinary share capital has been declared. This will be paid on 30 September 1995 and will cost £330,000.

The dividends on the Second and Third Preference shares due on 31 December 1995 amount to £910,000. The dividend on the Ordinary and Third Preference shares is paid to the Company's immediate holding company, Ecclesiastical Insurance Group plc.

Capital Strength

At 30 June the company's capital and free reserves, excluding the embedded value of the life business, were equivalent to 84% (70%) of net written general insurance premiums.

Holding Company

The ultimate holding company is Allchurches Trust Limited, a company limited by guarantee and a registered charity."

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PART IV

T H E PLACING

The Directors have decided to issue 15,000,000 of the Preference Shares ("Placing Shares") by way of the placing at the price of 100.466p per share and have determined that the rate of dividend attaching to the Placing Shares shall be 8.625 per cent. per annum (exclusive of any associated tax credit) which will be payable in equal half-yearly instalments in arrears on 30 June and 31 December in each year except that the first dividend instalment shall be payable in respect of the period from and including 20 September 1995 up to but excluding 31 December 1995.

The placing is conditional on the Placing Shares being admitted to the Official List by the London Stock Exchange, and such admission becoming effective not later than 9.00 am on 21 September 1995 and the Placing Agreement becoming unconditional in accordance with its terms.

Under the Placing Agreement James Capel has agreed to use reasonable endeavours to procure subscribers for or, to the extent of their failing to procure such subscribers, themselves to subscribe for the Placing Shares at the Placing Price. The obligation of James Capel is conditional upon, inter alia, the London Stock Exchange admitting the Placing Shares to the Official List and such admission becoming effective not later than 9.00 am on 21 September 1995.

The Placing Agreement contains certain representations, warranties, undertakings and indemnities given by the Company, inter alia, as to the accuracy of the information contained in this document. James Capel may terminate the Placing Agreement in certain exceptional circumstances (including on the occurrence of a force majeure event) prior to the admission to listing becoming effective.

The Company has agreed to pay to James Capel a commission amounting in aggregate to 1 per cent. of the aggregate Placing Price of the Placing Shares, being an amount equal to the number of the Placing Shares multiplied by the Placing Price. The Company will also pay to James Capel a sum equal to the charges and disbursements incurred by them (including reasonable legal fees and any accountancy or other professional fees incurred) in connection with or arising out of the Placing (together with any value added tax payable).

The Placing Price for the Placing Shares will be payable in cash in full on 20 September 1995. It is estimated that the cash proceeds (net of expenses) accruing to the Company from the Placing will amount to approximately £14.7 million.

The Placing Shares will be in registered form. Temporary documents of title will not be issued and definitive certificates for the Placing Shares are expected to be despatched on or about 20 September 1995.

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PART V

FURTHER INFORMATION

1. INCORPORATION

The Company was incorporated in England and registered as a limited company (number 24869) on 3 August 1887 under the Companies Acts 1862 to 1886. The Company is now a public limited company operating under the Act. Its registered and head office and its principal place of business is at Beaufort House, Brunswick Road, Gloucester GL1 1JZ.

2. SHARE CAPITAL

2.1 The authorised and issued share capital of the Company is as follows:

Authorised £

Issued £

Ordinary Shares 15,000,000 12,000,000 First Preference Shares 250,000 250,000 Second Preference Shares 3,000,000 3,000,000 Third Preference Shares 16,000,000 16,000,000 Preference Shares 25,000,000 nil Sterling Preference Shares 25,000,000 nil

Total 84,250,000 31,250,000

2.2 The following issues of shares were made by the Company at par during the three years prior to the date of this document:

Date of issue Class of Share No. of Shares Issued

5 October 1992 Third Preference Shares 5,000,000 19 December 1994 Third Preference Shares 5,000,000

2.3 On 12 September 1995 resolutions were passed at an Extraordinary General Meeting of the Company:

(a) sub-dividing each of the issued ordinary shares of £1 each in the capital of the Company into 2 Ordinary Shares of 50p each;

(b) increasing the authorised share capital of the Company from £51,250,000 to £84,250,000 by the creation of 6,000,000 Ordinary Shares of 50p each and 30,000,000 sterling preference shares of £1 each;

(c) redesignating all existing unissued shares in the capital of the Company (other than the shares created pursuant to resolution (b) above) as sterling preference shares of £1 each with the intent and effect that such shares cease to have any of the rights (or be subject to any of the restrictions or limitations), if any, previously attached to them;

(d) authorising the Directors, in accordance with section 80 of the Act, to allot all or any of the then unissued share capital of the Company (including the share capital referred to in (b) above), such authority to expire on 12 September 2000;

(e) permitting, subject to certain matters, the Directors or a duly authorised committee of the Directors to issue any sterling preference shares of £ 1 in the capital of the Company with such rights, limitations and restrictions as the Directors or a duly authorised committee of the Directors may determine in their or the committee's sole discretion;

(f) revoking all existing authorities which the Directors had, if any, to allot shares (other than the authority referred to in (d) above) and all existing authorities which the Directors had, if any, to issue any shares in the capital of the Company on such terms and conditions as the Directors or a committee of the Directors thought fit (other than the authority referred to in (e) above and the authority contained in Article 4 of the Articles of Association); and

35

(g) making alterations to the Articles of Association to reflect changes in best practice and to bring them in line with current requirements of the London Stock Exchange.

2.4 Save as set out above, there have been no changes during the three years prior to the date of this document in the amount of the issued share capital of the Company or any of its subsidiary undertakings.

2.5 All of the issued Ordinary Shares, Third Preference Shares and 15.6 per cent. of the First Preference Shares are owned by EIG who, accordingly, exercises control over the Company. All shares, stocks and other securities ("Securities") in the Company which EIG may own from time to time are charged by EIG by way of a first fixed charge as security for its listed £6,000,000 13 per cent. Debenture Stock 2018 (the "Stock"). The charge is in favour of The Law Debenture Corporation plc, the trustee of the Stock (the "Trustee"), and provides, inter alia, that until the occurrence of certain events the Trustee will exercise all voting and other rights and powers which it has as registered owner of the Securities as EIG may reasonably direct. The events include any event which results in the Stock becoming repayable, one of which is default in the payment of any interest on the Stock.

Other than as is stated in this paragraph 2.5 so far as is known to the Company there is no person who, directly or indirectly, is interested in 3 per cent. or more of the capital of the Company.

2.6 There are no options or agreements to grant options over the share capital of any member of the Group or any of its subsidiary undertakings.

3. MEMORANDUM AND ARTICLES OF ASSOCIATION

3.1 Memorandum of Association

The Memorandum of Association of the Company provides that its principal objects are to act and carry on business as an insurance company. These objects are described in clause 4(1) of the Memorandum of Association which is available for inspection as mentioned in paragraph 9 below.

3.2 Articles of Association

The following is a summary of certain provisions of the Articles of Association of the Company:

(a) Description of rights attaching to the First Preference Shares (i) income

The holders of the First Preference Shares shall have the right in priority to all other shares in the capital of the Company to a cumulative preferential dividend at the rate of 2.8 per cent. per annum on the amount paid up or credited as paid up on such shares, such dividend to be paid on 30 June in each year in respect of the year ending on the preceding 28 February.

(ii) capital

The holders of the First Preference Shares shall have the right upon a winding up in priority to all other shareholders to the repayment of the capital paid up, or credited as paid up on the said shares, together with a sum equal to all arrears of the said preferential dividend (whether earned or declared or not) calculated up to the commencement of the winding up.

(iii) limits

Save as referred to above the holders of the First Preference Shares shall have no further right to participate in the profits or surplus assets of the Company.

(iv) voting

The First Preference Shares shall not confer upon the holders thereof the right to receive notice of, or to attend, or vote at any general meeting of the Company, unless their said preferential dividend shall be at least twelve months in arrear.

(b) Description of rights attaching to the Second Preference Shares (i) income

The holders of the Second Preference Shares shall, subject to the payment of the fixed cumulative preferential dividend on the First Preference Shares, have the right in priority to all other shares in the capital of the Company to receive a fixed cumulative preferential dividend at the rate of 10 per cent. per annum payable half-yearly on 30 June and 31 December in each year.

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(ii) capital

The holders of the Second Preference Shares shall, on a winding-up or a reduction of capital, and subject to the prior rights of the First Preference Shares to repayment of capital, have the right in priority to all other shares in the capital of the Company to repayment of capital at par plus any arrears or deficiency in the fixed cumulative dividend down to the date of repayment whether earned or declared or not.

(iii) limits

Save as referred to above the Second Preference Shares shall not confer any further rights to participate in the profits or assets of the Company.

(iv) voting

The holders of the Second Preference Shares shall have the right to receive notice of general meetings of the Company, but not to attend or vote thereat unless either their dividend is 6 months in arrear; or a resolution is proposed for reducing the capital of the Company (other than by redemption of any of the Second Preference Shares), or for winding up the Company, in which case the holders may only vote on any such resolution.

(v) borrowing restrictions

Under Article 91 the directors are required to restrict borrowings so that the aggregate amount for the time being outstanding in respect of the monies borrowed or secured by the Company and its subsidiaries (as construed in accordance with the definition in the Companies Acts 1948 to 1981) (exclusive of inter-group borrowings) does not exceed a specified amount unless agreed to by the Company in general meeting and by the holders of the Second Preference Shares. The requirement to have the confirmation of the holders of the Second Preference Shares is deemed to be a special right attached to the Second Preference Shares.

(vi) redemption

Subject to the provisions of the Act, the Second Preference Shares shall be redeemable as follows:

(aa) provided that the fixed cumulative preferential dividends have been paid in full down to the last half-yearly date fixed for payment the Company may at any time redeem all or any of the Second Preference Shares by purchase in the market or by tender (available to all the holders of Second Preference Shares alike) at any price not exceeding the price applicable for the time being on a redemption of the Second Preference Shares in the manner referred to below. All shares so purchased shall be redeemed and shall not be re-issued;

(bb) the Company may on giving to the holders of the Second Preference Shares to be redeemed not less than three months' previous notice in writing expiring on any 30 June or 31 December redeem all or any of the Second Preference Shares at par together with a premium per Share calculated in the manner set out below and upon payment of all arrears or accruals of the fixed preferential dividends thereon calculated down to the date fixed for redemption. The premium shall be:

Year of Redemption Premium

1993 to 1997 inclusive 7 1/2 per cent. 1998 to 2002 inclusive 5 per cent. 2003 to 2007 inclusive 2 1/2 per cent. 2008 to 2012 inclusive Nil

(cc) the Company shall on 31 December 2012 redeem all of the Second Preference Shares not previously redeemed at par together with payment of all arrears or accruals of the fixed preferential dividends thereon calculated down to the date fixed for redemption;

(dd) in the case of any partial redemption under paragraph (bb) above the Company shall for the purpose of ascertaining the particular Second Preference Shares to be redeemed

37

cause a drawing to be made at the registered office of the Company or at such other place and in such manner as the directors may determine in the presence of a representative of the auditors;

(ee) any notice of redemption shall specify the particular Second Preference Shares to be redeemed, the date fixed for redemption and the place at which the certificates for such shares are to be presented for redemption and on such date each of the holders of the shares concerned shall be bound to deliver to the Company at such place the certificates for such of the Shares concerned as are held by him in order that the same may be cancelled. Upon such delivery the Company shall pay to such holder (or, in the case of joint holders, to the holder whose name stands first in the register of members of the Company) the amount due in respect of such redemption.

(ff) as from the date fixed for redemption of any Second Preference Shares the fixed cumulative preferential dividends thereon shall cease to accrue unless, upon presentation of the certificate relating thereto and a receipt for the redemption monies duly signed and authenticated in such manner as the directors may reasonably require, payment of the redemption monies is refused.

(c) Description of the rights attaching to the Third Preference Shares

(i) income

The holders of the Third Preference Shares shall, subject to the payment of the fixed preferential dividends on the First Preference Shares and the Second Preference Shares, have the right in priority to all other shares in the capital of the Company to receive a fixed preferential dividend at the rate of 9.5 per cent. per annum payable half-yearly on 30 June and 31 December in each year. If the Company is unable (other than by reason of banks not being open for business on that day) to pay and does not pay all or part of such fixed dividend on any 30 June or 31 December (a "Payment Date") then such fixed dividend shall not cumulate but the Company's obligation to pay such fixed dividend shall cease on 1 July or 1 January (as the case may be) immediately succeeding such Payment Date.

(ii) capital

The holders of the Third Preference Shares shall, on a winding-up or a reduction of capital, and subject to the prior rights of the First Preference Shares and the Second Preference Shares to repayment of capital, have the right in priority to all other shares in the capital of the Company to repayment of capital at par.

(iii) limits

Save as referred to above the holders of the Third Preference Shares shall not have any further right to participate in the profits of the Company.

(iv) voting

The Third Preference Shares shall not confer upon the holders thereof the right to receive notice of, or to attend, or vote at, any general meeting of the Company unless at the date of such meeting the holders shall not have been paid the fixed dividend payable on the immediately preceding Payment Date provided that such right shall cease upon the date upon which the Company pays any subsequent fixed dividend.

(v) redemption

Subject to the provisions of the Act the Third Preference Shares shall be redeemable as follows:

(aa) on or at any time after 30 June 2012 the Company may on giving to the holders of the Third Preference Shares to be redeemed not less than three months' previous notice in writing expiring on any 30 June or 31 December redeem all or any of the Third Preference Shares at par;

(bb) the Company shall on 30 June 2018 redeem all of the Third Preference Shares not previously redeemed at par;

38

(cc) in the case of any partial redemption under paragraph (aa) above the Company shall for the purpose of ascertaining the particular Third Preference Shares to be redeemed cause a drawing to be made at the registered office of the Company or at such other place and in such manner as the Directors may determine in the presence of a representative of the auditors for the time being of the Company;

(dd) any notice of redemption shall specify the particular Third Preference Shares to be redeemed, the date fixed for redemption and the place at which the certificates for such shares are to be presented for redemption and on such date each of the holders of the shares concerned shall be bound to deliver to the Company at such place the certificates for such of the shares concerned as are held by him in order that the same may be cancelled. Upon such delivery the Company shall pay to such holder (or, in the case of joint holders, to the holder whose name stands first in the register of members of the Company) the amount due in respect of such redemption;

(ee) as from the date fixed for redemption of any Third Preference Shares the fixed preferential dividends thereon shall cease to accrue unless, upon presentation of the certificate relating thereto and a receipt of the redemption moneys duly signed and authenticated in such manner as the Directors may reasonably require, payment of the redemption moneys is refused.

(d) Voting

Subject to disenfranchisement of a member in the event of non-payment of any calls or other sums presently payable in respect of any shares or non-compliance with a notice requiring disclosure of any interest in shares and subject to any special rights or restrictions as to voting attaching to any class of shares, on a show of hands, every member present in person or (being a corporation) present by a duly authorised representative at a general meeting shall have one vote, and on a poll every member present in person or by proxy or (being a corporation) present by a duly authorised representative shall have one vote for each share of which he is the holder. In the case of joint holders, the vote of the person whose name stands first in the register of members and who tenders a vote is accepted to the exclusion of any votes tendered by any other joint holders.

Unless the Directors otherwise determine, no member shall be entitled in respect of shares of the Company held by him to vote at any general meeting or meeting of the holders of any class of shares of the Company if any call or other sum then payable by him in respect of such shares remains unpaid.

(e) Variation of share rights and alterations of capital

(i) If at any time the share capital, by reason of the issue of preference shares or otherwise, is divided into different classes of shares, all or any of the rights and privileges attached to each class may be modified by agreement between the Company and any person purporting to contract on behalf of that class, provided such agreement is confirmed by an extraordinary resolution passed at a separate general meeting of the holders of shares of that class. At any such separate general meeting the quorum thereof shall in the case of a general meeting of the holders of First Preference Shares be members holding or representing by proxy at least two-thirds of the nominal amount of the issued shares of the class and in any other case be members holding or representing by proxy at least one-third of the nominal amount of the issued shares of the class.

(ii) The rights conferred upon the holders of the shares of any class issued with preferred or other rights shall not, unless otherwise expressly provided by the terms of issue of the shares of that class, be deemed to be varied by the creation or issue of further shares ranking in some or all respects pari passu therewith but in no respect in priority thereto.

(iii) Different provisions apply to variations of the rights attached to the Preference Shares and these are set out in Part II above.

(iv) The Company may by ordinary resolution increase its share capital, consolidate and divide all or any of its share capital into shares of a larger amount, sub-divide all or any of its shares into shares of a smaller amount and cancel any unissued shares. The Company may by special resolution reduce its share capital or any capital redemption reserve or share premium account in any way authorised or required by law.

39

(f) Dividends and other distributions

(i) Subject to the rights of persons, if any, entitled to shares with special rights as to dividends, all dividends shall be declared and paid according to the amounts paid or credited as paid on the shares in respect of which the dividend is paid, but no amount paid or credited as paid on a share in advance of calls shall be treated for this purpose as paid on the share. All dividends shall be apportioned and paid proportionately to the amounts paid or credited as paid on the shares during any portion of the period in respect of which the dividend is paid; but if any share is issued on terms providing that it shall rank for dividend as from a particular date, such share shall rank for dividend accordingly.

(ii) Subject to the rights attaching to any class of share capital of the Company, any general meeting declaring a dividend may upon the recommendation of the Directors direct payment of such dividend wholly or partly by the distribution of specific assets and in particular of paid up shares, debentures or debenture stock of any other company or in any one or more of such ways.

(iii) Any dividend unclaimed for a period of twelve years after having been declared or become due for payment may be forfeited and shall revert to the Company.

(iv) Subject to the provisions of the Articles of Association, if the Company shall be wound up the liquidator may, with the sanction of an extraordinary resolution and any other sanction required by the Act, divide amongst the members in specie or kind the whole or any part of the assets of the Company.

4. DIRECTORS' AND OTHER INTERESTS

4.1 As at 12 September 1995 (the latest practicable date before the printing of this document) the interests of the Directors and their immediate families, all of which are beneficial, in the First Preference Shares, as notified to the Company pursuant to sections 324, 328 and 346 of the Act or which are required to be entered in the register maintained under section 325 of the Act, are as follows:

Number of First

Preference Directors Shares

M R Cornwall-Jones 500 B V Day 3,220 G V Doswell 500 The Very Reverend T E Evans 2,900 The Venerable R B Harris 500 J D McArdell 1,000 G A Prescott 1,000 M C D Roberts 500 H H Scurfield 500 D R W Silk 500 The Very Reverend J A Simpson 500 C B Thomson 500 W H Yates 500

In addition, Mr Bernard Day has a non-beneficial interest as the registered holder of 1,500 ordinary shares in St Andrew Trust plc, a subsidiary of EIO and Mr Mark Cornwall-Jones has a non-beneficial interest in 1 ordinary share of £1 in the capital of EIG.

Save as set out above, no Director is interested and, so far as the Directors are aware, no person connected with a Director is interested, in any other shares or debentures of EIO, EIG or Allchurches Trust or any subsidiary of EIO, EIG or Allchurches Trust.

4.2 Save as disclosed in this document, none of the Directors is interested in any transactions effected by the Company in the current financial year or the financial year ended 31 December 1994 which are or were unusual in their nature or conditions or significant to the business of the Group. Further, none

40

of the Directors is interested in any transactions effected by the Company during an earlier financial year which are or were unusual in their nature or conditions or significant to the business of the Group and which remain in any respect outstanding or unperformed.

4.3 No Director has a service contract with EIO or any of its subsidiaries, a copy or written memorandum of which is required to be kept by EIO or any of its subsidiaries under section 318 of the Act and no such service contract is proposed.

4.4 The location, size and tenure of the Group's principal establishments are as follows:

Location Size and description Tenure

Beaufort House, Brunswick Road, 41,680 sq ft of office space Freehold Gloucester GL1 1JZ

19-21 Billiter Street, London 11,771 sq ft of office space Leasehold due to expire EC3M 2RY in January 2020

5. TAXATION IN RELATION TO THE PREFERENCE SHARES

5.1 The statements below assume that the Company will not elect to pay foreign income dividends which do not carry a tax credit. The Directors of the Company do not currently intend to pay such dividends. Under current UK tax legislation, no withholding tax will be deducted from dividends paid by the Company. However, the Company is generally required to account for advance corporation tax ("ACT") when a dividend is paid. The current rate of ACT is one quarter of the cash dividend paid. ACT paid by the Company can be set off against its liability to corporation tax, subject to certain limitations and restrictions.

An individual holder of Preference Shares resident (for tax purposes) in the UK who receives a dividend from the Company will be entitled, to a tax credit of an amount which, at current rates, is equal to one quarter of the dividend. The individual will be taxable on the total of the dividend and the related tax credit which will be treated as the top slice of the individual's income. The tax credit referred to above will, however, be treated as discharging the individual shareholder's liability to income tax in respect of the dividend unless, and except to the extent that the dividend and related tax credit fall to be taxed at the higher rate of income tax, in which case the individual will, to that extent, pay tax on the dividend and related credit at a rate equal to the excess of the higher rate (currently 40%) over the lower rate (currently 20%). If the tax credit exceeds the individual's liability to income tax on the total of the dividend and the tax credit, he will be able to claim payment of the excess.

Subject to certain exceptions for some insurance companies with overseas business, a corporate holder of Preference Shares which is resident (for tax purposes) in the UK and which receives a dividend paid by the Company will be entitled to a tax credit in respect of the dividend. The corporate holder of Preference Shares will not be taxable on any dividend received from the Company and the dividend and related tax credit will be treated as franked investment income in the hands of such a shareholder. The value of the tax credit will be an amount equal to one-quarter of the dividend.

Holders of Preference Shares who are not resident (for tax purposes) in the UK may be entitled to a tax credit in respect of any dividend received from the Company and to claim payment from the Inland Revenue of a proportion of that tax credit but such entitlement will depend, in general, upon the existence and provisions of any double taxation agreement or convention which exists between the UK and their country of residence. However, holders of Preference Shares who are resident in countries other than the UK but who are either Commonwealth citizens or citizens of the Republic of Ireland or who belong to certain other classes of person, are entitled to a tax credit which they may set off against their total UK income tax liability or claim in cash to the same extent as if they were resident in the UK. Shareholders who are not resident in the UK may be subject to foreign taxation on dividend income in their country of residence. Any person who is not resident in the UK should consult his own tax adviser on the question of his tax liabilities on dividends received, the double taxation provisions (if any) applying between his country of residence and the UK and the procedure (if any) for claiming any part of the tax credit.

5.2 A disposal of the Preference Shares (which includes a redemption) may, after taking account of indexation allowance, give rise to a chargeable gain (or allowable loss) for the purposes of UK taxation

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of capital gains for shareholders who are resident or ordinarily resident in the UK and, in certain cases, non-UK resident shareholders who carry on a trade, profession or vocation in the UK through a branch or agency where the Preference Shares are held, used or acquired for the purposes of such trade, profession or vocation or such branch or agency.

5.3 No stamp duty or stamp duty reserve tax ("SDRT") will be payable on the issue of the Preference Shares. Transfers of Preference Shares once registered will be liable to stamp duty generally at the rate of 50p per £100 (or part of £100) of the price paid. Agreements to transfer the Preference Shares may be subject to SDRT also generally at the rate of 50p per £100 (or part of £100) if a transfer of the Preference Shares to which the agreement relates is not executed and duly stamped.

5.4 The Preference Shares are assets situated in the UK for the purposes of UK inheritance tax. A gift of such assets or the death of a holder of such assets may (subject to certain exemptions and reliefs) give rise to a liability to UK inheritance tax, even if the holder is neither domiciled or deemed to be domiciled in the UK. A gift of Preference Shares by an individual ("the donor") to one or more individuals absolutely where the donor does not reserve any benefit will, where such gift is made seven years or more before the death of the donor, be exempt from inheritance tax.

5.5 The Directors have been advised that the Preference Shares will constitute a qualifying investment for the purposes of a general Personal Equity Plan (PEP). Where Preference Shares are held through a PEP, dividends and gains on the Preference Shares are not subject to tax and the tax credits relating to the payments of dividend will be repaid.

5.6 The above summary reflects certain aspects of current law and practice in the UK and may not apply to certain classes of person (such as dealers). Holders of Preference Shares who are in any doubt as to their personal taxation position or who may be subject to tax in any other jurisdiction should consult their professional taxation advisers.

6. GROUP UNDERTAKINGS

6.1 The Company's parent undertakings are EIG, a public limited company registered in England and Allchurches Trust, a company incorporated in England with liability limited by guarantee and a registered charity. The number of shares in the Company held by EIG is as stated in paragraph 2.5 above. Allchurches Trust holds the entire 20,000,000 issued ordinary shares of £1 each in the capital of EIG.

6.2 The Company's principal subsidiary undertakings (all of which are incorporated in England and Wales or Scotland) are:

Holding of shares by Subsidiary undertakings Share capital Registered office Subsidiary

Company undertaking

Allchurches Life ordinary shares Beaufort House, 100% Brunswick Road, Gloucester GL1 1JZ

St Andrew Trust plc ordinary shares Saltire Court 56.6% 2.00% of 25p each 20 Castle Terrace 5.25% (now Edinburgh 3.675% plus tax EH1 2ES credit) cumulative 48.8% preference stock

The nominal value of all shares in subsidiary undertakings is £1 unless the contrary is shown above.

Of the 56.6 per cent. holding of ordinary shares in St Andrew Trust plc 5.8 per cent. is held by the mutual life fund of EIO.

7. MATERIAL CONTRACTS

The following contracts, not being contracts entered into in the ordinary course of business, have been entered into by members of the Group during the period of two years immediately preceding the publication of this document and are, or may be, material:

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(a) The Placing Agreement referred to in Part IV of this document.

(b) (i) a Mortgages Agreement dated 16 July 1990 between Allchurches Mortgage Company Limited ("AMC") and EIO under which EIO agreed, upon receiving written notice from AMC, to buy at a price equal to the amount required to discharge such mortgage loans (other than premium arrears on assurance or insurance policies) any non-performing mortgage loans made by AMC using a £7 million loan facility from Dresdner Bank A.G. ("Dresdner").

(ii) a Supplemental Agreement dated 22 March 1993 between AMC, Allchurches Trust, EIO and Dresdner under which, inter alia, the said £7 million loan facility was increased to a facility of £10 million. EIO's obligation to purchase non-performing mortgage loans was correspondingly increased. AMC is a wholly-owned subsidiary of Allchurches Trust, which is EIG's parent company.

(iii) a Second Supplemental Agreement dated 13 December 1994 between AMC, Allchurches Trust, EIO and Dresdner under which, inter alia, the said £10 million loan facility was increased to a facility of £12 million. EIO's obligation to purchase non-performing mortgage loans was correspondingly increased. There are approximately 300 of such mortgage loans, only one of which (being for £50,000 and accrued interest) is currently considered to be non-performing.

8. GENERAL

8.1 The average number of employees of the Group, in each of the three preceding financial years was:

1992 668 1993 660 1994 694

8.2 Save for insurance claims in the ordinary course of business, neither the Company nor any of its subsidiary undertakings is involved in any legal or arbitration proceedings which may have or have had during the twelve months preceding the date of this document a significant effect on the financial position of the Group, nor so far as the Directors are aware, are any such proceedings pending or threatened against any member of the Group.

8.3 The expenses of, and incidental to, the Placing and listing of 15,000,000 of the Preference Shares, including registration and listing fees, printing, advertising and distribution costs, the commission payable to James Capel and legal, accounting and other professional fees, are estimated to amount to approximately £0.3 million (exclusive of value added tax) and are payable by the Company.

8.4 Binder Hamlyn, Chartered Accountants, of 20 Old Bailey, London EC4M 7BH, the auditors to the Company, have audited, without qualification, the annual accounts of the Company for each of the three years ended 31 December 1994.

8.5 There has been no significant change in the financial or trading position of the Group since 30 June 1995, the date as at which the latest unaudited interim accounts of the Group were prepared.

8.6 The Preference Shares have not been sold, nor are they available, in whole or in part to the public in conjunction with the application for the admission to the Official List of the London Stock Exchange of 15,000,000 of the Preference Shares.

9. DOCUMENTS FOR INSPECTION

Copies of the following documents are available for inspection at the offices of Speechly Bircham, Bouverie House, 154 Fleet Street, London EC4A 2HX during normal business hours on any weekday (Saturdays and public holidays excepted) for a period of 14 days from the date hereof:

(a) the memorandum and articles of association of the Company;

(b) the published audited consolidated accounts of the Company and its subsidiary undertakings for each of the two financial years ended 31 December 1994;

(c) the Placing Agreement described in Part IV above; and

(d) the other material contracts referred to in paragraph 7 above.

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REGISTERED OFFICE OF THE ISSUER

Beaufort House Brunswick Road

Gloucester GL1 1JZ

SPONSOR AND UNDERWRITER

James Capel & Co. Limited Thames Exchange

10 Queen Street Place London EC4R 1BL

LEGAL ADVISERS

To the Issuer

Speechly Bircham Bouverie House 154 Fleet Street

London EC4A 2HX

To James Capel

Slaughter and May 35 Basinghall Street London EC2V 5DB

AUDITORS

Binder Hamlyn 20 Old Bailey

London EC4M 7BH

REGISTRARS

The Royal Bank of Scotland plc P.O. Box 82

Caxton House Redcliffe Way

Bristol BS99 7NH

Printed by Burrups Ltd, St Ives plc B316888 London, Frank furt, Hong Kong, Luxembourg, New York, Paris, Tokyo and Washington D.C.

Documents

ECCLESIASTICAL - Fixed Income Investor