PROSPECTUS DATED 23 JUNE 2015

£250,000,000 3.375 PER CENT. BONDS DUE 2055

The issue price of the £250,000,000 3.375 per cent. Bonds due 2055 (the "Bonds") of The University of Liverpool (the "Issuer") is 98.337 per cent. of their principal amount.

Unless previously redeemed or purchased and cancelled, the Bonds will be redeemed at their principal amount on 25 June 2055. The Bonds are subject to redemption, in whole but not in part, at their principal amount at the option of the Issuer at any time in the event of certain changes affecting taxation in the United Kingdom. The Bonds may also be redeemed at any time at the option of the Issuer, in whole or in part, at the Redemption Price (as defined in "Terms and Conditions of the Bonds—Condition 5(c)—Redemption at the option of the Issuer"). See "Terms and Conditions of the Bonds—Redemption and Purchase".

The Bonds will bear interest from 25 June 2015 at the rate of 3.375 per cent. per annum payable semi-annually in arrear on 25 June and 25 December in each year commencing on 25 December 2015. Payments on the Bonds will be made in sterling without deduction for or on account of taxes imposed or levied by the United Kingdom to the extent described under "Terms and Conditions of the Bonds—Condition 7—Taxation".

Applications have been made to the United Kingdom Financial Conduct Authority (the "FCA") under Part VI of the Financial Services and Markets Act 2000 (the "FSMA") for the Bonds to be admitted to listing on the Official List of the FCA and to the London Stock Exchange plc (the "London Stock Exchange") for the Bonds to be admitted to trading on the Regulated Market of the London Stock Exchange. The Regulated Market of the London Stock Exchange is a regulated market for the purposes of Directive 2004/39/EC on markets in financial instruments.

The Bonds have not been, and will not be, registered under the United States Securities Act of 1933, as amended (the "Securities Act") and are subject to United States tax law requirements. The Bonds are being offered outside the United States by the Joint Lead Managers (as defined in "Subscription and Sale") in accordance with Regulation S under the Securities Act ("Regulation S"), and may not be offered, sold or delivered within the United States or to, or for the account or benefit of, U.S. Persons (as defined in Regulation S) except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act.

The Bonds will be in bearer form and in the denominations of £100,000 and higher integral multiples of £1,000 (up to and including £199,000). The Bonds will initially be in the form of a temporary global bond (the "Temporary Global Bond"), without interest coupons, which will be deposited on or around 25 June 2015 (the "Issue Date") with a common safekeeper for Euroclear Bank S.A./N.V. ("Euroclear") and Clearstream Banking, société anonyme ("Clearstream, Luxembourg"). The Temporary Global Bond will be exchangeable, in whole or in part, for interests in a permanent global bond (the "Permanent Global Bond"), without interest coupons, not earlier than 40 days after the Issue Date upon certification as to non U.S. beneficial ownership. Interest payments in respect of the Bonds cannot be collected without such certification of non U.S. beneficial ownership. The Permanent Global Bond will be exchangeable in certain limited circumstances in whole, but not in part, for Bonds in definitive form in the denominations of £100,000 and higher integral multiples of £1,000 (up to and including £199,000) each with interest coupons and (if applicable) talons attached. See "Summary of Provisions Relating to the Bonds in Global Form".

The Bonds are expected to be assigned a rating of Aa2 by Moody's Investors Service Limited ("Moody's") upon issue. Moody's is established in the European Economic Area ("EEA") and registered under Regulation (EU) No 1060/2009, as amended (the "CRA Regulation").

A security rating is not a recommendation to buy, sell or hold securities and may be subject to suspension, reduction or withdrawal at any time by the assigning rating agency.

An investment in the Bonds involves certain risks; for a discussion of these risks see "Risk Factors" herein.

Joint Lead Managers

BARCLAYS HSBC LLOYDS BANK

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CONTENTS

Page

IMPORTANT NOTICES ............................................................................................................................. 3 

OVERVIEW ................................................................................................................................................. 5 

RISK FACTORS .......................................................................................................................................... 8 

TERMS AND CONDITIONS OF THE BONDS ...................................................................................... 23 

SUMMARY OF PROVISIONS RELATING TO THE BONDS IN GLOBAL FORM ............................ 33 

USE OF PROCEEDS ................................................................................................................................. 35 

DESCRIPTION OF THE ISSUER ............................................................................................................. 36 

GOVERNANCE AND REGULATION OF THE ISSUER ....................................................................... 45 

TAXATION ............................................................................................................................................... 54 

SUBSCRIPTION AND SALE ................................................................................................................... 57 

GENERAL INFORMATION .................................................................................................................... 58 

FINANCIAL STATEMENTS AND AUDITORS' REPORTS .................................................................. 60 

INDEX OF DEFINED TERMS ................................................................................................................. 61 

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IMPORTANT NOTICES

This Prospectus comprises an approved prospectus for the purposes of section 85(2) of the FSMA.

The Issuer accepts responsibility for the information contained in this Prospectus and declares that, having taken all reasonable care to ensure that such is the case, the information contained in this Prospectus to the best of its knowledge is in accordance with the facts and contains no omission likely to affect its import.

The Issuer has confirmed to Barclays Bank PLC, HSBC Bank plc and Lloyds Bank plc (the "Joint Lead Managers") that this Prospectus contains all information which is (in the context of the issue, offering and sale of the Bonds) material; this Prospectus is true and accurate in all material respects and is not misleading; any opinions, predictions or intentions expressed in this Prospectus on the part of the Issuer are honestly held or made and are not misleading and are based on reasonable assumptions; this Prospectus does not omit to state any material fact necessary to make such information, opinions, predictions or intentions (in such context) not misleading; and all proper enquiries have been made to ascertain and to verify the foregoing.

The Issuer has not authorised the making or provision of any representation or information regarding the Issuer or the Bonds other than as contained in this Prospectus or as approved for such purpose by the Issuer. Any such representation or information should not be relied upon as having been authorised by the Issuer, the Joint Lead Managers or the Trustee.

Neither the Joint Lead Managers nor any of their respective affiliates have authorised the whole or any part of this Prospectus and none of them makes any representation or warranty or accepts any responsibility as to the accuracy or completeness of the information contained in this Prospectus. Neither the delivery of this Prospectus nor the offering, sale or delivery of any Bond shall in any circumstances create any implication that there has been no adverse change, or any event reasonably likely to involve any adverse change, in the condition (financial or otherwise) of the Issuer since the date of this Prospectus.

This Prospectus does not constitute an offer of, or an invitation to subscribe or purchase, any Bonds. The distribution of this Prospectus and the offering, sale and delivery of Bonds in certain jurisdictions may be restricted by law. Persons into whose possession this Prospectus comes are required by the Issuer and the Joint Lead Managers to inform themselves about and to observe any such restrictions. For a description of certain restrictions on offers, sales and deliveries of Bonds and on distribution of this Prospectus and other offering material relating to the Bonds, see "Subscription and Sale".

In particular, the Bonds have not been and will not be registered under the Securities Act and are subject to United States tax law requirements. Subject to certain exceptions, Bonds may not be offered, sold or delivered within the United States or to U.S. Persons.

In this Prospectus, unless otherwise specified, references to "£" or "sterling" are to the lawful currency for the time being of the United Kingdom. References to "billions" are to thousands of millions.

Certain figures included in this Prospectus have been subject to rounding adjustments; accordingly, figures shown for the same category presented in different tables may vary slightly and figures shown as totals in certain tables may not be an arithmetic aggregation of the figures which precede them.

In connection with the issue of the Bonds, HSBC Bank plc (the "Stabilising Manager") (or persons acting on behalf of the Stabilising Manager) may over allot Bonds or effect transactions with a view to supporting the price of the Bonds at a level higher than that which might otherwise prevail. However, there is no assurance that the Stabilising Manager (or persons acting on behalf of the Stabilising Manager) will undertake stabilisation action. Any stabilisation action may begin on or after the date on which adequate public disclosure of the terms of the offer of the Bonds is made and, if begun, may be ended at any time, but it must end no later than the earlier of 30 days after the issue date of the Bonds and 60 days after the date of the allotment of the Bonds. Any stabilisation action or over-allotment must be conducted by the Stabilising Manager (or persons acting on behalf of the Stabilising Manager) in accordance with all applicable laws and rules.

The investment activities of certain investors are subject to legal investment laws and regulations, or review or regulation by certain authorities. Each potential investor should consult its legal advisers to

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determine whether and to what extent (1) the Bonds are legal investments for it, (2) the Bonds can be used as collateral for various types of borrowing and (3) other restrictions apply to its purchase or pledge of the Bonds. Financial institutions should consult their legal advisers or the appropriate regulators to determine the appropriate treatment of the Bonds under any applicable risk-based capital or similar rules.

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OVERVIEW

This overview must be read as an introduction to this Prospectus and any decision to invest in the Bonds should be based on a consideration of the Prospectus as a whole.

Words and expressions defined in the "Terms and Conditions of the Bonds" below or elsewhere in this Prospectus have the same meanings in this overview.

The Issuer: The University of Liverpool

Joint Lead Managers: Barclays Bank PLC, HSBC Bank plc and Lloyds Bank plc

Trustee: HSBC Corporate Trustee Company (UK) Limited

Principal Paying Agent: HSBC Bank plc

The Bonds: £250,000,000 3.375 per cent. Bonds due 2055.

Issue Price: 98.337 per cent. of the principal amount of the Bonds.

Issue Date: 25 June 2015.

Use of Proceeds: General corporate purposes including, but not limited to, the repayment of debt (which may include the repayment of debt to one or more of the Joint Lead Managers and/or their affiliates). See "Use of Proceeds".

Interest: The Bonds will bear interest from 25 June 2015 at a rate of 3.375 per cent. per annum payable semi-annually in arrear on 25 June and 25 December in each year commencing 25 December 2015.

Status: The Bonds will constitute direct, unsecured and unconditional obligations of the Issuer.

Form and Denomination: The Bonds will be issued in bearer form in the denominations of £100,000 and higher integral multiples of £1,000 (up to and including £199,000).

The Temporary Global Bond and the Permanent Global Bond are to be issued in new global note form.

Final Redemption: 25 June 2055.

Optional Redemption: On giving not less than 10 nor more than 20 days' notice to the Bondholders (which notice shall be irrevocable) in accordance with Condition 15 (Notices), the Issuer may redeem some or all of the Bonds for the time being outstanding at any time at the Redemption Price together with interest accrued to (but excluding) the date of redemption. See Condition 5(c) (Redemption at the option of the Issuer).

Tax Redemption: The Bonds may be redeemed at the option of the Issuer in whole, but not in part, at any time, on giving not less than 30 nor more than 60 days' notice to the Bondholders (which notice shall be irrevocable), at their principal amount, together with interest accrued to the date fixed for redemption, in the event of certain changes affecting taxation in the United Kingdom. See Condition 5(b) (Redemption for tax reasons).

Negative Pledge: So long as any of the Bonds remain outstanding, the Issuer shall not create or permit to subsist any Security Interest upon the whole or any part of its present or future undertaking, assets or revenues to secure any Relevant Indebtedness of the Issuer or any guarantee or indemnity by the Issuer in respect of any Relevant Indebtedness without (a) at the

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same time or prior thereto securing the Bonds equally and rateably therewith or (b) providing such other security for the Bonds as the Trustee may in its absolute discretion consider to be not materially less beneficial to the interests of the Bondholders or as may be approved by an Extraordinary Resolution (as defined in the Trust Deed) of Bondholders. See Condition 3 (Negative Pledge).

Cross Default: The Trustee may and, if so requested in writing by holders of at least one quarter of the aggregate principal amount of the outstanding Bonds or if so directed by an Extraordinary Resolution, shall (subject in each case to its being indemnified and/or secured and/or prefunded to its satisfaction) give written notice to the Issuer declaring the Bonds to be immediately due and payable, whereupon they shall become immediately due and payable at their principal amount together with accrued interest without further action or formality if (i) any Indebtedness of the Issuer is not paid when due or (as the case may be) within any originally applicable grace period; or (ii) any such Indebtedness becomes due and payable prior to its stated maturity otherwise than at the option of the Issuer or (provided no event of default, howsoever described, has occurred) any person entitled to such Indebtedness; or (iii) the Issuer fails to pay when due any amount payable by it under any guarantee for, or indemnity in respect of, any Indebtedness, provided that the amount of Indebtedness referred to in sub-paragraph (i) and/or sub-paragraph (ii) above and/or the amount payable under any guarantee or indemnity referred to in sub-paragraph (iii) above individually or in the aggregate exceeds £20,000,000 (or its equivalent in any other currency or currencies). See Condition 8(c) (Cross-default of Issuer).

Withholding Tax: All payments of principal and interest in respect of the Bonds and the Coupons by or on behalf of the Issuer shall be made free and clear of, and without withholding or deduction for or on account of, any present or future taxes, duties, assessments or governmental charges of whatever nature imposed, levied, collected, withheld or assessed by or on behalf of the United Kingdom or any political subdivision thereof or any authority therein or thereof having power to tax, unless the withholding or deduction of such taxes, duties, assessments or governmental charges is required by law. In that event the Issuer shall pay such additional amounts as will result in receipt by the Bondholders and the Couponholders after such withholding or deduction of such amounts as would have been received by them had no such withholding or deduction been required, except that no such additional amounts shall be payable in respect of any Bond or Coupon presented for payment in the limited circumstances set out in Condition 7 (Taxation).

Rating: The Bonds are expected to be assigned a rating of Aa2 by Moody's.

Moody's is established in the EEA and registered under the CRA Regulation.

A rating is not a recommendation to buy, sell or hold securities and may be subject to revision, suspension or withdrawal at any time by the assigning rating organisation.

Governing Law: The Bonds, the Trust Deed, the Paying Agency Agreement and any non-contractual obligations arising out of or in connection with any of them will be governed by English law.

Listing and Trading: Applications have been made for the Bonds to be admitted to listing on the Official List of the FCA and to trading on the Regulated Market

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of the London Stock Exchange.

Clearing Systems: Euroclear and Clearstream, Luxembourg.

Selling Restrictions: For a description of certain restrictions on offers, sales and deliveries of the Bonds and on the distribution of offering materials in the United Kingdom and the United States see "Subscription and Sale".

Risk Factors: Investing in the Bonds involves risks. See "Risk Factors".

ISIN: XS1246881673.

Common Code: 124688167.

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RISK FACTORS

The Issuer believes that the following factors may affect its ability to fulfil its obligations under the Bonds. All of these factors are contingencies which may or may not occur and the Issuer is not in a position to express a view on the likelihood of any such contingency occurring.

Factors which the Issuer believes may be material for the purpose of assessing the market risks associated with the Bonds are also described below.

The Issuer believes that the factors described below represent the principal risks inherent in investing in the Bonds, but the Issuer may be unable to pay interest, principal or other amounts on or in connection with the Bonds for other reasons, and the Issuer does not represent that the statements below regarding the risks of holding the Bonds are exhaustive. Prospective investors should also read the detailed information set out elsewhere in this Prospectus and reach their own views prior to making any investment decision.

Risks relating to the Issuer

There is a degree of uncertainty over whether the current level of United Kingdom ("UK") and other European Union ("EU") student numbers will be maintained.

Following the introduction of the £9,000 maximum level of tuition fees for UK/EU students, the Issuer experienced a fall in demand for students joining for the academic year starting September 2012. This was counterbalanced by a rise in demand for students joining in September 2011 (preferring to delay gap years). Whilst the Issuer has not been affected to any significant extent to date (and whilst the Issuer has seen an increase in student enrolment numbers since 2012), there is a risk that continued high tuition fees may affect enrolment numbers in the future and, accordingly, the income received by the Issuer from student tuition fees. With each government change and/or adoption of new higher education policies, there is a risk that fees could continue to be increased over time, which could impact on the level of student enrolment numbers.

Risks associated with the maintenance of current levels of funding

The Issuer is funded by a combination of:

Higher Education Funding Council for England ("HEFCE") grants;

other grants; and

student fees.

The trend is that an increasing proportion of teaching income will come from student tuition fees, whereas research funding is likely to continue through traditional channels. The funding that the Issuer receives for teaching UK/EU students is primarily dependent upon the number of students who choose to study on a course provided by the Issuer.

The Issuer does not have control over the number of applications received (or offers accepted) or complete control over the amount it can charge UK/EU students for tuition fees.

The distribution of public funds for teaching, research and for other activities to English universities and colleges that provide higher education is the responsibility of HEFCE. HEFCE was established by the Further and Higher Education Act 1992 and does not form part of any government department, but is a public body whose annual priorities are set by the Secretary of State for Business, Innovation and Skills. The total amount of public funding that HEFCE receives is set by the government each year and HEFCE distributes this funding according to agreed principles and criteria. HEFCE has a responsibility to safeguard public funds and achieve value for money as set out in HM Treasury guidance 'Managing Public Money'. HEFCE is responsible for making sure that the quality of learning and teaching is assessed in each University funded by it. It also assesses the quality of research. The HEFCE Teaching grant is calculated according to the number of students enrolled on courses and the nature of those courses (taking into account that certain types of courses, such as laboratory subjects, cost more than classroom based ones). Funding arrangements for the university sector have been reformed, with new funding arrangements taking effect from the 2012/13 academic year. The full impact of these reforms is still being

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felt, but the proportion of teaching income received from HEFCE will reduce and the proportion of teaching income derived from student fees will increase. In the 2014/15 academic year the Issuer received £35.6 million for teaching, £30.7 million for research and £3.3 million for 'other' from the HEFCE. The total block grant for the full financial year was £69.6 million, with an estimated £102.2 million being generated by UK and EU student tuition fees.

The HEFCE teaching block grant to the Issuer has been reduced from £57.7 million in the year to 31 July 2012 to £35.6 million in the year to 31 July 2015. There is a presumption that HEFCE grants will continue to be reduced as tuition fees (associated with the number of enrolled students) increase. HEFCE have indicated that the teaching grant will reduce to £32.2 million in the year to 31 July 2016 and then stabilise in subsequent years.

The maximum tuition fee for UK/EU students is £9,000 per annum per student and is dependent upon compliance with criteria set by the Office of Fair Access ("OFFA"). This is above the minimum rate of tuition fees for UK/EU students commencing undergraduate courses with the Issuer in the 2014/15 academic year, which is set at £6,000 per year. In order to be able to charge the higher rate, the Issuer must comply with criteria set by the OFFA.

If the Issuer fails to comply with its OFFA criteria, it may lose its ability to charge the maximum level of tuition fees for UK/EU students. Such a reduction in the level of tuition fees would reduce the revenue generated by the Issuer from its teaching activities.

The Issuer has identified attracting undergraduate students as a key risk area which is a consistent theme in many of the risk factors contained in this section. The ability of the Issuer to attract new applicants could be impacted by various factors including poor perception/reputation, aggressive competitor activity from rival universities, unattractive portfolio courses, poor marketing, recruitment or admissions processes, poor facilities or services, unattractive bursaries, higher fees compared to other institutions, plus the debate surrounding the value of a degree against increased costs - all of which have the potential to affect the Issuer's income and impact on the quality and calibre of students.

The current economic climate coupled with higher tuition fees could have an impact on the willingness of students to enter higher education, and this could impact on the number of students who apply to the Issuer.

Whilst the Issuer has historically attracted a high level of student applications, there can be no guarantee that this will continue. A significant reduction in student numbers could have a material impact on the Issuer's teaching income and overall finances.

Risks associated with possible further reform to Higher Education Funding

There is no guarantee that the current system or levels of university sector funding will be maintained. The maximum amount that the Issuer is able to charge for UK/EU students is specified by the government, and the government may increase or decrease this amount.

There are further concerns as to the Issuer's ability to retain funding for courses in the health sector (Medicine, Dentistry, Nursing etc), as the NHS struggles with increased funding cuts.

The Student Loans Company may be reformed. Any change to the operation of the Student Loans Company may affect the number of students applying to university, including the Issuer.

Whilst HEFCE is regarded by the Issuer as a stable and reputable body, there is always a risk that it may be reformed (or replaced). Such changes to the higher education funding body could make obtaining funding more difficult for the Issuer.

Significant changes are being made to the way in which the government provides funding for research that could impact adversely upon the Issuer's research funding

The need for the Issuer to focus on research excellence is crucial to ensuring that the maximum level of funding is obtained and to maintain its reputation in the academic world. Any decline in the Issuer's academic reputation may reduce the Issuer's ability to access external funding and participate fully in major research projects.

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The Research Excellence Framework ("REF") (the new system for assessing the quality of research in UK Higher Education Institutions), introduced in 2014, reflected the Issuer's performance in the Research Assessment Exercise ("RAE"). Over the period 2008-2013, the Issuer increased the amount of world leading and internationally excellent research compared to 2001-2007 (2008 RAE). Seven units of assessment achieved a top ten position for its proportion of 4*/3* research. However, the Issuer had a low proportion of 4* research compared to the Russell Group, with only one unit achieving the top position for volume of 4*/3* research (Agriculture, Veterinary and Food Science).

The results of the REF are important because they are used to assess how much recurrent block funding will be provided by the government. HEFCE provides block grants for institutions to support their research infrastructure and enable their research activities. The majority of this HEFCE-provided grant is known as "quality-related" or "QR" funding. Providing the funding as a block grant allows the particular institution freedom to decide how to use the funds. The Issuer's performance in the REF relative to the rest of the sector will affect its recurrent QR funding for the period after 2015. In the 2013/2014 academic year, 7.1 per cent. of the Issuer's total income was provided by QR funding.

The continued success of the Issuer in relation to its research activities cannot be guaranteed. A change in the assessment of the quality of the Issuer's research activities relative to the rest of the sector could impact adversely on the level of QR funding received by the Issuer.

The results of the REF also have a much wider reputational impact. The continued success of the Issuer in relation to its research activities is an important factor in the ability of the Issuer to maintain its ranking amongst other global academic institutions and to attract further research funding.

Following the HM Treasury Review 2010, the pressure to achieve focus in research delivery has led to a number of developments which may impact upon the Issuer's research income. For example, in the 2012/13 academic year, only research judged to be of international significance (primarily based on the results of the RAE) was funded from the QR funding element of the block grant. Future cuts to government support for research cannot be ruled out.

There is an increasing expectation from the government that universities deliver research benefit to society in a range of forms including in relation to the economy, society, culture, public policy or services, health, the environment or quality of life. This has been expressed in a variety of commissioned reviews (Wilson, Witty, etc), the UK Science and Innovation strategy and through Higher Education and Research Funder policy (e.g. the inclusion of impact as a substantial criteria for the REF and the requirement for planning impact generation and reporting outcomes in Research Councils UK and National Institute of Health Research etc). Failure to encourage and support academic staff to engage with external stakeholders and pursue impact from their research and knowledge exchange activity will reduce access to research and knowledge exchange funding and damage the Issuer's institutional reputation. Additionally, failure to implement systems, processes and support structures to incentivise, support, monitor and capture this impact may lead to a competitive disadvantage compared to other universities. It will also reduce the opportunity for the Issuer to benefit from promoting its contribution to wider society. To look to try to tackle this, the Issuer has introduced strategies to ensure strong performance in future REF or similar assessment exercises.

Risks associated to government changes throughout the life of the Bonds

The education and funding policies are set by the government (eg: level of student fees). As a result, the Issuer might experience a reduction in revenue if government policy changes. Any change of government might result in reforms to the funding and higher education sector as a whole. With each new government, the higher education sector is likely to be reformed further and it is difficult to predict the impact of any such reform on the Issuer (see "There have been changes to the UK's immigration system which could impact negatively on the Issuer's ability to attract non-UK/EU students and recruit/retain academic staff from overseas. There may be future changes" below). However, any such reform will affect the sector as a whole, not just the Issuer.

Risks associated with greater competition between higher education providers

There has always been a high level of competition between higher education providers to attract the best students. However, the level of competition has increased since the phasing out of restrictions on the overall number of students that institutions are able to recruit and the increase of tuition fees.

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The removal of restrictions on student numbers has increased competition for the most highly qualified students amongst universities and has encouraged the most successful universities to expand. While the Issuer, based on its current pattern of applications and acceptances, should be in a position to recruit additional students should it choose to do so, there is also a risk that it may lose high quality students who would otherwise have accepted a place at the Issuer to other universities seeking to expand. If these places are not filled by students with lower grades, the overall number of students accepting places at the Issuer may decrease, with a consequent decrease in tuition fees.

The Issuer competes for the best students in both domestic and international markets (key markets include China, Hong Kong, USA, Thailand, Mexico – the Issuer received increased applications from these markets in 2014/2015).

This requires all universities to operate efficiently whilst investing to maintain their competitive positions.

The cost of running a university is ever increasing with growing staff and administrative costs, increasing rents and pressure to continuously upgrade equipment/facilities and infrastructure to help maintain the Issuer's competitive position.

A recent trend has emerged as a result of the increasing demand for retraining and continuing education among workers (post-graduates and non-qualified workers) of all ages. The majority of courses offered by the Issuer are undergraduate courses, but there is a demand for further offering of short term vocational and tailored courses. The creation of the Issuer's London campus has resulted from this demand, with a focus on particular courses such as finance, accounting, public health and psychology. In addition, students are continually expecting state of the art technology to be made available to them, not just in relation to the infrastructure available but also in the delivery of the learning experience. However, there are increased financial costs associated with such technology (eg: web-based courses, latest computers, IT infrastructure, techniques, machinery, facilities etc.).

There is a risk associated with the Issuer maintaining the number and diversity of courses on offer, particularly given the costs associated with certain courses requiring specialist equipment and teaching techniques. Already, overseas students appear to be concentrated in key subjects such as Engineering, Law, Mathematics and Management. With the emergence of alternative sources of funding from prospective employers to students, there is evidence of a shift from arts and humanities to vocational and science based courses.

The Issuer's capital investment plan measures the requirements for cutting edge technology and state of the art facilities as against the costs associated to ensure that the Issuer remains competitive. However, as with any technology, it can quickly become redundant and there is a risk that the required level of investment associated with the purchase of such equipment or the development of new facilities is too great. The Issuer has turned to partnerships with leading companies (GSK, Unilever etc.) to manage the cost risk associated with the technology and has also used shared facilities for certain courses (eg: Virtual Engineering Centre, Daresbury). In terms of IT infrastructure, as for many other universities, the Issuer is continuously looking to improve its IT infrastructure as not doing so would have an adverse impact on communication, reputation and security. The Issuer is also keen to ensure that whilst this investment is being made, the improvements are future proof and fit for purpose.

The move towards a more competitive market for students will increase the importance of the quality of the student experience, and fluctuations in the Issuer's rating by its existing and/or former students may lead to an increase or decrease in student numbers

In such a competitive environment, institutions can differentiate themselves by the quality of experience they offer their students. The Issuer is continuously seeking to improve its facilities so as to enhance the overall student experience (see "Risks associated with greater competition between providers" above).

The National Student Survey ("NSS") is generally viewed as the most comprehensive survey of student experience. The NSS gathers opinions from undergraduates in their final year on the quality of their courses. The survey asks undergraduates to provide feedback on what it has been like to study their course at their institution. In the 2014 NSS, the Issuer moved down 3 percentage points from 88 per cent. overall satisfaction to 85 per cent. This placed the Issuer in the third quartile of all UK higher education institutions. Despite this, in the 2014/2015 academic year, the Issuer received the largest number of applications (for entry in 2015) since its creation (42,152), so there is currently no indication that

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performance in the NSS and alternative league tables is linked to application levels. However, NSS results may take on greater significance as a result of higher levels of tuition fees. One of the issues identified by the Issuer in its 2015 risk register is to seek to continuously improve its rating in the NSS.

Risks associated with XJTLU

In May 2006, the Issuer entered into a 50 year joint venture with the Xi'an Jiaotong University in China to create the XJTLU Liverpool International University ("XJTLU") with its own campus in Suzhou, China. The expectation is that, at the expiry of the 50 years, the joint venture will be renewed, although this is not guaranteed.

The Issuer provided £1.3 million towards the share capital of the joint venture. The remainder of the share capital was contributed by the Xi'an Jiaotong University.

There is a current plan in place to expand the XJTLU campus and improve infrastructure. The North Campus accommodates over 10,000 students and the development of the South Campus will further increase the capacity for XJTLU. The Issuer is not currently providing any financial assistance towards XJTLU operating performance or the capital expenditure programme.

The board of XJTLU is comprised of 9 members, including an independent chairman, 4 members appointed by XJTLU and 4 members appointed by the Issuer. The board of XJTLU has the ability to terminate the joint venture in certain circumstances but it has not indicated that it has any intention to request a termination of the joint venture agreement. Despite this, it is not possible to rule out categorically that a notice of termination will not be served during the remainder of the 50 year joint venture, or that a major change in political climate in the People's Republic of China may bring the joint venture to an end.

A connected risk factor is that the Issuer is heavily dependent upon the overseas fee income generated by students from XJTLU. For the 2014/2015 academic year, 2,808 overseas students from XJTLU alone attend the Issuer providing a fee income of £37.1 million.

Academic Year

Number of undergraduate

students (Headcount)

Income generated

Number of postgraduate

students (PGT and

PGR Headcount)

Income generated Total

2012/2013 ................................................... 1600 £19.4m 136 £1.6m £21.0m 2013/2014 ................................................... 2269 £28.8m 123 £1.6m £30.4m 2014/2015 ................................................... 2674 £35.4m 134 £1.7m £37.1m

XJTLU is currently an internationally collaborative university in China with dual degree awarding powers. However, further providers may seek to replicate this model and the emergence of competitors may affect XJTLU's ability to maintain current student numbers attending the Issuer. Moreover, as XJTLU matures as an autonomous institution, there is a risk that it will withdraw from the current accreditation relationship under which students receive degree awards from the Issuer as well as XJTLU degrees. The removal of a transfer route for XJTLU students to complete their undergraduate studies at the Issuer could have adverse consequences for the Issuer's international recruitment strategy and overseas fee income.

Potential risk of the UK leaving the EU

There is growing speculation that the UK may at some time in the future opt to leave the European Union. Aside from the impact on the UK as a whole and any effect on general trade and business relations, a departure from the EU could have a significant impact on the Higher Education sector generally, and has the potential to affect research funding, staff recruitment and retention, student numbers and collaborative partnerships as a significant proportion of higher education funding, including that received by the Issuer, stems from the EU.

Currently, Horizon 2020, the follow-up programme from 7th Framework Programme for Research and Technological Development (2007-2013), is the largest EU Research and Innovation programme with nearly €80 billion of funding available until 2020 to UK research programs, 70 per cent of which is to be

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distributed to Higher Education institutions. In terms of international research collaboration projects, presently 80% of the UK's international academic co-publications are with EU researchers. The total EU grant income for the Issuer in 2014 was £13.1 million.

Any departure of the UK from the EU would also have the potential to reduce the number of EU students attending courses offered by the Issuer, as those students would be required to pay overseas students tuition fees which are much higher than those set for EU students. Maximum yearly undergraduate tuition fees for EU students are currently £9,000 whereas overseas students' standard fees are set by the Issuer at £13,400 per annum for an Arts programme, £16,800 for a Science programme and £29,950 per annum for Clinical programmes for the academic year 2015/16. In addition, the ability of the Issuer to offer courses which include an element of studying at an EU university may also be affected, which may have an impact on the number of applicants.

The loss of EU funding could have an impact on the UK's Higher Education competitiveness and prestige.

A departure from the EU might also affect staffing. The Issuer currently employs 592 staff from the EU. The UK leaving the EU could have an impact on the Issuer's ability to recruit key academic staff from the EU, with potentially higher associated costs.

In addition to the potential loss of funding from the EU for research, the Issuer has received grant funding for capital projects under the European Regional Development Fund which may not be available to the Issuer if the UK is no longer a member of the EU. The amount awarded to the Issuer since 1 August 2012 is £10.8 million.

Risks associated with a new governance / regulatory framework for higher education

HEFCE currently provides the funding framework for higher education institutions in England. This role also carries regulatory functions, although HEFCE is not regarded as a regulator in the traditional sense. There has been a call for a stricter regulatory framework to be implemented due to higher fees, increased competition, new higher education providers and the requirement for transparency and accountability to students. The 2010 Browne Review suggested that higher education policy should be reviewed and recommended the introduction of a formal regulatory body. The introduction of further regulation could impact the Issuer's funding, including the level of tuition fees regulated through the OFFA and accounted through the Student Loans Company.

The Issuer receives research grant income from publicly-funded Research Councils, government departments, charitable foundations, the EU, overseas sources and through collaborations with the private sector none of which can be guaranteed to continue in the future

In addition to the block grant, the Issuer receives public funding from competitively won grants for specific research projects and programmes provided by UK Research Councils.

The Issuer also receives a significant proportion of its research grant income from UK and foreign charitable foundations, the EU, overseas sources, government departments and through collaborations with the private sector. Further cuts to the funding available to these sources, and hence the funds available to them to support research activities, cannot be ruled out.

There is uncertainty over whether postgraduate taught student numbers and postgraduate research numbers can be maintained

Between the 2009/10 academic year and the 2014/15 academic year, the Issuer saw an overall increase of over 18 per cent. in the number of UK/EU full-time students enrolling on taught postgraduate courses and an increase of 110.2 per cent. in the enrolment number of UK/EU full-time postgraduate research students.

PGT/PGR enrolment numbers

2009/2010 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015

Postgraduate taught .................. 1,216 1,481 1,702 1,516 1,550 1,440 Postgraduate research .............. 295 447 405 601 625 620

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The numbers of UK/EU postgraduate taught students could decrease from their current levels as the funding available to these students is limited.

The numbers of UK/EU postgraduate research students could decrease from their current levels if the Issuer’s levels of research funding for such students reduces (see "Significant changes are being made to the way in which the government provides funding for research that could impact adversely upon the Issuer's research funding" above).

In the 2014/15 academic year, the Issuer's total number of UK/EU full-time postgraduate students (comprising students on both taught and research courses) was 1,352, representing 44.3 per cent. of the total postgraduate population of the Issuer. Any significant reduction in the numbers of postgraduate students will impact on the Issuer's teaching revenue and on its ability to continue its research activities at current levels.

Risks associated with slow increase in higher paid graduate jobs

With higher tuition fees and general costs associated with higher education, students have to think more carefully about the financial implications of attending university. There is a presumption that, as the UK recovers from recession, graduate earnings and repayments of student loans will improve, however, there is little evidence that this is the case to date. In addition, the threat of a possible ongoing recession (certainly in certain sectors and geographic locations, namely continental Europe) is further affecting future students' ability to commit to the costs associated with higher education. This means that there is a higher risk of maintaining current student numbers for the Issuer generally, particularly in relation to certain job categories where earning prospects are low such as teaching, social work, charity work etc. In the 2013/2014 academic year, 94.8% of the Issuer's graduates were either employed or enrolled on further study and training courses within six months of graduation. Whilst these numbers are encouraging, there is no guarantee that such numbers will be maintained going forward.

Risks associated with business partnerships and their sustainability

Partnerships are key to the Issuer ensuring that it achieves its strategic aims and maintains its reputation. The Issuer entered into various business partnerships including with Laureate Online Education, XJTLU, Liverpool City Council, Local Enterprise Partnership, Unilever, GSK and local NHS Trusts. Such partnerships enable students to gain a wider experience on their courses (eg: clinical training, internships, research etc.) which complements the Issuer's offering to students and improves its reputation among students. Whilst such partnerships have proved successful, there is always a risk that the contractual relationships between the Issuer and its various partners may be rescinded or otherwise terminated in the future. Such partnerships are often associated with the academic work and research of key members of staff, challenging the Issuer to ensure that such key individuals do not opt to continue their academic careers elsewhere taking such partnerships with them. In addition, with increased competition between higher education institutions, it may also become more difficult for the Issuer to attract future partnerships going forward.

Risk associated with decrease in International Students

Although the Issuer is not subject to a fee cap in relation to non-UK/EU students and is therefore able to charge a higher amount than for UK/EU students, the maintenance of its fee levels cannot be guaranteed. The ability of the Issuer to set fee levels for non-UK/EU students is, to an extent, dictated by market forces. The Issuer is competing in a global market and its ability to command particular fee levels will depend on, amongst other things, global economic conditions, its competitors and the international reputation of the Issuer more generally.

If the Issuer is unable to maintain the current fee levels charged to non-UK/EU students, this will reduce the Issuer's non-UK/EU student fee income and will impact on the overall revenue of the Issuer from overseas (particularly XJTLU students who provide a steady income to the Issuer). Whilst the trend has been that an increasing number of students are from overseas, the flow of international students enrolling on courses at the Issuer cannot be guaranteed.

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Total number of students

2010 2011 2012 2013 2014

EU/UK .................................................................. 14,271 14,310 14,108 13,956 14,563 Overseas ................................................................ 2,648 3,085 3,738 4,324 5,527 Total ...................................................................... 16,919 17,395 17,846 18,280 20,090

As competition between universities globally continues to increase (including from universities in other countries such as the Netherlands where courses are also taught in English), the Issuer may need to review the level of overseas fees to remain attractive to overseas students. The Issuer is also facing tougher scrutiny from third parties with respect to funding arrangements with overseas students, particularly in light of sanctions legislation. As a result, the Issuer may find it has to turn down students from certain countries or with funding arrangements which have the potential to breach sanctions regulations. The UK's immigration policy is currently under scrutiny and there is a risk that tougher legislation may be introduced, making the UK less attractive to overseas students (see "There have been changes to the UK's immigration system which could impact negatively on the Issuer's ability to attract non-UK/EU students and recruit/retain academic staff from overseas. There may be future changes" below). A further challenge for the Issuer remains its geographical location. Whilst key factors such as football, music and history attract students (in addition to the Issuer's academic offering), other cities such as London, Manchester and Leeds remain more attractive in terms of future employment prospects.

There have been changes, and may be future changes, to the UK's immigration system which could impact negatively on the Issuer's ability to attract non-UK/EU students and recruit/retain academic staff from overseas.

Fee income from non-UK/EU students is a significant element in the Issuer's total income. In 2013/14, tuition fee income from full-time non-UK/EU students was £74.5 million as compared with £84.2 million for tuition fee income from full-time UK/EU students. In contrast to fees from UK/EU students, the Issuer is not subject to a fee cap in relation to non-UK/EU students and is therefore able to charge a higher amount.

There is a risk that current and future UK immigration arrangements will impact negatively on the competitiveness of the UK higher education sector and on the way in which the UK higher education sector is perceived internationally. The increasingly strict immigration rules being imposed on the UK higher education sector by the Home Office are impacting on the UK's image as a friendly and welcoming destination for international students. The UK's desirability as a study destination is further impacted by the implications of the Tier 4 visa regime and the requirement to be earning more than £20,000 to remain in the UK for more than four months after graduation. The Issuer's ability to continue to recruit international students is dependent on its ability to retain its Tier 4 immigration sponsor licence. This could have implications for the Issuer's capacity to attract non-UK/EU students at current levels and therefore could reduce the Issuer's non-UK/EU student fee income.

It is possible that future governments may change immigration policy further which may give rise to additional issues which could further impact on the Issuer's ability to attract more UK/EU students and recruit/retain academic staff from overseas.

There are financial risks associated with the pensions schemes in which the Issuer participates which could have an adverse impact on the Issuer

The principal pension schemes in which the Issuer participates are:

the Universities Superannuation Scheme ("USS"), which is the Issuer's principal scheme for academic and academic-related staff;

the University of Liverpool Pension Fund ("ULPF"), the principal scheme offered to manual and clerical staff up to 'Grade 6'; and

the NHS Pension Scheme ("NHSPS").

All three schemes are contracted out of the State Second Pension ("S2P"), with the assets of the schemes held separately from those of the Issuer in separate trustee administered funds. With the exception of

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NHSPS, each fund has a full valuation every three years carried out by professionally qualified independent actuaries.

The USS and the NHSPS are large multi-employer schemes. As a result of the mutual nature of the schemes, their assets are not hypothecated to individual institutions and a scheme-wide contribution rate is set. The Issuer is therefore exposed to the actuarial risks associated with other institutions' employees and is unable to identify its share of the underlying assets and liabilities of the scheme on a consistent and reliable basis. As such, as required by FRS 17, the Issuer accounts for the USS and the NHSPS schemes as if they were defined contribution schemes.

The last triennial actuarial valuation of the USS was carried out as at 31 March 2011. At the valuation date of 31 March 2011, the value of the assets of the scheme was £32,433.5 million and the value of the scheme's technical provisions was £35,343.7 million, indicating a shortfall of £2,910.2 million. The scheme's assets were sufficient to cover 92 per cent. of the benefits which had accrued to members after allowing for expected future increases in earning.

As at 31 March 2011, the scheme-wide contribution rate required for future service benefits at the date of the valuation was 12.80 per cent. of pensionable salaries for the final salary section. As part of the valuation, the trustee has determined a recovery plan to pay off the shortfall by 31 March 2021. The funding level under the scheme specific funding regime has fallen from 92% as at 31 March 2011 to 85% as at 31 March 2014.

The employers' deficit contributions in the first six years of the recovery plan (i.e. periods up to 31 March 2017) will amount to 16 per cent. per annum of salaries less the blended employer future services' cost of accrual.

The USS is a "last man standing" scheme so that, in the event of insolvency of any of the participating employers in the scheme, the amount of any pension shortfall (which cannot be recovered) in respect of that employer will be spread across the remaining participant employers and reflected in the next actuarial valuation of the USS.

With effect from 31 March 2011 there were a number of changes to the benefits provided by the scheme which included the following:

new entrants are now provided on a Career Revalued Basis ("CRB") rather than a Final Salary ("FS") basis;

the normal pension age was increased for future service and new entrants to 65 years;

member contributions were increased to 7.5% and 6.5% for the FS and CRB sections respectively; and

a pensions cap has been introduced, whereby USS will match increases in official pensions for the first 5%.

For the year ended 31 July 2014, the total pension cost to the Issuer was £19.6 million in relation to USS.

Further changes to the benefits provided by the scheme are currently being consulted upon, with a deadline for response of 22 May 2015, with a proposed implementation date of 1 April 2016. These changes include:

for both current FS and CRB members, accrued benefits at the implementation date will be revalued in line with increases in official pensions (currently the Consumer Price Index) each April up to the point of retirement or leaving the scheme;

all members will accrue a pension of 1/75th and a cash lump sum of 3/75ths of salary for each year of service after the implementation date in respect of salary up to and including a salary threshold of £55,000 a year and the salary threshold will be automatically revalued in line with increases in official pensions subject to a review to be undertaken by 31 March 2020;

all members will have access to a new defined contribution section, made up of individual defined contribution accounts for salary in excess of the salary threshold;

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all member contributions, for both FS and CRB members will increase to 8% of salary;

employer contributions will increase to 18% of salary for all members until 31 March 2020; and

optional additional contributions into the members defined contribution account will be available with the first 1% of additional contributions being matched by the employer.

The ULPF is the Issuer's own defined benefit scheme. The final salary section of the fund is closed to new entrants with effect from 31 July 2011. From 1 August 2011, new members are eligible to join the Career Average Revalued Earnings ("CARE") section of the Fund. A full actuarial valuation was carried out at 31 July 2012 and the latest update carried out by JLT Group is dated 31 July 2014.

The Issuer currently pays contributions at the rate of 13.4% of Earnings for Final Salary members and 13.4% of Earnings for CARE members plus £900,000 per annum to cover the cost of future accrual, death in service benefits and expenses. In addition the Issuer pays £600,000 per annum in respect of recovery plan contributions.

Member contributions are payable in addition at a rate of 7.5% of earnings for final salary members and 6.5% of pensionable pay for CARE members.

At the last audited accounts of the ULPF on a scheme funding valuation basis, the total market value of the assets of the ULPF was £308.5 million and the actuarial net present value of the scheme liabilities was £280.3 million leaving a surplus of £28.2 million.

For the year ended 31 July 2014, the total pension cost for the Issuer in respect of the ULPF was £8.6 million.

The Issuer also participates in the NHSPS. The notional assets of NHSPS are assessed by the Government Actuary and the benefits are underwritten by the government. There are no underlying assets. It is not possible to identify each institution's share of the underlying assets and liabilities of the NHSPS and hence contributions to the NHSPS are accounted for as if it were a defined contribution scheme. The cost recognised within the surplus for the year in the income and expenditure account is therefore equal to the contributions payable to the NHSPS for the year.

The latest published actuarial valuation of the NHSPS was at 31 March 2012. The contribution rate payable by the Issuer during the year ended 31 July 2014 was equal to 14 per cent. of the total pensionable salaries, in accordance with the conclusion of the Government Actuary's report on the NHSPS.

The total pension cost for the Issuer in respect of the NHSPS for the year ended 31 July 2014 was £1.6 million

Given the current status of the pensions schemes described above, it is possible that the Issuer may be required to make further payments in respect of those schemes which could have an adverse impact on the Issuer's finances.

A deterioration in employee relations with the Issuer's staff and trade unions could lead to industrial action and impact on the Issuer's reputation, research and teaching functions

The results of a recent staff survey (dated December 2013) indicated that 83% of staff 'agree' or 'tend to agree' that the Issuer is a good place to work. However, the nature and size of the Issuer coupled with the need to remain efficient (and current cap on tuition fees) means that constant organizational developments and changes are required to be made affecting various areas (pensions, pay claims, staff flexibility, strategic initiatives etc). As a result, the Issuer may experience a deterioration in employee relations with its staff and trade unions. Any such deterioration could result in informal action, such as work to rule, or formal industrial action, including strike action, which could impact on the Issuer's reputation (eg: students being unable to graduate, complaints from students and stakeholders, impact on student experience), research projects, teaching functions and quality and standards. Students and stakeholders may seek compensation or other forms of legal redress. The Issuer regularly consults with the three recognized trade unions (Unison, Unite and UCU) and the Issuer continues, via HR, to engage in regular discussions with them and develop partnerships.

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However, it is increasingly possible that such consultations may result in potential delay (and dispute) in respect of the implantation of efficiency measures and changes.

The delivery of the University's strategic long term plan includes risks associated with any major estates project

With the recent appointment of the Issuer's new Vice-Chancellor, a new strategic plan is to be developed during the course of 2015. This will involve wide engagement with staff and it is expected that this will result in a new, approved plan during 2016. Key to the development of the strategic plan is the Issuer's ability to generate surplus cashflow which can be re-invested in the Issuer's existing portfolio and facilities.

The quality of the Issuer's estate is fundamental to the experience of both staff and students. Whilst the new strategic plan will set the Issuer's direction, the expectation is that it will build upon the existing growth strategy. Investment in the Issuer's campus will continue in line with the current capital expenditure programme. The Issuer opened the Crown Place residence on campus in September 2014 and the refurbishing of the Liverpool Guild of Students was also completed in September 2014.

The Issuer regularly reviews its planning and budget process in relation to its capital expenditure programme to ensure the planned improvements are in line with budget and remain affordable. An internal audit of the Issuer's planning processes took place in June 2014 and the findings and recommendations have been included within the guidance and methodology for its planning and budget process for 2014/15. A review of effectiveness will be carried out in July 2015.

As with any major capital project, there are risks that the works may not be completed on time and within budget, with consequent disruption to the student experience over a period of years.

In an increasingly competitive environment, the Issuer's ability to recruit and retain the best academics cannot be guaranteed

The Issuer's ability to attract the highest calibre of researchers and teachers cannot be guaranteed. On the global stage, the Issuer competes for the best academics with foreign institutions a number of whom have greater endowment and other investment assets. The reputational impact of the RAE and the REF going forward, the changes to the UK immigration system, possible changes to the academic pension scheme and potential future cuts to the public funding of higher education could all have an impact on the ability of the Issuer to compete for and retain the best academics. In addition, the uncertainty over whether postgraduate student numbers can be maintained could have an adverse effect on the number and quality of the academics employed by the Issuer in the future (most of which are recruited from the current pool of postgraduate students).

Failure to recruit and retain high quality staff may mean that the Issuer is unable to deliver the level of 3* and 4* research it aspires to through an increased number of staff holding research grants, and an increase in pure and translational research.

The value of the Issuer's endowments can fall as well as rise

The total endowment assets of the Issuer were valued at £141.7 million as at 31 July 2014. The value of the Issuer's investments, and the income received from them, could fall as well as rise and therefore the income, return and the availability of funding to the Issuer from the endowment assets could vary considerably.

The Issuer's endowment assets are restricted for specific purposes

All of the endowment assets reported within the balance sheet of the Issuer are restricted for specific purposes, and must be applied solely for the purpose for which they were given to the Issuer. The value of the Issuer's endowment assets is therefore not available to holders of the Bonds or other creditors of the Issuer.

Other sources of income are important for the Issuer, the continued availability of which cannot be guaranteed

The Issuer derives significant rental income from:

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its student residences (94% of which are owned by the Issuer); and

additional income from its catering facilities to students, partnerships with companies such as Unilever, consulting activities and intellectual property (although the overall income derived from these additional sources is not material to the overall revenue of the Issuer).

If student numbers decline as a result of the risk factors mentioned above, this may have an adverse impact on these levels of rental income.

Claims against the Issuer could have a material impact on the revenue or business of the Issuer

To date, claims against the Issuer have not had a material impact on the revenue or business of the Issuer, although there can be no assurance that the Issuer will not, in the future, be subject to a claim which may have a material impact upon its revenue or business, with associated reputational damage. The Issuer's legal team, established in 2008, works continuously to mitigate the risks of litigation by monitoring potential disputes and contentious issues to ensure that these are dealt with in the most appropriate manner.

The Issuer has identified a potential risk in future loss of earnings claims being brought by students challenging academic judgment and their failure to obtain required fitness to practice certificates. To help manage this risk (together with any unforeseen litigation), the Issuer has the benefit of insurance for, among others, employer's liability, public liability and professional indemnity at a level which the Issuer considers to be prudent for the type of activities in which the Issuer is engaged.

Reputation risk

The Issuer is a leading academic institution and has a reputation as a leading teaching and research institution. This reputation has been built up over a long time since its foundation in 1881. The Issuer's reputation is an important factor in attracting the best academics and the best students. If, for example, the integrity of research, behaviour of a large number of staff or students, admissions, failure to manage risk, or standards and quality of teaching and university facilities were to be called into question, this would have the potential to damage the reputation of the Issuer.

A failure to manage reputational risk effectively could materially affect the Issuer's business and prospects.

Information Technology Risks

The Issuer is dependent upon the continued effective operation of its information technology systems and related infrastructure. If the same were to fail it would have a significant negative impact on the effective operation of the Issuer. To help manage this risk the Issuer has a detailed disaster recovery plan which is subject to regular internal audit.

Risk relating to the Bonds

There is no active trading market for the Bonds

The Bonds are new securities which may not be widely distributed and for which there is currently no active trading market. If the Bonds are traded after their initial issuance, they may trade at a discount to their initial offering price, depending upon prevailing interest rates, the market for similar securities, general economic conditions and the financial condition of the Issuer. Although applications have been made for the Bonds to be admitted to listing on the Official List of the FCA and to trading on the Regulated Market of the London Stock Exchange, there is no assurance that such applications will be accepted or that an active trading market will develop. Accordingly, there is no assurance as to the development or liquidity of any trading market for the Bonds.

The Bonds may be redeemed prior to maturity

In the event that the Issuer would be obliged to increase the amounts payable in respect of any Bonds due to any withholding or deduction for, or on account of, any present or future taxes, duties, assessments or governmental charges of whatever nature imposed, levied, collected, withheld or assessed by or on behalf of the United Kingdom or any political subdivision thereof or any authority therein or thereof having

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power to tax, the Issuer may redeem all outstanding Bonds in accordance with their terms and conditions (the "Conditions").

In addition the Conditions provide that the Bonds are redeemable at the Issuer's option and accordingly the Issuer may choose to redeem the Bonds at times when prevailing interest rates may be relatively low. In such circumstances an investor may not be able to reinvest the redemption proceeds in a comparable security at an effective interest rate as high as that of the Bonds.

Because the Temporary Global Bond and the Permanent Global Bond are held by or on behalf of Euroclear and Clearstream, Luxembourg, investors will have to rely on their procedures for transfer, payment and communication with the Issuer

The Bonds will initially be represented by the Temporary Global Bond and thereafter by a Permanent Global Bond except in certain limited circumstances described in the Permanent Global Bond. The Temporary Global Bond and the Permanent Global Bond will be deposited with a common safekeeper for Euroclear and Clearstream, Luxembourg. Except in certain limited circumstances described in the Permanent Global Bond, investors will not be entitled to receive Definitive Bonds (as defined below). Euroclear and Clearstream, Luxembourg will maintain records of the beneficial interests in the Temporary Global Bond and the Permanent Global Bond. While the Bonds are represented by the Temporary Global Bond or the Permanent Global Bond, investors will be able to trade beneficial interests in the Bonds only through Euroclear and Clearstream, Luxembourg.

The Issuer will discharge its payment obligations under the Bonds by making payments to or to the order of the common safekeeper for Euroclear and Clearstream, Luxembourg for distribution to their account holders. A holder of a beneficial interest in the Permanent Global Bond must rely on the procedures of Euroclear and Clearstream, Luxembourg to receive payments under the Bonds. The Issuer has no responsibility or liability for the records relating to, or payments made in respect of, beneficial interests in the Permanent Global Bond.

Holders of beneficial interests in the Temporary Global Bond or the Permanent Global Bond will not have a direct right to vote in respect of the Bonds. Instead, such holders will be permitted to act only to the extent that they are enabled by Euroclear and Clearstream, Luxembourg to appoint appropriate proxies.

Minimum Denomination

As the Bonds have denominations consisting of the minimum denomination of £100,000 and higher integral multiples of £1,000 (up to and including £199,000), it is possible that the Bonds may be traded in amounts in excess of £100,000 that are not integral multiples of £100,000. In such case a Bondholder who, as a result of trading such amounts, holds a principal amount of less than the minimum denomination of £100,000 may not receive a Definitive Bond in respect of such holding (should Definitive Bonds be printed) and would need to purchase a principal amount of Bonds such that its holding amounts to that minimum denomination.

Credit Rating

The Bonds are expected to be assigned a rating of "Aa2" by Moody's. Moody's is established in the EEA and registered under the CRA Regulation. A security rating is not a recommendation to buy, sell or hold securities and may be subject to suspension, reduction or withdrawal at any time by the assigning rating agency. Any adverse change in an applicable credit rating could adversely affect the trading price for the Bonds.

Exchange rate risks and exchange controls

Payments of principal and interest on the Bonds will be made in sterling. This presents certain risks relating to currency conversions if an investor's financial activities are denominated principally in a currency or currency unit (the "Investor's Currency") other than sterling. These include the risk that exchange rates may significantly change (including changes due to devaluation of sterling or revaluation of the Investor's Currency) and the risk that authorities with jurisdiction over the Investor's Currency may impose or modify exchange controls. An appreciation in the value of the Investor's Currency relative to sterling would decrease (1) the Investor's Currency-equivalent yield on the Bonds, (2) the Investor's Currency equivalent value of the principal payable on the Bonds and (3) the Investor's Currency

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equivalent market value of the Bonds. Government and monetary authorities may impose (as some have done in the past) exchange controls that could adversely affect an applicable exchange rate. As a result, investors may receive less interest or principal than expected, or no interest or principal.

Interest rate risks

The Bonds bear interest at a fixed rate. An investment in the Bonds during that time involves the risk that subsequent changes in market interest rates may adversely affect the value of the Bonds.

EU Savings Directive

Under EC Council Directive 2003/48/EC on the taxation of savings income (the ''Savings Directive"), Member States are required to provide to the tax authorities of another Member State details of payments of interest or similar income paid by a person within its jurisdiction to, or collected by such person for, an individual resident in that other Member State or to certain limited types of entity established in that other Member State. However, for a transitional period, Austria may instead apply (unless during that period it elects otherwise) a withholding system in relation to such payments, deducting tax at rates rising over time to 35 per cent. The transitional period is to terminate at the end of the first full fiscal year following agreement by certain non-EU countries to the exchange of information relating to such payments.

A number of non-EU countries and territories including Switzerland have adopted similar measures (a withholding system in the case of Switzerland).

The Council of the European Union formally adopted a Council Directive amending the Savings Directive on 24 March 2014 (the "Amending Directive"). The Amending Directive broadens the scope of the requirements described above. Member States are required to apply these new requirements from 1 January 2017. The changes made under the Amending Directive include extending the scope of the Savings Directive to payments made to, or secured for, certain other entities and legal arrangements. They also broaden the definition of "interest payment" to cover additional types of income payable on securities.

However, the European Commission has proposed the repeal of the Savings Directive from 1 January 2017 in the case of Austria and from 1 January 2016 in the case of all other Member States (subject to on-going requirements to fulfil administrative obligations such as the reporting and exchange of information relating to, and accounting for withholding taxes on, payments made before those dates). This is to prevent overlap between the Savings Directive and a new automatic exchange of information regime to be implemented under Council Directive 2011/16/EU on Administrative Cooperation in the field of Taxation (as amended by Council Directive 2014/107/EU). The proposal also provides that, if it proceeds, Member States will not be required to apply the new requirements of the Amending Directive.

If a payment were to be made or collected through a Member State which has opted for a withholding system and an amount of, or in respect of, tax were to be withheld from that payment, neither the Issuer nor any Paying Agent (as defined in the Conditions of the Bonds) nor any other person would be obliged to pay additional amounts with respect to any Bond as a result of the imposition of such withholding tax. The Issuer is required to maintain a Paying Agent in a Member State that is not obliged to withhold or deduct tax pursuant to the Savings Directive.

Investors who are in any doubt as to their position should consult their professional advisers.

Modifications, waivers and substitution

The Trust Deed contains provisions for convening meetings of Bondholders to consider matters relating to the Bonds, including the modification of any provision of the Conditions or the Trust Deed and to obtain written resolutions of Bondholders without calling a meeting.

Any modification of the Conditions or the Trust Deed may be made if sanctioned by an Extraordinary Resolution. Such a meeting may be convened by the Issuer or the Trustee and shall be convened by the Trustee (subject to it being indemnified and/or secured and/or prefunded to its satisfaction) upon the request in writing of Bondholders holding not less than one-quarter of the aggregate principal amount of the outstanding Bonds. The quorum at any meeting convened to vote on an Extraordinary Resolution will be one or more persons holding or representing more than one-third of the aggregate principal amount of the outstanding Bonds or, at any adjourned meeting, one or more persons being or representing

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Bondholders whatever the principal amount of the Bonds held or represented; provided, however, that certain proposals (including any proposal to delay or extend any date fixed for payment of principal or interest in respect of the Bonds, to reduce the amount of principal or interest payable on any date in respect of the Bonds, to alter the method of calculating the amount of any payment in respect of the Bonds or the date for any such payment, or to change the quorum requirements relating to meetings or the majority required to pass an Extraordinary Resolution) may only be sanctioned by an Extraordinary Resolution passed at a meeting of Bondholders at which one or more persons holding or representing not less than one-half or, at any adjourned meeting, one-quarter of the aggregate principal amount of the outstanding Bonds form a quorum. Any Extraordinary Resolution duly passed at any such meeting shall be binding on all the Bondholders and Couponholders, whether present or not.

A written resolution signed by or on behalf of the holders of not less than 90 per cent. in principal amount of the Bonds who for the time being are entitled to receive notice of a meeting in accordance with the provisions of the Trust Deed and whose Bonds are outstanding shall, for all purposes, take effect as an Extraordinary Resolution.

In certain circumstances, where the Bonds are held in global form in Euroclear and Clearstream, Luxembourg, the Issuer and the Trustee (as the case may be) will be entitled to rely upon:

(i) where the terms of the proposed resolution have been notified through the relevant clearing system(s), approval of a resolution proposed by the Issuer or the Trustee (as the case may be) given by way of electronic consents communicated through the electronic communications systems of the relevant clearing systems in accordance with their operating rules and procedures by or on behalf of the holders of not less than 90 per cent. in nominal amount of the Bonds for the time being outstanding; and

(ii) where electronic consent is not being sought, consent or instructions given in writing directly to the Issuer and/or the Trustee (as the case may be) by accountholders in the clearing systems with entitlements to the Permanent Global Bond or, where the accountholders hold such entitlement on behalf of another person, on written consent from or written instruction by the person for whom such entitlement is ultimately beneficially held (directly or via one or more intermediaries), provided that the Issuer and the Trustee have obtained commercially reasonable evidence to ascertain the validity of such holding and taken reasonable steps to ensure such holding does not alter following the giving of such consent/instruction and prior to effecting such resolution.

A written resolution or an electronic consent as described above may be effected in connection with any matter affecting the interests of Bondholders, including the modification of the Conditions, that would otherwise be required to be passed at a meeting of Bondholders satisfying the special quorum in accordance with the provisions of the Trust Deed, and shall for all purposes take effect as an Extraordinary Resolution passed at a meeting of Bondholders duly convened and held. These provisions permit defined majorities to bind all Bondholders including Bondholders who did not attend and vote at the relevant meeting and Bondholders who voted in a manner contrary to the majority.

The Conditions also provide that the Trustee may, without the consent of Bondholders, agree to (i) modifications of, or to the waiver or authorisation of any breach or proposed breach of, the provisions of Bonds or (ii) determine without the consent of the Bondholders that any Event of Default or potential Event of Default shall not be treated as such or (iii) the substitution of another company as principal debtor under any Bonds in place of the Issuer, in each case in the circumstances described in Condition 12 and the Trust Deed.

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TERMS AND CONDITIONS OF THE BONDS

The following is the text of the Conditions of the Bonds which (subject to amendment) will be endorsed on each Bond in definitive form (if issued):

The £250,000,000 3.375 per cent. Bonds due 2055(the "Bonds", which expression includes any further Bonds issued pursuant to Condition 14 (Further Issues) and forming a single series therewith) of The University of Liverpool (the "Issuer") are constituted by a trust deed dated 25 June 2015 (as amended or supplemented from time to time, the "Trust Deed") between the Issuer and HSBC Corporate Trustee Company (UK) Limited as trustee (the "Trustee", which expression includes all persons for the time being trustee or trustees appointed under the Trust Deed). The Issuer, HSBC Bank plc as principal paying agent (the "Principal Paying Agent", which expression includes any successor principal paying agent appointed from time to time in connection with the Bonds), the paying agents named therein (together with the Principal Paying Agent, the "Paying Agents", which expression includes any successor or additional paying agents appointed from time to time in connection with the Bonds) and the Trustee have entered into a paying agency agreement dated 25 June 2015 (as amended or supplemented from time to time, the "Paying Agency Agreement") in relation to the Bonds. Certain provisions of these Conditions are summaries of the Trust Deed and the Paying Agency Agreement and subject to their detailed provisions. The holders of the Bonds (the "Bondholders") and the holders of the related interest coupons (the "Couponholders" and the "Coupons", respectively, which expressions shall, unless the context otherwise requires, include the holders of the talons for further Coupons (the "Talons") and the Talons, respectively) are bound by and have the benefit of the Trust Deed and are deemed to have notice of all the provisions of the Trust Deed and the Paying Agency Agreement applicable to them. Copies of the Trust Deed and the Paying Agency Agreement are available for inspection by Bondholders during normal business hours at the specified offices (as defined in the Trust Deed) of each of the Paying Agents, the initial specified offices of which are set out below.

1. Form, Denomination and Title

The Bonds are serially numbered and in bearer form in denominations of £100,000 and higher integral multiples of £1,000 up to and including £199,000 with Coupons and Talons attached at the time of issue. Bonds of one denomination will not be exchangeable for Bonds of another denomination. Title to the Bonds, the Coupons and the Talons will pass by delivery. The holder of any Bond, Coupon or Talon shall (except as otherwise required by law) be treated as its absolute owner for all purposes (whether or not it is overdue and regardless of any notice of ownership, trust or any other interest therein, any writing thereon or any notice of any previous loss or theft thereof) and no person shall be liable for so treating such holder. No person shall have any right to enforce any term or condition of the Bonds, the Coupons or the Trust Deed under the Contracts (Rights of Third Parties) Act 1999.

2. Status

The Bonds and the Coupons constitute direct, unconditional and (subject to the provisions of Condition 3 (Negative Pledge)) unsecured obligations of the Issuer which will at all times rank pari passu among themselves and at least pari passu with all other present and future unsecured and unsubordinated obligations of the Issuer, save for such obligations as may be preferred by applicable laws relating to creditors' rights.

3. Negative Pledge

So long as any of the Bonds remains outstanding (as defined in the Trust Deed), the Issuer shall not create or permit to subsist any Security Interest upon the whole or any part of its present or future undertaking, assets or revenues to secure any Relevant Indebtedness of the Issuer or any guarantee or indemnity by the Issuer in respect of any Relevant Indebtedness without (a) at the same time or prior thereto securing the Bonds equally and rateably therewith or (b) providing such other security for the Bonds as the Trustee may in its absolute discretion consider to be not materially less beneficial to the interests of the Bondholders or as may be approved by an Extraordinary Resolution (as defined in the Trust Deed) of Bondholders.

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In these Conditions:

"Relevant Indebtedness" means any indebtedness for money borrowed or raised which is in the form of or represented by any bond, note, debenture, debenture stock, loan stock, certificate or other instrument which, for the time being, is, or is intended by the Issuer to be, listed, quoted, dealt in or traded on any stock exchange or regulated securities market; and

"Security Interest" means any mortgage, charge, pledge, lien or other security interest including, without limitation, anything analogous to any of the foregoing under the laws of any jurisdiction.

4. Interest

The Bonds bear interest from 25 June 2015 (the "Issue Date") at the rate of 3.375 per cent. per annum, (the "Rate of Interest") payable semi-annually in arrear on 25 June and 25 December in each year (each, an "Interest Payment Date") commencing on 25 December 2015, subject as provided in Condition 6 (Payments).

The amount of interest payable on each Interest Payment Date shall be £16.88 per £1,000 (the "Calculation Amount"). The period from and including the Issue Date to but excluding the initial Interest Payment Date, and each period from and including one Interest Payment Date to but excluding the next Interest Payment Date shall constitute an "Interest Period".

Each Bond will cease to bear interest from the due date for redemption unless, upon due presentation, payment of principal is improperly withheld or refused, in which case it will continue to bear interest at such rate (both before and after judgment) until whichever is the earlier of (a) the day on which all sums due in respect of such Bond up to that day are received by or on behalf of the relevant Bondholder and (b) the day which is seven days after the Principal Paying Agent or the Trustee has notified the Bondholders that it has received all sums due in respect of the Bonds up to such seventh day (except to the extent that there is any subsequent default in payment).

If interest is required to be paid in respect of a Bond on any date other than an Interest Payment Date, it shall be calculated by applying the Rate of Interest to the Calculation Amount, multiplying the product by a fraction (a) the numerator of which is the number of days from (and including) the most recent Interest Payment Date (or from the Issue Date if such period is before the first scheduled Interest Payment Date) to (but excluding) the date of payment; and (b) the denominator of which is the number of days (including the first such day and excluding the last such day) in the scheduled Interest Period in which the relevant calculation period falls multiplied by two, rounding the resulting figure to the nearest penny (half a penny being rounded upwards) and multiplying such rounded figure by a fraction equal to the denomination of such Bond divided by the Calculation Amount.

5. Redemption and Purchase

(a) Scheduled redemption: Unless previously redeemed, or purchased and cancelled, the Bonds will be redeemed at their principal amount on 25 June 2055, subject as provided in Condition 6 (Payments).

(b) Redemption for tax reasons: The Bonds may be redeemed at the option of the Issuer in whole, but not in part, at any time, on giving not less than 30 nor more than 60 days' notice to the Bondholders in accordance with Condition 15 (Notices) (which notice shall be irrevocable), at their principal amount, together with interest accrued to the date fixed for redemption, if, immediately before giving such notice, the Issuer satisfies the Trustee that:

(i) the Issuer has or will become obliged to pay additional amounts as provided or referred to in Condition 7 (Taxation) as a result of any change in, or amendment to, the laws or regulations of the United Kingdom or any political subdivision or any authority thereof or therein having power to tax, or any change in the application or official interpretation of such laws or regulations (including a holding by a court of competent jurisdiction), which change or amendment becomes effective on or after 25 June 2015; and

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(ii) such obligation cannot be avoided by the Issuer taking reasonable measures available to it,

provided, however, that no such notice of redemption shall be given earlier than 90 days prior to the earliest date on which the Issuer would be obliged to pay such additional amounts if a payment in respect of the Bonds were then due.

Prior to the publication of any notice of redemption pursuant to this Condition 5(b), the Issuer shall deliver to the Trustee:

(A) a certificate signed by an Authorised Signatory (as defined in the Trust Deed) of the Issuer stating that the Issuer is entitled to effect such redemption and setting forth a statement of facts showing that the conditions precedent to the right of the Issuer so to redeem have occurred; and

(B) an opinion in form and substance satisfactory to the Trustee of independent legal advisers of recognised standing to the effect that the Issuer has or will become obliged to pay such additional amounts as a result of such change or amendment.

The Trustee shall be entitled to accept and rely on such certificate and opinion as sufficient evidence of the satisfaction of the circumstances set out in (i) and (ii) above without liability to any person for so doing, in which event it shall be conclusive and binding on the Bondholders and the Couponholders.

Upon the expiry of any such notice as is referred to in this Condition 5(b), the Issuer shall be bound to redeem the Bonds in accordance with this Condition 5(b).

(c) Redemption at the option of the Issuer: On giving not less than 10 nor more than 20 days' notice to the Bondholders in accordance with Condition 15 (Notices), the Issuer may redeem some or all of the Bonds for the time being outstanding at any time at the Redemption Price (as defined below) together with interest accrued to (but excluding) the date of redemption (the "Redemption Date").

The "Redemption Price" shall be: (i) if the Redemption Date falls on or after 25 March 2055 the principal amount of the Bonds to be redeemed, or (ii) otherwise, the higher of: (a) the principal amount of the Bonds to be redeemed; and (b) the product of the principal amount of the Bonds to be redeemed and the price, expressed as a percentage (rounded to three decimal places, with 0.005 being rounded down), (as reported in writing to the Issuer and the Trustee by an independent financial adviser (a "financial adviser") appointed by the Issuer and approved by the Trustee) at which the Gross Redemption Yield on the Bonds on the Calculation Date is equal to the sum of (A) the Gross Redemption Yield at 11.00 a.m. (London time) on such date of the 4.250 per cent. Treasury Stock due December 2055 (or, where such financial adviser advises the Issuer and the Trustee that, for reasons of illiquidity or otherwise, such stock is not appropriate for such purpose, such other government stock with an appropriate average life of maturity, as applicable, as such financial adviser may recommend) and (B) 0.15 per cent.

For such purposes:

"Business Day" means a day on which banks are generally open for business in London;

"Calculation Date" means the date which is the second Business Day prior to the date on which the notice to redeem is dispatched; and

"Gross Redemption Yield" means a yield, expressed as a percentage, calculated by the financial adviser on the basis set out by the United Kingdom Debt Management Office in the paper "Formulae for Calculating Gilt Prices from Yields" page 5, Section One: Price/Yield Formulae (Conventional Gilts; Double-dated and Undated Gilts with Assumed (or Actual) Redemption on a Quasi-Coupon Date) (published on 8 June, 1998 and updated on 15 January, 2002 and 16 March, 2005) (as updated, amended or supplemented from time to time) on a semi-annual compounding basis (converted on an

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annualised yield and rounded up (if necessary) to four decimal places) or, if such formula does not reflect generally accepted market practice at the time of redemption, a yield calculated in accordance with generally accepted market practice at such time, all as advised to the Issuer and the Trustee by such financial adviser.

Any notice given pursuant to this Condition 5(c) (Redemption at the option of the Issuer) shall be irrevocable and shall specify the Redemption Date and the Redemption Price. If any such notice has been given, references in these Conditions and the Trust Deed to "principal", "principal moneys" and "principal amount" shall, unless the context otherwise requires, be deemed to include references to the Redemption Price in relation to any redemption pursuant to such notice. Upon the expiry of any such notice, the Issuer shall be bound to redeem the Bonds so called for redemption at the applicable Redemption Price on the Redemption Date together with accrued interest as aforesaid unless previously purchased and cancelled or redeemed. The Trustee may rely absolutely on the advice of any financial adviser appointed as provided in this Condition 5(c) (Redemption at the option of the Issuer) and shall not be liable for so doing.

(d) Partial redemption: If the Bonds are to be redeemed in part only on any date in accordance with Condition 5(c) (Redemption at the option of the Issuer), the Bonds to be redeemed shall be selected by the drawing of lots in such place as the Issuer approves and in such manner as shall be fair and reasonable in the circumstances, subject to compliance with applicable law and the rules of each listing authority, stock exchange and/or quotation system (if any) by which the Bonds have then been admitted to listing, trading and/or quotation, and the notice to Bondholders referred to in Condition 5(c) (Redemption at the option of the Issuer) shall specify the serial numbers of the Bonds so to be redeemed and the aggregate principal amount of the Bonds which will be outstanding after the partial redemption.

(e) Purchase: The Issuer or any party acting on its behalf may at any time purchase Bonds in the open market or otherwise and at any price, provided that all unmatured Coupons and unexchanged Talons are purchased therewith.

Bonds purchased by or on behalf of the Issuer may, at the option of the Issuer or the relevant party, be cancelled (together with all unmatured Coupons purchased therewith) or may be held, re-issued or re-sold. Bonds held by or on behalf of the Issuer shall not entitle the holder to vote at any meetings of the Bondholders and such Bonds shall be deemed not to be outstanding for the purposes of calculating quorums at meetings of Bondholders or for the purposes of Condition 8 (Events of Default), Condition 12 (Meetings of Bondholders; Modification and Waiver; Substitution) and Condition 13 (Enforcement).

6. Payments

(a) Principal: Payments of principal shall be made only against presentation and (provided that payment is made in full) surrender of Bonds at the Specified Office of any Paying Agent outside the United States by transfer to a sterling account maintained by the payee with a bank in London.

(b) Interest: Payments of interest shall, subject to paragraph (f) (Payments other than in respect of matured Coupons) below, be made only against presentation and (provided that payment is made in full) surrender of the appropriate Coupons at the Specified Office of any Paying Agent outside the United States in the manner described in paragraph (a) (Principal) above.

(c) Payments subject to fiscal laws: All payments in respect of the Bonds are subject in all cases to any applicable fiscal or other laws and regulations in the place of payment, but without prejudice to the provisions of Condition 7 (Taxation). No commissions or expenses shall be charged to the Bondholders or Couponholders in respect of such payments.

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(d) Deduction for unmatured Coupons: If a Bond is presented without all unmatured Coupons relating thereto, then:

(i) if the aggregate amount of the missing Coupons is less than or equal to the amount of principal due for payment, a sum equal to the aggregate amount of the missing Coupons will be deducted from the amount of principal due for payment; provided, however, that if the gross amount available for payment is less than the amount of principal due for payment, the sum deducted will be that proportion of the aggregate amount of such missing Coupons which the gross amount actually available for payment bears to the amount of principal due for payment;

(ii) if the aggregate amount of the missing Coupons is greater than the amount of principal due for payment:

(A) so many of such missing Coupons shall become void (in inverse order of maturity) as will result in the aggregate amount of the remainder of such missing Coupons (the "Relevant Coupons") being equal to the amount of principal due for payment; provided, however, that where this sub-paragraph would otherwise require a fraction of a missing Coupon to become void, such missing Coupon shall become void in its entirety; and

(B) a sum equal to the aggregate amount of the Relevant Coupons (or, if less, the amount of principal due for payment) will be deducted from the amount of principal due for payment; provided, however, that, if the gross amount available for payment is less than the amount of principal due for payment, the sum deducted will be that proportion of the aggregate amount of the Relevant Coupons (or, as the case may be, the amount of principal due for payment) which the gross amount actually available for payment bears to the amount of principal due for payment.

Each sum of principal so deducted shall be paid in the manner provided in paragraph (a) (Principal) above against presentation and (provided that payment is made in full) surrender of the relevant missing Coupons. No payments will be made in respect of void coupons.

(e) Payments on business days: If the due date for payment of any amount in respect of any Bond or Coupon is not a business day in the place of presentation, the holder shall not be entitled to payment in such place of the amount due until the next succeeding business day in such place and shall not be entitled to any further interest or other payment in respect of any such delay. In this paragraph, "business day" means, in respect of any place (including the place of presentation), a day on which commercial banks and foreign exchange markets settle payments and are open for general business (including dealing in foreign exchange and foreign currency deposits) in that place and, in the case of payment by transfer to a sterling account as referred to above, on which dealings in foreign currencies may be carried on both in London and in such place of presentation.

(f) Payments other than in respect of matured Coupons: Payments of interest other than in respect of matured Coupons shall be made only against presentation of the relevant Bonds at the Specified Office of any Paying Agent outside the United States.

(g) Partial payments: If a Paying Agent makes a partial payment in respect of any Bond or Coupon presented to it for payment, such Paying Agent will endorse thereon a statement indicating the amount and date of such payment.

(h) Exchange of Talons: On or after the maturity date of the final Coupon which is (or was at the time of issue) part of a coupon sheet relating to the Bonds (each, a "Coupon Sheet"), the Talon forming part of such Coupon Sheet may be exchanged at the Specified Office of the Principal Paying Agent for a further Coupon Sheet (including a

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further Talon but excluding any Coupons in respect of which claims have already become void pursuant to Condition 9 (Prescription)). Upon the due date for redemption of any Bond, any unexchanged Talon relating to such Bond shall become void and no Coupon will be delivered in respect of such Talon.

7. Taxation

All payments of principal and interest in respect of the Bonds and the Coupons by or on behalf of the Issuer shall be made free and clear of, and without withholding or deduction for or on account of, any present or future taxes, duties, assessments or governmental charges of whatever nature imposed, levied, collected, withheld or assessed by or on behalf of the United Kingdom or any political subdivision thereof or any authority therein or thereof having power to tax, unless the withholding or deduction of such taxes, duties, assessments or governmental charges is required by law. In that event the Issuer shall pay such additional amounts as will result in receipt by the Bondholders and the Couponholders after such withholding or deduction of such amounts as would have been received by them had no such withholding or deduction been required, except that no such additional amounts shall be payable in respect of any Bond or Coupon presented for payment:

(a) by or on behalf of a holder which is liable to such taxes, duties, assessments or governmental charges in respect of such Bond or Coupon by reason of its having some connection with the United Kingdom other than the mere holding of the Bond or Coupon; or

(b) where such withholding or deduction is imposed on a payment to an individual and is required to be made pursuant to European Council Directive 2003/48/EC on the taxation of savings income or any law implementing or complying with, or introduced in order to conform to, this Directive; or

(c) by or on behalf of a holder who would have been able to avoid such withholding or deduction by presenting the relevant Bond or Coupon to another Paying Agent in a Member State of the European Union; or

(d) more than 30 days after the Relevant Date except to the extent that the holder of such Bond or Coupon would have been entitled to such additional amounts on presenting such Bond or Coupon for payment on the last day of such period of 30 days.

In these Conditions, "Relevant Date" means whichever is the later of (1) the date on which the payment in question first becomes due and (2) if the full amount payable has not been received in London by the Principal Paying Agent or the Trustee on or prior to such due date, the date on which (the full amount having been so received) notice to that effect has been given to the Bondholders in accordance with Condition 15 (Notices).

Any reference in these Conditions to principal or interest shall be deemed to include any additional amounts in respect of principal or interest (as the case may be) which may be payable under this Condition 7 (Taxation) or any undertaking given in addition to or in substitution of this Condition 7 (Taxation) pursuant to the Trust Deed.

If the Issuer becomes subject at any time to any taxing jurisdiction other than the United Kingdom, references in these Conditions to the United Kingdom shall be construed as references to the United Kingdom and/or such other jurisdiction.

8. Events of Default

If any of the following events occurs and is continuing (each, an "Event of Default"), then the Trustee at its discretion may and, if so requested in writing by holders of at least one quarter of the aggregate principal amount of the outstanding Bonds or if so directed by an Extraordinary Resolution, shall (subject in each case to its being indemnified and/or secured and/or prefunded to its satisfaction) give written notice to the Issuer declaring the Bonds to be immediately due and payable, whereupon they shall become immediately due and payable at their principal amount together with accrued interest without further action or formality:

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(a) Non-payment: the Issuer fails to pay any amount of principal in respect of the Bonds on the due date for payment thereof or fails to pay any amount of interest in respect of the Bonds within three days of the due date for payment thereof; or

(b) Breach of other obligations: the Issuer defaults in the performance or observance of any of its other obligations under or in respect of the Bonds or the Trust Deed and such default (i) is, in the opinion of the Trustee, incapable of remedy or remediation or (ii) being a default which is, in the opinion of the Trustee, capable of remedy or remediation, remains unremedied or unremediated for 30 days or such longer period as the Trustee may agree after the Trustee has given written notice thereof to the Issuer; or

(c) Cross-default of Issuer:

(i) any Indebtedness (as defined below) of the Issuer is not paid when due or (as the case may be) within any originally applicable grace period; or

(ii) any such Indebtedness becomes due and payable prior to its stated maturity otherwise than at the option of the Issuer or (provided no event of default, howsoever described, has occurred) any person entitled to such Indebtedness; or

(iii) the Issuer fails to pay when due any amount payable by it under any guarantee for, or indemnity in respect of, any Indebtedness,

provided that the amount of Indebtedness referred to in sub-paragraph (i) and/or sub-paragraph (ii) above and/or the amount payable under any guarantee or indemnity referred to in sub-paragraph (iii) above individually or in the aggregate exceeds £20,000,000 (or its equivalent in any other currency or currencies); or

(d) Unsatisfied judgment: one or more judgment(s) or order(s) from which no further appeal or judicial review is permissible under applicable law for the payment of an amount in excess of £20,000,000 (or its equivalent in any other currency or currencies), whether individually or in aggregate, is rendered against the Issuer and continue(s) unsatisfied and unstayed for a period of 30 days after the date(s) thereof or, if later, the date therein specified for payment; or

(e) Security enforced: a secured party takes possession, or a receiver, manager or other similar officer is appointed, of the whole or substantially the whole of the undertaking, assets and revenues of the Issuer; or

(f) Insolvency, etc.: (i) the Issuer is (or is deemed to be) insolvent or bankrupt under any applicable insolvency or other similar laws or is unable to pay its debts as they fall due; (ii) the Issuer stops or suspends payment of all or a material part of its debts being an amount not less than £20,000,000 (or its equivalent in any other currency or currencies), or makes a general assignment or composition with or for the benefit of the relevant creditors in respect of such debts or a moratorium is agreed or declared or comes into effect in respect of or affecting all or a material part of the debts of the Issuer being an amount not less than £20,000,000 (or its equivalent in any other currency or currencies), in each case in circumstances of the Issuer's financial distress; and/or (iii) an administrator or liquidator is appointed over the whole or substantially the whole of the undertaking, assets and revenues of the Issuer; or

(g) Winding up, etc.: an order is made or an effective resolution is passed for the winding up, liquidation or dissolution of the Issuer save for a solvent winding-up solely for the purposes of a reconstruction or amalgamation of the Issuer, the terms of which have been previously approved in writing by the Trustee or by an Extraordinary Resolution; or

(h) Failure to take action, etc.: any action, condition or thing (including the obtaining or effecting of any necessary consent, approval, authorisation, exemption, filing, licence, order, recording or registration) at any time required to be taken, fulfilled or done in order (i) to enable the Issuer lawfully to enter into, exercise its rights and perform and comply with its payment obligations under and in respect of the Bonds or the Trust Deed,

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(ii) to ensure that those obligations are legal, valid, binding and enforceable and (iii) to make the Bonds, the Coupons and the Trust Deed admissible in evidence in the courts of the United Kingdom is not taken, fulfilled or done; or

(i) Unlawfulness: it is or will become unlawful for the Issuer to perform or comply with any of its payment obligations under or in respect of the Bonds or the Trust Deed,

provided that, in the case of sub-paragraphs (b), (e), (h) and (i) above, the Trustee shall have certified in writing that the happening of the relevant event or events is in its opinion materially prejudicial to the interests of the Bondholders.

For the purpose of these Conditions, "Indebtedness" means indebtedness for money borrowed or raised, other than indebtedness created by the Bonds.

9. Prescription

Claims for principal shall become void unless the relevant Bonds are presented for payment within ten years of the appropriate Relevant Date. Claims for interest shall become void unless the relevant Coupons are presented for payment within five years of the appropriate Relevant Date. For this purpose, references to Bonds and Coupons shall not include Talons.

10. Replacement of Bonds, Coupons and Talons

If any Bond, Coupon or Talon is lost, stolen, mutilated, defaced or destroyed, it may be replaced at the Specified Office of the Principal Paying Agent and the Paying Agent having its Specified Office in London, subject to all applicable laws and stock exchange requirements, upon payment by the claimant of the expenses incurred in connection with such replacement and on such terms as to evidence, security, indemnity and otherwise as the Issuer may reasonably require. Mutilated or defaced Bonds, Coupons or Talons must be surrendered before replacements will be issued.

11. Trustee and Paying Agents

Under the Trust Deed, the Trustee is entitled to be indemnified and/or secured and/or prefunded and relieved from responsibility in certain circumstances and to be paid its costs and expenses in priority to the claims of the Bondholders. In addition, the Trustee is entitled to enter into business transactions with the Issuer and any entity relating to the Issuer without accounting for any profit.

In the exercise of its powers and discretions under these Conditions and the Trust Deed, the Trustee will have regard to the interests of the Bondholders as a class and will not be responsible for any consequence for individual holders of Bonds or Coupons as a result of such holders being connected in any way with a particular territory or taxing jurisdiction.

In acting under the Paying Agency Agreement and in connection with the Bonds and the Coupons, the Paying Agents act solely as agents of the Issuer and (to the extent provided therein) the Trustee and do not assume any obligations towards or relationship of agency or trust for or with any of the Bondholders or Couponholders.

The initial Paying Agents and their initial Specified Offices are listed below. The Issuer reserves the right (with the prior approval of the Trustee, not to be unreasonably withheld) at any time to vary or terminate the appointment of any Paying Agent and to appoint a successor principal paying agent and additional or successor paying agents; provided, however, that the Issuer shall at all times maintain (a) a principal paying agent, (b) a paying agent in London and (c) a paying agent in an EU Member State that will not be obliged to withhold or deduct tax pursuant to any law implementing European Council Directive 2003/48/EC or any law implementing or complying with, or introduced in order to conform to, this Directive.

Notice of any change in any of the Paying Agents or in their Specified Offices shall promptly be given to the Bondholders in accordance with Condition 15 (Notices).

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12. Meetings of Bondholders; Modification and Waiver; Substitution

(a) Meetings of Bondholders: The Trust Deed contains provisions for convening meetings of Bondholders to consider matters relating to the Bonds, including the modification of any provision of these Conditions or the Trust Deed. Any such modification may be made if sanctioned by an Extraordinary Resolution. Such a meeting may be convened by the Issuer or the Trustee and shall be convened by the Trustee (subject to it being indemnified and/or secured and/or prefunded to its satisfaction) upon the request in writing of Bondholders holding not less than one-quarter of the aggregate principal amount of the outstanding Bonds. The quorum at any meeting convened to vote on an Extraordinary Resolution will be one or more persons holding or representing more than one-third of the aggregate principal amount of the outstanding Bonds or, at any adjourned meeting, one or more persons being or representing Bondholders whatever the principal amount of the Bonds held or represented; provided, however, that certain proposals (including, without limitation, any proposal to delay or extend any date fixed for payment of principal or interest in respect of the Bonds, to reduce the amount of principal or interest payable on any date in respect of the Bonds, to alter the method of calculating the amount of any payment in respect of the Bonds or the date for any such payment, or to change the quorum requirements relating to meetings or the majority required to pass an Extraordinary Resolution (each, a "Reserved Matter")) may only be sanctioned by an Extraordinary Resolution passed at a meeting of Bondholders at which one or more persons holding or representing not less than one-half or, at any adjourned meeting, one-quarter of the aggregate principal amount of the outstanding Bonds form a quorum. Any Extraordinary Resolution duly passed at any such meeting shall be binding on all the Bondholders and Couponholders, whether present or not.

In addition, a resolution in writing signed by or on behalf of the holders of not less than 90 per cent. in nominal amount of all Bonds then outstanding will take effect as it were an Extraordinary Resolution. Such a resolution in writing may be contained in one document or several documents in the same form, each signed by or on behalf of one or more Bondholders.

(b) Modification and waiver: The Trustee may, without the consent of the Bondholders or Couponholders agree to any modification of these Conditions or the Trust Deed or the Paying Agency Agreement (other than in respect of a Reserved Matter) if, in the opinion of the Trustee, such modification will not be materially prejudicial to the interests of Bondholders and to any modification of the Bonds, the Trust Deed or the Paying Agency Agreement which is in the opinion of the Trustee of a formal, minor or technical nature or is to correct a manifest error.

In addition, the Trustee may, without the consent of the Bondholders or Couponholders authorise or waive any proposed breach or breach of the Bonds or the Trust Deed (other than a proposed breach or breach relating to the subject of a Reserved Matter) or determine, without any such consent as aforesaid, that any Event of Default or Potential Event of Default (as defined in the Trust Deed) shall not be treated as such if, in the opinion of the Trustee, the interests of the Bondholders will not be materially prejudiced thereby.

The Trustee may rely absolutely on the advice of any financial adviser appointed by it or the Issuer in connection with the foregoing and shall not be liable for so doing.

Unless the Trustee agrees otherwise, any such authorisation, waiver or modification shall be notified to the Bondholders as soon as practicable thereafter in accordance with Condition 15 (Notices).

(c) Substitution: The Trust Deed contains provisions under which a successor in business of the Issuer or any other party may, without the consent of the Bondholders or Couponholders, assume the obligations of the Issuer as principal debtor under the Trust Deed and the Bonds provided that certain conditions specified in the Trust Deed are fulfilled.

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No Bondholder or Couponholder shall, in connection with any substitution, be entitled to claim any indemnification or payment in respect of any tax consequence thereof for such Bondholder or (as the case may be) Couponholder except to the extent provided for in Condition 7 (Taxation) (or any undertaking given in addition to or substitution for it pursuant to the provisions of the Trust Deed).

13. Enforcement

The Trustee may at any time, at its discretion and without notice, institute such steps, actions or proceedings as it thinks fit to enforce its rights under the Trust Deed in respect of the Bonds, but it shall not be bound to do so unless:

(a) it has been so requested in writing by the holders of at least one quarter of the aggregate principal amount of the outstanding Bonds or has been so directed by an Extraordinary Resolution; and

(b) it has been indemnified and/or secured and/or prefunded to its satisfaction.

No Bondholder may proceed directly against the Issuer unless the Trustee, having become bound to do so, fails to do so within a reasonable time and such failure is continuing.

14. Further Issues

The Issuer may from time to time, without the consent of the Bondholders or Couponholders and in accordance with the Trust Deed, create and issue further Bonds having the same terms and conditions as the Bonds in all respects (or in all respects except for the first payment of interest) so as to form a single series with the Bonds. Any further bonds which are to form a single series with the Bonds shall be constituted by a deed supplemental to the Trust Deed.

15. Notices

Notices to the Bondholders shall be valid if published in a leading English language daily newspaper published in London (which is expected to be the Financial Times) or via a recognised information service under the Financial Services and Markets Act 2000 or equivalent. Any such notice shall be deemed to have been given on the date of first publication. Couponholders shall be deemed for all purposes to have notice of the contents of any notice given to the Bondholders.

16. Governing Law and Jurisdiction

(a) The Bonds, the Coupons and the Trust Deed and any non-contractual obligations arising out of or in connection with the Bonds, the Coupons and the Trust Deed are governed by English law.

(b) The English courts have exclusive jurisdiction to settle any dispute arising out of or in connection with the Bonds, the Coupons or the Trust Deed including any dispute as to their existence, validity, interpretation, performance, breach or termination or the consequences of their nullity and any dispute relating to any non-contractual obligations arising out of or in connection with the Bonds, the Coupons or the Trust Deed (a "Dispute") and each of the Issuer, the Trustee and any Bondholders or Couponholders in relation to any Dispute submits to the exclusive jurisdiction of the English courts.

(c) For the purposes of this Condition, the Issuer waives any objection to the English courts on the grounds that they are an inconvenient or inappropriate forum to settle any Dispute.

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SUMMARY OF PROVISIONS RELATING TO THE BONDS IN GLOBAL FORM

The Bonds will initially be in the form of the Temporary Global Bond which will be deposited on the Issue Date with a common safekeeper for Euroclear and Clearstream, Luxembourg.

The Bonds will be issued in new global note ("NGN") form. On 13 June 2006 the European Central Bank (the "ECB") announced that Bonds in NGN form are in compliance with the "Standards for the use of EU securities settlement systems in ESCB credit operations" of the central banking system for the euro (the "Eurosystem"), provided that certain other criteria are fulfilled. At the same time the ECB also announced that arrangements for Bonds in NGN form will be offered by Euroclear and Clearstream, Luxembourg as of 30 June 2006 and that debt securities in global bearer form issued through Euroclear and Clearstream, Luxembourg after 31 December 2006 will only be eligible as collateral for Eurosystem operations if the NGN form is used.

The Bonds are intended to be held in a manner which would allow Eurosystem eligibility and will therefore be deposited with one of the International Central Securities Depositaries as common safekeeper. Accordingly, the Bonds are intended to be held in a manner which would allow the Bonds to be recognised as eligible collateral for Eurosystem monetary policy and intra-day credit operations by the Eurosystem either upon issue or at any or all times during their life. Such recognition will depend upon satisfaction of the Eurosystem eligibility criteria. Bondholders should note that the European Central Bank has applied a temporary extension of Eurosystem eligibility to Sterling denominated securities, the effective commencement date for this temporary extension being 9 November, 2012. However, should this extension cease at any time during the life of the Bonds, the Bonds will not be in a form which can be recognised as eligible collateral.

The Temporary Global Bond will be exchangeable in whole or in part for interests in the Permanent Global Bond not earlier than 40 days after the Issue Date upon certification as to non U.S. beneficial ownership. No payments will be made under the Temporary Global Bond unless exchange for interests in the Permanent Global Bond is improperly withheld or refused. In addition, interest payments in respect of the Bonds cannot be collected without such certification of non U.S. beneficial ownership.

The Permanent Global Bond will be exchanged in whole, but not in part, for Bonds in definitive form ("Definitive Bonds") in the denomination of £100,000 each and higher integral multiples of £1,000 up to and including £199,000 against presentation and surrender of the Permanent Global Bond to the Principal Paying Agent if Euroclear or Clearstream, Luxembourg is closed for business for a continuous period of 14 days (other than by reason of legal holidays) or announces an intention permanently to cease business (an "Exchange Event").

So long as the Bonds are represented by a Temporary Global Bond or a Permanent Global Bond and the relevant clearing system(s) so permit, the Bonds will be tradeable only in the minimum authorised denomination of £100,000 and higher integral multiples of £1,000, notwithstanding that no Definitive Bonds will be issued with a denomination above £199,000.

Whenever the Permanent Global Bond is to be exchanged for Definitive Bonds, the Issuer shall procure the prompt delivery (free of charge to the bearer) of such Definitive Bonds, duly authenticated and with Coupons and (if applicable) Talons attached, in an aggregate principal amount equal to the principal amount of the Permanent Global Bond to the bearer of the Permanent Global Bond against the surrender of the Permanent Global Bond to or to the order of the Principal Paying Agent within 30 days of the occurrence of the relevant Exchange Event.

In addition, the Temporary Global Bond and the Permanent Global Bond will contain provisions which modify the Terms and Conditions of the Bonds as they apply to the Temporary Global Bond and the Permanent Global Bond. The following is a summary of certain of those provisions:

Payments: All payments in respect of the Permanent Global Bond will be made against presentation and (in the case of payment of principal in full with all interest accrued thereon) surrender of the Permanent Global Bond to or to the order of any Paying Agent and will be effective to satisfy and discharge the corresponding liabilities of the Issuer in respect of the Bonds. On each occasion on which a payment of principal or interest is made in respect of the Permanent Global Bond, the Issuer shall procure that the payment is entered in the records of Euroclear and Clearstream, Luxembourg.

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Payments on business days: In the case of all payments made in respect of the Permanent Global Bond "business day" means a day on which commercial banks and foreign exchange markets settle payments and are open for general business (including dealing in foreign exchange and foreign currency deposits) in London.

Partial exercise of call option: In connection with an exercise of the option contained in Condition 5(c) (Redemption at the option of the Issuer) in relation to some only of the Bonds, the Permanent Global Bond may be redeemed in part in the principal amount specified by the Issuer in accordance with the Conditions and the Bonds to be redeemed will not be selected as provided in the Conditions but in accordance with the rules and procedures of Euroclear and Clearstream, Luxembourg (to be reflected in the records of Euroclear and Clearstream, Luxembourg as either a pool factor or a reduction in principal amount, at their discretion).

Notices: Notwithstanding Condition 15 (Notices), while all the Bonds are represented by the Temporary Global Bond or the Permanent Global Bond (or by the Permanent Global Bond and the Temporary Global Bond) and the Temporary Global Bond or the Permanent Global Bond is (or the Permanent Global Bond and/or the Temporary Global Bond are) deposited with a common safekeeper for Euroclear and Clearstream, Luxembourg, notices to Bondholders may be given by delivery of the relevant notice to Euroclear and Clearstream, Luxembourg and, in any case, such notices shall be deemed to have been given to the Bondholders in accordance with Condition 15 (Notices) on the date of delivery to Euroclear and Clearstream, Luxembourg.

Meetings: The holder of the Permanent Global Bond shall (unless the Permanent Global Bond represents only one Bond) be treated as being two persons for the purposes of any quorum requirements of, or the right to demand a poll at, a meeting of Bondholders and, at any such meeting, as having one vote in respect of each £1,000 in principal amount of Bonds.

Purchase and Cancellation: Cancellation of any Bond required by the Conditions to be cancelled following its purchase will be effected by reduction in the principal amount of the Permanent Global Bond.

Trustee's Powers: In considering the interests of Bondholders while the Permanent Global Bond is held on behalf of a clearing system, the Trustee may have regard to any information provided to it by such clearing system or its operator as to the identity (either individually or by category) of its accountholders with entitlements to the Permanent Global Bond and may consider such interests as if such accountholders were the holder of the Permanent Global Bond.

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USE OF PROCEEDS

The net proceeds of the issue of the Bonds, expected to amount to £244,833,440 after deduction of the total commissions and other expenses incurred in connection with the issue of the Bonds, will be used by the Issuer for general corporate purposes including, but not limited to, the repayment of debt (which may include the repayment of debt to one or more of the Joint Lead Managers and/or their affiliates).

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DESCRIPTION OF THE ISSUER

Introduction

The Issuer's historic roots are in University College, Liverpool, which was founded in 1881 by Queen Victoria. King Edward VII then granted University College, Liverpool, a Charter of Incorporation for The University of Liverpool on 15 July 1903. The Issuer is the original redbrick university, the term "redbrick", coming from the distinctive appearance of the Victoria Building built in 1892.

The Issuer is a founding member of the Russell Group, which is now made up of 24 leading institutions in the UK. The Issuer is ranked in the top 1% of higher education institutions worldwide, as listed in the International Handbook of Universities 2014.

Globally, the Issuer was placed 101-150th in the Academic Ranking of World Universities 2014, compiled by Shanghai Jiao Tong University (9th-17th in the UK). It was placed 123rd in the QS World Rankings 2014/5 (21st in the UK) and 157th in the Times Higher World University Rankings 2014/5 (24th in the UK). The Issuer's research power has been ranked 20th in the UK's Research Excellence Framework 2014, with seven subjects in the top ten. 81% of the University's research is ranked in the highest categories of 4* (world-leading) and 3* (internationally excellent). The Issuer derived £83.6 million from research income in 2013/14.

The Issuer's students pursue courses across a wide range of subjects. In the 2014/15 academic year the Issuer offered more than 500 programmes of which 336 (64.9 per cent.) were available to undergraduates and 182 (35.1 per cent.) were available to postgraduate students. The Issuer organises its academic activities into three Faculties, which comprise a number of Schools/Institutes. The terms ''Faculty'' and ''School/Institute'' for this purpose indicate an academic, financial and administrative grouping of related facilities and departments for teaching and research purposes. The Faculties are: Health and Life Sciences, Science and Engineering and Humanities and Social Sciences.

In May 2006, the Issuer founded the Xi'an Jiaotong Liverpool University as a joint venture with Xi'an Jiaotong University in China. Xi'an Jiaotong Liverpool University is now the largest international collaborative university in China and the only one with dual degree awarding powers, from the Chinese Ministry of Education and from the Issuer. It was voted the most influential Sino-foreign university in China in 2011. The north campus has twelve academic departments, four teaching centres and support and recreation facilities, and it is anticipated that it will be able to accommodate 10,000 students in 2015/16. The south campus is being developed, with the first phase due for completion in 2015/16, which when completed will increase student numbers to 14,000.

The Issuer's objects and strategic vision

The Issuer's objects (''Objects'') are set out in its Royal Charter (''Charter'). The Objects are to advance education, learning and research for the public benefit. The Issuer's mission statement is "The Advancement of Learning and the Ennoblement of Life."

In 2009, the Issuer adopted the Strategic Plan 2009 – 2014 (''Strategic Plan''). The Issuer is currently developing its Strategic Plan to 2026 under the leadership of the new Vice-Chancellor, which is due to be published in February 2016, but it is not envisaged that there will be a significant departure from the five key priorities for the Issuer which were identified in the 2009-2014 strategic plan which were:

Improving research performance:

During the period covered by the Strategic Plan, the Issuer achieved increases in income from Research Grants and Contracts from £70.2 million in 2008/9 to £83.6 million in 2013/14. Research income per full-time equivalent ("FTE") staff FTE increased from £65,000 in 2008/9 to £79,000 in 2013/14 demonstrating the increase in research income that has been achieved as a result of improvements in staff performance.

Positioning the Issuer as a global university:

In line with its strategic aim, the Issuer increased the number of overseas students studying on the main campus from 1,980 in 2008/9 to 6,426 in 2014/15. 30% of students studying on the main campus are now from overseas. In the same period, the number of students on overseas

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placements has almost doubled. In 2008/9, the Issuer's Aggregate Offshore Return showed that 3,590 students were studying for University of Liverpool degrees overseas. In 2014/15, more than 14,000 students are studying for a University of Liverpool degree overseas as a result of the Issuer's pioneering partnerships with Laureate and XJTLU.

Driving knowledge exchange and innovation:

During the period covered by the Strategic Plan, the Issuer has maintained the level of income from Collaborative and Contract Research since 2010/11. To reflect the increased emphasis on knowledge exchange ("KE"), relevant teams have now been restructured under one Research, Partnerships and Innovation department. Bringing these teams together will deliver a more coordinated and focused approach to KE. Strategic Partnerships to support KE are a key focus for the future. An example is the recent £68 million investment in a Materials Innovation Factory, delivered as a result of a long term partnership with Unilever. Going forward, the Issuer is engaging in high level strategic dialogue with the Liverpool City Council and is prioritising a number of new business partnerships.

Enhancing the student experience:

In the period 2008/9-2014/15, the number of students studying on campus increased by 35%. The Issuer increased its number of Postgraduate students from 2,444 in 2008/9 to 3,528 in 2014/15. In the same period, the number of applications to the University of Liverpool increased from 28,261 to 36,500, increasing the Issuer's market share of applications (through UCAS) from 1.18% to 1.27%. Conversion rates also improved across the period from 25.8% to 28.4% resulting in increased numbers of students on campus.

Overall satisfaction with the Issuer, as expressed through the National Student Survey, improved at a rate faster than the Russell Group median 2009-2013. By keeping the enhancement of the student experience as a key element of the Issuer's strategy, the Issuer aims to deliver further improvements in satisfaction rates in the future.

Extending widening participation:

The Issuer's goal is to exceed all HEFCE benchmarks for widening participation, including the benchmark relating to student non-continuation rates. The Issuer will also focus on achieving higher levels of progression to its postgraduate programmes to reflect raised aspirations throughout the academic lifecycle.

The Issuer consistently exceeds HEFCE benchmarks for widening participation and has been ranked top in the Russell Group for its proportion of students from low participation neighbourhoods in 2014 by the Higher Education Statistics Agency ("HESA"). The proportion of students from low participation neighbourhoods is 9.6%, above a benchmark of 8.4%. 23.8% of young new entrants were from Socio Economic Classes 4, 5, 6 and 7 ranking the Issuer equal fourth in the Russell Group for this measure. The proportion of young new entrants from state schools is 87.7% – above a benchmark of 85.3% – a figure that places the Issuer second in the Russell Group.

History and constitution of the Issuer

The Issuer is a chartered corporation which came into existence on 18 October 1881 when Queen Victoria granted a Charter constituting and founding a College by the name of University College, Liverpool. On 15 July 1903, King Edward VII granted a Charter of Incorporation for a University in the name of The University of Liverpool. On 14 August 1903, Royal Assent was given to an Act of Parliament whereby the property and liabilities of University College, Liverpool were transferred to the Issuer.

The Issuer's principal constitutional document is its Charter, which sets out the powers and Objects of the Issuer and provides for the Council of the University ("Council") to be the Governing Body of the Issuer. The Council is the principal governance and policy-making body of the Issuer. Further information on the Council and the governance structure of the Issuer is set out in the section titled "Governance and Regulation of the Issuer".

The Charter gives power to the Council to make statutes (subject to Privy Council approval), ordinances and regulations to carry into effect the Charter, to promote the Objects and to regulate and govern the

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affairs, business, work and interests of the Issuer. The Council has enacted, amended and repealed various statutes ("Statutes"), ordinances ("Ordinances") and regulations ("Regulations") over time for these purposes, and in 2013 undertook a major review of governance and its effectiveness and as a result has enacted amended and repealed various statutes, regulations and ordinances to ensure the Issuer is operating in line with modern standards of good governance. The Issuer is therefore governed by its Charter, the Statutes, Ordinances and Regulations, together with applicable national and EU legislation.

The Charter may be amended and the Statutes may be enacted, amended and repealed from time to time but any such action requires the approval of Her Majesty in Council (being the Queen acting through the Privy Council). Ordinances and Regulations may be enacted, amended or repealed from time to time by the Council (with approval from the Senate as the principal academic authority of the Issuer on academic matters) without needing to seek the approval of Her Majesty in Council.

The Issuer is an exempt charity under Schedule 3 of the Charities Act 2011 and is therefore not required to register with the Charity Commission. HEFCE is responsible for ensuring that the Issuer, as an exempt charity, fulfils its obligations under charity law. The members of the Council are the charity trustees. Further information on the charity status of the Issuer is set out in the section titled "Governance and Regulation of the Issuer".

Student and Staff Numbers

The Issuer has undergraduate and postgraduate students from the UK, EU and overseas (outside the EU). Details of full and part-time student numbers for each of the last five academic years are set out below (expressed as full time equivalents):

Undergraduate Postgraduate

Academic Year Full-time Part-time Full-time Part-time Total

2013/14 ................................................................... 16,355 166 3,053 516 20,090 2012/13 ................................................................... 15,140 183 2,435 522 18,280 2011/12 ................................................................... 14,566 325 2,415 540 17,846 2010/11 ................................................................... 14,057 466 2,357 515 17,395 2009/10 ................................................................... 13,432 557 2,299 631 16,919

For the 2014/15 academic year, as at 1 December 2014 there were 20,090 students registered with the Issuer. Historically, additional students are registered in the course of an academic year.

Details of UK/EU and overseas students for each of the last five academic years are set out below (again expressed as full time equivalents).

Undergraduate Postgraduate

Academic Year UK/EU Overseas UK/EU Overseas Total

2013/14 ............................................................... 12,630 3,891 1,933 1,636 20,090 2012/13 ............................................................... 12,383 2,940 1,573 1,384 18,280 2011/12 ............................................................... 12,618 2,273 1,490 1,465 17,846 2010/11 ............................................................... 12,719 1,804 1,591 1,281 17,395 2009/10 ............................................................... 12,465 1,524 1,806 1,124 16,919

Competition for student places at the Issuer is strong. For undergraduate entry in 2014, 39,662 applications for courses were received which equates to 6 applications for every student enrolled.

Set out below are the numbers of undergraduate applications and undergraduate admissions for the last five academic years:

Academic year of entry

Full-time undergraduate

applications OSI/HEU

Full time undergraduate

admissions

2014/15 ......................................................................................................................... 39,662 6,775 2013/14 ......................................................................................................................... 38,039 5,936 2012/13 ......................................................................................................................... 34,179 5,156 2011/12 ......................................................................................................................... 38,403 5,292 2010/11 ......................................................................................................................... 34,328 5,020

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The fall in applications for the 2012/13 academic year versus the 2011/12 academic year coincided with an overall reduction in applications to universities in England arising from the major changes in the fee regime for undergraduates in England.

For undergraduate entry in the 2015/16 academic year, as at the close of applications through UCAS on the 19 January 2015, the Issuer has received 39,555 undergraduate applications for places of study compared to 32,907 at the same time the previous year, a rise of 20.2%.

The Issuer had an average of 4,714 full time equivalent members of staff in the year ended 31 July 2014 engaged in its activities, including 2,066 academic staff, 753 administrative and management staff, 164 clinical staff, 579 technical staff, 853 clerical staff and 301 other support staff. The Issuer had decided to increase its academic resources and since 1 August 2013 has recruited around 180 academic staff, including leading scholars.

Principal Activities of the Issuer

The principal activities of the Issuer are the advancement of learning and the ennoblement of life. These encompass the following activities:

research and knowledge exchange;

learning and teaching;

social and corporate responsibility stemming from the Issuer's rich heritage as a civic university; and

other activities, including the operation of residences, catering and conferencing facilities, museums, libraries and collections and consultancy.

Sources of Income

The Issuer's income in each of the last four academic years (as reported in the consolidated income and expenditure account in the Issuers financial statements, excluding discontinued activities where they were identified), is shown in the table, and described in more detail below.

2010/11* 2011/12 2012/13 2013/14

Funding Body Grants.................................................................... 121.4 105.4 95.0 86.5 Academic Fees and support grants ............................................... 108.0 121.7 155.7 189.3 Research grants and contracts ...................................................... 110.4 71.8 78.0 83.6 Other operating income ................................................................ 72.4 71.2 74.9 82.2 Endowment and Investment Income ............................................ 4.5 5.9 8.9 13.4 Less Share of Joint venture income .............................................. (9.3) (14.5) (19.6) (19.7)

Total Income ................................................................................. 407.4 361.5 392.9 435.3

_______________ *Includes Liverpool School of Tropical Medicine

Funding Body Grants

The Issuer receives recurrent grant funding from the Government through the Higher Education Funding Council for England ("HEFCE") in the form of block grants for teaching, for research and for other activities. HEFCE was established by the Further and Higher Education Act 1992 and does not form part of any government department, but it is a public body whose annual priorities are set by the Secretary of State for Business, Innovation and Skills. The total amount of public funding HEFCE receives is set by the government each year. The block grant received from HEFCE currently relates to both the Issuer's teaching and research grant and the terms on which it is to be made available to the Issuer are set out in a Memorandum of Assurance and Accountability with HEFCE.

Research

The Issuer receives a block grant from HEFCE to support its research infrastructure and enable its research activities.

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HEFCE calculates the block grant primarily on the basis of research quality, taking into account the volume and relative cost of research in different areas ("QR funding"). HEFCE calculates how much funding to provide for research in different subjects, and then allocates the total for each subject between institutions.

A new system for assessing the quality of research in UK higher education institutions was completed in 2014 to assess research which had taken place in the period 2008 to 2013 (inclusive). Known as the Research Excellence Framework ("REF") it replaced the RAE and included an additional requirement to demonstrate the impact of research by reference to its reach and significance in terms of public benefit beyond academia in addition to research quality. The Issuer's performance in the REF relative to the rest of the sector affects its recurrent HEFCE QR funding for the period after 2015.

The calculation of QR funding takes into account the quality of research as measured in the 2014 REF, the volume of research using research active staff numbers and relative costs reflecting the fact that laboratory based research is more expensive than library based research. Funding is also allocated for other research related costs such as supervision of postgraduate research students and funds to support research that universities carry out with charities and with business and industry.

The Issuer was allocated £28.2 million of QR funding, representing 1.8 percent of the overall UK grant award in the 2015/16 academic year. 81% of the Issuers research activity was judged to be world leading (4*) or internationally excellent (3*) in the 2014 REF.

Applying data from the REF, the Issuer was placed twentieth in the UK in terms of the volume of research at 4*/3* quality level (calculated using the percentage of activity assessed as 4*/3* multiplied by the number of FTE research staff). On quality alone (measured by grade point average) the Issuer is ranked 33rd if specialist institutions are disregarded and is ranked 41st overall in the UK. Research at the Issuer is undertaken across all the disciplines embraced by its three Faculties.

Teaching

University teaching is supported by a combination of the HEFCE block grant and student fees.

The amount of the teaching block grant is calculated by HEFCE according to the number of UK and EU undergraduate and postgraduate taught students enrolled on the Issuer's courses and the nature of the courses. HEFCE takes into account the fact that certain courses, such as laboratory subjects, cost more than classroom-based ones. There are also special allocations to assist Government priorities such as protecting strategically important subjects, widening participation and commercial collaborations.

Prior to the 2012/13 academic year, higher education institutions received a significant proportion of their funding for undergraduate teaching as part of the HEFCE block grant. The Issuer received £57.7 million for teaching within its total ''block grant'' for the 2011/12 academic year. From the 2012/13 academic year, a significant proportion of funding for teaching will be distributed by the Student Loans Company Limited (as higher tuition fees paid direct to institutions for newly admitted students underwritten by loans made to those students) and the HEFCE block grant has subsequently reduced. The Issuer received £43.4 million for teaching within its total "block grant" for the 2013/14 academic year.

The funding that the Issuer receives for teaching students from the UK and other Member States is now linked directly to the number of students who choose to study on a course provided by the Issuer. The Issuer's income is therefore more dependent than previously upon students deciding to enter higher education. In recognition that some courses cost more to provide than the maximum fee of £9,000, HEFCE will continue to provide the Issuer with an element of teaching block grant to assist with the direct funding of some of those courses, although this position may change in the future due to political influence.

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Tuition Fees and Education Contracts

Students are charged tuition fees for courses undertaken at the Issuer. The tuition fees are regulated for full-time UK and EU undergraduate students and, since the 2012/13 academic year, are a maximum of £9,000 per annum.

Tuition fees for non-UK/EU students are not regulated and are variable according to cost of provision and issues such as market demand and availability of loans or other funding based upon standard (minimum) fees set by the Issuer. Standard fees for non-UK/EU undergraduate students in 2015/16 have been set by the Issuer at £13,400 per annum for an Arts programme, £16,800 for a Science programme and £29,950 per annum for Clinical programmes.

Research Grants and Contracts

The Issuer is regarded as one of the leading research universities in the UK. There are 9 Nobel prize winners among the Issuer's former staff and students.

The Issuer receives income in the form of grants for specific research projects and programmes, income from UK Research Councils, charities, central government departments and hospital and health authorities. It also generates income from collaborations with the private sector and from overseas sources.

A breakdown of research grants and contracts income by source is set out below:

2010/11* 2011/12 2012/13 2013/14

Research Councils ........................................................................ 29.6 25.2 30.4 33.4 Charities ........................................................................................ 21.5 13.4 13.1 13.2 Industries and commerce .............................................................. 8.4 9.6 7.9 8.7 Governmental ............................................................................... 34.0 21.2 23.2 23.9 Other ............................................................................................. 16.9 2.4 3.4 4.4

Total .............................................................................................. 110.4 71.8 78.0 83.6

_______________ *Includes Liverpool School of Tropical Medicine

Typically the Issuer will receive research awards up to one year in advance of the research activity commencing. The awards are recognised as research income in the Issuer's financial statements only once the research activity has commenced and usually over the duration of a number of years. Some awards are partially or wholly capital in nature (for example to fund specialist research facilities). These will not be included in research income but instead treated as deferred capital grants.

The Issuer has experienced an increase in the value of awards secured in the last two financial years with awards exceeding £100 million in each of the financial years to July 2013 and July 2104 being achieved across a range of research activities.

Other Income

Benefactions and Donations

The Issuer receives benefactions and donations from a variety of different sources. These sources include trusts and foundations, corporations and individuals (from alumni of the Issuer and non-alumni). In 2013/14, the Issuer accounted for unrestricted donations of £9.8 million.

Residences and catering

Income generated by the Issuer from residences and catering is set out below:

Amount in £ millions

2010/11 2011/12 2012/13 2013/14

Income from residences and catering ........................ 13.5 14.1 15.1 17.0

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Endowment and Investment Income

The Issuer held £3.4 million of fixed asset investments as at 31 July 2014, made up primarily of investments in properties worth £2.9 million.

The Issuer held £141.7 million of endowment assets as at 31 July 2014. The endowment assets are invested in investment portfolios with two investment managers, Seneca (£81.1 million) and Olim (£60.6 million). Endowments date from 1881 to the present day and range in value from approximately £80 to over £8 million.

The Issuer's Planning & Resources Committee has responsibility for overseeing investment and compliance with the Treasury Management Policy and the Investment Policy for Endowed Funds and monitors performance of the investment portfolio through quarterly reports from the fund managers, Seneca and Olim.

The investment portfolio with Olim comprises their share of the Issuer's endowment assets and the Issuer's short term investment fund (£14.0 million as at 31 July 2014).

The Issuer's Estate

The Issuer's estate is diverse and extensive with the Issuer having freehold and leasehold interests in a wide variety of property, including academic buildings, student residences and other associated properties.

The Issuer is located on four primary sites, three of which are situated in and around Liverpool and 33 Finsbury Square in London. The main campus is at the heart of Liverpool on 32 hectares and reflects both fine Georgian architecture and later 1960's development that typifies significant expansion in the higher education sector at that time. The other smaller site is at Leahurst on the Wirral which is 12 miles from the main campus; Greenbank and Carnatic student accommodation villages are located 3 miles away and the outdoor sports facilities are located at Wyncote approximately 3 miles away. The Issuer also has a presence on a number of NHS sites and owns Ness Botanic Gardens on the Wirral.

The total reinstatement cost assessment, as at 2012/2013, of all space occupied by the Issuer (including lease space) is £1.166 billion (exact amount £1,166,311,740). The insured value of the buildings is £1.166 billion.

Investment Programme

In the 2013/2014 academic year, the Issuer continued its investment programme required to achieve the key ambitions contained in the Strategic Plan. This involved almost £114.1 million invested in buildings and equipment during the year, including the refurbishment of teaching and research facilities, continued investment in student residences and the refurbishment of the Liverpool Guild of Students.

Current programmes underway include the development of the Materials Innovation Factory (MIF) via an important partnership with Unilever; an extension of the successful management school to support student growth and APEX 11, the second of two developments supporting the development of incubator facilities, contributing to the economic development of the City of Liverpool. In addition, the final development of the Issuer's residential strategy is Greenbank Student Village which will include an innovative theatre complex which is designed to support the Issuer's institutional growth in student numbers and enhance the student experience.

Libraries, Museums and Collections

The Issuer holds and maintains heritage assets, such as historic buildings and collections of art, rare books and other valuable artefacts of historical, scientific and artistic importance.

The Issuer's Victoria Gallery and Museum houses the Issuer's fine art and museum collections, including its Fine and Decorative Art Collection, which was valued by Sotheby's for insurance purposes at £56.4 million in 2013 (£34 million of which relating to two pictures in the collection, painted by Lucien Freud and Turner, valued at £14 million and £20 million respectively).

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The Garstang Museum and Archives collection contains rare archaeological objects and artefacts currently insured for a value of £10 million.

The Special Collections and Archives division of the Library holds collections of rare books and archives currently valued for insurance purposes at £43.8 million.

The Issuer's total collection of art treasures, rare books and manuscripts is insured at £111,886,643.

The Issuer conserves these assets as a resource for researchers, students and members of the public.

Commercialisation of Intellectual Property

Over the last 10 years, the Issuer has spun out and been a member of 27 successful new companies operating across a broad range of fields from engineering and information technology to biotechnology and education. The Issuer's spin out portfolio has secured tens of millions of pounds of investment and has served to enhance the Issuer's reputation as a results led innovator.

Since 2007, the Issuer has directly received £2 million in revenues arising from its shareholdings and license portfolio. In 2011, the Issuer re-focused its attention on encouraging new commercialisation and supporting an entrepreneurial culture amongst its researchers and students.

The Issuer is forecasting a rise in license income over the next 4 years as the portfolio of 235 patents mature and technologies reach market. The Issuer currently has 36 active license arrangements which last year resulted in £164,000 of revenue. Last year, a single spin out secured £3.6 million of third party investment despite the current economic challenges.

In addition to the operational support and patenting services, the Issuer operates a Commercial Board which backs and brokers investment deals up to a value of £500,000 with contingency for additional funding for strategic projects and enjoys a comprehensive network of support from angel investors, venture capitalist and entrepreneurs both regionally and nationally. The Issuer is also working to develop links into China and India with one of the Issuer's most recent staff start-up securing £200,000 of Chinese government funding to support a new chemical business.

Widening Participation

Widening participation is a core goal of the Issuer and a key component of its Strategic Plan 2009 – 2014, which includes developing the next generation, adult degree access programmes and lifelong learning. The Issuer exceeds its benchmarks for the recruitment of students from both low participation neighbourhoods and the state school and colleges sector and in 2013-14 was third in the Russell Group (first in the English Russell Group) for achievement in this area.

The Issuer offers, amongst other initiatives:

a Scholars Programme which supports more than 100 talented year 12 students each year who wish to access Higher Education regardless of background, by offering them the chance to take part in a range of activities aimed at preparing them for university life. The Issuer is also a partner in the Realising Opportunities programme which is a collaboration of 15 leading, research intensive universities working together to provide fair access and social mobility for students from groups under-represented in higher education;

a number of other outreach and support programmes for young people, in primary school through to secondary school and post 16, including a number of targeted interventions relating to under-represented groups, such as looked-after children;

a Go Higher Access Programme for adults aged over twenty who have the potential to study at degree level but lack formal qualifications;

Continuing Education courses, co-ordinated by the Centre for Lifelong Learning. 3132 adults studied on Continuing Education courses in 2013/14; and

apprenticeship schemes. To date 105 apprentices have been employed by the Issuer.

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The Issuer acknowledges that it has an important responsibility for enriching the cultural lives and scientific understanding of its local community. The Victoria Gallery and Museum delivers a wide range of exhibition, outreach and education programmes which are targeted at school children, adults and families. In the 2013-14 academic years, 58,655 individuals visited the facility. Additionally, 3990 people participated in education events, including 24 family events, 35 adult events and 33 school events. These levels of programming are on-going.

The Issuer's Solvency

There have been no recent events particular to the Issuer that are relevant, to a material extent, to the evaluation of the Issuer's solvency.

The Issuer's Subsidiaries

The Issuer is part of a group as it has various subsidiary undertakings (together with the Issuer, the "Group") and interests in other entities both in the UK and overseas. The Issuer is not dependent on any other entity within the Group.

The Issuer has eight active wholly owned subsidiary undertakings. All of these subsidiaries are very small relative to the Issuer. The aggregate income and net assets of all subsidiaries (excluding inter-group trading and net assets) is less than 1% of the Issuers consolidated income and net assets. The Issuer's main trading subsidiary is the Liverpool University Press (2004) Limited.

The Issuer has owned 50% of Xi'an Jiaotong-Liverpool University ("XJTLU") since 2004, which is registered in the People's Republic of China. The Issuer accounted for its 50% of the XJTLU balance sheet as at 31 July 2014 in its financial statements as follows:

University of Liverpool 50% share (£m)

Year to 31 July 2014

Assets ................................................................................................................................................................................ 79.9 Liabilities .......................................................................................................................................................................... (83.4) Total Assets less liabilities ............................................................................................................................................... (3.5) Reserves ............................................................................................................................................................................ (4.8) University of Liverpool investment ................................................................................................................................. 1.3

Total reserves and capital ................................................................................................................................................. (3.5)

The Issuer does not receive any income from XJTLU nor does it contribute towards the operating costs of XJTLU. Students studying at XJTLU are able to undertake the final two years of their four year undergraduate degree at the Issuer and pay tuition fees direct to the Issuer for this period of study. There are approximately 2,800 students from XJTLU undertaking study at the Issuer.

The Issuer's Contact Details

The contact address for the Issuer is The University of Liverpool, Foundation Building, Brownlow Hill, Liverpool L69 7ZXand its telephone number is +44 (0)151 794 2000.

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GOVERNANCE AND REGULATION OF THE ISSUER

Introduction

An explanation of certain key governance aspects of the Issuer, together with a summary of each of the constituent bodies and offices referred to in the summary, is set out below.

The Issuer is a university established by a Royal Charter and as such is a body corporate with all the powers of a natural person to do all lawful acts subject only to compliance with internal regulations.

Under the Charter, the governing body of the Issuer is the Council of the University ("Council").

The Council exercises all the powers and authority of the Issuer, subject to the laws of the Issuer and save to the extent that such exercise is reserved to the Senate (in respect of academic issues) by the Charter, Statutes, Ordinances or Regulations of the Issuer.

The Vice-Chancellor is the principal academic and administrative officer of the Issuer and is responsible to the Council for the effective and efficient management of the Issuer, for the conduct of its business generally and for the achievement of its institutional objectives.

The Senate is the principal academic authority of the Issuer and, subject to control by the Council as prescribed by the Statutes, oversees the teaching and research of the Issuer.

Liverpool Guild of Students is the students' union representing the interests of the students.

As part of its arrangements for effective governance, management and financial control, the Council has appointed and constituted a number of governance committees. The key committees of the Council are:

a Planning and Resources Committee;

an Audit Committee;

a Remuneration Committee; and

a Nominations Committee.

In addition to the above there is the Senior Executive Group which is not a formal committee of the Council but acts as operational management group.

The Council

The Council is the Issuer's governing body. It meets formally four times in each academic year and in addition holds two away days. The Council has 21 members, with not less than one fifth being members of staff. There is presently a vacancy for a Lay Member. The Council normally consists of the following members:

Seven ex offico members - the Pro-Chancellor appointed by the Council, the Vice Chancellor, two of the Deputy Vice Chancellors or Pro Vice Chancellors, the President of the Guild of Students and two other Lay Officers appointed by the Council.

Ten Lay Members - (including the President and Vice President of the Council) appointed by the Council in accordance with the Ordinances, lay members being persons who are not employed by the Issuer.

Four members of the Senate - three appointed by the Council on recommendation from the Nominations Committee and one elected from and by the Senate's elected membership.

The quorum for meetings of the Council is at least ten members of whom a majority must be Lay Members.

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The Council carries the ultimate responsibility for the Issuer's overall strategic direction and for the management of its revenue, property and the conduct of its affairs generally, including the employment arrangements for staff. It is responsible for the Issuer's system of internal control and for reviewing its effectiveness. It is a specific role of the Council to govern, manage and regulate the finances, accounts, investments, property, business and all the affairs of the Issuer so as to ensure solvency and sustainability.

The Council has the power to make proposals to add to, amend or alter the Charter and to make or amend the Statutes, subject to the provisions of the Charter, with the consent of the Privy Council. The Council (with approval from the Senate on academic matters) has the power to enact, amend and repeal Ordinances and Regulations for the Issuer.

The Senate

Subject to the oversight of the Council, the Senate is the principal academic authority of the Issuer and is responsible to the Council for the promotion of research, regulating learning and teaching and for maintaining the quality and standards of the Issuer's academic provision. It is the primary decision making body of the Issuer on purely academic matters. The Senate has 77 members and is chaired by the Vice-Chancellor. Of its membership, 46 are designated ex-officio and/or reserved for those with academic management responsibilities centrally and in the Faculties, and 24 are elected or nominated academic members. The remaining members are student representatives.

The Guild of Students

The Guild of Students is the student union of the Issuer and, subject to the constitution, functions, privileges and all other matters relating to the Guild as prescribed in the Statutes and Ordnances, represents the interests of the students. The constitution of the Guild is reviewed by the Council every five years and any changes are approved by the Council.

The Planning and Resources Committee

The Planning and Resources Committee is the key financial committee of the Issuer and has delegated authority from the Council to, among other things, recommend to Council the Issuer's annual revenue and capital budgets. It monitors performance in relation to approved budgets.

Audit Committee

The Audit Committee is responsible for advising the Council and Vice Chancellor on the effectiveness of the Issuer's management and control systems. It also has a key function in considering and assuming responsibility for ensuring that appropriate risk management systems are in place. It meets with external auditors to discuss their audit findings, and with the internal auditors to consider detailed internal audit reports and recommendations for the improvement of the Issuer's systems of internal control. It also receives and considers reports from HEFCE and other external agencies as they affect the Issuer's business and monitors adherence with the regulatory requirements. The Audit Committee reviews the Issuer's annual financial statements together with the accounting policies. It advises the Council on the appointment and remuneration of the internal and external auditors. The Committee is chaired by the Pro-Chancellor, or another member of the Council. The Audit Committee meets four times a year and holds individual meetings with the internal and external auditors at least once each term without any of the Issuer's officers being present.

The Remuneration Committee

The Remuneration Committee undertakes and determines the review of all professional and senior administrative staff salaries, and the approval of any proposal for voluntary severance or early retirement of the most senior staff.

The Nominations Committee

The Nominations Committee seeks and considers nominations for potential lay members of the Council, Lay Officers, Council appointed Senate representatives on Council and Council appointed members of committees of the Issuer, and makes recommendation to the Council on these appointments.

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The Chancellor

The Chancellor is appointed as the ceremonial head of the Issuer, presiding over congregations of the Issuer for the conferment of degrees. The Chancellor has no executive authority and is not a member of the Council. The position of Chancellor is currently vacant and recruitment is being carried out.

The Vice Chancellor

The Vice Chancellor is the principal academic and administrative officer of the Issuer. In fulfilling these functions, the Vice Chancellor has overall responsibility for the executive management of the Issuer and for its day-to-day direction, being accountable to the Council for the exercise of these responsibilities. The Vice Chancellor is the designated Accountable Officer under the terms of the Memorandum of Assurance and Accountability between HEFCE and the Issuer. As the chief executive officer of the Issuer, the Vice Chancellor exercises primary influence on the development of institutional policy and strategy, the identification and planning of new developments and in shaping its institutional ethos. The current Vice Chancellor is Professor Janet Beer.

Deputy Vice Chancellor (incorporating the role of Chief Operating Officer)

The Deputy Vice Chancellor is appointed by the Council and, in addition to supporting the Vice Chancellor on strategic and operational matters, is also the head of professional services for the Issuer, responsible to the Vice Chancellor for the provision of the administrative and support services required for the efficient conduct of business of the Issuer. The current Deputy Vice Chancellor is Mr. Patrick Hackett.

Clerk to Council

The Clerk to Council is appointed by Council and is responsible to Council for the provision of operational and legal advice in compliance with the Issuer's governing instruments. The Clerk is responsible for ensuring that the information provided to Council is timely, appropriate and enables an informed discussion so that it may effectively discharge its responsibilities. The current Clerk to Council is Mr. Alastair Flett.

Key Officers of the Issuer

The Vice Chancellor is supported in her role by a Deputy Vice Chancellor, three Policy Pro Vice Chancellors, three Executive Pro Vice Chancellors and a Pro Vice Chancellor for Xi'an Jiaotong Liverpool University. The Vice Chancellor is also supported by other individuals with specific policy responsibilities, including a Director of Finance and Director of Human Resources. The current incumbents of these roles are:

Professor Janet Beer, Vice-Chancellor;

Patrick Hackett, Deputy Vice-Chancellor;

Professor Stephen Holloway, Pro Vice Chancellor for Partnerships, Civic Engagement and Enterprise;

Professor Gavin Brown, Pro Vice Chancellor for Education;

Professor Dinah Birch, Pro Vice Chancellor for Research and Knowledge Exchange;

Professor Robert Burgoyne, Acting Executive Pro Vice Chancellor (Faculty of Health and Life Sciences);

Professor Kenneth Badcock, Executive Pro Vice Chancellor (Faculty of Science and Engineering);

Professor Fiona Beveridge, Executive Pro Vice Chancellor (Faculty of Humanities and Social Sciences);

Professor Youmin Xi, Pro Vice Chancellor Xi'an Jiaotong Liverpool University;

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Robert Eastwood, Director of Finance; and

Carol Costello, Director of Human Resources.

Membership of the Council

The following individuals are the current members of the Council:

Name Date of

Appointment Principal Activities outside the Issuer

Ex Officio Members (7)

Pro Chancellor

David McDonnell

2003 University of Liverpool Press Ltd Universities Superannuation Scheme Ltd Hill Dickinson LLP Arena and Convention Centre Liverpool Ltd Vice Lord-Lieutenant of Merseyside

Vice Chancellor

Professor Janet Beer

2015 Member of Board of Trustees, British Council Chair of Board, Equality Challenge Unit (ECU) Member of Advisory Board, Higher Education Policy Institute Chair of Steering Group, Higher Education Public Information, HEFCE Member of Board, National Centre for Universities and Businesses (NCUB) Director of the Board, The Russell Group of Universities Member of Board, UCAS Vice-President, England and NI and Member of Board, Universities UK (UUK)

Two Deputy Vice Chancellors or Pro Vice Chancellors

Patrick Hackett 2013 Director, University of Liverpool Energy Company Ltd Director, University of Liverpool Construction Company Ltd Director, University of Liverpool Pension Fund (ULPF) Director, Liverpool International College Director, University of Liverpool Construction Company (Special Projects) Ltd Director, University of Liverpool Malaysia SDN BHD Director, University of Liverpool in Singapore (ULIS) PTE Ltd Director, Xi'an Jiaotong-Liverpool University

Professor Stephen Holloway 2008 Chair, Cockcroft Institute Board Joint Chair, University Enterprise Zone Joint Venture Project Control Group

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Name Date of

Appointment Principal Activities outside the Issuer

The President of the Guild of Students

Harry Anderson 2014 -

Two other Lay Officers Appointed by the Council

Jon Haymer 2009 Finance Director, Bibby Line Group Ltd Bibby Bros & Co (Management) Ltd Bibby Distribution Ltd Bibby Factor France SA Bibby Finance 1 Ltd Bibby Finance 2 Ltd Bibby Financial Services Ltd Bibby Holdings Ltd Bibby Line Group Ltd Bibby Line Ltd Bibby Marine Ltd Bibby Retail Services Ltd Bibby Supply Chain Services Ltd Bibby Taurus Ltd Bibby Travel Limited Fredk. Ray Ltd Garic Ltd

Andrew Scott 2011 Director, University of Liverpool Construction Company (Special Projects) Ltd Associate Member, Institution of Chemical Engineers

Lay Members, including President and Vice President of the Council (9)*

The Earl of Derby, President 2011 Sole Trader, Stanley Estate and Stud Co Chair, Knowsley Ltd Chair, Fleming Family & Partners Trustee Co Ltd Trustee, Aintree Racecourse Charitable Appeal Trust Hon. Proprietorship, Athenaeum in Liverpool Trustee, Cameron House Foundation Reg No. 1114983 Ex Officio Governor, Cotton Districts Convalescent Fund President, Grenadier Guards Assoc. Liverpool Branch Trustee representative, Grenadier Guards Regimental Council Director, Haydock Park Racecource Co. Limited Chairman, Knowsley Chamber of Industry & Commerce Director, Knowsley Limited President, Liverpool Agricultural

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Name Date of

Appointment Principal Activities outside the Issuer

Discussion Society President Liverpool Centenary Fund, Liverpool Cathedral President, Liverpool Chamber of Commerce President, Merseyside Civic Society Deputy Lieutenant, Merseyside Lieutenancy Ex-officio Trustee, Ormskirk School Trust President, Royal Botanical & Horticultural Society of Manchester and the Northern Counties President, Royal Liverpool Philharmonic Society Chairman of Trustees, Royal Liverpool Philharmonic Society Diamond Jubilee Foundation Endowment Fund President, Sefton Chamber of Commerce & Industry Lord Derby also holds a number of other patronages, Presidencies or Vice-Presidencies which have not been listed.

Vice President Vacancy

Christopher Baker 2008 Chair, Viapath LLP Chair, Nisa Retail Limited Chair, JV (2006) Pension Trustees Ltd Chair, Trustees of Jacques Vert Pension Fund Independent Member, Audit Committee of Department for Education

Professor Helen Carty 2012 Member, Foundation Trust of Liverpool Cathedral Member, Foundation Trust of European Society of Radiology – Vienna Member, Advisory Committee to the Mayor of Liverpool on Sustainability Patron, Sefton Council for Voluntary Service Deputy Lieutenant of Merseyside, 2004 to date

Dr. Paul Johnson 2012 Trustee Director, Babraham Institute

Sir Colin Lucas 2008 Strategic Advisory Council, Heidelberg University Board, EIT Foundation, Rotterdam President's Council, University of the People

Dame Lorna Muirhead 2011 -

Dr Roger Platt 2012 Trustee, Institute of Food Research Member, Advisory Board of the Food and Environmental Research Agency

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Name Date of

Appointment Principal Activities outside the Issuer

Abila Pointing 2011 Training Consultancy - Abitraining and Conference Planning High Sheriff for the County of Merseyside 2014-2015 October 2014 - present: engaged as a Consultant by Salford University Consultancy to deliver equality and diversity training to Abu Dhabi Police (in Abu Dhabi) who run the Juvenile Welfare Centre

Patricia Young 2011 -

Members of the Senate (4)

Professor Fiona Beveridge 2012 Director, University of Liverpool in Singapore Director, University of Liverpool Press (Non-Executive) Trustee, LFC Foundation

Professor Susan Dawson 2013 Director, SAVSNET Ltd Director, BSAVA Director and Treasurer, Veterinary Schools Council

Professor Ronan McGrath 2013 Board of Directors, Knowledge Centre for Materials Chemistry Trustee, Liverpool District Missionary Trustee Company (Inc) Associate Governor, Aigburth High School

Dr Fabienne Marret-Davies 2014 -

The number of lay members specified in the Charter and Statutes was decreased to nine following a governance review in 2013. However, the current number of lay member positions is ten, as it was decided not to accelerate the reduction in lay members to the detriment of the skill set of the Council.

The business address for each of the members of the Council is University of Liverpool, The Foundation Building, Liverpool, L69 72X.

The Issuer maintains an up-to-date register of any potential conflicts of interest between the duties to the Issuer of the persons listed above and their private interests and/or duties. The Issuer has a Statement of Policy and Procedure on Disclosure of Interest, which is a standing agenda item at all meetings of the Council and which states that Council members are required to declare any personal interest in the business to be discussed by the Council or any committee and the relevant member must, if necessary and as required, withdraw from the consideration of such business. On this basis, the Issuer is not aware of any potential conflicts of interest between the duties to the Issuer of the members of the Council listed above and their private interests and/ or other duties.

Regulation

HEFCE is responsible for ensuring that the Issuer acts in accordance with its governance obligations, that it manages itself and the funding it receives appropriately and that it complies with the requirements imposed on it by virtue of its exempt charitable status.

The Issuer must comply with certain requirements which are specified in HEFCE's Memorandum of Assurance and Accountability between HEFCE and Institutions and HEFCE's Audit Code of Practice. The Issuer is required to submit audited financial statements to HEFCE each year. The Issuer's

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Accountable Officer, the President of the Council, or both, may be required to appear before the Public Accounts Committee on matters relating to grants to the Issuer.

The Issuer must provide HEFCE with certain information about the way it operates and its financial position, in order to demonstrate the effectiveness of its management systems and ability to make appropriate use of the funding it receives. The Issuer must provide HEFCE with certain information (and HEFCE's annual accounts direction states HEFCE's financial reporting requirements) such as copies of the annual audited financial statements, financial forecasts and independent audit reports, the Audit Committee's annual report, the internal auditors' annual report, the external auditors' report on accounting issues and control deficiencies following external audit, the management response and any other information HEFCE may reasonably require to understand the Issuer's risk status. The Issuer must also provide annual accountability returns to HEFCE and HEFCE, through reviewing these returns, is able to provide the Issuer with a confidential risk assessment. The Issuer is also under an obligation to provide HEFCE with any other information it might reasonably require to enable it to act as principal charity regulator. If there is any material adverse change in the Issuer's circumstances, the Accountable Officer is under a duty to inform HEFCE of that change, as well as the Chair of the audit committee, the Chair of Council and the internal and external auditors. The Accountable Officer must also inform HEFCE about major changes in strategy, as well as plans for major restructuring or merger.

In addition, the Issuer is required to submit returns to other higher education bodies – notably annual data requested by the Higher Education Statistics Agency, an Annual Access Agreement to the Office for Fair Access (and associated monitoring returns) and returns to the Quality Assurance Agency, UK Research Councils and the NHS. The Issuer is currently undertaking a benchmarking exercise to ensure compliance with the new Committee of University Chairs' (CUC) Higher Education Code of Governance published December 2014, to be completed by 13 May 2015.

The Issuer must obtain prior written consent from HEFCE before it agrees to any new financial commitment meeting either of the following criteria:

where the total financial commitments (long term and short term) exceed five times its average earnings before interest tax depreciation and amortisation; and/or

where it is assessed by HEFCE at being at higher risk.

On these criteria, the issue of the Bonds does require specific HEFCE consent which was granted on 2 April 2015.

The Issuer is an exempt charity to which HEFCE was appointed as principal regulator on 1 June 2010. Consequently, in relation to its charitable activities, the Issuer benefits from the status of a charity but it is not necessary for it to register with the Charity Commission. As principal regulator, HEFCE is responsible for ensuring that the Issuer, as an exempt charity, fulfils its obligations under charity law. HEFCE's objective as principal regulator is to promote compliance by the trustees of the Issuer (the trustees being members of the Council) with their legal charitable obligations in respect of the management of the Issuer, so far as reasonably possible. In doing so it is required to monitor the Issuer regularly, and potentially to liaise with the Charity Commission if the issues involved are more complex and may result in the use of its power.

A Memorandum of Understanding exists between HEFCE and the Charity Commission. This sets out how HEFCE, as principal regulator of higher education institutions which are exempt charities, works in conjunction with the Charity Commission and, in particular, how the two bodies formulate regulatory policy frameworks and co-ordinate their approach to regulation. The members of the Council are charitable trustees and, as such, must exercise their duties as trustees prudently and in accordance with the Issuer's Charter, Statutes, Ordinances and Regulations. The Charity Commission has the power to take proceedings against the members of the Council if it believes that they have acted imprudently. The actions that the Council takes should always be in the public interest.

The Charities Act 2006 (now incorporated in the Charities Act 2011) extended most of the Charity Commission's powers in relation to exempt charities (including the Issuer). However, before exercising any of its powers in respect of the Issuer, the Charity Commission must first consult with HEFCE. HEFCE is also able to invite the Charity Commission to use its powers in relation to investigation and

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intervention. Legal decisions taken by the Charity Commission are subject to review of the Charity Tribunal.

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TAXATION

The following is a summary of certain aspects of United Kingdom taxation at the date hereof in relation to payments of principal and interest in respect of the Bonds. It is based on the Issuer's understanding of current law and the published practice of Her Majesty's Revenue and Customs ("HMRC"), which may be subject to change, sometimes with retrospective effect. The comments do not deal with other United Kingdom tax aspects of acquiring, holding or disposing of Bonds. The comments relate only to the position of persons who are absolute beneficial owners of the Bonds. They assume that there will be no substitution of the Issuer pursuant to Condition 12(c) (Substitution) of the Bonds or any related documentation. The following is a general guide for information purposes and should be treated with appropriate caution. It is not intended as tax advice and it does not purport to describe all of the tax considerations that may be relevant to a prospective purchaser. Bondholders who are in any doubt as to their tax position should consult their professional advisers. Bondholders who may be liable to taxation in jurisdictions other than the United Kingdom in respect of their acquisition, holding or disposal of the Bonds are particularly advised to consult their professional advisers as to whether they are so liable (and if so under the laws of which jurisdictions), since the following comments relate only to certain United Kingdom taxation aspects of payments in respect of the Bonds. In particular, Bondholders should be aware that they may be liable to taxation under the laws of other jurisdictions in relation to payments in respect of the Bonds even if such payments may be made without withholding or deduction for or on account of taxation under the laws of the United Kingdom.

UK Taxation

UK Withholding Tax on UK Source Interest

Bonds listed on a recognised stock exchange

Under section 987 of the Income Tax Act 2007 ("ITA") securities issued by a company which carry a right to interest, such as the Bonds, will constitute "quoted Eurobonds" provided they are and continue to be listed on a recognised stock exchange within the meaning of section 1005 of the ITA. Whilst the Bonds are and continue to be quoted Eurobonds, payments of interest on the Bonds may be made without withholding or deduction for or on account of United Kingdom income tax. The Issuer is of the view that it is a "company" for the purposes of section 987 of the ITA.

Securities will be "listed on a recognised stock exchange" for this purpose if they are admitted to trading on an exchange designated as a recognised stock exchange by an order made by the Commissioners for HMRC and either they are included in the United Kingdom Official List (within the meaning of and in accordance with the provisions of Part 6 of the Financial Services and Markets Act 2000) or they are officially listed, in accordance with provisions corresponding to those generally applicable in European Economic Area states, in a country outside the United Kingdom in which there is a recognised stock exchange.

The London Stock Exchange is a recognised stock exchange, and accordingly the Bonds issued by the Issuer will constitute quoted Eurobonds provided they are and continue to be included in the United Kingdom Official List and admitted to trading on the London Stock Exchange.

All Bonds

In all cases falling outside the "quoted Eurobond" exemption described above, interest on the Bonds that has a United Kingdom source may fall to be paid under deduction of United Kingdom income tax at the basic rate (currently 20 per cent.) subject to such relief as may be available following a direction from HMRC pursuant to the provisions of any applicable double taxation treaty, or to any other exemption which may apply).

Provision of Information

HMRC has powers to obtain information and documents, including in relation to interest or payments treated as interest and payments derived from securities. This may include details of the beneficial owners of the Bonds (or the persons for whom the Bonds are held), details of the persons to whom payments derived from the Bonds are or may be paid and information and documents in connection with transactions relating to the Bonds. Information obtained by HMRC may be provided to tax authorities in other countries.

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The references to "interest" above mean "interest" as understood in United Kingdom tax law. The statements above do not take any account of any different definitions of "interest" or "principal" which may prevail under any other law or which may be created by the terms and conditions of the Bonds or any related documentation.

EU Savings Directive

Under EC Council Directive 2003/48/EC on the taxation of savings income (the ''Savings Directive''), Member States are required to provide to the tax authorities of another Member State details of payments of interest or similar income paid by a person within its jurisdiction to, or collected by such person for, an individual resident in that other Member State or to certain limited types of entity established in that other Member State. However, for a transitional period, Austria may instead apply (unless during that period it elects otherwise) a withholding system in relation to such payments, deducting tax at rates rising over time to 35 per cent. The transitional period is to terminate at the end of the first full fiscal year following agreement by certain non-EU countries to the exchange of information relating to such payments.

A number of non-EU countries and territories including Switzerland have adopted similar measures (a withholding system in the case of Switzerland).

The Council of the European Union formally adopted a Council Directive amending the Savings Directive on 24 March 2014 (the "Amending Directive"). The Amending Directive broadens the scope of the requirements described above. Member States are required to apply these new requirements from 1 January 2017. The changes made under the Amending Directive include extending the scope of the Savings Directive to payments made to, or secured for, certain other entities and legal arrangements. They also broaden the definition of "interest payment" to cover additional types of income payable on securities.

However, the European Commission has proposed the repeal of the Savings Directive from 1 January 2017 in the case of Austria and from 1 January 2016 in the case of all other Member States (subject to on-going requirements to fulfil administrative obligations such as the reporting and exchange of information relating to, and accounting for withholding taxes on, payments made before those dates). This is to prevent overlap between the Savings Directive and a new automatic exchange of information regime to be implemented under Council Directive 2011/16/EU on Administrative Cooperation in the field of Taxation (as amended by Council Directive 2014/107/EU). The proposal also provides that, if it proceeds, Member States will not be required to apply the new requirements of the Amending Directive.

Investors who are in any doubt as to their position should consult their professional advisers.

Non-UK Taxation

The proposed financial transactions tax ("FTT")

On 14 February 2013, the European Commission published a proposal (the "Commission's proposal") for a Directive for a common FTT in Belgium, Germany, Estonia, Greece, Spain, France, Italy, Austria, Portugal, Slovenia and Slovakia (the "participating Member States").

The Commission's proposal has very broad scope and could, if introduced, apply to certain dealings in the Bonds (including secondary' market transactions) in certain circumstances.

Under the Commission's proposal, the FTT could apply in certain circumstances to persons both within and outside of the participating Member States. Generally, it would apply to certain dealings in the Bonds where at least one party is a financial institution, and at least one party is established in a participating Member State. A financial institution may be, or be deemed to be, "established" in a participating Member State in a broad range of circumstances, including (a) by transacting with a person established in a participating Member State or (b) where the financial instrument which is subject to the dealings is issued in a participating Member State.

Joint statements issued by participating Member States indicate an intention to implement the FTT by 1 January 2016. However, the FTT proposal remains subject to negotiation between the participating Member States and the scope of any such tax is uncertain. Additional EU Member States may decide to participate.

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Prospective holders of the Bonds are advised to seek their own professional advice in relation to the FTT.

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SUBSCRIPTION AND SALE

Barclays Bank PLC, HSBC Bank plc and Lloyds Bank plc (the "Joint Lead Managers") have, in a subscription agreement dated 23 June 2015 (the "Subscription Agreement") and made between the Issuer and the Joint Lead Managers upon the terms and subject to the conditions contained therein, jointly and severally agreed to subscribe for the Bonds at their issue price of 98.337 per cent. of their principal amount plus any accrued interest in respect thereof and less total commissions and certain expenses incurred by the Joint Lead Managers in connection with the management of the issue of the Bonds. The Issuer has also agreed to indemnify the Joint Lead Managers against certain liabilities in connection with the issue of the Bonds. The Joint Lead Managers are entitled in certain circumstances to be released and discharged from their obligations under the Subscription Agreement prior to the closing of the issue of the Bonds.

Certain of the Joint Lead Managers and their affiliates have engaged, and may in the future engage, in investment banking and/or commercial banking transactions with, and may perform services to the Issuer and/or its affiliates in the ordinary course of business.

General

Each Joint Lead Manager has represented, warranted and agreed that it has complied and will comply with all applicable laws and regulations in each country or jurisdiction in which it purchases, offers, sells or delivers Bonds or possesses, distributes or publishes this Prospectus or any other offering material relating to the Bonds. Persons into whose hands this Prospectus comes are required by the Issuer and the Joint Lead Managers to comply with all applicable laws and regulations in each country or jurisdiction in which they purchase, offer, sell or deliver Bonds or possess, distribute or publish this Prospectus or any other offering material relating to the Bonds, in all cases at their own expense.

United Kingdom

Each Joint Lead Manager has further represented, warranted and undertaken that:

(a) it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the FSMA) received by it in connection with the issue or sale of the Bonds in circumstances in which Section 21(1) of the FSMA does not apply to the Issuer; and

(b) it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the Bonds in, from or otherwise involving the United Kingdom.

United States of America

The Bonds have not been and will not be registered under the Securities Act and are subject to U.S. tax law requirements. Subject to certain exceptions, Bonds may not be offered, sold or delivered within the United States or to, or for the account or benefit of, U.S. Persons. Terms used in this paragraph have the meanings given to them by Regulation S under the Securities Act. Each Joint Lead Manager has agreed that, except as permitted by the Subscription Agreement, it will not offer, sell or deliver the Bonds within the United States or to, or for the account or benefit of, U.S. Persons. In addition, until 40 days after commencement of the offering, an offer or sale of Bonds within the United States by a dealer whether or not participating in the offering may violate the registration requirements of the Securities Act.

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GENERAL INFORMATION

Authorisation

1. The creation and issue of the Bonds has been authorised by a resolution of the Council of the Issuer dated 10 February 2015 and by a resolution of the Planning and Resources Committee of the Issuer dated 22 January 2015.

Listing and Admission to Trading

2. Application has been made to the FCA for the Bonds to be admitted to the Official List of the FCA, and to the London Stock Exchange for such Bonds to be admitted to trading on the Regulated Market of the London Stock Exchange. It is expected that such admission will become effective, and that dealings in the Bonds on the London Stock Exchange will commence, on or about 26 June 2015.

The Issuer estimates that the total expenses related to the admission to trading will be approximately £8,200.

Governmental, Legal and Arbitration Proceedings

3. There are no, and have not been any, governmental, legal or arbitration proceedings, (including any such proceedings which are pending or threatened, of which the Issuer is aware), which may have, or have had during the 12 months prior to the date of this Prospectus, a significant effect on the financial position or profitability of the Issuer.

Significant Change/Material Adverse Change

4. Since 31 July 2014 there has been no material adverse change in the prospects of the Issuer nor any significant change in the financial or trading position of the Issuer and its consolidated subsidiaries (taken as a whole).

Auditors

5. The consolidated financial statements of the Issuer for the two years ended 31 July 2013 and 31 July 2014 have been audited without qualification by KPMG LLP, 1 St. Peter's Square, Manchester M2 3AE. KPMG LLP is a member of the Institute of Chartered Accountants in England and Wales.

Documents on Display

6. Copies of the following documents may be inspected during normal business hours at the offices of the Issuer for 12 months from the date of this Prospectus:

(a) the Charter and Statutes of the Issuer;

(b) the Paying Agency Agreement and the Trust Deed; and

(c) the audited consolidated financial statements of the Issuer for the years ended 31 July 2013 and 31 July 2014.

Yield

7. On the basis of the issue price of the Bonds of 98.337 per cent. of their principal amount, the gross yield of the Bonds is a semi-annual yield of 3.452 per cent. per annum.

Legend Concerning U.S. Persons

8. The Bonds and any Coupons and Talons appertaining thereto will bear a legend to the following effect: "Any United States person who holds this obligation will be subject to limitations under the United States income tax laws, including the limitations provided in Sections 165(j) and 1287(a) of the Internal Revenue Code".

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ISIN and Common Code

9. The Bonds have been accepted for clearance through Euroclear and Clearstream, Luxembourg. The ISIN is XS1246881673 and the Common Code is 124688167.

The address of Euroclear is 1 Boulevard du Roi Albert 11, B-1210 Brussels, Belgium and the address of Clearstream, Luxembourg is 42 Avenue JF Kennedy, L-1855 Luxembourg, Luxembourg.

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FINANCIAL STATEMENTS AND AUDITORS' REPORTS

Contents

Auditors' report and consolidated financial statements of the Issuer as at and for the year ended 31 July 2013 ................................................................................................................................... F-1

Auditors' report and consolidated financial statements of the Issuer as at and for the year ended 31 July 2014 ................................................................................................................................... F-54

1

ZA\` 0

Financial Statements 2013-14

Chancellor Professor Sir David King, BSc, PhD, ScD, FRS, FRSC, FInstP (until December 2013)

Pro-Chancellor Professor James Keaton, MBE, BSc, LLD, FSDC, FRSA

Vice-Chancellor Professor Sir Howard Newby, CBE, BA, PhD, AcSS

President of Council David McDonnell, CBE, DL, FCA, FRSA

Vice-President of Council The Earl of Derby, DL

Lay Officers Jon Haymer, MA, FCA

Dr Andrew Scott, MA, DPhil

Deputy Vice-Chancellor Patrick Hackett, BArch

Provosts Professor Ian Greer, MD, FRCP (Glas), FRCPE, FRCP, FRCPI, FFSRH, FAE, FCCP, FRCOG, FMedSci

Professor Stephen Holloway, BSc, PhD, FInstP, FAPS

Executive Pro-Vice-Chancellors Professor Kenneth Badcock, BSc, DPhil, FRAeSoc

Professor Fiona Beveridge, LLB, MPhil (from 1 January 2014)

Pro-Vice-Chancellors Professor Dinah Birch, BA, MA, DPhil, FEA (until 31 December 2013)

Professor Andrew Derrington, BA, PhD (until 31 December 2013) Professor Kelvin Everest, BA, PhD, FEA

Director of Finance Robert Eastwood, BA, FCA

Professional Advisers

Independent Auditors KPMG LLP Bankers Barclays Bank plc Lawyers Pinsent Masons LLP

2

Financial Statements

Contents The Council of the University ...........................................................................................................................................3 Review of the Year ...........................................................................................................................................................5 Corporate Governance Statement ................................................................................................................................. 15 Responsibilities of the Council of the University ............................................................................................................ 15 Auditor’s Report ............................................................................................................................................................ 17 Consolidated Income and Expenditure Account ............................................................................................................. 21 Consolidated and University Balance Sheets.................................................................................................................. 20 Consolidated Cash Flow Statement ................................................................................................................................ 21 Statement of Consolidated Total Recognised Gains and Losses ..................................................................................... 22 Notes to the Accounts.................................................................................................................................................... 23

3

The Council of the University The key committees of the Council are:-

1. Planning & Resources Committee 2. Nominations Committee 3. Remuneration Committee 4. Audit Committee Names

Membership of key committees

Ex Officio Members Pro-Chancellor Professor James Keaton, MBE, BSc, LLD, FSDC, FRSA

1, 3

Vice-Chancellor Professor Sir Howard Newby, CBE, BA, PhD, AcSS

1,2,3

Two of the Deputy Vice-Chancellors or Pro-Vice-Chancellors Mr Patrick Hackett, BArch Professor Stephen Holloway, BSc, PhD, FInstP, FAPS

1 1

President of the Guild of Students Mr Harry Anderson, BA (from 1 August 2014) Mr Sam Butler, BA (until 31 July 2014)

2 2

Lay Officers Mr Jon Haymer, MA, FCA Dr Andrew Scott, MA, DPhil

1,2,3 2

Lay Members appointed by the Council Mr Christopher Baker, MBE, BA, MA Professor Helen Carty, DL, MB BCh BAO (NUI), MRCPI, FRCR London, FRCPI, FRCP (Lon), FRCPCH, FFRRCSI The Earl of Derby, DL (Vice-President of Council) Dr Paul Johnson, BSc, PhD Mr Ian Jones, ACIB (until 31 December 2013) Sir Colin Lucas, MA, DPhil, FRHistS David McDonnell, CBE, DL, FCA, FRSA (President of Council) Dame Lorna Muirhead, DBE, CStJ, SRN, SCM, MTD, FRCM, FRCOG, FJMU, Hon LLD Dr Roger Platt, BSc, PhD, MA, PhD Mrs Abila Pointing, MBE, DL, MA Mrs Patricia Young, BA

2,4

1

4

1,2,3

4 4 (from 1 January 2014)

3

Members of the Senate (three appointed by the Council and one elected from and by Senate’s elected membership)

Professor Fiona Beveridge, LLB, MPhil Professor Susan Dawson, BVMS, PhD, MRCVS Dr Stuart Marshall-Clarke, PhD, MIBiol (until 31 July 2014) Professor Ronan McGrath, BA, PhD, FInstP

2

Clerk to Council Mr Alastair Flett, BA, MA

4

Review of the Year The University delivered a strong financial performance during the year to 31 July 2014. Further cuts in Higher Education Funding Council for England (HEFCE) funding were absorbed. These cuts were offset by a rise in tuition fees, following the increase in tuition fees for Home and EU undergraduates to £9,000, and the continuing growth in student numbers. By continuing to generate a surplus and a strong cash flow from operating activities the University remains in a position to respond positively to continuing reductions in HEFCE funding. The University continued its investment programme, required to achieve the key ambitions contained within the Strategic Plan. This involved almost £114.1m invested in buildings and equipment during the year, including refurbishment of teaching and research facilities, continued investment in student residences, and the refurbishment of the Liverpool Guild of Students facilities. The largest income growth came from increases in academic fees and support grants. This reflects the overall student numbers increasing by 1,032 during the year, a rise of 5.3% on the previous year. This is after the continuing impact of the £9,000 tuition fee for Home and EU undergraduates resulting in a fall in their student population by 207 students. The fall in Home and EU undergraduates was more than offset by the rise of overseas undergraduate students, including those from the joint venture in China Xi’an Jiaotong-Liverpool University (XJTLU), of nearly 1,000 students. The continued pressure on funding from HEFCE was evidenced in the total funding grants on continuing operations reducing further from £95m to £86.5m. Staff costs in continuing operations reduced from 55% of total income in the year to 31 July 2013 to 53.1% in the year to 31 July 2014 demonstrating the ability of the University to manage its cost base in order to meet the challenges it faces over the coming years. The scale of the many challenges facing the University of Liverpool, in common with other universities, remains. The University continues to aim to achieve the objectives contained in its Strategic Plan by investing in staff and buildings to achieve success over the long term in a sustainable manner. The University’s Strategic Plan The University has confirmed its commitment to its Strategic Plan. This defines how the University aims to be successful within the challenging and changing higher education environment. Delivery of the Plan will ensure that the University will be Liverpool-centric and globally connected, with the experience of the Liverpool graduate being distinctive. The University is an internationally focused institution whose activities are rooted in world-leading research excellence and reflect the dynamics of the knowledge economy. The focus remains on existing and emerging strengths, aspiring to achieve growth in quality and scale across five key priorities:-

• Improving our research performance • Positioning ourselves as a global university • Driving knowledge exchange and innovation • Enhancing the student experience • Extending widening participation

Within each of these priorities are key ambitions or outcomes, and performance towards these ambitions is regularly monitored. Key Events during the Year a) Research The Research Strategy of the University focuses on continuing to develop areas of excellence and identifying key research themes which will enable the University to optimise opportunities for interdisciplinary research and respond to global challenges. Income generated from research grants and contracts, on the continuing operations, increased by 7.2% in the year to 31 July 2014. During the year the value of research grants and contracts awarded to the University of Liverpool exceeded £100m for the second consecutive year. In addition the awards per staff full time equivalent increased by over 13%. In an increasingly competitive funding environment this evidences the success of the University in improving performance in this area. The increasingly global nature of research activity is reflected in the diverse nature of bodies funding research conducted by the University. In addition to the UK research councils grants, in excess of £1m have been awarded by the EU, UK government departments, international commercial organisations, charities and the US government departments. These grants included further funding into the University’s strength in particle physics, zoonoses in livestock in Kenya, understanding language and communicative development, development of the Liverpool GeneMill, a micro bio refinery project, big data centre, stable interfaces for rechargeable batteries and a nutrient and carbon pump over mid-ocean ridges.

5

Review of the Year Within Humanities and Social Sciences, research grants awarded to the University included topics such as youth justice and its long term impacts, trade roads in ancient deserts, the global impact of London punishment between 1780 and 1925, and empowering the young generation towards a new social contract in south and east Mediterranean countries. b) Teaching The University continues to deliver learning and teaching across a wide range of disciplines, meeting its HEFCE student number obligations. The following table shows the growth in student populations over the last three years:

Full time and part time students 2013/14 2012/13 2011/12

Home & EU undergraduates 12,794 13,001 13,406 Home & EU postgraduates 2,100 1,925 1,966 Overseas undergraduates 4,066 3,068 2,321 Overseas postgraduates 1,645 1,579 1,611 Total 20,605 19,573 19,304

One of the key priorities included in the Strategic Plan is extending widening participation activities. The following table demonstrates the University’s success in this area for the last three years for which data is available:-

Widening Participation Indicators University of Liverpool Benchmark Russell Group

2012/13 2011/12 2010/11 2012/13 2012/13 % % % % % Percentage of young full time adults from state schools or colleges

87.3 87.6 85.6 84.3 73.2

Percentage of young full time adults from NS-SEC classes 4,5,6&7

24.4 22.0 23.5 27.2 19.7

Entrants from low participation neighbourhoods

9.6 8.5 8.7 8.0 6.5

c) Global Positioning During the year the University continued to build on its global activities. The University’s joint venture in China, XJTLU continues and is supported by the National Science Foundation in China. XJTLU continues to build its research infrastructure and to develop its links with multi-national companies on the Suzhou Industrial Park. Demand for the University’s online programmes, delivered in partnership with Laureate Online Education, has also increased and the e-learning unit continues to support and improve the University’s capability for e-learning, both for programmes based on campus and the online programmes. An Internationalisation Strategy has been developed to achieve this key priority. This concentrates on:

• Being a global institution • Creating graduates for the 21st Century • Improving research excellence and knowledge exchange • Improving our reputation as a global University • Reflecting internationalisation at Liverpool

d) Developing the Estate The quality of the University estate is fundamental to the experience of both staff and students. Investment in the University campus continues in line with the capital expenditure programme identified in the Strategic Plan. During 2013/14 over £96m was invested to deliver improved infrastructure and facilities to ensure that research, learning, teaching space, student facilities, accommodation and catering facilities are fit for purpose and enhance the student experience.

6

Review of the Year e) Driving Knowledge Exchange and Innovation The University continues to actively support, promote and facilitate its knowledge exchange agenda to enable high quality research through collaborative programmes and commercial activities, supported by the Partnerships and Innovation department. This department drives the University’s stakeholder engagement and establishment of strategic partnerships. It promotes the University’s civic mission through institutional leadership in the region and city, influences public policy development and engages citizens in cultural and educational pursuits. The department identifies regional, national and international opportunities through collaborative research, contract research, and consultancy which advance the University’s knowledge capital into diverse markets. Public Benefit Statement 2014 The University of Liverpool is an exempt charity and is required to demonstrate the public benefit of its work. The University’s Council is aware of its duties in relation to the Charity Commission’s guidance in this area. One of the UK’s leading research institutions, the University is ranked in the top 1% of higher education institutions worldwide and is a member of the prestigious Russell Group, comprising the leading research universities in the UK. The University also has a strong identity as the original ‘redbrick’ university with a long and proud tradition of civic engagement in the city of Liverpool and its surrounding region. The University’s Strategic Plan 2009-14 refers to a culture of support and collaboration that ‘will benefit the communities in which we operate, both at home and overseas’. Civic engagement cuts across our core business and is undertaken by academic and professional services staff as well as students. Staff and students contribute as corporate representatives, experts, volunteers and citizens. The University’s public engagement can be seen in activities such as:

• Corporate representation on bodies steering the implementation phase • Acting as an honest broker and thought leader (for example facilitating discussions between disparate

organisations) • Targeting business support services such as Knowledge Transfer Partnerships with North Liverpool businesses • Widening Participation activities • Volunteering and work placement opportunities for students • Working with partners to improve the graduate offer (for example housing) to enhance retention • Research and evaluation of programmes

Activities are also in line with each of the five University priorities. Illustrations of these are:

Global University

• Incubation networks with global / local relevance • Capacity building and capital investment in Malawi / Southern Africa • Overseas research collaborations and relevance to City Region knowledge economy

Research Performance

• Research institutes with international expertise and local resonance (Liverpool Institute of Health Inequalities Research, Institute of Cultural Capital)

• Community-based / community-led research Knowledge Exchange

• Public policy activities

Student Experience

• Cross HE / FE collaborative volunteering programmes • Student-led consultancy and research

Widening Participation

• Strategic University engagement with Academies

7

Review of the Year Widening Participation / Developing Skills The University has developed a four-stage framework for its Widening Participation activities. The stages are:

Pre-16 Outreach – focus on awareness-raising / progression to higher education as both an option and a choice (ages 9-16)

Post-16 Outreach Aspiration-raising – activities linked directly to choice and attainment (ages 16-17)

Fair Admissions - Scholars, Realising Opportunities and Go Higher schemes, which are directly linked to supported admissions (16+ years and adults returning to education)

Retention and Success - Activities to support students in achieving their potential

This framework has been developed over a number of years, working in partnership with other Merseyside HEIs and with a wide range of schools and colleges both regionally and nationally. Furthermore, prior to the 2012 introduction of increased tuition fees the effectiveness of the overall approach within the Merseyside region was evidenced by increased levels of enrolments of students from Low Participation Neighbourhoods. The University exceeds its benchmarks for both the recruitment of students from Low Participation Neighbourhoods and the State Schools and Colleges sector and is third in the English Russell Group for achievements in this area. The University’s outreach activities target the following under-represented groups:

• Those from National Socio-Economic Classifications 4-7 (lower socio-economic groups)

• Those living in low participation neighbourhoods

• Disabled learners

• Certain black and minority ethnic (BME) populations

• Young people who have been in local authority care

• Adults returners to education

The University provides a range of aspiration raising activities to over 8,000 young people each year, recognising that some of these might lead to increased participation in HE but not progression to the University of Liverpool. The focus of activity is on pupils who are ‘most able but least likely to attend HE’, and a progression curriculum has been developed and delivered over a number of years to schools and colleges primarily within the Merseyside region, although access to summer schools has been available to schools from across England. The University has developed a partnership of Merseyside secondary schools and colleges whose performance at GCSE is below the national and local average and which have a high percentage of pupils living in one of the 13,000 most deprived lower super output areas (LSOA) in England, as identified by the Index of Multiple Deprivation. The University works on an intensive basis with these schools and with their feeder primary schools, to raise aspirations and support attainment. The University co-sponsors three Academy Schools – the North Liverpool Academy, the Enterprise South Liverpool Academy, and University Academy, Birkenhead. It also co-sponsors a Trust school, Parklands High School, Speke, and two University Technical Colleges, the Liverpool Life Sciences UTC and the Birkenhead Engineering UTC. The four-stage framework encompasses work with feeder primary schools, whole year interventions for Years 7 and 8, and increasingly targeted and more in-depth interventions from Year 9 onwards, including support for young people in care which has resulted in the award of the Frank Buttle Trust Quality Mark. The University continues to target specific under-represented groups through project-based activity and has a three year programme specifically targeted at the brightest but most disaffected young people. The institution also offers summer schools and residentials with an emphasis on science, technology, engineering and maths (STEM) subjects. At post-16, the University’s approach is to target individual

8

Review of the Year learners, with an increasing focus on supporting schools and colleges to encourage learners to consider progression to a research intensive HEI, in particular, supporting applicants to the University of Liverpool. The Scholars programme targets individual learners in year 12 who are studying a two year level 3 qualification in Merseyside schools, and who have 8 grade A* - C grades at GCSE including English and Maths, no family history of HE, and are in receipt of a 16-19 bursary from their current school or college. Scholars are provided with an academic mentor, a range of academic activities including academic skills workshops and lectures, and produce an academic assignment. If successful, they are offered a guaranteed conditional offer at the University and a reduction in the UCAS points needed for entry. The University is also a member of the Realising Opportunities Group of research-intensive universities. The members of this Group recognise programmes such as Scholars when making decisions about applications, thus providing the young people taking part in such schemes access to a wider group of research-intensive universities. Care leavers, Scholars, and those students recruited from corresponding programmes at the universities in the Realising Opportunities Group will be eligible for an enhanced support package. The University has developed access routes to science, engineering, medicine, dentistry, veterinary medicine and health sciences in partnership with Carmel College, St Helens and Birkenhead Sixth Form College. These Year 0 programmes offer guaranteed progression, on successful completion of the year at a specified standard, to the University’s highly selective medicine, dentistry and veterinary science programmes, to its nursing and health sciences programmes, and to a range of science and engineering programmes. The University has extended the recruitment criteria for the programmes which are routes to clinical programmes from vocational learners, to under-represented groups more widely. In addition to the access routes to STEM subjects, a one year, part-time on-campus access course for adults, Go Higher, is available. This prepares students for entry to first year programmes in the humanities and social sciences. The institution works closely with hundreds of businesses in the North West to promote knowledge transfer into the regional economy and introduce new skills and processes. A Masters in Public Administration and Management has been introduced which enables staff in key public agencies to come together to explore cross-sector perspectives and work together to address fundamental changes taking place in public and voluntary services. The University is also committed to providing lifelong learning for local people through its Continuing Education programme with professional updating and re-skilling opportunities. Cultural Activities The University’s Victoria Gallery and Museum (VG&M) houses the University’s fine art and museum collections. Free to the public, its special exhibitions programme, showcasing both local and international artists, is extremely popular and the VG&M welcomes more than 50,000 visitors each year. Housed in the University’s original redbrick Victoria Building, designed by Alfred Waterhouse, the museum celebrated its fifth anniversary this year. Recent exhibitions included ‘A World a Particle’ which highlights Liverpool’s role in the Higgs Boson discovery and its history with particular accelerator science. The University’s Confucius Institute aims to deliver improved understanding of Chinese culture and increased language development opportunities. The Institute is a collaborative project between the University, Xi’an Jiaotong University and Hanban, the Chinese Government agency for the promotion of Chinese language and culture.

The Institute aims to provide a focal point for all China-related activity in Merseyside, working closely with schools and colleges, local businesses, community groups and individuals to promote Chinese language and culture. Running Mandarin classes throughout the year, it also has a cultural programme focusing on calligraphy, Chinese ink painting, tai chi and dance, and a monthly lecture series that delves into the shared history of China and the UK.

The University also runs a number of thought-provoking lecture series for the public throughout the year on a wide variety of subject areas. The events are well-attended and are webcast to enable greater accessibility.

The University’s Security and Conflict lecture series invited speakers to anticipate what 2020 holds in relation to the issues of global security and conflict and their impact on terrorism. Speakers included Harald Jäger, the Stasi officer who was instrumental in the fall of the Berlin Wall; Sir Bernard Hogan-Howe QPM, Commissioner of the Metropolitan Police and former Chief Constable of Merseyside; Maajid Nawaz, co-founder and Executive Director of Quilliam, the world’s first

9

Review of the Year

counter-extremism think tank; Colonel Tim Collins, the military commander best known for his speech on the eve of the Iraq war; General The Lord Dannatt, British Army Chief of General Staff from 2006-2009; and Rageh Omaar, the Somali-born British writer and world affairs correspondent.

The University’s Science and Society lecture series explores the beneficial relationship between science and society. Speakers have included Professor David Bish from Indiana University and Professor Malcolm Jackson from the University of Liverpool on coping with an ageing society.

Novelist, Tim Parks, gave the University’s Lucrezia Zaina bequest lecture which promotes the exploration and enjoyment of Italian culture. The audience gathered to listen to an inspirational lecture on Italy’s history. Public Policy Engagement The University plays a major role as a neutral space for discussion of issues of relevance to the Liverpool City Region. The University’s Policy Provocations debates take on big policy challenges shaping our future and asks how we can tackle them in new ways. Led by the University of Liverpool and City Region partners, the series brings together perspectives from leading international, UK and local thinkers to provide a platform for passionate public debate. Topics covered this year included: ‘My doctor makes me sick’; ‘Capital punishment’; ‘Wish EU weren’t here’; and ‘Big Data or Big Brother’. These events, staged at a variety of venues around the city, draw audiences from local decision-makers; employees from the public, private and third sectors; general public and representatives from targeted communities; as well as staff, students and alumni. The University has established a new public policy institute to ask how we can secure a prosperous, healthy, sustainable and vibrant future whilst managing the impacts of global economic, environmental, social and cultural challenges upon them. The Institute is named in honour of Lord Heseltine in recognition of his commitment to giving cities greater powers to shape their own futures, and his role in revitalising Liverpool. The Heseltine Institute for Public Policy and Practice seeks to deliver research and learning opportunities that have a direct impact on the way public policy responses to these challenges are understood, formulated, delivered and evaluated. It will provide a gateway for local, national and international audiences to access the University’s public policy expertise and engage with staff leading solutions-focused projects. Knowledge Transfer The University is committed to making its ground-breaking research and frontier technologies available to its business partners for the benefit of the regional and national economies. A key example of the University’s work is the £20.47 million incubator for small and medium sized enterprises (SMEs) working in the area of personalised medicines.

The Liverpool Bio Innovation Hub (LBIH) includes laboratory and office space and allows commercial access to the latest biobank technologies and equipment in the study of areas such as genomics, proteomics and metabolomics.

Part funded by the European Regional Development Fund (ERDF), it will encompass more than 6,000 square metres of space in the Crown Street area of the city, situated next to the University’s Institute of Infection and Global Health. It is due to open in the summer of 2015.

The University also uses Knowledge Transfer Partnerships to help organisations of all sizes to improve their competitiveness. Health and Wellbeing The University believes strongly in Corporate Social Responsibility and continues to play a valuable role in the treatment and prevention of disease in Malawi alongside the Queen Elizabeth Central Hospital, and is sharing its expertise in this area

10

Review of the Year with the Clinton Global Initiative – a project established by former US President Bill Clinton to devise and implement innovative solutions to some of the world’s most pressing challenges. The University is also committed to improving the wellbeing of Liverpool’s local population and has established a £2million Institute for Research into Health Inequalities, dedicated to the study of health and wellbeing issues. The institute is funded by the NHS and aims to provide leadership and excellence in public health research with a particular focus on health inequalities in the Liverpool city region.

Researchers at the University in partnership with the Liverpool Clinical Commissioning Group (CCG) have been awarded £9 million, as part of a £124 million programme to help tackle some of the nation’s most pressing health problems.

Universities, NHS organisations, and local authorities along the North West coast have come together and invested a further £12.5m, to support research that improves services for patients.

The investment is supported by the National Institute for Health Research (NIHR) and will help ensure patients benefit from innovative new treatments and techniques which could revolutionise future health care.

As part of the project, scientists at the University’s Institute of Psychology, Health and Society, in collaboration with Lancaster University and the University of Central Lancashire, will address issues of health inequalities through improvements in public health and chronic disease interventions. The Liverpool team will investigate how to improve mental health care and new ways of working with NHS organisations in delivering health programmes. The University is committed to providing students, staff and members of our local communities with excellent sports and fitness provision along with a broad range of activities. The University has established community partnerships with a number of organisations that make use of its sports facilities including Liverpool Penguin Swimming Club, Liverpool Football Club Foundation Football College, Everton Ladies Football Club, L8 Community Group, the Liverpool Clinical Commissioning Group and Bridge Chapel Football Club. Student Engagement Volunteering enriches the learning experience of the University’s students. The University works in collaboration with the Liverpool Guild of Students to offer volunteering opportunities in legal support; health and wellbeing; environment and conservation; working with young people; and arts and culture. One example is the Liverpool Law Clinic, a community-focused law in action programme, run by staff and undergraduate students from the University’s Law School. The clinic offers the public free, first-rate legal advice on a wide range of issues including employment rights, consumer rights, divorce and immigration law. Liverpool’s ‘Students In Free Enterprise’ (SIFE) group, based in its Management School, runs educational outreach projects to impact the community and transform people’s lives. Throughout their entrepreneurial journey students acquire an invaluable set of skills such as leadership, project management, communication, presentation and team-working skills. They use their knowledge learned in classes and get to apply them to real world challenges. Knowledge Economy External organisations benefit from the University’s world class expertise through a range of mechanisms including: contract and collaborative research, consultancy, training and continuing professional development, knowledge transfer partnerships, student projects and placements, volunteering and access to world class equipment and facilities. With the knowledge economy sector likely to remain a key source of employment growth, the University is helping local economies move away from a reliance on the public sector and towards private sector growth. It is helping to reduce regional disparities and align knowledge exchange activities with the economic priorities of the region. To prepare students for the job market, the Careers and Employability Service has also introduced a programme of ‘Graduate Boot camps’. Aimed at new leavers, the boot camps provide opportunities for networking with employers while developing a range of high-demand employability skills. The University has also invested £2 million in a unique internship programme to give students access to local, regional and national employers.

11

Review of the Year Financial Performance Financial performance during the year to 31st July 2014 continues to be strong. The consolidated surplus after depreciation and before tax was £19.9m, 4.6% of total income. In addition to this there was profit of £7.0m on the sale of fixed assets. Net cash inflow from operating activities during the year was £22.0m. The continued investment programme of the University invested £114.1m in capital expenditure, resulting in short term investments and cash held by the group of £68.8m as at 31st July 2014. Total income from continuing activities increased to £435.3m, a rise of 10.8% on the previous year. All elements of income increased apart from the anticipated reduction in Funding Council Grants reflecting a strong response from the University to the continued challenges facing higher education institutions. Staff costs increased to £231.1m, a rise of 6.9%, though this represented a reduction expressed as a percentage of total income of 53.1% in the year to 31st July 2014 compared to 55.0% in the previous year. Similarly while other operating expenses increased to £144.7m, expressed as a percentage of total income these costs represented 33.2% of total income, compared to 34.1% in the previous year. The balance sheet remains strong. Short term investments and cash balances total £68.8m, fixed assets are £526m while borrowings due after more than one year beyond the balance sheet date are £180.9m. Net assets, excluding the pension asset, increased to £515.5m. The pension fund is healthy with a surplus of £28.2m, estimated on the outcome of the triennial valuation as at 31st July 2012 and subsequent movement in financial assumptions to 31st July 2014. While the financial markets remain volatile, management of the endowment portfolio and pension fund assets were ahead of benchmarks set by the University and the Trustee Board for the financial year. The Future Following the introduction of the £9,000 tuition fee for home and EU based undergraduate students by the University, approved under the Access Agreement, and in line with many other HEI’s, the University experienced a fall in demand for students joining in September 2012. This reduction in the numbers joining the University was reversed in September 2013 and further growth was experienced in September 2014 evidencing that strong demand to study at the University of Liverpool continues. Uncertainty faced by the University remains, and in addition to further cuts in teaching funding due to occur in the medium term, the tuition fees are capped at £9,000 placing further pressure on the University to effectively manage its activities to ensure financial sustainability. Investment in the student experience continues following the opening of the Crown Place residences on campus in September 2014. The University continues to invest in improving its student residences both on the city centre campus and the other residences. Work on refurbishing the Liverpool Guild of Students facilities was completed in time for the start of the academic year in 2014. Further investment in research facilities is planned to continue during 2014 with construction planned for new research facilities related to materials innovation and bio-sciences. The strong financial position of the University enables a medium to long term view of its activities to be taken, assessing demand for student places and research activity to be balanced alongside the investment programme in order to maintain its financial sustainability. External funding has been secured by the University to meet its current requirements and the University is finalising further funding to ensure it is able to manage its liquidity. Key Performance Indicators Improvements to the reporting of key performance indicators to senior management and the governance committees continue, with detailed performance reports being considered on a quarterly basis. The reports focus on the key priorities in the Strategic Plan, assessing performance towards the agreed key ambitions.

12

Review of the Year Xi’an Jiaotong-Liverpool University (XJTLU) XJTLU is a joint venture with its own campus in Suzhou, China. It is the only internationally collaborative university in China with dual degree awarding powers, from the Chinese Ministry of Education and from the University. Upon completion of their studies, students will be awarded a University of Liverpool degree and an XJTLU degree from the Chinese Ministry of Education. The founding departments of XJTLU were in the areas of computer science and software, electrical and electronic engineering, mathematical sciences, and business and management. Provision has expanded to include the built environment, finance, industrial design, applied chemistry and biological sciences, and language and cultural studies. In 2011/12 XJTLU offered its first taught Masters programmes. Over the next three to five years XJTLU aims to expand its undergraduate provision further into the humanities and social sciences. The campus at XJTLU has expanded rapidly over the past few years, with 12 academic departments, four teaching centres and excellent support and resource facilities all housed on the north campus. It is anticipated that the north campus will be able to accommodate over 10,000 students by 2015. Development of the south campus is underway, the first phase due for completion in 2015/16, increasing the capacity for XJTLU to 14,000 students. The new facilities will include teaching and research space for humanities and social sciences, law, industrial design, interdisciplinary sciences, as well as an international academic exchange centre and an international research centre. The share of the operating deficit for the year to 31 July 2014 is as a result of the accounting for the costs associated with the continued development of XJTLU exceeding fee income for the year. Equal Opportunities Policy The aim of the University’s policy is to ensure that no job applicant or member of staff receives less than favourable treatment on the grounds of disability, sex, marital status, religion, race, colour, nationality or ethnic or national origins, or is disadvantaged by conditions or requirements which cannot be shown to be justifiable. Selection criteria and procedures are reviewed to ensure that individuals are selected, promoted and treated on the basis of their relevant merits and abilities. All members of staff will be given equal opportunity, and where appropriate, special training to progress within the University. The University is committed to ensuring that this policy remains fully effective. Ethical Investment Policy It is the role of Council to set out the ethical platform on which the University’s endowment asset investments are managed. The Council instructs its investment managers, through the Investments Sub-Committee, to invest University funds only in those companies who meet the criteria for ethical investment. It is the role of the Investments Sub-Committee to maximize the potential returns on investments within such criteria as established by Council. Investment managers report regularly to the Investments Sub-Committee in actions they have taken relating to ethical investment. Reserves Policy The University recognises its obligations as an exempt charity to expend the resources provided to it for charitable purposes and its reserves are retained for a variety of purposes. A significant proportion is represented by endowments which are retained and used in accordance with the wishes of the benefactors. The University has also built up its own reserve balances over a number of years to provide a source of funding for future activities. Further reserves are retained to provide working capital to support the University’s complex organisation and to invest in land, buildings and equipment to develop its activities. Professor Sir Howard Newby, CBE, BA, PhD, AcSS Vice-Chancellor

13

Corporate Governance Statement The University of Liverpool is a corporate body established by Royal Charter dated 1903. Under the corporate objectives set out in the Charter, the University remains committed to the 'advancement of learning and ennoblement of life'. The University is governed by the Council which comprises lay and academic members appointed under the Statutes of the University, the majority of whom are non-executive (see page 3 for members). Council members are the University’s Charitable Trustees. The Council has the responsibility for the ongoing strategic direction of the University, approval of major developments and the oversight of the day to day operations of its business and of its subsidiary companies. It meets a minimum of four times each year and has several Committees, the key ones being Planning and Resources Committee, Nominations Committee, Remuneration Committee and Audit Committee. All of these Committees are formally constituted with terms of reference and contain significant lay member representation. Council membership of the key committees is shown on page 3 and 4. The Planning and Resources Committee, inter alia, recommends to Council the University’s annual revenue and capital budgets and monitors performance in relation to the approved budgets. The Nominations Committee seeks and considers nominations for potential lay members of the Council, lay officers, Council-appointed Senate representatives on Council and Council-appointed members of University Committees and makes recommendations to the Council for the appointment of such. The Remuneration Committee undertakes and determines the review of all professorial and senior administrative staff salaries, and the approval of any proposal for voluntary severance or early retirement of the most senior staff. The Audit Committee, which meets four times a year, is responsible for advising the Council and Vice-Chancellor on the effectiveness of the University’s management and control systems. To this end, it meets with the External Auditors to discuss their audit findings, and with the Internal Auditors to consider detailed internal audit reports and recommendations for the improvement of the University’s systems of internal control, together with management’s response and implementation plans. It also receives and considers reports from the Higher Education Funding Council for England and the National Audit Office as they affect the University’s business and monitor adherence with the regulatory requirements. The Committee reviews the University’s annual financial statements together with the accounting policies. It advises the Council on the appointment and remuneration of the Internal and External Auditors. The Committee is chaired by the Pro-Chancellor, or another member of Council, and whilst senior executives and other lay officers attend meetings of the Audit Committee as necessary, they are not members of the Committee. The Committee meets with the Internal and External Auditors on their own for independent discussions. The roles of President and Vice-President of the Council are separated from the role of the University’s Chief Executive, the Vice-Chancellor. The matters specially reserved to the Council for decision are set out in the Statutes of the University and in the Financial Memorandum with the Higher Education Funding Council for England. The Vice-Chancellor is supported in his role by the Deputy Vice-Chancellor and three Executive Pro-Vice-Chancellors. They lead the academic management of the University which is organised into three academic Faculties and the professional services. The academic Faculties are managed by the Executive Pro-Vice-Chancellors and the professional services are managed by the Deputy Vice-Chancellor. The Council of the University is responsible for the University’s system of internal control and for reviewing its effectiveness. Such a system is designed to manage, rather than eliminate, the risk of failure to achieve business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss. The Audit Committee, on behalf of the Council, has reviewed the effectiveness of the University’s system of internal financial control. Any system of internal financial control can, however, only provide reasonable, but not absolute, assurance against material misstatement or loss. The Council is satisfied that there is an ongoing process for identifying, evaluating and managing the University’s significant risks. This process is regularly reviewed by the Council. It accords with the internal control guidance for directors of companies as set out in the Combined Code as deemed appropriate for higher education and with the HEFCE ‘Best Practice’ guidance on Risk Management and broad compliance with the Committee of University Chairs (CUC) Guidance.

14

Corporate Governance Statement The Council and the University’s Senior Executive Team receive reports setting out key performance and risk indicators. The Council also receives regular reports from the Audit Committee and the Health & Safety Committee setting out, where necessary, recommendations for change and improvement. Processes and systems are continually being refined to ensure that the reporting mechanism is enhanced. Council’s view of the effectiveness of the system of internal control is also informed by the work of the executive officers of the University who have responsibility for the development and maintenance of the internal control framework.

15

Responsibilities of the Council of the University Statement of Primary Responsibilities of the Council of the University of Liverpool

The Council, under the provisions of the Charter and the Statutes of the University, is the governing body of the University. The Charter identifies the Council as being responsible for “the management and administration of the whole revenue and property of the University and the conduct of the all of the affairs of the University”. The detailed powers and duties of the Council are defined in Statute 9.

The primary responsibilities of the Council may be defined as: • To appoint the Vice-Chancellor and to agree and monitor the delegation of authority to him/her • To approve the strategic direction of the University • To approve the annual budget • To monitor performance against plans/budgets and, for this purpose, to identify and utilise key performance

indicators • To ensure the establishment and monitoring of systems of control and accountability, including financial and

operational controls and risk assessment, clear procedures for handling internal grievances and for managing conflicts of interest

• To fulfil statutory/regulatory responsibilities

(Approved by the Council at its meeting on 16 June 2005)

Working through its Planning and Resources Committee and Audit Committee, the Council is responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the University and enable it to ensure that the financial statements are prepared in accordance with the Charter and Statutes, the Statement of Recommended Practice: Accounting for Further and Higher Education (July 2007), and all relevant accounting and financial reporting standards. In addition, within the terms and conditions of a Financial Memorandum agreed between the Higher Education Funding Council for England and the Council of the University, the Council, through its designated office holder (the Vice-Chancellor), is required to prepare audited financial statements for each financial year which give a true and fair view of the state of affairs of the University and of the surplus or deficit and cash flows for that year.

In causing the financial statements to be prepared, the Council has to ensure that:

• suitable accounting policies are selected and applied consistently; • judgements and estimates are made that are reasonable and prudent;

• applicable accounting standards have been followed, subject to any material departures being disclosed and explained in the financial statements;

• they are prepared on the going concern basis unless it is inappropriate to presume that the University will continue in operation. The Council is satisfied that the University has adequate resources to continue in

operation for the foreseeable future and for this reason the going concern basis continues to be adopted in the preparation of the financial statements.

The Council has taken reasonable steps to:

• ensure that funds from the Higher Education Funding Council for England are used only for the purposes for which they have been given and in accordance with the Financial Memorandum agreed with the Funding Council and any other conditions which the Funding Council may from time to time prescribe;

• ensure that there are appropriate financial and management controls in place to safeguard public funds and funds from other sources;

• safeguard the assets of the University and prevent and detect fraud;

16

Responsibilities of the Council of the University

• secure the economical, efficient and effective management of the University’s resources and expenditure.

The key elements of the University’s system of internal financial control, which are designed to discharge the responsibilities set out above, include the following:

o clear definitions of the responsibilities of, and the authority delegated to, all heads of departments;

o a comprehensive short and medium term planning process, supplemented by detailed annual income, expenditure, capital and cash flow budgets;

o regular reviews of academic performance and quarterly reviews of financial results involving variance reporting and updates of forecast outturns;

o clearly defined and formalised requirements for approval and control of expenditure; o a formalised treasury management policy; o comprehensive Financial Regulations detailing financial controls and procedures, approved by

the Audit Committee and Council; and o a professional independent Internal Audit team whose programme of work is approved

annually by the Audit Committee. The Council is satisfied that the system of internal control described above has been in place throughout

the year ended 31 July 2014.

17

Auditor’s Report INDEPENDENT AUDITOR’S REPORT TO THE COUNCIL OF THE UNIVERSITY OF LIVERPOOL We have audited the group and University financial statements (the ‘‘financial statements’’) of the University of Liverpool for the year ended 31 July 2014 which comprise the Consolidated Income and Expenditure Account, the Consolidated and University Balance Sheets, the Consolidated Cash Flow Statement, the Statement of Consolidated Total Recognised Gains and Losses, the Accounting Policies and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). This report is made solely to the Council, in accordance with the Charters and Statutes of the institution. Our audit work has been undertaken so that we might state to the Council those matters we are required to state to it in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Council for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of the Council and auditor

As explained more fully in the statement of Responsibilities of the Council of the University, the Council is responsible for the preparation of financial statements which give a true and fair view. Our responsibility is to audit, and express an opinion, on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

Scope of the audit of the financial statements

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the group’s and University’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Council; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Review of the Year to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion the financial statements:

• give a true and fair view of the state of the affairs of the Group and University as at 31 July 2014 and of the Group’s income and expenditure, recognised gains and losses and cash flows for the year then ended;

• have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and • have been prepared in accordance with the Statement of Recommended Practice – Accounting for Further and

Higher Education.

Opinion on other matters prescribed in the HEFCE Audit Code of Practice issued under the Further and Higher Education Act 1992

In our opinion, in all material respects: • funds from whatever source administered by the University for specific purposes have been properly applied to

those purposes and • funds provided by HEFCE have been applied in accordance with the Financial Memorandum and any other terms

and conditions attached to them.

19

Consolidated Income and Expenditure Account for the year ended 31 July 2014 2014 2013 2013 2013 Total Continuing Discontinuing Operations Operations Note £m £m £m £m Income Funding Council grants 2 86.5 95.0 7.0 102.0 Academic fees and support grants 3 189.3 155.7 2.6 158.3 Research grants and contracts 4 83.6 78.0 46.6 124.6 Other operating income 5 82.2 74.9 3.6 78.5 Endowment income and interest receivable 6 13.4 8.9 0.2 9.1 Less: Share of joint venture income 10 (19.7) (19.6) - (19.6) ______ ______ _____ _____ Total Income 435.3 392.9 60.0 452.9 ______ ______ _____ _____ Expenditure Staff costs 7,9 231.1 216.1 18.0 234.1 Other operating expenses 7 144.7 133.9 38.8 172.7 Depreciation 7 35.3 26.2 1.0 27.2 Interest payable 7 4.3 4.6 - 4.6 _____ ______ _____ _____ Total Expenditure 415.4 380.8 57.8 438.6 _____ ______ _____ _____ Surplus after depreciation of tangible fixed assets and before tax 19.9 12.1 2.2 14.3 Share of operating (deficit)/surplus of joint venture 10 (4.3) (2.4) - (2.4) Taxation credit 8 - - - - _____ ______ _____ _____ Surplus after depreciation of tangible fixed assets and tax 15.6 9.7 2.2 11.9 Profit on the sale of fixed assets 7.0 2.7 _____ _____ Surplus on operations after depreciation of tangible fixed assets and tax 22.6 14.6 Loss on disposal of discontinued operation 33 - (25.0) Surplus/(deficit) after depreciation of tangible fixed assets, disposal of _____ _____ operation and tax 22.6 (10.4) Surplus endowment income for the year transferred to accumulated income in endowment funds (1.8) (1.6) Surplus/(deficit) for the year retained within general reserves 20.8 (12.0)

20

Consolidated and University Balance Sheets as at 31 July 2014

Consolidated University

2014 2013

2014 2013

Note £m £m

£m £m

Fixed Assets

Tangible assets 11,12 526.0 447.8

499.7 428.1

Intangible assets 13 0.1 0.2 - -

Investments 14 3.4 4.1

8.5 9.2

Investments in joint ventures Share of gross assets 10 79.9 65.0

- -

Share of gross liabilities 10 (83.4) (64.2)

- -

526.0 452.9

508.2 437.3 Endowment assets 15 141.7 143.5

141.7 143.5

Current assets

Stock

1.0 1.0

0.9 0.8

Debtors 17 52.2 51.3

57.8 47.0

Asset held for resale - 1.0 - 1.0

Investments 18 14.0 0.2

14.0 -

Cash at bank and in hand

54.8 69.4

53.5 65.8

122.0 122.9

126.2 114.6

Less: Creditors - amounts falling due within one year 19 (93.3) (92.3)

(95.1) (84.4) Net current assets

28.7 30.6

31.1 30.2

Total assets less current liabilities

696.4 627.0

681.0 611.0 Less: Creditors - amounts falling due after more than one year 20 (180.9) (133.4)

(162.2) (118.4)

Net assets excluding pension liability

515.5 493.6

518.8 492.6 Net pension asset 28 28.2 46.1

28.2 46.1

Net assets including pension liability

543.7 539.7

547.0 538.7

Represented by: Deferred capital grants 21 194.8 187.6

193.2 186.0

Endowments

Expendable 16 20.7 21.3

20.7 21.3

Permanent 16 121.0 122.2

121.0 122.2

141.7 143.5

141.7 143.5

Capital and Reserves

Income and expenditure excluding pension reserve 23 176.4 159.9

181.2 160.4

Pension reserve 28 28.2 46.1

28.2 46.1

Income and expenditure including pension reserve

204.6 206.0

209.4 206.5

Revaluation reserve 22 2.6 2.6

2.7 2.7

207.2 208.6

212.1 209.2

Total funds

543.7 539.7

547.0 538.7

The financial statements on pages 19 to 50 were approved by the Council on 18 November 2014 and signed on its behalf by:

David McDonnell Professor Sir Howard Newby Robert Eastwood President Vice-Chancellor Director of Finance

21

Consolidated Cash Flow Statement for the year ended 31 July 2014

Notes

2014

2013

£m

£m

Net cash (outflow)/inflow from operating activities 25

22.0

(3.3)

Returns on investments and servicing of finance

Income from endowments 6 4.6

4.1

Other interest received 6 1.4

1.0

Interest paid on loans 7 (4.3)

(4.6)

1.7

0.5

Taxation

8 -

-

Capital expenditure and financial investment

Payments to acquire fixed assets

(107.9)

(61.9)

Purchase of endowment assets 15 (29.7)

(45.5)

Receipts from sale of fixed assets

8.7

7.8

Investments acquired - (0.2)

Disposal of endowment assets 15 29.3

36.0

Deferred capital grants received 21 19.5

14.3

Endowments (released)/received 16 1.2

0.3

(78.9)

(49.2)

Decrease in cash in the period

(55.2)

(52.0)

______________

____________

Reconciliation of net cash flow to movement in net funds/(debt)

Decrease in cash in year 26 (55.2)

(52.0)

Net (debt)funds at 1 August 26 (65.0)

(13.0)

Net (debt)/funds at 31 July 26 (120.2)

(65.0)

22

Statement of Consolidated Total Recognised Gains and Losses

for the year ended 31 July 2014 Note 2014 2013

£m £m Surplus/(deficit) 22.6 (10.4) Actuarial loss/gain in respect of pension scheme 28 (22.2) 36.0 Appreciation of endowment asset investments 15 2.7 25.5 Net of disposal of endowments 16 (6.3) (6.4) Endowments transferred to deferred capital grants 16 - (2.6) Revaluation of assets - 0.4 ______ ______ Total recognised loss/gain relating to the year (3.2) 42.5 ______ ______ Reconciliation Opening reserves and endowments 352.1 309.6 Total recognised gains for the year (3.2) 42.5 ______ ______ Closing reserves and endowments 348.9 352.1 ______ ______

Statement of Group Historical Cost Surpluses and Deficits

for the year ended 31 July 2014

2014 2013

£m £m Surplus/(Deficit) for the year 22.6 (10.4) Valuation gains realised on disposal of fixed asset investments - 1.5 ____ ____ Historical cost surplus/(deficit) for the year 22.6 (8.9) ____ ____

23

Notes to the Accounts

1. Statement of Principal Accounting Policies a. Basis of preparation These financial statements have been prepared on a going concern basis and in accordance with the Statement of Recommended Practice (SORP): Accounting for Further and Higher Education 2007 and in accordance with applicable accounting standards and in accordance with the historical cost convention modified by the revaluation of certain fixed asset investments. b. Basis of consolidation The consolidated financial statements include the University and its subsidiary undertakings (as detailed in note 14) for the financial year to 31 July 2014. Intra-group sales and profits are eliminated fully on consolidation. In accordance with FRS2, the activities of the student union have not been consolidated because the University does not control those activities. The 2013 Consolidated Income and Expenditure Account includes details of the results of the Liverpool School of Tropical Medicine (LSTM), an affiliated organisation, on the basis of dominant influence. This has been separately identified as a discontinued operation, as LSTM was granted independent status with effect from 2013/14. As such their results are not included in the 2014 Consolidated Income and Expenditure Account and their balances have been written out of the group balance sheet in both 2013 and 2014. Uniform accounting policies are applied consistently across the group. c. Intra-group transactions Gains or losses on any intra-group transactions are eliminated in full. Amounts in relation to debts and claims between undertakings included in the consolidation are also eliminated. Balances between the University and its associates and joint ventures are not eliminated; unsettled normal trading transactions are included as current assets or liabilities. Any gains or losses are included in the carrying amount of assets of either entity; the part relating to the Group’s share is eliminated. d. Recognition of income Funding Council block grants are accounted for in the period to which they relate. Fee income is stated gross and credited to the income and expenditure account over the period in which students are studying. Where the amount of the tuition fee is reduced, by a discount for prompt payment, income receivable is shown net of the discount. Bursaries and scholarships are accounted for as expenditure and not deducted from income. Recurrent income from grants, contracts and other services rendered are accounted for on an accruals basis and included to the extent of the completion of the contract or service concerned; any payments received in advance of such performance are recognised on the balance sheet as liabilities. Donations with restrictions are recognised when the relevant conditions have been met; in many cases recognition is directly related to expenditure incurred on specific purposes. Non-recurrent grants received in respect of the acquisition or construction of fixed assets are treated as deferred capital grants. Such grants are credited to deferred capital grants and an annual transfer made to the income and expenditure account over the useful economic life of the asset, at the same rate as the depreciation charge on the asset for which the grant was awarded. Income from the sale of goods or services is credited to the income and expenditure account when the goods or services are supplied to the external customers or the terms of the contract have been satisfied. Endowment and investment income is credited to the income and expenditure account on a receivable basis. Income from restricted endowments not expended in accordance with the restrictions of the endowment, is transferred from the income and expenditure account to restricted endowments. Any realised gains or losses from dealing in the related assets are retained within the endowment on the balance sheet.

24

Notes to the Accounts Any increase in value arising on the revaluation of fixed asset investments is carried as a credit to the revaluation reserve, via the statement of total recognised gains and losses; a diminution in value is charged to the income and expenditure account as a debit, to the extent that it is not covered by a previous revaluation surplus. Increases or decreases in value arising on the revaluation or disposal of endowment assets i.e. the appreciation or depreciation of endowment assets, is added to or subtracted from the funds concerned and accounted for through the balance sheet by debiting or crediting the endowment asset, crediting or debiting the endowment fund and is reported in the statement of total recognised gains and losses.

e. Agency arrangements Funds the University receives and disburses as paying agent on behalf of a funding body are excluded from the income and expenditure where the University is exposed to minimal risk or enjoys minimal economic benefit related to the transaction.

f. Accounting for research and development Expenditure on pure and applied research is treated as a part of the continuing activities of the University. g. Foreign currencies Transactions denominated in foreign currencies are recorded at the rate of exchange ruling at the date of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated into sterling at year-end rates. Resulting exchange differences are dealt with in the determination of income and expenditure for the financial year.

h. Land and buildings Land and buildings are stated at historic purchase cost less accumulated depreciation. Cost includes the original purchase price of the asset and costs attributable to bringing the asset to its working condition for its intended use. Costs incurred in relation to a tangible fixed asset, after its initial purchase or production, are capitalised to the extent that they increase the expected future benefits to the University from the existing tangible fixed asset beyond its previously assessed standard of performance; the cost of any such enhancements are added to the gross carrying amount of the tangible fixed asset concerned. Interest relating to the financing of constructed building projects has been capitalised in accordance with FRS 15.

i. Repairs and maintenance Expenditure to ensure that a tangible fixed asset maintains its previously recognised standard of performance is recognised in the income and expenditure account in the period it is incurred. j. Equipment Equipment costing less than £5,000 per individual item is written off to the income and expenditure account in the period of acquisition. All other equipment is capitalised at cost. k. Depreciation Freehold land is not depreciated. Freehold buildings are depreciated over their expected useful economic life to the University of between 30 and 50 years on the amount at which the tangible fixed asset is included in the balance sheet. Where material, a depreciable asset’s anticipated useful economic life is reviewed annually and the accumulated and future depreciation adjusted in accordance with FRS 15. Leasehold land and buildings are amortised over the life of the lease up to a maximum of 50 years. No depreciation is charged on assets in the course of construction.

25

Notes to the Accounts Equipment funded by research grants is depreciated over the remaining life of the grant. Non-research grant funded equipment is depreciated over 4 years. l. Leases Leasing agreements which transfer to the University substantially all the benefits and risks of ownership of an asset are treated as if the asset had been purchased outright. The assets are included in fixed assets and the capital element of the leasing commitments is shown as obligations under current and long-term liabilities. The lease rentals are treated as consisting of capital and interest elements. The capital element is applied to reduce the outstanding obligations and the interest element is charged against surplus in proportion to the reducing capital element outstanding. Assets acquired on finance leases are depreciated over the life of the lease. Rentals paid under operating leases are charged to the income and expenditure account on a straight line basis over the lease term. m. Heritage assets The University owns a considerable collection of works of art and museum objects, which were donated or bequeathed to the University during the last 120 years, and nearly all, prior to 1970. The vast majority of these items are not included in the financial statements. The University considers that in many cases it would not be practical to obtain a meaningful valuation. Very few heritage assets could be sold by the University due to the restrictive nature of their acquisition. Further information is provided in note 12. The cost of conservation and restoration of the heritage collection is reported in the Income and Expenditure Account in the year it is incurred. n. Stock Stock is stated at the lower of cost and net realisable value except for stock at Wood Park Farm, which has been valued at market value. o. Cash flows and liquid resources Cash flows comprise increases or decreases in cash. Cash includes cash in hand, cash at bank, and deposits repayable on demand. Deposits are repayable on demand if they are available within 24 hours without penalty. No other investments, however liquid, are included as cash. Liquid resources comprise assets held as a readily disposable store of value. They include term deposits, government securities and loan stock held as part of the University’s treasury management activities. They exclude any such assets held as endowment asset investments. p. Investments Listed investments held as fixed assets or endowment assets are stated at market value. Investments in subsidiaries or in companies in which the University has been allotted shares are shown at cost. Investment properties were revalued as at 31 July 2013 by external professionally qualified valuers. Investments are reviewed for impairment to their carrying value if there is any indication that impairment might have occurred. Increases in market value over the original cost are credited to the revaluation reserve. Any deficit on revaluation which is not offset by amounts previously credited to and retained in the revaluation reserve in respect of that asset are written off to the Income and Expenditure Account. Investment properties are held in the balance sheet at market value.

26

Notes to the Accounts q. Taxation The University is an exempt charity within the meaning of schedule 3 of the Charities Act 2011 (formerly schedule 2 of the Charities Act 1993) and is considered to pass the tests set out in Para 1 of schedule 6 to the Finance Act 2010 and therefore meets the definition of a charitable company for UK corporation tax purposes. Accordingly the University, but not its subsidiary companies, is potentially exempt from taxation in respect of income or capital gains received within categories covered by section 287 CTA2009 and sections 478-488 of the Corporation Tax Act 2010 (CTA 2010) (formerly section 505 of ICTA 1988) or section 256 of the Taxation of Chargeable Gains Act 1992) to the extent that such income or gains are applied to exclusively charitable purposes. The University Group receives no similar exemption in respect of Value Added Tax. Irrecoverable VAT on inputs is included in the costs of such inputs. Any irrecoverable VAT relating to tangible fixed assets is included in their cost. Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events that result in an obligation to pay more tax in the future have occurred at the balance sheet date. Timing differences are differences between the Group’s taxable profits and its results as stated in the financial statements. Deferred tax is measured at the tax rates that are expected to apply in the periods in which the timing differences are expected to reverse based on tax rates and laws that have been enacted or substantially enacted by the balance sheet date. Deferred tax is measured on a non-discounted basis. Corporation tax payable is provided on taxable profits at the current rate. r. Accounting for charitable donations Charitable donations are recognised in the accounts when the charitable donation has been received or if, before receipt, there is sufficient evidence to provide the necessary certainty that the donation will be received and the value of the incoming resources can be measured with sufficient reliability. Where charitable donations are to be retained for the benefit of the University as specified by the donors, these are accounted for as endowments. There are three main types:

1. Unrestricted permanent endowments - the donor has specified that the fund is to be permanently invested to

generate an income stream for the general benefit of the University [SORP para 144] 2. Restricted expendable endowments - the donor has specified a particular objective other than the purchase or

construction of tangible fixed assets, and the University can convert the donated sum into income [SORP paragraph 143, 147]

3. Restricted permanent endowments - the donor has specified that the fund is to be permanently invested to

generate an income stream to be applied to a particular objective [SORP para 144]

s. Accounting for retirement benefits The two principal pension schemes for University staff are the Universities Superannuation Scheme (USS) and the University of Liverpool Pension Fund (ULPF). Both schemes are defined benefit schemes which are externally funded and contracted out of the State Second Pension (S2P). The funds are valued every three years by a professionally qualified independent actuary using the projected unit method, the rates of contribution payable being determined by each fund’s trustee on the advice of the actuary. In the intervening years, the actuary reviews the progress of the scheme. For ULPF, pension costs are assessed in accordance with the advice of the actuary, based on the latest actuarial valuation of the scheme, and are accounted for in accordance with FRS 17. The assets of the USS scheme are held in a separate trustee-administered fund. Because of the mutual nature of the scheme, the scheme’s assets are not hypothecated to individual institutions and a scheme-wide contribution rate is set. The University is therefore exposed to actuarial risks associated with other institutions’ employees and is unable to identify its share of the underlying assets and liabilities of the scheme on a consistent and reasonable basis and therefore, as required by FRS 17 Retirement Benefits, accounts for the scheme as if it were a defined contribution scheme. As a result, the amount charged to the income and expenditure account represents the contributions payable to the scheme in respect of the accounting period.

27

Notes to the Accounts

t. Provisions, contingent liabilities and contingent assets

Provisions are recognised in the financial statements when the University has a present obligation (legal or constructive) as a result of a past event, it is probable that a transfer of economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is discounted to present value where the time value of money is material. The discount rate used reflects current market assessments of the time value of money and reflects any risks specific to the liability. Contingent liabilities are disclosed by way of a note, when the definition of a provision is not met and includes three scenarios: possible rather than a present obligation; a possible rather than a probable outflow of economic benefits; an inability to measure the economic outflow. u. Capitalisation of interest

Interest relating to the financing of constructed building projects has been capitalised in accordance with FRS 15. This is applied consistently across the Group.

v. Intangible Assets

The intangible asset relates to goodwill on the acquisition of a business and is being amortised over five years.

28

Notes to the Accounts

2. Funding Council grants 2014 2013 £m £m HEFCE recurrent grants-Teaching 43.3 53.3

HEFCE recurrent grant-Research 30.7 30.9

HEFCE specific grants 7.5 6.4

Deferred capital grant released in year Buildings (see note 21) 5.0 4.4

______ ______

Total continuing 86.5 95.0

Discontinued operation - 7.0

______ ______

Total 86.5 102.0

______ ______

3. Academic fees and support grants 2014 2013 £m £m Full time Home and EU students 84.2 70.6

Full time Overseas students 74.5 56.7

Part time students 5.0 4.2

Special courses 6.7 5.1

Research Training Support grants 0.7 0.6

Share of tuition fee income from joint venture 18.2 18.5

______ ______

Total continuing 189.3 155.7

Discontinued operation - 2.6

______ ______

Total 189.3 158.3

______ ______

4. Research grants and contracts 2014 2013 £m £m Research Councils 33.4 30.4

Charities 13.2 13.1

Industry and commerce 8.7 7.9

Governmental (UK and EU) 23.9 23.2

Other 4.4 3.4

______ ______

Total Continuing 83.6 78.0

Discontinued operation - 46.6

______ ______

Total 83.6 124.6

______ ______

Included in the above is £5.9m in respect of deferred capital grant releases relating to research funded equipment.

29

Notes to the Accounts 5. Other operating income 2014 2013 £m £m Residences and catering 17.0 15.1

Health Authorities 9.0 8.2

Other services 22.5 20.6

Donations 9.8 7.6

Released from deferred capital grants 1.4 1.7

Other income 22.0 21.4 Share of other income from joint venture 0.5 0.3 _____ ______ Total continuing 82.2 74.9 Discontinued operation - 3.6 _____ ______ Total 82.2 78.5 6. Endowment income and interest receivable 2014 2013 £m £m Income from expendable endowments 0.6 0.7

Income from permanent endowments 4.0 3.3

Income from short term deposits 1.4 0.9

Pension Scheme - Income 6.5 3.1 Share of Investment Income from joint venture 0.9 0.9 _____ _____ Total continuing 13.4 8.9 Discontinued operation - 0.2 _____ _____ 13.4 9.1 7. Analysis of expenditure by activity

Staff Other Depreciation Interest 2014 2013 Operating Payable Expenses £m £m £m £m £m £m Academic departments 135.7 39.7 4.0 - 179.4 161.8 Research grants and contracts 37.4 25.1 6.7 - 69.2 65.4 Academic Services 16.3 12.7 3.7 - 32.7 31.5 General educational expenditure 6.3 23.1 - - 29.4 27.2 Maintenance of premises 10.4 18.9 20.2 4.1 53.6 48.5 Administration and central services 12.5 8.9 - - 21.4 17.2 Students & staff facilities & amenities 3.6 5.5 0.1 - 9.2 9.4 Residences and catering 4.8 7.1 0.4 0.2 12.5 12.8 Other services rendered 1.8 3.7 0.2 - 5.7 4.5 Additional Pension Costs per FRS17 2.3 - - - 2.3 2.5 _____ ____ ___ ___ ____ ____ 231.1 144.7 35.3 4.3 415.4 380.8 Discontinued Operations - - - - - 57.8 _____ ____ ___ ___ ____ ____ 231.1 144.7 35.3 4.3 415.4 438.6 _____ _____ ___ ___ _____ _____

30

Notes to the Accounts

Other Operating Expenses includes:

2014 2013 £’000 £’000 KPMG LLP External Audit Fee University 64 63 University prior year 5 5 Subsidiaries 30 12 Taxation and consultancy services University 114 84 Subsidiaries 42 57 PricewaterhouseCoopers LLP KPMG LLP Taxation and consultancy services University 7 38 Internal Audit University 196 191 Ellis Chapman and Associates Taxation University 41 25 Subsidiaries - 1 Mitchell Charlesworth Taxation and consultancy services University - 5 Grant Thornton LLP External Audit Fee LSTM - 43 Taxation and consultancy services University 5 6 LSTM - 14 RSM Tenon Internal Audit LSTM - 16 HBD Accountancy Services External Audit Fee Liverpool University Press 2004 Limited 4 4 Eversheds Taxation and consultancy services University 10 - 8. Taxation

As noted in the accounting policy on taxation there was no tax payable in either 2013 or 2014. 9. Staff Costs

2014

2013

£m

£m

Staff costs were: Salaries 186.6

175.6

Social security costs 15.0

14.2 Pension costs including FRS 17 adjustments (note 28) 29.5

26.3

──── ──── Total continuing operations 231.1

216.1

Discontinued operation - 18.0

──── ──── Total 231.1 234.1 ______ _____

Emoluments of the Vice-Chancellor, including benefits in kind and pension contribution for 2014 were £ 368k (2013: £360k). Compensation paid for loss of office to members of staff whose annual remuneration is in excess of £100,000 per annum in 2014 was £222k ( 2013: £0k).

31

Notes to the Accounts

Staff Numbers by Major Category 2014 2013 Full time Full time Equivalent Equivalent Academic 2,817 2,900 Clinical 164 153 Technical 579 571 Clerical 853 899 Other 301 338 ____ _____ 4,714 4,861

Staffing Full Time Equivalents (FTE’s) are based on the HESA staff return and represent the actual FTE.

Remuneration bands of other higher paid staff, excluding pension costs, but including payments made on behalf of the NHS in respect of staff with contracted clinical responsibilities.

2014 Number

2013 Number

£100,000 - £109,999 34

37 £110,000 - £119,999 11

18

£120,000 - £129,999 12

18 £130,000 - £139,999 15

5

£140,000 - £149,999 5

9 £150,000 - £159,999 8

8

£160,000 - £169,999 6

6 £170,000 - £179,999 4

6

£180,000 - £189,999 5

6 £190,000 - £199,999 4

3

£200,000 - £209,999 -

3 £210,000 - £219,999 3

4

£220,000 - £229,999 1

- £260,000 - £269,999 -

1

£270,000 - £279,999 1 1 £280,000 - £289,999 - 1 £300,000 - £309,999 1 - £350,000 - £359,999 1 1

─── ────

111

127

─── ────

32

Notes to the Accounts 10. Joint Venture Xi’an Jiaotong-Liverpool University (XJTLU) The University owns 50% of the issued ordinary capital of Xi’an Jiaotong-Liverpool University, which is registered in the People’s Republic of China. XJTLU Income and Expenditure Account – University of Liverpool 50% share

2013/14 2012/13 £m £m Income 19.7 19.6 Expenditure 24.0 22.0 -------- --------- Net Income/(Expenditure) (4.3) (2.4)

XJTLU Balance Sheet – University of Liverpool 50% share Restated 2013/14 2012/13 £m £m Assets 79.9 88.3 Liabilities (83.4) (88.7) ---------- ----------- Total Assets less Liabilities (3.5) (0.4) Reserves (4.8) (1.7) University of Liverpool Investment 1.3 1.3 ____ ____

Total Reserves and Capital (3.5) ( 0.4)

Due to non-coterminous accounting periods and difficulties in obtaining detailed information relating to capital build projects, adjustments have again been made to the opening balance sheet of XJTLU. This has resulted in total assets reported within the Group consolidated accounts increasing by £23.3m, total liabilities increasing by £24.5m and an additional loss of £1.2m being reported along with the £3.1m loss relating to activity for the year-ending 31 July 2014. The restated 2012/13 balances have been provided in the note above. However as the impact of this is immaterial in terms of the overall group position these restated balances have not been reflected in the group balance sheet.

33

Notes to the Accounts

11. Consolidated Tangible Assets

Land and Buildings Equipment

Assets Under Construction Total

Freehold Leasehold Finance Lease

£m £m £m £m £m £m

Cost at 1 August 2013

447.7 38.8 5.8 106.1 37.4 635.8

Additions in the year at cost 26.6 0.3 - 22.2 65.0 114.1 Transfer from assets under construction

27.4 - - 2.7 (30.1) -

Less: Disposals during the year (1.3) - - (1.8) - (3.1)

──── ──── ──── ──── ──── ────

Cost at 31 July 2014

500.4 39.1 5.8 129.2 72.3 746.8

──── ──── ──── ──── ──── ────

Accumulated Depreciation

At 1 August 2013

98.8 12.6 3.9 72.7 - 188.0

Charge for the year

17.2 1.4 0.4 16.3 - 35.3

Eliminated on disposals (0.6) - - (1.9) - (2.5)

──── ──── ──── ──── ──── ────

Depreciation at 31 July 2014 115.4 14.0 4.3 87.1 - 220.8

──── ──── ──── ──── ──── ────

Net Book Value

31 July 2014 385.0 25.1 1.5 42.1 72.3 526.0

──── ──── ──── ──── ──── ────

31 July 2013

348.9 26.2 1.9 33.4 37.4 447.8

──── ──── ──── ──── ──── ────

The University has freehold and leasehold interests in a wide range of properties including academic buildings, student residences and other associated properties. Land and buildings with a net book value of £135m, and a cost of £195.5m have been funded from Treasury sources; should these buildings be sold, the University would have to use the proceeds in accordance with the Financial Memorandum with the Higher Education Funding Council for England or surrender them to HM Treasury. The University has granted a long leasehold interest in a small part of its estate to Rosemary Young Persons Charitable Housing Ltd. (a charity), on which new student accommodation has been built. It has been agreed that the University will lease back this accommodation, with an option to purchase after 25 years (in the year 2019). This is the property to which the finance lease relates.

The insured value of the buildings is £940.5 million.

Included in the net book value of leasehold assets is a net sum of £12.5 million representing grant-aided expenditure on the Royal Liverpool University Hospital and the Dental Hospital, the title of which is vested in the Secretary of State for Health and for which the University has been granted a long lease.

34

Notes to the Accounts

12. University Tangible Fixed Assets

Land and Buildings Equipment

Assets Under Construction Total

Freehold Leasehold

Finance Lease

£m £m £m £m £m £m Cost at 1 August 2013

447.8 38.8 5.8 85.4 34.8 612.6

Additions in the year at cost 26.6 0.3 - 16.4 62.9 106.2 Transfer from within the group Transfer from assets under construction 27.4 - - 1.1 (28.5) - Transfer to assets for resale Disposals (1.3) - - (1.8) - (3.1)

──── ──── ──── ──── ──── ────

Cost at 31 July 2014

500.5 39.1 5.8 101.1 69.2 715.7

──── ──── ──── ──── ──── ────

Accumulated Depreciation

At 1 August 2013

98.8

12.6 3.9 69.2 - 184.5 Charge for the year

17.2 1.4 0.4 15.0 - 34.0

Eliminated on disposal (0.6) - - (1.9) - (2.5)

──── ──── ──── ──── ──── ────

Depreciation at 31 July 2014 115.4 14.0 4.3 82.3 - 216.0

──── ──── ──── ──── ──── ────

Net Book Value

31 July 2014 385.1 25.1 1.5 18.8 69.2 499.7

──── ──── ──── ──── ──── ────

31 July 2013 349.0 26.2 1.9 16.2 34.8 428.1

──── ──── ──── ──── ──── ────

Heritage Assets The University holds its heritage assets in two collections: The Fine and Decorative Art Collection consists of 7,000 items of metal ware, fine furniture, ceramics, paintings, drawings, prints and sculptures. It is held in the Victoria Gallery and Museum in the University’s iconic redbrick Victoria Building, which is open to the public. An insurance valuation was updated professionally by Sotheby’s in 2013 of £56.4m, but £34m of that related to two items only, pictures by Lucien Freud and Turner, valued at £14m and £20m respectively. The Heritage Collection consists of 15,000 museum objects which have been collected over many years by academic departments of the University, and has been brought together into the Victoria Gallery and Museum. Many of the objects may originally have had value for teaching purposes, but this is no longer the case. 10,000 items are geological specimens, and the remainder come from a wide range of departments of the University. The Collection has never been valued, and, given the wide range of objects, such a valuation is not considered to be practical.

.

35

Notes to the Accounts

13. Intangible Assets In the financial year 12/13 Liverpool University Press acquired the business of University of Exeter Press. The goodwill arising on the acquisition is £0.2m. This will be amortised over 5 years.

14. Fixed Asset Investments

Consolidated

University

2014 2013

2014 2013

£m £m

£m £m

Market value of fixed asset investments 0.5

0.5

0.5 0.5

Properties 2.9 3.6

2.9 3.6 University companies at cost

Liverpool University Press (2004) Ltd - -

0.7 0.7 University of Liverpool Energy - -

3.0 3.0

Company Ltd (ULEC)

University of Liverpool Construction - -

0.1 0.1

Company Ltd (ULCCo) Xi’an Jiaotong-Liverpool University - -

1.3 1.3

──── ──── ──── ────

3.4 4.1

8.5 9.2

──── ──── ──── ────

The University owns 100% of the issued ordinary capital of ULEC, ULCCo, ULCCo (Special Projects), University of Liverpool Commercial Services, University of Liverpool in Singapore (ULIS) Pte Ltd, UOLM Sdn Bhd, Tandem Nano Ltd and Liverpool University Press (2004) Ltd. The University’s subsidiary companies are all registered in England and Wales with the exception of University of Liverpool in Singapore (ULIS) Pte Ltd and UOLM Sdn Bhd. All of these companies have been consolidated. The principal purpose of these companies is to support the activities of the University.

The University owns 50% of the issued ordinary capital of Xi’an Jiaotong-Liverpool University, which is registered in the People’s Republic of China.

The University holds shares in the following companies, none of which are considered to be material; and are therefore not consolidated in these financial statements.

University Equity (%)

Liverpool Science Park Limited 24.5 Q Technologies Limited 24.9 Intellihep Limited 18.0 Pepsyn Limited 3.5 CDDM Technology Limited 3.0 Theryte Limited 3.6 Sepsis Limited 50.6 Provexis IBD Limited 25.0 Trucolour Limited 23.0 Senectus Therapeutics Limited 16.7 Aimes CIC Ltd 20.0 Laureate – University of Liverpool

Ventures B.V. 20.0

36

Notes to the Accounts

15. Endowment Assets

2014 2013

£m £m

Balances as at 1 August 143.5 137.9

Purchases of investments 29.7 45.5

Disposal of investments (29.3) (36.0)

Net appreciation 2.7 25.3

Increase/(decrease) in cash balances 8.5 (16.7)

Transfer to current asset investments (13.4) - Discontinued operations - (12.5)

──── ──── As at 31 July 141.7 143.5

──── ──── As at 31 July represented by:

Quoted equities 103.4 113.5

Fixed interest bonds 15.8 21.1

Property and other investments 16.1 11.0

Cash in bank held for endowment funds 6.4 (2.1)

──── ──── Total Endowment Assets 141.7 143.5

──── ──── 16. Endowments

Unrestricted Restricted Total Restricted

Permanent Permanent Permanent Expendable Total

£m £m £m £m £m

Capital Value 0.2 109.6 109.8 17.5 127.3 Accumulated Income 0.1 12.3 12.4 3.8 16.2

──── ──── ──── ──── ────

As at 1 August 2013 0.3 121.9 122.2 21.3 143.5

Net Additions/(disposals) (0.3) (6.6) (6.9) 0.6 (6.3)

Appreciation/(Depreciation) of Investments - 3.5 3.5 (0.8) 2.7 Transfer from Restricted Permanent to Restricted Expendable - (0.1) (0.1) 0.1 - Investment Income - 4.0 4.0 0.6 4.6 Expenditure - (1.7) (1.7) (1.1) (2.8)

──── ──── ──── ──── ────

As at 31 July 2014 0.0 121.0 121.0 20.7 141.7

──── ──── ──── ──── ────

Represented by: Capital Value - 106.9 106.9 17.1 124.0

Accumulated Income - 14.1 14.1 3.6 17.7

──── ──── ──── ──── ────

- 121.0 121.0 20.7 141.7

──── ──── ──── ──── ────

During the financial year the University continued the review of its endowment portfolio. As part of this review £7.5m of endowments were released to income. Following investigation the terms and conditions of these endowments were deemed sufficiently general to allow the release.

37

Notes to the Accounts 17. Debtors

Consolidated

University

2014 2013

2014 2013

£m £m

£m £m

Debtors - Trade 12.2 16.8

17.8 11.9 - Intergroup - -

4.4 5.6

Prepayments and accrued income 40.0 34.5

35.6 29.5

──── ──── ──── ────

52.2 51.3

57.8 47.0

──── ──── ──── ────

There were no intergroup debtors due over one year (2013 £Nil). 18. Current Asset Investments

Consolidated

University

2014 2013

2014 2013

£m £m

£m £m

Represented by:

Fixed interest stocks (listed) 1.1 -

1.1 -

Equities (listed) 12.3 -

12.3 - Cash balances 0.6 0.2

0.6 -

_____ _____ ______ _____

14.0 0.2

14.0 -

_____ _____ ______ _____

19. Creditors: Amounts falling due within one year

Consolidated

University

2014 2013

2014 2013

£m £m

£m £m

Current portion of long term debt 1.3 -

- -

Obligations under finance leases 0.4 0.4

0.4 0.4

Creditors - trade 16.0 21.4

15.2 10.9

- intergroup - -

4.0 2.6 Deferred Income 48.5 48.2

48.4 48.2

Social security and other taxation 6.1 5.3

6.1 5.3 Accrued charges 21.0 17.0

21.0 17.0

_____ _____ _____ _____

93.3 92.3

95.1 84.4

_____ _____ _____ _____

38

Notes to the Accounts 20. Creditors: Amounts falling due after more than one year

Consolidated

University

2014 2013

2014 2013

£m £m

£m

£m

Unsecured Loans payable by 2036* 40.0 40.0

40.0 40.0 Unsecured Loans payable by 2028** 15.0 15.0

- -

Unsecured Loans payable by 2018*** 3.8 - - - Unsecured Revolving facility**** 120.0 75.0

120.0 75.0

Obligations under Finance Leases

due 2-5 years 1.5 1.9

1.5 1.9

due over 5 years - -

- - Other Creditors 0.6 1.5

0.7 1.5

_____ _____ ______ _____

180.9 133.4

162.2 118.4

_____ _____ ______ _____ * The Unsecured Loan payable by 2036 bears a fixed interest rate of 4.99% and the £40m is repayable in full in 2036. ** The Unsecured Loan payable by 2028 bears an interest rate of 4.975% and the £15m is repayable in full by bullet repayment on 13 March 2028 and the University has provided a parent company guarantee to Lloyds bank. *** The Unsecured Loan payable by 2018 is from Salix Finance Ltd and is interest free. Both loans are held by ULEC Ltd. **** The Unsecured Revolving facility bears an average interest rate of 2.68%. The facility matures in November 2016.

£75m of the available £100m facility had been drawn down at 31 July 2013. In 2013/14 the facility was renegotiated and was increased from £100m to £160m and an additional £55m was drawn down leaving £40m available.

21. Deferred capital grants - university and consolidated

Consolidated University

Funding Council

Other Grants & Donations

Total Funding Council

Other Grants & Donations

Total

£m £m £m £m £m £m At 1 August 2013

Buildings 140.7 44.3 185.0 139.0 44.4 183.4 Equipment - 2.6 2.6 0.0 2.6 2.6

_____ _____ _____ _____ ______ _____

Total 140.7 46.9 187.6 139.0 47.0 186.0

_____ _____ _____ _____ _____ _____

Cash received/receivable Buildings 9.1 2.9 12.0 9.1 2.9 12.0

Equipment - 7.5 7.5 - 7.5 7.5

_____ _____ _____ _____ _____ _____

Total 9.1 10.4 19.5 9.1 10.4 19.5

_____ _____ _____ _____ _____ _____

Released to income and expenditure Buildings (5.0) (1.3) (6.3) (5.0) (1.3) (6.3)

Equipment - (6.0) (6.0) - (6.0) (6.0)

_____ ______ ______ _____ _____ _____

Total (5.0) (7.3) (12.3) (5.0) (7.3) (12.3)

_____ ______ ______ _____ _____ _____

As 31 July 2014 Buildings 144.8 45.9 190.7 143.1 46.0 189.1

Equipment - 4.1 4.1 - 4.1 4.1

_____ _____ _____ ____ ____ _____

Total 144.8 50.0 194.8 143.1 50.1 193.2

_____ _____ _____ _____ ____ _____

39

Notes to the Accounts 22. Revaluation reserve

Consolidated

University

2014 2013

2014 2013

£m £m

£m £m

Balance 1 August 2.6 4.2

2.7 4.2

Revaluations in the period - 0.5

- - Transfer to profit & loss reserve - (1.2)

- (1.5)

Discontinued operation - (0.9) - -

─── ─── ─── ─── Balance 31 July 2.6 2.6

2.7 2.7

─── ─── ─── ─── 23. Income and expenditure reserves

Consolidated

University

2014 2013

2014 2013

£m £m

£m £m

Balance 1 August 206.0 167.5

206.5 160.4 Surplus/(Deficit) on income & expenditure account 20.8 (12.0)

25.1 8.6

Transfer from endowment reserve - 12.5 - - Transfer from revaluation reserve - 2.0 - 1.5 Actuarial gain on pension reserve (22.2) 36.0

(22.2) 36.0

______ ______ ______ _____ Balance 31 July 204.6 206.0

209.4 206.5

______ ______ ______ _____ Represented by:

University reserves 181.2 160.4

181.2 160.4 Subsidiaries (4.8) (0.5)

- -

______ _____ ______ _____ Income & expenditure excluding pension reserve 176.4 159.9

181.2 160.4

Pension reserve 28.2 46.1

28.2 46.1

______ ______ ______ _____

204.6 206.0

209.4 206.5

______ ______ ______ _____

40

Notes to the Accounts 24. Access to Learning (Hardship) Funds

2014 2013

£000 £000

Income Excess of income over expenditure brought forward 31 37

Funding Council grants 240 240 Interest earned 1 1

──── ────

272 278

Expenditure Disbursed to students (244) (240)

Payments made (7) (7)

──── ──── Excess of income over expenditure carried forward 21 31

──── ────

Funding Council grants are available solely for students; the University acts only as a paying agent. The grants and related disbursements are therefore excluded from the Income and Expenditure Account.

25. Reconciliation of Consolidated Operating Surplus to Net Cash Inflow from Operating Activities

2014 2013

£m £m

Surplus after depreciation of assets and before tax 19.9 14.3 Pension costs less contributions payable (note 28) (4.3) (0.6) Depreciation (notes 1 and 11) 35.3 27.2 Deferred capital grants released to income (note 21) (12.3) (9.7) Endowment assets released to income (7.5) (6.7) Decrease in fixed asset investments 0.7 - Interest payable 4.3 4.6 (Increase)/Decrease in current asset investments 0.2 - (Increase)/Decrease in debtors ( 1.0) (4.2) Increase/(Decrease) in creditors < 1 year (6.5) (21.1) Increase/(Decrease) in creditors > 1 year (0.8) (2.0) Investment Income (6.0) (5.1)

──── ──── Net cash (outflow)/inflow from operating activities 22.0 (3.3)

──── ────

41

Notes to the Accounts 26. Analysis of Changes in Net Funds

1 August 2013 Cashflows 31 July 2014

£m £m £m

Cash in hand, and at bank Endowment assets investments (2.1) 8.5 6.4

Current asset investments - 0.6 0.6 Cash in hand, and at bank 69.4 (14.6) 54.8

_____ ______ ______

67.3 (5.5) 61.8

Finance leases Debt due within 1 year (0.4) - (0.4)

Debt due after 1 year (1.9) 0.4 (1.5) Loans Debt due within 1 year - (1.3) (1.3) Debt due after 1 year (130.0) (48.8) (178.8)

_____ ______ ______

(65.0) (55.2) (120.2)

_____ ______ ______

27. Capital commitments

Consolidated

University

2014 2013

2014 2013

£m £m

£m £m Authorised not yet contracted 51.4 39.4

49.6 37.4

Authorised and contracted 79.3 83.0

78.5 75.1

─── ───

─── ───

130.7 122.4

128.1 112.5

─── ───

─── ───

42

Notes to the Accounts 28. Retirement benefits The basis of the contributions to the schemes below are the long-term contribution rates. The total pension cost for the University was:

2014 2013

£m £m

Contributions to Universities Superannuation Scheme 19.6 19.2 Contributions to University of Liverpool Pension Fund 8.4 7.3 Contributions to other schemes 1.6 1.7

──── ──── Total Pension Cost (note 9) 29.6 28.2

──── ────

Universities Superannuation Scheme (USS) The institution participates in the Universities Superannuation Scheme (USS), a defined benefit scheme which is contracted out of the State Second Pension (S2P). The assets of the scheme are held in a separate fund administered by the trustee, Universities Superannuation Scheme Limited. The appointment of directors to the board of the trustee is determined by the trustee company’s Articles of Association. Four of the directors are appointed by Universities UK; three are appointed by the University and College Union, of whom at least one must be a USS pensioner member; and a minimum of three and a maximum of five are independent directors appointed by the board. Under the scheme trust deed and rules, the employer contribution rate is determined by the trustee acting on actuarial advice. Because of the mutual nature of the scheme, the scheme’s assets are not hypothecated to individual institutions and a scheme-wide contribution rate is set. The institution is therefore exposed to actuarial risks associated with other institutions’ employees and is unable to identify its share of the underlying assets and liabilities of the scheme on a consistent and reasonable basis and therefore, as required by FRS 17 “Retirement Benefits”, accounts for the scheme as if it were a defined contribution scheme. As a result, the amount charged to the income and expenditure account represents the contributions payable to the scheme in respect of the accounting period. The latest triennial actuarial valuation of the scheme was at 31 March 2011. This was the second valuation for USS under the scheme-specific funding regime introduced by the Pensions Act 2004, which requires schemes to adopt a statutory funding objective, which is to have sufficient and appropriate assets to cover their technical provisions. The actuary also carries out regular reviews of the funding levels. In particular, he carries out a review of the funding level each year between triennial valuations and details of his estimate of the funding level at 31 March 2014 are included in this note. The triennial valuation was carried out using the projected unit method. The assumptions which have the most significant effect on the result of the valuation are those relating to the rate of return on investments (i.e. the valuation rate of interest), the rates of increase in salary and pensions and the assumed rates of mortality. The financial assumptions were derived from market yields prevailing at the valuation date. An “inflation risk premium” adjustment was also included by deducting 0.3% from the market-implied inflation on account of the historically high level of inflation implied by government bonds (particularly when compared to the Bank of England’s target of 2% for CPI which corresponds broadly to 2.75% for RPI per annum). To calculate the technical provisions, it was assumed that the valuation rate of interest would be 6.1% per annum, salary increases would be 4.4% per annum (with short-term general pay growth at 3.65% per annum and an additional allowance for increases in salaries due to age and promotion reflecting historic scheme experience, with a further cautionary reserve on top for past service liabilities) and pensions would increase by 3.4% per annum for 3 years following the valuation then 2.6% per annum thereafter.

43

Notes to the Accounts

Standard mortality tables were used as follows: Male members’ mortality S1NA [‘’light’’] YoB tables – No age rating Female members’ mortality S1NA [‘’light’’] YoB tables – rated down 1 year Use of these mortality tables reasonably reflects the actual USS experience but also provides an element of conservatism to allow for further improvements in mortality rates. The CMI 2009 projections with a 1.25% pa long term rate were also adopted. The assumed life expectations on retirement at age 65 are: Males (females) currently aged 65 23.7 (25.6) years Males (females) currently aged 45 25.5 (27.6) years

At the valuation date, the value of the assets of the scheme was £32,433.5 million and the value of the scheme’s technical provisions was £35,343.7 million indicating a shortfall of £2,910.2 million. The assets therefore were sufficient to cover 92% of the benefits which had accrued to members after allowing for expected future increases in earnings. The actuary also valued the scheme on a number of other bases as at the valuation date. On the scheme’s historic gilts basis, using a valuation rate of interest in respect of past service liabilities of 4.4% per annum (the expected return on gilts) the funding level was approximately 68%. Under the Pension Protection Fund regulations introduced by the Pensions Act 2004 the scheme was 93% funded; on a buy-out basis (i.e. assuming the scheme had discontinued on the valuation date) the assets would have been approximately 57% of the amount necessary to secure all the USS benefits with an insurance company; and using the FRS17 formula as if USS was a single employer scheme, using a AA bond discount rate of 5.5% per annum based on spot yields, the actuary estimated that the funding level at 31 March 2011 was 82%. As part of this valuation, the trustee has determined, after consultation with the employers, a recovery plan to pay off the shortfall by 31 March 2021. In 2011 the actuary estimated that if experience remained in line with the assumptions made, the shortfall at 31 March 2014 would be £2.2 billion, equivalent to a funding level of 95%. However, changes in market conditions between March 2011 and March 2014 have had an impact on the scheme funding. The next formal triennial actuarial valuation is now due and the effective date will be 31 March 2014. Work is currently underway to update the actuarial assumptions and allow for any adjustments to the overall funding approach adopted by the trustee board in consultation with stakeholders. As work on the 2014 valuation is not yet complete the trustee cannot provide the final figure however, an estimate has been provided using the assumptions used to deliver the 2011 actuarial valuation. On that basis, the actuary has estimated that the funding level under the scheme specific funding regime will have fall from 92% at 31 March 2011 to 85% at 31 March 2014. This estimate is based on the results from the valuation at 31 March 2011 allowing primarily for investment returns and changes in market conditions. The funding level has decreased mainly due to a decrease in real gilt yields, reducing the implied net discount rate and therefore pricing a higher value of scheme liabilities. The increase has been partially offset by a higher than expected investment return.

The technical provisions relate essentially to the past service liabilities and funding levels, but it is also necessary to assess the ongoing cost of newly accruing benefits. The cost of future accrual was calculated using the same assumptions as those used to calculate the technical provisions but the allowance for promotional salary increases was not as high. Analysis has shown very variable levels of growth over and above general pay increases in recent years, and the salary growth assumption built into the cost of future accrual is based on more stable, historic, salary experience. However, when calculating the past service liabilities of the scheme, a cautionary reserve has been included, in addition, on account of the variability mentioned above. As at the 2011 valuation the scheme was still a fully Final Salary Scheme for future accruals and the prevailing employer contribution rate was 16% of salaries. Following UK Government legislation, from 2011 statutory pension increases or revaluations are based on the Consumer Prices Index measure of price inflation. Historically these increases had been based on the Retail Prices Index measure of price inflation.

44

Notes to the Accounts

Since the valuation effective date of 31 March 2011 there have been a number of changes to the benefits provided by the scheme, although these became effective from October 2011. These include:- New Entrants Other than in specific, limited circumstances, new entrants are now provided on a Career Revalued Benefits (CRB) basis rather than a Final Salary (FS) basis. Normal Pension Age The normal pension age was increased for future service and new entrants, to age 65. Flexible Retirement Flexible retirement options were introduced. Member Contributions Increased Contributions were uplifted to 7.5% p.a. and 6.5% p.a. for FS Section members and CRB Section members respectively. Cost Sharing If the total contribution level exceeds 23.5% of salaries per annum, the employers will pay 65% of the excess over 23.5% and members would pay the remaining 35% to the fund as additional contributions. Pension Increase Cap For service derived after 30 September 2011, USS will match increases in official pensions for the first 5%. If official pensions increase by more than 5% then USS will pay half of the difference up to a maximum increase of 10%.

On the FRS17 basis, using an AA bond discount rate of 4.5% per annum based on spot yields, the actuary estimates that the funding level at 31 March 2014 was 75%. An estimate of the funding level measured on a historic gilts basis at that date was approximately 61%. Surpluses or deficits which arise at future valuations may impact on the institution’s future contribution commitment. A deficit may require additional funding in the form of higher contribution requirements, where a surplus could, perhaps, be used to similarly reduce contribution requirements. The sensitivities regarding the principal assumptions used to measure the scheme liabilities on a technical provisions basis as at the date of the last triennial actuarial valuation are set out below:

Assumption Change in Assumption Impact on Shortfall Investment return (Valuation rate of interest)

Decrease by 0.25% Increase by £1.6 billion

The gap between RPI and CPI Decrease by 0.25% Increase by £1 billion Rate of salary growth Increase by 0.25% Increase by £0.6 billion Members live longer than assumed

1 year longer Increase by £0.8 billion

Equity markets in isolation Fall by 25% Increase by £4.6 billion USS is a “last man standing” scheme so that in the event of the insolvency of any of the participating employers in USS, the amount of any pension funding shortfall (which cannot otherwise be recovered) in respect of that employer will be spread across the remaining participant employers and reflected in the next actuarial valuation of the scheme. The trustee’s role is to set risk and return parameters which reflect the strength of the sponsoring employers and nature of the scheme’s liabilities. These parameters, taken together with anticipated returns form the basis of the trustee’s funding strategy. These parameters are informed by advice from its internal investment team, its investment consultant and the scheme actuary, as well as an independent assessment of the support available from the sponsoring employers. The trustee remains confident that it can continue to take a long-term view of scheme funding, backed as it is by a robust Higher Education (HE) sector.

The fund is invested in a wide range of asset classes, both publicly traded (including equities and fixed income) and private (including private equity, infrastructure, property and timberland). A diversified portfolio helps to spread investment risk across different asset classes and to boost the level of confidence in maintaining sufficient investment returns from the fund as a whole. This investment approach is innovative and responsible, and targeted at achieving returns required to meet the

45

Notes to the Accounts scheme’s liabilities. Recently, the trustee has invested directly in infrastructure assets. These investments are typically illiquid, but can achieve attractive inflation linked returns in ways often not available in the publicly traded markets and which can match the scheme’s liabilities to a high degree. At 31 March 2014, USS had over 162,000 active members and the institution had 2964 active members participating in the scheme. The total pension cost to USS for the institution was £19.7 m (2013: £18m). This includes £1.6m (2013: £1.6m) outstanding contributions at 31 July 2014.The contribution rate payable by the institution was 16% of pensionable salaries. University of Liverpool Pension Fund (ULPF) The ULPF is a defined benefit scheme operated in the UK. The final salary section of the Fund is closed to new entrants with effect from 31 July 2011 and from 1 August 2011, new members are eligible to join the CARE section of the Fund. A full actuarial valuation was carried out at 31 July 2012 and updated to 31 July 2014 by a qualified actuary, independent of the scheme’s sponsoring employer. The major assumptions used by the actuary are shown below. The employer currently pays contributions at the rate of 13.4% of pensionable pay plus £0.9m per annum. In addition deficit contributions of £0.6m per annum are payable. Member contributions are payable in addition at a rate of 7.5% of earnings for Final Salary members and 6.5% of pensionable pay for CARE members. The major assumptions used by the actuary were (in nominal terms):

2014 2013 2012 2011 2010 % % % % %

Rate of increase in salaries 3.50 (plus promotional

at salary scale

3.55 (plus promotional

at salary scale

2. 85 (plus promotional

at salary scale)

5.25 5.00

Allowance for rate of increase in pensions of RPI or 5% p.a. if less

N/A N/A N/A 3.60 3.35

Allowance for rate of increase in pensions of CPI or 5% p.a. if less Allowance for rate of increase in pensions of RPI or 2.5% p.a. if less

2.50

2.35

2.55

2.40

1.85

2.40

3.10

2.50

N/A

2.50

Allowance for revaluation of deferred pensions of RPI or 5% p.a. if less

N/A N/A N/A N/A 3.50

Allowance for revaluation of deferred pensions of CPI or 5% p.a. if less Allowance for revaluation of deferred pensions of RPI or 2.5% p.a. if less Allowance for revaluation of deferred pensions of CPI or 2.5% p.a. if less

2.60

N/A

2.45

2.65

N/A

2.45

1.95

N/A

1.95

3.25

N/A

2.50

N/A

2.50

N/A

Discount Rate 4.20 4.80 4.40 5.30 5.40 Inflation assumption (based on RPI) Inflation assumption (based on CPI)

3.50 2.60

3.55 2.65

2.85 1.95

3.75 3.25

3.50 N/A

Allowance for revaluation of CARE benefit (for service for new joiners after 1 August 2011) pensions of RPI or 5% p.a. if less Allowance for discretionary increases on benefits in excess if GMP accrued prior to 6 April 1997 Allowance for commutation of pension for cash at retirement

2.60

No

80% of members commute

25% for cash at

retirement

2.65

No

80% of members commute

25% for cash at

retirement

1.95

No

None

N/A

Yes

None

N/A

Yes

None

46

Notes to the Accounts

The assets in the scheme and the expected rate of return were:

Long-term

rate of return

expected at

Fair value at

Long-term

rate of return

expected at

Fair value at

Long-term

rate of return

expected at

Fair value at

Long-term

rate of return

expected at

Fair value at

Long-term

rate of return

expected at

Fair value at

2014 2014

2013 2013

2012 2012

2011 2011

2010 2010

% £m

% £m

% £m

% £m

% £m

Equities 6.8 229.9

6.0 220.2

7.4 171.8

7.70 172.7

8.00 149.8

Bonds 4.6 68.3

4.2 64.2

5.1 62.6

5.20 53.5

5.60 47.5

Cash 0.5 (0.7)

0.5 (0.2)

0.5 0.2

0.50 (0.8)

0.50 1.9

Property 6.8 11.0

6.0 9.8

7.4 11.4

7.70 11.8

8.00 11.2

Total market value of assets

308.5

294.0

246.0

237.2

210.4

2014

2013

2012

2011

2010

£m

£m

£m

£m

£m

Total market value of assets 308.5

294.0

246.0

237.1

210.4 Actuarial present value of scheme liabilities (280.3)

(247.9)

(236.5)

(293.9)

(272.0)

Surplus/(deficit) in the scheme 28.2

46.1

9.5

(56.8)

(61.6)

47

Notes to the Accounts

Analysis of the amount charged to income and expenditure account

2014 2013 £m £m Employer service costs (net of employee contributions)

8.6 7.1

Analysis of pension finance income

2014 2013 £m £m Expected return on pension scheme assets 18.4 13.4 Interest on pension liabilities (11.9) (10.4) ___ ____

Pension finance (charge)/income 6.5_ 3.0

Amount recognised in the statement of total recognised gains and losses (STRGL):

2014 2013 £m £m Actuarial return less expected return on assets - 39.3 Experience gains and losses on liabilities 1.8 1.8 Changes in assumptions underlying the present value of liabilities

(24.0) (5.1)

_____ ____

Actuarial gain/( loss) (22.2) 36.0 _____ ____

Movement in illustrative balance sheet figures during the year:

2014 2013 £m £m Deficit in scheme at beginning of year 46.1 9.5 Movement in year: Current service cost (8.6) (7.1) Contributions 6.4 4.7 Net interest/return on assets 6.5 3.0 Actuarial (loss)/gain (22.2) 36.0 ______ _____ Surplus/(deficit) in scheme at end of year 28.2 46.1 ______ _____

The total pension contribution to ULPF was £6.4 m (2013: £4.7m). The contribution rate payable by the University was 13.4% of pensionable salaries.

48

Notes to the Accounts

2014

2013

2012

2011

2010

£m

£m

£m

£m

£m Cumulative Difference between expected and actual return on scheme assets

Amount (£m)

-

39.3

(3.4)

17.8

19.9

Percentage of scheme assets

-

13%

-1%

8%

9%

Experience gains and losses on scheme liabilities

Amount (£m)

1.8

1.8

9.1

7.0

10.7

Percentage of scheme liabilities

1%

1%

4%

-2%

-4%

Effects of changes in the demographic and financial assumptions underlying the present value of the scheme liabilities

Amount (£m)

(24.0)

(5.1)

63.3

(14.7)

(20.0)

Percentage of scheme liabilities

9%

2%

-27%

5%

7%

Total amount which is recognised in the consolidated statement of total recognised gains and losses

Amount (£m)

(22.2)

36.1

69.0

10.1

10.6

Percentage of scheme liabilities

8%

-15%

-29%

-3%

-4%

29. Capitalisation of finance costs The aggregate amount of capitalised interest included within fixed asset cost is £3.0m. The value of finance costs capitalised in the year ending 31 July 2014 is £0.7m (2013 £0.1m)

49

Notes to the Accounts 30. Related party transactions

Due to the nature of the University’s operations and the composition of its Council (being drawn from local public and private sector organisations) and Senior Executive Team, it is inevitable that transactions will take place with organisations in which a member of Council or the Senior Executive Team may have an interest. All such transactions are conducted at arm’s length and in accordance with the University’s financial regulations and normal procurement procedures. It is noted that the following transactions are in this category. The value as reflected in the University accounts is shown:

Income Expenditure Balances at 31.7.14 due To/(from) the University £m £m £m Professor Sir Howard Newby Chair, Liverpool Science Park 0.1 0.3 0.1 Member of the Board, Liverpool City Region LEP - 0.2 - Mr Patrick Hackett Non Executive Director, Aintree University Hospital NHS Foundation Trust 1.8 0.2 0.3 Trustee, University of Liverpool Pension Fund 0.4 9.2 (0.9) Director, Liverpool University College 0.1 - - David McDonnell Director, University of Liverpool Pension Fund 0.4 9.2 (0.9) Director, USS Ltd - 19.7 (1.6) Director, Arena Convention Centre Liverpool Ltd - 0.1 - Mr Christopher J Baker Chairman, Aintree University Hospital NHS Foundation Trust 1.8 0.2 0.3 Professor Ian Greer University Advisor, Alder Hey Children’s Hospital NHS Trust 1.5 0.9 0.3

Chair, Regenerative Medicine and UK Regenerative Medicine Platform Board, MRC 1.1 - - HEI Representative, Health Education England 1.4 - 0.1

Mr Rob Eastwood Trustee, University of Liverpool Pension Fund 0.4 9.2 (0.9) Mrs Carol Costello Member, Board of Trustees, University of Liverpool Pension Fund 0.4 9.2 (0.9) Mrs Abila Pointing Trustee, University of Liverpool Pension Fund 0.4 9.2 (0.9) Miss Catherine Jones Director, Liverpool International College 0.1 - - Management Board (Trustee), NCUK - 0.1 - Mr John Flamson Board Director, Liverpool Science Park 0.1 0.3 0.1 Board Director/Trustee, The Reader Organisation 0.1 - -

50

Notes to the Accounts 31. Trustees Expenses

Expenses of £9,448.64 were paid to Trustees during the year. There were no payments made for serving as a Trustee. There were no payments made for services provided by a Trustee.

32. Leases

The total rental under operating leases, charged as an expense in the profit and loss account, are disclosed below:

2014 2013

£m £m

Hire of plant and machinery 0.8 0.8 Other 1.6 0.8

Commitments under leases to pay rentals during the year following the year of these accounts are given in the table below, analysed to the period in which the lease expires

Obligations under operating lease comprise 2014 2013 £m £m

Land and buildings Expiring within 1 year - - Expiring during years 2-5 0.6 0.6 Expiring thereafter 0.1 0.1

Other assets Expiring within 1 year Expiring during years 2-5 Expiring thereafter

- 0.7

-

0.1 0.7

-

Obligations under finance leases are included in creditors (note 19 and 20).

33. Discontinued Operations

Parliament granted independent status to the Liverpool School of Tropical Medicine with the effect that it is no longer a subsidiary of the University of Liverpool with effect from financial year 2013/14. This has resulted in an exceptional charge against the 2012/13 Consolidated Income and Expenditure Account of £25.0m representing the write off of the net assets of this entity.

34. Contingent Liabilities

The University is in dispute with the construction company regarding the final settlement figure relating to the Central Teaching Laboratories capital project which was completed in financial year 2012/13. The construction company is requesting £2.0m in settlement of the account.

- 164-

INDEX OF DEFINED TERMS

Amending Directive ................................. 21, 55 Bondholders ................................................... 23 Bonds .......................................................... 1, 23 business day .............................................. 27, 34 Business Day .................................................. 25 Calculation Amount ....................................... 24 Calculation Date ............................................. 25 CARE ............................................................. 17 Charter ............................................................ 36 Clearstream, Luxembourg ................................ 1 Commission's proposal ................................... 55 company ......................................................... 54 Conditions ...................................................... 20 Council ..................................................... 37, 45 Coupon Sheet ................................................. 27 Couponholders................................................ 23 Coupons .......................................................... 23 CRA Regulation ............................................... 1 CRB ................................................................ 16 Definitive Bonds ............................................. 33 ECB ................................................................ 33 EEA .................................................................. 1 EU .................................................................... 8 Euroclear .......................................................... 1 Eurosystem ..................................................... 33 Exchange Event .............................................. 33 FCA .................................................................. 1 financial adviser ............................................. 25 FS ................................................................... 16 FSMA ............................................................... 1 FTE ................................................................. 36 Gross Redemption Yield ................................ 25 Group .............................................................. 44 HEFCE ........................................................... 39 HESA ............................................................. 37 HMRC ............................................................ 54 Indebtedness ................................................... 30 interest ............................................................ 55 Interest Payment Date .................................... 24 Investor's Currency ......................................... 20 Issue Date ................................................... 1, 24 Issuer .......................................................... 1, 23 ITA ................................................................. 54 Joint Lead Managers .................................. 3, 57

KE ................................................................... 37 London Stock Exchange ................................... 1 Moody's ............................................................. 1 NGN ................................................................ 33 NHSPS ............................................................ 15 NSS ................................................................. 11 OFFA ................................................................ 9 Ordinances ...................................................... 38 participating Member States ........................... 55 Paying Agency Agreement ............................. 23 Paying Agents ................................................. 23 Permanent Global Bond .................................... 1 principal .................................................... 26, 55 principal amount ............................................. 26 principal moneys ............................................. 26 Principal Paying Agent ................................... 23 quoted Eurobond ............................................. 54 RAE ................................................................ 10 Rate of Interest ................................................ 24 Redemption Date ............................................ 25 Redemption Price ............................................ 25 REF ........................................................... 10, 40 Regulation S ...................................................... 1 Regulations ..................................................... 38 Relevant Coupons ........................................... 27 Relevant Date .................................................. 28 Relevant Indebtedness .................................... 24 Reserved Matter .............................................. 31 S2P .................................................................. 15 Savings Directive ............................................ 55 Securities Act .................................................... 1 Security Interest .............................................. 24 Stabilising Manager .......................................... 3 Statutes ............................................................ 38 Strategic Plan .................................................. 36 Subscription Agreement .................................. 57 Talons ............................................................. 23 Temporary Global Bond ................................... 1 Trust Deed....................................................... 23 Trustee ............................................................ 23 UK..................................................................... 8 ULPF ............................................................... 15 USS ................................................................. 15 XJTLU ...................................................... 12, 44

- 165-

THE ISSUER

The University of Liverpool The Foundation Building

Liverpool Merseyside L69 3BX

JOINT LEAD MANAGERS

Barclays Bank PLC 5 The North Colonnade

Canary Wharf London

E14 4BB

HSBC Bank plc 8 Canada Square London E14 5HQ

Lloyds Bank plc 10 Gresham Street London EC2V 7AE

PRINCIPAL PAYING AGENT

HSBC Bank plc 8 Canada Square London E14 5HQ

TRUSTEE

HSBC Corporate Trustee Company (UK) Limited 8 Canada Square London E14 5HQ

LEGAL ADVISERS

To the Issuer as to English law

Clifford Chance LLP 10 Upper Bank Street

Canary Wharf London E14 5JJ

Eversheds LLP 70 Great Bridgewater Street

Manchester M1 5ES

To the Joint Lead Managers and the Trustee as to English law

Allen & Overy LLP One Bishops Square

London E1 6AD

AUDITORS TO THE ISSUER

KPMG LLP 1 St Peter's Square

Manchester M2 6DS

FINANCIAL ADVISER TO THE ISSUER

NM Rothschild & Sons Limited 82 King Street

Manchester M2 4WQ