How we invest your money Your guide to Scottish Friendly funds: - UK Tracker fund - UK Active fund - UK Government Bond fund - International Company Bond fund - The Higher fund - The Medium fund - The Lower fund - With-Profits fund
Introduction This guide explains to you how we manage a range of unit linked funds and our With-Profits fund available from Scottish Friendly. It contains important information about how your policy works and how you can expect us to manage it. You may wish to read it alongside: Your policy or Key Features document, which gives essential information Your personal illustration (where appropriate), which shows what you might get back in the future The guide is broken down into two sections. The first, simpler, section covering a range of unit linked funds and the second covering our With-Profits fund. After you have read this guide, please keep it in a safe place.
Who looks after my money? When you select to invest some or all of your investment in any of the unit linked funds your money will be placed with an investment fund manager selected by Scottish Friendly. In other words your money will go into a fund that invests in another underlying fund. This underlying fund will be selected by Scottish Friendly with the intention of ensuring that your investment meets the performance objectives that we set out below in the fund descriptions. In addition we will consider the performance of the fund manager, charges and the investment process employed by the fund manager. We’ll keep all aspects of the underlying fund and the fund manager under review so we may change them in the future. You can always view the current underlying fund and find more information at www.scottishfriendly.co.uk/tax-free/my-choice-isa/funds
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What is the UK Tracker fund? The UK Tracker fund is designed to closely track the performance of the UK stock market.
Fund specific benefits An investment linked to an index of the UK stock market. It is designed to link to well known high street brands and companies listed in the UK. Give your money the long term growth potential of the UK stock market.
Fund specific risks Your cash-in value can rise and fall on a daily basis and you could get back less than you have paid in. The fund’s performance will be mainly dependent on the movement in the UK stock market.
What does the UK Tracker fund invest in? To provide flexibility the fund will not specify the exact index of the UK stock market index which the fund will follow and this may change over time. However any index that we select will be biased towards large well known companies listed in the UK. For example these currently include Tesco, BSkyB and BT. Therefore the fund will invest in underlying funds or instruments which are designed to track the movement of an index which broadly represents the largest companies listed on the UK stock market.
What will my final return be? Your final return from any investment in the UK Tracker fund will be determined by the performance of underlying fund or instruments we select and how well they track their index. However broadly your return will be in line with the movement in UK shares over the time you invest in the fund and the time you cash-in or switch to another fund.
What are my guarantees? As an investment directly linked to the stock market your fund can rise and fall on a daily basis and therefore you could get back less than you have invested.
What are my charges? The fund has an annual management charge of 1.5% of the fund value deducted on a daily basis. This annual management fee includes the cost of fund management for the underlying fund.
Which manager currently looks after my money? The fund is currently linked to the Legal & General UK Index Trust.
Where can I find out more information? You can find out more information about this fund at www.scottishfriendly.co.uk/tax-free/my-choice-isa/funds Where there are any changes to the fund manager or the ethical criteria applied by Scottish Friendly we will inform all investors in writing.
What is the UK Active fund? The UK Active fund is designed to invest in shares of companies listed in the UK. The manager of the underlying fund will pick a mix of stocks that they believe will outperform and sell those that they believe will under perform the overall UK stock market.
Fund specific benefits An investment linked to an actively managed investment in UK stocks and shares. Give your money the long term growth potential of the UK stock market, where stocks and shares are selected by an expert fund manager who will aim to outperform the market.
Fund specific risks Your cash-in value can rise and fall on a daily basis and you could get back less than you have paid in. Your fund’s performance will largely depend on the movement in the UK stock market but will also be dependent on the ability of the fund manager to select stocks and shares that grow.
What does the UK Active fund invest in? The UK Active fund will normally invest in an underlying fund selected by Scottish Friendly which will have the intention of outperforming the UK stock market.
What will my final return be? Your final return from any investment in the UK Active fund will be determined by the performance of underlying fund and how well the manager can select stocks that grow and sell stocks before they fall. Your final return will primarily be determined by the general movement in the overall UK stock market but will also depend on the manager’s ability to select stocks and shares that can grow.
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What are my guarantees?
What are my guarantees?
As an investment linked to the stock market your fund can rise and fall on a daily basis and therefore you could get back less than you have invested.
All Bonds within the underlying fund will have their face value guaranteed by the government. However the day to day value of these bonds can rise and fall with the movement in interest rates. Therefore whilst this fund is lower risk than say a stock market fund your capital is not guaranteed and it is possible to get back less than you have invested.
What are my charges? The fund has an annual management charge of 1.5% of the fund value deducted on a daily basis. This annual management fee includes the cost of fund management for the underlying fund.
Which manager currently looks after my money? The fund is currently linked to the Scottish Friendly Asset Managers UK Growth OEIC.
What are my charges? The fund has an annual management charge of 1.5% of the fund value deducted on a daily basis. This annual management fee includes the cost of fund management for the underlying fund.
Where can I find out more information?
Which manager currently looks after my money?
You can find out more information about this fund at www.scottishfriendly.co.uk/tax-free/my-choice-isa/funds
The fund is currently linked to the Legal & General All Stocks Gilt index.
Where there are any changes to the fund manager we will inform all investors in writing.
Where can I find out more information?
What is the UK Government Bond fund? The UK Government Bond fund is designed to invest in bonds (gilts) issued by the UK government.
Fund specific benefits
You can find out more information about this fund at www.scottishfriendly.co.uk/tax-free/my-choice-isa/funds Where there are any changes to the fund manager we will inform all investors in writing.
What is the International Company Bond fund?
An investment linked to an index of bonds issued by the UK government.
The International Company Bond fund is designed to invest in bonds issued by companies throughout the world.
Give your money the growth potential and security of long term bonds issued by the UK government.
Fund specific benefits
Fund specific risks Your cash-in value can rise and fall on a daily basis and you could get back less than you have paid in. Your fund’s performance will mainly depend on the credit worthiness of the UK government and the movement in long term interest rates which can raise and lower the value of bonds held in the fund.
What does the UK Government Bond fund invest in? The UK Government Bond fund will normally invest in an underlying fund selected by Scottish Friendly which will have the intention of investing in UK government bonds with various length terms (durations) with an average term of more than 5 years.
What will my final return be? Your final return from any investment in the UK Government Bond fund will be determined by the performance of the government bonds within the underlying fund.
An investment linked to a portfolio of bonds issued by companies throughout the world, selected by an expert fund manager. Give your money the growth potential and security of long term bonds issued by companies throughout the world.
Fund specific risks Your cash-in value can rise and fall on a daily basis and you could get back less than you have paid in. Your funds’s performance will depend on the credit worthiness of the company bonds purchased by the fund manager, the movement in long term interest rates and the movement in currency exchange rates.
What does the International Company Bond fund invest in? The International Company Bond fund will normally invest in an underlying fund selected by Scottish Friendly which will have the intention of actively managing a portfolio of bonds issued by companies, a large proportion of which will be UK based companies and the remainder overseas.
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What will my final return be? Your final return from any investment in the International Company Bond fund will be determined by the performance and value of the underlying bonds within the fund, which will be related to the level of interest rates, the ability of the companies to pay and (as the fund also invests outside the UK) the relative movement of exchange rates.
What are my guarantees? The bonds within the fund will be guaranteed by the underlying companies but they could of course fail to make their payments or become bankrupt. Therefore the day to day value of these bonds can rise and fall with a number of factors and it is possible to get back less than you have invested.
What are my charges? The fund has an annual management charge of 1.5% of the fund value deducted on a daily basis. This annual management fee includes the cost of fund management for the underlying fund.
Which manager currently looks after my money? The fund is currently linked to the Legal & General Fixed Interest fund.
Where can I find out more information? You can find out more information about this fund at www.scottishfriendly.co.uk/tax-free/my-choice-isa/funds Where there are any changes to the fund manager we will inform all investors in writing.
What is the Higher fund? The Higher fund is designed to achieve long-term growth from a mixed investment which may include the UK and global stock markets, cash and government and company bonds. It will tend to focus on those assets with higher levels of potential risk and return (e.g. UK and international stock market assets) and is therefore likely to produce a higher but more volatile potential return than the Medium fund or the Lower fund. Overall the fund will be designed to match the historic level of risk associated with investing in the UK stock market. This does not mean that the fund will track or act like the UK stock market, only that in the past an investor could expect a similar level of risk from this fund.
Fund specific benefits A higher risk and reward investment linked to a managed basket of assets with emphasis on higher long term expected return assets such as the stock market. Higher longer term growth potential than a cash based investment and better potential than the Lower fund or Medium fund.
Fund specific risks Your cash-in value can rise and fall on a daily basis and you could get back less than you have paid in. The fund contains a higher degree of risk than an investment in the Lower or Medium fund which means that it is likely to experience greater price rises and falls than the Lower or Medium fund. The actual risk and return of the fund will depend on Scottish Friendly’s ability to efficiently allocate investments to meet the risk profile of the fund.
What does the Higher fund invest in? The Higher fund may invest in UK and global stock markets, cash and government and company bonds. The fund’s current mix as at 31/03/2013 is: UK equities
50%
US equities
50%
Cash
0%
Company bonds
0%
European equities
0%
Government bonds
0%
Japan equities
0%
Pacific equities
0%
This mix may change tactically from time to time as decided by Scottish Friendly. In addition the target mix will be reviewed at least once a year and will be published at: www.scottishfriendly.co.uk/tax-free/ my-choice-isa/riskgraded-funds.
What could my investment be worth in the future? The amount you will get back from your My Choice policy will depend on how much you have paid in, the length of time it has been invested, the investment performance in the fund(s) over this time and the amount of money, if any, you have taken out of your policy.
What will my final return be? Your final return will be determined by the mix of funds and their performance over the time of your investment.
What are my guarantees? As a largely stock market investment, there are no guarantees on your final cash-in value and therefore you could get back less than you have invested, this is especially the case in the early years.
What are my charges? The fund has an annual management charge of 1.5% of the fund value deducted on a daily basis. This annual management fee includes the cost of fund management for the underlying fund.
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Which manager currently looks after my money?
What could my investment be worth in the future?
The fund is currently linked to:
The amount you will get back from your My Choice policy will depend on how much you have paid in, the length of time it has been invested, the investment performance in the fund(s) over this time and the amount of money, if any, you have taken out of your policy.
UK equities: Legal & General UK Index Trust US equities: Legal & General US Index Trust
What is the Medium fund? The Medium fund is designed to achieve long term growth from a mixed investment which may include the UK and global stock markets, cash and government and company bonds. It will balance its investments across all the above assets but will tend to favour those with greater levels of historic risk and expected return (e.g stock market assets). It is likely to produce a level of potential risk and return which lies between the Higher and Lower funds.
Fund specific benefits An investment linked to a managed basket of assets which tends to favour assets , such as the stock market, which have greater levels of potential risk and return. Greater longer term growth potential than a cash based investment and better potential than the Lower fund but less than that of the Higher fund.
Fund specific risks Your cash-in value can rise and fall on a daily basis and you could get back less than you have paid in. The fund contains a greater level of risk than the Lower fund but less than the Higher fund. This means that the Medium fund is likely to experience greater levels of price rises and falls than the Lower fund. The actual risk and return of the fund will depend on Scottish Friendly’s ability to efficiently allocate investments to meet the risk profile of the fund.
What does the Medium fund invest in? The Medium fund may invest in UK and global stock markets, cash and government and company bonds. The fund’s current mix as at 31/03/2013 is: UK equities
37.4%
US equities
25.0%
Government bonds
20.3%
Pacific equities
17.3%
Cash
0%
Company bonds
0%
European equities
0%
Japan equities
0%
This mix may change tactically from time to time as decided by Scottish Friendly. In addition the target mix will be reviewed at least once a year and will be published at: www.scottishfriendly.co.uk/tax-free/ my-choice-isa/riskgraded-funds
What will my final return be? Your final return will be determined by the mix of funds and their performance over the time of your investment.
What are my guarantees? As an investment which favours stock market investments there are no guarantees on your final cash-in value and therefore you could get back less than you have invested.
What are my charges? The fund has an annual management charge of 1.5% of the fund value deducted on a daily basis. This annual management fee includes the cost of fund management for the underlying fund.
Which manager currently looks after my money? The fund is currently linked to a range of funds: Government bonds: Legal & General All Stocks Gilt Index Pacific equities: Legal & General Pacific Index Trust UK equities: Legal & General UK Index Trust US equities: Legal & General US Index Trust
What is the Lower fund? The Lower fund is designed to achieve long-term growth from a mixed investment which may include UK and global stock markets, cash and government and company bonds. It will tend to focus on those assets with lower levels of historical risk and expected return (cash and bonds) and is likely to produce a steadier but lower level of potential return than the Medium fund or the Higher fund. Overall the fund will be designed to match the historic level of risk associated with investing in UK Government long term bonds. This does not mean that the fund will track or act like the UK Government bonds only that in the past an investor could expect a similar level of risk from this fund.
Fund specific benefits A lower risk and reward investment linked to a managed basket of assets with emphasis on safer assets such as bonds and cash. Greater longer term growth potential than a cash based investment.
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Fund specific risks Your cash-in value can rise and fall on a daily basis and you could get back less than you have paid in. Whilst the fund contains an element of risk it is lower than that of the Higher or Medium fund. This means that the fund is likely to experience a lesser level of price rises and falls than the Higher or Medium fund. The actual risk and return of the fund will depend on Scottish Friendly’s ability to efficiently allocate investments to meet the risk profile of the fund.
What does the Lower fund invest in? The Lower fund may invest in UK and global stock markets, cash and government and company bonds. The fund’s current mix as at 31/03/2013 is: Government bonds
63.2%
UK equities
16.5%
US equities
11.0%
Pacific equities
8.8%
European equities
0.5%
Cash
0%
Company bonds
0%
Japan equities
0%
This mix may change tactically from time to time as decided by Scottish Friendly. In addition the target mix will be reviewed at least once a year and will be published at: www.scottishfriendly.co.uk/tax-free/ my-choice-isa/ risk-graded-funds
What could my investment be worth in the future? The amount you will get back from your My Choice policy will depend on how much you have paid in, the length of time it has been invested, the investment performance in the fund(s) over this time and the amount of money, if any, you have taken out of your policy.
What will my final return be? Your final return will be determined by the mix of funds and their performance over the time of your investment.
What are my guarantees? Despite the lower risk nature of the assets within the Lower fund, there are no guarantees on your final cash-in value and therefore you could get back less than you have invested.
What are my charges? The fund has an annual management charge of 1.5% of the fund value deducted on a daily basis. This annual management fee includes the cost of fund management for the underlying fund.
Which manager currently looks after my money? The fund is currently linked to a range of funds: European equities: Legal & General European Index Trust Government bonds: Legal & General All Stocks Gilt Index Pacific equities: Legal & General Pacific Index Trust UK equities: Legal & General UK Index Trust US equities: Legal & General US Index Trust
Your guide to the Scottish Friendly With-Profits fund (Unitised With-Profits) Fund specific benefits The Unitised With-Profits fund is linked to a cautiously managed portfolio of stock market, property, cash and bond assets. Provided you haven’t made any withdrawals or switched out of the fund, if you cash in only on the 10th anniversary of your continuous investment in the Unitised With-Profits fund you will receive a guaranteed cash sum of at least as much as you have invested.
Fund specific risks When you cash in, switch out or take a withdrawal from the Unitised With-Profits fund you will receive a value which is in line with the performance of the assets within the fund. This is done by adding a final bonus or deducting a market value reduction. No market value reduction can apply on the 10 year anniversary of your continuous investment in the Unitised With-Profits fund which provides your guaranteed value. Continuous investment means you have maintained at least one full unit in the Unitised With-Profits fund and is measured from the first day you invest.
What is the With-Profits fund? Our With-Profits fund is an investment fund where your money is combined with that of other customers. We manage the fund on behalf of all With-Profits policyholders and pay all policy benefits and costs from the fund. By investing in the fund through one of our With-Profits products, you become a member (owner) of Scottish Friendly. As a mutual organisation, we have no shareholders and all the profits from the With-Profits fund are used for the benefit of our members.
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What does the With-Profits fund invest in? The fund invests in a range of carefully selected assets including: the shares of UK and overseas companies bonds issued by the UK Government and overseas governments as well as those issued by companies property investments cash
What will my final return be? The final return will be broadly equal to the amount you would have received had you invested directly in the assets backing your policy. The return will be calculated after the deduction of running costs; including the cost of setting up and administering policies as well as providing benefits such as life insurance. Our principle aim is to provide a fair return on your money and we, of course, aim to treat all our members fairly. Your final return will be made up of: the basic value of the units that are held by your policy (that is the number of units multiplied by the unit price at that time) any additional final bonuses that may be added on the end date of your policy
What are my guarantees? After the deduction of charges your premiums will purchase units in the unitised With-Profits fund. The price of these units is guaranteed not to fall provided you maintain your policy for the agreed period (or death if earlier). At this point, the guaranteed minimum that will be paid on your policy will be the units multiplied by the current unit price. If your policy does not have a fixed term then your Key Features will provide you with details of the circumstances in which you can cash in your policy on this guaranteed minimum cash sum basis. If you cash in your policy at any other time, it may incur a Market Value Reduction (see below for more details). You should consult your policy or Key Features document for more details.
How are regular bonuses determined? Regular bonuses are normally set once a year although in extreme circumstances they may be changed more frequently. We add regular bonuses to your policy by increasing the price of the units. This increases the value of the units held by your policy.
The amount of regular bonus is set at a level that takes account of the investments within the fund and the projected final payout on policies. The level is set with the intention of allowing Scottish Friendly to pay a final bonus. In severe market circumstances, such as a significant and prolonged fall in the stock market and/or interest rates, the regular bonus rate could fall to zero. Every year you will receive a statement that will provide you with details of any bonuses that have been added to your policy.
How are final bonuses determined? A final bonus may be paid on your policy end date and is paid through the addition of new units into your policy. The actual final bonus (if any) will depend on the performance of the With-Profits fund. The final bonus could make up a significant part of the total payment although where the performance has been poor there may be no scope to pay a final bonus.
What is a Market Value Reduction? If you take your policy proceeds on the policy end date, the basic benefits are guaranteed (see above) then the minimum payment will be the unit price multiplied by the number of units held by the policy at that date. However, if you decide to cash in your policy at any other date a Market Value Reduction (MVR) may apply. This effectively reduces the unit price of the units held by your policy. If an MVR is applied it will reduce the cash-in value of your units to bring your policy value into line with the amount you would have received had you invested directly in the assets backing your policy. If your policy does not have a fixed period then your Key Features will provide you with details of the circumstances in which you can cash in your policy without any Market Value Reduction. For example this may be 10 years after you took the policy out, or 10 years after a continuous investment in the With-Profits fund.
What is smoothing? When applying a final bonus, or an MVR, Scottish Friendly will aim to ensure that payouts remain in line with the amount that you would have received had you invested directly in the assets backing your policy. To help smooth out these adjustments, rates are normally rounded to the nearest 5%.
What are my charges? Any expenses will be charged for by a reduction in the bonuses declared in the With-Profits fund and this reduction is assumed to be 1.5% of the fund value per year deducted on a daily basis.
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Who looks after my money?
How are business risks managed?
Scottish Friendly manages the With-Profits fund and the Board of Directors oversee it.
The With-Profits fund is exposed to a number of risks:
The fund is managed to maximise growth whilst minimising risk. Additionally the fund is managed to ensure it can afford to meet all existing policyholders’ guarantees and that Scottish Friendly satisfies all legal and regulatory requirements. The investment strategy is reviewed at least once a year and the investment outlook and performance are monitored at least monthly. Every year the Board will report to members confirming that the fund has been managed in accordance with its principles and practices and also noting any discretion that they have exercised, under advice from the fund’s With-Profits Actuary. The fund will be managed according to the full Principles and Practices of Financial Management (available on the Scottish Friendly website or on request). You will be notified three months in advance of any changes to the principles governing the fund.
How does Scottish Friendly decide what the With-Profits fund will invest in? The mix of investments held takes account of the current and projected financial strength of the fund. Additionally Scottish Friendly will take account of the expected returns and risks available from different types of investment. Normally between 20% and 70% of the assets backing your policy would be invested in shares and property with the rest in cash, government and corporate bonds. Scottish Friendly closely monitors the value of the assets backing policies against the amount required to pay all guaranteed benefits. Should the amount fall close to this minimum value then the proportion of assets held in shares and property could be significantly restricted.
What are the support assets? Scottish Friendly will always hold more assets than it needs to meet the benefits promised to its members. These additional assets are known as support assets. Support assets are used to provide additional security to policyholders. For example the cost of unforeseen risks (see “How are business risks managed?”) will initially be met from the support assets.
new business: this may cost more than the immediate charges which will flow from each policy existing costs: should the cost of administering new business increase, the costs will be borne by With-Profits policyholders other business ventures including Scottish Friendly’s business process outsourcing operations, partnerships, new product launches and mergers and consolidations with other friendly societies will impact the overall profitability of Scottish Friendly should the assets set aside for specific policyholders become unable to support their guaranteed benefits then the assets of the With-Profits fund may be used. These risks are initially met from the support assets. After this, they may impact on the policy returns. There are extensive controls in place to carefully manage these risks. Any proposal to embark on a special business venture will be subject to the detailed scrutiny of the Board of Directors and require their approval.
Is there more than one With-Profits fund? Scottish Friendly has a single With-Profits fund, however part of the fund has been set aside to provide benefits to customers who have certain types of policy. This document covers the operation of the main part of the With-Profits fund in respect of those customers who have what is known as a Unitised With-Profits policy. Separate documents outline the operation of the fund in respect of other types of With-Profits policy and you should ensure that this guide relates to your policy.
Where can I get more detailed information? You can find additional information about the way in which your individual policy will invest in the With-Profits fund in the Key Features or policy document. This document is a summary of the more detailed Principles and Practices of Financial Management for Scottish Friendly’s With-Profits fund. Copies of this document are available on request from Scottish Friendly or simply by downloading it from the Scottish Friendly website.
Support assets also fund the smoothing policy and can be used to meet the cost of any guarantees promised to policyholders. Generally Scottish Friendly aims to ensure that these support assets are between 5% and 25% of the size of the With-Profits fund.
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Scottish Friendly Asset Managers Limited, Scottish Friendly House, 16 Blythswood Square, Glasgow G2 4HJ.
www.scottishfriendly.co.uk Authorised and regulated by the Financial Conduct Authority. Details can be found on the FS register Registration No. 188832. Member of IMA. MYCHOICEWPG0813
