US Equities at Threadneedle

Citywire Wealth Manager Retreat

The Grove

Cormac Weldon, Head of US Equities 18-19 October 2012

1. Team and products

2. Philosophy and process

3. Portfolio construction

4. Market outlook

5. Conclusion

Agenda / Contents

1 OT.12.01817

US equities team

2 PT.12.01817

Overseeing $12.4 bn in US equities

Source: Threadneedle Investments as at 30 June 2012.

1 Junior analyst.

2 Governance and Responsible Investment.

US Equities Team

Overseeing $12.4bn in US equities

Source: Threadneedle as at 30 June 2012.

1 Junior Analyst

2 Governance and Responsible Investment

PT/11/00695

Cormac Weldon

Head of US Equities

Health Care

Diane Sobin

Materials, Energy

Stephen Moore

Telecoms

William Warren

Technology

OtherGary 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

TeamBrad Colton

Financials

Paul Gannon

Consumer Discretionary

Olivia Miller1

Consumer Staples

Nafis Chowdhury

Industrials

Threadneedle’s main US equity strategies

3

American

Fund

American

Select Fund

American Extended

Alpha Fund

Typical

tracking error1 4-6% 5-8% 4-8%

Stock holdings: Long1 70-90 50-60 30-60

Stock holdings: Short1 - - 30-80

Max. sector load deviation + 10% + 10% + 15%

Max. stock load deviation + 5% + 5% + 8%

Benchmark S&P 500 S&P 500 S&P 500

Source: Threadneedle

1 The numbers indicated represent typical values under normal market conditions

PT.12.01817

Actual returns

1 year 3 years 5 years 10 years

Large caps

S&P 500 Composite Index +25.6% +12.8% +5.9% +7.7%

Threadneedle American Fund +20.3% +14.2% +8.1% +9.0%

Threadneedle American Select Fund +23.1% +11.5% +6.9% +8.9%

American Extended Alpha Fund +28.3% +14.2% n/a n/a

Gross performance in sterling

Source: FactSet as at 30 September 2012. Data quoted in GBP and annualised. Fund data is quoted on a bid to bid basis. Gross performance from 31 March 2010 is

based on daily cash flows and valuations. Prior to this Global Close prices. Prior to January 2008 based on 12pm prices

4

We are constantly assessing

Macroeconomic information

Stock specific information

We leverage Threadneedle’s resources

137 in house investment professionals

Access to 60 research houses

Company meetings with >700 US management teams per annum

The questions we are asking ourselves is…

Distinguishing between winners and losers

What is priced in?

What is our conviction in our differentiated view?

5 PT.12.01817

Ashland: a compelling upside/downside ratio

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

6 PT.12.01817

Share performance

2-year price performance

UPSIDE: $107 (+63%)

Greater pricing power thanks to better end markets (specialty ingredients)

Factoring-in cyclical rebound in performance materials

Margins uplift thanks to better mix of businesses, integration efforts and cost rationalisations

Broadly meeting management 2014 targets

40

45

50

55

60

65

70

75

80

Sep 10 Mar 11 Sep 11 Mar 12 Sep 12

Pri

ce -

$

DOWNSIDE: $52 (-28%)

Factoring in 2008/9-like hit to businesses (but taking consideration of the stronger business mix)

Stable margins in downturn in specialty ingredients (c.50% of profits)

Business benefits from lower raw material prices & stickier prices on the downside

Cyclical businesses of performance materials and water technology impacted

Limited impact on car motor oil segment

$70

$107

$52

Market background

7

Earnings growth will slow down but margins are underpinned by:

Weak labour pricing power

Low interest and depreciation costs

Corporate sector is strong – low debt and high cash flow

Well capitalised and liquid banking system reduces tail risks

Some sectors (housing; autos) are starting to add back to GDP growth

Market valuation is attractive, especially relative to alternatives

Source: Threadneedle as at 30 September 2012.

PT.12.01817

Housing market healing

1 Source: (left hand chart) Bloomberg, Federal Reserve, as at 31 July 2012.

2 Source (right hand chart):Source: National Association of Realtors (Latest Revision), House Tracker 1999 through July 2012

8

Durable goods spending

% of disposable personal income¹

Existing home inventories²

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

Millio

ns

Normal level

8.0

10.0

12.0

14.0

16.0

18.0

19

59

19

'62

19

66

19

69

19

73

19

76

19

80

19

83

19

87

19

90

19

94

19

97

20

01

20

04

20

08

20

11

Mid

pri

ce

PT.12.01817

Lending cycle is starting to turn

9

US commercial banks

YoY % change in total loans¹

(12)

(9)

(6)

(3)

0

3

6

9

12

15

18

21

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

%

Recession

Average

Source: Federal Reserve Board, Empirical Research Partners Analysis.

1 Seasonally-adjusted weekly data, 1974 through early January 2012.

2 Seasonally-adjusted weekly data, 2005 through early January 2012.

PT.12.01817

US banks are liquid, deposits-funded and have deleveraged

10

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

Source: Company data, July 2012.

PT.12.01817

SunTrust Banks

11

Performance relative to S&P 500 Index

2 year total return

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

US regional bank with strong franchise in the

Eastern US (FL; GA; NC; SC; TN, VA, WV)

1651 branches

$178bn in assets

Strong capital ratios

9.3% Tier 1 capital

92% loan/deposit ratio

New management team has de-risked the

business and reduced the expense base

Fully provisioned the risk of mortgage repurchase

$300m cost savings realised by year-end’12

Cost/income ration coming down to 60%, from 70%

Leveraged to a housing recovery as charged-offs

normalise (esp. in residential mortgages)

Bought at less than 0.9x tangible Book Value 50

60

70

80

90

100

110

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

PT.12.01817

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

12

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

Source: Bloomberg.

1 As at July 2012.

2 As at 10 September 2012.

PT.12.01817

US chemicals are low cost globally

13

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

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

Source: CMAI as at February 2012.

PT.12.01817

LyondellBasell Industries

14

Performance relative to S&P 500 Index

Total return since listing 29 April 2010

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

Chemicals and polymers manufacturer

Simplistically, profitability is based on

Brent oil prices (for sales)

Natural gas prices (for input)

Declining ethane (natural gas liquid) prices will

boost profitability

Strong free cash flows

Management team acting to optimise shareholder

returns

$4.50 special dividend announced in Q4 ’11

Quarterly dividend raised from 25 cents to 40

cents (+60%) in May 2012

Less than 9x 2012 earnings 60

80

100

120

140

160

180

200

220

Apr 10 Aug 10 Dec 10 Apr 11 Aug 11 Dec 11 Apr 12 Aug 12

Re

ba

se

d =

10

0

PT.12.01817

The fiscal cliff in 2013

15

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%

Source: Morgan Stanley, April 2012.

PT.12.01817

Yield relationships convey disbelief

16

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

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

1 Large-capitalisation stocks excluding financials and utilities; capitalisation weighted data.

PT.12.01817

Portfolio strategy

17

Characteristics we like

Growth/high barriers to entry

Exposure to domestic capital spending

Proactive capital management

Underleveraged balance sheets / strong free cash flow

Sector overweights

Consumer Discretionary, Healthcare, Materials, Financials

Sector underweights

IT, Consumer Staples, Utilities, Energy

Source: Threadneedle. Representative account is American Fund (OEIC) as at 30 September 2012.

PT.12.01817

Well resourced team

Global approach in insular market

Pragmatic, simple and disciplined investment process

Excellent and consistent long-term record

Conclusion

18 PT.12.01817

Appendix

AP

Cormac Weldon joined Threadneedle in 1997 and is Head of US Equities. He manages the Threadneedle American,

American Select and American Smaller Companies funds, as well as the Allied Dunbar North American Growth fund.

Cormac started his career with KPMG. He has also worked for Provident Mutual as an analyst on their North

American equities team and British Gas Pension Fund as a fund manager on their North American equities team.

Cormac has a BA in Accounting and Finance from Dublin City University. He is also an associate member of the UK

Society of Investment Professionals (UKSIP) and a CFA Charterholder.

Threadneedle start date: 1997

Industry start date: 1989

Biography

20

CORMAC WELDON

Head of US Equities and Fund Manager

PT.12.01817

For internal use by institutional clients, distributors, intermediaries and consultants only (not to be passed on to any third party)

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 Investment Funds ICVC (“TIF”) 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.

TIF is registered for public offer in Austria, Belgium, France, Germany, Hong Kong, Ireland, Italy, Luxembourg, the Netherlands, Portugal, 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.

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, 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.

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

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.

Important notes

PL5/09/193 21