Total return % 7 1 mth 3 mths 1 yr 3 yrs p.a. 5 yrs p.a. Inception p.a.

3.1 12.9 22.2 12.6 4.2 2.2

0.9 8.5 -2.4 2.6 -3.8 -5.9

+2.2 +4.4 +24.6 +10.0 +8.0 +8.1

Please refer to www.schroders.com.au for post-tax returns

Inception Date: 14 Dec 2007, 5 years and 2 months. Past performance is not a reliable indicator of future performance

Portfolio1

Benchmark2

Commentary

ASX 1 - 50 0.0% 0.0%

ASX 51 - 100 1.4% 0.0%

ASX 101 - 300 67.9% 100.0%

Non Index 26.4%

Cash 4.2%

Portfolio1

Benchmark2

Skilled Group Ltd. 5.3% 0.7%

McMillan Shakespeare Ltd. 4.8% 0.9%

DuluxGroup Ltd. 4.3% 1.6%

Cash Converters International Ltd. 3.8% 0.4%

Technology One Ltd. 3.7% 0.0%

RCR Tomlinson Ltd. 3.7% 0.3%

Henderson Group PLC 3.1% 1.5%

Seven Group Holdings Ltd. 3.1% 1.2%Tox Free Solutions Ltd. 3.0% 0.4%

Medusa Mining Ltd. 2.9% 0.8%

Total 37.7% 7.8%

Characteristics Portfolio1

Benchmark2

No. of stocks 52 198

Portfolio turnover* (1 yr) 35.2%

Volatility (5yr standard deviation) 17.4% 23.3%

Tracking error (3yr historic) 6.5%

1 The 'Portfolio' is the Schroder Australian Smaller Companies Fund

2 Benchmark is the S&P/ASX Small Ordinaries Accumulation Index

Unless otherwise stated all figures are as at the end of February 2013

Please note numbers may not total 100 due to rounding

*Turnover = (Purchases + Sales - Cashinflows + Cashoutflows) / (Market

Value(T0)+ Market Value(T1) - Cashflows)

Market cap

The S&P/ASX Small Ordinaries Accumulation Index rose by 0.9%, while the Schroder

Australian Smaller Companies Fund (post-fee) rose by 3.1%, outperforming by 2.2% for the

month.

Top ten holdings %

February 2013 Monthly Report

Schroder Australian Smaller

Companies Fund

Schroder Australian Smaller Companies Fund (post-fee)

S&P/ASX Small Ordinaries Accumulation Index

Relative performance (post-fee)

Broad trends across the small cap market continued in February, with reporting season only reinforcing two themes currently of concern to small cap investors. Firstly performance of small caps (S&P/ASX Small Ordinaries Accumulation Index) relative to large caps (S&P/ASX 100 Accumulation Index) continues to disappoint, with underperformance of 4.8% in February in the context of 28.5% underperformance over the past 12 months. Secondly, within the small cap universe, resources underperformed industrials by 11.5% during February in the context of 54.2% underperformance over the past 12 months.

What is driving market returns? Other than the lagging Australian small cap market weighed down by small resource stocks, stock markets in general are continuing their upward march. Theories around what is driving the market higher, and ten reasons (there are always ten reasons for everything) why it will continue, often emerge at times like this. An elegant explanation of more buyers than sellers is addressed in Martin Conlons Australian Equity commentary this month and rather than repeat that here we look at a couple of other market myths. Three (of the ten!) reasons investors commonly hear regarding why equity returns are likely to continue to improve are: the economy is doing better; fund flows into equities are picking up and stocks are attractively valued. Although we have more than some sympathy for the last comment, it is often hard to reconcile the timing of the stocks are cheap call when markets have already performed so well and by definition prospective returns must have dimmed.

GDP growth and stock market return correlations Recent analysis by Jeremy Grantham of GMO adds to the body of research that concludes in the long run GDP growth provides little explanatory power for the returns of equity investors. This is simply a whole economy view of what we know from our own research into industry and company revenue growth and the implications for equity returns. What matters for shareholders is not how fast a company, industry or economy is growing but how much of that growth through economic or industry structure or through sustainable competitive advantages of the company is trapped to the owners of equity. High growth and low barriers to entry whether it is the manufacture of smart phones or the production of iron ore will invite endless new competitors until all excess returns have been distributed amongst the enlarged competitor set leaving shareholders to wonder where all the opportunity went. This concept is a foundation of capitalism and until a better economic model is discovered it will dictate equity returns in the long run far more than whether economic growth is fast or slow.

Fund flows and stock market returns The reason du jour for current equity market performance is the great rotation out of bonds, into stocks. Relative value between these two asset classes may explain some of the recent equity market performance as the more buyers than sellers condition leads prices up to a level where marginal buyers and sellers are more balanced between the two alternatives, however looking at the track record of equity fund flows as a predictor of returns may have the cause and effect around the wrong way. Analysis done by Credit Suisse looked at whether fund flows predicted market returns or whether market returns in fact predicted fund flows. You could know something about human nature and nothing about statistics and you would get the right answer on this one. Although causality is hard to pick up in real time when people are financially incentivised to believe one answer (It is difficult to get a man to understand something when his salary depends upon his not understanding it - Upton Sinclair) the reality is that market performance is more likely to cause fund flows (correlation of 0.35) than fund flows are likely to cause market performance (correlation -0.09). So people follow recent performance with real dollars no great surprise there.

Monthly Report

Fund objective Commentary Continued

Investment style

Fund details

APIR code SCH0036AU

Fund size (AUD) $48,878,109

Redemption unit price $0.7695

Fund inception date December 2007

Buy / sell spread 0.60%/0.60%

Minimum investment $50,000

Distribution frequency Normally twice yearly - June and Dec

Management costs (p.a.)

Sector exposure versus the benchmark %

Unless otherwise stated all figures are as at the end of February 2013

Benchmark is the S&P/ASX Small Ordinaries Accumulation Index

Contactwww.schroders.com.au

E-mail: simal@schroders.com

Schroder Investment Management Australia Limited

ABN 22 000 443 274 Australian Financial Services Licence 226473

Level 20 Angel Place, 123 Pitt Street, Sydney NSW 2000

Phone: 1300 136 471 Fax: (02) 9231 1119

This Report is intended solely for the information of the person to whom it is provided by Schroders. It should not be relied on by any person for the purposes of making investment

decisions. Total returns are calculated using exit price to exit price, after fees and expenses, and assuming reinvestment of income. Gross returns are calculated using exit price to exit

price and are gross of fees and expenses. The repayment of capital and performance of the Fund is not guaranteed by Schroders or any company in the Schroders Group. Past

performance is not a reliable indicator of future performance. Unless otherwise stated the source for all graphs and tables contained in this report is Schroders. Opinions constitute our

judgment at the time of issue and are subject to change. This report does not contain and is not to be taken as containing any financial product advice or financial product

recommendation. For security reasons telephone calls may be recorded.

Schroder Australian Smaller Companies FundFebruary 2013

To outperform the S&P/ASX Small Ordinaries Accumulation Index after

fees over the medium to long term by investing in a broad range of

smaller companies from Australia and New Zealand.

Schroders is a bottom-up, fundamental, active growth manager of

Australian equities, with an emphasis on stocks that are able to grow

shareholder value in the long term.

1.10% pa plus performance fee of

20.5% pa of net outperformance

Investment in the Schroder Australian Smaller Companies Fund ('the Fund') may be made on an application form in the Product Disclosure Statement dated 1 February 2011, available

from the Manager, Schroder Investment Management Australia Limited (ABN 22 000 443 274 AFSL 226473) (Schroders).

-4.5

1.6

0.9

0.0

-5.7

0.0

4.5

1.9

3.7

-2.5

4.8

2.4

-1.0

-2.5

0.0

-0.2

0.0

-0.3

-6.4

-8.0 -6.0 -4.0 -2.0 0.0 2.0 4.0 6.0

Energy

Chemicals

Construction Materials

Containers & Packaging

Metals & Mining

Paper & Forest Products

Industrials

Consumer Discretionary

Consumer Staples

Health Care

Information Technology

Telecommunication Services

Utilities

Capital Markets

Consumer banks

Diversified Fin Services

Insurance

Real Estate Mgmt & Dev

Property Trusts

Fin

ancia

ls

Mate

rials

Bottom up stock valuation now you are talking So what does matter? Well in the context of the current arguments (GDP growth, fund flows and valuation) we fall firmly into the camp that suggests valuation and specifically a measure of long term valuation at the time of investment is a pretty important factor to determine future investment returns. This is most compelling when at its most simple and analysis of U.S stock market returns between 1881 and 2011 (Shiller) highlight that the periods of greatest subsequent 10 year returns (average +16.1% p.a) began at Cyclically Adjusted Price to Earnings (CAPE) ratios that averaged 10.9x. The CAPE is a P/E ratio constructed using the average earnings over the last ten years so as not to mistake a cyclically high or low point in earnings as a sustainable number. Unsurprisingly, the periods of the lowest 10 year market returns (average -3.3% p.a) began at an average CAPE of 23.3x. With no hint of irony then, the U.S CAPE as at the end of February was 23.34x not exactly a screaming buy signal if history is anything to go by but perhaps the kindest thing to be said is that in the current financially repressed world it may be the best option. Unfortunately the same data is not available for Australian small companies, but using similar long term through the cycle valuation metrics as the CAPE (such as price to book or enterprise value to sales multiples), we can observe that in an absolute sense Australian small caps are fair value to very marginally under-valued at this time. When looked at relative to large caps (using the S&P / ASX 100 Index as the large cap benchmark) small caps are also marginally better value than large caps but marginal enough that we wouldnt want to get too over confident about the accuracy of these metrics. The good news here is that the last two years of underperformance has removed a significant (20% relative to large caps) over valued position embedded within the Small Ordinaries universe predominantly centred around small resource stock valuations. Although there isnt the compellingly large discount to large caps observed twice in the last decade (2002-03, 2008-09) there is currently no penalty for adding the diversification benefits that small cap stocks can provide to a broader equity portfolio. As interesting as this all may be, none of it really matters as we are not buying fund flows, whole economies or even index relative valuations. We are buying direct shares in a company and in return for investing our capital we obtain claims to the future cash flows of that firm or more accurately as minority shareholders without control we realistically obtain claims to the future dividends. Those with control (either majority shareholders or the management and board on behalf of all shareholders) are making the higher level decision around how much of the future cash flows are earmarked to capital investment and what is left for distribution and so in part we are also investing in their commercial judgement. Contributors for the month included: Skilled Group, REA Group, Cash Converters International, Codan and McMillan Shakespeare. Detractors for the month included: Southern Cross Media Group, Tox Free Solutions, Invocare, Medusa Mining and JB HiFi.

Outlook A fresh set of financial results delivered in reporting season and large near term share price reactions have created opportunities for the portfolio on both the buy and sell side of the ledger. We have added some new names to the portfolio during the month that have attractive return expectations and have been realising a number of our longer term portfolio holdings that performed well and are no longer offering attractive return prospects. The changes to the portfolio should result in two meaningful impacts - the long run prospective returns of the portfolio are improving as we move into stocks with greater upside but in the short run the portfolio exposure to momentum will decline. We expect the coming months will provide further opportunity to continue rotating the portfolio into areas of better risk adjusted prospective return.

David Wanis