How do I decide which fund(s) to invest in?

You should make your choice of fund(s) bearing in mind the level of investment risk you are prepared to take. To help decide on your attitude to risk you should decide which of the following descriptions is most appropriate to you:

'Risk Averse' - you are prepared to give up potential investment growth opportunities to avoid the possibility of your investment falling in value at any time. You are aware that inflation may reduce the real value of your investments. (Our only suggested fund match against your attitude to risk would be the Deposit Fund however please remember that inflation may seriously reduce the real value of your investment). This fund is primarily offered as a fund to which you can switch your investments in times of economic uncertainty and is not ideally suited for long-term growth potential.

'Balanced' - you are prepared to accept the risks of broadly spread investments without capital guarantees for the associated potential returns.

'Speculative' - you are prepared to accept the greater risks associated with equity only investment for potentially higher returns. If you are in any doubt about which fund to select you should seek advice.

Notes
1. Please note that it is not practical to give an exhaustive description of each of the above attitudes to risk.
2. Please note the value of investments can fall as well as rise and is not guaranteed.

Standard Default Fund

Whilst you can choose to invest your contributions in one or more of the funds shown below you are not forced to make a choice. If you do not make a choice your contributions will automatically be invested in our standard default fund, which is the Managed Fund. As explained later this fund invests in a broad range of stocks, shares, gilts and property to provide a medium risk over the long term.

What funds can I invest in?

You can invest your contributions in any one or more of the following Investment Funds:

Fund Name	May be suitable for:
Deposit Fund (series 2)	(See comments under 'Risk Averse' above)
Managed Fund	Balanced
Abbey National Merrill Lynch Managed Fund	Balanced
Abbey National Newton Managed Fund	Balanced
UK Equity Tracker Fund	Balanced to Speculative
UK Equity Fund	Balanced to Speculative
International Fund	Speculative

Investment funds work as follows:

• We divide each fund into units of equal value.
• We use your contributions to buy units in the fund(s) you choose.
• The assets of each fund may be made up of specific types of investments, e.g. UK company shares, government securities, property, cash etc., depending on the investment objective of the fund.
• Any movement in the value of the assets is directly reflected in the price of the units and so in the value of your plan.

The value of a fund may fall as well as rise and is not guaranteed (except for the Deposit Fund (series 2)).

What are the fund aims?

Each fund has its own investment aim. To help you to choose which funds to invest in we set out below their investment aims. If you are unsure which fund is appropriate for you, you should seek advice.

Deposit Fund (series 2)

• This fund invests only in deposits which earn interest with Abbey National.
• It offers security as the value of the units cannot fall.
• As a result, it is low risk in nature although you should remember that higher longer-term returns are more likely to be achieved by other funds in the range.

May be suitable for those who are 'Risk Averse' but is not suitable for those wishing to invest over the long term.

Managed Fund

• This fund aims to provide above average growth within its appropriate sector over the longer term.
• It invests in carefully selected financial markets, spread across the world in a wide range of UK stocks and shares, international stocks and shares, gilt-edged and other fixed interest stocks, property and cash deposits.
• This broad spread of investment is designed to reduce the risk of holding individual shares so you receive steady growth combined with medium risk over the longer term.

May be suitable for those who have a 'Balanced' attitude to risk.

Abbey National Merrill Lynch Managed Fund

• This fund aims to outperform the median fund in the Balanced Managed Pension Fund sector over the longer term.
• It seeks to achieve a balance between long-term capital growth and a reasonable level of income with an investment strategy which focuses mainly, but not exclusively, on leading UK companies.

Please note, the management charge for this fund does not reduce once the fund value reaches £25,000.

May be suitable for those who have a 'Balanced' attitude to risk.

Abbey National Newton Managed Fund

• This fund aims to outperform the median fund in the Balanced Managed Pension Fund sector over the longer term.
• It seeks to achieve a balance between long-term capital growth and income from a portfolio of UK and international securities.

Please note, the management charge for this fund does not reduce once the fund value reaches £25,000.

May be suitable for those who have a 'Balanced' attitude to risk.

Dilution levy policy - The actual cost of purchasing or selling a Sub-Fund's investments may be higher or lower than the mid market value used in calculating the share price - for example, due to dealing charges, or through dealing at prices other than the mid-market price. Under certain circumstances (for example, large value deals) this may have an adverse effect on the shareholders' interest in a Sub-Fund. In order to prevent this effect, called 'dilution', the Authorised Corporate Director has the power to charge a 'dilution levy' on the sale and/or redemption of shares. If charged, the dilution levy will be paid into the relevant Sub-Fund and will become part of the property of the relevant Sub-Fund.

The dilution levy for each Sub-Fund will be calculated by reference to the costs of dealing in the underlying investments of that Sub-Fund, including any dealing spreads, commission and transfer taxes.

The need to charge a dilution levy will depend on the value of sales or redemptions. The Authorised Corporate Director may charge a discretionary dilution levy on the sale or redemption of shares if, in its opinion, the existing shareholders (for sales) or remaining shareholders (for redemptions) might otherwise be adversely affected. In particular, the dilution levy may be charged in the following circumstances:

• on a Sub-Fund experiencing large levels of net sales relative to its size
• on 'large deals'. For these purposes a large deal is defined as 3% of the size of the Sub-Fund
• where a Sub-Fund is in continual decline
• in any other case where the Authorised Corporate Director is of the opinion that the interests of the shareholders require the imposition of a dilution levy.

The above policy reflects the Newton external fund manager’s policy on collection of dilution levies, however in practice, currently no dilution levy is charged to us, although the external fund managers reserve the right to apply this charge. Where no dilution levy is charged and instead the external manager allows dilution to be borne by the fund, this may affect the funds future growth.

The Abbey National Newton and Merrill Lynch Managed Funds are referred to later in this site as 'External Funds'.

UK Equity Tracker Fund

• This fund aims to match closely the performance of the FT-SE* Actuaries All Share Index before charges.
• It is passively managed, using a partial replication methodology which involves holding a broad range of stocks within the Index, but not always in the same proportion as the Index.

May be suitable for those who have a 'Balanced to Speculative' attitude to risk.

*FT-SE is a trademark of the London Stock Exchange Limited and the Financial Times Ltd and is used by FTSE International Ltd under licence.

UK Equity Fund

• This fund aims to achieve above average growth within its appropriate sector over the longer term.
• It invests in around 70 to 80 UK shares representing all major sectors of the economy.
• The emphasis is on quality companies which have good prospects for growth.

May be suitable for those who have a 'Balanced to Speculative' attitude to risk.

International Fund

• This fund invests in carefully selected shares across North America, Continental Europe and the Pacific region. The main Pacific countries are Australia and New Zealand, Malaysia, Hong Kong, Singapore, Thailand and the Philippines.
• Because the fund is invested in this way it reduces the risk associated with investment in a single stock market.
• It aims to achieve above average growth within its appropriate sector over the longer term.

May be suitable for those who have a 'Speculative' attitude to risk.

Is there anything else I need to know about the funds?

Please note the following before you choose a fund;

• you can choose to invest in more than one fund. The maximum number of funds which you may choose is ten
• you may switch your units from one fund to another
• you may switch part of your fund from one fund to another
• we can put off making a switch by up to one month or by six months if the fund you are switching from, directly or indirectly, holds property.
  This also applies to cashing in of units before your planned retirement date.

You may change free of charge:

• the funds into which future contributions will be invested, or
• the proportion to be invested in each fund you choose.

The unit prices of all the Funds are published daily in the financial press.

Lifestyle Switching

We provide an automatic Lifestyle switching facility in connection with all our equity based funds (including our standard default fund which is the Managed Fund). This involves the phased switching out of equity based funds into an appropriate mixture of cash and gilts. The gilts will move closely in line with annuity prices so the effect on your pension, if there is volatility in equities close to your retirement, is reduced. You can opt for this process to start at any time during the 5 years leading up to your planned retirement date.

In this way you have the potential for equity linked returns to build up your investment, moving to the safety of lower risk investments as you near retirement.

Please remember the value of investments can fall as well as rise and is not guaranteed.

Our Lifestyle Switching facility is not offered for investments linked to the Deposit Fund, as this is already low risk in nature.