Release date: 8 June 2005

We apologise for not keeping you better informed on the position of the NPI Property fund. This latest update is designed to inform you of the current position, explain the way these funds have been invested over the last year and why they have generated poor returns compared with other funds in the property sector.

Performance of the Property Funds

There have been two factors affecting the performance of the funds over the last year:

The first is that, in accordance with the policy conditions, we moved the pricing basis from the Maximum Offer Price to the Minimum Bid Price basis as provided for under the terms of our policies. This was because the value of the investments held in the fund was reducing and the property assets in the funds were being sold. This had the effect of reducing prices by around 5%, and this change was phased in during the period between the final months of 2003 and the early part of 2004.

The second is that the funds have been invested in cash, rather than property, since late 2003 and property has, generally, out-performed cash over that period. This has meant that the performance of our property funds over the last year has been lower than other property funds.

Current Position

The NPI Property Funds for both Life and Pensions business will remain invested in cash for the time being with the intention that the fund will be closed later this year. If you hold investments in these funds we will write to you separately to provide you with more information about the lower performance, and notify you of the date of closure. We will also offer you a choice of alternative funds. In the meantime, you have the option to switch to an alternative fund at any time.

We will update this website as and when we have any more news on these funds.

Property Fund Performance (Basis: Ordinary Units, bid to bid prices)

	Pension	Life
01 November 2003 to 01 January 2005	-1.3%	-2.2%
1 year to 01 January 2005	-1.7%	-2.4%
2 years to 01 January 2005	1.1% pa	0.6% pa
3 years to 01 January 2005	2.5% pa	2.5% pa
5 years to 01 January 2005	4.8% pa	3.8% pa

Questions and Answers

Can you explain the change in pricing basis and what this means for me as a policy holder?
The effect on policyholders is that the fund’s unit price has fallen by 5%.
When a fund is growing, the unit price is normally based on the value of the assets plus the costs of buying those assets. When a fund is reducing in size, and it has to sell assets to meet policyholder claims, the price is normally based on the value of the assets less the costs of selling those assets. The costs of buying and selling assets can be quite significant, particularly for property funds. Although we have moved the pricing basis by 5%, the cost of buying a property can be 8% of its value or more, and selling a property can cost 2-3% of the property’s value. The difference in moving pricing basis could be as much as 10% in total.

Why did you change the pricing basis?
We changed the pricing basis because the money going out of the fund to meet policyholder claims was more than the new money being invested in the fund. We were having to sell properties to meet claims, and we needed to make sure the amounts we were paying policyholders reflected the money we were getting from those sales.

Why have the funds been invested in cash since 2003?
In the past, the property fund shared a pool of properties with National Provident Life’s with profit fund. Because that fund was also shrinking in size, it needed to sell some of its properties and restructure its property portfolio. This re-structuring could not be done without stopping the arrangement of pooling properties with this unit-linked fund. Our intention was to re-structure the funds in such a way that the unit-linked funds could recommence sharing in National Provident Life’s with-profit fund’s property portfolio. But this proved impractical. Subsequently we have investigated a number of other options, none of which has proved practical. Meanwhile the unit-linked property funds have remained invested in cash.

Why wasn’t I told that this had happened back in 2003 when I could have taken action?
Our intention was that the move into cash would be temporary and last a matter of a few weeks. We have remained optimistic that a solution would be found to allow the funds to resume investing in property, but that has not been possible. Had we realised how long it was likely to take we would have told policyholders earlier.

Can I choose to switch out of the Property Fund now?
Yes, you have the option to switch out of the Property fund at any time. This switch would be processed free of charge.

What are my choices of other funds?
The choice of funds depends on what type of policy you have. If you contact your Financial Adviser he should be able to tell you what choice you have, and offer advice about that choice. If you need advice but don’t have a current Financial Adviser, please contact IFA Promotions on 0800 085 3250, who can give you details of Independent Advisers in your area.

What date will the Property fund close?
We will write to policyholders separately with details of when the Property fund will be closing.

What date will you stop allowing fund switches into the fund?
We are now no longer accepting any switches into the Property fund.