Why recommend this fund to your clients?

• Diversified – The Fund will take advantage of investment opportunities across a range of asset classes.
• Sector: IMA Cautious Managed – The Fund is a relatively low-risk vehicle with an emphasis on downside protection.
• Benchmark Unconstrained – The Fund will be active in its asset allocation and stock selection seeking out investments that are attractive on a total return basis.
• Invests in the core themes of the environment, human welfare and sustainability, thereby making a positive contribution to society.

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Performance (to 30/09/2011)

Value to latest month end, total return, bid to bid price, Net income re-invested.
Past performance is not a guide to future performance and the value of this investment can go down as well as up. This is not a guaranteed investment and you may get back less than you have put in.

Cumulative performance (% change to 30/09/2011)

	1 year	3 years	5 years	Since launch (21/09/09)
Fund	-1.9	-	-	19.5
Sector Median	-1.9	-	-	15.9
Quartile Ranking	3rd	-	-	1st

Percentage Growth to latest month end, total return, bid to bid price, Net income re-invested.

Single year performance (% change to 30/09/2011)

	30/09/2006 - 30/09/2007	30/09/07 - 30/09/08	30/09/08 - 30/09/2009	30/09/2009 - 30/09/2010	30/09/2010 - 30/09/2011
CIS Sustainable Diversified Trust	-	-	-	10.9	-1.9
IMA Cautious Managed Median	-	-	-	8.7	-1.9

Percentage Growth to latest quarter end, total return, bid to bid price, Net income reinvested. Source: Lipper Measured against IMA Balanced Managed sector

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A closer look at the Fund

What is the Fund's aim?

The Fund invests in companies with products or services that benefit the core themes of environment, human welfare and sustainability. Companies leading their industries in environmental, social and governance (ESG) performance, as assessed by our ESG analysts, are also included in the investable universe, thereby creating a portfolio of investments that make a positive contribution to society.

The Fund aims to provide first-quartile performance over a rolling three-year period measured against the IMA Cautious Managed sector. Over any one-year period the Trust performance should not be below median.

The Fund is able to shift its asset allocation according to market conditions in order to seek out attractive return opportunities and limit downside risks.

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What does the Fund invest in?

Cautious Managed Funds can invest in a range of assets with the maximum equity exposure restricted to 60% of the fund and with at least 30% invested in fixed interest and cash. There is no specific requirement to hold a minimum percentage of non-UK equity within the equity limits. Assets must be at least 50% in Sterling/Euro and equities are deemed to include convertibles.

The Fund can invest in:

Equities

• Equity exposure is restricted to between 20% to 60% of the Fund.
• Within this equity limit, property can make up 0-15%.
• Of the overall equity exposure up to 50% may be invested in overseas equities.
• Equity markets the Fund may invest in are the UK FTSE All-Share Index/AIM and overseas market equities, predominantly US & Europe.

Fixed Interest

• Minimum fixed income exposure is 40%, with up to 80% allowable.
• This is comprised of government sovereign bonds and investment grade corporate bonds primarily from the iBOXX Gilt and Non-Gilt all maturities index.
• Non-Sterling denominated bonds can make up to 15% of the bond component.

Alternatives

• Alternative investments should be in the range of 0-20% of the Fund.
• Alternative investments include commodity-related funds, infrastructure funds, hedge funds, private equity, currency funds and absolute-return funds.
• Alternative investments provide additional diversification from the traditional asset classes of equity and bonds.

Cash

• Exposure can be in the range 0-30% of the Fund and will be limited to cash instruments under 12 months to maturity.

The Fund invests predominantly in Sterling-denominated equities and bonds. Given the Fund's aims, sectors such as utilities, healthcare and support services are prominent. The Fund excludes tobacco and armament manufacturers, nuclear power generators and companies conducting animal testing for the purpose of developing cosmetic and household goods. Companies not making strenuous efforts to reduce their environmental impact are also excluded.

Who's it suited to

The Fund may be suitable for investors looking for:

• an active asset allocation product with total-return approach looking to limit downside risk
• a fund with long-term capital growth objective achieved through a diversified fund with a mix of asset classes across Global markets
• the opportunity to ensure that their money helps to make a positive contribution to society through improving human welfare and the environment.

Asset allocation

The Fund's asset allocation will be positioned to take best advantage of market conditions. When the outlook for corporate profitability is deteriorating the Fund will seek the security of lower risk assets such as cash and government securities. When we expect profitability and risk appetite to improve or remain strong the Fund will have a natural bias towards equalities and corporate bonds. The Fund will seek diversification by investing across a broad range of industries, but industry allocation will be driven by the bottom-up selection process. Asset allocation will be subject to the constraints imposed in the investment mandate, see page 3 'What does the Fund invest in?' for details.

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Investment philosophy

Our investment philosophy and style is best described as follows:

• Focused - The portfolio will typically have between 70-100 holdings.
• Long-term - Investment holding periods of three to four years.
• Stockpicking - Securities are selected that offer attractive total
  return prospects.
• Responsible - Embedded environmental, social and governance
  (ESG) analysis provides a broader perspective and represents the
  views of our customers in the investment process.

At the security level our investment approach is structured to consider companies at three levels to identify mis-priced opportunities.

• Investment Themes – The increasingly short-term nature of the investment industry, evidenced by declining stock-holding periods, results in long-term opportunities being overlooked. We have therefore adopted a long-term investment philosophy and evaluate the effect of long-term investment themes. Examples include emerging market growth opportunities, demographic influences over supply and demand factors, and the environmental impact of human activity.
• Industry Trends – The increasingly narrow focus of most investors has resulted in us broadening the scope of inputs beyond traditional investment research to identify wider industry trends or linkages between industries.
• Company Specific – We believe that the market can inefficiently discount company specific events such as management change. Therefore we devote a large amount of analytical resource to changing company situations.

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Sector breakdown (as at 30/09/11)

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Top 10 holdings

(as at 30/09/11)

	% of Fund
Novartis	2.1
BG Group	2.1
First State Investments	1.9
Vodafone Group	1.7
Standard Chartered Bank 7.755 Sub Nts 2018	1.7
Zimmer Holdings Inc	1.7
Standard Chartered Bank	1.6
Prudential	1.6
BT Group	1.5
Australia & New Zealand Bank	1.5

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Credit rating breakdown (as at 30/09/11)

Credit rating	% of Fund
FTSE 100	22.1
FTSE 250	9.6
SMALLCAP	1.1
Overseas Equities	18.4
UK Corporate Bonds	30.2
Overseas Corp Bonds	11.3
Gilts	1.4
Cash	5.9

2 Stock examples

Covidien

Covidien is a global healthcare products company located in the US. The company develops, manufactures and distributes a diverse range of medical devices and supplies, pharmaceuticals and other healthcare products for use in clinical settings and the home.

2. Impax Environmental Markets

Impax Environmental Markets is an investment trust which is included in the Alternatives section of the portfolio. The Fund will invest in technology based systems, products or services in environmental markets, particularly those of alternative energy and energy efficiency, water treatment and pollution control and waste technology and resource management.

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Strategy and outlook

Over the last three months, UK equities have returned 1.0%. Overseas equities advanced by 2.1% with European equities leading the way whilst Asia and Emerging Market regions declined. News of the devastating earthquake in Japan led to heightened risk aversion during March but markets recovered into the month-end as investors regained their confidence in global growth. Corporate bonds out-performed UK equities, delivering returns of around 1.6%, whilst the benchmark Gilt index returned a negative 0.8%.

Over the last quarter the portfolio benefited from its strategy of focusing on equities and corporate bonds and having a low exposure to UK sovereign debt (Gilts) and cash. Fresenius Medical Care and BT Group were added to the portfolio in the quarter. The former is a German listed healthcare services company which provides dialysis treatment centres, primarily in the US. We are attracted to the UK telecommunications company BT Group, which has relative pricing power and is set to benefit from further fibre-optic rollout.

The Trust advanced by 0.5% over the three-month period to the end of March placing it in the 2nd quartile of the IMA Cautious Managed sector. Since Launch the Trust has advanced by 26.3% compared to the median performance of the IMA Cautious Managed sector of 22.8%.

Within the equity portion of the Trust the over-weight exposure to Asian and Emerging Market equities was a headwind but the under-weight exposure to mining companies proved beneficial, as industrial commodity prices waned. The Trust has no exposure to UK retailers, which were amongst the weakest names in the first quarter period, whilst eBay performed well for the Trust. Stock selection within healthcare was positive for the Trust, particularly within healthcare equipment and services.

The fixed income element of the portfolio benefited from its short duration position and a focus on corporate credit. We had no exposure to peripheral European bank credit, the best performing area within the credit space, as we still have concerns over likely debt restructuring here.

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Investment process overview

Initial screening:

• the investment universe is filtered for companies that look attractive from a theme/industry/company perspective
• detailed research and analysis is then undertaken on the stocks identified.

Security selection:

• stocks are assessed against a number of key criteria such as valuation, management quality, environmental, social and governance performance
• valuations are predominantly cash-based.

Portfolio construction:

• stock positions are determined primarily by the risk/reward potential of a particular investment
• asset allocation can be manipulated to best suit market conditions.

Risk management:

• risk is assessed prior to investment in the research process by considering the potential for capital loss
• risk is then assessed across the portfolio by considering sector and factor risk (for example interest rate sensitivity).

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Fund manager and investment team

Years in industry	21
Years at The Co-operative Asset Management	21

Linda is Head of External Funds and is a key member of the asset allocation team; Linda has had portfolio management responsibilities since 1993 and in 2003 was appointed Head of North American Equities. In 2006 Linda expanded her experience to cover a broad range of asset classes including UK and overseas equity, bonds, property and alternatives. She has had responsibility for The Co-operative Asset Management's multi-manager funds since their launch in April 2006.

Linda joined The Co-operative Asset Management in 1989 as a research analyst for the fixed income team before moving to the overseas equity team in 1991. She has a B.A. (Hons) in Economics from Manchester University and is an Associate member of CFA UK.

Linda draws on the expertise of over 50 investment professionals at The Co-operative Asset Management, all based in Manchester including:

• equities, fixed income and ESG (environmental, social and governance) analysts dedicated to researching companies
• fund managers focused on stock selection and constructing diversified portfolios which balance performance with risk and volatility
• operations and other experts supporting the investment process
• risk analysts, responsible for ensuring appropriate risk is taken within the portfolio.

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Fund facts

Manager name & location	Linda Desforges, Manchester
Fund type	Unit trust
Launch date	24/07/09
Index/benchmark	IMA Cautious Managed
Sector	Cautious Managed
No. holdings (as at 30/09/11)	111
Fund size (as at 30/09/11)	£139 million
Distribution frequency	Quarterly
Distribution dates	March, June, September, December
Prices	co-operativeassetmanagement.co.uk or the Financial Times
Sedol code	B3PXJV8

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Why choose The Co-operative Asset Management?

The fund management activities of The Co-operative Financial Services (part of The Co-operative Group) are undertaken by The Co-operative Asset Management. The Co-operative is a household name in the UK offering a wide range of services to consumers including financial services such as insurance, banking and mortgages plus food, pharmacy and travel.

The Co-operative Group has over 12 million customers, of whom over 290,000 are investors in our unit trust range, amounting to over £2 billion of assets under management.

Our distinctive approach is reflected in a number of unique investment credentials. We are the only fund manager to:

• apply a common core approach to responsible investment across all the funds we manage
• apply active engagement across all the funds we manage
• feed valuable business insights gained from our engagement process back into company analysis performed for investment purposes.

The Co-operative Asset Management was also the first UK investor to publish its Company AGM voting record on its website in 2002†, a practice now increasingly adopted by fund management groups offering SRI.

In advocating The Co-operative Asset Management to clients, advisers can be assured that they are recommending:

• Britain's most ethical brand, The Co-operative Group*
• a responsible investment approach which fully integrates financial and ESG criteria in stock selection
• an investment process characterised by clear and informed views on why companies offer good long-term prospects
• an investment resource comprising experienced and committed individuals working to deliver out-performance while effecting positive change in the companies they invest in.

How to invest

The Sustainable Diversified Trust is available to investment professionals through a number of platforms including Cofunds, Fidelity and Hargreaves Lansdown:

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†The Co-operative Asset Management has been independently authorised and regulated since August 2009 and was previously part of Co-operative Insurance Society Limited and its subsidiary companies.
*An independent consumer survey carried out in 2007 and 2008 found that The Co-operative Group was the most ethical brand in Britain for both years. The Co-operative Group was ranked number one for 2007 and 2008 with The Body Shop and Marks and Spencer ranking second and third respectively. The GFK NOP Ethics Brand Survey was conducted in the US, UK, France, Germany and Spain amongst 5,000 individuals in total. The study found that consumers are increasingly choosing to buy brands which they believe to be ethical, with many willing to pay a premiums for an "ethical guarantee". (GFK NOP Press Releases 2007 & 2008).