SKANDIA GLOBAL FUNDS PLC - Fidelity Investments

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Skandia Global Funds plc Annual Report and Audited Financial Statements for the year ended 31 December 2011 SKANDIA GLOBAL BOND FUND INVESTMENT ADVISER’S REPORT FOR THE YEAR ENDED 31 December 2011 Skandia Global Bond Fund – Wellington Management Company, LLP Investment Adviser’s Commentary (continued) The fund marginally outperformed the benchmark Barclays Capital Global Aggregate Index in the third quarter, returning 1.01% versus 0.97% for the index.* Duration, country, currency and yield curve strategies all benefited performance. Macro-driven duration strategies in Germany, Sweden and the US provided the largest positive impact on returns, although a tactical short in the UK ten year sector detracted. In addition a long US 30 year versus short French 30 year trade added to returns. In FX, macro currency strategies were positive overall. Our overweight US Dollar versus commodity currencies (Australia, New Zealand and Canada) had the biggest positive impact. However, our underweight positioning in the Swedish Krona also added to results. More generally, being overweight the US Dollar added to results. Credit strategies were largely unhelpful during the third quarter. The portfolio‟s overweight position in investment grade corporates detracted from results, mainly due to widening credit spreads. However, favourable positions in German bonds versus underweights to peripheral Europe (Austria, Belgium and Portugal) were positive. Our underweight to covered bonds was another positive during the quarter. Quantitatively-oriented strategies benefited returns, as significant volatility in the quarter created attractive shorter-term opportunities, especially in the UK and Germany. Specifically, long UK ten-year versus short US ten-year positions in the early part of September were primary contributors. Value strategies struggled as we began building short US relative value contrarian positions starting in the middle of the quarter. Partially offsetting the weakness was the exit of the long US ten-year versus short Germany ten-year positions, which were built early in the quarter, and later closed at a profit. The Fund underperformed its benchmark index in the fourth quarter. Macro-driven country strategies were marginally negative resulting from a long German ten-year versus short US ten-year position. Tactical overweight positions in UK ten-year debt detracted from the results as well, as did tactical underweight positions in US 30-year debt. Macro driven duration strategies that had the biggest impact during the quarter included: tactical positions in German five and ten-year issues and Swedish five-year issues, which added to returns. Macro currency strategies were also positive, for example, an overweight to the US Dollar versus high-beta currencies like the Turkish Lira and the Brazilian Real had the largest positive impact during the quarter. The portfolio‟s tactical overweight in NZD versus USD and CHF also added to results. Credit strategies were largely positive for the quarter, with an overweight position in investment grade corporates and CMBS benefiting performance. Portfolio positions in German bonds versus an underweight in peripheral Europe (Austria, Portugal) were also favourable, as was an underweight to covered bonds. Quantitative strategies in the portfolio also proved largely positive for returns. The significant volatility seen in the quarter created attractive opportunities. Among the primary contributors were long German relative-value trades which the Investment Adviser started adding in November. Specifically, a long German ten-year versus short US ten-year position was the biggest positive. German yields experienced one their most volatile periods on record during the quarter, rising sharply in November following an undersubscribed auction, then falling to all-time lows in December as inflation expectations dropped. The Investment Adviser quantitative process identified the German ten-year sector as quite cheap and attractive compared with other markets, and in particular the US. In addition, long UK ten-year versus short US ten-year positions also greatly contributed, especially earlier in the quarter. Source: Wellington Management Company, LLP as at 31 December 2011. *Performance figures refer to Class A1 shares and are sourced from Morningstar. Calculation basis: bid to bid, net of fees, gross income reinvested in fund base currency (US Dollars). References to benchmarks are for illustrative purposes only and are not intended to imply a performance objective. There is no guarantee that the Skandia Global Bond Fund will outperform this benchmark. 44
Skandia Global Funds plc Annual Report and Audited Financial Statements for the year ended 31 December 2011 SKANDIA TOTAL RETURN USD BOND FUND INVESTMENT ADVISER’S REPORT FOR THE YEAR ENDED 31 December 2011 Skandia Total Return USD Bond Fund – Pacific Investment Management Company LLC Below is a report from the Investment Adviser of the Skandia Total Return USD Bond Fund for 2011. The Skandia Total Return USD Bond Fund was launched on 17 April 2002 with a starting Net Asset Value per share of USD 10.00. Investment Adviser’s Commentary The Skandia Total Return USD Bond Fund underperformed its benchmark, the Barclays Capital U.S. Aggregate Bond Index, for 2011. The fund gained 2.19%, while the benchmark index recorded a total return of 7.84% over the period.* A focus on sectors that provided attractive risk-adjusted yields versus treasuries helped returns for the quarter. The following strategies were positive for first quarter returns: � A focus on shorter maturities, implemented via money market futures as most shorter-dated contracts increased in price during the quarter � An underweight to US duration as interest rates rose � An overweight to bonds of banks, finance companies, and life insurers, which outpaced the broader corporate market amid improving balance sheets and higher profits � An emerging markets overweight, especially to Emerging Markets corporates in Russia; exposure to a select basket of Emerging Markets currencies also helped � Exposure to Build America Bonds (BABs) as technical factors improved following a large volume of new issuance in late 2010 � Holdings of real return bonds, which outperformed nominal bonds as breakeven inflation levels widened The following strategies were negative or neutral for returns: � Tactical positioning in agency mortgage-backed securities, which had little effect on returns � An underweight to commercial mortgage-backed securities, as these spreads tightened � Exposure to non-US developed interest rates, particularly Canada and core Europe, where rates rose The following strategies were positive for second quarter returns: � Exposure to non-US developed interest rates, particularly core Europe, where rates fell on fears of a global economic slowdown � A focus on shorter maturity securities as the yield curve steepened, measured by the difference between the 2- and 30-year Treasury yields � An emerging markets overweight, especially to external debt in Brazil; exposure to a select basket of Emerging Markets currencies also added to returns � Exposure to Build America Bonds (BABs), given the light supply and reduced negative headlines for municipals � Holdings of real return bonds, which outperformed nominal bonds on strong inflation accruals The following strategies were negative or neutral for returns: � An underweight to US duration as interest rates fell � An overweight to bonds of financial companies, which lagged the broader corporate market amid uncertainty surrounding financial regulation, capital requirements, and contagion related to European sovereign risk � An underweight to agency mortgage-backed securities, which outperformed like-duration Treasuries � Exposure to non-agency mortgages, as risk aversion put downward pressure on prices The Skandia Total Return USD Bond Fund underperformed its primary benchmark index, the Barclays Capital US Aggregate Bond Index, over the third quarter of 2011, producing a total net return of -2.1%, while the benchmark index had a total return of 3.8%.* The following strategies were negative or neutral for returns: � An overweight to bonds of financial companies, which lagged the broader corporate market amid fears of a slowdown in global growth and uncertainty surrounding contagion related to European sovereign risk. � An underweight to longer maturities as the two- and 30- year Treasury yields portion of the yield curve flattened amid a sharp fall in 30-year yields. � An emerging markets overweight, especially to Emerging Markets corporates and quasi-sovereigns; however, exposure to Emerging Markets local debt in Brazil and Mexico partially mitigated this negative impact as rates fell sharply in these countries. � Exposure to a select basket of Emerging Markets currencies, as the US Dollar appreciated against most currencies. � Exposure to high-yielding Build America Bonds (BABs),which did not keep pace with Treasuries of the same duration. 45
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SKANDIA GLOBAL FUNDS PLC - Fidelity Investments

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