INVESTOR PORTFOLIO SERVICE (IPS) PORTFOLIO INVESTMENTS INVESTING WITH IPS.

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1 INVESTOR PORTFOLIO SERVICE (IPS) PORTFOLIO INVESTMENTS INVESTING WITH IPS. This brochure tells you about investing in unit trusts, OEICs and ISAs with us, and supports the Key Investor Information Document. It also includes our Terms and Conditions.

2 2 INVESTING WITH IPS CONTACTING IPS CONTACTING IPS. We re here to help you. It s easy to change your details, ask a question, get information, add or withdraw money or change funds. There are a number of ways you can contact us: CALL US You can call our Customer Services on: US For general enquiries, comments and suggestions you can send an to Customer Services: investor.portfolio.service@landg.com If you re contacting us by please remember not to send any personal, financial or banking information because your information won t be secure. 9.00am to 5.30pm, Monday to Friday for general information on our range of funds or for questions about your Portfolio Investments. Call charges will vary. We may record and monitor calls. This number may not be available outside the UK. WRITE TO US You can write to us with certain instructions on your Portfolio Investments, if you re changing any personal details, if you have any questions or you have a complaint: Investor Portfolio Service Legal & General PO Box 1112 Chelmsford CM99 2UX ONLINE INFORMATION AND SERVICING You can visit our website: for news, fund information, brochures and forms for your Investor Portfolio Service investments. You can also register for secure online access to your account. Once registered, you can: View your IPS portfolio valuation. Access quick and print-friendly valuations across your entire IPS portfolio. See your IPS historical transactions, statements and correspondence from us. Top up and change funds in existing Portfolio Investments (your ISAs, unit trusts and OEICs). Buy new Portfolio Investments; and Move money between your IPS Cash Account and Portfolio Investments.

3 INVESTING WITH IPS CONTENTS 3 CONTENTS. Where TO STart Becoming an IPS investor Before you invest What is Investor Portfolio Service (IPS)? Unit trusts and OEICs ISAs How can I invest? Income Charges and expenses Tax Changing your mind your right to cancel After you ve invested What we ll send you after you ve invested Keeping track of your money Adding money and changing your funds Income and withdrawals Your PEace of mind Who looks after my investment? Making a complaint How we treat different types of customer Where will my money be held and how secure is it? The Financial Services Compensation Scheme Our right to terminate your account Terms and Conditions The Investor Portfolio Service Terms and Conditions Your Portfolio Investments Terms and Conditions Glossary

4 4 INVESTING WITH IPS WHERE TO START WHERE TO START. BEFORE YOU START REadiNG There are several important documents that you should read to help you make your decision about investing: The Key Investor Information Document (KIID) gives you the key information on a specific fund, to help you decide whether it s right for you. This includes the fund objectives, investment policy, risk and reward information, charges and past performance. It s essential that you read the KIID carefully so that you understand what you re buying. You must make your fund choice(s) based on this information. If in future you top up your investment or change your fund choice(s), you should read the latest KIID for your chosen fund(s) before you give us your instruction. If you don t have any of these documents, or you want an updated version, you can get them on our website, from Customer Services, or from your financial adviser. This Investing with IPS brochure gives you practical information about the investments we re offering and the IPS service. It also includes the Terms and Conditions that apply if you re investing with IPS. The Important Fund Information brochure gives you more information, in addition to the information on the KIID, about each of the funds you can choose from. It also contains information to help you understand what the specific risks are for each fund and explains the different ways of measuring risk. You should read the booklet to understand more about the funds you re choosing. The Commission sheet tells you how much is paid to an adviser or introducer for the sale of your investment. It s very important that you look at all these documents to help you make the right choices. Please keep all these documents safe for future reference. The Fund Prospectus for each fund we offer is available from the fund manager or by contacting Customer Services.

5 INVESTING WITH IPS BEFORE YOU INVEST 5 BECOMING AN IPS INVESTOR. BEFORE YOU INVEST. Investing with IPS is SPlit into four SECTions: Before You Invest tells you about the unit trusts, OEICs and ISAs that IPS offers, how they work, and your options. It explains the aims and commitments of these Portfolio Investments, and the risks that apply to all the funds we offer. It also explains the charges for investments, how they re taxed and your right to cancel. After You ve Invested this section tells you what happens after you ve invested with us and what information we send you. It also explains what options you have once you ve invested, and how to take out your money. Your Peace of Mind tells you who looks after your investment, who regulates us, how compensation arrangements work, and what to do if you have a complaint. Terms and Conditions the terms and conditions for the IPS service, and for Portfolio Investments. There s also a glossary of commonly used terms inside the back page. Any questions? If there s anything you don t understand or you d like more information, please contact us and we ll be pleased to help. All our contact details are at the front of this brochure. WHAT IS INVESTOR PORTFOLIO SErviCE (IPS)? IPS is an investment service offered by Legal & General, where you can invest in and manage investments from different fund management companies in one place. As an IPS customer you can choose the funds that suit you from our wide choice. We re here to make things simple, offering you choice, convenience and control over your money. Choice You can choose the funds that suit you from our range of carefully selected funds from leading fund managers, including M&G, Jupiter, Legal & General, Schroders and Threadneedle. The range of funds we offer you are chosen by our Investment Management Research Unit (IMRU). They ensure that funds we offer cover a cross-section of asset classes (such as company shares, bonds, property) and different levels of risk and return so they are suitable for almost any investor. Convenience With IPS you hold your Portfolio Investments funds held as unit trusts, OEICS and stocks and shares ISAs from any of those fund managers together in one place. Control With our flexible service, we re here when you need us. We understand that some investors want online access to view valuations and actively manage their funds online. Others prefer to invest in the funds that suit them, and are happy with a comprehensive annual statement updating on their investment performance. Whichever type of investor you are, we have the tools and support to help you meet your investment goals. WHO IS LEgal & GENEral? The Legal & General Group, established in 1836, is one of the UK s leading financial services companies. As at 31 December 2011, we were responsible for investing 378 billion worldwide on behalf of investors, policyholders and shareholders. We also had over seven million customers in the UK for our life assurance, pensions, investments and general insurance plans. Note IPS is not a stockbroker or discretionary fund service we ll only buy, sell, or change the funds you re invested in on your, or your financial adviser s, direct instruction. The funds we offer are managed by leading fund management companies, and you ll remain invested in the funds you choose unless you tell us to change them. We offer you services to keep you informed and help you monitor and manage your Portfolio Investments.

6 6 INVESTING WITH IPS BEFORE YOU INVEST SUITABILITY Where can I get advice ON whether an investment is suitable for me? The purpose of this document isn t to give you advice or make a recommendation. It s up to you to decide if this is suitable for you. We haven t assessed whether this product is suitable for you. This means that you don t have the protection you would have received if we had done this. If you need help, speak to your financial adviser if you have one, or contact our Customer Services on the number on page 2 who will explain your options to get advice. We can only advise on Legal & General s life assurance and investment products. UNIT TRUSTS AND OPEN-ENDED INVESTMENT COMPANIES (OEICs) Why choose a unit trust or OEIC? Unit trusts and OEICs are types of investment that: Give you the potential to make your money grow and/or receive an income; Offer you access to buy different types of assets, including company shares, bonds, commercial property, cash and even in other investment funds; Allow you to buy a wider range of investments than you would conveniently be able to achieve on your own; Can help to reduce risk by spreading your money over a range of investments; and Give you access to professionally managed funds so you don t have to choose individual assets such as company shares or bonds by yourself. All the funds we offer are available as a tax-efficient Individual Savings Account (ISA) there s more about ISAs on page 8. Unit trusts and OEICs are very similar in many ways, but have a different legal structure and can have other differences. For example the way that units and shares are priced can differ when you buy and sell, as we explain on page 14. We may refer to unit trusts and OEICs collectively as Portfolio Investments. how does a unit trust/oeic WOrk? You invest your money in the fund together with other investors money. A unit trust is divided into units, and the number of units you hold represents your share of the fund. An OEIC is divided into shares and the number of shares you hold represents your share of the fund. Most funds have two unit/share types: distribution units/shares for income and accumulation units/shares for growth. When the fund receives more money, the manager buys more assets and creates new units/shares. The price of the units/shares will reflect the value of the fund s assets. If these go up in value, the price will rise. If they go down in value, the price will fall. Funds can have either a single unit/share price, so the price is the same on a single day for both buying and selling, or two prices the buying price and the selling price. See the Charges and expenses section on page 14 for more about how units and shares are priced.

7 INVESTING WITH IPS BEFORE YOU INVEST 7 Who can invest? You must be 18 years old or over to invest. Unfortunately, Portfolio Investments aren t available to US Persons. If you become a US Person/Resident in future, you must let us know. You can contact us if you need more information. If you re investing directly in unit trusts or OEICs: You can invest on your own or with up to three other people. If you re investing jointly, we ll need all investors to sign for all future transactions including changes to income payments. If you re investing within an ISA: You can invest only on your own. You must be resident, and ordinarily resident, in the UK for tax purposes. Your local tax office can help if you need confirmation of your residency status. Crown employees, such as diplomats or members of the armed forces who are working overseas and paid by the government, are eligible to open an ISA. Their spouses or registered civil partners can also open an ISA. What s my COmmitmENT? You can invest a lump sum, or make a regular payment every month, with a minimum of 20 into each fund you re buying. If you re investing directly in a unit trust or OEIC, there s no maximum investment limit. If you re investing through an ISA, there are investment limits for each tax year. You don t have to leave your money for a fixed length of time. You can tell us you want to take out some or all of your money at any time. The section called Individual Savings Accounts (ISAs) on page 8 tells you the ISA limits and Changing your mind Your right to cancel on page 22 tells you more about your right to cancel. What are the risks? There are some risks that you need to understand before you invest: The value of your investment, and any income from it, can fall as well as rise. If this happens, you may get back less than you invest. You should also bear in mind that investment performance may go up and down more in the short term. The nature and level of risk differs from fund to fund. Generally, the greater the potential reward (investment growth or income) a fund offers, the higher the level of risk to your investment. Some funds have specific risks depending on factors such as what they invest in or where in the world they invest. It s important that you understand the risks of the fund(s) you choose before you invest. The risk and reward profile in the KIID shows the fund s level of risk in relation to the potential reward. It also shows specific risks for the fund. There s also more information about the fund and the fund risks in Important Fund Information. Ideally you should not commit yourself to a particular end date, you should consider it as a medium to long-term commitment, for example at least five years. If you change your mind, you have 14 days after you receive your cancellation notice to cancel your investment.

8 8 INVESTING WITH IPS BEFORE YOU INVEST INDIVIDUAL SAVINGS ACCOUNTS (ISAs) WHAT s AN ISA? An ISA is simply a way of holding Portfolio Investments that has tax benefits. It allows an adult to invest in a unit trust or OEIC without having to pay personal income tax or capital gains tax on any income or growth. There is also a Junior ISA, but as IPS doesn t offer this product, and it doesn t affect the limits for an ISA held by an adult, we re not covering the details here. You can split your money between two types of ISA: a cash ISA and a stocks and shares ISA. Each tax year you can either: invest up to the ISA limit in a stocks and shares ISA with one provider; or The ISA limit for adults for this tax year (2012/2013) is 11,280. Of this you can invest up to 5,640 in a cash ISA. You can invest your allowance in a single fund or a combination of funds. ISA limits are expected to increase each tax year in line with the Consumer Prices Index (CPI). The CPI is a way of showing changes in the cost of living. We ll continue your monthly payments by Direct Debit into the next tax year unless you tell us otherwise. You ll need to tell us if you wish to increase your payments in line with any annual increase in the ISA limits. If you withdraw money held in an ISA, you lose the ISA benefit on that portion of your money you can t put that money back into an ISA unless you have enough of your ISA limit left in the current tax year. you can split this amount between a stocks and shares ISA and a cash ISA with the same or different providers. If you have two providers it s your responsibility to make sure your contributions don t exceed the overall annual limits. We offer only a stocks and shares ISA through IPS, however you can hold a stocks and shares ISA with us and a cash ISA with another provider in the same tax year, as long as you keep within the ISA limits. The tax benefit of ISAs is based on current rules. The current tax rules may not be maintained and the benefit of the tax treatment depends on individual circumstances. The section called Tax on page 19 tells you about the general tax arrangements for ISAs.

9 INVESTING WITH IPS BEFORE YOU INVEST 9 HOW CAN I INVEST? You can invest in a number of ways: Lump sum payment Regular monthly payments ISA transfer Re-registration Lump sum payment Minimum investment of 20 per fund. Pay by cheque, or with a debit card when investing online. If you re an existing investor, you can pay from money held in your IPS Cash Account. See page 13 for more information on the IPS Cash Account. You can add to your existing unit trust, OEIC or ISA at any time. Regular monthly payments The minimum investment in any single fund is 20 a month. We collect your monthly contribution by Direct Debit from your bank or building society and invest it on the date you choose on your application form (choose any day from 1st to 28th of each month). Where this is not a working day, money is taken on the next working day. ISA transfer You can transfer an existing ISA you hold with another company to us as cash, or by re-registering it without cashing it in. We ll invest any ISA transferred to us in a stocks and shares ISA. For cash transfers, your existing fund provider will sell your ISA and transfer the cash value to us. We ll then buy new Portfolio Investments with the cash, in the funds you choose, still within an ISA. The Re-registration section tells you how you can re-register investments, including ISAs, without cashing them in or changing funds. If you want to transfer your ISA holding to us, you ll need to complete the transfer application and authority form and send it to us. We ll then send it to your existing ISA manager. They ll take this as authority to cash in your investment according to their terms and conditions. The transfer value will then be sent directly to us for investment. You need to invest a minimum of 20 into each fund with us. DIRECT DEBIT guarantee This Guarantee is offered by all banks and building societies that accept instructions to pay Direct Debits. If there are any changes to the amount, date or frequency of your Direct Debit Legal & General will notify you five working days in advance of your account being debited or as otherwise agreed. If you request Legal & General to collect a payment, confirmation of the amount and date will be given to you at the time of the request. If an error is made in the payment of your Direct Debit, by Legal & General or your bank or building society, you re entitled to a full and immediate refund of the amount paid from your bank or building society. If you receive a refund you re not entitled to, you must pay it back when Legal & General asks you to. You can cancel a Direct Debit at any time by simply contacting your bank or building society. Written confirmation may be required. Please also notify Legal & General.

10 10 INVESTING WITH IPS BEFORE YOU INVEST What you also NEEd TO know about ISA transfers Your existing manager may charge an exit fee on transfers. You can transfer money saved in a cash ISA to a stocks and shares ISA but you can t transfer money the other way. If you re transferring a cash or a stocks and shares ISA taken out in the current tax year, you must transfer your whole cash or stocks and shares ISA investment for the current year. You can transfer all of any current tax year cash ISA, but this will be invested in a stocks and shares ISA. If there s a rise in the markets before the ISA transfer, either to or from us, is complete, you could potentially miss out on some income or growth. If you transfer a current year cash ISA to a stocks and shares ISA, this resets your cash ISA limit for the current year, so you re free to invest in another cash ISA up to the 5,640 limit, subject to the overall ISA limit of 11,280 (2012/2013 tax year limits). WHEN are UNITS AND SharES BOughT AND SOld? We accept instructions to buy, sell or switch units and shares every business day. Each fund has a valuation point, which is the specific time of day when the fund is valued and a price calculated. Most funds have a daily unit or share price. For a deal to be done at this price, the instruction to buy, sell or switch units or shares must be received before the dealing deadline for that valuation point. Unless we tell you otherwise, we must receive telephone instructions at least one hour before the dealing deadline, and instructions received through the website at least 15 minutes before the dealing deadline. Re-registration Re-registration is a service we offer that allows you to transfer the administration of your existing unit trusts and OEICs, including ISAs, that you hold with different companies to IPS. The fund doesn t have to be one we normally offer. Once completed, we handle the administration of the re-registered funds and deal with the fund manager for you. You contact us for any information or to give instructions on any of your re-registered investments, and we send you any fund information and your statements. Money remains invested in the fund throughout the re-registration process, so you can continue to benefit from any investment growth and income from the fund. Why WOuld I re-register funds I currently hold elsewhere? You ll receive a single statement giving a valuation of all the funds you currently hold. It s easy to check your recent payments and transactions, in your statements or by registering for our easy secure online service. You can move money between our wide range of funds from top fund providers, by filling out a form securely online. It means less paperwork and administration for you. You can contact IPS to manage all the investments you hold with us. how does it WOrk? If you have a financial adviser, they can tell you if a fund that you hold can be re-registered to IPS. You can also contact us to send you a form to re-register funds. The minimum amount is 20 for each fund. You can re-register most unit trust and OEIC funds. If we confirm a fund can t be re-registered, if it s an ISA, you have the option to transfer the cash into a fund we offer. Monthly investments are invested on the first valuation point after we receive the payment. The dealing deadline and valuation point are shown in Important Fund Information.

11 INVESTING WITH IPS BEFORE YOU INVEST 11 A re-registered ISA keeps its current tax-efficient status, and this will not affect your current tax year s ISA allowance. You can have only one manager for a stocks and shares ISA in the current tax year, so you must re-register (or transfer) all your current tax year investments relating to that ISA. There s no UK capital gains tax liability on the re-registration of investments. After the re-registration has taken place, the income you receive from this fund will show on your statement as coming from Legal & General. The exception to this could be your next payment if the ex-dividend date for the next payment has already passed, the next payment will show as coming from the previous manager. See the next section Income on page 12 for an explanation of ex-dividend dates. We may pay a fee of up to 1% of the value re-registered to the company or adviser arranging the re-registration, to cover their administration. This fee is covered by the existing charges on the fund. Your existing fund provider may charge a fee for re-registering your existing investments. When you re-register an investment to us this will end any relationship you have with the adviser who originally advised you to purchase the investment (except where the same adviser arranges the re-registration). Changing your mind If you change your mind about re-registering your investments to us, you can usually re-register them back to your original manager. You can speak to your adviser, or call us if you need further details on the re-registration process. Our contact details are on page 2. You don t automatically get voting rights on funds you re-register to us. If you currently receive voting rights on the funds you re re-registering, and you d like that to continue, you ll need to contact us. Please see Section B.9 Information provided in the Portfolio Investments Terms and Conditions for more information. What you also NEEd TO know about re-registration If you are using the services of an adviser, they can tell you about the benefits of re-registration. They will not: advise you on whether the fund is suitable. be responsible for deciding whether the original advice was suitable. be responsible for the original sale unless they were the original adviser. An adviser will be able to advise you only on the range of funds that are on their current fund panel (the funds they currently sell). An adviser can t give you any advice if you wish to invest more into a fund that isn t on their current fund panel. Legal & General and your adviser will consider you to have the appropriate knowledge and understanding of the fund and its risks to assess whether the investment is appropriate for you. You won t be able to change fund or sell your investment while we arrange the re-registration. Not all funds can be re-registered. If your fund can t be re-registered and you wish to invest this money with Legal & General, you ll have to sell your units or shares back to your current provider. You will then invest with us in one of the funds on our fund panel. If the investment is within an ISA, this can be done as an ISA transfer. This means: If the markets rise while transferring, you can potentially lose income or growth; Your existing provider may charge you an exit fee; You may have to pay an entry charge when you invest with IPS; If held outside an ISA you may be liable to capital gains tax on taking money out or changing funds see the section on Tax on page 19 for more information.

12 12 INVESTING WITH IPS BEFORE YOU INVEST INCOME Funds usually hold assets that pay an income to the fund. This can come from various sources, depending on where the fund invests, including share dividends, income from corporate bonds, or rents from commercial property. For some funds, you can choose to receive this income into your bank or building society account. Taking or reinvesting income Taking an income Some funds offer income units/shares that can pay the fund s income to you. If you choose income units, you can have the income paid to you or retained in your IPS Cash Account. Where funds you hold offer income units/shares, you can contact us to start or stop receiving an income from your Portfolio Investments. We ll change your unit/share type if necessary. ReinvESTing the income If you want to reinvest the income, where a fund offers them, you can choose accumulation units. Most funds offer accumulation units/shares, which reinvest any income earned back into the fund as it s received, increasing the unit/share price. If a fund offers only accumulation units/shares, you can t take an income. I have income units/shares, when will you pay me income? Each fund has its own distribution dates when income is paid to IPS, each relating to an earlier ex-dividend (XD) date, the date at which income is calculated. See the diagram below. If you hold units before an XD date (A), income is paid at the following distribution date (A1). If you buy units between an XD date and a distribution date (B), income is paid on the distribution date after the following XD date (B1). The fund manager sends us the income payment on the distribution date and we either reinvest it into more income units or pay it into your IPS Cash Account, depending on what you ve asked us to do. Income paid into your IPS Cash Account is either paid out to your Nominated Bank Account on the next pay date, or retained in your IPS Cash Account, depending on your instruction. If you re receiving income, we pay it into your Nominated Bank Account on the seventh business day of each month. If a fund offers only income units/shares, you can still choose to reinvest that income instead of having it paid the income will automatically be used to buy more units/shares in your chosen fund. When funds pay income Cut-off for when income is calculated Income paid XD date Distribution date XD date Distribution date Time A B A1 B1

13 INVESTING WITH IPS BEFORE YOU INVEST 13 ISA tax credits Each fund has its own distribution dates when income is paid, each relating to an earlier ex-dividend (XD) date, the date at which income is calculated. See the diagram at the bottom of the previous page. We re able to claim tax back from HM Revenue & Customs (HMRC) on the income paid from some funds when they re held in an ISA. If you re receiving an income from one of these funds, we ll pay you the value of the tax credit along with the income payment, and then claim the tax back. If you re investing any income, any reclaimed tax will be reinvested to buy more units/shares. Nominated Bank account When you apply for a Portfolio Investment, we ask you to confirm a bank or building society account in your name as your Nominated Bank Account. We ll pay any income, and any withdrawals you make from your IPS Cash Account, into this account. We can pay withdrawals direct from your account into this Nominated Bank Account. You can also add money to your IPS Cash Account from your Nominated Bank Account or by cheque see Adding money to your IPS Cash Account on page 26. For tax information, please see the Tax section on page 19. IPS Cash account The IPS Cash Account is used for Portfolio Investments only, to hold money while it s not invested in a fund. We may also move money through the IPS Cash Account when it s being added to or withdrawn from your IPS Portfolio Investments. We give you a unique Platform Account Reference that refers to your IPS Cash Account when you first invest with IPS. You can have more than one IPS Cash Account, for example if you have an account solely in your name and another held in joint names. interest ON the IPS Cash account We pay you interest on money held in your IPS Cash Account. You can see details about the interest rates and when interest is paid online at or by contacting IPS Customer Services. However, if you pay money directly into the IPS Cash Account by cheque or from your Nominated Bank Account (rather than money being transferred from a Portfolio Investment fund or funds), we won t pay you interest on any money moved into Portfolio Investment fund(s) or withdrawn before the first interest payment date.

14 14 INVESTING WITH IPS BEFORE YOU INVEST CHARGES AND EXPENSES You ll pay charges and expenses on the funds you invest in. These will reduce how much is invested, the performance of your investment and how much you get back, so it s important to understand the charges and also how funds differ. This section gives more information on these charges and expenses. You can find the specific details of the charges and expenses in the Key Investor Information Document, and in Important Fund Information. Transaction charges These are charges you pay when investing in or taking money out of a fund. They re designed to cover the costs involved, and to try to ensure that all investors pay their fair share of costs. You will always pay these charges, although funds can have different methods of taking the charges. Transaction charges often mean that the price at which you buy and sell units or shares in a fund is different from the quoted unit/share price used for valuations. Funds have different ways of charging and different levels of charges. When you invest in a fund you ll pay costs that can include commission, stockbroker fees, fund manager administration, and stamp duty. When you take your money out of a fund, the costs include administration and the costs of the fund selling investments to pay the withdrawal, such as stockbroker fees. When a fund manager doesn t pass on the full costs of buying and selling assets through the transaction charges, costs will be paid from the fund. This will reduce the growth potential of the fund. KEY DEFINITIONS Net Asset Value (NAV) the value of a fund s investments the value of a unit or share is the NAV divided by the number of units/shares in issue. Single pricing each day, units/ shares in a fund have a single price, based on the NAV, for all investors buying and selling. Any entry charge is then added to this price for investors buying units/shares. A fund manager can add additional charges, a dilution levy or dilution adjustment, to cover dealing costs. Dual pricing each day, there are different prices to buy and sell units investors buy into a fund at a higher offer price, or sell at a lower bid price. The prices account for costs of dealing. The offer price also includes the entry charge. Bid/offer spread the difference between the bid and offer prices on a dual-priced fund. Entry (or initial) charge This is a one-off charge taken each time you add money to most funds. An entry charge is a percentage of the amount you invest. They vary between funds and some may have no charge.

15 INVESTING WITH IPS BEFORE YOU INVEST 15 Bid/offer spread Some funds are dual priced. Each day, they have a separate offer (or buying) price, and bid (or selling) price. The difference between the two prices is known as the bid/offer spread, and is made up of: the entry charge of the fund; the difference between the buying and selling price of the underlying holdings; and other costs the fund pays when buying and selling assets, (for example stockbroking commission and stamp duty). Normally, the prices are calculated on an offer basis as follows. The manager starts with the creation price, which is the cost of creating a new unit/share. This includes the price of the assets that the fund needs to buy to create a unit/share, plus all other dealing costs that have to be paid. The entry charge is then added to the creation price to give the offer price you can buy at. The bid price is the cancellation price the cost of cancelling a unit/share, the value of the assets being sold, minus the costs of selling a unit/share. This is the price you can sell at. Bid/offer spread Funds with higher dealing costs or investments that are more difficult to buy and sell will tend to have a larger bid/offer spread. These funds include: Funds investing in property; Funds with a limited market, such as certain corporate bonds, smaller companies or emerging markets. The size of the bid/offer spread can change daily as investment conditions change. A larger bid/offer spread may increase the cost of investing in these funds, and reduce the amount you receive when you withdraw. Here is a simple example for ease we have assumed that creation price is 100p. We ve also assumed that the fund manager applies the maximum bid/offer spread, in this case 6%. The offer price is therefore the maximum offer price allowed. Dual pricing: offer basis Maximum offer price = 105.5p Creation price = 100p Entry charge Bid/offer spread = 6% Bid price = 99.5p This method is known as valuing the fund on an offer basis, and is used when more money is entering the fund than leaving the fund. This is normally the case as the number of units in a fund usually increases over time.

16 16 INVESTING WITH IPS BEFORE YOU INVEST If the opposite is true, and more money is leaving the fund than entering the fund, the manager may decide to price the fund on a bid basis. This uses the cancellation price as the starting point. The bid price is set as the cancellation price, and the entry charge added to this to give the offer price. The prices are calculated as follows (again with creation price at 100p). Dual pricing: bid basis Maximum offer price = 105.5p Offer price = 103.9p Creation price = 100p Bid price = cancellation price = 98p Bid/offer spread = 6% Note that both the bid price and the offer price are lower when pricing on a bid basis. These examples assume that a manager applies the maximum bid/offer spread, although in practice fund managers don t usually apply the full spread. Every day, investors are both buying and selling units/shares in the fund. The fund manager matches units from investors leaving the fund and those who are buying the fund, keeping the costs of dealing low as fewer assets need to be bought or sold. This means that the bid/offer spread is smaller as costs passed on to investors are lower. You can see if a fund is dual priced or single priced in Important Fund Information. The bid/offer spread will increase when dealing costs are higher. The offer basis example shows fund pricing when there s an inflow of money from more investors buying than selling. When there is a particularly high inflow of money into a fund, the manager may price on an offer basis with a higher offer price, closer to the maximum offer price. A manager will usually have a rule to decide when the inflow is high enough to do this. In the same way, when there is an outflow of money, a manager pricing on a bid basis may move the bid price lower, towards the minimum bid price allowed, the cancellation price as shown in the bid basis example. Managers have the right to alter the bid/offer spread at their discretion, within the maximum limits, and this doesn t have to be directly related to the costs they incur.

17 INVESTING WITH IPS BEFORE YOU INVEST 17 Dilution levy/dilution adjustment Where a fund is single priced, so buying and selling prices are the same each day, high levels of buying or selling may increase the fund s dealing costs and affect the value of its assets. This is known as dilution, and these costs can reduce the performance of the fund. To protect ongoing investors, by protecting the fund value, the fund manager may do one of two things: Charge a dilution levy on certain individual large purchases or sales, to cover the costs of those transactions. Make a dilution adjustment by changing the price of all units/shares, to cover the extra costs. On days when more money is being invested than taken out, a dilution adjustment will increase the unit/share price for all deals placed on that day to cover costs of creating the new units and buying assets. On days when more money is being taken out than invested, a dilution adjustment will reduce the unit/share price to cover the costs of selling assets. The size of the dilution levy or dilution adjustment can vary depending on the costs being covered. For example, if the net inflow or outflow on any day is particularly large, the fund manager could apply a bigger dilution levy or dilution adjustment. Each fund manager will have rules they follow to define when to do this. Ongoing charges These charges are taken from your fund automatically, for as long as you hold it. These charges consist of the annual management charge and the extra expenses, and they re taken from either the fund s capital or income. All states within the European Economic Area provide details of the ongoing charges to help compare expenses of different schemes. annual management charge The fund manager deducts this ongoing charge from the fund. The unit or share price takes account of this charge. It covers the costs of managing the fund, including investment management. It also covers the fee paid to the company that provides our administration and technology services, typically 0.25% of the value of your investment each year. Extra expenses Other costs paid each year (trustee, custodian, registrar, audit, regulator fees). If a fund invests in other funds, then its extra expenses may include charges and expenses for the other funds. For some funds the extra expenses are only for the registrar fees, and the other extra expenses come from the annual management charge (AMC). Details of these charges and where they re taken from can be found in Important Fund Information. Together, the AMC and extra expenses are known as the fund s ongoing charges, and are shown as a single figure in the Key Investor Information Document (KIID).

18 18 INVESTING WITH IPS BEFORE YOU INVEST PerformaNCE fee Some funds can also charge a performance fee if the fund exceeds a set performance target, or benchmark. The benchmark could be a particular interest rate or the performance of similar funds. Performance fees work differently for different funds: Some funds may take a performance fee when the fund s value is falling, providing that the fund is still outperforming the benchmark. Some funds have a high-water mark, referring to the highest level of outperformance of the benchmark reached by the fund. The fund has to exceed this high-water mark before any further performance fee can be payable in this way, the manager has to consistently outperform the target/ benchmark to earn the performance fee. A performance fee is taken from the fund automatically, from either income or the capital, and will reduce the amount of the investment returns. You can see if a fund has a performance fee in the KIID and in Important Fund Information. If a fund has a performance fee, full details of how it is calculated are given in the Fund Prospectus, available from the fund manager or by contacting Customer Services. Our contact details are on page 2. Other COSTS There may be other costs taken from the fund s capital: Fees relating to the cost of buying and selling assets, including any commission paid to stockbrokers for trading and/or research. Interest on borrowing. We do not show these costs. There is currently no exit charge from any of the funds we offer. Can charges change? Charges may change, but we ll tell you if there s any increase in the annual management charge or, if you pay monthly, any change to the entry charge. If these charges change, we ll do our best to let you know about it at least 30 days before the change is made. It may not always be possible to give you advance notice if, for example, an external fund manager gives us little or no notice of a significant change. The extra expenses figure in Important Fund Information and the ongoing charges figure in the KIID (calculated from the annual management charge and the extra expenses) are updated at different times. The KIID will usually show the most up-to-date charges figures. The COST of advice If you go to a financial adviser, they ll give you details about their costs. Where we pay an adviser, this cost is covered by the fund s charges. The amount we pay depends on the amount you invest and, in the case of monthly payments, for how long payments continue. If you invest without advice, there s no cost for advice. We may, however, pay commission or make a payment to the company that arranged the sale. If we do this, the Commission sheet and the Confirmation note we send you after you invest will confirm the amount paid. In addition, Legal & General will receive a payment from the fund managers for administration services we provide to them in connection with your investment. If you d like further details of this fee, you can contact us our contact details are on page 2. Other support WE offer advisers We support and provide advisers and business partners with additional tools and benefits to help you receive a quality service. This may include training, software, seminars and marketing materials. If you want to know more, you can get full details from your adviser.

19 INVESTING WITH IPS BEFORE YOU INVEST 19 TAX Your tax position depends on your personal situation and where your money is invested. All tax assumptions we ve made in this section are those that currently apply. Tax law does change, which may affect you, so it s a good idea to get regular advice. For advice on your personal tax circumstances, contact your financial adviser. Your local tax office can also help answer your questions, or you can contact HM Revenue & Customs. Tax ON the fund UK tax will be paid on the fund as follows. Under current UK tax legislation, the fund will not have to pay any corporation tax on UK dividend income or capital gains made from selling assets held in the fund. However, any other income received by the fund can be taxed. Interest distributions (paid by funds investing mainly in government and corporate bonds, short-term deposits, or both) are generally paid after income tax is taken, currently at a rate of 20%. All dividend distributions (paid by funds investing mainly in shares, property, or both) carry a notional tax credit (tax that is treated as already having been paid), currently at a rate of 10%. Stamp Duty Reserve Tax (SDRT) is paid on any funds that invest in UK shares. It is paid out of the assets of the trust. The tax is paid on the value of units or shares that the fund buys back from one investor and sells to another. The amount of SDRT paid is reduced if part of the fund is not invested in UK shares, including any uninvested cash. Overseas funds If you hold units or shares in a fund that has overseas assets, the fund may be liable to pay overseas tax. The fund may not be able to reclaim some or all of this tax from the overseas tax authorities. See the fund tables in Important Fund Information to find out if a fund pays interest distributions or dividend distributions.

20 20 INVESTING WITH IPS BEFORE YOU INVEST Personal tax unit trusts and OEICs Where you receive interest distributions, income tax at 20% will already have been deducted: if you re a basic rate taxpayer, you ll have no further income tax to pay; if you re a higher-rate taxpayer, you ll have to pay additional income tax of 20% of the gross interest distribution; if you re an additional-rate taxpayer, you will have to pay additional income tax of currently 30% of the gross interest distribution; if you re not liable to income tax, you can reclaim some or all of the tax deducted from HM Revenue & Customs; if you re not ordinarily resident (NOR) in the UK, you may be able to receive interest distributions without UK income tax being deducted. To achieve this you ll need to provide a valid NOR declaration, which can be obtained from HM Revenue & Customs. Where you receive dividend distributions: if you re a basic-rate taxpayer, you re liable only for tax at 10% on the dividends you receive. This is already met by the notional tax credit explained above. You have no further income tax to pay; if you re a higher-rate taxpayer, you ll have to pay additional income tax of 22.5% of the gross dividend distribution; if you re an additional-rate taxpayer, you will have to pay additional income tax of currently 32.5% of the gross dividend distribution; if you re not liable to income tax, you can t reclaim the tax credit. Where your total taxable income, including that from unit trusts and OEICs, exceeds 100,000, any income received from the trust may reduce your personal tax allowance. You may be liable to capital gains tax on any withdrawal (including switches) from a fund, including moving investments from a unit trust or OEIC into an ISA. PerSONal tax ISAs Under current legislation, all investments in ISAs are free of personal income and capital gains taxes. Unit trust and OEIC distributions within the ISA will be taxed as follows: Interest distributions (paid by funds investing mainly in Gilts and corporate bonds, short-term deposits, or both) are paid after income tax has been deducted at a rate of 20%. When you hold this fund in an ISA, we reclaim this tax for you from HM Revenue & Customs. A tax credit is attached to each dividend distribution (paid by funds investing mainly in shares, property or both) as detailed in the Tax on the fund section. For ISAs this tax credit isn t reclaimable. If you withdraw some or all of the money in your ISA, you will not be able to replace the amounts withdrawn within the same tax year, unless the amount you wish to invest is within your unused ISA allowance. Interest from money held in the Cash Reserve is paid net of a 20% flat rate charge that isn t reclaimable. PerSONal tax IPS Cash account Interest paid is taxable as income. Interest is paid net of tax at 20%, so basic-rate taxpayers have no further tax to pay. Higher-rate/additional-rate taxpayers may have an additional liability. Non-taxpayers and 10% savings starting rate taxpayers may be able to reclaim tax. You should contact HM Revenue & Customs to find out more. Its website is or contact your local tax office. What if I pay tax abroad? Depending on your residency status (non-uk), if you live outside the UK, you may have to pay tax on any income or capital gains you receive. If you need help on tax issues, you should speak to a tax adviser or the relevant authorities in the country concerned.

21 INVESTING WITH IPS BEFORE YOU INVEST 21 The EU Savings DirECTive ON Tax Under the EU Savings Directive, we need to request certain documents to confirm your birth, address and tax status if: you re a new investor after 1 January 2004; and There s more information about when distributions are paid in the section I have income units/shares, when will you pay me income? on page 12. you re investing in certain funds; and you re residing outside the UK, but within a country covered by the Directive; If this applies to you, we ll also have to provide HM Revenue & Customs with details about any payments made to you. This information can then be passed on to the tax authorities of your country of residence. Equalisation When you buy a unit, part of the price includes income already held by the fund. This amount is known as the equalisation amount. Equalisation is calculated on an average basis for all new investments in the accounting period. This is the period between two XD dates. The equalisation makes up part of the first distribution. At the first distribution date after your purchase, this amount is treated as a return of capital and therefore isn t taxable. When you make a withdrawal, you should take equalisation into account when calculating any capital gains tax liability. This method of distributing the equalisation amount may be different from the method used if you invested directly with the fund manager. This may be to your advantage or disadvantage. When withdrawing units, you are not subject to capital gains on the equalisation amount contained in those units or shares.

22 22 INVESTING WITH IPS BEFORE YOU INVEST CHANGING YOUR mind YOUR right TO CANCEL Investing is a big commitment, so you get a 14-day cancellation period. This section explains how it works, and what happens if you want to cancel your investment after your cancellation rights have expired. Lump sum investments We ll send you a cancellation notice with your confirmation note each time you make an investment. If you decide to cancel the investment, you have 14 days from receiving the cancellation notice to sign and return the form to us. Monthly payments You can cancel the instruction within 14 days of receiving the letter confirming that we ve accepted your application for a regular investment. To cancel, please write to Customer Services at the address shown on page 2. ISA transfers ONly We ll send you a cancellation notice with your confirmation note when we receive the transfer money from the previous ISA manager. If you decide to cancel the investment, you have 14 days from receiving the cancellation notice to sign and return the form to us. If you decide to cancel an ISA transferred to us, we can t return the money to the previous ISA manager so we send it to you. You ll lose the ISA tax benefits on that money. If you don t want to lose the ISA tax benefits, you may be able to transfer to another ISA manager. This means if the value of any of your units or shares has dropped, you will not get back the full amount you invested, as the units/shares were worth less when they were cancelled. You will not benefit from any rise in a unit or share price if you cancel. We cancel each fund individually. The maximum you ll get back is the amount you invested in that fund. If a fund has fallen in value, you ll get back less than you invested in that fund. The losses are not offset against gains in any other fund you re cancelling. What happens if I don t use my right to cancel within the 14-day PEriod? You ll be subject to all investment risks as detailed in Investing with IPS and Important Fund Information. You ll pay the charges detailed in Important Fund Information. For ISAs only You lose your right to contribute to any other stocks and shares ISA with another manager for the tax year that you made this investment. You ll be unable to replace the payments withdrawn within the same tax year, unless the amount you wish to invest is within your unused ISA allowance. how much will I get back? When you cancel a lump sum investment, we cancel your units/shares, and refund any entry charge you ve paid. You ll get back the investment value based on the lower of either: the original unit/share price; or the unit/share price at the next valuation point after we receive your cancellation instruction.