Appendix 1

BAE Systems Executive Pension Scheme -DC and AVC Sections

Statement of Investment Principles

This DC Statement of Investment Principles sets out the trustee's policies for investment of assets representing members' money-purchase or defined contribution benefits. The trustee's policies for investment of assets held for the purpose of providing defined benefits under the DB Section of the BAE Systems Executive Pension Scheme are set out in the trustee's DB Statement of Investment Principles for that Section. That DB SIP and this DC SIP together comprise the Statement of Investment Principles for the BAE Systems Executive Pension Scheme Sections required by section 35 of the Pensions Act 1995.

1. Scheme Investment Objective

1.1. The Trustee is responsible for the choice of investment options made available to members of theScheme, including the default option. The Trustee's primary objectives are:

1.1.1. "asset choice" to ensure members have an appropriate choice of assets for investment with a range of options suitable for meeting members' investment objectives over their investment time horizons;

1.1.2. "return objective" to enable members to benefit from investment in 'growth' assets until they approach retirement, when they will be able to switch into assets more related to how they plan to take their benefits in retirement.

1.2. The Trustee's investment strategy has been chosen to enable members to maximisethe likelihood of achieving these objectives

2. strategy. halancg between iovestments and expected return assumptions

2.1. After taking advice, the Scheme Investment Objective is implemented using the range of investment options set out in the Appendices.

2.2. The Trustee also makes available to members three lifestyle options designed for members wishing to take their benefits at retirement in different ways. These are the Flexible Lifestyle Profile, designed for members wishing to access their benefits flexibly, the Annuity Lifestyle Profile, designed for members wishing to take the maximum tax-free cash and purchase an annuity with the remainder, and the Cash Lifestyle Profile, designed for members wishing to take all of their benefits as cash. The lifestyle options invest in a range of white labelled1 blended funds, determined by the Trustee. The structure available depends upon the Section of the Scheme of which the individual is a member, as does the default investment option. Within the 2006 Section the Cash Lifestyle Profile operates as the default investment option if members do not wish to make their own investment choice. The default investment option for 2012 Retirement Plan members is the Flexible Lifestyle Profile.

2.3. The lifestyle options are designed to be appropriate for a typical member with a predictable retirement date. However, the lifestyle options are not suitable for members who unexpectedly retire early.

2.4. The Trustee's policy is to provide suitable information for members so that they can make appropriate investment decisions. The range of funds was chosen by the Trustee after taking advice from its investment advisers. In choosing the Scheme's investment options, it is the Trustee's policy to consider:

2.4.1. A full range of asset classes.

1 A white labelled fund is a Scheme specific fund set up at the request of the Trustee. The fund's name and constituent fund(s) are chosen by the Trustee. White labelling allows the Trustee to make changes to the underlying constituents of the fund promptly and efficiently.

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