Release date: 29 June 2004

Since the end of November 2003 we have been looking to re-structure our property fund, and have been very over-weight in cash as a result. This has necessarily depressed performance as the property market generally has out-performed cash over this period.

At the same time it has been necessary to move the fund from an offer basis to a bid basis. This change would have led to a sharp fall in the price had we done this in one go, but instead we have been smoothing this change in over a period, which is now almost complete.

It is planned that the NPI Pension Property Fund will become a fund of property funds, obtaining its property exposure from the property funds of a range of well known UK Life Insurance Companies. This approach was approved by the Board of NPI Limited on 14 April 2004. The selection of the funds and monitoring of their performance will be actively managed by Henderson Global Investors. All of the chosen funds are large and well diversified, have suitable performance history and have cash levels low enough to receive the NPI funds without difficulty.

We are currently in an advanced stage of negotiation with the Insurance Companies to finalise the necessary reinsurance policies through which the exposure will be achieved, and as such, we are expecting to reduce our over-weight cash position to a more normal level as soon as possible after negotiations are completed.

Current Performance

01 January 2004 to 30 May 2004, -3.5%
1 year to 30 April 2004, -1.6%
3 years to 30 April 2004, +2.8%
5 years to 30 April 2004, +5.9%

Questions and Answers

What does "move the fund from an offer basis to a bid basis” mean?
Unit linked funds are allowed to have a bid/offer spread of around 10% but competitive forces normally mean that funds will quote spreads of between 5 to 6%. However, the funds are able to move within the larger band depending on the demand for units. If demand is strong then the manager can push the bid/offer spread up to the top of the permitted band (known as an offer basis). Conversely if sellers are in the majority they can move the bid/offer spread down towards the bottom of the band (a bid basis) although in practice frequent changes are avoided. The offer price will be some 5 to 6% above this. In the case of the NPI fund, the spread is 5%. The move from offer to bid was phased in so that the unit price did not drop 5% in one go.

Why move a fund from an offer to a bid basis?
Unit-linked funds usually match buyers and sellers of units to keep costs down. However, if a fund is experiencing net redemptions over any significant period moving to a bid basis is carried out in order to help protect the remaining holders who do not wish to sell at that time. (The redemption price of units needs to reflect the market value of the assets, less the costs of sales. For a property fund, the costs of sale can be large and the market value not as precise as with an equity. The fund does not want to be put into a position where it has paid too high a price to redeem units to holders who have left early, and have too little left for holders that stay in for the long term). In addition when unit prices are on a bid basis, this may represent a good buying opportunity, and can therefore help increase demand for units.

What are the implications of moving from an offer to a bid basis?
This depends on a lot of factors, such as when you bought units, and if it was valued using a bid or offer basis at that time. However, generally speaking, moving to a bid basis means the units do not fetch as much when redeemed as they would have done on an offer basis. For those not wishing to sell for the time being, this will mean any valuations they receive will be at a the lower value, because the units are valued on the lower bid basis. For anybody thinking of investing, it may represent better value than buying at the offer price.

Why was a restructure necessary?
Formerly, there was an arrangement between NPI Ltd and National Provident Life Ltd for property investment. However, following a restructuring of National Provident Life Ltd it became necessary to end this arrangement, and NPI Ltd had to make alternative investment arrangements.