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Threadneedle UK Property Fund II

Unaudited Interim Report and AccountsThreadneedle UK Property Fund IIJune 2012

Threadneedle UK Property Fund II Interim Report and Accounts 2012

1

Contents

Company Report

Director’s Report 2

Manager’s Report 3 – 5

Property Portfolio

Retail 6

Retail Warehouse 7

Offices 7

Industrial 7

Property in the course of development 7

Financial Statements

Statement of Total Return 8

Statement of Change in Net Assets

Attributable to Shareholders 8

Balance Sheet 8

Cash Flow Statement 8

Directors’ Statement 8

Distribution Table 9

Notes to the Financial Statements 10

Additional Information

Portfolio Statement 11

Comparative Tables 12

Total Expense Ratio Summary 12

Property Expense Ratio Summary 12

Company Performance Summary 13

Share Turnover and Share Analysis 13

Finance Costs: Distributions per Share 14

AREF Compliance Checklist 15

Further Information 16 – 17

Management and Administration 18

Important Information 19

The Authorised Corporate Director (ACD), Threadneedle

Investment Services Limited has pleasure in presenting the

Interim Report and Accounts for Threadneedle UK Property

Fund II (“the Company”) for the six months to 30th June 2012.

We hope that you find the report informative. Should you

require any further information regarding any aspect of your

investment, or about other Threadneedle products, we would

be pleased to help. Alternatively, you may find it helpful to visit

threadneedle.com for further information about Threadneedle.

Thank you for your continued support.

Crispin Henderson

Director


2

Director’s Report

Investment Objective

The investment objective of the Company is to achieve long-

term capital growth and income primarily through direct

investment in, or exposure to, UK commercial property.

Investment Policy

The investment policy of the Company is to invest in UK

commercial properties (including shops, offices, retail

warehouses, leisure and industrial units), as favourable

investment opportunities arise.

The Company may also invest in property related securities,

regulated and unregulated collective investment schemes, debt

instruments and other transferable securities to gain exposure

to the UK and other property markets. In addition, the

Company may invest in money market instruments, deposits

and cash and near cash.

Review

This report covers the period from 1st January 2012 to

30th June 2012.

Market Commentary

2011 saw no let-up in the tough economic back drop for

business right across the UK, with significantly sub trend

economic growth during the year of just 0.7%. Fluctuating

degrees of uncertainty around the Eurozone have been and

continue to be, a significant drag on the UK economy. The

prospect of a breakup of the Eurozone is holding back business

investment by cash rich corporates making credit difficult to

obtain, limiting the export market for UK manufactured goods

and negatively effecting overall sentiment. Unemployment has

risen to 8.3%, its highest level since the early 1990’s. The UK

economy recorded negative GDP growth in the final quarter of

2011, and the first quarter of 2012, meaning technically the UK

has entered recession again. This economic environment,

coupled with the UK Government’s on-going policies aimed at

tackling public sector debt have inevitably continued to temper

both business expansion and consumer expenditure and

therefore occupational demand. Whilst masking some regional

and sector variances, occupation markets over the past year

have generally been alive and functioning but not buoyant.

Market wide rental value growth for the twelve months to the

end of June 2012 has been 0.0%. Overall vacancy rates have

also been broadly stable (the source of all market statistics in

this section being the IPD UK Monthly Index). The one material

exception to this general synopsis of occupational markets is

the Central London office market. Modest supply, particularly

in the West End, and a greater willingness amongst businesses

to commit to new accommodation, has generated positive

rental value growth in the central London office market of

around 5%. A particularly positive feature of the commercial

property sector over the past three years has been the

generally robust nature of portfolio wide rental income flows. It

has been estimated that from its peak in September 2008 to

January 2012 the aggregate rental income generated by the

portfolio that makes up the IPD UK monthly index fell by just

2.2% (source: CBRE). This highlights one of the key positive

characteristics of UK Real Estate as an asset class.

When compared to alternative asset class pricing, such as UK

equities and Gilts, UK commercial property remains an

attractive proposition and is considered to present fair value.

Continued concerns over the Eurozone debt crisis, the impact

of spending cuts in parts of the public sector and a lack of

available debt, have combined to have a negative impact on

the market and 2012 is set to continue in a similar vein to 2011.

From an investor’s perspective, the twelve months to the end of

June 2012 was a presentable period for the real estate sector,

particularly when compared against the volatility across other

investment sectors. Total returns over the period for the UK

commercial property market were 4.8%, ahead of the negative

3.1% total return from UK equities, but behind the 16.1% total

return achieved by the prolonged bull run in gilt markets. This

property sector out-turn was entirely down to the sectors rental

income return of 6.7%, with capital growth being negative at

–1.9%. During the last eight months of this period, property

investment yields have displayed a slight softening following a

twenty-seven month period of month-on-month positive yield

impacts. This is consistent with the unfavourable trend in the

balance between active buyers and sellers in the UK property

investment market, reflecting a back drop of less equity

flowing into the market and an on-going desire amongst banks

to decrease their real estate exposure.

Although UK property fund inflows are currently at negligible

levels, it is reported that, after record inflows in the period

3Q09-4Q10, institutional investors still hold significant

un-invested cash balances, but remain wedded to a cautious

investment approach. Institutional investors seeking to exploit

the property sector’s income yield advantage, relative to

competing investment media, remain focussed upon the

acquisition of core/core+ property assets, long-let to

undoubted tenant covenants. Institutional investors currently

have little appetite for entrepreneurial property risk.

It is widely considered that, whilst values remain subdued

outside of Central London, those investors with significant

cash weightings continue to be in a privileged position to take

advantage of comparatively low pricing on assets with robust

underlying fundamentals.

UK Property Market Performance –12 Months to 30th June 2012

All Retail Office Industrial Property

Total Return 3.0% 6.4% 5.9% 4.8%

Income Return 6.5% 6.6% 7.7% 6.7%

Capital Growth -3.3% -0.2% -1.7% -1.9%

Rental Value Growth -1.1% 1.6% -0.8% -0.1%

Yield Impact -2.1% -0.5% -0.9% -1.3%

Source: IPD UK Monthly Index June 2012

3


Manager’s Report

4


Manager’s Report(continued)

As displayed in the table above, it was the office sector that

generated the strongest total returns over the period,

registering 6.4% and being the only sector with positive rental

value movement. This was however very much a product of the

relatively strong performance of the Central London submarket

which produced total returns of 10.4%. The retail and industrial

sectors both suffered negative rental value growth of –1.1%

and –0.8% respectively, although the industrial sector’s higher

income return resulted in it generating a total return of 5.9%

compared to that of the retail sector of 3.0%.

Market Outlook

With GDP growth of 0.3% forecast, output levels in 2012 are

predicted to be low. Such low growth and output will

undoubtedly hold back expansion in the occupier markets,

which, coupled with a lack of available debt, will also act to

limit activity levels in the investment markets. The issue of

forced disposals through legacy debt issues will also be

prominent, as the UK banks look to further deleverage balance

sheet exposure. Banks still have more than £210bn exposure to

UK commercial property, with nearly a quarter of loans in

breach of terms or default. More than half the debt has to be

repaid by 2016 with approximately £50bn due to mature this

year.

With only modest inflows into UK pooled property funds and a

dearth of debt finance to take its place, it has been no surprise

that recent months have seen small incremental falls in

property capital values across the market. Perceived volatility

in the financial and economic environment, particularly centred

around the Euro crisis, has not helped risk aversion amongst

investors. We expect these dynamics to be an on-going feature

of 2012, with investors in property benefiting from the sector’s

solid income return but seeing this eaten into by modest

negative capital value movements. Beyond this immediate

outlook we remain of the view that prevailing property pricing

does look logical and supportable over the longer term

perspective, a time horizon that property investment, by its

nature, demands.

An eventual return to trend economic growth in the UK does

present real upside for UK property markets, the majority of

which have experienced a de minimus level of fresh

construction activity for nearly half a decade. The Company is

now experiencing a period of stability following a pronounced

expansionary phase.

Although UK property fund inflows are currently at negligible

levels, it is reported that, after record inflows in the period

3Q09-4Q10, institutional investors still hold significant

un-invested cash balances, but remain wedded to a cautious

investment approach. Institutional investors seeking to exploit

the property sector’s income yield advantage, relative to

competing investment media, remain focussed upon the

acquisition of core/core+ property assets, long-let to

undoubted tenant covenants. Institutional investors currently

have little appetite for entrepreneurial property risk.

The Portfolio

The average weighted lease length across the entire portfolio

of 12 properties and 14 tenancies is approximately 5 years,

assuming all lease break options within the existing portfolio

are exercised. The Company’s directly held property generates

a combined net initial income yield of 6.4% a 10 basis point

income yield advantage above the comparable (IPD Monthly

Index) market yield.

We have shown a sector breakdown of the portfolio below, which

shows the Company’s position versus the IPD UK Monthly Index.

Sector breakdown – as at 30th June 2012

Company Index Active

Retail Warehouses 18% 24% –6%

Shops 47% 23% 24%

Industrials 21% 17% 4%

Offices 14% 31% –17%

Other – 5% –5%

We have shown a sector breakdown of the portfolio below,

illustrating the Company’s position versus the IPD UK Monthly

Index.

Income returns will form the core component of total returns

over the next 5 years and capital value gain will have to be

Offices Shops Industrials OtherRetailWarehouses

Sector Breakdown as at 30th June 2012

Index

Company

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Source: Threadneedle/IPD

Property Type Overview

14%

18%

21%47%

Offices

Retail WarehousesShops

Industrials

Other

Source: Threadneedle

earned through hard won asset management initiatives, rather

than demand and supply imbalances in the investment market.

Whilst the Company’s current vacancy rate is 15.4% of the

portfolio’s total rental value compared to 8.3% for the IPD UK

Monthly Index (reflecting the market overall) this will reduce to

zero on completion of the Poyle development which has been

pre-let in its entirety on a 15 year lease without break.

Performance

With reference to the Morningstar UK IMA OEIC Benchmark for

Real Estate Trusts, since inception mid 2007, Threadneedle UK

Property Fund II is ranked fourteenth out of twenty eight to the

30th June 2012. Index measures are provided for information,

to demonstrate performance relative to peer groups. However,

please be reminded that the Company is not managed with

reference to any benchmark.

Strategy

Threadneedle Investment Services Ltd became the ACD of the

Company on 1st December 2011 and subsequently reviewed

the investment credentials of the underlying assets. A number

of the assets having suffered a significant downward

movement in rental value in line with the regional trend were

deemed either ‘ex-growth’ or over-rented but with underlying

investment fundamentals considered suitable for sale. Eleven

properties were extensively marketed with limited investor

interest for individual assets with the most attractive cash

proposal being received by CBRE Global Investors proposing

to acquire a portfolio of seven properties, subsequently named

the Orchid Portfolio, on extremely competitive terms.

Since the onset of the financial crisis in late 2007, prudent

liquidity management has remained one of the hallmarks of

the Manager’s long term strategy. With a market characterised

by illiquidity those with immediate cash resources available

will be best placed to take advantage of market conditions

in 2012.

Future purchasing activity will target mispriced risk, essentially

higher yielding assets with strong underlying investment

fundamentals both complement and enhance the Company’s

income return.

Transactions

No purchases were completed in the period.

The following aforementioned sale was completed in the

period:

June 2012

Orchid Portfolio

The portfolio comprised 7 properties; 4 high street retail

properties, 1 retail warehouse (2 units), 1 industrial (2 units)

and 1 car showroom let to a total of 9 tenants and generated

£2,193,002 per annum against a current estimated rental value

(31st May 2012 valuation) of £1,894,155. 70% of the portfolio

income was derived from retail assets. The weak economic

climate has had a particularly detrimental impact on the retail

sector exacerbated by weak consumer spending, negative GDP

growth and numerous tenant failures on the UK high streets.

Property Market Analysis (Spring 2012) forecasted negative IPD

All Property Total Returns for 2012 of –0.8% with retail

contributing a Total Return of –1.7% including capital value

depreciation of –7.2%. The portfolio sale is therefore considered

strategic in light of future market conditions. The sale price of

£30,400,000 reflected a net initial yield of 6.8% but the portfolio

was considered significantly over-rented with a reversionary

yield of 5.9%.

The remaining assets within the Company generally exhibit

strong underlying investment credentials with numerous asset

management opportunities and are considered more defensive

in respect of anticipated short to medium term market

conditions.

5


Manager’s Report(continued)

Between £2.5 million and Principal Rental Income Next Rent£5 million in Value Tenants per annum Review

Brighton30-31 Western Road Freehold mid terrace building comprising ground floor Ann Summers Limited £175,000 March 2014

retail unit with basement and first floor ancillary

accommodation and 4 self-contained residential units on

second and third floors. Property comprises 4,454 sq ft.

excluding flats.

Nottingham28-30 Lister GateFreehold mid terrace building comprising ground and first A Jones & Sons Limited £160,000 September 2016

floor retail unit with second floor ancillary accommodation.

Property comprises 4,921 sq ft.

Reading9-10 Broad StreetFreehold mid terrace building comprising ground floor East Limited £190,000 October 2013

retail unit with first floor ancillary accommodation.


6


Property Portfolio

Retail

Principal Rental Income Next RentBetween £1 million and £2.5 million in Value Tenants per annum Review

Glasgow109-113 Sauchiehall StreetHeritable mid terrace building comprising ground floor Everything Everywhere Limited £178,500 N/A

retail unit with first and second floor ancillary

accommodation. Property comprises 3,586 sq ft.

Glasgow115 Sauchiehall StreetHeritable end of terrace building comprising ground floor Redcastle Limited £128,500 N/A

retail unit with basement ancillary accommodation.


Ilford123-125 High RoadFreehold mid terrace building comprising ground floor Monsoon Accessorize Limited £193,000 N/A

and part first floor retail unit with basement, part first

and second floor ancillary accommodation.


Peterborough3 Cathederal SquareFreehold end terrace building comprising ground floor HSBC Bank Plc £150,000 December 2012

retail unit with basement, first and second floor ancillary


Worcester35-36 High StreetFreehold mid terrace building comprising ground and River Island Clothing Company £198,000 N/A

first floor retail unit with second floor ancillary Limited


7


Property Portfolio(continued)

Retail Warehouse

Offices


London19 Buckingham GateFreehold mid terrace office building arranged on The Communication Group Plc £286,630 June 2012

lower ground, ground and five uppers floors.


Offices

Retail Warehouse

Principal Rental Income Next RentOver £5 million in Value Tenants per annum Review

Bury St. Edmunds46-48 RisbygateFreehold detached retail warehouse. B&Q Plc £491,763 N/A


Supermarket


CrawleyManor Gate, Manor RoyalFreehold terrace of three (units B-D) and single detached Presteigne Charter Limited £106,176 June 2016

(unit A) industrial units. Property comprises 70,094 sq ft. Rossetts (Eastbourne) Limited £85,000 December 2012

Industrial


PoyleMathiesen WayFreehold 0.54 hectare development site. Proposed Pre-let to Kintetsu World N/A N/A

development of circa 36,900 sq ft. warehouse and Express UK Limited

ancillary offices.

Property in the course of development

Financial Statements

8


STATEMENT OF TOTAL RETURNfor the accounting period 1st January 2012 to 30th June 2012

2012 2011£000 £000

Income

Net capital (losses)/gains (3,244) 1,668

Revenue 2,285 2,473

Expenses (364) (631)qqqqqqqqqqr

Net revenue before taxation 1,921 1,842

Taxation (386) (359)

Net revenue after taxation 1,535 1,483 qqqqqqqqqqr

Total return before distributions (1,709) 3,151

Finance costs: distributions (1,832) (1,935)qqqqqqqqqqr

Change in net assets attributable to shareholders from investment activities (3,541) 1,216

zzzzzzzzzzzzzzz

STATEMENT OF CHANGE IN NET ASSETS ATTRIBUTABLE TO SHAREHOLDERSfor the accounting period 1st January 2012 to 30th June 2012

2012 2011£000 £000

Opening net assets attributable to shareholders 87,777 93,160

Amounts receivable on creation of shares 7,596 15,218

Less: Amounts payable on cancellation of shares (9,953) (11,300)

(2,357) 3,918

Stamp duty reserve tax (10) (11)

Change in net assets attributable to shareholders

from investment activities (see above) (3,541) 1,216

Retained distribution on accumulation shares 1,762 1,922 qqqqqqqqqqr

Closing net assets attributable to shareholders 83,631 100,205zzzzzzzzzzzzzzz

The comparatives used within the Statement of Change in Net Assets Attributable toShareholders are for the corresponding period of the previous year. Therefore the openingnet assets attributable to shareholders for the current period are at 31st December 2011whilst the figure disclosed in the comparatives’ closing net assets attributable toshareholders is at 30th June 2011.

BALANCE SHEETas at 30th June 2012

December2012 2011

Assets £000 £000Investment assets 34,950 81,215

qqqqqqqqqqr

Debtors 1,053 1,133

Cash and bank balances 49,783 6,970qqqqqqqqqqr

Total other assets 50,836 8,103qqqqqqqqqqr

Total assets 85,786 89,318qqqqqqqqqqr

LiabilitiesCreditors (2,115) (1,490)

Distribution payable on income shares (40) (51)qqqqqqqqqqr

Total liabilities (2,155) (1,541)qqqqqqqqqqr

Net assets attributable to shareholders 83,631 87,777zzzzzzzzzzzzzzz

CASH FLOW STATEMENTfor the accounting period 1st January 2012 to 30th June 2012

December2012 2011£000 £000

Net cash inflow from operating activities 1,638 3,369

Corporation tax paid (416) (957)

Income distributions (51) (35)

Capital expenditure and financial investments:Purchase of investments – (1,362)

Expenses paid from capital 40 (159)

Disposal of investments 44,256 2,508qqqqqqqqqqr

44,296 987

Financing:Amounts received on creation of shares 7,217 36,916

Amounts paid on cancellation of shares (9,871) (34,762)qqqqqqqqqqr

(2,654) 2,154qqqqqqqqqqr

Increase in cash in the year 42,813 5,518zzzzzzzzzzzzzzz

Reconciliation of net revenue to cash inflow from operating activities:Net revenue before taxation 1,921 3,827

Decrease/(increase) in debtors 47 (395)

Increase in creditors (330) (63)qqqqqqqqqqr

Net cash inflow from operating activities 1,638 3,369zzzzzzzzzzzzzzz

AUTHORISED CORPORATE DIRECTOR’S STATEMENTIn accordance with the requirements of the Financial Services

Authority’s Collective Investment Schemes (COLL) Sourcebook, we

hereby certify the Interim Report & Accounts on behalf of the Directors

of Threadneedle Investment Services Limited.

T N Gillbanks N J RingDirector Director

15th August 2012

Financial Statements(continued)

9


DISTRIBUTION TABLESfor the accounting period 1st January 2012 to 30th June 2012

Retail Accumulation SharesDistribution Net Distribution DistributionPeriod Revenue Equalisation Payable Paid

2012 2011Group 101/01/12 to 30/06/12 1.8160 – 1.8160 1.8637

Group 201/01/12 to 30/06/12 0.5330 1.2830 1.8160 1.8637

Total Distributions in the period 1.8160 1.8637

Second Retail Accumulation SharesDistribution Net Distribution DistributionPeriod Revenue Equalisation Payable Paid

2012 2011Group 101/01/12 to 30/06/12 2.1947 – 2.1947 2.2644

Group 201/01/12 to 30/06/12 0.8548 1.3399 2.1947 2.2644


Second Retail Income SharesDistribution Net Distribution DistributionPeriod Revenue Equalisation Payable Paid

2012 2011Group 101/01/12 to 30/06/12 1.9117 – 1.9117 2.0461

Group 201/01/12 to 30/06/12 0.6573 1.2544 1.9117 2.0461


Institutional Accumulation SharesDistribution Net Distribution DistributionPeriod Revenue Equalisation Payable Paid

2012 2011Group 101/01/12 to 30/06/12 1.8406 – 1.8406 1.8817

Group 201/01/12 to 30/06/12 0.7162 1.1244 1.8406 1.8817


Institutional Income SharesDistribution Net Distribution DistributionPeriod Revenue Equalisation Payable Paid

2012 2011Group 101/01/12 to 30/06/12 1.8304 – 1.8304 1.9542

Group 201/01/12 to 30/06/12 0.8573 0.9731 1.8304 1.9542

Total Distributions in the period 1.8304 1.9542Group 2: Shares purchased during a distribution period.

Financial Statements(continued)

10


1 ACCOUNTING POLICIES

(a) Basis of accountingThe financial statements have been prepared under the historical

cost basis, as modified by the revaluation of investments, and in

accordance with the UK Generally Accepted Accounting Practice

(“UKGAAP”), and the Statement of Recommended Practice (the

“SORP”) for Financial Statements of Authorised Funds, issued by

the Investment Management Association (IMA) in October 2010.

The accounting policies applied are consistent with those of the

annual financial statements for the year ended 31st December 2011

and are described in those financial statements.

(b) NotesIn accordance with the guidelines of the SORP, the Company has

taken advantage of the facility not to provide further notes to the

financial statements.

Notes to the Financial Statementsfor the accounting period 1st January 2012 to 30th June 2012

Additional Information

11


Holding or Market % of NetNominal Value AssetValue Investment £000 Value

Portfolio Statementas at 30th June 2012

DIRECT PROPERTY (41.79%, December 2011 – 78.00%)Car Showroom (0.00%, December 2011 – 7.29%)

Industrial (5.36% December 2011 – 8.68%)Manor Gate, Manor Royal, Crawley 4,480 5.36

zzzzzzzzzzzzzz

Offices (5.89%, December 2011 – 5.61%)19 Buckingham Gate, London 4,925 5.89

zzzzzzzzzzzzzz

Retail (19.66%, December 2011 – 37.68%)9-10 Broad Street, Reading 2,750 3.29

3 Cathedral Square, Peterborough 2,275 2.72

123-125 High Road, Ilford 1,475 1.76

35-36 High Street, Worcester 2,450 2.93

28-30 Lister Gate, Nottingham 2,520 3.01

109-113 Sauchiehall Street, Glasgow 1,350 1.61

115 Sauchiehall Street, Glasgow 1,075 1.29

30-31 Western Road, Brighton 2,550 3.05qqqqqqqqqqqrrrrrrrrrrrrrrr

16,445 19.66zzzzzzzzzzzzzz

Retail Warehouse (7.65%, December 2011 – 15.66%)Risbygate, Bury St. Edmunds 6,400 7.65

zzzzzzzzzzzzzz

Development Properties (3.23%, December 2011 – 3.08%)Mathisen Way, Poyle 2,700 3.23

zzzzzzzzzzzzzz

INDIRECT PROPERTY (0.00%, December 2011 – 14.52%)Financials (0.00%, December 2011 – 9.58%)

Corporate Bond (0.00%, December 2011 – 4.94%)

Market Value of Investments(December 2011 – 92.52%) 34,950 41.79

Net Other Assets (December 2011 – 7.48%) 48,681 58.21qqqqqqqqqqqrrrrrrrrrrrrrrr

Net Assets 83,631 100.00zzzzzzzzzzzzzz

All indirect property investments are admitted to official stock exchange listingsunless otherwise stated.Unless otherwise stated, all direct properties are freehold or feuhold.The valuation of properties is reduced by the total of the unamortised capitalcontribution and any lease incentives in place at the time.

12


NetNet Asset Income

Value No. of per Highest LowestNet Asset pence per Shares Share Offer BidValue (£) Share in Issue Calendar Year (pence) (pence)† (pence)†

Additional Information(continued)

The additional information provided in this section complies fully with the minimum and best practice guidelines as outlined in the

Code of Practice (version November 2009) as issued by the Association of Real Estate Funds. A table detailing the compliance with

the guidelines can be found on page 15.

Comparative Tables

for the year ended 31st December 2009Retail Accumulation Shares 134,127 89.40 150,029

Second Retail Accumulation Shares 1,009,089 109.01 925,691

Second Retail Income Shares 1,034 103.40 1,000

Institutional Accumulation Shares 71,515,663 89.88 79,568,264


Second Retail Accumulation Shares 3,972,975 112.77 3,522,977



Institutional Income Shares 61,791 97.27 63,528





Institutional Income Shares 1,545,183 86.68 1,782,653

for the period ended 30th June 2012Retail Accumulation Shares 217,556 84.32 258,012




Institutional Income Shares 1,483,790 83.24 1,782,529

20071Retail Accumulation Shares – 100.75 98.172Institutional Accumulation Shares – 100.74 98.17

2008Retail Accumulation Shares 4.3440 98.53 88.55

Institutional Accumulation Shares 4.5448 98.55 88.72


3Second Retail Accumulation Shares 1.5375 106.07 99.744Second Retail Income Shares – 100.55 100.00



Second Retail Accumulation Shares 4.3547 124.10 109.57

Second Retail Income Shares 4.1790 117.50 103.89

Institutional Accumulation Shares 3.7004 103.70 90.355Institutional Income Shares 1.9591 109.80 101.90


Second Retail Accumulation Shares 4.6469 126.90 101.70

Second Retail Income Shares 4.1717 114.80 90.64


Institutional Income Shares 3.9946 110.40 86.60

20126Retail Accumulation Shares 1.8160 95.57 83.246Second Retail Accumulation Shares 2.1947 114.40 100.606Second Retail Income Shares 1.9117 99.71 87.626Institutional Accumulation Shares 1.8406 96.77 84.356Institutional Income Shares 1.8304 96.22 83.93

†From 1st March 2010 the Company moved to dual pricing. Prior to this date the Companyvalued on a single price basis.

1Retail Accumulation shares launched 7th September 2007.2Institutional Accumulation shares launched 7th September 2007.3Second Retail Accumulation shares launched 12th June 2009.4Second Retail Income shares launched 15th December 2009.5Institutional Income shares launched 29th June 2010.6To 30th June 2012.

Total Expense RatioJune December

for the period ending 30th June 2012 2012* 2011

Retail Accumulation Shares 1.12% 1.15%

Second Retail Accumulation Shares 1.62% 1.65%

Second Retail Income Shares 1.62% 1.65%

Institutional Accumulation Shares 0.72% 0.75%

Institutional Income Shares 0.72% 0.75%

The Total Expense Ratios (TER) for the Company in this report have been prepared in accordance with the Financial Services

Authority’s regulatory guidelines COLL 4 Annex 2.

Property Expense RatioJune December

for the period ending 30th June 2012 2012* 2011

Retail Accumulation Shares 0.11% 0.32%

Second Retail Accumulation Shares 0.11% 0.32%

Second Retail Income Shares 0.11% 0.32%

Institutional Accumulation Shares 0.11% 0.32%

Institutional Income Shares 0.11% 0.32%

A Property Expense Ratio (PER) is shown which takes into account expenses that are associated with the day to day maintenance of

the property assets and excludes costs associated with operating the Company.

*Annualised Ration

13



1st January 2012 to 1st July 2011 to 1st July 2010 to 1st July 2009 to30th June 2012 30th June 2012 30th June 2011 30th June 2010

% % % %

Retail Accumulation Shares –0.84 –11.67 2.53 12.68

Second Retail Accumulation Shares –0.98 –11.93 2.04 12.39

Second Retail Income Shares –3.28 –15.71 –0.16 N/A

Institutional Accumulation Shares –0.67 –11.35 2.88 6.38

Institutional Income Shares –2.94 –15.03 0.84 N/A

UK IMA Property Median Performance 5.67 0.24 13.67 20.85

(OEIC Benchmark for Real Estate Trusts)

Percentage Percentageof Total Net of Total Net

Net Asset Value Asset Value of the Asset Value of theof Shares as at Company as at Company as at

period end start of period end of periodFor the period ending 30th June 2012 Number of Shares (£) (%) (%)

Share creations 8,717,920 7,483,420 8.53% 8.95%

Share redemptions 11,525,223 9,893,195 11.27% 11.83%

Share Turnover (all classes)

Number of As at 30th June 2012 ownership band Shareholders % NAV

Less than 1% of Shares in issue 27 3.52

1% or greater but less than 2% 1 1.83

2% or greater but less than 4% – –

4% or greater but less than 8% 1 7.67

Greater than 8% of shares in issuse 3 86.98

Grand Total 32 100.00Total number of shares in issue 97,427,712Internal Investors –External Investors 100.00Total 100.00

%Largest Investor 62.34

Largest 3 Investors 86.98



Share Analysis (all classes)

Company Performance Summary

Source: Threadneedle. Bid to bid prices are quoted (i.e. Not including any initial charge) with net income reinvested for the UK basic rate tax payer. Performancedata is quoted in pound sterling. OEIC Benchmark for Real Estate Trusts refers to the IPD UK Monthly Index since 30th September 2007.

14



Finance Costs: Distributions per Share

Yield on Yield onOpening Closing Distribution closing closing

For the period ending offer price offer price accrued NAV price offer price30th June 2012 (pence) (pence) (pence) (%) (%)

Retail Accumulation Shares 94.44 92.93 1.82 2.15 1.95

Second Retail Accumulation Shares 113.20 111.20 2.19 2.16 1.97

Second Retail Income Shares 98.59 96.82 1.91 2.20 1.97

Institutional Accumulation Shares 95.59 94.22 1.84 2.15 1.95

Institutional Income Shares 95.05 93.76 1.83 2.20 1.95

15



AREF Code Requirements In Compliance If not in minimum Compliance – please state reason

Governance of the Company A B

1. Company Structure and Objectives ✔ ✔

2. Management structure and accountability ✔ ✔

3. Reporting ✔ ✔

Operating the Company A B

1. Valuations ✔ ✔

2. Cash and Money Market Instruments ✔ ✔

3. Gearing ✔ ✔

4. Use of Derivatives ✔ ✔

5. Distributions ✔ ✔

6. Management Fees & other expenses ✔ ✔

7. Insurance & Service Charge Rebates ✔ ✔

8. Disaster Recovery ✔ ✔

Share Dealing and Performance A B

1. Dealing (subscriptions and redemptions) ✔ ✔

2. Secondary Market ✔ ✔

3. Share Turnover ✔ ✔

4. Investor Analysis ✔ ✔

5. Historical Performance ✔ ✔

6. Benchmarks ✔ ✘ The Company’s benchmark is Morningstar. This

provides a consistent and appropriate

comparative measure for the Company.

Company Classification OU Open Ended

Key

✔ In Compliance: A. Minimum. B. Best Practice.

✘ Do not comply with AREF requirements in this area.

AREF Compliance Checklist:

16



Further Information

CompanyThe Company, an open-ended investment company with

variable capital is a single fund. It is authorised and regulated

by the Financial Services Authority, register number 190437

with effect from 22 August 2007. Incorporated in England and

Wales No. IC577. Head Office: 60 St Mary Axe, London,

EC3A 8JQ.

The ACDThe ACD is the sole director of the Company and is responsible

for all aspects of its administration and management. The ACD

is Threadneedle Investment Services Limited which is

authorised and regulated by the Financial Services Authority,

register number 190437. The ACD is a member of the

Investment Management Association. It is incorporated in

England and Wales No. 03701768 and its registered office is

60 St Mary Axe, London, EC3A 8JQ. Please note the

administration address for all correspondence to the ACD is

PO Box 10033, Chelmsford, CM99 2AL and its telephone

number is 0845 113 0273 (calls may be recorded).

The ultimate holding company of the ACD is Ameriprise

Financial Inc., a corporation incorporated in Delaware, USA.

The DepositaryThe Depositary acts as the custodian for all assets relating to

the Company. The Depositary is J.P. Morgan Trustee and

Depositary Company Limited, Chaseside, Bournemouth,

Dorset, BH7 7DA. The Depositary is authorised and regulated

by the Financial Services Authority.

The Standing Independent Valuer The Standing Independent Valuer to the Company is Colliers

International UK PIc. The Standing Independent Valuer is a

private company limited by shares incorporated in England

and Wales with registered number 4195561. The Standing

Independent Valuer was appointed by an agreement between

the ACD and the Standing Independent Valuer.

The Standing Independent Valuer is responsible for valuing the

immovable property (the real property) of the Company. The

Standing Independent Valuer also acts as an appropriate valuer

as referred to in the FSA Rules, when permitted to do so under

the FSA Rules.

Minimum Holdings and Transactions

Subscription DaysShares may be purchased or sold on any business day. The

price of shares is calculated daily. A forward pricing basis is

used. Prices are published on our website (www.threadneedle

.com) or can be obtained by telephone on 0845 113 0273. Calls

may be recorded for training and monitoring purposes.

Selling SharesShareholders may offer all their shares for sale to the ACD.

Alternatively, they may offer a lesser number for sale, provided

they retain at least the minimum holding referred to opposite.

All sale instructions must be made to the ACD in writing. The

shares will be purchased from the shareholder at the next

valuation point and a contract note confirming the sale will

be sent.

SDRT ProvisionSDRT is chargeable on the surrender (i.e. the redemption or

switching of shares), and on certain transfers of shares in the

funds. The current rate of SDRT is 0.5%.

The liability for SDRT is calculated weekly by reference to

share sales and repurchases in that and the following week but

is reduced proportionately to the extent that the investments

held by the fund are exempt investments, which essentially are

any assets other than United Kingdom equities and other

collective investment schemes that are not exempt from SDRT.

Any fund which only invests in exempt investments, i.e. holds

no United Kingdom equities, will therefore be wholly exempt

from SDRT.

How it affects shareholders and potential shareholders:

The Authorised Corporate Director meets the SDRT liability

from the property of the Company. It is not the ACD’s intention

to require the payment of a further provision for SDRT,

however, it reserves the right to do so in respect of large deals

(as set out in the Prospectus).

Income EqualisationWhen 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 Income Shares in

computing capital gains realised on their disposal.

ChargesCertain charges are levied to cover the operating costs of the ACD.

Initial AnnualCharge Management

Charge

Retail Shares 5% 1.0%

Second Retail Shares 4% 1.5%

Institutional Shares 5% 0.6%

Monthly Lump Subsequent Minimumsum Investment Shareholding

Retail Shares £100 £1,000 £500 £500

Second Retail Shares £100 £1,000 £500 £500

Institutional Shares – £500,000 £100,000 £100,000

17


An initial charge may be levied when Retail Shares or

Institutional Shares are created, all or part of which may be

waived at the discretion of the ACD.

An annual management charge is also levied as a percentage

of the Net Asset Value represented by relevant share class. In

addition each Fund pays expenses for the professional services

they receive such as safe custody, audit, regulatory and fund

management advice. These charges are deducted daily from

the capital of the Fund.

AccumulationRevenue is accumulated by a transfer to the capital account of

the Company on the day following the record date, being the

last day in each accounting period.

ReportsThe simplified short report is sent to all shareholders on a

half-yearly basis. The full long form report and accounts are

available on request from Threadneedle Investment Services

Limited, PO Box 10033, Chelmsford, CM99 2AL.

ProspectusFurther details concerning the Company are contained in the

Simplified Prospectus or Full Prospectus, which is available on

request from the ACD.

Application for SharesYour first investment into the Company must be made using

our standard application form or by telephone. You can make

additional investments by letter or telephone, provided you

include your full name and investment details for registration

purposes. Applications and additional investments can only be

made by post to Threadneedle Investment Services Limited,

PO Box 10033, Chelmsford, CM99 2AL. Applications will only

be effective when they are received by us at the administration

address above.

Buying and selling shares – shares are bought or sold on your

behalf in the Company on a forward pricing basis. This means,

if we receive your full instructions in writing to invest, switch

or cash in money before 2 p.m. on a business day, you will get

the share price calculated that day. After 2 p.m. or on days

which are not business days, you will get the price calculated

on the next business day.

Social ResponsibilityAt Threadneedle we are active investors committed to

maximising our investment returns though the pursuance of

good governance and socially responsible investment

practices. We are signatories to the United Nations Principles

for Responsible Investment (UN PRI).

We believe that the analysis of governance, social, ethical and

environmental factors should be incorporated into stock

selection to impact returns. Consequently, management of the

risks and opportunities presented by these factors is integral to

our investment decision-making process.

Website PublicationThe financial statements are published at threadneedle.com,

which is a website maintained by Threadneedle Investment

Services Limited. The maintenance and integrity of the website

maintained by Threadneedle Investment Services Limited, so far

as it relates to the Threadneedle UK Property Fund II, is the

responsibility of Threadneedle Investment Services Limited. The

work carried out by the auditors does not involve consideration

of the maintenance and integrity of this website and

accordingly, the auditors accept no responsibility for any

changes that have occurred to the financial statements since

they were initially presented on the website. Visitors to the

website need to be aware that legislation in the United Kingdom

governing the preparation and dissemination of the financial

statements may differ from legislation in their jurisdiction.


18


Management and Administration

Company

Threadneedle UK Property Fund II

Registered Number IC577

Registered Office

60 St Mary Axe, London EC3A 8JQ

Authorised Corporate Director (ACD)

Threadneedle Investment Services Limited

60 St Mary Axe, London EC3A 8JQ

Chairman and Chief Executive

C J Henderson

Other Directors

C D Fleming

T N Gillbanks

P J W Reed

N J Ring

Independent Auditors

Ernst & Young LLP

1 More London Place

London

SE1 2EF

Registrar and Transfer Agency

International Financial Data Services (UK) Limited

IFDS House

St Nicholas Lane

Basildon

SS15 5FS

Investment Manager

Threadneedle Asset Management Limited

(Authorised and regulated by the

Financial Services Authority (FSA))

60 St Mary Axe

London

EC3A 8JQ

Legal Advisers

Eversheds LLP

1 Wood Street

London

EC2V 7WS

Standing Independent Valuer

Colliers International UK Plc

9 Marylebone Lane

London

W1U 1HL

Depositary

J.P. Morgan Trustee and Depositary Company Limited

Chaseside

Bournemouth

BH7 7DA

Property Manager

Montagu Evans LLP

Clarges House

6-12 Clarges Street

London

W1J 8HB

Customer Administration

PO Box 10033

Chelmsford

CM99 2AL

Please ensure all correspondence includes the full name of the

registered holder and the account number. Telephone:

+44 (0) 845 113 0273 (calls may be recorded for training and

monitoring purposes).


Important InformationPast performance is not a guide to future performance.

This material is for information only and does not constitute an

offer or solicitation of an order to buy or sell any securities or

other financial instruments, or to provide investment advice or

services.

Subscriptions to the Company may only be made on the basis

of the current Prospectus and Simplified Prospectus, as well as

the latest annual or interim reports, which can be obtained free

of charge on request from the ACD.

The research and analysis included in this document has been

produced by Threadneedle Investments for its own investment

management activities, may have been acted upon prior to

publication and is made available here incidentally. Any

opinions expressed are made as at the date of publication but

are subject to change without notice. Information obtained

from external sources is believed to be reliable but its accuracy

or completeness cannot be guaranteed.

Key Risks of the Company: Market Risk

The value of investments can fall as well as rise and investors

might not get back the sum originally invested, especially if

investments are not held for the long term.

Currency Risk

Where investments are made in assets that are denominated in

foreign currency, changes in exchange rates may affect the

value of the investments.

Liquidity Risk

The Company invests in assets that are not always readily

saleable without suffering a discount to fair value. The portfolio

may have to lower the selling price, sell other investments or

forego another, more appealing investment opportunity.

Please refer to the ‘Risk Factors’ section of the Prospectus for

all risks applicable to investing in the Company.

19



Threadneedle Investment Services Limited, ISA Manager, Authorised Corporate Director and Unit Trust Manager. Registered No. 3701768. Registered in England and Wales. Registered Office: 60 St Mary Axe, London EC3A 8JQ. Authorised and regulated by the Financial Services Authority. Threadneedle Investments is a brand name and both the Threadneedle Investments name and logo are trademarks or registered trademarks of the Threadneedle group of companies. threadneedle.com

threadneedle uk property fund ii€¦ · 30/06/2012 · the central london office market. modest...

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