Protected Fund. The Aviva Irl Protected Growth Fund. Bringing growth and security together

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1 The Aviva Irl Protected Growth Fund Bringing growth and security together 1

2 Contents How does the Aviva Irl Protected Growth Fund work? Page 2 The Protected Price Promise page 4 What makes up the components of the fund? page 5 How investment market conditions may affect the fund page 8 Reasons to Invest page 10 Who manages the fund? page 11 Important details about the fund page 12 2

3 The Aviva Irl Protected Growth Fund Uncertainty about stockmarket investments over the last few years has left many investors worrying about how best to manage their money. Choosing to invest in equities provides great potential for higher returns when things are good but what about the downturns which many people have experienced. They appear out of the blue, and can usually be overcome if you ve got time to wait but as with any equity investment if you need to access your money, you might suddenly find that your returns are a lot less than you were hoping for. So, you consider the safer options, such as a building society or bank deposit account. Your investment is secure but in some circumstances it s not growing significantly and not even keeping pace with inflation in real terms you re losing money. If you are concerned about high levels of market risk but you still want the potential for higher returns than leaving money on deposit, then the Protected Growth Fund from Aviva could be the right choice for you. This fund gives you the opportunity to benefit from market performance when it is good and the potential to protect your investment when it is less favourable. Growth A portion of your fund will have the growth potential from having exposure to a combination of commodities, large Eurozone companies and corporate bonds. History has shown that over the longer term, returns from asset classes such as equities and commodities have tended to outperform others. Security A portion of your fund will be invested in secure cash funds and/or money market instruments. As a result this portion of the fund offers you a safe haven in times of stockmarket turbulence. Protected Price Promise You also have the peace of mind from knowing that your money benefits from our Protected Price Promise. The Protected Price Promise aims to ensure that the unit price of the Aviva Irl Protected Growth Fund will not fall below 80% of the highest ever unit price achieved by the fund. If the unit price of the fund rises above its previous highest ever unit price, the protected price also rises. (Please read important details about the fund on pages 12 and 13). 1

4 How does the Aviva Irl Protected Growth Fund work? The Aviva Irl Protected Growth Fund is made up of two very different components the growth component and the secure component. Both of these components react differently to market conditions. The fund aims to maximise growth in favourable market conditions and deliver protection or security in turbulent market conditions. This balance is achieved using an investment strategy called Constant Proportion Portfolio Insurance (CPPI). Under this strategy the percentage split between the growth and secure component varies over time depending on the performance of the growth component and how close the unit price of the Aviva Irl Protected Growth Fund is to the protected price. When the markets are rising When markets are rising: Higher allocation to growth component When markets are rising, more of your fund is allocated to the growth component, so it has the potential to benefit from any future rises. A target maximum of 80%* of the fund will be allocated to the growth component. Market Rising Secure Component (Target min 20% exposure) Growth component (Target max 80% exposure) When the markets are falling When markets are falling, more of your fund is allocated to the secure component, so as to protect it from potential future falls. A maximum of 100% of the fund can be allocated to the secure component. When markets are falling: Higher allocation to secure component Market Falling Secure Component (Max 100% exposure) Growth component (Min 0% exposure) *Actual maximum allocation to the growth component may exceed 80% on a temporary basis. 2

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6 The Protected Price Promise The Aviva Irl Protected Growth Fund also provides an extra layer of protection, the Protected Price Promise. The Protected Price Promise aims to ensure that the unit price of the fund will not fall below 80% of the highest ever unit price attained. In other words, as the unit price of the fund rises above the highest ever unit price, your protected price also rises. (Please read important details about the fund on pages 12 and 13). How does the Protected Price Promise work? The Aviva Irl Protected Growth Fund is designed to provide you with some protection for your investment. The unit price of the fund aims not to fall below 80% of the highest ever unit price achieved. Unit price rises - If the unit price rises above the previous highest ever unit price of the fund, gains are locked in, thereby increasing the level of protection that you can enjoy. Unit price falls - Conversely, if the unit price falls, you have the comfort of knowing that your unit price is protected at 80% of the highest ever unit price of the fund. The Protected Price Promise only applies to units allocated to your policy. Any contribution charges or unit cancellations will reduce the number of units in your policy.* *The following products take part of their fund management charge by unit deduction, Horizon Plan, Horizon Plan Options, Corporate Plan, Corporate Plan Options and Regular Saver. 4

7 The table below demonstrates how the protected price would work. Unit price of the Protected Growth Fund The protected price Target percentage of the growth component 1 Target percentage of the secure component 1 Month % 20% Month 2 85 i 80 = 24% i 76% h Month 3 98 h 80 = 73% h 27% i Month h 84 h 80% h 20% i Month h 88 h 80% = 20% = Month i 88 = 68% i 32% h Month 7 98 i 88 = 41% i 59% h Month h 88 = 55% h 45% i Month h 88 = 65% h 35% i Month h 89.6 h 80% h 20% i 1 This is an example of how the CPPI Strategy could work. 2 For example, in month 4, when the unit price is increasing, the protected price also increases, ensuring that the percentage protected remains at 80% of the highest ever unit price of the fund. 3 With the example of month 6, as the unit price falls, the protected price remains static at 80% of the highest ever unit price. When this occurs, because the unit price of the fund has fallen, the proportions allocated to the growth component and the secure component also vary, with more of your investment moved into the secure component. 4 With the example of month 10, the unit price of the Aviva Irl Protected Growth Fund has risen to a new highest ever unit price of 112 and as a result the protected price also rises. Similarly, the amounts allocated to the growth component and the secure component have also altered. Warning: These figures are estimates only. They are not a reliable guide to the future performance of this investment. 5

8 What makes up the components of the fund? Aviva Irl Protected Growth Fund Growth Growth Component Global commodities Eurozone large companies Euro denominated corporate bonds + + Protection Secure Component Cash Protected Price Promise What gives your investment the potential to grow? The Growth Component The growth component is the engine that drives the growth potential of your fund. We have chosen three Investments or asset classes that we think can deliver returns when markets are rising. These three asset classes are commodities, corporate bonds and eurozone large companies. Each of these asset classes and why we think they are right for this fund is explained below. The growth component will be structured so that there will initially be equal exposure to the three asset classes. In order to maintain this equal exposure we will rebalance the portfolio of assets in the growth component on a quarterly basis or more frequently if required. As explained earlier the actual exposure to the growth component will depend on market conditions and is determined using the CPPI strategy. Why invest in Commodities? Commodities are the natural resources that are essential in every part of our day-to-day lives. This includes agriculture, livestock, energy, precious metals and industrial metals. Supporting the long-term potential of commodities is rising demand and limited supply. Generally commodities are in increasing demand to clothe and feed the world s growing population, and to support fast growing industrial needs of emerging markets such as India and China. Many commodities are in limited supply, for example agricultural land is suffering as a result of long-term trends such as urbanisation. Most energy reserves are finite and many of the supplies of more accessible reserves are exhausted. The growth component is exposed to commodities through assets that aim to track the performance of the Dow Jones UBS Commodities Index. 6

9 Why invest in Eurozone large companies? This element of the growth component gives you exposure to 50 of the largest companies in the Eurozone. Historically, exposure to the equity market has provided strong long-term growth. The growth component is exposed to the large Eurozone companies through assets that aim to track the performance of the Dow Jones Eurostoxx 50 Index. This Index tracks the performance of the 50 largest companies in the Eurozone by stockmarket capitalisation. It is a total return index which means that it benefits from both dividends reinvested as well as appreciation in company share prices. Why invest in Corporate bonds? Most people have borrowed money at some stage in their life, whether it is to fund a holiday or to buy a new house. Just as people borrow money to help fund their expenses, companies borrow money to fund their capital expenditure. To do this they often issue corporate bonds. Here in agreement for a capital sum repayable at a future date, they pay interest to investors. In terms of the possible returns and risks from investing, corporate bond funds sit between developed market government bond funds (low risk, low return) and equities (high risk, higher but more uncertain returns). Given this risk reward profile they are good source of diversification in a portfolio. The growth component is exposed to investment grade corporate bonds through assets that aim to track the performance of the iboxx Liquid Corporates. It is a total return index which means that it benefits from income reinvested as well as appreciation in bond prices. What gives your investment the secure element? A portion of your fund will be invested in secure cash funds and/or money market instruments. As a result this portion of the fund offers you a safe haven in times of stockmarket turbulence. You also have the peace of mind from knowing that your money benefits from our Protected Price Promise. The Protected Price Promise aims to ensure that the unit price protection of the Aviva Irl Protected Growth Fund will not fall below 80% of the highest ever unit price achieved by the fund. If the unit price of the fund rises above its previous highest ever unit price, the protected price also rises. (Please read important details about the fund on pages 12 and 13). The fund will use assets, which aim to track the relevant index as closely as possible. Exact replication of the index may not be possible due to tracking error caused by trading costs and fees. Aviva Life & Pensions Ireland Limited, in its sole discretion, reserves the right to substitute an alternative index or indices should any index be discontinued or found to be unworkable. 7

10 How investment market conditions may affect the fund In order to give you an indication of how the Aviva Irl Protected Growth Fund could perform in different markets, Aviva Investors have put together some scenarios to show how different market conditions can affect this fund. Scenario 1 - Shows a period where markets performed poorly July 2007 March 2009 If you had invested 10,000 on the 31 July 2007 the Protected Growth Fund would have fallen to 8,565 by 31 March On the other hand a 10,000 investment in the growth component would have fallen to 7,304 over the same period. The simulated Protected Growth Fund fell by less and its monthly returns were less volatile. The Protected Growth Fund s worst monthly return was -5% whereas the growth component s worst monthly return was -9.03%. At all times 80% of the fund s highest ever unit price would have been protected. 31 July March 09 - Markets performed poorly Performance Rebased to 100% (red and navy line). Unit Price Protection (green line) 105% 100% 95% 90% 85% 80% 75% 70% July-07 Mar-08 Aug-08 Mar-09 Growth Asset Protected Growth Fund Protection Level Source of back testing Aviva Investors February Please Note: values do not include specific product charges and any exit tax applicable. WARNING: These figures are estimates only. They are not a reliable guide to the future performance of this investment. 8

11 Performance Rebased to 100% (red and navy line). Unit Price Protection (green line) Protected Fund Scenario 2 - Shows a period where markets performed well April 2003 April 2007 If you had invested 10,000 on 30 April 2003 it would have grown to 13,084 by 30 April If you had invested in the growth component only, over the same period your investment would have grown to 15,293. However, the investment in the protected growth fund would have at all times been protected from falling below 80% of its highest ever unit price. By the 30 April 2007, the protected price would have risen so that 105.4% of the fund s original unit price would have been protected at that date. 30 April April 07 - Markets performed well Performance Rebased to 100% (red and navy line). Unit Price Protection (green line) and navy line). line) Performance Rebased to 100% (red and navy line). Unit Price Protection (green line) 105% 100% 95% 90% 85% 80% 75% 70% 175% 105% 150% 100% 90% 125% 85% 75% 100% 75% Growth Asset Protected Growth Fund Protection Level Apr-03 Oct-03 Apr-04 Oct-04 Apr-05 Oct-05 Apr-06 Oct-06 Apr-07 Growth Asset Protected Growth Fund Protection Level Source of back testing Aviva Investors February Please Note: values do not include specific product charges and any exit tax applicable. 00% (red and navy line). tion (green line) 105% 95% 80% 70% 95% Growth Asset Protected Growth Fund Protection Level 105% WARNING: These figures are estimates only. They are not a reliable guide to the future performance of this investment. 9

12 Reasons to Invest 1. Protected Price Promise The Protected Price Promise aims to ensure that the unit price of the Aviva Irl Protected Growth Fund will not fall below 80% of the highest ever unit price of the fund. If the unit price of the fund rises above its previous highest ever unit price, the protected price also rises. (Please read important details about the fund on pages 12 and 13). 2. Diversification Different asset classes tend to perform well at different stages of the economic cycle and do not react in the same way to difficult market conditions. When designing the Aviva Irl Protected Growth Fund we built the fund with exposure to four asset classes to help minimise the effect of a downturn in any one asset class and help the fund potentially achieve more consistent steadier returns. Aviva Irl Protected Growth Fund has exposure to four asset classes with different risk-return profiles Potential Return Corporate Bonds Commodities Eurozone large companies Cash Potential Risk 3. Growth The growth component of the fund has exposure to three strong investment stories commodities, corporate bonds and Eurozone large companies. Additionally, there is no limit on the growth potential of the fund. 4. Flexibility This fund can be used as part of a diversified portfolio. You can work with your financial adviser to decide how you can mix and match this fund with other funds available from Aviva. Unlike other protected funds which have a fixed term and no access to your capital, this fund is also open ended which simply means you can switch in and out of the fund at any time. 5. Low-to-medium Risk Option As this fund has a Protected Price Promise where the unit price aims not to fall below 80% of the highest ever unit price, we have given the fund a risk-reward rating of 2. This means this fund has the potential to produce better long-term returns than deposits or savings accounts, but it may have periods where the original investment value will fall. Risk-Reward Profile

13 Who manages the fund? The Aviva Irl Protected Growth Fund s underlying assets (the growth component and the secure component) are managed by Aviva Investors. They monitor the fund and calculate the proportion invested in the growth component and the secure component on a daily basis. Aviva Investors are the asset management arm of Aviva. Aviva currently operates in 28 countries across the world, providing investments, savings and insurance to around 50 million customers. Aviva s aim is to deliver prosperity and peace of mind to its customers. Source: February Why Aviva Investors for Protected Funds? Typically protected funds can only be offered by organisations with the necessary internal expertise. As part of the Aviva Group, Aviva Investors has dedicated experts in this field and funds under management of 222 billion across a range of funds, as at 30 June They are one of Europe s leading providers of investment solutions and are a significant force in global asset management, offering customers the benefits that come from the experience and expertise of managing worldwide investments across virtually every asset class. Aviva Investors has more than 1,300 employees, including some 420 investment professionals in 20 locations around the world. At the beginning of 2009 Aviva Investors assembled a strong Structured Product Solutions team with an average of 15 years experience. Their expertise covers all structuring, legal, quantitative structuring and fund management functions. Source: Aviva Investors, February

14 Important details about the fund Who provides the Protected Price Promise and when might it be amended? The Aviva Irl Protected Growth Fund aims to ensure the unit price does not fall below 80% of the highest ever unit price through the use of the CPPI investment strategy outlined on page 2. As a further level of security, Aviva Life & Pensions Ireland Limited will enter into an agreement with BNP Paribas SA to provide protection against the risk of a sharp adverse movement of the growth component. BNP Paribas SA* is a European leader in global banking and financial services and one of the six strongest banks in the world according to Standard & Poors. It has a current Aa2 long-term credit rating with Moody s and a current AA long-term credit rating with Standard & Poors and Fitch. Source: BNP Paribas SA website, February The combination of the CPPI investment strategy and the protection provided through the agreement with BNP Paribas SA aims to ensure the unit price does not fall below 80% of the highest ever unit price of the fund, the Protected Price Promise. BNP Paribas SA provides the protection on the growth component. In the event that BNP Paribas SA is unable to meet their liabilities to Aviva Life & Pensions Ireland Limited, Aviva Life & Pensions Ireland Limited is not responsible for making up any shortfall and the Protected Price Promise will not apply. In the event of the default of one or more cash instruments in which the secure component is invested, Aviva Life & Pensions Ireland Limited is not responsible for making up any shortfall and the Protected Price Promise will not apply. The contract between Aviva Life & Pensions Ireland Limited and BNP Paribas SA is for a period of 5 years (from the commencement of the contract in March 2010). Please note that on triggering the once-off shortfall payment under the Protected Price Promise, the arrangement between Aviva Life & Pensions Ireland Limited and BNP Paribas SA will come to an end. There are also other circumstances in which the Protected Price Promise could be reduced or removed. These circumstances may include, but are not limited to: If the tax treatment of the funds changes adversely and BNP Paribas SA and Aviva Life & Pensions Ireland Limited deem that it is no longer viable to run the Protected Growth Fund. If BNP Paribas SA determines that an event has occurred that could have a material impact on the arrangement between themselves and Aviva Life & Pensions Ireland Limited. You do not have a contract with BNP Paribas SA or any direct recourse to them through the policy with Aviva Life & Pensions Ireland Limited. Aviva Life & Pensions Ireland Limited does not provide any guarantee against the default of any counterparty to this fund. It is important to note that the Aviva Irl Protected Growth Fund is not a capital guaranteed fund. * Aviva Life & Pensions Ireland Limited reserves the right to replace BNP Paribas SA with another institution at any stage. In the event that Aviva Life & Pensions Ireland Limited is unable to find a replacement institution, Aviva Life & Pensions Ireland Limited reserves the right to cancel, amend or withdraw the fund. 12

15 What if the Fund becomes significantly allocated to the secure component over an extended period? As explained on page 2, depending on the CPPI investment strategy, your fund may have significantly less than 80% exposure to the growth component. In fact, it could have 100% exposure to the secure component and 0% exposure to the growth component. If this occurs, this means that your investment will only benefit from any growth in the secure component. Aviva Life & Pensions Ireland Limited will monitor the percentage split between the growth component and the secure component regularly. They may deem that the fund has become under exposed to the growth component over an extended period. This means that it may no longer be sufficiently participating in the investment potential of the growth component. Informing you of over allocation to the secure component or changes to the Protected Price Promise In the circumstances outlined above (or where the Protected Price Promise is reduced or removed), Aviva Life & Pensions Ireland Limited will write to you to advise you of the possible options available to you at the time. These will include: Switching to other funds available at the time. And may also include: Continuing to remain invested in the Aviva Irl Protected Growth Fund, or Aviva Life & Pensions Ireland Limited creating a new issue of the fund, into which you may continue to make contributions, or Any other options that may be available at the time. How to access the Aviva Irl Protected Growth Fund We offer this fund through a range of our investment, pension and post retirement products. For further information on the products through which you can invest in this fund and the charges that apply please contact your financial adviser. Please note: Aviva Life & Pensions Ireland Limited reserves the right to cancel, amend or withdraw this fund at any time. The circumstances for such an event may include adverse changes in legislation or where Aviva Life & Pensions Ireland Limited believes this is in the best interest of either Aviva Life & Pensions Ireland Limited or its customers, or both. In such an event, you may not receive the benefits set out in this customer guide but Aviva Life & Pensions Ireland Limited will make all reasonable efforts to treat customers fairly. License disclaimers Dow Jones, Dow Jones UBS Commodity Index and Dow Jones EuroStoxx 50, are service marks of Dow Jones & Company Inc. The Aviva Irl Protected Growth Fund is not sponsored, endorsed, sold or promoted by Dow Jones and Dow Jones makes no representation regarding the advisability of investing in such product(s). The iboxx Liquid Corporates is a service mark of International Index Company Limited. The Aviva Irl Protected Growth Fund is not sponsored, endorsed, or promoted by International Index Company Limited. WARNING: Past performance is not a reliable guide to future performance. WARNING: The value of your investment may go down as well as up. WARNING: This product may be affected by changes in currency exchange rates. WARNING: Withdrawals and switches from this fund may be deferred for up to 3 months. 13

16 14 Aviva Life & Pensions Ireland Limited. A private company limited by shares. Registered in Ireland No Registered Office One Park Place, Hatch Street, Dublin 2. Member of the Irish Insurance Federation. Aviva Life & Pensions Ireland Limited is regulated by the Financial Regulator. Aviva Life & Pensions Ireland Limited is a subsidiary of Aviva Life Holdings Ireland Limited, a joint venture company between Aviva Group Ireland plc and Allied Irish Banks, p.l.c. Life & Pensions One Park Place, Hatch Street, Dublin 2. Phone (01) Fax (01) Telephone calls may be recorded for quality assurance purposes