The way ahead for your investments - Scottish Widows · The way ahead for your investments. Contents Scottish Widows – looking good for your money 2 ... as well as looking after

OEIC/ISA/PEP

The way ahead

for your

investments

Contents

Scottish Widows – looking good for your money 2

Scottish Widows – customer focusedin everything we do 3

Why invest in the stockmarket? 4

What are your investment goals? 5

What are the benefits for you of saving monthly? 6

Income and Growth Funds 7-9

Multi-Manager Funds 10-11

OEICs 12-13

ISAs 14-15

PEPs 16-17

Questions & answers 18-19

Important Investor Information 20

Scottish Widowslooking good for your money

STRENGTH

Scottish Widows has been looking after the financial wellbeing of people from all walks of life

for more than 180 years. Today, we are recognised as one of the largest and most respected

financial services companies in the UK … the name you know you can trust for all your

financial planning needs.

And now, with the combined strength of Scottish Widows and Lloyds TSB to rely on,

planning a secure and successful future couldn’t be easier. Together we can offer you

access to a wealth of knowledge and experience gained from looking after the individual

and business needs of over 15 million customers nationwide.

INVESTMENT

Over the years Scottish Widows has earned a reputation for broad based investment expertise

which aims to reflect the needs of its investors. This success is based on a competitive and

comprehensive product range, a record of consistent long term performance and a total

commitment to meeting – and exceeding – the expectations of our customers.

The Unit Trust arm of the company which now also manages the OEIC, ISA and PEP business

was established in 1981, and offers Scottish Widows customers the opportunity to invest on a

global scale with a wide range of funds covering all the main geographical areas of the world.

QUALITY

Scottish Widows has made a massive investment in the finest people and technology to make

sure you receive the highest standards of quality service and support at all times.

That’s why the company employs a wide range of investment specialists with proven expertise

in specific market sectors, backed up by dedicated teams of analysts and researchers … working

as one with the single aim of providing the best possible return from your investment.

2

Scottish Widowscustomer focused in everything we do

EXPERIENCE

At Scottish Widows, we currently provide financial benefits to more than 4 million people

as well as looking after the pensions of more than 1.4 million investors+.

This experience has enabled us to develop a broad understanding of exactly what it takes

to meet the needs of our customers in today's rapidly changing world.

And as we understand that those needs can vary greatly from customer to customer,

we have researched and developed a wide range of products and services offering the choice

and flexibility to appeal to all.

SERVICE

As everyone leads such busy lives these days, we understand that it may not always

be convenient for you to contact us during normal business hours.With this in mind

our call centre is not only open between 8am and 8pm on weekdays, but also

on Saturday mornings from 9am to 12.30pm.Whatever the reason for your call,

you will be connected to one of our friendly and highly trained customer service consultants

who will be delighted to help you.

We'll keep you fully informed on the progress of your investment with regular 6-monthly

statements. These provide details of all of your transactions over the previous half-year, and

also include an up-to-date valuation.You will also receive an interim and a final Manager’s

Report for each OEIC you invest in. On each distribution day we will also send you a tax

voucher detailing the tax paid on income distributions that are paid out or accumulated in

your chosen fund(s).

TRUST

Scottish Widows is one of the largest and strongest providers of pensions, life assurance

and investment products in the United Kingdom and is currently responsible for managing

client funds in excess of £77.8 billion*.All of which adds up to the reassurance of a household

name with the financial strength and stability to build on the successes of the past

+As at March 2002 *As at end December 2001

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4

Why invest in the stockmarket?

The opportunity to benefit from the potentially high returns offered by investing in stocks and shares isoften missed by many people because of worries about stockmarket volatility and the risk to their initialinvestment if prices should fall. Consequently, these investors tend to choose to put their money into a less risky type of investment such as a bank or building society deposit account where the originalcapital is always secure and readily available.

To realise the potential of the stockmarket, however, putting your money into stocks and shares should beviewed as a medium to long term investment … say 5 to 10 years. Although this type of investment mayfluctuate in value over shorter terms, the graph below clearly shows that the historical trend over themedium to long term is for the stockmarket to significantly outperform bank/building society depositaccounts.

The graph above indicates that £1,000 invested in the stockmarket, as represented by the Financial TimesStock Exchange All Share Index, on 1 June 1992 would be worth £2,501.66 on 3 June 2002, whilst thesame amount invested in a typical bank or building society deposit account, as represented by theUK Savings 2500+ Index, would only be worth £1,305.55. Over the 5 year period, 2 June 1997 to3 June 2002, the same investments would be worth £1,272.39 and £1,124.08 respectively.

So the message is clear.Whilst capital may be more secure and easily accessible in a bank or buildingsociety deposit account, it's easy to see why so many investors are attracted by the potential to makemore of their money over the longer term by investing in the stockmarket.

Please remember that past performance isn’t a guide to future performance.

Value on 3 June 2002 of £1,000 invested over 10 years from 1 June 1992

Source: S&P Micropal. 1 June 1992 to 3 June 2002. Offer – Bid, UK Basic Rate Tax, Sterling, Calculation Lump Sum.

92 93 94 95 96 97 98 99 00 01

500

1000

1500

2000

2500

3000

3500

FTSE All Share (div yld) £2,501.66

UK Savings £2,500+ £1,305.55

02

Cas

h V

alu

e (£

)

Year

5

What are your investment goals?

“Are you looking for capital growth or would you prefer to receive an income?”

When you invest in a Scottish Widows OEIC, ISA or PEP, you'll be able to choosefrom a wide range of funds designed to try to meet the individual and changing needs

of every type of investor.

So how do you go about choosing which of these funds is best for you? One of the most important decisions to make is whether you would like to aim for long

term capital growth, take an income or benefit from a combination of both.

“Are you investing for capital growth?”

If you are aiming to maximise the capital returnon your investment, we can offer a wide range

of funds designed specifically for capital growth.

These funds often invest in stocks and shares(equities) from a broad range of companies, both

here in the United Kingdom and overseas.

In order to try to achieve the maximum amountof capital growth from this type of investment,we recommend that you keep your investment

for a minimum of 5 to 10 years.

“Are you investing for income?”If you are investing with the aim of earning

an income – perhaps to supplement a pension –then we have a wide range of income paying

funds for you to choose from.

These funds often invest in a range of corporatebonds, fixed interest securities, high yieldingshares and gilts as well as bank and buildingsociety accounts, with the aim of paying you

a regular income. Depending on the individualfund chosen, this can be paid monthly, quarterly,half yearly or annually, either by bank credit or

cheque.* We recommend that you keep yourinvestment for a minimum of 5 to 10 years.

“Are you investing for a combination of capital growth and income?”If you're looking for a balance of income and capital growth from your investment,

you'll be glad to hear we have a range of funds designed specifically for investors like you.

To get the balance right, our highly experienced fund managers invest in a wide rangeof UK and overseas equities with the aim to achieve capital growth, whilst at the sametime investing in a variety of other investments, such as bonds and other fixed interestsecurities, with the aim to provide you with an income. In order to try to achieve the

maximum amount of capital growth from this type of investment,we recommend that you keep your investment for a minimum of 5 to 10 years.

For details of which funds aim to provide growth, income or a combination of both, please refer to the OEICFactsheet (ref. 41420). *Income payments by cheque are not available for some funds.

6

What are the benefits for you of saving monthly?

If you choose to invest monthly over the longer term, you have the potential to build up a substantiallump sum. You can invest from as little as £50 per month and, by writing to Scottish Widows, you caneasily increase or decrease your payments to meet your changing needs and financial circumstances.

By investing monthly you will benefit from:

• not having to decide exactly when to invest, whereas getting the timing right is always such a vital factor to

success if you choose to invest by lump sum.

• being able to invest just a small amount in your OEIC or ISA every month – potentially both safer and more

efficient than investing a large single lump sum.This is because when stockmarket prices fall, your fixed

monthly payment will buy more shares. So when prices go up again, you’ll be in a better position to benefit

from the rise in value. In this way, the overall effect of investing monthly can sometimes help smooth out the ups

and downs of the stockmarket to your advantage. This is known as ‘pound cost averaging’, and the table below

shows how it could work for you in practice.

Number of shares bought for Month Stockmarket Price £10 Per Month

1 50p 202 25p 403 10p 1004 25p 40

Total shares bought is 200

As you can see, the average price for each share over the period works out to 27.5p, but saving regularly has reduced this to just 20p.

How do you invest monthly?

If you want to invest in an OEIC or an ISA on a monthly basis, simply complete and sign the Scottish Widows Application Form and Direct Debit Instruction and return it to us at the addressshown. We will acknowledge your application on receipt, and then arrange for monthly paymentsto be collected automatically from your bank or building society account by Direct Debit.

You can stop your monthly payments at any time by cancelling your Direct Debit Instruction withyour bank or building society and, of course, letting us know at Scottish Widows. If your OEIC orISA is worth less than £500 at the time, you can either top it up to this amount if you want to keepit in force or take the full value of your investment there and then.

THE DIRECT DEBIT GUARANTEE

The Direct Debit Guarantee is offered by all Banks and Building Societies that take part in the Direct Debit Scheme.The efficiency and

security of the Scheme is monitored and protected by your own Bank or Building Society. If the amounts to be paid or the payment dates

change, you will be told of this in advance by at least 14 days. If an error is made by Scottish Widows or your Bank or Building Society,

you are guaranteed a full and immediate refund from your branch of the amount paid.You can cancel a Direct Debit at any time by

writing to your Bank or Building Society. Please also send a copy of your letter to Scottish Widows Unit Trust Managers Limited.

7

Take a closer look at some of our OEIC funds

At Scottish Widows we have developed a wide range of Income and Growth funds for you to choosefrom once you have decided to invest in a Scottish Widows OEIC, ISA or PEP.

In the following sections of this brochure we will discuss just a few of them. Please note all of the fundsdiscussed below are also available for ISA and PEP investments too.

However, for a more detailed look at all of the funds available under the Scottish Widows range andall of their product features, we would recommend that you consult the relevant Key Featuresbrochure and the OEIC Factsheet (ref. 41420) before making any final decision about which fund(s) toinvest in. For more information on OEICs please see pages twelve and thirteen of this brochure.

Income Funds

High Income Bond Fund

The objective of the High Income Bond Fund is to provide a high level of income through investments denominated in

euros or any currency of the United Kingdom or the United States of America, predominantly corporate bonds,

government bonds, other public securities and other fixed interest securities issued principally by companies

operating in the United States of America, the United Kingdom or Europe.

The High Income Bond Fund aims to give a monthly income that is consistently and substantially higherthan you would currently expect to receive from either a bank or building society deposit account.

The principals of risk and reward are clear in this Fund. In order to try and provide a high level ofincome, the High Income Bond Fund invests in high yielding bonds, which are considered high risk.However the Fund aims to spread this risk by investing in a wide range of high yield bonds across arange of sectors and it also invests in some government stocks.

The Fund is managed by the highly respected and experienced US Fund Managers Mackay Shields (a wholly owned subsidiary of New York Life). Mackay Shields was established in 1937 and became partof New York Life in 1984. New York Life is a Fortune 100 company and is ‘AA’ rated by Standard andPoor’s for financial strength (as at 17 June 2002).

Strategic Income Fund

The objective of the Strategic Income Fund is to provide an income through investment primarily in UK and

European Fixed Interest Securities.

The fund aims to provide a monthly income through investing in a portfolio of investment grade andnon investment grade fixed interest securities.

Launched in January 2002, the Strategic Income Fund has been popular with investors who are lookingfor a regular income from their investment.

8

Corporate Bond Fund

The objective of the Corporate Bond Fund is to provide an attractive level of income, whilst having regard to capital

value through investments denominated in the currency of the United Kingdom, predominantly corporate bonds and

other fixed interest securities issued principally by companies operating in the United Kingdom or Europe.

Corporate Bonds are long term loans that are made to companies.The companies then pay interest ata fixed rate over a set period of time, with the loan paid back at the end of the period.This means thatthey may offer a more stable rate of return than equities. Fixed interest securities include, for example,loans that are made to Governments, rather than companies.

The Corporate Bond Fund is managed by an award winning team who have the expertise to choosecompanies with the right profile and reputation to try and achieve the above objective.

Growth Funds

UK Growth Fund

The objective of the Scottish Widows UK Growth Fund is to provide long term capital growth through investment in abroad portfolio of primarily UK equities.

Investments are mainly in the United Kingdom but the Fund does have the freedom to invest worldwidefrom time to time.

This Fund may appeal to investors who are looking to benefit from the high profit potential of some of theUK’s best companies. It may also appeal to investors who are looking to benefit from the reduced risk of adiversified portfolio of stocks.

The UK Growth Fund was launched in 1994 and is currently Scottish Widows largest fund*.

Any income generated from this Fund is automatically re-invested into the Fund to help maximise capitalgrowth for you.

* as at 1 June 2002 (Source: Internal)

Environmental Investor Fund

The objective of the Scottish Widows Environmental Investor Fund is to provide long term capital growth throughinvestment in primarily UK companies that demonstrate a positive commitment to the protection and preservation of thenatural environment.

The Environmental Investor Fund has very specific criteria to follow when investing in stocks and shares.This criteria is agreed from time to time by the Fund’s independent advisory body which is made up ofleading environmentalists. For example the fund will not invest in companies which operate nuclear powerstations, produce ozone depleting chemicals or practice intensive farming. However companies who, forexample, have a good waste management strategy or use environmentally friendly technology would beconsidered for inclusion.The Fund will also favour companies who, for example, develop energy fromrenewable resources and avoid genetically modified products.


9

European Select Growth Fund

The objective of the European Select Growth Fund is to provide long term capital growth through investment in a

select range of primarily Continental European equities.

This Fund may be of interest to you if you currently hold investments in the United Kingdom and arenow looking to diversify your portfolio into European based investments.


Global Growth Fund

The Global Growth Fund may open up a world of opportunities and benefits for you.

The objective of the Global Growth Fund is to provide long term capital growth through investment in a broad

portfolio of primarily equities worldwide, including the UK.

Consequently this Fund gives you the opportunity to invest in a collection of the strongest performingeconomies and companies in the world at any given time and, due to the diversified nature of this fund’sportfolio, we believe that it will exhibit less risk than many other international equity funds.

Again, any income generated from this Fund is automatically re-invested into the Fund to help maximisecapital growth for you.

10

Multi Manager Funds

As part of our growing commitment of providing you with a high quality selection of funds we havedeveloped a range of “Multi Manager” Funds, through a strategic alliance with the highly respected andwell known among institutional investors, Frank Russell Company.

The Frank Russell Company, a world leader in investment manager selection is responsible forresearching, selecting and monitoring the global team of specialists managers which are used in the fourfunds. It was founded in 1936 and currently advises on over £1.3trillion of assets worldwide*. It has anannual research budget of £15million and currently employs 65 analysts dedicated to researching fundmanagers around the world.

* as at June 2002 (source: Frank Russell)

The Scottish Widows Multi Manager Funds have three levels of diversification.The funds containinvestments from across different types of assets, such as bonds and equities from around the world, thefirst level of diversification.The second level is to employ different investment styles, for example Value,Growth or Market Orientated.The third level is the actual managers themselves.The Frank RussellCompany selects each manager because they believe the manager to be expert in their relevantinvestment field.

There are four Multi Manager funds for you to choose from, each has a different mixture of bonds andequities. Each is diversified across the major stock markets of the world, including the United Kingdom,and benefits from the management of over 60 specialists investment managers.

The following section provides you with a brief look at each of the funds. For more information pleaserefer to the relevant key features brochure and/or the OEIC factsheet.

Cautious Portfolio Fund

The aim of the Cautious Portfolio Fund is to give an income, with the potential for some capital growth, by investing

in a range of funds offered by the Frank Russell Company, and managed by a team of over 60 specialists fund

managers.

The fund aims to invest mainly in fixed interest securities(including corporate bonds) (target weighting of 85%), butalso in shares in companies in the UK and overseas markets(target weighting of 15%).

The fund may be appropriate for you if you are aiming toachieve consistent returns with less volatility due to theinvestment being primarily placed in fixed interest securities.However it may still be suitable for you if you would like a diversified portfolio which aims to havepotentially higher returns than one which is invested fully in fixed interest securities.

†The percentages provided in the pie charts are target weightings and the asset mix and asset target may change slightly from time to time.

9% International Equities†

85% Fixed Interest Securities†

6% UK Equities†

11

Balanced Portfolio Fund

The aim of the Balanced Portfolio fund is to give long-term capital growth by investing in a range of funds offeredby the Frank Russell Company, and managed by a team of over 60 specialist fund managers.

The fund aims to invest in a balance of shares in companies(target weighting of 50%) and fixed interest securities(including corporate bonds) (target weighting of 50%) in theUK and overseas markets.

The fund provides broad market exposure by investing in a widespread of asset classes. It may be appropriate for you if you areaiming to achieve moderate returns and less volatility through

investment in a combination of equities and bonds.This fund may be suitable for you if you are willingto accept higher volatility than the Cautious Portfolio fund in return for potentially higher returns.

Progressive Portfolio Fund

The aim of the Progressive Portfolio fund is to give long-term capital growth by investing in a range of funds offeredby the Frank Russell Company, and managed by a team of over 60 specialist fund managers.

The fund aims to invest primarily in shares in companies (targetweighting of 75%) with the remainder in fixed interestsecurities (including corporate bonds) (target weighting of25%) in the UK and overseas markets.

This fund may be appropriate for you if you are aiming tomaximise long term returns from investment in a higherproportion of equities whilst still maintaining a limited volatilitythrough a proportion of the fund being invested in fixed interest

securities.Therefore it may be most suitable for you if you want long term growth with a lower level ofvolatility than the Opportunities Portfolio Fund.

Opportunities Portfolio Fund

This aim of the Opportunities Portfolio fund is to give long-term capital growth by investing in a range of fundsoffered by the Frank Russell Company and managed by a team of over 60 specialist fund managers.

The fund aims to invest primarily in shares in companies (targetweighting of 90%) with the remainder in fixed interestsecurities (including corporate bonds) (target weighting of10%) in the UK and overseas markets.

This fund may be appropriate for you if you are aiming for longterm returns from investment primarily in equities. It may besuitable for you if you would like a portfolio with a lowervolatility than a portfolio which invests 100% in equities.

† The percentages provided in the pie charts are only target weightings and the asset mix and asset target may change slightly from time to time.



20% UK Equities†


30% UK Equities†


36% UK Equities†



12

What is an Open Ended Investment Company (OEIC)?

An Open Ended Investment Company, more commonly referred to as an OEIC, is a collectiveinvestment scheme which gives you the opportunity to buy shares (either by one off lump sumpayments or monthly by direct debit) in the fund(s) of your choice. Collective investment schememeans that your money is pooled together with money from other investors who have chosen to investin the same portfolio of stocks and shares.

Each of the funds offered to you within our OEICs have been specifically designed with your differentinvestment goals in mind. Consequently they consist of either equities, bonds or other securities, or acombination of all three.The value of your fund(s) and any income you may choose to take from themwill be determined by the performance of each of the investments in each fund.Where an OEIC fundinvests overseas, exchange rate changes may also cause the value of your fund to go up or down.

Each time you invest in an OEIC fund you will be allocated a number of shares, the value of yourholding will then go up and down depending on the price of the shares (in each fund) on any given day.

What are the benefits of OEIC investment to you?

• The opportunity to share in the growth potential of the stockmarket.

• In most funds you can invest by lump sum and/or monthly payments.

• Wide range of funds in which to invest.

• Instant access to your savings when required.

• Ability to invest in a wide range of top performing companies.

Why should you choose a Scottish Widows OEIC?

At Scottish Widows we acknowledge that our customers’ lives are constantly changing and that ourproducts need to be flexible enough to change with them. So we have developed a wide range of OEICfunds flexible enough to give you the choice to change your investment objectives any time, both nowand in the future.

We offer you a range of funds flexible enough that you can pay into most of them by both lump sum,normally from £1,000, and by regular savings from £50 per month*.You can also take money out at anytime, subject to the lower limits.

At Scottish Widows we have a highly trained, skilled and dedicated team of individuals working together totry and consistently achieve the best possible returns on your investment over the long term.To illustrate further our commitment to you we have also just been awarded ‘Raising Standards’accreditation from the Pensions Protection Investments Accreditation Board as having met demandingstandards of clarity, quality and customer service in all our OEIC, ISA and PEP Key Features Documents.

*The investment levels are different for some funds. Please see either the OEIC Factsheet (ref. 41420) or the OEIC key features brochure(ref. 41684) for more details.

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How will tax affect your OEIC?Income TaxIn general, the income earned by each fund is distributed net of tax. It may be in the form of eitherdividends or interest.

At the time of each distribution, holders of income shares receive a payment of net income with a tax voucher. This tax voucher shows the tax paid on your behalf. This is currently 10% if youinvest in dividend-bearing funds, such as the Scottish Widows UK Growth and EnvironmentalInvestor Funds, and 20% if you invest in interest-bearing funds, such as the Scottish Widows HighIncome Bond, Strategic Income, Cautious Portfolio and Corporate Bond Funds.

If you hold accumulation shares you will be deemed to receive a net income.Your allocation of netincome will be reflected as an increase in the prices of shares, so no additional shares are issued.

If you are a lower rate or basic rate taxpayer, you will have no further liability to tax. If you pay tax at thehigher rate, your additional liability will be limited to 25% of the net distribution. If you are not liable toincome tax, the amount of the tax credit in respect of any interest distribution may be reclaimed from theInland Revenue.

Non and lower rate taxpayers may be able to reclaim some or all of the tax paid on income paymentsfrom the Corporate Bond, High Income Bond, Strategic Income and Cautious Portfolio Funds.However, it is no longer possible to reclaim the tax on dividend distributions.

The table below shows the additional tax payable or tax recoverable with a net OEIC distribution. Itassumes that the grossed up income does not mean you move from a lower level tax rate to a higher one.

Capital Gains TaxTaper ReliefYou may be entitled to taper relief when you dispose of your shares. This relief reduces the amount ofchargeable gain.The reduction ranges from 5% if the shares are held for 3 completed years to 40% ifthey are held for 10 years or more.

Annual ExemptionYou will have no personal liability to capital gains tax on the sale of your investments, unless the totalamount of your net realised chargeable gains from all sources in that tax year, allowing for any relevantreliefs, exceeds the annual exemption limit (£7,700 for 2002/2003). Any gains in excess of this limitwill be taxed as though they are the top slice of your taxable income.

Any capital gains retained within the fund are exempt from capital gains tax.

Tax Rate 0% 10% Basic Rate Higher Rate

Interest Distribution

Dividend Distribution

25% of Net DistributionReclaimable

Non-RecoverableNo Further Tax

12.5% of DistributionReclaimable

Non-RecoverableNo Further Tax

No Further Tax

No Further Tax

Additional 25% ofNet Distribution

Payable

Additional 25% ofNet Dividend

Payable

14

What is an ISA?

The Individual Savings Account (ISA) was introduced by the Government on 6 April 1999 to encouragewidespread, tax efficient saving as a replacement for Personal Equity Plans (PEPs) and Tax Exempt SpecialSavings Accounts (TESSAs). Offering attractive tax breaks, namely the opportunity to benefit frominvestment growth free from UK income tax* and capital gains tax, the ISA is a ‘wrapper’ designed tohold a variety of investments including Open Ended Investment Companies (OEICs), Unit Trusts,Investment Trusts, life insurance and cash.There is no minimum or maximum investment period and youcan access your ISA savings at any time.

Scottish Widows ISAs invest through underlying Scottish Widows OEIC fund(s). For more informationon which OEIC fund(s) your Scottish Widows ISA can invest in please contact your Financial Adviser orScottish Widows. Please see the OEIC factsheet (ref 41420) and the ISA Key Features for details of thefull range of ISAs offered by Scottish Widows.

What are the benefits of ISA investment for you?• A highly tax-efficient way to save.• An opportunity to share in the growth potential of stockmarket investment.• The benefits of OEIC fund investment.• A wide range of investment options.• The flexibility to switch between OEIC fund(s) as required.• Easy access to your account at any time.• Flexibility of being able to invest by lump sum and/or monthly payments.

Why should you choose a Scottish Widows ISA?At Scottish Widows, we pride ourselves on offering our customers a comprehensive choice of competitiveinvestments. Following the success of our PEPs, we are pleased to offer a similar high quality range offunds available as ISAs.

Every one of our stocks and shares ISAs is available as either a maxi or a mini ISA.These have beendesigned to offer you the choice and flexibility to try to match your changing investment needs, backedup by the highest possible standards of customer service and care.

How much can you invest?There are two types of ISA, maxi and mini, the difference between them being the amount you caninvest and whether or not you wish to invest with more than one provider (please see the table on the following page for more details).Whichever type of ISA you choose, the minimum investment youcan make is £50 per month and/or a £500 lump sum per fund.This is subject to a minimum total lumpsum investment of £1,000.The only exception is our UK Tracker ISA, where the minimum lump suminvestment is £500. An ISA really is an ‘individual’ savings account, and can therefore only be in onename.This means your partner can also benefit from exactly the same tax advantages by taking out aScottish Widows ISA of their own.

*ISAs will receive a 10% tax credit on UK dividends paid up to 5 April 2004. This tax credit will be reclaimed by Scottish Widowson your behalf. The tax reclaim is expected to be removed from 6 April 2004. ISAs which receive interest distributions (such as theScottish Widows Corporate Bond, High Income Bond, Strategic Income and Cautious Portfolio ISA) should continue to receive a 20%tax credit reclaimed by Scottish Widows on your behalf. Please note that your ISA will lose its tax free status from the date of yourdeath but will remain invested until we receive instructions from your legal personal representatives. Consequently the total value ofyour plan will form part of your estate for inheritance tax purposes.

15

Choosing between a mini and maxi ISA.

ISA regulations do not allow you to put money into both a mini and maxi ISA in the same tax year.You must choose one or the other, and you cannot change your mind during the tax year.

To help you make this choice please see the tables below:

MAXI ISA

MINI ISA

You can also add the initial charge to the payment you make. Please see the Scottish Widows ISA termsand conditions or call our client services department for details of how to do this.

If you want to invest more than £3,000 in any one tax year in stocks and shares, you’ll need to open a maxi ISA. However, if you want different ISA managers for different types of savings, then you couldopen a Scottish Widows mini ISA for your stocks and shares investments and then take out cash andinsurance ISAs elsewhere.

You can choose different options in different tax years to vary your investment approach according toyour needs at the time.

If you have a maturing TESSA and want to invest more than your maximum annual ISA allowance,you’ll be interested to hear that you can also invest maturing TESSA capital up to £9,000 (but not theinterest) in the cash component of an ISA (mini or maxi) without affecting your overall investment limits.

How many MAXI ISAs can you have in a tax year?

How much can you invest in each tax year?

Why should you invest in a MAXI ISA?

One Up to £7,000 in total, but nomore than £3,000 in cash and

£1,000 in life insurance

You may want to choose a MAXI ISA if you want to invest

more than £3,000 in stocks and shares in any tax year

Up to three Up to £3,000 in a stocks andshares MINI ISA

Up to £3,000 in a cash MINI ISA

Up to £1,000 in a life insurance MINI ISA

You may want to choose MINI ISAs if you want

different managers to manageyour different kinds

of savings

How many MINI ISAs can you have in a tax year?

How much can you invest in each tax year?

Why should you invest in a MINI ISA?

16

What is a Personal Equity Plan?

Personal Equity Plans (PEPs) are simple, flexible investment plans which offer the opportunity to investin the stockmarket and benefit from special tax advantages. Since the introduction of Individual SavingsAccounts (ISAs) on 6 April 1999, it has not been possible to invest in a new PEP. However, existingPEPs can remain invested and enjoy the same tax advantages as the new ISAs.

It may still be possible to transfer your PEP from your existing PEP manager to Scottish Widows.This could prove particularly beneficial if you have several PEPs with different providers and now wishto consolidate them, not only to reduce the paperwork you receive, but also to make it easier to trackthe progress of your investments.This could also be advantageous if your personal investment objectiveshave changed. For example, your priority could now be income rather than growth, you could belooking for cautious growth rather than a higher-risk strategy, or you may be seeking to diversify your portfolio.

Scottish Widows PEPs invest through underlying Scottish Widows OEIC fund(s). For furtherinformation on which OEIC fund(s) your Scottish Widows PEP can invest in please contact yourFinancial Adviser or Scottish Widows.

What are the benefits of PEPs to you?

• A highly tax-efficient way to save.• An opportunity to share in the profit potential of stockmarket investment.• The benefits of OEIC fund investment.• A wide range of investment options.• The flexibility to switch between OEIC fund(s) as required.• Easy access to your savings at any time.

Why should you consolidate your existing PEPs into one PEP?

If you currently hold a number of different PEPs with a variety of different providers then now may bea good opportunity to consider consolidating all of those PEPs into one PEP administered and managedfor you by Scottish Widows.

The advantages for you include:

• Your current PEPs may not be performing as well as you would like.• Less administration.• You may find it easier to monitor how your PEPs are performing as you will receive only one

statement of value as opposed to a number of statements from different providers.• You may wish to change your investment objective (for example you may wish to receive an

income from your PEP instead of capital growth).

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Why transfer your PEP to Scottish Widows?

The Scottish Widows Personal Equity Plan offers you a range of options designed to give you choice and flexibility in managing your PEP portfolio to match your individual savings and investment needs,now and into the future.

Please see the OEIC factsheet (ref. 41420) and the PEP Key Features for details of the full range ofPEPs offered by Scottish Widows.

How do you transfer your PEP to Scottish Widows?

Simply complete the PEP application and transfer form and return them to our PEP AdministrationDepartment.The transfer form will then be sent to your existing plan manager(s) who will forward a cheque to Scottish Widows for investment into the PEP(s) of your choice.

How does tax affect your PEP?

PEPs are not currently subject to income tax or capital gains tax in the United Kingdom.

PEPs will receive a 10% tax credit on dividends paid up to 5 April 2004.This tax credit will be reclaimedby Scottish Widows on your behalf and so there is no need for you to do anything. However this taxreclaim is expected to be removed from 6 April 2004.

PEPs which receive interest distributions (Scottish Widows High Income Bond PEP, Strategic IncomePEP, Cautious Portfolio PEP and Scottish Widows Corporate Bond PEP) will continue to receive 20%tax reclaimed by Scottish Widows on your behalf.

Please note that your PEP will lose its tax free status from the date of your death but will remaininvested until we receive instructions from your legal personal representatives. Consequently the totalvalue of your plan will form part of your estate for inheritance tax purposes.

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What is the difference between a Unit Trustand an OEIC?

An OEIC is sometimes referred to as the“modern” Unit Trust and consequently itkeeps some of the characteristics of aUnit Trust. However, there are severaldifferences. Firstly, when you invest in anOEIC, you are allocated a number ofshares, whilst with a Unit Trust you wouldbe allowed a number of units. Secondly,an OEIC operates on a single price basis,whilst a unit trust may have a bid/offerspread.

Do I need to declare my ISA/PEP to theInland Revenue?

No.There is no need to tell the InlandRevenue about your Scottish WidowsISA/PEP as we arrange all tax reclaimsfor you.

Do Scottish Widows accept ISA transfers?

Yes. Please contact Scottish Widows formore details.

Can I switch between funds within myISA/PEP?

Yes. ISA/PEP holders may switch theirinvestment from one Scottish WidowsOEIC fund to another, normally onpreferential terms.

Is there a maximum or minimum length oftime that I must keep my ISA in force?

No. Unlike TESSAs, the ISA does not havea maximum or minimum investment termattached to it. However, we recommendthat you keep your ISA for a minimum of 5 to 10 years.

Do I have to keep my OEIC or PEP for aset length of time?

No.You can sell your OEIC or PEP at anytime. However we would recommendthat you keep your OEIC or PEP for aminimum of 5 to 10 years.

What will happen to my OEIC if I die?

Your investment will remain in force untilwe receive instructions from yourexecutors.

What will happen to my ISA/PEP when I die?

Your investment will remain investeduntil we receive instructions from yourexecutors. However, it will lose its taxfree status from the date of death.Youshould be aware that the total value ofyour ISA or PEP will form part of yourestate for inheritance tax purposes.

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Can I invest any further money into my PEP or invest monthly?

You can pay further money into yourScottish Widows PEP, but this must be inthe form of a transfer from any otherexisting PEPs you may have.We can’taccept any other type of payment intoyour PEP.

I believe that I will receive a valuationstatement twice yearly. Can I check thevalue of my OEIC, ISA or PEP at othertimes during the year?

Yes. You can either telephone our OEICcall centre on the number quoted on theback page of this brochure, or you cantake the number of shares you currentlyhold and multiply it by the selling priceof your fund(s) on that day.

The prices of the funds are published insome financial newspapers including theFinancial Times.

The prices can also be found on ourwebsite www.scottishwidows.co.uk

Does Scottish Widows offer a shareexchange facility?

Yes. Please contact us for more details.

What do I do if I change my address, ormy personal circumstances change – forexample, if I get married?

Please notify Scottish Widows in writingas soon as possible, and your details willbe amended to reflect any changes.Evidence may be required.

Can an OEIC be held in joint names?

Yes. Simply complete the details forthe second applicant on your OEICapplication form.

How do I stop making monthly payments?

Please notify Scottish Widows in writingand no further contributions will becollected from your bank account.You should also contact your bank/building society to cancel your directdebit with them.

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Important Investor InformationPast performance isn’t a guide to future performance. The value of an investment and any income from it is notguaranteed and can go up and down depending on investment performance (and currency exchange rates where afund invests overseas).Taking withdrawals will reduce the value of your fund(s) and they could be greater thanany growth achieved. In a building society deposit account your capital is secure. OEICs, ISAs and PEPs shouldnot be viewed as a short term investment.

Charges, limits and terms which apply may change from time to time.

Full terms and conditions are available on request from Scottish Widows.The OEIC Prospectus and copies of thelatest yearly and half yearly Managers’ Reports are also available on request from Scottish Widows. Please note thatdetails of the objectives of all the funds available as a Scottish Widows OEIC can be found in the OEIC prospectus.

This information is based on the assumption that tax rules are not changed.Tax rules can change.The value to aninvestor of the tax advantages of an ISA or PEP will depend on personal circumstances, which may change.Thisbrochure represents Scottish Widows’ interpretation of the Law and Inland Revenue practice as at the date ofpublication.

High Income Bond FundThe High Income Bond Fund (in which the High Income Bond ISA and PEP invest) invests in companies whoissue bonds and other fixed interest securities which carry a higher than average risk.This is because thecompanies may not be able to meet their payments, the fund’s income will be lower as a result. If this happensthe value of your investment will reduce and any income you take will reduce. If their credit rating falls, the valueof your investment will fall.If you take an income, this may result in the value of your investment reducing. Morethan 35% of the fund may be invested in government securities issued by the same issuer.There could be a risk,for example, if they can’t repay the amount borrowed. If they don’t repay the value of your investment will fall.Fluctuations in interest rates are likely to affect the value of investments. If long term interest rates rise, the valueof your shares is likely to fall and vice versa. Part or all of the yearly management charge may be taken fromcapital. If you take an income, this may result in the value of your investment reducing.

Strategic Income FundMore than 35% of the fund may be invested in government securities issued by the same issuer.There could be arisk, for example, if they can’t repay the amount borrowed. If they don’t repay the value of your investment willfall. Fluctuations in interest rates are likely to affect the value of investments. If long term interest rates rise, thevalue of your shares is likely to fall and vice versa. Part or all of the yearly management charge may be taken fromcapital. If you take an income, this may result in the value of your investment reducing.The fund invests incompanies who issue bonds and other fixed interest securities which carry a higher than average risk. Some ofthese companies may not be able to meet heir payments, or their credit rating may fall. If the companies do notmeet their payments, the fund’s income will be lower as a result. If this happens the value of your investment willreduce and any income you take will reduce. Also, if their credit rating falls, the value of your investment will fall.

Corporate Bond FundSome of the companies and governments that the Corporate Bond Fund (in which the Corporate Bond ISA andCorporate Bond PEP invest) invests in who issue bonds and other fixed interest securities may not be able tomeet their payments, or their credit rating may fall. If they don’t meet their payments, the fund’s income will belower as a result. If this happens the value of your investments will reduce, and any income you take will reduce.If their credit rating falls, the value of your investment will fall. More than 35% of the fund may be invested ingovernment securities issued by the same issuer.There could be a risk, for example, if they can’t repay theamount borrowed. If they don’t repay, the value of your investment will fall. Fluctuations in interest rates arelikely to affect the value of investments. If long term interest rates rise, the value of your shares is likely to falland vice versa.

Scottish Widows offers a range of OEIC funds under four separate OEIC companies also known as InvestmentCompanies with Variable Capital (ICVCs). For more information on the names of the OEIC companies, with theagreed allocation of sub funds (referred to as funds in this document) please see both the Key Features brochureand OEIC Factsheet (ref 41420).

Other important investor information, including details of all the risks that apply to each of the funds available asa Scottish Widows OEIC, ISA or PEP can be found in the relevant Key Features booklet which should be read inconjunction with this brochure and the OEIC Factsheet (ref 41420).

Scottish Widows Unit Trust Managers Limited. Company No. 162995. Registered Office in the United Kingdom at Charlton Place, Andover, Hampshire SP10 1RE.Tel: 0845 300 2244.Scottish Widows Unit Trust Managers Limited is a member of the Scottish Widows and Lloyds TSB Marketing Group, members of which carry on the business and services associated

with life assurance, pensions and investments. Scottish Widows Unit Trust Managers Limited is regulated by the Financial Services Authority.

41396 7/02

For more information on our range of OEICs, ISAs and PEPs

please contact your Financial Adviser or a Scottish Widows representative.

In the case of a Scottish Widows representative, we can only provide information

and advice on Scottish Widows and Lloyds TSB Group products.

You can also call our client services department on:

0845 300 2244We’ll record and monitor calls to help us improve our service.

Or you can write to us at

Scottish Widows Unit Trust Managers

PO Box 28015

15 Dalkeith Road

Edinburgh

EH16 5WL