LLOYDS INVESTMENT FUNDS LIMITED

Interim Report and Unaudited Financial Statements

For the period ended 31st March 2014

Lloyds Investment Funds Limited

Contents

Company Information 2

Investment Objectives and Policy 3

Directors’ Profiles 4

Report of the Directors 5

Report of the Investment Manager 7

Balance Sheets 12

Statements of Comprehensive Income 16

Statements of Changes in Net Assets Attributable to Holders of Participating Redeemable Preference Shares 18

Cash Flow Statements 20

Investment Dealing 24

Investment Portfolios 25

Euro High Income Fund 25

European Fund 28

High Income Fund 30

International Fund 35

North American Fund 37

Sterling Bond Fund 39

UK Fund 42

Investments Purchased and Sold 44

Summary of Material Portfolio Changes 45

Notes to the Financial Statements 49

Distribution Table 74

Performance Record 76

Net Asset Value per Share 79

1 Lloyds Investment Funds Limited

Company Information

Registered Office Legal Advisers PO Box 160, 25 New Street, In England: St Helier, Linklaters Jersey, JE4 8RG, One Silk Street, London, Channel Islands. EC2Y 8HQ. Principal Place of Business Investment Manager PO Box 311, 11 - 12 Esplanade, St Helier, Scottish Widows Investment Partnership Limited, Jersey, JE4 8ZU, 33 Old Broad Street, Channel Islands. London EC2N 1HZ. Directors Custodian c/o Registered Office Capita Trust Company (Jersey) Limited, R. D. Willcox (Chairman) PO Box 532, 12 Castle Street, I. M. J. Hardy St Helier, B. C. James Jersey, JE2 3RT, N. R. Jeacock-Fewtrell Channel Islands. T. J. Herbert Secretary. PO Box 87, 22 Grenville Street, St Helier, Jersey, JE4 8PX, Lloyds Corporate Services (Jersey) Limited, Channel Islands. PO Box 160, 25 New Street, St Helier, Manager and Registrar Jersey, JE4 8RG, Channel Islands. Lloyds Investment Fund Managers Limited , PO Box 160, 25 New Street, Independent Auditors St Helier, Jersey, JE4 8RG, PricewaterhouseCoopers CI LLP, Channel Islands. 37 Esplanade, Tel: +44 (0) 1534 845555 St Helier, Jersey, JE1 4XA, Legal Advisers Channel Islands. In Jersey: Paying Agent Mourant Ozannes Lloyds Bank International Limited , PO Box 87, 22 Grenville Street, St Helier, PO Box 111, Jersey, JE4 8PX, Peveril Buildings, Peveril Square, Channel Islands. Douglas, IM99 1JJ, Isle of Man.

2 Lloyds Investment Funds Limited

Investment Objectives and Policy Lloyds Investment Funds Limited ‘the Company’ is an open-ended International Fund investment company registered in Jersey with seven classes each Objective being an individual fund. To seek long term capital appreciation through investment in It is known as an ‘umbrella’ Fund because it provides its securities world-wide. shareholders with a variety of investment options under the umbrella of a single Company. Investment Policy To be invested primarily in a diversified portfolio of international The overall objective of the Company is to provide investors with a equities and from time to time in securities convertible into equities. managed investment designed to meet the specific objectives laid down for each Fund. The investment objectives and policy of each North American Fund Fund is set out below. Objective Euro High Income Fund To seek long term capital appreciation through investment Objective in North American securities. To maintain a high income through investment in a spread of fixed Investment Policy interest securities denominated predominately in euro. To be invested primarily in a diversified portfolio of North Investment Policy American equities and from time to time in securities convertible into equities. To support the payment of dividends above the level of short term euro interest rates. This policy will result in a gradual reduction in Sterling Bond Fund the capital value of the Shares, except when bond prices generally are rising. The Company will normally hold a relatively wide range Objective of securities in order to keep a low level of exposure to individual To provide a regular income from a managed portfolio of sterling bond issues other than government securities. The Company may fixed interest securities with a particular emphasis on those also hold a substantial part of its assets in bank deposits and money securities on which interest is paid gross to non residents of the market instruments from time to time. The Company is permitted to United Kingdom. invest in securities denominated in currencies other than euro. The Investment Policy current policy of the Directors is that any such investments in non- The assets of the Company are generally invested in a managed euro denominated securities should be fully hedged against euro to portfolio of sterling fixed interest securities which have been issued eliminate the effects of any exchange rate movements. by governments, local authorities, public utilities and corporations. European Fund If it appears advisable to hold assets having a short term maturity, then the Company may also place money on bank deposit (subject Objective to certain limitations) or to purchase money market instruments. To seek long term capital appreciation through investment in European securities. Similarly, derivative instruments such as traded options and financial futures may be used to reduce risk. Investment Policy To be invested primarily in a diversified portfolio of European UK Fund (excluding the United Kingdom) equities and from time to time in Objective securities convertible into equities. To seek long term capital appreciation through investment High Income Fund in United Kingdom securities. Objective Investment Policy To seek a high income from a spread of fixed interest securities. To be invested primarily in a diversified portfolio of United Kingdom equities and from time to time in securities convertible into equities. Investment Policy To support the payment of dividends above the level of short term sterling interest rates. This policy will result in a gradual reduction in It should be remembered that the price of shares and the income the capital value of the Shares, except when bond prices generally from them can go down as well as up and is not guaranteed. are rising. The Company will normally hold a relatively wide range Consequently, and particularly in the case of early encashment, you of securities in order to keep a low level of exposure to individual might not get back the amount originally invested. Dividends are not bond issues other than government securities. The Company may guaranteed and may fluctuate in money terms. also hold a substantial part of its assets in bank deposits and money market instruments from time to time. The Company is permitted to invest in securities denominated in currencies other than sterling. The current policy of the Directors is that any such investments in non-sterling denominated securities should be fully hedged against sterling to eliminate the effects of any exchange rate movements.

3 Lloyds Investment Funds Limited

Directors’ Profiles

Ross Davey Willcox (Chairman) – Head of International Investments and Wealth Solutions, Customer Products, Lloyds Banking Group. Joined the Lloyds Banking Group in 1977 and has held a number of managerial positions in the UK and Internationally. Was appointed Managing Director of the Jersey Fund Management Company in 1999 and is currently Chairman/Director of the International Fund Companies. Current responsibilities include the value proposition of all investment products for International Wealth. A qualified Banker, a Fellow of the Securities & Investment Institute and a Chartered Director. Aged 54. Ian Mark Jeremie Hardy – Senior Product Manager, Customer Products, Lloyds Banking Group. Joined the Lloyds Banking Group in 1981 and held a number of managerial positions before being appointed Managing Director of the Group’s Guernsey based Fund Management Company in 1997 and a Director of the Company in 2000. Current responsibilities include provision of technical and regulatory advice on a range of investment products and services. Holder of an upper second class honours degree from the University of Aston in Birmingham in Business Administration and Transport Planning. Aged 55. Timothy Joseph Herbert – Consultant, Mourant Ozannes. Jersey born and educated. M.A. in jurisprudence Trinity College Oxford 1982. Member of Middle Temple. Joined Mourant du Feu & Jeune (now Mourant Ozannes) in May 1983. Sworn in as an advocate of the Royal Court, September 1985. Tim Herbert was a partner of Mourant Ozannes from 1987 to 2012. In July 2012 he stepped down from the partnership and is now retained by Mourant Ozannes as a consultant to the firm. He has extensive experience in corporate and commercial law and mutual funds advice. Holds other external directorships and also acts as Honorary Consul for Finland. Aged 55. Brian Charles James – Head of Investment Operations Jersey, International Wealth, Lloyds Banking Group. Joined the Lloyds Banking Group in 1988 and has held a number of managerial positions primarily in Financial Control and Risk Management roles. Appointed as a Director in 1997. Current responsibilities include leading a team of specialists delivering operational support for a range of offshore investment products and services. A Chartered Director. Aged 52. Nigel Ross Jeacock-Fewtrell – Transaction Leader, Change and Transformation, International Wealth, Lloyds Banking Group. Joined the Lloyds Banking Group in 1985 and has held a number of managerial positions in Jersey, UK and Hong Kong. Appointed as a Director in 2002. Current responsibilities include delivering strategic change to the Group’s international business. A Chartered Director. Aged 47.

4 Lloyds Investment Funds Limited

Report of the Directors

The Directors have pleasure in submitting their Interim Report Copies of the Prospectus are available, free of charge, on application together with the Unaudited Financial Statements for the six month to the Manager. Alternatvely they can be accessed on our website at period ended 31st March 2014. http://international.lloydsbank.com/international-investments/ funds/. Results The results for the period are set out in the financial statements on Management and Administration Providers pages 12 to 73. The names and addresses of management and administration providers are stated on page 2. Distributions Distributions for the period are detailed in Note 5 to the financial Comparatives Tables statements. The distribution table, performance record and net asset value per share tables are stated on pages 74 to 79. Directors Mr R.D. Willcox, Mr I.M.J. Hardy, Mr T.J. Herbert, Mr B.C. James and Directors’ Responsibilities. Mr N.R. Jeacock-Fewtrell were Directors throughout the period, The Directors are responsible for preparing the financial statements have since continued to act and are willing to remain in office. in accordance with applicable law and International Financial Reporting Standards (IFRS). The Directors are required by the As at 31st March 2014, the Shares held in the Company by the Companies (Jersey) Law 1991 to prepare financial statements Directors were as follows: for each financial year which give a true and fair view of the state Mr I. M. J. Hardy Shares of affairs of the Company for that year and are in accordance International Fund 4,441.80 with applicable laws. In preparing these financial statements the Directors are required to: No Director has a service contract with the Company and is, or was, materially interested in any service or other contract entered into by • select suitable accounting policies and then apply the Company. them consistently; • make judgements that are reasonable and prudent; Mr T.J. Herbert is a consultant to Mourant Ozannes, the Jersey legal advisers to the Company and the Manager. Mourant Ozannes • state whether applicable accounting standards have been receives fees in connection with advising the Company and the • followed subject to any material departures disclosed and Manager. explained in the financial statements; and Mr R.D. Willcox, Mr B.C. James, Mr I.M.J. Hardy and Mr N.R. • prepare the financial statements on the going concern basis Jeacock-Fewtrell are Directors of Lloyds Investment Fund Managers unless it is inappropriate to presume that the Company will Limited (the ‘Manager’) which has a management contract with the continue in business. Company. Fees earned by the Manager are disclosed in these The Directors are responsible for keeping proper accounting records financial statements in note 9. which disclose with reasonable accuracy at any time the financial Investment Activities position of the Company and to enable them to ensure that the financial statements comply with the Companies (Jersey) Law 1991 The Report of the Investment Manager is set out on pages 7 to 11. and the Collective Investment Funds (Recognized Funds) (Rules) Independent Auditors (Jersey) Order 2003 (as amended). PricewaterhouseCoopers CI LLP were re-appointed as Independent They are also responsible for the safeguarding of the assets of Auditors at the Annual General Meeting held on 19th March 2014 the Company which includes the appointment of a duly qualified and have indicated their willingness to remain in office. Custodian. The Directors must also ensure that they or their duly appointed agents take reasonable steps for the prevention Change of ownership of Scottish Widows and detection of fraud, error and non-compliance with law and Investment Partnership regulations. In November 2013 Lloyds Banking Group announced its intention to The Directors confirm that they have complied with the above sell its asset management business, Scottish Widows Investment requirements in preparing the financial statements. Partnership (‘SWIP’) to Aberdeen Asset Management (‘AAM’). So far as the Directors are aware, there is no relevant audit The change of ownership of SWIP completed on 31st March information of which the Company’s Auditors are unaware, and 2014. SWIP, now part of AAM, remain the Investment Manager of each Director has taken all the steps that he ought to have taken the Fund. as Director, in order to make himself aware of any relevant audit information and to establish that the Company’s Auditors are Prospectus aware of that information. A revised Prospectus , reflecting the above change was issued dated April 2014.

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Report of the Directors continued

Market Conditions Some of the assets held within certain Funds have been adversely The market value per Share of the property of each affected by market conditions, this has also affected the share price Fund was as follows: of those Funds. The Directors would like to remind shareholders that investment in the Funds should be considered as a long term 31st March 1st Oct commitment, as the price of shares may rise and fall in the short 2014 2013 term in response to changing market conditions. Euro High Income Fund* 166.10c 162.30c European Fund 819.10p 788.90p Information Exchange High Income Fund 86.67p 86.43p Jersey has entered into a number of information exchange International Fund 432.70p 414.60p agreements with the authorities of other jurisdictions. These include requirements set out under The European Union Savings North American Fund 1,427.00p 1,315.00p Tax Directive (EUSD), Foreign Account Tax Compliance Act (FATCA) Sterling Bond Fund 143.50p 142.00p in the United States of America and UK Crown Dependencies Inter UK Fund 733.20p 704.70p Governmental Agreements. * Prices are in euro cents Shareholders should be aware that information on their investment The latest prices can be viewed on our website. may be shared with the relevant authorities, and may be passed http://international.lloydsbank.com/international-investments/ to the tax authorities in their country of residence, citizenship funds/prices/ or residence for tax purposes. For the avoidance of doubt Website this information may include (but not be limited to) details of shareholder names, addresses, unique identifiers (such as tax or The Directors have selected Lloyds Bank International Limited’s national insurance numbers), amount of investment, redemption or website as the host website for the Company’s financial statements sale proceeds and dividend payments. and believe this selection to be a reasonable one; the work carried out by the Auditors does not involve consideration of these matters Reporting Funds Regime and, accordingly, the Auditors accept no responsibility for any HM Revenue & Customs has accepted the entry of the Company changes that may have occurred to the financial statements since into the Reporting Funds Regime with effect from 1st October they were initially presented on the website. 2010 for the purposes of regulation 51 of the Offshore Funds (Tax) Information published on the internet is accessible in many Regulations 2009. countries. Legislation in Jersey governing the preparation and dissemination of financial statements may differ from legislation General Information in other jurisdictions. The Company is an open-ended investment Company with variable capital and shareholders are not liable for the debts of the Company. By order of the Board The Company holds a certificate as a recognized Securities Fund Lloyds Corporate Services (Jersey) Limited under the Collective Investment Funds (Recognized Funds) (Rules) Secretary (Jersey) Order 2003 (as amended), and holds a permit under Article 7 of the Collective Investment Funds (Jersey) Law, 1988. 1st May 2014 The Company is a recognised scheme under Section 272 of the Financial Services and Markets Act 2000 of the United Kingdom. The Company is listed on the Channel Islands Securities Exchange and on the Malta Stock Exchange.

6 Lloyds Investment Funds Limited

Report of the Investment Manager

Euro High Income Fund European Fund Performance Performance The Fund produced a return of 3.40% for the period ended 31st The Fund produced a return of 4.62% for the period ended 31st March 2014, compared to a return of 4.88% in the iBOXX Euro March 2014, compared to a median return of 9.29% in the Lipper Corporates 5 years + index. Hindsight European excluding UK sector and 7.68% in the FTSE Background and Strategy Europe ex UK index. Corporate bonds outperformed government bonds during the Background and Strategy reporting period. European equity markets delivered solid returns over the last In the three months to the end of December 2013, yield spreads six months. Driving sentiment was the ongoing extraordinary over government bonds narrowed considerably, However, the rise support from the world’s central banks (low interest rates, forward in underlying sovereign yields was such that overall returns were guidance, quantitative easing, etc.) and the improving economic only marginally positive. High-yielding bonds were strongly positive landscape. International investors have also been flooding into and higher beta instruments such as subordinated bank debt and Europe, attracted by cheap valuations and the implicit guarantee of corporate hybrids also delivered healthy returns. support from the European Central Bank (ECB). The period wasn’t without drama, however. Stocks sold-off over the opening stages Moving into 2014, corporate bonds continued to outperform, of 2014 after a rout in emerging markets, sparked by the US Federal despite some increase in risk aversion as a result of the Ukraine crisis Reserve’s decision to “taper” its bond-buying activities. Rising and some concerns over the Chinese economy. hostilities in Ukraine and weak Chinese economic data also weighed Throughout the review period, lower quality areas of the credit on sentiment. Nonetheless, risk assets were in the ascendancy, and market were the strongest performers, with subordinated financials the FTSE Europe ex-UK index was up 7.68% for the review period. and high yield corporate bonds generating better returns than Turning to the Fund, a holding in Continental did well. The company investment grade. has developed some of the key technologies necessary for reducing Early on, the Fund was positioned with a long position in credit CO2 emissions from cars. With regulations gradually tightening and overweight in higher beta areas of the market. Trading in the across the world, these products have been and continue to be three months to December was low as the Investment Manager in demand. This has allowed Continental’s sales to consistently was satisfied with the positioning. The exposure to Telecom Italia outpace global automotive production. With new technological was reduced, acknowledging that the company faced a number developments coming through all the time, in areas such as vehicle of challenges. safety, this should continue to be the case going forward. Ryanair was another highlight, the low-cost carrier’s shares were in demand In the current low yield and loose policy environment investors are after it reported a rise in advance bookings and passenger numbers being increasingly forced into lower quality areas of the market to in February. Traders took this as a sign that the firm’s new strategy generate income and returns. Corporate hybrid bonds - which have of user-friendly website, allocated seating, etc. is starting to yield grown in popularity over recent months - were strong performers. results. Other highlights included LEG Immobilien and Roche. Given that valuations have become more stretched, some profits By contrast, shares in DSM slumped after it updated the market have been booked. with below-forecast 2013 earnings. Meanwhile, Swatch Group had a Outlook challenging six months. Shares in the watchmaker tumbled after its The Fund remains long of credit risk – that is, the portfolio is skewed CEO warned that the ongoing strength of the Swiss franc relative to towards lower-rated and higher-yielding bonds, meaning it will the dollar would hurt profits. The company makes most of its pieces benefit from a continued tightening of credit spreads. However, if in its native Switzerland, and the strong currency makes them more prices strengthen further, the long risk position will be pared back. expensive overseas, while eroding the value of repatriated revenue. Holdings in BNP Paribas and Randstad also disappointed. The Fund is over 1.5 years short of duration compared to its Outlook benchmark as the Investment Manager anticipates higher government bond yields. The outlook for the eurozone has improved modestly. Peripheral European indices have performed particularly well, with Spanish and Looking ahead, the Investment Manager expects continued strong Italian equities in demand. demand for corporate bonds at higher yield levels. The Investment Manager thinks the asset class will outperform government bonds Mario Draghi’s promise that the European Central Bank would based on decent corporate fundamentals and the ongoing hunt for do “whatever it takes” to save the euro has bought politicians in yield in all the major currencies. In Europe in particular, the demand southern Europe some much-needed time to enact long overdue for investment grade and high yield credit appears insatiable for the reforms. While investors have cheered their initial efforts and time being. Spain and Italy have exited recession but much remains to be done. Recent surveys suggest that confidence is returning to businesses and consumers in the region; however, these improvements are from a very low base and their continued upward trend is imperative if profits are to eventually catch up with share prices.

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Report of the Investment Manager continued

The indebtedness of the Spanish economy and persistently high Outlook youth unemployment in Italy suggest that this may be a longer haul The Fund remains long of credit risk, that is, the portfolio is skewed than many are prepared for. towards lower-rated and higher-yielding bonds, meaning it will Deflation is also a concern, particularly in light of the debt piles in benefit from a continued tightening of credit spreads. However, some of these countries. Talk of quantitative easing has resurfaced, if prices strengthen further, the long risk position will be pared although given the necessary outlay - estimates put it at €1 trillion to back. The Fund is over 0.2 years short of duration compared to its generate 0.20%-0.80% of inflation, such a policy will remain a tough benchmark as The Investment Manager anticipates that yields will sell to the German electorate. rise over time. Overall, the Investment Manager maintains the overall composition Looking ahead, the Investment Manager expects continued strong of the portfolio, favouring those companies that should benefit from demand for corporate bonds at higher yield levels and believes the an economic recovery, but with the insurance policy of having strong asset class will outperform government bonds based on decent balance-sheets and good management teams should the recovery corporate fundamentals and the ongoing hunt for yield in all the disappoint. major currencies. High Income Fund Policymakers are likely to remain cautious and are wary of the impact of more volatile financial markets. As a result, The Investment Performance Manager believes central banks will only materially tighten policy The Fund produced a return of 2.49% for the period ended 31st when they are convinced recovery has taken hold. March 2014, compared to a return of 2.60% in the iBoxx Non Gilt ex Sovereign All Maturities index and comfortably outperformed the International Fund peer group median. Performance Background and Strategy The Fund produced a return of 3.96% for the period ended 31st Corporate bonds outperformed government bonds during the March 2014, compared to a median return of 5.04% in the Lipper reporting period. Hindsight International Equity sector and a 6.48% sterling return by the MSCI World index. In the three months to the end of December 2013, yield spreads over government bonds narrowed considerably, However, the rise Background And Strategy in underlying sovereign yields was such that overall returns were Global equity markets were up over the reporting period, with only marginally positive. High-yielding bonds were strongly positive the majority of the gains occurring over the first three months. and higher beta instruments such as subordinated bank debt and Latterly, sentiment was dampened by the Ukrainian crisis, hawkish corporate hybrids also delivered healthy returns. statements from the US Federal Reserve and a rout in emerging markets. The Fund underperformed its peer group median. Moving into 2014, corporate bonds continued to outperform, despite some increase in risk aversion as a result of the Ukraine crisis US equity markets were strongly ahead over the period. On 18 and some concerns over the Chinese economy. December, months of speculation finally came to an end as the Fed announced plans to scale back quantitative easing in the US. Initially, Throughout the review period, lower quality areas of the credit monthly bond purchases will be lowered from $85 billion to $75 market were the strongest performers, with subordinated financials billion, with more moderate cuts to be implemented in the future, and high yield corporate bonds generating better returns than subject to a continuing improvement in economic data. investment grade. In the UK, markets were boosted by the improving economic In the three months to the end of December, the Investment background, although they finished in negative territory for the first Manager reduced exposure to Telecom Italia, as the company faces quarter of 2014. A combination of the escalation of the Ukrainian a number of challenges. The Fund took profits on partial sales of crisis, hawkish statements from the US Federal Reserve (“the Fed”) holdings in Met Life, it also participated in a new deal from Intu, a UK and a rout in emerging markets all dampened sentiment in the property company, and a new US real estate issue from Healthcare second half of the reporting period. A lacklustre corporate reporting REIT. season and weak Chinese data didn’t help matters. In the current low yield and loose policy environment investors are European equities fared better, delivering double-digit returns being increasingly forced into lower quality areas of the market to over the six months. Helping to drive markets was a flood of generate income and returns. Corporate hybrid bonds have grown overseas cash entering the region, with investors attracted by in popularity over recent months and were strong performers. Given cheap valuations. that valuations have become more stretched, some profits have Japanese stocks were the biggest laggards among developed been booked. markets, managing only a small gain. At a sector level, the worst performers included electric power & gas and steel & non-ferrous metals. Real Estate also did badly. Finally, as a group, emerging markets were slightly up over the period, despite China’s poor performance in the early months of 2014 acting as a drag.

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At asset level, the Funds holding in Google had a positive effect on rate also increased, rising to 6.70% from 6.60% the month before. performance. The internet search company’s share price reached Over the six months, the Fund’s position in Google made a a series of new record highs, after its earnings release impressed positive contribution to performance. The internet technology investors. behemoth has continued to excel across its many segments. In contrast, the position in Japan’s Orix Corp had a negative effect Google’s management have continued to gain share in the internet on performance. As a financial services group specialising in leasing advertising, global smartphone and tablet market, leading to strong finance, the share price fell in line with its peers as the Japanese earnings results for the company. financial sector came under strain over the early months of 2014. In contrast, the holding in General Motors had a negative influence Treasury Wine Estates, based in Australia, was another detractor. on returns in recent months. The car maker’s share price fell over the Early in the quarter, Treasury suffered from some excess inventory quarter after it was forced to issue a mass recall of vehicles due to a issues. The company’s former CEO left the business in September potential problem with ignition switches. last year and has recently been replaced. In addition, the holding in Teradata acted as a detractor to returns Outlook over the latter months of 2013. This is a high-quality company, but From a sector perspective, the Fund retains a lack of exposure a lack of technology spending from its existing customers led to to consumer staples and energy. The former is expensive and poor business results through the year. This, combined with some offers low growth. In energy the outlook for the oil price remains new competitive threats, caused the share price to fall, although it uncertain. The sector’s valuations will likely remain depressed due bounced back over the second half of the period. The Investment to diminishing returns in an industry with high capital intensity. The Manager believes this lack of demand is a short term issue and have Investment Manager remains positive on the industrial, financials high conviction that orders will pick up materially into 2014. and healthcare sectors, based on bottom-up stock selection. Outlook North American Fund The US economy is undoubtedly recovering – it remains flexible and entrepreneurial, with much better demographics than many of its Performance Asian and European counterparts. Recent economic data suggest The Fund produced a return of 7.62% for the period ended 31st continued improvement in credit conditions and the labour market, March 2014, compared to a median return of 7.82% in the Lipper which should bode well for consumer confidence. The missing part Hindsight North American Offshore sector and 9.29% in the S&P 500 of the economic recovery puzzle is corporate capital spending where (sterling) index. investors have yet to see “animal spirits” returning. Nevertheless, pent-up demand and the age of current capital equipment suggests Background and Strategy capital expenditure is inevitable. The emergence of the shale-gas US equity markets were strongly ahead over the period, although industry may provide low-cost energy and therefore a competitive the majority of the outperformance occurred over the first three advantage for decades to come. A strong US may also help solve months. The Fund slightly underperformed its peer group median. many economic problems elsewhere in the world. On 18 December, months of speculation finally came to an end as the US Federal Reserve (“the Fed”) announced plans to scale back Sterling Bond Fund quantitative easing in the US. Initially, monthly bond purchases were Performance to be lowered from $85 billion to $75 billion, with more moderate The Fund produced a return of 1.87% for the period ended 31st cuts to be implemented in the future, subject to a continuing March 2014, compared to a peer group median return of 1.52% and improvement in economic data. 2.60% in the iBoxx Non Gilt ex Sovereign All Maturities. Later, Janet Yellen, the central bank’s newly appointed chief, broke with convention by suggesting a timeline for the first increase to US Background and Strategy interest rates. Having previously referred to a “considerable” period Corporate bonds outperformed government bonds during the between the end of the Bank’s stimulus measures and the first rate reporting period. hike, Janet Yellen went on to clarify her view that the gap would be In the three months to the end of December 2013, yield spreads “something on the order of around six months”. Although investors over government bonds narrowed considerably, However, the rise initially baulked at the news, much of the lost ground was regained in underlying sovereign yields was such that overall returns were in the days after the announcement, as market participants digested only marginally positive. High-yielding bonds were strongly positive the central bank’s implied positive outlook for the US economy. and higher beta instruments such as subordinated bank debt and External concerns, chiefly the uncertainty surrounding Crimea and corporate hybrids also delivered healthy returns. the Ukraine, were another source of market turbulence in early 2014. Moving into 2014, corporate bonds continued to outperform, Following Russia’s move to annexe the contested area, investors are despite some increase in risk aversion as a result of the Ukraine crisis concerned about existing and future sanctions on Russia, and the and some concerns over the Chinese economy. implications of such restrictions on US companies. In economic news, February’s employment numbers were mixed. The US economy added 175,000 jobs over the month, beating analysts’ predictions of a 150,000 increase. But the unemployment

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Report of the Investment Manager continued

Throughout the review period, lower quality areas of the credit market jitters. Nonetheless, most traders remained undeterred and market were the strongest performers, with subordinated financials markets rebounded strongly in February. and high yield corporate bonds generating better returns than The economic climate in the UK, meanwhile, has improved markedly. investment grade. Encouragingly, business investment has finally started to recover. Early on, the Investment Manager increased exposure to the This has been warmly welcomed by politicians and economists financial sector via purchases of bonds issued by Mellon Bank and alike. Hitherto, the UK recovery has been largely dependent on the Axa. The Fund also purchased a new hybrid issue from BG Energy, housing sector and consumer spending. However, signs that the financed by the sale of senior bonds from the same issuer. business community is starting to put its sizeable cash piles to work indicate that the recovery could be spreading. Unemployment In the current environment of low yield and loose policy, investors continues to fall (7.20% at the last reading), while inflation is under have been increasingly forced into lower quality areas of the control. market to generate income and returns. Corporate hybrid bonds - which have grown in popularity over recent months, were strong The recent corporate reporting season has been something of a performers. Given that valuations have become more stretched, the disappointment, however. The oil & gas sector, a large part of the Investment Manager has taken some profits in this area. index, had a particularly bad year. Names like Shell, BP and BG saw profits fall by around a fifth in 2013. Big pharmaceutical firms Outlook also struggled as patents expired and competition from generic The Fund remains long of credit risk, that is, the portfolio is skewed alternatives increased. Nonetheless, the better tone to the towards lower-rated and higher-yielding bonds, The Fund is economic data and ultra-loose monetary policy meant the FTSE All- overweight relative to benchmark in subordinated bank debt and Share index gained 9.47% over the year to end-February 2014. corporate hybrids issued by companies such as BG Energy and In terms of individual asset performance, ITV was one of the Orange. Some risk has however been reduced as valuations are strongest performers over the first half of the reporting period. The becoming increasingly challenging. programme maker and broadcaster ITV continued its remarkable The Fund is 0.4 years short of duration compared to its benchmark turnaround since its March 2009 nadir. The firm is starting to as the Investment Manager anticipates that yields will rise over time. find success with its production business, ITV Studios, which is Looking ahead, the Investment Manager expects continued strong internationalising ITV’s revenues and reducing the company’s demand for corporate bonds at higher yield levels and believes that reliance on cyclical advertising. the asset class will outperform government bonds based on decent More recently, Indus Gas had a negative effect on returns. The corporate fundamentals and the ongoing hunt for yield in all the company continues to struggle in the face of challenges in the major currencies. domestic Indian market and lack of liquidity in the stock. Further, the Policymakers are likely to remain cautious and are wary of the Indian Electoral Commission postponed a planned increase in Indian impact of more volatile financial markets. As a result, the Investment gas prices. Manager believes central banks will only materially tighten policy WPP was another detractor from performance. Despite a solid when they are convinced recovery has taken hold. trading update, underwhelming guidance for 2014 hurt the share price. Nevertheless, the Investment Manager continues to like the UK Fund business model and believe that WPP is well placed to deliver solid Performance growth over the year ahead. The Fund produced a return of 4.16% for the period ended 31st Outlook March 2014, compared to a median return of 5.24% in the Lipper The outlook for the UK economy continues to improve. Given the Hindsight UK Offshore Funds sector and 4.79% in the FTSE All momentum the economy carried into 2014, the Office for Budget Share index. Responsibility (OBR) has revised up its forecasts for near-term Background and Strategy growth. It now expects gross domestic product to expand by 2.70% UK equity markets were up over the six months, although the gains this year and 2.30% next, bringing it broadly into line with the occurred over the earlier half of the reporting period. Latterly, Investment Managers own views and those of the consensus. As a a combination of the escalation of the Ukrainian crisis, hawkish result, the economy is finally expected to regain its pre-crisis 2008 statements from the US Federal Reserve and a rout in emerging stature during the second half of this year. markets all dampened sentiment. The Fund underperformed its However, the OBR’s underlying message is more sobering. It points peer group median. to the unbalanced nature of the recovery, which has so far relied Despite the equity market’s positive performance, the period mainly on consumption and the housing market. It expects private wasn’t without drama. The US Federal Reserve’s decision to “taper” investment to rise towards, but not to reach, its pre-crisis share its bond-buying programme by $10 billion-a-month in December of GDP over the next five years. Recent manufacturing data has spread panic in emerging markets. This, in turn, dented sentiment in been encouraging, however, with output up a forecast-beating 1% the developed world, with many major indices selling-off heavily in between January and February. January. Russia’s threat to annex Crimea from Ukraine also added to

10 Lloyds Investment Funds Limited

Report of the Investment Manager continued

Given the potential for anticipation of a rate increase to cap the performance of house builders and selected retailers, the Fund has recently taken profits from these areas. Instead, the Investment Managers preferences are directed towards potential beneficiaries of any improvement in corporate spending – particularly media and some segments of the industrials sector.

Scottish Widows Investment Partnership Limited 1st May 2014

11 Lloyds Investment Funds Limited

Balance Sheet

As at 31st March 2014

Notes Company Capital Growth Euro High Income European Fund Fund Fund (Closed 05.07.13) £ £ € £ Assets 11,701,901 — 489,006 410,656 Cash and cash equivalents Creations receivable 24,204 — — 9,010

Investment sales receivable 29,744 — — 29,730

Financial assets at fair value through profit 409,798,741 — 12,741,498 15,899,316

Other accrued income & pre paid expenses 4 8,867,903 — 292,211 —

Total Assets 430,422,493 — 13,522,715 16,348,712 Equity 1,000 — — — Ordinary share capital Total Equity 1,000 — — — Cancellation payable 26,174 — — —

Investment purchases payable 2,760 — — —

Proposed distributions 5 1,837,728 — 144,869 —

Accrued expenses 6 772,406 — 34,256 48,133

Nominal shares 14 676,047 — — —

Total Liabilities* 3,315,115 — 179,125 48,133 Net assets attributable to holders of participating redeemable 17 427,106,378 — 13,343,590 16,300,579 preference shares Total Liabilities and Equity 430,422,493 — 13,522,715 16,348,712

* Excluding net assets attributable to holders of participating redeemable preference shares

The financial statements on pages 12 to 73 were approved by the Board of Directors on 1st May 2014 and are signed on their behalf by: R. D. Willcox } Directors B. C. James The notes on pages 49 to 73 form an integral part of these financial statements.

12 Lloyds Investment Funds Limited

Balance sheet

As at 31st March 2014

High International North Sterling UK Income Fund American Bond Fund Fund Fund Fund £ £ £ £ £ Assets 9,664,776 369,316 111,848 156,501 584,533 Cash and cash equivalents Creations receivable — 8,654 2,141 — 4,399

Investment sales receivable — — 14 — —

Financial assets at fair value through profit 306,625,491 25,342,409 8,945,268 22,077,748 20,374,863

Other accrued income & pre paid expenses 7,349,441 25,273 583 501,303 72,680

Total Assets 323,639,708 25,745,652 9,059,854 22,735,552 21,036,475 Equity — — — — — Ordinary share capital Total Equity — — — — — Cancellation payable 26,174 — — — —

Investment purchases payable — 112 — — 2,648

Proposed distributions 1,497,332 — — 220,630 —

Accrued expenses 497,612 65,582 27,117 48,033 57,609

Nominal shares — — — — —

Total Liabilities* 2,021,118 65,694 27,117 268,663 60,257 Net assets attributable to holders of participating redeemable 321,618,590 25,679,958 9,032,737 22,466,889 20,976,218 preference shares Total Liabilities and Equity 323,639,708 25,745,652 9,059,854 22,735,552 21,036,475

The notes on pages 49 to 73 form an integral part of these financial statements.

13 Lloyds Investment Funds Limited Balance Sheet continued

As at 30th September 2013

Notes Company Capital Growth Euro High European Fund Income Fund (Closed 05.07.13) Fund £ £ € £ Assets 4,887,328 — 421,238 462,428 Cash and cash equivalents Creations receivable 23,694 — — 9,003

Investment sales receivable 1,600,313 — — — Financial assets at fair value through 418,637,685 — 12,620,386 16,015,368 profit or loss Other accrued income & pre paid expenses 4 9,484,352 — 264,488 —

Total Assets 434,633,372 — 13,306,112 16,486,799 Equity 1,000 — — — Ordinary share capital Total Equity 1,000 — — — Cancellation payable 108,273 — 26,272 —

Investment purchases payable 1,412,988 — — —

Proposed distributions 5 2,229,652 — 149,686 —

Accrued expenses 6 710,006 — 34,793 48,552

Nominal shares 14 644,056 — — —

Total Liabilities* 5,104,975 — 210,751 48,552 Net assets attributable to holders of participating redeemable 17 429,527,397 — 13,095,361 16,438,247 preference shares Total Liabilities and Equity 434,633,372 — 13,306,112 16,486,799

* Excluding net assets attributable to holders of participating redeemable preference shares

The notes on pages 49 to 73 form an integral part of these financial statements.

14 Lloyds Investment Funds Limited

Balance Sheet continued

As at 30th September 2013

High International North Sterling UK Income Fund American Bond Fund Fund Fund Fund £ £ £ £ £ Assets 2,431,945 550,762 229,594 721,041 138,496 Cash and cash equivalents Creations receivable — 2,705 11,271 — 716

Investment sales receivable — 6,990 — — 1,593,323 Financial assets at fair value through 316,043,000 25,126,664 8,352,326 22,195,464 20,327,051 profit or loss Other accrued income & pre paid expenses 8,032,831 15,791 1,533 501,276 66,183

Total Assets 326,507,776 25,702,912 8,594,724 23,417,781 22,125,769 Equity — — — — — Ordinary share capital Total Equity — — — — — Cancellation payable 66,067 20,186 — — —

Investment purchases payable — 55,391 19,732 — 1,337,865

Proposed distributions 1,507,105 — — 261,197 335,889

Accrued expenses 436,331 66,548 27,190 43,519 58,704

Nominal shares — — — — —

Total Liabilities* 2,009,503 142,125 46,922 304,716 1,732,458 Net assets attributable to holders of participating redeemable 324,498,273 25,560,787 8,547,802 23,113,065 20,393,311 preference shares Total Liabilities and Equity 326,507,776 25,702,912 8,594,724 23,417,781 22,125,769

The notes on pages 49 to 73 form an integral part of these financial statements.

15 Lloyds Investment Funds Limited

Statement of Comprehensive Income

For the period ended 31st March 2014 Notes Company Capital Growth Euro High European Fund Income Fund (Closed 05.07.13) Fund £ £ € £ Operating Profit Net gains on financial assets at fair value 7 4,676,936 — 241,849 860,559 through profit or loss Investment income 10,276,125 — 298,545 62,649

Other income 8 9,208 — 6 205

Total operating expenses 9 (2,604,604) — (79,250) (165,959)

Operating profit 12,357,665 — 461,150 757,454 Finance Costs Distributions to holders of participating 5 (9,706,795) — (286,241) — redeemable preference shares Total finance costs (9,706,795) — (286,241) —

Profit/(Loss) before tax 2,650,870 — 174,909 757,454 Withholding tax on dividends 18 (61,658) — (3,150) (19,775) and other investment income Increase/(Decrease) in net assets attributable to holders of participating redeemable 2,589,212 — 171,759 737,679 preference shares from operations

For the period ended 31st March 2013

Notes Company Capital Growth Euro High European Fund Income Fund (Closed 05.07.13) Fund £ £ € £ Operating Profit Net gains on financial assets at fair value 7 22,944,342 1,440,240 464,559 2,539,597 through profit or loss Investment income 11,634,724 184,942 314,652 56,650

Other income 8 6,287 1,010 — 124

Total operating expenses 9 (2,826,583) (150,807) (89,068) (161,322)

Operating profit 31,758,770 1,475,385 690,143 2,435,049 Finance Costs Distributions to holders of participating 5 (10,024,502) — (298,761) — redeemable preference shares Total finance costs (10,024,502) — (298,761) —

Profit/(Loss) before tax 21,734,268 1,475,385 391,382 2,435,049 Withholding tax on dividends 18 (111,949) (10,675) (3,533) (12,289) and other investment income Increase/(Decrease) in net assets attributable to holders of participating redeemable 21,622,319 1,464,710 387,849 2,422,760 preference shares from operations

The notes on pages 49 to 73 form an integral part of these financial statements.

16 Lloyds Investment Funds Limited

Statement of Comprehensive Income

For the period ended 31st March 2014

High International North Sterling UK Income Fund American Bond Fund Fund Fund Fund £ £ £ £ £ Operating Profit Net gains on financial assets at fair value 1,035,304 1,111,465 698,992 (8,252) 778,123 through profit or loss Investment income 8,903,560 137,948 41,514 591,781 290,868

Other income 8,063 300 128 138 369

Total operating expenses (1,678,521) (251,604) (91,419) (131,887) (219,433)

Operating profit 8,268,406 998,109 649,215 451,780 849,927 Finance Costs Distributions to holders of participating (9,019,191) — — (450,493) — redeemable preference shares Total finance costs (9,019,191) — — (450,493) —

Profit/(Loss) before tax (750,785) 998,109 649,215 1,287 849,927 Withholding tax on dividends (788) (26,129) (10,751) — (1,600) and other investment income Increase/(Decrease) in net assets attributable to holders of participating redeemable (751,573) 971,980 638,464 1,287 848,327 preference shares from operations

For the period ended 31st March 2013 High International North Sterling UK Income Fund American Bond Fund Fund Fund Fund £ £ £ £ £ Operating Profit Net gains on financial assets at fair value 10,682,039 3,728,319 1,362,040 706,210 2,092,791 through profit or loss Investment income 9,911,667 203,791 50,755 625,399 335,265

Other income 4,585 205 33 184 146

Total operating expenses (1,717,360) (252,881) (96,154) (148,590) (224,100)

Operating profit 18,880,931 3,679,434 1,316,674 1,183,203 2,204,102 Finance Costs Distributions to holders of participating (9,303,823) — — (470,920) — redeemable preference shares Total finance costs (9,303,823) — — (470,920) —

Profit/(Loss) before tax 9,577,108 3,679,434 1,316,674 712,283 2,204,102 Withholding tax on dividends — (29,934) (14,603) (6,039) (35,418) and other investment income Increase/(Decrease) in net assets attributable to holders of participating redeemable 9,577,108 3,649,500 1,302,071 706,244 2,168,684 preference shares from operations

The notes on pages 49 to 73 form an integral part of these financial statements.

17 Lloyds Investment Funds Limited

Statement of Changes in Net Assets Attributable to Holders of Participating Redeemable Preference Shares

For the period ended 31st March 2014

Company Capital Growth Euro High European Fund Income Fund (Closed 05.07.13) Fund £ £ € £ Net assets attributable to holders of participating redeemable preference 429,527,397 — 13,095,361 16,438,247 shares as at 1st October 2013 Creation of participating redeemable 7,391,533 — 874,323 146,890 preference shares issued Redemption of participating redeemable (12,250,998) — (797,853) (1,022,237) preference shares

Dilution levies — — — —

Net (decrease)/increase from (4,859,465) — 76,470 (875,347) share transactions Increase in net assets attributable to holders of participating redeemable 2,589,212 — 171,759 737,679 preference shares from operations Movement in currency translation (150,766) — — — Net assets attributable to holders of participating redeemable preference 427,106,378 — 13,343,590 16,300,579 shares as at 31st March 2014

For the period ended 31st March 2013

Company Capital Growth Euro High European Fund Income Fund (Closed 05.07.13) Fund £ £ € £ Net assets attributable to holders of participating redeemable preference 438,315,675 13,426,521 12,366,572 14,180,105 shares as at 1st October 2012 Creation of participating redeemable 10,315,773 272,373 541,914 315,991 preference shares issued Redemption of participating redeemable (16,206,380) (425,149) (352,584) (956,866) preference shares

Dilution levies — — — —

Net (decrease)/increase from (5,890,607) (152,776) 189,330 (640,875) share transactions Increase in net assets attributable to holders of participating redeemable 21,622,319 1,464,712 387,850 2,422,759 preference shares from operations Movement in currency translation 437,671 — — — Net assets attributable to holders of participating redeemable preference 454,485,058 14,738,457 12,943,752 15,961,989 shares as at 31st March 2013

The notes on pages 49 to 73 form an integral part of these financial statements.

18 Lloyds Investment Funds Limited

Statement of Changes in Net Assets Attributable to Holders of Participating Redeemable Preference Shares

For the period ended 31st March 2014

High International North Sterling UK Income Fund American Bond Fund Fund Fund Fund £ £ £ £ £ Net assets attributable to holders of participating redeemable preference 324,498,273 25,560,792 8,547,802 23,113,066 20,393,311 shares as at 1st October 2013 Creation of participating redeemable 4,932,162 600,899 110,660 339,923 538,179 preference shares issued Redemption of participating redeemable (7,060,272) (1,453,713) (264,189) (987,387) (803,599) preference shares

Dilution levies — — — — —

Net (decrease)/increase from (2,128,110) (852,814) (153,529) (647,464) (265,420) share transactions Increase in net assets attributable to holders of participating redeemable (751,573) 971,980 638,464 1,287 848,327 preference shares from operations Movement in currency translation — — — — — Net assets attributable to holders of participating redeemable preference 321,618,590 25,679,958 9,032,737 22,466,889 20,976,218 shares as at 31st March 2014

For the period ended 31st March 2013

High International North Sterling UK Income Fund American Bond Fund Fund Fund Fund £ £ £ £ £ Net assets attributable to holders of participating redeemable preference 326,651,897 22,236,590 8,633,780 23,372,673 19,947,687 shares as at 1st October 2012 Creation of participating redeemable 8,152,630 259,051 59,754 487,584 316,511 preference shares issued Redemption of participating redeemable (9,104,246) (1,094,849) (1,556,722) (792,778) (1,981,764) preference shares

Dilution levies — — — — —

Net (decrease)/increase from (951,616) (835,798) (1,496,968) (305,194) (1,665,253) share transactions Increase in net assets attributable to holders of participating redeemable 9,577,108 3,649,499 1,302,071 706,244 2,168,685 preference shares from operations Movement in currency translation — — — — — Net assets attributable to holders of participating redeemable preference 335,277,389 25,050,291 8,438,883 23,773,723 20,451,119 shares as at 31st March 2013

The notes on pages 49 to 73 form an integral part of these financial statements.

19 Lloyds Investment Funds Limited

Cash Flow Statement

For the period ended 31st March 2014

Company Capital Growth Euro High European Fund Income Fund (Closed 05.07.13) Fund £ £ € £ Cash flows from operating activities Purchases of financial assets and (52,009,999) — (889,919) (2,711,188) settlement of financial liabilities Receipts from sale of investments 65,341,329 — 1,006,891 3,672,143

Investment income received 11,106,897 — 271,427 42,874

Bank interest received 9,208 — 6 205

Interest Paid (434) — (3) (94)

Operating expenses paid (2,542,734) — (81,424) (166,284) Net cash inflow 21,904,267 — 306,978 837,656 from operating activities Cash flows from financing activities Distributions paid to holders of participating (10,097,503) — (291,058) — redeemable preference shares issued Proceeds received from issue of participating redeemable 7,393,941 — 874,323 146,884 preference shares Payments on redemption of participating redeemable (12,335,534) — (824,125) (1,022,237) preference shares Tax 1,361 — 1,640 —

Dilution levies — — — — Net cash (outflow) (15,037,735) — (239,220) (875,353) from financing activities Net increase/ (decrease) 6,866,532 — 67,758 (37,697) in cash and cash equivalents Cash and cash equivalents 4,887,328 — 421,238 462,428 as at 1st October 2013 Exchange (losses)/gains on (46,916) — 10 (14,075) cash and cash equivalents Movement in currency (5,043) — — — translation Cash and cash equivalents 11,701,901 — 489,006 410,656 as at 31st March 2014

The notes on pages 49 to 73 form an integral part of these financial statements.

20 Lloyds Investment Funds Limited

Cash Flow Statement

For the period ended 31st March 2014

High International North Sterling UK Income Fund American Bond Fund Fund Fund Fund £ £ £ £ £ Cash flows from operating activities Purchases of financial assets and (32,049,091) (5,589,476) (2,374,137) (2,050,336) (6,497,101) settlement of financial liabilities Receipts from sale of investments 42,239,973 6,472,493 2,457,325 2,156,531 7,507,102

Investment income received 9,847,891 102,337 31,713 595,015 261,771

Bank interest received 8,063 300 128 138 369

Interest Paid (21) (182) — (115) (20)

Operating expenses paid (1,617,219) (252,388) (91,492) (127,258) (220,508) Net cash inflow 18,429,596 733,084 23,537 573,975 1,051,613 from operating activities Cash flows from financing activities Distributions paid to holders of participating (9,028,964) — — (491,060) (335,889) redeemable preference shares issued Proceeds received from issue of participating redeemable 4,932,165 594,950 119,790 339,921 534,506 preference shares Payments on redemption of participating redeemable (7,100,165) (1,473,899) (264,189) (987,387) (803,599) preference shares Tax Dilution levies — — — — — Net cash (outflow) (11,196,964) (878,949) (144,399) (1,138,526) (604,982) from financing activities Net increase/ (decrease) 7,232,632 (145,865) (120,862) (564,551) 446,631 in cash and cash equivalents Cash and cash equivalents 2,431,945 550,762 229,594 721,041 138,496 as at 1st October 2013 Exchange (losses)/gains on 199 (35,581) 3,116 11 (594) cash and cash equivalents Movement in currency — — — — — translation Cash and cash equivalents 9,664,776 369,316 111,848 156,501 584,533 as at 31st March 2014

The notes on pages 49 to 73 form an integral part of these financial statements.

21 Lloyds Investment Funds Limited

Cash Flow Statement continued

For the period ended 31st March 2013

Company Capital Growth Euro High European Fund Income Fund (Closed 05.07.13) Fund £ £ € £ Cash flows from operating activities Purchases of financial assets and (64,944,496) (4,760,211) (1,993,313) (2,323,032) settlement of financial liabilities Receipts from sale of investments 71,650,751 5,024,886 1,642,818 3,265,121

Investment income received 10,854,211 177,484 306,937 44,360

Other income received — — — —

Bank interest received 6,287 1,010 — 124

Interest paid (2,256) (1,374) — (74)

Operating expenses paid (2,750,419) (147,398) (76,119) (152,717) Net cash inflow 14,814,078 294,397 (119,677) 833,782 from operating activities Cash flows from financing activities Distributions paid to holders of participating (10,624,043) (143,557) (287,595) (56,327) redeemable preference shares issued Proceeds received from issue of participating redeemable 10,400,368 286,605 541,914 315,991 preference shares Payments on redemption of participating redeemable (16,356,976) (425,149) (352,584) (974,019) preference shares Tax 828 — 978 —

Dilution Levies — — — — Net cash (outflow) (16,579,823) (282,101) (97,287) (714,355) from financing activities Net increase/(decrease) (1,765,745) 12,296 (216,964) 119,427 in cash and cash equivalents Cash and cash equivalents 5,643,653 1,295,756 368,685 52,851 as at 1st October 2012 Exchange (losses)/gains on (5,207) 11,206 22 15,587 cash and cash equivalents Movement in currency 15,958 — — — translation Cash and cash equivalents 3,888,659 1,319,258 151,743 187,865 as at 31st March 2013

The notes on pages 49 to 73 form an integral part of these financial statements.

22 Lloyds Investment Funds Limited

Cash Flow Statement continued

For the period ended 31st March 2013

High International North Sterling UK Income Fund American Bond Fund Fund Fund Fund £ £ £ £ £ Cash flows from operating activities Purchases of financial assets and (36,335,780) (9,161,754) (3,608,671) (2,968,580) (4,099,743) settlement of financial liabilities Receipts from sale of investments 37,017,018 10,459,724 5,040,259 3,539,367 5,914,237

Investment income received 9,310,407 108,030 39,842 644,136 270,222

Other income received — — — — —

Bank interest received 4,585 205 33 184 146

Interest paid (159) (139) (220) (82) (207)

Operating expenses paid (1,685,149) (249,255) (93,419) (131,947) (226,124) Net cash inflow 8,310,922 1,156,811 1,377,824 1,083,078 1,858,531 from operating activities Cash flows from financing activities Distributions paid to holders of participating (9,496,718) — — (496,995) (187,085) redeemable preference shares issued Proceeds received from issue of participating redeemable 8,152,630 268,382 67,489 505,876 344,830 preference shares Payments on redemption of participating redeemable (9,233,340) (1,094,849) (1,556,722) (792,778) (1,981,764) preference shares Tax — — — — —

Dilution Levies — — — — — Net cash (outflow) (10,577,428) (826,467) (1,489,233) (783,897) (1,824,019) from financing activities Net increase/(decrease) (2,266,506) 330,344 (111,409) 299,181 34,512 in cash and cash equivalents Cash and cash equivalents 3,036,979 551,671 129,383 151,394 131,471 as at 1st October 2012 Exchange (losses)/gains on (2400) (24,912) (4,062) 55 (697) cash and cash equivalents Movement in currency — — — — — translation Cash and cash equivalents 768,073 857,103 13,912 450,630 165,286 as at 31st March 2013

The notes on pages 49 to 73 form an integral part of these financial statements.

23 Lloyds Investment Funds Limited

Investment Dealing

For the period ended 31st March 2014 During the period transactions representing more than 10% of the aggregate value of the transactions in the property of the Funds were carried out with the following brokers: Euro High Income Fund Morgan Stanley & Co Royal Bank of Scotland UBS Investment Bank European Fund HSBC Securities Instinet Merrill Lynch High Income Fund Deutsche Bank AG Goldman Sachs J.P. Morgan Lloyds Banking Group International Fund Credit Suisse Liquidnet Merrill Lynch

North American Fund Credit Suisse Instinet Goldman Sachs Sterling Bond Fund J.P. Morgan Morgan Stanley UK Fund Credit Suisse Instinet Salomon Smith Barney

24 Lloyds Investment Funds Limited

Investment Portfolios For the period ended 31st March 2014 Euro High Income Fund

Holding Holding Market % of Market 30.09.13 31.03.14 Value Total Net Value 31.03.14 Assets 30.09.13 € € Europe 53.88% (52.68%) ABN Amro Bank 4.125% 2022 130,000 130,000 147,532 1.11 143,372 ABN Amro Bank 6.375% 2021 100,000 100,000 119,023 0.89 111,443 Achmea 6% 2043 FRN 100,000 100,000 111,269 0.83 103,875 Anheuser-Busch InBev 8.625% 2017 60,000 60,000 72,941 0.55 74,696 Arcellormittal 9.375% 2016 100,000 50,000 59,025 0.44 119,050 Assicurazioni Generali 5.125% 2024 70,000 70,000 81,003 0.61 74,845 Atlantia 5.875% 2024 100,000 100,000 127,294 0.95 120,098 Banque Federative Credit Mutuel 4.375% 2016 100,000 100,000 107,443 0.81 108,550 BNP Paribas 7.781% (Perp) FRN 100,000 100,000 118,366 0.89 111,050 Bundesrepublic Deutschland 2.75% 2016 — 83,000 87,332 0.65 — Bundesrepublic Deutschland 3.75% 2019 97,000 200,000 230,352 1.73 111,829 Bundesrepublic Deutschland 6.25% 2024 117,000 117,000 167,864 1.26 166,278 Caixa Bank 5.125% 2016 100,000 100,000 108,424 0.81 107,886 CHN Industrial 6.25% 2018 — 100,000 113,621 0.85 — Cloverie FRN 2039 100,000 100,000 121,839 0.91 119,869 Deutsche Bank 5.125% 2017 200,000 200,000 228,135 1.71 229,051 Deutsche Telekom Intl Finance 6.625% 2018 63,000 63,000 76,285 0.57 77,031 Deutsche Telekom Intl Finance 7.5% 2033 150,000 150,000 230,044 1.72 221,686 DONG Energy 5.5% FRN 6,559 6,559 6,761 0.05 6,811 EDF 4.5% 2040 100,000 100,000 116,261 0.87 110,398 EDF 4.625% 2030 150,000 150,000 178,122 1.33 168,917 EDF 5.375% (Perp) FRN 100,000 100,000 106,386 0.80 102,469 EDF 6.25% 2021 150,000 150,000 191,427 1.43 189,801 Enel 5.625% 2027 170,000 170,000 206,811 1.55 178,973 ENI 3.625% 2029 — 100,000 105,408 0.79 — E.ON International Finance 5.75% 2020 130,000 130,000 159,724 1.20 161,073 Fiat Industrial Finance Europe 6.25% 2018 100,000 — — — 110,383 Fiat Finance and Trade 6.875% 2015 100,000 100,000 104,234 0.78 105,001 Finmeccanica 5.25% 2022 92,000 — — — 93,196 Gas Natural Capital Markets 6.375% 2019 150,000 150,000 184,049 1.38 175,893 Gaz Capital 6.605% 2018 125,000 125,000 137,942 1.03 142,188 GDF Suez 6.875% 2019 100,000 100,000 125,468 0.94 126,516 GE Capital European Funding 6% 2019 50,000 50,000 60,469 0.45 60,102 GE Capital European Funding 6.025% 2038 202,000 202,000 280,970 2.10 267,724 GE Capital Trust 4.625% 2066 FRN — 170,000 176,652 1.32 — Glencore Finance 7.125% 2015 100,000 100,000 106,427 0.80 109,010 Heidelberg Cement 8.5% 2019 70,000 70,000 89,999 0.67 85,827 Iberdrola Finanzas 7.5% 2015 50,000 — — — 56,541 ING Bank 6.125% FRN 2023 75,000 75,000 84,771 0.64 82,238 ING Groep 4.75% 2017 105,000 105,000 116,454 0.87 116,626 Intesa Sanpaolo 4.125% 2016 100,000 100,000 106,746 0.80 103,151 Intesa Sanpaolo 4.75% 2017 100,000 100,000 109,944 0.82 104,996 La Poste 2.75% 2024 200,000 200,000 208,453 1.56 200,042 Orange SA 5.625% 2018 50,000 50,000 58,556 0.44 58,682 Orange SA 8.125% 2033 150,000 150,000 232,092 1.74 224,098 Orange SA GRN Perp — 100,000 103,272 0.77 — Pirelli & Co 5.125% 2016 100,000 100,000 106,195 0.80 105,430 Repsol International Finance 4.875% 2019 100,000 100,000 114,273 0.86 109,785 Rhodia 7% 2018 50,000 50,000 51,750 0.39 53,598 RWE Finance 6.5% 2021 250,000 250,000 322,867 2.42 319,487 Siemens FRN 2066 115,000 115,000 123,880 0.93 123,266 Telecom Italia 8.25% 2016 152,000 — — — 169,010 Telefonica Europe 5.875% 2033 48,000 48,000 59,494 0.45 52,012 Unity Media Hessen 8.125% 2017 100,000 100,000 108,197 0.81 105,150 Vattenfall 6.25% 2021 120,000 120,000 152,970 1.15 152,588 Veolia Environment 6.125% 2033 175,000 175,000 225,596 1.69 215,452

25 Lloyds Investment Funds Limited

Investment Portfolios (continued) For the period ended 31st March 2014 Euro High Income Fund (continued)

Holding Holding Market % of Market 30.09.13 31.03.14 Value Total Net Value 31.03.14 Assets 30.09.13 € € Euro (continued) Volkswagon 5.375% 2018 50,000 50,000 51,483 0.39 58,713 Wind Acquisition Finance 7.375% 2018 100,000 100,000 105,900 0.79 104,135 Xstrata Finance Dubai 2.625% 2018 100,000 100,000 102,255 0.77 100,043 Ziggo Finance 6.125% 2017 85,000 — — — 87,125

United Kingdom 20.75% (20.80%) Aviva FRN 2038 50,000 50,000 57,699 0.43 54,921 Aviva FRN (Perp) 110,000 110,000 113,780 0.85 113,231 Barclays Bank 6% 2018 70,000 70,000 79,896 0.60 78,125 BG Energy Capital 6.5% FRN 2072 100,000 100,000 111,710 0.84 110,047 British American Tobacco 2.375% 2023 100,000 100,000 99,866 0.75 98,112 British Telecom 6.5% 2015 60,000 60,000 64,363 0.48 66,003 Clerical Medical Finance 4.25% FRN (Perp) 150,000 150,000 150,750 1.13 145,500 Global Switch 5.5% 2018 100,000 100,000 115,111 0.86 112,827 HBOS 4.375% FRN 2019 160,000 160,000 160,053 1.20 154,800 Heathrow Funding 4.6% 2020 (formerly BAA Funding) 175,000 175,000 196,048 1.47 196,440 HSBC 6% 2019 200,000 200,000 235,941 1.77 230,781 Imperial Tobacco 8.375% 2016 107,000 107,000 121,694 0.91 124,870 National Grid 5% 2018 175,000 175,000 201,388 1.51 202,963 Nationwide 6.75% 2020 150,000 150,000 181,088 1.35 170,465 NGG Finance 4.25% FRN 2076 100,000 100,000 102,603 0.77 98,598 Royal Bank of Scotland 5.375% 2019 150,000 150,000 175,014 1.31 173,825 Royal Bank of Scotland 6.934% 2018 180,000 180,000 205,332 1.54 196,621 Scottish and Southern Energy 5.025% FRN (Perp) 100,000 100,000 103,275 0.77 103,453 Standard Chartered 5.875% 2017 100,000 100,000 113,274 0.85 112,091 Standard Life 5.314% FRN (Perp) 60,000 60,000 60,908 0.46 60,482 Vodafone 6.25% 2016 108,000 108,000 118,473 0.89 121,268

United States 12.10% (13.49%) American International 6.797% 2017 100,000 100,000 118,270 0.89 118,292 Bank of America 4.75% 2017 50,000 50,000 55,295 0.41 55,327 Bank of America 7% 2016 100,000 100,000 113,067 0.85 115,137 Bank of America 1.061% FRN 2018 150,000 150,000 145,595 1.09 142,527 Citigroup 7.375% 2019 150,000 150,000 193,053 1.45 191,777 GE Capital Funding 4.625% 2066 170,000 — — — 169,652 Goldman Sachs 4.5% 2016 150,000 150,000 160,826 1.21 162,029 Goldman Sachs 4.5% 2017 100,000 — — — 109,289 JP Morgan Chase 2.75% 2022 120,000 120,000 124,975 0.94 121,038 Lehman Brothers Holdings FRN 2019 150,000 150,000 15 — 15 Metlife Global Funding 2.375% 2019 100,000 100,000 103,941 0.78 102,315 Morgan Stanley 2.375% 2021 — 100,000 100,166 0.75 — Morgan Stanley 5.375% 2020 300,000 300,000 355,932 2.67 347,278 National Capital Instruments FRN (Perp) 150,000 150,000 141,338 1.06 132,948

Central America 2.41% (3.04%) America Movil 3.259% 2023 100,000 100,000 104,622 0.78 99,489 America Movil 4.75% 2022 50,000 50,000 58,371 0.44 56,335 Pemex Project Funding Master Trust 5.5% 2025 50,000 50,000 58,718 0.44 56,876 Petrobras Global Finance 3.25% 2019 100,000 100,000 100,048 0.75 100,325 Votorantim Cimentos 5.25% 2017 80,000 — — — 85,054

26 Lloyds Investment Funds Limited

Investment Portfolios (continued) For the period ended 31st March 2014 Euro High Income Fund (continued)

Holding Holding Market % of Market 30.09.13 31.03.14 Value Total Net Value 31.03.14 Assets 30.09.13 € € Asia 1.70% (1.71%) Hutchinson Whampoa 3.75% (Perp) 120,000 120,000 117,558 0.88 113,438 Hutchison Whampoa 4.625% 2016 100,000 100,000 108,792 0.82 109,435

Australia and New Zealand 4.68% (4.64%) Australia and New Zealand Capital Trust III FRN 2053 150,000 150,000 148,026 1.10 143,145 Commonwealth Bank of Australia 4.375% 2020 100,000 100,000 115,665 0.87 113,167 National Australia Bank FRN 2023 95,000 95,000 112,029 0.84 111,793 Origin Energy Finance 2.875% 2019 100,000 100,000 103,573 0.78 100,042 Santos Finance FRN 2070 55,000 55,000 62,168 0.47 59,884 Westpac Securities 3.875% 2017 75,000 75,000 81,143 0.61 81,297

Total Value of Investments 12,741,498 95.49 12,620,386 Other Assets 781,217 5.85 685,726 Total Assets 13,522,715 101.34 13,306,112 Liabilities (179,125) (1.34) (210,751) Total Net Assets 13,343,590 100.00 13,095,361

For the period For the year ended ended 31.03.14 30.09.13

Cost of investments purchased €889,919 €2,864,342 Proceeds from investments sold €1,006,891 €2,528,988

27 Lloyds Investment Funds Limited

Investment Portfolios (continued) For the period ended 31st March 2014 European Fund

Holding Holding Market % of Market 30.09.13 31.03.14 Value Total Net Value 31.03.14 Assets 30.09.13 £ £ Austria 2.32% (3.80%) Andritz 10,316 10,316 378,995 2.32 371,781 OMV 8,299 — — — 252,524

Belgium 2.30% (0%) KBC Group — 10,323 374,730 2.30 —

Finland 3.29% (2.81%) Sampo 17,382 17,382 537,019 3.29 461,438

France 17.37% (23.73%) Arkema 6,293 6,293 426,607 2.62 431,978 AXA 25,108 25,108 397,196 2.44 361,173 BNP Paribas 14,241 12,526 577,486 3.54 594,867 Bureau Veritas International 12,512 16,822 310,259 1.90 240,360 Essilor International 2,988 — — — 198,293 Kering 3,661 — — — 502,307 Publicis Groupe 8,913 5,818 314,438 1.93 437,402 Safran 10,907 10,907 452,813 2.78 412,402 Schneider Electric 6,628 6,628 352,299 2.16 347,253 SCOR 18,515 — — — 373,240

Germany 22.45% (18.54%) Bayer 9,687 7,009 573,940 3.52 707,250 BMW 6,362 6,362 482,437 2.96 423,100 Continental 4,453 4,453 643,387 3.95 468,809 Fresenius — 4,746 447,804 2.75 — Fresenius Medical Care 8,453 8,453 355,321 2.18 339,716 Henkel — 6,031 389,700 2.39 — Hugo Boss 5,117 — — — 404,674 LEG Immobilien 8,550 8,550 335,336 2.06 301,342 SAP 8,831 8,831 429,945 2.64 404,451

Ireland 5.02% (2.84%) Glanbia 39,323 49,689 460,996 2.83 318,067 Ryanair Holdings 4,800 10,300 356,549 2.19 149,870

Italy 4.20% (4.06%) Eni 22,572 22,572 338,235 2.07 318,186 Prysmian 23,051 23,303 347,840 2.13 348,630

Netherlands 7.28% (6.97%) DSM Koninklijke 9,098 9,098 374,891 2.30 424,586 ING Groep 54,895 54,895 465,285 2.85 382,006 Randstad Holdings 9,877 9,877 347,928 2.13 339,660

Norway 2.35% (2.83%) DNB ASA 48,682 36,971 382,837 2.35 464,637

Spain 2.49% (2.19%) Amadeus IT Holdings 16,620 16,620 405,644 2.49 360,731

28 Lloyds Investment Funds Limited

Investment Portfolios (continued) For the period ended 31st March 2014 European Fund (continued)

Holding Holding Market % of Market 30.09.13 31.03.14 Value Total Net Value 31.03.14 Assets 30.09.13 £ £ Sweden 4.24% (6.40%) Hexagon 18,426 18,426 375,209 2.30 344,446 Swedbank — 19,923 316,418 1.94 — Swedish Match 14,217 — — — 310,699 Volvo 42,787 — — — 395,796

Switzerland 24.23% (23.26%) Aryzta — 7,312 385,833 2.37 — Julius Baer Group 17,792 — — — 510,863 Nestle 'R' 12,648 14,415 651,765 4.00 546,604 Roche Holdings 5,848 5,848 1,056,070 6.48 968,935 Syngenta 1,787 1,787 407,804 2.50 446,139 The Swatch Group 1,413 1,413 529,767 3.24 558,958 UBS 'R' 35,277 41,892 517,868 3.18 446,511 Zurich Insurance Group 2,179 2,179 398,664 2.44 345,684

Total Value of Investments 15,899,316 97.53 16,015,368 Other Assets 449,396 2.76 471,431 Total Assets 16,348,712 100.29 16,486,799 Liabilities (48,133) (0.29) (48,552) Total Net Assets 16,300,579 100.00 16,438,247

For the period For the year ended ended 31.03.14 30.09.13

Cost of investments purchased £2,711,188 £6,034,482 Proceeds from investments sold £3,701,873 £7,453,491

29 Lloyds Investment Funds Limited

Investment Portfolios (continued) For the period ended 31st March 2014 High Income Fund

Holding Holding Market % of Market 30.09.13 31.03.14 Value Total Net Value 31.03.14 Assets 30.09.13 £ £ UK Government 4.76% (2.69%) Treasury 1.75% 2017 — 1,519,000 1,547,086 0.48 — Treasury 1.75% 2022 2,686,000 1,186,000 1,110,707 0.35 2,522,374 Treasury 4% 2016 1,440,000 — — — 1,575,101 Treasury 4.5% 2019 777,000 8,733,000 9,833,358 3.05 892,478 Treasury 4.5% 2042 1,234,000 — — — 1,466,140 Treasury 5% 2018 — 2,462,000 2,790,357 0.87 — Treasury 6% 2028 1,645,000 — — — 2,227,659

UK Corporate 57.96% (59.23%) AA Bond 9.5% 2043 800,000 800,000 904,000 0.28 856,000 Anglian Water Services Financing 4.5% 2026 1,000,000 1,000,000 967,860 0.30 985,570 Anglian Water Osprey Financing 7% 2018 600,000 600,000 640,500 0.20 647,562 Anglian Water Group 12.375% 2014 1,000,000 — — — 1,027,780 Annington Finance No 4 8.07% 2023 1,500,000 1,500,000 1,894,868 0.59 1,855,106 Annington Finance No 4 2023 FRN 2,000,000 2,000,000 2,091,284 0.65 2,131,484 Arkle Master Issuer 4.681% 2060 1,200,000 1,200,000 1,314,307 0.41 1,315,477 Aspire Defence Finance 4.674% 2040 1,643,000 1,643,000 1,662,660 0.52 1,661,254 Autolink Concessionaires M6 2022 FRN 1,500,000 1,500,000 1,292,109 0.40 1,344,685 Aviva (Perp) FRN 1,200,000 1,200,000 1,219,126 0.38 1,168,500 Aviva 2041 FRN 600,000 600,000 663,511 0.21 648,735 BAE Systems 10.75% 2014 1,600,000 1,600,000 1,692,656 0.53 1,764,088 Barclays Bank 5.75% 2026 1,750,000 1,750,000 1,870,330 0.58 1,853,178 Barclays Bank 9.5% 2021 1,697,000 1,697,000 2,166,653 0.67 2,154,440 Barclays Bank 10% 2021 2,673,000 3,360,000 4,389,958 1.36 3,474,258 Barclays Bank 2049 FRN (Perp) 500,000 500,000 675,938 0.21 668,000 BG Energy Capital 5.125% 2025 1,340,000 264,000 287,262 0.09 1,481,980 BG Energy Capital 2072 FRN 2,500,000 3,617,000 3,923,360 1.22 2,700,000 BL Superstores 5.27% 2030 750,000 750,000 798,620 0.25 813,689 British American Tobacco 6% 2022 700,000 700,000 819,548 0.25 836,175 British American Tobacco 6.375% 2019 2,040,000 2,040,000 2,408,581 0.75 2,469,455 British Telecommunications 6.375% 2037 2,306,000 2,306,000 2,781,416 0.86 2,838,785 British Telecommunications 6.625% 2017 2,750,000 — — — 3,185,061 Broadgate Financing 4.821% 2036 1,340,000 1,340,000 1,455,302 0.45 1,441,005 Canary Wharf II 6.455% 2030 1,380,000 1,380,000 1,339,130 0.42 1,390,180 Centrica 6.375% 2022 2,500,000 2,500,000 2,941,923 0.91 3,024,520 Centrica 7% 2018 2,400,000 2,400,000 2,844,094 0.88 2,907,583 City of Greenwich & Lewisham Rail Link 9.375% 600,000 600,000 371,150 0.12 385,492 2020 Close Brothers 6.5% 2017 900,000 900,000 975,036 0.30 956,184 Clydesdale Bank 4.625% 2026 2,050,000 2,050,000 2,195,232 0.68 2,203,166 Co-Operative Group 5.625% 2020 — 2,300,000 2,370,449 0.74 — Delamare Finance 5.5457% 2029 1,690,000 1,690,000 1,840,812 0.57 1,865,792 Dignity Finance 8.151% 2031 1,400,000 1,400,000 1,916,348 0.60 1,900,636 Dwr Cymru Finance 6.907% 2021 1,900,000 1,900,000 2,308,225 0.72 2,348,961 Eastern Power Networks 8.5% 2025 1,500,000 1,500,000 2,058,600 0.64 2,096,517 Electricity North Western 8.785% 2026 1,452,000 1,452,000 2,089,020 0.65 2,115,433 EUR LN Conduit 5.0636% 2033 — 1,903,000 1,986,916 0.62 — First Hydro 9% 2021 1,550,000 1,550,000 2,032,267 0.63 2,035,228 Friends Life Group 8.25% 2022 1,300,000 1,300,000 1,447,333 0.45 1,410,708 Gatwick Funding Limited 2028 FRN — 1,104,000 1,081,997 0.34 — GHQB LTD 12.625%2015 — 500,000 547,440 0.17 — GlaxoSmithKline Capital 6.375% 2039 957,000 957,000 1,238,964 0.39 1,255,888 Great Rolling Stock 6.25% 2031 1,000,000 1,000,000 1,196,482 0.37 1,200,946

30 Lloyds Investment Funds Limited

Investment Portfolios (continued) For the period ended 31st March 2014 High Income Fund (continued)

Holding Holding Market % of Market 30.09.13 31.03.14 Value Total Net Value 31.03.14 Assets 30.09.13 £ £ UK Corporate (continued) HBOS (Perp) FRN 1,940,000 1,940,000 2,117,840 0.66 1,944,637 HBOS 12% (Perp) 2,000,000 2,000,000 2,361,400 0.73 2,356,400 HBOS 13.625% (Perp) 300,000 — — — 457,110 HBOS (Perp) FRN 449,000 449,000 479,950 0.15 452,206 Heathrow Funding 4.625% 2048 — 1,000,000 970,232 0.30 — Heathrow Funding 5.225% 2025 2,932,000 2,932,000 3,214,771 1.00 3,252,383 Heathrow Funding 5.875% 2043 1,000,000 — — — 1,180,575 Heathrow Funding 6.45% 2033 1,000,000 1,000,000 1,223,610 0.38 1,237,449 Heathrow Funding 6.75% 2028 900,000 900,000 1,123,557 0.35 1,140,721 Housing Association Funding 8.25% 2027 1,500,000 1,500,000 1,428,860 0.44 1,468,707 HSBC Bank 4.75% 2020 FRN 400,000 400,000 411,618 0.13 417,093 HSBC Holdings 6% 2040 3,550,000 3,550,000 3,842,868 1.19 3,958,381 HSBC Holdings 6.5% 2024 1,650,000 1,650,000 2,013,097 0.63 2,021,790 Hutchison Whampoa Finance UK 5.625% 2017 1,850,000 1,850,000 2,059,903 0.64 2,093,588 Imperial Tobacco 8.125% 2024 850,000 850,000 1,109,835 0.35 1,115,232 Imperial Tobacco 9% 2022 1,200,000 1,200,000 1,601,328 0.50 1,624,376 Integrated Accommodation Service 6.48% 2029 1,951,000 1,951,000 1,876,808 0.58 1,908,499 InterContinental Hotels 3.875% 2022 2,109,000 — — — 2,119,509 Intu Metrocentre 4.125% 2028 — 760,000 760,182 0.24 — Jaguar Land Rover Automotive 5% 2022 — 1,500,000 1,500,000 0.47 — Jaguar Land Rover Automotive 8.125% 2018 1,000,000 — — — 1,089,000 Land Securities FRN 2026 467,000 467,000 536,384 0.17 534,199 Lloyds Bank 2020 FRN 2,757,000 2,757,000 2,869,036 0.89 2,867,280 Lloyds Bank 7.5% 2024 458,000 458,000 588,369 0.18 590,254 Lloyds Bank 9.625% 2023 2,300,000 2,300,000 3,049,549 0.95 3,023,465 Lloyds Bank 2021 FRN 1,014,000 1,014,000 1,206,660 0.38 1,210,463 Lloyds Bank 2049 FRN (Perp) 692,000 692,000 1,010,320 0.31 954,960 Marstons Issuer 2035 FRN 2,712,000 2,712,000 2,542,500 0.79 2,318,760 Manchester Airport 4.75% 2034 — 500,000 499,714 0.16 — Motability Operations Group 6.625% 2019 1,500,000 1,500,000 1,796,829 0.56 1,836,989 National Grid Electricity Transmission 6.5% 2028 2,600,000 2,600,000 3,206,905 1.00 3,270,756 National Grid Gas 8.75% 2025 1,380,000 1,380,000 1,968,672 0.61 2,011,347 National Westminster Bank 6.5% 2021 1,180,000 — — — 1,245,149 National Westminster Bank (Perp) FRN 1,650,000 1,650,000 1,485,000 0.46 1,278,750 Nationwide Building Society 5.625% 2019 1,450,000 1,450,000 1,645,399 0.51 1,659,695 NIE Finance 6.375% 2026 — 1,000,000 1,188,335 0.37 — NGG Finance 2073 FRN 1,590,000 1,590,000 1,616,501 0.50 1,574,100 Northern Powergrid Yorkshire 9.25% 2020 3,032,000 3,032,000 3,947,167 1.23 4,020,083 Northumberland Services 6.875% 2023 2,250,000 2,250,000 2,733,611 0.85 2,805,255 Pennon Group (Perp) FRN 1,800,000 — — — 1,863,000 PICTS 5.218% 2039 1,000,000 1,000,000 900,775 0.28 862,179 Places For People Homes 5.875% 2031 1,500,000 1,500,000 1,680,405 0.52 1,667,340 Porterbrook Rail Finance 5.5% 2019 1,500,000 — — — 1,675,956 Prudential Corporation 2039 FRN 1,420,000 1,420,000 1,895,513 0.59 1,945,864 QBE Capital Funding 2041 FRN 700,000 700,000 763,169 0.24 749,032 Royal Bank of Scotland 6.625% 2018 1,200,000 1,200,000 1,394,914 0.43 1,409,458 RSA Insurance Group 2039 FRN 1,300,000 1,300,000 1,572,728 0.49 1,603,230 Santander UK FRN (Perp) 440,000 440,000 437,800 0.14 407,000 Santander UK 10.0625% (Perp) 3,000,000 3,000,000 3,523,440 1.10 3,405,120 Scottish & Southern Energy 5.875% 2022 1,090,000 1,090,000 1,274,849 0.40 1,293,767 Scottish & Southern Energy (Perp) FRN 1,655,000 1,655,000 1,705,478 0.53 1,701,064 Scottish Power 6.375% (Step) 2041 1,000,000 1,000,000 1,211,990 0.38 1,193,310 Scottish Power 8.375% 2017 900,000 900,000 1,049,974 0.33 1,071,532 Severn Trent 6% 2018 760,000 — — — 871,720

31 Lloyds Investment Funds Limited

Investment Portfolios (continued) For the period ended 31st March 2014 High Income Fund (continued)

Holding Holding Market % of Market 30.09.13 31.03.14 Value Total Net Value 31.03.14 Assets 30.09.13 £ £ UK Corporate (continued) Severn Trent 6.25% 2029 1,250,000 1,250,000 1,506,728 0.47 1,535,910 Society of Lloyds (Perp) FRN 1,189,000 1,189,000 1,280,157 0.40 1,257,368 Southern Gas Networks 4.875% 2029 2,850,000 2,850,000 3,007,166 0.94 3,044,125 Southern Water Services 6.125% 2019 1,447,000 1,447,000 1,646,996 0.51 1,676,730 Southern Water Greensands Financing 8.5% 2019 938,000 938,000 1,021,913 0.32 1,020,075 Standard Chartered 7.75% 2018 1,350,000 1,350,000 1,565,896 0.49 1,592,756 Standard Chartered (Perp) FRN 1,500,000 1,500,000 1,634,532 0.51 1,616,250 Standard Life Finance (Perp) FRN 2,140,000 2,140,000 2,347,313 0.73 2,306,903 Telereal Securitisation 4.9741% 2033 854,000 — — — 783,728 Telereal Securitisation 5.3887% 2033 13,000 13,000 11,618 0.00 11,969 Telereal Securitisation 6.1645% 2031 1,130,000 1,130,000 1,282,830 0.40 1,275,054 Tesco 6.125% 2022 2,400,000 2,400,000 2,729,093 0.85 2,797,363 Tesco Property 6.0517% 2039 1,150,000 1,150,000 1,217,973 0.38 1,238,633 Tesco Property Finance 2039 263,000 263,000 324,417 0.10 326,183 Thames Water Kemble Finance 7.75% 2019 1,800,000 1,800,000 1,938,978 0.60 1,957,320 Thames Water Utilities Finance 5.125% 2037 1,986,000 1,986,000 2,080,264 0.65 2,160,941 Thames Water Utilities (Cayman) Finance 2025 FRN 2,600,000 2,600,000 2,784,525 0.87 2,838,368 The Housing Finance Corporation Funding No.2 6.35% 2041 1,080,000 1,080,000 1,392,186 0.43 1,363,375 UBS AG (London Branch) 6.625% 2018 2,010,000 2,010,000 2,346,285 0.73 2,379,719 UBS AG (Jersey) 8.75% 2025 2,724,000 2,724,000 3,789,988 1.18 3,692,848 Virgin Media Secured Finance 7% 2018 1,160,000 — — — 1,209,300 Vodaphone Group 8.125% 2018 1,000,000 1,000,000 1,238,307 0.39 1,269,412 Wales & West Financial 5.125% 2016 1,450,000 — — — 1,598,690 Western Power Distribution West Mildlands 5.75% 2032 1,300,000 1,300,000 1,470,336 0.46 1,498,944 WW Grainger PLC 5% 2020 — 750,000 785,100 0.24 — Yorkshire Water Services Odsal Finance 6.5876% 2023 842,000 842,000 1,006,036 0.31 1,030,430 Zurich Finance UK (Perp) FRN 1,600,000 1,600,000 1,775,000 0.55 1,735,616

Overseas Borrowers 32.63% (35.46%) Aegon 6.125% 2031 1,102,000 1,102,000 1,303,728 0.41 1,269,030 America Movil SAB 2073 FRN 2,500,000 2,500,000 2,597,833 0.81 2,478,125 Anheuser Busch 9.75% 2024 1,000,000 1,000,000 1,500,391 0.47 1,532,350 AIG SunAmerica Institutional Funding 5% 2018 2,554,000 — — — 2,854,621 AIG SunAmerica Institutional Funding 5.375% 2016 2,504,000 2,504,000 2,717,351 0.84 2,756,558 AT&T 4.25% 2043 — 146,000 128,259 0.04 — AT&T 7% 2040 1,550,000 1,250,000 1,608,074 0.50 2,014,419 Australia & New Zealand Banking Group 2018 FRN 1,710,000 — — — 1,716,977 AXA 7.125% 2020 1,100,000 1,100,000 1,297,127 0.40 1,298,015 AXA (Perp) FRN 2,492,000 2,492,000 2,643,596 0.82 2,536,420 AXA (Perp) FRN 1,030,000 1,030,000 1,078,281 0.33 1,017,640 Bank of America 7% 2028 2,700,000 2,700,000 3,494,200 1.09 3,428,833 Bank of America Merrill Lynch 7.75% 2018 2,350,000 2,350,000 2,811,841 0.87 2,846,891 BNP Paribas (Perp) FRN 1,550,000 1,550,000 1,666,250 0.52 1,555,813 Cie de Saint Gobain 5.625% 2016 1,450,000 1,450,000 1,589,432 0.49 1,596,975 Citigroup 6.8% 2038 2,791,000 2,791,000 3,720,626 1.15 3,660,586 Citigroup 7.625% 2018 422,000 422,000 503,649 0.16 512,308 Credit Foncier 10.25% 2014 1,115,000 1,115,000 1,152,692 0.36 1,169,560 Deutsche Telekom Intl Finance 7.375% 2019 1,666,000 1,666,000 2,041,765 0.63 2,090,903

32 Lloyds Investment Funds Limited

Investment Portfolios (continued) For the period ended 31st March 2014 High Income Fund (continued)

Holding Holding Market % of Market 30.09.13 31.03.14 Value Total Net Value 31.03.14 Assets 30.09.13 £ £ Overseas Borrowers (continued) E.ON International Finance 5.825% 2037 1,100,000 1,100,000 1,269,981 0.39 1,313,123 EDF 5.5% 2041 2,500,000 2,200,000 2,407,464 0.75 2,725,415 EDF 5.875% 2031 1,178,000 1,178,000 1,347,446 0.42 1,341,939 EDF 6% 2014 — 700,000 782,529 0.24 — EDF (Perp) FRN 2,300,000 1,500,000 1,561,250 0.49 2,317,250 EDF 6.125% 2034 50,000 50,000 58,993 0.02 58,689 Enel 6.25% 2019 2,350,000 — — — 2,581,729 Enel 2075 FRN — 1,061,000 1,156,490 0.36 — Enel 2075 FRN 1,230,000 2,350,000 2,664,392 0.83 1,236,150 Enel 2076 FRN — 570,000 586,433 0.18 — European Coal and Steel 6.875% 2019 1,700,000 1,700,000 2,033,659 0.63 2,075,751 Euro Loan Conduit 5.0636% 2033 1,903,000 — — — 1,979,960 FirstGroup 8.75% 2021 1,000,000 1,000,000 1,254,672 0.39 1,238,924 Freshwater Finance 5.182% 2035 858,000 858,000 905,556 0.28 883,062 GDF Suez 6.125% 2021 800,000 800,000 946,330 0.29 960,862 GE Capital UK Funding 5.125% 2023 5,898,000 5,898,000 6,605,412 2.04 6,506,573 GE Capital UK Funding 8% 2039 1,500,000 1,500,000 2,263,116 0.70 2,187,915 General Electric Capital Corp 2066 FRN 309,000 309,000 325,454 0.10 314,895 General Electric Capital Corp 6.25% 2017 2,514,000 2,514,000 2,875,249 0.89 2,911,883 GHQB 12.625% 2015 500,000 — — — 572,990 General Electric Capital Corp 2067 FRN 1,900,000 1,900,000 2,073,375 0.64 1,993,290 Glencore Finance 6.5% 2019 1,050,000 1,050,000 1,189,130 0.37 1,180,704 Goldman Sachs 7.125% 2025 850,000 850,000 1,082,648 0.34 1,074,352 Goldman Sachs 7.25% 2028 1,157,000 1,157,000 1,496,645 0.47 1,486,472 Health Care REIT — 700,000 700,966 0.22 — Highbury Finance 7.017% 2023 1,550,000 1,550,000 1,522,397 0.47 1,568,774 Holcim Finance 8.75% 2017 1,450,000 1,450,000 1,724,920 0.54 1,758,412 Hydro-Quebec 12.625% 2015 1,900,000 1,900,000 2,086,291 0.65 2,192,790 JP Morgan Chase 2017 FRN 1,050,000 — — — 1,001,406 Kingdom of Belgium 9.375% 2020 1,000,000 1,000,000 1,337,840 0.42 1,363,180 Koninklijke KPN 5% 2026 700,000 700,000 713,115 0.22 729,876 Koninklijke KPN 2073 FRN 600,000 600,000 619,500 0.19 612,000 Lafarge 10% 2017 1,500,000 — — — 1,788,630 MetLife Global Funding 3.5% 2026 1,000,000 — — — 974,875 MetLife 5.25% 2020 1,238,000 1,238,000 1,388,468 0.43 1,392,756 Morgan Stanley 5.75% 2017 950,000 950,000 1,041,757 0.32 1,052,044 Muenchener Rueckversicherungs 2028 FRN 500,000 500,000 586,936 0.18 592,570 Orange SA 7.25% 2020 550,000 550,000 669,919 0.21 681,799 Orange SA 8% 2017 2,000,000 2,000,000 2,384,708 0.74 2,456,296 Orange SA FRN Perp — 1,422,000 1,445,143 0.45 — Petrobras 5.375% 2029 1,500,000 1,500,000 1,308,560 0.41 1,346,250 RWE Finance 6.25% 2030 1,200,000 1,200,000 1,403,262 0.44 1,404,572 RWE Finance 6.5% 2021 700,000 700,000 820,056 0.25 837,202 Santander International Debt 3.16% 2015 1,500,000 — — — 1,513,620 SLM Student Loan 2038 FRN 1,350,000 1,350,000 1,083,375 0.34 1,076,625 Societe Generale (Perp) FRN 3,671,000 3,067,000 3,424,582 1.06 3,902,677 Swiss Reinsurance Co via ELM BV (Perp) FRN 1,850,000 1,850,000 2,016,500 0.63 1,938,800

33 Lloyds Investment Funds LImItedLimited

Investment Portfolios (continued) For the period ended 31st March 2014 High Income Fund (continued) Holding Holding Market % of Market 30.09.13 31.03.14 Value Total Net Value 31.03.14 Assets 30.09.13 £ £ Overseas Borrowers (continued) Telecom Italia 7.375% 2017 1,750,000 850,000 951,235 0.30 1,902,658 Telefonica Emisione 5.445% 2029 2,750,000 2,750,000 2,860,465 0.89 2,612,948 Time Warner Cable 5.75% 2031 1,525,000 1,075,000 1,155,363 0.36 1,421,006 United Mexico STS 5.625% 2014 — 1,710,000 1,631,426 0.51 — Vattenfall 6.875% 2039 1,976,000 1,976,000 2,603,933 0.81 2,683,108 Wal-Mart Stores 5.25% 2035 2,483,000 2,483,000 2,839,209 0.88 2,880,178

Total Value of Investments 306,625,491 95.34 316,043,000 Other current assets 17,014,217 5.29 10,464,776 Total net assets 323,639,708 100.63 326,507,776 Liabilities (2,021,118) (0.63) (2,009,503) Total Net Assets 321,618,590 100.00 324,498,273

For the period For the year ended ended 31.03.14 30.09.13

Cost of investments purchased £32,049,091 £50,710,266 Proceeds from investments sold £42,239,973 £53,362,654

34 Lloyds Investment Funds Limited

Investment Portfolios (continued) For the period ended 31st March 2014 International Fund

Holding Holding Market % of Market 30.09.13 31.03.14 Value Total Net Value 31.03.14 Assets 30.09.13 £ £ Australia 3.62% (1.24%) Caltex Australia — 57,211 688,849 2.68 — Treasury Wine Estates 124,112 124,112 242,405 0.94 316,674

Austria 0% (1.04%) OMV 8,705 — — — 264,878

Canada 1.90% (2.06%) Suncor Energy 23,487 23,487 487,082 1.90 526,463

Germany 9.84% (4.49%) Bayer 9,060 7,161 586,386 2.28 661,473 Continental — 4,925 711,583 2.77 — Fresenius Medical Care 12,103 14,415 605,933 2.36 486,406 Leg Immobilien — 15,926 624,627 2.43 —

India 0% (1.08%) ICICI Bank 14,320 — — — 275,357

Ireland 2.15% (2.25%) Ryanair Holdings 18,369 15,869 549,328 2.15 573,534

Japan 9.35% (11.45%) Japan Tobacco 20,300 20,300 382,927 1.49 452,466 Kansai Paint 31,000 — — — 255,213 Mitsubishi Estate 25,000 25,000 355,510 1.38 457,319 ORIX 70,800 70,800 599,297 2.33 714,044 Sumitomo Mitsui Financial Group 12,900 19,400 498,181 1.94 387,041 Toyota Motor 16,700 16,700 566,704 2.21 662,087

Netherlands 3.55% (2.94%) ING Groep 45,673 45,673 387,120 1.51 317,831 Randstad 12,641 14,893 524,622 2.04 434,711

Singapore 1.20% (0%) Global Logistic Properties — 244,000 307,160 1.20 —

South Korea 1.14% (0%) Naver — 668 291,859 1.14 —

Spain 1.65% (1.59%) Amadeus IT Holding 18,676 17,341 423,241 1.65 405,355

Sweden 0% (1.93%) Volvo 53,441 — — — 494,350

Switzerland 8.46% (9.52%) Pentair 13,794 13,794 643,629 2.51 559,255 Roche Holding 5,002 5,002 903,294 3.52 828,764 Swatch Group 1,029 — — — 407,055 UBS 'R' 50,526 50,526 624,602 2.43 639,522

35 Lloyds Investment Funds LImItedLimited

Investment Portfolios (continued) For the period ended 31st March 2014 International Fund (continued)

Holding Holding Market % of Market 30.09.13 31.03.14 Value Total Net Value 31.03.14 Assets 30.09.13 £ £ United Kingdom 13.16% (10.48%) BAE Systems 134,106 134,106 550,639 2.14 615,681 BT Group 217,875 201,415 761,752 2.97 750,579 ITV 377,506 325,165 621,390 2.42 654,218 Johnson Matthey 9,490 16,545 545,158 2.12 265,720 Middleby — 2,681 417,952 1.63 — Shire — 16,076 481,798 1.88 — Travis Perkins 24,128 — — — 391,115

United States 42.67% (48.25%) American Express 15,661 15,661 851,216 3.31 735,363 American International Group 20,922 16,488 494,060 1.92 636,284 Ansys 8,038 10,691 489,141 1.90 430,255 Ashland 8,979 — — — 507,632 Avalonbay Communities — 6,572 513,966 2.00 — Beacon Roofing Supply 24,640 25,777 593,013 2.31 564,501 Citigroup 16,187 — — — 489,677 Cooper Companies 9,734 8,902 707,794 2.76 786,286 Danaher 11,551 6,879 305,265 1.19 499,485 F5 Networks 4,569 — — — 245,331 Google 1,643 1,283 863,237 3.35 890,787 Halliburton 12,960 12,960 463,116 1.80 387,966 Harley-Davidson 12,546 11,822 470,052 1.83 501,824 Hexcel 31,776 24,954 640,815 2.50 763,033 Keycorp 104,019 104,019 883,313 3.44 730,669 LKQ 30,073 — — — 587,203 Lorillard — 17,077 547,630 2.13 — Marathon Petroleum 8,848 6,866 361,672 1.41 355,607 Mednax — 12,843 474,217 1.85 — McKesson 10,299 6,536 689,129 2.68 824,022 Mead Johnson Nutrition 7,519 — — — 350,030 Rayonier 13,264 — — — 457,977 Solarwinds 16,630 16,630 418,161 1.63 367,840 Solera Holdings 9,725 9,642 362,339 1.41 319,284 Teredata 17,946 17,946 518,767 2.01 627,521 Tripadvisor 5,774 5,774 312,479 1.22 270,976

Total Value of Assets 25,342,409 98.67 25,126,664 Other Assets 403,243 1.59 576,248 Total Assets 25,745,652 100.26 25,702,912 Liabilities (65,694) (0.26) (142,125) Total Net Assets 25,679,958 100.00 25,560,787

For the period For the year ended ended 31.03.14 30.09.13

Cost of investments purchased £5,534,197 £20,051,395 Proceeds from investments sold £6,465,503 £21,779,233

36 Lloyds Investment Funds Limited

Investment Portfolios (continued) For the period ended 31st March 2014 North American Fund

Holding Holding Market % of Market 30.09.13 31.03.14 Value Total Net Value 31.03.14 Assets 30.09.13 £ £ Chemicals 14.72% (18.57%) Ashland 3,190 — — — 180,348 Clean Harbors 2,912 — — — 103,681 Core Laboratories 1,703 1,703 204,151 2.26 178,458 Ecolab 3,064 3,064 195,630 2.17 186,025 Marathon Petroleum 3,251 2,409 126,896 1.40 130,660 McKesson 4,489 2,630 277,296 3.07 359,164 Pentair 7,051 7,051 329,000 3.64 285,871 Perrigo 2,134 2,134 196,298 2.17 163,306

Consumer Goods 16.49% (18.47%) General Motors 6,786 11,302 235,828 2.61 152,704 Delphi Automotive — 5,970 239,381 2.65 — GNC Holdings — 5,035 133,504 1.48 — Harley Davidson 6,114 3,815 151,687 1.68 244,552 Kraft Foods Group 7,840 2,890 96,724 1.07 256,530 Lorillard 2,400 5,937 190,389 2.11 67,182 Macy's Inc 6,889 — — — 185,506 Mead Johnson Nutrition 2,729 — — — 127,043 O'Reilly Automotive 2,714 2,450 217,827 2.41 212,881 Penske Automotive 9,249 — — — 241,729 WhiteWave Foods 7,249 13,425 224,537 2.49 89,951

Energy 5.12% (4.58%) Exxon Mobil 1,850 — — — 99,473 Halliburton 6,780 8,078 288,661 3.20 202,964 Suncor Energy 3,993 8,389 173,974 1.93 89,503

Financials 22.36% (17.70%) American Express 5,269 5,778 314,049 3.48 247,406 American International 9,517 7,374 220,961 2.45 289,433 Aon 2,386 4,168 206,953 2.29 110,794 Avalonbay Communities — 2,886 225,701 2.50 — Citigroup 7,870 — — — 238,077 Keycorp 43,323 43,323 367,892 4.07 304,317 Prudential Financial 3,611 2,917 146,485 1.62 175,209 Suntrust Banks 7,321 9,263 217,219 2.40 147,707 Wells Fargo — 10,819 320,353 3.55 —

Information Technology 16.04% (13.54%) Ansys 2,507 3,973 181,775 2.01 134,194 F5 Networks 1,867 2,306 145,695 1.61 100,248 Google 870 908 610,927 6.76 471,689 Solarwinds 6,677 7,768 195,326 2.16 147,689 Solera Holdings 3,410 3,410 128,145 1.42 111,767 Teradata 5,476 6,475 187,174 2.07 191,480

37 Lloyds Investment Funds LImItedLimited

Investment Portfolios (continued) For the period ended 31st March 2014 North American Fund (continued)

Holding Holding Market % of Market 30.09.13 31.03.14 Value Total Net Value 31.03.14 Assets 30.09.13 £ £ Services 24.30% (24.85%) Beacon Roofing Supply 8,458 8,863 203,898 2.26 193,772 Cooper Cosmetics 2,677 2,677 212,847 2.36 216,241 Danaher 1,869 4,201 186,425 2.06 80,819 Delta Airlines 9,593 12,719 256,299 2.84 139,935 Hexcel 11,812 11,812 303,330 3.36 283,640 LKQ 13,921 — — — 271,820 Masco 939 939 12,438 0.14 12,268 Mednax — 5,610 207,145 2.29 — Middleby — 976 152,152 1.68 — Rayonier 5,047 — — — 174,262 Rock Tenn 2,805 1,456 89,883 1.00 181,046 Thermo Fischer Scientific 2,129 2,129 151,593 1.68 122,538 Tripadvisor 2,002 2,002 108,345 1.20 93,954 UnitedHealth Group 5,721 6,331 310,472 3.44 254,892 WW Grainger 610 — — — 99,598 Thermo Fischer Scientific 2,129 2,129 122,538 1.43 122,538 Tripadvisor 2,002 2,002 93,954 1.10 93,954 UnitedHealth Group 5,721 5,721 254,892 2.98 254,892 WW Grainger 610 610 99,598 1.17 99,598

Total Value of Investments 8,945,268 99.03 8,352,326 Other Assets 114,586 1.27 242,398 Total Assets 9,059,854 100.30 8,594,724 Liabilities (27,117) (0.30) (46,922) Total Net Assets 9,032,737 100.00 8,547,802

For the period For the year ended ended 31.03.14 30.09.13

Cost of investments purchased £2,354,405 £7,014,941 Proceeds from investments sold £2,457,339 £8,505,703

38 Lloyds Investment Funds Limited

Investment Portfolios (continued) For the period ended 31st March 2014 Sterling Bond Fund

Holding Holding Market % of Market 30.09.13 31.03.14 Value Total Net Value 31.03.14 Assets 30.09.13 £ £ UK Government 1.68% (2.24%) Treasury 4% 2016 183,000 — — — 200,169 Treasury 4.25% 2055 64,000 64,000 75,119 0.33 74,887 Treasury 4.75% 2038 113,000 249,000 303,416 1.35 138,582 Treasury 5% 2025 86,000 — — — 104,579 Treasury 5% 2018 — 40,000 45,335 0.20 —

UK Corporate 58.36% (56.76%) AA Bond G/R 2043 140,000 140,000 146,601 0.65 144,121 Abbey National 5.25% 2029 137,000 137,000 157,799 0.70 157,695 Amlin FRN 6.5% 2026 150,000 150,000 156,563 0.70 152,625 Annington Finance 8.07% 2023 120,000 120,000 151,589 0.67 148,408 Arqiva FNG — 120,000 121,008 0.54 — Autolink 8.39% 2022 300,000 300,000 258,422 1.15 268,937 Aviva FRN 2058 225,000 225,000 251,562 1.12 239,037 Bank of Scotland 6.375% 2019 125,000 125,000 138,260 0.62 135,240 Bank of Scotland 10.5% 2018 100,000 100,000 123,069 0.55 124,649 Barclays Bank 10% 2021 225,000 225,000 293,970 1.31 292,446 BG Energy Capital 5.125% 2025 120,000 — — — 132,715 BG Energy Capital 6.5% 2072 FRN 100,000 220,000 238,634 1.06 108,000 BL Superstores 4.482% 2030 290,000 290,000 308,280 1.37 311,389 BP Capital Markets 4.325% 2018 100,000 100,000 108,392 0.48 109,740 British American Tobacco 6% 2022 200,000 200,000 234,157 1.04 238,907 British Telecom 6.375% 2037 201,000 201,000 242,439 1.08 247,440 British Telecom 6.625% 2017 50,000 50,000 56,782 0.25 57,910 BUPA Finance 7.5% 2016 50,000 50,000 56,151 0.25 57,152 Canary Wharf Finance 5.952% 2035 150,000 150,000 184,261 0.82 183,936 Centrica 6.375% 2022 225,000 225,000 264,773 1.18 272,207 Close Brothers 6.5% 2017 100,000 100,000 108,337 0.48 106,243 Clydesdale Bank 4.625% 2026 FRN 100,000 100,000 107,085 0.48 107,472 Coventry Building Society 4.625% 2018 170,000 170,000 186,026 0.83 188,712 Dignity Finance 8.151% 2031 100,000 100,000 136,882 0.61 135,760 Eastern Power Networks 5.75% 2024 250,000 250,000 284,597 1.27 287,746 Everyone Everywhere Finance 4.375% 2019 100,000 100,000 104,249 0.46 103,656 First Group 8.75% 2021 90,000 90,000 112,920 0.50 111,503 Friends Life Group 8.25% 2022 100,000 100,000 111,333 0.50 108,516 G4S 7.75% 2019 50,000 50,000 59,393 0.26 59,866 Gatwick Funding Ltd 6.125% 2026 100,000 100,000 116,866 0.52 117,879 Great Rolling Stock 6.5% 2031 100,000 100,000 119,648 0.53 120,095 Hutchinson WHAMPOA Finance UK 5.625% 2026 100,000 100,000 113,474 0.51 114,632 Heathrow Funding 6.45% 2033 200,000 200,000 244,722 1.09 247,490 Heathrow Funding 6.75% 2028 150,000 150,000 187,260 0.83 190,120 Heathrow Funding 7.125% 2024 100,000 100,000 119,432 0.53 119,322 HSBC FRN 2023 300,000 300,000 315,647 1.40 320,335 HSBC 6.375% FRN 2022 200,000 200,000 220,173 0.98 222,707 HSBC 6.5% 2024 200,000 200,000 244,012 1.09 245,065 HSBC 8.208% FRN (Perp) 120,000 120,000 128,363 0.57 129,841 Imperial Tobacco 8.125% 2024 150,000 150,000 195,853 0.87 196,806 Imperial Tobacco 9% 2022 60,000 60,000 80,066 0.36 81,219 Integrated Accommodation Service 6.48% 2029 225,000 225,000 216,444 0.96 220,099 Inter-Continental Hotels 3.875% 2022 110,000 110,000 109,709 0.49 110,548 Lloyds Bank 6% 2029 100,000 100,000 123,669 0.55 124,062 Lloyds Bank 6.5% 2040 155,000 155,000 193,128 0.86 192,340 Marks & Spencer 4.75% 2025 112,000 112,000 112,943 0.50 112,773 Meadowhall 4.988% 2037 150,000 150,000 139,000 0.62 138,216 Mitchells FRN 2032 — 150,000 60,000 0.27 — Meadowhall 4.988% 2037 150,000 150,000 139,000 0.62 138,216

39 Lloyds Investment Funds LImItedLimited

Investment Portfolios (continued) For the period ended 31st March 2014 Sterling Bond Fund (continued)

Holding Holding Market % of Market 30.09.13 31.03.14 Value Total Net Value 31.03.14 Assets 30.09.13 £ £ UK Corporate (continued) Mitchells & Butler 5.965% 2025 550,000 550,000 330,621 1.48 349,046 Motability 4.375% 2027 100,000 100,000 102,669 0.46 104,097 National Grid Gas 8.75% 2025 100,000 100,000 142,657 0.63 145,750 Nationwide 5.625% 2019 170,000 170,000 192,909 0.86 194,585 NGG Finance FRN 2073 120,000 120,000 122,000 0.54 118,800 Northumbrian Water 5.125% 2042 100,000 100,000 105,131 0.47 108,633 Permanent Master 4.805% 2017 147,000 147,000 158,244 0.70 161,014 Places for People Homes 5.875% 2031 150,000 150,000 168,041 0.75 166,734 Prudential Banking 11.375 2039 FRN 100,000 100,000 133,487 0.59 137,033 QBE Capital Funding 7.5% 2041 FRN 100,000 100,000 109,024 0.49 107,005 RMPA Services 5.337% 2038 180,000 180,000 169,948 0.76 169,486 Rolls-Royce 3.375% 2026 130,000 — — — 126,380 Royal Bank of Scotland 5.125% 2024 200,000 200,000 226,932 1.01 227,605 Royal Bank of Scotland 6.875% 2025 200,000 200,000 244,858 1.09 243,508 Royal Sun Alliance 8.5% FRN (Perp) 100,000 100,000 103,692 0.46 105,063 Santander UK 7.5% FRN 100,000 100,000 99,500 0.44 92,500 Santander UK 9.625% 2023 FRN 125,000 125,000 151,180 0.67 144,776 Scottish and Southern Energy 5.453% FRN (Perp) 150,000 150,000 154,575 0.69 154,175 Severn Trent 6.25% 2029 170,000 170,000 204,915 0.92 208,884 Society of Lloyds 7.421% FRN (Perp) 114,000 114,000 122,740 0.55 120,555 Southern Electric 5.5% 2032 270,000 270,000 304,413 1.37 311,354 Southern Gas Networks 4.875% 2020 250,000 250,000 272,882 1.21 277,058 Southern Water 5% 2021 180,000 180,000 194,449 0.87 197,193 Sovereign Housing 4.768% 2043 100,000 100,000 106,785 0.48 106,609 Standard Chartered Bank 7.75% FRN (Perp) 100,000 100,000 113,938 0.51 112,516 Standard Life Finance 6.75% FRN (Perp) 220,000 220,000 241,313 1.07 237,158 Telereal Securitisation 6.1645% 2031 150,000 150,000 170,287 0.76 169,255 Tesco 5% 2023 217,000 217,000 226,909 1.02 232,519 Tesco Property Finance 5.8006% 2040 275,000 275,000 292,192 1.31 298,856 United Utilities 5% 2035 120,000 120,000 125,969 0.56 128,589 Wales & West Utilities 5.125% 2016 50,000 50,000 54,207 0.24 55,127 Western Power Distribution West Midlands 5.75% 2032 150,000 — — — 172,955 Western Power Distribution West Midlands 5.75% 2040 100,000 100,000 114,429 0.51 116,933 Yorkshire Building Society 4.75% 2018 100,000 100,000 109,178 0.49 110,397

Overseas Borrowers 38.00% (37.03%) AIG SunAmerica 5% 2018 201,000 — — — 224,659 AIG SunAmerica 5.375% 2016 112,000 112,000 121,543 0.54 123,297 America Movil SAB 4.948% 2033 150,000 150,000 151,608 0.67 150,648 AT&T 4.25% 2043 — 125,000 109,811 0.49 — AT&T 5.5% 2027 100,000 100,000 109,791 0.49 110,770 Atlantia Spa 6.25% 2022 — 54,000 61,744 0.27 — AXA 6.686% Perp — 225,000 235,547 1.05 — Bank of America 7% 2028 150,000 150,000 194,122 0.86 190,491 Bank of America Merrill Lynch 7.75% 2018 200,000 200,000 239,306 1.08 242,289 BHP Billiton Finance 3.25% 2024 100,000 100,000 94,823 0.42 94,478 Bouygues 5.5% 2026 100,000 100,000 107,916 0.48 107,223 Citigroup 4.5% 2031 270,000 270,000 255,875 1.15 250,606 Citigroup 6.8% 2038 85,000 85,000 113,312 0.50 111,483 Commonwealth Bank of Australia 3% 2026 175,000 175,000 163,721 0.73 162,365 Deutsche Telekom Intl Finance GRN 2030 115,000 115,000 155,120 0.69 157,313 Direct TV Holdings 5.2% 2033 — 130,000 127,890 0.57 — DONG Energy 4.875% 2032 100,000 100,000 101,646 0.45 101,993 DONG Energy 5.75% 2040 100,000 100,000 112,974 0.50 113,537 EDF 5.5% 2041 100,000 100,000 109,430 0.49 109,017

40 Lloyds Investment Funds Limited

Investment Portfolios (continued) For the period ended 31st March 2014 Sterling Bond Fund (continued)

Holding Holding Market % of Market 30.09.13 31.03.14 Value Total Net Value 31.03.14 Assets 30.09.13 £ £ Overseas Borrowers (continued) EDF 6% FRN 200,000 200,000 208,167 0.93 201,500 EDF 6.125% 2034 250,000 250,000 294,967 1.32 293,443 ELM FRN (Perp) 150,000 150,000 163,500 0.73 157,200 Enel Societa Per Azioni 5.75% 2040 100,000 — — — 88,460 Enel Societa Per Azioni 6.25% 2019 163,000 163,000 184,807 0.82 179,073 General Electric Cap. Corp. 5.875% 2033 140,000 140,000 167,346 0.74 162,588 General Electric Cap. Corp. 6.75% 2018 125,000 125,000 147,080 0.65 148,145 General Electric Cap. Corp. 8% 2039 210,000 210,000 316,836 1.42 306,308 General Electric Cap. Corp. 2067 6.5% FRN 180,000 180,000 196,425 0.87 188,838 Glencore Finance 6.5% 2019 150,000 150,000 169,876 0.76 168,672 Holcim Finance 8.75% 2017 100,000 100,000 118,960 0.53 121,270 Iberdrola Finanzas 7.375% 2024 150,000 150,000 184,465 0.82 177,020 ING Groep 6.875% 2023 FRN 126,000 126,000 139,807 0.62 139,189 Koninklijke KPN 5% 2026 100,000 100,000 101,874 0.45 104,268 Linde Finance 8.125% 2068 125,000 125,000 140,984 0.63 141,354 Mellon Capital FRN 2066 — 150,000 154,250 0.69 — Metlife 5.25% 2020 189,000 189,000 211,971 0.94 212,626 National Capital Trust FRN (Perp) 220,000 220,000 230,313 1.03 223,303 Nordea Bank Finland FRN (Perp) 200,000 200,000 202,152 0.90 204,272 Orange SA 5.25% 2025 315,000 315,000 339,821 1.53 339,978 Orange SA FRN Perp — 102,000 103,660 0.46 — Petrobras 5.375% 2029 100,000 100,000 87,237 0.39 89,750 Rabobank Capital FRN (Perp) 156,000 156,000 163,110 0.73 155,727 RWE Finance 5.5% 2022 150,000 150,000 166,247 0.74 169,635 RWE Finance 6.125% 2039 100,000 100,000 115,878 0.52 117,021 Siemens 6.125% FRN 2066 150,000 150,000 161,822 0.72 162,551 SLM Student Loan 5.45% 2038 190,000 190,000 152,475 0.68 151,525 Svenska Handelsbanken 2.75% 2022 150,000 150,000 143,151 0.64 142,607 TDC 5.625% 2023 100,000 — — — 111,538 Telecom Italia 6.375% 2019 50,000 — — — 51,539 Telecom Italia 7.375% 2017 100,000 — — — 108,723 Telefonica Emisiones 5.289% 2022 150,000 150,000 160,038 0.71 150,933 Telefonica Emisiones 5.445% 2029 100,000 100,000 104,017 0.46 95,016 Thames Water Utilties Cayman 4.375% 2034 100,000 100,000 95,978 0.43 99,049 Thames Water Utilties Cayman 5.375% 2025 FRN 140,000 140,000 149,936 0.67 152,835 Time Warner Cable 5.75% 2031 150,000 100,000 107,476 0.48 139,771 UBS AG (Jersey) 5.25% 2021 FRN 150,000 — — — 159,671 UBS AG (London) 6.625% 2018 140,000 140,000 163,423 0.73 165,752 United Mexico Sts 5.625% 2014 — 100,000 95,405 0.42 — Vattenfall 6.875% 2039 194,000 194,000 255,649 1.15 263,423 Volkswagen Financial Services SVS 1.75% 2017 75,000 75,000 74,581 0.33 74,779

Total value of investments 22,077,748 98.37 22,195,464 Other assets 657,804 2.88 1,222,317 Total assets 22,735,552 101.25 23,417,781 Less Liabilities (268,663) (1.25) (304,716) Total Net assets 22,466,889 100.00 23,113,065

For the period For the year ended ended 31.03.14 30.09.13

Cost of investments purchased £2,050,336 £4,584,067 Proceeds from investments sold £2,156,531 £5,252,603

41 Lloyds Investment Funds LImItedLimited

Investment Portfolios (continued) For the period ended 31st March 2014 UK Fund

Holding Holding Market % of Market 30.09.13 31.03.14 Value Total Net Value 31.03.14 Assets 30.09.13 £ £ Basic Resources 4.96% (5.01%) Melrose Industries 139,153 117,744 348,875 1.67 408,654 Rio Tinto 20,503 20,503 688,491 3.29 614,782

Consumer Goods 20.74% (25.59%) AstraZeneca 20,902 15,908 624,389 2.98 672,626 Booker Group 113,635 58,635 97,510 0.47 150,794 British American Tobacco 16,464 9,935 332,972 1.59 539,114 Burberry Group 19,349 23,489 331,430 1.58 312,099 Diageo 28,367 24,831 468,437 2.24 555,710 Dunelm Group 18,677 — — — 170,988 GKN 79,311 79,311 313,437 1.50 273,623 GlaxoSmithKline 67,409 72,587 1,169,740 5.58 1,052,592 Next — 6,846 457,655 2.18 — Rolls Royce Holdings 12,424 — — — 137,782 SABMiller 2,166 — — — 68,229 Shire 28,043 — — — 694,906 Sports Direct International 29,573 38,457 329,961 1.58 208,342 Tesco 105,529 — — — 382,859 Travis Perkins — 11,565 218,232 1.04 —

Energy 18.84% (17.90%) BG Group 71,250 71,250 800,494 3.82 842,888 BP 50,661 43,321 210,345 1.00 221,237 Centrica 28,817 — — — 105,384 Drax Group 60,775 92,010 702,496 3.35 410,231 Genel Energy — 36,426 354,425 1.69 — Indus Gas 52,517 52,517 304,599 1.45 470,027 John Wood Group — 29,589 228,575 1.09 — KSK Power Ventur 123,969 31,668 50,669 0.24 254,136 National Grid 40,800 33,961 279,839 1.34 300,084 Royal Dutch Shell 'A' 28,289 28,670 633,320 3.02 576,954 Royal Dutch Shell 'B' 21,901 16,345 384,925 1.84 470,214

Financials 16.55% (20.90%) Aviva 78,264 — — — 310,395 Barclays 302,969 — — — 798,929 Barclays (Nil Paid Rights) 75,742 — — — 59,457 Hammerson 60,294 84,170 468,827 2.24 304,183 HSBC Holdings 183,390 159,414 967,324 4.62 1,233,114 Intermediate Capital 48,740 — — — 214,456 Legal and General — 312,038 647,479 3.09 — Lloyds Banking Group — 480,456 358,853 1.71 — Prudential 51,228 57,734 742,748 3.55 588,610 Resolution 58,802 58,802 179,640 0.86 187,284 RSA Insurance Group 218,990 — — — 264,978 Tullett Prebon 86,588 35,513 100,324 0.48 297,603

Information Technology 1.64% (1.13%) ARM Holdings 23,235 34,621 343,613 1.64 231,072

42 Lloyds Investment Funds Limited

Investment Portfolios (continued) For the period ended 31st March 2014 UK Fund (continued)

Holding Holding Market % of Market 30.09.13 31.03.14 Value Total Net Value 31.03.14 Assets 30.09.13 £ £ Materials 8.04% (4.76%) Berkeley Group Holdings 14,368 14,368 376,298 1.80 293,682 Johnson Matthey 13,029 23,920 788,164 3.76 364,221 Meggitt 56,712 108,242 520,428 2.48 311,064

Services 26.29% (24.39%) American Leisure (Suspended) 416,667 416,667 Nil — Nil BAE Systems 141,601 118,033 484,644 2.31 650,090 BT Group 189,008 190,808 721,636 3.44 651,133 Compass Group 12,560 — — — 106,006 EasyJet 26,279 37,023 631,983 3.02 330,853 Grainger 134,000 134,000 324,548 1.55 231,418 IEnergizer 65,446 — — — 210,736 IMI 17,443 9,041 132,270 0.63 251,702 ITV 269,145 256,612 490,386 2.34 466,428 Northgate 16,488 16,488 85,902 0.41 71,063 Reed Elsevier 27,935 39,603 363,556 1.74 231,162 Shire — 28,043 840,449 4.01 — Smith and Nephew 19,255 — — — 147,590 Vodafone Group 296,076 — — — 643,077 Whitbread 11,522 11,594 489,383 2.34 344,393 William Hill 40,647 29,929 102,686 0.49 165,880 WPP 37,567 69,097 840,910 4.02 472,217

LIFFE-FTSE 100 INDEX — 7 21,000 0.10 —

Total Value of Investments 20,374,863 97.04 20,327,051 Other Assets 661,612 3.25 1,798,718 Total Assets 21,036,475 100.29 22,125,769 Liabilities (60,257) (0.29) (1,732,458) Total Net Assets 20,976,218 100.00 20,393,311

For the period For the year ended ended 31.03.14 30.09.13

Cost of investments purchased £5,161,884 £10,500 ,079 Proceeds from investments sold £5,934,779 £13,020,863

43 Lloyds Investment Funds LImItedLimited

Investments Purchased and Sold For the period ended 31st March 2014 This schedule refers to investments both purchased and sold during the period and as a result do not appear on the portfolio listings. Nominal Euro High Income UBS AG FRN 2026 100,000 High Income Fund Treasury 4.25% 2046 211,000 Treasury 5% 2025 1,524,000 Sterling Bond Fund Treasury 4.5% 2019 142,000 UK Fund IMI ‘B’ 10,333 Rolls Royce ‘C’ 1,068,464

44 Lloyds Investment Funds Limited

Summary of Material Portfolio Changes For the period ended 31st March 2014 This schedule refers to securities purchased and sold during the period which had a value of greater than 2% of the net asset value of each Fund. The Directors consider that the disclosure of the 20 largest purchases and sales is sufficient to reflect the nature of the operating activity of the Company. Euro High Income Fund Purchases Cost € Sales Proceeds €

Bundesrepublic Deutschland 3.75% 2019 259,331 Telecom Italia 8.25% 2016 123,517 Unitymedia Hessen 8.125% 2017 100,000 Goldman Sachs 4.5% 2017 109,727 Morgan Stanley 2.375% 2021 99,618 UBS AG FRN 2026 103,910 UBS AG FRN 2026 99,407 Finmeccanica 5.25% 2022 98,870 ENI 3.625% 2029 99,374 Votorantim Cimentos 5.25% 2017 90,739 Orange SA GRN Perp 99,052 Ziggo Finance 6.125% 2017 87,604 Bundesrepublic Deutschland 2.75% 2016 89,607 Bundesrepublic Deutschland 3.75% 2019 77,509 Volkswagon 5.375% 2018 52,547 Arcellormittal 9.375% 2016 62,645 Iberdrola Finanzas 7.5% 2015 60,618 Volkswagon 5.375% 2018 59,985 Bundesrepublic Deutschland 3.75% 2019 57,835 Telecom Italia 8.25% 2016 57,820 Unitymedia Hessen 8.125% 2017 41,752

European Fund Purchases Cost £ Sales Proceeds £

Bayer 214,828 SCOR 199,840 Henkel 181,687 Hugo Boss 176,953 Ryanair Holdings 167,927 Kering 167,869 Swedbank 163,376 Kering 164,582 Aryzta 161,671 Hugo Boss 154,753 Swedbank 161,052 Julius Baer Group 140,369 KBC Group 159,588 Essilor International 127,557 Fresenius 139,957 Swedish Match 127,054 KBC Group 105,905 Bayer 125,117 Henkel 92,758 Bayer 114,024 Glanbia 90,324 Bayer 113,794 Prysmian 86,006 Publicis Groupe 110,677 Fresenius 77,513 Kering 108,858 KBC Group 76,659 Swedish Match 98,938 Henkel 75,506 Julius Baer Group 98,419 Fresenius 75,117 Volvo 'B' 94,881 Fresenius 51,014 DNB ASA 93,879 Aryzta 50,955 Volvo 'B' 86,251 Aryzta 47,406 Bayer 82,734 KBC Group 46,078 BNP Paribas 81,591

45 Lloyds Investment Funds LImItedLimited

Summary of Material Portfolio Changes (continued) For the period ended 31st March 2014

High Income Fund Purchases Cost £ Sales Proceeds £

Treasury 4.5% 2019 6,794,878 British Telecommunications 6.625% 2017 3,279,123 Treasury 5% 2018 2,842,249 AIG SunAmerica Institutional Funding 5% 2018 2,841,590 Co-Operative Group 5.625% 2020 2,514,667 InterContinental Hotels 3.875% 2022 2,196,194 Treasury 4.5% 2019 2,251,120 Pennon Group (Perp) FRN 1,918,782 Treasury 1.75% 2017 1,553,208 Lafarge 10% 2017 1,889,177 United Mexico STS 5.625% 2014 1,467,510 Australia & New Zealand Banking Group 2018 FRN 1,710,000 Orange SA FRN Perp 1,410,965 Porterbrook Rail Finance 5.5% 2019 1,684,053 NIE Finance 6.375% 2026 1,209,573 Wales & West Financial 5.125% 2016 1,601,068 Heathrow Funding 4.625% 2048 982,278 Treasury 4% 2016 1,553,337 Gatwick Funding Limited 2028 FRN 895,768 Santander International Debt 3.16% 2015 1,538,072 Treasury 5% 2025 849,789 Treasury 4.5% 2042 1,479,554 WW Grainger PLC 5% 2020 775,833 Treasury 1.75% 2022 1,412,860 BG Energy Capital 2072 FRN 761,688 Virgin Media Secured Finance 7% 2018 1,235,097 Intu Metrocentre 4.125% 2028 755,904 Heathrow Funding 5.875% 2043 1,211,652 Barclays Bank 10% 2021 754,650 Treasury 6% 2028 1,211,239 Jaguar Land Rover Automotive 5% 2022 697,667 Jaguar Land Rover Automotive 8.125% 2018 1,098,950 Health Care REIT 690,193 JP Morgan Chase 2017 FRN 1,015,594 Enel 2076 FRN 566,107 Telecom Italia 7.375% 2017 1,013,033 Treasury 5% 2025 537,807 Treasury 5% 2025 936,417 Manchester Airport 4.75% 2034 498,610 Treasury 5% 2025 901,816

International Fund Purchases Cost £ Sales Proceeds £

Lorillard 337,689 Citigroup 399,060 Naver 280,174 Ashland 317,070 Shire 263,604 F5 Networks 291,089 Continental 254,189 Google 252,434 Johnson Matthey 229,106 Swatch Group 198,192 Sumitomo Mitsui Financial Group 204,676 Mead Johnson Nutrition 193,712 Shire 187,113 McKesson 186,867 Lorillard 159,986 Mead Johnson Nutrition 148,744 Avalonbay Communities 159,797 Travis Perkins 140,933 Avalonbay Communities 145,094 Travis Perkins 139,452 Continental 133,687 ICICI Bank 122,044 Avalonbay Communities 124,807 Volvo 118,046 Continental 124,503 Ashland 112,698 Caltex Australia 117,526 Volvo 108,461 Caltex Australia 109,344 Continental 107,246 Fresenius Medical Care 101,604 Danaher 106,899 Leg Immobilien 94,780 Hexcel 104,634 Global Logistic Properties 90,870 Swatch Group 104,563 Randstad 90,747 LKQ 103,211

46 Lloyds Investment Funds Limited

Summary of Material Portfolio Changes (continued) For the period ended 31st March 2014

North American Fund Purchases Cost £ Sales Proceeds £

Wells Fargo 256,444 Citigroup 194,019 Delphi Automotive 221,747 Macy's Inc 171,432 General Motors 108,449 Penske Automotive 136,058 GNC Holdings 101,210 McKesson 131,014 Suncor Energy 99,919 LKQ 118,148 Aon 91,149 Exxon Mobil 100,257 General Motors 90,162 Harley Davidson 87,446 Danaher 89,674 General Motors 86,469 Avalonbay Communities 70,088 Rock Tenn 80,223 Lorillard 69,927 Kraft Foods Group 72,480 Avalonbay Communities 63,769 Kraft Foods Group 70,736 Delta Airlines 55,427 Mead Johnson Nutrition 70,286 Avalonbay Communities 54,836 McKesson 62,206 Halliburton 45,333 Mead Johnson Nutrition 54,007 Suntrust Banks 43,901 Clean Harbors 49,779 Wells Fargo 43,520 O'Reilly Automotive 45,224 GNC Holdings 42,158 American International 44,934 Mednax 38,339 Clean Harbors 44,452 WhiteWave Foods 37,479 Marathon Petroleum 43,349 WhiteWave Foods 35,784 Citigroup 41,688

Sterling Bond Fund Purchases Cost £ Sales Proceeds £ Treasury 4.75% 2038 236,685 ASIF III Jersey 5% 2018 223,633 Treasury 5% 2018 223,963 Western Power Distribution West Midlands 5.75% 2032 177,777 AXA 6.686% Perp 185,655 UBS AG (Jersey) 5.25% 2021 FRN 165,410 Treasury 4.5% 2019 163,425 Rolls-Royce 3.375% 2026 126,559 Mellon Capital FRN 2066 150,950 TDC 5.625% 2023 116,372 BG Energy Capital 6.5% 2072 FRN 132,181 Treasury 5% 2018 116,023 Direct TV Holdings 5.2% 2033 129,481 AT&T 5.5% 2027 114,104 Arqiva FNG 122,853 Telecom Italia 7.375% 2017 112,559 Mitchells FRN 2032 115,931 Treasury 5% 2025 105,602 AT&T 5.5% 2027 115,467 Enel Societa Per Azioni 5.75% 2040 103,801 AT&T 4.25% 2043 113,134 Treasury 4% 2016 100,969 Treasury 4.75% 2038 103,625 Treasury 4% 2016 99,912 Orange SA FRN Perp 101,208 Treasury 4.5% 2019 98,411 United Mexico Sts 5.625% 2014 97,834 Treasury 4.75% 2038 92,373 Atlantia Spa 6.25% 2022 63,536 Treasury 4.75% 2038 75,382 AXA 6.686% Perp 53,044 BG Energy Capital 5.125% 2025 65,729 Treasury 4.5% 2019 65,598 BG Energy Capital 5.125% 2025 65,404 Treasury 5% 2018 62,713 Time Warner Cable 5.75% 2031 55,766

47 LloydsLloyds Investment Investment Funds Funds LImIted Limited

Summary of Material Portfolio Changes (continued) For the period ended 31st March 2014

UK Fund Purchases Cost £ Sales Proceeds £

Next 328,833 Vodafone Group 660,822 Lloyds Banking Group 313,618 Barclays 361,019 Travis Perkins 211,336 British American Tobacco 211,259 Genel Energy 210,747 Intermediate Capital 203,005 Genel Energy 166,426 Barclays 194,910 Meggitt 162,957 HSBC Holdings 188,953 Barclays 140,123 Barclays 186,240 Johnson Matthey 127,238 RSA Insurance Group 178,261 ARM Holdings 115,713 BT Group 160,631 WPP 105,599 AstraZeneca 158,059 Legal and General 105,033 Aviva 151,495 Reed Elsevier 104,673 Rolls Royce Holdings 151,239 William Hill 104,296 William Hill 151,209 HSBC Holdings 103,944 Tesco 139,917 BT Group 103,671 Tesco 131,759 Legal and General 101,508 IEnergizer 130,498 WPP 100,977 Royal Dutch Shell 'B' 126,345 Drax Group 90,272 Compass Group 114,968 EasyJet 83,355 Centrica 103,326 GlaxoSmithKline 83,269 IMI 102,169

48 Lloyds Investment Funds LImItedLimited

Notes to the Financial Statements For the period ended 31st March 2014 1. The Company 3. Summary of Significant Accounting Policies The Company is registered in Jersey, Channel Islands, and is listed The principal accounting policies applied in the preparation of these on the Channel Islands Securities Exchange and on the Malta Stock financial statements are set out below. These policies have been Exchange. Full details of the Company, Investment Objectives and applied consistently to all years presented, unless otherwise stated Policy and Report of the Directors are stated on pages 2 to 6. in the following text: 2. Basis of Presentation The Directors also monitor new standards and ensure that they are applied when relevant. The financial statements have been prepared in accordance with International Financial Reporting Standards (‘IFRS’) on the going The following standards, amendments and interpretations have concern basis. been published and are mandatory for the Company’s accounting periods beginning on or after 1st October 2013, The policies set out below have been consistently applied to all but the Company has not early adopted them: periods presented except for those items set out below relating to the classification and measurement of financial instruments. • IFRS 9 ‘Financial instruments’ - classification and measurement (effective from 1st January 2015). The financial statements have been prepared under the historical • IAS 32 (amendment) ‘Financial instruments: Presentation’, on cost convention, as modified by the revaluation of investments, held offsetting financial assets and financial liabilities (effective from at fair value through the profit or loss and in accordance with the 1st January 2014) Companies (Jersey) Law 1991 and with the Collective Investment Funds (Recognized Funds) (Rules) (Jersey) Order 2003 (as • IAS 36 (amendment), ‘Impairment of assets’ (effective from 1st amended). Jersey is not part of the United Kingdom (‘UK’) and the January 2015). Company is not regulated by the Financial Conduct Authority (‘FCA’) • IAS 39 (amendment), ‘Financial instruments: Recognition and or the Prudential Regulation Authority (‘PRA’) of the UK. measurement’, on novation of derivatives and hedge accounting (effective from 1st January 2014). The capital of the Company comprises various classes of Shares each relating to a separate Fund consisting of securities, cash, Functional currency and presentational currency other assets and liabilities. These financial statements present the Items included in the Company’s financial statements are measured balance sheets, statements of comprehensive income, statements using the currency of the primary economic environment in which of changes in net assets attributable to holders of participating it operates (the ‘functional currency’). The Directors have redeemable preference shares, cash flow statements, Investment adopted sterling as the functional and presentational currency Portfolio’s, notes to the financial statements, distribution tables and for consolidation purposes which reflects the Company’s primary performance records. At the balance sheet date there were seven economic environment in which financial assets are invested and the Funds in existence; Euro High Income Fund, European Fund, High regulatory environment of the majority of investors, being UK based. Income Fund, International Fund, North American Fund, Sterling The Company has adopted sterling as its presentational and Bond Fund and UK Fund. functional currency for European Fund, High Income Fund, International Fund, North American Fund, Sterling Bond Fund The net assets attributable to holders of participating redeemable and UK Fund as the majority of Shares in each Fund have been preference shares are classified as financial liabilities and therefore, subscribed for in sterling and all non dealing related fees and in the opinion of the Directors, the Capital of the Company is only expenses are paid in sterling. represented by the Founders Shares and Nominal Shares. Details of Founders Shares and Nominal Shares are disclosed in Notes 3(g) The Company has adopted euro as its presentational and functional and 14. currency for the Euro High Income Fund as the Shares in the Fund have been subscribed for in euro and the majority of non dealing Where assets of an individual Fund are insufficient to meet the related fees and expenses are paid in euro. Funds liabilities, then any liabilities that remain undischarged will revert to the Company as a whole and be allocated amongst the Share premium and share capital currency translation other Funds. Share premium and share capital transactions are translated into sterling at the exchange rate ruling at the time of the transaction. Critical accounting estimates and judgements The Company makes assumptions and estimates that affect the The aggregated balance of net assets attributable to holders of reported amounts of assets and liabilities within the next financial participating redeemable preference Shares has been translated year. Estimates and judgements are continually evaluated and using the average exchange rate for the period. are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The accounting policies deemed critical to the Company’s results and financial position, based upon materiality and significant judgements and estimates, are discussed in the following notes.

49 Lloyds Investment Funds LImItedLimited

Notes to the Financial Statements (continued) For the period ended 31st March 20143 3. Summary of Significant Accounting Policies (c) Measurement (continued) Financial assets and financial liabilities at fair value through profit or loss are initially recognised at fair value, and transaction costs for all Segmental reporting financial assets and financial liabilities carried at fair value through The Company, at the balance sheet date is organised into seven profit or loss are expensed in the statement of comprehensive business segments, each focussing on achieving returns by investing income as incurred. Subsequent to initial recognition, all financial in a range of investments as described in the Investment Objectives assets and financial liabilities at fair value through profit or loss are and Policy on page 3. measured at fair value. The Company issues Shares which are allocated to the Fund selected Gains and losses arising from changes in the fair value of financial by the investor. A separate account is maintained for each Fund, assets or financial liabilities at fair value through profit or loss are to which proceeds of issue, the income arising from those proceeds recognised in the statement of comprehensive income in the period and expenses are allocated. Upon redemption shareholders are in which they arise. entitled to their proportion of the net assets held in the Fund in which their Shares have been designated. (d) Revenue recognition Investment income from Fund investments is recognised in the A balance sheet, statement of comprehensive income, statement statement of comprehensive income on an ex-dividend basis for of changes in net assets attributable to holders of participating equities and on a time proportionate basis for all debt instruments redeemable preference shares and cash flow statement have been using the Effective Interest Rate method (‘EIR’). prepared for each Fund as well as for the Company as a whole. Bank interest is recognised in the statement of comprehensive Foreign currency translation income on a time proportionate basis using the EIR method. Assets and liabilities denominated in currencies other than the functional currency of the Fund are translated at the rate of (e) Fair value estimation exchange ruling at the balance sheet date. The currency profits The fair value of financial instruments traded in active markets (such or losses arising on translation, together with currency profits or as publicly traded derivatives and trading securities) is based on losses realised during the period, are recognised in the statement of quoted market prices at the balance sheet date. The quoted market comprehensive income. price used for financial assets and financial liabilities held by the Fund is the current bid-market price. When a Fund holds derivatives The rate of exchange to sterling from euro ruling at 31st March 2014 with offsetting market risks, it uses bid-market prices as a basis for used for the conversion of balance sheet items was 1.2096 and the establishing fair values for the offsetting risk positions and applies average rate for the period used for the conversion of the statement this bid-market price to the net open position, as appropriate. As of comprehensive income was 1.2048. required by IAS 39 financial assets and financial liabilities at fair value Translation differences on non-monetary items held at fair value through profit or loss are valued at the bid-prices ruling at 10.00 a.m. through profit or loss are reported as part of the fair value gain on the last business day of the accounting year. or loss. (f) Cash and cash equivalents Financial assets and financial liabilities at fair value through Cash and cash equivalents include cash in hand and deposits held at profit or loss call with banks. (a) Classification (g) Share capital The Company classifies its investments in debt and equity securities (i) The Founders Shares have been subscribed for by the as financial assets at fair value through profit or loss. Financial assets Manager and are non-participating. The holders thereof are and financial liabilities are designated by the Board of Directors as entitled only to income arising on the assets represented by fair value through profit or loss at inception. the Founders Shares. These Shares are classified as Ordinary Share capital in the balance sheet. Financial assets and financial liabilities designated at fair value through profit or loss at inception are those that are managed and (ii) Unclassified Shares may be issued as either participating their performance evaluated on a fair value basis in accordance with redeemable preference shares (‘Participating Shares’) or the Company’s documented investment strategy. The Company’s Nominal Shares. Participating Shares are redeemable at the policy is for the Manager and the Board of Directors to evaluate the shareholder’s option and are classified as financial liabilities. information about these financial assets at fair value together with Participating Shares are carried at the redemption amount other related financial information. that is payable if the holder exercises the right to redeem (b) Recognition Shares at the balance sheet date. Purchases and sales are recognised on the trade date (the date on which the Company commits to purchase or sell the asset).

50 Lloyds Investment Funds LImItedLimited

Notes to the Financial Statements (continued) For the period ended 31st March 2014 3. Summary of Significant Accounting Policies (continued) Participating Shares are issued and redeemed at the holder’s option at prices based on each Fund’s net asset value per Share at the time of issue or redemption. Each Fund’s net asset value per Share is calculated by dividing the net assets attributable to the holders of participating redeemable preference shares with the total number of Participating Shares in issue. In accordance with the provisions of the Company’s regulations, investments are valued based on the latest traded market price for the purpose of determining the net asset value per Share for subscriptions and redemptions. The Shares are divided into Funds according to the type of investment in which the proceeds of the issue of Shares in each Fund are invested. A separate portfolio of investments is maintained for each Fund. Each holder of a Participating Share is entitled on a poll, to one vote for each Participating Share held. Participating Shares have a right to dividends declared. If any dividends are paid, different amounts of dividends may be payable in respect of different Funds.

(iii) Nominal Shares have been accounted for in accordance with the Companies (Jersey) Law 1991 and corresponding amounts have been included in debtors and financial liabilities. A Nominal Share will be created when a Participating Share is cancelled. A Nominal Share will be cancelled when a Participating Share is created until the number of Nominal Shares falls to zero.

(iv) Both issued Nominal and Participating Shares are carried at a value of £ 0.01 per Share.

Details of the Company’s Share capital transactions are shown in Note 14.

(h) Share premium The premium on issues and redemptions of Participating Shares is accounted for within the Share premium account which forms part of the net assets attributable to holders of participating redeemable preference Shares. Details are shown in Notes 15 and 17. (i) Distributions payable to holders of participating redeemable preference shares Distributions to holders of Participating Shares are recognised and classified as finance costs when they are ratified by the Directors. (j) Accrued income and expenses Accrued income and expenses are recognised initially at fair value and subsequently stated at amortised cost using the EIR.

51 Lloyds Investment Funds Limited

Notes to the Financial Statements (continued) For the period ended 31st March 2014 4. Other Accrued Income and Pre Paid Expenses Capital Euro High Company Growth Fund Income European (Closed 05.07.13) Fund Fund £ £ € £ Period ended 31st March 2014 Accrued Income 8,190,856 — 292,211 — Nominal Shares 676,047 — — — Founders Shares 1,000 — — — Total Debtors 8,867,903 — 292,211 —

Year ended 30th September 2013 Accrued Income 8,839,296 — 264,488 — Nominal Shares 644,056 — — — Founders Shares 1,000 — — — Total Debtors 9,484,352 — 264,488 —

5. Distributions The distributions take account of income received on the creation of shares and income deducted on the cancellation of shares.

Capital Euro High Company Growth Fund Income European (Closed 05.07.13) Fund Fund Period ended 31st March 2014 £ £ € £ 31st October 2013 1,506,847 — — — 30th November 2013 1,504,970 — — — 31st December 2013 1,853,875 — 141,372 — 31st January 2014 1,504,396 — — — 28th February 2014 1,498,979 — — — 31st March 2014 1,837,728 — 144,869 — 9,706,795 — 286,241 — Income paid on cancellation of shares 21,726 — 4,812 10 Income received on creation of shares (32,918) — (4,659) — Net distributions for the period 9,695,603 — 286,394 10 Fees charged to capital* (1,533,345) — (63,152) — Net distributions after taxation 8,162,258 — 223,242 10

* Details can be found in Note 10.

52 Lloyds Investment Funds Limited

Notes to the Financial Statements (continued) For the period ended 31st March 2014 4. Other Accrued Income and Pre Paid Expenses (continued) High North Sterling Income International American Bond UK Fund Fund Fund Fund Fund £ £ £ £ £ Period ended 31st March 2014 Accrued Income 7,349,441 25,273 583 501,303 72,680 Nominal Shares — — — — — Founders Shares — — — — — Total Debtors 7,349,441 25,273 583 501,303 72,680

Year ended 30th September 2013 Accrued Income 8,032,831 15,791 1,533 501,276 66,183 Nominal Shares — — — — — Founders Shares — — — — — Total Debtors 8,032,831 15,791 1,533 501,276 66,183

5. Distributions The distributions take account of income received on the creation of shares and income deducted on the cancellation of shares.

High Sterling Income Bond UK Fund Fund Fund Period ended 31st March 2014 £ £ £ 31st October 2013 1,506,847 — — 30th November 2013 1,504,970 — — 31st December 2013 1,506,667 229,863 — 31st January 2014 1,504,396 — — 28th February 2014 1,498,979 — — 31st March 2014 1,497,332 220,630 — 9,019,191 450,493 — Income paid on cancellation of shares 12,648 1,629 3,445 Income received on creation of shares (18,917) (5,548) (4,586) Net distributions for the period 9,012,922 446,574 (1,141) Fees charged to capital* (1,480,926) — — Net distributions after taxation 7,531,996 446,574 (1,141)

* Details can be found in Note 10.

53 Lloyds Investment Funds Limited

Notes to the Financial Statements (continued) For the period ended 31st March 2014 5. Distributions (continued) Capital Euro High Company Growth Fund Income European (Closed 05.07.13) Fund Fund Period ended 31st March 2013 £ £ € £ 31st October 2012 1,696,805 — — — 30th November 2012 1,543,514 — — — 31st December 2012 1,924,413 — 145,564 — 31st January 2013 1,510,914 — — — 28th February 2013 1,509,093 — — — 31st March 2013 1,888,765 — 153,197 — 10,024,502 — 298,761 — Income paid on cancellation of shares 71,080 2,054 1,964 212 Income received on creation of shares (38,062) (1,436) (3,264) (30) Net distributions for the period 10,057,520 618 297,461 182 Fees charged to capital* (138,305) — (13,103) — Net distributions after taxation 9,919,215 618 284,358 182

* Details can be found in Note 10.

6. Accrued Expenses

Capital Euro High Company Growth Fund Income European (Closed 05.07.13) Fund Fund £ £ € £ Period ended 31st March 2014 Due to Manager 474,965 — 15,155 31,476 Due to Custodian 24,686 — 1,142 1,932 Other Creditors 272,755 — 17,959 14,725 Total Creditors 772,406 — 34,256 48,133

Year ended 30th September 2013 Due to Manager 472,423 — 15,115 32,374 Due to Custodian 24,610 — 1,118 1,975 Other Creditors 212,973 — 18,560 14,203 Total Creditors 710,006 — 34,793 48,552

54 Lloyds Investment Funds Limited

Notes to the Financial Statements (continued) For the period ended 31st March 2014 5. Distributions (continued) High Sterling Income Bond UK Fund Fund Fund Period ended 31st March 2013 £ £ £ 31st October 2012 1,696,805 — — 30th November 2012 1,543,514 — — 31st December 2012 1,540,011 238,838 — 31st January 2013 1,510,914 — — 28th February 2013 1,509,093 — — 31st March 2013 1,503,486 232,082 — 9,303,823 470,920 — Income paid on cancellation of shares 20,614 2,593 43,643 Income received on creation of shares (23,539) (3,366) (6,427) Net distributions for the period 9,251,896 470,147 37,216 Fees charged to capital* (125,202) — — Net distributions after taxation 9,126,694 470,147 37,216

* Details can be found in Note 10.

6. Accrued Expenses

High North Sterling Income International American Bond UK Fund Fund Fund Fund Fund

£ £ £ £ £ Period ended 31st March 2014 Due to Manager 299,772 49,046 18,919 24,612 38,611 Due to Custodian 14,551 2,401 1,175 1,670 2,013 Other Creditors 183,289 14,135 7,023 21,751 16,985 Total Creditors 497,612 65,582 27,117 48,033 57,609

Year ended 30th September 2013 Due to Manager 298,902 48,604 18,162 23,075 38,636 Due to Custodian 14,520 2,386 1,104 1,680 2,008 Other Creditors 122,909 15,558 7,924 18,764 18,060 Total Creditors 436,331 66,548 27,190 43,519 58,704

55 Lloyds Investment Funds Limited

Notes to the Financial Statements (continued) For the period ended 31st March 2014 7. Net gains on financial assets at fair value through profit or loss The net gains on investments during the period comprise:

Capital Euro High Company Growth Fund Income European (Closed 05.07.13) Fund Fund £ £ € £ Period ended 31st March 2014 Proceeds from sales of investments 63,791,760 — 1,006,891 3,701,873 during the period Original cost of investments sold (58,878,839) — (980,485) (3,019,226) during the period Gains realised on investments sold 4,912,921 — 26,406 682,647 during the period Realised foreign exchange (losses)/gains 46,879 — 1 28,163

Net realised gain for the period 4,959,800 — 26,407 710,810

Net unrealised gain/(loss) for the period (282,864) — 215,442 149,749

Net gains/ (losses) on investments 4,676,936 — 241,849 860,559

Period ended 31st March 2013 Proceeds from sales of investments 71,049,434 5,150,334 1,643,589 3,092,255 during the period Original cost of investments sold (65,788,514) (4,529,718) (1,540,901) (2,597,267) during the period Gains realised on investments sold 5,260,920 620,616 102,688 494,988 during the period Realised foreign exchange (losses)/gains (113,823) (7,963) — (50,635)

Net realised gain/(loss) for the period 5,147,097 612,653 102,688 444,353

Net unrealised gain/(loss) for the period 17,797,245 827,587 361,871 2,095,244

Net gains on investments 22,944,342 1,440,240 464,559 2,539,597

56 Lloyds Investment Funds Limited

Notes to the Financial Statements (continued) For the period ended 31st March 2014 7. Net gains on financial assets at fair value through profit or loss (continued) The net gains on investments during the period comprise:

High North Sterling Income International American Bond UK Fund Fund Fund Fund Fund £ £ £ £ £ Period ended 31st March 2014 Proceeds from sales of investments 42,239,973 6,465,503 2,457,339 2,156,531 5,934,779 during the period Original cost of investments sold (40,300,289) (5,372,898) (2,091,431) (2,085,671) (5,195,480) during the period Gains realised on investments sold 1,939,684 1,092,605 365,908 70,860 739,299 during the period Realised foreign exchange (losses)/gains (26) (5,011) 23,979 (38) (189)

Net realised gain for the period 1,939,658 1,087,594 389,887 70,822 739,110

Net unrealised gain/(loss) for the period (904,354) 23,871 309,105 (79,074) 39,013

Net gains/ (losses) on investments 1,035,304 1,111,465 698,992 (8,252) 778,123

Period ended 31st March 2013 Proceeds from sales of investments 36,015,155 10,579,249 4,902,867 3,678,854 6,239,928 during the period Original cost of investments sold (35,529,993) (9,134,774) (4,209,921) (3,351,267) (5,131,676) during the period Gains realised on investments sold 485,162 1,444,475 692,946 327,587 1,108,252 during the period Realised foreign exchange (losses)/gains 91 (26,771) (28,051) 70 (564)

Net realised gain/(loss) for the period 485,253 1,417,704 664,895 327,657 1,107,688

Net unrealised gain/(loss) for the period 10,196,786 2,310,615 697,145 378,553 985,103 Net gains on investments 10,682,039 3,728,319 1,362,040 706,210 2,092,791

57 Lloyds Investment Funds Limited

Notes to the Financial Statements (continued) For the period ended 31st March 2014 8. Other Income Capital Euro High Note Company Growth Fund Income European (Closed 05.07.13) Fund Fund £ £ € £ Period ended 31st March 2014 Bank interest 9,208 — 6 205 Other income 9,208 — 6 205

Period ended 31st March 2013 Bank interest 6,287 1,010 — 124 Other income 6,287 1,010 — 124

9. Operating Expenses. Period ended 31st March 2014 Payable to the Manager: Annual management fees 10 2,117,041 — 58,175 123,504 Registrar fees 10 112,911 — 4,977 10,563 Payable to the Custodian: Custodian fees 11 145,286 — 6,649 11,539 Safe custody fees 11 42,881 — 1,939 3,276 Other expenses: Administration expenses 104,554 — 6,552 4,623 Broker commission, dealing charges 68,025 — 108 11,354 and stamp duty Audit fee 13,906 — 850 1,100 Total expenses 2,604,604 — 79,250 165,959

Period ended 31st March 2013 Payable to the Manager: Annual management fees 10 2,192,811 103,011 56,053 112,951 Registrar fees 10 100,149 3,801 6,697 11,584 Payable to the Custodian: Custodian fees 11 152,826 9,824 6,406 10,652 Safe custody fees 11 73,806 2,172 3,801 6,335 Other expenses: Administration expenses 154,606 6,195 14,767 7,030 Broker commission, dealing charges 138,058 25,104 544 11,770 and stamp duty Audit fee 14,327 700 800 1,000 Total expenses 2,826,583 150,807 89,068 161,322

58 Lloyds Investment Funds Limited

Notes to the Financial Statements (continued) For the period ended 31st March 2014 8. Other Income (continued) High North Sterling Income International American Bond UK Fund Fund Fund Fund Fund £ £ £ £ £ Period ended 31st March 2014 Bank interest 8,063 300 128 138 369 Other income 8,063 300 128 138 369

Period ended 31st March 2013 Bank interest 4,585 205 33 184 146 Other income 4,585 205 33 184 146

9. Operating Expenses. Period ended 31st March 2014 Payable to the Manager: Annual management fees 1,423,848 196,061 67,361 100,164 157,815

Registrar fees 57,078 15,533 7,042 7,525 11,039 Payable to the Custodian: Custodian fees 85,726 14,166 6,736 9,832 11,768

Safe custody fees 28,476 3,640 1,638 2,786 1,456

Other expenses: Administration expenses 74,435 4,181 3,059 9,872 2,946 Broker commission, dealing charges 1,458 17,323 4,883 608 32,309 and stamp duty Audit fee 7,500 700 700 1,100 2,100

Total expenses 1,678,521 251,604 91,419 131,887 219,433

Period ended 31st March 2013 Payable to the Manager:

Annual management fees 1,443,584 173,180 61,336 102,533 148,784

Registrar fees 38,372 14,299 7,421 7,421 11,584 Payable to the Custodian: Custodian fees 86,830 12,778 6,134 10,028 11,159 Safe custody fees 44,345 6,516 3,258 5,430 2,534 Other expenses: Administration expenses 95,289 4,981 3,864 21,295 3,456 Broker commission, dealing charges 1,440 40,427 13,441 833 44,583 and stamp duty Audit fee 7,500 700 700 1,050 2,000

Total expenses 1,717,360 252,881 96,154 148,590 224,100

59 Lloyds Investment Funds Limited

Notes to the Financial Statements (continued) For the period ended 31st March 2014 10. Related Party Transactions (a) Management and Registrar fees Parties are considered to be related if one party has the ability to The Manager, which is related to the Company by virtue of a control the other party or exercise influence over the party in making Management Agreement, is entitled to a daily fee equal at the financial or operating decisions. The following are considered by the annual rate set out below by reference to the net assets of each Directors of the Company to be related parties: Fund calculated daily and paid monthly by the Company. The Manager in accordance with the Management Agreement. Euro High Income Fund 0.875% The Investment Manager in accordance with the Investment European Fund 1.500% Management Agreement. High Income Fund 0.875% The fees received by the Manager are set out in Note 9. The International Fund 1.500% Investment Manager is paid by the Manager. Details of amounts due to the Manager at the end of the period are shown in Note 6. North American Fund 1.500% The Manager is involved in all transactions in Shares of the Sterling Bond Fund 0.875% Company, the aggregate values of which are set out in the UK Fund 1.500% statement of changes in net assets attributable to holders of participating redeemable preference shares on pages 18 and 19. The Directors and the Manager may agree a higher fee for any Fund subject to a maximum annual rate of 1.5% of the mid market value of At the period end the Manager held Participating Shares in the net assets of the Fund. If such a higher fee is agreed, shareholders of Company as follows: the relevant Fund will be given at least three months written notice before it comes into effect. 31st March 30th 2014 September The Manager, in its capacity as Registrar, is entitled to a fee payable 2013 by the Company of £12.00 for each shareholding which appears on the Share Register on the last business day of each annual and half Capital Growth Fund — — yearly accounting period. The Manager and the Company may agree (Closed 05.07.13) a higher fee. Euro High Income Fund 8,008.78 7,979.37 Details of amounts due to the Manager at the end of the period are European Fund 2,700.88 2,671.55 shown in Note 6. High Income Fund 6,996.42 7,005.37 (b) Fees charged to capital International Fund 3,025.81 3,014.13 In order to maximise the income available for distribution to North American Fund 2,818.38 2,742.33 shareholders, the Directors, in consultation with the Custodian, have agreed to charge the Management and Registrar fees for Sterling Bond Fund 4,940.02 5,490.75 High Income Fund and Euro High Income Fund only, to the capital UK Fund 2,849.80 2,909.29 of these Funds. 31,340.09 31,812.79 (c) Directors’ Fees Directors who are employees of the Lloyds Banking Group do not receive Directors’ fees. All other Directors currently receive a fee of £5,000 per annum (2013: £5,000 per annum).

60 Lloyds Investment Funds Limited

Notes to the Financial Statements (continued) For the period ended 31st March 2014 11. Custodian 12. Controlling Party The fees received by the Custodian are set out in Note 9. Details of In the opinion of the Directors, there is no ultimate controlling party amounts due to the Custodian at the end of the period are shown in of the Company as defined by International Accounting Standards Note 6. No.24 Related Party Disclosures. The Custodian is entitled to an annual fee payable monthly by the 13. Equalisation Company, in respect of each Fund, at the rates set out in the table The price of a Share includes an equalisation payment calculated below by reference to the net asset value of each Fund calculated on by dividing the net undistributed income of the Fund by the number a mid-market basis and subject to a minimum overall fee of £20,000 of Shares in issue at the time when the prices are calculated. per annum for the Company as a whole. The payment of the first dividend after the issue of a Share includes The Custodian is entitled to reimbursement by each Fund of its an amount of equalisation calculated by averaging the amounts expenses in connection with its duties as Custodian and to make received by way of equalisation during the period to which the transaction charges to cover the cost of effecting settlement of distribution relates. stock and cash.

Custodian Fee Rates Sterling Funds paid in £ NAV of each Fund Up to 10m 10m to 25m 25m Plus % % % European Fund 0.150 0.125 0.100 High Income Fund 0.100 0.075 0.050 International Fund 0.125 0.100 0.075 North American Fund 0.150 0.125 0.100 Sterling Bond Fund 0.100 0.075 0.050 UK Fund 0.125 0.100 0.075

Euro Funds paid in € NAV of each Fund Up to 15m 15m to 40m 40m to Plus % % % Euro High Income Fund 0.100 0.075 0.050

61 Lloyds Investment Funds Limited

Notes to the Financial Statements (continued) For the period ended 31st March 2014 14. Share Capital

31st March 30th September 2014 2013 £ £ Authorised share Capital: 1,000 Founders Shares of £1 1,000 1,000 750,000,000 Unclassified Shares of 1p 7,500,000 7,500,000 7,501,000 7,501,000 Issued Share Capital: Founders Shares 1,000 1,000

Nominal shares: Balance brought forward 644,056 559,643 Creations 98,991 284,243 Redemptions (67,000) (199,830) Balance carried forward 676,047 644,056

Participating Shares: Balance brought forward 4,129,998 4,214,405 Creations 66,995 199,836 Redemptions (98,991) (284,243) Balance carried forward 4,098,002 4,129,998 Total Share Capital 4,774,049 4,774,054

Fund Shares £ Shares £ Capital Growth (closed 05.07.13) — — — — European 1,995,423 19,954 2,103,073 21,030 High Income 374,333,811 3,743,338 376,776,611 3,767,768 International 5,958,767 59,588 6,155,467 61,556 North American 634,598 6,346 645,548 6,456 Sterling Bond 15,872,693 158,727 16,324,793 163,248 UK 2,866,153 28,662 2,903,103 29,030 Total Sterling Funds 401,661,445 4,016,615 404,908,595 4,049,088

Fund Shares € Shares € Euro High Income 8,138,694 125,647 8,091,144 125,171 Total Euro Funds 8,138,694 125,647 8,091,144 125,171

Total Company (Sterling equivalent) 409,800,139 4,098,002 412,999,709 4,129,998

62 Lloyds Investment Funds Limited

Notes to the Financial Statements (continued) For the period ended 31st March 2014 15. Share Premium

31st March 30th September 2014 2013 Fund £ £ Capital Growth Fund (closed 05.07.13) — — European Fund — — High Income Fund 373,804,374 375,901,785 International Fund 13,154,542 14,005,384 North American Fund — — Sterling Bond Fund 24,535,133 25,174,158 UK Fund — — Total Sterling Funds 411,494,049 415,081,327

Fund € € Euro High Income 13,949,104 13,873,262 Total Euro Funds 13,949,104 13,873,262

Total Company (Sterling equivalent) 420,962,400 424,487,278

£ £ Balance brought forward 424,487,278 423,060,508 Premium on creations 7,302,987 20,113,090 Premium on redemptions (12,119,468) (41,225,207) Transfer from capital reserve 1,291,603 22,538,887 Balance carried forward 420,962,400 424,487,278

63 Lloyds Investment Funds Limited

Notes to the Financial Statements (continued) For the period ended 31st March 2014

16. Capital Reserves Capital Growth Euro High Note Company Fund ** Income European (Closed 05.07.13) Fund Fund

£ £ € £ Net realised gains/(losses) 25,418,061 — (416,041) 14,690,497 on investments b/fwd Transfers to share premium b/fwd (7,083,379) — — (1,067,960) Net realised gains for the period 7 4,959,800 — 26,407 710,810 Net realised gains/(losses) 23,294,482 — (389,634) 14,333,347 on investments c/fwd Net unrealised movement on investment b/fwd 35,499,182 — 928,310 3,584,301 Net unrealised movement in the period 7 (282,865) — 215,441 149,749 Net unrealised movement on investment c/fwd 35,216,317 — 1,143,751 3,734,050 Total realised/unrealised movement 58,510,799 — 754,117 18,067,397 Fees charged to Capital b/fwd* (30,109,329) — (924,523) — Net movement in the period (1,533,345) — (63,152) — Fees charged to Capital c/fwd* (31,642,674) — (987,675) — Transfer to share premium in period (1,291,603) — — (874,279) Broker charges reserves b/fwd (4,351,082) — — (768,058) Broker charges in the period — — — — Broker charges reserves c/fwd (4,351,082) — — (768,058) As at 31st March 2014 21,225,440 — (233,558) 16,425,060 * Details of the fees can be found in Note 10. Under the Reporting Fund Regime, broker commission, dealing charges and stamp duty are not allowable expenses. The Directors have, therefore, transferred these expenses from the Net undistributed income reserve to a separate broker charges reserve. ** Capital growth reserves have been excluded from bruoght forward values with all realised gains incorporated into redemption values.

17. Net assets attributable to holders of participating redeemable preference shares

Capital Euro High Note Company Growth Fund Income European (Closed 05.07.13) Fund Fund Period ended 31st March 2014 £ £ € £ Share capital 14 4,098,002 — 125,647 19,954 Share premium 15 420,962,400 — 13,949,104 — Capital reserves 16 21,225,440 — (233,558) 16,425,060 Dilution levies 205,314 — 30,778 5,270 Net undistributed income* (22,146,354) — (528,381) (149,705) Movement in currency translation 2,761,576 — — — As at 31st March 2014 427,106,378 — 13,343,590 16,300,579

Year ended 30th September 2013 Share capital 4,129,998 — 125,171 21,030 Share premium 424,487,278 — 13,873,262 0 Capital reserves 19,373,456 — (412,254) 16,438,780 Dilution levies 205,604 — 30,773 5,272 Net undistributed income* (21,585,481) — (521,591) (26,835) Movement in currency translation 2,916,542 — — — As at 30th September 2013 429,527,397 — 13,095,361 16,438,247

* The distributions detailed in Note 5 have been declared by the Directors using a dividend policy based on the ‘Accruals’ method of accounting for income on debt instruments, as opposed to the Effective Interest Rate (‘EIR’) method of accounting for investment income which is the basis used for recognition of income on debt instruments as explained in the accounting policies. Future distributions will continue to be made on the basis of the existing distribution policy. Equity Fund distributions were declared net of broker fees for 2013. Undistributed income under the accruals method as at 31st March 2014 amounts to £(1,219,997) (30th September 2013 amounts to £81,712).

64 Lloyds Investment Funds Limited

Notes to the Financial Statements (continued) For the period ended 31st March 2014

16. Capital Reserves (continued) High North Sterling Income International American Bond UK Fund Fund Fund Fund Fund £ £ £ £ £ Net realised gains/(losses) (29,518,969) 9,264,269 11,767,860 (2,430,565) 22,723,901 on investments b/fwd Transfers to share premium b/fwd — — (3,740,681) — (2,274,738) Net realised gains for the period 1,939,658 1,087,594 389,887 70,822 739,110 Net realised gains/(losses) (27,579,311) 10,351,863 8,417,066 (2,359,743) 21,188,273 on investments c/fwd Net unrealised movement on investment b/fwd 22,154,696 3,307,035 1,295,448 1,781,990 2,358,147 Net unrealised movement in the period (904,354) 23,871 309,105 (79,074) 39,013 Net unrealised movement on investment c/fwd 21,250,342 3,330,906 1,604,553 1,702,916 2,397,160 Total realised/unrealised movement (6,328,969) 13,682,769 10,021,619 (656,827) 23,585,433 Fees charged to Capital b/fwd* (29,351,214) — — — — Net movement in the period (1,480,926) — — — — Fees charged to Capital c/fwd* (30,832,140) — — — — Transfer to share premium in period — — (153,419) — (263,905) Broker charges reserves b/fwd — (716,951) (183,159) — (2,485,543) Broker charges in the period — — — — — Broker charges reserves c/fwd — (716,951) (183,159) — (2,485,543) As at 31st March 2014 (37,161,109) 12,965,818 9,685,041 (656,827) 20,835,985

17. Net assets attributable to holders of participating redeemable preference shares (continued)

High North Sterling Income International American Bond UK Fund Fund Fund Fund Fund Period ended 31st March 2014 £ £ £ £ £ Share capital 3,743,338 59,588 6,346 158,727 28,662 Share premium 373,804,374 13,154,542 — 24,535,133 — Capital reserves (37,161,109) 12,965,818 9,685,041 (656,827) 20,835,985 Dilution levies 126,874 — 7,857 33,086 6,783 Net undistributed income* (18,894,887) (499,990) (666,507) (1,603,230) 104,788 Movement in currency translation — — — — — As at 31st March 2014 321,618,590 25,679,958 9,032,737 22,466,889 20,976,218

Year ended 30th September 2013 Share capital 3,767,768 61,556 6,456 163,248 29,030 Share premium 375,901,785 14,005,384 — 25,174,158 — Capital reserves (36,715,485) 11,854,353 9,139,468 (648,575) 20,321,767 Dilution levies 126,876 — 7,857 33,086 6,784 Net undistributed income* (18,582,667) (360,506) (605,979) (1,608,852) 35,730 Movement in currency translation — — — — — As at 30th September 2013 324,498,273 25,560,787 8,547,802 23,113,065 20,393,311

65 Lloyds Investment Funds Limited

Notes to the Financial Statements (continued) For the period ended 31st March 2014 18. Taxation • Hedging instruments, such as forward exchange contracts and In accordance with International Accounting Standard (IAS) No.12 traded options which a Fund may enter into, for the purpose of Current Tax, investment income is shown gross of withholding tax. managing the risks arising from the Fund’s investment activities. The withholding tax suffered is recorded on the taxation line as set Market price risk out below: All securities investments present a risk of loss of capital. 31st March 31st March The Manager moderates this risk through a careful selection 2014 2013 of investments within specified limits. The maximum risk resulting from investments is determined by the fair value Foreign tax on income £61,658 £111,949 for the period of those investments. The Company is liable to be charged at a tax rate of 0% under The overall market position and therefore the risk exposure for Schedule D under the Income Tax (Jersey) Law 1961, as amended each Fund are governed by the Prospectus, the Collective (the ‘Income Tax Law’) in respect of: Investment Funds (Recognized Funds) (Rules) (Jersey) Order 2003 (as amended) and the investment objectives for each Fund. (i) the income or profits of any trade carried on by the Company in These positions are monitored on a daily basis by the Manager Jersey or elsewhere, and are reviewed on a quarterly basis by the Board of Directors. (ii) any interest of money, whether yearly or otherwise, or other The investments are principally equities, fixed interest securities annual payment paid to the Company, whether such payment is and bank deposits, dependent on each Fund’s investment policy. made within or outside of Jersey, The value of these is not fixed (other than bank deposits) and may (iii) dividends and other distributions of a company regarded as go down as well as up. This may be the result of a specific factor resident in Jersey paid to the Company, affecting the value of an individual stock or be caused by general market factors (such as interest rates, government policy or the (iv) income arising to the Company from securities outside health of the underlying economy) which could affect the entire of Jersey and portfolio of a Fund. (v) any other income of the Company that is not derived from the The period end portfolios of each Fund are detailed on pages 25 to ownership or disposal of land in Jersey. 43. It is not expected that the Company will be in receipt of income The Manager controls this risk on a Fund by Fund basis and charged to tax under any Schedule under Income Tax Law other monitors the movements in the equities, bonds and interest rates than Schedule D. As such the Company is no longer subject to the against the relevant equity and bond indices and market interest payment of tax in Jersey. rates respectively. 19. Financial risk management The Manager considers that a reasonably possible movement in the Strategy in using financial instruments market risk components would be equivalent to a 5% movement in equity and bond indices and a 1% movement in market interest rates. The Company’s activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash The table on the following page summarises, for each of the Funds, flow interest rate risk and price risk), liquidity risk, counter-party the impact of increases/ (decreases) in the equity and bond indices, risk, capital risk and certain other risks. The Company’s overall and market interest rates on the net asset value as at 31st March risk management programme focuses on the unpredictability of 2014. The analysis is based on the assumption that the equity and financial markets and seeks to minimise potential adverse effects bond indices increase/(decrease) by 5%, and market interest rates on the Company’s financial performance. Each Fund is able to use increase/(decrease) by 1%, with all other variables held constant. derivative financial instruments to moderate certain risk exposures. The analysis also assumes that the movement in the portfolios of each Fund has perfect positive correlation with the equity and bond Each Fund’s investment objectives and policy are stated on page indices and market interest rates. 3. To achieve these objectives the Company’s assets and liabilities comprise financial instruments held in accordance with each Fund’s investment objectives and policy. These may include: • Investments including equity and non-equity Shares, fixed income securities and floating rate securities • Cash, liquid resources and short term debtors and creditors that arise directly from the investment activities

66 Lloyds Investment Funds Limited

Notes to the Financial Statements (continued) For the period ended 31st March 2014

19. Financial risk management (continued) Value Equities Bonds Cash End of Fund (base 5% Movement 5% Movement 1% Movement Year / Period currency) in equity index in bond index in interest rate

31.03.14 Euro High Income 13,343,590 — 637,075 4,890 30.09.13 Euro High Income 13,095,361 — 631,039 4,212

31.03.14 European 16,300,579 794,966 — 4,107 30.09.13 European 16,438,247 800,768 — 4,624

31.03.14 High Income 321,618,590 — 15,331,275 96,648 30.09.13 High Income 324,498,273 — 15,802,150 24,319

31.03.14 International 25,679,958 1,267,120 — 3,693 30.09.13 International 25,560,787 1,256,333 — 5,508

31.03.14 North American 9,032,737 447,263 — 1,118 30.09.13 North American 8,547,802 417,616 — 2,296

31.03.14 Sterling Bond 22,466,889 — 1,103,887 1,565 30.09.13 Sterling Bond 23,113,065 — 1,109,773 7,210

31.03.14 UK 20,976,218 1,017,693 — 5,845 30.09.13 UK 20,393,311 1,016,353 — 1,385

Interest rate risk Each Fund receives income from its various investments. For the Sterling Bond Fund, Euro High Income Fund and High Income Fund, the income is received from investments in bonds and loan stock. In accordance with the Funds policy, the Manager monitors the Fund’s overall interest rate sensitivity on a daily basis, and the Board of Directors reviews it on a quarterly basis. The interest bearing financial assets and liabilities held in the Funds expose them to risks associated with the effects of fluctuations in the prevailing levels of market interest rates on their financial position and cash flows. The table overleaf summarises the effect of interest rate risks on each Fund. It includes the Fund’s assets and trading liabilities at fair values, categorised by the earlier of contractual re-pricing or maturity dates. Other than those financial instruments identified in the table, each Fund has no significant exposure to interest rate risks. The income received by each Fund is primarily fixed in nature and shown in the table on the next page. Income is derived from the securities held in the portfolio of each Fund which may be varied from time to time in accordance with its investment objectives and policy.

67 Lloyds Investment Funds Limited

Notes to the Financial Statements (continued) For the period ended 31st March 2014

19. Financial risk management (continued) The interest rate profile of each Fund’s financial assets at 31st March 2014 was:

Fixed rate Floating rate Fund Currency interest interest Interest Interest Total securities securities Free Assets Free Liablities 000s 000s 000s 000s 000s Euro High Income Euro 13,344 8,738 4,493 292 179 High Income Sterling 321,619 206,288 110,003 7,349 2,021 Sterling Bond Sterling 22,467 15,569 6,666 501 269

Weighted average Weighted average Fund Currency Weighted average period for which effective coupon rate % the rate is interest rate % fixed years Euro High Income Euro 4.69 2.41 18.13 High Income Sterling 5.94 3.98 23.36 Sterling Bond Sterling 5.50 4.13 24.29

The interest rate profile of each Fund’s financial assets at 30th September 2013 was:

Fixed rate Floating rate Fund Currency interest interest Interest Interest Total securities securities Free Assets Free Liablities 000s 000s 000s 000s 000s Euro High Income Euro 13,095 10,540 2,502 264 211 High Income Sterling 324,498 247,241 71,234 8,033 2,010 Sterling Bond Sterling 23,113 17,671 5,246 501 305

Weighted average Weighted average Fund Currency Weighted average period for which effective coupon rate % the rate is interest rate % fixed years Euro High Income Euro 6.06 2.86 22.86 Sterling 5.69 3.20 18.09 US$ 4.29 2.48 15.19 High Income Sterling 5.96 4.00 22.78 Sterling Bond Sterling 5.28 3.88 19.62

68 Lloyds Investment Funds Limited

Notes to the Financial Statements (continued) For the period ended 31st March 2014 19. Financial risk management (continued) Foreign currency risk The Euro High Income Fund is denominated in euro. All of the other In respect of foreign currency exposure, derivative instruments will Funds are denominated in sterling. A portion of the underlying only be utilised where a forward exchange or currency option is used financial assets of the Funds may be denominated in currencies for the purpose of reduction of foreign currency risk, in order other than the base currency with the effect that the balance to hedge this exposure back to the base currency of the Fund. sheet and each Fund’s total return can be significantly affected by It is currently the Company’s policy not to enter into any currency currency movements. An investment in a currency other than the hedging transactions. In accordance with the Company’s policy, shareholders’ own base currency will be subject to the movement the Manager monitors each Fund’s currency position on a daily of foreign exchange rates, which may cause additional favourable or basis, and the Board of Directors reviews it on a quarterly basis. unfavourable changes in value. With the exceptions of the Sterling Bond Fund and the UK Fund, each Fund may purchase securities denominated in a currency other than its base currency, and hence take a position in other currencies.

As at 31st March 2014 the Funds had the following currency exposures:

Foreign Foreign Fund Currency Currency Fund Currency Currency Assets £ 000’s Assets £ 000’s

Euro high Income Fund Sterling 1 International Fund Australian Dollar 931 US Dollar — Canadian Dollar 491 European Fund Euro 10,744 Euro 3,983 Norwegian Krona 465 Hong Kong Dollar — Swedish Krona 1,192 Japanese Yen 2,403 Swiss Franc 3,824 Korean Won 292 US Dollar 155 Singapore Dollar 307 North American Fund Canadian Dollar 176 Swiss Franc 1,528 Euro 3 US Dollar 12,593 US Dollar 8,815 Sterling Bond Fund US Dollar — UK Fund Euro — US Dollar —

As at 30th September 2013 the Funds had the following currency exposures:

Foreign Foreign Fund Currency Currency Fund Currency Currency Assets £ 000’s Assets £ 000’s Euro high Income Fund Sterling 1 International Fund Australian Dollar 317 US Dollar — Canadian Dollar 531 European Fund Euro 10,526 Euro 1,923 Norwegian Krona 606 Hong Kong Dollar 14 Swedish Krona 1,124 Japanese Yen 2,928 Swiss Franc 3,830 Korean Won — US Dollar 163 Norwegian Krona — North American Fund Canadian Dollar 90 Singapore Dollar 15 Euro 2 Swiss Franc 1,876 US Dollar 8,303 Taiwan Dollar — Sterling Bond Fund US Dollar 1 US Dollar 13,810 UK Fund Euro 7 US Dollar 1

69 Lloyds Investment Funds Limited

Notes to the Financial Statements (continued) For the period ended 31st March 2014 19. Financial Risk Management (Continued) Credit risk A financial instrument is regarded as quoted in an active market if The Company takes on exposure to credit risk, which is the risk quoted prices are readily and regularly available from an exchange, that a counter-party will be unable to pay amounts in full when dealer, broker, industry group, pricing service, or regulatory agency, due. Impairment provisions would be provided for losses that have and those prices represent actual and regularly occurring market been incurred by the balance sheet date. As at 31st March 2014 no transactions at an arm’s length basis. provisions were required. The Company adopted the amendment to IFRS 7, effective 1 January The Company’s main credit risk exposure arises through 2009. This requires the Company to classify fair value measurements investments in debt securities at the Fund level. If any of the using a fair value hierarchy that reflects the significance of the inputs Funds hold any interest bearing instruments, at least 90% of these used in making the measurements. The fair value hierarchy has the instruments must have a credit rating of ‘Investment Grade’ as following levels: provided by Moodys Investor Services Limited, Standard and Poors • Quoted prices (unadjusted) in active markets for identical assets or Fitch Ratings Limited. These instruments could include inter alia or liabilities (level 1). money market instruments, bonds, gilts, corporate bonds etc. • Inputs other than quoted prices included within level 1 that are In accordance with each Fund’s policy, the Manager monitors the observable for the asset or liability, either directly (that is, as Fund’s credit position on a daily basis, and the Board of Directors prices) or indirectly (that is, derived from prices) (level 2). reviews it on a quarterly basis. • Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3). Counter-party risk Certain transactions that the Funds enter into expose them to the The level in the fair value hierarchy within which the fair value risk that the counter-party will not deliver the investment (purchase) measurement is categorised in its entirety is determined on the or cash (sale) after the Fund has fulfilled its responsibilities. It is the basis of the lowest level input that is significant to the fair value policy of the Manager to buy and sell investments only through measurement in its entirety. For this purpose, the significance of an approved brokers, or directly with the Fund Manager. input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require Capital risk significant adjustment based on unobservable inputs, that Where the objective of the underlying Fund seeks to provide high measurement is a level 3 measurement. Assessing the significance or good levels of income, the investment policy which supports this of a particular input to the fair value measurement in its entirety may result in a gradual reduction in the capital value of the underlying requires judgement, considering factors specific to the asset Fund’s Shares, except where bond prices are generally rising. or liability. Capital risk management The determination of what constitutes observable, requires The net assets attributable to holders of participating redeemable significant judgement by the Directors. The Directors consider preference shares are classified as financial liabilities and therefore, observable data to be that market data that is readily available, in the opinion of the Directors, the capital of the Company is only regularly distributed or updated, reliable and verifiable, not represented by the Founders Shares and Nominal Shares. Details of proprietary, and provided by independent sources that are actively Management Shares and Nominal Shares are shown in note 3(g). involved in the relevant market. Due to the nature of the Founders’ Shares and Nominal Shares the Directors have decided that no active capital risk management There have been no transfers between levels. The financial assets is required. at fair value through profit or loss of the Company are all quoted in active markets and therefore fall under level 1 as defined above. Fair value estimation Derivatives The fair value of financial assets and liabilities traded in active markets (such as publicly traded derivatives and trading securities) Derivatives will only be used where they accord with existing are based on quoted market prices at the close of trading on the year investment objectives and policy. They may not be used for the end date. The quoted market price used for financial assets held by purpose of reducing risk independently of investment strategy in the Company is the current bid price; the appropriate quoted market respect of the underlying physical assets or for merely speculative price for financial liabilities is the current asking price. When the purposes. Derivatives will only be used for efficient portfolio Company holds derivatives with offsetting market risks, it uses management. Derivatives may not be used for the purpose of mid-market prices as a basis for establishing fair values for the gearing or leveraging or for purposes of producing, enhancing or offsetting risk positions and applies this bid or asking price to the net generating income. No derivative can be traded on an Over The open position, as appropriate. If a significant movement in fair value Counter basis, and no uncovered positions are allowed. occurs subsequent to the close of trading on the period end date, valuation techniques will be applied to determine the fair value.

70 Lloyds Investment Funds Limited

Notes to the Financial Statements (continued) For the period ended 31st March 2014 19. Financial Risk Management (Continued) The underlying Funds may hold the following derivatives: Liquidity risk (a) Futures The Company is exposed to daily cash redemptions of Participating Futures are contractual obligations to buy or sell financial Shares which are redeemed on demand at the holder’s option. instruments on a future date at a specified price established in an It therefore invests all of its assets in investments that are traded in organised market. The futures contracts are collateralised by cash an active market and can be readily disposed of, as such each Fund’s or marketable securities. Changes in the futures contracts value are financial assets are considered to be readily realisable. The Manager settled daily with the exchange. Interest rate futures are contractual manages each Fund’s cash to meet its liabilities. Where investments obligations to receive or pay a net amount based on changes in cannot be realised in time to meet any redemptions of Participating interest rates at a future date at a specified price, established in an Shares, each Fund may borrow up to 10% of its value to ensure organised financial market. Futures are settled on a net basis. settlement of its liabilities. No such borrowings have arisen during the period. (b) Options In accordance with the Company’s policy, the Manager monitors An option is a contractual arrangement under which the seller each Fund’s liquidity position on a daily basis, and the Board of (writer) grants the purchaser (holder) the right, but not the Directors review it on a quarterly basis. obligation, either to buy (a call option) or sell (a put option) at or by a set date or during a set period, a specific amount of securities or a The table on the following pages analyses the Company’s financial financial instrument at a predetermined price. liabilities into relevant maturity groups based on the remaining period at the balance sheet date to the contractual maturity date. The seller receives a premium from the purchaser in consideration for the assumption of future securities prices. Where options are held by the underlying Funds, they are exchange-traded. The Funds are exposed to credit risk on purchased options only to the extent of their carrying amount, which is their fair value. Options are settled on a gross basis. The notional amounts of certain types of financial instrument provide a basis for comparison with instruments recognised on the balance sheet, but they do not necessarily indicate the amounts of future cash flows involved or the current fair value of the instruments and do not therefore indicate the Company’s exposure to credit or market price risks. The derivative instruments become favourable (assets) or unfavourable (liabilities) as a result of fluctuations in market interest rates or foreign exchange rates relative to their terms. The aggregate contractual or notional amount of derivative financial instruments on hand, the extent to which instruments are favourable or unfavourable, and thus the aggregate fair values of derivative financial assets and liabilities can fluctuate significantly from time to time.

71 Lloyds Investment Funds Limited

Notes to the Financial Statements (continued) For the period ended 31st March 2014 19. Financial Risk Management (continued) Period ended 31st March 2014 Capital Euro High Company Growth Fund Income European (Closed 05.07.13) Fund Fund £ £ € £ Share Capital 427,783,425 — 13,343,590 16,300,579 (less than 1 month) Cancellation payable 26,174 — — — (less than 1 month) Investment purchase payable 2,760 — — — (less than 1 month) Proposed dividend 1,497,332 — — — (less than 1 month) (1 month to 3 months) 340,396 — 144,869 — Other liabilities 499,651 — 16,297 33,408 (less than 1 month) (1 month to 3 months) 272,755 — 17,959 14,725 Total financial liabilities 430,422,493 — 13,522,715 16,348,712

Year ended 30th September 2013 Capital Euro High Company Growth Fund Income European (Closed 05.07.13) Fund Fund £ £ € £ Share Capital 430,172,453 — 13,095,361 16,438,247 (less than 1 month) Cancellation payable 108,273 — 26,272 — (less than 1 month) Investment purchase payable 1,412,988 — — — (less than 1 month) Proposed dividend (less than 1 month) 1,507,105 — — — (1 month to 3 months) 722,547 — 149,686 — Other liabilities (less than 1 month) 629,596 — 20,676 35,977 (1 month to 3 months) 80,410 — 14,117 12,575 Total financial liabilities 434,633,372 — 13,306,112 16,486,799

72 Lloyds Investment Funds Limited

Notes to the Financial Statements (continued) For the period ended 31st March 2014 19. Financial Risk Management (continued) Period ended 31st March 2014 High North Sterling Income International American Bond UK Fund Fund Fund Fund Fund

£ £ £ £ £ Share Capital 321,618,590 25,679,958 9,032,737 22,466,889 20,976,218 (less than 1 month) Cancellation payable 26,174 — — — — (less than 1 month) Investment purchase payable — 112 — — 2,648 (less than 1 month) Proposed dividend 1,497,332 — — — — (less than 1 month) (1 month to 3 months) — — — 220,630 — Other liabilities 314,323 51,447 20,094 26,282 40,624 (less than 1 month) (1 month to 3 months) 183,289 14,135 7,023 21,751 16,985 Total financial liabilities 323,639,708 25,745,652 9,059,854 22,735,552 21,036,475

Year ended 30th September 2013 High North Sterling Income International American Bond UK Fund Fund Fund Fund Fund £ £ £ £ £ Share Capital 324,498,273 25,560,787 8,547,802 23,113,065 20,393,311 (less than 1 month) Cancellation payable 66,067 20,186 — — — (less than 1 month) Investment purchase payable — 55,391 19,732 — 1,337,865 (less than 1 month) Proposed dividend (less than 1 month) 1,507,105 — — — — (1 month to 3 months) — — — 261,197 335,889 Other liabilities (less than 1 month) 424,354 50,803 19,957 25,963 55,212 (1 month to 3 months) 11,977 15,745 7,233 17,556 3,492 Total financial liabilities 326,507,776 25,702,912 8,594,724 23,417,781 22,125,769

20. Post Balance Sheet Event. There are no post balance sheet events to disclose.

73 Lloyds Investment Funds Limited

Distribution Table For the period ended 31st March 2014

Euro High Income Fund Gross Equalisation Distribution paid Distribution paid income payable current year prior year (cents) (cents) 1st Quarter Group 1 1.74 — 1.74 1.84 Group 2 0.806 0.934 1.74 1.84 2nd Quarter Group 1 1.78 — 1.78 1.95 Group 2 0.882 0.898 1.78 1.95

Sterling Bond Fund Gross Equalisation Distribution paid Distribution paid income payable current year prior year (pence) (pence) 1st Quarter Group 1 1.44 — 1.44 1.46 Group 2 0.813 0.627 1.44 1.46 2nd Quarter Group 1 1.39 — 1.39 1.43 Group 2 0.70 0.69 1.39 1.43

1st Quarter Group 1 : Shares purchased prior to 1st October 2013 Group 2 : Shares purchased between 1st October 2013 and 31st December 2013 2nd Quarter Group 1 : Shares purchased prior to 1st January 2014 Group 2 : Shares purchased between 1st January 2014 and 31st March 2014

74 Lloyds Investment Funds Limited

Distribution Table (continued) For the period ended 31st March 2014

High Income Fund Gross Equalisation Distribution paid Distribution paid income payable current year prior year (pence) (pence) 31st October 2013 Group 1 0.40 — 0.40 0.45 Group 2 0.130 0.270 0.40 0.45 30th November 2013 Group 1 0.40 — 0.40 0.41 Group 2 0.195 0.205 0.40 0.41 31st December 2013 Group 1 0.40 — 0.40 0.41 Group 2 0.210 0.190 0.40 0.41 31st January 2014 Group 1 0.40 — 0.40 0.40 Group 2 0.194 0.206 0.40 0.40 28th February 2014 Group 1 0.40 — 0.40 0.40 Group 2 0.155 0.245 0.40 0.40 31st March 2014 0.40 — 0.40 0.40 Group 1 0.181 0.219 0.40 0.40 Group 2

31st October 2012 Group 1 : Shares purchased prior to 1st October 2013 Group 2 : Shares purchased between 1st October 2013 and 31st October 2013 30th November Group 1 : Shares purchased prior to 1st November 2013 Group 2 : Shares purchased between 1st November 2013 and 30th November 2013 31st December 2012 Group 1 : Shares purchased prior to 1st December 2013 Group 2 : Shares purchased between 1st December 2013 and 31st December 2013 31st January 2013 Group 1 : Shares purchased prior to 1st January 2014 Group 2 : Shares purchased between 1st January 2014 and 31st January 2014 28th February 2013 Group 1 : Shares purchased prior to 1st February 2014 Group 2 : Shares purchased between 1st February 2014 and 28th February 2014 31st March 2013 Group 1 : Shares purchased prior to 1st March 2014 Group 2 : Shares purchased between 1st March 2014 and 31st March 2014

75 Lloyds Investment Funds LImItedLimited

Performance Record For the period ended 31st March 2014

Capital Growth Fund (Closed 05.07.13) Shares in the Fund were first offered to the public in January 1995 at an offer price of 100p per share. Highest Lowest Income Income per £1,000 Offer Price Bid Price per Share Invested at 31/12/03 Calendar Year/Period p p p £ 2004 148.20 127.20 1.40 9.48 2005 175.90 139.10 2.40 16.87 2006 188.11 162.00 2.80 19.68 2007 194.90 177.10 xd 2.75 19.33 2008 188.20 119.80 xd 2.85 20.03 2009 164.30 115.00 2.15 15.11 2010 182.20 153.10 1.39 9.77 2011 188.20 153.40 0.91 6.39 2012 185.00 167.70 1.94 13.60 2013 214.10 187.00 — —

Euro High Income Fund Shares in the Fund were first offered to the public in October 2006 at an offer price of 178.90 cents per share.

Income per €1,000 Highest Lowest Income Invested at Launch Calendar Year/Period Offer Price Bid Price per Share 02/10/06 c c c € 2006 181.80 178.10 2.11 11.79 2007 179.50 162.20 8.41 47.01 2008 162.60 xd 132.00 7.72 43.21 2009 156.20 120.90 7.55 42.20 2010 163.70 153.20 xd 7.52 41.98 2011 156.60 140.60 7.73 32.03 2012 167.40 144.60 7.71 43.07 2013 169.10 161.70 7.45 41.64 31.03.14 166.20 161.70 1.78 9.95

European Fund Shares in the Fund were first offered to the public in May 1990 at an offer price of 100p per share. Highest Lowest Income Income per £1,000 Offer Price Bid Price per Share Invested at 31/12/03 Calendar Year/Period p p p £ 2004 464.80 366.00 0.20 0.48 2005 578.10 428.40 1.70 4.09 2006 661.58 512.20 0.38 0.91 2007 770.40 635.40 0.93 2.24 2008 774.30 445.00 xd 6.50 16.63 2009 656.20 xd 411.00 4.60 11.03 2010 667.80 545.00 0.98 2.36 2011 738.70 522.20 3.80 9.14 2012 682.50 559.60 2.51 6.01 2013 826.90 682.80 — — 31.03.14 832.30 787.00 — —

76 Lloyds Investment Funds LImItedLimited

Performance Record (continued) For the period ended 31st March 2014

High Income Fund Shares in the Fund were first offered to the public in June 1995 at an offer price of 100p per share. Highest Lowest Income Income per £1,000 Offer Price Bid Price per Share Invested at 31/12/03 Calendar Year/Period p p p £

2004 107.50 97.00 6.560 62.06 2005 108.50 99.84 6.255 59.18 2006 110.00 xd 97.27 5.960 56.39 2007 97.26 89.79 xd 5.790 54.78 2008 91.61 xd 76.09 xd 5.700 53.93 2009 83.53 69.03 xd 5.595 52.93 2010 88.28 82.15 5.400 51.09 2011 85.30 79.70 3.885 36.75 2012 89.19 81.20 5.245 49.62 2013 91.66 85.23 4.820 45.60 31.03.14 87.28 85.55 1.200 11.35

International Fund Shares in the Fund were first offered to the public in May 1990 at an offer price of 100p per share. Highest Lowest Income Income per £1,000 Offer Price Bid Price per Share Invested at 31/12/03 Calendar Year/Period p p p £ 2004 287.50 245.00 — — 2005 339.00 258.90 0.33 1.19 2006 358.32 291.20 2.90 10.46 2007 346.40 305.00 0.98 3.53 2008 347.90 228.40 xd — — 2009 312.20 222.80 1.35 4.87 2010 341.30 284.30 1.48 5.34 2011 354.70 278.60 — — 2012 348.40 309.50 — — 2013 439.80 354.30 — — 31.03.14 446.30 416.40 — —

North American Fund Shares in the Fund were first offered to the public in May 1990 at an offer price of 100p per share. Highest Lowest Income Income per £1,000 Offer Price Bid Price per Share Invested at 31/12/03 Calendar Year/Period p p p £ 2004 852.50 709.90 — — 2005 966.40 745.90 — — 2006 960.10 805.90 — — 2007 947.50 839.90 — — 2008 915.90 637.60 xd — — 2009 887.30 609.80 — — 2010 1,016.00 837.20 1.27 1.53 2011 1,048.00 823.00 — — 2012 1,140.00 1,001.00 — — 2013 1,429.00 1,153.00 — — 31.03.14 1,475.00 1,356.00 — —

77 Lloyds Investment Funds LImItedLimited

Performance Record (continued) For the period ended 31st March 2014

Sterling Bond Fund Shares in the Fund were first offered to the public in July 2001 at an offer price of 148.6p per share. Highest Lowest Income Income per £1,000 Offer Price Bid Price per Share Invested at 31/12/03 Calendar Year/Period p p p £ 2004 160.10 143.60 6.92 44.62 2005 163.60 148.20 6.69 43.13 2006 163.80 147.60 6.43 41.46 2007 148.20 138.60 xd 6.52 42.04 2008 142.70 xd 116.80 xd 6.78 43.71 2009 130.50 107.60 xd 6.95 44.81 2010 139.00 127.40 6.54 42.17 2011 136.80 128.60 6.41 41.33 2012 147.00 131.20 6.27 40.43 2013 151.60 140.10 5.91 38.10 31.03.14 144.40 140.20 1.39 8.96

UK Fund Shares in the Fund were first offered to the public in May 1990 at an offer price of 100p per share. Highest Lowest Income Income per £1,000 Offer Price Bid Price per Share Invested at 31/12/03 Calendar Year/Period p p p £ 2004 471.80 398.90 6.40 14.47 2005 587.00 444.00 9.50 21.48 2006 659.58 554.40 12.00 27.14 2007 720.40 616.00 xd 6.75 15.26 2008 692.40 391.60 11.80 26.68 2009 572.30 368.90 8.50 19.22 2010 640.00 522.70 6.87 15.54 2011 663.00 527.20 4.68 10.58 2012 637.30 564.00 5.75 13.01 2013 747.60 642.10 11.57 26.16 31.03.14 765.70 718.90 — —

78 Lloyds Investment Funds LImItedLimited

Net Asset Value per Share For the period ended 31st March 2014

Net Asset Value of Fund Net Asset Value per Share No. of Shares in Issue

Capital Growth Fund (closed 05.07.13) 30.09.11 £12,511,764 158.18p 7,909,929 30.09.12 £13,426,522 180.51p 7,438,179

Euro High Income Fund 30.09.11 €11,887,645 143.74c 8,270,144 30.09.12 €12,366,572 159.77c 7,740,094 30.09.13 €13,095,361 161.53c 8,091,144 31.03.14 €13,343,590 163.95c 8,138,694

European Fund 30.09.11 £15,556,220 552.86p 2,813,762 30.09.12 £14,180,105 629.37p 2,253,072 30.09.13 £16,438,247 782.06p 2,103,073 31.03.14 £16,300,579 816.90p 1,995,423

High Income Fund 30.09.11 £305,411,273 79.95p 382,003,662 30.09.12 £326,851,897 86.70p 376,973,667 30.09.13 £324,498,273 86.11p 376,776,611 31.03.14 £321,618,590 85.92p 374,333,811

International Fund 30.09.11 £21,191,129 288.49p 7,345,567 30.09.12 £23,236,590 354.16p 6,561,017 30.09.13 £25,560,787 414.97p 6,155,467 31.03.14 £25,679,958 430.96p 5,958,767

North American Fund 30.09.11 £11,046,595 922.13p 1,197,947 30.09.12 £8,633,780 1,103.53p 778,147 30.09.13 £8,547,802 1,325.86p 645,548 31.03.14 £9,032,737 1,423.38p 634,598

Sterling Bond Fund 30.09.11 £25,784,346 128.77p 20,023,743 30.09.12 £23,372,673 142.14p 16,443,143 30.09.13 £23,113,065 141.58p 16,324,793 31.03.14 £22,466,889 141.54p 15,872,693

UK Fund 30.09.11 £31,229,582 548.49p 5,693,753 30.09.12 £19,947,687 513.09p 3,253,653 30.09.13 £20,393,311 702.49p 2,903,103 31.03.14 £20,976,218 731.86p 2,866,153

79

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