How we manage our unitlinked

Transcription

1 How we manage our unitlinked funds A statement of the criteria and standards used by Family Assurance Friendly Society Limited [Family Investments] when managing its unit-linked funds 1

2 Contents About this Document 3 Useful Terms 4 Structure of Family Life Policy Administration 7 Who is responsible for managing our unit-linked funds? 8 How do we calculate unit prices for our unit-linked funds? 9 What procedures do we follow when buying and selling units? 12 What about charges and expenses? 16 What about tax? 19 Other Information 20 Appendix 1 Appendix 2 Contact Us 2

3 About this Document This document details the criteria and standards that we use in the management of all our unit-linked funds. As part of our communications strategy, we are committed to open and honest communication with all of our members. We believe the literature we provide contains enough information to give customers taking out a policy a good understanding of the product and the working of the fund or funds in which it is invested. This document aims to provide more detailed and technical explanations of our current policies and procedures relating to the operation and management of our unit-linked funds. The criteria and standards outlined in this document describe our current policies and we may change them if we decide it is appropriate to do so. We will only make changes if those changes are compatible with the principle of treating customers fairly, and, if the change is material, only with the approval of the Committee of Management. We will notify affected investors of any significant changes to the criteria and/or standards within a reasonable period of them coming into effect. Any such notice will usually be provided in the next annual statement. Except for the terms that detail how often we value our unit-linked funds and the method we use to value them, none of the provisions of this document form part of, or vary, the terms and conditions of any policy issued by us and/or the Rules and Tables of the Society. In the event that any of the provisions in this document conflict with the terms and conditions of any policy issued by us and/or the Rules and Tables of the Society, the terms and conditions of the policy and/or the Rules and Tables of the Society will prevail. If you would like further information on anything contained in this document, please contact our Customer Service Team using the relevant details on the Contact Us page. Please note that we do not provide advice. If you have any doubts about the suitability of any of our products, you should seek independent financial advice. 3

4 Useful Terms Annual Management Charge (AMC) Amount payable for administering the product and managing the fund. This is quoted as an annual percentage of the fund value, but is deducted from the value of the fund on a daily basis. Buying Price - The price of the units that, you pay when you buy them from us. The buying price is also sometimes known as the offer price. Collective Investments A collective investment fund is a way of investing money that allows a large number of people to invest in a wide range of investments while sharing the costs of doing so. Unit-linked funds, unit trusts and OEICs are examples of collective investments. Family Investments - Trading name of Family Assurance Friendly Society Limited. Alternative Investment - An investment can be called an 'alternative investment' if it is anything other than one of the traditional investments, such as stocks and shares, fixed interest investments or cash. Hedge funds are a type of alternative investment we invest in. OEIC OEIC stands for Open Ended Investment Company. An OEIC is an example of a collective investment. An OEIC is sometimes also referred to as an ICVC (Investment Company with Variable Capital). Realised Gain - A profit made when an asset is sold at a higher price than the original purchase price. Selling Price - The price of the units that, we pay you when you sell them back to us. The selling price is also sometimes known as the bid price. Stock Lending Agreement Details the terms on which stock can be lent. Stock lending is where one firm loans stock to another, who must eventually repay the loan by returning the same stock. The stock borrower will pay lending charges, giving the stock lender an increased return on the stock. Tax-Exempt Savings Plan (TESP) A type of policy that only friendly societies can issue. The fund is not subject to Corporation Tax (although dividends are taxed at source) and the returns are free of Income Tax and Capital Gains Tax. Unrealised Gain Anticipated profit from the increase in value of an asset since it was bought. Once the asset is sold this profit will be a realised gain with the owner of the asset taking the profit. We/us/our Family Assurance Friendly Society Limited. You/your An investor in one of our unit-linked funds. 4

5 Structure of Family Life Policy Administration Family Assurance Friendly Society Limited currently trades as Family Investments. Family Investments has grown substantially over the years since it was launched as the Family Assurance Society in 1975 with one product, the Family Bond, a taxexempt savings plan (TESP) for adults. Family Investments have subsequently launched various products including TESPs, unit trusts, ISAs, CTFs and most recently Junior ISAs. Family Investments currently offer two TESPs invested in unitlinked life funds: The Family Bond and the Junior Bond. Family Investments also administers the Freeway Appropriate Personal Pension. In addition, Family Investments has, through mergers and acquisitions, acquired policies from various other societies. The structure for the administration of our life policies is shown in the diagram below. Family Assurance Friendly Society Limited Trading as Family Investments Also manages life policies acquired from the following societies: Drummond Assurance Society Moneywise Friendly Society St Andrew s Life Friendly Society Lancashire and Yorkshire Assurance Society Holborn and Metropolitan Counties Society (HMCS) This document provides details of the criteria and standards for managing those unitlinked funds which are used for investment by any past or current product of Family Investments. 5

6 Who is responsible for managing our unit-linked funds? The Committee of Management The Committee of Management is responsible for ensuring that the Society is managed prudently with due care and diligence and delegates responsibility for the strategic direction and oversight of the investment policy of the Society s unit-linked funds to the Investment Sub Committee. The Committee is currently formed of non-executive directors and executive directors. Election or re-election of directors is by majority vote at the Annual General Meeting. Directors stand for re-election every three years (unless they have served in excess of nine years in which case they stand for re-election every year). The Risk and Audit Committee Assists the Committee of Management to satisfy itself of the effectiveness of the risk management processes, internal control systems and the integrity of the Society s financial reporting. Also advises the Committee of Management on risk related matters including policy, strategy and implementation for each area of risk namely: Operational; Strategic; Financial; Investment; Liquidity; Credit; and Insurance. The Investments Sub-Committee This Committee is a Sub-Committee of the Committee of Management. The responsibilities of the committee includes: - Recommend strategy to Committee of Management; - Consider changes to fund managers: approve appointment of non-core managers and recommend to Committee of Management appointment of core fund manager; - Review fund manager performance, including performance against benchmarks and adherence to investment management agreements; - Recommend to Committee of Management change of Custodian. The Actuarial Function Holder Our unit-linked funds are also reviewed at regular intervals by an external actuary, the Actuarial Function Holder. They will advise the Committee of Management on the management of the funds including the risks of any fund failing to meet its liabilities or failing to meet policyholder s reasonable expectations. 6

7 Investment Advisers Our Investment Adviser is currently State Street Global Advisors Limited. They are responsible for short-term tactical changes in policy, together with decisions over specific stock selection. They provide reports to each meeting of the ISC on their activity and performance. Internal Audit and Compliance These departments conduct periodic monitoring of the management of the unit-linked funds and report their findings to the Committee of Management, Risk and Audit and/or Investments Sub-Committee as appropriate. Pricing and Dealing Functions We manage our own pricing and dealing functions in-house, and are therefore responsible for ensuring that targets for accuracy are met and that the application of pricing policies is done in a manner fair to customers. 7

8 How do we calculate unit prices for our unit-linked funds? Introduction Our overarching principle when calculating unit prices for our unit-linked funds is to treat all our members fairly, in accordance with policy provisions, legislation, insurance regulations and FCA/PRA rules and guidance. In doing this, we will ensure that: unit prices are calculated in a clear and transparent manner; unit prices accurately and fairly reflect the value of the underlying assets; cross-subsidy between members and individual funds is avoided as far as reasonably possible; charges and expenses, income and taxation are recognised appropriately in the price; and, the pricing method is fair to both the fund and to individual members. Valuing the fund and its underlying assets The value of the assets held by a fund on either a bid, an offer or a mid-basis, plus any income received by or due to the fund from holding those assets, minus all tax, charges and expenses paid or owed by the fund. Valuing the fund on a bid or an offer basis For these funds (see Appendix 1), the basis we use to value the underlying assets will depend on whether we believe the fund to be expanding (i.e. there is more money coming into the fund than going out of it) or contracting (i.e. there is more money going out of the fund than coming into it). If we believe the fund is expanding we will value the fund on an offer basis. If we believe the fund is contracting, we will value the fund on a bid basis. The decision to change the pricing basis is generally taken only after a sustained period of expansion or contraction. Assets in the fund will then be valued as follows: If the asset has a single price, at that price; If separate buying and selling prices are quoted, at the bid price where the fund is valued on a bid basis, and at the offer price where the fund is valued on an offer basis; 8

9 For units held in a unit trust managed by us, at the creation price where the fund is valued on an offer basis, and at the cancellation price where the fund is valued on a bid basis; If the price of the asset is unreliable or no recent price exists, at a value which, in our opinion (having taken advice from our Investment Adviser), is fair and reasonable; Cash will be valued at its face value. Valuing the fund on a mid-basis For funds valued on a mid-basis (see Appendix 1), assets in the fund will be valued as follows: If the asset has a single price, at that price; If separate buying and selling prices are quoted, at the average of the two prices; For units held in a unit trust managed by us where separate buying and selling prices are quoted, at the average of the creation and cancellation prices; If the price of the asset is unreliable or no recent price exists, at a value which, in our opinion (having taken advice from our Investment Adviser), is fair and reasonable (but see the Obtaining values for the underlying assets section below for more information); Cash will be valued at its face value. Timing All Family funds are valued each working day at 10 am. Obtaining values for the underlying assets It is easy to obtain up to date values for most of the assets held by our unit-linked funds. However, where a fund holds property assets, it is more difficult to obtain an accurate and up-to-date value because of how often those assets are themselves valued. Our funds may hold both investments in external property funds or direct investment in property (see Appendix 1). 9

10 The property that our funds hold directly is valued on an annual basis (as at 31st December each year) by independent professional advisers at market value based on vacant possession. Any income received or due to the fund from direct investment in property is applied to the fund on a daily basis. Directly held property assets are valued at a price that we believe represents a fair and reasonable market price. For our funds that invest in underlying funds such as OEICs, unit trusts and hedge funds the assets are valued using the latest price available on the valuation day. Please note that this is not a finite list of those assets valued less frequently than each of our unit-linked funds. We have, however, included all relevant assets held at the time that this version of this document was published. Calculating the price at which you can buy and sell your units To calculate the price at which you can buy and sell your units, we take the value of the fund, add any income received by or due to the fund from holding its assets, and then deduct tax, the Annual Management Charge and any other applicable charges or expenses paid or owed by the fund. This gives us the Net Asset Value (NAV) of the fund. See the Charges and Expenses section on page 13 and Appendix 1 for details of the types of charges and expenses that the funds may incur and for the deductions made to each fund. 10

11 Funds valued on a bid or an offer basis We divide the NAV by the total number of units in issue to give us the bid price (the price at which you would sell your units). Where there is an initial charge (see Appendix 1) we add this to the bid price to get the offer price (the price at which you would buy your units). Where there is no initial charge, the bid price will be the same as the offer price. Funds valued on a mid-basis Where there is no initial charge, we divide the NAV by the total number of units in issue to get the mid-price (the price at which you would both buy and sell your units). Where there is an initial charge, we divide the NAV by the total number of units in issue to get the bid price (the price at which you would sell your units). We then add the initial charge to the bid price to get the offer price (the price at which you would buy your units). All unit prices for our unit-linked funds are rounded to 2 decimal places. The basis on which each fund is valued is detailed in Appendix 1. Creating and cancelling units If, on any particular day, there are more units being sold than purchased, we may need to cancel units in the fund. For funds valued on an offer basis, these units will be cancelled using the offer price. For funds valued on a bid basis, these units will be cancelled using the bid price. For funds valued on a mid-basis, these units will be cancelled using the mid-price. See Appendix 1. If, on any particular day, there are more units being purchased than sold, we may need to create more units. For funds valued on an offer basis, these units will be created using the offer price. For funds valued on a bid basis, these units will be created using the bid price. For funds valued on a mid-basis, these units will be created using the mid-price. See Appendix1. 11

12 What procedures do we follow when buying and selling units? Units will be bought and sold when we receive an instruction from you, when premiums are received and when withdrawals, switches or death claims are made. Our overarching principle when buying and selling units is to treat all our members fairly, in accordance with the policy provisions, legislation, insurance regulations and FCA rules and guidance. We will ensure that: Instructions to buy and sell units are carried out promptly in accordance with the relevant policy provisions; and The procedures we follow to buy and sell units are fair and applied consistently. To comply with Anti-Money Laundering legislation, we may need to verify the identity of investors. We may use a credit reference agency to help us do this. If we need to request identification after receiving an instruction to sell units, we will sell those units within the relevant time-scales stated below and hold onto the proceeds until acceptable identification has been received. Family funds We will use the unit price on the working day after we receive an instruction to buy and/or sell units. However where the instruction is to buy units with premiums received by Direct Debit, we will use the unit price on the working day the Direct Debit amount is received. Instructions to buy and sell units are only accepted on working days. This means that all deals for Family funds are carried out on a forward pricing basis. Alterations to instructions will only be accepted up to the pricing point (i.e. the working day after we receive an instruction to buy and/or sell units) we are due to use in line with the first paragraph in this section. On notification of a death, we will switch units into the relevant series of the Family Safety First Fund (unless the plan is already invested in the Family Safety First Fund). This switch will be processed on a forward pricing basis using the unit price on the working day after we are notified of the death. Units will then be sold on a forward pricing basis using the unit price on the working day after we receive all the documents we have requested, which must include proof of the death. 12

13 Instructions received which cannot be processed until a future date (e.g. where the policy has not yet reached the end of the initial payment term) will be processed using the unit price on that future date (or the next working day if the future date is not a working day). Where a policy matures on a policyholder s 85th birthday, and it has not already been cashed in by this date, units will be sold automatically using the price on the 85th birthday of the policyholder (or on the next working day if the 85th birthday is not a working day). HMCS Bonds Contributions into these Bonds can only be made by cheque and standing order and they can be invested as follows: 100% in the UK Equity fund, 100% in the Safety First fund or 50% in the UK Equity fund and 50% in the Safety First fund. The administration of these Bonds is carried out externally and the funds in which they are invested are re-priced daily The unit price we will use to buy units will depend on how the purchase of units is being funded: Where units are being bought with cheque contributions, the unit price used will be that at the next pricing point following receipt of the cheque. Where units are being bought with Standing Order contributions, the unit price used will be that at the next pricing point following notification that the Standing Order contribution is available for the purchase of units. This means all purchase deals relating to HMCS Bonds are carried out on a forward pricing basis. The unit price we will use to sell units is that on the day we receive the instruction to sell units (i.e. that calculated at the last pricing point). This does not apply where an instruction to sell units cannot be processed until a future date (e.g. where a policy has not yet reached the end of the initial payment term). On notification of death, units are sold using the unit price on the date of death (i.e. that calculated at the last pricing point) regardless of when the death certificate and any other requested documentation is received. This means all sales deals relating to HMCS Bonds are carried out on a historic pricing basis. Where the date an instruction to sell units or the date of death is not a working day, then units will be sold using the price on the next working day. 13

14 Freeway Pension Plan The Freeway Pension Plan is an Appropriate Personal Pension which is used as a means of contracting out of the State Second Pension (previously known as SERPS). The only contributions were Rebates/Minimum Contributions from the DWP. From 06/04/12 individuals have not been able to contract out of the State Second Pension by joining a personal or stakeholder pension scheme or a contracted-out money purchase (defined contribution) scheme. Freeway Pension Plan has therefore not received any new contracted-out monies from 06/04/12. Members of the Freeway Pension Plan cannot pay AVCs into the Freeway Pension Plan. Up to 05/04/15 contributions may be received for contracted-out monies relating to tax years before 2012/2013. Where contracted-out monies are received, the unit price we will use to buy units will be that on the date the correctly referenced rebate/contribution is received from HMRC. Switches can be made from the Freeway Managed fund to the Freeway Safety First fund and vice versa. These will be processed 2 working days after receipt of an instruction (which can be in writing or by phone) using the unit price on the processing day (which will be that calculated on the previous working day). On notification of death, we will switch units from the Family Freeway Managed fund into the Family Freeway Safety First fund (unless the plan is already invested in the Family Freeway Safety First fund). This switch will be processed on a historic pricing basis using the unit price on the date we are notified of the death. Units will then be sold on a historic pricing basis using the unit price on the date that we receive all the documents we have requested, which must include proof of the death. Customers who have a pension pot accrued (with Family Investments) may choose to transfer it to an alternative provider who can pay them an annuity. Alternatively the customer s pension pot may be under a certain threshold and they may choose to have this paid directly to them as a lump sum. In these circumstances we will sell units using the unit price on the date we receive the final item of requested documentation, provided the pre-selected retirement date has been reached. If the pre-selected retirement date has not yet been reached when the final item of requested documentation is received, then the transaction will be held over and the units will be sold (on a forward pricing basis) at the price on the selected retirement date. Following receipt of a request to transfer the pension pot accrued either back to HMRC or to an alternate provider, we will sell units at the unit price on the day the final item of documentation requested in the Transfer Pack is received. 14

15 Where the date of receipt of contributions, relevant requested documentation or the date of death is not a working day, then the unit price on the next working day will be used for buying and selling units. What about charges and expenses? Charges and expenses will be applied in line with the provisions of the relevant policy. In addition we will ensure that: we treat charges and expenses in line with any information given to customers in our marketing literature; the methods used to apply charges and expenses are fair between different funds and different groups of unitholders; and, where necessary, charges and expenses are allowed for in the price. The charges and expenses detailed in this document are those which are applied to the fund only. There may be other charges that apply to the type of policy you have (for example, life cover charges). These will be detailed in the Key Features and Terms and Conditions you received when you applied for your policy. We reserve the right to make charges in addition to those detailed here in response to a new or unforeseen expense. Initial charge For some of our funds (see Appendix1), an initial charge will be added to the bid price to provide the offer price. See the Calculating Unit Prices section on page 9 for details of how the unit price is calculated. Annual Management Charge (AMC) The AMC is calculated and deducted directly from the fund on a daily basis. It is calculated by multiplying the Net Asset Value (NAV) of the fund by the relevant AMC divided by 365 (366 in a leap year). This deduction is made before the unit price is calculated for details see the Calculating Unit Prices section on page 9. We may change how we calculate the AMC if a specific need arises which makes it necessary to do so. The AMC is taken first from the income of the fund and then from capital (once income has been exhausted). The AMC applied to each fund or fund series is detailed in Appendix 1. 15

16 Other expenses There may be other expenses incurred by a fund if it invests in certain assets (typically, but not restricted to, externally held unit trusts and other collective investment schemes). The type of expenses incurred by the fund or the underlying investment(s) can include: Registrar Fees Custody Charges Transaction Charges Handling Charges Trustee Fees Bank Charges Interest Charges Audit Fees Broker Commission Administration Charges Other regional charges Expenses from property investment Performance fees The impact of these expenses on unit prices will vary and an estimate of the future impact on each fund is included in the table in Appendix 1. The actual impact of the other expenses and the estimates of the future impact are reviewed every six months. If you would like up to date estimates, or details of the actual impact of the other expenses for the previous 12 months, please contact us. To try to reduce the impact of some of these expenses, where a fund holds units in an external fund, we seek to agree reduced charges wherever possible. Such rebates would normally be credited to the fund in the form of units. Additional costs may also be incurred by the unit-linked fund for the safe-keeping of certain assets within that fund. Expenses from property investment: Expenses from direct investment in property are deducted from funds on a weekly basis. Expenses from other investments in property will be reflected in the unit price for that investment. 16

17 Dilution levy The prices at which units in the funds are both bought and sold exclude dealing costs (the costs incurred by the funds when buying or selling assets such as shares). These costs are deducted directly from the fund when they are incurred, thereby diluting its value. The cost of dilution can be met directly from the fund s assets or recovered from investors when units in a fund are bought or sold. This can be done by a dilution levy or applying a dilution adjustment. The purpose of both a dilution levy and a dilution adjustment is to reduce the effect of dilution; however, because the value of individual purchases and sales are relatively small, our current policy is not to charge a dilution levy or apply a dilution adjustment. This could reduce the future growth of the fund. We may review this policy and change it at our discretion. In the event that we charge a dilution levy or apply a dilution adjustment, this will be paid into the fund for the benefit of the investors. Investing in other internally managed funds Some of our funds hold units in other internally managed unit-linked funds or unit trusts. This enables a fund to gain exposure to a specific type of investment without directly holding those assets and incurring extra costs. Investing in other internally managed unit-linked funds: When investing in an internally managed fund priced on a bid or an offer basis, units are bought at the offer price and sold at the bid price. Currently, there is no difference between the buying and selling price of units on any internal fund holdings (i.e. we do not apply an initial charge). When investing in an internally managed single-priced unit linked fund priced on a mid-basis, units are bought and sold at the mid-price. Where a fund holds units in another internal fund there is no duplication of the AMC as internal fund holdings are held in a series of the relevant fund where no AMC is charged (see Appendix 1). Investing in internally managed unit trusts: Internal funds buy units in internally managed unit trusts at the creation price, or where a holding is switched to another internally held unit trust, at the mid of the creation price and the cancellation price plus stamp duty. Internal funds sell units in internally managed unit trusts at the cancellation price, if units have to be cancelled. 17

18 The unit price on deals in internally managed unit trusts is rounded to 4 significant figures. Where a fund holds units in an internally managed unit trust, a rebate of the management charge, apportioned to the number of units held, is accrued daily and paid to the fund monthly in arrears. When transacting with other internal funds, all units are bought and sold on a forward pricing basis. 18

19 What about tax? Our overarching principle when dealing with a fund s tax liability is to treat all our members fairly, in accordance with policy provisions, relevant legislation and HMRC regulations and guidance. In doing this, we will ensure that: our approach is consistent with any information given in marketing literature; our methodology is fair between different funds and different groups of unitholders; wherever possible we charge to the fund the tax charge it actually incurs; and, relevant tax charges are recognised appropriately in the price. Tax-exempt funds and pension funds Dividend income from both UK and overseas companies is taxed at source. Part of the tax paid on dividends from overseas companies may be recoverable, if there is a tax treaty in place between the UK and the country that taxed the dividend. Where this is possible, the Custodian will recover the tax on behalf of the fund. Tax-exempt funds and pension funds do not pay any further tax. Taxable funds Corporation Tax Corporation Tax is only payable by taxable funds. It is calculated on taxable income less expenses. Taxable income is all types of income, with the exception of dividends received from UK companies which are taxed at source. Corporation tax does not have to be paid if the fund s expenses exceed its taxable income. Dividend income from overseas companies may also be taxed at source. However, part of the tax paid on dividends from overseas companies may be recoverable, if there is a tax treaty in place between the UK and the country that taxed the income. Where this is possible, the Custodian will recover the tax on behalf of the fund. The current rate of Corporation Tax is 20% of net taxable income. It is calculated and deducted from the unit price daily. Capital Gains Tax 19

20 Capital Gains Tax (CGT) is only payable by taxable funds. CGT is paid on net realised and unrealised gains on individual holdings. The current rate of CGT is 20%. CGT is calculated and deducted from the unit price daily. Any CGT paid in previous accounting periods is recovered if there is a net loss in the current accounting period. 20

21 Other Information Exceptional circumstances If exceptional circumstances mean we are unable to access our buildings or systems, or if accurate market values are unavailable for a significant proportion of assets, we may suspend the unit price and/or defer processing transactions for up to 28 days. Any action taken of this nature would be in accordance with our current Business Continuity Plan and would only be carried out where it would protect the interests of our unitholders. We would not defer transactions or suspend the unit price for any longer than is necessary to achieve this. Closing or merging funds We may decide at any time to close a fund, close a fund to new customers, and/or to stop allowing switches into a fund by existing customers. We may also decide to merge two or more funds together that have similar investment objectives. We would only do this, if a specific business need arises or we believe that it is in the unitholders best interest to do so. Unitholders will normally be notified at least one month in advance of any such action where it resulted in a significant change to their investment strategy or charges. Launching new funds From time to time we may decide to launch a new fund. To ensure that any new fund has enough capital to operate effectively and with the appropriate range of assets, the new fund may be seeded by one or more of our existing unit-linked funds providing the new fund with assets in exchange for units. In line with our policy for funds invested in other internal funds, investors in the new or existing fund will not incur any additional fund charges because of the seeding. Whether an existing fund will be used to provide seeding capital for any new fund will be decided on a case-by-case basis and we will always look to ensure there is no adverse impact on the existing fund. 21

22 Once the fund has enough capital from investors to operate independently and effectively, the seeding capital will be returned unless it is decided to use it as a way for the existing fund to invest in the type of assets held by the new fund. Stock lending We may enter into a stock lending agreement with our Custodians, State Street Bank and Trust Company, to generate extra income for a fund. The funds do not currently undertake stock lending as the Society believes the risks to customers outweigh the rewards. The Society will review this position on a regular basis. Complaints Any complaints regarding the operation of our funds will be dealt with in line with the FCA rules and our procedure. Wherever possible we attempt to calculate any compensation payments consistently in line with guidance provided by the Financial Ombudsman Service (FOS). A copy of our procedure is available on request and will be sent to each person who has made a complaint. All complaints will be handled on a case-by-case basis and will be judged on their own merits. We will always try to resolve any complaints as quickly as possible. Pricing Errors, Dealing errors and Compensation All pricing and dealing errors are recorded and corrected as soon as reasonably practical. Compensation may be paid to the fund, or to individual unitholders in response to a pricing or dealing error we have made which has resulted in a financial loss, whether or not the affected unitholder(s) has complained. The Committee of Management has overall responsibility for ensuring that there are appropriate systems and controls in place to prevent pricing and dealing errors. All pricing and dealing errors are investigated to ensure that they are not indicative of wider systemic issues, which may require resolution. The Committee of Management are also ultimately responsible for overseeing the process of correcting any pricing or dealing errors that occur. 22

23 Where a pricing or dealing error has occurred which affects the unit price by less than 0.1%, compensation would not normally be paid. Where a pricing or dealing error occurs which affects the unit price between 0.1% and 0.5%, compensation may be considered. Where a pricing or dealing error occurs which affects the unit price by more than 0.5%, compensation will be paid. Where compensation is by means of a cash payment (e.g. paid directly to the affected policyholder by cheque), no compensation would normally be paid unless the amount due is or more. Where there is an error which affects only one person, we will only pay compensation where the financial loss incurred by that person is calculated to be 1.00 or more at the time of the error. 23

24 APPENDIX 1 All information in the table below is correct as at 30/09/2014. Fund Code Fund name Fund Number Series* Invests in Pricing Freq Pricing Basis Tax Initial Charge Annual management charge Estimated Stock lending future permitted other expenses FAB1 UK Balanced 48 4 Family Fixed Interest Fund & Family UK Equity Fund Daily Bid Tax-exempt N/A 1% 0.12% Y FAC1 Capital Builder N/A Family Asset Trust Daily Bid Tax-exempt N/A 1% 0.1% Y FAD1 Fixed Interest Cross holding Fixed interest investments, including UK Government Gilts, sterling local authority and sterling corporate bonds via exchange traded funds. Daily Tax-exempt N/A N/A N/A Bid 47 4 Daily Tax-exempt N/A 1% N/A 29 1 Daily Tax-exempt N/A 1% 0.05% 29 4 Daily Tax-exempt N/A 1% 0.05% FAG1 Safety First HMCS Daily Tax-exempt N/A 1% 0.05% Fixed term deposits with banks and 82 1 Daily N/A Tax-exempt N/A 1% 0.05% building societies Daily Tax-exempt N/A 1% 0.05% Y 83 1 Daily Tax-exempt N/A 1% 0.05% 83 4 Daily Tax-exempt N/A 1% 0.05% Cross Daily Tax-exempt N/A N/A 0.1% holding Family Asset Trust FAK1 UK Equity Bid Y 54 4 Daily Tax-exempt N/A 1% 0.1% HMCS Daily Tax-exempt N/A 1% 0.1% FAS1 Freeway Safety Fixed term deposits with banks and 11 1 First building societies. Daily N/A Tax-exempt 5% 0.75% 0.05% Y FASU Sovereign 24 1 UK and overseas shares. Fixed interest Daily Mid Tax-exempt N/A 1.95% 0.6% Y Y

25 Fund Code Fund name FAU1 FAW1 FIGS Charities Ethical Exempt Freeway Managed Family Global Fund Number Series* Invests in Pricing Freq Pricing Basis Tax Initial Charge Annual management charge 24 4 investments and property. May also Daily Tax-exempt N/A 1% 0.6% invest in alternative investments, money ISA market instruments and cash. Daily Tax-exempt N/A 1.5% 0.6% 78 1 Daily Tax-exempt N//A 1.95% 0.6% 78 4 Daily Tax-exempt N/A 1.5% 0.6% 79 1 Daily Tax-exempt N/A 1.5% 0.6% 79 4 Daily Tax-exempt N/A 1.5% 0.6% 41 1 Daily Tax-exempt N/A 1.95% N/A 41 4 Daily Tax-exempt N/A 1% N/A 80 1 Daily Tax-exempt N/A 1.95% N/A Family Charities Ethical Trust Mid 80 4 Daily Tax-exempt N/A 1.5% N/A 81 1 Daily Tax-exempt N/A 1.5% N/A 81 4 Daily Tax-exempt N/A 1.5% N/A Cross holding UK and overseas shares. Fixed interest investments and property. May also invest in alternative investments, money market instruments and cash. Family Balanced International Fund Estimated Stock lending future permitted other expenses Daily Offer Tax-exempt 5% 0.75% 0.6% Y Daily Mid Tax-exempt N/A 1.95% 0.2% Y Daily Mid Tax-exempt N/A N/A N/A Y Y *Some of our unit-linked funds have different series to allow for the application of different charging structures. Where the series is marked as cross-holding this means that this series is only used for other unit-linked funds to invest in and, as such, no charges are applied.

26 APPENDIX 2 Investment Objectives of our Unit-Linked Funds Family UK Balanced Fund The Family UK Balanced Fund is invested in the Family UK Equity Fund and the Family Fixed Interest Fund. The Family UK Equity Fund invests in the Family Asset Trust. The Family Asset Trust aims to achieve growth by investing mainly in shares that make up the FTSE 350 Share Index (not including Investment Trusts), in order to closely follow its performance. The FTSE 350 Share Index lists the largest 350 companies in the UK valued using their share price and is made up of the companies listed in the FTSE 100 and FTSE 250 share indices. The Family Fixed Interest Fund invests in fixed interest investments, including UK Gilts, sterling local authority and sterling corporate bonds. Family Capital Builder Fund * The Family Capital Builder Fund is currently solely invested in the Family Asset Trust. The Family Asset Trust aims to achieve growth by investing mainly in shares that make up the FTSE 350 Share Index (not including Investment Trusts), in order to closely follow its performance. The FTSE 350 Share Index lists the largest 350 companies in the UK valued using their share price and is made up of the companies listed in the FTSE 100 and FTSE 250 share indices. Family Fixed Interest Fund The Family Fixed Interest Fund invests in fixed interest investments, including UK Gilts, sterling local authority and sterling corporate bonds. Family Safety First Fund ** The Safety First Fund is a tax-exempt fund which is invested in fixed term deposits with banks and building societies. It may also invest in short-term deposits (for up to 3 months) via money market funds. Family UK Equity Fund * The Family UK Equity Fund is currently solely invested in the Family Asset Trust. The Family Asset Trust aims to achieve growth by investing mainly in shares that make up the FTSE 350 Share Index (not including Investment Trusts), in order to closely follow its performance. The FTSE 350 Share Index lists the largest 350 companies in the UK valued using their share price and is made up of the companies listed in the FTSE 100 and FTSE 250 share indices. Family Freeway Safety First Fund ** The Family Freeway Safety First Fund is a tax-exempt fund which is invested in fixed term deposits with banks and building societies. It may also invest in short-term deposits (for up to 3 months) via money market funds.

27 Family Sovereign and Sovereign III Funds The Family Sovereign and Sovereign III funds aim to achieve long-term growth, while spreading risk across a wide range of investments. They invest mainly in both UK and overseas shares, along with fixed interest investments and property. They may also invest in alternative investments, money market instruments and cash. The Sovereign and Sovereign III Funds may achieve this by investing in one or more other funds. Family Charities Ethical Exempt Fund * The Family Charities Ethical Exempt Fund is currently solely invested in the Family Charities Ethical Trust. The Trust aims to achieve growth by investing mainly in UK shares of companies that make up the FTSE4Good UK 50 Index in order to closely follow its performance. Family Freeway Managed Fund The Family Freeway Managed Fund aims to achieve long-term growth, while spreading risk across a wide range of investments. It invests mainly in both UK and overseas shares, along with fixed interest investments and property. It may also invest in alternative investments, money market instruments and cash. The Freeway Managed Fund may achieve this by investing in one or more other funds. Family Global Fund * The Family Global Fund is currently solely invested in the Family Balanced International Fund. The Family Balanced International Fund aims to achieve long-term growth, by investing mainly in both UK and overseas shares, along with fixed interest investments. It may also invest in alternative investments, money market instruments and cash. The fund may achieve this by investing in one or more other funds. The Family Balanced International Fund may also invest in property funds. * For full investment objective and policy details of the Family Asset Trust, the Family Charities Trust or the Family Balanced International Fund, please see the fund's prospectus, which is available on the Member Info section of our website. ** If you are considering switching into the Family Safety First Fund or the Family Freeway Safety First Fund, please also see our "How Cash Funds Work" leaflet before making any decision to invest. This is available on the "Fund Factsheets" section of our website.

28 The information is also available by contacting us. Contact Us Family Investments Phone am to 5.30pm Monday to Friday 9am to midday Saturday Telephone calls may be monitored or recorded for training purposes. Call charges apply. These are dependent on your provider s tariff and are likely to be more from mobile phones. For more information, please contact your provider. Family Investments West Street Brighton East Sussex BN1 2RL All information in this document is correct as at September Family Investments is a trading name of Family Assurance Friendly Society Limited (incorporated under the Friendly Societies Act 1992, Reg. No. 939F), Family PEP Managers Limited (Co. No ), Family Investment Management. Limited (Co. No ) and Family Equity Plan Limited (Co. No ). Governor and Governor Money are trading names of Governor Finance Limited (Co. No ). Registered in England & Wales at West Street, Brighton, East Sussex, BN1 2RL, United Kingdom. Family Assurance Friendly Society Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Family PEP Managers Limited, Family Investment Management Limited, Family Equity Plan Limited and Governor Finance Limited are authorised and regulated by the Financial Conduct Authority. Family Enterprise Limited (Co. No ) is not authorised or regulated

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