OUR FUND RANGE AND INVESTMENTS e-investments
Why is it important to read this document? This document explains our investments, the funds available, how they are managed, their objectives and the associated risks, charges and terms. What kind of service do we provide? This is a non-advised service so it is important that you read this document along with the Key Investor Information Document and the Fund Information Document for the funds you wish to invest in. These documents should help you decide if an investment into either of the products is right for you and help you understand any associated risks. You should remember that the value of investments can go down as well as up, and you may get back less than you originally invested. How can I Invest? You can invest in a stocks and shares ISA. This allows you to invest tax efficiently up to the current tax year s ISA allowance into the funds on offer. While returns can be higher than a cash ISA, there is always an element of risk associated with investing and you may get back less than you invested. It is important to remember you can only subscribe to one cash ISA and/or one stocks and shares ISA each tax year. If you have already used your ISA allowance for the current tax year but you have further money to invest you may invest in the Investment Account. The Investment Account will allow investments into the same funds as the ISA but will not benefit from the same tax efficiency. Tax treatment depends on individual circumstances and may change. What can I invest in? There are three funds for you to choose from: Fund 2, Fund 4 and Fund 6. The funds are multi asset funds. This means they invest into a mix of UK and international equities, fixed interest securities and property. Having a number of different assets within the funds helps to reduce risk because your investment is not fully invested into one sector or type of asset. The funds do not invest directly into the individual assets, but invest in a number of other funds, which in turn invest in the different asset types. The Funds are designed for growth, each with a varying level of risk and potential reward based on the mix of underlying funds and the assets they are made up of. This can be seen in the diagrams later in this document. You should be prepared to invest for a minimum of 5 10 years, due to the increased risks of holding this type of investment over a shorter period. What are the charges and fees? There are only two; a maximum Ongoing Charge of 0.45% per annum of fund value and a Service Fee for managing and administering your plans of between 3 and 20 per product per month. There is currently no initial charge on any of the funds in this range. The charges and fees are explained in more detail later in this document. 2
Fund Objectives The Fund is managed by Scottish Widows Unit Trust Managers Limited, and they are responsible for the maintenance of the funds. Each fund has its own objective determined by the level of risk and potential reward it intends to maintain from the mix of assets used. The diagram shows the asset mix of each of the Funds Fund 2 Fund 4 Fund 6 Assets Equities Fixed Interest Securities Property Fund 2 Assets Equities Fixed Interest Securities Property Equity 23% Fixed Interest Securities 65% Property 12% The Funds are managed to a fixed asset allocation, as shown in the diagram above. The asset allocation is reviewed annually to maintain the appropriate level of risk within the fund. The Fund Manager will regularly rebalance the fund to maintain the appropriate level of risk. To understand more about rebalancing please see page 6. Each of the Funds invests into underlying funds. The underlying funds are primarily passively managed funds. Investing in passively managed funds helps keep the costs to a minimum. What is a Passively Managed Fund? A passively managed fund is invested so that its value tracks the value of a particular index as closely as possible. For example, a fund tracking the FTSE 100 will typically own all 100 companies in the same proportion as in the index. When the index holdings change, so do the holdings of the fund. MANAGED GROWTH FUND 2 OBJECTIVE The Fund aims to achieve a combination of income and capital growth by mainly investing in a portfolio of collective investment schemes to achieve broad exposure to diversified investments, including equities and fixed interest securities. Property exposure will also be achieved via exposure to collective investment schemes. The fund will typically have a higher exposure to lower risk assets, such as fixed interest securities. Although the underlying funds are passively managed, the Fund manager will ensure the correct asset mix is maintained through rebalancing. The Fund manager will only select actively managed underlying funds where they believe there is an opportunity to outperform the market at a reasonable level of risk and cost. 3
Fund 4 Fund 6 Assets Assets Equities Equity 51% Equities Equity 75% Fixed Interest Securities Property Fixed Interest Securities 39% Property 10% Fixed Interest Securities Property Fixed Interest Securities 17% Property 8% MANAGED GROWTH FUND 4 OBJECTIVE The Fund aims to achieve a combination of income and capital growth by mainly investing in a portfolio of collective investment schemes to achieve broad exposure to diversified investments, including equities and fixed interest securities. Property exposure will also be achieved via exposure to collective investment schemes. The fund will typically take a diversified approach to lower and higher risk assets. MANAGED GROWTH FUND 6 OBJECTIVE The Fund aims to achieve a combination of income and capital growth by mainly investing in a portfolio of collective investment schemes to achieve broad exposure to diversified investments, including equities and fixed interest securities. Property exposure will also be achieved via exposure to collective investment schemes. The fund will typically have high exposure to assets providing potential for growth, such as equities. 4
Risk and Potential Return Increasing Return Cash Cash Fund 2 Fund 2 Inflation risk Increasing Risk Fund 4 Investment risk Fund 6 The charts show the range of funds we offer and the level of risk each has. It also shows the potential return the funds may produce. Each of the funds will have its mix of assets set annually to meet the correct level of risk for that fund. In between these annual reviews, rebalancing will take place to maintain the correct asset mix for each fund. This rebalancing is required to allow for the different market movements of the individual asset types. Without this the asset mix would alter over time and change the level of risk within the funds. Rebalancing will be completed at least quarterly and a more detailed description of this process is shown on the next page. By managing the fund in this way we can minimise the cost of the fund to you. Whilst taking more risk means the potential for higher returns it also has the potential to have bigger losses. The charts are for illustrative purposes only and the potential returns are not guaranteed. Cash Money deposited in savings accounts in banks or building societies carries a lower risk than investing. Your capital is generally secure and the amount you deposit will not decrease, however your deposit may fail to pay a return that beats inflation. Inflation is the general increase in prices and includes costs such as your weekly groceries. It is expressed as a percentage, just like interest rates. If the level of inflation is greater than the level of interest you are earning then, in real terms, your money is shrinking. Funds The level of risk within the investment funds depends on what the fund invests in e.g. equities have a higher risk than fixed interest securities. The risk affects the range of returns you might get back and the number of good and bad years over the time you are invested. The higher the risk, the greater the chance of having a good or a bad year, which in turn means the higher the amount of gain or loss. Fund 4 Fund 6 Lower Higher Holding cash in a company, such as bank or building society, is not completely free from risk. One such risk is known as credit default risk. This is where a company holding your investments or savings can no longer meet its obligations and will fail. It is important to note that the credit default risk of cash is not allowed for in either of the above diagrams. To find out what financial protection you are entitled to please see the FSCS Protection notes in the Additional Information section of the Fund Information Document. 5
How the Funds are Managed We offer 3 Funds that start with an agreed mix of assets. The asset mix reflects the level of risk of each fund and aims to maximise potential performance within that risk level. The fund manager will manage the fund to the agreed asset mix. This is reviewed annually by the fund manager. Over time as the performance of assets varies the asset mix will shift from the original position, which could change the level of risk of the fund. To address this the fund manager will rebalance the fund. Rebalancing will take place regularly. The diagram below is an example and shows how the asset mix of a fund can change over time. The fund manager will set the mix of assets annually to reflect the level of risk. In this example the initial annual asset mix is 60% Equities and 40% Bonds. Due to market movements the asset mix has shifted and the diagram shows how the fund manager takes action. The rebalancing will take place at least every three months, but is likely to take place more frequently. 1 At fund launch: Equities: 60% Bonds: 40% Assets Bonds Market Movement Market Movement Equities After rebalancing: The fund is set back to original asset mix Equities: 60% Bonds: 40% 5 What is rebalancing? 2 3 months later: Equity markets have fallen and bond markets risen Equities: 30% Bonds: 70% Rebalancing Rebalancing 3 months later: 4 Equity markets have risen and bond markets fallen Equities: 80% Bonds: 20% Market Movement 3 After rebalancing: The fund is set back to original asset mix Equities: 60% Bonds: 40% 6
Making things Simple Charges and Fees Explained Our charges and fees are designed to be simple and transparent with no hidden extras. Below you will find full details: Funds; þ Ongoing Charge is a maximum of 0.45%* of your fund value þ No initial charges Services; þ One simple Service Fee per product between 3.00 and 20.00 per month þ No switching charges þ No additional charges. Fund Ongoing Charge This is charged by the fund provider to cover the cost of maintaining and managing your fund. These costs can vary but will be a maximum of 0.45%* per annum of the value of your investment. This is calculated on a daily basis and reflected in the fund value so what you see online is what your investment is worth. It is important to note that the Ongoing Charge will vary as your fund value moves up and down in line with market movements. Below is an example of how the Ongoing Charge you pay will depend on the value of your fund. This charge will reduce the amount you get back in the future. Fund Value 15,000 67.50 30,000 135.00 60,000 270.00 *The maximum Ongoing Charge may be higher or lower in the future. Ongoing Charge (max 0.45% of Fund) Service Fee This is the fee payable by you to Halifax Share Dealing Limited for providing the services required to manage your investment, and includes: Arranging the initial investment into the fund of your choice On-line access to your up to date fund values On-line statements On-line tax certificates Ability to top up your investment and amend any regular contributions Ability to switch your money between our range of funds Ability to make withdrawals from your investment Telephone Helpline Information and Support Material, Market Updates and Fund Manager Commentary Administration of your investment The Service Fee is payable for each individual product you hold and will be calculated separately using the fund value for each product. This is shown in Table 1. Table 1 Band Fund Value ( ) Monthly Fee Per Product ( ) 1 0 15,000 3 2 15,001 30,000 4 3 30,001 50,000 5 4 50,001 100,000 10 5 100,001+ 20 This Service Fee is inclusive of any VAT payable. It will be accrued monthly and is payable on an annual basis and is applied irrespective of the number of days in each calendar month you have held the investment. The payment period used to accrue the fees is October 1st to September 30th. 7
The Service Fee is based on your fund value on the last working day of each month. This means that the funds performance could affect the fee you pay. Table 2 shows an example of a customer investing 15,000 in April to help demonstrate this. Table 2 Month Value of Investment including fund performance ( ) Service Fee Band Applied April 15,000 1 3 May 14,970 1 3 June 15,001 2 4 July 15,087 2 4 August 15,030 2 4 September 14,990 1 3 Total Due for the Payment Period 21 Monthly Service Fee ( ) Points to note: You only pay for the months you hold your investment within each payment period, so in the example above you would only be charged for the months April to September. The Service Fee payable can fluctuate month to month dependent on your fund value. The Service Fee is payable for each individual product you hold and will be calculated separately using the fund value for each product. These examples are for illustrative purposes only and the actual cost will be different for your investment. What does this mean overall? To understand what the Total Annual Costs for your investment could be, including the Ongoing Charge and the Service Fee, table 3 shows some examples. Table 3 Investment A B C D Fund Value ( ) 5,940 11,880 15,000 30,000 Ongoing Charges 0.45% of fund value ( ) 26.73 53.46 67.50 135.00 Monthly Service Fee ( ) 3.00 3.00 3.00 4.00 Annual Service Fee ( ) 36.00 36.00 36.00 48.00 TOTAL Annual Costs ( ) 62.73 89.46 103.50 183.00 To make things simple for the example we have made some assumptions: The figures are based on investing in one product. The Ongoing Charge is calculated as 0.45% of the fund value and assumes the fund value remains level for the 12 month period The Monthly Service Fee is based on the appropriate band for the fund value. The Annual Service Fee assumes the same band is applicable for the 12 month period because we have not allowed for any increase or decrease in the fund value. The Total Annual Cost is calculated by adding the Annual Service Fee and the Ongoing Charge for the year These examples are for illustrative purposes only and the actual cost will be different for your investment. 8
If you hold two products, for example an ISA and an Investment Account, your total Annual Service Fee payable would be the total of both. An example is shown in Table 4. Table 4 Investment ISA IA TOTAL Fund Value ( ) 11,880 30,000 41,880 Ongoing Charges 0.45% of fund value ( ) 53.46 135.00 188.46 Monthly Service Fee ( ) 3.00 4.00 7.00 Annual Service Fee ( ) 36.00 48.00 84.00 TOTAL Annual Costs ( ) 89.46 183.00 272.46 To make things simple for the example we have made some assumptions: The figures are based on investing in two products. The Ongoing Charge is calculated as 0.45% of the fund value and assumes the fund value remains level for the 12 month period The Monthly Service Fee is based on the appropriate band for the fund value. The Annual Service Fee assumes the same band is applicable for the 12 month period because we have not allowed for any increase or decrease in the fund value. The Total Annual Cost is calculated by adding the Annual Service Fee and the Ongoing Charge for the year These examples are for illustrative purposes only and the actual cost will be different for your investment. Other Important Information How will we collect your Service Fee To make things easy we will not ask for any fees upfront. Instead we will accrue your fees over a payment period that runs between October 1st and September 30th. At the end of this period we will collect any accrued fees from your nominated bank account. This means that if your investment is active for 6 months within the 12 month payment period you would only pay the Service Fee applicable for those 6 months. Failed payments If we are unable to collect the Service Fee from your nominated bank account we will contact you to inform you and arrange alternative payment. Cancellations In respect of the Service Fee, if you inform us that you wish to cancel the investment during the cancellation period you will not be charged. If a Service Fee has been collected it will be refunded to you. In respect of the funds, you should be aware that you will receive the value of your investment at the time of cancellation and if the value has fallen, you will receive back less than you originally invested. Withdrawals You can withdraw money from your investment at any time. You need to be aware that you will still incur a monthly Service Fee based on the reduced value of your fund. Additional charges We do not currently make any additional charges for providing other ad hoc services. 9
Tax Information Fund 2, Fund 4 and Fund 6 are accumulation funds. Accumulation funds automatically reinvest any income they receive, for example dividends paid by shares held within an accumulation fund are reinvested back into the fund to buy more assets. Therefore there is no option for the income to be paid to you. The price of the funds will reflect this reinvestment. Income generated by the funds is distributed in two different ways depending on the types of assets held in the funds. When the fund holds a higher proportion of fixed interest assets the fund will make interest distributions. When the fund holds a higher proportion of equities it will make dividend distributions. The type of distribution within the fund affects the type of potential tax liability you may have or tax reclaim you may be entitled to make. Tax treatment depends on individual circumstances and may change. Fund Name Fund 2 Fund 4 Fund 6 Stocks and Shares ISA or Investment Account Income Fund Accumulation Fund Interest or Dividend Distribution Both Available No Yes Interest Both Available No Yes Dividend Both Available No Yes Dividend If you hold our funds in a stocks and shares ISA If you hold our funds in a stocks and shares ISA you do not have any personal liability to income tax or capital gains tax on an ISA investment. Fund 2 makes interest distributions. Within the ISA this fund has a gross share class which means that no tax is deducted from interest distributions paid and the income is reinvested back into the fund. Where a fund makes dividend distributions we are unable to reclaim the 10% tax credit on UK dividend distributions. Funds 4 and 6 make dividend distributions. If you hold our funds in an Investment Account If you hold our funds in an Investment Account, basic rate taxpayers have no further income tax to pay. If you are a higher or additional rate taxpayer there will be a further income tax liability. For higher rate taxpayers the extra income tax is currently 25% of the interest or dividend kept in the fund. For additional rate taxpayers the extra income tax is currently 31.25% of the interest or 30.56% of the dividends kept in the fund. Fund 2 makes interest distributions. Within the Investment Account this fund has a net share class which means that tax is taken from the interest at 20% and the remaining income is reinvested back into the fund. Non or starting rate taxpayers may be able to reclaim some or all of the tax that has been withheld on interest distributions. Fund 4 and Fund 6 make dividend distributions. The dividend is reinvested back into the fund net of a 10% tax credit. This tax credit cannot be reclaimed. Capital Gains Tax is a tax on the increase in value of possessions during the time you have owned them. Any tax is due when you dispose of them. You may have to pay Capital Gains Tax on any gain (profit) that you have made when you cash in these funds or you are switching to another fund. There is an annual exemption for capital gains. If your profits together with any other gains you have made in the same tax year comes to more than the annual exemption you will have a liability to Capital Gains Tax on any gain above the annual exemption. This will be 18% if you are a basic rate taxpayer or at 28% if you are a higher or additional rate taxpayer. If you withdraw money from, switch between funds or sell your investment we have no responsibility to deduct any Capital Gains Tax before we pay you your money. You must declare any interest or dividend distributions or gains from your Investment Account to HM Revenue & Customs. 10
Dilution Dilution can arise in a single-priced fund when units are issued or cancelled as a result of large numbers of purchases or sales. Funds have to buy or sell the underlying investments, and these investments are not single-priced as there are separate prices for buying and selling. The fund manager will make a dilution adjustment to address this. What is a Dilution Adjustment? A dilution adjustment might be made to the price of the fund to reflect the difference between the buying and selling prices of the investments of the fund and any costs incurred, including taxes. A dilution adjustment means that the impact of buying or selling investments is met by those moving into or out of the fund, rather than by those who remain. The dilution adjustment might affect the number of units you receive or how much you get back when you sell them. You usually buy or sell units in the fund at a price based on the mid-point between the buying and selling prices of the underlying investments but revised for any dilution adjustment. Lloyds Bank plc. Registered Office: 25 Gresham Street, London EC2V 7HN. Registered in England and Wales No.2065. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority under registration number 119278. The Lloyds Bank e-investments service is operated by Halifax Share Dealing Limited. Registered in England and Wales no. 3195646. Registered Office: Trinity Road, Halifax, West Yorkshire, HX1 2RG. Authorised and regulated by the Financial Conduct Authority, 25 The North Colonnade, Canary Wharf, London, E14 5HS under registration number 183332. A Member of the London Stock Exchange and an HM Revenue & Customs Approved ISA Manager. Compliance No. 19505.0 11 M60140 (10/14)