FINANCIAL HIGHLIGHTS CHAIRMAN'S STATEMENT CHIEF EXECUTIVE'S STATEMENT BROADENING OUR INTERNATIONAL PROFILE GROUP FINANCE DIRECTOR'S REPORT BOARD OF DIRECTORS CORPORATE CITIZENSHIP CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1 Accounting policies 2 Foreign currencies 3 Segment information 4 Operating profit adjusting items 5 Income tax expense 6 Minority interests - Income statement 7 Earnings and earnings per share 8 Investment income (net of investment losses) 9 Banking interest and similar income 10 Fee and commission income, and income from service activities 11 Finance costs (including interest and similar expenses) 12 Banking interest expense 13 Fees and commission expense, and other acquisition costs 14 Other operating and administrative expenses 15 Acquisition of subsidiaries 16 Goodwill and other intangible assets 17 Investments in associated undertakings 18 Investment property 19 Property, plant and equipment 20 Operating lease arrangements 21 Finance lease arrangements 22 Deferred tax assets and liabilities 23 Insurance contract provisions 24 Deferred acquisition costs 25 Loans, receivables and advances 26 Derivative financial instruments - assets and liabilities 27 Financial assets fair valued through income statement 28 Other financial assets 29 Short-term securities 30 Other assets 31 Assets and liabilities held-for-sale 32 Financial liabilities fair valued through income statement 33 Borrowed funds 34 Provisions 35 Deferred revenue 36 Amounts owed to depositors 37 Other liabilities 38 Equity 39 Minority interests - balance sheet 40 Post balance sheet events 41 Post employment benefits 42 Share-based payments 43 Dividends 44 Contingent liabilities 45 Commitments 46 Related parties 47 Principal subsidiaries and Group enterprises 48 Financial risk 49 Insurance risk

COMPANY FINANCIAL STATEMENTS NOTES TO THE COMPANY FINANCIAL STATEMENTS EUROPEAN EMBEDDED VALUE SUPPLEMENTARY INFORMATION NOTICE OF ANNUAL GENERAL MEETING SHAREHOLDER INFORMATION

Notes to the consolidated financial statements

For the year ended 31 December 2006

38 Equity

(i) Share Capital

		£m
Authorised and issued share capital	At 31 December 2006	At 31 December 2005
Authorised ordinary shares of 10p each	750	600
Issued ordinary shares of 10p each	550	410

The Company's authorised share capital was increased to £750 million, divided into 7,500,000,000 ordinary shares of 10p each in accordance with a resolution of shareholders passed at an Extraordinary General Meeting on 14 November 2005, conditional upon the Company's offer to acquire Försäkringsaktiebolaget Skandia (publ) becoming or being declared wholly unconditional. This condition was satisfied on 26 January 2006.

(ii) Perpetual preferred callable securities
In addition to the Group's senior and subordinated debt, the Group issued perpetual preferred callable securities with a total carrying value of £688 million during 2005. In accordance with IFRS accounting standards these instruments are classified as equity and disclosed within equity shareholders' funds as shown in Consolidated statement of changes in equity.

On 24 March 2005 the Group issued £350 million of perpetual preferred callable securities. These are unsecured and subordinated to the claims of senior creditors and the holders of any priority preference shares. For an initial period to 24 March 2020 interest is payable at a fixed rate of 6.4 per cent per annum annually in arrears. From 24 March 2020 interest is reset semi-annually at 2.2 per cent per annum above the Sterling inter-bank offer rate for six month Sterling deposits, and is payable semi-annually in arrears. Coupon payments may be deferred at the Group's discretion. The perpetual preferred callable securities are redeemable at the discretion of the Company at their principal amount from 24 March 2020.

On 4 November 2005 the Group issued further perpetual preferred callable securities in the form of €500 million Step-up Option B Undated Subordinated Notes issued under the Global Note Programme. These are unsecured and subordinated to the claims of senior creditors and the holders of any priority preference shares. For an initial period to 4 November 2015 the notes pay interest at a fixed rate of 5.0 per cent per annum annually in arrears. After this date the interest is reset semi-annually at 2.63 per cent per annum above 6 month EURIBOR and is payable semi-annually in arrears. Coupon payments may be deferred at the Group's discretion. The notes may be redeemed at their principal amount from 4 November 2050.