Threadneedle Investments

Threadneedle European Smaller Companies Fund

February 2006

2

Agenda

• Threadneedle Investments

• Threadneedle European Smaller Companies Fund

• Investment Process

• Key Buys and Sells

• Quantitative Information

• Appendices

Threadneedle Investments

4

• Over 120 London based investment professionals

• Average investment experience of whole investment team over 14 years; excellent staff retention

Threadneedle Investments Investment Team

Source: Threadneedle InvestmentsAs at December 2005

Chief Executive OfficerSimon Davies

Robert StirlingHead of Fixed

Interest & Treasury(29)

Chief Investment Officer Sarah Arkle

Michael TaylorHead of Equities &

Head of UK(24)

Cormac WeldonHead of US

Ed GauntHead of Japan

Vanessa DoneganHead of Asia

Dominic RossiHead of

International &Global Equities

(20)

Danny BurtonCindy Larke

Dealing & Stocklending

Malcolm KempHead of

Quantitative and Risk Analysis

(6)

Alex LyleHead of

Managed Funds (12)

William DaviesHead of Europe ex

UK

Julian ThompsonHead of

Emerging Markets

5

William DaviesExecutive Director

Head of European Equities

William DaviesExecutive Director

Head of European Equities

Darrell O’DeaExecutive Director

Fund Manager

Darrell O’DeaExecutive Director

Fund Manager

Paul DoyleExecutive Director

Smaller Companies & Banks

Paul DoyleExecutive Director

Smaller Companies & Banks

Dominic BakerExecutive DirectorTelecoms & Autos

Dominic BakerExecutive DirectorTelecoms & Autos

David Dudding, CFAExecutive Director

Smaller Companies & Healthcare

David Dudding, CFAExecutive Director

Smaller Companies & Healthcare

Danny BurtonExecutive Director

Senior Dealer

Danny BurtonExecutive Director

Senior Dealer

Nick HawkesSmaller Company Dealer

Nick HawkesSmaller Company Dealer

Philip Dicken, CFAFund Manager

Smaller Companies

Philip Dicken, CFAFund Manager

Smaller Companies

Philip CliffFund Manager

Support Services, Technology

Philip CliffFund Manager

Support Services, Technology

Sunita GoklaneyAnalyst

Pharmaceuticals and Media

Sunita GoklaneyAnalyst

Pharmaceuticals and Media

Rob JonesFund Manager

Insurance, Food & Drug Retailers

Rob JonesFund Manager

Insurance, Food & Drug Retailers

Source: Threadneedle Investments As at 30th December 2005

Threadneedle Investments European Equities Team

Julie ThomasAnalyst

European Banks

Julie ThomasAnalyst

European Banks

• Team of 31, of whom 20 conduct

Pan-European research

• 12 dedicated investment

professionals, 3 of whom committed

to small cap

• Over €10.5 billion under

management

Threadneedle European Smaller Companies Fund

7

Philosophy

“Seeks long-term growth of capital through active investment in small high quality and rapidly growing companies through the identification of under-researched, under-valued and niche opportunities, using rigorous selection criteria.”

Objectives

“To achieve above average returns over a market cycle with managed risk versus appropriate index.”

Threadneedle European Smaller Cos FundPhilosophy and Objectives

8

Prohibited from investing in Top 225 of FTSE World Europe ex UK Index Equates to a free float of approx €3.0 bn

No minimum market value restriction Liquidity prevents many investments in companies

below €100m market value

Threadneedle European Smaller Cos Fund Investable Market

Max

Min

Valuations

9

New products and services Sub-contracting phenomena Geographical widening of franchises

Privatisation/Outsourcing Technology - Media - Telecoms Restructuring Management Changes Demographics

Responsive to industry and country factors

Threadneedle European Smaller Cos Fund Opportunity Drivers

Growth Factors

Change Factors

Valuations

Investment Process

11

Eligible Universe of500-1,000 companies

4,000 companies Outside FTSE Top 225

Portfolio of 80-100names

Over 500 company visits per annum

Opportunity Sources

Selection Criteria

• Large cap managers

• Large cap themes

• Small cap team

• Strong franchises

• Revenue growth

• High visibility of revenues

• Under researched

• Regional and local brokers

• IPO’s

• Quantitative screening

• Valuation screens (EV/EBITDA, P/E, P/CF, etc)

• Margin and cash-flow trend

• Adequate disclosure

• Management interests aligned with those of shareholders

Investment process Screening

12

Ideas drive investment decisions

Research-driven, bottom-up approach

Stock selection focuses on individual company prospects

Investment opportunities derived from growth and change

Country and sector weightings result from stock selection process

Strict valuation disciplines

Decision making is bottom-up

Investment Process Stock Selection

13

Margin trends

ROCE

Competition

Management/strategy changes

Sector outlook

Deterioration in risk/reward profiles

Over € 2-3 billion free-float

Wider ‘sell-side’ coverage

Management reduces share holdings

Opportunistic capital increases

Business Dynamics

Valuation Changes

Sentiment Factors

Investment Process Sell Disciplines

14

Small caps have a history of long term outperformance

Currently valued at a premium, therefore short term outperformance unlikely

Bottom up approach essential

Consistency of fund and team

Consistency of pragmatic approach

Strong resources and team based methodology

Long term approach

Market

Fund

Threadneedle European Smaller Cos Fund

Investment Process Outlook

Key Buys and Sells

16

5 years Performance

Stock performance versus Index

The naming of any specific shares should not be taken as a recommendation to deal.

Neopost

Source: DatastreamAs at 4th January 2006

Held Pre 2001

• World #2 in franking machines

• 61% of sales are recurring ie: maintenance and consumables

• Consistent margin increases

• Diversified geographically

• Sales driven by decertification programmes, not global GDP

2001 2002 2003 2004 200520

30

40

50

60

70

80

90

100

110

NEOPOST(692552/WIEXUKE)

17

2 years Performance

Stock performance versus Index

April Group

The naming of any specific shares should not be taken as a recommendation to deal.

• French insurance products broker/distributor

• Main markets are health and life insurance

• Only 2% market share in health insurance in France

• Benefiting from reduction in state spending

• Very little underwriting exposure

• Earnings expected to grow by 18% CAGR 05-07e

Bought July 2004

J F M A M J J A S O N D J F M A M J J A S O N D10

15

20

25

30

35

40

APRIL GROUP(879966/WIEXUKE)

Source: DatastreamAs at 4th January 2006

18

2 years Performance

Stock performance versus Index

Lindt & Sprungli

The naming of any specific shares should not be taken as a recommendation to deal.

Bought May 2004

• Global leader in luxury chocolates

• Long term market growth 6 – 7%

• 14% growth in the US, an under penetrated market

• Excellent management team

J F M A M J J A S O N D J F M A M J J A S O N D800

1000

1200

1400

1600

1800

2000

2200

2400

LINDT&SPRUNGLI 'P'(936420/WIEXUKE)

Source: DatastreamAs at 4th January 2006

19

2 years Performance

Stock performance versus Index

Takkt

The naming of any specific shares should not be taken as a recommendation to deal.

BoughtFebruary 2004

• Leading catalogue-based B2B mail order company

• Over 100,000 product lines, specialising in office, safety and warehouse equipment

• Low price pressure due to infrequent ordering, lack of price transparency and low average order value

• High barriers to entry due to brands, supplier network and long period to breakeven in a new market

• Attracted by cheap valuation, exposure to cyclical upswing and combination of cashflow and growth

J F M A M J J A S O N D J F M A M J J A S O N D5.50

6.00

6.50

7.00

7.50

8.00

8.50

9.00

9.50

10.00

TAKKT(273293/WIEXUKE)

Source: DatastreamAs at 4th January 2006

20

2 years Performance

Stock performance versus Index

Celesio

The naming of any specific shares should not be taken as a recommendation to deal.

Bought April 2004

• Europe’s biggest pharmacy retailer and wholesaler

• Big beneficiary of generic drug penetration as margins are higher in generics

• German wholesale margins recovering as competition diminishes

• Potential for enormous upside if Germany allows retail pharmacy consolidation

• Cash generative, good management, cheap

J F M A M J J A S O N D J F M A M J J A S O N D35

40

45

50

55

60

65

70

75

80

CELESIO(951741/WIEXUKE)

Source: DatastreamAs at 4th January 2006

21

Stock performance versus Index

Wincor Nixdorf

The naming of any specific shares should not be taken as a recommendation to deal.

J F M A M J J A S O N D J F M A M J J A S O N D30

40

50

60

70

80

90

100

WINCOR NIXDORF(28990K/WIEXUKE)

2 years Performance

Bought May 2004

• Leading manufacturer of banking and retail systems

– ATM’s

– Electronic points-of-sale

• Services represent >40% of sales, giving good visibility

• Highly cash generative and to pay a 2.4% dividend yield

• Earnings CAGR of 14% (04 – 07e)

• Highly regarded management team

Source: DatastreamAs at 4th January 2006

22

Rafako

Stock performance versus Index

1 years Performance

J F M A M J J A S O N D10

12

14

16

18

20

22

RAFAKO(142290/WIEXUKE)

• Polish engineer active in boiler manufacture

• Record order book driven by energy sector investments

• Bought due to clearly cheap valuation

• However, shares quickly reached our target price

BoughtNovember 2005

Sold December 2005/ January 2006

The naming of any specific shares should not be taken as a recommendation to deal.

Source: DatastreamAs at 4th January 2006

23

Vivacon

Stock performance versus Index

1 years Performance

J F M A M J J A S O N D5

10

15

20

25

30

35

VIVACON(14907P/WIEXUKE)

• Hybrid financial company in German real estate

• Bought after positive meeting

• Shares rose significantly

• Do not believe business model deserves a high multiple valuation

BoughtAugust 2005

Sold December 2005

The naming of any specific shares should not be taken as a recommendation to deal.

Source: DatastreamAs at 4th January 2006

24

Carrere Group

Stock performance versus Index

12 years Performance

J F M A M J J A S O N D13

14

15

16

17

18

19

20

21

CARRERE GROUP(259207/WIEXUKE)

• Media company in TV production

• Increasing sales of back catalogue

• Bought in placing

• Clear undervaluation was corrected

• High visibility of earnings undermined by

– Poor meeting with management

– Weak explanation of IFRS changes

BoughtJune 2005

Sold November 2005

The naming of any specific shares should not be taken as a recommendation to deal.

Source: DatastreamAs at 4th January 2006

25

5 years Performance

Stock performance versus Index

Colruyt

The naming of any specific shares should not be taken as a recommendation to deal.

Bought October 2002

Sold June 2005

• Belgium’s third largest food retailer

• Rating became too expensive, both on absolute basis and vs peers

• Uncertainty caused by management changes

• Risk of price war, subsequently proved correct

• Unsatisfactory meeting with company

2001 2002 2003 2004 200520

40

60

80

100

120

140

160

180

200

COLRUYT(950997/WIEXUKE)

Source: DatastreamAs at 4th January 2006

26

2 years Performance

Stock performance versus Index

Mayr Melnhof

The naming of any specific shares should not be taken as a recommendation to deal.

Bought May 2004

Sold February 2005• Austrian carton board and cartons

manufacturer

• World leader in recycled cardboard

• Sold due to increased European competition and reduction in capacity utilisation

• Also, attempts to increase prices failed and resulted in some loss of market share

J F M A M J J A S O N D J F M A M J J A S O N D80

90

100

110

120

130

140

MAYR-MELNHOF KARTON(142344/WIEXUKE)

Source: DatastreamAs at 4th January 2006

27

2 years Performance

Stock performance versus Index

Credito Emiliano

The naming of any specific shares should not be taken as a recommendation to deal.

BoughtMay 2004

Sold May 2005

• Mid sized bank in more affluent north of Italy

• Bought on cheap valuation

• Unconsolidated market and founder’s death triggered M&A speculation

• Sold due to high valuation and macro environment concerns

J F M A M J J A S O N D J F M A M J J A S O N D5.00

5.50

6.00

6.50

7.00

7.50

8.00

8.50

9.00

9.50

10.00

CREDITO EMILIANO(945849/WIEXUKE)

Source: DatastreamAs at 4th January 2006

Quantitative Information

29

Quantitative Information Top 10 Holdings

Company Business Weighting %

Aarhuskarlshamns Speciality Fats 2.7

Grafton Units Builders’ Merchant 2.4

Bergman & Beving Distributor of Industrial Equipment 2.2

Takkt Business Catalogues 2.1

Imerys Minerals 2.1

Acta Holdings Independent Financial Advisor 2.1

Subsea 7 Oil Services 2.1

Grenkeleasing Small ticket leasing 2.1

April Group Insurance Broker 2.1

Rhon-Klinikum Hospital Operator 2.0

TOTAL TOP 10

21.9

The naming of any specific shares should not be taken as a recommendation to deal.

Source: Threadneedle InvestmentsAs at 31ST December 2005

30

Quantitative Information Sector Weightings

2,3 0,0

Portfolio Index*

in % in %

* HSBC Smaller Cos ex UK IndexSource: Threadneedle Investments, as at 31st December 2005

Unclassified 4.4 0.0

Oil & Gas 4.1 4.4

Basic Materials 7.5 7.9

Industrials 41.9 28.4

Consumer Goods 7.9 10.8

Health Care 10.8 6.3

Consumer Services 4.2 14.4

Telecommunications 0.0 1.3

Utilities 2.7 1.1

Financials 12.8 18.6

Technology 4.6 6.8

Total 100.0 100.0

Cash -0.9 0.0

31

Quantitative Information Risk Constraints

Creates a disciplined investment process

Limits Volatility

Diversifies by opportunity

Encourages Creativity

2%

3%

50

6

8

Maximum holding (cost) in any stock

Maximum holding (market) in any stock

Minimum number of stocks

Minimum number of sectors

Minimum number of country positions

32

Quantitative Information Risk Statistics

Returns are shown annualised.Source: Threadneedle, Thomson Financial Datastream and S&P. All data is shown on a total return basis in EUR. Fund returns are shown on a Bid-Bid basis, with Gross Income re-invested but net of AMC.As at 31st December 2005

1.000.820.49R-Squared(-v- FT Europe [ex UK] Index)

7.12%11.06%16.65%Return per annum (%)

FT World Europe ex UK Total Return

Index

HSBC Smaller Europe ex UK UK

Price Index

Threadneedle European Smaller Companies Fund

Inception to end December 2005

33

Quantitative Information Performance

Consistent outperformance

Cumulative Performance Europe ex-UK

Threadneedle European Select Fund Percentile Ranking** Median Fund*

 Threadneedle European Fund

Percentile Ranking** Median Fund*

 Threadneedle European Smaller Cos Fund

Percentile Ranking** Median Fund*

Threadneedle Pan European Accelerando Fund Percentile Ranking** Median Fund*

* Median Sample – German Universe** Percentile Rankings range from 0% (top performing fund) to 100% (bottom performing fund)Source: S&P WorkstationSector: European Select Growth, European Growth & Pan European Growth - Offshore Territories : Equity Europe ex UK & Equity Europe combined, European Sm Cos - Offshore Territories : Europe Smaller Cos. & Smllr Companies Europe ex UK combined,Performance data is quoted in Euros (prev. DM), on a Nav-to-Nav basis with gross income reinvested. (Data for periods greater than 1yr is cumulative.)As at 31st December 2005

 1 Year

 26.9%

2925.1%

 27.1%

2625.1%

 36.2%

3833.9%

32.8%7

251%

 3 Years

 63.3%

3456.2%

 64.4%

3256.2%

131.4%15

106.9%

 5 Years

 -4.3%

23-15.2%

-0.4% 16

-15.2%  

44.9%6

-0.1%

 7 Years

 50.4%

1011.0%

51.7%9

11.0% 

182.6%4

90.1%

 10 Years

 318.2%

3146.2%

261. 8%10

146.2% 

Appendix

35

David Dudding CFA graduated from Wadham College, Oxford University, in 1993 with a degree in Modern History (First Class). He then spent three years working for a British conglomerate in Hong Kong.

Upon his return to the United Kingdom, he worked as a financial journalist with a leading magazine for private investors, before returning to Oxford, gaining a Masters degree in European Politics.

He joined Threadneedle Asset Management in September 1999 and worked on the European team as the Smaller Companies Equity Analyst before taking over the Threadneedle Smaller Companies Fund on 1st September 2002.

He is a regular member of the CFA Institute and is a member of the UK Society of Investment Professionals (UKSIP).

Biographies

Philip Dicken CFA joined the European Equities team at Threadneedle in 2004 and was appointed deputy Fund Manager to the European Smaller Companies fund in July 2004. He graduated with a Master of Mechanical Engineering with French degree (First Class) from the University of Bristol in 1997.

Philip worked in Corporate Finance / M&A with Merrill Lynch, then covered UK and European mid and small caps for five years with Active Value, a corporate governance / activist fund management group.

He is a regular member of the CFA Institute and is a member of the UK Society of Investment Professionals (UKSIP)

36

Threadneedle European Smaller Cos Growth FundPortfolio Index*

* HSBC Smaller Cos ex UK IndexSource: Threadneedle Investments, as at 31st December 2005

Quantitative Information Country Weightings

Within the context of Growth and Change, Country Boundaries are less relevant

Portfolio Index

Austria 4.0 3.0Belguim 0.2 3.2Denmark 2.2 5.1Finland 4.8 6.6France 15.9 12.5Germany 19.7 13.6Greece 5.4 4.6Hungary 0.5 0.0Iceland 0.3 0.0Ireland 5.7 2.7Italy 4.0 11.5Luxembourg 0.0 0.4Netherlands 5.9 7.6Norway 6.3 5.8Portugal 0.4 0.7Spain 3.6 5.6Sweden 8.5 9.6Switzerland 11.9 7.7Turkey 1.1 0.0

in %

0

5

10

15

20

25

Au

stri

a

Be

lgu

im

De

nm

ark

Fin

lan

d

Fra

nce

Ge

rma

ny

Gre

ece

Hu

ng

ary

Ice

lan

d

Ire

lan

d

Italy

Lu

xem

bo

urg

Ne

the

rla

nd

s

No

rwa

y

Po

rtu

ga

l

Sp

ain

Sw

ed

en

Sw

itze

rla

nd

Tu

rke

y

37

Threadneedle European FundThreadneedle European

Select FundThreadneedle European

Smaller Cos Fund

The naming of any specific shares should not be taken as a recommendation to deal.

Size € 1,099.3m Size € 1,682.4m Size € 985.1mNo. Holdings 84 No. Holdings 59 No. Holdings 126

Top 10 Holdings Top 10 Holdings Top 10 HoldingsUBS 3.8 UBS 4.9 Aarhuskarlshamns 2.7Total EUR10 3.6 E. ON AG 4.0 Grafton 2.4Novartis 3.6 ENI EUR1 3.9 Bergman & Beving 2.2Allianz 3.2 Novartis 3.8 Takkt 2.1ENI EUR1 3 Total EUR10 3.5 Imerys 2.1Roche Holdings 2.8 Unicredito 3.3 Acta Holding 2.1Nestle SA 2.7 Roche Holding 3.1 Subsea 7 2.1Sanofi Aventis 2.5 2.9 Grenkeleasing 2.1Axa EUR2.29 2.2 Allianz 2.8 April Group 2.1Credit Suisse 2.1 Air Liquide 2.8 Rhon-Klinikum 2.0

Threadneedle’s European Equity FundsFund Outline 1

Source: Threadneedle InvestmentsAs at 31st December 2005

38

Important Information

For Investment profession use only

(not for onward distribution to, or tobe relied upon by private investors)

Past performance is not a guide to future returns. The value of investments and any income from them is not guaranteed and may fall as well as rise and the investor may not get back the original investment. Exchange rate movements could increase or decrease the value of underlying investments/holdings. The dealing price of the funds may include a dilution adjustment, further details are available in the Prospectus.Threadneedle Investment Funds ICVC (“TIF”) is an open-ended investment company (OEIC) with variable capital and limited liability incorporated in England and Wales under registered No. IC000002 and authorised by the Financial Services Authority (FSA) with effect from 18. June 1997. TIF complies with the UCITS Directive 85/611/ EEC (as amended by directives 2001/107/EC and 2001/108/EC).TIF is structured as an umbrella company, in that different funds may be established from time to time by Threadneedle Investment Services Limited with the approval of the FSA and the agreement of the Depositary (J.P. Morgan Trustee and Depositary Company Limited). The assets of each fund will be treated as separate from those of every other fund and will be invested in accordance with the investment objective and investment policy applicable to that fund. The investment manager is Threadneedle Asset Management Limited.References in this document to any fund do not constitute an offer or invitation to subscribe to shares in such a fund. We recommend you get detailed information before the purchase of shares. Subscriptions to a fund may only be made on the basis of the current Prospectus or Simplified Prospectus as well as the annual or interim report. Copies can be obtained free of charge on request from your financial adviser or our paying agents in Germany: JP Morgan AG, Junghofstr. 14, D-60311 Frankfurt, Tel.: +49- (0)69-7124 4207, and Austria: RZB (Raiffeisen Zentralbank Österreich AG), Am Stadtpark 9, A-1030 Wien, Tel.: +43-(0)1-71707 1730.The naming of any specific shares should not be taken as a recommendation to deal and anyone considering purchasing the securities mentioned should consult a stockbroker or financial adviser. The research and analysis included in this document has been produced by Threadneedle for its own investment management activities; it might have been acted upon prior to publication and is made available here only incidentally. In some instances the information contained in this publication, other than statements of fact, was obtained from external sources believed to be reliable but its accuracy or completeness cannot be guaranteed. Any opinions expressed are made as at the date of publication but are subject to change without notice.The information provided in this presentation is for the sole use of those intermediaries attending the presentation. It may not be reproduced in any form without the express permission of Threadneedle and to the extent that it is passed on care must be taken to ensure that this is in a form which accurately reflects the information presented here.The Select and Smaller Companies Funds are more actively managed and have more concentrated portfolios. They can, therefore, carry more risk. As such, they are aimed at the more experienced investor.Index returns assume reinvestment of dividends and capital gains and unlike fund returns do not reflect fees or expenses. The index is unmanaged and cannot be invested in directly.

Threadneedle Portfolio Services LimitedRegistered in England and Wales, No. 285988.Registered Office: 60 St Mary Axe, London EC3A 8JQ.Authorised and regulated in the UK by the Financial Services Authority.Threadneedle Investments is a brand name, and both the Threadneedle name and logo are trademarks or registered trademarks of the Threadneedle group of companies.The Threadneedle Investment Funds ICVC are registered for public offer in Austria and Germany.