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Global Convertible Bonds Investment Rationale March 2018

Schroder ISF Global Convertible Bond March 2018 3

10 year anniversary

Strategy overview

Schroders has been offering convertible bond strategies now for ten years and are proud to look back at this track record. The strategic set-up of an unconstrained, balanced strategy has remained in place over the full ten years. Schroders can also look back at a very stable investment team, with Peter Reinmuth at the helm of its convertible bond funds since 2009.

Schroder ISF Global Convertible Bond aims to provide a return of capital growth primarily through investment in convertible bonds across the globe, from the US and Europe to Asia. This balanced strategy invests in high quality convertible bonds without any regional restrictions. We focus our strategy on balanced convertible bonds in order to exploit equity market upside with efficient downside protection. In the long run, our investors can benefit from near

equity-like performance with a more attractive risk/return profile than traditional equity investments.

The long running conversion right makes convertible bonds a fascinating package deal combining the defensive qualities of fixed income with the growth potential of equities.

Historically the asset class has demonstrated a more attractive risk/return profile than both equities and fixed income. It is impossible to replicate this profile even by combining the three separate income components. With their equity-like returns and lower volatility, convertible bonds provide participation in the upside potential of equities whilst offering an element of downside protection.

Strategy performance

The Schroders team has been managing active convertible bond strategies for 10 years now. Our opportunistic, balanced convertible approach shows a solid and sustainable outperformance against the Thomson Reuters Global Focus convertible bond index.

Source: Schroders, Bloomberg, 28 February 2017, data for Schroder Convertible Bonds Global Opportunistic (C class in USD) Composite GIPS composite gross in USD. Past performance is not a guide to future performance and may not be repeated.

70%

90%

110%

130%

150%

170%

Schroder Convertible Bonds Global Opportunistic USD (GIPS) Thomson Reuters Global Focus

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

+3.59% +1.31% +1.68% -1.51% +0.86% +4.65% +0.89% +0.90% +1.83% +3.06%

Schroder ISF Global Convertible Bond March 2018 4

10 year anniversary

Risk considerations

The capital is not guaranteed.

Non-investment grade securities will generally pay higher yields than more highly rated securities but will be subject to greater market, credit and default risk.

A security issuer may not be able to meet its obligations to make timely payments of interest and principal. This will affect the credit rating of those securities.

Investments denominated in a currency other than that of the share-class may not be hedged. The market movements between those currencies will impact the share-class.

Investment in bonds and other debt instruments including related derivatives is subject to interest rate risk.

The value of the fund may go down if interest rate rise and vice versa.

It may be difficult to sell quickly positions of one or more companies to meet redemption requests upon demand in extreme market conditions.

Strategy objectives

The equity part is responsible for most of the performance. The fixed income element brings stability and protection to the asset allocation. When defining the strategy in 2008, we set clear-cut long-term objectives. As an opportunistic convertible strategy we aim to benefit significantly from positive equity participation. Looking at rolling investment periods, the strategy participated roughly 75% to 80% from the equity upside.

The protective element also worked well, protecting more than half of the equity downside in falling markets over short investment horizons of 12 months, and adding absolute positive returns against falling equities over 2 years to 4 years. Equity investors needed to wait for 5 and 6 years to be back in positive territory.

Downside Equity Markets

Upside Equity Markets

Schroders, Bloomberg, 28 February 2018, data for Schroder GIPS composite gross in USD. Past performance is not a guide to future performance and may not be repeated.

-14%-12%-10%

-8%-6%-4%-2%0%2%4%6%

Rolling1Y

Rolling2Y

Rolling3Y

Rolling4Y

Rolling5Y

Rolling6Y

0%2%4%6%8%

10%12%14%16%18%

Rolling1Y

Rolling2Y

Rolling3Y

Rolling4Y

Rolling5Y

Rolling6Y

Schroder Convertible Bonds Global Opportunistic Equity (MSCI World AC)

Schroder ISF Global Convertible Bond March 2018 5

10 year anniversary

Strategic opportunity

When we launched the Schroder ISF Global Convertible Bond in March 2008, the idea was to harness the unique qualities of convertible bonds. At a time when most competitors were running rather inflexible fixed delta-range strategies, it was Schroders who designed an opportunistic approach with a clear focus on balanced convertible bonds – yet with a slight tilt to outperform in positive equity markets.

What makes the strategy unique is the combination of a traditional value approach – we model and price all convertible bonds and search for bargains – with an equity momentum approach. The result shows few years with losses against a sea of green absolute return figures. More importantly, the underwater periods – time frames in which investors had to endure losses – are relatively small. After an investment horizon of three years, the absolute performance figures have indeed always been positive. What we do not lose when equity markets fall, we do not have to regain in a market recovery. The below chart shows all possible buy and sell date combinations of our 10 year strategy.

9.1% 2016

Buy

3.4% 12.8% 2015

4.7% 4.1% 5.7% 2014

5.6% 5.2% 4.6% 5.7% 2013

17.7% 11.5% 9.2% 7.7% 8.0% 2012

12.1% 14.9% 11.7% 9.9% 8.6% 8.7% 2011

-6.1% 2.6% 7.4% 7.0% 6.5% 6.0% 6.4% 2010

11.1% 2.1% 5.4% 8.3% 7.8% 7.3% 6.7% 7.0% 2009

25.2% 17.9% 9.3% 10.0% 11.5% 10.5% 9.7% 8.9% 8.9% 2008*

2009 2010 2011 2012 2013 2014 2015 2016 2017

Sell Source: Schroders, January 2018, data for Schroder Convertible Bonds Global Opportunistic GIPS composite gross in USD; please note that performance in 2008 does not include the full annual year. Past performance is not a guide to future performance and may not be repeated.

Schroder ISF Global Convertible Bond March 2018 6

10 year anniversary

Tactical opportunity

The recent equity market set-back once again proved the resilience and in-built protection of convertible bonds. We had positioned the strategy in a conservative yet constructive setting and could avoid a significant part of the equity market downside.

At the same time, the higher volatility levels in the market did affect the valuation of convertible bonds. At Schroders, we model each and every convertible bond in our investable universe. Hence, we are able to set a fair value and compare this to the current market price. The result shows that in general convertibles are slightly rich, but Asian as well as Japanese convertibles offer attractive valuations. Moreover, valuations of convertible bonds had already cheapened in Q4 2018.

Source: Schroders as at 14 March 2018 based on constituents of the TR Global Focus convertible bond index.

The Japanese and Asian regional markets continue to offer relative opportunity compared to other regions. We now see several index constituents of the Thomson Reuters Global Focus index as slightly undervalued. This is even more true for off benchmark positions and convertible bonds just outside of the traditional convexity range. We believe that we are able to find some bargains for the strategy.

Lately, we have moved the overall risk allocation in the fund to a conservative, yet constructive level. Opportunistic does not necessarily mean aggressive for us – rather that we are prepared to seize chances wherever and whenever they occur. With the equity market bull run coming to a very late stage, we have been successful in lowering our risk and delivering performance by positive stock selection.

-6%

-4%

-2%

0%

2%

4%

6%

May

-16

Jun-

16

Jul-1

6

Aug-

16

Sep-

16

Oct

-16

Nov

-16

Dec

-16

Jan-

17

Feb-

17

Mar

-17

Apr-

17

May

-17

Jun-

17

Jul-1

7

Aug-

17

Sep-

17

Oct

-17

Nov

-17

Dec

-17

Jan-

18

Feb-

18

Total Americas Asia Europe Japan

Schroder ISF Global Convertible Bond March 2018 7

10 year anniversary

Team

Zurich is the global centre of competence for convertibles at Schroders. The team around Peter Reinmuth who has been managing the funds for nine years is responsible for an asset base of over USD 2bn in convertible bond strategies. Four fund managers and two dedicated convertible traders take care of the daily investment decisions. The product manager takes responsibility for the strategy definition and set-up, and has helped to create and implement all Schroders convertible strategies for the last decade.

Source: Schroders, as at March 2018.

Schroder ISF Global Convertible Bond March 2018 8

10 year anniversary

Important information

This document does not constitute an offer to anyone, or a solicitation by anyone, to subscribe for shares of Schroder International Selection Fund (the “Company”). Nothing in this document should be construed as advice and is therefore not a recommendation to buy or sell shares. Subscriptions for shares of the Company can only be made on the basis of its latest Key Investor Information Document and prospectus, together with the latest audited annual report (and subsequent unaudited semi-annual report, if published), copies of which can be obtained, free of charge, from Schroder Investment Management (Luxembourg) S.A. An investment in the Company entails risks, which are fully described in the prospectus. Past performance is not a reliable indicator of future results, prices of shares and the income from them may fall as well

as rise and investors may not get the amount originally invested. Schroders has expressed its own views and opinions in this document and these may change. This document is issued by Schroder Investment Management Ltd., 31, Gresham Street, EC2V 7QA, who is authorised and regulated by the Financial Conduct Authority. For your security, communications may be taped or monitored. Third party data is owned or licensed by the data provider and may not be reproduced or extracted and used for any other purpose without the data provider's consent. Third party data is provided without any warranties of any kind. The data provider and issuer of the document shall have no liability in connection with the third party data. The Prospectus and/or www.schroders.com contains additional disclaimers which apply to the third party data.

Schroder ISF Global Convertible Bond March 2018 9

10 year anniversary

Composite Performance Results Composite – Schroder Convertible Bonds Global Opportunistic USD Hedged Primary Benchmark – Thomson Reuters Global Focus USD Hedged Convertible Bond Index (UCBIFX02) Secondary Benchmark – n/a Currency: USD Gross Returns as of: 31 Dec 2016 Firm: SIMSAG

Year Gross Composite Return

Net Composite Return

Primary Benchmark Return

3 Year Composite Risk 1

3 Year Primary Benchmark Risk1

Number of Portfolios (throughout period)

Account Dispersion2

Market Value at end of Period

2016 3.43% 2.15% 1.59% 6.38% 3.38% < 5 n/a 1’466’228’579

2015 4.73% 3.43% 3.83% 6.27% 5.52% < 5 n/a 1'853'971'566

2014 5.62% 4.32% 4.73% 6.01% 5.19% < 5 n/a 1'771'404'463

2013 17.68% 16.23% 13.03% 8.11% 6.81% < 5 n/a 2'060'067'533

2012 12.12% 10.73% 11.26% 10.08% 7.72% < 5 n/a 847'059'639

2011 -6.09% -7.25% -4.58% 10.59% 8.36% < 5 n/a 477'463'516

2010 11.06% 9.69% 9.38% n/a n/a < 5 n/a 364'723'160

2009 25.23% 23.68% 23.91% n/a n/a < 5 n/a 191'506'722

20085 -19.09% -19.84% -22.68% n/a n/a < 5 n/a 34'771'895

As at Dec 2016

Gross Composite Return

Net Composite Return

Primary Benchmark Return

Composite Risk1

Primary Benchmark Risk1

Annualised 3 Year

4.59% 3.30% 3.38% 6.38% 5.95%

Annualised 5 Year

8.58% 7.24% 6.80% 6.48% 5.81%

Annualised 7 Year

6.70% 5.38% 5.45% 8.07% 6.60%

Annualised 10 Year

n/a n/a n/a n/a n/a

Annualised S.I.3

5.48% 4.18% 3.83% 10.10% 9.46% 1Annualised standard deviation of gross monthly returns for the composite and monthly returns for the benchmark. 2Asset weighted standard deviation of annual gross returns of accounts that have been in the composite for the entire year. 3Since Inception. 4Since 31 December 2003 Total Firm Assets include non-fee paying accounts. 2003 Total Firm Assets value has been restated due to the inclusion of those non-fee paying accounts. Total Firm Assets from 2007 incorporate the UK and US firm merger as detailed in the Definition of the Firm, from the start of 2011 Schroder Property Investment Management Multi Manager accounts are included in the Total Firm Assets. Composite Disclosures Composite - Schroder Convertible Bonds Global Opportunistic USD Hedged Disclosures as of: 31 Dec 2016 INT-C000956 Definition of the Firm The Firm is defined as all institutional accounts managed by Schroder Investment Management (Switzerland) AG (SIMSAG) in Switzerland. Assets managed against a liability driven mandate or invested in direct property are excluded from the GIPS Firm. A complete list and description of the Firm's composites and performance results is available upon request. Composite Definition The Schroder Convertible Bonds Global Opportunistic USD Hedged Composite (the Composite) is comprised of all fully discretionary accounts that meet the firm definition which seek to achieve returns above the Thomson Reuters Global Focus USD Hedged Convertible Bond Index (UCBIFX02) through investment primarily in convertible securities and other similar convertible securities. Accounts in the composite will be managed in an unconstrained style and on average will have a bias towards investing into convex or balanced convertible bonds. Accounts will be hedged back to USD. Derivatives may be used to achieve the investment objective and to reduce risk or manage the fund more efficiently. Composite Construction New accounts are included from the beginning of the first full month of management on a discretionary basis. Terminated accounts are excluded from the end of the last full month of discretionary management. This Composite has no minimum asset level for inclusion. The composite currency is US Dollar. Composite Inception Date: 31 Mar 2008 Composite Creation Date: 2 Dec 2015

Schroder ISF Global Convertible Bond March 2018 10

10 year anniversary

Calculation Methodology The portfolio returns are time-weighted rates of return that are adjusted for cash flows. Portfolio returns are combined using beginning of period asset weights to produce the composite return. Periodic returns are geometrically linked to produce annual returns. Dividends on equities are recognised net of irrecoverable withholding tax. Since January 1999 dividends have been recognised as of the ex-dividend date having previously been recognised on a cash basis. Performance results are presented before the deduction of management fees and custodian fees but after trading expenses. Dispersion The dispersion of annual returns is measured by the asset weighted standard deviation of portfolio returns represented within the composite for the full year provided a minimum of 5 portfolios are available. Additional information The exchange rates used are provided by WM. Each currency is valued at 4 pm on the last business day of the month. Additional information regarding policies for valuing portfolios, calculating and reporting returns and a description of all composites are available on request. GIPS Compliance and Verification SIMSAG claims compliance with the Global Investment Performance Standards GIPS® and has prepared and presented this report in compliance with the GIPS standards. SIMSAG has been independently verified for the periods 31 December 2009 to 31 December 2014. Verification assesses whether (1) the Firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis and (2) the firms policies and procedures are designed to calculate and present performance in compliance with the GIPS standards. Fee Schedule The fee scale applied to the composite is 1.25% p.a.