Annual Short Report 7 March 2018 Fund Manager s Report Paul Witchalls Performance of Class 1 Income shares* Over the twelve months to 7 March 2018, the published share price of Class 1 Income shares in the Threadneedle Sterling Fund has fallen from 99.86p to 99.83p. The total return on the fund for the twelve months ending 28 February 2018, including net reinvested income, is +0.01%. (Source: Threadneedle, bid-bid, net income reinvested.) Market Overview and Portfolio Activity The period under review was much better for sterling than the previous year. The currency finished modestly higher against a basket of its peers as measured by the Bank of England s Effective Exchange Rate Index. The pound clawed back most of its post-brexit-referendum losses against the dollar, for which 2017 was the worst year since 2003. Nevertheless, sterling lost some ground against the euro as investors saw increasing divergence between the UK s economic prospects and those of the eurozone. The dollar s weakness came despite three interest-rate hikes by the US Federal Reserve during the period. All were widely expected. President Donald Trump continued to exert a strong influence on currency markets. Optimism about his reflationary policies had propelled the dollar higher in late 2016. As doubts about his ability to deliver his planned reforms crept in, the dollar weakened considerably. Nevertheless, the president did manage to score one major legislative victory in late December when Congress passed his flagship tax-cutting bill. But while anticipation of this helped the dollar recoup some losses in September and October, it resumed its slide thereafter as investors grew increasingly concerned about the implications for the US national debt. Meanwhile, confidence about the political and economic future of the EU buoyed the euro over the period. After a spell of nervousness about growing support for Eurosceptic movements, the victory of pro-eu centrists in key French and Dutch elections calmed nerves. Eurozone GDP and purchasing managers index data also provided support for the single currency, as have recent hints from European Central Bank policymakers that the bank s bond-buying programme could be wound down sooner than originally planned. That the pound held up well against its peers over the year is perhaps surprising given the backdrop of political uncertainty in the UK. In March, *In pound Sterling and against UK peer group. Ongoing Charges Figure the government invoked Article 50, initiating the formal process of Britain s exit from the EU. The following month, Prime Minister Theresa May called a snap election for June, seeking a stronger electoral mandate to pursue her vision for Brexit. The pound rose sharply when the election was called but then came under pressure as Labour gained in the polls. When the election result was announced, the Conservatives shock loss of their absolute majority triggered a further bout of sterling weakness. The ongoing exit negotiations with the EU have since been a key focus for investors, with the Irish border question proving a particularly thorny problem. Persistent rumours of a potential leadership challenge to the prime minister by hard-line Brexiteers have been another source of market jitters. Broadly speaking, sterling has waxed and waned in line with the prospects for a softer or harder version of Brexit. Along with the European Central Bank (ECB) and the Federal Reserve, the Bank of England (BoE) garnered increasing attention as it too edged closer to normalising its monetary policy. In November, faced with inflation at 3.0%, the bank finally announced that the base rate would rise by 25 basis points to 0.5% the first such hike in a decade. However, the move was greeted by a drop in sterling and gilt yields. Investors were sceptical about the prospect of further hikes in the near term, given sluggish wage growth and lower UK growth forecasts. More recently, though, rate-hike expectations have risen again. Inflation stayed at 3.0% in January, when a slight fall had been anticipated, and the BoE s February rate-setting meeting revealed policy-makers to be in a more hawkish mood than in December. The Monetary Policy Committee kept rates on hold but commented that they would probably need to rise somewhat earlier and by somewhat a greater extent than previously envisaged. Markets now expect another quarter-point hike in May rather than August. Following the BoE rate increase in November, we kept the fund relatively short but broadly unchanged over the second half of the year. The weighted average maturity of the fund is approximately 48 days and the weighted average yield is 0.46%. The holdings comprise approximately 64% in bank-issued certificates of deposit, 14% in short-dated bank deposits (including 4% in an AAA rated external liquidity fund), 14% in euro commercial paper issued by banks and supranationals (i.e. governmentbacked issuers) and 8% in UK government-issued Treasury bills. We have kept the fund well diversified, liquid and invested in a mixture of well-rated banks and sovereign-backed institutions. The financial strength of these banks and financial institutions is taken into account when we are selecting suitable investments. The portfolio will comprise very short-dated instruments with a view to achieving a competitive rate of interest. Fund Facts Fund Accounting and Distribution Dates Accounting Dates Payment Dates 7 March 7 May 7 September 7 November The Ongoing Charges Figure (OCF) is the European standard method of disclosing the charges of a share class of a fund based on the financial year s expenses and may vary from year to year. It includes charges such as the fund s annual management charge, registration fee, custody fees and distribution cost but ordinarily excludes the costs of buying or selling assets for the fund (unless these assets are shares of another fund). Where published, the Key Investor Information Document (KIID) contains the current OCF. For a more detailed breakdown please visit columbiathreadneedle.com/fees. Share class 7 March 2018 7 March 2017 Class 1 Income shares 0.28% 0.28% Class 2 Accumulation shares¹ 0.26% 0.26% Class 3 Gross accumulation shares 2 0.66% Class X Gross accumulation shares 3 0.06% 0.05% The Ongoing Charges Figure is annualised based on the fees incurred since commencement date. 1 Commenced 12 October 2016. 2 Closed 8 June 2017. 3 Commenced 16 March 2016.
Summary of Fund Performance Performance History (%) Share class 2018 1 2017 2016 2015 2014 2013 Class 1 Income shares +0.02 +0.00 0.03 +0.15 +0.15 +0.12 Class 2 Accumulation shares 2 +0.03 +0.01 +0.02 Class 3 Gross accumulation shares 3 0.17-0.03 Class X Gross accumulation shares 4 +0.06 +0.22 +0.38 1 To 28 February 2018. 2 Commenced 12 October 2016. 3 Commenced 28 October 2015 and closed 8 June 2017. 4 Commenced 16 March 2016. Source: Morningstar and Threadneedle. Bid to bid prices are quoted (i.e. not including any initial charge) with net income reinvested for a UK basic rate tax payer and gross income reinvested for a non-uk resident. Performance data is quoted in sterling apart from hedged share classes, where applicable, which are in the hedged currency. Past performance is not a guide to future investment performance. The value of investments and any income is not guaranteed and can go down as well as up and may be affected by exchange rate fluctuations. This means that an investor may not get back the amount invested. Net Asset Value (NAV) As at Share class NAV ( ) NAV pence per share Number of shares in issue 7 March 2018 Class 1 Income shares 343,101,399 99.81 343,751,180 7 March 2017 Class 1 Income shares 296,801,441 99.81 297,352,012 7 March 2016 Class 1 Income shares 224,538,841 99.82 224,954,864 7 March 2018 Class 2 Accumulation shares 39,196,211 100.06 39,172,736 7 March 2017 Class 2 Accumulation shares 49,032,333 100.02 49,020,940 7 March 2017 Class 3 Gross accumulation shares 2,992 99.73 3,000 7 March 2016 Class 3 Gross accumulation shares 41,443,721 99.95 41,464,121 7 March 2018 Class X Gross accumulation shares 131,858,936 100.62 131,044,192 7 March 2017 Class X Gross accumulation shares 113,987,648 100.39 113,546,450 Only available to eligible investors. Distribution History/Share Price Range Highest share price (pence) Lowest share price (pence) Year to Share class Pence per share 7 March 2018 Class 1 Income shares 0.0153 99.83 99.79 7 March 2017 Class 1 Income shares 0.1371 99.92 99.82 7 March 2016 Class 1 Income shares 0.1682 99.91 99.82 7 March 2018 Class 2 Accumulation shares 0.0343 100.07 100.01 7 March 2017 Class 2 Accumulation shares¹ 0.0365 100.02 100.00 7 March 2018 Class 3 Gross accumulation shares 2 99.73 99.64 7 March 2017 Class 3 Gross accumulation shares 99.95 99.73 7 March 2016 Class 3 Gross accumulation shares 3 100.00 99.95 7 March 2018 Class X Gross accumulation shares 0.2323 100.63 100.39 7 March 2017 Class X Gross accumulation shares 4 0.4009 100.39 100.00 1 Commenced 12 October 2016. 2 Closed 8 June 2017. 3 Commenced 28 October 2015. 4 Commenced 16 March 2016. Past performance is not a guide to future performance.
Classification of Investments 7 March 2018 vs 7 March 2017 70% 60% Threadneedle Sterling Fund 7 March 2018 7 March 2017 50% 40% 30% 20% 10% 0% Certificate of deposit Portfolio Information Euro commercial paper Government bonds Liquidity funds Top Five Holdings as at 7 March 2018 % of Fund Nationwide Building Society 0.55% 20/06/2018 4.86 Santander UK 0.56% 05/06/2018 4.67 Agence Centrale des Organismes 0.3865% 16/03/2018 4.67 Caisse D Amortis 0.45% 18/04/2018 4.67 Banque Federative 0% 18/05/2018 4.66 Net other assets Top Five Holdings as at 7 March 2017 % of Fund Abbey National Treasury Services 0.29% 06/06/2017 6.09 Caisse d Amortissement De La Dette Sociale 0.1849% 16/05/2017 4.78 Canadian Imperial Bank 0.3% 16/06/2017 4.57 Landesbanken Hessen 0.31% 03/05/2017 4.57 Bank of Montreal 0.24% 07/06/2017 4.35
Investment Objective and Policy To achieve a high level of capital security and provide income. The ACD s investment policy is to invest the assets of the Fund in Sterling denominated cash deposits and certificates of deposit and UK Government issued Treasury Bills. If the ACD considers it desirable it may also invest up to 50% of the total assets of the Fund in Sterling denominated commercial paper. The investment policy shall be subject to the following credit rating restrictions: (i) Bank deposits shall be held with and certificates of deposit shall be issued by a deposit taking institution with a minimum long term credit rating of either (a) Standard & Poor s AA-, or (b) Moody s AA3; (ii) Commercial paper issued by institutions with a minimum short term credit rating either (a) Standard & Poor s A1, or (b) Moody s P1, and with a maximum term to maturity of 184 days; and (iii) UK Government issued treasury bills shall have a maximum term to maturity of 184 days. Key Investor Information Document (KIID) Subscription requirements The KIID is a pre-contractual document and investors have to confirm that they have read the latest KIID before making a subscription. Threadneedle has the right to reject a subscription if the investor does not confirm that they have read the latest KIID at the time of application. Investors can obtain the latest KIID from columbiathreadneedle.com. Changes to the management of the ACD The following changes have been made to the directors of the ACD: Resignation of Mr Tim Gillbanks on 31 March 2017; Resignation of Mr Don Jordison on 1 May 2018; Appointment of Michelle Scrimgeour on 14 August 2017. Changes to the Prospectus During the period from 8 March 2017 to 7 March 2018 the following changes were made to the Prospectus of the Threadneedle Investment Funds ICVC (the Company): Introduction of co-management for the Japan Fund, and changes to the investment policy of the fund, effective from 1 November 2017; Introduction of a compulsory conversion clause effective from 1 February 2018; Change of the name of the transfer agent and the legal advisors for the Company; Reduction of fees for certain share classes from 1 February 2018; Inclusion of a definition of near cash ; Disclosures required as a result of changes to COLL as a result of the Markets in Financial Instruments Directive (MiFID II), including amendment to the description of Class 2 Shares and Class Z Shares; Disclosures relating to the UK s decision to leave the European Union ( Brexit ); Updates to include changes to the COLL rules (including PRN, changes regarding short reports, eligible markets); Updates to reflect changes being made to UK tax on distributions (gross vs net shares, as well as tax changes more generally); Updates to the list of funds managed by the ACD and the directors of the ACD; Enhanced disclosures regarding hedged share classes and performance fee calculations; Updates to performance, dilution adjustments and available share classes; Miscellaneous changes including address of the Financial Services Ombudsman, clarification on privacy statement, clarification of dividend payment dates, addresses of paying agents. Changes to the Instrument of Incorporation During the period from 8 March 2017 to 7 March 2018, the instrument of incorporation of the Company has been updated to include a compulsory conversion clause effective 1 February 2018. Brexit In June 2016 the United Kingdom voted to leave the European Union. While negotiations progress, there is significant uncertainty relating to the UK s withdrawal from the EU, the potential consequences and precise timeframe. It is expected that the UK will exit from the EU on 29 March 2019. Depending on the outcome of the UK s negotiations with the European Union, and the existence or otherwise of any formal implementation period, it is possible that the Funds may no longer be eligible to enjoy the rights set out in the UCITS Directive. Ceasing to be so eligible may affect the ability of non-uk domiciled investors to make new investments in the Company. The ACD is monitoring the situation and will keep shareholders informed. Key Risks Investment Risk: The value of investments can fall as well as rise and investors might not get back the sum originally invested. No Capital Guarantee Risk: Positive returns are not guaranteed and no form of capital protection applies. Counterparty Risk: The fund may enter into financial transactions with selected counterparties. Any financial difficulties arising at these counterparties could significantly affect the availability and the value of fund assets. Inflation Risk: Most bond and cash funds offer limited capital growth potential and an income that is not linked to inflation. Inflation is likely to affect the value of capital and income over time. Derivatives for EPM/Hedging Risk: The investment policy of the fund allows it to invest in derivatives for the purposes of reducing risk or minimising the cost of transactions. Investment in Deposits Risk: The Investment Policy of the fund allows it to invest principally in deposits. Further risks applicable to the fund can be found in the Prospectus. Risk and Reward Profile As at 7 March 2018 the figure for the risk and reward profile disclosed in the most recent KIID representing this fund is 1. The fund is in this specific category because historically it has shown a low level of volatility (how much the value of the fund went up and down compared to other categories). It is based on past performance data in pound sterling. If your investment in the fund is not in pound sterling, please check the figure for the risk and reward profile disclosed on our website (columbiathreadneedle.com) according to the currency of your investment in the fund.
General Information The information in this report is designed to enable shareholders to make an informed judgement on the activities of the fund during the period it covers and the results of those activities at the end of the period. For further information, please contact Threadneedle Investment Services Limited. The Long Form Report and Financial Statements is available free of charge on request from the ACD and on our website. For more information about the activities and performance of the Company during the period and previous periods, please contact the ACD at the administration address noted below, or visit our website at columbiathreadneedle.com. Contacts: Registered Office Cannon Place 78 Cannon Street London EC4N 6AG Authorised Corporate Director (ACD) Threadneedle Investment Services Limited Cannon Place 78 Cannon Street London EC4N 6AG Registrar Threadneedle Investment Services Limited Delegated to: DST Financial Services Europe Limited** Authorised and regulated by the Financial Conduct Authority (FCA) St Nicholas Lane Basildon Essex SS15 5FS Investment Manager Threadneedle Asset Management Limited Cannon Place 78 Cannon Street London EC4N 6AG Authorised Corporate Director Client Services Details UK Investors Address: Threadneedle Investment Services Limited PO Box 10033 Chelmsford Essex CM99 2AL Telephone (dealing & customer enquiries): 0800 953 0134* Fax (dealing): 0845 113 0274 Email (enquiries): questions@service.columbiathreadneedle.co.uk Asian Investors Address: Threadneedle Investment Services Limited International Financial Data Services 47, avenue JF Kennedy L-1855 Luxembourg Telephone (dealing & customer enquiries): +352 2452 9817* Fax (dealing): +352 2452 9807 Email (enquiries): threadneedleenquiries@statestreet.com All Other Investors Address: Threadneedle Investment Services Limited International Financial Data Services 47, avenue JF Kennedy L-1855 Luxembourg Telephone (dealing & customer enquiries): +352 464 010 7020* Fax (dealing): +352 2452 9807 Email (enquiries): questions@service.columbiathreadneedle.co.uk Website: columbiathreadneedle.com Depositary Citibank Europe plc, UK branch (Authorised by the Prudential Regulatory Authority (PRA) and regulated by the FCA and PRA) Citigroup Centre 33 Canada Square Canary Wharf London E14 5LB Legal Advisers Eversheds Sutherland (International) LLP One Wood Street London EC2V 7WS Baum Financial Services Law Team Grosser Burstah 42 20457 Hamburg Germany Independent Auditor PricewaterhouseCoopers LLP Atria One 144 Morrison Street Edinburgh EH3 8EX Paying and Information Agent in Belgium CACEIS Belgium S.A Avenue du Port 86C B320 1000 Brussels Belgium Representative and Paying Agent in Switzerland BNP Paribas Securities Services, Paris, Succursale de Zurich Selnaustrasse 16 8002 Zurich Switzerland * Calls will be recorded. ** International Financial Data Services (UK) Limited changed its name to DST Financial Services Europe Limited on 15 August 2017.
To find out more visit columbiathreadneedle.com Threadneedle Investment Services Limited, ISA Manager, Authorised Corporate Director and Unit Trust Manager. Registered No. 3701768. Registered in England and Wales. Registered Office: Cannon Place, 78 Cannon Street, London EC4N 6AG. Authorised and regulated by the Financial Conduct Authority. Columbia Threadneedle Investments is the global brand name of the Columbia and Threadneedle group of companies. columbiathreadneedle.com 227385