Gilt & Fixed Interest Fund

Schroder Gilt & Fixed Interest Fund Final Report and Accounts August 2017

Contents Schroder Gilt & Fixed Interest Fund Fund Information 1...............................................3 Investment objective and policy......................................3 Financial highlights................................................3 Fund information..................................................3 Ongoing charges figure.............................................4 Review of Investment Activities 1...................................5 Risk Profile 1....................................................6 Risk and reward indicator...........................................6 Specific risks.....................................................6 Statement of the Manager s Responsibilities.........................7 Report of the Trustee.............................................8 Independent Auditors Report to the Unitholders of Schroder Gilt & Fixed Interest Fund..............................9 Comparative Tables 1............................................13 Portfolio Statement 1............................................17 Summary of Portfolio Transactions 1...............................21 Largest purchases...............................................21 Largest sales...................................................21 Statement of Total Return........................................22 Statement of Change in Net Assets Attributable to Unitholders........22 Balance Sheet.................................................23 Notes to the Accounts...........................................24 1 Accounting policies...........................................24 2 Net capital (losses)/gains.......................................26 3 Revenue....................................................27 4 Expenses...................................................27 5 Taxation....................................................27 6 Distributions.................................................28 7 Fair value hierarchy............................................28 8 Debtors....................................................29 9 Cash and bank balances.......................................29 10 Bank overdrafts..............................................29 11 Other creditors...............................................29 12 Contingent liabilities...........................................29 13 Related party transactions......................................30 14 Unit classes.................................................30 15 Derivative and other financial instruments...........................30 16 Debt securities credit analysis...................................34 17 Direct transaction costs........................................34 18 Units in issue reconciliation......................................35 19 Counterparty exposure.........................................36 Remuneration..................................................38 Distribution Table...............................................39 Interim distribution for the six months ended 28 February 2017.............39 Final distribution for the year ended 31 August 2017......................39 Equalisation....................................................40 General Information 1............................................41 Authorisation....................................................41 Other information................................................41 1 Collectively these comprise the Manager s report.

Fund Information Investment objective and policy The Schroder Gilt & Fixed Interest Fund s (the fund ) investment objective is to achieve a high level of income with the potential for capital growth, from investment in a diversified portfolio of sterling denominated fixed interest securities. Investments will include British and other government securities, corporate obligations, Eurobonds, local authority loans, money market deposits and other sterling denominated fixed interest securities. Investment will be in directly held transferable securities. The fund may also invest in collective investment schemes, derivatives, warrants and money market instruments. Financial highlights Selling price 31.8.17 31.8.16 % change A Income units 66.65p 71.05p (6.19) A Accumulation units 222.80p 232.10p (4.01) Z Income units 66.87p 71.14p (6.00) Z Accumulation units 223.50p 232.40p (3.83) 31.10.17 31.10.16 Final distribution per A Income unit 0.7862p 0.7375p With effect from 6 April 2017, there is no longer a requirement to deduct income tax from interest distributions paid by UK Authorised Funds. Consequently, all distributions paid after this date are paid gross of tax. Fund information Launch date 3 October 1989 Launch price 50.00p per A Income unit 50.00p per A Accumulation unit Launch date 8 January 2016 Launch price 62.61p per Z Income unit 202.20p per Z Accumulation unit Interim Final Accounting dates 28 February 31 August Revenue allocation dates 30 April 31 October 3

Fund Information (continued) Ongoing charges figure For the year For the year to 31.8.17 to 31.8.16 A Income units 0.57% 0.57% A Accumulation units 0.57% 0.57% Z Income units 0.37% 0.37% 1 Z Accumulation units 0.37% 0.37% 1 1 The Ongoing charges figure is annualised based on the fees incurred during the accounting period. 4

Review of Investment Activities From 31 August 2016 to 31 August 2017, the price of A Accumulation units on a selling price to selling price basis fell 4.01%. In comparison, The Investment Association UK Gilt Sector Average Index generated a negative total return of 4.81% 1. Gilt yields rose over the twelve months to the end of August, mostly reflecting the global sell off in bonds in the final months of 2016. This was precipitated by higher global growth expectations after the victory of Donald Trump in the US presidential election. From the end of August to the end of December 2016, the 10 year gilt yield rose from 0.55% 2 to 1.30% 2. Since the turn of the year, central banks globally have become moderately more hawkish, but the market has been largely stable. The UK 10 year gilt yield finished the period at 1.03% 2. The fund declined in absolute terms amid the rise in UK gilt yields, but outperformed the sector as it held duration underweights in the UK and US early in the period. Duration positioning in the UK was adjusted to neutral over the period as economic and political uncertainty meant continued dovishness from the Bank of England. The underweight to the US was increased in the portfolio adding an underweight at the two year maturity level to underweights in the five and 10 year tranches. The long position in US breakeven inflation was increased. We see the cyclical global upswing continuing in the second half of 2017 and into next year, with upside surprises more likely to come from the US. The UK is slowing with consumers facing a real income squeeze and subdued investment and may disappoint further. The domestic political situation could damage sentiment as Brexit negotiations remain strained. Global monetary policy uncertainty has risen and we have passed peak liquidity although central bankers are unlikely to become aggressive. We expect a range bound environment, but with scope for US yields to see a concerted rise. As of 26 August 2016, Paul Grainger and James Lindsay-Fynn became co-fund managers joining Thomas Sartain. 1 Source: Morningstar. Co-Fund Manager: Paul Grainger 2015: Schroders 2014: Co-founded financial technology firm yoyodata 2006: Wellington Management 2003: F&C Asset Management, Senior Portfolio Manager 1999: Gartmore, Senior Portfolio Manager 1995: Joined the BZW graduate training programme where he rotated through Fixed Income Sales & Trading into Asset Management at Barclays Global Investors BA (Hons), University of Exeter Member of the United Kingdom Society of investment professionals and a CFA Charterholder Co-Fund Manager: James Lindsay-Fynn Joined Schroders fixed income team in March 2016 as Portfolio Manager Prior to that he was a partner and Portfolio Manager at Rogge Global Partners where his more recent responsibilities were global macro specialist in interest rates and currencies for sovereign portfolios In 2009, he was a high yield associate director at Evolution Securities Previous positions include absolute return Portfolio Manager at GAM and fixed income VP at Bank of America Securities Physics MA (Hons) from Trinity College Dublin 2 Source: Bloomberg. Please remember that past performance is not a guide to future performance and it might not be repeated. The value of investments and the revenue from them may go down as well as up and investors may not get back the amount originally invested. Because of this, you are not certain to make a profit on your investments and you may lose money. Co-Fund Manager: Thomas Sartain UK & European Rates Portfolio Manager, Multi-sector team based in London Joined Schroders in 2005 as fund manager s assistant on the Global Fixed Income desk Financial Markets career commenced in 2003 upon joining Royal Bank of Scotland BA (Hons) degree in Management and Business Administration, University of Reading CFA Charterholder 5

Risk Profile Risk and reward indicator The risk category was calculated using historical performance data and may not be a reliable indicator of the fund s future risk profile. The fund is in this category because it can take higher risks in search of higher rewards and its price may rise and fall accordingly. The fund s risk category is not guaranteed to remain fixed and may change over time. A fund in the lowest category does not mean a risk free investment. Specific risks The fund invests in assets which are exposed to currencies other than sterling. Exchange rates may cause the value of overseas investments and the revenue from them to rise or fall. More than 35% of the property of the fund may be invested in Government securities. The fund invests in a wide range of derivatives in order to meet its investment objectives. One of the aims of the Manager is to achieve volatility targets for the portfolio and in order to do this leverage will be used. The use of leverage can increase gains as well as losses and expose the fund to increased risk. Whilst it is intended that the additional risk that leverage exposes the fund to is controlled by value at risk methodology, there can be no guarantee that this risk control may be achieved especially under extreme or changing market conditions. The fund uses derivatives for specific investment purposes. This involves a higher degree of risk and may lead to a higher volatility in the unit prices of the fund. The Manager employs a risk management process to allow the Manager to measure derivative and forward positions and their contribution to the overall risk profile of the fund. As part of this risk management process, the Manager conducts daily value at risk analysis of the fund and performs both stress and back testing of the fund. As a result of the Annual management charge being charged wholly to capital, the distributable revenue of the fund may be higher, but the capital value of the fund may be eroded which may affect future performance. For these reasons, the purchase of units should not normally be regarded as a short term investment. 6

Statement of the Manager s Responsibilities The Financial Conduct Authority s Collective Investment Schemes sourcebook (COLL) requires the Manager to prepare accounts for each annual and half yearly accounting period, in accordance with United Kingdom Generally Accepted Accounting Practice, which give a true and fair view of the financial position of the fund and of its net revenue and the net capital losses on the property of the fund for the year. In preparing the accounts the Manager is required to: select suitable accounting policies and then apply them consistently; comply with the disclosure requirements of the Statement of Recommended Practice (SORP) for UK Authorised Funds issued by the Investment Management Association (IMA (now the Investment Association (IA))) in May 2014; follow generally accepted accounting principles and applicable accounting standards; prepare the accounts on the basis that the fund will continue in operation unless it is inappropriate to do so; keep proper accounting records which enable it to demonstrate that the accounts as prepared comply with the above requirements; make judgements and estimates that are prudent and reasonable. The Manager is responsible for the management of the fund in accordance with its Trust Deed, the Prospectus and the COLL and for taking reasonable steps for the prevention and detection of fraud, error and non-compliance with law or regulations. The Manager s report and accounts for the year ended 31 August 2017 were signed on 13 December 2017 on behalf of the Manager by: J.A. Walker-Hazell Directors P. Chislett 7

Report of the Trustee Statement of the Trustee s responsibilities in relation to the accounts of the Scheme The Trustee is responsible for the safekeeping of all of the property of the Scheme (other than tangible moveable property) which is entrusted to it and for the collection of revenue that arises from that property. It is the duty of the Trustee to take reasonable care to ensure that the Scheme is managed by the Authorised Fund Manager in accordance with the Financial Conduct Authority s Collective Investment Schemes Sourcebook (COLL) and the Scheme s Trust Deed and Prospectus, as appropriate, in relation to the pricing of, and dealings in, units in the Scheme; the application of revenue of the Scheme; and the investment and borrowing powers of the Scheme. Report of the Trustee for the accounting period from 1 September 2016 to 31 August 2017 Schroder Gilt & Fixed Interest Fund ( the Scheme ) Having carried out such procedures as we consider necessary to discharge our responsibilities as Trustee of the Scheme, it is our opinion, based on the information available to us and the explanations provided, that in all material respects the Manager: (i) has carried out the issue, sale, redemption and cancellation, and calculation of the price of the Scheme s units and the application of the Scheme s revenue in accordance with the COLL as appropriate, and, where applicable, the Scheme s Trust Deed and Prospectus; and (ii) has observed the investment and borrowing powers and restrictions applicable to the Scheme. J.P. Morgan Europe Limited Trustee Bournemouth 21 September 2017 8

Independent Auditors Report to the Unitholders of Schroder Gilt & Fixed Interest Fund Report on the audit of the financial statements Opinion In our opinion, Schroder Gilt & Fixed Interest Fund s financial statements (the financial statements ): give a true and fair view of the financial position of the fund as at 31 August 2017 and of the net revenue and the net capital losses of its scheme property for the year then ended; and have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland, and applicable law), the Statement of Recommended Practice for UK Authorised Funds, the Collective Investment Schemes sourcebook and the Trust Deed. We have audited the financial statements, included within the Final Report and Accounts (the Annual Report ), which comprise: balance sheet as at 31 August 2017; the statement of total return and the statement of change in net assets attributable to unitholders for the year then ended; the notes to the financial statements, which include a description of the significant accounting policies; and the distribution tables. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) ( ISAs (UK) ) and applicable law. Our responsibilities under ISAs (UK) are further described in the Auditors responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We remained independent of the fund in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, which includes the Financial Reporting Council s (FRC) Ethical Standard and we have fulfilled our other ethical responsibilities in accordance with these requirements. 9

Independent Auditors Report to the Unitholders of Schroder Gilt & Fixed Interest Fund (continued) Conclusions relating to going concern We have nothing to report in respect of the following matters in relation to which ISAs (UK) require us to report to you when: the Manager s use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or the Manager has not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the fund s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the fund s ability to continue as a going concern. Reporting on other information The other information comprises all of the information in the Annual Report other than the financial statements and our Auditors Report thereon. The Manager is responsible for the other information. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report based on these responsibilities. Manager s Report In our opinion, the information given in the Manager s Report for the financial year for which the financial statements are prepared is consistent with the financial statements. 10

Independent Auditors Report to the Unitholders of Schroder Gilt & Fixed Interest Fund (continued) Responsibilities for the financial statements and the audit Responsibilities of the Manager for the financial statements As explained more fully in the Statement of the Manager s Responsibilities set out on page 7, the Manager is responsible for the preparation of the financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The Manager is also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Manager is responsible for assessing the fund s ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the Manager either intend to liquidate the fund or to cease operations, or have no realistic alternative but to do so. Auditors responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an Auditors Report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of our responsibilities for the audit of the financial statements is located on the FRC s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our Auditors Report. Use of this report This report, including the opinions, has been prepared for and only for the fund s unitholders as a body in accordance with paragraph 4.5.12 of the Collective Investment Schemes sourcebook and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. 11

Independent Auditors Report to the Unitholders of Schroder Gilt & Fixed Interest Fund (continued) Other required reporting Opinion on matter required by the Collective Investment Schemes sourcebook In our opinion, we have obtained all the information and explanations we consider necessary for the purposes of the audit. Collective Investment Schemes sourcebook exception reporting Under the Collective Investment Schemes sourcebook we are required to report to you if, in our opinion: proper accounting records have not been kept; or the financial statements are not in agreement with the accounting records and returns. We have no exceptions to report arising from this responsibility. PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors Edinburgh 13 December 2017 12

Comparative Tables A Income units 2017 2016 2015 Financial year to 31 August p per unit p per unit p per unit Change in net asset value Opening net asset value 70.20 62.03 60.44 Return before operating charges (2.30) 10.38 3.73 Operating charges (0.38) (0.37) (0.36) Return after operating charges* (2.68) 10.01 3.37 Distributions 1 (1.64) (1.84) (1.78) Closing net asset value 65.88 70.20 62.03 *after direct transaction costs of 0.00 0.00 0.00 Performance Return after charges (%) (3.82) 16.14 5.58 Other information Closing net asset value ( 000 s) 17,815 21,620 22,911 Closing number of units 27,040,095 30,797,854 36,932,819 Operating charges (%) 0.57 0.57 0.57 Prices Highest buying price (p) 70.09 71.12 66.22 Lowest selling price (p) 64.23 61.21 59.33 13

Comparative Tables (continued) A Accumulation units 2017 2016 2015 Financial year to 31 August p per unit p per unit p per unit Change in net asset value Opening net asset value 231.69 200.33 190.80 Return before operating charges (7.55) 33.75 11.79 Operating charges (1.27) (1.19) (1.13) Return after operating charges* (8.82) 32.56 10.66 Distributions 1 (5.43) (6.01) (5.67) Retained distributions 1 5.43 4.81 4.54 Closing net asset value 222.87 231.69 200.33 *after direct transaction costs of 0.00 0.00 0.00 Performance Return after charges (%) (3.81) 16.25 5.59 Other information Closing net asset value ( 000 s) 123,363 147,478 150,308 Closing number of units 55,352,887 63,652,497 75,029,311 Operating charges (%) 0.57 0.57 0.57 Prices Highest buying price (p) 231.30 232.30 209.10 Lowest selling price (p) 212.00 197.70 187.30 14

Comparative Tables (continued) Z Income units 2017 2016 Financial year to 31 August p per unit p per unit Change in net asset value Opening net asset value 70.29 62.61 Return before operating charges (2.30) 9.68 Operating charges (0.25) (0.16) Return after operating charges* (2.55) 9.52 Distributions 1 (1.64) (1.84) Closing net asset value 66.10 70.29 *after direct transaction costs of 0.00 0.00 Performance Return after charges (%) (3.63) 15.21 Other information Closing net asset value ( 000 s) 1,632 932 Closing number of units 2,468,033 1,325,764 Operating charges (%) 0.37 0.25 Prices Highest buying price (p) 70.18 71.21 Lowest selling price (p) 64.35 62.61 The unit class was launched on 8 January 2016. 15

Comparative Tables (continued) Z Accumulation units 2017 2016 Financial year to 31 August p per unit p per unit Change in net asset value Opening net asset value 232.00 202.20 Return before operating charges (7.57) 31.54 Operating charges (0.82) (0.54) Return after operating charges* (8.39) 31.00 Distributions 1 (5.44) (6.01) Retained distributions 1 5.44 4.81 Closing net asset value 223.61 232.00 *after direct transaction costs of 0.00 0.00 Performance Return after charges (%) (3.62) 15.33 Other information Closing net asset value ( 000 s) 6,803 2,339 Closing number of units 3,042,428 1,008,084 Operating charges (%) 0.37 0.25 Prices Highest buying price (p) 231.60 232.60 Lowest selling price (p) 212.40 202.20 The unit class was launched on 8 January 2016. 1 These figures have been rounded to 2 decimal places. The Operating charges are calculated on an ex-post basis and as such may differ from the Ongoing charges figure where the Ongoing charges figure has been annualised for a unit class that has not been in existence for a full year. For Accumulation unit classes, prior years figures have been updated in line with the Investment Association circular, issued on 6 October 2016. With effect from 6 April 2017, there is no longer a requirement to deduct income tax from interest distributions paid by UK Authorised Funds. Consequently, all distributions paid after this date will be paid gross of tax. Please remember that past performance is not a guide to future performance and it might not be repeated. The value of investments and the revenue from them may go down as well as up and investors may not get back the amount originally invested. Because of this, you are not certain to make a profit on your investments and you may lose money. 16

Portfolio Statement Australian Dollar Denominated Derivatives 0.00% (2016 0.00%) Holding at Market Value % of net 31.8.17 000 s assets Australia 3 Year Bond Futures September 2017 99 3 0.00 Australia 10 Year Bond Futures September 2017 31 (2) 0.00 1 0.00 Canadian Dollar Denominated Derivatives 0.00% (2016 0.00%) Canada 10 Year Bond Futures December 2017 27 5 0.00 5 0.00 Euro Denominated Long Term Bonds 1.09% (2016 0.00%) Government of France 2% Stock 2048 1,665,000 1,628 1.09 1,628 1.09 Euro Denominated Derivatives (0.02)% (2016 (0.01)%) Forward to sell 1,621,127 for 1,475,736 (1,621,127) (18) (0.01) Euro-Bund Futures September 2017 11 33 0.02 Euro-OAT Futures September 2017 (35) (81) (0.06) Euro-Schatz Futures September 2017 (2) 0 0.00 Morgan Stanley Interest Rate Swap 3.8.27 receive 0.9265% pay 0.272% 1 2,110,000 28 0.02 Barclays Inflation Linked Swap 15.1.27 receive 1.4794% pay 0% 1 825,000 6 0.00 Barclays Inflation Linked Swap 15.8.27 receive 1.39875% pay 0% 1 480,000 (1) 0.00 Citigroup Inflation Linked Swap 15.8.27 receive 1.41% pay 0% 1 482,000 (1) 0.00 Citigroup Inflation Linked Swap 15.8.27 receive 1.4175% pay 0% 1 480,000 (1) 0.00 JPMorgan Chase Inflation Linked Swap 15.8.27 receive 1.4025% pay 0% 1 480,000 (1) 0.00 17

Portfolio Statement (continued) Euro Denominated Derivatives (continued) Holding at Market Value % of net 31.8.17 000 s assets JPMorgan Chase Inflation Linked Swap 15.8.27 receive 1.4225% pay 0% 1 970,000 (1) 0.00 European Swaption 0.545% Call Option 15.11.27 (2,270,000) (1) 0.00 European Swaption 0.945% Call Option 15.11.27 2,270,000 9 0.01 European Swaption 1.345% Put Option 15.11.27 (2,270,000) (1) 0.00 (30) (0.02) Sterling Denominated Short Term Bonds 30.20% (2016 23.98%) Treasury 5% Stock 2018 7,120,000 7,299 4.88 Treasury 3.75% Stock 2019 11,885,000 12,753 8.52 JPMorgan Chase 1.875% Notes 2020 600,000 617 0.41 Treasury 1.5% Stock 2021 8,970,000 9,348 6.25 Treasury 3.75% Stock 2021 7,050,000 8,036 5.37 Skandinaviska Enskilda Banken 1.25% Notes 2022 900,000 904 0.61 Treasury 4% Stock 2022 4,716,000 5,493 3.67 Wells Fargo 1.375% Notes 2022 733,000 735 0.49 45,185 30.20 Sterling Denominated Medium Term Bonds 22.43% (2016 29.11%) Treasury 1.75% Stock 2022 4,314,000 4,597 3.07 Treasury 2.25% Stock 2023 3,278,036 3,606 2.41 Northern Powergrid Yorkshire 2.5% Bonds 2025 200,000 213 0.14 Wells Fargo 2% Notes 2025 400,000 403 0.27 Treasury 1.5% Stock 2026 10,100,000 10,587 7.08 Thames Water Utilities Cayman Finance 3.5% Bonds 2028 300,000 335 0.22 Treasury 6% Stock 2028 2,300,000 3,498 2.34 Treasury 4.75% Stock 2030 2,800,000 3,978 2.66 Treasury 4.25% Stock 2032 4,603,000 6,339 4.24 33,556 22.43 18

Portfolio Statement (continued) Sterling Denominated Long Term Bonds 41.52% (2016 44.37%) Holding at Market Value % of net 31.8.17 000 s assets Treasury 4.5% Stock 2034 2,370,000 3,424 2.29 Treasury 4.25% Stock 2036 1,808,000 2,578 1.72 AT&T 3.55% Bonds 2037 728,000 721 0.48 Treasury 4.75% Stock 2038 2,475,203 3,853 2.58 GlaxoSmithKline Capital 6.375% Notes 2039 494,000 803 0.53 Treasury 4.25% Stock 2039 2,140,000 3,149 2.10 Treasury 4.25% Stock 2040 3,088,000 4,603 3.08 Treasury 4.5% Stock 2042 2,910,000 4,575 3.06 Treasury 3.25% Stock 2044 3,875,000 5,110 3.42 Treasury 3.5% Stock 2045 3,509,000 4,855 3.25 Treasury 4.25% Stock 2046 2,374,000 3,757 2.51 Treasury 4.25% Stock 2049 2,280,000 3,747 2.50 Treasury 3.75% Stock 2052 2,894,000 4,531 3.03 Treasury 4.25% Stock 2055 4,075,754 7,189 4.80 Treasury 4% Stock 2060 3,954,000 6,952 4.65 Treasury 3.5% Stock 2068 1,347,000 2,280 1.52 62,127 41.52 Sterling Denominated Derivatives 0.01% (2016 (0.01)%) Long Gilt Futures December 2017 31 11 0.01 11 0.01 US Dollar Denominated Medium Term Bonds 3.79% (2016 1.50%) US Treasury 0.125% Index Linked Stock 2026 US$5,250,000 4,089 2.73 US Treasury 0.375% Index Linked Stock 2027 US$2,010,000 1,580 1.06 5,669 3.79 US Dollar Denominated Derivatives (0.14)% (2016 0.01%) Forward to sell US$7,112,847 for 5,508,476 US$(7,112,847) (10) (0.01) CBT 2 Year T-Note Futures December 2017 (136) (11) (0.01) CBT 5 Year T-Note Futures December 2017 (126) (30) (0.02) 19

Portfolio Statement (continued) US Dollar Denominated Derivatives (continued) Holding at Market Value % of net 31.8.17 000 s assets US 10 Year Ultra Futures December 2017 (216) (149) (0.09) US Ultra Futures December 2017 17 20 0.01 Morgan Stanley Interest Rate Swap 3.8.27 receive 1.31056% pay 2.254% 1 US$2,660,000 (33) (0.02) (213) (0.14) Portfolio of investments 2 147,939 98.88 Net other assets 1,674 1.12 Net assets attributable to unitholders 149,613 100.00 Investment grade securities 148,165 99.03 Total of debt securities 148,165 99.03 Unless otherwise stated the above securities are admitted to official stock exchange listings or traded on a regulated market. 1 Over the counter derivative instruments not listed on recognised exchanges. 2 Including derivative liabilities. 20

Summary of Portfolio Transactions Largest purchases Largest sales Cost For the year ended 31 August 2017 000 s Treasury 1.5% Stock 2026 16,854 Treasury 1.25% Stock 2027 10,905 Treasury 4.25% Stock 2027 9,308 Treasury 4% Stock 2060 4,974 US Treasury 0.125% Index Linked Stock 2026 4,083 Treasury 1.25% Index Linked Stock 2055 3,427 Government of France 2% Stock 2048 2,799 Treasury 4.25% Stock 2055 1,990 Treasury 3.5% Stock 2045 1,883 US Treasury 0.375% Index Linked Stock 2027 1,605 Proceeds For the year ended 31 August 2017 000 s Treasury 4.25% Stock 2027 13,354 Treasury 1.25% Stock 2027 10,909 Treasury 2% Stock 2025 6,618 Treasury 0.125% Index Linked Stock 2024 6,364 Treasury 1.5% Stock 2026 6,117 Treasury 5% Stock 2018 4,542 Treasury 1% Stock 2017 3,575 Treasury 4.25% Stock 2036 3,504 Treasury 0.125% Index Linked Stock 2026 3,448 US Treasury 0.125% Index Linked Stock 2026 2,500 21

Statement of Total Return For the year ended 31 August 2017 Income 2017 2016 Notes 000 s 000 s 000 s 000 s Net capital (losses)/gains 2 (8,606) 22,747 Revenue 3 2,655 3,443 Expenses 4 (880) (962) Net revenue before taxation 1,775 2,481 Taxation 5 0 0 Net revenue after taxation 1,775 2,481 Total return before distributions (6,831) 25,228 Distributions 6 (3,833) (4,752) Change in net assets attributable to unitholders from investment activities (10,664) 20,476 Statement of Change in Net Assets Attributable to Unitholders For the year ended 31 August 2017 2017 2016 000 s 000 s 000 s 000 s Opening net assets attributable to unitholders 172,369 173,219 Amounts receivable on issue of units 6,443 5,043 Amounts payable on cancellation of units (21,797) (29,602) (15,354) (24,559) Dilution adjustment 18 11 Change in net assets attributable to unitholders from investment activities (10,664) 20,476 Retained distribution on Accumulation units 3,242 3,217 Unclaimed distributions 2 5 Closing net assets attributable to unitholders 149,613 172,369 22

Balance Sheet As at 31 August 2017 2017 2016 Notes 000 s 000 s Assets Investments 148,280 170,604 Current assets Debtors 8 1,263 1,491 Cash and bank balances 9 1,310 1,504 Total assets 150,853 173,599 Liabilities Investment liabilities (341) (38) Creditors Bank overdrafts 10 (263) (115) Distribution payable (232) (693) Other creditors 11 (404) (384) Total liabilities (1,240) (1,230) Net assets attributable to unitholders 149,613 172,369 23

Notes to the Accounts 1 Accounting policies Basis of preparation The accounts have been prepared under the historical cost basis, as modified by the revaluation of investments, and in accordance with the SORP for UK Authorised Funds issued by the IMA in May 2014 and in accordance with United Kingdom Generally Accepted Accounting Practice, including Financial Reporting Standard 102 (The Financial Reporting Standard Applicable in the UK and Republic of Ireland (FRS 102)). Revenue Interest receivable from bank balances and futures clearing houses and brokers are accounted for on an accruals basis. Interest receivable from debt securities is accounted for on an effective yield basis. Interest on debt securities bought or sold Interest on debt securities bought or sold is excluded from the capital cost of securities, and is dealt with as part of the revenue of the fund. Expenses Expenses of the fund are charged against revenue except for costs associated with the purchase and sale of investments which are allocated to the capital of the fund. The Annual management charge is initially charged to revenue but ultimately borne by the capital of the fund. Taxation The fund satisfied the qualifying investments test of Statutory Instrument 2006/964 Authorised Investment Funds (Tax) Regulations 2006 Regulation 19 throughout the year. All distributions made are therefore made as interest distributions. Deferred taxation is provided for on all timing differences that have originated but not reversed by the balance sheet date, other than those differences regarded as permanent. Any liability to deferred taxation is provided for at the average rate of taxation expected to apply. Deferred tax assets and liabilities are not discounted to reflect the time value of money. 24

Notes to the Accounts (continued) Distributions The revenue available for distribution is the total revenue earned by the fund, less deductible expenses and taxation charged to revenue. For the purpose of calculating the distribution, revenue on debt securities is calculated on a coupon basis where this exceeds the amount determined on an effective yield basis. As a consequence, the capital value of the fund may be eroded. This revenue is distributed annually on 31 October to Income unitholders. An interim distribution, based on available revenue at the half year, is distributed on 30 April to Income unitholders. For Accumulation units this revenue is not distributed but automatically reinvested in the fund and is reflected in the value of these units. Distributions which have remained unclaimed by unitholders for more than six years are credited to the capital property of the fund. Dilution adjustment In certain circumstances the Manager may apply a dilution adjustment on subscriptions and redemptions of units. If applied, the dilution adjustment is paid to the fund. See Prospectus for further details. Dilution adjustments include an estimate of dealing costs and the spread on underlying investments. From 1 January 2017 the transactional revenue earned from the spread (the difference between the creation price and the cancellation price), to the extent that in respect of any Dealing Day subscriptions are netted off against redemptions has been paid by the Manager into the fund and is included within the dilution adjustment in the Statement of Change in Assets Attributable to Unitholders. Valuation Listed investments of the fund have been valued at market value at 18:00 on the balance sheet date, net of any accrued interest which is included in the balance sheet as a revenue related item. Market value is defined by the SORP as fair value which generally is the bid value of each security and the offer value for short positions. Forward foreign exchange contracts Open forward foreign exchange contracts are shown in the Portfolio Statement at market value and the net losses are reflected under Net capital (losses)/gains in the Notes to the Accounts. Futures contracts Open futures contracts are shown in the Portfolio Statement at market value and the net gains/(losses) are reflected within Derivative contracts under Net capital (losses)/gains in the Notes to the Accounts. Other returns are included within Net revenue return from derivative contracts under Revenue in the Notes to the Accounts. 25

Notes to the Accounts (continued) Interest rate swaps Open interest rate swaps are shown in the Portfolio Statement and are priced at fair value using valuation models and data sourced from market data providers. Net gains/(losses) are reflected within Derivative contracts under Net capital (losses)/gains in the Notes to the Accounts. Interest receivable or payable on interest rate swaps is accounted for on an accruals basis and is included within Net revenue return from derivative contracts under Revenue in the Notes to the Accounts. Inflation linked swaps Open inflation linked swaps are shown in the Portfolio Statement and are priced at fair value using valuation models and data sourced from market data providers. Net gains/(losses) are reflected within Derivative contracts under Net capital (losses)/gains in the Notes to the Accounts. Options contracts Open option contracts are shown in the Portfolio Statement and are priced at fair value using valuation models and data sourced from market data providers. Net gains/(losses) are reflected within Derivative contracts under Net capital (losses)/gains in the Notes to the Accounts. Foreign currencies Transactions in foreign currencies are translated into sterling at the exchange rate prevailing on the date of the transaction. Assets and liabilities valued in foreign currencies have been translated into sterling at the exchange rates prevailing at the balance sheet date and the net (losses)/gains are reflected under Net capital (losses)/gains in the Notes to the Accounts. 2 Net capital (losses)/gains The net capital (losses)/gains during the year comprise: 2017 2016 000 s 000 s Non-derivative securities (8,847) 23,373 Derivative contracts 300 (612) Forward foreign exchange contracts (28) (22) Foreign currency (losses)/gains (25) 12 Transaction costs (6) (4) Net capital (losses)/gains (8,606) 22,747 26

Notes to the Accounts (continued) 3 Revenue 2017 2016 000 s 000 s Interest on debt securities 2,886 3,476 Bank interest 0 4 Net revenue return from derivative contracts (231) (37) Total revenue 2,655 3,443 4 Expenses Payable to the Manager, associates of the Manager and agents of either of them: 2017 2016 000 s 000 s Annual management charge 769 840 Administration charge 77 84 Payable to the Trustee, associates of the Trustee and agents of either of them: 846 924 Trustee s fees 17 18 Safe custody fees 1 1 Interest payable 3 5 Other expenses: 21 24 Audit fee 13 14 Total expenses 880 962 5 Taxation Corporation tax has not been provided for as expenses and interest distributions payable by the fund exceed the revenue liable to corporation tax. (a) Factors affecting the current tax charge for the year The tax assessed for the year is different from that calculated when the standard rate of corporation tax for authorised unit trusts of 20% (2016 20%) is applied to the net revenue before taxation. The differences are explained below. 2017 2016 000 s 000 s Net revenue before taxation 1,775 2,481 Net revenue for the year before taxation multiplied by the standard rate of corporation tax 355 496 Effects of: Movement in excess management expenses (355) (496) Current tax charge for the year 0 0 27

Notes to the Accounts (continued) (b) Factors that may affect future tax charges At the balance sheet date, there is a potential deferred tax asset of 899,022 (2016 1,253,971) in respect of unutilised management expenses. 6 Distributions Distributions The distributions, which are on a coupon basis, take account of revenue received on the issue of units and revenue deducted on the cancellation of units, and comprise: 2017 2016 000 s 000 s Interim Interest distribution 1,971 1,910 Income tax withheld 0 486 Final Interest distribution 1,767 1,794 Income tax withheld 0 465 3,738 4,655 Add: Revenue deducted on cancellation of units 139 128 Deduct: Revenue received on issue of units (44) (31) Distributions 3,833 4,752 Net revenue after taxation 1,775 2,481 Annual management charge taken to capital 769 840 Adjustment for coupon distributions 1,289 1,431 Distributions 3,833 4,752 Income tax at 20% will be accounted for on unitholders behalf to HM Revenue & Customs in respect of all unitholders who are not entitled to receive their distributions gross. Details of the distributions per unit are set out in the Distribution Table on page 39. 7 Fair value hierarchy 2017 2016 Assets Liabilities Assets Liabilities Valuation technique 000 s 000 s 000 s 000 s Quoted prices for identical instruments in active markets 81 (275) 16 (14) Valuation techniques using observable market data 148,199 (66) 170,588 (24) Total 148,280 (341) 170,604 (38) 28

Notes to the Accounts (continued) 8 Debtors 2017 2016 000 s 000 s Amounts receivable for issue of units 32 0 Accrued interest on debt securities 1,231 1,490 Accrued bank interest 0 1 Total debtors 1,263 1,491 9 Cash and bank balances 2017 2016 000 s 000 s Cash and bank balances 135 1,193 Amounts held at futures clearing houses and brokers 1,175 311 Total cash and bank balances 1,310 1,504 10 Bank overdrafts 2017 2016 000 s 000 s Amounts overdrawn at futures clearing houses and brokers 263 115 Total bank overdrafts 263 115 11 Other creditors 2017 2016 000 s 000 s 000 s 000 s Amounts payable for cancellation of units 314 290 Amounts payable on derivative contracts 2 0 Accrued expenses Manager and Agents Annual management charge 62 69 Administration charge 6 7 68 76 Trustee and Agents Trustee s fees 5 3 Transaction costs 2 1 7 4 Other accrued expenses 13 14 Total other creditors 404 384 12 Contingent liabilities There were no contingent liabilities at the balance sheet date (2016 Nil). 29

Notes to the Accounts (continued) 13 Related party transactions The Manager exercises control over the fund and is therefore a related party by virtue of its controlling influence. Amounts paid during the year or due to the Manager at the balance sheet date are disclosed under Expenses and Other creditors in the Notes to the Accounts. The Manager acts as principal on all transactions of units in the fund. The aggregate monies received through the issue and cancellation of units are disclosed in the Statement of Change in Net Assets Attributable to Unitholders and Distributions in the Notes to the Accounts. Amounts due from or to the Manager in respect of unit transactions at the balance sheet date are disclosed under Debtors and Other creditors in the Notes to the Accounts. Units held or managed by the Manager or associates of the Manager as a percentage of the fund s net asset value at the balance sheet date were 0.73% (2016 1.08%). 14 Unit classes The fund currently has four unit classes: A Income units, A Accumulation units, Z Income units and Z Accumulation units. The Annual management charge is based on the average value of the fund, calculated on a daily basis, and covers the remuneration of the Manager, the Investment Adviser and their overhead expenses and for each unit class is as follows: A Income units 0.50% A Accumulation units 0.50% Z Income units 0.30% Z Accumulation units 0.30% The closing net asset value of each unit class, the closing net asset value per unit and the closing number of units in issue are given in the Comparative Tables on pages 13 to 16. The distributions per unit class are given in the Distribution Table on page 39. All classes have the same rights on winding up. 15 Derivative and other financial instruments In accordance with the investment objective, the fund may hold certain financial instruments. These comprise: securities held in accordance with the investment objective and policy; cash and short term debtors and creditors arising directly from operations. 30

Notes to the Accounts (continued) Under normal circumstances, the Manager would expect substantially all of the assets of the fund to be invested in securities appropriate to the fund s investment objective. The fund may invest in deposits without limitation, only with an approved bank and which are repayable on demand or has the right to withdraw and maturing in no more than twelve months. Cash and near cash may only be held in order to assist in the redemption of units, the efficient management of the fund or purposes regarded as ancillary to the fund. The main risks arising from the fund s financial instruments are market price, foreign currency, liquidity, credit and interest rate risks. The Manager s policies for managing these risks are summarised below and have been applied throughout the year and the prior year. Market price risk The fund s investment portfolio is exposed to market price fluctuations which are monitored by the Manager in pursuance of the investment objective and policy. Adherence to investment guidelines and to investment and borrowing powers set out in the Trust Deed, the Prospectus and in the COLL mitigates the risk of excessive exposure to any particular type of security or issuer. Foreign currency risk The fund invests in overseas securities and the balance sheet can be significantly affected by movements in foreign exchange rates. Revenue received in other currencies is translated to sterling on or near the date of receipt. Liquidity risk The primary source of this risk to the fund is the liability to unitholders for any cancellation of units. This risk is minimised by holding cash, readily realisable securities and access to overdraft facilities up to the amount prescribed by the COLL. Credit risk The debt securities are exposed to credit risk which reflects the ability of the issuer to meet its obligations. The majority of debt securities in which the fund invests are investment grade listed bonds or government securities which are lower risk. The Manager monitors credit weightings on a regular basis as well as reviewing individual issuers and respective bonds at risk of default. 31

Notes to the Accounts (continued) Interest rate risk The fund invests in debt securities. The revenue of the fund may be affected by changes to interest rates relevant to particular securities or as a result of the Manager being unable to secure similar returns on the expiry of contracts or sale of securities. The value of debt securities may be affected by interest rate movements or the expectation of such movements in the future. The Manager monitors and controls the sensitivity of the portfolio to fluctuations of interest rates (duration) to best match the return of revenue gains/losses with potential losses/gains of capital value. The fund invests in interest rate swaps to adjust the interest rate risk profile of the fund across the entire yield curve quickly and efficiently. The price of interest rate swaps are largely determined by investors views of future interest rate and yield levels, and the Manager aims to profit when these market views differ from Schroders own expectations. All interest rate swaps are disclosed separately in the Portfolio Statement. Interest receivable on bank balances and amounts held or overdrawn at futures clearing houses and brokers will be affected by fluctuations in interest rates. Floating rate financial assets and financial liabilities Sterling denominated bank balances bear interest at rates based on the Sterling Overnight Index Average rate. Sterling denominated floating rate bonds, and foreign currency bank balances and amounts held or overdrawn at futures clearing houses and brokers bear interest at rates based on the London Interbank Offer Rate or its international equivalent. Fair value of financial assets and financial liabilities There is no material difference between the value of the financial assets and liabilities, as shown in the balance sheet, and their fair value. Derivatives During the year the fund entered into derivative contracts for specific investment purposes in addition to being used for efficient management. Inflation linked swaps The fund invests in inflation linked swaps in order to provide a return based on a specified inflation rate over an agreed period. With such instruments one party agrees to enter a position with a counterparty to either receive or pay an amount based on an agreed inflation index. The counterparty pays a fixed amount over the maturity of the swap with any profit or loss from the agreement exchanged at maturity. 32