My Future: fund report for members covering the three months to the end of December 2016.

Transcription

1 All data as at <<Insert Date>> unless otherwise stated. My Future: fund report for members covering the three months the end of December This report provides factual information only. The information shown in the report should not be used in isolation for making buying and selling decisions.

2 Contents An overview of how My Future works Pages 3-5 A review of the key asset classes in My Future in the quarter Pages 6-7 My Future Growth Pages 8-10 My Future Consolidation Pages My Future Annuity Pages My Future Drawdown Pages My Future Cash Lump Sum Pages Glossary and further information Page 23 Further information about fund charges and risk ratings Page 24 Special risk warning Page My Future a quarterly update for members 2 All data as at end December 2016 unless otherwise stated.

3 The information in this report provides an overview of Friends Life s My Future investment programme in the fourth quarter of This report is for information purposes only. Introducing My Future In this report, we will provide an introduction the My Future investment programme. We will then explain how the financial markets performed period covered go here and how the funds, which make up the My Future investment programme, namely the My Future Growth, My Future Consolidation, My Future Annuity, My Future Drawdown and My Future Cash Lump Sum Funds, also performed during the same period. Please note that you might not have access all of these funds depending on your pension scheme. We launched My Future, our default investment programme, in March 2013 in response au enrolment, and the requirement for all companies provide their employees with a workplace pension. An overview of how My Future works Let s think of a member s pension savings in two stages: growth and consolidation. Growth This stage of the pension invests in the My Future Growth Fund. Think of this stage as the engine room of the pension, which means that the focus is on growing the value of the pension pot. The My Future Growth Fund is designed provide members with the potential for growth in the size of their pension pot. To achieve this, the My Future Growth Fund invests mainly in company shares with some exposure fixed interest investments, including government bonds, in order limit the negative impact of any potential falls in the value of company shares on your pension. Consolidation The second stage of a pension is called the Consolidation stage. It begins when members are within 15 years of their planned retirement date. Savings are gradually moved in the My Future Consolidation Fund. The focus at this point is on reducing the risks which a pension pot might be exposed, while continuing provide the opportunity for growth in the size of the pension pot. This means that the pension pot has more money in fixed interest assets than company shares. How we diversify help reduce risk In both the Growth and the Consolidation funds, members pension savings are invested across a range of different investments, including company shares, government bonds and corporate bonds. Please refer the glossary on page 23 of this report for an explanation of these terms. Investing in different investments helps enable members pension savings benefit from diversification. Diversification, namely investing in several types of investments, is one way lower the risk of your pension savings being exposed the full impact of falls in the sck markets. Diversification aims smooth out the effect of the risks attached investing solely in companies, such as the departure of a well-regarded chief executive officer or the introduction of ugher regulation on certain industries. 3 All data as at end December 2016 unless otherwise stated.

4 Pension freedoms and My Future Following changes the pension landscape in 2015 and a simplification of tax rules, members now have more choice when it comes deciding what do with their pension. In 2015, UK savers were given greater flexibility in their pensions and crucially the freedom be able access their pension pot in the way they believed was best for the retirement they had in mind. Members enjoy greater flexibility in terms of what do with their pension. They can take their pension as a cash lump sum, or withdraw an income from their pension in retirement, or a combination of these options. As a result of the changes pension legislation in 2015, we adapted My Future ensure that it could meet the pension freedoms introduced by the government. We decided that the best outcome for our cusmers was enable them keep their options open. We refer this as the universal option and it comprises the Growth and Consolidation funds, which were described on the previous page of this report. We also wanted make it possible for our cusmers still be able buy an annuity, withdraw a regular income or withdraw the pension as a lump sum if they wished. For this reason, we introduced the My Future Annuity Fund, the My Future Drawdown Fund and the My Future Cash Lump Sum Fund as part of the My Future investment programme. We explain below how the My Future Annuity, My Future Drawdown and My Future Cash Lump Sum Funds work and what they invest in. My Future Annuity Fund this fund is aimed at invesrs who would like invest their money in preparation for the purchase of an annuity This option is designed for those members who want buy an annuity on retirement. The pension pot will be adjusted over time prepare for the purchase of an annuity. This option uses the same Growth and Consolidation funds as the universal option. However, in this option, with five years go retirement, a member s pension savings start move in the My Future Annuity Fund. This fund aims reduce the impact of potential setbacks in the financial markets on our cusmers pension pots, as well as track changes in the cost of buying an annuity. My Future Drawdown Fund this fund is aimed at invesrs who would like you would like make regular withdrawals from their pension pot This option is designed for people who intend take an income by making withdrawals directly from their pension savings while remaining invested through a drawdown arrangement. This option uses the same Growth Fund as the universal option. Then, 15 years from members planned retirement date, their pension savings start move in the My Future Drawdown Fund. This fund invests in a range of asset classes, including company shares, corporate bonds and government bonds. It aims continue provide the potential for investment growth, but with a lower level of risk than the Growth Fund. When members are 15 years from their planned retirement date, pension savings will primarily be invested in company shares. As retirement approaches, a member s savings will be increasingly invested in less risky assets, such as government bonds. It is important note that the fund will still have an allocation company shares (between 30% and 50%) in preparation for moving in a drawdown arrangement. 4 All data as at end December 2016 unless otherwise stated.

5 My Future Cash Lump Sum Fund this fund is aimed at invesrs who would like take a lump sum from their pension pot This option is designed for those members who would like take their pension savings as a cash lump sum (or sums) when they retire. This option uses the same Growth and Consolidation funds as the universal option. However, in this option with five years go the member s planned retirement date, his/her pension savings start move in the FL My Future Target Cash Lump Sum Fund. This fund, which invests in lower risk investments, including government bonds, aims reduce the risk of a member s savings falling in value. If you decide take any of the options described above at retirement, it is important ensure that you have planned appropriately for your retirement. Please be aware that there is no guarantee that any lifetime investment programme will benefit the value of your account when you come retire. The value of your investments can fall as well as rise and the value of your pension is not guaranteed. You could get back less than invested. Please note that the first 25% of your pension is tax free and the remaining 75% will be taxed at your highest tax rate. Withdrawals made are treated as income and taxed. The rate is based on tal income. If you withdraw large amounts in any one tax year, you may move in a higher tax bracket. Tax legislation regarding pensions could change at any time during the lifetime of a pension. Any money which remains invested can go up or down in value. Fund selection and governance All of the five funds that make up My Future, namely the My Future Growth Fund, My Future Consolidation Fund, My Future Annuity Fund, My Future Drawdown Fund and My Future Cash Lump Sum Fund, achieve their exposure company shares and fixed interest by investing in funds that have been selected on behalf of our cusmers by our in-house fund selection process. We are committed ensuring that these funds remain suitable for the My Future range and our cusmers at all times. That s why we have a dedicated investment fund governance team in place, whose role it is make sure that the funds in My Future continue meet the investment objectives communicated us by the respective fund managers at the outset. A key part of the work by the fund governance team is review fund performance every quarter. The data that comes out of this performance review is used assess whether any further moniring of the funds is required. Our fund governance team is in regular contact with the fund managers of all of the funds which are included in My Future. 5 All data as at end December 2016 unless otherwise stated.

6 Market environment On this page we describe the key themes in the financial markets in the period under review and therefore the facrs which influenced the performance of the My Future funds during the quarter under review. Global company shares netted positive returns in the final quarter of In contrast, government bonds came under pressure as invesrs questioned how much the recent strong performance of these assets could continue at a time of an improved outlook for the global economy, growing inflationary pressures, including higher US interest rates, and President-elect Donald Trump s plans cut taxes and increase infrastructure spending. The rise in the amount of income available from government bonds, and so the yield, supported the performance of developed market equities, including US and UK equities, since invesrs had less reason go further afield in their hunt for yield. UK index-linked government bonds - which had been the best performing asset class since the start of 2016 in sterling terms - suffered losses as invesrs captured profits following strong performance. Invesrs continued lose confidence in the British pound and so reduced their access the UK currency. This was due fears that the UK government would put immigration control above access the single market. Again this proved favourable for sterling-based invesrs in US equities. The S&P 500 Index returned an impressive 9.2% in sterling terms in the quarter, but only 3.2% in US dollars. Friends Life, January Please note that a number of sources have been used in the production of this document and are available from Friends Life upon request. The information in this report refers the past and it was correct at the time of writing January Please note that the commentary should not be regarded as giving any form of investment advice. Please be aware that the value of investments can fall as well as rise and are not guaranteed, which means you may get back less than you invested.. 6 All data as at end December 2016 unless otherwise stated.

7 The following chart is from FE (formerly Financial Express) and it shows the performance of the financial markets over the five years the end of December 2016 as represented by the FTSE All-Share Index (UK company shares), the FTSE UK Gilts All Scks Index (UK government bonds), MSCI World Index (international company shares), iboxx Sterling Corporates Overall (UK corporate bonds) and FTSE UK Gilts Index-linked All Scks Index (UK index-linked government bonds). These indices have been included in the chart because they reflect the performance of the asset classes held across the five My Future funds. These are UK company shares, international company shares, UK government bonds, UK corporate bonds, index-linked UK government bonds and money market instruments. Please refer page 23 of this report for an explanation of what these terms mean. Percentage growth cumulative (tal return net income reinvested) returns (in sterling terms) end month year. 30/12/ /12/2016 FTSE All-Share Index FTSE UK Gilts All Scks Index 30/12/ /12/ /12/ /12/ /12/ /12/ /12/ /12/ MSCI World Index iboxx UK Non- Gilts All Maturities FTSE UK Gilts Index-linked All Scks Index Source: FE, formerly Financial Express. The performance information shown above refers the past. Past performance is not a guide future performance. Please be aware that the value of investments can fall as well as rise and are not guaranteed, which means you may get back less than you invested. 7 All data as at end December 2016 unless otherwise stated.

8 My Future Growth Fund aim The fund aims achieve a tal overall return from capital growth and reinvested income by investing in a diversified portfolio of predominantly passively managed underlying funds. The fund will mainly invest in UK and overseas equities (including emerging markets), with some investment in UK Government (including index-linked) and corporate bonds. It may also invest in overseas government and corporate bonds, money market instruments and cash. The fund factsheet shows the underlying fund(s) and weightings. The benchmark of the fund is 70% MSCI World Index; 30% FTSE UK Gilts All Scks Index. Key facts Launch date March 2013 Fund size (as at end December 2016) Fund manager Benchmark million Friends Life Composite Special risk warning A, B, C, D, E, J, L, N The assigned warnings highlight the risks that the fund can be exposed, but at any given point in time the fund may not have exposure all of these risks. Further information about the special risk warning definitions can be found on pages 25 and 26 of this report. 8 All data as at end December 2016 unless otherwise stated.

9 Breakdown of the My Future Growth Fund The pie chart below shows the assets which the My Future Growth Fund invests in, and how much of the fund is invested in these assets. For example, as at 31 December 2016, approximately two-thirds of the My Future Growth Fund was invested in global company shares. Breakdown of the My Future Growth Fund in percentage terms (% Global equities 37.9 UK equities 19.4 UK government bonds Five-year plus index-linked government bonds UK corporate bonds 30.5 Source: Friends Life as at date. Please note that there may be instances where the allocations do not tal 100% due the rounding of the figures used compile these breakdowns. The My Future Growth Fund is a fund of funds. This means that it achieves exposure the assets in the pie chart above by investing in several funds which we have chosen on behalf of our cusmers, as explained in the fund selection and governance section on page 5 of this report. Please refer page 23 of this report for an explanation of what the terms in the pie chart mean. Main drivers of the performance of the My Future Growth Fund in the quarter under review The fund has more than half of its assets invested in global and UK company shares and this was key driver of fund performance during the final three months of The environment of low interest rates and low inflation was really supportive of company shares. Global company shares got a helping hand from US President Donald Trump s plans assist the US economy through government spending and tax cuts. The decline in sterling had a positive effect on UK company shares. Many large UK-listed businesses have overseas operations and they benefited from the weaker sterling. This is because the profits that were gained overseas were worth more when converted in British pounds. However, the weaker British pound meant that returns from US company shares were better in sterling terms than in US dollar terms. The fund s smaller weighting in global company shares than UK company shares therefore cost some performance during the quarter. UK government bonds did not perform as well as UK company shares in the fourth quarter of Having a higher weighting in UK company shares than UK government bonds therefore contributed positively performance. Source: Friends Life, January Further information about the investment terms used in this section can be found on page All data as at end December 2016 unless otherwise stated.

10 Friends Life fund performance The performance information shown below refers the past. Past performance is not a guide future performance. Please be aware that the value of investments can fall as well as rise and are not guaranteed, which means you may get back less than you invested. Performance has been calculated on a net income reinvested basis. It is net of all charges applicable the primary series of the Friends Life fund. The inet unit series reflects the most common cusmer charge when investing in this fund. Figures quoted below are based on units which contain an Annual Management Charge (AMC) of 1.00% and Additional Expenses of 0.00%, which gives a tal charge of 1.00%. These may or may not be the same as your policy. Further information on the AMC and Additional Expenses can be found on page 24 of this report. Discrete annual performance last quarter end (as at 31/12/2016) Discrete performance shows percentage growth over rolling 12-month periods, aligned the last full quarter. The chart also includes the discrete performance of the benchmark and the ABI Mixed Investment 40%-85% shares secr over the same period. This is the relevant ABI investment secr for a pension fund of this nature which invests in a range of assets. 31/12/ /12/ /12/ /12/ /12/ /12/ /12/ /12/ /12/ /12/2012 Fund n/a n/a *Benchmark ABI Mixed Investment 40%-85% Shares Libor GBP 3m +4% N/A not applicable as the fund was not available during this time frame. ⱡ - Further information about the investment terms used in these sections can be found on page 24. *Please refer fund aim on page 8 for details of benchmark. Source: FE, on a bid bid basis. Cumulative past performance last month end (as at 31/12/ 2016) Cumulative performance shows percentage growth over specified time periods, aligned the month end. The chart also includes the cumulative performance of the benchmark and the return of the ABI Mixed Investment 40%-85% shares secr over the same period. 1yr 3yrs Since launch Fund *Benchmark ABI Mixed Investment 40%-85% Shares Libor GBP 3m +4% *The fund was not available during this time frame. ⱡ - Further information about the investment terms used in these sections can be found on page 24. *Please refer fund aim on page 8 for details of benchmark. Source: FE, on a bid bid basis. 10 All data as at end December 2016 unless otherwise stated.

11 My Future Consolidation Fund aim This fund seeks achieve a tal overall return from capital growth and reinvested income by investing in a diversified portfolio of predominantly passively managed underlying funds. A significant proportion of the fund's assets invest in UK government (including index-linked) and corporate bonds. It may also invest in UK and overseas equities (including emerging markets), property, money market instruments and cash. Derivatives may be used by the underlying fund(s) for investment purposes. The benchmark of the fund is 30% MSCI World Index; 70% FTSE UK Gilts All Scks Index. Key facts Launch date March 2013 Fund size (as at end December 2016) Fund manager Benchmark million Friends Life Composite Special risk warning A, B, C, D, E, J, L, N The assigned warnings highlight the risks that the fund can be exposed, but at any given point in time the fund may not have exposure all of these risks. Further information about the special risk warning definitions can be found on pages 25 and 26 of this report. 11 All data as at end December 2016 unless otherwise stated.

12 Breakdown of My Future Consolidation Fund The pie chart below shows the assets which the My Future Consolidation Fund invests in, and how much of the fund is invested in these assets. For example, as at the end of December 2016, more than one third of the My Future Consolidation Fund was invested in government bonds. Breakdown of the My Future Consolidation Fund in percentage terms (%) Less than five-year UK 6.6 government bonds Less than five-year UK corporate bonds Global equities 15.1 Less than five-year UK index-linked government bonds UK equities 28.9 Source: Friends Life as at end December * There may be instances where allocations do not tal 100% due the rounding of figures used compile these breakdowns. Source: Friends Life as at end December Please note that there may be instances where the allocations do not tal 100% due the rounding of the figures used compile these breakdowns. The My Future Consolidation Fund is a fund of funds. This means that it achieves exposure the assets in the pie chart above by investing in several funds which we have chosen on behalf of our cusmers, as explained in the fund selection and governance section on page 5 of this report. Please refer page 23 of this report for an explanation of what the terms in the pie chart mean. Main drivers of the performance of the My Future Consolidation Fund in the quarter under review Approximately 40% of the fund is invested in company shares and this helped fund performance during the final three months of The environment of low interest rates and low inflation was really supportive of company shares. Global company shares also got a helping hand from US President Donald Trump s plans assist the US economy through government spending and tax cuts. The decline in sterling had a positive effect on UK company shares. This is because many large UK businesses have overseas operations and they benefited from the weaker sterling because the profits that had made overseas were worth more when converted in British pounds. The fund s investment in fixed interest assets is spread across higher yielding index-linked government bonds and corporate bonds rather than just government bonds. This proved beneficial the fund at a time when index-linked and corporate bonds performed better than government bonds. Source: Friends Life, January Further information about the investment terms used in this section can be found on page All data as at end December 2016 unless otherwise stated.

13 Friends Life fund performance The performance information shown below refers the past. Past performance is not a guide future performance. Please be aware that the value of investments can fall as well as rise and are not guaranteed, which means you may get back less than you invested. Performance has been calculated on net income reinvested basis and is net of all charges applicable the primary series of the Friends Life fund. The inet unit series reflects the most common cusmer charge when investing in this fund. Figures quoted below are based on units which contain an Annual Management Charge (AMC) of 1.00% and Additional Expenses of 0.00%, which gives a tal charge of 1.00%. These may or may not be the same as your policy. Further information on the AMC and Additional Expenses can be found on page 24 of this report. Discrete annual performance last quarter end (as at 31/12/2016) Discrete performance shows percentage growth of the FL My Future Consolidation Fund over rolling 12- month periods, aligned the last full quarter. The chart also includes the discrete performance of the benchmark and the return of the ABI Mixed Investment 0%-35% shares secr over the same period. This is the relevant ABI investment secr for this fund. 31/12/ /12/ /12/ /12/ /12/ /12/ /12/ /12/ /12/ /12/2012 Fund n/a* n/a* Benchmark ABI Mixed Investment 0%-35% shares Bank of England base rate *The fund was not available during this time frame. ⱡ - Further information about the terms used in these sections of the report can be found on page 24. *Please refer fund aim on page 11 for details of benchmark. Source: FE, on a bid bid basis. Cumulative past performance last month end (as at 31/12/2016) Cumulative performance shows percentage growth of the FL My Future Consolidation Fund over specified time periods, aligned the month end. The chart also includes the cumulative performance of the benchmark and the return of the ABI Mixed Investment 0%-35% shares secr over the same period. This is the relevant ABI investment secr for this fund. Fund Benchmark 1yr 3yrs Since launch ABI Mixed Investment %-35% shares Bank of England base rate *The fund was not available during this time frame. ⱡ - Further information about the terms used in these sections of the report can be found on page 24. *Please refer fund aim on page 11 for details of benchmark. Source: FE, on a bid bid basis. 13 All data as at end December 2016 unless otherwise stated.

14 My Future Annuity Fund aim This fund is designed for members approaching retirement and considering buying a fixed (or level) annuity. The fund will predominantly invest in UK Government (including index-linked) and corporate bonds, mainly through passively managed funds. Derivatives may be used by the underlying fund(s) for investment purposes. The benchmark of the fund is 15% iboxx Sterling Non-Gilts 1-5 Year Index, 15% iboxx Sterling Non Gilt Index 5-15 Year Index, 20% iboxx Sterling Non-Gilts Over 15 Years Index, 20% FTSE UK Gilts 5-15 Years Index, 30% FTSE UK Gilts Over 15 Years Index. Key facts Launch date March 2013 Fund size (as at end December 2016) Fund manager Benchmark 26.8 million Friends Life Composite Special risk warning A, E, L The assigned warnings highlight the risks that the fund can be exposed, but at any given point in time the fund may not have exposure all of these risks. Further information about the special risk warning definitions can be found on pages 25 and 26 of this report. 14 All data as at end December 2016 unless otherwise stated.

15 Breakdown of My Future Annuity Fund The pie chart below shows the assets which the My Future Annuity Fund invests in, and how much of the fund is invested in these assets. For example, as at date go here, approximately half of the My Future Annuity Fund was invested in government bonds at the end of December Breakdown of the My Future Annuity Fund in percentage terms (%) year plus UK government bonds year plus UK corporate bonds Five 15 year UK government bonds Five 15 year UK corporate bonds 19.3 Less than five-year UK corporate bonds 21.0 Source: Friends Life as at end December Please note that there may be instances where the allocations do not tal 100% due the rounding of the figures used compile these breakdowns. Please refer page 23 of this report for an explanation of what the terms in the pie chart mean. The My Future Annuity Fund is a fund of funds. This means that it achieves exposure the assets in the pie chart above by investing in several funds which we have chosen on behalf of our cusmers, as explained in the fund selection and governance section on page 5 of this report. Main drivers of the performance of the My Future Annuity Fund in the quarter under review The fund s fixed interest holdings, which include government and corporate bonds, detracted value from performance during the fourth quarter of Longer dated UK government and corporate bonds, which the fund holds, struggled during the quarter amid falling government bond prices following a period of strong performance since the beginning of Invesrs were keen capture profits from this part of the fixed interest market at a time when inflation was expected go up, not just in the US, but also the UK. The UK economy continues perform well and many economists believe that inflation will go up in Source: Friends Life, January Further information about the investment terms used in this section can be found on page All data as at end December 2016 unless otherwise stated.

16 Fund performance The performance information shown below refers the past. Past performance is not a guide future performance. Please be aware that the value of investments can fall as well as rise and are not guaranteed, which means you may get back less than you invested. Performance has been calculated on a net income reinvested basis and is net of all charges applicable the primary series of the Friends Life fund. The inet unit series reflects the most common cusmer charge when investing in this fund. Figures quoted below are based on units which contain an Annual Management Charge (AMC) of 1.00% and Additional Expenses of 0.00%, which gives a tal charge of 1.00%. These may or may not be the same as your policy. Further information on the AMC and Additional Expenses can be found on page 24 of this report. Discrete annual performance last quarter end (as at 31/12/2016) Discrete performance shows percentage growth of the My Future Annuity Fund over rolling 12-month periods, aligned the last full quarter. 31/12/ /12/ /12/ /12/ /12/ /12/ /12/ /12/ /12/ /12/2012 Fund n/a* n/a* Benchmark *The fund was not available during this time frame. ⱡ - Further information about the terms used in these sections of the report can be found on page 24. *Please refer fund aim on page 14 for details of benchmark. Source: FE, on a bid bid basis. Cumulative past performance last month end (as at 31/12/2016) Cumulative performance shows percentage growth of the My Future Annuity Fund over specified time periods, aligned the month end. 1yr 3yrs Since launch Fund Benchmark *The fund was not available during this time frame. ⱡ - Further information about the terms used in these sections of the report can be found on page 24. *Please refer fund aim on page 14 for details of benchmark. Source: FE, on a bid bid basis. 16 All data as at end December 2016 unless otherwise stated.

17 My Future Drawdown Fund aim This fund seeks achieve a tal overall return from capital growth and reinvested income by investing in a diversified portfolio of predominantly passively managed underlying funds. The fund will invest in UK, overseas equities (including emerging markets), UK government (including index-linked) and corporate bonds. It may also invest in property, money market instruments and cash. The fund factsheet shows the underlying fund(s) and weightings. The benchmark is 60% FTSE UK Gilts All Sck Index; 40% MSCI World Index. Key facts Launch date July 2015 Fund size (as at end December 2016) Fund manager Benchmark 2.3 million Friends Life Composite Special risk warning A, B, C, D, E, J, L, N The assigned warnings highlight the risks that the fund can be exposed, but at any given point in time the fund may not have exposure all of these risks. Further information about the special risk warning definitions can be found on pages 25 and 26 of this report. 17 All data as at end December 2016 unless otherwise stated.

18 Breakdown of My Future Drawdown Fund The pie chart below shows the assets which the My Future Drawdown Fund invests in, and how much of the fund is invested in these assets in percentage terms. For example, as at the end of December 2016, just over half of the My Future Drawdown Fund was invested in corporate bonds. Breakdown of the My Future Drawdown Fund in percentage terms (%) UK corporate bonds Global equities UK equities 52.6 UK government bonds 25.4 Five-year plus indexlinked government bonds Source: Friends Life as at end December Please note that there may be instances where the allocations do not tal 100% due the rounding of the figures used compile these breakdowns. Please refer page 23 of this report for an explanation of what the terms in the pie chart mean. The My Future Drawdown Fund is a fund of funds. This means that it achieves exposure the assets in the pie chart above by investing in several funds which we have chosen on behalf of our cusmers, as explained in the fund selection and governance section on page 5 of this report. Main drivers of the performance of the My Future Drawdown Fund in the quarter under review A large weighting in global and UK company shares helped fund performance during the final three months of The environment of low interest rates and low inflation was really supportive of company shares. Global equities were also helped by US President Donald Trump s plans assist the US economy through government spending and tax cuts. The decline in sterling had a positive effect on UK company shares. This is because many large UK businesses have overseas operations and they benefited from the weaker sterling because the profits that had made overseas were worth more when converted in British pounds. However, the weaker British pound meant that returns from US company shares were better in sterling terms than in US dollar terms. The fund s smaller weighting in global company shares than UK company shares therefore cost some performance during the quarter. UK government bonds did not perform as well as UK company shares in the fourth quarter of Having a higher weighting in UK company shares than UK government bonds therefore contributed positively performance. Source: Friends Life, January Further information about the investment terms used in this section can be found on page All data as at end December 2016 unless otherwise stated.

19 Fund performance The performance information shown below refers the past. Past performance is not a guide future performance. Please be aware that the value of investments can fall as well as rise and are not guaranteed, which means you may get back less than you invested. Performance has been calculated on a net income reinvested basis and is net of all charges applicable the primary series of the Friends Life fund. The inet unit series reflects the most common cusmer charge when investing in this fund. Figures quoted below are based on units which contain an Annual Management Charge (AMC) of 1.00% and Additional Expenses of 0.00%, which gives a tal charge of 1.00%. These may or may not be the same as your policy. Further information on the AMC and Additional Expenses can be found on page 24 of this report. Discrete annual performance last quarter end (as at 31/12/2016) Discrete performance shows the percentage growth of the My Future Drawdown Fund and the relevant ABI investment secr over rolling 12-month periods, aligned the last full quarter. 31/12/ /12/ /12/ /12/ /12/ /12/ /12/ /12/ /12/ /12/2012 Fund 17.1 n/a* n/a* n/a* n/a* *Benchmark ABI Mixed Investment secr 20%-60% Bank of England base rate *The fund was not available during this time frame. ⱡ - Further information about the terms used in these sections can be found on page 24. *Please refer fund aim on page 17 for details of benchmark. Source: FE, on a bid bid basis. Cumulative past performance last month end (as at 31/12/ 2016) Cumulative performance shows percentage growth of the My Future Drawdown Fund and the relevant ABI investment secr over specified time periods, aligned the month end. 1yr 3yrs Since launch Fund n/a* *Benchmark ABI Mixed Investment secr 20%-60% Bank of England base rate *The fund was not available during this time frame. ⱡ - Further information about the terms used in these sections of the report can be found on page 24. *Please refer page 17 for details of benchmark. Source: FE, on a bid bid basis. 19 All data as at end December 2016 unless otherwise stated.

20 My Future Cash Lump Sum Fund aim This fund seeks achieve a positive tal return over a full market cycle (which includes one complete uptrend and one compete downtrend) from capital growth and reinvested income by investing in a diversified portfolio of predominantly passively managed underlying funds. A significant proportion of the fund s assets invest in UK and overseas Government instruments and cash. Derivatives may be used by the underlying fund(s) for investment purposes. The fund factsheet shows the underlying funds and weightings. The benchmark is Libor GBP 3m. Launch date July 2015 Fund size (as at end December 2016) Fund manager Benchmark Special risk warning 4.3 million Friends Life Libor GBP 3m A, E, B, G, J, L, N,O The assigned warnings highlight the risks that the fund can be exposed, but at any given point in time the fund may not have exposure all of these risks. Further information about the special risk warning definitions can be found on pages 25 and 26 of this report. 20 All data as at end December 2016 unless otherwise stated.

21 Breakdown of the My Future Cash Lump Sum Fund The pie chart below shows the assets which the My Future Cash Lump Sum Fund invests in, and how much of the fund is invested in these assets in percentage terms. For example, as at the end of December 2016, nearly 56% of the My Future Cash Lump Sum Fund was invested in corporate bonds. Breakdown of the My Future Cash Lump Sum Fund in percentage terms (%) Up five-year UK corporate bonds Money market instruments 55.7 Up five-year UK government bonds 19.6 Up five-year UK index-linked government bonds Source: Friends Life as at end December Please note that there may be instances where the allocations do not tal 100% due the rounding of the figures used compile these breakdowns. Please refer page 23 of this report for an explanation of what the terms in the pie chart mean. The My Future Cash Lump Sum Fund is a fund of funds. This means that it achieves exposure the assets in the pie chart above by investing in several funds which we have chosen on behalf of our cusmers as explained in the fund selection and governance section on page 5 of this report. Main drivers of the performance of the My Future Lump Sum Fund in the quarter under review Government bond prices declined during the three months the end of December 2016 as invesrs ok profits following a period of strong performance since the beginning of the year. Many invesrs started believe that inflation could not stay at such low levels in the future due the ongoing improvement in the US economy. Here in the UK, economic data, including employment and consumer confidence, also continued surpass expectations and invesrs believed that inflation would start go up in the UK o. Expectations of higher inflation tend have a negative impact on government bonds since this means that interest rates would need go up in order keep a lid on inflation. Higher interest rates are frowned upon by invesrs who hold bonds because it means that the cashflows paid by the bonds (over the lifetime of the bond) will be worth less in the future, basically the purchasing power of the cashflows paid by the bond in the future decreases as interest rates go up. Source: Friends Life, January Further information about the investment terms used in this section can be found on page All data as at end December 2016 unless otherwise stated.

22 Fund performance The performance information shown below refers the past. Past performance is not a guide future performance. Please be aware that the value of investments can fall as well as rise and are not guaranteed, which means you may get back less than you invested. Performance has been calculated on a net income invested basis and is net of all charges applicable the primary series of the Friends Life fund. The inet unit series reflects the most common cusmer charge when investing in this fund. Figures quoted below are based on units which contain an Annual Management Charge (AMC) of 1.00% and Additional Expenses of 0.00%, which gives a tal charge of 1.00%. These may or may not be the same as your policy. Further information on the AMC and Additional Expenses can be found on page 24 of this report. Discrete annual performance last quarter end (as at 31/12/2016) Discrete performance shows percentage growth of the My Future Cash Lump Sum Fund over rolling 12- month periods, aligned the last full quarter. 31/12/ /12/ /12/ /12/ /12/ /12/ /12/ /12/ /12/ /12/2012 Fund 2.7 n/a* n/a* n/a* n/a* Libor GBP 3m *The fund was not available during this time frame. ⱡ - Further information about the terms used in these sections can be found on page 24. *Please refer fund aim on page 20 for details of benchmark. Source: FE, on a bid bid basis. Cumulative past performance last month end (as at 31/12/ 2016) Cumulative performance shows percentage growth of the My Future Cash Lump Sum Fund over specified time periods, aligned the month end. 1yr 3yrs Since launch Fund n/a* Libor GBP 3m *The fund was not available during this time frame. ⱡ - Further information about the investment terms used in these sections of the report can be found on page 24. *Please refer fund aim on page 20 for details of benchmark. Source: FE, on a bid bid basis. 22 All data as at end December 2016 unless otherwise stated.

23 Glossary The glossary below provides an explanation of the investments in the My Future funds. Money market Money market is a term that includes various types of investments that are used by companies provide them with short-term funding (or borrowing) enable them run their businesses. Money market investments should not be confused with bank or building society deposit accounts. The returns that money market investments can provide will normally reflect prevailing interest rates and will typically be lower than returns from fixed interest investments, property and shares. While the value of money market instruments will normally fluctuate less than the value of fixed interest investments, property and shares, there is a risk that their pace won t keep pace with inflation. Also, if the annual management charge of a money market fund is higher than prevailing interest rates or the returns generated, the value of the fund will go down. Fixed Interest Also referred as bonds, fixed interest investments are loans a government or a company. In return you receive regular interest payments for a set period of time and your original investment (or loan) back at a specified date. The regular interest payments are calculated as a fixed percentage of the original amount of money borrowed. The most common forms of fixed interest investments are government bonds (known as gilts in the UK) and corporate bonds (issued by companies). The value of fixed interest investments is influenced by a number of facrs, including interest rates, inflation expectations, and the perception of the government or company s ability make the regular interest payments and repay the original loan. Fixed interest investments will typically provide lower returns over the long term compared shares and property, but their value will normally fluctuate less than the value of shares or property. Fixed interest investments have the potential provide higher returns than money market investments, but their value will normally fluctuate more than the value of a money market investment. Shares Also known as equities, shares are often issued by companies raise money help them grow and develop. Shares are bought and sold on a sck market, such as the London Sck Exchange, and their value can go up and down, sometimes sharply, depending on the fortunes of the company and sck markets in general. Shares have the potential over the long term provide higher returns than money market and fixed interest investments, property. However, these returns will normally fluctuate more and there is also a greater risk that they will fall in value. Further information and help If you want more information about the funds in this report, you can find fund factsheets at friendslife.co.uk/cusmer/ funds, or you can phone our helpdesk on If you have any questions about the contents of this report, please speak your financial adviser. If you would like financial advice but don t have an adviser, please speak visit find out details of financial advisers in your area. You may be charged for this advice. Our full contact details are on the back of the final page of this report. 23 All data as at end December 2016 unless otherwise stated.

24 Further information Fund key facts Secr classification Friends Life funds and (where applicable) the underlying funds they invest in, are classified in secrs, ensuring that funds operating similar investment strategies are grouped gether and can be compared on a like for like basis. The secrs referred in this document are taken from; the Association of British Insurers (ABI), the Investment Management Association (IMA), or are based on specific fund universes defined by FE - such as FE Unit Trusts & Open Ended Investment Companies (FE UT & OEIC), FCA (Financial Conduct Authority) Offshore Recognised funds (FO) and Offshore Mutual funds (OM). Fund charges For full details of your policy charges please contact our cusmer services helpline or refer our website at Friends Life fund risk rating Friends Life calculates its risk ratings using hisrical performance data, based upon the methods set by European Union rules. We also carry out further research using information from the underlying fund s investment manager(s). We review each fund s risk rating annually and it may change over time. The timing of your investment decisions is very important and you should consult a financial adviser. Past performance is not a guarantee of future performance. 3. The hisrical performance of funds with this risk rating has typically experienced low medium volatility compared with other funds Friends Life has rated. This means that these funds have a low medium potential for substantial changes in value compared with other Friends Life funds. 4. The hisrical performance of funds with this risk rating has typically experienced medium volatility compared with other funds Friends Life has rated. This means that these funds have a medium potential for substantial changes in value compared with other Friends Life funds. 5. The hisrical performance of funds with this risk rating has typically experienced medium high volatility compared with other funds Friends Life has rated. This means that these funds have a medium high potential for substantial changes in value compared with other Friends Life funds. 6. The hisrical performance of funds with this risk rating has typically experienced high volatility compared with other funds Friends Life has rated. This means that these funds have a high potential for substantial changes in value compared with other Friends Life funds. 7. The hisrical performance of funds with this risk rating has typically experienced the highest volatility of all the funds Friends Life has rated. This means that these funds have the highest potential for substantial changes in value compared with other Friends Life funds. Our risk ratings go from 1 7, with 1 being the lowest and 7 the highest. As a point of reference, a fund with a risk rating of 4 (medium volatility) would typically experience the volatility you would expect from a fund invested in a range of different types of investment (for example shares, property and bonds) without any bias a particular investment type. 1. The hisrical performance of funds with this risk rating has typically experienced the lowest volatility of all the funds Friends Life has rated. This means that these funds have the lowest potential for substantial changes in value compared with other Friends Life funds. 2. The hisrical performance of funds with this risk rating has typically experienced low volatility compared with other funds Friends Life has rated. This means that these funds have a low potential for substantial changes in value compared with other Friends Life funds. 24 All data as at end December 2016 unless otherwise stated.

25 Special Risk Warning A General Investment is not guaranteed: The value of an investment is not guaranteed and can go down as well as up. You could get back less than you have paid in. Price: At times, a fund may need change the way its price is calculated ensure that those moving in and out of the fund and existing unitholders/shareholders are treated fairly and are not disadvantaged by any large cashflows. Suspend trading: Fund managers have the ability, in certain circumstances, suspend trading in their funds for as long as necessary. When this occurs we will need delay the cashing in or switching of units in the relevant fund. You may not be able access your money during this period. The circumstances in which we may delay a switch, withdrawal or transfer can include but are not limited the following: if a large number of cusmers want take money out of the same fund at the same time; if there are practical problems selling the assets in which a fund is invested; if the fund (or part of it) is managed by an external company, they may insist on a delay." Sck Lending: Where a fund is involved in the temporary transfer of securities, there is a risk that the borrower may not be able return the security its owner. This may have a negative effect on the performance of the fund. Derivatives: Most funds can invest in derivatives for the purpose of efficient portfolio management or risk reduction. For funds that also use derivatives for investment purposes we apply an additional risk warning due the possible increase in the risk and volatility of the fund. B - Currency Risk: Where a fun invests in share classes or securities priced in currencies other than the fund s base currency, changes in exchange rates can contribute the value of the investment going up or down. C - Emerging Markets: Where a fund invests in emerging markets, it is likely be more volatile than one that invests in developed markets. These markets may not be as strictly regulated and securities may be harder buy and sell than those in more developed markets. These markets may also be politically unstable which can result in the fund carrying more risk. D - Smaller Companies: Where a fund invests in the shares of smaller companies, these shares can be more volatile and may be harder buy and sell than larger company shares which can result in the fund carrying more risk. E - Fixed Interest: Where a fund invests in fixed interest securities, such as corporate or 25 All data as at end December 2016 unless otherwise stated. government bonds, changes in interest rates can contribute the value of the investment going up or down. If interest rates rise, the value is likely fall. Bonds with a lower credit rating are known as sub-investment grade or junk bonds. These carry an increased risk that the issuer of the bond will be unable continue the interest payments or return the capital at maturity. F - Specialist: Where a fund invests only in a specific or limited range of industry secrs, it may carry more risk than funds that invest across a broader range or variety of secrs. These funds can be more volatile and carry higher risk due their lack of diversification. G - Derivatives: Where a fund uses derivatives for investment purposes, there may be an increase in the risk and volatility of the fund. Some derivative investments also expose invesrs counterparty or default risk where another party is unable meets its obligations and pay what is due, which could result in the loss of the value of the derivative itself. H Cash/Money Market Funds: These are not cash deposit accounts but invest in money market instruments and short-term bonds and can fall in value. In a low interest rate environment the charges applied a cash fund may be greater than its return, so you could get back less than you have paid in. I - Physical Property: Where a fund invests in physical property, these properties are not easy buy or sell. In exceptional circumstances, we may need delay the cashing in or switching of units in the fund and you may not be able access your money during this period. The value of properties held is generally a matter of the valuer s opinion rather than fact. J - Index-Linked: Where a fund invests in index-linked bonds, changes in inflation rates can contribute the value of the investment going up or down. If inflation falls, the value is likely fall. K - High Cash Levels: Due the way some funds are managed there may be periods when they have large cash holdings. This can be a deliberate asset allocation decision or while suitable investment opportunities are researched and selected. A fund s growth potential may be less during this period. L - Reinsured Funds: Where a fund invests in an underlying fund operated by another insurance company through a reinsurance agreement, if the other insurance company were become insolvent, you could lose some or all of the value of your investment in this fund. M - Ethical: Where a fund invests only in secrs and securities that meet its agreed