PROSPECTUS
1 July 2016
THREADNEEDLE
INVESTMENT FUNDS III ICVC
Threadneedle Investment Funds II ICVC
Contents
Prospectus of Threadneedle Investment Funds III ICVC ....................... 3
Definitions….. .......................................................................................... 4
1.
Details of the Company....................................................... 6
1.1
General................................................................................ 6
1.2
The structure of the Company ............................................ 6
1.2.1
The Funds ........................................................................... 6
2.
Shares ................................................................................. 6
2.1
Classes of Share within the Funds ..................................... 6
2.2
Available Classes of Shares ............................................... 7
2.3
Bearer Shares ..................................................................... 7
2.4
Title to Shares ..................................................................... 7
2.5
Share Denominations.......................................................... 7
2.6
Limited Issue ....................................................................... 7
3.
The Funds and their Investment Objectives and Policies .. 7
4.
Buying, selling and switching Shares ................................. 8
4.1
General................................................................................ 8
4.2
Minimum subscriptions and holdings .................................. 8
4.3
Client money ....................................................................... 8
4.4
Buying Shares ..................................................................... 9
4.4.1
Procedure ............................................................................ 9
4.4.2
Regular Savings Facility...................................................... 9
4.5
Selling Shares ..................................................................... 9
4.5.1
Procedure ............................................................................ 9
4.6
Switching/Converting ........................................................ 10
4.7
Dealing charges ................................................................ 11
4.8
Restrictions, Compulsory Transfers and/or Redemption.. 11
4.9
Deferred redemption ......................................................... 12
4.10
In Specie Redemptions ..................................................... 12
4.11
Issue of Shares in exchange for in specie assets ............ 12
4.12
Suspension of Dealing ...................................................... 12
5.
Other dealing information.................................................. 12
5.1
Dilution levy ....................................................................... 12
5.2
Fair Value Pricing .............................................................. 13
5.3
Money Laundering ............................................................ 13
5.4
Market Timing and Late Trading ....................................... 13
1
6.
Fees and Expenses...........................................................14
6.1
General ..............................................................................14
6.2
Charges payable to the ACD.............................................14
6.3
Investment Manager’s fee .................................................15
6.4
Depositary’s fee .................................................................15
6.5
Depositary’s Expenses ......................................................15
6.6
Administrator’s fee .............................................................16
6.7
Registrar’s fee ...................................................................16
6.8
Allocation of Assets, Charges and Expenses to Funds ....16
6.9
Ongoing Charges Figure (“OCF”) .....................................16
7.
Valuation of the Company .................................................16
7.1
General ..............................................................................16
7.2
Calculation of the Net Asset Value....................................16
7.3
Fair Value Pricing ..............................................................17
7.4
Pricing basis ......................................................................17
7.5
Publication of Prices of Shares .........................................18
8.
Risk factors ........................................................................18
8.1
General ..............................................................................18
8.2
Effect of Initial Charge .......................................................18
8.3
Suspension of Dealings in Shares ....................................18
8.4
Currency exchange rates ..................................................18
8.5
Risk to Capital Growth.......................................................18
8.6
Segregated Liability of the Funds......................................18
8.7
Regulatory Risk .................................................................18
8.8
Investment objectives ........................................................18
8.9
Emerging Markets .............................................................18
8.10
Taxation .............................................................................19
8.11
Investments in collective investment schemes .................19
8.12
Investment in unregulated collective investment schemes20
8.13
Investments in derivatives and forward transactions ........21
8.13.1
Use of derivatives and forward transactions for EPM
purposes............................................................................21
8.13.2
Use of derivatives forward transactions for investment
purposes............................................................................22
8.14
Exchange Traded Funds ...................................................22
8.15
Commodities......................................................................22
8.16
Warrants ............................................................................22
Threadneedle Investment Funds II ICVC
8.17
Credit Risk ......................................................................... 22
13.1
Termination of a Fund .......................................................30
8.18
Shareholder Concentration Risk ....................................... 22
13.2
Winding-up of the Company ..............................................31
8.19
Liquidity Risk ..................................................................... 22
14.
General information ...........................................................31
8.20
Long dated Floating Rate Notes ....................................... 22
14.1
Accounting periods ............................................................31
8.21
No Guarantee of Capital ................................................... 22
14.2
Distribution of Income........................................................32
8.22
Cash Concentration .......................................................... 22
14.3
Annual report and accounts ..............................................32
8.23
Fixed Income Funds.......................................................... 22
14.4
Documents of the Company ..............................................32
8.24
Concentrated portfolios ..................................................... 22
14.5
Material contracts ..............................................................32
8.25
High Yield Bond ................................................................ 23
14.6
Complaints.........................................................................33
8.26
Dilution Levy ...................................................................... 23
14.7
The Financial Services Compensation Scheme ...............33
8.27
Commodities ..................................................................... 23
14.8
Privacy Statement .............................................................33
9.
Management and administration....................................... 23
Appendix I (Fund details).......................................................................34
9.1
Authorised Corporate Director .......................................... 23
Appendix II Investment and Borrowing Powers and Restrictions .........53
9.2
Depositary ......................................................................... 24
Appendix III Eligible Markets .................................................................69
9.3
Investment Manager ......................................................... 25
Appendix IV Dilution levy estimates ......................................................71
9.4
Registrar ............................................................................ 26
Appendix V Performance of the Funds .................................................72
9.5
Administrator ..................................................................... 26
Directory…… .........................................................................................77
9.6
Auditor ............................................................................... 26
9.7
Legal advisers ................................................................... 26
10.
Shareholder Meetings and Voting Rights ......................... 26
10.1
Shareholder meetings ....................................................... 26
11.
Policies of the ACD and the Investment Manager ............ 27
11.1
Conflicts of Interest ........................................................... 27
11.2
Exercise of voting rights .................................................... 27
11.3
Best Execution .................................................................. 27
11.4
Controversial Weapons..................................................... 27
11.5
Responsible Investment.................................................... 28
12.
Taxation............................................................................. 28
12.1
General.............................................................................. 28
12.2
The Company.................................................................... 28
12.3
Stamp Duty Reserve Tax (‘SDRT’) ................................... 28
12.4
UK Shareholders ............................................................... 28
12.5
Income equalisation .......................................................... 29
12.6
Foreign Account Tax Compliance Act .............................. 29
12.7
Capital gains tax................................................................ 30
12.8
Inheritance tax (‘IHT’) ........................................................ 30
12.9
European Union Savings Directive ................................... 30
13.
Winding-Up and Termination ............................................ 30
2
Threadneedle Investment Funds II ICVC
Important: if you are in any doubt about the
contents of this Prospectus you should
consult your professional adviser.
The provisions of the Instrument of Incorporation are binding on each of the
Shareholders who are taken to have notice of them. This Prospectus has
been issued for the purpose of section 21 of the Financial Services and
Markets Act 2000 by the ACD.
Threadneedle Investment Services Limited, the authorised corporate director
of the Company (the “ACD”), is the person responsible for the information
contained in this Prospectus. To the best of its knowledge and belief (having
taken all reasonable care to ensure that such is the case) the information
contained herein does not contain any untrue or misleading statement or omit
any matters required by the FCA Rules to be included in it. Threadneedle
Investment Services Limited accepts responsibility accordingly.
The Prospectus is based on information, law and practice at the date hereof.
The Company is not bound by any out of date prospectus when it has issued
a new prospectus and potential investors should check that they have the
most recently published version.
Copies of this Prospectus can be provided in large print or electronic format.
The distribution of this Prospectus in certain jurisdictions may require that this
Prospectus is translated into the official language of those countries. Should
any inconsistency arise between the translated version and the English
version, the English version shall prevail.
Prospectus of Threadneedle Investment
Funds III ICVC
(An open-ended investment company with variable capital incorporated
with limited liability and registered in England and Wales under registered
number IC593)
Shares in the Company are not available for offer or sale in any state in the
United States, or to persons (including companies, partnerships, trusts or
other entities) who are US Persons, nor may Shares be owned or otherwise
held by such persons. Accordingly, this Prospectus may not be distributed in
the United States or to a US Person. The ACD reserves the right to give
notice to any Shareholder that is or that subsequently becomes incorporated
in the United States or to a US Person to (i) transfer the Shares to a person
that is not a US Person or (ii) request a redemption or cancellation of the
Shares and the ACD may redeem or cancel the Shares if the Shareholder
fails to make such transfer or request within 30 days of that notice provided
by the ACD.
This document constitutes a Prospectus for Threadneedle Investment
Funds III ICVC (formerly known as LV= Investment Funds II ICVC), which
has been prepared in accordance with the FCA Rules. The Instrument of
Incorporation of the Company is registered with the Financial Conduct
Authority (the “FCA”).
The Prospectus is dated and is valid as at 1 July 2016.
Copies of this Prospectus have been sent to the FCA and the Depositary.
If you are in any doubt about the contents of this Prospectus you should
consult your professional adviser.
No person has been authorised by the Company to give any information or to
make any representations in connection with the offering of Shares other than
those contained in the Prospectus and, if given or made, such information or
representations must not be relied on as having been made by the Company.
The delivery of this Prospectus (whether or not accompanied by any reports)
or the issue of Shares shall not, under any circumstances, create any
implication that the affairs of the Company have not changed since the
date hereof.
The distribution of this Prospectus and the offering of Shares in certain
jurisdictions may be restricted. Persons into whose possession this
Prospectus comes are required by the Company to inform themselves about
and to observe any such restrictions. This Prospectus does not constitute an
offer or solicitation by anyone in any jurisdiction in which such offer or
solicitation is not authorised or to any person to whom it is unlawful to make
such offer or solicitation.
Potential investors should not treat the contents of this Prospectus as advice
relating to legal, taxation, investment or any other matters and are
recommended to consult their own professional advisers concerning the
acquisition, holding or disposal of Shares.
3
Threadneedle Investment Funds II ICVC
Definitions
“COLL” refers to the appropriate chapter or rule in the COLL Sourcebook
“COLL Sourcebook” means the Collective Investment Schemes Sourcebook
issued by the FCA as amended from time to time
“Accumulation Shares” means Shares (of whatever Class) in Funds of the
Company as may be in issue from time to time in respect of which income is
accumulated and added to the capital property of a Fund
“Company” means Threadneedle Investment Funds III ICVC
“ACD” means Threadneedle Investment Services Limited, the authorised
corporate director of the Company
“Corporate Bond” means a bond issued by a corporation or supranational
organisation
“ACD Agreement” means an agreement between the Company and the ACD
as amended from time to time, setting out the terms of appointment of the ACD
“Dealing Day” means Monday to Friday excluding public holidays and bank
holidays in England and Wales and any other days at the ACD’s discretion
“Act” means the Financial Services and Markets Act 2000, as amended from
time to time
“Depositary” means HSBC Bank plc, or whoever is from time to time
appointed as the depositary of the Company
“Administrator” means HSBC Bank plc, or whoever is appointed from time to
time to provide administration and fund accounting services to the Company
“Depositary Services Agreement” means the agreement between the
Company, the ACD and the Depositary, as amended from time to time,
setting out the terms of appointment of the Depositary
“Approved Bank” means, in relation to a bank account opened by the
Company:
(a)
if the account is opened at a branch in the United Kingdom:
(i)
the Bank of England; or
(ii)
the central bank of a member state of the OECD; or
(iii)
a bank as defined in the FCA Rules; or
(iv)
a bank or a building society which offers, unrestrictedly,
banking services; or
(v)
(b)
“EEA State” means a member state of the European Union and any other
state which is within the European Economic Area
“Eligible Institution” means one of certain eligible institutions as defined in the
glossary of definitions in the FCA Rules
“Eligible Shareholder” means an existing or new investor of the Company that
is eligible at the ACD’s discretion to invest in the Class X Shares upon
entering into an agreement with the ACD and fulfilling the eligibility conditions
set by the ACD from time to time
“Efficient Portfolio Management” or “EPM” means the use of techniques
and instruments which relate to transferable securities and approved
money-market instruments and which fulfil the following criteria:
a bank which is supervised by the central
bank or other
banking regulator of a member state of the OECD; or
if the account is opened elsewhere:
(a)
they are economically appropriate in that they are realised in a cost
effective way; and
(b)
they are entered into for one or more of the following specific aims:
(i)
a bank in (a); or
(ii)
a credit institution established in an EEA State other than in
the United Kingdom and duly authorised by the relevant Home
State Regulator; or
(i)
reduction of risk;
(ii)
reduction of cost;
(iii)
a bank which is regulated in the Isle of Man or the Channel
Islands; or
(iii)
(iv)
a bank supervised by the South African Reserve Bank
generation of additional capital or income for the scheme with
a risk level which is consistent with the risk profile of the
scheme and the risk diversification rules laid down in COLL
“Auditor” means Ernst & Young LLP, or whoever is appointed from time to
time to act as auditor to the Company
“FCA” means the Financial Conduct Authority of 25 The North Colonnade,
Canary Wharf, London E14 5HS or any successor organisation
“Class” or “Classes” in relation to Shares, means (according to the context)
all of the Shares related to a single Fund or a particular class or classes of
Share related to a single Fund
“FCA Rules” means the FCA Handbook of Rules and Guidance as amended
from time to time made under the Act including the COLL Sourcebook but
excluding, for the avoidance of doubt, any guidance or evidential provisions
4
Threadneedle Investment Funds II ICVC
“Registrar” means International Financial Data Services (UK) Limited, or
whoever is from time to time appointed as the registrar of the Company
“Fund” or “Funds” means a sub-fund or sub-funds of the Company. Each Fund
forms part of the property of the Company but is pooled separately and is
invested in accordance with the investment objective applicable to that Fund
“the Regulations” means the OEIC Regulations and the FCA Rules
‘Gross Accumulation Shares’ Accumulation Shares that are Gross Paying Shares
and are denominated in the base currency of the Company (or, where different,
of the relevant Fund)
“Share” or “Shares” means a share or shares in the Company (including
Larger Denomination Shares and Smaller Denomination Shares)
‘Gross Income Shares’ Income Shares that are Gross Paying Shares and
are denominated in the base currency of the Company (or where different,
of the relevant Fund)
“Share Class” or “Class of Shares” or “Class” means all of the Shares issued
by the Company or a particular class of Shares relating to a single Fund
(according to the context)
‘Gross Paying Shares’ Shares (of whatever Class) in the Funds of the
Company as may be in issue from time to time and in respect of which
income allocated thereto is credited periodically to capital (Accumulation
Shares) or distributed (Income Shares) in accordance with relevant tax law
within any tax being deducted or accounted for by the Company
“Shareholder” means a holder of Shares in the Company
“Smaller Denomination Share” means a Share carrying one thousandth of the
rights of a Larger Denomination Share
“Threadneedle ISA” means an ISA, the account manager of which is
Threadneedle Investment Services Limited
“Income Shares” means Shares in respect of which income is distributed
to Shareholders
“Threadneedle OEIC” means the Company or any other OEIC managed by
the ACD, further details of which are set out in the section with the heading
“Authorised Corporate Director” at page 23 of this Prospectus
“Instrument of Incorporation” means the instrument of incorporation of the
Company as amended from time to time
“Investment Manager” means Threadneedle Asset Management Limited,
the investment manager of the Funds, further details of which are set out
in the section with the heading “Investment Manager” at page 25 of this
Prospectus (as amended from time to time)
“Threadneedle Regular Savings Facility” means the regular savings facility
offered by the ACD through which Retail Shares may be purchased, including
a savings facility within a Threadneedle ISA
“UCITS” means Undertaking for Collective Investment in Transferable
Securities as described in the UCITS Directive referred to in COLL 3.2.8
“ISA” means an individual savings account under the Individual Savings
Accounts Regulations 1998 (as amended from time to time)
“UK” means the United Kingdom of Great Britain and Northern Ireland
“Larger Denomination Share” means a Share issued by the Company as a
larger denomination share
‘US Person’ means for the purposes of Foreign Account Tax Compliance Act
a US citizen or resident individual, a partnership or corporation organised in
the United States or under the laws of the United States or any State thereof,
a trust if (i) a court within the United States would have authority under
applicable law to render orders or judgements concerning substantially all
issues regarding administration of the trust, and (ii) one or more US person
has the authority to control all substantial decisions of the trust, or an estate
of a decedent that is a citizen or resident of the United States. This definition
shall be interpreted in accordance with sections 1471 to 1474 of the US Internal
Revenue Code of 1986
“Limited Issue Fund” means a Fund whose Shares are Limited Issue Shares
“Limited Issue Shares” means Shares which, in accordance with the
FCA Rules, may only be issued at limited times and in the circumstances
as specified in the Prospectus
‘Net Accumulation Shares’ Accumulation Shares which are Net Paying
Shares and are denominated in the base currency of the Company
(or, where different, of the relevant Fund)
“Valuation Point” means the point, whether on a periodic basis or for a
particular valuation, decided by the ACD, at which the ACD carries out
a valuation of the property of the Company or a Fund (as the case may be)
for the purpose of determining the price at which Shares of a Class may
be issued, cancelled, sold or redeemed. The current Valuation Point is
14:00 on each Dealing Day
“Net Asset Value” or “NAV” means the value of the scheme property of
the Company or of a Fund (as the context may require) less the liabilities
of the Company (or of the Fund concerned) as calculated in accordance
with the Instrument of Incorporation
“OECD” means the Organisation for Economic Co-operation and
Development
“VAT” means value added tax
“OEIC Regulations” means the Open-Ended Investment Companies
Regulations 2001 (as amended from time to time)
5
Threadneedle Investment Funds II ICVC
1. Details of the Company
The Funds, with the exception of the Threadneedle UK Short-Term
Money Market Fund, will be managed so as to be eligible as an
ISA investment for the purposes of the Individual Savings Account
Regulations 1998 (as amended). The new ISA regime (“NISA”) took
effect from 1 July 2014 and the Funds are managed so as to be
eligible as NISA investments.
1.1 General
THREADNEEDLE INVESTMENT FUNDS III ICVC is an open-ended
investment company with variable capital incorporated in England and Wales
with registered number IC593 and authorised by the FCA with effect from
30 November 2007.
Details of the Funds currently available, including their investment
objectives and policies, as well as the Share Classes available for
each Fund, are contained in Appendix I (Fund details).
The Company is a UCITS scheme for the purposes of the FCA Rules and an
umbrella company for the purposes of the OEIC Regulations.
The Company will not have any interest in any immovable property or
tangible movable property.
Shareholders of the Company are not liable for the debts of the Company.
Head office: Cannon Place, 78 Cannon Street, London EC4N 6AG.
Each Fund will be charged with the liabilities, expenses, costs and
charges of the Company attributable to that Fund and within the
Funds charges will be allocated between Classes in accordance with
the terms of issue of Shares of those Classes. Any assets, liabilities,
expenses, costs or charges not attributable to a particular Fund may
be allocated by the ACD in a manner which it believes is fair to the
Shareholders generally. This will normally be pro rata to the Net Asset
Value of the relevant Funds.
Address for service: The head office is the address of the place in the United
Kingdom for service on the Company of notices or other documents required
or authorised to be served on it.
Base currency: The base currency of the Company is Pounds Sterling. Each
Fund and Class is designated in Pounds Sterling.
Share capital: Maximum
Minimum
£6,000,000,000 (six billion pounds Sterling)
£1 (one pound Sterling)
The Funds are segregated portfolios of assets and, accordingly, the
assets of a Fund belong exclusively to that Fund and shall not be
used to discharge directly or indirectly the liabilities of, or claims
against, any other person or body, including the umbrella, or any other
Fund, and shall not be available for any such purpose.
Shares in the Company have no par value. The share capital of the Company
at all times equals the sum of the NAV of each of the Funds. The Company
issues and redeems Shares in each of its available Classes at a price related
to the relevant NAV.
While the OEIC Regulations provide for segregated liability between
Funds, the concept of segregated liability is relatively new.
Accordingly, where claims are brought by local creditors in foreign
courts or under contracts which are subject to the laws of other
countries it is not yet known how those foreign courts will react to
provisions of the OEIC Regulations which provide for segregated
liability between Funds.
1.2 The structure of the Company
1.2.1 The Funds
The Company is structured so that different Funds may be
established from time to time by the ACD with the approval of the FCA
and the agreement of the Depositary. On the introduction of any new
Fund or Class, a revised Prospectus will be prepared setting out the
relevant details of each Fund or Class.
The Threadneedle UK Short-Term Money Market Fund is a short-term
money market fund (as defined in the FCA Rules) and its investment
objective and policy will meet the conditions specified in such definition.
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 Funds which are currently available are:
2. Shares
2.1 Classes of Share within the Funds
Threadneedle UK Corporate Bond Fund
Several Classes of Share may be issued in respect of each Fund,
distinguished by their criteria for subscription and fee structure.
Threadneedle UK Short-Dated Corporate Bond Fund
All Classes are denominated in Sterling.
Threadneedle UK Medium & Long-Dated Corporate Bond Fund
In addition, each Class may be made available in both Income Shares
and Accumulation Shares. The Classes of Share presently available
for each Fund are set out in Appendix I (Fund details) and in the
section headed “Available Classes of Shares” below.
Threadneedle UK Fixed Interest Fund
Threadneedle UK Index Linked Fund
Threadneedle UK Short-Term Money Market Fund
6
Threadneedle Investment Funds II ICVC
The limits for minimum initial investment, minimum subsequent
investment and minimum holding of shares may be waived at the
discretion of the ACD. If a holding is below the minimum holding the
ACD has the discretion to require redemption of the entire holding.
2.4 Title to Shares
All references in this Prospectus to Income Shares and Accumulation
Shares are to both net Income and net Accumulation Shares and gross
Income and gross Accumulation Shares unless otherwise stated.
2.5 Share Denominations
The title to Shares is evidenced by entries on the Register of Shareholders.
Certificates for Shares will not be issued.
Shares are expressed in two denominations – Larger Denomination Shares
and Smaller Denomination Shares – in order to calculate fractional
entitlements of less than one Larger Denomination Share:
The Instrument of Incorporation allows gross Income and gross
Accumulation Shares to be issued as well as net Income and net
Accumulation Shares. Net Shares are Shares in respect of which
income allocated to them is distributed periodically to the relevant
Shareholders (in the case of Income Shares) or credited periodically
to capital (in the case of Accumulation Shares), in either case in
accordance with relevant tax law, net of any tax deducted or
accounted for by the Company. Gross Shares are Income or
Accumulation Shares where, in accordance with relevant tax law,
distribution or allocation of income is made without any tax being
deducted or accounted for by the Company.
Smaller Denomination Shares are whole Shares which carry a fraction of one
thousandth of the rights of a Larger Denomination Share.
Whenever the number of any such Smaller Denomination Shares held shall
reach one thousand, the ACD shall consolidate the Smaller Denomination
Shares into one Larger Denomination Share of the same Class.
2.6 Limited Issue
The ACD may, at any time in the future, decide to limit the issue of Shares in
respect of a Fund or one or more particular Share Classes of a Fund if the
ACD is of the opinion that this is appropriate to do so. The ACD will notify
Shareholders if it makes such a determination, setting out the reasons for so
limiting the capacity of the relevant Fund or Share Class. The reasons may
include situations where, for example, the ACD considers that substantially
all of the subscriptions relating to a Business Day, if accepted, could not be
efficiently invested; could not be invested without compromising the
investment objectives and policies of the Fund; or might materially prejudice
existing Shareholders’ interests. Currently none of the Funds are Limited
Issue Funds.
Where a Fund has different Classes, each Class may attract different
charges and so monies may be deducted from Classes in unequal
proportions. In these circumstances the proportionate interests of the
Classes within a Fund will be adjusted accordingly.
Typically, Retail Shares and Second Retail Shares are available to
retail investors seeking income or growth (or a combination of both)
over the medium to long-term. Class X shares are only available to
Eligible Shareholders.
Accumulation Shares
Holders of Accumulation Shares are not entitled to be paid the income
attributed to such Shares, but that income is automatically transferred
to (and retained as part of) the capital assets of the relevant Fund on
the relevant interim and/or annual accounting dates. This is reflected
in the price of an Accumulation Share.
3. The Funds and their Investment
Objectives and Policies
Details of the investment objectives, policies and other details of the Funds
are set out in Appendix I (Fund details).
Income Shares
Holders of Income Shares are entitled to be paid the distributable
income attributed to such Shares.
Investment of the assets of each of the Funds must comply with the FCA
Rules and the investment objective and policy of the relevant Fund. Details
of these investment objectives and policies are set out in Appendix I (Fund
details). The eligible securities markets and eligible derivatives markets on
which the Funds may invest are set out in Appendix III Eligible Markets.
A detailed statement of the general investment management and borrowing
powers, including a full list of eligible investments and investment restrictions
is set out in Appendix II Investment and Borrowing Powers and Restrictions
and Appendix III Eligible Markets.
Please note that for holders of Income Shares, income
distributions will be used to purchase additional Income Shares,
unless the holder requests otherwise.
2.2 Available Classes of Shares
The Classes of Shares currently available in the Funds and income allocation
dates are set out in Appendix I (Fund details).
Where the investment policy of a Fund contains words such as ‘primarily’,
‘principally’ or ‘mainly’ in the description of its investment policy, the relevant
Fund will invest not less than two-thirds of the value of the property of that
Fund in the specified kind of assets. However, for the purposes described in
Appendix II with respect to Funds of the Company that are ‘bond Funds’,
such a Fund may hold cash or money market securities or other instruments,
including derivatives.
2.3 Bearer Shares
The Instrument of Incorporation does not permit the Company to issue bearer
shares. The Company will only issue registered shares.
7
Threadneedle Investment Funds II ICVC
The aim of any use of derivative or forward transactions is to assist the
Manager in meeting the investment objectives of the Fund by reducing risk
and/or reducing cost and/or generating additional income or capital with a
level of risk which is consistent with the risk profile of the Fund and the risk
diversification rules within which it operates. The use of derivatives or
forwards for the purposes of EPM or hedging will not materially alter the risk
profile of the Fund.
Please note that the ACD may reject a request to buy, sell or switch Shares if
the investor is unable to demonstrate to the satisfaction of the ACD (acting
reasonably) that the investor has complied with applicable law and regulation.
By way of example only, such circumstances may include an inability to
provide appropriate money laundering documentation or confirmation that the
investor has received the most recently available Key Investor Information
Document for the Fund they wish to invest in.
Further details are set out in Appendix III Eligible Markets. Where a Fund
may invest in derivatives for investment purposes, this will be stated in the
investment policy of the relevant Fund.
It should be noted that for Funds which are Limited Issue Funds restrictions
will apply for new subscriptions into Limited Issue Funds. Details are set out
in the section applicable to the Limited Issue Funds in the section with the
heading ‘Investment objectives, policies and other details of the Funds’.
Investors should refer to the information set out in the section of this
prospectus with the heading ‘Investments in derivatives and forward
transactions‘ on page 21 of this Prospectus.
The dealing office of the ACD is open from at least 8 a.m. until at least 6 p.m.
UK time on each Dealing Day to receive requests for the issue, redemption
and switching of Shares.
Where the investment policy of a Fund permits it to invest in other collective
investment schemes it may invest in other Funds of the Company provided
that the investing Fund complies with the FCA Rules and the OEIC
Regulations.
Prices for the available Funds are calculated every Dealing Day at 2 p.m. UK
time. Shares in the Funds that are bought or sold before 2 p.m. will obtain the
price calculated on that Dealing Day. Shares in Funds that are bought or sold
after 2 p.m. will obtain the price calculated at 2 p.m. on the next Dealing Day.
Bond funds and particularly high yield bond funds are generally permitted to
invest in a range of fixed interest securities which includes non-traditional
types of debt securities. These may include (without limitation), regulatory
capital (such as Tier 1 and Tier 2 capital), subordinated debt and various
forms of contingent capital securities including, but not limited to, contingent
convertible bonds. These securities may possess features such as coupon
deferral or cancellation, resettable coupon rates, loss of capital or conversion
to equity. Such investments may be made by the Funds but will only be
permitted in accordance with the Fund’s investment objectives and policies
and within the existing risk profile of the Fund.
4.2 Minimum subscriptions and holdings
Details of the minimum investment amounts, subsequent investment
amounts and minimum holding for each of the Funds is set out in Appendix I
(Fund details).
The ACD may at its discretion accept subscriptions lower than the minimum
amount. If a holding is below the minimum holding the ACD has the
discretion to require redemption of the entire holding.
The effective maturity date rather than the final term to maturity is used for
the purposes of the investment and borrowing limits when categorising bonds
that have a variable rate or are callable.
4.3 Client money
The ACD does not treat monies received for the issuance of shares or
monies payable to the investor upon redemption as client money as long as:
(i) in relation to monies for the issuance of shares, the ACD has paid the
subscription monies in exchange for shares to the ACD by the close of
business on the day following receipt of monies from the investor; or (ii) in
relation to proceeds from a redemption, paid the redemption monies to the
investor within four business days of receipt of the fully authorised form of
renunciation (or other sufficient instruction) and in any event by the close of
business on the day following receipt of the monies from the ACD.
Where the investment policy of the Fund permits it to invest in equity related
securities these may include participatory notes (p-notes) and/or warrants
(including low exercise price warrants).
4. Buying, selling and switching Shares
4.1 General
In the event that the above time limits are not met by the ACD, the ACD will
treat the relevant sum received with respect to subscriptions and redemptions
as client money as defined under the FCA Rules. This means that the money
is held in an account separate from that the ACD uses to hold its own money.
The ACD will not calculate or pay to the investor any interest that might arise
on those monies.
Investors can invest in all Funds and Share Classes provided the eligibility
criteria are met.
The Funds may be sold to retail and non-retail investors. Certain types of
share are only available to specific types of investor. Further details of this
are set out in the section of this Prospectus with the heading “Shares” on
page 6 of this Prospectus.
8
Threadneedle Investment Funds II ICVC
4.4 Buying Shares
(i)
calling the ACD (followed by written confirmation);
Share certificates will not be issued in respect of Shares. Ownership
of Shares will be evidenced by an entry on the Company’s register of
Shareholders. Statements in respect of periodic distributions will show the
number of Shares held or accumulated by the Shareholder. Individual
statements of a Shareholder’s (or, when Shares are jointly held, the firstnamed holder’s) Shares will also be issued at any time on request by the
registered Shareholder.
(ii)
sending an instruction to the ACD by fax; or
4.4.2 Regular Savings Facility
(iii)
sending an instruction by post to the ACD.
4.4.1 Procedure
Shares can be bought either by:
The ACD may make available certain Classes of Shares of any Fund through
its Regular Savings Facility. Currently, only Retail Shares are available within
this Facility. To invest in this way, Shareholders must complete and return to
the ACD the relevant application form and direct debit mandate before
contributions may begin. Monthly contributions may be increased, decreased
(subject to maintaining the minimum level of contribution) or stopped at any
time by notifying the ACD. If, however, payments are not made into the
Regular Savings Facility for more than six months and the Shareholder holds
less than the minimum holding for that Class, then the ACD reserves the right
to redeem that Shareholder’s entire holding in that Class.
Contact details can be found in the “Directory” at page 77 of this Prospectus
(ACD Client Services).
Any initial purchase of Shares must be accompanied by a completed
application form, which can be obtained from the ACD. Completed forms
should be sent by fax or post to the ACD. Subsequent investments can be
made by telephone, but still require written confirmation. Unless the ACD
receives instructions to the contrary, all deals will be processed on receipt
and payment immediately becoming due.
Contributions to the Regular Savings Facility are collected on a monthly basis
with Shares being allocated at the Share price ruling at the next following
Valuation Point (subject to any applicable initial charge). Confirmations will
not be issued to Shareholders investing through a Regular Savings Facility.
An agreement must be entered into between the Eligible Shareholder and the
ACD before investments can be made in Class X Shares.
Settlement is the relevant Dealing Day plus four business days for
subscriptions and the relevant Dealing Day plus four business days for
redemptions. As part of its credit control policy, the ACD reserves the right to
cancel any contract without notice where payment has not been received by
the relevant settlement date and will be entitled to recover any losses
incurred as well as interest on late settlement.
For Shares purchased through the Regular Savings Facility, the minimum
monthly investment is stated in Appendix I (Fund details).
4.5 Selling Shares
4.5.1 Procedure
The ACD has the right to reject any application for Shares in whole or part,
provided it has reasonable grounds for doing so. If the ACD exercises this
right, the ACD will return any money sent, or the balance of such monies to
the applicant, at the applicant’s risk.
Every Shareholder has the right to require that the Company redeem his
Shares on any Dealing Day. However, where the value of Shares held by a
Shareholder will be less than the minimum value of Shares for the relevant
Fund (as set out in Appendix I (Fund details), the ACD may require that the
Shareholder redeems their full holding.
Where an investor invests a specific sum of money (rather than a specified
number of Shares) and the money subscribed is not sufficient to purchase a
whole number of Shares, the ACD will issue Smaller Denomination Shares
rather than returning any money to the investor.
Requests to redeem Shares may be made either by:
The ACD, at its discretion, has the right to cancel a purchase deal if
settlement is materially overdue and any loss arising on such cancellation
shall be the liability of the applicant. For postal applications payment in full
must accompany the instruction.
Documents the purchaser will receive
(i)
calling the ACD (followed by written confirmation);
(ii)
sending an instruction to the ACD by fax; or
(iii)
sending an instruction by post to the ACD.
Contact details can be found in the “Directory” at page 77 of this Prospectus
(ACD Client Services).
A contract note giving details of the Shares purchased and the price obtained
will be issued by the end of the business day following the later of receipt of
(i) the application to purchase Shares or (ii) the Valuation Point by reference
to which the purchase price is determined, together with a notice of the
applicant’s right to cancel (where appropriate).
The ACD will issue a cheque or make an electronic funds transfer in payment
for Shares within four business days of receiving instructions to redeem them
or the later of (a) receipt by the ACD of the form of renunciation (or other
sufficient written instructions) duly signed by all the relevant Shareholders
and completed as to the appropriate number of Shares, together with any
9
Threadneedle Investment Funds II ICVC
where:
other appropriate evidence of title and (b) the Valuation Point following
receipt by the ACD of the request to redeem.
Documents the seller will receive
A contract note setting out the number and price of Shares sold will be sent
to the selling Shareholder (or, when the funds are held jointly, to the firstnamed Shareholder) together (if sufficient written instructions have not
already been given) with a form of renunciation for completion and execution
by the Shareholder(s) by no later than the end of the business day following
the later of the request to redeem Shares or the Valuation Point by reference
to which the redemption price is determined.
4.6 Switching/Converting
N
is the number of new Shares to be issued or sold (rounded down to
the nearest whole number of Smaller Denomination Shares);
O
is the number of original Shares specified (or deemed to be specified)
in the switching notice which the holder has requested to switch;
CP
is the price at which a single original Share may be cancelled or
redeemed as at the valuation point applicable to the cancellation or
redemption as the case may be;
ER
is 1, where the original Shares and the new Shares are designated in
the same currency and, in any other case, is the exchange rate
determined by the ACD in its absolute discretion (subject to the FCA
Rules) as representing the effective rate of exchange between the two
relevant currencies as at the date the switching notice is received
(or deemed to have been received) by the Company having adjusted
such rate as may be necessary to reflect any costs incurred by the
Company in making any transfer of assets as may be required as a
consequence of such a switch being effected; and
SP
is the price at which a single new Share may be issued or sold as at
the valuation point applicable to the cancellation or redemption as the
case may be.
A Shareholder may at any time Switch all or some of his Shares of one
Class or Fund (‘Original Shares’) for Shares of another Class or Fund
(‘New Shares’) provided they meet the eligibility criteria for the New Shares.
The number of New Shares issued will be determined by reference to the
respective prices of New Shares and Original Shares at the Valuation Point
applicable at the time the Original Shares are repurchased and the New
Shares are issued. Switching may be effected by:
(i)
calling the ACD (followed by written confirmation);
(ii)
sending an instruction to the ACD by fax; or
(iii)
sending an instruction by post to the ACD.
The ACD may adjust the number of New Shares to be issued to reflect the
application of any charge on switching together with any other charges or
levies in respect of the application for the New Shares or redemption of the
Original Shares as may be permitted pursuant to the FCA Rules.
Contact details can be found in the “Directory” at page 77 of this Prospectus
(ACD Client Services).
The ACD may at its discretion make a charge on the switching of Shares
between Funds. Any such charge on switching will be deducted from the
value of the Original Shares before the purchase of the New Shares but will
not in any event exceed the amount of the initial charge at that date for the
New Shares. In order to Switch to Class X Shares, the Shareholder of the
Original Shares must be an Eligible Shareholder.
The ACD may at its discretion charge a fee on the switching of Shares
between Funds. These fees are set out in Appendix I (Fund details) for
each Fund. There is currently no fee on a Switch between Classes of the
same Fund.
Where the value of Original Shares held by a Shareholder will be less than
the minimum value of Shares for the relevant Fund (as set out in Appendix I
(Fund details)), the ACD may, at its discretion, convert the Shareholder’s full
holding of Original Shares to New Shares or refuse to effect any Switch.
A switch of Shares in one Fund for Shares in another Fund will be treated as
a redemption and sale and will, for persons subject to UK taxation, be a
realisation for the purposes of capital gains tax, which may give rise to a
liability to tax, depending on the Shareholder’s circumstances. A Switch of
Shares from one Class to another Class in the same Fund is not, in general,
a disposal for the purposes of capital gains taxation. For further information
on tax implications for Shareholders, please refer to the section with the
heading “Taxation” section on page 28 of this Prospectus.
The ACD may impose restrictions on exchanges, but any restriction related to
switching to Shares of different Funds must be on reasonable grounds
relating to the circumstances of the Shareholder concerned.
The number of New Shares to be issued to the holder on a switch will be
determined by reference to the respective prices of New Shares and
Original Shares at the Valuation Point applicable at the time the Original
Shares are redeemed and the New Shares are issued. The following formula
will be applied:
A holder of Shares may convert (as opposed to switch) Shares of one Class
of any Fund for Shares in another Class of the same Fund at the absolute
discretion of the ACD and in accordance with all applicable FCA Rules. A fee
may be charged for this conversion which will be no more than the aggregate
of the prevailing redemption charge (if any) in respect of the Original Shares
and the initial charge (if any) in respect of the New Shares and is payable to
the ACD.
N = O x (CP x ER)
SP
10
Threadneedle Investment Funds II ICVC
The ACD may charge a switching fee of an amount up to the initial charge
at that date for the new Shares when Shares of a Fund are switched for
Shares in another Fund. Details of the switching fee are set out in Appendix I
(Fund details).
In order to assist Shareholders in complying with their legal and regulatory
obligations including complying with the FCA’s Retail Distribution Review a
Shareholder may convert (as opposed to Switch) shares of one Class of any
Fund for shares in another class of the same Fund at the absolute discretion
of the ACD.
Statements detailing all Share transactions will be sent out to all Monthly
Savers at least on a six monthly basis.
In no circumstances will a Shareholder who switches Shares in one Fund for
Shares in another Fund (or who converts Shares in one Fund to Shares in
a different Class of the same Fund) be given a right by law to withdraw from,
or cancel, the transaction. Shares cannot be switched or converted during a
period when dealings in Shares of the relevant Fund or Funds are suspended
by the Company pursuant to the FCA Rules and the right of a Shareholder to
switch or convert during a period of suspension is similarly suspended.
4.8 Restrictions, Compulsory Transfers and/or
Redemption
The ACD may from time to time impose such restrictions as it may think
necessary for the purpose of ensuring that no Shares in the Company are
acquired or held by any person in breach of the law or governmental
regulation (or any interpretation of a law or regulation by a competent
authority) of any country or territory, or which would (or would if other Shares
were acquired or held in like circumstances) result in the Company incurring
any liability to taxation which the Company would not be able to recoup itself
or suffering any other adverse consequence (including a requirement to
register under any securities or investment or similar laws or governmental
regulation of any country or territory).
A Shareholder who Switches Shares in one Fund for Shares in any
other Fund will not be given a right by law to withdraw from or cancel
the transaction.
No Switch will be made during any period when the right of Shareholders to
require the redemption of their Shares is suspended (as described in the
section with the heading “Suspension of Dealing” on page 12 of this
Prospectus. The general provisions on procedures relating to redemption will
apply equally to a Switch. A duly completed switching form must be received
by the ACD before the Valuation Point on a Dealing Day in the Fund or
Funds concerned to be dealt with at the prices at those Valuation Points on
that Dealing Day, or at such other date as may be approved by the ACD.
Switching requests received after a Valuation Point will be held over until the
next Dealing Day in the relevant Fund or Funds.
In this connection, the ACD may, inter alia, reject at its discretion any
application for the purchase, redemption, transfer or switching of Shares.
If it comes to the notice of the ACD that any Shares (“affected Shares”) are
owned directly or beneficially in any of the circumstances set out above or if it
reasonably believes this to be the case, the ACD may give notice to the
holder(s) of the affected Shares requiring the transfer of such Shares to a
person who is qualified or entitled to own them without causing the adverse
consequences set out above or that a request in writing be given for the
redemption of such Shares in accordance with the COLL Sourcebook.
It should be noted that the times at which Shareholders may Switch into
Shares of Limited Issue Funds will be restricted. Where applicable. details will
be set out in the section with the heading “Limited Issue” on page 7 of this
Prospectus and in Appendix I (Fund details).
If any person upon whom such a notice is served does not within thirty days
after the date of such notice transfer his affected Shares to a person qualified
to own them without causing the adverse consequences set out above or
submit a written request for their redemption to the ACD or establish to the
satisfaction of the ACD (whose judgement is final and binding) that he or any
beneficial owner is qualified and entitled to own the affected Shares without
causing the adverse consequences set out above, he shall be deemed upon
the expiration of that thirty day period to have given a request in writing for
the redemption or cancellation (at the discretion of the ACD) of all the
affected Shares pursuant to the COLL Sourcebook.
4.7 Dealing charges
The ACD may impose charges for the issue, redemptions and switching
of Shares in the Funds. Details of such fees are set out in Appendix I (Fund
details).
The initial charge is payable to the ACD and may be used to remunerate
intermediaries. To the extent permitted by the FCA Rules, the ACD may
agree to waive or reduce the initial charge at its discretion in respect of a
subscription by any person, including a holder of Shares in any other
collective investment scheme operated by the ACD, where such subscription
is at or about the same time as the redemption of units or Shares (or other
interests) in that other collective investment scheme and thereby represents
a ‘Switch’ to the Company.
This may include a situation in which a Shareholder has moved to a different
jurisdiction which either does or may give rise to a situation described above.
It is not possible for the ACD to be fully informed of current law and
regulations in every jurisdiction and accordingly in the interests of
Shareholders and to be able to ensure no Shares are held or acquired by any
person in breach of the law or governmental regulation (or any interpretation
of a law or regulation by a competent authority) or any country or territory or
which would result in the Fund incurring any liability to taxation which the
Fund is not able to recoup itself or suffering any other adverse consequence.
The ACD’s policy will be to treat Share or Shareholders moving to
For those Funds which allow income to be reinvested, Shareholders may
elect to use their dividend income to purchase new Shares in the Fund.
For Shares purchased using the reinvestment of dividend income the initial
charge will be waived.
11
Threadneedle Investment Funds II ICVC
4.12 Suspension of Dealing
jurisdictions other than EEA states as affected Share and may refuse to issue
Shares to anyone resident outside of the jurisdictions.
The ACD may, with the prior agreement of the Depositary, and must without
delay if the Depositary so requires, temporarily suspend the issue, cancellation,
sale and redemption of Shares in any or all of the Funds where due to
exceptional circumstances it is in the interests of all the Shareholders in the
relevant Fund or Funds to do so.
A Shareholder who becomes aware that he has acquired or holds whether
beneficially or otherwise affected Shares in any of the relevant circumstances
set out above shall forthwith, unless he has already received a notice as
mentioned above, either transfer all his affected Shares to a person qualified
to own them without causing the adverse consequences set out above or give a
request in writing to the ACD for the redemption of all his affected Shares.
The ACD and the Depositary must ensure that the suspension is only
allowed to continue for as long as is justified having regard to the interests
of Shareholders.
4.9 Deferred redemption
The ACD will notify Shareholders as soon as is practicable after the
commencement of the suspension, including details of the exceptional
circumstances which have led to the suspension, in a clear, fair and not
misleading way and giving Shareholders details of how to find further
information about the suspensions.
In order to protect the interests of continuing Shareholders in times of high
redemptions, where requested redemptions exceed 10% of a Fund’s value,
and upon giving appropriate notice to Shareholders, the ACD will have the
power to defer redemptions at a particular valuation point on a Dealing Day,
to the Valuation Point on the next Dealing Day. This will allow the ACD to
match the sale of Scheme Property to the level of redemptions, and should
reduce the impact of dilution (as described in the section with the heading
“Dilution levy” on page 12 of this Prospectus) on a Fund. Subject to sufficient
liquidity being raised at the next Valuation Point all deals relating to the
earlier valuation point will be completed before those relating to the later
Valuation Point are considered.
Where such suspension takes place, the ACD will publish details on its website
or other general means, sufficient details to keep Shareholders appropriately
informed about the suspension, including, if known, its possible duration.
During the suspension none of the obligations in COLL 6.2 (Dealing) will apply
but the ACD will comply with as much of COLL 6.3 (Valuation and Pricing)
during the period of suspension as is practicable in light of the suspension.
4.10 In Specie Redemptions
Suspension will cease as soon as practicable after the exceptional
circumstances leading to the suspension have ceased but the ACD and
the Depositary will formally review the suspension at least every 28 days
and will inform the FCA of the review and any change to the information
given to Shareholders.
If a Shareholder requests the redemption or cancellation of Shares the ACD
may, where it considers the deal to be substantial in relation to the total size
of the Fund concerned, arrange that in place of payment of the price of the
Shares in cash, the Company cancels the Shares and transfers the Scheme
Property or, if required by the Shareholder, the net proceeds of sale of
relevant the Scheme Property, to the Shareholder.
The ACD may, however, during the period in which the issue, redemption
and switch of Shares is suspended, agree to issue, redeem or switch Shares
at prices calculated by reference to the first Valuation Point after resumption
of issue and redemption.
Before the proceeds of the cancellation of Shares become payable, the ACD
must give written notice to the Shareholder that the Scheme Property or the
proceeds of sale of the Scheme Property will be transferred to that Shareholder.
5. Other dealing information
The ACD will select the Scheme Property to be transferred in consultation
with the Depositary. They must ensure that the selection is made with a view
to achieving no more advantage or disadvantage to the Shareholder
requesting cancellation/redemption than to the continuing Shareholders.
5.1 Dilution levy
Each Fund may suffer dilution (reduction) in the value of the Scheme Property
as a result of the costs incurred in dealing in its investments and of any
spread between the buying and selling prices of these investments. It is not,
however, possible to predict accurately whether dilution will occur at any
point in time.
4.11 Issue of Shares in exchange for in specie assets
The ACD may arrange for the Company to issue Shares in exchange for
assets other than cash, but will only do so where the ACD and Depositary are
satisfied that the acquisition of those assets in exchange for the Shares
concerned by the Company is not likely to result in any material prejudice to
the interests of Shareholders or potential Shareholders.
In order to mitigate this, the ACD may require the payment of a dilution levy.
In cases where a dilution levy is made the value of the capital of the scheme
property should not be materially affected by dilution. If charged, the dilution
levy will be shown in addition to (but not part of) the price of Shares on their
issue by the Company or sale by the ACD and as a deduction to the price of
Shares on their cancellation by the Company or redemption by the ACD.
The ACD has no entitlement to the dilution levy. It will either be paid into the
relevant Fund, in the case of an issue of Shares by the Company or sale by
The ACD will ensure that the beneficial interest in the assets is transferred to
the Company with effect from the issue of the Shares.
The ACD will not issue Shares in a Fund in exchange for assets the holding
of which would be inconsistent with the investment objective of the Fund.
12
Threadneedle Investment Funds II ICVC
the ACD, or retained in the relevant Fund in the case of a cancellation of
Shares by the Company or a redemption by the ACD.
The need to charge a dilution levy will depend on the volume of net
purchases or redemptions, as described below. The ACD may charge a
dilution levy on any purchase or redemption of Shares if, in its opinion,
the existing Shareholders (for purchases) or continuing Shareholders
(for redemptions) might otherwise materially be adversely affected. A dilution
levy must be imposed only in a manner that, so far as practicable, is fair to
all Shareholders or potential Shareholders.
In particular, the dilution levy may be charged in the following circumstances:
(a)
if the Fund is experiencing large levels of net purchases
(i.e. purchases less redemptions) relative to its size;
(b)
if the Fund is experiencing large levels of net redemptions
(i.e. redemptions less purchases) relative to its size;
(c)
(d)
(c)
government actions or political instability;
(d)
currency realignment or devaluation;
(e)
changes in interest rates;
(f)
corporate activity;
(g)
credit default or distress; or
(h)
litigation.
Even if the Company’s Valuation Point is set during the time other markets
are open for trading, other scenarios might include but are not limited to:
(a)
failure of a pricing provider;
(b)
closure or failure of a market;
on “large deals”. For these purposes, a large deal is typically defined
as a purchase or a redemption in excess of £1,000,000 or 2% or more
of the value of the Fund whichever shall be lower;
(c)
volatile or “fast” markets;
(d)
markets closed over national holidays;
in any other case where the ACD is of the opinion that the interests of
existing/continuing Shareholders and potential Shareholders require
the imposition of a dilution levy.
(e)
stale or unreliable prices; and
(f)
listings, suspensions or de-listings.
5.3 Money Laundering
In order to reduce the volatility in the rate of any dilution levy, the ACD may
take account of the trend of the Fund to expand or to contract; and the
transactions in Shares at a particular Valuation Point.
Deals in Shares and deals otherwise in connection with the Company will be
covered by United Kingdom legislation designed to prevent money
laundering. In order to meet these requirements, the ACD may ask investors
to provide proof of identity when buying or redeeming Shares. For this
purpose, the ACD may use credit reference agencies (who will record that an
enquiry has been made) and/or may check electronic databases.
5.2 Fair Value Pricing
Where the ACD has reasonable grounds to believe that:
(a)
no reliable price for the property in question exists; or
(b)
such price, if it does exist, does not reflect the ACD’s best estimate of
the value of such property,
Until satisfactory proof of identity is provided the ACD reserves the right to
refuse to sell Shares or to delay processing and/or withhold any payments
due to investors in respect of their investment and to discontinue any deals it
is conducting on behalf of these investors.
it may value the Scheme Property or any part of Scheme Property at a price
which, in its opinion, reflects a fair and reasonable price for that property
(“fair value pricing”).
5.4 Market Timing and Late Trading
The repeated purchasing and selling of Shares in response to short-term
market fluctuations is known as “market timing”. The processing of
subscriptions after the dealing cut off time and/or Valuation Point is known
as “late trading”. Shares in a Fund are not intended for market timing or late
trading. The ACD has a policy in relation to market timing and late trading.
As part of its policy, the ACD may refuse to accept an application for Shares
from persons that the ACD reasonably believes are engaged in market timing
or late trading and the ACD will actively monitor trading patterns to assist it in
maintaining the stability and integrity of the prices of Shares.
The ACD is permitted to use fair value pricing in specific circumstances and
pursuant to processes and methodologies that it must have notified to the
Depositary. Examples of the circumstances in which the ACD might consider
using fair value pricing where the Company’s Valuation Point is set during the
time when markets in which its portfolio is invested are closed for trading
include but are not limited to:
(a)
market movements above a pre-set trigger level in other correlated
open markets;
(b)
war, natural disaster, terrorism;
Until satisfactory proof of identity is provided the ACD reserves the right to
refuse to sell Shares or to delay processing and/or withhold any payments
13
Threadneedle Investment Funds II ICVC
due to investors in respect of their investment and to discontinue any deals it
is conducting on behalf of these investors.
(as amended), or any relevant regulations made thereunder and any
payments otherwise due by virtue of the FCA Rules or the
corresponding fees of any regulatory authority in a country or territory
outside the UK in which the Shares are or may be marketed;
6. Fees and Expenses
6.1 General
(i)
The ACD will give written notice to the Shareholders in a time period in
accordance with the FCA Rules before making an increase to any of the
fees or rates specified in this Prospectus and the ACD will make available
a Prospectus to reflect the increased rates.
any fees, expenses or disbursements of any investment, legal or other
professional adviser of the Company and those of the Company’s
sub-advisers;
(j)
All fees and expenses payable out of the property of the Company or by
Shareholders are set out in this section, the section with the heading “Fees
and Expenses” starting at page 14 of this Prospectus.
all fees and expenses incurred in relation to the addition and initial
organisation of any new Funds, the listing of Shares on any stock
exchange, any offer of Shares (including the preparation and printing of
any prospectus) and the creation, conversion and cancellation of Shares;
(k)
any costs incurred in taking out and maintaining an insurance policy in
respect of the ACD and the Company; and
The following payments may lawfully be made out of the property of the
Funds in accordance with the Regulations:
(l)
any value added or similar tax relating to any charge or expense set
out above.
(a)
broker’s commission, fiscal charges and other disbursements which it
is necessary to incur in effecting transactions for the Funds concerned
and which are normally shown in contract notes, confirmation notes
and difference accounts, as appropriate;
(b)
interest on borrowings permitted under the FCA Rules and charges
incurred in effecting or terminating such borrowings or in negotiating
or varying the terms of such borrowings;
(c)
taxation and duties payable in respect of the property of the Funds
or in respect of the issue of Shares in a Fund, including stamp
duties or other taxes or duties in relation to the transfer to the
Company of assets acquired in exchange for the issue of Shares;
(d)
(e)
6.2 Charges payable to the ACD
The charges payable to the ACD in relation to the Funds are set out in
Appendix I (Fund details) other than for Class X Shares for which fees will
be detailed in a separate agreement between the Eligible Shareholder and
the ACD.
The fees of all Share Classes are calculated by reference to the NAV of the
Fund or Share Class, as applicable.
The ACD may make a periodic charge which shall be paid out of the property
of the Funds monthly in arrears at the annual percentage rate shown in
Appendix I (Fund details). This is calculated and accrued daily, based on the
value of the property of the Fund on the preceding business day. With
respect to the Class X Shares, the investor is invoiced directly by the ACD for
the payment of the annual management fee. All Shares, including Class X
Shares bear the pro rata share of the registration and depositary fees as well
as other charges and expenses.
any costs incurred in modifying the Instrument of Incorporation,
including costs incurred in respect of meetings of Shareholders
convened for purposes which include the modification of the
Instrument of Incorporation where the modification is necessary to
implement changes in the law, or necessary as a direct consequence
of any change in the law, or expedient having regard to any change in
the law made by, or under, any fiscal enactment and which the ACD
and the Depositary agree is in the interests of Shareholders, or to
remove obsolete provisions from the Instrument of Incorporation;
This charge will be deducted from the income property of each Fund with the
exception of the Threadneedle UK Equity Income Fund and Threadneedle
US Equity Income Fund, for which the Annual Management Charge for which
will be charged to capital. Please refer to the risk factor with the heading
“Risk to Capital Growth” for further information.
any costs incurred in respect of meetings of Shareholders, or class
meetings of Shareholders of a Fund, including meetings convened on
a requisition by Shareholders or by the ACD;
Where the charge is normally deducted from the income of a Fund but the
income generated is insufficient, the charge may then be deducted from the
capital property of the Fund.
(f)
liabilities arising on amalgamation or reconstruction of the Company
or any of its constituent Funds;
(g)
the audit fee of the Auditors of the Company (and VAT thereon) and
any proper expenses of such an auditor;
The overall level of management fees that may be charged to a Fund,
including the annual management fees of collective investment schemes in
which that Fund invests will not exceed 2% of scheme property per annum.
(h)
the periodical fees of the FCA in respect of the Company as may
be prescribed under the Financial Services and Markets Act 2000
The Company will also pay to the ACD out of the scheme property any
expenses incurred by the ACD or its delegates of the kinds described in the
14
Threadneedle Investment Funds II ICVC
effecting efficient portfolio management transactions, as permitted by the
FCA Rules; collection of income or capital; submissions of tax returns and
handling tax claims; preparation of the Depositary’s annual report; calling
Shareholders’ meetings and communicating with Shareholders; preparing;
clearing and dispatching distribution warrants; obtaining professional advice;
conducting legal proceedings; carrying out administration relating to the
Company; supervision of certain of the activities of the ACD and such other
duties as the Depositary is permitted or required by law to perform.
section with the heading “General” at page 14 of this Prospectus, including
legal and professional expenses of the ACD and its delegates in relation
to the proper performance of the ACD’s duties under the ACD Agreement,
or related to documents amending the ACD Agreement.
In order to introduce a new category of remuneration for its services, the ACD
would require the approval of an ordinary resolution of Shareholders at an
Extraordinary General Meeting.
On the winding up of the Company, a Fund or the redemption and
cancellation of a Class of Shares, the Depositary will be paid all accrued and
owing fees, charges and reimbursement of expenses due up to the date of
commencement of the winding up or due in relation to the redemption and
cancellation of the relevant Class of Shares (as appropriate) and any
additional expenses necessarily arising out of or in connection with its
obligations under this Agreement
VAT is payable on charges and expenses mentioned above, as appropriate.
Where the Company invests in other funds operated by the ACD, the ACD
will ensure that there is no double charging of fees.
6.3 Investment Manager’s fee
The Investment Manager’s fees and expenses (plus any VAT thereon if
applicable) for providing investment management services will be paid by
the ACD out of its remuneration under the ACD Agreement.
The Depositary will also act as the custodian (the “Custodian”) of the property
of the Company and is entitled to receive reimbursement of the Custodian’s
fees as an expense of the Company. The Depositary’s remuneration for
acting as Custodian is determined by the territory or country in which each
Fund’s assets are held.
6.4 Depositary’s fee
The remuneration of the Depositary will be paid out of the property of the
Funds monthly in arrears and will consist of a periodic charge, calculated and
accrued daily, based on the value of the property of the Fund on the
preceding business day. The periodic charge will be at such annual
percentage rate (before VAT) of the value of the property of the Fund as the
ACD and Depositary may from time to time agree. The periodic charge is
0.015% for all Funds except Threadneedle UK Short-Dated Corporate Bond
Fund and Threadneedle UK Medium & Long-Dated Corporate Bond Fund
where the following charges apply: 0 to £200m charged at 0.015% and any
amount above £200m charged at 0.01%, with a minimum fee of £25,000
per Fund.
The transaction and safekeeping fees for the principal investment markets of
the Company as at the date of this Prospectus are as follows:
Country
All charges are subject to an addition for VAT.
The Depositary is also entitled to receive remuneration out of the property of
each Fund for performing or arranging for the performance of the functions
conferred on the Depositary by the Instrument of Incorporation or the FCA
Rules. The Depositary’s remuneration shall accrue when the relevant
transaction or other dealing is effected and shall be paid in arrears on the
next following date on which payment of the Depositary’s periodic charge is
to be made or as soon as practicable thereafter. The Depositary receives
£4,500 per Fund per annum out of the property of each Fund relating to the
performance of cash flow monitoring and reconciliations.
Custody Charge
Per Annum
(in basis points)
Transaction
Charge Per
Trade (£)
Austria
5.00
45.00
Australia
3.00
30.00
Belgium
3.00
40.00
Canada
1.50
15.00
Clearstream
1.40
15.00
Denmark
2.50
45.00
Finland
4.00
40.00
France
2.50
35.00
Germany
2.50
35.00
10.00
40.00
Hong Kong
4.00
50.00
Italy
2.50
35.00
Japan
1.75
15.00
6.5 Depositary’s Expenses
Netherlands
3.00
25.00
Portugal
8.00
45.00
The Depositary will be reimbursed by the Company for expenses properly
incurred in performing or arranging for the performance of functions conferred
on it by the Regulations, the Instrument of Incorporation, the Prospectus, the
FCA Rules, the Depositary Agreement, or by general law. These functions
may include (without limitation of the foregoing) custody, insurance,
acquisition and dealing with assets of the Company; making deposits or
loans, dealing with borrowings, effecting foreign currency dealings and
Singapore
5.00
40.00
South Korea
9.00
45.00
Spain
5.00
35.00
Sweden
3.00
30.00
Switzerland
3.00
40.00
Greece
15
Threadneedle Investment Funds II ICVC
Country
Custody Charge
Per Annum
(in basis points)
Transaction
Charge Per
Trade (£)
Taiwan
9.00
58.00
United States
1.30
15.00
UK-CREST
Line £48.00
10.00
UK-Non-CREST
Line £48.00
20.00
6.7 Registrar’s fee
The Registrar for the Company will receive a fee for the provision of registrar
and transfer agency services (including establishing and maintaining subregisters, where applicable), which will be paid out of the scheme property of
the Company. On the basis of anticipated trading volumes, the charge is
expected to be in the range of 0.06% of the net asset value of the scheme
property of the Company. These charges are calculated according to a
detailed tariff which charges for individual transactions and services undertaken
and the tariff is therefore not directly related to the value of the Scheme Property.
The Depositary is also entitled to be reimbursed out of the property of each
Fund in respect of remuneration charged by the Custodian for such services
as the ACD, the Depositary and the Custodian may from time to time agree,
being services delegated to the Custodian by the Depositary in performing or
arranging for the performance of the functions conferred on the Depositary by
the Instrument of Incorporation or FCA Rules. Remuneration charged under
this paragraph shall accrue when the relevant transaction or other dealing is
effected and shall be paid in arrears. Currently the Custodian does not
receive any remuneration under this paragraph.
The Registrar’s fee is subject to VAT.
6.8 Allocation of Assets, Charges and Expenses
to Funds
All fees, duties, charges and expenses (other than any borne by the ACD)
are charged to the Fund in which they were incurred. However, where they
are not attributable to a particular Fund, they will be allocated among the
Funds in a manner which the ACD considers is fair to the Shareholders
generally. The costs of authorisation of any new Fund may be borne by that
Fund at the discretion of the ACD.
The following further expenses may also be paid out of the property of
the Company:
(a)
all charges imposed by, and expenses of, any agents appointed by
the Depositary to assist in the discharge of its duties;
(b)
all charges and expenses incurred in connection with the collection
and distribution of income;
(c)
all charges and expenses incurred in relation to the preparation of the
Depositary’s annual report to Shareholders;
(d)
all charges and expenses in relation to stocklending.
6.9 Ongoing Charges Figure (“OCF”)
The OCF is the European standard method of disclosing the charges of a
share class of a fund based on the last 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. The Key Investor
Information Documents contain the current OCF.
7. Valuation of the Company
Subject to current law and HM Revenue & Customs regulations, VAT at the
prevailing rate may be payable in addition to the Depositary’s remuneration,
the Custodian’s remuneration and the above expenses.
7.1 General
The property of each Fund is valued daily at the Valuation Point on each
Dealing Day in order to determine the price at which Shares in the Funds
may be purchased from or redeemed by the ACD and created or cancelled
by the Company.
The rate of the Depositary’s annual remuneration, or transaction charges or
charges for custody services may be increased only in accordance with the
FCA Rules.
6.6 Administrator’s fee
The ACD reserves the right to carry out an additional valuation to the
property of a Fund if it considers it desirable to do so. The ACD shall inform
the Depositary of any decision to carry out an additional valuation.
The Administrator’s fee for the provision of administration and fund
accounting services will vary depending on trading volumes. On the basis of
anticipated trading volumes, charges are expected to be in the range of
£125,000 to £230,000. In the preceding calendar year they were
approximately £171,000. These charges are calculated according to a
detailed tariff which charges for individual transactions and services
undertaken and the tariff is therefore not directly related to the value of the
Scheme Property.
7.2 Calculation of the Net Asset Value
An outline of the basis on which the property of each Fund is valued is
as follows:
(a)
Further details of the Administrator’s Agreement are summarised in the
section with the heading “Administrator” on page 26 of this Prospectus.
Units or shares in a collective investment scheme:
i.
16
if a single price for buying and redeeming units or shares is
quoted, at that price; or
Threadneedle Investment Funds II ICVC
ii.
(b)
if separate buying and redemption prices are quoted, at the
average of the two prices provided the buying price has been
reduced by any initial charge included therein and the
redemption price has been increased by any exit or
redemption charge attributable thereto.
(b)
it may value the Scheme Property or any part of Scheme Property at a price
which, in its opinion, reflects a fair and reasonable price for that property
(“fair value pricing”).
Transferable securities are valued at their quoted price or if the
investment is one for which different prices are quoted according
to whether it is being bought or sold then it will be valued at its
mid-market price.
(c)
Any fiscal charges or commissions or other charges that have been
paid or are payable on the acquisition or disposal of the investments
above are excluded from their value.
(d)
Cash is valued at its nominal value.
(e)
Any other property of a Fund will be valued at what the ACD
considers a fair value.
(f)
Deductions are made for anticipated tax liabilities and for an
estimated amount in respect of other liabilities payable out of a Fund.
(g)
Contingent liability transactions will be valued using a method agreed
between the ACD and the Depositary.
(h)
An amount is added in respect of estimated recoverable tax and any
other amounts due to be paid into the Fund.
such price, if it does exist, does not reflect the ACD’s best estimate of
the value of such property,
The ACD is permitted to use fair value pricing in specific circumstances and
pursuant to processes and methodologies that it must have notified to the
Depositary. Examples of the circumstances in which the ACD might consider
using fair value pricing where the Company’s Valuation Point is set during the
time when markets in which its portfolio is invested are closed for trading
include but are not limited to:
Where the ACD has reasonable grounds to believe that the price obtained is
unreliable or the most recent price available does not reflect the ACD’s best
estimate of the value of the relevant investment at the relevant Valuation Point
or no price or no recent price exists, the ACD may use a price which, in the
opinion of the ACD reflects a fair and reasonable price for that investment.
Further explanation of this technique, known as fair value pricing, is set out
within section 5.2.
(a)
market movements above a pre-set trigger level in other correlated
open markets;
(b)
war, natural disaster, terrorism;
(c)
government actions or political instability;
(d)
currency realignment or devaluation;
(e)
changes in interest rates;
(f)
corporate activity;
(g)
credit default or distress; or
(h)
litigation.
Even if the Company’s Valuation Point is set during the time other markets
are open for trading, other scenarios might include but are not limited to:
The proportionate interests of each Share Class in the assets and income of a
Fund shall be determined by the ACD as the proportion of the property of that
Fund that is held by that Share Class at the end of the previous business day.
The proportion of assets and income allocated to each Share Class is made
after allowing for the effect, including attributable taxation, of any charges and
expenses made on bases which vary by Share Class.
(a)
failure of a pricing provider;
(b)
closure or failure of a market;
(c)
volatile or “fast” markets;
(d)
markets closed over national holidays;
(e)
stale or unreliable prices; and
(f)
listings, suspensions or de-listings.
The price per Share at which Shares are bought or are redeemed is the Net
Asset Value per Share. Any initial charge, redemption charge or stamp duty
reserve tax provision is payable in addition to that price.
7.4 Pricing basis
7.3 Fair Value Pricing
The ACD deals on a forward pricing basis. A forward price is the price
calculated at the next Valuation Point after receipt of a request for a purchase
or sale.
Where the ACD has reasonable grounds to believe that:
(a)
The price of a Larger Denomination Share of any Class of Shares in a Fund
shall be calculated by taking the proportion of the net asset value of all
Shares of that Class (by reference to the most recent valuation of the scheme
no reliable price for the property in question exists; or
17
Threadneedle Investment Funds II ICVC
8.4 Currency exchange rates
property) and dividing it by the number of Shares (expressed in terms
of Larger Denomination Shares by aggregating every 1,000 Smaller
Denomination Shares into a Larger Denomination Share and, if appropriate,
including any outstanding fractions of a Larger Denomination Share
represented by any residual number of Smaller Denomination Shares) of the
relevant Class in issue immediately before the relevant Valuation Point.
The price will be expressed in pounds sterling and will be expressed to four
significant figures. A Smaller Denomination Share will have a price which is
one thousandth of the value of a Larger Denomination Share.
Depending on an investor’s currency of reference, currency fluctuations may
adversely affect the value of an investment and the level of income.
8.5 Risk to Capital Growth
Where the investment objective of a Fund is to treat the generation of income
as a higher priority than capital growth, or the generation of income and
capital growth have equal priority, all or part of the ACD’s fee, as well as all or
part of other fees and expenses of the Company, may be charged against
capital instead of against income. The Company will charge such fees and
expenses to capital in order to manage the level of income paid and/or
available to Shareholders. This may result in capital erosion or may constrain
capital growth.
7.5 Publication of Prices of Shares
Prices of Shares are published daily on the Threadneedle website,
www.threadneedle.com and are available by calling Client Services on
the number detailed in the “Directory” at page 77.
As the ACD deals on a forward pricing basis, the price that is available will
not necessarily be the same as the one at which investors can buy or sell
Shares. The ACD may also, at its sole discretion, decide to publish certain
Share prices in other third party websites or publications but the ACD does
not accept responsibility for the accuracy of the prices published in, or for
the failure to publish prices by such sources for reasons beyond the control
of the ACD.
The Annual Management Charge of Threadneedle Diversified Income Fund
is charged against capital.
8.6 Segregated Liability of the Funds
Shareholders are not liable for the debts of the Company. A Shareholder is
not liable to make any further payment to the Company after he has paid the
price on purchase of the Shares.
8. Risk factors
8.7 Regulatory Risk
Potential investors should consider the following risk factors before investing
in the Company. Please also note that specific risk factors which apply to
each Fund as set out in Appendix I (Fund details).
The Company is resident in the United Kingdom and non-United Kingdom
investors should note that the regulatory protections provided by the
regulatory authorities in their country of domicile may not apply. Investors
should consult their financial advisers for further information in this area.
8.1 General
The investments of the Company are subject to normal market fluctuations
and other risks inherent in investing in securities. There can be no assurance
that any appreciation in value of investments will occur. The value of
investments and the income derived from them may fall as well as rise and
investors may not recoup the original amount invested in the Company. Past
performance is not indicative of future performance. There is no assurance
that the investment objective of any Fund will actually be achieved.
8.8 Investment objectives
Investors should be aware of the investment policies of the Funds as these
may state that the Funds may invest on a limited basis into markets not
naturally associated with the name of the Fund. These other markets may act
with more or less volatility than the core investment area and performance
will be in part dependent on these investments. Investors should ensure
(prior to any investment being made) that they are satisfied with the risks
associated with the overall objectives disclosed.
8.2 Effect of Initial Charge
Where an initial charge is imposed, a Shareholder who realises his Shares
after a short period may not (even in the absence of a fall in the value of the
relevant investments) realise the amount originally invested.
8.9 Emerging Markets
This section is applicable to Funds that invest in some overseas markets.
These investments may carry risks associated with failed or delayed
settlement of market transactions and with the registration and custody of
securities. Practices in relation to settlement of securities transactions in
emerging markets involve higher risks than those in developed countries
because brokers and counterparties in such countries may be less well
capitalized and custody and registration of assets in some countries may be
unreliable. Delays in settlement could result in investment opportunities being
missed if a Fund is unable to acquire or dispose of a security.
The Shares therefore should be viewed as medium to long term investments.
8.3 Suspension of Dealings in Shares
Shareholders are reminded that in certain circumstances their right to redeem
Shares (including a redemption by way of switching) may be suspended as
described in the section with the heading “Suspension of Dealing” on page 12
of this Prospectus).
18
Threadneedle Investment Funds II ICVC
Investment in emerging markets may involve a higher than average risk.
In addition, an investment in emerging market currencies and debt may
involve higher risk than an investment in debt and currencies issued in
more developed markets.
(g)
Investors should consider whether or not investment in such Funds is either
suitable for or should constitute a substantial part of an investor’s portfolio.
8.10 Taxation
Companies in emerging markets may not be subject to:
(a)
accounting, auditing and financial reporting standards, practices and
disclosure requirements comparable to those applicable to companies
in major markets;
(b)
the same level of government supervision and regulation of stock
exchanges as countries with more advanced securities markets.
Shareholders should be aware that gains made by the Funds on the disposal
of investments in overseas collective investment schemes which are not
certified by HMRC as distributing or reporting funds, may be treated as
offshore income gains and as such included in the taxable income of the
Funds. A Fund will be subject to UK tax, currently at the rate of 20%, on its
taxable income in excess of relievable expenses.
If a Fund should invest over 50% of its assets in non-reporting/
non-distributing offshore funds at any time then it will enter a special tax
regime for authorised investment funds known as the ‘FINROFs’ tax regime.
The Fund would then be exempt from tax on any gains it realises on the
disposal of non-reporting/non-distributing offshore funds, but investors in
the Fund would be subject to income tax (as opposed to capital gains tax)
on gains realised on the disposal of their holdings in the Fund.
Accordingly, certain emerging markets may not afford the same level of
investor protection as would apply in more developed jurisdictions:
(a)
Restrictions on foreign investment in emerging markets may preclude
investment in certain securities by certain Funds and, as a result,
limit investment opportunities for the Funds. Substantial government
involvement in, and influence on, the economy may affect the value
of securities in certain emerging markets;
(b)
The reliability of trading and settlement systems in some emerging
markets may not be equal to that available in more developed
markets, which may result in delays in realising investments;
(c)
Lack of liquidity and efficiency in certain of the stock markets or
foreign exchange markets in certain emerging markets may mean
that from time to time the ACD may experience more difficulty in
purchasing or selling holdings of securities than it would in a more
developed market;
(d)
Economic and/or political instability could lead to legal, fiscal and
regulatory changes or the reversal of legal/fiscal regulation/
market reforms. Assets could be compulsorily acquired without
adequate compensation;
(e)
Share registration services, whilst appropriately licensed in Russia,
may not be subject to such tight controls as those in more developed
countries. This may mean that the Investment Manager may not
secure good title to the Russian securities held;
(f)
Higher volatility than in the more developed markets of the world.
The paucity of accurate and meaningful information, and inefficiencies
in distribution, can leave emerging markets prone to sudden and
unpredictable changes in sentiment. The resultant investment flows
can trigger significant volatility in these relatively small and illiquid
markets. At the same time, this lack of liquidity together with low
dealing volumes can restrict the Investment Manager’s ability to
execute deals; and
Some emerging markets countries may restrict investment into
securities and/or currency and therefore the ACD may seek exposure
to emerging markets through securities and derivatives that invest in
underlying emerging markets currencies and securities. These
securities and derivatives may be less liquid than a direct investment
in the underlying security or currency.
Tax law and practice in certain countries into which a Fund invests or may
invest in the future (in particular in the emerging markets) is not clearly
established. It is possible therefore that the current interpretation of the law or
understanding of practice might change, or that the law might be changed
with retrospective effect. It is therefore possible that the Company could
become subject to additional taxation in such countries that is not anticipated
either at the date of the Prospectus or when investments are made, valued or
disposed of.
8.11 Investments in collective investment schemes
Where a Fund is permitted to invest all or part of its assets in collective
investment schemes, investors should be aware of such potential exposure
to the asset classes of those underlying collective investment schemes in the
context of all their investments.
Some Funds may invest in other collective investment schemes. Investment
decisions of such underlying collective investment schemes are made at the
level of such collective investment schemes. There can be no assurance that
the selection of the managers of the underlying collective investment
schemes will result in an effective diversification of investment styles and that
positions taken by the underlying collective investment schemes will always
be consistent. The underlying collective investment schemes may not be
subject to the supervision of the FCA and may be less regulated, custody and
audit rules may notably differ. The valuations of the assets of the underlying
collective investment schemes may not be verified by an independent third
party on a regular or timely basis.
Both the Fund and the underlying collective investment schemes will have
costs and impose fees and commissions, which will cause a higher level of
fees than if the investors invested directly in the underlying collective
19
Threadneedle Investment Funds II ICVC
Prospective investors should consider, among other things, the following
additional risk factors applicable to investments in hedge funds:
investment schemes. However, when a Fund invests in units/shares of other
collective investment schemes that are managed, either directly or by
delegation, by the Investment Manager or by any other company with which
the Investment Manager is linked by common management or control, or by a
substantial direct or indirect holding, the Investment Manager or other
company may not charge subscription or redemption fees on account of the
Fund’s investment in the units of such other collective investment schemes.
Some underlying collective investment schemes may invest in assets that are
not readily realisable or may be hard to value. The value of these assets is a
matter of the relevant valuation agent’s policy and the true value may not be
recognised until the asset is sold. This may be an ongoing risk for collective
investment schemes investing in property, but could also include other asset
classes in extreme market conditions. There may be occasions where these
collective investment schemes restrict redemptions and as such the Funds
may not be able to liquidate a position in such collective investment schemes.
In a falling market this may result in losses to the Funds.
–
Borrowing: Hedge funds may use borrowings for the purpose of
making investments. The use of borrowing creates special risks and
may significantly increase a Fund’s investment risk. Borrowing creates
an opportunity for greater yield and total return but, at the same time,
will increase the hedge fund’s exposure to capital risk. Some hedge
funds may not be subject to any limitations on the amount of their
borrowings, and therefore, the amount of borrowings that a hedge
fund may have outstanding at any time may be large in comparison to
its capital.
–
Market Exposure: The market exposure of hedge funds consists of
the aggregate gross exposure of the hedge fund to securities, issuers,
indices, interest rates and currencies. In addition, hedge funds may
borrow cash or securities and apply the same to further market
exposures. The result may be that a hedge fund has market
exposures that significantly exceed its net asset value. If the different
market exposures of the hedge funds have a high correlation, then the
higher the aggregate market exposures the greater the amount of the
Fund’s assets that are at risk, and the greater the likelihood that the
hedge fund’s liabilities might exceed its net assets.
–
Counterparty Risk: A hedge fund will be subject to the risk of the
inability of any counterparty (including the prime broker) to perform
with respect to transactions, whether due to insolvency, bankruptcy or
other causes such as, for example, chaotic or volatile market conditions.
–
Market Counterparties: A hedge fund will rank as an unsecured
creditor of market counterparties in relation to transactions in
derivatives executed through them and assets which the market
counterparty borrows, lends, pledges or hypothecates and in relation
to cash deposited with the market counterparty. In the event of the
insolvency of the market counterparty, the hedge fund might not be
able to recover equivalent assets in part or in full.
–
Assets of a Fund may be invested in hedge funds and other
investments that are denominated in currencies different to the
denomination of a particular Fund. Accordingly, the value of such
assets may be affected favourably or unfavourably by fluctuations in
currency rates. The Investment Manager may seek to hedge the
foreign currency exposure of Shares in a Fund. However, a Fund will
necessarily be subject to foreign exchange risks. In addition,
prospective investors whose assets and liabilities are predominantly in
other currencies should take into account the potential risk of loss
arising from fluctuations in value between currencies. In addition, the
value of an investment represented by a hedge fund in which a Fund
invests may be affected by fluctuations in the currency of the country
where such a hedge fund invests, by foreign exchange rules, or by the
application of the various tax laws of the relevant countries (including
withholding taxes), government changes or variations of the monetary
and economic policy of the relevant countries.
8.10.1 Underlying Fund Expenses
Investors should be aware that – where the Funds invest in other funds that
are managed by companies in the ACD’s group of companies – the funds
that the Funds invest in will be subject to arrangements whereby no
underlying annual management charge will be made on those funds. They
will remain subject to other costs in the underlying funds such as registrar
fees, audit fees and the costs of investing in equities and bonds. In addition,
investors should be aware that some of the underlying funds may be subject
to performance fees, which are typically a proportion of any excess return
over and above a specific performance target.
There will be no initial charge payable by the Funds when acquiring shares or
units in underlying funds and no exit charge payable on the disposal of shares
or units in underlying funds. Please refer to Appendix II for further information.
8.12 Investment in unregulated collective investment
schemes
Where the investment objective of a Fund permits investments in unregulated
collective investment schemes, such as hedge funds, Shareholders should
be aware that in addition to annual management fees, hedge funds are
normally subject to performance fees, which are typically a proportion of any
absolute return achieved by these funds. In addition, some hedge funds will
apply a redemption fee where an investment in the hedge fund is held for
less than a specified period. In both cases the effect will be to reduce the
total return for the investor in these funds.
Hedge funds may utilise investment techniques (such as leverage, short
selling and the use of derivatives) that carry additional risks and investment in
hedge funds is suitable only where a Fund can assume the risk of losing the
entire value of the amount invested in hedge funds. If realised, this would
have a direct, adverse effect on the value of a Fund.
20
Threadneedle Investment Funds II ICVC
8.13 Investments in derivatives and forward
transactions
stocklending. There may be a risk that a counterparty will wholly or partially
fail to honour their contractual arrangements under the arrangement with
regard to the return of collateral and any other payments due to the relevant
Fund. The ACD measures the creditworthiness of counterparties as part of
the risk management process. A counterparty may be an associate of the
ACD or the Investment Manager, which may give rise to a conflict of interest.
For further details on the ACD’s conflicts of interest policy please contact
the ACD.
Where the investment policies of the Funds permit the use of derivatives
and forward transactions for both EPM and investment purposes
(including short selling and leverage), investors should consider potential
exposure to derivatives in the context of all their investments.
The Investment Manager maintains a ‘Risk Management Policy’ in respect of
the measurement and monitoring of risks attached to financial derivative
instrument positions entered into by the Company. This policy document has
been sent to the Depositary and to the FCA and is available upon request.
The use of the Risk Management Policy and processes do not guarantee that
the derivative strategies will work in every instance.
The ACD, the Investment Manager or the Fund will not be liable for their
failure to implement an EPM strategy so long as they have acted reasonably
and in accordance with the FCA rules.
The use of derivatives for EPM does however allow the Fund to manage
various risks including the following: default risk, market risk, interest rate or
duration risk, currency risk and curve risk. A brief description of the ACD’s
interpretation of each of these risks is set out below:
Derivative instruments, including but not limited to swaps, futures, and certain
FX contracts, are subject to new regulations such as EMIR, MiFID II/MiFIR
and similar regulatory regimes in the U.S., Asia, and other global jurisdictions.
The implementation of such regulations, including new requirements
requiring mandatory clearing and margining, may increase the overall costs
to the Fund of entering into and maintaining such derivative instruments and
may impact the Fund’s returns or the ability of the Investment Manager to
achieve their investment objectives. Global regulation of derivative
instruments is a rapidly-changing area and, as such, the full effects of present
or future legislation or regulations in this area are not known, but could be
substantial and adverse.
−
Default risk is the risk that the issuer fails to pay.
−
Market risk is the risk that general market conditions impact the price
of the assets owned by the Fund.
−
Interest rate or duration risk is the risk that the price of a bond is
sensitive to a change in its yield. It should be noted that the
Investment Manager may use individual derivative transactions
(for example, an interest rate swap) to manage these risks or a
combination of derivatives designed to act in combination with one
another (for example, long and short bond futures used collectively)
as a means of managing these risks and/or changing the interest rate
or duration risk (for example, such as to effect the change from
interest rate risk/duration risk in one country back to another).
−
Currency risk is the risk that can arise when assets are denominated
in a currency that is not the base currency of the Fund.
−
Curve risk recognises that the shape of both the credit yield curve and
maturity yield curve can change significantly over time.
Each of the Funds is permitted by the FCA Rules to use derivatives for the
purposes of EPM. The investment and policy of the Funds will detail
whether they may also use derivatives and forward transactions for
investment purposes. The risks relating to the different use are
explained below:
8.13.1.
Use of derivatives and forward transactions for
EPM purposes
The use of derivatives and forward transactions for the purposes of
EPM will not materially alter the risk profile of any Fund.
In addition, the FCA Rules permit the ACD to use certain techniques when
investing in derivatives in order to manage a Fund’s exposure to particular
counterparties and in relation to the use of collateral, to reduce overall
exposure to OTC derivatives; for example the Funds may take collateral from
counterparties with whom they have an OTC derivative position and use that
collateral to net off against the exposure they have to the counterparty under
that OTC derivative position, for the purposes of complying with counterparty
spread limits.
EPM is used by the Funds to reduce risk and/or costs in the Funds and to
produce additional capital or income in the Funds. The Funds may use
derivatives, borrowing, cash holding and stock lending for EPM. It is not
intended that using derivatives for efficient portfolio management will
increase the volatility of the Funds.
In adverse situations, however, a Fund’s use of derivatives may become
ineffective EPM (which includes hedging) and a Fund may suffer significant
loss as a result. A Fund’s ability to use EPM strategies may be limited by
market conditions, regulatory limits and tax considerations.
For all derivative trades made for EPM the ACD will mitigate the leverage by
holding appropriate assets to cover the derivative exposure so that there is
no material impact to the risk profile of the Fund.
When making use of EPM techniques, the Investment Manager may use one
or more separate counterparties to undertake transactions on behalf of these
Funds. The Fund may be required to pledge or transfer collateral paid from
within the assets of the relevant Fund to secure such contracts entered into
for efficient portfolio management including in relation to derivatives and
21
Threadneedle Investment Funds II ICVC
8.13.2.
Dealings in the Fund may be limited due to issues of capacity or deferred due
to high redemption levels. Large subscriptions may not be invested quickly
resulting in the Fund holding cash.
Use of derivatives forward transactions for investment
purposes
The use of derivatives for investment purposes may increase the risk
profile of the Fund. The Funds’ exposure involves synthetic short sales
of investments and leverage, which may increase the risk of the Funds
and may carry a higher degree of volatility than a fund which does not
gain short exposure. Leverage has the overall effect of increasing
positive returns, but causes a faster decrease in the value of assets
if prices fall. These techniques may be achieved through the use of
derivatives and forward transactions.
8.20 Long dated Floating Rate Notes
Defaults on financial instruments or of institutions may have a negative
impact on asset backed securities. Increased uncertainty around the
creditworthiness of the underlying investments and a general increase in risk
aversion in the markets has made these instruments less desirable, which
has affected both their spread (the difference between the purchase and sale
price) and liquidity (ability to sell at short notice). Together these two factors
make such instruments more likely to suffer larger price swings, as well as
increasing the cost of selling. It is believed that this risk remains low for
higher rated floating rate notes (“FRNs”), and as market confidence improves
there will be a narrowing of dealing spreads on these FRNs which will lead to
an improvement in their market value. FRNs are issued by a variety of
corporations, including financial institutions, and many FRNs are backed by
assets of various types, including mortgages and receivables. As such, the
price of FRNs may vary with the market’s perception of the creditworthiness
of the issuer and/or the underlying assets. FRN liquidity may be realised
through either sale or maturity. The longer an FRN’s date of legal final
maturity, the more sensitive it will tend to be to these credit-related factors.
FRNs with a longer date of legal final maturity may be less liquid than
other FRNs in adverse market conditions. This may in turn result in wider
price spreads.
8.14 Exchange Traded Funds
The Funds may invest in exchange traded funds. Exchange traded funds
represent a basket of securities that may be traded on an exchange and
may not necessarily trade at the net asset value of their underlying holdings.
As a result they may trade at a price that is above or below the value of the
underlying portfolio.
8.15 Commodities
The Funds may have exposure to commodities, including commodity indices.
The value of commodities may be affected by changes in overall market
movements, changes in interest rates or factors affecting a particular industry
or commodity for example, weather, embargoes, tariffs and international
economic, political and regulatory developments and trading activities in
commodities and related contracts. If the commodity exposure is to a
commodity index, the Funds are subject to normal fluctuations in the
performance of that commodity index.
8.21 No Guarantee of Capital
Investors should note that the Funds do not offer any form of guarantee
with respect to investment performance and no form of capital protection
will apply.
8.16 Warrants
8.22 Cash Concentration
When a Fund invests in warrants, the price per share of the Fund may
fluctuate more than if the Fund was investing in the underlying securities
because of the greater volatility of the warrant price.
Where a Fund holds at any one time a substantial proportion of their assets
in cash, near cash or money market instruments, it might not, under such
circumstances, participate fully in a rise in market values of the asset classes
the Fund would otherwise invest in.
8.17 Credit Risk
The value of a Fund may be adversely affected if any of the institutions
in which the cash is invested or deposited suffers insolvency or other
financial difficulties.
8.23 Fixed Income Funds
The interest rate on corporate bonds and most government bonds will not
increase in line with inflation. Thus, over time, the real value of investor’s
income could fall.
8.18 Shareholder Concentration Risk
A Fund with high shareholder concentration may have compounded funding
liquidity risks.
8.24 Concentrated portfolios
Investors should note that some Funds may have concentrated portfolios
(holding a limited number of investments) and if one or more of those
investments decline or are otherwise adversely affected, it may have a more
pronounced effect on the Fund’s value than if a larger number of investments
were held.
8.19 Liquidity Risk
In extreme market conditions it may be difficult for a Fund to realise
an investment at short notice without suffering a discount to market value.
In such circumstances the investor may suffer a delay in realising his
investment or may incur a dilution levy.
22
Threadneedle Investment Funds II ICVC
Registered office and head office:
8.25 High Yield Bond
Cannon Place, 78 Cannon Street, London EC4N 6AG
Where a Fund’s investment policy is to invest to generate a higher yield
through the use of fixed interest securities, many of the investments will be in
‘below investment grade’ securities (generally defined as below BBB- by
leading rating agencies) and may also include non-traditional types debt
security. Investment in such securities brings an increased risk of default on
repayment and therefore increases the risk that the income and capital of the
Fund will be affected.
The ACD also acts as authorised corporate director of Threadneedle Focus
Investment Funds ICVC, Threadneedle Investment Funds ICVC, Threadneedle
Investments Funds II ICVC, Threadneedle Investments Funds IV ICVC,
Threadneedle Opportunity Investment Funds ICVC, Threadneedle Portfolio
Advantage Funds ICVC, Threadneedle Property Authorised Investment Fund
and Threadneedle Specialist Investment Funds ICVC, and as an authorised
unit trust manager in respect of the following authorised unit trusts:
As a general rule, fixed interest securities with an above average yield tend to
be less liquid than securities issued by issuers with a higher investment
rating. Furthermore, the solvency of issuers of such fixed interest securities
may not be guaranteed in respect of either the principal claim or regarding
the interest payments and it cannot be excluded that such issuers may
become insolvent. Investors should be fully aware of such risks.

Threadneedle Defensive Equity and Bond Fund

Threadneedle Defensive Fund

Threadneedle Equity and Bond Fund
8.26 Dilution Levy

Threadneedle Global Equity and Bond Fund
Investors should note that in certain circumstances a dilution levy may be
applied on their purchase or redemption of Shares (see “Charges” section).

Threadneedle Global Equity Fund

Threadneedle Managed Income Fund

Threadneedle Navigator Adventurous Managed Trust

Threadneedle Navigator Balanced Managed Trust

Threadneedle Navigator Cautious Managed Trust

Threadneedle Navigator Growth Managed Trust

Threadneedle Navigator Growth Trust

Threadneedle Navigator Income Trust
9. Management and administration

Threadneedle Navigator UK Index Tracker Trust
9.1 Authorised Corporate Director

Threadneedle UK Property Authorised Trust
The ACD of the Company is Threadneedle Investment Services Limited,
which is a private company limited by shares incorporated in England and
Wales under the Companies Act 1985 on 26 January 1999.
The directors of the ACD are Mr. Tim Gillbanks, Mr. Don Jordison,
Ms. Kath Cates (non-executive director) and Mrs. Ann Roughead
(non-executive director).
The ACD is authorised and regulated by the FCA.
The directors act as directors of companies other than the ACD (including
companies that are within the same group of companies as the ACD) but do
not engage in business activities that are not connected with the Company
that would be “significant” to the Company’s business in terms of the
FCA Rules.
8.27 Commodities
In accordance with their investment objectives the Funds may have exposure
to commodities, including commodities indices. The value of commodities
may be affected by changes in overall market movements, changes in
interest rates or factors affecting a particular industry or commodity for
example, weather, embargoes, tariffs and international economic, political
and regulatory developments and trading activities in commodities and
related contracts. If the commodity exposure is to a commodity index,
the Funds are subject to normal fluctuations in the performance of that
commodity index.
The issued and fully paid-up share capital of the ACD is £17.02 million.
The ACD’s principal activity is acting as the authorised fund manager for
regulated collective investment schemes. It is responsible for managing and
administering the Company’s affairs in compliance with the FCA Rules.
Third party administrative functions, such as customer applications and
record keeping, dealing with subscriptions, switching, withdrawals and
terminations, and all communication centre activity in relation to the
Company, have been delegated by the ACD to International Financial Data
Services (UK) Limited.
The ultimate holding company of the ACD is Ameriprise Financial Inc.,
a corporation incorporated in Delaware, USA.
23
Threadneedle Investment Funds II ICVC
The Depositary provides services to the Company as set out in the
Depositary Services Agreement and, in doing so, shall comply with the
UCITS Legislation, the OEIC Regulations and the relevant FCA Rules.
Certain further administrative and ancillary services in relation to the
Company have been delegated by the ACD to HSBC Bank plc.
The ACD will satisfy itself on an ongoing basis that IFDS and Citibank are
competent to carry out these functions and associated responsibilities.
Please refer to sections 9.2 to 9.5 below for further information.
The Depositary’s duties include the following:
Terms of appointment:
The ACD Agreement is dated 22 July 2014 and provides that the
appointment of the ACD is for an initial period of three years and thereafter
may be terminated upon 12 months’ written notice by either the ACD or the
Company, although in certain circumstances the agreement may be
terminated forthwith by notice in writing by the ACD to the Company or the
Depositary, or by the Depositary or the Company to the ACD. Termination
cannot take effect until the FCA has approved the change of the ACD.
The ACD is entitled to its pro rata fees and expenses to the date of termination
and any additional expenses necessarily realised in settling or realising any
outstanding obligations. No compensation for loss of office is provided for in
the agreement. The ACD Agreement provides indemnities to the ACD other
than for matters arising by reason of its negligence, default, breach of duty or
breach of trust in the performance of its duties and obligations.
The ACD is under no obligation to account to the Depositary or the
Shareholders for any profit it makes on the issue or re-issue of Shares or
cancellation of Shares, which it has redeemed. The fees to which the ACD is
entitled are set out in the section ‘Charges payable to the ACD’. To the extent
permitted by the FCA Rules, the Company has agreed to indemnify the ACD
against all losses and liabilities incurred in acting as the ACD of the Company
other than where there has been negligence, wilful default or fraud on the
part of the ACD.
(i)
Ensuring that the Company’s cash flows are properly monitored and
that all payments made by or on behalf of applicants upon the
subscription to shares of the Funds have been received.
(ii)
Safekeeping the assets of the Funds, which includes (i) holding
in custody all financial instruments that may be held in custody; and
(ii) verifying the ownership of other assets and maintaining records
accordingly.
(iii)
Ensuring that issues, redemptions and cancellations of the shares of
each Fund are carried out in accordance with applicable law and the
relevant FCA Rules.
(iv)
Ensuring that the value of the shares of the Company is calculated in
accordance with applicable law and the relevant FCA Rules.
(v)
Carrying out the instructions of the Company and the ACD, unless
they conflict with applicable law and the relevant FCA Rules.
(vi)
Ensuring that in transactions involving Company’s assets any
consideration is remitted to the Company within the usual time limits.
(vii)
Ensuring that the Company’s income is applied in accordance with
applicable law and the relevant FCA Rules.
Actual or potential conflicts of interest may arise between the Funds, the
Shareholders or the ACD and the Depositary. For example such actual or
potential conflict may arise because the Depositary is part of a legal entity
or is related to a legal entity which provides other products or services to the
Funds. The Depositary may have a financial or business interest in the
provision of such products or services, or receives remuneration for related
products or services provided to the Funds, or may have other clients whose
interests may conflict with those of the Funds, the Shareholders or the ACD.
The Company has no other directors. The specific functions the ACD has
delegated are set out in sections 9.2 to 9.5 below.
9.2 Depositary
Pursuant to the agreement effective from 18 March 2016 between the
Company, the ACD and the Depositary (the “Depositary Services
Agreement”) and for the purposes of and in compliance with The Financial
Services and Markets Act 2000 (Regulated Activities) (Amendment) Order
2015, Commission Delegated Regulation (EU) No. Commission Delegated
Regulation (EU) of 17.12.2015 supplementing Directive 2009/65/EC of the
European Parliament and of the Council with regard to obligations of
depositaries (together, “the UCITS Legislation”) and the relevant FCA Rules,
the Depositary has been appointed as depositary to the Company.
The Depositary has a conflict of interest policy in place to identify, manage
and monitor on an on-gong basis any potential conflict of interest.
The Depositary may delegate its safekeeping functions subject to the terms
of the Depositary Services Agreement. The Depositary has delegated to the
delegates listed in Appendix VI (Delegates of the Depositary) the custody of
certain Scheme Property entrusted to the Depositary for safekeeping in
accordance with the terms of written agreements between the Depositary and
those delegates.
The Depositary, HSBC Bank plc, is a public limited company incorporated in
England and Wales with company registration number 00014259. HSBC
Bank plc is a wholly owned subsidiary of HSBC Holdings plc. The Depositary’s
registered and head office is located at 8 Canada Square, London E14 5HQ
and the principal business activity of the Depositary is the provision of
financial services, including trustee and depositary services. HSBC Bank plc
is authorised by the Prudential Regulation Authority and regulated by the
Prudential Regulation Authority and the Financial Conduct Authority.
From time to time actual or potential conflicts of interest may arise between
the Depositary and its delegates, for example, where a delegate is an affiliate
of the Depositary, the Depositary may have a financial or business interest in
that delegate.
24
Threadneedle Investment Funds II ICVC
provided that the Depositary Services Agreement does not terminate until a
replacement Depositary has been appointed.
The Depositary and any of its affiliates or delegates may effect, and make a
profit from, transactions in which the Depositary (or its affiliates, or another
client of the Depositary or its affiliates) has (directly or indirectly) a material
interest or a relationship of any description and which involves or may involve
a potential conflict with the Depositary’s duty to the Funds. This includes, for
example, circumstances in which the same entity as the Depositary or any of
its affiliates or connected persons: provides fund services (including
administration, fund accounting and middle office services), securities lending
and/or collateral management services, foreign exchange services, credit
facilities, transaction, execution, lending, settlement or prime services to the
Funds and/or to other funds or companies; acts as financial adviser,
distributor, broker, market maker, banker, sub-custodian, derivatives
counterparty or otherwise provides services to an issuer of the investments of
the Funds; acts in the same transaction as agent for more than one client;
has a material interest in the issue of the investments of the Funds; or earns
profits from or has a financial or business interest in any of these activities.
To the extent permitted by the FCA Rules, the Company will indemnify the
Depositary, its directors, officers and employees against charges, losses and
liabilities suffered or incurred in the proper execution or exercise, or in the
purported execution or exercise reasonably, and in good faith, of the
Depositary’s duties, powers and authorities except in the case of failure to
exercise due care and diligence. The Depositary will also act as the Custodian.
The Depositary is entitled to receive remuneration out of the property of the
Funds for its services and this is detailed in the sections of this Prospectus
with the headings “Depositary’s fee” and “Depositary’s Expenses”.
9.3 Investment Manager
The ACD has appointed Threadneedle Asset Management Limited to provide
portfolio management and advisory services to the ACD.
The Depositary will ensure that any such additional services provided by it or
its affiliates are on terms which are not materially less favourable to the
Funds than if the conflict or potential conflict had not existed.
As with the ACD, the Investment Manager is a member of the Threadneedle
group of companies. Its principal activity is acting as an investment manager
and adviser. The Investment Manager is an Associate (as defined in the
Glossary to the FCA Handbook) of the ACD.
Included in the Depositary’s conflict of interest policy are procedures to
identify, manage and monitor on an on-gong basis any potential conflict of
interest involving its delegates.
The Investment Manager is authorised and regulated by the FCA.
Up to date information regarding the name of the Depositary, any conflicts of
interest and delegations of the Depositary’s safekeeping functions will be
made available to Shareholders on request.
Terms of appointment:
The Investment Manager was appointed by an agreement between the
Company, the ACD and the Investment Manager with an effective date of
1 November 2011, as amended and re-stated effective from 22 July 2014.
Shareholders have no personal right to directly enforce any rights or
obligations under the Depositary Services Agreement.
The Investment Management Agreement may be terminated on 12 months’
written notice by the Investment Manager or the ACD. It may also be
terminated by the Company or the ACD with immediate effect if this is in the
best interest of the shareholders.
In general, the Depositary is liable for losses suffered by the Company as a
result of its negligence or wilful default to properly fulfil its obligations. Subject
to the paragraph below, and pursuant to the Depositary Services Agreement,
the Depositary will be liable to the Company for the loss of financial
instruments of a Fund which are held in its custody. The Depositary will not
be indemnified out of the Scheme Property for the loss of financial
instruments where it is not so liable.
Subject to the overall policies, directions and control of the ACD, all relevant
laws and regulations (including the FCA Rules), this Prospectus, the
Instrument of Incorporation and all proper directions of the Depositary, the
Investment Manager has complete discretion to take all day to day
investment decisions and to deal in investments in relation to the investment
management of the Company, without prior reference to the ACD. Under the
Investment Management Agreement the ACD provides indemnities to the
Investment Manager (except in the case of any matter arising as a direct
result of its fraud, negligence, default or bad faith). The ACD may be entitled
under the indemnities in the ACD Agreement to recover from the Company
amounts paid by the ACD under the indemnities in the Investment
Management Agreement.
The liability of the Depositary will not be affected by the fact that it has
delegated safekeeping to a third party.
The Depositary will not be liable where the loss of financial instruments arises
as a result of an external event beyond the reasonable control of the
Depositary, the consequences of which would have been unavoidable
despite all reasonable efforts to the contrary. The Depositary shall not be
liable for any indirect, special or consequential loss.
In the event there are any changes to the Depositary’s liability under the
UCITS Legislation and the relevant FCA Rules, the ACD will inform
Shareholders of such changes without delay.
In accordance with its powers under the Investment Management Agreement
the Investment Manager has delegated administrative and ancillary services
to IFDS and Citibank N.A., and other members of its group. Where required,
the Investment Manager will only engage with another member of its group of
companies that is registered with or approved by the appropriate regulators in
their home jurisdictions and overseas (for example, the SEC and the CFTC
The appointment of the Depositary under the Depositary Services Agreement
may be terminated without cause by not less than (90) days written notice
25
Threadneedle Investment Funds II ICVC
10. Shareholder Meetings and Voting
Rights
in the United States). The Investment Manager will remain liable for the
services provided by other members of its group on behalf of the Investment
Manager at all times.
10.1 Shareholder meetings
The Investment Manager also acts as the Investment Manager of a number
of the open-ended investment companies and unit trusts listed in the section
with the heading “Authorised Corporate Director” on page 23 above and
various segregated accounts.
The ACD has dispensed with the holding of the Company’s Annual General
Meeting pursuant to the OEIC Regulations. Copies of contracts of service
between the Company and the ACD and any other directors (if any) are
available to Shareholders on request.
Threadneedle Asset Management Limited is in the same group of companies
as the ACD. Its registered office is at Cannon Place, 78 Cannon Street,
London EC4N 6AG. The principal activity of the Investment Manager is acting
as an investment manager and adviser.
The ACD may requisition a general meeting at any time.
Shareholders may also requisition a general meeting of the Company.
A requisition by Shareholders must state the objects of the meeting, be
dated, be signed by Shareholders who, at the date of the requisition, are
registered as holding not less than one tenth in value of all Shares then in
issue and the requisition must be deposited at the head office of the
Company. The ACD must convene a general meeting no later than eight
weeks after receipt of such requisition.
FCA authorised status:
Threadneedle Asset Management Limited is authorised and regulated by
the FCA under the Financial Services and Markets Act 2000 to carry on
regulated activities in the UK.
9.4 Registrar
In certain circumstances, the FCA Rules require that a resolution be passed
as an extraordinary resolution, which is a resolution passed by a majority of
not less than three-quarters of the votes validly cast (whether on a show of
hands or on a poll) for and against the resolution. In other cases, a resolution
may be passed by a simple majority of the votes validly cast for and against
the resolution.
The ACD has appointed International Financial Data Services (UK) Limited to
carry out some of the registration functions of the Company. The register of
holders (the “Register”) in the Funds of the Company is kept at the offices of
the Registrar at the address detailed in the Directory and may be inspected at
that address during ordinary office hours. The Registrar will also keep at that
address, and make available for inspection as required by the Regulations,
plan registers for any Threadneedle ISA in which Shares are held.
The duly authorised representative of the ACD as nominated by the
Depositary will preside as chairman at general meetings of the Company.
If the representative is not present or declines to take the chair, the
Shareholders may choose one of their number to be chairman.
9.5 Administrator
The ACD has delegated its administration functions to HSBC Bank plc whose
registered office is at 8 Canada Square, London E14 5HQ. The Administrator
provides fund accounting and administration services to the Company. The
mandate with the Administrator permits the ACD to give further instructions.
The chairman of any quorate general meeting may with the consent of the
general meeting, adjourn the meeting from time to time (or without specifying
date) and from place to place, and if he is directed by the general meeting to
adjourn he must do so. No business can be transacted at an adjourned
general meeting which might not lawfully have been transacted at the
meeting from which the adjournment took place.
9.6 Auditor
The auditor of the Company is Ernst & Young LLP of 1 More London Place,
London SE1 2AF. The auditor is responsible for auditing the annual financial
statements of the Funds and expressing an opinion on certain matters
relating to the Funds in the annual financial statements including whether its
financial statements have been prepared in accordance with applicable
accounting standards, the FCA Rules and the Instrument of Incorporation.
At any meeting of Shareholders a resolution put to the vote of the meeting
shall be decided on a show of hands unless a poll is (before or on the
declaration of the result of the show of hands) demanded by the Chairman,
by the Depositary or, by at least two Shareholders present in person or by
proxy or, in the case of a body corporate, by a duly authorised representative.
9.7 Legal advisers
On a show of hands every Shareholder who (being an individual) is present
in person or by proxy shall have one vote.
The Company is advised by Eversheds LLP.
On a poll every Shareholder who is present in person or by proxy shall have
one vote for every Larger Denomination Share and a further one thousandth
of one vote for every Smaller Denomination Share of which he is a holder.
The quorum at a meeting of Shareholders shall be two Shareholders present
in person or by proxy. The quorum for an adjourned meeting is one entitled to
be counted in a quorum.
26
Threadneedle Investment Funds II ICVC
The Depositary may, from time to time, act as the depositary of other OEICs
and as trustee or custodian of other collective investment schemes.
A corporation being a Shareholder may authorise such person as it thinks fit
to act as its representative at any meeting of Shareholders and the person so
authorised shall be entitled to exercise the same powers on behalf of the
corporation which he represents as the corporation could exercise if it were
an individual Shareholder.
The FCA Rules contain provisions on conflict of interest governing any
transaction concerning the Company which is carried out by or with any
“affected person”, which means the Company, an associate of the Company,
the ACD, an associate of the ACD, the Depositary, an associate of the Depositary,
any Investment Manager and any associate of any Investment Manager.
The ACD shall be entitled to receive notice of and attend at any such meeting
but shall not be entitled to vote or be counted in the quorum thereof and
accordingly, the Shares held or deemed to be held by the ACD shall not be
regarded as being in issue.
These provisions, among other things, enable an affected person (a) to sell
or deal in the sale of property to the Company or the Depositary for the
account of the Company; (b) vest property in the Company or the Depositary
against the issue of Shares in the Company; (c) purchase property from the
Company (or the Depositary) acting for the account of the Company;
(d) enter into a stock lending transaction in relation to the Company; or
(e) provide services for the Company. Any such transactions with or for the
Company are subject to best execution on exchange, or independent
valuation or arm’s length requirements as set out in the FCA Rules.
An affected person carrying out such transaction is not liable to account to
the Depositary, the ACD, any other affected person, or to the holders of
Shares or any of them for any benefits or profits thereby made or derived.
Any associate of the ACD shall not be entitled to vote at any such meeting
except in respect of Shares which he holds on behalf of a person who,
if himself the registered holder, would be entitled to vote, and from whom
he has received voting instructions.
In the case of joint Shareholders the vote of the senior who tenders a vote
whether in person or by proxy shall be accepted to the exclusion of the votes
of the other joint Shareholders and for this purpose seniority shall be
determined by the order in which the names stand in the Register of
Shareholders.
Investment of the property of the Company may be made on arm’s length
terms through a member of an investment exchange (acting as principal) who
is an affected person in relation to the ACD. Neither the ACD nor any such
affected person will be liable to account to the Company or to the holders of
Shares for any profit made or derived out of
such dealings.
“Shareholders” in this context means Shareholders entered on the register at
a time to be determined by the ACD and stated in the notice of the meeting
which must not be more than 48 hours before the time fixed for the meeting.
11. Policies of the ACD and the Investment
Manager
11.1 Conflicts of Interest
11.2 Exercise of voting rights
The ACD, the Investment Manager and other companies within the
Threadneedle group of companies may, from time to time, act as investment
managers or advisers to other funds or sub-funds which follow similar
investment objectives to those of the Funds. It is therefore possible that the
ACD and/or the Investment Manager may in the course of their business
have potential conflicts of interest with the Company or a particular Fund.
Each of the ACD and the Investment Manager will, however, have regard in
such event to its obligations under the ACD Agreement and the Investment
Management Agreement respectively and, in particular, to its obligation to act
in the best interests of the Company so far as practicable, having regard to its
obligations to other clients, when undertaking any investment business where
potential conflicts of interest may arise. As more than one company within the
same group of companies as the ACD will have access to the same
information, and may be trading in the same investments through different
trading desks, policies and procedures are in place to manage this potential
conflict. Where a conflict of interest cannot be avoided, the ACD will ensure
that the Company and the other funds it manages are fairly treated.
The ACD has a strategy for determining when and how voting rights attached
to ownership of Scheme Property are to be exercised for the benefit of each
Fund. A summary of the strategy is available on the Threadneedle website,
www.columbiathreadneedle.com and details of the actions taken are
available by writing to the ACD Client Services Department address detailed
in the Directory.
11.3 Best Execution
The ACD’s best execution policy sets out the basis upon which the ACD will
effect transactions and place orders in relation to the Company whilst
complying with its obligations under the handbook of rules issued by the FCA
to obtain the best possible result for the ACD on behalf of the Company.
Details of the best execution policy are available on the Threadneedle
website, www.columbiathreadneedle.com or by writing to the ACD Client
Services Department address detailed in the Directory.
11.4 Controversial Weapons
The ACD acknowledges that there may be some situations where the
organisational or administrative arrangements in place for the management
of conflicts of interest are not sufficient to ensure, with reasonable
confidence, that risks of damage to the interests of the Company or its
shareholders will be prevented. Should any such situations arise the ACD will
disclose these to shareholders in an appropriate format.
The UN Convention on Cluster Munitions came into force on 1 August 2010.
This Convention prohibits all use, stockpiling, production and transfer of
cluster munitions. The ACD and the Investment Manager acknowledge the
importance of the Convention and the Investment Manager actively screens
companies for evidence of their corporate involvement in controversial
27
Threadneedle Investment Funds II ICVC
weapons that include but are not limited to anti-personnel mines, cluster
munitions, biochemical weapons and depleted uranium ammunition
and armour. Where a company is verified to undertake such activities,
the Investment Manager’s policy is not to invest in the securities issued
by that company however it reserves the right to take short positions on
such securities.
investment) building society shares or holdings in unit trusts, ICVCs or
offshore funds with similar holdings (for example, certain of the ‘bond
Funds’), such Fund may distribute or accumulate income as yearly interest.
The amount of such income whether distributed or accumulated will
be deducted from the income of the Fund in computing its liability to
corporation tax.
11.5 Responsible Investment
In discharging its obligations, the Investment Manager will have regard, as
appropriate, to its Policies on the Principles for Responsible Investment (PRI)
and the UK Stewardship Code.
The Funds (other than the Threadneedle UK Short-Term Money Market
Fund) will be managed so as to be eligible as an ISA investment for the
purposes of the Individual Savings Account Regulations 1998 (as amended).
Please note that in accordance with HMRC Rules all ISAs applied for after
1 July 2014 are called New ISAs.
12. Taxation
12.3 Stamp Duty Reserve Tax (‘SDRT’)
12.1 General
An SDRT liability may be payable by the Funds which invest in assets liable to
SDRT (e.g. UK shares) or in respect of any transfers of assets between Funds.
The information given under this heading does not constitute legal or tax
advice and prospective investors should consult their own professional
advisers as to the implications of subscribing for, purchasing, holding,
switching or disposing of Shares under the laws of the jurisdiction in which
they may be subject to tax. The following is based on law and practice as at
the date of this Prospectus and may be subject to change.
12.4 UK Shareholders
The following summary applies to holders of Shares who are resident in the
UK for tax purposes.
Shareholders’ income
(i) Interest distributions
12.2 The Company
UK resident individuals will be taxable on the sum of gross interest
distributions received and accumulations made during the relevant tax year.
Such distributions are paid under deduction of income tax at a rate of 20%,
and individuals paying tax at the basic rate on such income will not be subject
to further taxation. Non-taxpayers will be entitled to claim a repayment of the
full amount of the tax. Investors whose total taxable income including savings
income falls within the starting rate band will be able to claim back part of the
tax deducted. However higher rate and additional rate taxpayers will have
further tax to pay on the gross distribution. The amount will depend on the tax
rate applicable to their specific circumstances.
The Funds are sub-funds of an open-ended investment company to which
the Authorised Investment Funds (Tax) Regulations 2006 currently apply.
Each Fund will be treated as a separate entity for UK tax purposes.
The Funds are exempt from UK tax on capital gains realised on the disposal
of investments including interest paying securities and derivatives held
within them.
Dividends received from UK and overseas companies are taxable when
received by a Fund unless each dividend falls into one of five exemptions.
The most relevant exemption will be that which exempts distributions in
respect of portfolio holdings (holdings of 10% or less). It is anticipated that
the majority of dividends will be exempt in the hands of the Funds. However,
where the availability of treaty relief on withholding tax on overseas dividends
from certain countries is unavailable because of a “subject to tax” clause in
the relevant double tax treaty, a Fund may elect for dividends from these
countries to be treated as taxable income. These dividends and all other
income received by a Fund (e.g. interest income) will be subject to tax,
currently at 20% after relief for expenses.
From 6 April 2016, a new personal savings allowance has been introduced.
UK tax resident individuals whose income is within the basic rate band will be
able to earn the first £1,000 of savings income tax-free. Higher rate tax
payers will be able to earn the first £500 savings income with no tax payable.
Basic rate and higher rate tax payers whose total savings income is within
the annual personal savings allowance can reclaim the tax withheld from the
HM Revenue & Customs.
Tax-exempt investors such as local authorities, charities and pension
schemes may be paid gross interest distributions and accumulations.
However the ACD will need to be satisfied that the recipient is the beneficial
owner and that it is entitled to be paid gross interest distributions and/or
accumulations. The ACD may require a suitable indemnity from the recipient
before a gross payment can be made.
To the extent that a Fund receives income from, or realises a gain on
investments issued in certain countries, and elects for those overseas
dividends to be treated as taxable income for foreign withholding or other
foreign taxes suffered on the overseas dividends, this could be used to offset
against the corporate tax liability of the Fund.
Unless corporate Shareholders can satisfy the ACD that they are beneficially
entitled to the income and are UK resident or acting through a UK branch
subject to UK corporation tax on the income, interest distributions and
accumulations will be paid net of income tax at 20%. Corporate Shareholders
In respect of any Fund which invests more than 60% of the market value of
all investments held by that Fund in, broadly, interest bearing assets, such as
debt securities, money placed at interest (other than cash awaiting
28
Threadneedle Investment Funds II ICVC
income gains on the disposal of offshore funds without reporting funds status)
is treated as an annual payment paid under deduction of income tax at the
rate of 20%. The Shareholder will be subject to tax on the grossed up amount
but will be entitled to a credit for tax treated as paid. Whilst this amount can
be wholly offset against the corporation tax liability of the Shareholder, the
maximum amount of tax which can be reclaimed by the corporate
Shareholder is limited to their proportion of the Fund’s net liability to
corporation tax in respect of gross income.
will be subject to corporation tax on the gross amount of the distribution or
accumulation but, where income tax has been deducted, will be entitled to a
credit for the tax treated as paid.
Shareholders who are within the charge to UK corporation tax should be
aware that where such an investor holds an interest in a Fund and that Fund
fails, at any time in an accounting period in which the investor holds its
interest, to satisfy the “qualifying investments test”, the investor is required to
treat its interest for that accounting period as if it were rights under a creditor
relationship for the purposes of the “loan relationships” regime (which
governs the United Kingdom taxation of most forms of corporate debt)
contained in the United Kingdom Corporation Tax Act 2009. A Fund fails to
satisfy the qualifying investments test at any time when its investments
consist as to more than 60 per cent by market value of, inter alia, government
and corporate debt securities, money placed at interest, certain derivative
contracts or holdings in collective investment schemes which do not
themselves satisfy the qualifying investment test. Corporate Shareholders
would in these circumstances be required to account for their interest in the
Fund under the loan relationships regime, in which case all returns on their
Funds in the relevant accounting period (including gains and losses) would
be taxed or relieved as income receipt or expense on a “fair value” basis.
Such Shareholders might therefore, depending upon their particular
circumstances, incur a charge to UK corporation tax on an unrealised
increase in the value of their Shares (or obtain relief against UK corporation
tax for an unrealised diminution in the value of their Shares).
12.5 Income equalisation
When the first income distribution is received it may include an amount
known as equalisation. The amount representing the income equalisation in
the Share’s price is a return of capital and is not taxable in the hands of
Shareholders. This amount should be deducted from the cost of Shares in
computing capital gains realised on their disposal. Income equalisation is
applied for each of the Funds.
12.6 Foreign Account Tax Compliance Act
Pursuant to U.S. withholding provisions commonly referred to as the Foreign
Account Tax Compliance Act 2010 (“FATCA”), a Foreign Financial Institution
(“FFI”) is under an obligation to broadly collect and provide information
regarding US account holders (which includes certain equity and debt holders
as well as certain account holders that are non US entities with US owners).
An FFI is a non-US entity that either i) accepts deposits in the ordinary
course of business or ii) holds financial assets for the account of others as a
substantial portion of its business or iii) is engaged primarily in the business
of investing or trading in securities or partnership interests or iv) is an
insurance company or a holding company that is a member of an expanded
affiliated group where the insurance company or holding company is
obligated to make payments with respect to a cash value insurance or
annuity contract or v) is an entity that is a holding company or treasury centre
that is part of an expanded affiliated group that includes a depository
institution, custodial institution, investment entity or is formed in connection
with or availed by a collective investment vehicle or any similar investment
vehicle established with an investment strategy of investing, reinvesting or
trading in financial assets.
(ii) Dividend Distributions
Other Funds will make distributions or accumulations that will be treated as
dividends of a UK company and will comprise dividend income for UK tax
purposes. An individual recipient of a dividend distribution or accumulation
will be entitled to receive a notional tax credit of 10% of the gross dividend.
This tax credit is sufficient to cover the liability of taxpayers liable to pay tax at
the basic rate of tax on savings income. Higher rate taxpayers are taxed at
32.5% and additional rate taxpayers are taxed at 37.5% on the gross
dividend against which the 10% tax credit can be credited and will have
further tax to pay. It is no longer possible for Shareholders who hold their
shares in ISAs to reclaim the 10% tax credit. Non-taxpayers are not entitled
to reclaim the tax credit.
From April 2016, the 10% dividend tax credit has been abolished. Instead a
new dividend tax allowance of £5,000 a year has been introduced where
Shareholders receive the first £5,000 of dividend income free from income
tax. The new rates of tax on dividend income received above the dividend tax
allowance of £5,000 are 7.5% for basic rate taxpayers, 32.5% for higher rate
taxpayers and 38.1% for additional rate taxpayers. Shareholders who hold
their Shares in ISAs are unaffected.
The FATCA legislation imposes a withholding tax of 30% on withholdable
payments and in the future on foreign passthru payments made to a non-US
entity that are not an FFI unless such entity provides the withholding agent with
certification identifying the substantial US owners of the entity, which includes
any US Person who directly or indirectly owns a percentage (depending on
jurisdiction) of the entity, or an exception applies. In order to avoid incurring
withholding tax on withholdable payments, certain information regarding the
direct and indirect investors in the fund will need to be disclosed.
The income corporate Shareholders receive from a dividend distribution or
accumulation is streamed into franked, unfranked and foreign income,
according to the underlying gross income of the Fund. The proportion which
is derived from UK and overseas dividends that fall into one of five tax
exemptions is treated as franked investment income and is generally not
subject to further tax unless taxed on the Shareholder as part of its trade. The
income derived from all other sources (e.g. interest income, dividends which
do not qualify for exemption or which a Fund has elected to tax or offshore
Please note that the Manager has determined that US Persons are not
permitted to own Shares in the Funds.
12.7 Automatic exchange of information
The Common Reporting Standard (CRS) which will come into effect in
stages, starting from the 1 January 2016, was developed by the Organisation
29
Threadneedle Investment Funds II ICVC
acquired. The above treatment may apply if there are switches from one
class of Share for another class of Share within a Fund.
for Economic Co-operation and Development (OECD). The CRS has been
adopted in the UK by The International Tax Compliance Regulations 2015,
and may require the Funds to report account holder information to HMRC
about Shareholders. HMRC will in turn pass this information onto the
competent authorities with which it has an agreement.
12.9 Inheritance tax (‘IHT’)
Investors are potentially subject to UK inheritance tax on their investment in
the Funds.
In addition, the UK has entered into tax information sharing agreements with
its Crown dependent and Overseas Territories (Anguilla, Bermuda, British
Virgin Islands, Cayman Islands, Guernsey, Isle of Man, Gibraltar, Jersey,
Montserrat, and Turks and Caicos). As a result of these agreements the
Funds will be required to report information about their Shareholders resident
in these territories to HMRC, who will then provide it to the relevant tax
authorities.
12.10 European Union Savings Directive
This section applies only to investors who are resident outside the United
Kingdom for tax purposes.
Shareholders who are individuals resident in a Member State of the
European Union should be aware of the provisions of the EU Council
Directive 2003/48/EC of 3 June 2003 on taxation of savings income in the
form of interest payments (the “Directive”) pursuant to which income realised
upon the sale or redemption of shares in undertakings for collective
investments, as well as any income in the form of dividends or other
distributions made by such undertakings for collective investment, may
(depending upon the location, classification and investment portfolio of the
undertaking) become subject to the reporting regime or withholding tax
regime imposed by the Directive, if such payment is made by a paying agent
established either in a Member State of the European Union or in certain
other jurisdictions which have agreed to introduce an equivalent reporting or
withholding tax regime in respect of such payments.
12.8 Capital gains tax
Shareholders who are resident in the UK for tax purposes may be liable to
capital gains tax or, if companies, corporation tax on chargeable gains
(‘CGT’). The redemption, sale, switching or transfer of Shares, being
chargeable assets, may constitute a disposal or part disposal for the
purposes of UK CGT. For individuals, there is an annual exempt amount.
For basic rate taxpayers the rate of 18% is applied to all chargeable gains in
excess of the annual exempt amount. For higher rate and additional rate
taxpayers a rate of 28% is applied to all chargeable gains in excess of the
annual exempt amount. For a corporate Shareholder with an interest in an
‘equity Fund’ indexation relief will be allowed as a deduction from the gain
calculated by reference to the period the asset was held and the initial
cost given.
The Council of the European Union adopted Directive 2014/48/EU on
24 March 2014, amending Directive 2003/48/EC on the taxation of savings
income. The Member States are required to transpose new Directive
2014/48/EU into national law by 1 January 2016 and to apply the new
requirements with effect from 1 January 2017. The changes made by
Directive 2014/48/EU include extending the scope of the EU Savings
Directive to payments made to certain entities and legal arrangements and
broadening the definition of interest payment to cover income that is
equivalent to interest.
Shareholders who are resident in the UK for tax purposes may be liable to
capital gains tax or, if companies, corporation tax on chargeable gains
(‘CGT’). The redemption, sale, switching or transfer of Shares, being
chargeable assets, may constitute a disposal or part disposal for the
purposes of UK CGT. For individuals there is an annual exempt amount (for
the 2016-2017 tax year of £11,100). From 6 April 2016 for basic rate tax
payers the rate of 10% is applied to all chargeable gains in excess of the
annual exempt amount. For higher rate and additional rate tax payers a rate
of 20% is applied to all chargeable gains in excess of the annual exempt
amount. For a corporate Shareholder indexation relief will be allowed as a
deduction from the gain calculated by reference to the period the asset was
held and its initial cost.
13. Winding-Up and Termination
13.1 Termination of a Fund
A Fund may be terminated:
Shareholders subject to UK corporation tax may need to treat their
shareholdings in a ‘bond’ Fund as a creditor relationship subject to a mark-tomarket basis of accounting.
An exchange of Shares of one class for Shares of another class within a
Fund may constitute for UK taxation purposes a reorganisation of the Fund
within section 127 of the Taxation of Chargeable Gains Act 1992, in which
case a UK resident Shareholder who exchanges one class of Share for
another class of Shares would not be treated as making a disposal of Shares
giving rise to a chargeable gain or allowable loss, but instead would be
treated as having acquired such new class of Shares at the same time and
for the same price at which the original class of Shares were originally
(a)
if an extraordinary resolution of the Shareholders of such Fund is
passed to that effect; or
(b)
on the date of effect stated in any agreement by the FCA to a request
by the ACD for the termination of such Fund; or
(c)
by the ACD in its absolute discretion if one year from the date of the
first issue of Shares relating to that Fund or at any date thereafter,
the net asset value of that Fund is less than £10,000,000.
Eligible registered Shareholders will be informed in writing if a Fund is to be
terminated or have its authorisation revoked by the FCA.
30
Threadneedle Investment Funds II ICVC
(b)
Termination of a Fund commences upon the later of the time for termination
of a Fund determined in accordance with the above circumstances and the
time at which the FCA, having been supplied with a statement confirming the
solvency of the Fund, approves, pursuant to the OEIC Regulations, the
necessary changes to the Instrument of Incorporation and this Prospectus
which would result from the termination of the Fund.
The Company may only be wound up under the FCA Rules if the Company is
solvent and there is no vacancy in the position of the ACD. If the Company is
insolvent, or there is such a vacancy, the Company may only be wound-up
under Part V of the Insolvency Act 1986 as an unregistered company.
On the termination of a Fund (other than in accordance with an approved
scheme of amalgamation or reconstruction) the ACD is required as soon as
practicable after the Fund falls to be terminated to realise the property of the
Fund and pay the liabilities of the Fund out of the proceeds thereof.
On a winding-up (other than in accordance with an approved scheme of
amalgamation or reconstruction) the ACD is required as soon as practicable
after the time the Company falls to be wound-up, to realise the property of the
Company and pay the liabilities of the Company out of the proceeds.
Provided that there are sufficient liquid funds in the Fund property available
after making adequate provision for the expenses of the termination and the
discharge of the liabilities remaining to be discharged, the ACD may arrange
for the Depositary to make one or more interim distributions out of the
property of the Fund to the Shareholders proportionately to the right to
participate in the Fund property attached to their respective Shares as at the
date of the commencement of the termination.
After making adequate provision for the expenses of the winding-up and the
discharge of the liabilities of the Company remaining to be discharged, the
ACD may arrange for the Depositary to make one or more interim
distributions, and then a final distribution of the proceeds of the realisation of
the property attributable or allocated to each Fund to the holders in each
Fund, proportionately to the right to participate in the scheme property
attached to their respective Shares.
When the ACD has caused all the Fund property to be realised and all of the
liabilities known to the ACD to be met, the ACD shall arrange for the
Depositary to make a final distribution, on or prior to the date on which the
termination account is sent to Shareholders, of the balance remaining (net of
a provision for any further expenses of the termination) to the Shareholders in
the proportions stated above.
If the Company is to be wound up in accordance with an approved scheme of
amalgamation or reconstruction, the ACD is required to wind-up the
Company in accordance with a resolution of holders approving such scheme.
If the Fund is to be terminated in accordance with an approved scheme of
amalgamation or reconstruction, the ACD is required to terminate the Fund in
accordance with the resolution of holders approving such a scheme.
Where the Company and one or more Shareholders (other than the ACD)
agree, the requirement to realise the property of the Company shall not apply
to that part of the property which is proportionate to the right of that or those
Shareholders, and the ACD may distribute that part in the form of property,
after making such adjustments or retaining such provision as appears to the
ACD appropriate for ensuring that that or those Shareholders bear a
proportionate share of the liabilities and expenses.
Where the Company and one or more Shareholders (other than the ACD)
agree, the requirement to realise the property of the Fund shall not apply to
that part of the property which is proportionate to the right of that or those
Shareholders, and the ACD may distribute that part in the form of property,
after making such adjustments or retaining such provision as appears
appropriate to the ACD for ensuring that that or those Shareholders bear a
proportionate share of the liabilities
and expenses.
If any sum of money is unclaimed or stands to the account of the Company at
the date of its dissolution, the ACD shall arrange for the Depositary to pay
such sum into court within one month after that date in accordance with the
OEIC Regulations.
Where any sum of money (including unclaimed distributions) still stands to
the account of the property of the Fund, the ACD shall instruct the Depositary
to retain such sum in an account separate from any other part of the property
of the Company in accordance with the FCA Rules. On a winding-up of the
Company, the Depositary shall cease to hold those amounts as part of that
account and they shall be paid by the Depositary into court in accordance
with the OEIC Regulations.
14. General information
14.1 Accounting periods
The annual accounting period of the Company ends each year on 31
December (the accounting reference date) with its half-yearly accounting
period ending on 30 June each year.
13.2 Winding-up of the Company
Notwithstanding these dates, under the FCA Rules the ACD may, with the
agreement of the Depositary, elect that a particular accounting period shall
end on a day which is not more than seven days after or before the day on
which the period would otherwise end. References to the above dates and
the dates of income allocation periods and of publication of the yearly and
half-yearly report of the Company should be read accordingly.
The Company is to be wound-up:
(a)
on the date of effect stated in any agreement by the FCA to a request
by the ACD for the revocation of the authorisation order in respect of
the Company, albeit that such agreement is subject to there being no
material change in any relevant factor prior to the date of the
revocation.
if an extraordinary resolution of holders is passed to wind-up the
Company; or
31
Threadneedle Investment Funds II ICVC
14.2 Distribution of Income
Grouping for equalisation is permitted under the Instrument of Incorporation
and arises during the allocation period relevant to each Fund. Shares
purchased during the allocation period will carry an entitlement to equalisation
which is the amount arrived at on an average basis of the accrued net
income per Share included in the price of Shares issued or re-issued during
the allocation period. An equalisation amount may be included as part of any
income allocation to Shareholders and represents a return of capital rather
than income.
The payment dates for distributions are set out in Appendix I (Fund details)
for each of the Funds.
The income available for distribution or accumulation in relation to a Fund is
determined in accordance with the FCA Rules. In general terms, the income
comprises all the sums deemed by the Company, after consultation with the
Auditor, to be income in nature and received or receivable by the Company
and attributable to that Fund in respect of the accounting period concerned,
after deducting charges and expenses paid or payable out of such income
and after making such adjustments in relation to taxation and other matters.
The allocation of income to each Share Class is made after allowing for the
effect, including attributable taxation, of any charges or expenses made on
bases which vary by Share Class.
Any distribution of income that is unclaimed for a period of six years after
having become due for payment shall be forfeited and shall revert to the
Fund to which such distribution relates.
14.3 Annual report and financial statements
The ACD will, within four months after the end of each annual accounting
period and two months after the end of each half-yearly accounting period
respectively, publish and provide a short report. Long form report and
financial statements for each period will also be available, free of charge,
on request.
Income relating to a Fund is allocated at each Valuation Point among
Classes of Shares linked to that Fund in proportion to the value of each
Share Class relative to the value of the entire Fund as at the immediately
preceding Valuation Point including any Share Class creation and
cancellation movements applied at the immediately preceding Valuation
Point.
14.4 Documents of the Company
The amount available for distribution in any accounting period is calculated
by taking the aggregate of the income received or receivable for the account
of the Company in respect of that period, and deducting any charges and
expenses of the Company paid or payable out of income in respect of that
accounting period. The ACD then makes such other adjustments as it
considers appropriate (and after consulting the auditors as appropriate) in
relation to taxation, income equalisation, income unlikely to be received
within 12 months following the relevant income allocation date, income which
should not be accounted for on an accrual basis because of lack of
information as to how it accrues, transfers between the income and capital
account and any other adjustments which the ACD considers appropriate
after consulting the Auditor.
The following documents may be inspected free of charge between
09.30 a.m. and 4.30 p.m. (London time) every business day at the offices
of the ACD at Cannon Place, 78 Cannon Street, London EC4N 6AG:
Accumulation Shares: Allocation of income to holders of Accumulation
Shares will be transferred to the capital property of each Fund at the end of
the income allocation period and be reflected in the value of Shares on the
first business day following the end of that income allocation period.
(a)
The most recent annual and interim reports of the Company;
(b)
the Instrument of Incorporation (and any amending instrument of
incorporation);
(c)
the Prospectus; and
(d)
the material contracts referred to below.
The ACD may make a charge at its discretion for copies of documents,
except for copies of long form accounts which can be obtained free
of charge.
14.5 Material contracts
Income Shares: Unless it advises otherwise, the ACD will use income
distributions attributable to Income Shares to purchase additional Income
Shares for holders free of the initial charge. Where holders of Income Shares
request income to be paid out, this will only be paid directly into the
Shareholder’s bank account on or before the relevant allocation dates shown
in the table below. Where such Shareholders have not provided bank
account details, income will be reinvested in new Shares until such bank
account details have been received by the ACD.
The following contracts, not being contracts entered into in the ordinary
course of business, have been entered into by the Company and are, or
may be, material:
An income equalisation amount will be included in the price of Shares to
represent the value of income attributable to the Share in question accrued
since the end of the last accounting period (interim or final as the case
may be).
32
(a)
the ACD Agreement between the Company and the ACD;
(b)
the Depositary Services Agreement between the Company,
the Depositary and the ACD;
(c)
the Investment Management Agreement between the ACD and the
Investment Manager;
(d)
the Registrar Agreement between the ACD and the Registrar.
Threadneedle Investment Funds II ICVC
Details of these contracts are given in the section of this Prospectus with the
heading “Management and administration” on page 23 above.
Business changes
If we or the Threadneedle group undergoes a group reorganisation or is sold
to a third party, the personal information provided to us may be transferred to
that reorganised entity or third party and used for the purposes highlighted
above.
14.6 Complaints
Complaints may be referred to ACD Client Services using the contact details
provided in the Directory. A copy of the ACD’s ‘Complaint Handling
Procedure’ is available upon request. Complaints may also be referred
directly to the Financial Ombudsman Service at South Quay Plaza,
183 Marsh Wall, London E14 9SR.
Overseas transfers
We may transfer your personal information to countries located outside of the
European Economic Area (the ‘EEA’). This may happen when our servers,
suppliers and/or, service providers are based outside of the EEA. The data
protection laws and other laws of these countries may not be as
comprehensive as those that apply within the EEA – in these instances we
will take steps to ensure that your privacy rights are respected. Details of the
countries relevant to you will be provided upon request.
14.7 The Financial Services Compensation Scheme
The Financial Services Compensation Scheme offers compensation when an
authorised firm is unable to pay claims against it, usually because the firm
has gone out of business. The ACD is covered by the Financial Services
Compensation Scheme. You may be entitled to compensation from the
scheme if the ACD cannot meet its obligations. Most types of investment
business are covered by 100% of the first £50,000. The maximum
compensation is £50,000. Details of the scheme are included in a leaflet that
you can request from the ACD. Further information is available from the
Financial Conduct Authority and the Financial Services Compensation
Scheme.
Access to/correction of your information
With limited exceptions, you have the right to ask for a copy of the
information that we hold on you. There may be a charge for this (if a charge
is permitted). If any of the information that we hold about you is wrong,
please tell us and we will put it right. You can write to us at the ACD Client
Services Address at the details provided in the Directory.
14.9 Remuneration
Columbia Threadneedle Investments EMEA Region, of which the ACD is a
part, applies remuneration policies and practices for ‘Remuneration Code
Staff’ in compliance with the UCITS V Directive (2014/91/EU) (“UCITS V”)
and our regulatory requirements. We are currently reviewing and updating
our policy to comply with UCITS V. Further details on the Remuneration
Policy can be found at www.columbiathreadneedle.com. The up to date
details of the remuneration policy shall include, but is not limited to, a
description of how remuneration and benefits are calculated and the identities
of persons responsible for awarding the remuneration and benefits, including
the composition of the remuneration committee.
14.8 Privacy Statement
Your data controller
For the purposes of the UK Data Protection Act 1998, the data controller in
respect of any personal information provided is Threadneedle Investment
Services Limited. In this privacy statement ‘we’, ‘us’ and ‘our’ means
Threadneedle Investment Services Limited.
Uses made of your personal information
The personal information that you provide to us will be used for a number of
different purposes including: to manage and administer your account; to offer
you investment products and services (except where you have asked us not
to do so) and to help us develop new ones; to contact you with details of
changes to the products you have bought; for internal analysis and research;
to comply with legal or regulatory requirements; and to identify you when you
contact us. We may use external third parties to process your personal
information on our behalf in accordance with these purposes.
Sharing of your personal information
Where you have notified us of your adviser, the personal information
provided may be shared with such adviser. You must notify us in writing if
you no longer wish us to share your personal information with your adviser or
of any change to your adviser. Your adviser should have its own arrangements
with you about its use of your personal information. The personal information
provided may also be shared with other organisations in order for us to
comply with any legal or regulatory requirements. In addition, we may share
your personal information with the companies within the Threadneedle group
for the purposes set out in this privacy statement.
33
Threadneedle Investment Funds II ICVC
Appendix I (Fund details)
34
Threadneedle Investment Funds II ICVC
NAME
Threadneedle UK Corporate Bond Fund
Date of launch
December 2007
INVESTMENT OBJECTIVE & POLICY
Please also refer to the section of the prospectus with the heading “The Funds and their Investment Objectives and Policies” on page 7 for further information on
the investment objective and policy of the Fund.
Investment objective
The objective of the Fund is to achieve a long-term total return and to maximise this return whilst
moderating the risk of investment at any particular point in the economic and business cycle.
Investment policy
The policy of the Fund is to invest principally in investment-grade Sterling denominated corporate
bonds. In addition, the Fund may invest in non-Sterling investment-grade bonds, government bonds,
sub-investment-grade bonds, convertible bonds and preference shares.
The Fund may also invest in other transferable securities, collective investment schemes, money
market instruments, deposits, cash and near cash and hold securities of any duration.
Derivatives and forward transactions shall be used only for the purposes of efficient portfolio
management and hedging. Subject to at least 60 days’ notice to Shareholders, derivatives may
also be used for investment purposes, which may change the risk profile of the Fund.
The aim of any use of derivative or forward transactions is to assist the ACD in meeting the
investment objectives of the Fund by reducing risk and/or reducing cost and/or generating additional
income or capital with a level of risk which is consistent with the risk profile of the Fund, and the risk
diversification rules within which it operates. The use of derivatives or forward transactions for the
purposes of EPM or hedging will not materially alter the risk profile of the Fund.
RISK FACTORS
Investment Risk
Investors should note the “Risk factors” section of this
The value of investments may fall as well as rise and investors may not get back the sum originally
Prospectus in terms of risks applicable to investing in the invested.
Company. The following risks are considered to be
Currency Risk
particularly relevant to the Fund.
Where investments are made in assets that are denominated in multiple currencies, or currencies
other than your own, changes in exchange rates may affect the value of the investments.
Issuer Risk
The Fund invests in securities whose value would be significantly affected if the issuer refused, was
unable to, or was perceived to be unable to pay.
Liquidity Risk
The Fund holds assets which could prove difficult to sell. The fund may have to lower the selling
price, sell other investments or forego more appealing investment opportunities.
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.
Interest Rate Risk
Changes in interest rates are likely to affect the fund’s value. In general, as interest rates rise, the
price of a fixed rate bond will fall, and vice versa.
Derivatives for EPM/Hedging
The investment policy of the Fund allows it to invest in derivatives for the purposes of reducing risk or
minimising the cost of transactions.
35
Threadneedle Investment Funds II ICVC
Investors should refer to the information set out in the section of the Prospectus with the heading
“Risk factors” from page 18 of this Prospectus and section 21 of Appendix II (Derivatives – General)
in respect of investing in derivatives and forward transactions.
These “Risk factors” must be understood before making an investment in the Fund.
DEALING INFORMATION
Dealing cut-off point
Valuation Point
SHARE CLASS AVAILABILITY
14.00, UK time
14.00, UK time
Details of the Share Classes that are currently available for the Company are published on the website www.columbiathreadneedle.com
Available Share Classes
(at the date of this Prospectus)
Retail Accumulation Shares
Second Retail Income Shares
Institutional Accumulation Shares
Institutional Income Shares
Institutional Gross Income Shares
Approved Share Classes
Not applicable
(Share Classes that have been approved by the ACD
but have not been launched as at the date of this
Prospectus)
MINIMUM SUBSCRIPTIONS AND HOLDINGS
Minimum investment amounts
Retail share class
Second Retail share class
£1,000 minimum initial investment and £500
minimum subsequent investment.
Shareholders must maintain a minimum holding of
£500 in the Fund.
For investors using the Threadneedle Regular
Savings Facility the minimum initial and
subsequent investment is £100 per month.
The minimum amount that may be redeemed at
any one time is £500 subject to the minimum
holding.
Institutional share class
£500,000 minimum initial investment and £50,000
minimum subsequent investment.
Shareholders must maintain a minimum holding of
£50,000 in the Fund.
FEES AND EXPENSES
Initial charge
One-off charges
Share Class
Initial Charge
Retail Share Class
5.00% of the gross amount invested
Second Retail Share
Class
4.00% of the gross amount invested
Institutional Shares
5.00% of the gross amount invested
Switching/conversion fee
2% of the gross amount invested
Redemption fee
No redemption fee
36
Threadneedle Investment Funds II ICVC
Dilution levy
Please refer to the section of the Prospectus with the heading “Dilution levy” for details of when the
dilution levy may be applied.
Ongoing charges
Annual management charge
Fund
Threadneedle UK
Corporate Bond Fund
Investment management fee
Registrar’s fee
Depositary’s fee
DIVIDENDS & ACCOUNTING PERIOD
Payment dates
Accounting period
Annual Management Charge
as a Percentage of the
Price of a Share
Retail
Shares
Second
Retail
Shares
Institutional
Shares
1%
1.25%
0.40%
Paid from the annual management charge
Please refer to the section of the Prospectus with the heading “Registrar’s fee” for details of the
registrar’s fee.
The Depositary’s remuneration, which is payable out of the assets of each Fund, is a periodic charge
at such annual percentage rate of the value of the property of each Fund as is set out in the section
of the Prospectus with the heading “Depositary’s fee”.
Twice yearly on 28 February and 31 August
31 December
37
Threadneedle Investment Funds II ICVC
NAME
Threadneedle UK Short-Dated Corporate Bond Fund
Date of launch
August 2010
INVESTMENT OBJECTIVE & POLICY
Please also refer to the section of the prospectus with the heading “The Funds and their Investment Objectives and Policies” on page 7 for further information on
the investment objective and policy of the Fund.
Investment objective
The objective of the Fund is to achieve a long-term total return.
Investment policy
The policy of the Fund is to invest principally in investment-grade Sterling denominated corporate
bonds, predominantly those with a maturity of up to 5 years. In addition, the Fund may invest in nonSterling investment-grade bonds, government bond, sub-investment-grade bonds, convertible bonds
and preference shares, of any maturity.
The Fund may also invest in other transferable securities, collective investment schemes, money
market instruments, deposits, cash and near cash.
Derivatives and forward transactions shall be used only for the purposes of efficient portfolio
management and hedging. Subject to at least 60 days’ notice to Shareholders, derivatives may
also be used for investment purposes, which may change the risk profile of the Fund.
The aim of any use of derivative or forward transactions is to assist the ACD in meeting the
investment objectives of the Fund by reducing risk and/or reducing cost and/or generating additional
income or capital with a level of risk which is consistent with the risk profile of the Fund, and the risk
diversification rules within which it operates. The use of derivatives or forward transactions for the
purposes of EPM or hedging will not materially alter the risk profile of the Fund.
RISK FACTORS
Investment Risk
Investors should note the “Risk factors” section of this
The value of investments may fall as well as rise and investors may not get back the sum originally
Prospectus in terms of risks applicable to investing in the invested.
Company. The following risks are considered to be
Currency Risk
particularly relevant to the Fund.
Where investments are made in assets that are denominated in multiple currencies, or currencies
other than your own, changes in exchange rates may affect the value of the investments.
Issuer Risk
The Fund invests in securities whose value would be significantly affected if the issuer refused, was
unable to, or was perceived to be unable to pay.
Liquidity Risk
The Fund holds assets which could prove difficult to sell. The fund may have to lower the selling
price, sell other investments or forego more appealing investment opportunities.
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.
Interest Rate Risk
Changes in interest rates are likely to affect the fund’s value. In general, as interest rates rise, the
price of a fixed rate bond will fall, and vice versa.
Derivatives for EPM/Hedging
The investment policy of the Fund allows it to invest in derivatives for the purposes of reducing risk or
minimising the cost of transactions.
38
Threadneedle Investment Funds II ICVC
Investors should refer to the information set out in the section of the Prospectus with the heading
“Risk factors” from page 18 of this Prospectus and section 21 of Appendix II (Derivatives – General)
in respect of investing in derivatives and forward transactions.
These “Risk factors” must be understood before making an investment in the Fund.
DEALING INFORMATION
Dealing cut-off point
Valuation Point
SHARE CLASS AVAILABILITY
14.00, UK time
14.00, UK time
Details of the Share Classes that are currently available for the Company are published on the website www.columbiathreadneedle.com
Available Share Classes
(at the date of this Prospectus)
Approved Share Classes
(Share Classes that have been approved by the ACD
but have not been launched as at the date of this
Prospectus)
Institutional Income Shares
Institutional Gross Income Shares
Retail Gross Accumulation Shares
Retail Gross Income Shares
Class X Gross Accumulation Shares
Class X Gross Income Shares
Retail Income Shares
Second Retail Income Shares
MINIMUM SUBSCRIPTIONS AND HOLDINGS
Minimum investment amounts
Retail share class and
Second Retail share class
£1,000 minimum initial investment and £500
minimum subsequent investment.
Shareholders must maintain a minimum holding of
£500 in the Fund.
For investors using the Threadneedle Regular
Savings Facility the minimum initial and
subsequent investment is £100 per month.
The minimum amount that may be redeemed at
any one time is £500 subject to the minimum
holding.
Institutional share class
£500,000 minimum initial investment and £50,000
minimum subsequent investment.
Shareholders must maintain a minimum holding of
£50,000 in the Fund.
Class X Shares
£500,000 minimum initial investment and £50,000
minimum subsequent investment.
Shareholders must maintain a minimum holding of
£50,000 in the Fund.
FEES AND EXPENSES
Initial charge
One-off charges
Share Class
Initial Charge
Retail Share Class
5.00% of the gross amount invested
Second Retail Share
Class
4.00% of the gross amount invested
Institutional Shares
5.00% of the gross amount invested
Class X Shares
Nil (0.00% of the gross amount invested)
39
Threadneedle Investment Funds II ICVC
Switching/conversion fee
2% of the gross amount invested
Redemption fee
No redemption fee
Dilution levy
Please refer to the section of the Prospectus with the heading “Dilution levy” for details of when the
dilution levy may be applied.
Ongoing charges
Annual management charge
Fund
Annual Management Charge
as a Percentage of the
Price of a Share
Threadneedle UK ShortDated Corporate Bond
Fund
Retail
Shares
Second Retail
Shares
Institutional
Shares
1%
1.25%
0.40%
The fees for Class X Shares will be detailed in a separate agreement between the Eligible
Shareholder and the ACD.
Investment management fee
Registrar’s fee
Depositary’s fee
DIVIDENDS & ACCOUNTING PERIOD
Payment dates
Accounting period
Paid from the annual management charge
Please refer to the section of the Prospectus with the heading “Registrar’s fee” for details of the
registrar’s fee.
The Depositary’s remuneration, which is payable out of the assets of each Fund, is a periodic charge
at such annual percentage rate of the value of the property of each Fund as is set out in the section
of the Prospectus with the heading “Depositary’s fee”.
Monthly on the last day of the month, two months after each month end account date*
31 December
40
Threadneedle Investment Funds II ICVC
NAME
Threadneedle UK Medium & Long-Dated Corporate Bond
Fund
Date of launch
January 2010
INVESTMENT OBJECTIVE & POLICY
Please also refer to the section of the prospectus with the heading “The Funds and their Investment Objectives and Policies” on page 7 for further information on
the investment objective and policy of the Fund.
Investment objective
The objective of the Fund is to achieve a long-term total return.
Investment policy
The policy of the Fund is to invest principally in investment-grade Sterling denominated corporate
bonds, predominately those with a maturity of more than 5 years. In addition, the Fund may invest in,
non-Sterling investment-grade bonds, sub-investment-grade bonds, convertible bonds and preference
shares, of any maturity.
The Fund may also invest in other transferable securities, collective investment schemes, money
market instruments, deposits, cash and near cash.
Derivatives and forward transactions shall be used only for the purposes of efficient portfolio
management and hedging. Subject to at least 60 days’ notice to Shareholders, derivatives may
also be used for investment purposes, which may change the risk profile of the Fund.
The aim of any use of derivative or forward transactions is to assist the ACD in meeting the investment
objectives of the Fund by reducing risk and/or reducing cost and/or generating additional income or
capital with a level of risk which is consistent with the risk profile of the Fund, and the risk diversification
rules within which it operates. The use of derivatives or forward transactions for the purposes of EPM or
hedging will not materially alter the risk profile of the Fund.
RISK FACTORS
Investment Risk
Investors should note the “Risk factors” section of this
The value of investments may fall as well as rise and investors may not get back the sum originally
Prospectus in terms of risks applicable to investing in the invested.
Company. The following risks are considered to be
Currency Risk
particularly relevant to the Fund.
Where investments are made in assets that are denominated in multiple currencies, or currencies other
than your own, changes in exchange rates may affect the value of the investments.
Issuer Risk
The Fund invests in securities whose value would be significantly affected if the issuer refused, was
unable to, or was perceived to be unable to pay.
Liquidity Risk
The Fund holds assets which could prove difficult to sell. The fund may have to lower the selling price,
sell other investments or forego more appealing investment opportunities.
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.
Interest Rate Risk
Changes in interest rates are likely to affect the fund’s value. In general, as interest rates rise, the price
of a fixed rate bond will fall, and vice versa.
Derivatives for EPM/Hedging
The investment policy of the Fund allows it to invest in derivatives for the purposes of reducing risk or
minimising the cost of transactions.
41
Threadneedle Investment Funds II ICVC
Investors should refer to the information set out in the section of the Prospectus with the heading “Risk
factors” from page 18 of this Prospectus and section 21 of Appendix II (Derivatives – General) in
respect of investing in derivatives and forward transactions.
These “Risk factors” must be understood before making an investment in the Fund.
DEALING INFORMATION
Dealing cut-off point
Valuation Point
SHARE CLASS AVAILABILITY
14.00, UK time
14.00, UK time
Available Share Classes
Institutional Gross Income Shares
Approved Share Classes
Retail Income Shares
Second Retail Income Shares
Institutional Income Shares
Details of the Share Classes that are currently available for the Company are published on the website www.columbiathreadneedle.com
(at the date of this Prospectus)
(Share Classes that have been approved by the ACD
but have not been launched as at the date of this
Prospectus)
MINIMUM SUBSCRIPTIONS AND HOLDINGS
Minimum investment amounts
Retail share class and
Second Retail share class
£1,000 minimum initial investment and £500
minimum subsequent investment.
Shareholders must maintain a minimum holding of
£500 in the Fund.
For investors using the Threadneedle Regular
Savings Facility the minimum initial and
subsequent investment is £100 per month.
The minimum amount that may be redeemed at
any one time is £500 subject to the minimum
holding.
Institutional share class
£500,000 minimum initial investment and £50,000
minimum subsequent investment.
Shareholders must maintain a minimum holding of
£50,000 in the Fund.
FEES AND EXPENSES
Initial charge
One-off charges
Share Class
Initial Charge
Retail Share Class
5.00% of the gross amount invested
Second Retail Share
Class
4.00% of the gross amount invested
Institutional Shares
5.00% of the gross amount invested
Switching/conversion fee
2% of the gross amount invested
Redemption fee
No redemption fee
Dilution levy
Please refer to the section of the Prospectus with the heading “Dilution levy” for details of when the
dilution levy may be applied.
42
Threadneedle Investment Funds II ICVC
Ongoing charges
Annual management charge
Fund
Threadneedle UK
Medium & Long-Dated
Corporate Bond Fund
Investment management fee
Registrar’s fee
Depositary’s fee
DIVIDENDS & ACCOUNTING PERIOD
Payment dates
Accounting period
Annual Management Charge
as a Percentage of the
Price of a Share
Retail
Shares
Second Retail
Shares
Institutional
Shares
1%
1.25%
0.40%
Paid from the annual management charge
Please refer to the section of the Prospectus with the heading “Registrar’s fee” for details of the
registrar’s fee.
The Depositary’s remuneration, which is payable out of the assets of each Fund, is a periodic charge at
such annual percentage rate of the value of the property of each Fund as is set out in the section of the
Prospectus with the heading “Depositary’s fee”.
Monthly on the last day of the month, two months after each month end account date*
31 December
43
Threadneedle Investment Funds II ICVC
NAME
Threadneedle UK Short-Term Money Market Fund
Date of launchp
December 2007
INVESTMENT OBJECTIVE & POLICY
Please also refer to the section of the prospectus with the heading “The Funds and their Investment Objectives and Policies” on page 7 for further information on
the investment objective and policy of the Fund.
Investment objective
The objective of the Fund is to achieve an attractive level of return consistent with a high degree of
capital security.
Investment policy
The policy of the Fund is to invest principally in UK money market instruments, deposits, cash and
near cash. The Fund may also invest in collective investment schemes.
Derivatives and forward transactions shall be used only for the purposes of efficient portfolio
management. Subject to at least 60 days’ notice to Shareholders, derivatives may also be used
for investment purposes, which may change the risk profile of the Fund.
The aim of any use of derivative or forward transactions is to assist the ACD in meeting the
investment objectives of the Fund by reducing risk and/or reducing cost and/or generating additional
income or capital with a level of risk which is consistent with the risk profile of the Fund, and the risk
diversification rules within which it operates. The use of derivatives or forward transactions for the
purposes of EPM or hedging will not materially alter the risk profile of the Fund.
RISK FACTORS
Investment Risk
Investors should note the “Risk factors” section of this
The value of investments may fall as well as rise and investors may not get back the sum originally
Prospectus in terms of risks applicable to investing in the invested.
Company. The following risks are considered to be
particularly relevant to the Fund.
No capital guarantee
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.
Investment in Deposits
The investment policy of the Fund allows it to invest principally in deposits.
Derivatives for EPM/Hedging
The investment policy of the Fund allows it to invest in derivatives for the purposes of reducing risk or
minimising the cost of transactions.
Investors should refer to the information set out in the section of the Prospectus with the heading
“Risk factors” from page 18 of this Prospectus and section 21 of Appendix II (Derivatives – General)
in respect of investing in derivatives and forward transactions.
These “Risk factors” must be understood before making an investment in the Fund.
DEALING INFORMATION
Dealing cut-off point
Valuation Point
14.00, UK time
14.00, UK time
44
Threadneedle Investment Funds II ICVC
SHARE CLASS AVAILABILITY
Details of the Share Classes that are currently available for the Company are published on the website www.columbiathreadneedle.com
Available Share Classes
(at the date of this Prospectus)
Retail Accumulation Shares
Second Retail Income Shares
Institutional Accumulation Shares
Approved Share Classes
Not applicable
(Share Classes that have been approved by the ACD
but have not been launched as at the date of this
Prospectus)
MINIMUM SUBSCRIPTIONS AND HOLDINGS
Minimum investment amounts
Retail share class and
Second Retail share class
£1,000 minimum initial investment and £500
minimum subsequent investment.
Shareholders must maintain a minimum holding of
£500 in the Fund.
For investors using the Threadneedle Regular
Savings Facility the minimum initial and
subsequent investment is £100 per month.
The minimum amount that may be redeemed at
any one time is £500 subject to the minimum
holding.
Institutional share class
£500,000 minimum initial investment and £50,000
minimum subsequent investment.
Shareholders must maintain a minimum holding of
£50,000 in the Fund.
FEES AND EXPENSES
Initial charge
One-off charges
Share Class
Initial Charge
Retail Share Class
1.00% of the gross amount invested
Second Retail Share
Class
0.00% of the gross amount invested
Institutional Shares
1.00% of the gross amount invested
Switching/conversion fee
2% of the gross amount invested
Redemption fee
No redemption fee
Dilution levy
Please refer to the section of the Prospectus with the heading “Dilution levy” for details of when the
dilution levy may be applied.
Ongoing charges
45
Threadneedle Investment Funds II ICVC
Annual management charge
Fund
Annual Management Charge
as a Percentage of the
Price of a Share
Threadneedle UK ShortTerm Money Market
Fund
Investment management fee
Registrar’s fee
Depositary’s fee
DIVIDENDS & ACCOUNTING PERIOD
Payment dates
Accounting period
Retail
Shares
Second Retail
Shares
Institutional
Shares
0.50%
0.60%
0.25%
Paid from the annual management charge
Please refer to the section of the Prospectus with the heading “Registrar’s fee” for details of the
registrar’s fee.
The Depositary’s remuneration, which is payable out of the assets of each Fund, is a periodic charge
at such annual percentage rate of the value of the property of each Fund as is set out in the section
of the Prospectus with the heading “Depositary’s fee”.
Twice yearly on 28 February and 31 August
31 December
46
Threadneedle Investment Funds II ICVC
NAME
Threadneedle UK Fixed Interest Fund
Date of launch
December 2007
INVESTMENT OBJECTIVE & POLICY
Please also refer to the section of the prospectus with the heading “The Funds and their Investment Objectives and Policies” on page 7 for further information on
the investment objective and policy of the Fund.
Investment objective
The objective of the Fund is to achieve a long-term total return and to maximise this return whilst
moderating the risk of investment at any particular point in the economic and business cycle.
Investment policy
The policy of the Fund is to invest principally in UK government bonds (gilts), and other Sterling
denominated fixed interest securities. The Fund may also invest in other transferable securities,
collective investment schemes, money market instruments, deposits, cash and near cash and hold
securities of any duration.
Derivatives and forward transactions shall be used only for the purposes of efficient portfolio
management and hedging. Subject to at least 60 days’ notice to Shareholders, derivatives
may also be used for investment purposes, which may change the risk profile of the Fund.
The aim of any use of derivative or forward transactions is to assist the ACD in meeting the
investment objectives of the Fund by reducing risk and/or reducing cost and/or generating
additional income or capital with a level of risk which is consistent with the risk profile of the Fund,
and the risk diversification rules within which it operates. The use of derivatives or forward
transactions for the purposes of EPM or hedging will not materially alter the risk profile of the Fund.
RISK FACTORS
Investors should note the “Risk factors” section of this
Prospectus in terms of risks applicable to investing in the
Company. The following risks are considered to be
particularly relevant to the Fund.
Investment Risk
The value of investments may fall as well as rise and investors may not get back the sum originally
invested.
Currency Risk
Where investments are made in assets that are denominated in multiple currencies, or currencies
other than your own, changes in exchange rates may affect the value of the investments.
Issuer Risk
The Fund invests in securities whose value would be significantly affected if the issuer refused, was
unable to, or was perceived to be unable to pay.
Liquidity Risk
The Fund holds assets which could prove difficult to sell. The fund may have to lower the selling
price, sell other investments or forego more appealing investment opportunities.
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.
Interest Rate Risk
Changes in interest rates are likely to affect the fund’s value. In general, as interest rates rise, the
price of a fixed rate bond will fall, and vice versa.
Derivatives for EPM/Hedging
The investment policy of the Fund allows it to invest in derivatives for the purposes of reducing risk
or minimising the cost of transactions.
47
Threadneedle Investment Funds II ICVC
Investors should refer to the information set out in the section of the Prospectus with the heading
“Risk factors” from page 18 of this Prospectus and section 21 of Appendix II (Derivatives – General)
in respect of investing in derivatives and forward transactions.
These “Risk factors” must be understood before making an investment in the Fund.
DEALING INFORMATION
Dealing cut-off point
Valuation Point
SHARE CLASS AVAILABILITY
14.00, UK time
14.00, UK time
Details of the Share Classes that are currently available for the Company are published on the website www.columbiathreadneedle.com
Available Share Classes
Retail Accumulation Shares
Second Retail Income Shares
Institutional Accumulation Shares
Institutional Gross Income Shares
Institutional Net Income Shares
Approved Share Classes
Not applicable
(at the date of this Prospectus)
(Share Classes that have been approved by the ACD but
have not been launched as at the date of this Prospectus)
MINIMUM SUBSCRIPTIONS AND HOLDINGS
Minimum investment amounts
Retail share class and
Second Retail share class
£1,000 minimum initial investment and £500
minimum subsequent investment.
Shareholders must maintain a minimum holding of
£500 in the Fund.
For investors using the Threadneedle Regular
Savings Facility the minimum initial and
subsequent investment is £100 per month.
The minimum amount that may be redeemed at
any one time is £500 subject to the minimum
holding.
Institutional share class
£500,000 minimum initial investment and £50,000
minimum subsequent investment.
Shareholders must maintain a minimum holding of
£50,000 in the Fund.
FEES AND EXPENSES
Initial charge
One-off charges
Share Class
Initial Charge
Retail Share Class
5.00% of the gross amount invested
Second Retail Share
Class
4.00% of the gross amount invested
Institutional Shares
5.00% of the gross amount invested
Switching/conversion fee
2% of the gross amount invested
Redemption fee
No redemption fee
Dilution levy
Please refer to the section of the Prospectus with the heading “Dilution levy” for details of when the
dilution levy may be applied.
Ongoing charges
48
Threadneedle Investment Funds II ICVC
Annual management charge
Fund
Annual Management Charge
as a Percentage of the
Price of a Share
Threadneedle UK Fixed
Interest Fund
Investment management fee
Registrar’s fee
Depositary’s fee
DIVIDENDS & ACCOUNTING PERIOD
Payment dates
Accounting period
Retail
Shares
Second Retail
Shares
Institutional
Shares
0.55%
0.90%
0.35%
Paid from the annual management charge
Please refer to the section of the Prospectus with the heading “Registrar’s fee” for details of the
registrar’s fee.
The Depositary’s remuneration, which is payable out of the assets of each Fund, is a periodic charge
at such annual percentage rate of the value of the property of each Fund as is set out in the section
of the Prospectus with the heading “Depositary’s fee”.
Twice yearly on 28 February and 31 August
31 December
49
Threadneedle Investment Funds II ICVC
NAME
Threadneedle UK Index Linked Fund
Date of launch
December 2007
INVESTMENT OBJECTIVE & POLICY
Please also refer to the section of the prospectus with the heading “The Funds and their Investment Objectives and Policies” on page 7 for further information on
the investment objective and policy of the Fund.
Investment objective
The objective of the Fund is to achieve a long-term total return and to maximise this return whilst
moderating the risk of investment at any particular point in the economic and business cycle.
Investment policy
The policy of the Fund is to invest principally in UK index linked gilts and other Sterling
denominated index linked securities. The Fund may also invest in other transferable securities,
collective investment schemes, money market instruments, deposits, cash and near cash and hold
securities of any duration.
Derivatives and forward transactions shall be used only for the purposes of efficient portfolio
management and hedging. Subject to at least 60 days’ notice to Shareholders, derivatives
may also be used for investment purposes, which may change the risk profile of the Fund.
The aim of any use of derivative or forward transactions is to assist the ACD in meeting the
investment objectives of the Fund by reducing risk and/or reducing cost and/or generating
additional income or capital with a level of risk which is consistent with the risk profile of the Fund,
and the risk diversification rules within which it operates. The use of derivatives or forward
transactions for the purposes of EPM or hedging will not materially alter the risk profile of the Fund.
RISK FACTORS
Investors should note the “Risk factors” section of this
Prospectus in terms of risks applicable to investing in the
Company. The following risks are considered to be
particularly relevant to the Fund.
Investment Risk
The value of investments may fall as well as rise and investors may not get back the sum originally
invested.
Currency Risk
Where investments are made in assets that are denominated in multiple currencies, or currencies
other than your own, changes in exchange rates may affect the value of the investments.
High Volatility Risk
The Fund typically carries a risk of high volatility due to its portfolio composition or the portfolio
management techniques used. This means that the Fund’s value is likely to fall and rise more
frequently, and this could be more pronounced, than with other funds.
Derivatives for EPM/Hedging
The investment policy of the Fund allows it to invest in derivatives for the purposes of reducing risk
or minimising the cost of transactions.
Investors should refer to the information set out in the section of the Prospectus with the heading
“Risk factors” from page 18 of this Prospectus and section 21 of Appendix II (Derivatives – General)
in respect of investing in derivatives and forward transactions.
These “Risk factors” must be understood before making an investment in the Fund.
DEALING INFORMATION
Dealing cut-off point
Valuation Point
SHARE CLASS AVAILABILITY
14.00, UK time
14.00, UK time
Details of the Share Classes that are currently available for the Company are published on the website www.columbiathreadneedle.com
50
Threadneedle Investment Funds II ICVC
Available Share Classes
Retail Accumulation Shares
Second Retail Income Shares
Second Retail Gross Accumulation Shares
Institutional Accumulation Shares
Institutional Income Shares
Institutional Gross Income Shares
Class X Gross Accumulation Shares
Approved Share Classes
Not applicable
(at the date of this Prospectus)
(Share Classes that have been approved by the ACD but
have not been launched as at the date of this Prospectus)
MINIMUM SUBSCRIPTIONS AND HOLDINGS
Minimum investment amounts
Retail share class and
Second Retail share class
£1,000 minimum initial investment and £500
minimum subsequent investment.
Shareholders must maintain a minimum holding of
£500 in the Fund.
For investors using the Threadneedle Regular
Savings Facility the minimum initial and
subsequent investment is £100 per month.
The minimum amount that may be redeemed at
any one time is £500 subject to the minimum
holding.
Institutional share class
£500,000 minimum initial investment and £50,000
minimum subsequent investment.
Shareholders must maintain a minimum holding of
£50,000 in the Fund.
Class X Shares
£500,000 minimum initial investment and £50,000
minimum subsequent investment.
Shareholders must maintain a minimum holding of
£50,000 in the Fund.
FEES AND EXPENSES
Initial charge
One-off charges
Share Class
Initial Charge
Retail Share Class
5.00% of the gross amount invested
Second Retail Share
Class
4.00% of the gross amount invested
Institutional Shares
5.00% of the gross amount invested
Class X Shares
Nil (0.00% of the gross amount invested)
Switching/conversion fee
2% of the gross amount invested
Redemption fee
No redemption fee
Dilution levy
Please refer to the section of the Prospectus with the heading “Dilution levy” for details of when the
dilution levy may be applied.
Ongoing charges
51
Threadneedle Investment Funds II ICVC
Annual management charge
Fund
Annual Management Charge
as a Percentage of the
Price of a Share
Threadneedle UK Index
Linked Fund
Investment management fee
Registrar’s fee
Depositary’s fee
DIVIDENDS & ACCOUNTING PERIOD
Payment dates
Accounting period
Retail
Shares
Second Retail
Shares
Institutional
Shares
0.55%
0.90%
0.35%
The fees for Class X Shares will be set out in a separate agreement between the Eligible
Shareholder and the ACD.
Paid from the annual management charge
Please refer to the section of the Prospectus with the heading “Registrar’s fee” for details of the
registrar’s fee.
The Depositary’s remuneration, which is payable out of the assets of each Fund, is a periodic charge
at such annual percentage rate of the value of the property of each Fund as is set out in the section
of the Prospectus with the heading “Depositary’s fee”.
Twice yearly on 28 February and 31 August
31 December
52
Threadneedle Investment Funds II ICVC
Appendix II
Investment and Borrowing Powers and Restrictions
4.2
The requirements in paragraphs 15 and 15.11.3 do not apply until the
expiry of a period of six months after the date of effect of the
authorisation order in respect of a Fund (or on which the initial offer
commenced if later) provided that the requirement to maintain
prudent spread of risk is complied with.
4.3
It is not intended that the Funds will have an interest in any
immovable property or tangible moveable property.
5.
5.1
Transferable securities
A transferable security is an investment which is any of the following:
Investment and Borrowing Powers and Restrictions
1.
1.1
1.2
2.
3.
3.1
3.2
4.
4.1
General rules of investment
The scheme property of each Fund will be invested with the aim of
achieving the investment objective of that Fund but subject to the
limits on investment set out in Chapter 5 of the COLL Sourcebook
and this Prospectus. These limits apply to each Fund as summarised
below.
The ACD’s investment policy may mean that at times, where it is
considered appropriate, the scheme property of a Fund will not be
fully invested and that prudent levels of liquidity will be maintained.
Prudent spread of risk
The ACD must ensure that, taking account of the investment
objectives and policy of each of the Funds, the scheme property
provides a prudent spread of risk.
Cover
Where the COLL Sourcebook permits an investment transaction to
be entered into or an investment to be retained only (for example,
investment in warrants and nil and partly paid securities and the
general power to accept or underwrite) if possible obligations arising
out of the investment transactions or out of the retention would not
cause any breach of any limits in Chapter 5 of the COLL
Sourcebook, it must be assumed that the maximum possible liability
of a Fund under any other of those rules has also to be provided for.
Where a rule in the COLL Sourcebook permits an investment
transaction to be entered into or an investment to be retained only if
that investment transaction, or the retention, or other similar
transactions, are covered:
3.2.1
it must be assumed that in applying any of those rules, a
Fund must also simultaneously satisfy any other
obligation relating to cover; and
3.2.2
no element of cover must be used more than once.
UCITS schemes – general
The scheme property of the Funds must, subject to the investment
objective and policy of each Fund and except where otherwise
provided in Chapter 5 of the COLL Sourcebook, only consist of any
or all of:
4.1.1
transferable securities;
4.1.2
approved money-market instruments;
4.1.3
derivatives and forward transactions.
4.1.4
deposits;
4.1.5
units in collective investment schemes;
53
5.1.1
a share;
5.1.2
a debenture;
5.1.3
an alternative debenture;
5.1.4
a government and public security;
5.1.5
a warrant; or
5.1.6
a certificate representing certain securities.
5.2
An investment is not a transferable security if the title to it cannot be
transferred, or can be transferred only with the consent of a third
party.
5.3
In applying paragraph 5.2 to an investment which is issued by a body
corporate, and which is a share or a debenture the need for any
consent on the part of the body corporate or any members or
debenture holders of it may be ignored.
5.4
An investment is not a transferable security unless the liability of the
holder of it to contribute to the debts of the issuer is limited to any
amount for the time being unpaid by the holder of it in respect of the
investment.
5.5
No more than 5% of the value of the scheme property of a Fund may
be invested in warrants.
6.
6.1
Investment in transferable securities
A Fund may invest in a transferable security only to the extent that
the transferable security fulfils the following criteria:
6.1.1
the potential loss which a Fund may incur with respect to
holding the transferable security is limited to the amount
paid for it;
6.1.2
its liquidity does not compromise the ability of the
ACD to comply with its obligation to redeem shares at the
request of any qualifying shareholder under the
COLL Sourcebook;
Threadneedle Investment Funds II ICVC
6.1.3
reliable valuation is available for it as follows:
6.1.3.1
in the case of a transferable security admitted
to or dealt in on an eligible market, where there
are accurate, reliable and regular prices which
are either market prices or prices made
available by valuation systems independent
from issuers;
7.1.2
6.1.3.2
6.1.4
6.2
appropriate information is available for it as follows:
6.1.4.1
in the case of a transferable security admitted
to or dealt in on an eligible market, where there
is regular, accurate and comprehensive
information available to the market on the
transferable security or, where relevant, on the
portfolio of the transferable security;
6.1.4.2
in the case of a transferable security not
admitted to or dealt in on an eligible market,
where there is regular and accurate
information available to the ACD on the
transferable security or, where relevant, on the
portfolio of the transferable security;
8.
8.1
it is subject to corporate governance
mechanisms applied to companies; and
7.1.1.2
where another person carries out asset
management activity on its behalf, that person
is subject to national regulation for the purpose
of investor protection; or
where the closed end fund is constituted under the law of
contract:
7.1.2.1
it is subject to corporate governance
mechanisms equivalent to those applied to
companies; and
7.1.2.2
it is managed by a person who is subject to
national regulation for the purpose of investor
protection.
Transferable securities linked to other assets
A Fund may invest in any other investment which shall be taken to be
a transferable security for the purposes of investment by a Fund
provided the investment:
8.1.1
fulfils the criteria for transferable securities set out in
paragraph 6; and
8.1.2
is backed by or linked to the performance of other assets,
which may differ from those in which a Fund can invest.
8.2
Where an investment in paragraph 8.1 contains an embedded
derivative component, the requirements of this section with respect to
derivatives and forwards will apply to that component.
6.1.5
it is negotiable; and
6.1.6
its risks are adequately captured by the risk management
process of the ACD.
9.
9.1
Unless there is information available to the ACD that would lead to a
different determination, a transferable security which is admitted to or
dealt in on an eligible market shall be presumed:
Approved money-market instruments
An approved money-market instrument is a money market instrument
which is normally dealt in on the money market, is liquid and has a
value which can be accurately determined at any time.
9.2
A money-market instrument shall be regarded as normally dealt in on
the money market if it:
6.2.1
6.2.2
7.
7.1
in the case of a transferable security not
admitted to or dealt in on an eligible market,
where there is a valuation on a periodic basis
which is derived from information from the
issuer of the transferable security or from
competent investment research;
7.1.1.1
not to compromise the ability of the ACD to comply with its
obligation to redeem units at the request of any qualifying
Shareholder; and
9.2.1
has a maturity at issuance of up to and including
397 days;
to be negotiable.
9.2.2
has a residual maturity of up to and including 397 days;
9.2.3
undergoes regular yield adjustments in line with money
market conditions at least every 397 days; or
9.2.4
has a risk profile, including credit and interest rate risks,
corresponding to that of an instrument which has a
maturity as set out in paragraphs 9.2.1 or 9.2.2 or is
subject to yield adjustments as set out in paragraph 9.2.3.
Closed end funds constituting transferable securities
A unit in a closed end fund shall be taken to be a transferable
security for the purposes of investment by a Fund, provided it fulfils
the criteria for transferable securities set out in paragraph 6,
and either:
7.1.1
where the closed end fund is constituted as an investment
company or a unit trust:
54
Threadneedle Investment Funds II ICVC
9.3
9.4
9.4.2
10.
10.1
enabling the ACD to calculate a net asset value in
accordance with the value at which the instrument held in
the portfolio could be exchanged between knowledgeable
willing parties in an arm’s length transaction; and
any market within paragraph 11.2.
A market not falling within paragraph 11.1.1 or 11.1.2 is eligible for
the purposes of Chapter 5 of the COLL rules if:
11.2.1
the ACD, after consultation with and notification to the
Depositary, decides that market is appropriate for
investment of, or dealing in, the scheme property;
11.2.2
the market is included in a list in the Prospectus; and
11.2.3
the Depositary has taken reasonable care to
determine that:
11.2.3.1
adequate custody arrangements can be
provided for the investment dealt in on that
market; and
11.2.3.2
all reasonable steps have been taken by the
ACD in deciding whether that market is
eligible.
based either on market data or on valuation models
including systems based on amortised costs.
A money-market instrument that is normally dealt in on the money
market and is admitted to or dealt in on an eligible market shall be
presumed to be liquid and have a value which can be accurately
determined at any time unless there is information available to the
ACD that would lead to a different determination.
11.3
In paragraph 11.2.1, a market must not be considered appropriate
unless it is regulated, operates regularly, is recognised as a market
or exchange or as a self-regulating organisation by an overseas
regulator, is open to the public, is adequately liquid and has
adequate arrangements for unimpeded transmission of income and
capital to or for the order of Shareholders.
11.4
The eligible markets for each Fund are set out below at Appendix IV.
12.
12.1
Money-market instruments with a regulated issuer
In addition to instruments admitted to or dealt in on an eligible
market, where consistent with a Fund’s investment objective and
policy, a Fund may invest in an approved money market instrument
provided it fulfils the following requirements:
Transferable securities and approved money-market
instruments generally to be admitted to or dealt in on an
eligible market
Transferable securities held within a Fund must be:
10.1.1
admitted to or dealt on an eligible market (as described in
paragraphs 11.1.1 or 11.1.2); or
10.1.2
dealt on an eligible market (as described in
paragraph 11.2); or
10.1.3
for an approved money-market instrument not admitted to
or dealt in on an eligible market, within paragraph 12.1; or
10.1.4
recently issued transferable securities (provided that the
terms of issue include an undertaking that application will
be made to be admitted to an eligible market; and such
admission is secured within a year of issue).
10.1.5
11.
11.1
11.2
A money-market instrument shall be regarded as having a value
which can be accurately determined at any time if accurate and
reliable valuations systems, which fulfil the following criteria, are
available:
9.4.1
9.5
11.1.3
A money-market instrument shall be regarded as liquid if it can be
sold at limited cost in an adequately short time frame, taking into
account the obligation of the ACD to redeem units at the request of
any qualifying Shareholder.
12.2
Not more than 10% in value of the scheme property of a
Fund is to consist of transferable securities and approved
money-market instruments other than those referred to in
paragraph 10.1.
Eligible markets requirements
A market is eligible for the purposes of the rules if it is:
11.1.1
a regulated market; or
11.1.2
a market in an EEA State which is regulated, operates
regularly and is open to the public;
55
12.1.1
the issue or the issuer is regulated for the purpose of
protecting investors and savings; and
12.1.2
the instrument is issued or guaranteed in accordance with
paragraph 13.
The issue or the issuer of a money-market instrument, other than one
dealt in on an eligible market, shall be regarded as regulated for the
purpose of protecting investors and savings if:
12.2.1
the instrument is an approved money-market instrument;
12.2.2
appropriate information is available for the instrument
(including information which allows an appropriate
assessment of the credit risks related to investment in it),
in accordance with paragraph 14; and
12.2.3
the instrument is freely transferable.
Threadneedle Investment Funds II ICVC
13.
13.1
14.
14.1
Issuers and guarantors of money-market instruments
Where consistent with a Fund’s investment objective and policy, a
Fund may invest in an approved money market instrument if it is:
13.1.1
issued or guaranteed by any one of the following:
13.1.1.1
a central authority of an EEA State or, if the
EEA State is a federal state, one of the
members making up the federation;
Appropriate information for money-market instruments
In the case of an approved money market instrument within
paragraph 13.2 or which is issued by an authority within paragraph
13.1.1.2 or a public international body within paragraph 13.1.1.6 but
is not guaranteed by a central authority within paragraph 13.1.1.1,
the following information must be available:
14.1.1
information on both the issue or the issuance programme,
and the legal and financial situation of the issuer prior to
the issue of the instrument, verified by appropriately
qualified third parties not subject to instructions from
the issuer;
13.1.1.2
a regional or local authority of an EEA State;
13.1.1.3
the European Central Bank or a central bank of
an EEA State;
14.1.2
updates of that information on a regular basis and
whenever a significant event occurs; and
the European Union or the European
Investment Bank;
14.1.3
available and reliable statistics on the issue or the
issuance programme.
13.1.1.4
13.1.1.5
13.1.1.6
a non-EEA State or, in the case of a federal
state, one of the members making up the
federation;
14.2
a public international body to which one or
more EEA States belong; or
13.2
issued by a body, any securities of which are dealt in on an eligible
market; or
13.3
issued or guaranteed by an establishment which is:
13.3.1
subject to prudential supervision in accordance with
criteria defined by EU law; or
13.3.2
subject to and complies with prudential rules considered
by the FCA to be at least as stringent as those laid down
by EU law.
14.3
In the case of an approved money-market instrument issued or
guaranteed by an establishment within paragraph 13.3, the following
information must be available:
14.2.1
information on the issue or the issuance programme or on
the legal and financial situation of the issuer prior to the
issue of the instrument updates of that information on a
regular basis and whenever a significant event occurs;
and
14.2.2
available and reliable statistics on the issue or the
issuance programme, or other data enabling an
appropriate assessment of the credit risks related to
investment in those instruments.
In the case of an approved money market instrument:
14.3.1
13.3.3
An establishment shall be considered to satisfy the
requirement in 13.3.2 if it is subject to and complies
with prudential rules, and fulfils one or more of the
following criteria:
13.3.4
it is located in the European Economic Area;
13.3.5
it is located in an OECD country belonging to the Group
of Ten;
13.3.6
it has at least investment grade rating;
13.3.7
on the basis of an in-depth analysis of the issuer, it can be
demonstrated that the prudential rules applicable to that
issuer are at least as stringent as those laid down by
EU law.
within paragraphs 13.1.1.1, 13.1.1.4 or 13.1.1.5; or
which is issued by an authority within paragraph 13.1.1.2
or a public international body within paragraph 13.1.1.6
and is guaranteed by a central authority within paragraph
13.1.1.1, information must be available on the issue or the
issuance programme, or on the legal and financial
situation of the issuer prior to the issue of the instrument.
15.
15.1
Investment conditions: short-term money market funds
(applicable only to the Threadneedle UK Short-Term Money
Market Fund)
A short-term money market fund must satisfy the following
conditions:
15.1.1
56
its primary investment objective must be to maintain the
principal of the scheme and aim to provide a return in line
with money market rates;
Threadneedle Investment Funds II ICVC
15.1.2
it must invest only in approved money market instruments
and deposits with credit institutions;
15.1.3
it must, on an ongoing basis, ensure the approved money
market instruments it invests in are of high quality, as
determined by the ACD;
15.3
15.1.4
it must provide daily net asset value and price calculation
and daily subscription and redemption of units;
15.1.5
it must limit its investment in securities to those with a
residual maturity until the legal redemption date of less
than or equal to 397 days;
15.1.6
it must ensure that its scheme property has a weighted
average maturity of no more than 60 days;
15.1.7
it must ensure that its scheme property has a weighted
average life of no more than 120 days;
15.1.8
it must not take direct or indirect exposure to equity or
commodities, including via derivatives;
15.1.9
it must only use derivatives in line with the money market
investment strategy of the scheme and where using
derivatives that give exposure to foreign exchange must
do so only for the purposes of hedging;
15.1.10
it must only invest in non-base currency securities where
its exposure is fully hedged;
15.1.11
it must limit its investment in other collective investment
schemes to those which satisfy the requirements of COLL
5.2.13R which meet the definition of a “Short-Term Money
Market Fund” in CESR’s guidelines on a common
definition of European money market funds;
15.1.12
15.2
it must aim to maintain a fluctuating net asset value or a
constant net asset value.
In determining whether approved money-market instruments are high
quality in accordance with paragraph 15.1.3, the ACD must take into
account a range of factors including, but not limited to:
15.2.1
15.2.2
the credit quality of the instrument; an instrument will be
considered not to be high quality unless it is an approved
money-market instrument which has been awarded one of
the two highest available short-term credit ratings by each
recognised credit rating agency that has rated the
instrument or, if the instrument is not rated, it is of an
equivalent quality as determined by the ACD’s internal
ratings process;
the nature of the asset class represented by the
instrument;
57
15.2.3
for structured financial instruments, the operational risk
and counterparty risk inherent within the structured
financial transaction; and
15.2.4
the liquidity profile.
When calculating the weighted average life for securities (including
structured financial instruments) for the purposes of paragraph
15.1.7, the maturity calculation must be based on either:
15.3.1
the residual maturity of the instruments; or
15.3.2
if the financial instrument embeds a put option, the
exercise date of the put option if the following conditions
are met at all times:
15.3.2.1.
the put option can be freely exercised by the
ACD at its exercise date;
15.3.2.2.
the strike price of the put option remains
close to the expected value of the
instrument at the next exercise date; and
15.3.2.3.
the investment strategy of the scheme
implies that there is a high probability that
the option will be exercised at the next
exercise date.
15.4
Where calculating the weighted average life for floating rate
securities and structured financial instruments, the security’s stated
final maturity should be used and not the interest rate reset dates.
15.5
When calculating the weighted average life and weighted average
maturity for the purposes of paragraphs 15.1.6 and 15.1.7, the ACD
must take into account the impact of derivatives, deposits and
efficient portfolio management.
16.
16.1
Spread: general
This paragraph 16 on spread does not apply to government and
public securities.
16.2
For the purposes of this requirement companies included in the same
group for the purposes of consolidated accounts as defined in
accordance with the Seventh Council Directive 83/349/EEC of
13 June 1983 based on Article 54(3)(g) of the Treaty on consolidated
accounts or, in the same group in accordance with international
accounting standards, are regarded as a single body.
16.3
Not more than 20% in value of the scheme property of a Fund is to
consist of deposits with a single body.
16.4
Not more than 5% in value of the scheme property of a Fund is to
consist of transferable securities or approved money-market
instruments issued by any single body.
Threadneedle Investment Funds II ICVC
16.5
16.6
In applying paragraphs 16.4 and 16.5 certificates representing
certain securities are treated as equivalent to the underlying security.
16.7
The limit of 5% is raised to 25% in value of scheme property in
respect of covered bonds provided that when the Fund invests
more than 5% in covered bonds issued by a single body, the total
value of covered bonds held must not exceed 80% in value of
scheme property.
16.8
The exposure to any one counterparty in an OTC derivative
transaction must not exceed 5% in value of scheme property of a
Fund; this limit is raised to 10% where the counterparty is an
approved bank.
16.9
relation to any other exposures the Fund may have with that
same counterparty.
The limit of 5% in paragraph 16.4 is raised to 10% in respect of up to
40% in value of the scheme property of a Fund (covered bonds need
not be taken into account for the purposes of applying the limit
of 40%).
Not more than 20% in value of the scheme property of a Fund is to
consist of transferable securities or approved money market
instruments issued by the same group (as referred to in
paragraph 16.2).
16.10 Not more than 20% in value of the scheme property of a Fund is to
consist of the units of any one collective investment scheme.
16.11 In applying the limits in paragraphs 16.4 to 16.8 not more than 20%
in value of the scheme property of a Fund is to consist of any
combination of two or more of the following:
17.
17.1
17.2
17.3
17.4
16.11.1
transferable securities (including covered bonds) or
approved money- market instruments issued by; or
16.11.2
deposits made with; or
16.11.3
exposure from OTC derivatives transactions made with a
single body.
Counterparty risk and issuer concentration
The ACD must ensure that counterparty risk arising from an OTC
derivative is subject to the limits set out in paragraphs 16.8
and 16.11.
When calculating the exposure of a Fund to a counterparty in
accordance with the limits in paragraph 16.8 the ACD must use the
positive mark-to-market value of the OTC derivative contract with
that counterparty.
The ACD may net the OTC derivative positions of a Fund with the
same counterparty, provided they are able legally to enforce netting
agreements with the counterparty on behalf of the Fund.
The netting agreements in paragraph 17.3 are permissible only with
respect to OTC derivatives with the same counterparty and not in
58
17.5
The ACD may reduce the exposure of scheme property to a
counterparty of an OTC derivative through the receipt of collateral.
Collateral received must be sufficiently liquid so that it can be sold
quickly at a price that is close to its pre- sale valuation.
17.6
The ACD must take collateral into account in calculating exposure to
counterparty risk in accordance with the limits in paragraph 16.8
when it passes collateral to an OTC counterparty on behalf of
a Fund.
17.7
Collateral passed in accordance with 17.6 may be taken into account
on a net basis only if the ACD is able legally to enforce netting
arrangements with this counterparty on behalf of that Fund.
17.8
In relation to the exposure arising from OTC derivatives as referred
to in paragraph 16.8 the ACD must include any exposure to OTC
derivative counterparty risk in the calculation.
17.9
The ACD must calculate the issuer concentration limits referred to in
paragraph 16.8 on the basis of the underlying exposure
created through the use of OTC derivatives pursuant to the
commitment approach.
18.
18.1
Spread: Government and public securities
The restrictions in paragraph 16 do not apply to Government and
public securities (“such securities”). The restrictions in relation to
such securities are set out below.
18.2
Where no more than 35% in value of the scheme property of a Fund
is invested in such securities issued by any one body, there is no
limit on the amount which may be invested in such securities or in
any one issue. Subject to paragraph 18.5 none of the Funds may
invest more than 35% in value of their Scheme Property in such
securities or in any one issue.
18.3
A Fund may invest more than 35% in value of the Scheme Property
in such securities issued by any one body provided that:
18.3.1
the ACD has before any such investment is made
consulted with the Depositary and as a result considers
that the issuer of such securities is one which is
appropriate in accordance with the investment objectives
of the Fund;
18.3.2
no more than 30% in value of the Scheme Property
consists of such securities of any one issue; and
18.3.3
the Scheme Property includes such securities issued by
that or another issuer, of at least six different issues.
Threadneedle Investment Funds II ICVC
18.4
18.5
In relation to such securities:
18.4.1
issue, issued and issuer include guarantee, guaranteed
and guarantor; and
18.4.2
an issue differs from another if there is a difference as to
repayment date, rate of interest, guarantor or other
material terms of the issue.
18.4.3
Notwithstanding paragraph 16.1 and subject to
paragraphs 18.2 and 18.4, in applying the 20% limit in
paragraph 16.11 with respect to a single body,
government and public securities issued by that body
shall be taken into account.
The Threadneedle UK Fixed Interest Fund and the Threadneedle
UK Index Linked Fund may invest more than 35% in value of
their Scheme Property in securities issued by the following
body:
19.2.1.4.
is authorised in another EEA State (provided
the requirements of article 50(1)(e) of the
UCITS Directive are met); or
19.2.1.5.
is authorised by the competent authority of an
OECD member country (other than another
EEA State) which has:
Investment in collective investment schemes
No more than 10% in the value of a Fund may be invested in units of
collective investment schemes. Set out in the remainder of this
paragraph are the FCA’s current rules on collective investment
schemes investing in other collective investment schemes.
19.2
A Fund must not invest in units in a collective investment scheme
(“second scheme”) unless the second scheme satisfies all of the
following conditions, and provided that no more than 30% in value of
scheme property is invested in second schemes within 19.2.1.2 to
19.2.1.4 (due to the restriction in 19.1 for the Funds this percentage
is reduced from 30% to 10%):
19.2.1
complies with the conditions necessary for it to
enjoy the rights conferred by the UCITS
Directive; or
19.2.1.2.
is recognised under the provisions of section
272 of the Financial Services and Markets Act
2000 ( (Individually recognised overseas
schemes) that is authorised by the supervisory
authorities of Guernsey, Jersey or the Isle of
Man (provided the requirements of article
50(1)(e) of the UCITS Directive are met); or
19.2.1.3.
(ii)
approved the scheme’s management
company, rules and
depositary/custody arrangements,
19.2.1.6.
it is a scheme which complies where relevant
with rule 5.2.15R of the FCA Rules (Investment
in associated collective investment schemes)
i.e. that the scheme may only invest in other
group schemes (other collective investment
schemes which are managed and operated by
the ACD or an Associate of the ACD) provided
there is no double charging of the preliminary
charge on the basis set out in 19.2.4;
19.2.1.7.
it is a scheme which complies where relevant
with COLL 5.2.16R (Investment in other group
schemes);
19.2.1.8.
it is a scheme which has terms which prohibit
more than 10% in value of the scheme property
consisting of units in collective investment
schemes;
19.2.1.9.
for the purposes of paragraphs 16.11.3 and 19
each sub- fund of an umbrella scheme is to be
treated as if it were a separate scheme but no
sub-fund of an umbrella scheme may invest in
another sub-fund of that umbrella scheme;
The second scheme:
19.2.1.1.
signed the IOSCO Multilateral
Memorandum of Understanding; and
(providing the requirements of Article 50(1)(e)
of the UCITS Directive are met).
UK Government
19.
19.1
(i)
19.2.1.10. as mentioned below, the Company must not
acquire more than 25% of the units of a single
collective investment scheme;
19.2.2
In accordance with COLL 5.2.15R each of the Funds may
include units in collective investment schemes managed
or operated by (or, if it is an OEIC, has as its ACD) the
ACD of the Fund or an associate of the ACD.
19.2.3
A Fund must not invest in or dispose of units in another
collective investment scheme (the second scheme), which
is managed or operated by (or in the case of an OEIC,
is authorised as a non-UCITS retail scheme
(provided the requirements of article 50(1)(e) of
the UCITS Directive are met); or
59
Threadneedle Investment Funds II ICVC
part of the second scheme for units in another
sub-fund or separate part of that scheme is to
be included as part of the consideration paid for
the units.
whose ACD is), the authorised fund manager of such
authorised fund, or an associate of that ACD, unless:
(a)
the ACD of the Fund is under a duty to pay to the
Fund by the close of business on the fourth
business day next after the agreement to buy or
to sell the amount referred to in paragraphs (c)
and (d);
(b)
there is no charge in respect of the investment in
or the disposal of units in the second scheme;
(c)
on investment, either:
(d)
(e)
(i)
any amount by which the consideration
paid by the Fund for the units in the
second scheme exceeds the price that
would have been paid for the benefit of
the second scheme had the units been
newly issued or sold by it; or
(ii)
if such price cannot be ascertained by the
ACD, the maximum amount of any
charge permitted to be made by the seller
of units in the second scheme;
on disposal, the amount of any charge made for
the account of the authorised fund manager or
operator of the second scheme or an associate of
any of them in respect of the disposal; and
Investment in nil and partly paid securities
A transferable security or an approved money-market instrument on
which any sum is unpaid falls within a power of investment only if it is
reasonably foreseeable that the amount of any existing and potential
call for any sum unpaid could be paid by the Fund, at the time when
payment is required, without contravening the rules in the COLL
sourcebook.
21.
21.1
Derivatives – General
Under the FCA Rules derivatives are permitted for UCITS Schemes
for investment purposes and derivative transactions may be used for
the purposes of Efficient Portfolio Management (including hedging) or
meeting the investment objectives or both, which is referred to in
more detail in the section with the heading “Derivative Transactions
and the Use of EPM” above.
21.2
The property of these Funds may be invested in derivatives and
forward transactions under the FCA Rules for the purposes of
Efficient Portfolio Management (including hedging) and/or meeting
their investment objectives. It is not intended that the use of
derivatives in this way will cause the Net Asset Value of these Funds
to have high volatility or otherwise cause its existing risk profile to
change materially.
21.3
None of the Funds currently intends to use its property to invest
in derivatives and forward transactions under the COLL
Sourcebook, other than for the purposes of efficient portfolio
management techniques, which is not expected to have a
detrimental effect on the risk profile of the Funds.
21.4
As at the date of this Prospectus, the ACD does not intend to make
use of this power with respect to the following Funds, however the
ACD reserves the right to do so without notice to Shareholders at a
future date:
a Fund may invest in or dispose of Shares of
another Fund (the second sub-fund) only if:
(i)
19.2.4
20.
the second sub-fund does not hold Shares
in any other sub-fund of the same umbrella;
(ii)
the conditions in the remainder of this
paragraph 19 are complied with; and
(iii)
the investing or disposing Fund is not be a
feeder UCITS to the second sub-fund.
−
Threadneedle UK Corporate Bond Fund
−
Threadneedle UK Short-Dated Corporate Bond Fund
−
Threadneedle UK Medium & Long-Dated Corporate Bond
Fund
−
Threadneedle UK Index Linked Fund
in paragraphs 19.2.3(a) to 19.2.3(d) above:
19.2.4.1. any addition to or deduction from the
consideration paid on the acquisition or
disposal of units in the second scheme, which
is applied for the benefit of the second scheme
and is, or is like, a dilution levy made is to be
treated as part of the price of the units and not
as part of any charge; and
19.2.4.2.
21.5
any switching charge made in respect of an
exchange of units in one sub-fund or separate
60
Shareholders will be given at least 60 days’ notice of the
intention to expand the use of derivatives for investment
purposes as well as for EPM, and a revised Prospectus will be
issued.
Threadneedle Investment Funds II ICVC
21.6
21.7
21.8
21.9
continuing to ensure that the property of the Funds provides a
prudent spread of risk.
Where derivatives are used for investment purposes, there remains a
possibility that the share price of the Fund may be more volatile than
would otherwise have been the case. The effect of the derivative
strategies employed could be to amplify or dampen market
movements, or to cause the Net Asset Value of the Fund to move in
an opposite direction to that of the market. In such cases, its
behaviour could be counter-intuitive to that expected by investors
who are accustomed to investment in traditional long only funds.
22.
22.1
Permitted transactions (derivatives and forwards)
A transaction in a derivative must be in an approved derivative;
or be one which complies with paragraph 26 (OTC transactions
in derivatives).
22.2
A transaction in a derivative must have the underlying consisting of
any or all of the following to which the scheme is dedicated:
A transaction in derivatives or a forward transaction must not be
effected for a Fund unless the transaction is of a kind specified in
paragraph 22; and the transaction is covered, as required by
paragraph 35.
Where a Fund invest in derivatives, the exposure to the underlying
assets must not exceed the limits set out in paragraphs 15 and
16.11.3 except for index based derivatives provided the relevant
index falls within paragraph 21.11.
Where a transferable security or money-market instrument embeds a
derivative, this must be taken into account for the purposes of
complying with this section.
21.10 A transferable security or an approved money-market instrument will
embed a derivative if it contains a component which fulfils the
following criteria:
21.10.1
by virtue of that component some or all of the cash flows
that otherwise would be required by the transferable
security or approved money-market instrument which
functions as host contract can be modified according to a
specified interest rate, financial instrument price, foreign
exchange rate, index of prices or rates, credit rating or
credit index or other variable, and therefore vary in a way
similar to a stand-alone derivative;
21.10.2
its economic characteristics and risks are not closely
related to the economic characteristics and risks of the
host contract; and
21.10.3
it has a significant impact on the risk profile and pricing of
the transferable security or approved money-market
instrument.
21.11 A transferable security or an approved money-market instrument
does not embed a derivative where it contains a component which is
contractually transferable independently of the transferable security
or the approved money market instrument. That component shall be
deemed to be a separate instrument.
21.12 Where a Fund invests in an index based derivative, provided the
relevant index falls within paragraph 23, the underlying constituents
of the index do not have to be taken into account for the purposes of
the paragraphs 16 and 18. The relaxation is subject to the ACD
22.2.1
transferable securities permitted under 10.1,
22.2.2
approved money market instruments,
22.2.3
permitted deposits,
22.2.4
derivatives permitted under this paragraph,
22.2.5
collective investment scheme units permitted under
paragraph 19,
22.2.6
financial indices which satisfy the criteria set out in
paragraph 23,
22.2.7
interest rates,
22.2.8
foreign exchange rates; and
22.2.9
currencies.
22.3
A transaction in an approved derivative must be effected on or under
the rules of an eligible derivatives market.
22.4
A transaction in a derivative must not cause the Funds to diverge
from their investment objectives as stated in the Instrument of
Incorporation and the most recently published version of this
Prospectus.
22.5
A transaction in a derivative must not be entered into if the intended
effect is to create the potential for an uncovered sale of one or more,
transferable securities, approved money market instruments, units in
collective investment schemes, or derivatives provided that a sale is
not to be considered as uncovered if the conditions in paragraph 35
are satisfied.
22.6
Any forward transaction must be with an Eligible Institution or an
Approved Bank.
22.7
A derivative includes an instrument which fulfils the following criteria:
22.7.1
61
it allows the transfer of the credit risk of the underlying
independently from the other risks associated with
that underlying;
Threadneedle Investment Funds II ICVC
22.7.2
it does not result in the delivery or the transfer of assets
other than those referred to in paragraph 4 including cash;
22.7.3
in the case of an OTC derivative, it complies with the
requirements in paragraph 26 (OTC transactions in
derivatives);
22.7.4
22.7.5
23.
23.1
23.2
23.3
23.3.3
23.4
its risks are adequately captured by the risk management
process of the ACD, and by its internal control
mechanisms in the case of risks of asymmetry of
information between the ACD and the counterparty to the
derivative, resulting from potential access of the
counterparty to non-public information on persons whose
assets are used as the underlying by that derivative.
The scheme may not undertake transactions in
derivatives on commodities.
the index is sufficiently diversified;
23.1.2
the index represents an adequate benchmark for the
market to which it refers; and
23.1.3
the index is published in an appropriate manner.
A financial index is sufficiently diversified if:
23.2.1
it is composed in such a way that price movements or
trading activities regarding one component do not unduly
influence the performance of the whole index;
23.2.2
where it is composed of assets in which the scheme is
permitted to invest, its composition is at least diversified in
accordance with the requirements with respect to spread
and concentration set out in this section; and
23.2.3
where it is composed of assets in which the scheme
cannot invest, it is diversified in a way which is equivalent
to the diversification achieved by the requirements with
respect to spread and concentration set out in this
section.
A financial index is published in an appropriate manner if:
23.4.1
its publication process relies on sound procedures to
collect prices, and calculate and subsequently publish the
index value, including pricing procedures for components
where a market price is not available; and
23.4.2
material information on matters such as index calculation,
rebalancing methodologies, index changes or any
operational difficulties in providing timely or accurate
information is provided on a wide and timely basis.
23.5
Where the composition of underlying assets of a derivative
transaction does not satisfy the requirements for a financial index,
the underlying assets for that transaction shall where they satisfy the
requirements with respect to other underlying assets pursuant to
paragraph 22 be regarded as a combination of those underlying
assets.
24.
24.1
Transactions for the purchase of property
A derivative or forward transaction which will or could lead to the
delivery of property for the account of the Funds may be entered into
only if that property can be held for the account of the Funds, and the
ACD having taken reasonable care determines that delivery of the
property under the transaction will not occur or will not lead to a
breach of the rules in the COLL Sourcebook.
25.
25.1
Requirement to cover sales
No agreement by or on behalf of the Funds to dispose of property or
rights may be made unless the obligation to make the disposal and
any other similar obligation could immediately be honoured by the
Funds by delivery of property or the assignment (or, in Scotland,
assignation) of rights, and the property and rights above are owned
by the Funds at the time of the agreement. This requirement does
not apply to a deposit.
26.
26.1
OTC transactions in derivatives
Any transaction in an OTC derivative under paragraph 21 must be:
Financial indices underlying derivatives
The financial indices referred to in paragraph 22.2.6 are those which
satisfy the following criteria:
23.1.1
26.1.1
with an approved counterparty; A counterparty to a
transaction in derivatives is approved only if the
counterparty is an Eligible Institution or an Approved
Bank; or a person whose permission (including any
requirements or limitations), as published in the FCA
Register or whose Home State authorisation, permits it to
enter into the transaction as principal off-exchange;
26.1.2
on approved terms; the terms of the transaction in
derivatives are approved only if the ACD, carries out, at
least daily a reliable and verifiable valuation in respect of
that transaction corresponding to its fair value (being the
amount for which an asset could be exchanged, or a
A financial index represents an adequate benchmark for the market
to which it refers if:
23.3.1
23.3.2
it measures the performance of a representative group of
underlying assets in a relevant and appropriate way;
it is revised or rebalanced periodically to ensure that it
continues to reflect the markets to which it refers,
following criteria which are publicly available; and
62
the underlying assets are sufficiently liquid, allowing users
to replicate it if necessary.
Threadneedle Investment Funds II ICVC
28.
28.1
liability settled, between knowledgeable, willing parties in
an arm’s length transaction) and which does not rely only
on market quotations by the counterparty; and can enter
into one or more further transactions to sell, liquidate or
close out that transaction at any time, at its fair value (as
defined above);
26.1.3
26.1.4
27.
27.1
27.1.2
27.3
28.1.1
capable of reliable valuation; a transaction in derivatives is
capable of reliable valuation only if the ACD having taken
reasonable care determines that, throughout the life of the
derivative (if the transaction is entered into), it will be able
to value the investment concerned with reasonable
accuracy: on the basis on the basis of an up-to-date
market value which the ACD and the Depositary have
agreed is reliable; or, if that value is not available, on the
basis of a pricing model which the ACD and the
Depositary have agreed uses an adequate recognised
methodology; and
subject to verifiable valuation; a transaction in derivatives
is subject to verifiable valuation only if, throughout the life
of the derivative (if the transaction is entered into)
verification of the valuation is carried out by an
appropriate third party which is independent from the
counterparty of the derivative, at an adequate frequency
and in such a way that the ACD is able to check it; or a
department within the ACD which is independent from the
department in charge of managing the scheme property
and which is adequately equipped for such a purpose.
establish, implement and maintain arrangements and
procedures which ensure appropriate, transparent and
fair valuation of the exposures of a Fund to OTC
derivatives; and
28.1.1.1
a true and fair view of the types of derivatives
and forward transactions to be used within a
Fund together with their underlying risks and
any relevant quantitative limits; and
28.1.1.2
the methods for estimating risks in derivative
and forward transactions.
Investment in deposits
A Fund may invest in deposits only with an Approved Bank and
which are repayable on demand or have the right to be withdrawn,
and maturing in no more than 12 months.
30.
30.1
Significant influence
The Company must not acquire transferable securities issued by a
body corporate and carrying rights to vote (whether or not on
substantially all matters) at a general meeting of that body
corporate if:
30.1.1
immediately before the acquisition, the aggregate of any
such securities held by the Company gives the Company
power significantly to influence the conduct of business of
that body corporate; or
30.1.2
the acquisition gives the Company that power.
30.2
For the purpose of paragraph 30.1.2, the Company is to be taken to
have power significantly to influence the conduct of business of a
body corporate if it can, because of the transferable securities held
by it, exercise or control the exercise of 20% or more of the voting
rights in that body corporate (disregarding for this purpose any
temporary suspension of voting rights in respect of the transferable
securities of that body corporate).
31.
Concentration
A UCITS scheme:
31.1
must not acquire transferable securities (other than debt
securities) which:
ensure that the fair value of OTC derivatives is subject to
adequate, accurate and independent assessment.
Where the arrangements and procedures referred to in paragraph
27.1 above involve the performance of certain activities by third
parties, the ACD must comply with the requirements in SYSC 8.1.13
R (Additional requirements for a management company) and COLL
6.6A.4 R (4) to (6) (Due diligence requirements of AFMs of
UCITS schemes).
The following details of the risk management process
must be regularly notified by the ACD to the FCA and at
least on an annual basis:
29.
Valuation of OTC derivatives
For the purposes of paragraph 26.1.2, the ACD must:
27.1.1
27.2
Risk management
The ACD uses a risk management process, enabling it to monitor
and measure at any time the risk of a Fund’s positions and their
contribution to the overall risk profile of a Fund.
The arrangements and procedures referred to in this rule must be:
27.3.1
adequate and proportionate to the nature and complexity
of the OTC derivative concerned; and
27.3.2
adequately documented.
63
31.1.1
do not carry a right to vote on any matter at a general
meeting of the body corporate that issued them; and
31.1.2
represent more than 10% of those securities issued by
that body corporate;
Threadneedle Investment Funds II ICVC
31.2
must not acquire more than 10% of the debt securities issued by any
single body;
31.3
must not acquire more than 25% of the units in a collective
investment scheme;
31.4
must not acquire more than 10% of the approved money market
instruments issued by any single body; and
31.5
need not comply with the limits in paragraphs 31.1 to 31.4 if, at the
time of acquisition, the net amount in issue of the relevant investment
cannot be calculated.
32.
32.1
Schemes replicating an index
Notwithstanding paragraph 16, a Fund may invest up to 20% in value
of the property of the Fund in shares and debentures which are
issued by the same body where the stated investment policy is to
replicate the composition of a relevant index which satisfies the
criteria in paragraph 33.
32.2
Replication of the composition of a relevant index shall be
understood to be a reference to replication of the composition of the
underlying assets of that index, including the use of techniques and
instruments permitted for the purpose of efficient portfolio
management.
32.3
The 20% limit can be raised for a Fund up to 35% in value of the
property of the Fund, but only in respect of one body and where
justified by exceptional market conditions.
32.4
In the case of a Fund replicating an index the property of the Fund
need not consist of the exact composition and weighting of the
underlying in the relevant index where deviation from this is
expedient for reasons of poor liquidity or excessive cost to the
scheme in trading in an underlying investment.
33.
33.1
33.4
Relevant indices
The indices referred to in paragraph 32 are those which satisfy the
following criteria:
An index is published in an appropriate manner if:
33.4.1
it is accessible to the public;
33.4.2
the index provider is independent from the indexreplicating Fund; this does not preclude index providers
and the Fund from forming part of the same group,
provided that effective arrangements for the management
of conflicts of interest are in place.
34.
34.1
Derivatives exposure
A Fund may invest in derivatives and forward transactions as long as
the exposure to which a Fund is committed by that transaction itself
is suitably covered from within its property. Exposure will include any
initial outlay in respect of that transaction.
34.2
Cover ensures that the Fund is not exposed to the risk of loss of
property, including money, to an extent greater than the net value of
the property of the Fund. Therefore, the Fund must hold property
sufficient in value or amount to match the exposure arising from a
derivative obligation to which the Fund is committed. Paragraph 35
sets out detailed requirements for cover of the Fund.
34.3
Cover used in respect of one transaction in derivatives or forward
transaction must not be used for cover in respect of another
transaction in derivatives or a forward transaction.
35.
35.1
Cover for investment in derivatives
A Fund may invest in derivatives and forward transactions as part of
its investment policy provided:
35.1.1
its global exposure relating to derivatives and forward
transactions held in the Fund does not exceed the net
value of the scheme property; and
35.1.2
its global exposure to the underlying assets does not
exceed in aggregate the investment limits laid down in
paragraph 15.
33.1.1
the composition is sufficiently diversified;
36.
36.1
Daily calculation of global exposure
The ACD must calculate the global exposure of a Fund on at least a
daily basis.
33.1.2
the index represents an adequate benchmark for the
market to which it refers; and
36.2
For the purposes of this section, exposure must be calculated taking
into account the current value of the underlying assets, the
counterparty risk, future market movements and the time available to
liquidate the positions.
37.
37.1
Calculation of global exposure
The ACD must calculate the global exposure of any Fund it manages
either as:
33.1.3
the index is published in an appropriate manner.
33.2
The composition of an index is sufficiently diversified if its
components adhere to the spread and concentration requirements in
this paragraph.
33.3
An index represents an adequate benchmark if its provider uses a
recognised methodology which generally does not result in the
exclusion of a major issuer of the market to which it refers.
37.1.1
64
the incremental exposure and leverage generated through
the use of derivatives and forward transactions (including
embedded derivatives as referred to in paragraph 21,
Threadneedle Investment Funds II ICVC
which may not exceed 100% of the net value of the
scheme property of a Fund, by way of the commitment
approach; or
38.5
Where the commitment approach is used, temporary borrowing
arrangements entered into on behalf of the Fund in accordance with
paragraph 40 need not form part of the global exposure calculation.
the market risk of the scheme property of a Fund, by way
of the value at risk approach.
39.
39.1
Cash, borrowing, lending and other provisions
Paragraph 40 applies to the ACD.
The ACD must ensure that the method selected above is
appropriate, taking into account:
39.2
Paragraph 40 applies to the Fund, except paragraphs 41.3 and 41.4
which apply to the ACD.
37.2.1
the investment strategy pursued by the Fund;
39.3
Paragraph 42 applies to the ACD.
37.2.2
the types and complexities of the derivatives and forward
transactions used; and
39.4
Paragraph 43 applies to the Fund.
39.5
Paragraph 44 applies to the Fund or the Depositary.
37.2.3
the proportion of the scheme property comprising
derivatives and forward transactions.
39.6
Paragraph 45 applies to the Fund.
39.7
Paragraph 46 applies to the Fund or the Depositary.
40.
40.1
Cash and near cash
Cash and near cash must not be retained in the scheme property
except to the extent that, where this may reasonably be regarded as
necessary in order to enable:
37.1.2
37.2
37.3
37.4
38.
38.1
Where a Fund employs techniques and instruments including repo
contracts or stock lending transactions in accordance with paragraph
48 in order to generate additional leverage or exposure to market
risk, the ACD must take those transactions into consideration when
calculating global exposure.
For the purposes of 37.1, value at risk means a measure of the
maximum expected loss at a given confidence level over the specific
time period.
38.3
38.4
the pursuit of the Fund’s investment objectives; or
40.1.2
redemption of Shares; or
Commitment approach
Where the ACD uses the commitment approach for the calculation of
global exposure, it must:
40.1.3
efficient management of a Fund in accordance with its
investment objectives; or
38.1.1
40.1.4
other purposes which may reasonably be regarded as
ancillary to the investment objectives of the Fund.
38.1.2
38.2
40.1.1
ensure that it applies this approach to all derivative and
forward transactions (including embedded derivatives as
referred to in paragraph 21), whether used as part of the
Fund’s general investment policy, for the purposes of risk
reduction or for the purposes of efficient portfolio
management in accordance with paragraph 48; and
convert each derivative or forward transaction into the
market value of an equivalent position in the underlying
asset of that derivative or forward (standard commitment
approach).
The ACD may apply other calculation methods which are equivalent
to the standard commitment approach.
For the commitment approach, the ACD may take account of netting
and hedging arrangements when calculating global exposure of a
Fund, where these arrangements do not disregard obvious and
material risks and result in a clear reduction in risk exposure.
40.2
During the period of an initial offer the scheme property may consist
of cash and near cash without limitation.
41.
41.1
Borrowing Powers
A Fund may, in accordance with this paragraph, borrow money for
the use of the Fund, on the terms that the borrowing is to be
repayable out of the scheme property. This power to borrow is
subject to the obligation of the Fund to comply with any restriction in
the instrument constituting the Fund.
41.2
A Fund may borrow under paragraph 41.1 only from an Eligible
Institution or an Approved Bank.
41.3
The ACD must ensure that any borrowing is on a temporary basis,
and that borrowings are not persistent and, for this purpose the ACD
must have regard in particular to:
41.3.1
Where the use of derivatives or forward transactions does not
generate incremental exposure for the Fund, the underlying exposure
need not be included in the commitment calculation.
65
the duration of any period of borrowing, and
Threadneedle Investment Funds II ICVC
41.3.2
41.4
41.5
In addition to complying with paragraph 41.3, the ACD must ensure
that no period of borrowing exceeds 3 months without the consent of
the Depositary, whether in respect of any specific sum or at all. The
Depositary’s consent may be given only on such conditions as
appears to the Depositary appropriate to ensure that the borrowing
does not cease to be on a temporary basis.
These borrowing restrictions do not apply to back-to-back borrowing
for currency hedging purposes (i.e. borrowing permitted in order to
reduce or eliminate risk arising by reason of fluctuations in
exchange rates).
42.
43.
Borrowing Limits
The ACD must ensure that the Fund’s borrowing does not, on any
business day, exceed 10% of the value of the scheme property of
the Fund.
43.1
This limit does not apply to “back to back” borrowing.
43.2
In this paragraph 42, “borrowing” includes, as well as borrowing in a
conventional manner, any other arrangement (including a
combination of derivatives) designed to achieve a temporary injection
of money into the scheme property in the expectation that the sum
will be repaid.
44.
44.1
44.2
44.3
Chapter 5 of the FCA Rules, nothing in this rule prevents a Fund or
Depositary at the request of the Fund from:
the number of occasions on which borrowing is
undertaken in any period;
Restrictions on lending of money
None of the money in the scheme property of a Fund may be lent
and, for the purposes of this prohibition, money is lent by the Fund if
it is paid to a person (“the payee”) on the basis that it should be
repaid, whether or not by the payee.
45.4.1
lending, depositing, pledging or charging scheme property
for margin requirements; or
45.4.2
transferring scheme property under the terms of an
agreement in relation to margin requirements, provided
that the ACD reasonably considers that both the
agreement and the margin arrangements made under it
(including in relation to the level of margin) provide
protection to shareholders.
46.
46.1
General power to accept or underwrite placings
Any power in Chapter 5 of the COLL Rules to invest in transferable
securities may be used for the purpose of entering into transactions
to which this section applies, subject to compliance with any
restriction in the Instrument of Incorporation.
46.2
This section applies, subject to paragraph 45.3, to any agreement
or understanding:
46.3
46.2.1
which is an underwriting or sub-underwriting
agreement; or
46.2.2
which contemplates that securities will or may be issued
or subscribed for or acquired for the account of the Fund.
Paragraph 45.2 does not apply to:
46.3.1
an option; or
46.3.2
a purchase of a transferable security which confers
a right:
Acquiring a debenture is not lending for the purposes of paragraph
43.1; nor is the placing of money on deposit or in a current account.
Paragraph 43.1 does not prevent a Fund from providing an officer of
the Fund with funds to meet expenditure to be incurred by him for the
purposes of the Fund (or for the purposes of enabling him properly to
perform his duties as an officer of the Fund) or from doing anything to
enable an officer to avoid incurring such expenditure.
45.
45.1
Restrictions on lending of property other than money
The scheme property of a Fund other than money must not be lent
by way of deposit or otherwise.
45.2
Transactions permitted by paragraph 48 (Stock lending) are not
lending for the purposes of paragraph 44.1.
45.3
The scheme property of a Fund must not be mortgaged.
45.4
Where transactions in derivatives or forward transactions are used
for the account of a Fund in accordance with any of the rules in
46.4
47.
47.1
66
45.3.2.1
to subscribe for or acquire a transferable
security; or
45.3.2.2
to convert one transferable security into
another.
The exposure of the Fund to agreements and understandings within
paragraph 45.2 must, on any business day:
46.4.1
be covered in accordance with the requirements of rule
5.3.3R of the FCA Rules; and
46.4.2
be such that, if all possible obligations arising under them
had immediately to be met in full, there would be no
breach of any limit in Chapter 5 of the FCA Rules.
Guarantees and indemnities
A Fund or the Depositary for the account of the Fund must not
provide any guarantee or indemnity in respect of the obligation of any
person.
Threadneedle Investment Funds II ICVC
47.2
None of the scheme property of a Fund may be used to discharge
any obligation arising under a guarantee or indemnity with respect to
the obligation of any person.
47.3
Paragraphs 46.1 and 46.2 do not apply to:
Transactions for the generation of additional capital
growth or income for a Fund by taking advantage of gains
which the ACD reasonably believes are certain to be
made (or certain, barring events which are not reasonably
foreseeable) as a result of:
47.3.1
any indemnity or guarantee given for margin requirements
where the derivatives or forward transactions are being
used in accordance with chapter 5 of the COLL Rules;
48.2.2.1
pricing imperfections in the market as regards
the property which a Fund holds or may hold;
or
47.3.2
an indemnity falling within the provisions of regulation
62(3) (Exemptions from liability to be void) of the OEIC
Regulations;
48.2.2.2
receiving a premium for the writing of a
covered call option or a covered put option on
property of a Fund which the Company is
willing to buy or sell at the exercise price, or
47.3.3
an indemnity (other than any provision in it which is void
under regulation 62 of the OEIC Regulations) given to the
Depositary against any liability incurred by it as a
consequence of the safekeeping of any of the scheme
property by it or by anyone retained by it to assist it to
perform its function of the safekeeping of the scheme
property; and
48.2.2.3
stock lending arrangements. A permitted
arrangement in this context may at any time be
closed out.
47.3.4
48.
48.1
48.2
48.2.2
an indemnity given to a person winding up a scheme if the
indemnity is given for the purposes of arrangements by
which the whole or part of the property of that scheme
becomes the first property of the Fund and the holders of
units in that scheme become the first shareholders in
the Fund.
Efficient Portfolio Management
The Company may also utilise the property of each Fund to enter into
transactions for the purposes of efficient portfolio management as
defined in this section (“EPM”). Permitted EPM transactions
(excluding stock lending arrangements) are transactions in
derivatives e.g. to hedge against price or currency fluctuations, dealt
with or traded on an eligible derivatives market; off- exchange
options or contracts for differences resembling options; or synthetic
futures in certain circumstances. There is no limit on the amount or
value of the property of a Fund which may be used for EPM but the
ACD must take reasonable care to ensure that the transaction is
economically appropriate to the reduction of the relevant risks
(whether in the price of investments, interest rates or exchange
rates) or to the reduction of the relevant costs or to the generation of
additional capital or income with no, or an acceptably low level of,
risk. The exposure must be fully “covered” by cash or other property
sufficient to meet any obligation to pay or deliver that could arise.
Permitted transactions are those that the Company reasonably
regards as economically appropriate to EPM, that is:
48.2.1
Transactions undertaken to reduce risk or cost in terms of
fluctuations in prices, interest rates or exchange rates
where the ACD reasonably believes that the transaction
will diminish a risk or cost of a kind or level which it is
sensible to reduce; or
67
49.
49.1
Stock lending
As an extension of EPM, the Company (or the Depositary at the
request of the Company) may enter into stock lending arrangements
or repo contracts.
49.2
Any stock lending arrangements or repo entered into must be of the
kind described in section 263 B of the Taxation of Chargeable Gains
Act 1992 (without extension by section 263 C), but only if:
49.2.1
all the terms of the agreement under which securities are
to be reacquired by the Depositary for the account of the
Company are in a form which is acceptable to the
Depositary and are in accordance with good
market practice;
49.2.2
the counterparty is:
49.2.2.1
an authorised person; or
49.2.2.2
a person authorised by a Home State
regulator; or
49.2.2.3
a person registered as a broker-dealer with the
Securities and Exchange Commission of the
United States of America; or
49.2.2.4
a bank, or a branch of a bank, supervised and
authorised to deal in investments as principal,
with respect to OTC derivatives by at least one
of the following federal banking supervisory
authorities of the United States of America: the
Office of the Comptroller of the Currency; the
Federal Deposit Insurance Corporation; the
Board of Governors of the Federal Reserve
System; and the Office of Thrift Supervision;
and
Threadneedle Investment Funds II ICVC
49.2.3
49.2.3.1
acceptable to the Depositary;
49.2.3.2
adequate; and
49.2.3.3
sufficiently immediate .
49.3
The counterparty for the purpose of paragraph 48.2 is the person
who is obliged under the agreement referred to in paragraph 47.2.1
to transfer to the Depositary the securities transferred by the
Depositary under the stock lending arrangement or securities of the
same kind.
49.4
Paragraph 47.2.3 does not apply to a stock lending transaction made
through Euroclear Bank SA/NV’s Securities Lending and Borrowing
Programme.
50.
50.1
Treatment of collateral
Collateral is adequate for the purposes of this paragraph only if it is:
50.2
50.2.2
collateral is obtained to secure the obligation of the
counterparty under the terms referred to in 48.2.1 and the
collateral is:
the Depositary takes reasonable care to determine at the
time referred to in paragraph 49.2.1 that it will be
transferred at the latest by the close of business on the
day of the transfer.
50.3
The Depositary must ensure that the value of the collateral at all
times is at least equal to the value of the securities transferred by the
Depositary.
50.4
The duty in paragraph 50.3 may be regarded as satisfied in respect
of collateral the validity of which is about to expire or has expired
where the Depositary takes reasonable care to determine that
sufficient collateral will again be transferred at the latest by the close
of business on the day of expiry.
50.5
Any agreement for transfer at a future date of securities or of
collateral (or of the equivalent of either) under this paragraph may be
regarded, for the purposes of valuation and pricing of the Company
or this section, as an unconditional agreement for the sale or transfer
of property, whether or not the property is part of the property of the
authorised fund.
50.6
50.1.1
transferred to the Depositary or its agent;
Collateral transferred to the Depositary is part of the scheme property
for the purposes of the rules in the COLL Sourcebook, except in the
following respects:
50.1.2
at least equal in value, at the time of the transfer to the
Depositary, to the value of the securities transferred by
the Depositary; and
50.6.1
it does not fall to be included in any calculation of NAV or
this section, because it is offset under paragraph 48.5 by
an obligation to transfer; and
50.6.2
it does not count as scheme property for any purpose of
this section other than this paragraph.
50.1.3
in the form of one or more of:
50.1.4
cash; or
50.1.5
a certificate of deposit; or
50.1.6
a letter of credit; or
50.1.7
a readily realisable security ; or
50.1.8
commercial paper with no embedded derivative content;
or
50.1.9
a qualifying money market fund.
50.1.10
Where the collateral is invested in units in a qualifying
money market fund managed or operated by (or, for an
ICVC, whose authorised corporate director is) the ACD or
an associate of the ACD, the conditions in paragraph
19.1.1.7 must be complied with.
50.7
Collateral is sufficiently immediate for the purposes of this
paragraph if:
50.2.1
it is transferred before or at the time of the transfer of the
securities by the Depositary; or
68
Paragraphs 50.5 and 50.6.1 do not apply to any valuation of
collateral itself for the purposes of this paragraph.
Threadneedle Investment Funds II ICVC
Appendix III
Eligible Markets
Eligible Markets
Eligible Securities Markets
Set out below are the securities and derivatives markets, in addition to those established in a member State of the EU or EEA, through which the Company may
invest or deal for the account of each Fund (subject to the Fund’s respective investment objective and policy) when dealing in approved securities.
Australia
Australian Stock Exchange Limited
Canada
Any Stock Exchange prescribed for the purposes of the Canadian Income Tax Act
Hong Kong
Any Stock Exchange recognised under the law in Hong Kong
Indonesia
Indonesia Stock Exchange
Japan
Any Stock Exchange
Republic of Korea
Korea Stock Exchange
Malaysia
Kuala Lumpur Stock Exchange
Mexico
Mexican Stock Exchange
New Zealand
Any Stock Exchange
Philippines
Philippines Stock Exchange
Singapore
Singapore Stock Exchange
Switzerland
Any Stock Exchange
Taiwan
Taiwan Stock Exchange
Thailand
Stock Exchange of Thailand
United States
NASDAQ (the electronic inter-dealer quotation system of America operated by the National Association
of Securities Dealers Inc); any Exchange registered with the Securities and Exchange Commission as a
National Stock Exchange
The Alternative Investment Market of the London Stock Exchange is also an eligible securities market.
69
Threadneedle Investment Funds II ICVC
Eligible Derivatives Market
 The Nordic Exchange (Stockholm)
 Australian Stock Exchange
 The Oslo Stock Exchange (OSE) (Oslo Bors)
 Chicago Board Options Exchange
 Turkish Derivatives Exchange
 Chicago Mercantile Exchange
 Warsaw Stock Exchange
 Chicago Board of Trade (CBOT)
 Wiener Börse
 Hong Kong Futures Exchange
 Hong Kong Stock Exchange
 New Zealand Futures Exchange
 New Zealand Stock Exchange
 Osaka Securities Exchange
 Euronext Paris
 Singapore Stock Exchange
 Sydney Futures Exchange
 Tokyo Stock Exchange
 The London International Financial Futures & Options Exchange (LIFFE)
 Athens Derivative Exchange
 Borsa Italiana (IDEM)
 Budapest Stock Exchange
 Eurex
 EURONEXT Amsterdam
 EURONEXT Brussels
 EURONEXT LIFFE
 EURONEXT Lisbon
 EDX London
 MEFF
 Prague Stock Exchange
 The Nordic Exchange (Copenhagen)
 The Nordic Exchange (Helsinki)
70
Threadneedle Investment Funds II ICVC
Appendix IV
Dilution levy estimates
Dilution levy estimates
Estimates of the dilution levy based on securities held in each Fund and market conditions at the time of this Prospectus and number of occasions on which the
dilution levy has been applied in the period from 1 December 2015 to 31 May 2016:
Fund
Estimate of
dilution levy
applicable
to purchases
Estimate of
dilution levy
applicable to
sales
Number of days on
which dilution
levy has been
applied during the period
Threadneedle UK Fixed Interest Fund
0.03%
-0.03%
0
Threadneedle UK Index Linked Fund
0.10%
-0.10%
3
Threadneedle UK Medium & Long-Dated Corporate
Bond Fund
0.50%
-0.50%
0
Threadneedle UK Short-Term Money Market Fund
0.00%
-0.00%
0
Threadneedle UK Corporate Bond Fund
0.40%
-0.40%
10
Threadneedle UK Short-Dated Corporate Bond Fund
0.20%
-0.20%
44
Updated figures for the dilution levy estimates will be published on www.columbiathreadneedle.com
71
Threadneedle Investment Funds II ICVC
Appendix V
Performance of the Funds
Performance of the Funds
Morningstar, Performance* quoted in GBP (on a bid to bid price basis, net of fees, with income net of UK basic rate tax reinvested). Annualised performance
since launch is quoted to 31 May 2016.
Retail
Shares
1 January
2007 to 31
December
2007 (%)
1 January
2008 to 31
December
2008 (%)
1 January
2009 to 31
December
2009 (%)
1 January
2010 to 31
December
2010 (%)
1 January 2011 1 January 2012 1 January 2013 1 January 2014 1 January 2015 Annualised
to
to
to 31
to 31
to 31
Performance
31 December 31 December
December
December
December
since launch
2011 (%)
2012 (%)
2013 (%)
2014 (%)
2015 (%)
(%)
Threadneedle UK
Corporate Bond
Fund
N/a
-10.19
19.92
8.88
5.26
14.41
0.94
8.73
0.04
5.78
Threadneedle UK
Fixed Interest
Fund
N/a
11.10
-0.89
6.55
15.19
2.37
-4.73
12.67
-0.17
5.38
Threadneedle UK
Index Linked Fund
N/a
1.70
5.78
7.92
18.08
0.39
-0.32
18.11
-1.22
6.31
Threadneedle UK
Medium and LongDated Corporate
Bond Fund
N/a
N/a
N/a
N/a
6.06
14.72
-0.42
14.40
-0.54
7.04
Threadneedle UK
Short-Dated
Corporate Bond
Fund
N/a
N/a
N/a
N/a
2.37
7.07
2.13
3.09
0.79
2.94
Threadneedle UK
Short-Term Money
Market Fund
N/a
2.80
0.62
0.15
0.26
0.14
-0.11
-0.07
0.13
0.47
* Please be aware that past performance is not a guide for future performance.
72
Threadneedle Investment Funds II ICVC
Appendix VI
(Delegates of the Depositary)
Delegates of the Depositary
The following list sets out the entities to which the Depositary may delegate its safekeeping functions, subject to the terms of the Depositary Services
Agreement.
Function
Appointed Service Provider
Sub-custodian – Argentina
HSBC Bank Argentina SA
Sub-custodian – Australia
HSBC Bank Australia Ltd
Sub-custodian – Austria
UniCredit Bank Austria AG
Sub-custodian – Austria
Erste Group Bank AG
Sub-custodian – Bahrain
HSBC Bank Middle East Ltd (Bahrain)
Sub-custodian – Bangladesh
The Hongkong and Shanghai Banking Corporation Ltd (Bangladesh)
Sub-custodian – Belgium
BNP Paribas Securities Services (Belgium)
Sub-custodian – Belgium
Euroclear Bank S.A./N.V.
Sub-custodian – Bermuda
HSBC Bank Bermuda Ltd
Sub-custodian – Bosnia-Herzegovina
Unicredit Bank DD (Bosnia)
Sub-custodian – Botswana
Standard Chartered (Botswana)
Sub-custodian – Brazil
HSBC Corretora de Titulos e Valores Mobiliarios SA
Sub-custodian – Bulgaria
UniCredit Bulbank AD
Sub-custodian – Canada
Royal Bank of Canada
Sub-custodian – Chile
Banco Santander Chile
Sub-custodian – China
HSBC Bank (China) Ltd
Sub-custodian – Colombia
CorpBanca Investment Trust Colombia SA
Sub-custodian – Costa Rica
Banco Nacional De Costa Rica
Sub-custodian – Croatia
Privredna Banka Zagreb
Sub-custodian – Cyprus
HSBC Bank Plc, Athens
Sub-custodian – Czech Republic
Ceskoslovensak Obchodni Banka
Sub-custodian – Czech Republic
Unicredit Bank Czech Republic, A.S.
Sub-custodian – Denmark
Skandinaviska Enskilda Banken AB (publ),Copenhagen Branch
Sub-custodian – Egypt
HSBC Bank Egypt SAE
Sub-custodian – Estonia
AS SEB Pank
Sub-custodian – Finland
Skandinaviska Enskilda Banken AB (publ.), Helsinki Branch
73
Threadneedle Investment Funds II ICVC
Function
Appointed Service Provider
Sub-custodian – France
CACEIS Bank
Sub-custodian – France
BNP Paribas Securities Services (France)
Sub-custodian – Germany
HSBC Trinkaus & Burkhardt
Sub-custodian – Ghana
Standard Chartered Bank Ghana Ltd
Sub-custodian – Greece
HSBC Bank Plc
Sub-custodian – Hong Kong
The Hongkong and Shanghai Banking Corporation Ltd (HK)
Sub-custodian – Hungary
Unicredit Bank Hungary Zrt
Sub-custodian – India
The Hongkong and Shanghai Banking Corporation Ltd (India)
Sub-custodian – Indonesia
The Hongkong and Shanghai Banking Corporation Ltd (Indonesia)
Sub-custodian – Ireland
HSBC Bank Plc
Sub-custodian – Israel
Bank Leumi Le-Israel BM
Sub-custodian – Italy
BNP Paribas Securities Services (Italy)
Sub-custodian – Japan
The Hongkong and Shanghai Banking Corporation Ltd (Japan)
Sub-custodian – Jordan
Bank of Jordan
Sub-custodian – Kazakhstan
JSC Citibank Kazakhstan
Sub-custodian – Kenya
Standard Chartered Bank Kenya Ltd
Sub-custodian – Kuwait
HSBC Bank Middle East Ltd (Kuwait)
Sub-custodian – Latvia
AS SEB Banka
Sub-custodian – Lebanon
HSBC Bank Middle East Ltd (Lebanon)
Sub-custodian – Lithuania
SEB Bankas
Sub-custodian – Luxembourg
Clearstream Banking SA
Sub-custodian – Malaysia
HSBC Bank Malaysia Berhad
Sub-custodian – Mauritius
The Hongkong and Shanghai Banking Corporation Ltd (Mauritius)
Sub-custodian – Mexico
HSBC Mexico, SA
Sub-custodian – Morocco
Citibank Maghreb
Sub-custodian – Netherlands
BNP Paribas Securities Services (Netherlands)
Sub-custodian – New Zealand
The Hongkong and Shanghai Banking Corporation Ltd (New Zealand)
Sub-custodian – Nigeria
Stanbic IBTC Bank plc
Sub-custodian – Norway
Skandinaviska Enskilda Banken AB (publ) Oslo Branch
Sub-custodian – Oman
HSBC Bank Oman S.A.O.G.
74
Threadneedle Investment Funds II ICVC
Function
Appointed Service Provider
Sub-custodian – Pakistan
Citibank NA (Pakistan)
Sub-custodian – Palestine
HSBC Bank Middle East Ltd (Palestine)
Sub-custodian – Peru
Citibank del Peru
Sub-custodian – Philippines
The Hongkong and Shanghai Banking Corporation Ltd (Philippines)
Sub-custodian – Poland
Bank Polska Kasa Opieki SA
Sub-custodian – Portugal
BNP Paribas Securities Services (Portugal)
Sub-custodian – Qatar
HSBC Bank Middle East Ltd (Qatar)
Sub-custodian – Romania
Citibank Europe plc, Romania branch
Sub-custodian – Russia
AO Citibank
Sub-custodian – Saudi Arabia
HSBC Saudi Arabia Ltd
Sub-custodian – Serbia
Unicredit Bank Serbia JSC
Sub-custodian – Singapore
The Hongkong and Shanghai Banking Corporation Ltd (Singapore)
Sub-custodian – Slovakia
Ceskoslovenska Obchodna Banka A.S.
Sub-custodian – Slovenia
Unicredit Banka Slovenija DD
Sub-custodian – South Africa
Standard Bank of South Africa Ltd
Sub-custodian – South Korea
The Hongkong and Shanghai Banking Corporation Ltd (South Korea)
Sub-custodian – Spain
BNP Paribas Securities Services (Spain)
Sub-custodian – Sri Lanka
The Hongkong and Shanghai Banking Corporation Ltd (Sri Lanka)
Sub-custodian – Sweden
Skandinaviska Enskilda Banken AB (publ.)
Sub-custodian – Switzerland
Credit Suisse AG
Sub-custodian – Switzerland
UBS AG
Sub-custodian – Taiwan
HSBC Bank (Taiwan) Ltd
Sub-custodian – Tanzania
Standard Chartered Bank (Mauritius) Ltd, Tanzania
Sub-custodian – Thailand
The Hongkong and Shanghai Banking Corporation Ltd (Thailand)
Sub-custodian – Turkey
HSBC Bank AS
Sub-custodian – Uganda
Standard Chartered (Uganda)
Sub-custodian – United Arab Emirates
HSBC Bank Middle East Ltd (UAE)
Sub-Custodian – United Kingdom
Deutsche Bank AG (London Branch)
Sub-Custodian – United Kingdom
JPMorgan Chase Bank NA (London)
Sub-Custodian – United Kingdom
HSBC Bank Plc (UK)
75
Threadneedle Investment Funds II ICVC
Function
Appointed Service Provider
Sub-Custodian – United Kingdom
State Street Bank & Trust Co (UK)
Sub-Custodian – United Kingdom
UBS AG, London branch
Sub-custodian – United States
HSBC Bank (USA) NA
Sub-custodian – United States
Brown Brothers Harriman & Co
Sub-custodian – United States
Citibank, N.A. (USA)
Sub-custodian – United States
The Bank of New York Mellon Corporation
Sub-custodian – United States
JPMorgan Chase Bank NA
Sub-custodian – Uruguay
Banco Itau Uruguay SA
Sub-custodian – Vietnam
HSBC (Vietnam) Ltd
Sub-custodian – Zambia
Standard Chartered Bank (Zambia) Plc
Proxy voting
Broadridge Investor Communication Solutions Inc
Nominee companies
The Depositary uses various nominee companies
76
Threadneedle Investment Funds II ICVC
Directory
Administrator
HSBC Bank plc
(regulated by the Financial Conduct Authority
and authorised and regulated by the Prudential Regulation Authority)
8 Canada Square
London E14 5HQ
The Company and Head Office:
Threadneedle Investment Funds III ICVC
Cannon Place
78 Cannon Street
London EC4N 6AG
Custodian
HSBC Bank plc
(regulated by the Financial Conduct Authority
and authorised and regulated by the Prudential Regulation Authority)
8 Canada Square
London E14 5HQ
Authorised Corporate Director
Threadneedle Investment Services Limited
Cannon Place
78 Cannon Street
London EC4N 6AG
Legal Advisers
Eversheds LLP
One Wood Street
London EC2V 7WS
ACD Client Services
Address:
Threadneedle Investment Services Limited
PO Box 10033, Chelmsford, Essex CM99 2AL
Telephone UK Investors: (dealing & customer enquiries): 0800 953 0134*
Telephone non-UK Residents: (dealing & customer enquiries):
+44 (0)1268 441 520*
Fax UK Investors (dealing): 0845 113 0274
Fax non-UK Residents (dealing): +352 2452 9807
Email (enquiries): questions@service.columbiathreadneedle.co.uk
Auditor
Ernst & Young LLP
1 More London Place
London SE1 2AF
(*Calls may be recorded)
Investment Manager
Threadneedle Asset Management Limited
(authorised and regulated by the Financial Conduct Authority)
Cannon Place
78 Cannon Street
London EC4N 6AG
Depositary
HSBC Bank plc
(regulated by the Financial Conduct Authority
and authorised and regulated by the Prudential Regulation Authority )
8 Canada Square
London E14 5HQ
Registrar
Threadneedle Investment Services Limited
delegated to:
International Financial Data Services (UK) Limited
(authorised and regulated by the Financial Conduct Authority)
St Nicholas Lane
Basildon
Essex SS15 5FS
77
To find out more visit columbiathreadneedle.com
Important Information. Threadneedle Investment Services Limited, ISA Manager, Authorised Corporate Director, AIFM 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
Issued 06 16 | Valid to 06 17 |J241373
PERXXXXXX