SCOTTISH WIDOWS SOLUTION FUNDS

EXPERTS IN THEIR FIELD SINCE 2005

ABOUT SCOTTISH WIDOWS

SCOTTISH WIDOWS HAS BEEN HELPING PEOPLE PLAN THEIR FINANCIAL FUTURES FOR OVER 200 YEARS. AND OUR VALUES ARE THE SAME TODAY AS THEY’VE ALWAYS BEEN – TO DELIVER GOOD OUTCOMES FOR ALL OF OUR CUSTOMERS BY PUTTING

THEIR NEEDS AT THE CORE OF EVERYTHING WE DO.

WE’RE PART OF THE LLOYDS BANKING GROUP, ONE OF THE TOP 100 COMPANIES LISTED ON THE LONDON STOCK EXCHANGE.

1

Scottish Widows Solution Funds

CONTENTS

PAGE 2EXPERTS IN THEIR FIELD SINCE 2005

PAGE 3EXPERTLY CONCEIVED

EXPERTLY DESIGNED

PAGE4EXPERTLY MANAGED

PAGE 5EXPERTLY SELECTED

EXPERTLY REBALANCED

PAGE 6EXPERTLY GOVERNED

2

Scottish Widows Solution Funds

EXPERTS IN THEIR FIELD SINCE 2005

THE SCOTTISH WIDOWS SOLUTION FUNDS HAVE DELIVERED MULTI-MANAGER PERFORMANCE FOR A WIDE RANGE OF INVESTORS SINCE 2005. WE’D LIKE TO TAKE YOU THROUGH WHAT IT TAKES TO BE A PROVEN EXPERT IN THIS FIELD.

IN SHORT, WE BELIEVE THAT THE SCOTTISH WIDOWS SOLUTION FUNDS DELIVER EXPERTISE IN ALL THE AREAS THAT MATTER. IN OUR OPINION, THE SOLUTION FUNDS OFFER INVESTORS THE FOLLOWING IMPORTANT BENEFITS:

• A choice of risk profiles to suit different investors In discussion with your adviser, it is their key responsibility to assess your risk level and to ensure that you fully understand and agree the level of risk appropriate to you, without taking undue risk that could be detrimental to your lifestyle

• Thorough asset class selection reviews Annual reviews based on where the fund invests and market movements mean that you can leave the investment decisions to us

• Tactical asset class selection We monitor the markets to take advantage of short-term market opportunities – so you don’t have to

• The potential benefits of diversification Because we research across a wide range of asset classes to find what we believe are the best fund managers in their field, you can save the time and effort involved

• Carefully selecting the right investment blend Creating the appropriate blend of funds, managers and styles can be a daunting task. The Solution Funds offer a blend of over 20 fund managers and diverse asset classes which could potentially help you maximise your returns within each risk profile

• Investment management expertise The performance of each fund manager is regularly monitored and evaluated, which means there’s one less thing for you to worry about

• Formal independent oversight Independent monitoring of the Solution Fund range offers you peace of mind. Working on your behalf, this oversight aims to ensure that the funds are run, and any performance delivered, within the agreed risk profile.

Past performance is not a reliable indicator of future results. The investment’s value and any income from it may fall as well as rise and may be affected by currency and market movements. You may get back less than originally invested.

3

Scottish Widows Solution Funds

EXPERTLY CONCEIVED The seven Scottish Widows Solution Funds were conceived with clear aims:

• to deliver diversified, multi-manager investment portfolios across the risk and reward spectrum,

• to do so at a competitive price for investors,

• and to ensure that each Solution Fund remains within its risk profile, so investors know that their investment remains fit for its original purpose.

EXPERTLY DESIGNED The Solution Funds are designed so you can easily select the fund which best fits your attitude to risk and reward. Our multi-manager approach means a team of specialist investment managers invest your money. And our multi-asset approach includes investment in commodities and absolute return funds as well as traditional asset classes, giving increased flexibility and diversification while seeking to reduce volatility.The asset mix for the seven Solution Funds was determined by looking at seven risk levels considered appropriate for the various risk appetites of investors. Each asset mix is defined as a strategic benchmark which the fund is managed against on a tactical basis. The strategic asset allocation is normally reviewed annually to ensure it remains appropriate for its risk profile. Between reviews, the fund manager will make tactical changes to the asset mix to try to take advantage of market opportunities. At all times, the manager ensures that the right mix of assets is maintained, meaning you can rest assured that the right level of risk is being taken.The current asset allocation for the Solution Funds clearly shows how they deliver multi-asset investment across widely differing levels of overall risk:

0

100

Allo

catio

n (%

)

AdventurousSolution

DynamicSolution

StrategicSolution

BalancedSolution

DiscoverySolution

CautiousSolution

DefensiveSolution

0

100

Allo

catio

n (%

)

AdventurousSolution

DynamicSolution

StrategicSolution

BalancedSolution

DiscoverySolution

DefensiveSolution

CautiousSolution

0

100Al

loca

tion

(%)

AdventurousSolution

DynamicSolution

StrategicSolution

BalancedSolution

DiscoverySolution

DefensiveSolution

CautiousSolution

Commodities

Overseas Equities

UK equities

Property

Bonds

Absolute Return

Cash

INCREASING RISKSource: Aberdeen as at 31st December 2017.

The totals above may not equal 100% due to rounding.A subsidiary of Aberdeen Standard Investments plc (‘Aberdeen’) is responsible for many key elements of the Solution Funds proposition. Aberdeen is ideally suited to this role, being one of Europe’s largest asset management companies, and providing well established specialist expertise in multi-manager and multi-asset investment.Aberdeen’s strategic asset allocation framework is managed on behalf of Scottish Widows by Aberdeen’s in-house Investment Solutions team. The current asset allocation model was developed in 2008 and is normally reviewed annually. This process of regular reviews allows the mix of assets to take account of changing market conditions, while ensuring that the level of risk always remains what our investors expect.

Please note that past performance is not an indicator of future results.

LET’S LOOK IN MORE DETAIL AT WHAT THE SCOTTISH WIDOWS SOLUTION FUNDS OFFER.

4

Scottish Widows Solution Funds

EXPERTLY MANAGED Multi-asset investment is at the heart of the Solution Funds’ approach, and with good reason. Investing in a broad range of assets can significantly reduce the impact if one or two asset classes underperform.

Each asset class has its own unique characteristics. In changeable market conditions, some assets will rise in value while others fall. No single asset class is consistently the top performer. We believe diversification is the best way to maximise opportunities with the aim of producing more consistent returns.

Through multi-asset investing fund managers seek to reduce overall ups and downs by offsetting the falls of one asset class with the gains of another. These ups and downs are known as ‘volatility’, and multi-strategy investing also seeks to reduce volatility in a fund by using a number of investment strategies.

This is all the more important because, as the following table shows, a top-performing asset class in one year can be left trailing the pack 12 months later. It also demonstrates how difficult it is to forecast which asset class will outperform in the future. Past performance shows us that different asset classes do not necessarily react in the same way to any particular set of market conditions.

Asset class

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Overseas Equities 9.70 -17.12 18.86 16.69 -6.12 11.95 22.69 12.26 4.77 30.42 13.97

UK Equities 5.32 -29.93 30.12 14.51 -3.46 12.30 20.81 1.18 0.98 16.75 13.10

UK Property -5.36 -22.63 1.89 14.71 8.11 2.31 11.02 19.46 13.89 1.41 11.24

UK Gilts 4.70 13.59 -0.81 7.26 16.90 2.73 -4.09 14.92 0.45 10.94 1.95

Commodities 30.44 -25.91 1.04 12.45 -0.44 -4.32 -3.05 -28.90 -28.97 32.84 3.39

Cash 5.89 5.40 1.09 0.57 0.74 0.71 0.39 0.42 0.45 0.37 0.36

Key:

BEST PERFORMING

2ND BEST PERFORMING

3RD BEST PERFORMING

4TH BEST PERFORMING

5TH BEST PERFORMING

WORST PERFORMING

Sources:

Overseas Equities FTSE World ex UK Index

UK Equities FTSE All Share Index

UK Property IPD UK All Property Monthly

UK Gilts Citigroup United Kingdom WGBI

Commodities S&P GSCI Commodity Index

Cash 3 Month LIBID (LIBID is calculated as ICE LIBOR minus 0.125% p.a.)

LIBID is the London Interbank Bid Rate (the rate at which a bank is willing to borrow from other banks) and ICE LIBOR is the London Interbank Offered Rate which is a rate that some of the world’s leading banks charge each other for short-term loans.

Source: Financial Express, total return in sterling terms

Performance is measured from 1st January to 31st December each year.

Past performance is not a reliable indicator of future results.

5

Scottish Widows Solution Funds

EXPERTLY SELECTED Aberdeen’s Manager Selection team picks individual fund management experts who they feel are suitable specialists in their area of expertise.

Our alliance with Aberdeen enables us to work with leading fund managers across all asset classes in the UK and worldwide. Because of the combined size and strength of Lloyds Banking Group and Aberdeen, we are also able to access funds not available to individual investors. All the fund managers have been selected after extensive research has indicated to us that they offer both quality and consistency of performance.

By carefully selecting the managers, we put together a team of specialist investment managers to invest your money, giving increased flexibility and diversification while seeking to reduce volatility. The Solution Funds therefore benefit from a range of managers and investment styles that are blended together.

As you can see below, the selected fund managers currently include household names like Invesco Perpetual and Old Mutual, along with less well-known operations, such as absolute return experts Julius Baer and overseas equities specialists Russell.

UK Equities Property Overseas Equities Bonds Absolute Return

AberdeenOld Mutual

NeptuneThreadneedleRoyal London

LiontrustJO Hambro

JupiterLindsell Train

Majedie

AberdeenMorgan StanleyCohen & Steers

Invesco PerpetualRussell

AberdeenRussell

BlackrockFirst State

Harris AssociatesJP Morgan

MFSSchrodersSomerset

Walter Scott

AberdeenInvesco Perpetual

iSharesPIMCOUBAM

NordeaCandriam

AberdeenJulius Baer

Insight

Source: Aberdeen as at 31st December 2017.

Aberdeen has overall responsibility for selecting and overseeing the performance of these fund managers. Using the Manager Selection team’s capability within their Investment Solutions division, Aberdeen can ensure that not only the selected managers are performing, but also that there is a range of future managers able to take their place if this is felt necessary.

EXPERTLY REBALANCED The Solution Funds’ asset mixes change as the value of the underlying assets change, so each Solution Fund must be regularly rebalanced to bring it back into line with its agreed asset mix and to maintain the appropriate level of risk and potential return for each fund.

Aberdeen rebalances the funds in two ways. The first is with the aid of cash inflows, which reduces the need for frequent rebalancing between assets and avoids dealing costs. When cash flows are regular this can mean the funds are rebalanced on an ongoing basis.

With or without regular cash flows, the funds are also formally rebalanced on a monthly basis driven by ongoing monitoring by Aberdeen’s Investment and Risk teams.

6

Scottish Widows Solution Funds

EXPERTLY GOVERNED We believe it’s important for investors to know that their money is being invested within the Solution Funds’ agreed limits, and that this is regularly and formally reviewed to ensure that they remain on track.

With this in mind, there is a rigorous governance structure supporting the Solution Funds, ensuring that investors can be confident that their selected investment will always stay within its risk category and remain diversified.

As Investment Manager of the Solution Funds, Aberdeen is responsible for the performance of the funds and delivering the funds’ objectives, while Scottish Widows is responsible for the investment aims of the Solution Funds and is ultimately accountable to our customers for performance. Continual monitoring is carried out by investment professionals from both Aberdeen and Scottish Widows, who aim to ensure that the selected investment experts achieve the funds’ objectives appropriately.

Aberdeen’s Investment and Risk teams ensure the asset mix benchmark is maintained and all the Solution Funds are managed according to the investment criteria agreed with Scottish Widows. Scottish Widows is accountable to the investor for the overall risk and return results for the Solutions Funds. It carries out this function through formal committees that are supported by expert investment analysis.

A good example of this, and a crucial aspect of the Solution Funds’ governance, is the yearly Strategic Asset Allocation (SAA) review. On an annual basis Aberdeen will run a SAA review that seeks to provide an optimum combination of allowable asset classes for the current risk profile of each fund. This optimisation process combines the forward looking views of Aberdeen with historical analysis of how each individual asset class has behaved in the past.

The optimisation output is then compared with the current asset allocation of each Solution Fund, to assess the projected benefits of the current portfolio and how it can be altered without exposing the fund to additional risk. These results are carefully reviewed, with the overriding aim to maximise potential returns while keeping the overall fund risk the same, and costs to a minimum.

As soon as Aberdeen and Scottish Widows have completed their discussions and analysis, the request to change the asset allocation is passed to the Scottish Widows Unit Linked Investment Management oversight committee for approval. Once this has been confirmed, Aberdeen will make the necessary changes. Aberdeen will take into account prevailing market conditions, which means they may phase in the changes if that is the best option.

By selecting the Scottish Widows Solution Funds, you benefit from the investment expertise of Aberdeen and its delegated managers, together with regular oversight from the Scottish Widows investment committee structure.

7

Scottish Widows Solution Funds

1

2

2

2

22

2 A

sset Allocation

Rebalancing 3

Governance & Monitoring 4

Propertyspecialists

Property

UK Equitiesspecialists

Overseas Equities

specialists

UK Equities

Overseas Equities

Commodities

Exchange Traded

Commodities

Absolute Return

Absolute Return

specialists

Bonds

Bondspecialists

MANAGERSAberdeen

Invesco PerpetualiSharesPIMCOUBAM

NordeaCandriam

MANAGERSAberdeen

Julius BaerInsight

MANAGERSAberdeenRussellBlackrockFirst StateHarris AssociatesJP MorganMFSSchrodersSomersetWalter Scott

Selection

MANAGERSAberdeen

Morgan StanleyCohen & Steers

Invesco PerpetualRussell

Selec

tion

Selec

tion

Selection

Selection

SelectionMANAGERSAberdeenOld MutualNeptuneThreadneedleRoyal LondonLiontrust

JO HambroJupiterLindsell TrainMajedie

Scottish Widows

Solution Funds

Investment– Customer

Four core activities are crucial to the ongoing success of the Scottish Widows Solution Funds:

1 Asset allocation

2 Manager selection

3 Rebalancing

4 Governance and monitoring

Source: Scottish Widows and Aberdeen. Fund manager examples correct as at 31st December 2017.

The Scottish Widows Solution Funds offer established, risk-adjusted investments for pension and OEIC investors at extremely competitive rates. To learn more about what the Scottish Widows Solution Funds offer, please talk to your Private Banking and Advice Manager.

For further information, including investment details and risks, please read the ‘Scottish Widows Pension Funds Investor’s Guide’ (ref 16540) and the ‘Scottish Widows Life Funds Investor’s Guide’ (ref 48569), both of which are available from your adviser.

Past performance is not a reliable indicator of future results. The investment’s value and any income from it may fall as well as rise and may be affected by currency and market movements. You may get back less than originally invested.

Scottish Widows Limited. Registered in England and Wales No. 3196171. Registered office in the United Kingdom at 25 Gresham Street, London EC2V 7HN. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Financial Services Register number 181655.

Scottish Widows Unit Trust Managers Limited. Registered in England and Wales No. 1629925. Registered Office in the United Kingdom at Charlton Place, Andover, Hampshire SP10 1RE. Tel: 0345 300 2244.

Authorised and regulated by the Financial Conduct Authority. Financial Services Register number 122129.

55502 03/18