Annual report 2003

Overview

In 2003, LD Pensions' investment assets were placed in LD Discretionary Investments and 10 investment pools. The investment assets of LD Discretionary Investments constituted 91% of LD Pensions' total assets as at 31 December 2003. Therefore, the principal sections of the Annual Report describe the investment strategy and the profit of LD Discretionary Investments for 2003.

Owing to the legal requirements in respect of LD Pensions' annual report presentation, LD Pensions must report on the total profit for all assets under management, i.e. LD Discretionary Investments and the 10 investment pools taken together. LD Pensions must also provide a number of key figures for the total profit from all assets under management.

The structure of the Annual Report is as follows:

I Total investment return on LD Discretionary Investments and the investment pools.

II Annual Report for LD Discretionary Investments>
> Gross and net returns
> Asset allocation in LD Discretionary Investments in 2003
> Danish equities
> Unlisted equities
> Foreign equities
> Bonds
> Property

III Returns on investment pools for 2003

IV Key figures and financial ratios for 2003 - total assets under management

V Overview of LD Discretionary Investments' foreign equity portfolio.

 

I. Total investment return for LD Discretionary Investments and the investment pools

In 2003, LD Pensions recorded highly satisfactory operating results, with a total investment return of 14.1% inclusive of the pools. Both the portfolio strategy with a relatively high equity proportion and the investment strategies for equities and bonds contributed to the high return of LD Discretionary Investments.

 

Stock market turnaround
Right from the start of the year, the financial markets were characterised by great uncertainty, which was partly due to the situation in Iraq, and doubts about an economic recovery in the US. Interest rates lost momentum in the first months of the year, and the fear of deflation resulted in historically low interest rate levels in June. During the summer, an improvement in leading economic indicators and in the financial results of Danish and foreign companies as well as dwindling uncertainty about the situation in Iraq paved the way for an economic turnaround. This caused equity prices and interest rates to rise in the autumn.

 

Good equity performance
Equities performed well in 2003. LD Pensions' return on equities of 21.3% exceeded the overall return in global equity markets. The substantial investments in Danish equities contributed significantly with a return of 31.1%. The return on foreign equities of 13.3% was highly satisfactory and markedly higher than that seen abroad.

 

A high return on foreign bonds
Bonds yielded a total return of 7.2%, which was highly satisfactory in the light of the very low interest rate level. 2003 was another good year for Danish mortgage and index-linked bonds, of which long-term index-linked bonds in particular yielded high returns. The return of 15.2% on foreign bonds was exceptionally high, chiefly due to the return on high yield corporate bonds and emerging market bonds. LD Pensions had already started creating a portfolio of corporate bonds three years ago, which has made a large contribution to the high return.

 

II. Annual Report for LD Discretionary Investments

 

Gross and net returns
The total investments of LD Discretionary Investments yielded a return of 14.3% in 2003, which was very satisfactory. The very high return in respect of equities was higher than that recorded in global equity markets. The large portfolio of Danish equities contributed in particular to the impressive return. The bond portfolio also generated a satisfactory return, especially on the back of the generally low interest rate level. The Fund recorded particularly high capital gains on foreign bonds.

 

Asset allocation in LD Discretionary Investments in 2003
Under Danish legislation, a minimum of 30% of the assets of LD Discretionary Investments must be invested in gilt-edged securities. Prior to the start of each financial year, the board of directors determines an investment pattern that embodies the framework for the overall asset allocation by type of asset in accordance with the legal requirements and the market forecasts for each asset type. At the start of 2003, gilt-edged securities accounted for 49% of the total assets of LD Discretionary Investments. The intention was to increase investments in foreign equities throughout the year, mainly funded through a modest reduction of the proportion of gilt-edged securities, in order to enhance the portfolio's potential return. As a result of this strategy and the steep rise in equity prices during the year, gilt-edged securities represented 39% of total assets by year-end.

 

Allocation by asset type
Considerable uncertainty continued to surround the global economy in early 2003. Equity markets and interest rates were losing momentum, but during the spring the markets rebounded on the back of forecasts of a burgeoning recovery. These forecasts were supported by an improvement in leading economic indicators – especially in the US. LD Pensions capitalised on trends in the financial markets, buying additional equities in foreign companies that seemed attractively priced from a long-term perspective. In H2(2003), the Fund decided to divest some Danish equities, prompted by mounting prices of Danish equities during the first six months. Throughout the year, the Fund increased its equity portfolio modestly, with net acquisitions funded by way of the bond portfolio.

 

Bonds
The proportion of Danish and foreign gilt-edged bonds was reduced from 43% at the start of the year to 37% at the end of the year. During the year, the proportion of corporate bonds increased, but due to sales in the last part of the year the net rise was moderate. Corporate bonds made up 6% of total assets in LD Discretionary Investments at year-end. Extraordinary redemption of Danish callable corporate bonds lowered the value of the portfolio of 6% corporate bonds, whereas the value of the portfolio of 5% mortgage bonds picked up. The very high return on foreign bonds – especially corporate bonds and emerging market bonds – improved the total bond return markedly. It is very satisfactory that the strategy of diversifying investments by investing in a number of different bond types was successful in 2003. This diversification strategy also improved the risk and return on the total portfolio.

 

Equity portfolio restructuring
At the start of the year, the intention was to keep the portfolio of Danish listed equities largely unchanged and to step up foreign equity investments. The very positive trend seen during the year, particularly in the Danish equity market, resulted in the divestment of some Danish equities – mainly in the autumn. Nevertheless, the proportion of Danish listed equities increased 2%-points so that it accounted for 25% of total assets at the end of the year. Increased investments in foreign equities and higher equity prices lifted the proportion of foreign equities by 6%-points to 23% of total assets at the end of 2003. An important objective underlying the increase in foreign equity investments was to diversify by increasing the number of companies held in the portfolio. In recent years, the Fund has aimed to have an equal match between its portfolios of Danish and foreign listed equities. Developments throughout 2003 confirm that this aim has largely been achieved. In future, the two portfolios will increasingly be viewed as one, which is expedient in the light of the stricter liquidity requirements imposed by legislative changes on LD Pensions as described in “Brief presentation of LD Pensions”.

Since its foundation, LD Pensions has given a high priority to investing a proportion of its funds in unlisted Danish equities. These assets call for close monitoring of every single investment, but in return they offer a good risk/return profile. In addition, their prices often fluctuate in a pattern that differs from that of listed equities. The proportion of unlisted Danish equities was reduced to 4.4% in 2003, which was primarily attributed to the divestment of shares in Schulstad. It is the intention to continue making new investments in unlisted equities, although this type of investment is characterised by a certain degree of illiquidity. In LD Pensions' view, however, the divestment of the existing portfolio on an ongoing basis will to some extent ensure the liquidity of the entire equity portfolio.

 

Other investments
Investments in property are often very long-term, and therefore LD Pensions' makes only limited investments. The proportion of property investments has thus remained largely unchanged at 2%. Other assets, chiefly cash, cash equivalents and tax assets, have been reduced concurrently with the netting of tax on pension returns receivable against tax on the return for the year. At the end of 2003, other assets accounted for 1.6% of the assets of LD Discretionary Investments. The Fund hedged part of the currency exposure stemming from the bond portfolio in 2003, whereas no hedge was made in respect of the equity portfolio.

 

Danish equities
The Danish listed equities of LD Discretionary Investments yielded a profit of EUR 431.0m of which dividends amounted to EUR 31.7m and capital gains EUR 399,3m. These results correspond to a total return of 31.1%, which is highly satisfactory. By way of comparison, the KFX Index rose by 22.5%, exclusive of dividends, and the KAX Index (the Copenhagen Stock Exchange's All Share Index) 33.1%­, inclusive of dividends. The Danish equity market generally tracked its international counterparts, which recorded declines at the start of the year, prompted by the fear of war in Iraq and continuing doubts about the international economic recovery. Equity prices started to pick up with the projections of a swift end to the war in Iraq and a more positive economic outlook. The Danish equity market significantly outperformed many other markets in the world. This was noteworthy, as it happened despite a poor business climate in Denmark and the decline in the US dollar and Sterling, which had an adverse impact on Denmark's export trade. The positive development was attributed to specific events in a number of major companies listed on the Copenhagen Stock Exchange – not least A.P. Moeller-Maersk's performance – and a general rise in the share prices of a large number of small and medium-sized companies. In Denmark, such companies constitute a larger share of the equity market than is generally the case in other countries. The shares in this type of company performed particularly well, as was also the case in most international markets.

 

Return in line with the market despite a low investment weighting in A.P. Moeller-Maersk
The return of LD Discretionary Investments was slightly lower than that of the general market, as measured by the KAX Index. This is particularly satisfactory because LD Discretionary Investments was markedly underweighted in A.P. Moeller-Maersk, whose share price rose significantly more than the KAX Index. The reason for the high return was a number of overweighted positions in companies whose share prices rose significantly more than the KAX Index.

 

Higher prices triggered higher sales of Danish equities
LD Discretionary Investments capitalised on the general rise in shares prices in the Danish market by taking profits in a number of companies in 2003. Thus, net sales of Danish equities totalled EUR 176.9m, covering purchases totalling EUR 37.8m and sales totalling EUR 214.8m. Purchases were only made when a decline in a particular share price was considered a particularly good investment opportunity. The bulk of the divestments took place in the autumn, when prices were at their highest level. In spite of the very steep price hikes in 2003, LD Discretionary Investments expects to maintain a significant amount of investments in Danish listed equities in 2004, as many Danish companies are considered to be attractively priced from a long-term perspective. However, further increases in Danish share prices are likely to result in further profit-taking, and the Fund aims to continually ensure high liquidity in LD Discretionary Investments' total portfolio of Danish and foreign equities. Consequently, the portfolio restructuring from Danish to foreign equities, which was started in 2003, is expected to be continued if warranted by market conditions.

 

Foreign equities
The foreign equities of LD Discretionary Investments yielded a profit of EUR 165.2m of which dividends amounted to EUR 23.0m and capital gains EUR 142.2m, respectively. These results correspond to a total return of 13.3%, which is highly satisfactory. This figure includes a negative return of EUR 3.5m on unlisted foreign equities and shares in investment trusts. This is explained in greater detail in the section “Unlisted investments” below. Investments in foreign listed equities yielded a return of 13.9% inclusive of dividends; the currency exposure had not been hedged. This result is also very satisfactory. It compares with a 10.9% gain in the MSCI World Index, inclusive of dividends, translated into Danish kroner.

 

International equity market trends
International equity markets were marred by the negative development in early 2003, which was sparked by the fear of war in Iraq and continued doubts about the international economic recovery. In March, expectations of a swift end to the war in Iraq caused equity prices to climb and the oil price to lose momentum, and during the summer and towards the close of the year there was a growing flow of indications that expansionary monetary and fiscal policy in the US would boost the economy. This led to further share price gains in most international equity markets in anticipation that the US recovery would kick-start economic growth in the rest of the world. Especially the US equity market surged as it was anticipated that the continued fall of the US dollar would enhance the export potential of many US companies. The steep growth derived from the Federal Reserve's maintenance of low short-term interest rates and a growing deficit on the US government budget and balance of payments. During the year, these factors contributed to another drop in the US dollar against most other currencies, including the Danish krone. The USD-denominated returns of Danish equity investors and the USD-denominated earnings of Danish companies were generally reduced when translated into DKK.

 

Significant technology investments generated high returns
LD Discretionary Investments recorded a return for 2003 that was chiefly characterised by significant capital gains within technology. Investments in Ericsson, Cisco, Applied Materials and Intel contributed significantly to the very high return. These four investments jointly represented half the return on the foreign equities of LD Discretionary Investments. Furthermore, the two software providers, SAP and Electronic Arts, also generated high returns within technology.

A major part of the capital gains was realised in the course of the year, as the Fund considered that the share prices of some companies were no longer particularly attractive. Other sectors also posted high returns, and only a few investments contributed a major negative return.

 

Above-market returns
Compared with the performance of the general market, as measured by the MSCI World Index, the investments of LD Discretionary Investments within technology contributed significantly to the total excess return. The return on these investments was markedly higher than the rise in the MSCI World Index, and their weighting was twice as high as in this index. The investments of LD Discretionary Investments within Materials and Financials generated above-market returns, although they were markedly underweighted. Thus, these investments did not make any significant contribution to the excess return. Investments in the stable consumer goods sector and the pharmaceutical, telecommunications and utility sectors were overweighted, but taken together they did not contribute to the excess return, as the returns from these sectors were below the market return.

 

Rise in foreign investments and further portfolio diversification
The Danish equities divested in 2003 were replaced by foreign equities in order to bring the portfolios of Danish and foreign equities into alignment. New investments were chiefly made in sectors which were not included in the foreign portfolio. In addition, the aim was to spread risk across a larger number of companies in order to reduce dependency on individual equity investments. Net purchases of foreign equities totalled EUR 248.3m, covering purchases totalling EUR 591.1m and sales totalling EUR 342.8m.

In the year under review, the number of companies in the portfolio was increased from around 30 to almost 60 companies. This improved the diversification of the portfolio. The investment strategy remains selective and is based on the identification of and investment in well-run and focused companies that are considered attractively priced from a long-term perspective. The most significant portfolio changes were an increase in the number and scope of investments within consumer goods. Another important change in the portfolio structure was an increase in direct emerging market investments.

 

Outlook for 2004
With the increase in the number of companies in the foreign portfolio in 2003, activity in 2004 will be concentrated on ongoing switches among the existing companies or replacement of existing companies with new ones. LD Pensions does not envisage any growth in the number of companies held in its foreign portfolio. As regards the structure of this portfolio, the emphasis is on establishing exposure within sectors that are not well represented in the Danish equity market and on securing a good equilibrium with respect to each equity investment and sector. As previously, the portfolio will also be geared towards ensuring high liquidity in LD Discretionary Investments' total Danish and foreign equity portfolio.

 

Unlisted equities
In 2003, LD Pensions posted a return of 4.9% on Danish unlisted equity investments, inclusive of property companies. The return was in line with that in 2002, whereas foreign unlisted equities produced a negative return. On balance, the return on unlisted investments is considered to be fairly satisfactory.

The return is lower than that on listed Danish investments, which attracted growing investor interest in the second half of the year. By contrast, unlisted investments remained characterised by investor hesitation in respect of technology-oriented research and development companies and a still sluggish M&A market. Profit before tax totalled EUR 15.0m. The figure includes currency translation adjustment, securities revaluation, divestment gains/losses of EUR 60.6m net and dividends of EUR 75.6m.

 

New investments and divestments
By the end of 2003, LD Pensions' investments in unlisted equities totalled EUR 266.0m. This was equivalent to 4.4% of the assets of LD Discretionary Investments. About a quarter of LD Pensions' unlisted equities consist of research and development investments in the information technology and healthcare, including biotechnology, sectors. Within technology, the fund invested in two new companies and made follow-up investments in 15 companies. The new and follow-up investments in these 17 companies totalled EUR 18.5m.

The most significant equity divestment was the bread manufacturer Schulstad. Other major sales were Kvik Holding and PAS Technology.

 

Foreign unlisted equity investments
Investments in foreign unlisted equities produced a loss of EUR 3.5m, covering securities revaluation and currency translation adjustment of EUR 4.5m less dividends of EUR 1.0m. The results stemming from the foreign unlisted equities are recognised in investment returns on foreign investments.

 

Bonds
The bond investments of LD Discretionary Investments generated a profit inclusive of interest of EUR 144.6m and capital gains of EUR 71.5m. The return totalled 7.5%, which was highly satisfactory. The Danish part of the portfolio yielded a return of 5.6%. Of this return, nominal bonds yielded 5.4% and index-linked bonds 6.1%. This compared with a 5.5% return on Nordea's general index for callable mortgage bonds and a 4.4% return on Nordea's general index for Danish government bonds. The return on LD Discretionary Investments' Danish nominal bonds is therefore considered satisfactory in line with the general market return. By way of comparison, 2.5% Nykredit IS due 2026 - of the index-linked bonds - yielded a return of 6.3%. LD Discretionary Investments has a relatively high proportion of short-term index-linked bonds, and the return on the index-linked bond portfolio is also considered satisfactory.

 

Foreign bonds yielded a very high return
The portfolio of foreign bonds produced a return of 15.4% inclusive of partial currency hedging. The return stemmed from high yield bonds and emerging market bonds, managed externally, as well as from corporate bond investments managed internally and Swedish government and mortgage bonds. Corporate bonds – especially high yield bonds – and emerging market bonds generated very satisfactory returns in 2003.

 

Bond markets in 2003
Interest rates declined in 2003 – especially at the short end of the term structure. This trend was bucked in March, but only for a relatively short period. In April, interest rates resumed their fall, and thus historically low levels were recorded in mid-June. In 2003, it was again the US market in general and the Federal Reserve's rhetoric in particular that set the scene, also in the European bond markets. The principal reasons for the lower interest rates in the first half of the year were that the market did not forecast a recovery in the US economy and there was a widespread fear of deflation in the US. Market sentiment changed, however, which caused interest rates to rebound from June to the end of November, interrupted only by modest corrections. The deflation debate ceased, and US leading economic indicators improved. In the course of November, yields reached the levels seen at the start of the year, and long-term yields even closed at an all-year high. But in December, yields fell back again. For the full year, 10-year government bond yields remained largely unchanged, whereas their 5-year and 2-year peers had shed 0.2%-point and 0.5%-point, respectively.

 

Danish mortgage bonds performed well
For Danish mortgage bonds, 2003 was another good year with generally higher returns than those on government bonds with a comparable interest rate risk.

The positive credit scenario in previous years continued to prevail, and the number of investors rose steadily. In 2003, Lehman Brothers announced that it contemplated including Danish callable mortgage bonds in its global bond index in the course of 2004, which once again sharpened focus on these bonds. Especially 30-year 6% and 7% bonds generally produced impressive returns despite relatively high prepayment activity, in particular up to the payment date of 1 April, when loans totalling DKK 116bn were refinanced, which is the largest prepayment amount ever recorded in respect of a payment date in Denmark. 30-year 5% bonds came under severe issuance pressure, but nonetheless produced a reasonable return. Index-linked bonds yielded impressive returns, particularly the longest 2.5% IS bonds, for subsidised property, due 2050-54. In general, index-linked bonds with a shorter term yielded a slightly higher return before tax than callable mortgage bonds with practically identical interest rate risk. If consideration is made for the tax exemption relating to the inflation-based revaluation and coupon interest on index-linked bonds, this class of asset was indeed attractive in 2003.

 

An exceptionally good year for corporate bonds
2003 was an exceptionally good year for corporate bonds. The return on the internally managed portfolio of corporate bonds, which focuses on BBB-rated EUR-denominated issues, generated a return of 9.9%, which was satisfactory. This compared with a return of EUR 9.5% on Deutsche Börse's iBoxx Index for BBB-rated corporate bonds.

In recent years, emerging markets have yielded high returns despite turmoil in a number of countries. 2003 was also a good year, with declining excess yields compared with government bonds from developed countries.

In addition to corporate bonds and emerging market bonds, the foreign part of the portfolio consists of Swedish government and mortgage bonds. The dominant issue in the Swedish market in 2003 was the referendum on the EMU in September, which rejected Swedish participation. Both yield spreads and the national currency benefited from the referendum's outcome, as did LD Discretionary Investments. Swedish bonds still make up almost 3.7% of LD Discretionary Investments' bond investments.

 

Portfolio restructuring in 2003
During the year under review, Danish bonds were switched in order to capitalise on relative pricing skews and to align the portfolio with interest rate forecasts. Within callable mortgage bonds, the proportion of 6% bonds was reduced sharply due to redemption and divestments. Conversely, the proportion of 5% bonds saw respectable growth. As regards non-callable bonds, switches were made into more liquid bonds at attractive levels. In the course of 2003, the proportion of corporate bonds – including high yield bonds and emerging market bonds – was raised to 14.2% and 4.0%, respectively. Swedish government and corporate bonds were continually bought and sold, with respectable gains made thanks to the development of yield spreads and exchange rates.

 

Strategy and perspective
While short-term interest rates declined further in 2003, long-term interest rates remained largely unchanged compared with the start of the year. LD Pensions does not foresee a marked downturn in interest rates, and the bond portfolio strategy will thus continue to centre on maintaining relatively low interest rate risk. As the excess yield on government bond alternatives has tumbled in the past year, expectations for bond yields for the coming year are fairly modest.

Although the excess yield on Danish mortgage bonds relative to government bonds has become somewhat moderate, these securities are expected to continue to represent a good part of the bond portfolio of LD Discretionary Investments. Corporate and emerging market bonds are still considered attractive with respect to the portfolio of LD Discretionary Investments, although the excess yield has fallen sharply. It must be expected, however, that the excess yield on these investments will be slightly lower than in 2003, and that the excess yield will notably consist in a higher coupon rather than capital gains due to narrower spreads. It is probable that the corporate bond exposure will be reduced in 2004.

 

Property
LD Pensions' directly owned properties yielded a return of 10.9% in 2003, up from 7.6% in 2002. The return on properties for the year is satisfactory. Compared with 2002, the vacancy rate for the entire property portfolio has been reduced to a low level. The property portfolio was reduced through divestment in mid-2003 leading to a gain of EUR 1.7m. In the Annual Report, land and buildings are measured at estimated market values totalling EUR 114.6m as at 31 December 2003. LD Pensions' equity investments in property companies yielded an aggregate return of 9.1% in 2003 on a total market value of EUR 23.8m as at 31 December 2003. The most important investment is Ejendomsselskabet Norden A/S, from which LD Pensions received a dividend of EUR 8.3m in 2003.

 

III Returns on investment pools
In 2003, LD Pensions' investment assets were placed in LD Discretionary Investments and 10 investment pools. LD Discretionary Investments constitutes member savings that are not invested in the 10 investment pools. The investment strategies and returns for the year are outlined for each of these segments in the Annual Report. The overall return of 14.1% on LD Pensions' investments covers a return of 14.3% on LD Discretionary Investments and an average return of 11.5% on the investment pools. On balance, the return on the investment pools reduced the return on LD Pensions' investments slightly compared with the return on LD Discretionary Investments. The reason was twofold: bond investments made up a marginally higher proportion of total pool investments than those of LD Discretionary Investments, and the return on the two bond pools taken together was lower than the bond return of LD Discretionary Investments. This could not be offset by the fact that the equity pools together yielded a higher return than the equities of LD Discretionary Investments. LD Discretionary Investments managed 90.8% of LD Pensions' total assets as at 31 December 2003, and therefore the bulk of the total profit of LD Pensions was attributable to LD Discretionary Investments.

With respect to the investment pools, the two bond pools held most assets, with Danish Bonds being the largest pool. It represented 3.9% of LD Pensions' total assets and contributed a return of 2.8%. The eight equity pools accounted for 4.3% of LD Pensions' total assets. They produced a mixed bag of returns, partly due to the fact that some of the pools are sector specific and that the Danish equity pools generated markedly higher yields than the broad geographical pools.

IV Key figures and guidelines
	2003	2002	2001	2000	1999
PROFIT/(LOSS) ON INVESTMENTS
Profit/(Loss) on investments before tax (EURm)	911.8	(920.7)	(240.0)	1,474.1	636.9
Tax on pension investment returns (EURm)	(106.5)	99.1	37.2	(93.6)	(110.5)
Profit /(Loss) after tax on pension investment returns (EURm)	805.3	(821.5)	(202.9)	1,380.5	526.4
PENSIONS
Number of payments made (‘000 accounts)	56	58	42	37	39
Payments made (EURm)	331.6	351.0	266.4	220.2	189.8
Account size, full-time wage-earners in 1977-79 (EUR) – LD Discretionary Investments	8,587.7	7,654.4	8,276.3	8,460.4	6,985.7
Account administration costs (EURm)	6.3	7.8	6.1	4.6	4.2
INTEREST ON MEMBER ACCOUNTS
Total interest on accounts (EURm)	801.3	(645.7)	(196.4)	1.412.4	755.3
As a percentage before tax on pension investment returns – LD Discretionary Investments	14.1	(8.6)	(2.5)	22.5	13.8
As a percentage after tax on pension investment returns – LD Discretionary Investments	12.1	(7.5)	(2.2)	21.1	12.0
ASSETS
Book value (EURm)	7,276.3	6,850.5	8,011.9	8,507.8	7,378.9
Total pension assets (EURm)	7,262.6	6,814.7	7,999.4	8,471.2	7,316.0
PERFORMANCE RATIOS
Return before tax on pension investment returns (%)	13.8	(11.8)	(2.7)	20.6	9.3
Return after tax on pension investment returns (%)	12.1	(10.5)	(2.2)	18.9	8.9
COST KEY FIGURES
Operating expenses/annual investment returns (%)	0.09	0.11	0.08	0.06	0.06
Costs per member (EUR)	4.8	5.7	4.3	3.1	2.7
Costs per member – non-pool investors (EUR)	4.2	4.7	3.4	2.7	2.7

 

Guidelines on key figures
The value added from which LD Pensions computed net returns (interest on member accounts) was calculated on the basis of the mark-to-market measurement policies used in LD Pensions' accounts and after tax on pension investment returns and expenses. The return key figures are based on value added calculated on the basis of returns and price changes in respect of assets marked to market corresponding to the investment returns stated in the Annual Report. Two key figures are stated for the return because tax on pension investment returns influences the return. Some assets are subject to tax on pension investment returns (e.g. bonds and equities), whereas others are exempt (e.g. old index-linked bonds and some property). Furthermore, most companies have a so-called temporary tax relief, which reduces tax on pension investment returns in proportion to the amount of savings made prior to the introduction of tax on pension investment returns.

Return before tax on pension investment returns shows the return before tax on pension investment returns as a percentage of the invested funds marked to market. Thus, it indicates the return that LD Pensions would have obtained with an unchanged investment strategy, if there was no tax on pension investment returns. It shows what LD Pensions' return would have been if the Danish act on tax on pension investment returns did not exist. Return after tax on pension investment returns shows the return as a percentage of the invested funds marked to market after tax on pension investment returns. It shows the actual return for the year inclusive of LD Pensions' temporary tax relief.

Operating expenses/annual investment returns shows account administration costs in relation to the funds allocated to members (the funds provided to cover LD Pensions' obligations towards members). This key figure shows the reduction in LD Pensions' ability to add interest due to rising costs. Costs per member shows the contribution to account administration costs that each member would pay if costs were divided equally among the members. Costs in LD Discretionary Investments per member shows the contribution to account administration costs that each member who is not a pool investor, and therefore has invested all savings in LD Discretionary Investments, would pay if costs exclusive of pool costs were divided equally among these members.

 

Return key figures – three methods
LD Pensions uses a number of return key figures:

Net return (account interest), return as reported in the financial statements, money-weighted return (MWR) and time-weighted return (TWR).

Net return means the return as reported in the financial statements of LD Pensions or the pool after tax on pension investment returns and administrative costs in relation to member savings at the start of the year less payments made during the year.

The money-weighted return and the time-weighted return do not include administrative expenses and tax on pension investment returns. The money-weighted return shows the return for the period in relation to the average funds tied up in the period.

The time-weighted return is an Index value calculation on a daily basis, where the actual market situation is reflected with respect to securities prices and exchange rates.

The money-weighted return and the time-weighted return are identical if there has been no external cash flow apart from the initial payment into the account.

The returns are time-weighted, unless otherwise stated in the Annual Report.

 

V Overview of the foreign equity portfolio as at 31 December 2003 Listed equities
Activision	USD	Ionics	USD
Adecco	CHF	Kookmin Bank	USD
adidas-Salomon	EUR	Kurita Water Industries	JPY
Ahold	EUR	LSI Logic	USD
America Movil	USD	Lukoil	USD
American Superconductor	USD	Medtronic	USD
Amgen	USD	Microsoft	USD
Analog Devices	USD	Monster Worldwide	USD
Applied Materials	USD	Network Appliance	USD
ASML Holding	EUR	Nokia	EUR
Assa Abloy	SEK	Nordea	SEK
AstraZeneca	GBP	Novartis	CHF
Aventis	EUR	NTT DoCoMo	JPY
Ballard Power System	CAD	NVIDIA	USD
BBVA	EUR	Oracle	USD
Bodycote	GBP	Pacific Hydro	AUD
BP	GBP	Pfizer	USD
BWT	EUR	Plambeck Neue Energien	EUR
Capstone Turbine	USD	Plug Power	USD
Carnival	USD	Reuters Group	GBP
China Mobile	HKD	RPS Group	GBP
Cisco Systems	USD	Sanofi Synthelabo	EUR
Coca-Cola Company	USD	SAP	EUR
Colgate-Palmolive	USD	Satcon Technology	USD
Compass Group	GBP	Seche Environment	EUR
Danone	EUR	Securitas	SEK
Dell	USD	Shell	GBP
Diageo	GBP	SK Telecom	USD
EDP	EUR	Smith & Nephew	GBP
Electronics Arts	USD	ST. Microelectronics	EUR
Eli Lilly	USD	Suez	EUR
Energiekontor	EUR	Svenska Handelsbanken	SEK
Ericsson	SEK	Synthes-Stratec	CHF
Estée Lauder	USD	TSMC	USD
Fuelcell Energy	USD	Tele2	SEK
Gamesa	EUR	Tomra Systems	NOK
GlaxoSmithKline	GBP	UniCredito Italiano	EUR
Heineken	EUR	UPM Kymmene	EUR
Hennes & Mauritz	SEK	Veritas Software	USD
Huaneng Power	HKD	Vodafone	GBP
Iberdrola	EUR	Wolters Kluwer	EUR
ING Group	EUR	Wyeth	USD
Insituform Technology	USD	Yamanouchi Pharmaceutical	JPY
Intel	USD	Yukos	USD