FUND GUIDE

A GUIDE TO HOW WE MANAGE OUR UNIT-LINKED FUNDS.

A GUIDE TO HOW WE MANAGE OUR UNIT-LINKED FUNDS – FUND GUIDE

BEFORE YOU START READING. We aim to use plain language that’s easy to understand. To keep this guide simple, we’ve placed explanations of the most common investment terms (highlighted in yellow) in the glossary on page 14. You may find it helpful to browse through this glossary now. This document is intended to provide you with more information on how we manage our unit-linked funds. You may want to keep it with your other documents as it may be useful to refer to it later. It’s possible that our approach to managing our unit-linked funds may change in the future. If we make any changes that significantly affect your policy we’ll let you know as soon as we can.

FINDING OUT MORE At some points we’ve included clear signposts (using the symbol shown alongside) which direct you to more detailed information in this document, or elsewhere. Keep an eye out for these. If you’d like to see any of the other documents, please contact us or speak to your adviser.

THE PURPOSE OF THIS GUIDE IS TO EXPLAIN: • The key principles we follow when managing our unit-linked funds. • How we invest your money. • How we value our unit-linked funds. • How we work out the charges. • What happens if an unexpected event occurs.

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A GUIDE TO HOW WE MANAGE OUR UNIT-LINKED FUNDS – FUND GUIDE

WHAT ARE OUR KEY PRINCIPLES WHEN MANAGING OUR UNIT-LINKED FUNDS? When managing our unit-linked funds and the investments we make on your behalf, we follow several key principles. • We invest your money into funds chosen by you and make sure you’re clear on how many units you hold in each fund. • We make sure you get a fair return on your investments based on how well your chosen fund is doing and take charges only in line with the charges disclosed to you. • We make sure the funds you’re invested in are allowed by the Financial Conduct Authority. • We manage our funds in line with your policy terms and conditions. We also follow our industry’s best practice and the Financial Conduct Authority’s rules. • We manage our funds in a fair way and in the best interests of you and all our other investors. • We aim to resolve any issues or problems as soon as we can in an open and fair way and in the interest of all policyholders.

WHO IS RESPONSIBLE FOR MAKING SURE WE FOLLOW OUR PRINCIPLES? • Our Unit Linked Management Committee (ULMC) governs the management of our unit-linked funds. It’s made up of a number of our senior managers. • The ULMC meets regularly, and receives regular reports and information to assure them the above are being followed. They also make sure our funds and policies are run in a way that is fair to all our policyholders.

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A GUIDE TO HOW WE MANAGE OUR UNIT-LINKED FUNDS – FUND GUIDE

HOW DO WE INVEST YOUR MONEY? WHAT TYPES OF FUNDS DO WE PROVIDE? We’ve two different types of funds for you to invest in: • Internal funds – these are funds managed by us. • External funds – these are funds managed by a company other than Legal & General. When you invest in an external fund, we buy you units in a Legal & General fund that invests in the corresponding fund managed by the other company. You don’t hold units directly in the other company’s fund.

WHAT TYPES OF ASSETS DO WE INVEST YOUR MONEY INTO? Each fund will have different assets. These assets will change over time depending on the aims of the fund. The assets will be in one or more of the broad categories listed below. Within each category, funds generally invest in a wide range of separate assets. Types of assets our funds can invest in: • Shares quoted on the UK or an overseas stock exchange. These are also known as ‘equities’. • Unquoted shares. These are in companies whose shares are traded privately and not quoted on a stock exchange. • Bonds (also known as ‘fixed interest securities’) issued by UK or overseas companies and central or local governments. • Bonds where the interest paid and the eventual repayment value will change in line with the Retail Prices Index or an overseas equivalent. • Cash, money market instruments and other bonds which mature within a year. • Commercial property (either in the UK or overseas). • Derivatives, while not a separate asset class, are contracts usually giving a commitment right or an option to buy or sell assets on specified conditions, for example, on a set date in the future and at a set price. • Funds (both internal and external) where the underlying investments are in one or more of the above categories.

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A GUIDE TO HOW WE MANAGE OUR UNIT-LINKED FUNDS – FUND GUIDE

DO THE INVESTMENTS IN OUR FUNDS COVER OUR COMMITMENT TO YOU? • When you invest your money with us, it’s used to buy units in your chosen funds. • We have to make sure units are available for funds, in anticipation of new investment by you and other policyholders. We’re required by regulation to make sure that in normal investment conditions, the assets in your unit-linked funds are meeting the needs of all policyholders wanting to withdraw their money.

HOW DO WE STRUCTURE OUR UNIT-LINKED FUNDS? • The number of units we make available in each fund will change over time. It depends on how much money is going in and out of the fund and how long it’s been available to policyholders. • We own these units until the time they’re bought by policyholders. We don’t aim to make a profit from these units, but we do receive the investment return from the assets they invest in, which can be either positive or negative.

HOW DO WE VALUE OUR UNIT-LINKED FUNDS? HOW OFTEN AND WHEN DO WE VALUE OUR FUNDS? • We value our funds every weekday, except for English public holidays. We normally value them at 12 noon, except for North American investments. • In normal circumstances, this means that your instructions (to buy units or switch funds, for example) are set up using a price worked out after your instruction was received, and units assigned in line with your policy terms and conditions. • Our North American investments are valued at 3pm. This is after the opening time for the New York Stock Exchange and makes it possible for us to get a true value for your investments. • There are occasionally days where an earlier valuation time is used. This is usually because of early closure of the London Stock Exchange (for example, on Christmas Eve).

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A GUIDE TO HOW WE MANAGE OUR UNIT-LINKED FUNDS – FUND GUIDE

HOW DO WE DECIDE THE FUND VALUES? Internal Funds • We base the daily valuation of our internal funds on prices quoted on a recognised stock exchange. These prices are always set by a reputable third party source. • For the Deposit Fund, the unit price will not go down. We don’t allow you to buy units in the Deposit Fund. We use it for administration purposes. • All the individual assets within our funds are valued and then added together to give a total for the fund. • If you choose to invest in property funds, the asset values would be set by a reputable valuer’s opinion. The valuer will be from a firm of independent chartered surveyors and valuations will be carried out in line with the Royal Institution of Chartered Surveyors’ standard procedures. They will usually value the assets in the fund once a month. We may value property assets held within our property fund more regularly if there are large movements in the market. We do this to protect your investment and other investors in the fund. • Some funds may invest in assets where their value is not provided on a recognised UK or overseas stock exchange, for example, the FTSE or Dow Jones. We will value these assets in line with our key principles. These investments will not normally be a large part of your fund. External Funds • If you choose to invest in our external funds, a company other than Legal & General will manage these funds. We’ll value the external fund based on their valuation. How we value our funds We use two different bases for valuing the assets in a fund, these are: • Offer (also known as the ‘Creation’) basis: This is the price we set if we have to buy assets. • Bid (also known as the ‘Cancellation’) basis: This is the price we set if we have to sell assets. Both these prices consider costs such as stock exchange commission, agent fees and legal fees. These costs increase the offer valuation and reduce the bid valuation. EXAMPLE: When exchanging your money for a holiday abroad into Euros, you’ll receive a certain currency rate. Let’s say this rate is 1.10 Euros for every £1. This is likened to the offer price. However, when you return with Euros to sell they will buy it back from you at a lower rate, and give you £1 for every 1.20 Euros. This is likened to the bid price. Normally the difference between these two prices is based on what fund you’re invested in. EXAMPLE: Let’s suppose you invested in bond and shares funds. The difference would be around 0.5 – 2.5%. Whereas if you were invested in property, the difference may be around 7% due to stamp duty. It is worth noting that an individual fund may have much bigger differences for some periods. For example, if it became very difficult, or even impossible, to sell assets in the fund.

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A GUIDE TO HOW WE MANAGE OUR UNIT-LINKED FUNDS – FUND GUIDE

HOW DO WE DECIDE WHETHER TO VALUE ON THE OFFER OR BID BASIS? • Our basic rule is that a growing fund would normally be valued on the higher offer basis and a shrinking fund would be valued on the lower bid basis. • We review the pricing basis for each fund regularly to take account of the money flows into and out of the fund. However, if there’s a large movement into or out of a fund on a certain day, this may lead to a change in the pricing basis for that day’s valuation. • If you choose external funds, the pricing basis will depend on the daily activity in the external fund. If we trade in the external fund, we’ll use the price supplied by the external fund manager. This may be either the buying or selling price, which we’ll match and use to value our fund that day.

WHAT OTHER FACTORS DO WE CONSIDER WHEN VALUING OUR FUNDS? The main part of our daily valuation for our funds is to work out a total value of all the assets. We then make some adjustments to the valuation, to make sure our published unit price each day is fair value to both the policyholders investing in the fund, and those leaving the fund. These adjustments can be any, or all, of the following: • For funds valued on the offer basis, an estimate of the costs of buying assets in the fund is included. • For funds valued on the bid basis, an estimate of the costs of selling the assets in the fund is included. • If shares are included, we add the value of dividends which have been declared, but not yet paid. • If property assets are included, rental income is normally paid quarterly in advance. For the daily valuation we spread this income evenly over the three month period. • We add any amounts owing to our funds. For example, our funds might be owed rental income, tax reclaims and refunds of charges from fund managers. • For life funds corporation tax is payable on income earned by the assets held by the fund. Please see the next section What about tax on our funds? on page 8. • For life funds, when the values of the assets are higher than the price at which the same assets were bought, there’s a potential tax liability on the gain. Therefore, we make an adjustment to the fund valuation for this, allowing for the fact that it may be a few years before this tax is actually paid. – Also, if the current value of the assets is less than the original cost, we may be able to claim tax relief on the losses, resulting in a value being credited. However, this value will generally be restricted to a small percentage of the fund. This is to reflect a reasonable expectation of being able to recover the benefit. Please see the next section What about tax on our funds? on page 8. • We may make any other reasonable adjustments that we believe are fair to you and all our policyholders.

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A GUIDE TO HOW WE MANAGE OUR UNIT-LINKED FUNDS – FUND GUIDE

WHAT ABOUT TAX ON OUR FUNDS? • In general, our life funds are subject to tax on interest and other unfranked income received (such as interest from gilts and bank deposits) and on the growth in capital values. • For pension funds, any growth is free of UK income tax and capital gains tax. However, we cannot reclaim the tax paid on dividends from UK companies. • Any changes to the tax rules by Her Majesty’s Revenue & Customs (HMRC) are carried out as soon as possible. • We work out the tax charge and deduct it from each of our individual funds on a standalone basis. • Any future tax liabilities or reclaims (for realised and unrealised gains or losses, for example) are kept as a provision within each of our life funds. We review the basis of these rules and how they are kept at least once a year, and these are approved by the ULMC.

HOW DO WE WORK OUT UNIT PRICES? • As mentioned before, we work out the value of our funds each working day. We also work out how many units each fund consists of. • The number of units is the total granted to you and all the other investors in the fund, plus any units temporarily owned by us awaiting allocation to new investors. EXAMPLE: A fund is worth £10 million. The total value of the units held by you and other investors is worth £9.5 million. We’ll hold £500,000 of spare units. • These spare units are bought to make sure that we can handle any new transactions, such as new applications, fund switch or transfer requests. • The unit price is the fund value divided by the total number of units. Final fund value Total number of units

=

unit price

• We round the published unit prices according to the following rules: – The price which we buy units back from you (the bid price), for example, if you wish to switch funds or cash in, is rounded down to the nearest 0.1p. – For more recent contracts, the price at which we sell units to you (the offer price) is the same as the bid price. – For other contracts we deduct an initial charge, which is typically 5%. For these contracts, the price you buy the units is: The selling price 0.95

=

initial price (rounded down to nearest 0.1p)

• Your policy terms and conditions will say whether an initial charge (sometimes referred to as the ‘bid/offer spread’) applies to your policy. For more details on our unit prices for each of our funds, which we update daily, please see our websites: www.legalandgeneral.com/investments or www.legalandgeneral.com/pensions

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A GUIDE TO HOW WE MANAGE OUR UNIT-LINKED FUNDS – FUND GUIDE

WHAT ARE THE CHARGES? Your policy terms and conditions, and any updates we give you after you start your policy, will outline the charges and deductions we take from our funds. We don’t take any hidden charges to make extra profit from our funds. The charges and deductions include: • Costs directly related to the buying and selling of your investments. EXAMPLE: Costs such as stamp duty, commission and legal fees. • We deduct a fund management charge either monthly or daily. The only exception to this is the Deposit Fund (see your policy terms and conditions for more information on the Deposit Fund). • We may have to pay fees to external organisations. EXAMPLE: Such as for valuations and the safe keeping of the fund assets. • For property funds, we may have to pay agent and legal fees for negotiating leases and collection of rents. • For all funds other than pension funds, the tax that is payable is deducted as required by the tax regulators. This currently happens every three months. • Some funds have other charges, for example, to pay for guarantees. Details will be in the information we gave you when you invested in the fund or in your policy terms and conditions. • If our funds include holdings in another fund the charges take account of a refund of the charge of that fund, or funds. This is to avoid double charging you. For our Stakeholder pension contracts, we only deduct charges that are allowed under stakeholder rules. For more information please refer to the Stakeholder Member’s Policy Booklet that is available on request.

WHAT HAPPENS IF WE MAKE A MISTAKE IN VALUING OUR FUNDS? • We have tried and tested processes in place for working out unit prices and we run regular checks to make sure our prices are accurate. It is, however, a complex process and a mistake may occur. A mistake could result in either an incorrect payment to you or an incorrect number of units being added to your policy. • It’s worth noting that these mistakes are usually small and have little effect on the value of the affected fund. In the unlikely event that you’ve been adversely affected to a serious extent, by a mistake made by us, we’ll compensate you as soon as we reasonably can. We would generally consider a pricing error of more than 0.5% of the unit price to be significant.

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A GUIDE TO HOW WE MANAGE OUR UNIT-LINKED FUNDS – FUND GUIDE

WHAT OTHER INFORMATION DO YOU NEED TO KNOW? WHAT IF A FUND CLOSES? • Sometimes we have to close certain funds and need you and other investors in the fund to switch to alternative funds. We’ll give you fair notice should one of our funds close. • Our funds might close because of one of the following reasons: • If you’re invested in external funds, we might close an external fund if: – the external fund manager gives us notice that it will close its own fund; – there’s a fundamental change to the investments in that fund; – circumstances arise where we consider involvement with an external fund manager to be no longer in the best interests of policyholders. • We may need to close the fund if it became impractical to manage the fund in line with our operating guidelines. • We may close a fund if there were few policyholders investing in the fund and it becomes impractical to manage the fund in line with our operating guidelines. • We’d close a fund if a UK or overseas government took action that resulted in the operation of the fund becoming illegal or impractical. • If we do decide to close a fund that you’re invested in, we’ll adopt the following rules: – Where possible, we’ll write to you before, telling you of the date of the closure and setting out your options. – We’ll offer you a free switch into one or more of our remaining funds. – We’ll tell you which fund your investment will be switched into if you haven’t chosen an alternative fund before the date of closure. – When you switch, we’ll assess the value of your holding in the closing fund in the best interests of you and all the other investors in that fund.

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A GUIDE TO HOW WE MANAGE OUR UNIT-LINKED FUNDS – FUND GUIDE

WHAT IF THERE IS A SPECIAL SITUATION? On occasions, unexpected and emergency situations arise that might need special action to be taken. These may include: • A major incident in London or elsewhere that has a serious effect on investment values or results in the closure of parts of that city. EXAMPLE: A major terrorist attack in London. • The unplanned closure of one or more of the main stock markets around the world. • Times when property investments are not easy to sell. • Actions by overseas governments, which result in assets invested in the country concerned being frozen. • A major systems failure, either ours or one of the external organisations which we rely on to value our funds. In these situations, our main priority is to protect the interests of you and other investors. We’ll take any action we believe necessary to achieve this. Action that might be considered would be: • We may delay dealing with cashing in requests, fund switches or other payments. We will still keep to any statements which we’ve made in your policy terms and conditions. • We may change the basis we use for valuing the affected funds, from the offer basis to the bid, or from the bid basis to the offer basis. • We may give what we believe is a fair estimate of the value of the assets which are impossible to get an accurate value for.

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A GUIDE TO HOW WE MANAGE OUR UNIT-LINKED FUNDS – FUND GUIDE

WHAT CHANGES CAN WE MAKE? To be fair to you and other investors, we hold the right to change the way our funds run. The extent and circumstances in which this right is applied can be found in your policy terms and conditions. It’s also reviewed and confirmed by the ULMC regularly, or when particular circumstances demand immediate action. We may exercise this right in: • Moving our funds pricing basis, from the bid to the offer, or vice versa. This depends on the flows of money into and out of our funds. This might include which basis is used when we value a fund that is merging or being closed to new business, or internal deals between two funds where one fund holds another. • A change to the time when we value our funds, for example, other than 12 noon. • Delaying fund switches or cashing in requests in adverse market conditions. • Setting rules for valuing the assets in our funds, where market conditions result in prices not being available or not being available daily to us. • Setting the rules for the way unit prices are rounded. • The charges made on our life funds for income tax and capital gains tax, which might be affected by government action. • Our basis for making provisions in the value of our life funds for deferred tax payable or tax recoverable, including unrealised capital gains and losses. • Our application of the costs in dealing with assets. • Our ability to make changes to charges. • The rates we use to distribute income on our distribution funds. These funds have an option to either use the income generated by their assets to provide an income or reinvest in the fund. • The level and nature of pricing mistakes that need compensation. • Making sure enough cash is in the funds to meet the needs of all policyholders wanting to withdraw their money in normal investment conditions.

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A GUIDE TO HOW WE MANAGE OUR UNIT-LINKED FUNDS – FUND GUIDE

WHERE CAN YOU FIND OUT MORE? Your policy terms and conditions and regular statements provide specific information about your particular policy. You may also have a Key features document and a plan or Fund brochure. If you have a financial adviser they should also be able to provide you with further information on unit-linked funds. We’ll be happy to answer any questions you might have. If you want to speak to us before investing, our contact details can be found in the key features specific to your policy. If you’re an existing customer, you can call our policyholder centres on: 0370 0104 080 for investments 0345 9932 584 for pensions Or visit us online at: www.legalandgeneral.com

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A GUIDE TO HOW WE MANAGE OUR UNIT-LINKED FUNDS – FUND GUIDE

GLOSSARY. AN EXPLANATION OF SOME COMMON TERMS USED IN THIS GUIDE. Asset or assets

The investments that make up a fund. The main asset classes are shares, bonds, property and cash.

Bond

An investment where an investor loans money to a UK or overseas company, UK or overseas government. This asset generates income by paying a fixed amount of interest on the loan.

Deposit Fund

An investment bond fund used to put money into for short periods for administration purposes.

Derivatives

Derivatives are not a separate asset class but are contracts usually giving a commitment, a right or an option to buy or sell assets on specified conditions, for example, on a set date in the future and at a set price.

Dividends

Payments made to shareholders from a company’s profit.

External funds

A fund managed by a company other than Legal & General.

Financial Conduct Authority

The independent body that regulates financial services.

Fund or funds

A collection of assets that a policy can be invested in. These assets may be managed by us or other investment management companies.

Gilts

Essentially a loan issued by the UK Government. The Government pays regular interest on the loan and promises to pay back the original capital in full.

Life funds

Funds other than pension funds. They apply to our investment bonds and regular savings plans. Your policy terms and conditions give more details about the tax treatment of our life funds.

Money market instruments

Debt instruments that are easily converted to cash.

Policy or policies

Your investment bond, regular savings or pension contract with us.

Policyholders

Those who have an investment bond, regular savings or pension contract with us, invested in our life and/or pension funds.

Policy terms and conditions

The terms and conditions of your contract with us as contained in your Contract Document, Product Guide or Member’s Booklet issued after your investment or pension is processed.

Retail Prices Index

An index that gathers the prices of a typical basket of retail goods across the UK, to give an indication of the rate of inflation.

Shares/equities

A share in a company that allows the owner of those shares to participate in any financial success achieved by that company.

Stamp duty

A tax placed by the UK Government on buying property and UK equities.

ULMC

Our Unit Linked Management Committee, which is responsible for managing and overseeing our unit-linked funds.

Unit or units

A unit is a share of a fund. Each fund is split into a series of units. The number of units you hold is your share of the fund.

Unit price or prices

A price worked out each working day that is used to value units. A working day is Monday to Friday inclusive, excluding English public holidays.

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