The financial statements have been prepared in accordance with the main recommendations of the Pension SORP (Financial Reports of Pension Schemes) and follow the 2005 Code of Practice on Local Authority Accounting issued by the Chartered Institute of Public Finance and Accountancy.
The financial statements summarise the transactions of the Fund and deal with the net assets at the disposal of the Council.  They do not take account of obligations to pay pensions and benefits which fall due after the end of the Fund year.  The actuarial position on the Scheme, which does take account of such obligations, is set out in the Actuary’s Report.

The following principal accounting policies, which have been applied consistently, have been adopted in the preparation of the financial statements:

Equities traded through the Stock Exchange Electronic Trading Service (SETS) are valued on the basis of the latest mid market price.  Other quoted investments are valued on the basis of the mid-market value quoted on the relevant stock market.
Pooled investment vehicles are valued at the average of the bid and offer prices provided by the relevant fund managers, which reflect the market value of the underlying investments.
Private equity valuations are based on the latest available valuations of the managers (31st December 2005), adjusted for any cash and exchange rate movements in the final quarter.
The value of fixed interest investments in the Scheme’s investment portfolio excludes interest earned but not paid over at the Scheme year end, which is included separately within accrued investment income.
Property investments are stated at open market value based on an independent valuation

Income from equities is accounted for on the date stocks are quoted ex-dividend.  Income from overseas investments is recorded net of any withholding tax.
Income from fixed interest and index-linked securities, cash and short-term deposits is accounted for on an accruals basis.
Income from other investments is accounted for on an accruals basis.
The change in market value of investments during the year comprises all increases and decreases in the market value of investments held at any time during the year, including profits and losses realised on sales of investments and unrealised changes in market value.

Assets and liabilities in foreign currencies are expressed in sterling at the rates of exchange ruling at the year-end.  Income from overseas investments is translated at a rate that is relevant at the time of the receipt of the income or the exchange rate at the year end, whichever comes first.
Surpluses and deficits arising on conversion or translation are dealt with as part of the change in market value of investments.

Normal contributions, both from the members and from employers, are accounted for in the payroll month to which they relate at rates as specified in the rates and adjustments certificate.  Additional contributions from the employer are accounted for in accordance with the agreement under which they are paid, or in the absence of such an agreement, when received.
Additional payments for early retirements relate to the actuarially assessed extra cost to the Fund of employing bodies allowing their members to retire in advance of normal retirement age.  These costs are reimbursed to the Fund by employing bodies.

Under the rules of the Scheme, members receive a lump sum retirement grant in addition to their annual pension.  Lump sum retirement grants are accounted for from the date of retirement.
Other benefits are accounted for on the date the member leaves the scheme or on Death.

Transfer values represent the capital sums either receivable in respect of members from other pension schemes of previous employers or payable to the pension schemes of new employers for members who have left the Scheme.  They take account of transfers where the trustees of the receiving scheme have agreed to accept the liabilities in respect of the transferring members before the year end, and where the amount of the transfer can be determined with reasonable certainty.

Administration and investment management expenses are accounted for on an accruals basis.  Expenses are recognised net of any recoverable VAT.
Employee expenses have been charged to the Fund on a time basis.  Office expenses and other overheads have also been charged.

Additional payments for early retirements are paid by employers to reimburse the Pension Fund for the cost to the Fund of employees who are allowed to retire before their normal retirement age.  Purchase of additional benefits by members allows extra service to be credited on top of any service earned via employment.

It is not possible to split benefits payable between the administering authority, scheduled and admitted bodies as is required by the Statement of Recommended Practice.

The change in the value of investments during the year comprises all increases and decreases in the market value of investments held at any time during the year, including profits and losses realised on sales of investments during the year.

All properties, except the Fund’s farm investment, were valued on an open market basis by Nigel Holroyd of Colliers Capital UK Limited at 31st March 2006.  The Fund’s farm was valued on an open market basis by Andrew Coombe of Leicestershire County Council.  Both valuers are Associates of the Royal Institute of Chartered Surveyors.

The Fund employs external investment managers to manage all of its investments apart from an amount of cash and a farm property, which are managed by Leicestershire County Council.  This structure ensures that the total Fund performance is not overly influenced by the performance of any one manager.

The market value of investments in the hands of each manager is shown in the table below :-

All of the Fund’s assets are held by external custodians and are therefore not at risk from the financial failure of any of the Fund’s investment managers.  The custodian used is dependent on the type of asset and the portfolio to which the asset belongs.

From the information currently available there were no material transactions with related parties in 2005/06 that require disclosure under FRS8.

When a member has left the Pension Fund before accruing sufficient service to qualify for a benefit from the scheme, they may choose either a refund of contributions or a transfer value covering the value of the benefits gained whilst they were a scheme member.  There are a significant number of these leavers who have not taken either of these options and as their ultimate choice is unknown, it is not possible to reliably estimate a liability.  The impact of these ‘frozen refunds’ has, however, been considered in the calculation of the actuarial liabilities of the fund.

If all of these individuals choose to take a refund of contributions the cost to the Fund will be around £900,000, although the statutory requirement of the Fund to pay interest to some members would increase this figure.  Should all of the members opt to transfer to another scheme the cost will be considerably higher.

At 31st March 2006, the Fund had the following contractual commitments:-

a)  Undrawn commitments totalling $119,594,100 equal to £68,948,200 to twelve different pooled private equity funds managed by Adams Street Partners (31st March 2005 £59,987,669 to nine different funds).

b)  An undrawn commitment of £3,216,000 to the East Midlands Regional Venture Capital Fund (31st March 2005 £3,600,000).

For part of the year the fund operated the practice of lending securities to a third party for financial consideration. Securities lending was temporarily stopped following a change in custodian and there were no securities on loan at the year end (31st March 2005 £19.5m). Securities lending recommended with the new custodian in April 2006.

The Fund has an arrangement with Prudential whereby additional contributions can be paid to them for investment, with the intention that the accumulated value will be used to purchase additional retirement benefits.

Income and other taxes
The Fund has been able to gain either total or partial relief from local taxation on the Fund’s investment income from eligible countries.  The Fund is exempt from UK Capital Gains and Corporation tax.

Self-investment
There has been no material employer related investment in 2005/06 or 2004/05.

Calculation of transfer values
There are no discretionary benefits included in the calculation of transfer values.

Pension Increase
All pensions increases are made in accordance with the Pensions Increase (Review) Order 1997.

Changes to LGPS
All changes to LGPS are made via the issue of Statutory Instruments by Central Government.

Statement of Investment Principles
A statement of investment principles has been agreed by the Pension Fund Management Board.  A copy is available on request from the investments section of the County Council at the following address: Room 139, Resources Department, County Hall, Glenfield, Leicester, LE3 8RB.