CAZENOVE EUROPEAN INCOME FUND

For professional advisers only

Q2 2013

European investment team

- 1 -

Steve Cordell Chris Rice

Lionel Rayon Kuldip Shergill James Sym

Pan-European Equity Team

- 2 -

Chris Rice

Head of Pan European Equities

All team members have sector research responsibilities as well as product responsibilities

Social environment and ethical (SEE) research is integrated into our mainstream investment process – in addition we have 2 SRI analysts.

UK

Steve Cordell (UK Absolute)

Paul Marriage (UK Smaller Companies)

Julie Dean (UK Equity)

John Warren (UK Smaller Companies)

Matthew Hudson (Equity Income)

David Docherty (UK Equity)

Wade Pollard (UK Equity)

Charlotte Morrish (UK Equity)

Europe

Chris Rice (Europe Ex UK)

Steve Cordell (Pan Europe)

Lionel Rayon (Pan Europe, High Alpha)

Kuldip Shergill (Pan Europe, High Alpha)

James Sym (Europe Ex UK)

Cazenove Capital European funds

- 3 -

• Chris Rice

• UK OEIC

• £933.6m

• IMA Europe ex UK

• FTSE Europe ex UK Index

• Steve Cordell

• Dublin OEIC

• €111.1m

• Equity Europe

• FTSE Europe Index

• Chris Rice

• Dublin OEIC

• €97.7

• Equity Europe ex UK

• FTSE Europe ex UK Index

As at 31 March 2013 †† Source & copyright: S&P Capital IQ

• Chris Rice & James Sym

• UK OEIC

• £126.4m

• IMA Europe ex UK

• FTSE Europe ex UK Index

Cazenove

European Fund

Cazenove European

Income Fund

Cazenove

Pan Europe Fund

Cazenove European

Equity (ex UK) Fund

Cazenove European Income Fund

- 4 -

Internal Performance Objective: The Fund aims to outperform by 2% pa over rolling 3 year periods and achieve

a minimum yield of 110% of the benchmark yield

Benchmark: FTSE World Europe ex UK Index

Number of stocks: 30-50

Portfolio Restrictions: Stock: +10 %/ No minimum

Business cycle style: + 20%

Tracking risk: 4-8% target range

Launch date: 1 May 2012

Structure: UK ICVC, UCIT

A sub-fund of Cazenove Investment Fund Company (CIFCo)

Share Classes: A, B and X income + Accumulation Shares. A and X Hedged

Yield Frequency: Quarterly

PROCESS

A Systematic Approach to the Universe of Stocks

- 6 -

We have developed a 3-factor, 90+ data-item screen of the investment universe that looks at stocks

from the perspective of dividend-sustainability

A systematic framework for answering the question:

Is the dividend yield sustainable?

Factor Data Example Goal

Dividend History • 10 year dividend history

• Growth in shares in issue

To establish whether the

company has a strong

dividend track record

Income Flexibility

• Operational & Financial gearing

• Working Capital Intensity

• Capex Intensity

To establish the extent to

which the P&L is a constraint

on paying dividends

Balance Sheet

Strength

• Debt ratios

• Q score

To establish whether the

balance sheet can support a

progressive dividend policy

Dividend Sustainability Database

Company Last year

M&A /cash

dividends

end 2 -10 -9 -8 -7 -6 -5 -4 -3 -2 -1 1 2 -5 -4 -3 -2 -1 5yr tota l -2 -1 1 2 -2 -1 1 2

Air Liquide Dec-12 3.1% 0% 20% 10% 14% 13% 10% 0% 11% 6% 10% 7% 8% 2.1 1.5 1.4 1.6 1.7 68% 1.5 1.6 1.4 1.2 5.8 5.5 5.6 5.8

Akzo Nobel Dec-12 3.3% 0% 0% 0% 0% 50% 0% -25% 4% 4% 0% 3% 5% 1.2 1.2 1.2 1.6 1.7 521% 1.1 1.2 0.6 0.2 4.0 4.0 4.6 5.4

Arkema Dec-12 3.4% - - - - +ve -20% 0% 67% 30% 38% 17% 12% 1.4 1.1 1.3 1.7 1.5 507% 0.6 0.9 0.8 0.6 3.9 4.5 4.6 4.9

BASF Dec-12 4.1% 0% 21% 18% 50% 30% 0% -13% 29% 14% 4% 4% 4% 1.1 1.0 1.0 1.4 1.6 69% 1.0 1.0 0.8 0.7 5.7 5.3 5.5 5.7

Bayer Dec-12 2.8% -44% 10% 84% 5% 35% 4% 0% 7% 10% 15% 11% 10% 1.6 1.3 1.3 1.3 1.5 70% 1.1 0.9 0.7 0.5 6.6 6.9 6.7 6.9

Brenntag Dec-12 2.3% - - - - - - - +ve 43% 20% 9% 12% 1.0 0.8 1.0 1.0 0.8 680% 2.2 2.1 1.6 1.2 5.8 6.0 6.1 6.5

Clariant Dec-12 3.0% +ve -100% +ve 2% 1% -100% - - +ve 14% 6% 14% 1.2 0.8 1.2 1.8 1.4 - 2.0 2.3 1.0 0.7 2.4 2.3 3.1 3.5

DSM Dec-12 3.5% 0% 0% 14% 0% 20% 0% 0% 12% 7% 3% 3% 5% 1.5 1.2 1.3 1.5 2.0 255% 0.0 1.3 0.9 0.6 5.7 4.1 4.7 5.0

EMS Chemie Dec-12 3.2% 5% -49% 25% 10% 9% -15% 0% 30% 8% 7% 10% 7% 1.4 0.8 1.1 1.7 0.0 13% -0.8 -0.9 -0.8 -0.8 8.4 9.2 9.1 9.2

Fuchs Petrolub Dec-12 2.0% 8% 6% 25% 43% 50% 7% 6% 59% 11% 28% -9% 12% 2.9 1.8 1.8 2.0 3.4 20% -0.2 -0.4 -0.6 -0.7 8.5 9.1 9.3 9.0

Givaudan Dec-12 3.9% 10% 10% 80% 7% 4% 3% 9% 4% 2% 64% 12% 10% 2.2 1.3 1.7 2.6 2.1 -7% 1.8 1.3 1.2 1.0 6.8 7.3 7.4 7.6

K+S Dec-12 3.7% 0% 30% 38% 11% 0% 380% -91% 400% 30% 8% -7% 0% 1.3 1.1 1.0 1.3 2.0 181% 0.0 0.4 0.4 0.3 6.2 5.8 5.7 5.9

Kemira Oyj Dec-12 5.3% 10% 3% 6% 33% 4% -50% 19% 167% 10% 0% 3% 10% 1.4 0.8 0.9 1.2 1.2 162% 2.1 2.0 1.6 1.2 5.1 5.0 5.0 5.2

LANXESS Dec-12 2.2% - - - +ve 300% -50% 0% 40% 21% 18% 0% 20% 1.5 1.1 1.9 2.4 2.1 481% 1.4 1.3 1.6 1.2 3.7 4.6 3.9 4.6

Lenzing Dec-12 2.8% 50% 33% 0% 25% 40% 0% 0% -23% 61% -20% -15% 4% 2.2 2.2 2.6 1.9 3.0 44% 0.5 1.1 1.7 1.4 6.4 5.8 4.6 5.0

Linde Dec-12 2.3% 0% 11% 12% 12% 13% 6% 0% 22% 14% 8% 7% 10% 1.4 1.2 1.2 1.4 1.5 205% 1.8 2.4 2.0 1.6 4.8 5.1 5.2 5.4

Solvay Dec-12 3.3% 0% 6% 5% 5% 5% 0% 0% 5% 0% 39% 2% 4% 1.9 1.1 0.9 1.5 0.9 333% 1.5 0.9 0.8 0.5 2.9 3.8 3.7 4.1

Symrise Dec-12 2.6% - - - - +ve 0% 0% 20% 3% 5% 15% 7% 1.5 1.5 1.7 1.4 1.5 71% 1.5 1.3 1.1 0.9 7.5 7.7 7.8 8.0

Syngenta Dec-12 2.9% 90% 43% 47% 7% 30% 25% 0% 16% 14% 19% 8% 9% 2.3 3.1 1.9 1.6 1.9 41% 0.4 0.5 0.3 0.1 8.1 8.2 8.3 8.7

Tessenderlo ChemieDec-12 6.5% 0% 6% 0% 0% 6% 5% 0% 0% 0% 33% 0% 0% 1.0 1.1 1.2 1.6 1.6 93% 1.2 2.0 1.8 1.4 1.9 1.7 1.6 1.9

UMICORE SA Dec-12 3.1% 14% 37% 30% 14% 55% 0% 0% 23% 25% 0% 5% 5% 2.0 1.7 1.4 1.7 1.8 30% 0.5 0.4 0.4 0.3 5.0 4.9 4.8 5.0

Wacker Chemie Dec-12 1.3% - - +ve 25% 13% -20% -33% 167% -31% -73% -33% 96% 2.0 2.0 1.5 1.7 1.8 97% 0.1 0.9 1.4 1.4 6.0 4.3 2.4 2.7

Yara Intl Dec-12 4.2% - +ve 4% 6% 60% 13% 0% 22% 27% 86% -15% 2% 1.9 1.9 1.4 1.2 1.2 313% 0.4 0.1 0.0 -0.1 6.8 6.6 6.4 6.1

Capex / Depreciation

Divide

nd Q-scoreDebt/EBITDADiv growth

- 7 -

• Example of the Chemical Sector, using selected data points

• Allows a very rapid and unemotional assessment of the sustainability and growth potential of the dividend

• First stage before further investigation. Often induces questions for management.

• Always read with valuation in mind

Source: Cazenove Capital, 31/03/13

Income Process – the business cycle

- 8 -

Growth and Stable yield Growth yield

Slowdown Recession Recovery Expansion

Stable and High yield Cyclical yield

STOCK:

DELIVERS:

STAGE OF CYCLE:

Growth Growth/Cyclical Value & Growth Defensive Cyclical PORTFOLIO BIAS:

Focusing on Bottom Up Research

- 9 -

Systematic Database

Stage of Cycle Yield Relative Projected

Income Growth

Stock Tearsheet

Research & Company Meetings

Valuation

IDEA INVESTMENT

DECISION

CURRENT VIEWS

Key theme in Q1: re-establishing quality leadership

- 11 -

Source: Cazenove Capital, Datastream, 15/04/13

• In many ways Q1 ‘13 was a rerun of Q1 ’12, an up market led by this cycle’s leadership theme of secure global

growth stocks. Conversely risk and value performed poorly. Market participants rationalise this as euro risk off around

Cyprus debacle and Italian elections. Maybe we were just due a pause for breath.

• We suggest that after the summer rally value is no longer in a structural bear market. Indeed we see a catch up in

risk and low quality over the coming quarters.

• Longer term, we reiterate that safety has attracted an excessive premium. It’s GAAP not GARP.

European high vs. low risk performance and European equity markets

Business Cycle – perception vs reality

- 12 -

Source: Cazenove Capital, Datastream, 31/03/13

• The economic data suggests we are contracting at a less bad rate. Carry on like this and we’re at risk of a ‘normal’ cycle.

• Perhaps because it has taken so long to recover, perhaps because politics is supressing animal sprits, perhaps

because of policy action, whatever the reason the perception is that we are slowing down to enter recession.

The market is pricing this too.

Economic signals generated over the past 12m from EU

Composite Macro Index

Where we are in the Economic cycle?

Investors perception based on the FMS

The market does NOT expect a normal cycle

- 13 -

Rieter – textile machinery BASF – chemicals

2007 eps forecast

2014 eps forecast

2014e PE 11x

2007a PE 3x

2014e PE 11x

2007a PE 18x

Source: Bloomberg

The valuation case for value

- 14 -

• Dispersion remains incredibly high, indeed at levels only surpassed at true bubble moments

such as tech in 2000 or nifty fifty in the 60s. Cheap has (almost) never been so cheap.

• So strong is the investor preference for this investment theme it will probably only end when the cycle ends.

• Taking a medium term view, value offers a much more attractive RoI that safety or growth.

• Sectors include Telcos, Utilities, Resources, some cyclicals, the periphery, domestic Eurozone

stocks and many Financials.

Source: Mirabaud

FUND POSITIONING

How are we investing? Focus on European Income Fund

- 16 - Source: Cazenove Capital

The fund exposes investors to 2 themes. Firstly, to eurozone risk abating and a normalisation of the business cycle.

Secondly to an outperformance of value. Essentially, we will do well if it’s not different this time.

We have recently added to or bought:

• Renault, which has the chance to cut costs for the first time in 7 years and is growing its entry brand at 20%+, on 6.5x PE

• Scania, which is about to monetise a vast emerging market backlog of orginial equipment with service and spare parts

• Azimut, the EUR20bn asset manager that is growing at >15% p.a. (sound familiar?) with a PE ratio of 10x

• Fortum, the Finnish utility which yields 6.7% and should be over the worst regulatory and capex hurdles.

Dividend Style % Fund

31/03/13

Cyclical Yield 46.4

Growth Yield 7.5

High Yield 31.3

Stable Yield 13.3

Net Yield

4.0%

Cazenove European Income Fund

- 17 -

Top 10 Active Stocks

Weight FY1

PER

FY1

Yield %

Renault 4.3% 4.7x 3.8

AXA 3.6% 6.3x 5.4

Tessenderlo 3.5% 11.5x 6.6

Catalana Occi 3.3% 8.1x 3.5

Arkema 3.2% 7.8x 2.8

Azimut 3.2% 11.1x 4.4

ProSiebenSat.1 3.2% 13.7x 4.8

Snam 3.2% 12.5x 6.8

Reiter 3.1% 12.5x 1.8

Volvo 3.0% 9.9x 3.4

Key Style Weighting

Industrial Cyclical +11%

Growth Defensive -16%

Small Cap (<€1bn)

18%

Mid Cap (€1-5bn)

27%

Large Cap (>€5bn)

55%

Market Cap Weighting

Source: Cazenove Capital, 31/03/13

Scania

- 18 -

• Europe’s best run, fastest growing,

highest return truck manufacturer.

• Well behaved market on the

supply side: regional oligopolies

that remained profitable even

through 2009.

• A huge base of Original Equipment in

emerging markets with service

revenues expected to grow rapidly.

• Europe bottoming, continue to win

market share.

Azimut

- 19 -

• Italian asset manager with a target to

add 50% to AUM in 3 years.

• Huge brand and product advantage

relative to traditional private banks

who are hamstrung by legacy assets.

• Virtually unassailable business

model with tied financial advisors

locked in with significant equity. Very

entrepreneurial top management.

• Resultant fee margin is a mind

boggling 2.4%!

Market cap EUR1.9bn for an AUM

the same as Cazenove Capital.

Conclusion

• Europe remains cheap.

Still finding lots of opportunities.

• Internal inconsistency in the market,

shift to later cycle businesses

• Good news: we can protect

ourselves pretty cheaply.

• In a non-crisis environment,

corporates will spend and the

supercycle in growth stocks is

likely to fade

• Follow the money. Policy action

will dominate asset returns for

many years to come.

- 20 -

Equity Yields attractive

Source: Goldman Sachs, September 2012

APPENDIX

Europe: “Have I missed it?”

- 22 -

41%

Trend PE of European Equities vs US Equities

Source: Datastream, February 2013

Europe: “Have I missed it?”

- 23 -

332%

Trend PE of European Equities vs ‘trend PE’ of European Bonds*

*Trend PE of European non-financials relative to the inverse of the 10 year German Government bund yield

Source: Datastream, January 2013

Focus on what’s important… and its not the economy!!

- 24 -

• Don’t be bearish based solely on a poor economic outlook.

• Valuation is far, far more important.

Source: Datastream, Oriel

Deleveraging with growth – historical precedents

- 25 -

• The bears are obsessed with the Debt/ GDP chart. “It will all go wrong in the end” is a common refrain.

• Well maybe. But in fact there are many examples in history where economies have successfully deleveraged.

Mathematically, if the nominal growth rate is above the nominal bond yield, deleveraging occurs across

the economy (which is what really matters). This is the current policy preference, and is normally very positive

for equities.

Source: Dalio, R., 2012.‘An In-Depth

Look at Deleveragings’, Bridgewater.

‘Beautiful’ vs ‘Ugly’ Deleveragings of the last 100 years

- 26 -

Beautiful:

Ugly:

USA 1929-38 UK 1944-69 USA 2008-12

Japan 1988-2012 Spain 2008-2012 Germany 1918-1924

Source: Dalio, R., 2012.‘An In-Depth

Look at Deleveragings’, Bridgewater.

- 27 -

Secure Growth Today vs Nifty Fifty

Source: Morgan Stanley

• The Nifty Fifty theme – analogous with the current secure global growth theme – was a resounding success in the build

up to the crisis of the 1970’s.

• The relative performance peak coincided with the negative “event” (the oil shock) though absolute performance began

to weaken before that.

• The underperformance of the style from the market low was massive.

• Lesson – valuations may become so depressed that a new bull market in value will begin.

The Nifty Fifty beat the market by 15% pa for 8 years Nifty Fifty valuations eventually hit bubble levels …

Protecting capital

- 28 -

• Not cyclical

• Not crowded trades

• No heroic assumptions

• Not over-valued

Source: Morgan Stanley, January 2013

Telecoms

Price and prospective EPS relative

Consumer staples

Price and prospective EPS relative

Cheap defensives over

expensive secure growth

Regulatory information and risk warnings

- 29 -

This document is issued by Cazenove Capital Management Limited (Cazenove Capital). It is for information purposes only and does not constitute

an offer to enter into any contract/agreement nor a solicitation to buy or sell any investment or to provide any services referred to therein.

This document is solely for the use of professional intermediaries and is not for general public distribution.

The contents of this document are based upon sources of information believed to be reliable, however, save to the extent required by applicable law

or regulations, no guarantee, warranty or representation (express or implied) is given as to its accuracy or completeness, and Cazenove Capital or

connected companies, directors, officers and employees do not accept any liability or responsibility in respect of the information or any

recommendations expressed herein which, moreover, are subject to change without notice.

This document has been produced based on Cazenove Capital Management’s research and analysis and represents our house view.

Unless otherwise stated all views are those of Cazenove Capital Management. It may not be reproduced in any form without the express permission

of Cazenove Capital Management and to the extent that it is passed on, care must be taken to ensure this is in the form which accurately reflects

the information given here. Unless otherwise indicated, the source for all data is Cazenove Capital.

Past performance should not be seen as an indication of future performance. The value of investments and the income from them can go down as

well as up and an investor may not get back the amount invested and may be affected by fluctuations in markets and exchange rates. Cazenove

Capital Management is the name under which Cazenove Capital Management Limited (registered No. 3017060) and Cazenove Investment Fund

Management Limited (registered No. 2134680) each authorised and regulated by the Financial Conduct Authority and of 12 Moorgate London EC2R

6DA provide investment products and services.

The fund has a concentrated portfolio and may carry a high risk to capital. It will be potentially more volatile than funds investing in a more

diversified portfolio. Investments in overseas securities are exposed to movements in exchange rates. These changes may have an adverse effect

on the value, price or income of investments.