Threadneedle investments

Citywire Berlin Conference

Stock-picking and Quantitative Easing

For investment professionals only

7-9 November 2012 Stephen Moore

Agenda

1. A supportive environment for US equities

2. The key to developing conviction

3. Fundamental opportunities abound

4. One strategy, two funds

5. Threadneedle American Extended Alpha Fund

6. Threadneedle American Absolute Alpha Fund

7. Conclusion

Stock-picking and Quantitative Easing

2

A supportive environment for US equities

01

Benefiting from under-appreciated characteristics

Positive demographic trends

Most dynamic & innovative in the global economy

Strong legal framework

Stable regulatory framework

Good corporate governance

An aggressive central bank

US dollar remains the reserve currency

An increased energy self-reliance

An industrial renaissance

America: the Saudi Arabia of agriculture

Dealing (slowly) with the entitlement culture (Wisconsin recall; NJ)

The case for US equities

4

The best equity returns have come in the wake of disinflation / deflation

Investing in a zero interest world (lesson from Japan) Change in inflation drives the business cycle

Source: Wolfe Trahan, October 2012.

5

-60%

-40%

-20%

0%

20%

40%

60%

80%

Jan-95 Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13

-4%

-3%

-2%

-1%

0%

1%

2%

3%

Nikkei Index (yoy, LHS) Japan's CPI (inverted, adv. 6m RHS)

Inflation expectations1 have declined (in %)

Low inflation expectations are spurring central bank action

Source: Bloomberg, 25 October 2012.

(1) Inflation time series shown is the average of the 2 year breakeven rates 2 year forward and global CPI. TRSLAG Index is the 1 year change in the Federal

Reserve’s US treasury Securities held outright

6

-2

-1

0

1

2

3

4

5

Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12

-400000

-200000

0

200000

400000

600000

800000

1000000

.INFLAT U Index (LHS) .TRSLAG Index (RHS)

Inflation scare

Deflation scare

QEI falls short

QEII works

Twist fails

Quantitative

tightening

QEI

QEII

QEII ends, Twist begins

QE∞ begins

1 year change in Treasury securities held outright

The Fed and ECB are expanding their balance sheets, supporting equity markets

Source: Bloomberg, Federal Reserve as at 25 October 2012

Orange line is the S&P500 Index; Yellow line are the assets held by the European Central Bank; the Green line is the 1-year change in the US Treasury held outright

by the Federal Reserve.

7

S&P 500

Fed

ECB

US homebuilder sentiment points to an increase in housing activity

Source: Bloomberg, 23 October 2012

The yellow line represents building permits; The grey line represents the National Association of Homebuilder s Housing Market Survey; .

0

500

1000

1500

2000

2500

Oct-92 Oct-94 Oct-96 Oct-98 Oct-00 Oct-02 Oct-04 Oct-06 Oct-08 Oct-10 Oct-12

0

10

20

30

40

50

60

70

80

90

LEI BP Index (LHS) US.HMSURV NAHB Index (RHS)

8

The wildcard of the 2013 fiscal cliff remains

Source: Morgan Stanley, April 2012

9

Percentage points of potential GDP

-4.5

-3.0

-1.5

0.0

1.5

3.0

4.5

80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12

Fiscal year

Fiscal Restraint (+)

Fiscal Stimulus (-)

Current Law

2013 Fiscal Cliff

(% of GDP )

Expiration of

unemployment

benefits

-0.2%

Automatic

spending cuts

(sequestration)

-0.8%

Expiration of

payroll tax cuts -0.8%

Expiration of Bush

tax cuts -0.8%

C.-3.0%

The key to developing conviction

02

Developing a clear view of the opportunity and the risk

Ideally buying $3 of upside, for $1 of downside

Holding differentiated, substantiated views

Considering the macroeconomic environment

Our approach: Assessing upside/downside risks, stock by stock

11

Upside /

Downside analysis

Explicit risk / reward

assessment

Up / down price targets

Business

model Management

Financial

model

Valuation What is it worth?

Leveraging deep resources

Overseeing $12.4bn in US equities

Source: Threadneedle as at 30 June 2012.

1 Junior Analyst

2 Governance and Responsible Investment

12

Cormac Weldon

Head of US Equities

Health Care

Diane Sobin

Materials, Energy

Stephen Moore

Telecoms

William Warren

Technology

Other Gary Young

Dedicated Dealer

Stéphane Jeannin

Investment Specialist

Additional

resources

Other equity (including G & RI2)

and managed funds

48 professionals

Fixed income

36 professionals

Property

21 professionals

Investment risk

9 professionals

Equity dealers

6 professionals

Investment

Team Brad Colton

Financials

Paul Gannon

Consumer Discretionary

Olivia Miller1

Consumer Staples

Nafis Chowdhury

Industrials

Fundamental opportunities abound

03

The US Consumer is no longer over-extended

Source: Federal Reserve Board, Empirical Research Partners Analysis, September 2012.

14

U.S. Consumers debt levels and debt service

payments as a share of disposable income

1980 through Q1 20121

All commercial banks year-over-year changes in

consumer loans 2005 through Late-August 2012

10.0

10.5

11.0

11.5

12.0

12.5

13.0

13.5

14.0

14.5

80 83 86 89 92 95 98 01 04 07 10

De

bt

Se

rvic

e (

%)

50

60

70

80

90

100

110

120

130

De

bt

Le

ve

l (%

)

Debt Debt Service

(10)

(5)

0

5

10

15

Jun 05 Jun 06 Jun 07 Jun 08 Jun 09 Jun 10 Jun 11 Jun 12%

Large-capitalization consumer lenders relative-to-core consumer cyclicals ratio of price-to-book ratios1

1972 through mid September 2012

US banks are historically cheaply valued against consumer plays

Source: Corporate Reports, Empirical Research Partners Analysis, October 2012.

1 Equally-weighted data.

0.2

0.4

0.6

0.8

1.0

1.2

1.4

72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12

x

Consumer Lenders

Have Higher Ratios

Consumer Lenders

Have Lower Ratios

15

US banks are liquid, deposits-funded and have deleveraged

Source: Company data, July 2012.

The research and analysis included in this document has been produced by Threadneedle Investments for its own investment management activities, may have been

acted upon prior to publication and is made available here incidentally. Any opinions expressed are made as at the date of publication but are subject to change

without notice. Information obtained from external sources is believed to be reliable but its accuracy or completeness cannot be guaranteed.

16

US P/B P/TBV PE12 PE13 Reserves /

loans NPLs / loans

NPA

coverage

Loans /

deposits

Assets /

equity

JP Morgan 0.8 1.0 8.3 6.7 3.8% 1.5% 250% 64% 12

Bank of America ML 0.4 0.6 11.7 7.4 3.6% 3.0% 122% 90% 9

Citigroup 0.4 0.5 6.7 5.8 4.5% 1.7% 255% 75% 10

Wells Fargo 1.3 1.7 9.8 8.7 2.5% 3.4% 75% 84% 9

PNC 0.9 1.4 9.4 8.7 2.7% 2.6% 105% 85% 7

USB 1.9 2.6 11.2 10.3 2.3% 1.8% 126% 91% 10

Europe

BNP Paribas 0.5 0.6 4.6 5.1 4.0% 6.3% 64% 127% 23

Credit Agricole 0.2 0.4 5.1 3.1 4.0% 6.0% 66% 79% 35

Societe Generale 0.3 0.4 4.9 3.7 4.1% 5.8% 70% 122% 23

UniCredit 0.1 0.1 2.2 1.7 5.9% 13.3% 45% 166% 17

Intesa Sanpaolo 0.3 0.5 5.4 4.5 5.9% 11.1% 53% 205% 13

Santander 0.6 0.9 6.6 5.4 2.5% 4.3% 59% 133% 15

BBVA 0.7 0.7 9.6 5.7 2.2% 4.3% 51% 128% 15

Deutsche Bank 0.5 0.7 5.7 5.6 1.0% 2.6% 39% 69% 40

Commerzbank 0.3 0.3 4.9 3.9 2.8% 6.5% 44% 120% 27

Capital One Financial

Performance 2-year total return

Source: Datastream as at 30 September 2012, in USD.

Past performance is not a guide to future performance. The mention of any specific shares or bonds should not be taken as a recommendation to deal. Threadneedle

Investments does not give any investment advice. If you are in doubt about the suitability of any investment, you should speak to your financial adviser.

17

80

90

100

110

120

130

140

150

160

Sep 10 Jan 11 May 11 Sep 11 Jan 12 May 12 Sep 12

Re

ba

se

d =

10

0

Absolute Relative to S&P 500 Index

New regulations impacting the industry resulting in

pricing discipline

2009 Credit Card Accountability Responsibility and

Disclosure (CARD) Act brings discipline

Acquisition underpinning profits growth

ING Direct in the US (deposits)

c.$30bn of HSBC credit card loans (for c. $2.6bn)

Acquisitions mitigate the pressure to grow loans

Improving credit cycle

c. 30/40% of loans replaced every year

Business predominantly written since the financial crisis

of ’08

Chargedßoffs to remain below normal for longer period

of time

Strong cash generation

On track to reach 8% capital ratio bz 2013

Cash increasingly used to boost shareholder returns

Shares attractively valued on c.8x ’13 earnings

Shale gas now accounts for 25% of production, vs. 5% in 2006

Source: Bloomberg. 1 As at July 2012. 2 As at 10 September 2012.



18

Natural gas dry production -

Billion cubic feet per day1

44

48

52

56

60

64

68

90 92 94 96 98 00 02 04 06 08 10 12

Natural gas for next day delivery at Henry Hub

(US benchmark) - $ per MMBtu2

0

2

4

6

8

10

12

14

16

04 05 06 07 08 09 10 11

Ethylene cash production costs, (US$/tonne) February 2003 & 2012

US chemicals are low cost globally

Source: CMAI as at February 2012.



19

0

250

500

750

1,000

1,250

1,500

Ethane Ethane C2/C3 Ethane Weighted Condensate Propane Naphtha Low cost Typical High cost Naphtha

KSA Iran KSA US US KSA KSA US W Eur W Eur W Eur Asia

Cash Cost 2003 Cash Cost 2012

US EthaneUS Weighted

Average

Europe low cost

Europe typical

Asia

US Large-capitalisation stocks (1)

Highest quintile of dividend yield stocks relative trailing-P/E ratios (x)

Higher-yielding equities are expensively valued

Source: Corporate Reports, National Bureau of Economic Research, Empirical Research Partners Analysis, August 2012. Based on capitalisation-weighted data.

(1) Based on 1500 US largest capitalisations

20

0.2

0.4

0.6

0.8

1.0

1.2

1.4

51 55 59 63 67 71 75 79 83 87 91 95 99 03 07 11

Recessions

Average

Higher Multiples

Yield relationships convey disbelief

Source: Federal Reserve Board, Bloomberg, LP, Corporate Reports, Empirical Research Partners Analysis

1 Large-capitalisation stocks excluding financials and utilities; capitalisation weighted data, February 2012 Past performance is not a guide to future performance. The

mention of any specific shares or bonds should not be taken as a recommendation to deal. Threadneedle Investments does not give any investment advice. If you are

in doubt about the suitability of any investment, you should speak to your financial adviser.

.

21

Equity free cash flow yields as a ratio to Baa corporate bond yields1 1953 through early-January 2012

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

53 56 59 62 65 68 71 74 77 80 83 86 89 92 95 98 01 04 07 10

Recessions

Average

21

US companies have underinvested since the financial crisis

Source: Corporate Reports, Empirical Research Partners Analysis, January 2012.

1 Excludes financials

2 Measured quarterly

22

The S&P 5001

Capital spending as a share of gross cash flow2 – 1976 through Q4 2011E

30

40

50

60

70

80

90

100

110

1 8 15 22 29 36 43 50 57 64 71 78 85 92 99

Percentile Rank (100 = lowest capital spending as a share of gross cash flow)

%

Latest

Q3 2009

US Equities - Mutual fund net flows (m)

The demise of the equity culture

Source: ICI Goldman Sachs Research as at 29 May 2012

23

-50,000

-40,000

-30,000

-20,000

-10,000

0

10,000

20,000

30,000

40,000

Jan-

91

Jan-

92

Jan-

93

Jan-

94

Jan-

95

Jan-

96

Jan-

97

Jan-

98

Jan-

99

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Jan-

11

Jan-

12

One strategy, two funds

04

Threadneedle US equities strategies

Source: Threadneedle

25

Strategy Fund manager(s)

Threadneedle American Fund Core Cormac Weldon

Threadneedle (Lux) American Fund Core Cormac Weldon

Threadneedle US Equity Income Fund Income Diane Sobin

Threadneedle American Select Fund High alpha Cormac Weldon

Threadneedle (Lux) – American Select Fund High alpha Cormac Weldon

Threadneedle American Smaller Companies Fund Small cap Cormac Weldon

& Diane Sobin

Threadneedle (Lux) American Absolute Alpha Absolute Returns Stephen Moore

Threadneedle American Extended Alpha Fund Long/short S&P500 benchmarked Stephen Moore

One strategy, two funds

1 Investors should note that the fund does not offer any form of guarantee with respect to investment performance and no form of capital protection will apply

Source: Threadneedle; as at 30 September 2012

26

Threadneedle (Lux) American Absolute Alpha Fund

■ Target return of 8-10% with high single digit volatility1

■ Focus on stock selection (alpha), not market-derived

returns (beta)

Characteristics

Launch date June 2010

Liquidity Daily

Assets $158m

Gross exposure Max. 200%

Net exposure Typically -25% to +35%

Instruments Cash equity and equity swap

Bottom-up fundamental analysis with macroeconomic inputs

Stock-level conviction, long and short

Risk management embedded in our process

Threadneedle

Threadneedle American Extended Alpha Fund

■ Targets 1st quartile performance over rolling 3 years

■ Enhances market-derived returns (beta) via stock

selection (alpha)

Characteristics

Launch date October 2007

Liquidity Daily

Assets $723m

Gross exposure Max. 200%

Net exposure Typically +90% to +110%

Instruments Cash equity and equity swap


05

Threadneedle American Extended Alpha Fund Characteristics and risk framework

Source: Threadneedle as at 30 September 2012.

1 Against primary benchmark

2 Using the S&P GICS sectors

28

US equity fund broadly diversified by market size and sector

Current fund size $723 million

Target 1st quartile over rolling 3-year periods

Benchmark - primary S&P 500 Composite

Benchmark - secondary UK IMA – US equities

Typical tracking error range 4%–8%

Typical number of stocks c.30–80 longs

c.30–80 shorts

Maximum typical gross exposure 150% long, 50% short

Typical net exposure range 90%–110%

Typical maximum stock load difference1 +8%

Typical maximum sector2 load difference1 +15%

Registration Austria, Belgium, France, Germany, Netherlands, Luxembourg, Spain, Chile,

Switzerland, Portugal, Denmark, Singapore and Italy.

Annualised performance ($) 6 months 1 year 2 years 3 years Volatility1

(3 years p.a.)

Since

inception2

Threadneedle American Extended

Alpha Fund – net 4.2% 29.9% 18.0% 13.5% 15.6% 4.3%

Sector median 0.2% 25.3% 11.6% 10.2% - -0.7%

Relative return +3.9% +3.7% +5.7% +3.0% - +5.0%

Percentile ranking 1 11 3 15 - 2

Threadneedle American Extended

Alpha Fund – gross 4.6% 33.0% 19.0% 14.6% 15.4% 5.4%

S&P 500 Index 3.4% 30.2% 14.8% 13.2% - 0.8%

Relative return +1.1% +2.2% +3.7% +1.2% - +4.6%

Threadneedle American Extended Alpha Fund Performance summary

Source: Morningstar / FactSet as at 30 September 2012. Data in $. Net performance on bid to bid basis with net income re-invested at bid. Sector median – Morningstar Offshore & International

Universe. Morningstar changed its definition of the GIFS Offshore Universe as at February 2011. This resulted in this fund being removed from it. For the purposes of comparison, Threadneedle

continues to use this Universe with its fund included. Gross performance on a bid to bid basis with income re-invested at bid. Gross performance from 31 March 2010 onwards is based on daily

cash flows and valuations, from 1 January 2008 to 31 March 2010 based on Global Close prices, and prior to January 2008 based on 12pm prices. Relative returns calculated on a geometric basis.

1 Based on monthly data

2 Threadneedle American Extended Alpha Fund is since inception 31 October 2007.

29

Threadneedle American Extended Alpha Fund Portfolio composition


1 Excludes cash position of 4.7%

30

Largest 10 overweights Active

weight %

Alliance Data Systems 3.2

Pfizer 2.7

Tyco International 2.3

Capital One Financial 2.2

Spansion 2.1

Discover Financial

Services 2.1

Thermo Fisher Scientific 2.0

Wyndham Worldwide 1.9

Riverbed Technology 1.9

Newmont Mining 1.9

Largest 10 positions Fund

weight %

Apple 5.6

Pfizer 4.1


Exxon Mobil 3.1

Wells Fargo & Co. 2.8



Berkshire Hathaway 2.3

EMC 2.3

Discover Financial

Services 2.3

Sector exposure relative to S&P5001

Top overweight and underweight

sub-sectors (%)

Active

weight

%

Health Care 5.1

Financials 4.8

Materials 4.3

Consumer Discretionary 2.3

Telecoms -1.0

Information Technology -2.4

Energy -3.0

Industrials -3.3

Utilities -4.0

Consumer Staples -7.6

-6 -4 -2 0 2 4

Threadneedle American Absolute Alpha Fund

06

Threadneedle (Lux) American Absolute Alpha Fund Term sheet

Source: Threadneedle

32

Launch date 15 June 2010

Liquidity Daily

Legal structure SICAV (Part 1)

UCITS III designation Sophisticated Fund

Fees 1.5% (retail), 0.75% (inst), 20% performance fee over 3mth LIBOR with high water mark

Gross exposure guide Max. 200% (longs + shorts)

Typical net exposure -25% to +35% (Longs – shorts)

Instruments Long: cash equity / equity swap, short: equity swap

Currency USD, EUR, GBP and EUR & GBP–hedged

Domicile Luxembourg

SWAP counterparty Bank of America Merrill Lynch

Custodian RBC Dexia Investor Solutions Bank

Auditor Ernst & Young

Valuation point Global Close

Registrations UK, France, Germany, Italy, Spain, Netherlands, Luxembourg, Switzerland, Portugal, Austria, Hong Kong


Performance since inception

33

Source: Morningstar and Datastream as at 30 September 2012. All data quoted in $. Net performance based on 12pm prices, unadjusted income reinvested

1 The fund's inception date was 16 June 2010. Performance is shown from 30 June 2010 as the fund was not fully invested according to strategy until this time and

therefore any returns for that initial period would be unrepresentative of the fund's true performance. Performance is annualised.

2 Total Return Index in $

2011 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2011

Threadneedle (Lux)

American Absolute

Alpha Fund (net)

0.1% 1.1% 0.3% 1.1% 0.5% 0.2% 0.1% -1.1% 1.0% -0.1% 0.1% 0.5% 3.6%

S&P 500 Index2 2.4% 3.4% 0.0% 3.0% -1.1% -1.7% -2.0% -5.4% -7.0% 10.9% -0.2% 1.0% 2.1%


Threadneedle (Lux)

American Absolute

Alpha Fund (net)

- - - - - - -0.3% -2.0% 1.5% 1.0% 0.5% 0.9% 1.7%

S&P 500 Index2 - - - - - - 7.0% -4.5% 8.9% 3.8% 0.0% 6.7% 23.3%

6 months 1 year Since inception1

Threadneedle (Lux) American

Absolute Alpha Fund (net) 0.8% 4.8% 4.3%

S&P 500 Index2 6.4% 30.2% 18.5%


Threadneedle (Lux)

American Absolute

Alpha Fund (net)

0.3% 1.2% 1.6% 1.0% -0.1% -0.3% 0.6% 0.2% 0.0% 4.4%

S&P 500 Index2 4.5% 3.1% 3.3% -0.6% -6.0% 4.1% 1.4% 2.3% 2.6% 16.4%

Threadneedle (Lux) American Absolute Alpha Fund Portfolio composition


Shown on a look-through basis.

34

Top 5 long holdings Fund (%)



Spansion 1.9

EMC 1.8


Top 5 short holdings Fund (%)

S&P 500 ETF -1.2

Payroll & HR services firm -1.0

Semiconductors -0.9

Customer relationship management -0.9

Payroll & HR services firm -0.9

Sector positioning Net (%) Gross(%)

Energy -0.7 0.7

Materials 5.1 9.0

Industrials 1.2 7.6

Consumer discretionary 6.6 15.6

Consumer staples -2.4 3.2

Healthcare 3.0 4.2

Financials 2.6 14.9

Information technology 1.9 27.8

Telecommunications -1.0 1.0

Utilities -1.0 1.0

Total 15.4 85.4

Conclusion

07

Decline in inflation leads to money printing, supporting asset prices

US equities are attractive in this environment

Conviction is key

Like CEOs, we assess investment opportunities in their macroeconomic context

A Risk/Return framework is instrumental to developing conviction

Conclusion

36

Appendix

AP

How we build portfolios

38

Company research

Rigorous

fundamental analysis

Collaboration and

discussion

Valuation

assessment

Target prices

Monitoring and

risk control

Consideration of

downside

fundamental risk

Daily risk reports

Automated system of

compliance checks

11 strong risk

department

Idea generation

Experience

Company meetings

External research

Macroeconomic

Thematic and sub-

sector views

Portfolio construction

Stock conviction

Individual stock risk

Factor / systematic

risk

Competition for

capital

Idea generation

Stock selection is main source of Alpha

1 S&P 500 Index constituents and opportunistic list of small / mid cap names

39

Thematic / sector

views

Company

meetings

Macroeconomic

view

External

research

Experience

>12 yrs

average

Proprietary

company

research

Qualitative

screening

> 500 stocks¹ c. 250 stocks

Company

research

Monitoring

and

risk control

Idea

generation

Portfolio

construction

Intensive team debate – Formal and informal

Company research and upside/downside price targets

40

Upside /

Downside analysis

Explicit risk / reward

assessment

Up / down price targets

Company

research

Monitoring

and

risk control

Idea

generation

Portfolio

construction

Business

model Management

Financial

model

Valuation What is it worth?

The up/down in practise

41

Downside = $60 (-72.7%)

DCF based (discount rate

15%; -2% terminal growth)

Domestic business

Max penetration of 30m

subscribers1

Increase in churn &

program costs hitting CF

International business

Lack of brand recognition

& 1st mover advantage

Penetration peaks at 35%

of broadband households

Competitive operating

environment and high

customer acquisition costs

Upside = $270 (+22.7%)

DCF based (discount rate

15%; +3% terminal growth)

Domestic business

Max penetration of 40m

subscribers1

Increase op. margin from

15% to 19%

International business

Roll-out in 2-3 markets p.a.

Targeting top 20

broadband markets

50% penetration in

Canada and LatAm.

25% elsewhere

ARPU rise to $10 from $8

Video streaming service

operating in North America,

Latin America and the UK

Streams movies and TV

programs

25m subscribers

No barrier to entry

Content not on exclusive

deals

Up/down = 0.3 to 1

Source: Threadneedle; Broker estimates – as at 2 September 2011

(1) Management estimated the total addressable market at 55 to 65m households (i.e. households with broadband and a credit card) out of a total number of

households of c.110m. Netflix has a 4.5% monthly churn rate, with 66% of households cancelling their Netflix subscription not returning, which over time reduces the

firm’s total addressable market

$220

Brokers estimates of 70m domestic subscribers by 2015 implied an unrealistic 100% penetration rate

Real TAM penetration

Broker estimates were unrealistic and failed to take churn into consideration

42

Source: Threadneedle; Broker estimates – as at 2 September 2011

0

10000

20000

30000

40000

50000

60000

70000

80000

Q1 10 Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13

US

Ho

useh

old

s

NFLX TAM (Broadband household w/credit card) NFLX domestic subs

Total non returning cancellations Total market addressed

Fully penetrated

at 45m subs

Fund manager is sole decision maker

Conviction derived from up/down analysis drives portfolio construction

Portfolio construction

Constant review

43

Importance

Company

research

Monitoring

and

risk control

Idea

generation

Portfolio

construction

Stock conviction (risk/reward)

Individual stock risk

Contribution of stock risk to overall portfolio risk

Sector weightings

Comprehensive risk reports

Active money

Active risk

Concentration analyses

Sector

Country

Region

Market cap size

Effective style analysis

Risk monitoring

44

Sample daily risk report

Apple – Growth at a very reasonable price

Performance relative to S&P 500 Index

2-year total return

Source: Datastream as at 30 September 2012, in local currency.

45 PT/12/01458

Market leadership

Extreme customer loyalty and brand reputation

Participate in high growth market segments at much

better than average gross margins (55% gross margin

on iphones)

Management has demonstrated an ability to

execute through market transitions to maintain

high top line growth without sacrificing profitability

(e.g. iPod to iPhone to iPad)

Shareholder returns

High levels free cash flow have led to an accumulation

of cash on the balance sheet (Q2’12: $110.2bn net cash

($28.6bn over the past 2 quarters) or $117 per share)

Announced in March 2012:

– Initiation of a $2.65 quarterly dividend (~1.8% yield)

– $10bn stock buy-back program

Attractive valuation but near-term risks

80

100

120

140

160

180

200

Sep 10 Mar 11 Sep 11 Mar 12 Sep 12

Re

ba

se

d =

10

0

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Apple share price and FY (Sep.) 2010 and 2011 consensus estimates

Up/down discipline: the case of Apple

Source: Bloomberg, IBES consensus estimates, June 2012.

46 PT/11/00678

EPS’ 11 consensus estimate

EPS’10 consensus estimate

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are

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299

410

395

353

468

172

200

215

205

236

Biography

47

STEPHEN MOORE

Fund Manager

Stephen Moore began his career at First State Fund Managers in 1997, covering North American consumer cyclical

companies before becoming an analyst then progressing to portfolio manager in 2001.

In 2002, Stephen joined the US team at Threadneedle. He went on to manage Allied Dunbar Life and Pension funds

as well as co-managing the Threadneedle American long / short equity fund.

He was actively involved in the development of the American Extended Alpha Fund and has managed the fund since

its launch in 2007. In March 2008 he became lead manager on the American long / short equity fund. In June 2010,

he went on to manage the Threadneedle American Absolute Alpha Fund.

Stephen holds a BComm and a BA from the University of Queensland, Australia.

In 2000 he received his Investment Management Certificate. Stephen is an associate of the Securities Institute of

Australia.

Threadneedle start date: 2002

Industry start date: 1997

Biography

48

STÉPHANE JEANNIN

Investment Specialist

Stéphane Jeannin is an Investment Specialist for Global and US equities long only and absolute return strategies. He

is responsible for providing clients, prospective clients and consultants with detailed information on Threadneedle’s

capabilities and investment views.

Prior to joining Threadneedle, Stéphane spent six years at JP Morgan Investment Management in a variety of roles,

including Global and European Equities Client Portfolio Manager.

Stéphane holds a MA in Political Science and Economics from Sciences-Po Strasbourg and an MSc in Corporate

Finance from Dauphine University, Paris. He is also a CFA charterholder.

Threadneedle start date: 2004

Industry start date: 1998


No Capital Guarantee - Positive returns are not guaranteed and no form of capital protection applies.

Liquidity Risk - The fund invests in assets that are not always readily saleable without suffering a discount to fair value. The portfolio may have to lower the selling

price, sell other investments or forego another, more appealing investment opportunity.

Valuation Risk - The fund’s assets may sometimes be difficult to value objectively and the true value may not be recognised until assets are sold.

Short Selling Risk - Short selling is designed to make a profit from falling prices. However, if the value of the underlying investment increases, the short position will

negatively affect the fund’s value.

Leverage Risk - Leverage amplifies the effect that a change in the price of an investment has on the fund’s value. As such, leverage can enhance returns to investors

but can also increase losses.

Derivatives Risk - Investment in derivatives may result in losses in excess of the amount invested.


Liquidity Risk - The fund invests in assets that are not always readily saleable without suffering a discount to fair value. The portfolio may have to lower the selling

price, sell other investments or forego another, more appealing investment opportunity.

Valuation Risk - The fund’s assets may sometimes be difficult to value objectively and the true value may not be recognised until assets are sold.

Short Selling Risk - Short selling is designed to make a profit from falling prices. However, if the value of the underlying investment increases, the short position will

negatively affect the fund’s value.

Leverage Risk - Leverage amplifies the effect that a change in the price of an investment has on the fund’s value. As such, leverage can enhance returns to investors

but can also increase losses.

Derivatives Risk - Investment in derivatives may result in losses in excess of the amount invested.

Threadneedle American Equities - Key Risks

49

Past performance is not a guide to future performance.

The value of investments and any income from them can go down as well as up.

Threadneedle (Lux) is an investment company with variable capital (Société d’investissement à capital variable, or "SICAV") formed under the laws of the Grand Duchy of Luxembourg. The SICAV issues,

redeems and exchanges shares of different classes, which are listed on the Luxembourg Stock Exchange. The management company of the SICAV is Threadneedle Management Luxembourg S.A, who is

advised by Threadneedle Asset Management Ltd. and/or selected sub-advisors.

The SICAV is registered in Austria, Belgium, France, Finland, Germany, Hong Kong, Italy, Luxembourg, The Netherlands, Portugal, Spain, Sweden, Switzerland, Taiwan and the UK; however, this is

subject to applicable jurisdictions and some sub-funds and/or share classes may not be available in all jurisdictions. Shares in the Funds may not be offered to the public in any other country and this

document must not be issued, circulated or distributed other than in circumstances which do not constitute an offer to the public and are in accordance with applicable local legislation.

This material is for information only and does not constitute an offer or solicitation of an order to buy or sell any securities or other financial instruments, or to provide investment advice or services.

Subscriptions to a Fund may only be made on the basis of the current Prospectus and the Key Investor Information Document, as well as the latest annual or interim reports and the applicable terms &

conditions. Please refer to the ‘Risk Factors’ section of the Prospectus for all risks applicable to investing in any fund and specifically this Fund. The above documents are available in English, French,

German, Portuguese, Italian, Spanish and Dutch (no Dutch Prospectus) and can be obtained free of charge on request by writing to the SICAV’s registered office at 69, route D’Esch. L-1470 Luxembourg,

Grand Duchy of Luxembourg and/or from:

- in Austria from Erste Bank, Graben 21 A-1010 Wien;

- in Belgium: J.P. Morgan Chase Bank Brussels, 1, Boulevard du Roi Albert II, 1210 Brussels;

- in France from CACEIS Bank, 1/3 Place Valhubert, 75013 Paris; - in

Finland from Eufex Bank Plc, Keilaranta 19, 02150 Espoo, Finland

- in Germany from JP Morgan AG, Junghofstr. 14, 60311 Frankfurt,

- in the UK from JPMorgan Worldwide Securities Services, 60 Victoria Embankment, London EC4Y 0JP.

- in Sweden from Skandinaviska Enskilda Banken AB (publ), Sergels Torg 2, 106 40 Stockholm.

The mention of any specific shares or bonds should not be taken as a recommendation to deal.

The research and analysis included in this document has been produced by Threadneedle Investments for its own investment management activities, may have been acted upon prior to publication and is

made available here incidentally. Any opinions expressed are made as at the date of publication but are subject to change without notice. Information obtained from external sources is believed to be

reliable but its accuracy or completeness cannot be guaranteed.

This presentation and its contents are confidential and proprietary. The information provided in this presentation is for the sole use of those attending the presentation. It may not be reproduced in any form

or passed on to any third party without the express written permission of Threadneedle Investments. This presentation is the property of Threadneedle Investments and must be returned upon request.

Threadneedle Management Luxembourg S.A. Registered with the Registre de Commerce et des Societes (Luxembourg), Registered No. B 110242

74, rue Mühlenweg, L-2155 Luxembourg, Grand Duchy of Luxembourg.

Threadneedle Investments is a brand name and both the Threadneedle Investments name and logo are trademarks or registered trademarks of the Threadneedle group of companies.

Disclaimer for (Lux) American Absolute Alpha Fund

50

Past performance is not a guide to future performance.

The value of investments and any income from them can go down as well as up.

Threadneedle Specialist Investment Funds ICVC (“TSIF”) is an open-ended investment company structured as an umbrella company, incorporated in England and Wales, authorised and regulated in the

UK by the Financial Services Authority (FSA) as a UCITS scheme.

TSIF is registered for public offer in Austria, Belgium, France, Germany, Hong Kong (some sub-funds only), Italy, Luxembourg, the Netherlands, Spain, Switzerland (some sub-funds only) and the UK.

Shares in the Funds may not be offered to the public in any other country and this document must not be issued, circulated or distributed other than in circumstances which do not constitute an offer to the

public and are in accordance with applicable local legislation.

This material is for information only and does not constitute an offer or solicitation of an order to buy or sell any securities or other financial instruments, or to provide investment advice or services.

Subscriptions to a Fund may only be made on the basis of the current Prospectus and the Key Investor Information Document, as well as the latest annual or interim reports and the applicable terms &

conditions. Please refer to the ‘Risk Factors’ section of the Prospectus for all risks applicable to investing in any fund and specifically this Fund. The above documents are available in English, French,

German, Portuguese, Italian, Spanish and Dutch (no Dutch Prospectus) and can be obtained free of charge on request from the following:

- in Austria: Raiffeisen Zentralbank Österreich AG, Am Stadtpark 9, 1030 Wien (TIF and TSIF), and Erste Bank, Graben 21 A-1010 Wien (TFIF);

- in Belgium: J.P. Morgan Chase Bank Brussels, 1, Boulevard du Roi Albert II, 1210 Brussels;

- in France: BNP Paribas Securities Services, 66 rue de la Victoire, 75009 Paris;

- in Germany: JP Morgan AG, Junghofstr. 14, 60311 Frankfurt,

- in Ireland: J.P. Morgan Bank Administration Services (Ireland) Limited, J.P. Morgan House International Financial Services Centre, Dublin 1

- in Italy: State Street Bank S.p.A., via Col Moschin 16, 20136 Milano.

- in Luxembourg: State Street Bank Luxembourg S.A., 49 Avenue J. F. Kennedy, 1855 Luxembourg;

- in the Netherlands: Fortis Intertrust, Rokin 55, 1012 KK Amsterdam;

- in Spain: any appointed distributor listed on the Spanish Financial Regulator’s website (www.cnmv.es);

- in UK; Threadneedle Investments’ Client Services department P.O. Box 1331, Swindon SN38 7TA.

The mention of any specific shares or bonds should not be taken as a recommendation to deal.

The research and analysis included in this document has been produced by Threadneedle Investments for its own investment management activities, may have been acted upon prior to publication and is

made available here incidentally. Any opinions expressed are made as at the date of publication but are subject to change without notice. Information obtained from external sources is believed to be

reliable but its accuracy or completeness cannot be guaranteed.

This presentation and its contents are confidential and proprietary. The information provided in this presentation is for the sole use of those attending the presentation. It may not be reproduced in any form

or passed on to any third party without the express written permission of Threadneedle Investments. This presentation is the property of Threadneedle Investments and must be returned upon request.

Issued by Threadneedle Investment Services Limited. Registered in England and Wales, Registered No. 3701768, St Mary Axe, London EC3A 8JQ, United Kingdom. Authorised and regulated in the UK by

the Financial Services Authority.

Threadneedle Investments is a brand name and both the Threadneedle Investments name and logo are trademarks or registered trademarks of the Threadneedle group of companies.

Disclaimer for American Extended Alpha Fund

51

http://www.cnmv.es/

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