9/2011

For Distributors Internal Use only

Schroder ISF* Taiwanese Equity

8 August Report

Important Information: : 100% / This is a direct investment fund investing primarily in equities. Key risk: The fund may have significant exposure in financial derivatives instruments (up to 100% of its total net asset) such as options, futures, contracts for difference, warrants, swaps, forward contracts. Risks associated with these instruments include counterparty risk, credit risk and liquidity risk. Under extreme market conditions and circumstances, investors may lose entire amount originally invested. The funds investment in a single country may be subject to a higher level of risks comparing to a fund investing in a more diversified portfolio/strategy. The funds investment in emerging and less developed markets may be subject to significant risks such as political and economic risks, legal and regulatory risks, market and settlement risks, execution and counterparty risk, and currency risk. You should not invest in the fund unless the intermediary who sells the fund to you has advised you that the fund is suitable for you and has explained why, including how buying the fund would be consistent with your investment objectives. You should not make any investment decision solely based on this document. Please read the relevant offering document carefully for further fund details including risk factors.
* Schroder International Selection Fund is referred to as Schroder ISF throughout this document () () The information in this document is based on management forecasts and reflects prevailing conditions and our views as of this date, all of which are accordingly subject to change. In preparing this document, we have relied upon and assumed, without independent verification, the accuracy and completeness of all information available from public sources or which was provided to us by or on behalf of the potential investor or which was otherwise reviewed by us. All opinions or estimates contained in these documents are entirely judgement of Schroder Investment Management (Hong Kong) Limited as of the date of this document and are subject to change without notice. Investment involves risks. Past performance is not necessarily a guide to future performance. You should remember that the value of investments can go down as well as up and is not guaranteed. Exchange rate changes may cause the value of the overseas investments to rise or fall. For risks associated with investment in securities in emerging and less developed markets, other risks and details of the fund, please refer to the Summary Prospectus. The information contained in this document is provided for information purpose only and does not constitute any solicitation and offering of investment products. Potential investors should be aware that such investments involve market risk and should be regarded as long-term investments. Derivatives carry a high degree of risk and should only be considered by sophisticated investors. This material is issued by Schroder Investment Management (Hong Kong) Limited and has not been reviewed by the SFC.

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For Distributors Internal Use only

Market Background

Taiwanese equities followed most global markets into the red, after a surge of negative sentiment triggered by signs that the US recovery was stalling 8 and the European debt crisis was intensifying wreaked havoc across risk assets. At the sector level, Steel sector was the best performer in August. The worst performing sectors were Technology and Plastic sectors. July headline CPI inflation came in lower than 7 1.3% expected at 1.3% y/y. Easing food and energy 7 prices were the main factors behind. Taiwans unemployment rate edged down to 4.37% in July 6 4.4% 4.37% compared to 4.4% in June. Exports rose 17.6% y/y 6 10.8% 7 17.6% in July, compared to a 10.8% y/y increase in the 12.5% 14%7 previous month, while Imports rose 14% y/y, compared to a 12.5% y/y increase in the previous 3.93%6 3.84% month. Industrial production in July rose 3.93% y/y, compared to a 3.84% y/y rise in the previous month.

Performance

Our underweight exposure in Oil, Gas and Electricity was the key driver of the portfolios relative performance. The portfolio also benefited from our strong stock selection in Optoelectroics and Communications & Internet. However, some of these gains were offset by our nil holding in Iron & Steel and our overweight position in Building Material & Construction.

Outlook & Strategy

Moving into Q3, our views of the world remain fairly unchanged. In the US, the latest macroeconomic data has weakened, undermining confidence in the cyclical recovery just as QE2 comes to an end this summer. Government finances in the West continue to be of concern and fiscal policy will increasingly become a drag on growth in many countries. The lack of political will to effectively tackle this issue in the US is disconcerting for investors. Greek lawmakers may have temporarily averted a full scale sovereign debt crisis in Europe through the implementation of austerity measures that have triggered the release of more EU funds, but without a long term solution to the issue of excessive government debt burdens in the peripheral economies, market concerns can be expected to re-emerge in the coming quarters and this remains a key risk to financial markets. Growth in Asia still remains more robust than that in most

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For Distributors Internal Use only

Western economies and the stronger government and household finances should give more flexibility to cushion the impact of a weaker global demand.

^ Demand for technology stocks remains mixed. Apple^ and smart phone related products has / witnessed strong demand when other consumer ^ and notebook/pc sales remain lacklustre. Expectation and valuation of the Apple^ and smart phone related products are high, if there is any disappointment, it would lead to a sell down of them. Near term catalyst is lacking for the downstream electronic names but valuation and strong cash flow is appealing for long term investors. The stock market has been more resilient than expected on expectation of the government will provide support ahead of election in Jan next year.
^ ^ For illustrative purpose only. It does not represent any recommendation to invest in or divest of the above mentioned securities.