G07-0953_selex_annual_report_cover_a4.fh10

Statement of Trustee’s responsibilities in respect of - Auditors’ statement about contributions - actuarial certification confirming adequacy of contributions to meet MFR - actuarial statement confirming certification of the CHAIRMAN'S REVIEW
I am pleased to present the second Report and Accounts for the SELEX Pension Scheme (the “Scheme”). The performance of the Scheme’s TIGS investments has been encouraging with the TIGS fund returning 8.44% and an increase in value from £26.274 million to £48.753 million. Performance has exceeded our benchmark of 6.84% by 1.6%. The Scheme entered into 15 new inflation and interest rate swaps contracts in December 2006. The swaps need to be topped up over time in order to ensure the liabilities of the Scheme are matched as closely as possible. Over the last year, the swaps have fallen in value however an interim funding valuation has shown that the value of the Scheme’s liabilities have also fallen by a commensurate amount. Further detail on the Scheme’s investment strategy is set out on pages 9-11 of this report. Overall the programme is working as we intended by making our pension costs more predictable. It has been a good year for the Scheme which won three awards in November from Professional Pensions, the UK’s leading publication for the occupational pensions industry. The Scheme received awards for: These awards are recognition of the hard work put into setting up and running the Scheme by the pensions management team, my fellow trustee directors and our advisers. The Scheme has continued to mature and establish itself in the last 12 months. A “save money and reduce tax (smart)” pension facility was introduced on 1 July 2006 which was well received. A number of changes were made to the Scheme in December 2006 to reflect the introduction of the Finance Act 2004. The trustee directors worked with the Principal Employer to adopt increased flexibilities within the Scheme such as the ability to take more tax free cash on retirement and greater flexibility for members when taking their AVC funds. The Pensions Consultative Committee was also involved throughout this process. Pensions legislation and regulatory guidance has continued to evolve which presents a number of ongoing challenges for the trustee directors. The Scheme has continued to grow and is successfully developing solutions to manage the complexities inherent in its structure. I would like to express my thanks to all of the trustee directors and our advisers for their commitment over the last year. Geoff Munday Chairman of SELEX Pension Scheme (Trustee) Limited 4 September 2007 TRUSTEE AND ADVISERS
(formerly Avionics Pension Scheme (Trustee) Limited) Board of Trustee Directors
Company Secretary
Scheme address
Sigma House, Christopher Martin Road, Basildon, Essex, SS14 3EL Auditors
Solicitors
Investment adviser
Investment managers
AVC provider
Administration services
Administration address
SELEX Pension Scheme, Pensions Service Centre, Xchanging HR Services, Fulwood Park, Caxton Road, Preston PR2 9NZ. Principal Employer
SELEX Sensors & Airborne Systems Limited Participating Employers
TRUSTEE’S REPORT
Introduction

SELEX Pension Scheme (Trustee) Limited, the trustee of the SELEX Pension Scheme (“the
Scheme”), presents its report for the year ended 5 April 2007, which together with the audited
financial statements and the actuarial statement and certificate, comprise the Annual Report
and Accounts.
This report gives information about the Scheme and how it is managed, its financial
development and any significant developments during the year.

Background

The Scheme was established by a trust deed dated 24 March 2005 to provide pension and
life assurance benefits to specified employees of the Principal Employer (SELEX Sensors &
Airborne Systems Limited) and other participating employers (currently SELEX
Communications Limited, SELEX Sistemi Integrati Limited and Finmeccanica UK Limited).
The Scheme has four different sections, each with a different benefit structure. The benefits
provided by each section of the Scheme are defined benefit in nature, except for one section
of the Scheme which provides both defined benefit and money purchase benefits to
members. The design of the Scheme was driven by a need to replicate a number of schemes
run by BAE Systems plc (referred to in this report as the “BAE Legacy Schemes”).
On 29 April 2005, BAE Systems plc and Finmeccanica SpA completed the EuroSystems
transaction, resulting in a number of BAE Systems plc businesses transferring to
Finmeccanica SpA. Employees of these businesses became members of the Scheme on 30
April 2005. They left the benefits they accrued in the BAE Legacy Schemes in those
schemes. However, their entitlement within the Scheme is linked to their entitlement within
the BAE Legacy Schemes.

Management of the Scheme

The Trustee of the Scheme is SELEX Pension Scheme (Trustee) Limited.
The names of the present trustee directors and the dates they were appointed are shown on
page 2. There has been no change in the trustee directors over the year.
On 7 October 2005 the employer adopted a procedure for there to be eight trustee directors.
Four trustee directors are to be chosen by the Principal Employer (“Employer Nominated
Directors”) and four trustee directors are nominated by the membership (“Member Nominated
Directors”). The Member Nominated Directors are selected by the Pension Consultative
Committee from the members on the committee. The current term of office of the Member
Nominated Directors is for a period of two or four years. The rules of the Scheme and the
articles of association of the trustee company state that once the trustee directors have been
selected, they are appointed by SELEX Sensors & Airborne Systems Limited.
For valid decisions to be taken, a minimum of two trustee directors must be present at trustee
meetings. Decisions require the support of a majority of the trustee directors present and the
Chairman has a casting vote.
During the year, the trustee directors met frequently to deal with various matters relating to
the management of the Scheme including the appointment of advisers, agreement of the
schedule of contributions, the adoption of policies and investing the Scheme assets.
Scheme advisers

A list of advisers can be found on page 2 of this report. The Trustee appointed a new legal
adviser, Burges Salmon LLP, on 2 April 2007. This provided for legal advice to be taken from
a separate firm to the one advising the Principal Employer in line with best practice
governance principles.
Sponsoring Employers

The Principal Employer of the Scheme is SELEX Sensors & Airborne Systems Limited. Its
address is Sigma House, Christopher Martin Road, Basildon, Essex, SS14 3EL. Other
current participating employers are SELEX Communications Limited, SELEX Sistemi Integrati
Limited and Finmeccanica UK Limited.
The trustee directors recognise that the ability of the participating employers to meet their
ongoing contribution requirements is important to the funding of the Scheme and hence the
security of members' benefits. As a way of increasing the security of the Scheme, the trustee
company has entered into an agreement with the SELEX group’s parent company,
Finmeccanica S.p.A., in which Finmeccanica confirms it will provide support for the Scheme.
Finmeccanica has agreed that it will be responsible for the liabilities of the participating
employers and has undertaken to pay any outstanding Scheme contributions and pay any
Scheme deficit if the Scheme were to wind up with insufficient assets.
Financial Development

The format of the financial statements follows guidance given in the Statement Of
Recommended Practice for pension schemes with multiple benefits. Defined Benefits (“DB”)
comprise all the sections of the Scheme except for the money purchase element of the 100+
Section which is separately analysed as the Retirement Account (“RA”).
The value of the Scheme’s assets at 5 April 2007 totalled £53.8 million. This represents an
increase of £27.5 million over the value at the start of the year.
Total contributions received for the year were £34.3million. This consisted of £23.5 million
paid by the employers, £5.9 million paid by the employers on behalf of members through
smart, £4.2 million paid by members (including additional voluntary contributions) and £0.7
million age related rebates. All contributions were paid within statutory timeframes.
A comprehensive investment strategy was implemented during 2006 with the aim of
protecting the Scheme from adverse movements in long term interest rates and inflation.
From 6 April 2006 to 5 April 2007, the net movement of the investments was a decrease of
£4.5 million. However, the change in value of the swaps contracts will be offset by a
reduction in the value of the liabilities of the Scheme. More information about the investments
is contained in the Investment Report on pages 9-12.
Outgoings from the scheme were £2.7 million. Of this sum £0.9 million was for benefits
payments, £0.8 million for life insurance premiums (of which £47,000 was to purchase
additional life cover funded by members through the SBS) and £1 million for administrative
expenses. The proportion of scheme assets spent on administration is expected to reduce as
the scheme assets grow and initial set up costs are not repeated.
Further information on the financial development of the scheme is contained in the audited
financial statements set out on pages 16-23 of the Annual Report and Accounts. The
financial statements have been prepared and audited in accordance with sections 41(1) and
(6) of the Pensions Act 1995.
Actuarial valuation

The first actuarial valuation of the Scheme was carried out as at 29 April 2005. The Scheme
had no assets at that time as it had only just been set up. No members had accrued any
benefits within the Scheme at that date.
The Scheme was valued as fully funded on a discontinuance funding basis. This means that
if the Scheme had started winding up on 29 April 2005, there would have been no shortfall in
assets.
On an ongoing funding basis, the actuary reported that the Scheme had a funding deficit of
£40.9 million. The various assumptions used in this valuation are described in the actuarial
statement contained in Appendix 2 to this report. Although no one had accrued any benefits
within the Scheme on 29 April 2005, there was a shortfall at this date due to the fact that
SELEX benefits are linked to BAE Systems benefits. Specifically, SELEX benefits are linked
to pensionable service in the BAE Systems schemes and a top up payment may be payable
by the Scheme if a member would have received additional benefits in respect of this period
of pensionable service on retirement or death from their BAE Legacy Scheme had they
remained an active member of that scheme.
Typically, top up payments arise in the Scheme where an individual’s pensionable salary
grows by more than inflation. For the actuarial valuation the actuary has assumed that
salaries will on average increase at a rate of 1.5% more than inflation in future years and
therefore it is expected under this assumption that the Scheme will need to pay a top up
pension based on the pensionable service members have accrued in the BAE Systems
schemes. The level of assets that were expected to be required as at 29 April 2005 to pay
these top up payments to members as and when they become due is £40.9 million, resulting
in the deficit.
As a result of this valuation, it has been agreed that the participating employers will pay
additional contributions of 3.2% of pensionable salaries each year (in addition to the cost of
funding future benefits) to eliminate the shortfall over the next ten years. Employer and
member contribution rates to fund future benefit accrual have also been reviewed. Details of
the member contribution rates are described on page 6.
The Trustee receives regular approximate funding updates from the Scheme actuary. These
help the trustee directors understand the impact of changes in investments and salaries on
the funding position and allow the trustee directors to assess whether any action is needed.
Members will be kept updated about the funding position in the Annual Funding Statement to
members.
An interim funding update as at 5 April 2007 has been prepared by the Scheme actuary. This
shows that the Scheme had a funding deficit of £48 million on an ongoing basis. The ongoing
funding deficit as at 5 April 2006 was £55.5 million and therefore the deficit has decreased by
£7.5 million over the last 12 months. Further detail is provided on page 10 regarding how the
change in the Scheme’s liabilities interacts with the Scheme’s swaps portfolio.

The next formal valuation is likely to be carried out with effect from 5 April 2008. This
valuation will fall within the new scheme specific funding legislation.
Significant changes to the Scheme

There have been a number of changes to the Scheme Rules during the year. The significant
changes are summarised as follows:
• pensions in payment accrued on or after 6 April 2006 will increase in line with the retail prices index up to a maximum of 2.5% per annum (deed dated 5 April 2006); • member contribution rates have been changed to the following rates (deeds dated 5 • the introduction of “smart pensions”, a national insurance contributions savings • the introduction of certain flexibilities in response to the Finance Act 2004. This includes the ability to take increased tax free cash on retirement and relaxation surrounding the use of AVC funds. Various changes were also made to definitions (ie: Dependant and Incapacity) to bring them into line with the Finance Act requirements (deed dated 30 November 2006); • various minor changes to the rules following the introduction of legislation to prevent age discrimination. Members are able to continue in Pensionable Service after age 65 if they continue in employment (deed dated 30 November 2006).
Communication
“INFocus”, a newsletter for Scheme members is issued by the Trustee twice a year. In
addition members can access information from the Scheme website,
www.selexpensions.co.uk.
Trustee knowledge
There is a requirement on the trustee directors to have knowledge and understanding of the
law relating to pensions and the principles relating to the funding of the Scheme and the
investment of the Scheme’s assets. The trustee directors are also required to be conversant
with the Scheme's documents.
In order to fulfill these requirements, each of the trustee directors has attended a four day
training course and successfully sat an exam to attain the Trustee Certificate of Essential
Pensions Knowledge. The trustee directors will maintain a training log of all training attended.
Trustee meetings regularly contain updates on changes in the law or regulatory guidance and
the directors also attend conferences on issues of particular relevance to the Scheme.
Risk management

There is a requirement on the trustee directors to put in place adequate arrangements and
procedures to administer the Scheme and to monitor those procedures to ensure the safe
custody and security of the assets of the Scheme.
The trustee directors have put in place steps to monitor areas of potential risk to the Scheme.
They regularly monitor, amongst other aspects of the Scheme, investments, the funding of the
Scheme and the administration of the Scheme.
In addition, PS Independent Trustees Limited carried out a risk assessment of the Scheme in
October 2006 in order to identify any areas that may need additional monitoring. The trustee
directors have put in place a number of additional internal controls in response to this report.
Geoff Munday Chairman On behalf of SELEX Pension Scheme (Trustee) Limited 4 September 2007 SCHEME MEMBERSHIP

Total membership at 5 April 2006
Total membership at 5 April 2007
INVESTMENT REPORT
Defined Benefit
Background
The Scheme had assets of £26.3 million at the beginning of the Scheme year. In May 2006,
the second stage of the investment strategy was implemented and assets were transferred
into the Total Investment Governance Solution (TIGS) investment product run by PSigma
Investments Limited.
To reduce the impact to the Scheme of movements in long term interest rates and inflation
the trustee directors had previously implemented a program of swap contracts. This involved
entering into a number of interest rate and inflation swaps contracts and placing £12 million
collateral with Barclays Bank plc. In December 2006 the Scheme’s swaps portfolio was
refined and a swap restructure took place. The trustee directors entered into 15 swaps
contracts in order to ensure the Scheme’s liabilities remain matched as closely as possible.
Investment Principles

The trustee directors have produced a Statement of Investment Principles showing how they
decided to invest the assets of the Scheme. The Statement of Investment Principles will be
reviewed regularly by the trustee directors.
The primary objective of the Scheme is to reach 100% funding on the Scheme Actuary’s
funding basis over a period of 10 years from the Scheme’s inception. Based on an
assessment of the Scheme’s funding (at 31 March 2006) it is estimated that this can be
achieved if investment returns equal the return on gilts plus 3% per annum.
The strategy was implemented by:
• implementing a set of swaps to decrease the variability of the Scheme’s deficit to movements in both long term interest rates and inflation; and • investing the assets to seek to achieve the investment objective.
The Statement of Investment Principles (“the SIP”) reflects this strategy. A copy of the SIP is
available to members on request.
Investment Managers
The trustee directors have delegated responsibility for the day-to-day management of the
assets to PSigma Investments Limited. It has been appointed in two roles:
• to implement the swaps strategy; and • to actively manage assets through its Total Investment Governance Solution (TIGS) investment product, a pooled vehicle covering a wide range of asset classes and investment managers. Market Comment
The TIGS investment strategy over the period was broadly diversified across a range of asset
classes. The TIGS allocation to UK property was reduced to zero during 2006 after extremely
strong returns to lock-in the profits generated. Our advisers still believe that property is an
attractive asset class, but that there are better opportunities outside the UK, and in keeping
with this, an investment was made during Q1 2007 in the Mosaic Property Fund, through
which investments are made in central and European commercial property.
A new investment was made in a leveraged loans fund which reflected our desire to seek
exposure to both corporate bonds and private equity. A leveraged loans fund was chosen to
achieve this as our advisers believe that this is a more secure route which gained the required
exposure but at a lower level of risk
The allocation to commodities was increased during Q4 2006. From a strategic perspective,
this investment was made as it was felt that commodities are a good diversifier to equities, an
important factor as it is believed volatility will increase across the board in 2007. Another
element to this decision was the continued emergence of China as a major global economic
force, and the commensurate ongoing demand for commodities. From a tactical perspective,
the way that we have structured the investment means that we will be able to skew the
allocation towards and away from harder commodities as our short-term views change.
During Q1 2007, the commodity allocation was split into energy and non-energy allocations.
Over the year, TIGS has been overweight in both global bonds and emerging market debt.
This position has been due to our less bullish view on equities (equity exposure was reduced
during 2006) and the attractive yield exposure available through these asset classes. We
believe that these positions offer both strategic and tactical advantages.
Investment performance

Swaps

The swaps were designed to protect the Scheme from adverse movements in bond markets
(linked to changes in long term interest rates and inflation) which directly impact the value of
the Scheme’s liabilities. In simple terms, it is an arrangement where, if bonds rise significantly
(and so too the liabilities), an investment bank pays the Scheme to cover the rise in bonds in
excess of cash. If bonds fall, the Scheme pays the investment bank to cover the fall in bonds
in excess of cash, but importantly the liabilities will have fallen in value as well.
As at 5 April 2007, the mark to market valuation of the swap liability resulted in an unrealised
loss as follows:
The negative value for the swaps mark to market represents a fall in the value of swaps from the Scheme’s perspective. This reflects adverse movements in long term interest rates and expected inflation over the period. The value of the Scheme liabilities have fallen by a commensurate amount, to offset the impact of rate changes on the Scheme’s finances. The Scheme actuary produced an interim funding valuation as at 5 April 2007, which
illustrated that the Scheme funding deficit had reduced over the year by £7.5 million. As
shown on page 21, the value of the swaps arrangements reduced over the period 5 April
2006 – 5 April 2007 by £8.761 million, due to changes in inflation and increasing interest
rates. Over the same period, the Scheme actuary has calculated that the Scheme liabilities
reduced in value by a greater amount at approximately £11.6 million, due to changes in
inflation and increasing interest rates. One reason for the reduction in Scheme deficit over
the year was therefore that the liabilities reduced in value, due to changes in interest rates
and inflation, by a greater amount than the swaps fell in value.
The collateral in respect of the swap program is held by Barclays Bank plc in an interest
bearing deposit account designated in the name of the Trustee. The value of the collateral at
5 April 2007 was £10.7m (2006 £12.1m).

The trustee directors monitor the performance of the swaps on a monthly basis and the
Scheme’s manager is informed on a weekly basis.

TIGS

In May 2006, Scheme assets (separate to the swap contracts) were invested in the Total
Investment Governance Solution (TIGS) service run by PSigma Investments Limited. TIGS is
a managed service designed to deliver performance in excess of a client specific target
through exposure to diversified investment arrangements. PSigma Investments Limited
invests and manages the Scheme’s assets on the trustee directors’ behalf.
The service reduces the risks and costs of decision delay and provides access to all aspects
of asset allocation, such as commodities, high yield bonds, leveraged loans and currency
hedging, that would ordinarily not be available to schemes of the size of the Scheme. As well
as the delegated responsibility for dynamic asset allocation, PSigma Investments Limited are
also responsible for selecting, combining and replacing active fund managers.
The trustee directors monitor the performance of TIGS on a quarterly basis and the Scheme’s
manager is informed on a monthly basis of the assets held.
The investment objective for TIGS is a return of LIBOR + 3% per annum. Over the year, TIGS has returned 8.44% against an objective of 6.84%. Since inception the fund has therefore outperformed its objective by 1.6%. Custody of investments

The collateral and swap contracts are held with Barclays Capital in the Trustee’s name. As
such, Barclays Capital ensure their safe custody.
The TIGS assets are held by KAS Bank N.V. in the name of our investment manager’s
nominee company, Worldwide Nominees Limited.
Retirement Account
Members of the 100+ Section have contributions equal to 2% of their Basic Salary put into
their Retirement Account. In addition, they may pay additional contributions into their
Retirement Account.
The members’ Retirement Accounts are held with Standard Life plc and members have the
choice of investing their account in one or more of eleven funds: Pensions Sterling One Fund,
Pension Property One Fund, Pension Fixed Interest One Fund, Pension Index Linked One
Fund, Pension Cautious Managed One Fund, Pension Protection One Fund, Pension
Managed One Fund, Pension UK Equity One Fund, Pension FTSE Tracker One Fund,
Pension Global Equity 50:50 One Fund and Pension Fund Investment Strategy (lifestyle
fund). If a member chooses the Pension Fund Investment Strategy, they must place the
whole of their Retirement Account in this fund.
The performance of the funds can be obtained from Standard Life plc from its website,
www.standardlife.co.uk/pensions.
STATEMENT OF TRUSTEE’S RESPONSIBILITIES IN RESPECT OF THE FINANCIAL
STATEMENTS
The Scheme’s Trustee is responsible for obtaining audited financial statements in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) and for making available certain other information about the Scheme in the form of an Annual Report. The financial statements are the responsibility of the Trustee. Pension scheme regulations require the Trustee to make available to Scheme members, beneficiaries and certain other parties, audited financial statements for each Scheme year which: • show a true and fair view of the financial transactions of the Scheme during the Scheme year and of the amount and disposition at the end of that year of the assets and liabilities, other than liabilities to pay pensions and benefits after the end of the Scheme year, and • contain the information specified in the Schedule to The Occupational Pension Schemes (Requirement to obtain Audited Accounts and a Statement from the Auditor) Regulations 1996, including a statement whether the financial statements have been prepared in accordance with the Statement of Recommended Practice ‘Financial Reports of Pension Schemes’ (revised November 2002). The Trustee has supervised the preparation of the financial statements and have agreed suitable accounting policies, to be applied consistently, making any estimates and judgements on a prudent and reasonable basis. The Trustee is responsible under pensions legislation for ensuring that there is prepared, maintained and from time to time revised a schedule of contributions showing the rates of contributions payable to the scheme by or on behalf of the employer and the active members of the Scheme and the dates on or before which such contributions are to be paid. The Trustee is also responsible for keeping records in respect of contributions received in respect of any active member of the Scheme and for monitoring whether contributions are made to the Scheme by the employer in accordance with the schedule of contributions. Where breaches of the schedule occur, the Trustee is required by the Pensions Act 1995 and 2004 to consider making reports to the Pensions Regulator and the Members. The Trustee also has a general responsibility for ensuring that adequate accounting records are kept and for taking such steps as are reasonably open to them to safeguard the assets of the Scheme and to prevent and detect fraud and other irregularities, including the maintenance of an appropriate system of internal control. Geoff Munday Chairman On behalf of SELEX Pension Scheme (Trustee) Limited 4 September 2007 INDEPENDENT AUDITORS’ REPORT TO THE TRUSTEE OF THE SELEX PENSION
We have audited the Scheme’s financial statements for the year ended 5 April 2007 which
comprise the fund account, the net assets statement and the related notes 1 to 12. These
financial statements have been prepared on the basis of the accounting policies set out
therein.
This report is made solely to the Trustee in accordance with regulation 3 (c) of the
Occupational Pension Schemes (Requirement to obtain Audited Accounts and a Statement
from the Auditor) Regulations 1996, made under the Pensions Act 1995. Our audit work has
been undertaken so that we might state to the Trustee those matters we are required to state
to it in an auditors’ 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 Trustee for our audit work, for
this report, or the opinions we have formed.
Respective responsibilities of Trustee and auditor
As described in the Statement of Trustee’s Responsibilities, the Scheme’s Trustee is
responsible for obtaining audited financial statements which comply with applicable United
Kingdom law and Accounting Standards (United Kingdom Generally Accepted Accounting
Practice) and for making available certain other information about the Scheme in the form of
an Annual Report.
Our responsibility is to audit the financial statements in accordance with relevant legal and
regulatory requirements and International Standards on Auditing (UK and Ireland).
We report to you our opinion as to whether the financial statements show a true and fair view
and contain the information specified by the relevant legislation. We also report to you if, in
our opinion, we have not received all the information and explanations that we require for our
audit, or the information specified by law is not disclosed.
We read the other information contained in the Annual Report and consider the implications
for our report if we become aware of any apparent misstatements or material inconsistencies
within the financial statements. The other information comprises Trustee’s Report, Investment
Report, Actuarial Statements and Compliance Statement.

Basis of audit opinion
We conducted our audit in accordance with International Standards on Auditing (UK and
Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test
basis, of evidence relevant to the amounts and disclosures in the financial statements. It also
includes an assessment of the significant estimates and judgements made by or on behalf of
the Trustee in the preparation of the financial statements and of whether the accounting
policies are appropriate to the Scheme’s circumstances, consistently applied and adequately
disclosed.
We planned and performed our audit so as to obtain all the information and explanations
which we considered necessary in order to provide us with sufficient evidence to give
reasonable assurance that the financial statements are free from material misstatement,
whether caused by fraud or other irregularity or error. In forming our opinion, we also
evaluated the overall adequacy of the presentation of information in the financial statements.

INDEPENDENT AUDITORS’ REPORT TO THE TRUSTEE OF THE SELEX PENSION
SCHEME (continued)

Opinion

In our opinion:
- the financial statements show a true and fair view, in accordance with United Kingdom
Generally Accepted Accounting Practice, of the financial transactions of the Scheme during
the Scheme year ended 5 April 2007 and of the amount and disposition at that date of its
assets and liabilities, other than liabilities to pay pensions and benefits after the end of the
Scheme year; and
- the financial statements contain the information specified in Regulation 3 of and the
Schedule to The Occupational Pension Schemes (Requirement to obtain Audited Accounts
and a Statement from the Auditor) Regulations 1996 made under the Pensions Act 1995.

Ernst & Young LLP
Registered Auditor
Southampton
Date
FINANCIAL STATEMENTS
FUND ACCOUNT FOR THE YEAR ENDED 5 APRIL 2007
Fund Account
Contributions and benefits
Contributions receivable
Net additions
from dealings with members
Return on Investments
Investment income
Net return on investments
Net increase in
the Fund during the year
Net assets of the Scheme
At 6 April
At 5 April
The notes on pages 18 to 23 form part of these financial statements NET ASSETS STATEMENT AT 5 APRIL 2007
Net Assets Statement
Net assets of the Scheme
At 5 April
These financial statements were approved by SELEX Pension Scheme (Trustee) Limited on 4 September 2007. Geoff Munday The notes on pages 18 to 23 form part of these financial statements NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 5 APRIL 2007
Basis of preparation
The financial statements have been prepared in accordance with the Occupational Pension Schemes (Requirement to obtain Audited Accounts and a Statement from the Auditor) Regulations 1996 and with the guidelines set out in the Statement of Recommended Practice, Financial Reports of Pension Schemes. The financial statements summarise the transactions of the Scheme and deal with the net assets at the disposal of the Trustee. They do not take account of obligations to pay pensions and benefits which fall due after the end of the Scheme year. The actuarial position of the Scheme, which does take account of such obligations, is dealt with in the statements by the Scheme Actuary included in the annual report and these financial statements should be read in conjunction with them.
2. Accounting
policies
The principal accounting policies are as follows: 2.1 Contributions and benefits Contributions and benefits are accounted for in the period they fall due. Individual transfers in or out are accounted for when the transfer has been agreed by both parties and the receiving scheme has accepted liability for the transfer. Interest on cash deposits is accrued on a daily basis. Income from overseas investments is translated into sterling at rates of exchange ruling on the date of receipt. Assets and liabilities in foreign currencies are translated into sterling at the rates of exchange ruling at the year end. Expenses are accounted for on an accruals basis. Investments are included at market value at the end of the Scheme year as follows: (i) Interest rate and inflation swaps are valued at mid valuations as notified by Barclays Capital. Investments in pooled investment vehicles (unit trusts/managed funds) are valued at the average of the bid and offer prices ruling at the year end. Assets and liabilities in foreign currencies are translated into sterling at the rates of exchange ruling at the year end. Additional voluntary contribution and defined contribution with-profits policies are valued at market value as notified by the AVC provider.
3. Contributions
receivable
Employers
Normal
Members
Normal
Age Related Rebates
1 Employers’ special contributions are determined by the trustee directors upon the
recommendations of the Actuary and relate to augmentation of members’ benefits.
2 Members of the 2000 Section of the Scheme can pay additional voluntary contributions to
the Selected Benefit Scheme (SBS) in order to increase their retirement benefits and/or death
in service benefits. SBS contributions are invested in the same way as the Scheme’s other
assets.
3 Members of all sections can pay additional voluntary contributions (AVCs) to Standard Life
plc, which are invested separately from the Scheme’s other assets. The proceeds of each
member’s AVC account is used to provide additional benefits for, or in respect of, the member
by the purchase of an annuity or by increasing the amount of a member’s Scheme pension on
retirement. Members of the 100+ section of the Scheme who pay additional voluntary
contributions are invested in the same way as other contributions to the Retirement Accounts
held with Standard Life plc.
4 Age Related Rebates from the DSS are based on calculations performed by the
Administrators.
4. Other
5. Benefits
Payments to and on account of leavers
payments

Other payments represent premiums paid by the Employer to Legal & General Assurance
Society Limited who underwrite the Scheme’s death in service benefits. £760,000 represents
premiums for the Scheme’s death in service benefits and £47,000 represents premiums paid
by members for additional death in service benefits through the Selected Benefits Scheme.
8. Administrative
expenses
General administration expenses of the Scheme, which are in respect of each section of the Scheme, are borne by the Scheme as a whole. A charge to cover administration expenses for the Retirement Accounts is deducted by Standard Life plc from each Retirement Account before allocation to members' individual accounts and therefore the Scheme does not bear this cost.
9. Investment

10. Investments

Defined Benefits
Pooled investment vehicles
Cash deposits
Accrued income
Retirement Account
Pooled investment vehicles
Total investment assets
The change in market value of investments during the year comprises all increases and decreases in the market value of investments held at any time during the year, including profits and losses realised on sales of investments during the year and initial charges on swaps.
10. Investments
(continued)

Pooled Investment vehicles
Unitised Funds
Property
A breakdown of the underlying exposure of the pooled investment vehicles in the defined
benefit section is provided in the Investment Report on page 11.
The swaps held at the year end have an expiry date of between 4 and 50 years.
Swaps
Interest
Included in the market value is an allowance for initial charges on the swaps. The initial charges are payable on closure of the contract. The charge reflected in the market value at 5 April 2007 is £146,900 (2006 £441,600). The following investments represent a concentration of investments: AVC Investments

The Trustee holds assets invested separately from the main fund in the form of individual
insurance policies to secure additional benefits on a money purchase basis. Members
participating in this arrangement each receive an annual statement made up to 5 April
confirming the amounts held to their account and the movements in the year. The aggregate
amount of AVC investments is as follows:
Current assets and liabilities
Contributions due in respect of Employers Contributions due at the end of the year have been paid to the Scheme in accordance with the Schedule of Contributions. Related party transactions
Transactions with related parties of the Scheme have been disclosed in the Financial Statements as follows: Contributions receivable from employers are disclosed in note 3. The Principal Employer, SELEX Sensors and Airborne Systems Limited, pays the Scheme’s administration expenses to enable Value Added Tax to be recovered and then recharges the net expense to the Scheme. Administration expenses are disclosed in note 8. Contributions in respect of certain trustee directors who are active members of the Scheme are calculated and paid to the Scheme in accordance with the rules.
COMPLIANCE STATEMENT

Constitution of the Scheme
The SELEX Pension Scheme is a pension and life assurance benefits scheme constituted and
administered in accordance with the Rules. It was established by a trust deed dated 23 March
2005 and has a number of different benefit structures, including defined benefits, money
purchase benefits and hybrid benefits.
Copies of the rules which govern the Scheme are available for inspection on request to
Xchanging at the address on Page 25.
Taxation

The Scheme was approved as an Exempt Approved Scheme under Chapter I of Part XIV of
the Income and Corporation Taxes Act 1988 and has therefore become a Registered Scheme
for the purposes of the Finance Act 2004.
Contracting-Out

Members of the Scheme who participate in the Main Section are in contracted out employment
for the purposes of the State Second Pension (previously the State Earnings Related Pension
Scheme) under a certificate issued by the National Insurance Contributions Office.
Pensions in payment

The Scheme commenced paying pensions in 2005. At the end of the year there were 170
pensioners. Increases to pensions in payment during the year were applied as at 1 May 2006.
Pensions in payment are increased in line with the rise in the Retail Prices Index (capped at
5%) for pension earned prior to 6 April 2006 and in line with the rise in the Retail Prices Index
(capped at 2.5%) for pension earned on and after 6 April 2006.
Transfer Values

All cash equivalents (transfer values) paid during the year were calculated and verified in the
manner required by the Regulations issued under section 97 of the Pension Schemes Act
1993. None of the cash equivalents was less than the amount provided by section 94(1) of
the Pension Schemes Act 1993. The Trustee makes no allowance in the calculation of transfer
values for discretionary benefits.

Employer-related investments

The Scheme held no employer-related investments at any time during the year.
Queries relating to Scheme benefits and administration
Enquiries about the Scheme generally, about individual entitlement to benefits or requests for
Scheme documentation should be directed to:
SELEX Pension Scheme Pensions Service Centre Xchanging HR Services Fulwood Park Caxton Road Preston PR2 9NZ The Trustee has adopted a dispute resolution procedure in line with the requirements of the Pensions Act 1995. Details of this procedure are available from the Pensions Service Centre at the above address. If a member has a complaint against the Scheme which has not been resolved to their satisfaction through the Scheme's internal dispute resolution procedure, the Pensions Advisory Service (TPAS), an independent voluntary organisation, may be able to offer advice. enquiries@pensionsadvisoryservice.org.uk
For problems that cannot be settled through TPAS, the Pensions Ombudsman (based at the
same address) has power to investigate and determine complaints or disputes of fact or law in
relation to occupational pension schemes. The Pensions Ombudsman will only investigate
cases where the internal dispute resolution procedure has been exhausted and TPAS have
been unable to resolve the complaint. The Pensions Ombudsman can be contacted at 11
Belgrave Road, London, SW1V 1RB.
The Pensions Regulator can intervene if it considers that a Scheme's trustee, advisers, or the
employer are not carrying put their duties correctly. The address for the Pensions Regulator is
Napier House, Trafalgar Place, Brighton, BN1 4DW. Full details about the Pensions
Regulator’s role are available on its website: www.thepensionsregulator.gov.uk.
Pensions Tracing
A pensions tracing service is carried out by the Department for Work and Pensions. This
service can be contacted at:
Pension Tracing Service The Pension Service Whitley Road Newcastle upon Tyne APPENDIX 1: CONTRIBUTIONS
SUMMARY OF CONTRIBUTIONS FOR THE YEAR ENDED 5 APRIL 2007
During the year ended 5 April 2007, the contributions payable to the Scheme were as follows: Required by the Schedule of Contributions
Normal contributions
Other Contributions payable
Selected Benefits Scheme (additional pension benefits)
Selected Benefits Scheme (death in service) Age Related Rebates
Additional voluntary contributions
A new schedule of contributions was signed in respect of contribution increases which took effect from 1 May 2006.The new schedule was certified by the Actuary on 12 May 2006 and her certificate can be found in Appendix 2 on Page 29. Geoff Munday Chairman On behalf of the Trustee of the SELEX Pension Scheme 4 September 2007 AUDITORS’ STATEMENT ABOUT CONTRIBUTIONS

Independent Auditors’ Statement about Contributions, under Regulation 4 of the
Occupational Pension Schemes (Requirement to obtain Audited Accounts and a
Statement from the Auditor) Regulations 1996, to the Trustee of the SELEX Pension
Scheme.

We have examined the summary of contributions to the SELEX Pension Scheme in respect of
the scheme year ended 5 April 2007 to which this statement is attached.
This statement is made solely to the Trustee in accordance with regulation 4 of the
Occupational Pension Schemes (Requirement to obtain Audited Accounts and a Statement
from the Auditor) Regulations 1996, made under the Pensions Act 1995. Our work has been
undertaken so that we might state to the Trustee those matters we are required to state to it in
an auditors’ statement and for no other purpose. To the fullest extent permitted by law, we do
not accept or assume responsibility to anyone other than the Trustee for our work, for this
statement, or the opinion we have formed.

Respective responsibilities of Trustee and auditor
As described in the Statement of Trustee’s Responsibilities, the Scheme’s Trustee is
responsible for ensuring that there is prepared, maintained and from time to time revised a
schedule of contributions showing the rates and due dates of certain contributions payable
towards the scheme by or on behalf of the employer and the active members of the scheme.
The Scheme’s Trustee is also responsible for keeping records in respect of contributions
received in respect of any active member of the Scheme and for monitoring whether
contributions are made to the scheme by the employer in accordance with the schedule of
contributions.
Our responsibility is to provide a statement about contributions paid under the schedule of
contributions and to report our opinion to you.
Basis of statement about contributions
We planned and performed our work so as to obtain all the information and explanations
which we considered necessary in order to give reasonable assurance that contributions
reported in the attached summary of contributions, have in all material respects been paid at
least in accordance with the relevant requirements. For this purpose the work that we carried
out included examination, on a test basis, of evidence relevant to the amounts of contributions
payable to the scheme and the timing of those payments under the schedule of contributions.
Our statement about contributions is required to refer to those breaches of the schedule of
contributions which come to our attention in the course of our work.

Statement about contributions
In our opinion, contributions for the Scheme year ended 5 April 2007, as reported in the
attached summary of contributions, have, in all material respects, been paid from 6 April 2006
to 11 May 2006 at least in accordance with the schedule of contributions as agreed between
the Trustee and the Principal Employer on 29 April 2005 and from 12 May 2006 at least in
accordance with the schedule of contributions certified by the Scheme Actuary on 12 May
2006.
Ernst & Young LLP
Registered Auditor
Southampton
Date
APPENDIX 2: ACTUARIAL STATEMENTS

Actuarial Statement made for the purposes of Regulation 30 of the Occupational
Pension Schemes (Minimum Funding Requirement and Actuarial Valuations)
Regulations 1996

Name of scheme
SELEX Pension Scheme
Security of prospective rights
In my opinion, the resources of the Scheme are likely in the normal course of events to meet in full the liabilities of the Scheme as they fall due. In giving this opinion, I have assumed that the following amounts will be paid to the Scheme: at the rates detailed in the Rules of the Scheme Payments from the Secretary of State: age-related rebates for members contracted out on a as defined in the Rules for each section of the Scheme
This statement covers the financial condition of the Scheme on a long term ongoing basis and
not on discontinuance. The position will be reviewed at the next actuarial valuation, due no
later than 29 April 2008. If, over the period from this valuation date to the next, the valuation
assumptions, particularly those related to investment returns, are not achieved, then higher
contributions would be required following the next valuation.

2.
Summary of methods and assumptions used
The contributions are subject to the minimum amounts needed to satisfy the MFR requirements under the Pensions Act 1995. Further details of the methods and assumptions used are set out in my Actuarial Valuation addressed to the Trustee dated 24 April 2006. Caroline Pearson
Fellow of the Institute of Actuaries
Punter Southall & Co London SW1Y 4UJ
Actuarial Statement given for the purposes of Section 58 of the Pensions Act 1995
(Certification of the Schedule of Contributions)

Name of scheme
SELEX Pension Scheme
Adequacy of rates of contributions 1. I hereby certify that, in my opinion, the rates of the contributions payable in accordance with this schedule of contributions are adequate for the purpose of securing that throughout the period it covers the scheme will meet the minimum funding requirement imposed by section 56(1) of the Pensions Act 1995. 2. In forming this opinion I have complied with the requirements imposed by sections 56(3) and 58 of the Pensions Act 1995, the Occupational Pension Schemes (Minimum Funding Requirement and Actuarial Valuations) Regulations 1996 and the mandatory guidelines on minimum funding requirement (GN 27), prepared and published by the Institute of Actuaries and the Faculty of Actuaries, and have made the assumptions prescribed by them. Caroline Pearson, FIA Punter Southall & Co Ltd 126 Jermyn Street London SW1Y 4UJ Note: The certification of the adequacy of rates of contributions for the purpose of securing this meeting of the minimum funding requirement is not a certification of their adequacy for the purpose of securing the scheme’s liabilities by the purchase of annuities, if the scheme were wound up.

Source: http://www.selexpensions.co.uk/tmp/Final_Signed_Accounts_5.4.2007.pdf