THREADNEEDLE INVESTMENT FUNDS ICVC

Transcription

1 AUDITED ANNUAL REPORT AND FINANCIAL STATEMENTS THREADNEEDLE INVESTMENT FUNDS ICVC MARCH 2015 THREADNEEDLE INVESTMENT FUNDS ICVC COLUMBIATHREADNEEDLE.COM

2 Contents Company Information*... 3 Director s Report*... 4 Aggregated Financial Statements for Threadneedle Investment Funds ICVC... 5 Notes to the Aggregated Financial Statements for Threadneedle Investment Funds ICVC UK: UK Fund UK Select Fund UK Smaller Companies Fund UK Growth & Income Fund UK Equity Income Fund UK Monthly Income Fund Monthly Extra Income Fund UK Corporate Bond Fund Sterling Bond Fund Sterling Fund Europe: European Fund European Select Fund European Smaller Companies Fund Pan European Smaller Companies Fund Pan European Fund European Bond Fund European Corporate Bond Fund European High Yield Bond Fund Strategic Bond Fund US: American Fund American Select Fund American Smaller Companies Fund (US) Dollar Bond Fund Japan: Japan Fund Pacific Basin & Emerging Markets: Asia Fund Latin America Fund Emerging Market Bond Fund International: High Yield Bond Fund Global Select Fund Global Bond Fund Institutional Funds: UK Institutional Fund UK Overseas Earnings Fund Statement of Authorised Corporate Director s (ACD) Responsibilities Statement of the Depositary s Responsibilities and Report of the Depositary Independent Auditors Report Portfolio Statements*: UK Fund UK Select Fund UK Smaller Companies Fund

3 Contents UK Growth & Income Fund UK Equity Income Fund UK Monthly Income Fund Monthly Extra Income Fund UK Corporate Bond Fund Sterling Bond Fund Sterling Fund European Fund European Select Fund European Smaller Companies Fund Pan European Smaller Companies Fund Pan European Fund Comparative Tables* Performance Summaries* Ongoing Charges Figure Summary* Risk and Reward Profiles* Shares Issued and Redeemed Summary* Further Information* Directory* Important Information* Please note that the Sterling Fund is currently registered for public offer in the UK only and it is not intended to be registered outside the UK unless otherwise decided by the ACD. Shares in the Sterling Fund must not be marketed to the public in any other jurisdiction. *These pages, together with the investment reports of the individual funds comprise the Authorised Corporate Director s Report. European Bond Fund European Corporate Bond Fund European High Yield Bond Fund Strategic Bond Fund American Fund American Select Fund American Smaller Companies Fund (US) Dollar Bond Fund Japan Fund Asia Fund Latin America Fund Emerging Market Bond Fund High Yield Bond Fund Global Select Fund Global Bond Fund UK Institutional Fund UK Overseas Earnings Fund

4 Company Information Company Threadneedle Investment Funds ICVC (the Company) Registered Number IC Board of Directors of the ACD Chairman and Chief Executive C D Fleming Registered Office Cannon Place, 78 Cannon Street, London EC4N 6AG Director There is a sole director, the Authorised Corporate Director (the ACD), which is Threadneedle Investment Services Limited. Other Directors T N Gillbanks D Jordison (Appointed to the Board 29 July 2014) P J W Reed (Resigned from the Board 30 June 2014) N J Ring A Roughead (Appointed to the Board 7 July 2014) 3

5 Director s Report The ACD, Threadneedle Investment Services Limited, has pleasure in presenting the Annual Report and Financial Statements for Threadneedle Investment Funds ICVC for the 12 months to 7 March The financial statements have been presented on an aggregated basis. However, separate financial information is also provided on a sub-fund basis to enable investors to review the status and performance of those funds for the period under review. We hope that you find the report informative. Should you require any further information regarding any aspect of your investment, or about other Columbia Threadneedle products, we would be pleased to help. Alternatively, you may find it helpful to visit columbiathreadneedle.com for further information about Columbia Threadneedle. Thank you for your continued support. Thank you for your continued support. Campbell Fleming Director 4

6 Aggregated Financial Statements for Threadneedle Investment Funds ICVC STATEMENT OF TOTAL RETURN for the accounting period 8 March 2014 to 7 March 2015 Notes Income Net capital gains 2 1,548,921 1,597, , ,958 Expenses 4 (276,749) (294,061) Finance costs: Derivative expense (4,434) (2,236) Interest (101) (10) Net revenue before taxation 415, ,651 Taxation 5 (21,291) (27,553) Net revenue after taxation 394, ,098 Total return before distributions 1,943,394 1,980,573 Finance costs: s (474,956) (466,376) Change in net assets attributable to shareholders from investment activities 1,468,438 1,514,197 STATEMENT OF CHANGE IN NET ASSETS ATTRIBUTABLE TO SHAREHOLDERS for the accounting period 8 March 2014 to 7 March 2015 Opening net assets attributable to shareholders 23,971,917 22,953,572 Movement due to sales and repurchases of shares: Amounts receivable on the issue of shares 5,582,390 7,339,410 Amounts payable on the cancellation of shares (7,284,378) (7,706,665) Amounts payable on inspecie transfer (185,100) (338,866) (1,887,088) (706,121) Dilution adjustment 8,588 10,955 Stamp duty reserve tax (1,660) (6,424) Change in net assets attributable to shareholders from investment activities (see statement of total return above) 1,468,438 1,514,197 Retained distribution on accumulation shares 194, ,578 Unclaimed distribution monies brought back into account Closing net assets attributable to shareholders 23,754,613 23,971,917 BALANCE SHEET as at 7 March 2015 Notes Assets Investment assets 23,406,204 23,455,869 Other assets Debtors 6 289, ,203 Cash and bank balances 362, ,384 Total other assets 651,356 1,033,587 Total assets 24,057,560 24,489,456 Liabilities Derivative liabilities (13,090) (8,367) Other liabilities Creditors 7 (221,962) (423,866) Bank overdrafts (3,940) (25,849) payable on income shares (63,955) (59,457) Total other liabilities (289,857) (509,172) Total liabilities (302,947) (517,539) Net assets attributable to shareholders 23,754,613 23,971,917 The aggregated financial statements represent the sum of the individual funds within the Company. Further analysis of the distribution and the net asset position can be found within the financial statements of the individual funds. DIRECTORS STATEMENT We hereby certify the Final Report and Financial Statements on behalf of the Directors of Threadneedle Investment Services Limited. N J Ring Director 20 May 2015 T N Gillbanks Director 5

7 Notes to the Aggregated Financial Statements for Threadneedle Investment Funds ICVC Notes to the financial statements for the accounting period 8 March 2014 to 7 March ACCOUNTING POLICIES (1) Basis of accounting The financial statements have been prepared under the historical cost basis, as modified by the revaluation of investments and in accordance with UK Generally Accepted Accounting Practice (UKGAAP), and in accordance with the Statement of Recommended Practice (the SORP) for Financial Statements of Authorised Funds issued by the Investment Management Association (IMA) in October (2) Aggregation The aggregated financial statements represent the sum of the individual funds within the umbrella company. Further analysis of the distribution and the net asset position can be found within the financial statements of the individual funds. (3) Recognition of revenue is included in the Statement of Total Return on the following bases: Dividends on quoted equities and preference shares are recognised when the security is traded ex-dividend. Dividends, interest and other income receivable include any withholding taxes but exclude any other taxes such as attributable tax credits. Special dividends are treated as either revenue or capital depending on the facts of each particular case. Stock dividends are recognised as revenue on the basis of the market value of the shares at the date they are quoted ex-dividend. Interest on debt securities and bank and short-term deposits is recognised on an earned basis. In the case of debt securities any difference between acquisition cost and maturity value is recognised as revenue over the life of the security using the effective yield basis of calculating amortisation. Dividends and distributions from collective investment schemes are recognised when the security is quoted ex-dividend. Underwriting commission is recognised when the issue takes place, except where the fund is required to take up all or some of the shares underwritten, in which case an appropriate proportion of the commission is deducted from the cost of those shares. Underwriting commission is treated as revenue except for the proportion that is deducted from the cost of shares, which is capital. Stocklending revenue and any associated charges are recognised on an accruals basis. Equalisation on distributions received is treated as a repayment of capital and deducted from the cost of the investment. Management fee rebates In the absence of a rebate mechanism an indirect charge for management fees would occur in respect of investments in other Threadneedle funds. Any such target funds themselves bear a management fee, which reduces the values of those funds from what they otherwise would be. The rebate mechanism operates to ensure that investors in the fund bear only the fee validly applicable to them. Depending upon the ACD s treatment of management fees within the underlying funds, where management fees are charged to capital, any rebate is classified as a capital item and does not form part of the amount available for distribution. (4) Treatment of expenses (including management expenses) All expenses other than those relating to the purchase and sale of investments, are included in expenses, in the Statement of Total Return. Expenses are recognised on an accrual basis and include irrecoverable VAT where appropriate. (5) Allocation of revenue and expenses to multiple share classes The allocation of revenue and expenses to each share class is based upon the proportion of the fund s capital net assets attributable to each share class, on the day the revenue is earned or the expense is suffered. equalisation, annual management charge and registration fees are specific to each share class. (6) Allocation of return on hedged share classes Hedged share classes allow the ACD to use currency hedging transactions to reduce the effect of exchange rate fluctuations between the Reference Currency or Reference Currencies and the Hedged Currency (for further definitions refer to page 278). Where undertaken, the allocation of return in relation to hedging transactions is applied in respect of that hedged share class only. (7) policy In accordance with the Collective Investment Schemes Sourcebook, where the revenue from investments exceeds the expenses for any share class, a distribution will be made from that share class. Should expenses exceed revenue for any share class, there will be no distribution for that share class and a transfer from capital will be made to cover the shortfall. attributable to Accumulation shareholders is retained at the end of each distribution period and represents a reinvestment of revenue. The following funds distribute on a monthly basis and use a fixed rate distribution for the first 11 months as set by the Fund Manager at the beginning of the accounting year: Monthly Extra Income Fund UK Monthly Income Fund Where distributions are unclaimed for a period of six years these are brought back into the relevant fund as capital. The ACD s charges in respect of the following funds are added back for the purpose of determining the amount available for distribution: Dollar Bond Fund Emerging Market Bond Fund European Bond Fund Global Bond Fund High Yield Bond Fund Monthly Extra Income Fund Sterling Bond Fund Strategic Bond Fund UK Equity Income Fund UK Growth & Income Fund UK Monthly Income Fund (8) Basis of valuation of investments The investments of the fund are valued at fair market prices at 12 noon (UK time), being the valuation point on the last working day of the accounting period, where this is not materially different from close of business of the accounting period. Investments are stated at their fair value which generally is the bid valuation of each security. These bid values are sourced from independent pricing sources; to the extent that an independent pricing source is not available then quotes are obtained from a broker. Where the ACD deems that these valuations are unrepresentative of a fair valuation of the security, a fair valuation adjustment is applied based upon the ACD s opinion of fair value. (9) Exchange rates Assets and liabilities expressed in foreign currencies at the end of the accounting period are translated into sterling at the exchange rates ruling at 12 noon (UK time), being the valuation point on the last working day of the accounting period. Transactions denominated in a foreign currency are translated into sterling at the exchange rates ruling at the date of the transaction. (10) Deferred tax Deferred tax liabilities are provided in full in respect of all items for which recognition falls in different accounting periods for accounting and taxation purposes and deferred tax assets are recognised to the extent that they are considered recoverable. Further analysis of the deferred tax assets can be found within the financial statements of the individual funds. (11) Derivatives The return in respect of any derivative transaction is treated as capital or revenue depending on the motive and circumstances of the transaction. Where positions are undertaken to protect or enhance capital the returns are capital and where they are generating or protecting revenue the returns are revenue. Where positions generate total returns the returns are apportioned between capital and income to reflect the nature of the transaction. Any capital gains/losses are included within Net capital gains/(losses) and any revenue or expenses is included within revenue or finance costs respectively in the statement of total return. Derivative revenue and expense are netted off for the purposes of disclosure. The net balance is disclosed within either the revenue or finance cost note depending on whether the balance is in a net revenue or expense position respectively. The revenue return element in respect of futures is calculated by reference to the quoted yield of the index upon which the future is based compared to LIBOR. The revenue so calculated may represent revenue or expenses in a fund s financial statements, in accordance with whether the fund has held a net long or short position, when considering the accounting period as a whole. The revenue or expense position is reversed where LIBOR exceeds the quoted yield of the relevant index. Any positions open at the period end are reflected in the Balance Sheet at their market value, either using available market prices or the ACD s assessment of the fair value, based on counterparty valuations and appropriate pricing models. Cash held at future brokers as margin is reflected separately within Cash and bank balances. 6

8 Notes to the Aggregated Financial Statements for Threadneedle Investment Funds ICVC Notes to the financial statements 2 NET CAPITAL GAINS Net capital gains during the period comprise: Non-derivative securities 1,502,963 1,573,471 Derivative contracts (8,523) 1,077 Forward currency contracts 52,961 53,361 Other gains/(losses) 1,701 (30,061) Transaction costs (181) (373) Net capital gains 1,548,921 1,597,475 3 REVENUE UK dividends 293, ,388 Overseas dividends 218, ,550 Stock dividends 1,363 2,865 UK franked dividend distributions 529 Interest on debt securities 179, ,791 Interest on short term investments Derivative revenue 976 1,177 Bank interest Underwriting commission Stocklending commission 325 3,701 Management fee rebate on collective investment scheme holdings Total revenue 697, ,958 4 EXPENSES Payable to the ACD or associates of the ACD, and the agents of either of them: Annual management charge (251,818) (268,357) Registration fees (20,880) (22,676) (272,698) (291,033) Payable to the depositary or associate of the depositary, and the agents of either of them: Depositary s fees (1,966) (773) Safe custody fees (1,271) (1,397) collection expenses (108) (365) (3,345 ) (2,535) Other expenses: Regulatory fee (237) (225) Audit fee (339) (264) Professional fees (130) (4) (706) (493) *Total expenses (276,749) (294,061) *Including irrecoverable VAT where applicable. 5 TAXATION a) Analysis of charge in period Overseas taxes (20,841) (27,293) Total current tax (note 5b) (20,841) (27,293) Capital gains tax (note 5c) (450) (260) Total tax charge for the period (21,291) (27,553) b) Factors affecting taxation charge for period Net revenue before taxation 415, ,651 Net revenue before taxation multiplied by the standard rate of corporation tax of 20% (83,153) (82,130) not subject to taxation 100,271 91,371 Overseas taxes (20,841) (27,293) Overseas taxes expensed Excess expenses (37,703) (31,577) taxable in other periods 38 s treated as tax deductible 20,687 21,638 Retail Review (RDR) conversion transfer from capital (239) Current tax charge for period (note 5a) (20,841) (27,293) c) Capital gains tax Provision at start of period (478) (741) Capital gains tax charge in statement of total return for period (note 5a) (450) (260) Exchange loss on capital tax refund 42 Capital gains tax paid in year Provision at end of period (927) (478) 6 DEBTORS Amounts receivable for the issue of shares 105, ,017 Sales awaiting settlement 69, ,093 Accrued revenue 100, ,534 Foreign withholding tax recoverable 13,337 7,550 United Kingdom income tax recoverable 45 9 Total debtors 289, ,203 7 CREDITORS Amounts payable for the cancellation of shares (94,052) (200,308) Purchases awaiting settlement (92,074) (191,568) Accrued expenses (747) (562) Amounts payable to ACD (26,221) (22,133) Income tax payable (4,820) (5,696) Corporation tax payable (3,121) (3,121) Capital gains tax provision (927) (478) Total creditors (221,962) (423,866) 8 RELATED PARTY TRANSACTIONS Threadneedle Investment Services Limited, as ACD is a related party and acts as principal in respect of all transactions of shares in the funds. The aggregate monies received through issues and paid on cancellations are disclosed in the Statement of Change in s Attributable to Shareholders. Any amounts due to or from Threadneedle Investment Services Limited at the end of the accounting period are disclosed in Notes 6 and 7. Amounts payable to Threadneedle Investment Services Limited in respect of fund management and registration services are disclosed in Note 4 and amounts outstanding at the year end in Note 7. In addition any fees paid to Threadneedle Investment Services Limited in respect of stocklending are disclosed in Note 10. 7

9 Notes to the Aggregated Financial Statements for Threadneedle Investment Funds ICVC Notes to the financial statements The following funds invest in a number of sub-funds of Threadneedle Specialist Investment Funds ICVC, all transactions in respect of which are transacted with Threadneedle Investment Services Limited: Asia Fund UK Institutional Fund Details of the investments held are shown in the portfolio statement, with revenue received from these investments included within UK franked dividend distributions and Management fee rebate on collective investment scheme holdings in Note 3 and any capital gains within the Non-derivative securities in Note 2. All transactions have been entered into the ordinary course of business on normal commercial terms. 9 SHARES Funds currently may have up to eight share classes; Class 1, Class 1 Hedged, Class 2, Class 2 Hedged, Class X, Class Z, Class Z Hedged, and Limited Issue Class shares. Where a fund has more than one share class, each class may suffer different expenses. Consequently the level of net revenue attributable to each share class will differ. Further analysis of the annual management charge and registration fees on each share class can be found within the Shareholder Funds note of the individual funds. 10 STOCKLENDING During the period under review, the company has entered into certain stocklending transactions to increase the revenue of the funds. The funds have earned 325,000 (2014: 5,205,000) of which Nil (2014: 440,000) was outstanding at year end. They have paid fees of Nil (2014: 727,000) of which Nil (2014: 57,000) was outstanding at year end to Threadneedle Investment Services Limited. In addition they have paid fees of Nil (2014: 777,000) of which Nil (2014: 62,000) was outstanding at year end to J.P. Morgan as the security lending agent to process these arrangements and hold the collateral. There was no stock on loan at the end of the accounting period (2014: m), and there was no collateral held (2014: m). The collateral was held as either securities transferred in CREST by a DBV (Delivery by ) or Gilt DBV, or in the form of overseas government bonds, supranational bonds or certificates of deposit. The nature and value of collateral held is analysed by asset class in the table below. Details of the amounts relating to the individual funds can be found in the Stocklending note for those funds. Analysis of Collateral Held Total 2015 Total Total 2014 Total Bonds 617, , DILUTION ADJUSTMENT Under certain circumstances the ACD has the power to charge a dilution adjustment on the purchase and/or redemption of shares. If charged, the dilution adjustment will be paid into the fund. Full details of the operation of the scheme can be found in the Prospectus. 12 DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS In pursuing their investment objectives, each of the funds may hold a number of financial instruments. These financial instruments comprise securities, derivatives and other investments, cash balances, debtors and creditors that arise directly from the funds operations, for example, in respect of sales and purchases awaiting settlement, amounts receivable for creations and payable for cancellations and debtors for accrued revenue. The funds may also enter into a range of derivative transactions whose purpose is efficient portfolio management. In addition the funds only execute derivative contracts where both the derivative instrument and the counterparty have been approved by the ACD. Sensitivity analysis or value at risk is not shown since the funds hold no derivatives that could impact the funds significantly. The main risks arising from financial instruments and the ACD s policies for managing these risks are stated below. These policies have been applied throughout the period under review. These policies have been consistent for both the current and prior period to which these financial statements relate. Market price risk Market price risk arises mainly from uncertainty about future prices of financial instruments held. It represents the potential loss the funds might suffer through holding market positions in the face of price movements. This means the value of an investor s holding may go down as well as up and an investor may not recover the amount invested. Bond funds hold a range of fixed interest instruments which may be difficult to value and/or liquidate. Investors should consider the degree of exposure of these funds in the context of all their investments. The funds investment portfolios are exposed to market price fluctuations, which are monitored by the ACD as per the policies as set out in the Prospectus. The investment guidelines and investment and borrowing powers set out in the Instrument of Incorporation, the Prospectus and in the Financial Conduct Authority s Collective Investment Schemes Sourcebook describe the nature of the market price risk to which the fund will be exposed. Liquidity risk Liquidity risk is the risk that the funds cannot raise sufficient cash to meet their liabilities when due. One of the key factors influencing this will be the ability to sell investments at, or close to, the fair value without a significant loss being realised. Under normal circumstances, the funds will remain close to fully invested. However, where circumstances require: either because a view of illiquid securities markets or high levels of cancellations in the funds the funds may hold cash and/ or more liquid assets. Temporary higher liquidity levels may also arise during the carrying out of a change in asset allocation policy, or following a large issue of shares. The ACD manages the funds cash to ensure they can meet their liabilities. The ACD receives daily reports of issues and cancellations enabling the ACD to raise cash from the funds portfolios in order to meet cancellations requests. In addition the ACD monitors market liquidity of all securities, with particular focus on the floating rate note (FRN) market, seeking to ensure the funds maintain sufficient liquidity to meet known and potential redemption activity. Fund cash balances are monitored daily by the ACD and Administrator. Where investments cannot be realised in time to meet any potential liability, the funds may borrow up to 10 their value to ensure settlement. All of the funds financial liabilities are payable on demand or in less than one year. Credit risk Credit risk arises from three main sources. Firstly, the possibility that the issuer of a security will be unable to pay interest and principal in a timely manner. Secondly, for asset backed investments (including FRNs) there is the possibility of default of the issuer and default in the underlying assets meaning that the funds may not receive back the full principal originally invested. Thirdly, there is counterparty risk, which is the risk that the counterparty will not deliver the investment for a purchase, or cash for a sale after the funds have fulfilled their responsibilities, which could result in the funds suffering a loss. In order to manage credit risk the funds are subject to investment limits for issuers of securities. Issuer credit ratings are evaluated periodically and an approved issuer list is maintained and monitored. In addition the funds only buy and sell investments through brokers which have been approved by the ACD as an acceptable counterparty and limits are set and monitored to cover the exposure to any individual broker. Changes in brokers financial ratings are periodically reviewed. Some funds will invest in what are considered riskier bonds (below investment grade). This brings the potential for increased risk of default and could affect both the income and the capital value of the fund. Further details can be found in the sub-fund financial statements. Interest rate risk Interest rate risk is the risk that the value of the funds investments will fluctuate as a result of changes in interest rates. All the funds invest in floating rate securities. The income of these funds may be affected by changes in interest rates relevant to particular securities or as a result of the ACD being unable to secure similar returns on the expiry of contracts or sale of securities. The value of fixed interest securities may be affected by interest rate movements or the expectation of such movements in the future. Interest receivable on bank deposits or payable on bank overdraft positions will be affected by fluctuations in interest rates. The interest rate risk profile for the relevant funds is shown in their notes to the financial statements, contained within the full accounts. 8

10 Notes to the Aggregated Financial Statements for Threadneedle Investment Funds ICVC Notes to the financial statements Foreign currency risk Foreign currency risk is the risk that the value of the funds investments will fluctuate as a result of changes in foreign currency exchange rates. For those funds where a proportion of the net assets of the fund are denominated in currencies other than the fund s base currency, the balance sheet can be affected by movements in exchange rates. The ACD monitors the foreign currency exposure of the funds and may seek to manage exposure to currency movements by using forward exchange contracts or by hedging the value of investments that are priced in other currencies. The foreign currency risk profile for the relevant funds is shown in their notes to the financial statements, contained within the full accounts. Further analysis including numerical disclosures can be found within the Derivative and Other Financial Instruments note of the individual funds. 9

11 Threadneedle UK Fund Investment Report Investment Objective To achieve capital growth. Investment Policy The ACD s investment policy is to invest the assets of the Fund principally in equities of companies domiciled in the UK or which have significant UK operations. If the ACD considers it desirable, it may further invest in other securities (including fixed interest securities, other equities and money market securities). Performance of Net Income Class 1 Shares* Over the twelve months to 7 March 2015, the published share price of the Threadneedle UK Fund has risen from p to p. Looking at performance within its peer group, the total return on the fund for the twelve months ending 28 February 2015, including net reinvested income, is +6.18% as compared to a median return of +4.26% over the same period. (For information the FTSE All-Share Total Return Index returned +5.56% over the same period). Portfolio Activity UK equities had a turbulent 12 months but ended the period in positive territory, with the FTSE 100 index hitting a new record high in February The first half of the year showed increasing signs of economic recovery, including improving industrial production and robust GDP-growth figures. Though the recovery continued into the second half, numerous headwinds held the UK market back, including faltering growth in the eurozone economies, slowing demand in China and, towards the year-end, slumping commodity prices, which battered the stock prices of UK-listed resource companies. Our low exposure to energy and mining companies benefited performance relative to the index. Over the period, we reduced our position in BP (oil & gas) as we re-evaluated our exposure to the sector. We used the proceeds to increase our holding in Rio Tinto (mining). We are cautious on the sector overall but, relative to its peers, Rio has a strong balance sheet, superior overall asset quality, and a management team that is more focused on cash generation. We increased our position in Diageo (beverages) and opened a holding in InterContinental Hotels. Relative to its peers, Diageo has a better portfolio and preferred geographical mix, with a dominant presence across most developed markets as well as India. Thanks to a high quality business model, InterContinental looks set to continue increasing its revenue-per-available-room. We reduced the overall number of holdings through a move out of higher-risk off-index positions such as First Quantum Minerals and Signet Jewellers. We redeployed those funds across the core portfolio. Lower food and energy prices are benefiting consumers at a time when employment is rising and wage growth is beginning to accelerate, which should support discretionary spending over the course of The Bank of England has revised up its UK economic growth forecasts for both this year and next. We do, however, feel that those focused on UK political risk will start to fret about the UK general election on 7 May. Noise around the election and uncertainty in Europe, China and elsewhere will give us an opportunity to add to our favoured names those stocks should become attractive from a valuation perspective because of their perceived exposure to domestic and global events. STATEMENT OF TOTAL RETURN for the accounting period 8 March 2014 to 7 March 2015 Notes Income Net capital gains 2 113, , ,745 46,834 Expenses 4 (22,827) (18,707) Finance costs: Interest 6 (5) Net revenue before taxation 36,913 28,127 Taxation 5 (94) (41) Net revenue after taxation 36,819 28,086 Total return before distributions 150, ,780 Finance costs: s 6 (36,965) (28,302) Change in net assets attributable to shareholders from investment activities 113, ,478 BALANCE SHEET as at 7 March 2015 Notes Assets Investment assets 1,961,805 1,766,571 Other assets Debtors 7 12,351 44,421 Cash and bank balances 11,426 50,632 Total other assets 23,777 95,053 Total assets 1,985,582 1,861,624 Liabilities Other liabilities Creditors 8 (8,853) (18,802) payable on income shares (7,930) (8,835) Total other liabilities (16,783) (27,637) Total liabilities (16,783) (27,637) Net assets attributable to shareholders 1,968,799 1,833,987 STATEMENT OF CHANGE IN NET ASSETS ATTRIBUTABLE TO SHAREHOLDERS for the accounting period 8 March 2014 to 7 March 2015 Opening net assets attributable to shareholders 1,833,987 1,201,729 Movement due to sales and repurchases of shares: Amounts receivable on the issue of shares 642, ,539 Amounts payable on the cancellation of shares (630,766) (228,177) Amounts receivable on inspecie transfers (98,664) 11, ,698 Dilution adjustment 1, Stamp duty reserve tax (355) (1,738) Change in net assets attributable to shareholders from investment activities (see statement of total return above) 113, ,478 Retained distribution on accumulation shares 8,847 4,975 Unclaimed distributions monies brought back into account Closing net assets attributable to shareholders 1,968,799 1,833,987 DISTRIBUTION TABLE for the accounting period 8 March 2014 to 7 March 2015 Dividend distribution in pence per share Class 1 Shares Net Income Net Equalisation Paid/Payable Paid Group 1 08/03/14 to 07/09/ /09/14 to 07/03/ Group 2 08/03/14 to 07/09/ /09/14 to 07/03/ Total distributions in the period Class 1 Shares Net Accumulation* Net Equalisation Net Accumulated 2014/2015 Group 1 11/09/14 to 07/03/ Group 2 11/09/14 to 07/03/ Total distributions in the period *In pound Sterling and against UK peer group. Please refer to pages for comparative tables. 10

12 Threadneedle UK Fund DISTRIBUTION TABLE Class 2 Shares Net Income Net Equalisation Paid/Payable Paid Group 1 08/03/14 to 07/09/ /09/14 to 07/03/ Group 2 08/03/14 to 07/09/ /09/14 to 07/03/ Total distributions in the period Class 2 Shares Net Accumulation Net Equalisation Net Net Accumulated Accumulated Group 1 08/03/14 to 07/09/ /09/14 to 07/03/ Group 2 08/03/14 to 07/09/ /09/14 to 07/03/ Total distributions in the period Class Z Shares Net Income Net Equalisation Paid/Payable Paid Group 1 08/03/14 to 07/09/ /09/14 to 07/03/ Group 2 08/03/14 to 07/09/ /09/14 to 07/03/ Total distributions in the period Class Z Shares Net Accumulation Net Equalisation Net Net Accumulated Accumulated Group 1 08/03/14 to 07/09/ /09/14 to 07/03/ Group 2 08/03/14 to 07/09/ /09/14 to 07/03/ Total distributions in the period Group 2: shares purchased during a distribution period *Class 1 Net accumulation shares commenced 11 September

13 Threadneedle UK Fund Notes to the financial statements for the accounting period 8 March 2014 to 7 March ACCOUNTING POLICIES The accounting policies for the fund are the same as those disclosed in the aggregated financial statements on page 6. 2 NET CAPITAL GAINS Net capital gains during the period comprise: Non-derivative securities 113, ,706 Other losses (46) (3) Transaction costs (9) (9) Net capital gains 113, ,694 3 REVENUE UK dividends 58,495 44,555 Overseas dividends 1,031 1,511 Stock dividends 577 Interest on short term investments Bank interest Underwriting commission 107 Stocklending commission Total revenue 59,745 46,834 4 EXPENSES Payable to the ACD or associates of the ACD, and the agents of either of them: Annual management charge (20,879) (17,185) Registration fees (1,715) (1,460) (22,594) (18,645) Payable to the depositary or associate of the depositary, and the agents of either of them: Depositary s fees (165) (33) Safe custody fees (52) (15) (217) (48) Other expenses: Regulatory fee (7) (7) Audit fee (9) (7) (16) (14) * Total expenses (22,827) (18,707) *Including irrecoverable VAT where applicable. 5 TAXATION a) Analysis of charge in period Overseas taxes (94) (41) Total current tax (note 5b) (94) (41) Total tax charge for the period (94) (41) b) Factors affecting taxation charge for period Net revenue before taxation 36,913 28,127 Net revenue before taxation multiplied by the standard rate of corporation tax of 20% (7,383) (5,625) Effects of: not subject to taxation 11,836 9,329 Overseas taxes (94) (41) Excess expenses (4,424) (3,704) Retail Review (RDR) conversion transfer from capital (29) Current tax charge for period (note 5a) (94) (41) The fund has not recognised a deferred tax asset of 55,170,900 (2014: 50,746,522) arising as a result of having unutilised management expenses. It is unlikely that these expenses will be utilised in future years. 6 FINANCE COSTS s and Interest The distribution takes account of revenue received on the creation of shares and revenue deducted on the cancellation of shares and comprises: Interim 26,269 18,691 Final 11,410 10,862 37,679 29,553 Add: deducted on cancellation of shares 1,545 2,462 Deduct: received on creation of shares (2,259) (3,713) Net distribution for the period 36,965 28,302 Interest 5 Total finance costs 36,970 28,302 Net revenue after taxation 36,819 28,086 Equalisation on conversion Undistributed revenue carried forward (1) Net distribution for the period 36,965 28,302 Details of the distribution per share are set out in the table on pages 10 and DEBTORS Amounts receivable for the issue of shares 2,887 36,650 Sales awaiting settlement 1,528 Accrued revenue 7,936 7,697 Foreign withholding tax recoverable 74 Total debtors 12,351 44,421 8 CREDITORS Amounts payable for the cancellation of shares (6,675) (15,478) Purchases awaiting settlement (1,629) Accrued expenses (39) (13) Amounts payable to ACD (2,139) (1,682) Total creditors (8,853) (18,802) 9 RELATED PARTY TRANSACTIONS The related parties are set out in detail in Note 8 of the aggregated financial statements on page 7. The aggregate monies received through issues and paid on cancellations are disclosed in the Statement of Change in s Attributable to Shareholders. Any amounts due to or from Threadneedle Investment Services Limited at the end of the accounting period are disclosed in Notes 7 and 8. Amounts payable to Threadneedle Investment Services Limited in respect of fund management and registration services are disclosed in Note 4 and amounts outstanding at the year end in Note 8. In addition any fees paid to Threadneedle Investment Services Limited in respect of stocklending are disclosed in Note 11. All transactions have been entered into in the ordinary course of business on normal commercial terms. 12

14 Threadneedle UK Fund Notes to the financial statements 10 SHAREHOLDER FUNDS Threadneedle UK Fund currently has three share classes; Class 1, Class 2, and Class Z shares. The charges on each share class are as follows: Annual management charge Class 1 shares 1.50% Class 2 shares 1.00% Class Z shares 0.75% Registration fees Class 1 shares 0.150% Class 2 shares 0.035% Class Z shares 0.060% For the period 8 March to 30 June 2014 the registration fees for Class Z shares were 0.110%. The net asset value of each share class, the net asset value per share, and the number of shares in each class are given in the comparative table on page 244. The distribution per share class is given in the distribution table on pages 10 and 11. All classes have the same rights on winding up. 11 STOCKLENDING During the period under review the Threadneedle UK Fund has earned 16,000 (2014: 135,000) of which Nil (2014: 13,000) was outstanding at year end. They have paid fees of Nil (2014: 19,000) of which Nil (2014: 2,000) was outstanding at the year end to Threadneedle Investment Services Limited. In addition they have paid fees of Nil (2014: 20,000) of which Nil (2014: 2,000) was outstanding at the year end to J.P. Morgan as the security lending agent to process these arrangements and hold the collateral. There was no stock on loan at the end of the accounting period (2014: 49.64m), and there was no collateral held (2014: 52.82m). The collateral was held as either securities transferred in CREST by a DBV (Delivery by ) or Gilt DBV, or in the form of overseas government bonds, supranational bonds or certificates of deposit. The nature and value of collateral held is analysed by asset class in the table below. Analysis of Collateral Held Total Total Bonds 52, , DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS The analysis and tables provided below refer to the narrative disclosure on derivatives and other financial instruments risks on pages 8 and 9. Currency exposures A small proportion of the net assets of the fund are denominated in currencies other than Sterling, with the effect that the balance sheet and total return can be affected by currency movements. Net foreign currency assets Non- Monetary exposures monetary exposures Total Currency 2015 US Dollar 2,149 2,149 Currency 2014 Euro 16,259 16,259 Interest rate risk profile of financial assets and financial liabilities The interest rate risk profile of the fund s financial assets and financial liabilities at 7 March 2015 was: Floating rate financial assets Fixed rate financial assets Financial assets not carrying interest Total Currency 2015 UK Sterling 11,426 1,972,007 1,983,433 US Dollar 2,149 2,149 Currency 2014 Euro 16,259 16,259 UK Sterling 8,110 42,522 1,794,733 1,845,365 Floating rate financial liabilities Fixed rate financial liabilities Financial liabilities not carrying interest Total Currency 2015 UK Sterling (16,783) (16,783) Currency 2014 UK Sterling (27,637) (27,637) The floating rate financial assets include deposits which have a weighted average interest rate of 0.35% (2014: 0.40%). There are no material amounts of non interest-bearing financial assets, other than equities, which do not have maturity dates. Cash balances are held in floating rate accounts where interest is calculated with reference to prevailing market rates. 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. 13 CONTINGENT LIABILITIES AND COMMITMENTS There are no contingent liabilities and commitments outstanding (2014: Nil). 14 PORTFOLIO TRANSACTION COSTS Analysis of total purchase costs Purchases in period before transaction costs 772, ,897 Commissions Taxes 3,455 3,255 Fees 12 Total purchase costs 4,065 4,050 Gross purchases total 776, ,947 Analysis of total sale costs Gross sales before transaction costs 695, ,723 Commissions (587) (331) Taxes (1) Total sale costs (588) (331) Total sales net of transaction costs 695, ,392 13

15 Threadneedle UK Select Fund Investment Report Investment Objective To achieve above average capital growth. Investment Policy The ACD s investment policy is to invest the assets of the Fund for growth, through a concentrated, actively managed portfolio. The select investment approach means that the ACD has the flexibility to take significant stock and sector positions which may lead to increased levels of volatility. The portfolio will consist primarily of equities of companies domiciled in the UK, or which have significant UK operations. If the ACD considers it desirable, it may further invest in other securities (including fixed interest securities, other equities and money market securities). Performance of Net Income Class 1 Shares* Over the twelve months to 7 March 2015, the published share price of the Threadneedle UK Select Fund has risen from p to p. Looking at performance within its peer group, the total return on the fund for the twelve months ending 28 February 2015, including net reinvested income, is +9.97% as compared to a median return of +4.26% over the same period. (For information the FTSE All-Share Total Return Index returned +5.56% over the same period). Portfolio Activity UK equities had a turbulent 12 months but ended the period in positive territory, with the FTSE 100 index hitting a new record high in February The first half of the year showed increasing signs of economic recovery, including improving industrial production and robust GDP-growth figures. Though the recovery continued into the second half, numerous headwinds held the UK market back, including faltering growth in the eurozone economies, slowing demand in China and, towards the year-end, slumping commodity prices, which battered the stock prices of UK-listed resource companies. Our low exposure to energy and mining companies benefited performance relative to the index. Over the period, we built a position in AstraZeneca, which is the favoured name in the pharmaceuticals sector. There is a sense that a new generation of drugs is coming through that should continue to fuel positive performance. We also started a position in DS Smith (containers and packaging) whose encouraging firsthalf-results statement spoke of a significant number of acquisition opportunities to maintain growth and margin momentum. Also over the period, we closed our position in BP (oil & gas) as we re-evaluated our exposure to the sector. Lower food and energy prices are benefiting consumers at a time when employment is rising and wage growth is beginning to accelerate, which should support discretionary spending over the course of The Bank of England has revised up its UK economic growth forecasts for both this year and next. We do, however, feel that those focused on UK political risk will start to fret about the UK general election on 7 May. Noise around the election and uncertainty in Europe, China and elsewhere will give us an opportunity to add to our favoured names those stocks should become attractive from a valuation perspective because of their perceived exposure to domestic and global events. STATEMENT OF TOTAL RETURN for the accounting period 8 March 2014 to 7 March 2015 Notes Income Net capital gains 2 17,543 29, ,008 7,388 Expenses 4 (2,893) (2,978) Net revenue before taxation 4,115 4,410 Taxation 5 (5) Net revenue after taxation 4,110 4,410 Total return before distributions 21,653 34,112 Finance costs: s 6 (4,114) (4,418) Change in net assets attributable to shareholders from investment activities 17,539 29,694 BALANCE SHEET as at 7 March 2015 Notes Assets Investment assets 204, ,895 Other assets Debtors 7 1,564 2,296 Cash and bank balances 11,886 4,209 Total other assets 13,450 6,505 Total assets 217, ,400 Liabilities Other liabilities Creditors 8 (501) (3,663) payable on income shares (805) (821) Total other liabilities (1,306) (4,484) Total liabilities (1,306) (4,484) Net assets attributable to shareholders 216, ,916 STATEMENT OF CHANGE IN NET ASSETS ATTRIBUTABLE TO SHAREHOLDERS for the accounting period 8 March 2014 to 7 March 2015 Opening net assets attributable to shareholders 207, ,522 Movement due to sales and repurchases of shares: Amounts receivable on the issue of shares 16,218 22,518 Amounts payable on the cancellation of shares (25,207) (64,751) (8,989) (42,233) Dilution adjustment 28 Stamp duty reserve tax (17) (104) Change in net assets attributable to shareholders from investment activities (see statement of total return above) 17,539 29,694 Unclaimed distributions monies brought back into account 8 9 Closing net assets attributable to shareholders 216, ,916 *In pound Sterling and against UK peer group. Please refer to pages for comparative tables. DISTRIBUTION TABLE for the accounting period 8 March 2014 to 7 March 2015 Dividend distribution in pence per share Class 1 Shares Net Income Net Equalisation Paid/Payable Paid Group 1 08/03/14 to 07/09/ /09/14 to 07/03/ Group 2 08/03/14 to 07/09/ /09/14 to 07/03/ Total distributions in the period Class 2 Shares Net Income Net Equalisation Paid/Payable Paid Group 1 08/03/14 to 07/09/ /09/14 to 07/03/ Group 2 08/03/14 to 07/09/ /09/14 to 07/03/ Total distributions in the period

16 Threadneedle UK Select Fund DISTRIBUTION TABLE Class Z Shares Net Income Net Equalisation Paid/Payable Paid Group 1 08/03/14 to 07/09/ /09/14 to 07/03/ Group 2 08/03/14 to 07/09/ /09/14 to 07/03/ Total distributions in the period Group 2: shares purchased during a distribution period 15

17 Threadneedle UK Select Fund Notes to the financial statements for the accounting period 8 March 2014 to 7 March ACCOUNTING POLICIES The accounting policies for the fund are the same as those disclosed in the aggregated financial statements on page 6. 2 NET CAPITAL GAINS Net capital gains during the period comprise: Non-derivative securities 17,561 29,706 Other losses (16) Transaction costs (2) (4) Net capital gains 17,543 29,702 3 REVENUE UK dividends 6,941 7,143 Overseas dividends Stock dividends 158 Interest on short term investments Bank interest 6 5 Underwriting commission 7 8 Stocklending commission 2 19 Total revenue 7,008 7,388 4 EXPENSES Payable to the ACD or associates of the ACD, and the agents of either of them: Annual management charge (2,626) (2,711) Registration fees (220) (233) (2,846) (2,944) Payable to the depositary or associate of the depositary, and the agents of either of them: Depositary s fees (19) (18) Safe custody fees (12) (2) (31) (20) Other expenses: Regulatory fee (7) (7) Audit fee (9) (7) (16) (14) * Total expenses (2,893) (2,978) *Including irrecoverable VAT where applicable. 5 TAXATION a) Analysis of charge in period Overseas taxes (5) Total current tax (note 5b) (5) Total tax charge for the period (5) b) Factors affecting taxation charge for period Net revenue before taxation 4,115 4,410 Net revenue before taxation multiplied by the standard rate of corporation tax of 20% (823) (882) Effects of: not subject to taxation 1,383 1,468 Overseas taxes (5) Excess expenses (559) (586) Retail Review (RDR) conversion transfer from capital (1) Current tax charge for period (note 5a) (5) The fund has not recognised a deferred tax asset of 9,798,075 (2014: 9,238,406) arising as a result of having unutilised management expenses. It is unlikely that these expenses will be utilised in future years. 6 FINANCE COSTS s The distribution takes account of revenue received on the creation of shares and revenue deducted on the cancellation of shares and comprises: Interim 3,271 3,282 Final ,076 4,103 Add: deducted on cancellation of shares Deduct: received on creation of shares (67) (117) Net distribution for the period 4,114 4,418 Total finance costs 4,114 4,418 Net revenue after taxation 4,110 4,410 Equalisation on conversion 4 8 Net distribution for the period 4,114 4,418 Details of the distribution per share are set out in the table on page 14 and DEBTORS Amounts receivable for the issue of shares Sales awaiting settlement 1,066 Accrued revenue Total debtors 1,564 2,296 8 CREDITORS Amounts payable for the cancellation of shares (206) (2,731) Purchases awaiting settlement (697) Accrued expenses (10) (7) Amounts payable to ACD (285) (228) Total creditors (501) (3,663) 9 RELATED PARTY TRANSACTIONS The related parties are set out in detail in Note 8 of the aggregated financial statements on page 7. The aggregate monies received through issues and paid on cancellations are disclosed in the Statement of Change in s Attributable to Shareholders. Any amounts due to or from Threadneedle Investment Services Limited at the end of the accounting period are disclosed in Notes 7 and 8. Amounts payable to Threadneedle Investment Services Limited in respect of fund management and registration services are disclosed in Note 4 and amounts outstanding at the year end in Note 8. In addition any fees paid to Threadneedle Investment Services Limited in respect of stocklending are disclosed in Note 11. All transactions have been entered into in the ordinary course of business on normal commercial terms. 10 SHAREHOLDER FUNDS Threadneedle UK Select Fund currently has three share classes; Class 1, Class 2, and Class Z shares. The charges on each share class are as follows: Annual management charge Class 1 shares 1.50% Class 2 shares 1.00% Class Z shares 0.75% Registration fees Class 1 shares 0.150% Class 2 shares 0.035% Class Z shares 0.110% 16

18 Threadneedle UK Select Fund Notes to the financial statements The net asset value of each share class, the net asset value per share, and the number of shares in each class are given in the comparative table on page 244. The distribution per share class is given in the distribution table on pages 14 and 15. All classes have the same rights on winding up. 11 STOCKLENDING During the period under review the Threadneedle UK Select Fund has earned 2,000 (2014: 27,000) of which Nil (2014: 2,000) was outstanding at year end. They have paid fees of Nil (2014: 4,000) to Threadneedle Investment Services Limited. In addition they have paid fees of Nil (2014: 4,000) to J.P. Morgan as the security lending agent to process these arrangements and hold the collateral. There was no stock on loan at the end of the accounting period (2014: 4.44m), and there was no collateral held (2014: 4.70m). The collateral was held as either securities transferred in CREST by a DBV (Delivery by ) or Gilt DBV, or in the form of overseas government bonds, supranational bonds or certificates of deposit. The nature and value of collateral held is analysed by asset class in the table below. Analysis of Collateral Held Total Total Bonds 4, , DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS The analysis and tables provided below refer to the narrative disclosure on derivatives and other financial instruments risks on pages 8 and 9. Currency exposures A small proportion of the net assets of the fund are denominated in currencies other than Sterling, with the effect that the balance sheet and total return can be affected by currency movements. Net foreign currency assets Non- Monetary exposures monetary exposures Total Currency 2015 US Dollar Currency 2014 Euro 8 8 US Dollar 2,653 2,653 Interest rate risk profile of financial assets and financial liabilities The interest rate risk profile of the fund s financial assets and financial liabilities at 7 March 2015 was: Floating rate financial assets Fixed rate financial assets Financial assets not carrying interest Total Currency 2015 UK Sterling 11, , ,463 US Dollar Currency 2014 Euro 8 8 UK Sterling 2,700 1, , ,739 US Dollar 2,653 2,653 There are no material amounts of non interest-bearing financial assets, other than equities, which do not have maturity dates. Cash balances are held in floating rate accounts where interest is calculated with reference to prevailing market rates. 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. 13 CONTINGENT LIABILITIES AND COMMITMENTS There are no contingent liabilities and commitments outstanding (2014: Nil). 14 PORTFOLIO TRANSACTION COSTS Analysis of total purchase costs Purchases in period before transaction costs 79,772 82,883 Commissions Taxes Fees 2 Total purchase costs Gross purchases total 80,262 83,325 Analysis of total sale costs Gross sales before transaction costs 99, ,728 Commissions (140) (170) Total sale costs (140) (170) Total sales net of transaction costs 99, ,558 Floating rate financial liabilities Fixed rate financial liabilities Financial liabilities not carrying interest Total Currency 2015 UK Sterling (1,306) (1,306) Currency 2014 UK Sterling (4,484) (4,484) The floating rate financial assets include deposits which have a weighted average interest rate of 0.35% (2014: 0.40%). 17

19 Threadneedle UK Smaller Companies Fund Investment Report Investment Objective To achieve capital growth. Investment Policy The ACD s investment policy is to invest the assets of the Fund primarily in the equities of smaller companies that are domiciled in the UK or have significant UK operations. If the ACD considers it desirable it may further invest up to one third of the total assets of the Fund in other securities (including fixed interest securities, other equities and money market securities). For liquidity purposes it may invest in cash and near cash. Performance of Net Income Class 1 Shares* Over the twelve months to 7 March 2015, the published share price of the Threadneedle UK Smaller Companies Fund has risen from p to p. Looking at performance within its peer group, the total return on the fund for the twelve months ending 28 February 2015, including net reinvested income, is +2.77% as compared to a median return of -3.68% over the same period. (For information the Numis Smaller Companies (ex Investment Trusts) Index returned -1.83% over the same period). Portfolio Activity The global economy has faced a broad range of challenges over the last 12 months, and markets have seen a more volatile profile over this period. Global markets reacted positively at the start of the period to the improving economic data in the US and the perception that rates would stay lower for longer across the globe. However, concerns around Europe and monetary tightening in the US, slowing growth in China and anaemic corporate earnings saw markets retreat into the year end. The dramatic fall in the oil price, which began in September 2014 and hit a low of US$50 a barrel in January 2015, generated increased volatility. So far, 2015 has seen several global indexes rise to new highs as comfort seems to have been reinstated around the Federal Reserve s tightening policy. Meanwhile, China s growth target has been firmed up at lower levels, and, in the short term, Europe is working around Greece. The UK economy has retained solid growth, with low inflation and improving jobs data facilitating a sustained increase in domestic consumption. The Numis Smaller Companies Index (ex Investment Trusts) has been broadly flat over the period but has underperformed the larger UK indexes. The fund performed well as it was a major beneficiary of increased mergers and acquisitions (M&A) activity; Optos, Hyder, CSR, Spirit and Kentz all received bids during the period. The fund also benefited from its increased exposure to the UK domestic economy through holdings such as Crest Nicholson and Secure Trust Bank. We believe there is still scope for earnings progression from domesticexposed companies going forward. The fund exited several of the companies where bids have completed. We also sold out of Entertainment One and Euromoney, where we saw a reduced conviction in the investment case at the valuation. We have moved funds out of stocks where we felt valuations looked full, and moved into stocks which presented better value; companies such as N Brown, Pets at Home and Mears Group are all generating strong cashflow with good growth prospects. The focus remains on high-quality companies with sustainable returns and can deliver progress in a relatively benign economic environment. We can see M&A remaining a theme, and would expect more of our companies to look to be on the acquiring side going forward as they look to strengthen their market positions. STATEMENT OF TOTAL RETURN for the accounting period 8 March 2014 to 7 March 2015 Notes Income Net capital gains 2 1,556 33, ,434 2,737 Expenses 4 (1,733) (1,971) Net revenue before taxation Taxation 5 (62) (12) Net revenue after taxation Total return before distributions 2,195 34,404 Finance costs: s 6 (727) (802) Change in net assets attributable to shareholders from investment activities 1,468 33,602 BALANCE SHEET as at 7 March 2015 Notes Assets Investment assets 145, ,995 Other assets Debtors ,071 Cash and bank balances 1,404 11,514 Total other assets 1,731 12,585 Total assets 147, ,580 Liabilities Other liabilities Creditors 8 (1,997) (3,533) payable on income shares (86) (197) Total other liabilities (2,083) (3,730) Total liabilities (2,083) (3,730) Net assets attributable to shareholders 145, ,850 STATEMENT OF CHANGE IN NET ASSETS ATTRIBUTABLE TO SHAREHOLDERS for the accounting period 8 March 2014 to 7 March 2015 Opening net assets attributable to shareholders 173, ,171 Movement due to sales and repurchases of shares: Amounts receivable on the issue of shares 33,566 54,344 Amounts payable on the cancellation of shares (64,120) (53,438) Amounts receivable on inspecie transfers (11,333) (30,554) (10,427) Dilution adjustment Stamp duty reserve tax (38) (68) Change in net assets attributable to shareholders from investment activities (see statement of total return above) 1,468 33,602 Retained distribution on accumulation shares 41 Unclaimed distributions monies brought back into account 1 1 Closing net assets attributable to shareholders 145, ,850 DISTRIBUTION TABLE for the accounting period 8 March 2014 to 7 March 2015 Dividend distribution in pence per share Class 1 Shares Net Income Net Equalisation Paid/Payable Paid Group 1 08/03/14 to 07/09/ /09/14 to 07/03/15 Group 2 08/03/14 to 07/09/ /09/14 to 07/03/15 Total distributions in the period Class 2 Shares Net Income Net Equalisation Paid/Payable Paid Group 1 08/03/14 to 07/09/ /09/14 to 07/03/ Group 2 08/03/14 to 07/09/ /09/14 to 07/03/ Total distributions in the period *In pound Sterling and against UK peer group. Please refer to pages for comparative tables. 18

20 Threadneedle UK Smaller Companies Fund DISTRIBUTION TABLE Class Z Shares Net Income Net Equalisation Paid/Payable Paid Group 1 08/03/14 to 07/09/ /09/14 to 07/03/ Group 2 08/03/14 to 07/09/ /09/14 to 07/03/ Total distributions in the period Class Z Shares Net Accumulation Net Equalisation Net Net Accumulated Accumulated Group 1 08/03/14 to 07/09/ /09/14 to 07/03/ Group 2 08/03/14 to 07/09/ /09/14 to 07/03/ Total distributions in the period Group 2: shares purchased during a distribution period 19