providing income solutions the hunt for income...is all the more pressing. low returns from cash the...

The hunt for income

in a low yield world

SchrodersProviding Income Solutions

Marketing material For Professional Investors and Advisers Only

Never before has the need for income been greater, or more difficult to seek out.

Investors everywhere are seeking income at a time when conventional sources of income are diminishing.

A combination of over-borrowed governments, households and banking sectors is likely to result in a low growth environment for many years to come. With interest rates at record lows and government bond yields at levels not seen since the Great Depression – it is clear that conventional sources of income are diminishing. An ageing population has pushed investors everywhere to seek income, at a time when inflation is undercutting many forms of income.

The good news is that, with the multitude of problems facing income investors, Schroders is able to provide a range of potential solutions. While acknowledging the extra considerations that come with edging along the risk spectrum – at Schroders we offer a broad range of solutions that stand the potential to create a robust income-generating portfolio,for income-seeking investors.

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FINDING INcOMe SOluTIONS 4

The INcOMe DecISION – BONDS, equITIeS Or MulTI-ASSeT?

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SeeKING INcOMe FrOM FIXeD INcOMe

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SeeKING INcOMe FrOM equITIeS 11

SchrODerS’ INcOMe FuNDS 14FIXeD INcOMe 15equITIeS 20SchrODerS’ MAXIMISer FuND rANGe 22MulTI-ASSeT 24

Why SchrODerS FOr INcOMe? 26

INCOME SOLUTIONS BROCHURE

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The Problem

Traditional sources of income for investors and advisors are depleting, at a time when the demand is all the more pressing.

Low returns from cashThe credit crisis has left a legacy of low returns from cash. With policy makers in developed markets pursuing loose monetary action, such as quantitative easing, and lowered interest rates – investors are unable to find the income from cash they have previously been accustomed to.

Yields at record lowsOn the back of the extremely loose monetary policy, we have witnessed a mass flight to traditional ‘safe-haven’ assets – most notably government bonds, such as uS treasuries and German bunds. In turn, this has pushed down yields on what would have previously provided investors with a ‘fall-back’ income. The higher yielding alternatives can, in the instance of peripheral european countries such as Greece and Italy, come with a higher

level of risk and the potential to default.

Changing demographicsAn ageing population has given rise to the number of pensioners, in turn global retirement ages have yet to catch up with these changing demographics. Pensioners are likely to be retired for longer and, at a time when public purses are tightened, pension promises may not be met – potentially falling on the individual. The increasing demand for income can also be found in the gap between what investors desire, and what their actual purchasing power is – as inflation rates remain high and the cost of living increases.

FINdINg INCOME SOLUTIONS

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InflationInflation poses a “stealth” threat to income – it has the potential to erode investment returns and real savings in the long term. As the chart below illustrates – we can see that an inflation rate of 4%, could chip away at your purchasing power by almost a third, in the space of 10 years. For the sake of simplicity, the effects of any income returns are ignored in this chart.

The outlook for inflation remains uncertain, but in light of recent fiscal stimulus programmes, such as quantitative easing – there is a strong argument to be made for high levels of inflation to remain, and perhaps increase. If interest rates remain low, investors will find that their real purchasing power will decrease in the long run. In order to counter this, investment returns must keep pace with inflation rates. currently, we find that cash does not provide a convincing solution to this problem.

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€100,000

€90,000

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Cash is not an optionInflation erodes purchasing power

Years

Source: Schroders analysis.

What is the solution?At Schroders we recognise the growing demand for income, and that investors are struggling to find the best solutions.

Without claiming to have all of the answers, we are able to provide investors with a broad and highly diversified range of income solutions across all asset classes, including fixed income, equities and multi-asset products. We recognise that every investor has their own individual risk appetite and investment horizon; as such we are confident that Schroders is able to team investors’ individual needs with a suitable range of income solutions.

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THE INCOME dECISION – BONdS, EqUITIES OR MULTI-ASSET?

With traditional sources of income, such as government bonds, yielding significantly less than they have historically – investors are encouraged to diversify their sources of income. By accepting a little more volatility and moving away from inflation-stricken cash – investors stand the potential to tap into new sources of income.

Income from bondsBonds offer different levels of yield, for varying levels of risk. The bond market landscape has significantly changed with recent market developments. An illustration of this might be the changed perception of developed world sovereign bonds. Once considered to be virtually risk-free sources of income, sovereign bonds now carry greater systematic risk with a greater potential of default. Such changes in the bond market have further complicated the investors’ dilemma: how, where and at what risk, should I invest?

More broadly speaking, the current market environment calls for a reappraisal of the relative risks across fixed-income asset classes – we are witnessing the rising debt of the developed world, the improvement of finances in emerging markets and moreover, the strengthening of corporate balance sheets. Investors are no longer able to find consistent capital growth through conventional sources of income, without being subject to the risk of low quality and low liquidity.

Where you can go for income

Source: Datastream as at 31 December 2012. Datastream indices for German 10 yr (Bund Benchmark 10 year Govt), uS 10 yr (uS Treasury 10 yr), european bonds (eMu Government bonds 10 yr), uS equities (uS-Datastream market), Global bonds (WD citigroup World 10 yr), Global Aggregate bonds (Barclays Global Agg corporate), eM equities (MScI eM u$), Global equities (World-Datastream market), Australian (Au benchmark 10 yr), uK equities (uK-Datastream market), eurozone equities (eMu-Datastream market), uS property (FTSe uSA reIT), Italian bonds (IT Government 10 yr), eMD uSD (JPM eMBI+ composite), eMD local (JPM GBI-eM Broad composite), Global high yield (BOFA Ml GlB hy).

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Income from equities Income from equities has traditionally focused on growth stocks with high dividend payouts – providing investors with a healthy stream of income, as well as the benefits of potential capital growth.

Such strategies can focus on the short-term fundamentals of company, and not necessarily look at a company’s ability to continue to issue and raise a dividend payout, over time. For example, the global financial crisis marked a time when most asset classes – including equities – depended on leverage to produce these returns. In light of this, high dividend paying companies may not necessarily have healthy levels of free flowing cash flow and could be highly illiquid. After the global financial crisis – many investors found that their growth stocks became value traps, and therefore witnessed their sources of income from equity diminish.

Multi-asset income investingThe weak economic backdrop suggests that in the future, investors will be less able to rely on capital growth and furthermore – this exposure to growth assets may come with an even greater level of downsize risk. Some multi-asset investors have found that their income has diminished significantly from the combination of both reduced yields and equity value traps, as previously mentioned. In the search for income, it would be possible to suggest that, although some multi-asset sources of income may combine a range of assets classes to adapt to changing market environments – this may not necessarily mean that downside risk is managed, and capital erosion is avoided. Multi-asset investors may therefore look toward a solution that provides some level of income protection, whilst considering more risk in their portfolio to tap into new sources of returns.

The search for income – You are being forced to take more risk

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1ABS

US 5 Year Dec 2012

MBS

Global Investment Grade Bond Index

Representative central bank target inflation rate

Global High Yield Bond Index

Infrastructure Emerging Market Debt Local

MLP

MSCI High Dividend Yield

Property

Preferred Shares

Emerging Market Debt $

US 5 Year Dec 2007

Volatility (%)

Current Yield (%)

Global Multi-AssetIncome Portfolio

Municipal Bonds

Sources: Schroders, Datastream, 31 December 2012, volatility annualised standard deviation of 5 year monthly returns, 31 December 2007 – 31 December 2012, Datastream Generic uS 5 year, Bank of America Merrill lynch Global credit (uSD), Bank of America Merrill lynch Global high yield constrained (uSD), JP Morgan GBI – eM Global Diversified composite (uSD), JPM eMBI Global composite, MScI World high Dividend yield (uSD), Bank of America Merrill lynch Mortgage Master, Bank of America Merrill lynch Mortgage Master, Bank of America Merrill lynch uS Floating rate ABS Index, iShares Preferred Stock Index Fund, Alerian MlP Index, FTSe NA reIT. Infrastructure is represented by hIcP, INPP & John laing. Multi-Asset income portfolio is calculated using simulated returns prior to the inception of Schroder ISF Global Multi-Asset Income.


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A vast array of income opportunitiesNevertheless, there are now a host of income generating options available to investors – including government bonds, investment grade and high yield corporate bonds, emerging market debt and property. Furthermore, there are an array of equity income possibilities at the global, regional, country and even sectoral level.

Some of the potential solutions, introduced in the following pages, may not be suitable for certain investors. however, if an investor has an understanding of the levels of risk and return time horizon that they are willing to be exposed to, Schroders offers a broad range of solutions to complement specific investment profiles.

Picking the right income fundDifferent types of income funds will require investors and their advisers to ask different questions but general considerations would include:

– how is the income generated? – What is the relative level of income? – how reliable is the income stream? – Does the investment protect against

inflation? – What is the likelihood of capital

preservation? – how does the investment behave in

different market environments? – What is the correlation between different

portfolio elements? – Is there a concentration in different

geographic regions? – If the fund uses derivatives, what is the

manager’s experience with them and what risk controls are in place?

The importance of diversificationIncome investors have become increasingly aware of the need not just for a robust and steady income stream but also for diversification of that income stream. In pre-crisis days, it was considered that holding, for example, corporate bonds and equity income funds would be sufficient to generate a diversified income stream.

During the credit crisis, however, as all risk assets – equities, fixed income and property – fell almost in unison, income-seekers found such an approach did not offer the protection they had hoped. This has led many to pursue a more diversified income strategy than they had previously, looking at income in a global context as well as considering evolving asset classes such as emerging market debt.

When blending income strategies within a portfolio, monitoring historic volatility alone has been shown to have its limitations. Investors and their advisers should look to maintain an awareness of region, sector and security level exposures across their portfolios in addition to managing the risks associated with currency, duration, liquidity, credit and equity.


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The income stream generated by a bond comes from regular fixed income payments (a coupon). The issuer agrees to pay at the outset, in addition to the repayment of the original capital (principal) at the end of a set term. The level of the income will vary depending on the market’s perception of the likelihood that a bond issuer will default, in other words – the level of risk associated with buying that debt.

Sovereign debtDeveloped market government bonds generate a level of income linked to the perception of sovereign risk. The asset class has traditionally been a source of stable income with minimal risk of capital loss. however, investment in government bond markets has become increasingly complex over the past few years, as sovereign default has become, in some instances, more of a possibility. At the same time policy intervention such as quantitative easing, has pushed yields to very low levels – with some government bonds now even offering negative yield in real terms.

historically, it has been generally held that government bonds should still do well at times of extreme risk aversion. The dilemma for investors is whether a weak macroeconomic environment, combined with further quantitative easing will continue to compress yields.

The decision has been complicated by the rise of emerging market debt as an asset class, and its growth in accessibility over time. until recently, emerging market governments only issued debt denominated in uS dollars. however, as these economies have grown and developed, they have been able to issue debt in domestic currencies, creating a new and popular asset class. For many, a potential wall of diversifying away from developed world debt, and perhaps offsetting potential risk.

SEEkINg INCOME FROM FIxEd INCOME


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Corporate bondsIn some ways, investment grade corporate credit has become the new sovereign debt. In the credit default swap market, which offers insurance on different types of bonds, corporate issuers are often considered to be less risky than sovereigns. This means high quality companies are now able to borrow at lower rates than some developed market governments.

In general, most investment grade bonds will trade at a spread above that of government bonds. The yield is determined by the creditworthiness of the company issuing the bonds and the likely direction of interest rates. corporate bonds tend to do well at times of flat or falling interest rates, though shorter duration bonds are less vulnerable to changes in interest rates.

High yield bonds are issued by companies perceived to offer a higher risk of default. They pay a higher income to compensate investors for that increased risk and are more highly correlated with equity markets. When there is widespread risk aversion, high yield bonds will tend to sell off. high yield bonds in particular are subject to asymmetric returns. The upside is an investor gains the coupon and their money back, but the downside is they receive back nothing. As a result, high yield bond fund managers tend to hold broad, well-diversified portfolios. The high yield market in the uS is well-developed with a range of sectors and a strong pool of capital. europe’s market is some years behind but has developed more quickly as banks have moved away from higher-risk lending.

Investing in fixed income funds As the fixed income market has grown, so has the number and variety of associated funds. Some specialise in a single area such as developed market sovereign debt while others may blend, say, investment grade and high-yield corporate bonds. Portfolios may invest in bonds denominated in a range of currencies or just the one.

One recent development has been the emergence of so-called ‘strategic’ bond funds – unconstrained portfolios that may invest in different fixed income areas, depending on where the manager sees the best opportunities to enhance returns. So, for example, a manager might allocate a significant proportion of their portfolio to high-yield bonds during an upturn or switch more into government debt if the economy looks set for recession.

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SEEkINg INCOME FROM EqUITIES

Income from equities is generated by the dividends paid out by companies, based on their profits. The dividend payout is completely discretionary on the part of individual companies, but businesses are increasingly recognising the importance of dividends to their shareholders. Despite the credit crisis, dividend payouts have proved relatively resilient, and for many investors – they have proven to enhance total returns.

until recently – equity income investors were more likely to invest in a domestic equity income fund so they did not need to worry about losing out on currency risk. Another consequence of the credit crisis, however, was that it sold investors on the attractions of a more diversified dividend stream, creating demand for a global approach to equity income.

up to that point, global equity income strategies had been difficult to pursue in practice as only a few markets – most notably the uS and the uK – boasted an established dividend culture. elsewhere, paying a dividend was often seen as an admission by management that a company could not grow.

This attitude has slowly changed, and in some cases markets have come to prioritise dividends over capital growth. equally, emerging market companies have become more attuned to the requirements of international investors – prompting many to start paying a dividend. champions of global equity income funds point to benefits that include the decades-long dividend histories of some uS companies, the increasingly supportive tax regimes of countries such as Australia and Brazil and the over-reliance of some markets on a handful of sectors or even companies for the lion’s share of their dividends.

The result has been a sizeable increase in the number of global equity income funds on offer as well as the launch of various funds that focus either on specific regions and countries – for example, Asia, europe and the uS – or sectors with reliable income streams, such as infrastructure and utilities stocks.

equity income fund managers are also now able to use the powers available to them under the european ‘ucITS IV’ legislation to write covered call options on stocks within their portfolios. In return for a fee, a manager will give up some of the upside potential on a share in their portfolio and such fees are added to enhance the fund’s income payments. Depending on the strategy in place, this can almost double the amount of income for the fund’s investors.

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Most funds of this type are based on an underlying equity income portfolio with the derivatives strategy running on top. These strategies will tend to do well at times of fl atbut volatile markets, when options will attract a higher fee – lagging when markets arerising fast, because they have traded a stock’s upside for the fee.

Investing in income for growth It may seem that one of the best ways to achieve growth is through compounding income but, as the chart below shows, dividends and dividend growth have beena crucial part of equity returns for decades.

Indeed, according to Barclays capital, the value of $100 invested at the end of 1925 with income reinvested gross in equities is $23,748. Without that income reinvested, the return is just $732. Many commentators now see the 1980s and 1990s, when investors achieved returns from capital growth, as anomalous.

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Reinvesting income leads to higher growth

Source: crSP, Barclays capital equity Gilt Study 2012.

looking at this chart it is clear to see that by reinvesting income over 20 years leads to higher commutative growth in the long run.

Source: lipper for Investment Management as at 31/12/2012.

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PropertyProperty funds may be run for income or capital growth. Direct property funds willinvest directly in commercial property. returns are generated by the rental incomeand any appreciation in the capital value of the buildings. As property is relatively illiquid, funds may be structured as investment trusts. If they are open-ended funds, they should keep a substantial liquidity buffer, either in cash or readily realisable property shares.

The level of income will generally depend on the quality of the property portfolio. Investors need to balance their desire for income against the risk they wish to takewith their capital. Funds that invest in the shares of listed property companies will be more exposed to the equity market than those that invest in direct property. Many listed property companies are now structured as real estate investment trusts or ‘reITs’, which may attract certain tax breaks. Property securities will often anticipate a rise orfall in the commercial property market but should be less correlated to the equitymarket over the longer term.

A relatively new asset class, which is building a particular following among institutional investors, are infrastructure funds, which can offer exposure to projects ranging from hospitals and schools to airports and wind farms. Since infrastructure projects tend toinvolve government funding, the income is contractually agreed and usually infl ation-linked. The diagram shows how income can be generated by funds within the different asset classes.

Fixed Income funds generate income from

the bonds’ fi xed coupon payments. Investors in bond

funds will benefi t from a stream of income through

regularly-distributed coupons within the relative stability of

the debt markets.

Equity funds generate income from

dividends payouts from high yielding, quality stocks, and unlike

the fi xed payments on many bonds, dividends can increase

over time. The funds are ideal for investors who are willing to take

the risks associated with the stock market.

Multi-Asset funds generate income from the

yield opportunities that arise from equity investments and the coupons from bond investments. The funds are able to minimise security specifi c risk by taking

advantage of yield opportunities in whatever asset class,

region or sector they arise.

Income Funds

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SCHROdERS’ INCOME FUNdS


A spectrum of income investing

Source: Morningstar Direct as at 31/12/2012. (Based on a 3 year track record). Base currency used. return is on an annualised basis. Standard deviation is on an annualised basis calculated on a monthly frequency.

Schroders offers a range of income solutions, across asset classes and the risk spectrum, to cater for the needs of different investors to deliver regular and stable income.

Euro (base currency) US Dollar (base currency)

Schroder ISF Asian Eq Yld A Acc

Return (Annualised)

Standard Deviation (Annualised)

Schroder ISF Global Div Maximiser A

Schroder ISF Asian Bd Abs Ret A1 € Acc

Schroder ISF European Eq Yld A Acc

Schroder ISF Glbl Convert Bd A EUR

Schroder ISF Glbl Eq Yield A EUR

Schroder ISF Glbl High Yld A USD Acc

Schroder ISF Glbl Div Gr A EUR Acc

Schroder ISF Asian Lcl Ccy Bd A Acc

Schroder ISF Global Bond A Acc

Schroder ISF Euro Corporate Bond A Acc

Schroder ISF EURO Gov Bond A Acc

Schroder ISF Glbl Credit Dur Hdgd A

Schroder ISF Strategic Bd A AccSchroder ISF Global Dyn Bal A EUR Acc

Schroder ISF Euro Bond A Acc

Schroder ISF EMkt Dbt Abs Ret A Acc

Schroder ISF Glbl Infl Lnk Bd A

Schroder ISF US Dollar Bond A Acc

Schroder ISF Glbl Corp Bond A Acc

Schroder ISF European Dividend Max A

0% 5% 10% 15% 20%

0%

3%

6%

9%

12%

15%

Schroders offers a vast choice of income opportunities

Source: Schroders as at December 2012. * Dividends for these funds are variable and based on net income. Schroder International Selection Fund is referred to as Schroder ISF.

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Fixed Income Equities Multi-Asset

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FIxEd INCOME


Schroder ISF Global High Income Bond This fund aims to provide high income returns primarily through investing in a select portfolio of bonds and other debt securities, worldwide. This fund combines the focus of bottom-up idea generation with a globally diverse top-down overview, providing investors with high income opportunities.

Fund Managers: Warren Hyland, Wesley Sparks and Luke Chua

launch date 25 January 2011

Distribution frequency Monthly

Annual dividend payment Fixed 7%

Schroder ISF EURO Corporate Bond This fund invests primarily in investment grade corporate bonds issued by quality companies across europe. It benefits from an unconstrained management approach which allows it to adapt to market conditions, maximising the opportunities at any given time and allowing investment in a range of strategies to help protect gains.

Fund Manager: Patrick Vogel

launch date 30 June 2000

Distribution frequency Semi-annual


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Schroder ISF Global High Yield The fund seeks to deliver high levels of income and total return by investing a minimum of 70% in non-investment grade corporate bonds and those rated Ba1/BB+ or lower, issued by companies worldwide. companies in this arena offer larger yields than their more highly rated counterparts, to reward and encourage investment. The fund combines Schroders’ deep knowledge of this specialist sector, with an exceptionally robust process, to identify attractively priced bonds issued by fundamentally sound companies – balancing high returns with effective risk controls.

Fund Manager: Wesley Sparks

launch date 16 April 2004

Distribution frequency quarterly

Annual dividend payment Based on net income

Schroder ISF Strategic Bond The fund uses an unconstrained approach to invest in the best opportunities in global bond markets. The fund adopts a ‘best ideas’ philosophy, utilising Schroders’ strong global fixed income resource and seeks to invest in those regions, asset classes or sectors which offer the best investment potential.

Fund Managers: Bob Jolly and Gareth Isaac

launch date 30 September 2004




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Schroder ISF Global Corporate Bond The fund invests primarily in investment grade corporate bonds issued by quality companies across the globe. It also has the ability to invest in sovereign debt and high yield corporate bonds, if deemed appropriate, and the fund can invest a maximum of 20% in securities issued by governments.

An unconstrained management approach allows the fund to adapt to market conditions, maximising the opportunities at any given time and allowing investment in a range of strategies to help protect gains.


Fund Managers: Bob Jolly and Gareth Isaac

launch date 20 September 1994




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Schroder ISF Asian Local Currency BondSchroder ISF* Asian local currency Bond takes advantage of the broad set of opportunities available in Asian Fixed Income markets. The fund aims to outperform the hSBc Asian local Bond Index, seeking out the best opportunities in Asian Fixed Income and currency markets.

Fund Managers: Rajeev De Mello and Chow Yang Ang

Schroder ISF Asian Bond Absolute ReturnThe fund takes advantage of the broad set of opportunities available in Asian fixed income markets. Given an absolute return objective, the fund is unconstrained, seeking out the best opportunities in Asian fixed income and currency markets.

Fund Managers: Rajeev De Mello and Chow Yang Ang

launch date 09 May 2008



launch date 16 October 1998




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Schroder ISF Asian Equity YieldSchroder ISF Asian equity yield aims to provide a total return primarily through investment in equity and equity related securities of Asian companies which offer attractive yields and sustainable dividend payments.

Fund Manager: King Fuei Lee

Schroder ISF European Equity Yield and Schroder ISF Global Equity Yield These funds invest in companies which offer attractive yields and sustainable dividend payments, which can grow over time. The fund managers seek to build a diversified portfolio of high yielding stocks that they believe are attractive on two levels: firstly, because of the quality, sustainability and growth potential of their dividend and secondly, because the fundamental outlook for the companies is favourable.

Fund Managers: Ian Kelly and Rory Bateman

Schroder ISF European Equity Yield

launch date 11 June 2004



launch date 2 August 1993



EqUITIES

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Schroder ISF Global Equity Yield

Fund Manager: Sonja Laud

launch date 29 July 2005




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Schroder ISF European Dividend Maximiser and Schroder ISF Global Dividend MaximiserThese funds are not your typical equity income funds – both are able to target a distributable yield of 8% per annum, achieved by combining a carefully selected portfolio of equities with our established Maximiser yield enhancement strategy. The strategy allows investors to tap into the long-term benefits of equity investing, with the added security of a high, regular and stable income stream.

First, we invest in a selection of carefully chosen, good quality companies, which we feel are under-priced. These companies will also tend to be paying a generous and growing dividend, and it is these dividends that create the first of our two income streams.

The second income stream is where our funds really stand apart from the crowd. We take the potential, but nevertheless still uncertain capital growth on the stocks we own, and we regularly exchange some of this for an up-front payment in cash. By doing this every three months, we are able to create a secondary source of yield, which increases the income we can distribute to investors.

The following chart helps demonstrate how the yield will be generated:

8% target yield1

Step 1

+Step 2

Dividends from around 60-80 stocks in actively managed equity income

portfolio c. 4.0%1 p.a

Premium from selling covered call options2 c.4.0%1 p.a.

SCHROdERS’ MAxIMISER FUNd RANgE

1The target yield of 8% is not guaranteed and could change according to prevailing market conditions.

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Schroder ISF European Dividend Maximiser and Schroder ISF Global Dividend Maximiser

Schroder ISF European Dividend Maximiser

Fund Managers: Ian Kelly, Rory Bateman and Thomas See

Fund Managers: Sonja Laud and Thomas See

Schroder ISF Global Dividend Maximiser

launch date 5 October 2007



launch date 13 July 2007



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Schroder ISF Global Multi-Asset Income This fund invests in a combination of equities and bonds in order to generate a sustainable income. It is benchmark-unconstrained and can invest flexibly across countries, sectors and market capitalisation. This flexibility in portfolio construction is intended to generate sufficient yield to cover a fixed distribution. The fund is broadly diversified to minimise security-specific risk.

A sustainable income of 5%The fund provides investors with an annual income of 5% which may be paid out of income or capital. While the fund has been designed to pay this from income, it can use capital to fund any shortfall if required. This distribution is designed to provide investors with a smoother and more predictable profile of income payments.

An emphasis on quality as well as yieldThe fund invests in high quality stocks and bonds. Our approach is not to chase the highest yields, as in some cases this could be a signal that the company is in distress, but to select those stocks where the yield is backed by stable fundamentals and provides a more sustainable income.

An unconstrained and global approachThe fund is designed to be able to take advantage of yield opportunities in whichever geography or sector they arise. This flexibility in portfolio construction is designed to generate a sufficient yield of 5% without compromising the sustainability of the income.

Provides income and capital growthWe aim to use active allocation between directly-held global equity securities and bonds to find the most attractive yields supported by strong fundamentals.

MULTI-ASSET

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Fund Managers: Aymeric Forest and Iain Cunningham

launch date 18 April 2012


Annual dividend payment 5%

An experienced multi-disciplinary teamThe fund is managed by Aymeric Forest who is a member of the Multi-Asset team. he is supported by various investment teams across Schroders. For equities, stock selection is carried out by the qeP Investment team which has successfully been investing in equities using a systematic, risk managed approach since 2000. The bond selection is managed by our experienced fixed income team which consists of over 100 professionals. The Multi-Asset team is responsible for overall asset allocation and for risk management.

Active risk controlrisk is managed through an active approach to portfolio construction. The fund manager is responsible for monitoring region, sector and security level exposures together with their yields across the portfolio, and managing the risks arising from currency, duration, credit and equity.

Source for all ratings: Morningstar and Standard & Poor’s as at 31/12/12, A Share class.

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WHy SCHROdERS FOR INCOME?

A range of opportunities

Schroders offers a range of income solutions, across asset classes and the risk spectrum – to cater for different investor needs, with the aim of delivering a regular and stable income. With substantial in-house resources, we have a broad and diversified range of income solutions ranging from more traditional fixed income products to equity and multi-asset income products.

Solid foundations established in 1804, we have been investing for over 200 years. Schroders is one of the largest asset managers listed on the london Stock exchange and has been listed since 1959. The Schroder family holds around 45%¹ of the equity of the firm, ensuring stability of ownership and providing security for our clients.

Our global presence We employ almost 3,000¹ talented people worldwide, Schroders has one of the largest networks of offices of any dedicated asset management company operating from 34 offices in 27¹ different countries: close to the markets in which we invest and close to our clients.

Extensive global resources

We have over 370¹ portfolio managers and analysts covering all the major investment markets. These talented in-house specialists contribute local knowledge and investment ideas to our global research network. This means we can identify investment potential wherever it is located.

Financial strength and independent recognition Schroders has a stable ownership structure and we benefit from a strong balance sheet. We are rated M1 by the Independent ratings agency Fitch². This recognises our long history, independence and robust business model in adverse market conditions.

Risk management risk management has long been embedded in Schroders culture and the primary responsibility for the management of risk lies with each and every member of staff. Investment risk is governed by the Schroders Investment risk Framework (SIrF). under SIrF, separate Asset class risk committees are in place to oversee the investment risk management process for all portfolios.

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Source: Schroders as at 30 September 2012* Investment offices. All offices provide sales an distribution services. ¹Source: Schroders as at 30 September 2012. ² Source: Fitch ratings, as at 25 January. 2012, rating covers london-based investment activities of the company

BermudaGrand caymanMexicoNew york*Philadelphia*

Amsterdam*copenhagenFrankfurt*Geneva*Gibraltar

GuernseyJerseylondon*luxembourg*Madrid

Milan*ParisromeStockholm*Zurich*

Beijinghong Kong*Jakarta*Mumbai* Seoul*

ShanghaiSingapore*Sydney*Taipei*Tokyo*

Dubai*

Buenos Aires*Sáo Paulo*Santiago

Trusted heritage

Advanced thinking

Schroders is an independent, dedicated asset manager with a strong heritage and culture based on over 200 years’ experience of investment markets. listed in the uK, we benefit from a strong balance sheet and a stable ownership structure, which allows us to focus entirely on delivering results for our clients. With €254.5 billion funds under management and an international network spanning 34 offices in 27 countries, Schroders has the perspective and expertise to identify major investment potential wherever it is located.

To find out more go to www.schroders.com or speak to your local representative.

Source: Schroders as at 30 September 2012

Risk Considerations The capital is not guaranteed. 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. Where the fund (or the manager) holds a significant percentage of the shares of one or more companies, it may be difficult to sell those shares quickly. It may affect the value of the fund and, in extreme market conditions, its ability to meet redemption requests upon demand. The Fund will not hedge its market risk in a down cycle. The value of the fund will move similarly to the markets. The fund may hold large positions in a particular investment and if market declines or the issuer defaults, then the fund will be adversely affected. The Fund may hold indirect short exposure in anticipation of a decline of prices of these exposures or increase of interest rate. Third Party Data Disclaimer 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 (luxembourg) contains additional disclaimers which apply to the third party data. FTSe International limited (“FTSe”) © FTSe (2013). “FTSe®” is a trade mark of london Stock exchange Plc and The Financial Times limited and is used by FTSe International limited under licence. All rights in the FTSe indices and / or FTSe ratings vest in FTSe and/or its licensors. Neither FTSe nor its licensors accept any liability for any errors or omissions in the FTSe indices and / or FTSe ratings or underlying data. No further distribution of FTSe Data is permitted without FTSe’s express written consent. Important Information: This brochure 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 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, 31 Gresham Street, london ec2V 7qA. registrations No. 1893220 england. Authorised and regulated by the Financial Services authority. w42869

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