Commission Report - Annual Report from the Commission on the Guarantee Fund and its Management in 2003
Date: 2004-06-04
Institutions: European Commission
Subjects: activity report, credit guarantee, financial management, fund (EU)

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 4.6.2004 
COM(2004) 406 final 

. 

COMMISSION REPORT 

Annual Report from the Commission 
on the Guarantee Fund and its Management in 2003 

. 

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TABLE OF CONTENTS 

1. 

2. 

3. 

3.1. 

3.2. 

3.3. 

4. 

4.1. 

4.2. 

Legal bases ................................................................................................................... 4 

Position of the Fund at 31 December 2003.................................................................. 4 

Payments into the Fund................................................................................................ 5 

Payments from the general budget in the course of the financial year ........................ 5 

Interest from financial investment of the Fund's liquid assets ..................................... 5 

Recovery from defaulting debtors................................................................................ 7 

The Fund's liabilities .................................................................................................... 7 

Default payments ......................................................................................................... 7 

EIB remuneration ......................................................................................................... 7 

ANNEX I.................................................................................................................................... 8 

Legal bases for payments to the Guarantee Fund from the general budget ............................... 8 

1. 

2. 

Decisions covered by Transfer 13/2003....................................................................... 8 

Decision covered by Transfer 38/2003 ........................................................................ 8 

ANNEX II .................................................................................................................................. 9 

Guarantee Fund - Management Report at 31 December 2003................................................... 9 

1. 

2. 

2.1 

2.2 

3. 

3.1 

3.2 

3.3 

Development of the Fund in 2003................................................................................ 9 

Situation of the Fund.................................................................................................. 10 

The Fund's resources at 31 December 2003............................................................... 10 

The Fund's assets at 31 December 2003 .................................................................... 10 

General and segmental analysis of the Guarantee Fund. ........................................... 10 

Liquidity analysis ....................................................................................................... 10 

General analysis of the results of the Fund ................................................................ 11 

Analysis by segment .................................................................................................. 12 

3.3.1 

Performance analysis of treasury operations.............................................................. 12 

3.3.2  Analysis of bond portfolio results .............................................................................. 14 

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ANNEX III.1............................................................................................................................ 19 

Situation of the Guarantee Fund at 31 December 2003 ........................................................... 19 

ANNEX III.2............................................................................................................................ 20 

Performance of the Guarantee Fund's bond investment portfolio............................................ 20 

ANNEX III.3............................................................................................................................ 21 

Consolidated financial balance sheet of the Guarantee Fund at 31 December 2003 ............... 21 

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1. 

LEGAL BASES  

(EC,  Euratom)  No 2728/94  of  31 October 1994 

Council  Regulation 
(“the 
Regulation”)  set  up  a  Guarantee  Fund  for  external  operations  in  order  to  repay  the 
Community's  creditors  in  the  event  of  default  by  beneficiaries  of  loans  granted  or 
guaranteed by the Community (OJ L 293, 12.11.1994, p. 1). 

In accordance with Article 6 of the Regulation, the Commission  entrusted financial 
management  of  the  Fund  to  the  European  Investment  Bank  (EIB)  under  an 
Agreement  signed  between  the  Community  and  the  EIB  on  23 November 1994  in 
Brussels  and  on  25 November 1994  in  Luxembourg  (“the  Agreement”).  The 
Regulation  was  amended  by  the  Council  Regulation  (EC,  Euratom)  No 1149/99  of 
25 May 1999 (OJ L 139, 2.6.1999, p. 1 (“the Amended Regulation”). 

Under Article 8.2 of the Agreement, by 1 March of each year the Bank must send the 
Commission  a  status  report  on  the  Fund  and  its  management,  the  revenue  and 
expenditure account and the financial statement for the Fund for the preceding year. 
An extract from the report covering the year 2003 can be found in Annex II. 

In  addition,  Article 7  of  the  Regulation  establishing  the  Fund  requires  the 
Commission to send the European Parliament, the Council and the Court of Auditors 
a report on the situation of the Fund and its management for each financial year by 
31 March of the following year. 

2. 

POSITION OF THE FUND AT 31 DECEMBER 2003 

At  the  close  of  the  2003  financial  year,  the  Fund  totalled  € 1 600 474 107.12 
(Annex III.1). This is the sum, since the Fund was established, of all: 

– 

– 

– 

– 

– 

budget payments to the Fund (€ 2 350 289 500.00); 

successive yearly net results (€ 519 516 533.79); 

late repayments from non-member countries (€ 568 217 579.44); 

debts corresponding to the repayments not made to the EIB (€ 772 207.20); 

less  calls  on 
repayments to the budget of the surplus in the Fund (€ 1 272 850 000.00). 

the  Fund's  resources  (€ 473 490 274.02)  and  successive 

After  the  deduction  of  accruals  accounts  (EIB's  remuneration  included),  the  Fund 
total at 31 December 2003 amounts to € 1 592 127 899.92. 

The  total  amount  of  the  consolidated  balance  sheet  is  € 1 605 780 170.51.  This 
includes the total amount of the Fund plus the arrears covered by the Fund and the 
accruals of interests on late payments (for details see Annex III.3). 

Article 3  of  the  Regulation  requires  that  the  amount  of  the  Fund  has  to  reach  an 
appropriate level (target amount) set at 9% of the total outstanding capital liabilities 
arising from each operation, plus unpaid interest due. 

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Outstanding  lending  and  loan  guarantee  operations  for  non-member  countries  plus 
unpaid  interest  due  totalled  € 15 210 806 353.79  at  31 December 2003,  of  which 
€ 149 038 978.87 was accounted for by interest due but not yet paid. 

The ratio between the Fund's resources and outstanding capital liabilities within the 
meaning of the amended Regulation was 10.47%. Since this is higher than the target 
amount  of  9%,  a  repayment  from  the  Fund  to  the  general  budget  of  the  European 
Union  had  to  be  made,  as  provided  for  in  the  third  paragraph  of  Article 3  of  the 
Regulation. The amount to be repaid to the budget came to € 223 160 000.00. 

3. 

PAYMENTS INTO THE FUND 

3.1. 

Payments from the general budget in the course of the financial year 

The legal bases for the provisioning arrangements are described in Annex I. 

The  Council  Regulation  (EC)  No 2040/2000  of  26 September 2000  (OJ L 244, 
29.9.2000, p. 27) concerning budgetary discipline authorised the entry in the general 
budget  of  a  reserve  for  loan  and  loan  guarantee  operations.  This  item,  which  was 
allocated  provisions  of  € 217 million  in  2003,  is  used  for  endowing  the  Fund  by 
transferring amounts into the budget item for payments into the Fund. 

In  line  with  the  legal  bases,  two  transfers  totalling  € 147 920 000.00  to  endow  the 
Guarantee Fund were adopted by the budgetary authority in 2003. 

– 

– 

Transfer 13/20031: € 145 670 000.00: this first transfer was for payments into 
the  Council  Decisions  of  29 November, 
the  Fund 
22 December 1999,  6 November 2001  and  19 December 2002  in  accordance 
with the arrangements set out in the Annex to the Regulation. 

respect  of 

in 

Transfer  38/20032:  € 2 250 000.00:  this  second  transfer  was  for  payment  into 
the  Fund  in  respect  of  a  further  macro-financial  assistance  adopted  by  the 
Council on 25 November 2003.  

The decisions covered by these transfers are given in Annex I. 

The  first  annual  transfer  was  paid  on  25 August 2003  under  the  mechanism  for 
offsetting  against  the  repayment  of  the  Fund’s  surplus,  and  the  second  was  the 
subject of an actual payment dated 2 January 2004. 

3.2. 

Interest from financial investment of the Fund's liquid assets 

The Fund's liquid assets are invested in accordance with the management principles 
laid down in the Annex to the Community/EIB Agreement of 23/25 November 1994, 
amended  by  Supplementary  Agreement  No 1  of  17/23 September 1996  and 
Supplementary Agreement No 2 of 26 April/8 May 2002. 

1 
2 

SEC(2003) 639 FINAL. 
SEC(2003) 1373 FINAL. 

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By Supplementary Agreement No 2, the investment principles were changed in 2002 
in  order  to  correct  the  excess  liquidity  which  had  risen  to  over  50%  of  the  Fund's 
assets and was restricting the yield of the Fund. While retaining the limit whereby at 
least  one  third  of  the  Fund  must  be  invested  in  short-term  investments  (up  to  one 
year),  the  instruments  eligible  for  short-term  liquidity  were  extended.  They  now 
include  variable-rate  securities,  irrespective  of  their  maturity  dates,  and  fixed-rate 
securities  with  a  maximum  of  one  year  remaining  to  maturity,  irrespective  of  their 
initial maturity period. This is because fixed-rate securities are reimbursable at 100% 
of  their  nominal  value  at  the  end  of  their  life  (i.e.  after  a  maximum  of  one  year), 
while  variable-rate securities can be sold at any time at a price approaching 100%, 
whatever  their  remaining  period  to  maturity.  To  maintain  a  balance  between  the 
various  instruments  for  which  liquidity  is  monitored,  a  minimum  of  18% 
(corresponding  to  double  the  provisioning  rate  of  the  Fund)  is  kept  in  monetary 
investments, particularly bank deposits. This new structure was intended to improve 
the Fund's yield while maintaining a prudent liquidity level. 

As  a  result  of  the  reduction  in  excess  liquidity  initiated  in  2002,  the  strategy  to 
increase the proportion of the portfolio invested in fixed-rate securities continued in 
2003. This has considerably increased the overall yield of the Fund. 

The list of banks authorised to receive deposits is agreed by the Commission and the 
EIB. The original list has been regularly revised in the light of the latest changes in 
bank ratings.  Most of the banks are members of the euro clearing system. They all 
have a Moody's rating of at least A1 for long-term and P1 for short-term investments, 
or an equivalent Standard & Poor’s or Fitch rating. The investments made with them 
are governed by rules to ensure a good spread and avoid the concentration of risk. 

In  2003,  interest  on  deposits,  the  Guarantee  Fund  current  accounts  and  securities 
totalled € 66 977 158.29, broken down as follows: 

– 

– 

– 

deposits:  € 9 673 382.98;  this  represents  the  situation  at  31 December 2003 
including  interest  received on  bank deposits (€ 9 862 518.11) and changes in 
accrued interest (-€ 189 135.13) in 2003. The accrued interest corresponds to 
interest which has not been received by the Fund at the end of the year but will 
be paid at the dates fixed for maturity of the investments. The interest accrued 
at  31 December 2003  (€ 1 200 433.34)  is  reduced  by  the  accrued  interest 
entered in the accounts for 2002 but received in 2003 (€ 1 389 568.47). 

current  accounts:  € 64 680.81  comprising  interest  recorded  on  the  current 
account. 

securities portfolio: € 57 239 094.50. The interest on securities is generated by 
investments placed in the form of securities in accordance with the investment 
principles laid down in the Agreement giving the EIB the task of managing the 
Fund's  liquid  assets.  From  this  figure  must,  however,  be  subtracted  the 
€ 3 191 993.05 entered in the course of the year as the difference between the 
entry  price  and  the  redemption  value  divided  pro  rata  temporis  over  the 
remaining  life  of  the  securities  held  (corresponding  to  the  spread  of  the 
premium or discount entered in the profit-and-loss account). 

The interest received is entered in the results for the financial year. 

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3.3. 

Recovery from defaulting debtors 

Any  late  repayments  by  defaulting  countries  on  operations  where  the  Fund  has 
honoured 
is 
into 
€ 568 217 579.44  at  31  December  2003  as  no  late  repayments  have  been  received 
during the year. 

the  guarantees  are  paid 

the  Fund.  The  running 

total 

4. 

THE FUND'S LIABILITIES 

4.1. 

Default payments 

Two calls on the Fund took place in 2003, for a total amount of EUR 4 828 133.87 
(see point 2.1 of Annex II). 

4.2. 

EIB remuneration 

The  second  Supplementary  Agreement  to  the  Agreement  signed  on  26  April  and  8 
May 2002, lays down that the Bank's remuneration is to be determined by applying 
to each of the tranches of the Fund's assets the degressive annual rates of commission 
which relate to them respectively. This remuneration is calculated on the basis of the 
average assets of the Fund. 

The Bank's remuneration for 2003 was fixed at € 772 207.20 and was entered in the 
profit-and-loss  account  and  as  accruals  (liabilities)  on  the  balance  sheet.  The 
remuneration will be paid to the EIB in the first half of 2004. 

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Legal bases for payments to the Guarantee Fund from the general budget 

ANNEX I 

In  line  with  Regulation  No  2728/94,  the  provisioning  of  the  Fund  follows  different  rules 
according to the type of operation covered. In the case of EIB loans, the provisioning of the 
Fund currently takes place at the beginning of each year, based on the forecast provided by 
the EIB of total loans to be signed in the respective year. The difference between forecast and 
realisation is balanced at the end of each year when the Fund is aligned to its target amount. 
Euratom loans can be provisioned on a forecast basis and are fully provisioned at the latest at 
the time of the signature of the loans. 

In  the  case  of  macro-financial  assistance  loans,  the  provisioning  takes  place  as  soon  as  the 
Council  has  adopted  the  decision  to  grant  macro-financial  assistance,  i.e.  on  an  individual 
basis.  This  procedure  is  also  applied  even  if  the  loan  is  paid  out  in  several  tranches  over  a 
period of more than one year.  

Two transfers were made from the guarantee reserve under this procedure in 2003: 

1. 

Decisions covered by Transfer 13/2003 

– 

– 

– 

– 

Council Decision of 29 November 1999 (1999/786/EC) granting a Community 
guarantee  to  the  European  Investment  Bank  against  losses  under  loans  for 
projects for the reconstruction of the earthquake-stricken areas of Turkey. The 
loans  are  subject  to  an  overall  ceiling  of  € 600 million  to  be  granted  for  a 
period of three years (OJ L 308, 3.12.1999, p. 35). 
Council  Decision  of  22 December 1999  (2000/24/EC)  as  amended  granting  a 
Community  guarantee  to  the  European  Investment  Bank  against  losses  under 
loans for projects outside the Community subject to an overall loan ceiling of 
€ 19 460 million  granted  for  a  period  of  seven  years  beginning  on 
1 February 2000 for Central and Eastern Europe, the Mediterranean countries, 
Latin  America  and  Asia  and  on  1 July 2000  for  the  Republic  of  South  Africa 
and ending on 31 January 2007 for all regions (OJ L 9, 13.1.2000, p. 24). 
Council  Decision  of  6 November 2001  (2001/777/EC)  granting  a  Community 
guarantee  to  the  European  Investment  Bank  against  losses  under  a  special 
lending  action  for  selected  environmental  projects  in  the  Baltic  Sea  basin  of 
Russia  under  the  Northern  Dimension.  The  overall  ceiling  of  credits  is 
€ 100 million (OJ L 292 of 9 November 2001, p. 41). 
providing 
Council  Decision 
supplementary financial assistance to Moldova in the form of a straight grant 
and  amending  Council  Decision  of  10 July 2000  (2000/452/EC)  providing 
supplementary  macro-financial  assistance  to  Moldova  in  the  form  of  a  long-
term  loan.  The  grant  amounts  to  a  maximum  of  € 15 million  (OJ  L 351, 
28.12.2002, p.76). 

19 December 2002 

(2002/1006/EC) 

of 

2. 

Decision covered by Transfer 38/2003 

– 

Council Decision of 25 November 2003 (2003/825/EC) amending Decision of 
5 November 2002 (2002/882/EC) providing further macro-financial assistance 
to  Serbia  and  Montenegro.  The  loan  component  of  the  assistance  amounts  to 
€ 80 million (OJ L 311, 27.11.2003, p.28). 

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ANNEX II 

Guarantee Fund - Management Report at 31 December 20033 

1. 

Development of the Fund in 2003 

1.1. 

The  booking  value4  of  the  Fund’s  holdings  stood  at  €  1 568.5  million  at 
31 December 2003  as  against  €  1 612.6  million  at  31 December 2002,  a 
decrease of € 44.1 million.  

Figure 1: Development of holdings in 2003 

1.2. 

1.3. 

The Fund had a surplus of € 263.33 million at 31 December 2002. Subsequently, 
an  allocation  of  € 145.67 million  was  made  from  the  EU  budget  on 
25 August 2003.  The  difference  of  € 117.66 million  was  paid  back  to  the 
Community  budget.  Total  provisioning  to  31 December 2003  amounted  to 
€ 151.69 million (being € 145.67 million plus € 6.02 million). 

Income in each segment was proportional to the breakdown of assets allocated 
to  the  bond  and  money  market  segments,  as  agreed  between  the  EIB  and  the 
Commission.  The  net  operating  result  amounted 
to  € 63.0 million  at 
31 December 2003  compared  with  € 71.8 million  at  31 December 2002.  Bond 
portfolio  income  (including  appreciation  on  sales  and  net  of  the  premium  / 
discount  spread)  amounted  to  € 54.2 million,  representing  86%  of  the  income 
recorded at 31 December 2003. Money market portfolio income and interest on 
current  accounts  amounted  to  € 9.8 million,  or  15%  of  the  total  result  (see 
annex 1), the rest being commission and financial charges. 

3 
4 

Report prepared by the EIB. 
Total assets less other assets in Annex III.1.  

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2. 

Situation of the Fund  

2.1 

The Fund's resources at 31 December 2003 

The Guarantee Fund balance decreased by € 116.4 million, or 9%, from € 1 293.7 million 
at 31 December 2002 to € 1 177.3 at 31 December 2003. 

This is explained by the movements shown in the following table: 

Resources 

Situation at 

Movements 

Situation at 

31/12/2002 

in 2003 

31/12/2003 

Provisioning 

2,203,690,162.91

151,690,000.00 

2,355,380,162.91

Repayment of surplus 

-1,009,520,000.00

-263,330,000.00 

-1,272,850,000.00

Activation of guarantee 

-468,662,140.15

-4,828,133.87 

-473,490,274.02

Recovery of amounts guaranteed 

568,217,579.44

0.00 

568,217,579.44

Balance 

1,293,725,602.20

-116,468,133.87 

1,177,257,468.33

Guarantee operations by the Fund during 2003 amounted to € 4.8 million. 

2.2 

The Fund's assets at 31 December 2003 

The Fund’s holdings at 31 December 2003 totalled € 1 568.5 million as detailed below. 
The Fund operates in one currency only, the euro. 

– 

– 

– 

€ 433.0 million in the monetary portfolio (interbank term deposits) 

€ 10.8 million in the current accounts 

€ 1 124.7 million in the investment portfolio (the book value of fixed rate 
and variable rate securities, see table in section 3.1). 

3. 

GENERAL AND SEGMENTAL ANALYSIS OF THE GUARANTEE FUND. 

3.1 

Liquidity analysis 

At  the  beginning  of  2003  the  Commission  and  the  Bank  agreed  that,  as  a  matter  of 
precaution, the proceeds from bonds redemption will be placed in the monetary markets 
until more information is available from the Commission about the size and timing of the 
reimbursement to the Budget. This amount corresponds to loans guaranteed for acceding 
countries. Subsequently, at the end of December 2003, deposits represented 28% of the 
Fund (compared to 19% at the end of 2002). 

Various scenarios were analysed in light of the 2003 Investment Strategy proposed by the 
Bank  to  the  Commission.  Keeping  in  mind  the  asset  allocation  agreed  in  2002,  these 
scenarios clearly confirm that, to minimize the risk of selling part of the fixed-rate bonds, 
it is necessary to proceed with the strategy as outlined in the first paragraph. It was then 

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agreed  that  the  totality  of  the  investments in  fixed-rate  bonds,  if  any,  would  take  place 
during a short period (e.g. one week). 

At  the  end  of  June 2003  the  Commission  informed  the  Bank  that  it  estimated  a 
reimbursement  of  € 340 million  to  be  paid  back  to  the  Budget  in  May 2004:  after  an 
analysis  of  the  projected  2003/2004  cash  flows  figures,  the  Bank  invested  € 25 million 
(1.6% of the current total assets) in fixed-rate bonds during the second week of October 
2003. 

The  distribution  of  the  Guarantee  Fund’s  holdings  at  31 December 2003  (book  value) 
was as follows: 

Segments 

Fixed rate investments 

Variable rate 

TOTAL 

Less than 3 months  3 months to 1 year

1 to 10 years 

Securities 

Current accounts 

10,768,639.92

Fixed term deposits 

433,000,000.00

10,768,639.92

433,000,000.00

Securities portfolio 

15,434,232.27

90,077,358.52

904,262,273.13

114,948,951.07 1,124,722,814.99

TOTAL 

459,202,872.19

90,077,358.52

904,262,273.13

114,948,951.07 1,568,491,454.91

Percentage 

29.28% 

5.74% 

57.65% 

7.33% 

100.00% 

3.2 

General analysis of the results of the Fund 

In 2003 the Guarantee  Fund produced € 63.0 million in net income, an overall  average 
yield of 3.86%5 on an average capital of € 1 611 million. 

The three-month Euribid reference rate stood at 2.21%6 over the same period, giving an 
overall positive spread of 165 basis points above the reference benchmark (cf. 3.3.1). 

Investment income at 31 December 2003 was as follows: 

January – December 2003 (in € million) 

Interest on interbank term deposits 

Interest on securities 

Gain on sale of financial fixed assets 

Interest on current accounts 

Premium / discount spread 

Commission and financial charges 

Total 

9.7 

57.2 

0.2 

0.1 

- 3.2 

- 1.0 

63.0 

5 
6 

The basis for calculating the overall yield is act/360. 
2.21% is a linear mean of the 3 month euribid since the beginning of the year. 

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3.3 

Analysis by segment 

3.3.1 

Performance analysis of treasury operations 

The  average  yield  on  money-market  investments  at  31 December 2003  stood  at  2.37%, 
compared with a benchmark average yield of 2.19%. 

The spread calculated this way is 18 basis points above the three-month Euribid variable 
reference rates7 for 2003, as against a spread of 12 basis points in 2002. This spread does 
not  reflect  the  margin  obtained  at  the  beginning  of  operations,  and  this  margin  is  not 
taken into consideration when calculating yield. 

PERIOD 

YIELD 

THREE-MONTH EURIBID REFERENCE 

January – December 2003 

2.37 % 

2.19%8 

SPREAD 
(basis points) 

18 

Interbank investments at 31 December 2003 produced € 9.7 million in interest on capital 
averaging € 402.3 million. 

Changes in yield and reference rates in 2003 

The  table  below  shows  the  rates  obtained  for  short-term  money-market  investments  as 
compared with the three-month Euribid reference rate. 

Figure 2: Yield in relation to the benchmark rate 

3.10%

2.90%

2.70%

2.50%

2.30%

2.10%

1.90%

Yield

3-month euribid

3
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3
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8 

The treasury spread measures the difference between the actual interbank investment rate obtained and the 
benchmark variable, which is the three-month Euribid rate for that day. 
2.19% is a weighted mean of the 3 month euribid since the beginning of the year. 

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The  methodology  used  to  calculate  yield  involves  comparing  the  yield  of  (usually  3-
month)  monetary  investments  with  the  daily  average  of  the  3-month  LIBID  rate.  This 
means that the benchmark tracks the average movement of the 3-month LIBID rate on a 
daily basis, while the investments recorded in Buy and Hold do not reflect it until later. 
This has a dynamic effect as follows: 

– 

– 

In  a  context  of  falling  short-term  interest  rates,  the  monetary  portfolio 
broadly outperforms the benchmark (Figure 2, January - June 2003).  

Conversely,  in  a  context  where  monetary  rates  gradually  rise  over  a 
relatively  long  period  (six  months),  the  performance  of  the  monetary 
portfolio tends to be closer to that of the benchmark.  

Profile of counterparties 

In  accordance  with  the  agreement  between  the  Community  and  the  EIB  on  the 
management of the Guarantee Fund, all the securities held have a minimum credit rating 
of A1.  

Figure 3:  Breakdown  of 
31 December 2003. 

short-term  deposits  by 

type  of  counterparty  at 

Aa3
39%

A2
9%

A1+
9%

A1
43%

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Geographical breakdown 

The  geographical  breakdown  of 
(in terms of average capital) in 2003 is as follows: 

the  Fund's  short-term 

interbank 

investments  

Figure 4: Short-term interbank investments: geographical distribution of average capital 

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r
a
m
n
e
D

a
i
r
t
s
u
A

n
e
d
e
w
S

s
d
n
a
l
r
e
h
t
e
N

The  EIB  is  pursuing  its  objective  of  a  better  geographical  distribution  throughout  the 
countries of the European Union while at the same time maintaining the competitiveness 
of the yield obtained. 

3.3.2 

Analysis of bond portfolio results 

The  bond  portfolio,  seen  as  a  long-term  investment  portfolio,  is  made  up  of  euro-
denominated  securities  acquired  with  the  intention  of  holding  them  until  maturity.  At 
31 December 2003,  the  book  value  of  fixed  rate  securities  with  a  residual  period  to 
maturity  of  less  than  three  months  amounted  to  €  15.4  million,  between  3  months  and 
one year € 90.1 million and between one and 10 years € 904.3 million. 

The  portfolio  yielded  revenue  of  € 54.2  million  at  31 December 2003,  which  breaks 
down as follows: 

Interest received 
Premium/discount spread 
Gain on sale of financial assets 
Total 

57.3 
-3.2 
0.2 
54.2 

The starting value of the securities in this portfolio is the acquisition cost. The difference 
between the entry price and the redemption value is the premium/discount spread, which 
is divided pro rata temporis over the remaining life of each of the securities. 

EN 

14 

   EN 

 
 
 
 
 
the  nominal  value  of 

At  31 December 2003 
investment  portfolio  was 
€ 1 114.6 million  compared  to  the  market  value  of  € 1 168.7 million  and  book  value  of 
€ 1 124.7  million  (including  premiums/discounts  to  be  written  off),  which  gives  an 
unrealised gain of € 44.0 million. This compares with the book value of € 1 311.3 million 
and an unrealised gain of € 43.8 million at 31 December 2002. 

the 

Market value compared with book value in 2003 

Figure 5: Market value compared with book value in 2003 

i

o
M
€
n

i

1,350.00

1,300.00

1,250.00

1,200.00

1,150.00

1,100.00

3
0
-
n
a
J

3
0
-
b
e
F

3
0
-
r
a
M

3
0
-
r
p
A

3
0
-
y
a
M

3
0
-
n
u
J

3
0
-
l
u
J

3
0
-
g
u
A

3
0
-
p
e
S

3
0
-
t
c
O

3
0
-
v
o
N

3
0
-
c
e
D

Book value

Market value

At 1 January 2003, a total of € 210.8 million of reimbursements (nominal value) on the 
securities portfolio were scheduled for the year, split as follows: 

– 

– 

€ 125.7 million for the fixed rate, and 

€ 85.1 million for the variable rate. 

The  book  yield  on  the  investment  portfolio  came  to  4.47%9  at  31 December 2003, 
compared  with  4.48%  at  31 December 2002.  In  terms  of  a  Salomon  index  reference 
benchmark  for  fixed-rate  securities10  and  the  three-month  Euribid  for  variable-rate 
securities, the overall spread is positive by 176 basis points compared with the aggregate 
benchmark  of  2.71%  (cf.  Annex 2).  It  has  to  be  borne  in  mind  however,  that  the 
benchmark  yield  reflects  actual  changes  in  rates,  while  the  portfolio's  yield  reflects  an 
average based on acquisition prices: this positive performance is largely explained by a) 
the general fall in interest rates, b) the steepness of the yield curve in EUR and c) the fact 
that investments in 2002 and 2003 were in securities with a maturity of 5 to 10 years. 

9 
10 

The basis for calculating the yield of the investment portfolio is: act/365. 
This  benchmark  will  be  adjusted  once  the  new  strategy  has  been  officially  adopted  by  the  EIB  and 
the  Commission  in  order  to  reflect  the  longer  duration  and  the  possibility  of  investing  up  to  a  maturity 
of 10 years. 

EN 

15 

   EN 

 
 
 
 
                                                 
German government bond rates in 2003 (source: Bloomberg) 

31/12/2002 

31/03/2003 

30/06/2003 

30/09/2003 

31/12/2003 

Bund 3y 

Bund 5y 

Bund 7y 

Bund 10y 

2.91 

3.39 

3.87 

4.20 

2.72 

3.24 

3.64 

4.04 

2.49 

2.95 

3.43 

3.80 

2.62 

3.10 

3.57 

4.00 

2.86 

3.50 

3.96 

4.29 

Taking  account  of  the  changes  in  Fund’s  investment  strategy,  it  has  been  decided  to 
concentrate annual reinvestment in securities during a pre-defined period of the year (see 
paragraph 3.1). 

In  this  context,  the  performance  methodology  applied  and  reported  for  these 
reinvestments  changed,  by  measuring  the  difference  between  the  market  yield  obtained 
from  the  securities  purchased  and  that  of  IBOXX  indices  for  corresponding  maturity 
categories over the same period. 

The  table  below  shows  the  comparative  performances  for  reinvestment  in  securities 
between 13th of October and 17th of October 2003. 

Trade date 

Value date 

Instrument 

13/10/2003 

16/10/2003  CFF Cie Fin. Foncier 5 3/8% 02/03/2013 

14/10/2003 

17/10/2003  BPTS (Italian Gvt.) 4,75% 01/02/2013 

15/10/2003 

20/10/2003  DEPFA (Covered Bond) 3 7/8% 15/07/2013 

16/10/2003 

22/10/2003  BIG* 4 3/8% 24/09/2013 

17/10/2003 

23/10/2003  HBOS 4,50% 23/10/2013 

Re-
invested 
amount 
(million 
EUR) 
5 

5 

5 

5 

5 

25 

Re-
investment 
Yield 

Iboxx EUR 
Sovereigns 
7-10 y Yield 

Out-
performance 

4,38 

4,36 

4,49 

4,52 

4,57 

4,464 

4,1835 

4,1901 

4,2425 

4,2003 

4,2246 

4,2082 

19,65 

16,99 

24,75 

31,97 

34,54 

25,58 

*Bundes Immobiliengesellschaft Gtd by Austria 

Breakdown of the portfolio between fixed-rate and variable-rate securities 

Figure 6: Breakdown of the investment portfolio between fixed-rate and variable-rate 
securities at 31 December 2003 

EN 

16 

   EN 

 
 
 
 
 
 
 
Redemption profile of investment portfolio 

Investment portfolio: Redemption profile at 31 December 2003 

Variable rate

Fixed Rate

)
o
r
u
e

s
n
o

i
l
l
i

m

(

180

160

140

120

100

80

60

40

20

0

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Figure 7:  

The latest final maturity date for fixed-rate securities is 23 October 2013. 

EN 

17 

   EN 

 
 
Profile of issuers 

All the securities held meet the following criteria: 

– 

– 

Either  they  are  issued  by  States  in,  or  by  institutions  guaranteed  by,  the 
European Union, the G10 or supranational bodies; 

Or  they  are  issued  by  another  sovereign  State  with  a  rating  of  at  least 
AA3; 

– 

Or they are issued by another issuer with a rating of AAA. 

The profile of issuers was as follows at 31 December 2003 

Figure 8: Investment portfolio: Profile of issuers at 31 December 2003 

Govt ./ A g ences A A 1
12%

Go vt ./ A g ences A 1
12 %

Go vt./ A gences NR
2%

Ot her issuers A A A
32%

Go vt./ A gences A A 2
13%

Govt ./A gences A A A
2 5%

Other issuers A A 1
1%

Supra
3 %

EN 

18 

   EN 

 
 
ANNEX III.1 

SITUATION OF THE GUARANTEE FUND AT 31 DECEMBER 2003 

ASSETS

Balances with credit institutions

Portfolio

Other assets

CURRENT ACCOUNT
FIXED-TERM DEPOSITS

INVESTMENT PORTFOLIO

PROVISIONING TO RECEIVE
ACCRUALS

In Euro

31/12/2003

10,768,639.92
433,000,000.00
443,768,639.92

1,124,722,814.99
1,124,722,814.99

2,250,000.00
29,732,652.21
31,982,652.21

LIABILITIES

31/12/2003

TOTAL

1,600,474,107.12

Guarantee Fund

Other liabilities

Result

GUARANTEE FUND

ACCRUALS
ACCRUALS

RESULT CARRIED OVER
RESULT 2003

1,177,257,468.33
1,177,257,468.33

7,574,000.00
772,207.20
8,346,207.20

351,828,769.51
63,041,662.08
414,870,431.59

TOTAL

1,600,474,107.12

PROFIT AND LOSS AT

31/12/2003

Interest on securities
Gain on sale of financial fixed assets
Interest on investments
Interest on current account
Spread of premiums or discounts
Commission
Financial charges

RESULT

57,239,094.50
220,540.59
9,673,382.98
64,680.81
(3,191,993.05)
(772,207.20)
(191,836.55)

63,041,662.08

EN 

19 

   EN 

 
   
 
 
 
ANNEX III.2 

PERFORMANCE OF THE GUARANTEE FUND'S BOND INVESTMENT PORTFOLIO 

The performance of the bond portfolio is measured by taking the difference, expressed in 
basis  points,  between  the  yield  of  the  portfolio  calculated  on  the  basis  of  the  yields  on 
acquisition  of  the  securities  in  the  portfolio  and  the  yield  of  the  aggregate  benchmark 
calculated  on  the  basis  of  the  YTM  rates  observed  on  the  date  of  the  report,  which 
combines the yield of the Salomon benchmark and the 3-month Libid rate proportionally 
to the fixed-rate and variable-rate securities in the portfolio. 

* Salomon Index 

EGBI 1-3 years 
EGBI 3-5 years 
3 M Eurodeposit 

45.0% 
45.0% 
10.0% 

P   er   centage        
Starting Value    
Average Capital       Variable   -   rate       
in Euro      

  Percentage   
Fixed - rate   

Portfolio    YTM Salomon   Libid 3  -   mth.         Aggregate        Spread   

Benchmark*    Benchmark        Benchmark       
en a/365       

a/365

in bp

     Yield   
a/365

Annual        
2002       

Jan   -   03       
Feb   -   03       
Mar   -   03       
Apr   -   03       
May   -   03       
Jun   -   03       
Jul   -   03       
Aug   -   03       
Sep   -   03       
Oct   -   03       
Nov   -   03       
Dec   -   03       
Annu   a   l        
2003       

1,300,688,223      

22.1%       

77.9%   

4.48%   

3.91%   

3.24%       

3.75%       

73   

1,297,068,337      
1,262,904,857      
1,252,565,224      
1,252,654,353      
1,250,820,772     
1,227,822,413     
1,185,283,975      
1,171,958,483      
1,166,533,556      
1,164,216,995     
1,155,020,253     
1,138,647,727      

1,210,136,055      

14.1%       
12.7%       
12.8%       
12.8%       
12.8%       
12.0%       
9.9%       
10.1%       
10.1%       
9.9%       
10.0%       
10.1%       

11   .5%       

85.9%   
87 .3%   
87.2%   
87.2%   
87.2%
88.0%
90.1%   
89.9%   
89.9%   
90.1%
90.0%
89.9%   

88.5%   

4.51%   
4.50%   
4.48%   
4.45%   
4.44%
4.46%
4.48%   
4.47%   
4.44%   
4.44%
4.46%
4.47%   

4.47%   

3.00%   
2.86%   
2.64%   
2.74%   
2.76%
2.43%
2.42%   
2.81%   
2.91%   
2.60%
2.96%
3.08%   

2.77%   

2.75%       
2.62%       
2.44%       
2.44%       
2.33%       
2.06%       
2.03%       
2.04%       
2.05   %       
2.04%       
2.06%       
2.05%       

2.24%       

2.97%       
2.83%       
2.61%       
2.70%       
2.70%       
2.39%       
2.39%       
2.73%       
2.82%       
2.54%       
2.87%       
2.98%       

2.71%       

154   
167   
187   
175   
173
207
209   
174   
162   
190
159
149   

176   

EN 

20 

   EN 

 
 
 
 
          
  
CONSOLIDATED FINANCIAL BALANCE SHEET OF THE GUARANTEE FUND AT 31 DECEMBER 2003 

ANNEX III.3 

A S S E T S

L I A B I L I T I E S

3 1 / 1 2 / 2 0 0 3

3 1 / 1 2 / 2 0 0 2

3 1 / 1 2 / 2 0 0 3

3 1 / 1 2 / 2 0 0 2

In   E u r o

          C u r r e n t   a c c o u n t
          F ix e d - t e r m   d e p o s it s
P o r t f o lio
          I n v e s t m e n t   p o r t f o lio
R e c e iv a b le s   f r o m   r e c ip ie n t s   o f   lo a n s   g r a n t e d   o r   g u a r a n t e e d
b y   t h e   C o m m u n it y
          A r r e a r s   c o v e r e d   b y   t h e   F u n d   ( 1 )
          A c c r u a ls   o f   in t e r e s t s   o n   la t e   p a y m e n t s

O t h e r   a s s e t s
          A c c r u a ls   ( 6 )

1 0 . 7 6 8 . 6 3 9 , 9 2
4 3 3 . 0 0 0 . 0 0 0 , 0 0

1 . 8 6 3 . 2 2 1 , 8 8 G u a r a n t e e   F u n d

2 9 9 . 5 0 0 . 0 0 0 , 0 0           P a y m e n t s   f r o m   t h e   b u d g e t   ( 2 )

            -   s u r p lu s   t o   b e   p a id   t o   t h e   b u d g e t

1 . 1 2 4 . 7 2 2 . 8 1 4 , 9 9

1 . 3 1 1 . 2 5 5 . 2 0 2 , 4 5 P r o v is io n s   a n d   c o n t in g e n c ie s

8 5 4 . 2 7 9 . 5 0 0 , 0 0
2 2 3 . 1 6 0 . 0 0 0 , 0 0
4 7 7 . 9 2 9 , 5 2

9 2 5 . 7 4 9 . 5 0 0 , 0 0
2 6 3 . 3 3 0 . 0 0 0 , 0 0

4 . 8 2 8 . 1 3 3 , 8 7
4 7 7 . 9 2 9 , 5 2

3 1 . 9 8 2 . 6 5 2 , 2 1

O t h e r   lia b ilit ie s
          A c c r u a ls   E I B   c o m m is s io n
          A c c r u a ls   ( 5 )
R e s u lt
3 3 . 6 7 3 . 2 6 3 , 6 5           R e s u lt   c a r r ie d   o v e r  

          R e s u lt   f o r   f in a n c ia l  y e a r  

7 7 2 . 2 0 7 , 2 0
7 . 5 7 4 . 0 0 0 , 0 0

7 3 7 . 3 1 6 , 2 7

4 5 6 . 4 7 4 . 8 7 1 , 7 1
6 3 . 0 4 1 . 6 6 2 , 0 8

3 7 9 . 6 0 4 . 4 5 1 , 6 3
7 6 . 8 7 0 . 4 2 0 , 0 8

T O T A L   A S S E T S                                                                                                                                                        

1 . 6 0 5 . 7 8 0 . 1 7 0 , 5 1

1 . 6 4 6 . 2 9 1 . 6 8 7 , 9 8

T O T A L   L I A B I L I T I E S

1 . 6 0 5 . 7 8 0 . 1 7 0 , 5 1

1 . 6 4 6 . 2 9 1 . 6 8 7 , 9 8

          P r e m iu m / d is c o u n t   s p r e a d
          C o m m is s io n
          F in a n c ia l  c h a r g e s
          P r o v is io n s   ( 4 )
T O T A L   C O S T S

P R O F I T   A N D   L O S S   A T   3 1   D E C E M B E R   2 0 0 3

3 1 / 1 2 / 2 0 0 3

3 1 / 1 2 / 2 0 0 2

3 . 1 9 1 . 9 9 3 , 0 5
7 7 2 . 2 0 7 , 2 0
1 9 1 . 8 3 6 , 5 5
4 7 7 . 9 2 9 , 5 2
4 . 6 3 3 . 9 6 6 , 3 2

2 . 7 1 2 . 7 8 5 , 3 7           I n t e r e s t   o n   s e c u r it ie s

7 3 7 . 3 1 6 , 2 7           G a in   o n   s a le   o f   f in a n c ia l  f ix e d   a s s e t s
2 0 7 . 4 7 2 , 6 0           I n t e r e s t   o n   in v e s t m e n t s

3 . 6 5 7 . 5 7 4 , 2 4           I n t e r e s t s   a c c r u e d   o n   la t e   p a y m e n t s

          I n t e r e s t   o n   c u r r e n t   a c c o u n t

          C o m m is s io n   r e c o v e r e d   ( 3 )

N e t   r e s u lt
T O T A L   C H A R G E S   A N D   N E T   R E S U L T

6 3 . 0 4 1 . 6 6 2 , 0 8
6 7 . 6 7 5 . 6 2 8 , 4 0

7 6 . 8 7 0 . 4 2 0 , 0 8
8 0 . 5 2 7 . 9 9 4 , 3 2 T O T A L   I N C O M E S

( 1 )   C a p it a l,   in t e r e s t   a n d   d e f a u lt   in t e r e s t   c o v e r e d   b y   p a y m e n t s   f r o m   t h e   F u n d .
( 2 )   R e d u c e d   b y   €   1 2 7 2 , 9 0   m illio n   ( t h e   o v e r a ll  s u r p lu s   r e p a id   t o   t h e   s t a t e m e n t   o f   r e v e n u e   in   t h e   b u d g e t   o f   t h e   E u r o p e a n   U n io n   in   a c c o r d a n c e   w it h   A r t ic le   3
  o f   R e g u la t io n   2 7 2 8 / 9 4   e s t a b lis h in g   t h e   G u a r a n t e e   F u n d ) .  
( 3 )   E C / E I B   a g r e e m e n t   o f   1 4   M a y   2 0 0 2   u n d e r   t h e   a g r e e m e n t   o n   u s in g   t h e   g u a r a n t e e   t o   c le a r   d e b t s   ( a m o u n t   t r a n s f e r r e d   t o   t h e   F u n d   o n   2   A u g u s t   2 0 0 2 ) .
( 4 )   P r o v is io n s   f o r   r is k s   a n d   c h a r g e s   f o llo w in g   t h e   G u a r a n t e e   F u n d   c a lls .
( 5 )   E I B   p r e p a id   t o   b a la n c e   w it h   c u r r e n t   a c c o u n t   in   2 0 0 4 .
( 6 )   I n c lu d in g   2   2 5 0   0 0 0   €   p r o v is io n in g   t o   r e c e iv e .

3 1 / 1 2 / 2 0 0 3

5 7 . 2 3 9 . 0 9 4 , 5 0
2 2 0 . 5 4 0 , 5 9
9 . 6 7 3 . 3 8 2 , 9 8
6 4 . 6 8 0 , 8 1
4 7 7 . 9 2 9 , 5 2
0 , 0 0

3 1 / 1 2 / 2 0 0 2
6 1 . 0 0 1 . 4 5 3 , 3 2
1 . 3 6 1 . 4 9 1 , 6 1
1 2 . 8 9 8 . 6 1 6 , 2 2
1 7 5 . 7 7 0 , 2 6
0 , 0 0
5 . 0 9 0 . 6 6 2 , 9 1

6 7 . 6 7 5 . 6 2 8 , 4 0

8 0 . 5 2 7 . 9 9 4 , 3 2

EN 

21 
EN