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M&G Investment Funds (3)Annual Long Report and audited Financial Statements for the year ended 30 June 2017

Contents

M&G Investment Funds (3)

Authorised Corporate Director’s Report Page 1

Depositary’s Responsibilities and Report Page 4

Independent Auditor’s Report Page 5

Financial statements and notes Page 6

Directors’ statement Page 9

Authorised Corporate Director’s Reports, including the financial highlights and financial statements and notes for:

M&G Corporate Bond Fund Page 11

M&G Dividend Fund Page 31

M&G Emerging Markets Bond Fund Page 49

M&G European Corporate Bond Fund Page 73

M&G European High Yield Bond Fund Page 95

M&G Fund of Investment Trust Shares Page 117

M&G Global Government Bond Fund Page 129

M&G Recovery Fund Page 147

M&G Smaller Companies Fund Page 163

Other regulatory disclosures Page 177

Glossary Page 178

The Authorised Corporate Director (ACD) of M&G Investment Funds (3)presents its Annual Long Report and audited Financial Statements forthe year ended 30 June 2017.

The audited financial statements of M&G Investment Funds (3) andthe investment report and audited financial statements and notes ofeach sub-fund are presented in their individual sections of this reportas set out in the contents page.

Please note that we have included an explanation of key investmentterminology in the ‘Glossary’ (at the back of this report).

Company information

M&G Investment Funds (3) is an umbrella Open-Ended InvestmentCompany (OEIC) and contains nine sub-funds, hereinafter referred toas ‘funds’ in the rest of this report. Each fund is a UCITS(Undertakings for Collective Investment in Transferable Securities)scheme as defined in the Collective Investment Schemes sourcebook,as issued (and amended) by the Financial Conduct Authority (FCA).This OEIC is an Investment Company with Variable Capital (ICVC)incorporated under the Open-Ended Investment CompaniesRegulations 2001. It is authorised and regulated by the FCA under theFinancial Services and Markets Act 2000.

The Company was authorised on 8 August 2001 and was launchedon 7 March 2002, following the conversion of a series of authorisedunit trusts.

The Company’s principal activity is to carry on business as an OEIC.The Company is structured as an umbrella company, and differentfunds may be established by the ACD from time to time with theagreement of the Depositary and approval from the FCA. The fundsare operated separately and the assets of each fund are managedin accordance with the investment objective and policy applicable tothat fund.

As at 30 June 2017, none of the funds held shares of the other fundswithin this OEIC.

A shareholder is not liable for the debts of the Company and will neverbe liable to make any further payment to the Company after paying thepurchase price of the shares.

Fund managersThe following fund managers are employed by M&G Limited whichis an associate of M&G Securities Limited.

M&G Corporate Bond FundRichard Woolnough

M&G Dividend FundPhil Cliff

M&G Emerging Markets Bond FundClaudia Calich

M&G European Corporate Bond FundStefan Isaacs

M&G European High Yield Bond FundJames Tomlins

M&G Fund of Investment Trust SharesRichard O’Connor

M&G Global Government Bond FundClaudia Calich

M&G Recovery FundTom Dobell

M&G Smaller Companies FundGarfield Kiff

ACDM&G Securities Limited, Laurence Pountney Hill, London EC4R 0HH, UKTelephone: 0800 390 390 (UK only)

(Authorised and regulated by the Financial Conduct Authority. M&GSecurities Limited is a member of the Investment Association andof the Tax Incentivised Savings Association.)

Directors of the ACDW J Nott (Chief Executive),G N Cotton, P R Jelfs, G W MacDowall, L J Mumford

Investment manager M&G Investment Management Limited, Laurence Pountney Hill, London EC4R 0HH, UKTelephone: +44 (0)20 7626 4588

(Authorised and regulated by the Financial Conduct Authority)

RegistrarDST Financial Services Europe Ltd*, DST House, St. Nicholas Lane, Basildon, Essex SS15 5FS, UK

(Authorised and regulated by the Financial Conduct Authority)

* International Financial Data Services (UK) Ltd changed its name to DST Financial

Services Europe Ltd on 14 August 2017.

DepositaryNational Westminster Bank Plc, Trustee & Depositary Services,Younger Building, 3 Redheughs Avenue, Edinburgh EH12 9RH, UK

(Authorised by the Prudential Regulation Authority and regulated bythe Financial Conduct Authority and the Prudential RegulationAuthority)

Independent auditorErnst & Young LLPTen George Street, Edinburgh EH2 2DZ, UK

1

M&G Investment Funds (3)Authorised Corporate Director’s Report

ANNUAL LONG REPORT AND AUDITED FINANCIAL STATEMENTS • June 2017

Important information

In the 2016 Budget, the UK government announced that, effective from6 April 2017, interest distributions from open-ended investmentcompanies (OEICs) may be paid without deducting income tax(currently 20%).

As a result, prices for the sterling share classes of M&G’s bond fundswill be calculated without an accrual for the deduction of income tax.This change, for different funds, has been phased in between October2016 and March 2017.

From 1 January 2017 the M&G Corporate Bond Fund, M&G EmergingMarkets Bond Fund, M&G European Corporate Bond Fund, M&GEuropean High Yield Bond Fund, and M&G Global Government BondFund’s prices for the sterling share classes are now calculated withoutincome tax deducted.

Please note that with effect from 16 December 2016:

• We have discounted the initial charge to zero on all newinvestments into sterling share classes that currently carry such acharge.

• We have waived the exit charges on future withdrawals from allSterling Class ‘X’ shares.

• We have discounted the annual management charge (AMC) forSterling Class ‘X’ shares on the following funds:

M&G Corporate Bond FundM&G European Corporate Bond FundM&G Fund of Investment Trust Shares

Table of changesSterling Class ‘X’ shares

AMC before AMC afterFund name effective date effective date

M&G Corporate Bond Fund 1.25% 1.00%

M&G European Corporate Bond Fund 1.25% 1.00%

M&G Fund of Investment Trust Shares 1.50% 1.00%

The initial charge on all sterling share classes and the exit chargeson all Sterling Class ‘X’ shares were effectively removed as from28 April 2017.

The AMC was effectively reduced as described above as from28 April 2017.

Investor information

The Prospectus, Instrument of Incorporation, Key Investor InformationDocuments, the latest Annual or Interim Investment Report andFinancial Statements as well as a list of purchases and sales areavailable free of charge on request from the following addresses. TheInstrument of Incorporation can also be inspected at our offices or atthe office of the Depositary.

Customer services and administration for UK clients:M&G Securities Limited,PO Box 9039, Chelmsford CM99 2XG, UK

Please remember to quote your name and M&G client reference andsign any written communication to M&G. Failure to provide this willaffect your ability to transact with us.

Telephone: 0800 390 390 (UK only)

For security purposes and to improve the quality of our service, wemay record and monitor telephone calls. You will require your M&Gclient reference. Failure to provide this will affect your ability to transactwith us.

Customer services and administration for non-UK clients:M&G Securities Limited,c/o RBCIS, 14, Porte de France, 4360 Esch-sur-Alzette, Grand Duchy of Luxembourg

Please remember to quote your name and M&G client reference andsign any written communication to M&G. Failure to provide this willaffect your ability to transact with us.

Telephone: +352 2605 9944Email: [email protected]

For security purposes and to improve the quality of our service, wemay record and monitor telephone calls. You will require your M&Gclient reference. Failure to provide this will affect your ability to transactwith us.

Austrian paying and information agent:Société Générale, Vienna Branch, Prinz Eugen-Strasse 8-10/5/Top 11, 1040 Wien, Austria

Belgian financial agent:Société Générale Private Banking NV, Kortrijksesteenweg 302, 9000 Gent, Belgium

Danish representative agent:Nordea Bank Danmark A/S, Client Relations DK, Investor Services & Solutions,Postbox 850, Reg.no.6428. HH. 6.1., 0900 København C, Denmark

French centralising agent:RBC Investor Services, Bank France S.A.,105 rue Réaumur, 75002 Paris, France

During the financial year, the effective proportion of the net assets ofthe M&G Recovery Fund in PEA (‘Plan d’Epargne en Actions’) eligibleassets has permanently been equal to at least 75%.

2



German information agent:M&G International Investments Limited,mainBuilding, Taunusanlage 19, 60325 Frankfurt am Main, Germany

Greek paying agent and distributor:Eurobank Ergasias S.A.,8, Othonos Street, 10557 Athens, Greece

Irish facilities agent:Société Générale S.A., Dublin Branch,3rd Floor IFSC House – The IFSC, Dublin 1, Ireland

Italian paying agents:Allfunds Bank, S.A., Via Santa Margherita 7, 20121 Milano, Italy

Banca Monte dei Paschi di Siena S.p.A., Piazza Salimbeni 3, 53100 Siena, Italy

Banca Sella Holding S.p.A.,Piazza Gaudenzio Sella 1, 13900 Biella, Italy

BNP PARIBAS Securities Services,Via Ansperto 5, 20123 Milano, Italy

RBC Investor Services Bank S.A., Milan BranchVia Vittor Pisani 26, 20124 Milano, Italy

State Street Bank S.p.A., Via Ferrante Aporti 10, 20125 Milano, Italy

Société Générale Securities Services S.A., Via Benigno Crespi 19A - MAC 2, 20159 Milano, Italy

Luxembourg paying and information agent:Société Générale Bank & Trust S.A., Centre operationel, 28-32, place de la Gare, 1616 Luxembourg,Grand Duchy of Luxembourg

Portuguese distributor:Best - Banco Electrónico de Serviço Total, S.A., Praça Marquês de Pombal, no. 3 - 3º, 1250-161 Lisboa, Portugal

Spanish representative:Allfunds Bank, S.A., Calle Estafeta, No 6 Complejo Plaza de la Fuente, La Moraleja 28109, Alcobendas, Madrid, Spain

Swedish paying agent:Nordea Bank AB (publ), Smålandsgatan 17, 105 71 Stockholm, Sweden

Swiss paying agent and representative:Société Générale, Paris, Zurich Branch, Talacker 50, P.O. Box 5070, 8021 Zurich, Switzerland

Authorised Corporate Director’sResponsibilities

The Authorised Corporate Director (ACD) is required to prepare annualand interim long and short reports for the Company. The ACD mustensure that the financial statements, contained in the Long Report, foreach of the funds are prepared in accordance with the InvestmentAssociation Statement of Recommended Practice for FinancialStatements of UK Authorised Funds (SORP) and UK FinancialReporting Standards, and give a true and fair view of the net revenueor expenses and net capital gains or losses for the accounting period,and the financial position at the end of that period.

The ACD is required to keep proper accounting records, and to managethe Company in accordance with the Collective Investment Schemessourcebook, as issued (and amended) by the FCA, the Instrument ofIncorporation and the Prospectus, and to take reasonable steps for theprevention and detection of fraud or other irregularities.

ANNUAL LONG REPORT AND AUDITED FINANCIAL STATEMENTS • June 2017 3


Investor information

Statement of the Depositary’sResponsibilities and Report of theDepositary to the Shareholders of M&G Investment Funds (3) (‘the Company’) for the period ended 30 June 2017

The Depositary must ensure that the Company is managed inaccordance with the Financial Conduct Authority’s CollectiveInvestment Schemes sourcebook, the Open-Ended InvestmentCompanies Regulations 2001 (SI2001/1228) (the OEIC Regulations),as amended, the Financial Services and Markets Act 2000, asamended, (together ‘the Regulations’), the Company’s Instrument ofIncorporation and Prospectus (together ‘the Scheme documents’) asdetailed below.

The Depositary must in the context of its role act honestly, fairly,professionally, independently and in the interests of the Company andits investors.

The Depositary is responsible for the safekeeping of all custodialassets and maintaining a record of all other assets of the Companyin accordance with the Regulations.

The Depositary must ensure that:

• the Company’s cashflows are properly monitored (this requirementon the Depositary applied from 18 March 2016) and that cash ofthe Company is booked into the cash accounts in accordance withthe Regulations;

• the sale, issue, redemption and cancellation of shares are carriedout in accordance with the Regulations;

• the value of shares in the Company is calculated in accordancewith the Regulations;

• any consideration relating to transactions in the Company’s assetsis remitted to the Company within the usual time limits;

• the Company’s income is applied in accordance with theRegulations; and

• the instructions of the Authorised Fund Manager (‘the AFM’) arecarried out (unless they conflict with the Regulations).

The Depositary also has a duty to take reasonable care to ensure thatthe Company is managed in accordance with the Regulations and theScheme documents in relation to the investment and borrowingpowers applicable to the Company.

Having carried out such procedures as we consider necessary todischarge our responsibilities as Depositary of the Company, it is ouropinion, based on the information available to us and the explanationsprovided, that in all material respects the Company, acting throughthe AFM:

(i) has carried out the issue, sale, redemption and cancellation, andcalculation of the price of the Company’s shares and theapplication of the Company’s income in accordance with theRegulations and the Scheme documents of the Company, and

(ii) has observed the investment and borrowing powers andrestrictions applicable to the Company.

Edinburgh National Westminster Bank Plc15 August 2017 Trustee and Depositary Services


M&G Investment Funds (3)Depositary’s Responsibilities and Report

Independent Auditor’s Report to theshareholders of M&G InvestmentFunds (3) ICVCWe have audited the financial statements of M&G Investment Funds (3)ICVC (‘the Company’) for the year ended 30 June 2017 whichcomprise the Statement of Total Return and Statement of Change inNet Assets Attributable to Shareholders together with the BalanceSheet for the Company comprising its sub-funds, the accountingpolicies and risk management policies of the Company and the relatednotes for the sub-funds. The financial reporting framework that hasbeen applied in their preparation is applicable law and United KingdomAccounting Standards (United Kingdom Generally AcceptedAccounting Practice) including FRS102 ‘The Financial ReportingStandard applicable to the UK and the Republic of Ireland’.

This report is made solely to the Company’s shareholders, as a body,pursuant to Paragraph 4.5.12 of the rules of the Collective InvestmentSchemes sourcebook of the Financial Conduct Authority. Our auditwork has been undertaken so that we might state to the Company’sshareholders those matters we are required to state to them in anauditor’s report and for no other purpose. To the fullest extent permittedby law, we do not accept or assume responsibility to anyone other thanthe Company and the Company’s shareholders as a body, for our auditwork, for this report, or for the opinions we have formed.

Respective responsibilities of theAuthorised Corporate Director andAuditorAs explained more fully in the Authorised Corporate Director’sresponsibilities statement set out on page 3, the Authorised CorporateDirector is responsible for the preparation of the financial statementsand for being satisfied that they give a true and fair view.

Our responsibility is to audit and express an opinion on the financialstatements in accordance with applicable law and InternationalStandards on Auditing (UK and Ireland). Those standards require usto comply with the Auditing Practices Board’s Ethical Standards forAuditors.

Scope of the audit of the financialstatementsAn audit involves obtaining evidence about the amounts anddisclosures in the financial statements sufficient to give reasonableassurance that the financial statements are free from materialmisstatement, whether caused by fraud or error. This includes anassessment of:

• whether the accounting policies are appropriate to the Company’scircumstances and have been consistently applied and adequatelydisclosed;

• the reasonableness of significant accounting estimates made bythe Authorised Corporate Director; and

• the overall presentation of the financial statements.

In addition, we read all the financial and non-financial information in theannual report and accounts to identify material inconsistencies with theaudited financial statements and to identify any information that isapparently materially incorrect based on, or materially inconsistent with,the knowledge acquired by us in the course of performing the audit. Ifwe become aware of any apparent material misstatements orinconsistencies we consider the implications for our report.

Opinion on the financial statementsIn our opinion:

• the financial statements give a true and fair view of the financialposition of the Company comprising the sub-funds as at 30 June2017 and of the net revenue and the net capital gains / (losses) onthe scheme property of the Company comprising the sub-funds forthe year then ended; and

• the financial statements have been properly prepared in accordancewith United Kingdom Generally Accepted Accounting Practice.

Opinion on other matters prescribedby the rules of the CollectiveInvestment Schemes sourcebook of the Financial Conduct AuthorityIn our opinion:

• the financial statements have been properly prepared in accordancewith the Statement of Recommended Practice relating to AuthorisedFunds, the rules of the Collective Investment Schemes sourcebookof the Financial Conduct Authority and the Instrument ofIncorporation;

• the information given in the Authorised Corporate Director’s reportfor the financial year for which the financial statements are preparedis consistent with the financial statements;

• there is nothing to indicate that proper accounting records have notbeen kept or that the financial statements are not in agreement withthose records; and

• we have received all the information and explanations which, to thebest of our knowledge and belief, are necessary for the purposes ofour audit.

Edinburgh Ernst & Young LLP15 August 2017 Statutory Auditor


M&G Investment Funds (3)Independent Auditor’s Report

The financial statements for M&G Investment Funds (3) comprise theindividual financial statements for each fund and the notes below.

Notes to the financial statements

1 Statement of compliance

The financial statements of M&G Investment Funds (3) have beenprepared in compliance with UK Financial Reporting Standard 102(FRS 102) and in accordance with the Statement of RecommendedPractice (SORP) for Authorised Funds issued by the InvestmentAssociation in May 2014.

Amendments to FRS 102 ‘Fair value hierarchy disclosures’ effectivefor annual periods beginning on or after 1 January 2017 have beenearly adopted. These amendments improve the consistency of fairvalue disclosures for financial instruments with those required byEU-adopted International Financial Reporting Standards (IFRS).

2 Summary of significant accounting policies

a) Basis of preparation

The financial statements of M&G Investment Funds (3) areprepared on a going concern basis, under the historical costconvention as modified by the revaluation of certain financialassets and liabilities measured at fair value through profit or loss.

b) Functional and presentational currency

The functional and presentational currency of M&G InvestmentFunds (3) is UK sterling. Where the functional and presentationalcurrency of a fund is not UK sterling this is disclosed in the‘Financial statements and notes’ of that fund.

c) Exchange rates

Transactions in currencies other than each fund’s functionalcurrency are translated at the rate of exchange ruling on the dateof the transaction and where applicable assets and liabilities aretranslated into the fund’s functional currency at the rate ofexchange ruling as at 12 noon on 30 June 2017 being the lastbusiness day of the accounting period.

d) Investments - recognition and valuation

The provisions of both Section 11 and Section 12 of FRS 102have been applied in full. All investments have been designatedas fair value through profit and loss and recognised initially at fairvalue, which is normally the transaction price (excludingtransaction costs and accrued interest).

At the end of the reporting period all investments have beenmeasured at their fair value using the prices and the portfolioholdings determined at 12 noon on 30 June 2017, being the lastvaluation point of the accounting period, as this is not materiallydifferent from a valuation carried out at close of business on thebalance sheet date.

Where separate bid and offer prices are available, the bid price isused for investment assets and the offer price for investmentliabilities. Otherwise, the single price or most recent transactionprice is used. Interest accrued is not included in the fair value. Themethods of determining fair value for the principal classes ofinvestment are:

• Equities and debt securities which are traded on an active marketare included at the quoted price, which is normally the bid price,excluding any accrued interest in respect of bonds.

• Equities traded on the Alternative Investment Market (AIM), whoseliquidity cannot be guaranteed, are included at their quoted bidprice as this represents the most objective and appropriate methodof valuation.

• Collective investment schemes operated by the ACD are includedat either their cancellation price for dual priced funds or their singleprice for single priced funds.

• Collective investment schemes operated by another manager areincluded at either their bid price for dual priced funds or their singleprice for single priced funds.

• Other equities and debt securities which are unquoted or notactively traded on a quoted market are included at a valueestimated by the ACD using an appropriate valuation technique,excluding any accrued interest in respect of bonds.

• Exchange traded futures and options are included at the cost ofclosing out the contract at the balance sheet date.

• Over the counter equity options, credit default swaps, interest rateswaps, asset swaps and inflation swaps are included at a valueprovided by Markit Valuations Limited, an independent creditderivative price provider. Their fair value excludes any accruedinterest in respect of derivatives where the income is revenue innature.

• Forward currency contracts, for share class hedging andinvestment, are included at a value determined by reference tocurrent forward exchange rates for contracts with similar maturityprofiles.

e) Recognition of income and expenses

• Dividends, including ordinary stock dividends, from equityinvestments are recognised when the security is quoted ex-dividend.

• Distributions from collective investment schemes are recognisedwhen the scheme is priced ex-distribution.

• Interest income, including coupons from debt securities and bankinterest is recognised on an accruals basis.

• Underwriting commission is recognised when the issue takesplace.

• Revenue from derivatives is recognised on an accruals basis.

• Fee rebates from investing in other collective investment schemesare recognised on an accruals basis.

• Expenses are recognised on an accruals basis.


M&G Investment Funds (3)Financial statements and notes

f) Treatment of income and expenses

• Any increases or decreases in the fair value of investments andgains and losses realised on sales of investments are treated ascapital and recognised in net capital gains / (losses).

• Ordinary equity dividends, including ordinary stock dividends aretreated as revenue.

• Special dividends, share buy backs or additional share issues maybe treated as revenue or capital depending on the facts of eachparticular case.

• The value of any enhancement to a stock dividend is treated ascapital.

• Distributions from collective investment schemes are treated asrevenue in nature, except for any element of equalisation, whichrepresents the average amount of income included in the pricepaid for the collective investment scheme, which is treated ascapital.

• Debt security interest comprises the coupon interest and thedifference between the purchase price and the expected maturityprice spread over its expected remaining life. This is treated asrevenue with the difference adjusting the cost of the shares andtreated as capital.

• Other interest income, such as bank interest is treated as revenue.

• Underwriting commission is treated as revenue, except where thefund is required to take up all or some of the shares underwritten,in which case a proportion of the commission received is deductedfrom the cost of the shares and treated as capital.

• The treatment of the income on derivative contracts depends uponthe nature of the transaction. Both motive and circumstances areused to determine whether the returns should be treated as capitalor revenue. Where positions are undertaken to protect or enhancecapital, and the circumstances support this, the returns arerecognised in net capital gains; similarly where the motives andcircumstances are to generate or protect revenue, and thecircumstances support this, the returns are included within netrevenue before taxation. Where positions generate total returns itwill generally be appropriate to apportion such returns betweencapital and revenue to properly reflect the nature of thetransaction.

• Expenses relating to the purchase and sale of investments aretreated as capital; all other expenses are treated as revenue.

• Rebates of charges from holdings in collective investmentschemes are treated as revenue or capital in accordance with theunderlying scheme’s distribution policy.

g) Tax

Dividends and similar income receivable are recognised at anamount that includes any withholding tax but excludesirrecoverable tax credits. Any withholding tax suffered is shown aspart of the tax charge.

Tax is accounted for at the appropriate rate of corporation tax withrelief for double taxation taken where appropriate. The taxaccounting treatment follows the principal amounts involved.

Deferred tax is recognised in respect of temporary timingdifferences that have originated but not reversed by the balancesheet date. Deferred tax is measured on a non-discounted basis,at the average rate of tax expected to apply in the period in whichit expects the deferred tax to be realised or settled. A deferred taxasset is only recognised to the extent that it is more likely than notthat the asset will be recovered.

Marginal tax relief has not been taken into account in respect ofexpenses offset against capital.

h) Allocation of returns to share classes

The annual management charge, any share class hedging returnsand associated share class hedging charge are directlyattributable to individual share classes. All other returns areapportioned to each fund’s share classes pro-rata to the value ofthe net assets of the relevant share class on the day that theincome or expenses are recognised.

All available net revenue accounted for in accordance with theabove policies and adjusted where relevant by any specificdistribution policies set out in the notes to that fund’s financialstatements, is distributed to holders of Income shares or retainedand reinvested for holders of Accumulation shares. Shouldexpenses and taxation together exceed revenue, there will be nodistribution and the shortfall will be met from capital.

Distributions which have remained unclaimed by shareholders formore than six years are credited to the capital property of the fund.

3 Risk management policies

The ACD is responsible for establishing, implementing and maintainingan adequate and documented risk management policy for identifying,measuring and managing all risks to which funds are or might beexposed.

The Company’s investment activities expose it to various types of riskwhich are associated with the financial instruments and markets inwhich it invests; market risk, credit risk and liquidity risk.

These financial statements are designed to enable users to evaluatethe nature and extent of those risks and how they are managed.

The following risk management policies are applicable to the funds,with specific risk disclosures set out in the notes to the financialstatements of each fund.

Market risk

Market risk is the risk of loss resulting from fluctuations in the marketvalue of positions in a fund’s portfolio attributable to changes in marketvariables, such as interest rates, foreign exchange rates, equity andcommodity prices or an issuer’s creditworthiness.

In relation to market risk, processes are applied that take account ofthe investment objective and policy of each fund. All funds are subjectto an investment oversight process in accordance with the type andnature of the fund. In addition all funds are monitored for compliancewithin regulatory limits.

In measuring and monitoring market risk, the global exposure of a fundmay be calculated using a ‘commitment’ approach or ‘Value at Risk’(VaR) approach.




2 Summary of significant accounting policies(continued)


Commitment approach

The commitment approach is applied for funds investing only intraditional asset classes, namely equities, fixed income, money marketinstruments and collective investment schemes.

In addition, the approach is applied for funds which use or intend touse derivatives or instruments embedding derivatives, but only forefficient portfolio management purposes, or in a simple way notnecessarily restricted to efficient portfolio management.

Under the commitment approach the global exposure of funds ismeasured and monitored using a commitment (adjusted notional)methodology.

Market risk is considered on a daily basis and forms the foundation ofinvestment oversight analysis. This can include for each fund (but isnot limited to) the analysis of factors such as fund concentration; style,geographical, industry and market capitalisation biases; active,systematic and specific risk measurements; active money; and betacharacteristics.

Value at Risk approach

The Value at Risk (VaR) approach is a methodology for estimatingthe maximum potential loss due to market risk based on historicmarket volatilities and correlations. More particularly, the VaRapproach gives a broad indication of the maximum potential loss ata given confidence level (probability), over a specific time period undernormal market conditions.

Instrument and portfolio modelling techniques are based on marketaccepted practices and are subject to regular audit (back-testing).Market risk factors that are analysed include LIBOR / swap rates,government yield curves, equity prices, foreign exchange, marketvolatility, credit spreads and credit default swap (CDS) spreads.

The VaR model is based on a Monte Carlo process with actual VaRbeing reported on the basis of a 99% confidence interval over a onemonth period (20 business days). Risk factor history used in the MonteCarlo process is based on 250 business days. From the variance /covariance matrices, a parametric Monte Carlo scenario set of 5,000simulations is derived and applied to the fund.

VaR does have limitations in its ability to present valid levels of risk inextreme market conditions. Accordingly, the Risk Analysis team alsocarries out monthly stress testing and scenario based analysis. Stresstesting allows for extreme sets of market circumstances which maynot be reflected in historical data sets thereby enabling furtherassessment of combinations of market movements which may causeserious damage to portfolio values. The key element to the scenariobased analysis is challenging the correlation assumptions implicitwithin statistical based models such as VaR.

The stress test and scenario based analysis is customised for eachfund type and the VaR analysis is produced on a daily basis.

The table below shows funds using the ‘commitment’ approach andthose using the ‘Value at Risk (VaR)’ approach:

Fund Global exposure approach

M&G Corporate Bond Fund VaR

M&G Dividend Fund Commitment

M&G Emerging Markets Bond Fund VaR

M&G European Corporate Bond Fund VaR

M&G European High Yield Bond Fund VaR

M&G Fund of Investment Trust Shares Commitment

M&G Global Government Bond Fund VaR

M&G Recovery Fund Commitment

M&G Smaller Companies Fund Commitment

Liquidity risk

Liquidity risk is the risk that a fund’s holdings cannot be sold, liquidatedor closed out at limited cost in an adequately short time frame and thatthe ability of the scheme to comply at any time with its obligation tosell and redeem shares is thereby compromised.

The overall liquidity profile for each fund is reviewed and updatedregularly. The liquidity profile takes into account investment, cashflowand market liquidity considerations.

Investment liquidity considerations include an assessment of assetclass liquidity conditions, liquidity of underlying holdings, portfolioconstruction and concentration, the scale of individual stock ownershipand the nature of the investment strategy.

Cashflow liquidity is managed in each fund on a daily basis usingreports that include subscription and redemption information as wellas the impact of trading, derivative lifecycle events and corporateaction activity. In addition to the daily reporting, the fund managers areprovided with reporting that highlights the impact of reasonablypredictable events in the portfolio, including an allowance for thepotential future exposures that might result from derivative exposures.

Market (or distribution-related) considerations include an assessmentof asset demand, fund growth, client concentration and the persistencyof the client base. Supplementary to this, market liquidity stress testsare carried out on a monthly basis for all sophisticated funds.

Credit risk

For funds exposed to credit risk, the credit rating, yield and maturity ofeach interest bearing security is considered to determine if the yieldfully reflects the risk. The capital value of interest-bearing securitieswithin the funds will fall in the event of the default or perceivedincreased credit risk of an issuer.

The capital value of interest-bearing securities within a fund may alsobe affected by interest rate fluctuations such that when interest ratesrise, the capital value of the interest-bearing securities is likely to falland vice versa.

For funds in which they are used, credit default swaps are bought andsold in response to detailed credit research to take advantage ofanticipated movements in credit spreads on individual stocks andbaskets of securities. When a fund buys a credit default swap thedefault risk associated with the underlying security transfers to thecounterparty. When a fund sells a credit default swap the fundassumes the credit risk of the underlying security.



3 Risk management policies (continued)


M&G Investment Funds (3) Financial statements and notes

Directors’ statement

This report has been prepared in accordance with the requirementsof the Collective Investment Schemes sourcebook, as issued andamended by the Financial Conduct Authority.

G W MACDOWALL }DirectorsL J MUMFORD

15 August 2017



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Investment objective up to 24 May 2017The Fund aims to achieve a higher total return (the combination of

income and growth of capital) from investment than would be

obtainable in UK government fixed interest securities (ie gilts) of

similar maturities.

Investment policy up to 24 May 2017

The Fund invests mainly in sterling denominated corporate debtinstruments. The Fund’s exposure to corporate debt may be gainedthrough the use of derivatives. Any currency exposures within theFund may be managed by currency hedges into sterling. The Fundmay also invest in other assets including collective investmentschemes, other transferable securities and other debt instruments(including corporate debt and government and public securitiesdenominated in any currency), cash and near cash, deposits,warrants, money market instruments and other derivative instruments.

Investment objective from 25 May 2017

The Fund aims to provide income and capital growth.

Investment policy from 25 May 2017

At least 70% of the Fund is invested in sterling-denominated corporatedebt instruments. The Fund’s exposure to corporate debt may begained through the use of derivatives. Derivatives may also be usedfor efficient portfolio management. Any currency exposures within theFund may be managed by currency hedges into sterling. The Fundmay also invest in collective investment schemes, other transferablesecurities and other debt instruments (including corporate debt andgovernment and public securities denominated in any currency), cash,near cash, other money market securities, warrants and otherderivative instruments.

Investment approach

The Fund’s strategy is based on the principle that corporate bondmarket returns are driven by a combination of macroeconomic, asset,sector and stock-level factors. As different factors dominate returns atdifferent stages of the economic cycle, the manager applies a dynamicinvestment approach, changing the blend of duration and creditexposure in the portfolio to weight them appropriately. The fundmanager has the investment freedom to take a high-convictionapproach when selecting credits for the portfolio. Diversification –across individual issuers as well as industries – is an essential elementof the Fund’s strategy to limit the potential for losses in the event ofdefault. The Fund’s investment style combines top-down and bottom-up analysis, and the fund manager is assisted in the selection ofindividual credits by a large team of independent sovereign and publiccredit analysts.

Risk profile

The fund invests mainly in sterling-denominated fixed incomesecurities, or bonds, issued by UK companies. It is primarily subject tothe price volatility of the UK bond market as well as the performanceof individual issuers. It is also influenced by developments in thebroader global bond market. In addition, the fund is subject tofluctuations in currency exchange rates.

The fund’s focus is on high-quality corporate bonds, securities that arenormally traded with relative ease. Up to 20% of the fund may beinvested in other fixed income investments, such as governmentbonds, which are typically highly liquid assets, or high yield corporatebonds, which are higher risk assets that could potentially experiencea degree of illiquidity in times of market distress.

The fund’s exposure to debt securities may be gained through the useof derivatives. In association with the use of derivatives, includingthose instruments not traded through an exchange, collateral isdeposited in order to mitigate the risk that a counterparty may defaulton its obligations or become insolvent.

Portfolio diversification is key in managing liquidity and default risks aswell as reducing market risk. The fund’s risks are measured andmanaged as an integral part of the investment process.

The following table shows the risk number associated with the fundand is based on Sterling Class ‘A’ shares.

The above number:

• is based on the rate at which the value of the fund has moved up and down in the

past and is based on historical data so may not be a reliable indicator of the future

risk profile of the fund.

• is not guaranteed and may change over time and the lowest risk number does not

mean risk free.

• has not changed during this period.

Low risk High risk

Typically lower rewards Typically higher rewards

1 2 3 4 5 6 7

M&G Corporate Bond Fund Authorised Corporate Director’s Report

Investment review

As at 3 July 2017, for the year ended 30 June 2017

Performance against objective

In the 12-month period between 1 July 2016 and 3 July 2017, the M&GCorporate Bond Fund produced a positive total return (capitalperformance with income reinvested) across all sterling share classes.Due to the weakness of sterling against the euro over this period,investors in euro share classes received lower returns.*

The M&G Corporate Bond Fund invests predominantly in high qualitysterling-denominated corporate bonds with the aim of providingincome and capital growth.

Bonds are loans that are extended by an investor to an issuing entity– such as a company or government – in exchange for regular interestpayments. Bonds issued by companies are referred to as ‘corporatebonds’, while those issued by governments are called ‘governmentbonds’. Investment grade corporate bonds refer to fixed incomesecurities issued by a company with a medium or high credit ratingfrom a recognised credit rating agency. They are considered to be atlower risk of non-repayment than those issued by companies withlower credit ratings (known as high yield bonds). The performance ofinvestment grade corporate bond markets can be influenced by theperformance of government bonds.

Investment performance

The period under review began immediately following the UK’ssurprise vote in favour of leaving the European Union (EU). Followingan initial sell-off, markets regained their footing in July, calmed byexpectations that the Bank of England would implement policymeasures to mitigate any potential negative consequences of the‘Brexit’ vote. In August, the central bank met those expectations,announcing a package of measures designed to shore up theeconomy, including a reduction of the base interest rate to 0.25% anda new round of quantitative easing. This included an undertaking tobuy selected corporate bonds, a programme that began in Septemberand provided further support to the UK corporate bond market.

Brexit-related uncertainty – over the timing, and exact form that thecountry’s departure from the EU might take – was a significant driverof market movements for the remainder of the year. The last fewmonths of 2016 delivered further political surprises, the mostsignificant of which was Donald Trump’s US presidential electionvictory in November. The result caused US government bonds to suffertheir worst month in seven years.

Politics continued to dominate financial markets in early 2017, withDutch parliamentary elections, the UK’s formal triggering of Article 50,and the run-up to hotly contested presidential elections in France,among the main events. These took place against a backdrop ofbroadly positive economic data releases, indicating that the globaleconomy is in good health.

For the first time in a long while, the economic situation in Europe inparticular looks considerably brighter. The unemployment rate hasfallen back below 10% for the first time since 2011, while businesssurveys suggest a further steady pick-up in growth over the comingmonths. Political tensions also receded, with Emmanuel Macron’sdecisive victory in the French election helping to boost Europeanmarkets towards the end of the review period.

In the UK, snap parliamentary elections held in June that resulted in ahung parliament only served to muddy the waters as Brexit talksformally began. Despite this uncertain result, markets were relativelyunmoved. However, a speech by Bank of England governor MarkCarney right at the end of the reporting period caused investors tojudge that the timing of a first interest rate increase in some 10 yearsmight have moved forward, leading to greater volatility and pushingthe currency higher.

Sterling corporate bonds experienced mixed fortunes over the 12-month period, but prices generally rose, and as a result the funddelivered positive returns for investors in all of its sterling share classes.

Investment activities

One of the key drivers of a bond fund’s performance is its ability toadjust the portfolio’s sensitivity to changes in interest rates, known as‘duration’. Immediately after the UK referendum, we increased thefund’s duration by around one year to 7.1 years. We then reduced itslightly to 6.9 years in October 2016. From then on, it moved in a bandbetween 6.9 and 7.1 years for the remainder of the period, stayingroughly the same amount short relative to the fund’s comparable index,the iBoxx £ Corporate Index.

Having reduced the fund’s exposure to investment grade bonds andincreased its cash position and allocation to government bonds aroundthe time of the EU referendum to moderate its risk profile, we thengradually reversed these moves over the reporting period. At times,when European government bonds were negatively affected byconcerns about political developments in the region, we tookadvantage of these valuations and added them to the portfolio.

We added a number of bonds from financial companies, for examplefrom Goldman Sachs, Morgan Stanley and HSBC. We believe thatsuch banks can do well in a reflationary environment. We remainhighly selective when lending to financials and work closely with ourteam of credit analysts when making investment decisions.

We sold a number of holdings that performed well over the reportingperiod, including some from the European Investment Bank, Walmartand Amgen.

We have been finding significant opportunities in the asset-backedsecurities market, especially those backed by residential andcommercial mortgages. Such securities tend to be floating rate innature, meaning they adjust periodically depending on the change ina reference interest rate, and should therefore perform well even wheninterest rates rise. Even if it is not yet clear what Brexit will mean forthe UK economy in the long term, consumers will carry on makingmortgage payments. There has never been a default on a UKmortgage-backed security, even during the financial crisis.



Outlook

US and UK politics will remain key for the remainder of 2017, whileEurope’s heavy political calendar continues to influence markets. Thebiggest danger remains President Trump’s unpredictability –something that markets are still getting used to. President Trump’splanned tax reforms and policies to encourage corporate repatriationof funds should prove supportive for US corporate bond markets ifthey are introduced.

We believe that UK monetary policy is working and we are at, or closeto, full employment. Due to sterling’s weakness since the Brexit vote,inflation is once again back on the agenda in the UK. This weaknessis arguably helping to keep the UK competitive, despite Brexit-relateduncertainty. While it will be almost two years until any Brexit deal isconcluded, until then we consider that the UK’s economy is workingwell at near full capacity, and that the Bank of England should beginto remove some of the support it has provided to markets.

In our view, the global economy is in reasonable health, we are in aperiod of synchronised global growth, and company default ratesremain low. We are therefore positive on corporate bonds, especiallyissues from US companies. However we are cautious on governmentbonds, believing that they are already expensive and therefore thereis little more upside but considerable downside as further interest raterises in the US are likely.

Richard WoolnoughFund manager

An employee of M&G Limited which is an associate of M&G Securities Limited.

* For the performance of each share class, please refer to the ‘Long-term

performance by share class’ table in the ‘Fund performance’ section of this report.

Please note that the views expressed in this Report should not be taken as a

recommendation or advice on how the fund or any holding mentioned in the Report

is likely to perform. If you wish to obtain financial advice as to whether an investment

is suitable for your needs, you should consult a Financial Adviser.

Classification of investments

9.43%

10.09%

17.61%

43.99%

3.34%

0.04%

12.63%

-0.01%

0.10%

0.02%

-0.05%

2.13%

8.66%

14.17%

20.22%

39.95%

3.15%

0.13%

11.47%

0.00%

-0.81%

-0.25%

0.00%

1.55%

Debt securities

‘AAA’ credit rated bonds

‘AA’ credit rated bonds

‘A’ credit rated bonds

‘BBB’ credit rated bonds

‘BB’ credit rated bonds

‘B’ credit rated bonds

Bonds with no credit rating

Credit default swaps

Forward currency contracts

Interest rate futures contracts

Interest rates swaps

‘AAA’ rated money market funds [a]

Source: M&G30 June 2017

30 June 2016

% of the fund value(net assets attributable to shareholders)

[a] Uncommitted surplus cash is placed into ‘AAA’ rated money market funds with the aim of reducing counterparty risk.



Investment review

Investments

Portfolio statement

as at 30 June 2017 2017 2016Holding £’000 % %

Debt securities 4,008,768 97.13 97.75 ‘AAA’ credit rated bonds 389,192 9.43 8.66 £16,250,000 Abbey National Treasury Services 5.125% 2021 18,714 0.45

£1,217,913 Alba FRN 2049 1,226 0.03

£16,414,000 Arkle Master Issuer Var. Rate 2060 (3.986%) 16,476 0.40

£10,000,000 Barclays Bank 4.25% 2022 11,392 0.28

£264,793 BL Superstores Finance 4.482% 2030 305 0.01

£3,840,000 Broadgate Financing 4.821% 2036 5,056 0.12

£419,823 Broadgate Financing 4.949% 2031 504 0.01

£8,268,190 Broadgate Financing FRN 2032 7,996 0.19

£4,600,000 Cie de Financement Foncier 5.5% 2027 6,039 0.15

£3,048,273 Dukinfield FRN 2052 3,084 0.07

£869,651 E-Carat FRN 2023 870 0.02

£640,000 European Coal and Steel 6.8875% 2019 695 0.02

£25,000,000 European Investment Bank 5.5% 2025 32,623 0.79

£30,000,000 European Investment Bank FRN 2021 30,159 0.73

£25,000,000 European Investment Bank FRN 2022 24,990 0.60

£320,872 First Flexible No.5 FRN 2034 316 0.01

£16,559,696 Hawksmoor Mortgages FRN 2053 16,757 0.41

£13,428,000 Lanark Master Issuer 1% 2069 13,428 0.32

£14,324,200 Lanark Master Issuer FRN 2054 14,443 0.35

£6,531,869 Lanark Master Issuer FRN 2054 12-2A 6,565 0.16

$20,000,000 Microsoft 3.45% 2036 15,284 0.37

$5,000,000 Microsoft 3.5% 2042 3,753 0.09

$17,500,000 Microsoft 3.75% 2043 13,458 0.33

$20,000,000 Microsoft 3.95% 2056 15,344 0.37

$45,000,000 Microsoft 4% 2055 34,974 0.85

$7,000,000 Microsoft 4.5% 2040 6,048 0.15

$30,000,000 Microsoft 4.75% 2055 26,367 0.64

$500,000 Microsoft 5.2% 2039 470 0.01

$3,000,000 Microsoft 5.3% 2041 2,867 0.07

£1,354,698 Moorgate Funding FRN 2050 1,364 0.03

£373,319 Paragon Mortgages No.11 FRN 2041 359 0.01

$2,988,371 Paragon Mortgages No.15 FRN 2039 2,212 0.05

£3,986,000 Penarth Master Issuer FRN 2022 4,009 0.10

£754,911 Precise Mortgage Funding FRN 2048 757 0.02

£2,624,469 Residential Mortgage Securities FRN 2046 2,645 0.06

£2,068,000 Residential Mortgage Securities No.29 FRN 2046 2,079 0.05

£10,000,000 Ripon Mortgages FRN 2056 10,029 0.24

£1,930,857 Rochester Financing No.1 FRN 2046 1,938 0.05

£1,250,000 Silverstone Master Issuer FRN 2055 1,251 0.03

£7,439,995 Silverstone Master Issuer FRN 2070 7,448 0.18

£3,244,976 Slate FRN 2052 3,261 0.08

£1,974,118 THRONES Mortgages FRN 2049 1,975 0.05

£4,744,048 Towd Point Mortgage Funding FRN 2045 4,767 0.12

£4,165,278 Trinity Square FRN 2051 4,212 0.10

£2,988,880 Warwick Finance Residential Mortgage FRN 2049 1A 3,008 0.07

£7,551,780 Warwick Finance Residential Mortgage FRN 2049 02A 7,675 0.19

‘AA’ credit rated bonds 416,438 10.09 14.17 £33,000,000 Apple 3.05% 2029 36,004 0.87

$15,000,000 Apple 4.65% 2046 12,967 0.31

£1,138,080 Autolink Concessionaires 8.39% 2022 1,349 0.03

£815,000 Broadgate Financing 4.999% 2033 1,002 0.02

£5,000,000 Deutsche Bahn Finance 3.125% 2026 5,564 0.14

£2,400,000 Federal National Mortgage Association 5.375% 2021 2,789 0.07

£5,601,000 Federal National Mortgage Association 5.375% 2028 7,486 0.18

£2,165,529 General Electric Capital 6.44% 2022 2,430 0.06

£3,366,182 Integrated Accommodation 6.48% 2029 4,267 0.10

£960,000 Investor 5.5% 2037 1,337 0.03

£6,807,000 JPMorgan Fleming Mercantile Investment Trust 6.125% 2030 8,683 0.21

£3,154,857 Juturna 5.0636% 2033 3,859 0.09

£26,119,000 Land Securities Capital Markets Var. Rate 2026 (1.974%) 26,494 0.64



£4,500,000 Land Securities Capital Markets Var. Rate 2032 Bg (5.396%) 6,039 0.15

£2,500,000 LCR Finance 4.5% 2028 3,223 0.08

€479,656 Paragon Mortgages No.13 FRN 2039 405 0.01

$959,307 Paragon Mortgages No.13 FRN 2041 706 0.02

$2,000,000 Pfizer 7.2% 2039 2,286 0.06

£1,280,000 Places for People 8.625% 2020 1,412 0.03

£2,530,000 Province of Quebec 12.25% 2020 3,255 0.08

£4,500,000 Réseau Ferré de France 4.83% 2060 7,310 0.18

£10,000,000 Réseau Ferré de France 5% 2052 15,654 0.38




£3,398,155 RSL Finance No.1 6.625% 2038 4,817 0.12

$1,000,000 Security Capital Group 7.7% 2028 1,070 0.03

£3,400,000 Slate No.1 FRN 2051 3,395 0.08

£8,000,000 SLM Student Loan Trust 5.15% 2039 7,424 0.18

£14,000,000 SNCF 5.375% 2027 18,143 0.44


£5,400,000 Trafford Centre Finance FRN 2038 4,713 0.11

£25,000,000 Transport for London 2.25% 2022 26,365 0.64

£5,000,000 Transport for London 3.875% 2042 6,329 0.15

£10,000,000 Treasury 1.5% 2021 10,364 0.25

£41,000,000 Treasury 3.25% 2044 52,493 1.27

£20,000,000 Treasury 4.25% 2027 25,884 0.63

£25,000,000 Treasury 4.75% 2038 37,997 0.92

£2,000,000 Warwick Finance Residential Mortgage FRN 2049 1,961 0.05

‘A’ credit rated bonds 726,966 17.61 20.22 €2,000,000 Allianz Var. Rate 2042 (5.625%) 2,120 0.05

£5,700,000 Amgen 4% 2029 6,447 0.16

£9,500,000 Amgen 5.5% 2026 11,959 0.29

£6,000,000 Anglian Water Services Var. Rate 2023 (6.875%) 7,837 0.19

£1,550,000 Anglian Water Services Var. Rate 2029 (6.625%) 2,247 0.05

£26,179,000 Anheuser-Busch InBev 2.25% 2029 25,499 0.62

$4,000,000 Anheuser-Busch InBev 3.65% 2026 3,178 0.08



Portfolio statement (continued)


$2,000,000 Anheuser-Busch InBev 4.7% 2036 1,699 0.04

£14,000,000 Anheuser-Busch InBev 9.75% 2024 21,212 0.51

£6,000,000 ASIF II Var. Rate 2020 (6.375%) 6,970 0.17

£5,000,000 ASIF III Jersey 5% 2018 5,284 0.13

£3,400,000 Bank of Scotland 2.64% 2020 5,771 0.14

£1,668,270 BL Superstores Finance 5.27% 2030 1,876 0.05

$5,000,000 BNP Paribas 3.8% 2024 4,006 0.10

£4,362,000 Brown-Forman 2.6% 2028 4,440 0.11

£1,576,510 Clavis Securities FRN 2032 1,520 0.04

$3,474,000 Cloverie 5.625% 2046 2,913 0.07

£20,000,000 Comcast 5.5% 2029 26,544 0.64

£3,328,138 Eddystone Finance FRN ‘A2’ 2021 3,327 0.08

£050,000 Eddystone Finance FRN ‘B’ 2021 50 0.00

$12,690,000 EDF 6% 2114 10,420 0.25

£6,650,000 ELM Var. Rate Perp. (6.3024%) 7,169 0.17

$2,500,000 EMD Finance 3.25% 2025 1,929 0.05

€15,583,000 Engie (formerly GDF Suez) 5.95% 2111 22,509 0.55

£2,129,524 Eurosail FRN 2044 2,093 0.05

£678,580 Eurosail FRN 2045 662 0.02

$3,418,172 Great Hall Mortgages No.1 FRN 2039 2,547 0.06

£2,529,569 Greene King Finance 4.0643% 2035 2,775 0.07

£2,397,040 Greene King Finance 5.318% 2031 2,848 0.07

£23,600,000 Heathrow Funding 6.75% 2028 32,393 0.78

£5,250,000 Heathrow Funding Var. Rate 2023 (9.2%) 6,719 0.16



£500,000 HSBC Bank 6.5% 2023 620 0.02

£11,550,000 HSBC Bank Var. Rate 2030 (5.375%) 13,965 0.34

£4,000,000 HSBC Bank Var. Rate 2033 (5.375%) 5,165 0.13

£19,000,000 HSBC Holdings 2.625% 2028 18,999 0.46

$10,000,000 HSBC Holdings Var. Rate 2028 (4.041%) 7,974 0.19

£4,000,000 INTU Finance 3.875% 2023 4,331 0.10

£4,808,000 INTU Finance 4.25% 2030 5,436 0.13

£5,500,000 INTU Finance 4.625% 2028 6,382 0.15

£21,000,000 JPMorgan Chase 3.5% 2026 23,400 0.57

£3,386,000 London & Quadrant Housing 2.625% 2026 3,555 0.09

£5,902,000 London Merchant Securities 6.5% 2026 7,569 0.18

£1,750,000 Longstone Finance 4.896% 2036 1,975 0.05

£3,820,080 Mitchells & Butlers Finance 5.574% 2030 4,480 0.11

£731,425 Mitchells & Butlers Finance 5.965% 2025 819 0.02

£1,318,481 Mitchells & Butlers Finance 6.013% 2030 1,574 0.04

£3,000,000 Mitchells & Butlers Finance FRN 2033 2,340 0.06

£1,772,523 Money Partners Securities FRN 2040 1,736 0.04

£1,615,943 Mortgages No.7 FRN 2038 1,588 0.04

£15,000,000 Munich Re Finance Var. Rate 2042 (6.625%) 17,936 0.43

£4,500,000 National Grid Electricity Transmission 2.983% IL 2018 7,297 0.18

£3,000,000 National Grid Electricity Transmission 3.806% IL 2020 5,377 0.13

£4,406,433 NATS En Route 5.25% 2026 5,171 0.13

£1,460,415 Newgate Funding FRN 2050 1,413 0.03

£2,590,000 Northern Electric Finance 8.875% 2020 3,225 0.08

£2,000,000 Northern Powergrid (formerly CE Electric UK Funding) 7.25% 2022 2,559 0.06

£3,750,000 Northern Powergrid 4.375% 2032 4,610 0.11

$1,584,180 Paragon Mortgages No.7 FRN 2034 1,189 0.03

£1,339,000 Penarian Housing Finance 3.212% 2052 1,331 0.03

£219,895 PICTS 5.218% 2039 253 0.01


£2,600,000 Quadrant Housing Var. Rate 2033 (7.9%) 3,783 0.09

£975,520 Residential Mortgage Securities FRN 2038 955 0.02

£4,046,000 Residential Mortgage Securities No.22 FRN 2039 3,943 0.10

£2,138,776 RMAC 2006-Ns1 FRN 2044 2,050 0.05

£045,084 Sandwell Commercial Finance No.2 FRN 2037 44 0.00

£3,588,000 Society of Lloyds Var. Rate 2047 (4.875%) 3,858 0.09

£12,000,000 Southern Water Services Finance 5% 2021 13,648 0.33

£10,000,000 Southern Water Services Finance 6.125% 2019 10,859 0.26

£145,000 SPI Electricity & Gas 7.125% 2018 153 0.00

£6,000,000 SSE 8.375% 2028 9,492 0.23

£7,000,000 Thames Water Utilities Cayman 4% 2025 8,059 0.20

£10,000,000 Thames Water Utilities Cayman 4.375% 2034 12,248 0.30

£4,223,000 Thames Water Utilities Cayman Var. Rate 2024 (1.875%) 4,226 0.10

£3,727,000 Thames Water Utilities Finance 3.375% IL 2021 6,762 0.16

£1,485,000 Thames Water Utilities Finance 3.5% 2028 1,651 0.04



£2,000,000 UNITE (USAF) II 3.374% 2023 2,159 0.05

£1,152,000 UNITE (USAF) II 3.921% 2030 1,303 0.03

£11,000,000 Wales & West Utilities 4.625% 2023 12,956 0.31

£8,000,000 Wales & West Utilities 5% 2028 10,077 0.24

£4,500,000 Wales & West Utilities 5.75% 2030 6,159 0.15

£33,000,000 Wells Fargo 2% 2025 32,782 0.79

£4,246,000 Wells Fargo 2.125% 2023 4,313 0.10

$2,500,000 Wells Fargo 4.1% 2026 1,994 0.05

£5,500,000 Wells Fargo 4.875% 2035 (formerly Wachovia 4.875% 2035) 6,856 0.17

£40,000,000 Wells Fargo 5.25% 2023 47,676 1.16

£5,000,000 Western Power Distribution 3.875% 2024 5,628 0.14

£10,000,000 Western Power Distribution 5.25% 2023 11,814 0.29

£24,000,000 Western Power Distribution 6% 2025 31,011 0.75

$1,000,000 Willow No.2 (Ireland) Var. Rate 2045 (4.25%) 769 0.02

£3,426,000 Yorkshire Power Finance 7.25% 2028 4,999 0.12

£5,000,000 Yorkshire Water Services 3.625% 2029 5,751 0.14

£5,000,000 Yorkshire Water Services 6% 2019 5,518 0.13

£6,000,000 Yorkshire Water Services Odsal Finance 6.5876% 2023 7,564 0.18

£5,420,000 Zurich Finance (UK) Var. Rate Perp. (6.625%) 6,461 0.16





‘A’ credit rated bonds (continued)

Investments Portfolio statement (continued)



‘BBB’ credit rated bonds 1,815,466 43.99 39.95 £7,500,000 3i Group 6.875% 2023 6.875% 9,272 0.22

£1,500,000 3i Group Var Rate. 2032 (5.75%) 1,932 0.05

£2,100,000 América Móvil Var. Rate 2073 (6.375%) 2,280 0.06

£3,666,000 Anglian Water Services 2.625% 2027 3,647 0.09

£7,000,000 Anglian Water Services 4.5% 2026 8,042 0.19

£2,750,000 AP Moller-Maersk 4% 2025 2,961 0.07

£4,100,000 APT Pipelines 4.25% 2024 4,578 0.11

£7,502,000 AT&T 3.55% 2037 7,294 0.18

£6,300,000 AT&T 4.25% 2043 6,715 0.16

£12,000,000 AT&T 4.375% 2029 13,389 0.32

$20,324,000 AT&T 4.5% 2048 14,694 0.36

£41,120,000 AT&T 4.875% 2044 47,837 1.16

£2,250,000 AT&T 5.2% 2033 2,708 0.06

$3,000,000 AT&T 5.25% 2037 2,446 0.06

£3,500,000 AT&T 5.5% 2027 4,257 0.10

$14,807,000 AT&T 5.65% 2047 12,520 0.30

$4,000,000 AT&T 6.35% 2040 3,637 0.09

$750,000 AT&T 6.375% 2041 682 0.02

£1,651,000 Aviva Var Rate 2049 (4.375%) 1,690 0.04

£21,100,000 Aviva Var. Rate 2036 (6.125%) 24,777 0.60

£7,584,000 Aviva Var. Rate 2041 (6.625%) 8,688 0.21

£11,500,000 Aviva Var. Rate 2058 (6.875%) 15,264 0.37

£26,500,000 Aviva Var. Rate Perp. (6.125%) 29,748 0.72

£11,000,000 AXA Var. Rate 2054 (5.625%) 12,644 0.31

£6,500,000 AXA Var. Rate Perp. (5.453%) 7,137 0.17

£14,630,000 AXA Var. Rate Perp. (6.6862%) 17,091 0.41

£10,000,000 BAE Systems 4.125% 2022 11,222 0.27

£35,000,000 Bank of America 2.3% 2025 35,249 0.85

$2,672,000 Bank of America 3.95% 2025 2,087 0.05

£2,000,000 Bank of America 4.25% 2026 2,292 0.05

$5,833,000 Bank of America 4.25% 2026 4,626 0.11

£15,000,000 Bank of America 5.5% 2021 17,326 0.42

£18,000,000 Bank of America 6.125% 2021 21,336 0.52

£3,500,000 Bank of America 7% 2028 4,923 0.12

$8,571,000 Bank of America Var. Rate. 2028 (3.7%) 6,661 0.16

£9,174,000 Barclays 3.125% 2024 9,477 0.23

£12,000,000 BAT International Finance 4% 2026 13,587 0.33



£2,750,000 BG Energy Capital Var. Rate 2072 (6.5%) 2,810 0.07

€2,250,000 BNP Paribas 2.375% 2025 2,052 0.05

€1,159,000 BNP Paribas 2.75% 2026 1,078 0.03

$15,000,000 BNP Paribas 4.625% 2027 12,192 0.30

£12,000,000 Bouygues 5.5% 2026 15,033 0.36

£9,000,000 BPCE 5.25% 2029 10,458 0.25

£6,264,000 British Telecommunications 3.5% IL 2025 13,099 0.32

$10,000,000 British Telecommunications Var. Rate 2030 (9.875%) 11,697 0.28

£2,500,000 Cie De St-Gobain 4.625% 2029 2,996 0.07

$4,834,000 Citigroup 4.4% 2025 3,879 0.09

$2,500,000 Citigroup 4.45% 2027 2,002 0.05

$4,985,000 Citigroup 5.5% 2025 4,280 0.10

£6,000,000 CPUK Finance 7.239% 2042 7,763 0.19

$2,500,000 Crédit Agricole 4.125% 2027 2,011 0.05

£2,703,000 CRH Finance 4.125% 2029 3,124 0.08

£3,000,000 CS Group Funding 2.750% 2025 3,059 0.07

£2,050,000 Daily Mail & General Trust 6.375% 2027 2,426 0.06

$6,000,000 Deutsche Telekom International Finance 4.875% 2042 5,083 0.12

£11,000,000 Deutsche Telekom International Finance 6.5% 2022 13,546 0.33


£13,000,000 Deutsche Telekom International Finance 8.875% 2028 21,212 0.51

£4,000,000 Deutsche Telekom International Finance Var. Rate 2030 (7.625%) 6,189 0.15

$3,000,000 E.ON International Finance 6.65% 2038 2,914 0.07

£1,000,000 Enel 5.75% 2037 1,346 0.03

$24,292,000 Enel Finance International 3.625% 2027 18,578 0.45

£7,000,000 Enel Finance International 5.625% 2024 8,549 0.21

£869,000 Enel Finance International 5.75% 2040 1,186 0.03

$500,000 Enel Finance International 6% 2039 460 0.01

$500,000 Energy Transfer Partners 4.9% 2035 377 0.01

$1,000,000 Energy Transfer Partners 6.125% 2045 835 0.02

$1,500,000 Energy Transfers Partners 4.05% 2025 1,155 0.03

$3,572,000 Energy Transfers Partners 6.5% 2042 3,086 0.07

£3,000,000 Engie (formerly GDF Suez) Var. Rate Perp. (4.625%) 3,126 0.08

£9,100,000 Eni Finance International 4.75% 2021 10,143 0.25

£5,000,000 Eni Finance International 6.125% 2018 5,348 0.13

£132,000 ENW Capital Finance 6.125% 2021 157 0.00

£13,113,000 Eversholt Funding 6.359% 2025 17,040 0.41

£1,042,000 FCE Bank 1% 2018 1,062 0.03

£7,116,000 FCE Bank 2.727% 2022 7,376 0.18

£5,000,000 FCE Bank 2.759% 2019 5,157 0.12

£3,250,000 Fidelity International 6.75% 2020 3,736 0.09

£8,000,000 FirstGroup 6.875% 2024 10,299 0.25

$11,960,000 Ford Motor Credit 4.389% 2026 9,499 0.23

£6,000,000 G4S 7.75% 2019 6,672 0.16

£5,500,000 Gatwick Funding 2.625% 2048 5,096 0.12

£16,000,000 Gatwick Funding 5.25% 2024 19,119 0.46

£16,000,000 Gatwick Funding 6.125% 2028 20,737 0.50

$1,500,000 General Motors Financial 4% 2025 1,163 0.03

$2,500,000 General Motors Financial 4% 2026 1,915 0.05

$5,834,000 General Motors Financial 4.3% 2025 4,592 0.11

£4,000,000 GKN Holdings 3.375% 2032 3,997 0.10

£2,500,000 GKN Holdings 5.375% 2022 2,893 0.07

£3,750,000 GKN Holdings 6.75% 2019 4,205 0.10

£6,750,000 Go-Ahead Group 5.375% 2017 6,820 0.17

£3,500,000 Goldman Sachs Group 5.5% 2021 4,030 0.10




£3,010,000 Grainger 5% 2020 3,297 0.08

£7,000,000 H.J. Heinz Finance 6.25% 2030 9,013 0.22

$1,595,000 HCA 5.5% 2047 1,272 0.03

$955,000 HCA Holdings 5% 2024 777 0.02

$2,308,000 HCA Holdings 5.25% 2025 1,916 0.05

$1,000,000 HCA Holdings 5.875% 2022 854 0.02

£5,000,000 Heathrow Funding 6% 2020 5,601 0.14

£2,500,000 Heathrow Funding 7.125% 2024 3,214 0.08

£607,000 Hiscox Var. Rate 2045 (6.125%) 684 0.02







‘BBB’ credit rated bonds (continued)

$1,163,000 HSBC Holdings 4.375% 2026 929 0.02

£5,500,000 HSBC Holdings 5.75% 2027 6,712 0.16

£7,500,000 HSBC Holdings 6% 2040 9,935 0.24

£11,000,000 HSBC Holdings 6.75% 2028 14,444 0.35

£4,000,000 HSBC Holdings 7% 2038 5,813 0.14

£5,500,000 Iberdrola Finanzas 6% 2022 6,635 0.16

£3,500,000 Iberdrola Finanzas 7.375% 2024 4,653 0.11

£6,000,000 Imperial Tobacco Finance 5.5% 2026 7,473 0.18

£23,000,000 Imperial Tobacco Finance 8.125% 2024 31,358 0.76

£27,000,000 Imperial Tobacco Finance Var. Rate 2022 (9%) 35,664 0.86

£8,450,000 ING Bank Var. Rate 2023 (6.875%) 8,849 0.21

£5,500,000 InterContinental Hotels 3.875% 2022 6,032 0.15

$9,000,000 International Paper 3% 2027 6,671 0.16

$5,000,000 International Paper 4.4% 2047 3,882 0.09

£8,431,000 INTU Finance 4.125% 2028 9,321 0.23

£500,000 Italy (Republic of) 5.25% 2034 589 0.01

£27,750,000 Italy (Republic of) 6% 2028 34,194 0.83

$5,000,000 JPMorgan Chase 3.625% 2027 3,817 0.09

$15,000,000 JPMorgan Chase 3.875% 2024 11,922 0.29

$6,000,000 JPMorgan Chase 4.125% 2026 4,783 0.12

$5,000,000 JPMorgan Chase 4.25% 2027 4,014 0.10

$2,000,000 JPMorgan Chase Var. Rate Perp. (7.9%) 1,598 0.04

$3,500,000 Kinder Morgan 5.05% 2046 2,695 0.07

$6,000,000 Kinder Morgan Energy Partners 6.95% 2038 5,535 0.13

£12,500,000 KPN 5% 2026 14,861 0.36

£11,250,000 KPN 5.75% 2029 14,401 0.35

$6,250,000 KPN 8.375% 2030 6,598 0.16

£10,000,000 Kraft Heinz 4.125% 2027 11,056 0.27

£2,134,000 LafargeHolcim Sterling Finance 3% 2032 2,108 0.05

£12,000,000 Legal & General Group 10% IL 2041 15,670 0.38

£25,000,000 Legal & General Group 5.375% 2045 27,512 0.67

£18,000,000 Legal & General Group 5.5% 2064 19,405 0.47

$5,000,000 Legal & General Group Var. Rate 2047 (5.25%) 4,042 0.10

£10,000,000 Lloyds Bank 7.625% 2025 13,476 0.33

£15,532,000 Lloyds Bank Var. Rate 2025 (5.75%) 17,113 0.41

£5,500,000 Lloyds Bank 9.625% 2023 7,563 0.18

$2,500,000 LYB International Finance 4.875% 2044 2,054 0.05

$3,000,000 LyondellBasell Industries 4.625% 2055 2,254 0.05

£885,000 Marstons Issuer Var. Rate 2027 (5.1576%) 883 0.02

£2,000,000 Marstons Issuer Var. Rate 2032 (5.1774%) 2,230 0.05

£2,625,000 McDonalds 5.875% 2032 3,581 0.09

$1,250,000 McDonalds 6.3% 2037 1,242 0.03

$2,000,000 McDonalds 6.3% 2038 1,986 0.05

£11,000,000 McDonalds 6.375% 2020 12,442 0.30

£5,541,000 Mckesson 3.125% 2029 5,669 0.14

£15,000,000 Mexico (United Mexican States) 5.625% 2114 15,918 0.39

£1,000,000 Mondelez International 3.875% 2045 1,039 0.03

£850,000 Mondelez International 4.5% 2035 956 0.02

$1,000,000 Monsanto 4.7% 2064 774 0.02

$2,000,000 Monsanto 4.7% 2064 1,554 0.04

£13,500,000 Morgan Stanley 2.625% 2027 13,495 0.33

$2,000,000 Morgan Stanley 3.7% 2024 1,581 0.04

$7,500,000 Morgan Stanley 3.95% 2027 5,839 0.14

$1,000,000 Morgan Stanley 4.1% 2023 803 0.02

$8,500,000 Morgan Stanley 4.35% 2026 6,810 0.17

$1,000,000 Morgan Stanley 4.875% 2022 835 0.02

£13,455,000 National Grid 2.125% 2028 13,128 0.32

$1,141,000 Nationwide Building Society 4% 2026 872 0.02

£12,500,000 NEXT 3.625% 2028 12,732 0.31

£10,500,000 NEXT 4.375% 2026 11,495 0.28

£11,250,000 NGG Finance Var. Rate 2073 (5.625%) 12,743 0.31

£5,000,000 NIE Finance 6.375% 2026 6,661 0.16

£5,000,000 Northern Gas Networks 5.875% 2019 5,485 0.13

£3,244,000 Northumbrian Water 6% 2017 3,289 0.08

£9,610,000 Northumbrian Water 6.875% 2023 12,236 0.30

£12,175,000 Orange 5.625% 2034 16,322 0.40

£19,250,000 Orange 8.125% 2028 29,752 0.72

$9,675,000 Orange 8.5% 2031 11,285 0.27

€7,500,000 Orange Var. Rate Perp. (5%) 7,381 0.18

£6,500,000 Orange Var. Rate Perp. (5.75%) 7,194 0.17

£1,500,000 Orange Var. Rate Perp. (5.875%) 1,654 0.04

$12,500,000 Pearson Funding Four 3.75% 2022 9,688 0.23

$2,800,000 Rabobank 4% 2029 2,175 0.05

£4,000,000 Rabobank Nederland 4.625% 2029 4,581 0.11

£2,600,000 Reed Elsevier Investments 2.75% 2019 2,675 0.06

$6,000,000 Reynolds American 4.45% 2025 4,961 0.12

$1,000,000 Reynolds American 6.15% 2043 964 0.02

£3,722,000 RL Finance Bonds 6.125% 2043 4,137 0.10

€3,422,000 Royal Bank of Scotland 2.5% 2023 3,195 0.08

£2,857,000 Royal Bank of Scotland FRN 2020 2,864 0.07

€2,092,000 Royal Bank of Scotland Var. Rate 2023 1,899 0.05

£1,500,000 Santander Var. Rate 2023 (9.625%) 1,661 0.04

£1,000,000 Scottish Widows 5.5% 2023 1,120 0.03

£1,000,000 Severn Trent Utilities 1.3% IL 2022 1,216 0.03

£4,160,000 Severn Trent Utilities Finance 2.75% 2031 4,313 0.10




$3,000,000 Société Générale 4% 2027 2,388 0.06

$2,500,000 Société Générale 5% 2024 2,055 0.05

£3,000,000 South East Water Finance 5.6577% 2019 3,257 0.08

£6,176,000 South Eastern Power Networks 5.5% 2026 7,811 0.19

£8,100,000 South Eastern Power Networks Var. Rate 2031 (6.375%) 11,817 0.29

£5,000,000 Southern Gas Networks 4.875% 2023 5,915 0.14

£15,000,000 Southern Gas Networks 5.125% 2018 15,810 0.38

£2,200,000 Southern Water Services Finance Var. Rate 2038 (4.5%) 2,419 0.06

£16,000,000 Spain (Kingdom of) 5.25% 2029 18,935 0.46

£10,000,000 Standard Chartered 5.125% 2034 10,788 0.26

£4,815,000 Student Finance 2.6663% 2024 4,821 0.12

$5,000,000 Telefónica (Europe) 8.25% 2030 5,400 0.13

£13,000,000 Telefónica Emisiones 5.289% 2022 15,260 0.37









£11,500,000 Telefónica Emisiones 5.597% 2020 12,784 0.31

$7,400,000 Telefónica Emisiones 7.045% 2036 7,434 0.18

£219,490 Telereal Securitisation 6.1645% 2033 266 0.01





£17,550,000 Time Warner Cable 5.25% 2042 20,959 0.51

£4,950,000 Time Warner Cable 5.75% 2031 6,108 0.15

$4,000,000 United Business Media 5.75% 2020 3,247 0.08

£3,000,000 United Utilities Water 5.625% 2027 3,988 0.10

£3,813,000 Vector Group 7.625% 2019 4,136 0.10

£4,000,000 Verizon Communications 3.125% 2035 3,866 0.09

£10,000,000 Verizon Communications 4.083% 2024 11,206 0.27

$13,870,000 Verizon Communications 4.272% 2036 10,279 0.25







£1,000,000 Wales & West Utilities Finance Var. Rate 2036 (6.75%) 1,069 0.03

£8,000,000 Walgreens Boots Alliance 2.875% 2020 8,363 0.20

£4,167,000 Walgreens Boots Alliance 3.6% 2025 4,558 0.11

£7,500,000 Welltower 4.5% 2034 8,546 0.21

£2,198,000 Welltower 4.8% 2028 2,568 0.06

£4,217,000 Westfield America 2.125% 2025 4,154 0.10

£4,000,000 WPP Finance 6.375% 2020 4,676 0.11

‘BB’ credit rated bonds 137,725 3.34 3.15 £307,889 Coventry & Rugby Hospital 3.246% IL 2040 591 0.02

$1,000,000 Credit Agricole Var. Rate Perp. (7.875%) 847 0.02

£5,914,175 Delamare Finance 5.5457% 2029 6,378 0.16

£500,000 Enel Var. Rate 2075 (7.75%) 566 0.01

£3,500,000 Enel Var. Rate 2076 (6.625%) 3,897 0.10

£2,000,000 Enterprise Inns 6.375% 2031 2,200 0.05

£5,000,000 Enterprise Inns 6.875% 2025 5,517 0.13

£1,250,000 KPN Var. Rate 2073 (6.875%) 1,391 0.03

£3,000,000 Lloyds Banking Group Var. Rate Perp. (7.625%) 3,314 0.08

£3,367,000 Lloyds Banking Group Var. Rate Perp. (7.875%) 3,930 0.10

$778,000 Methanex 4.25% 2024 586 0.01

£3,000,000 National Westminster Bank 6.5% 2021 3,506 0.08

£4,000,000 Nationwide Building Society Var. Rate Perp. (6.875%) 4,108 0.10

$3,300,000 Royal Bank of Scotland 6% 2023 2,797 0.07

$7,059,000 Royal Bank of Scotland 6.1% 2023 5,971 0.15

$7,000,000 Royal Bank of Scotland 6.125% 2022 5,903 0.14

£4,325,000 Société Générale Var. Rate Perp. (8.875%) 4,596 0.11

$750,000 Société Générale Var. Rate Perp. (7.875%) 635 0.02

£13,000,000 Telecom Italia 5.875% 2023 14,975 0.36

£1,000,000 Telefónica (Europe) Var. Rate Perp. (6.75%) 1,104 0.03

£27,709,192 Tesco Property Finance 3 5.744% 2040 30,569 0.74



€2,000,000 Unitymedia Hessen 3.5% 2027 1,814 0.04

€1,000,000 Unitymedia Hessen 4% 2025 927 0.02

€2,000,000 Unitymedia Hessen 6.25% 2029 1,993 0.05

£1,000,000 Virgin Media Secured Finance 4.875% 2027 1,028 0.02


‘B’ credit rated bonds 1,771 0.04 0.13 €1,820,000 Numericable Group 5.375% 2022 1,666 0.04

£092,471 Road Management Consolidated 9.18% 2021 105 0.00

Bonds with no credit rating 521,210 12.63 11.47 £1,000,000 Admiral 5.5% 2024 1,114 0.03

$2,140,000 Aquarius Plus Investments 8.25% IL Perp. 1,745 0.04

€1,822,000 Assicurazioni Generali Var. Rate 2047 (5.5%) 1,777 0.04

£10,050,000 Assicurazioni Generali Var. Rate Perp. (6.269%) 10,860 0.26

£2,000,000 Barclays Bank 9.5% 2021 2,551 0.06

£1,308,000 British Land 5.264% 2035 1,565 0.04

£902,000 British Land 5.264% 2035 2 1,111 0.03

£4,353,324 British Land 5.357% 2028 5,230 0.13

£5,695,000 British Land 5.357% 2028 2 6,853 0.17

£3,699,000 BUPA Finance 5% 2026 4,170 0.10

£10,000,000 Canadian Imperial Bank of Commerce FRN 2022 10,052 0.24

£201,799 Capital Shopping Centres 5.562% 2027 235 0.01

£3,666,000 Channel Link Enterprises Finance 3.848% 2050 3,840 0.09

£6,342,000 Channel Link Enterprises Finance Var. Rate 2050 (3.043%) 6,386 0.15

£350,000 Cheltenham & Gloucester 11.75% Perp. 690 0.02

£2,500,000 Coventry Building Society FRN 2020 2,505 0.06

£1,500,000 Credit Agricole Var. Rate Perp. (7.5%) 1,682 0.04

£8,920,000 Delamare Finance 6.067% 2029 9,263 0.22

£3,036,271 Duncan Funding FRN 2063 3,057 0.07

£5,000,000 FCE Bank 3.25% 2020 5,260 0.13

£4,744,558 Feldspar FRN 2046 4,775 0.12

£3,004,857 Finsbury Square Mortgage FRN 2059 3,010 0.07

£3,277,647 Fintrust Debenture 9.25% 2023 4,344 0.11

£493,648 Gemgarto FRN 2047 495 0.01

£10,000,000 GESB 8.35% 2018 10,756 0.26

£3,463,599 Gosforth Funding FRN 2058 3,477 0.08

£4,000,000 Grand Union 4.625% 2043 5,033 0.12

£034,120 Great Portland Estates 5.625% 2029 42 0.00

£5,000,000 Great Rolling Stock 6.25% 2020 5,698 0.14

£1,825,614 Greater Gabbard Ofto 4.137% 2032 2,109 0.05

£7,800,000 Grosvenor UK Finance 6.5% 2026 10,399 0.25

£721,000 Guardian Royal Exchange 6.625% 2023 901 0.02

£12,000,000 Hammerson 6% 2026 15,048 0.36

£6,000,000 Hammerson 7.25% 2028 8,456 0.20

£1,000,000 Heathrow Finance 5.75% 2025 1,131 0.03





‘BB’ credit rated bonds (continued)




Investments

£4,223,589 Highbury Finance 7.017% 2023 4,993 0.12

£2,192,000 Housing Finance 5% 2027 2,558 0.06

£3,000,000 Housing Finance 8.625% 2023 4,119 0.10

£8,271,321 Housing Securities 8.375% 2019 9,078 0.22

£6,000,000 John Lewis 6.125% 2025 7,296 0.18

£10,000,000 John Lewis 8.375% 2019 11,147 0.27

£1,431,157 Kenrick FRN 2049 1,436 0.03

£3,000,000 LAB Investments 7.125% 2019 3,262 0.08

£553,000 Land Securities Capital Markets 5.391% 2027 684 0.02

£3,726,000 LaSer ABS FRN 2030 3,733 0.09

£12,500,000 Lend Lease Europe 6.125% 2021 14,481 0.35

£50,000,000 Lloyds Bank 5.125% 2025 62,664 1.52

£3,478,000 Midland Heart Capital 5.087% 2044 4,688 0.11

£7,477,000 Moat Homes Finance 5% 2041 9,826 0.24

£2,282,000 National Express 2.5% 2023 2,311 0.06

£2,500,000 National Express 6.625% 2020 2,864 0.07

£2,400,000 Nationwide Building Society 8.625% 2018 2,532 0.06

£1,719,000 Old Mutual 7.875% 2025 2,020 0.05

£6,600,000 Old Mutual 8% 2021 7,620 0.18

£4,984,000 Orbit Group 3.5% 2045 5,325 0.13

£1,311,000 Orbita Funding FRN 2023 1,317 0.03

£3,170,029 Paragon Mortgages No.22 FRN 2042 3,176 0.08

£9,300,000 Peel South East 10% 2026 13,515 0.33

£5,000,000 Pennon Group Var. Rate Perp. (6.75%) 5,143 0.12

£10,000,000 Phoenix Natural Gas Finance 5.5% 2017 10,007 0.24


£421,114 Road Management Services 3.642% 2028 698 0.02

£17,200,000 Segro 5.625% 2020 19,676 0.48

£12,000,000 Segro 6.75% 2021 14,708 0.36

£12,500,000 Segro Var. Rate 2019 (6%) 13,813 0.33

£2,000,000 Segro Var. Rate 2022 (7%) 2,499 0.06

£2,315,000 Skipton Building Society 1.75% 2022 2,292 0.06

$1,000,000 Société Générale Var. Rate Perp. (6%) 771 0.02

£4,750,000 South West Water Finance 5.875% 2040 6,842 0.16

£15,000,000 Suez Environnement 5.375% 2030 19,736 0.48

£1,869,012 Summit Finance (Law) 6.484% 2028 2,203 0.05

£422,826 THFC Social Housing 8.75% 2021 536 0.01


£2,674,000 TSB Bank Var. Rate 2026 (5.75%) 2,891 0.07

£25,500,000 Vodafone Group 3% 2056 21,824 0.53

£11,955,000 Vodafone Group 3.375% 2049 11,064 0.27

£2,000,000 Westfield Stratford FRN 2024 1,990 0.05

£1,900,000 Witan Investment Trust 6.125% 2025 2,399 0.06

£10,400,000 Wm Morrison Supermarkets 3.5% 2026 11,027 0.27



£2,525,000 Yorkshire Building Society 3.5% 2026 2,686 0.07

£1,993,000 Yorkshire Building Society Var. Rate 2024 (4.125%) 2,058 0.05

Credit default swaps (383) (0.01) 0.00 €2,500,000 EDF Dec 2021 (52) 0.00

€5,000,000 EDF Jun 2022 (103) 0.00

€10,000,000 Imperial Tobacco Jun 2018 (80) 0.00

$(20,000,000) Markit iTraxx Europe Sub Fin Series 26 5 Year Dec 2021 (148) (0.01)

Forward currency contracts 4,118 0.10 (0.81) €991,006 Bought for £879,285 (expires 26.07.17) (8) 0.00

€(15,423,141) Sold for £13,070,091 (expires 26.07.17) (489) (0.01)

€(18,361,329) Sold for £15,975,269 (expires 23.08.17) (176) 0.00

€(24,047,039) Sold for £21,158,909 (expires 20.09.17) (7) 0.00

$(291,694,828) Sold for £225,195,716 (expires 26.07.17) 593 0.01

$(280,920,912) Sold for £217,776,458 (expires 23.08.17) 1,652 0.04

$(186,396,777) Sold for £145,832,854 (expires 20.09.17) 2,553 0.06

Interest rate futures contracts 978 0.02 (0.25) (600) 5 Year US Treasury Note Sep 17 104 0.00

(961) 10 Year US Treasury Note Sep 17 850 0.02

(407) US Ultra Bond CBT Sep 17 24 0.00

Interest rates swaps (2,096) (0.05) 0.00 £10,000,000 Pay 1.5425% Receive VAR Mar 2047 110 0.00

€70,000,000 Pay 2.6575% Receive VAR Feb 2047 (2,206) (0.05)

Portfolio of investments 4,011,385 97.19 96.69

‘AAA’ rated money market funds [a] 87,873 2.13 1.55 87,873,000 Northern Trust Global Fund - Sterling 87,873 2.13

Total portfolio (notes 2c & 2d on page 6) 4,099,258 99.32 98.24Net other assets / (liabilities) 27,907 0.68 1.76

Net assets attributable to shareholders 4,127,165 100.00 100.00

All securities are on an official stock exchange listing except where referenced.

[a] Uncommitted surplus cash is placed into ‘AAA’ rated money market funds with the

aim of reducing counterparty risk.







Bonds with no credit rating (continued)

Investments

Fund performance

Please note past performance is not a guide to future performanceand the value of investments, and the income from them, will fluctuate.This will cause the fund price to fall as well as rise and you may notget back the original amount you invested.

The following chart and tables show the performance for two of thefund’s share classes – Sterling Class ‘A’ (Accumulation) shares andSterling Class ‘I’ (Accumulation) shares.

We show performance for these two share classes because:

• The performance of the Sterling Class ‘A’ (Accumulation) share iswhat most individuals investing directly with M&G have received. Ithas the highest ongoing charge of all the share classes.Performance is shown after deduction of this charge. All investorsin the fund therefore received this performance or better.

• The performance of the Sterling Class ‘I’ (Accumulation) share isthe most appropriate to compare with the average performance ofthe fund’s comparative sector. It is the share class used by theInvestment Association in the calculation of the comparativesector’s average performance. This share class is available fordirect investment with M&G subject to minimum investment criteria,or via third parties who may charge additional fees. Theperformance shown takes the deduction of the ongoing charge forthis share class into account but it does not take account of chargesapplied by any other party through which you may have invested.

The fund is available for investment in different share classes, each withvarying levels of charges and minimum investments; please refer to theProspectus for M&G Investment Funds (3), which is available free ofcharge either from our website at www.mandg.co.uk/prospectuses or bycalling M&G Customer Relations.

Fund level performance

Fund net asset value

2017 2016 2015as at 30 June £’000 £’000 £’000

Fund net asset value (NAV) 4,127,165 4,490,189 4,807,312

Performance since launch

To give an indication of how the fund has performed since launch, thechart below shows total return of Sterling Class ‘A’ (Accumulation)shares and Sterling Class ‘I’ (Accumulation) shares.

The fund’s Sterling Class ‘I’ (Accumulation) shares were launched on2 July 2007. Performance data shown prior to this date is that of thefund’s Sterling Class ‘A’ (Accumulation) shares.

To give an indication of the performance of the fund, the following tableshows the compound rate of return, per annum, over the period.Calculated on a price to price basis with income reinvested.

Long-term performance by share class

One Three Five Since year years years launch 01.07.16 03.07.14 03.07.12 % [a] % p.a. % p.a. % p.a.

Euro [b] Class ‘A’ -0.7 +2.1 +3.7 +4.4 [c]

Class ‘C’ +0.1 +2.9 +4.5 +4.8 [c]

Sterling [d] Class ‘A’ +4.1 +5.2 +5.3 +6.4 [e]

Class ‘I’ +4.6 +5.7 +5.7 +7.3 [f]

Class ‘R’ +4.4 +5.4 n/a +5.1 [g]

Class ‘X’ +4.0 +5.0 +5.1 +6.3 [h]

[a] Absolute basis.

[b] Price to price with gross income reinvested.

[c] 29 November 2002, the launch date of the share class.

[d] Price to price with income reinvested.

[e] 15 April 1994. All performance data prior to 11 March 2002 (the launch date of

the share class) has been calculated by reference to a conversion factor due to a

change of the nominated share class.

[f] 2 July 2007, the launch date of the share class.

[g] 3 August 2012, the launch date of the share class.

[h] 15 April 1994, the end of the initial offer period of the predecessor unit trust.

120

140

160

180

230

200

260

300

350

400

450

100

9094 95 96 999897 00 01 0302 121110090807060504 13 14 15 16 17

Sterling Class ‘A’ (Accumulation) shares*

Sterling Class ‘I’ (Accumulation) shares*

April 1994 = 100, plotted monthly Chart date 3 July 2017



Morningstar (IA) £ Corporate Bond sector average*

* Income reinvested Source: Morningstar, Inc. and M&G


M&G Corporate Bond Fund Financial highlights

Operating charges and portfoliotransaction costs

We explain below the payments made to meet the ongoing costs ofinvesting and managing the fund, comprised of operating charges andportfolio transaction costs.

Operating charges

Operating charges include payments made to M&G and to providersindependent of M&G:

• Investment management: Charge paid to M&G for investmentmanagement of the fund (also known as Annual ManagementCharge).

• Administration: Charge paid to M&G for administration servicesin addition to investment management – any surplus from thischarge will be retained by M&G.

• Oversight and other independent services: Charges paid toproviders independent of M&G for services which includedepositary, custody and audit.

The operating charges paid by each share class of the fund are shownin the following performance tables. Operating charges do not includeportfolio transaction costs or any entry and exit charges (also known asinitial and redemption charges). The charging structures of shareclasses may differ, and therefore the operating charges may differ.

Operating charges are the same as the ongoing charges shown in theKey Investor Information Document, other than where an estimate hasbeen used for the ongoing charge because a material change has madethe operating charges unreliable as an estimate of future charges.

For this fund there is no difference between operating charges andongoing charges figures, unless disclosed under the specific shareclass performance table.

Portfolio transaction costs

Portfolio transaction costs are incurred by funds when buying andselling investments. These costs vary depending on the types ofinvestment, their market capitalisation, country of exchange andmethod of execution. They are made up of direct and indirect portfoliotransaction costs:

• Direct portfolio transaction costs: Broker execution commissionand taxes.

• Indirect portfolio transaction costs: ‘Dealing spread’ – thedifference between the buying and selling prices of the fund’sinvestments; some types of investment, such as fixed interestsecurities, have no direct transaction costs and only the dealingspread is paid.

Investments are bought or sold by a fund when changes are made tothe investment portfolio and in response to net flows of money into orout of the fund from investors buying and selling shares in the fund.

To protect existing investors, portfolio transaction costs incurred as aresult of investors buying and selling shares in the fund are recoveredfrom those investors through a ‘dilution adjustment’ to the price theypay or receive. As the fund invests mainly in fixed interest securities,the direct transaction costs paid in other investments are too small tobe reflected in the table below. To give an indication of the indirectportfolio dealing costs the table below shows the average portfoliodealing spread.

Further information on this process is in the Prospectus, which isavailable free of charge on request either from our website atwww.mandg.co.uk/prospectuses or by calling M&G Customer Relations.


as at 30 June 2017 2016 2015 Average [a]

Indirect portfolio transaction costs % % % %

Average portfolio dealing spread 0.70 0.85 0.70 0.75

[a] Average of first three columns.



Fund performance

Specific share class performance

The following tables show the performance of each share class. All‘Performance and charges’ percentages represent an annual rateexcept for the ‘Return after operating charges’ which is calculated asa percentage of the opening net asset value per share (NAV). ‘Dilutionadjustments’ are only in respect of direct portfolio transaction costs.

Euro Class ‘A’ Accumulation share performanceThe share class was launched on 29 November 2002.

for the year to 30 June 2017 2016 2015Change in NAV per share Euro ¢ Euro ¢ Euro ¢

Opening NAV 1,884.71 2,052.07 1,743.67

Return before operating charges and after directportfolio transaction costs 10.91 (139.21) 335.58

Operating charges (26.55) (28.15) (27.18)

Return after operating charges (15.64) (167.36) 308.40

Distributions (45.87) (54.91) (56.59)

Retained distributions 45.87 54.91 56.59

Closing NAV 1,869.07 1,884.71 2,052.07

Direct portfolio transaction costs Euro ¢ Euro ¢ Euro ¢

Costs before dilution adjustments 0.02 0.03 0.02

Dilution adjustments [a] 0.00 0.00 0.00

Total direct portfolio transaction costs 0.02 0.03 0.02

Performance and charges % % %

Direct portfolio transaction costs [b] 0.00 0.00 0.00

Operating charges 1.41 1.41 1.41

Return after operating charges -0.83 -8.16 +17.69

Distribution yield 2.27 2.61 2.83

Effect on yield of charges offset against capital 0.00 0.00 0.00

Other information

Closing NAV (£’000) 19,148 28,653 37,355

Closing NAV percentage of total fund NAV (%) 0.46 0.64 0.78

Number of shares 1,165,891 1,839,784 2,558,664

Highest share price (Euro ¢) 1,973.09 2,130.28 2,125.57

Lowest share price (Euro ¢) 1,770.31 1,862.69 1,742.10

Euro Class ‘C’ Accumulation share performanceThe share class was launched on 29 November 2002.


Opening NAV 1,987.37 2,147.91 1,811.19



Return after operating charges (1.67) (160.54) 336.72

Distributions (63.47) (72.75) (74.33)


Closing NAV 1,985.70 1,987.37 2,147.91








Return after operating charges -0.08 -7.47 +18.59



Other information

Closing NAV (£’000) 3,021 3,551 6,262


Number of shares 173,121 216,258 409,799



Sterling Class ‘A’ Income share performanceThe share class was launched on 15 April 1994.

for the year to 30 June 2017 2016 2015Change in NAV per share UK p UK p UK p

Opening NAV 40.50 39.05 38.47

Return before operating charges and after directportfolio transaction costs 2.79 3.13 2.30


Return after operating charges 2.31 2.67 1.84

Distributions (1.60) (1.22) (1.26)

Closing NAV 41.21 40.50 39.05

Direct portfolio transaction costs UK p UK p UK p







Return after operating charges +5.70 +6.84 +4.78

Distribution yield [c] 3.67 2.86 3.08


Other information

Closing NAV (£’000) 302,208 348,247 552,389


Number of shares 733,359,260 859,822,404 1,414,499,083

Highest share price (UK p) 43.16 40.74 41.67

Lowest share price (UK p) 40.42 38.64 38.24



Sterling Class ‘A’ Accumulation share performanceThe share class was launched on 15 April 1994.


Opening NAV 65.67 61.78 59.35




Distributions (1.84) (1.95) (1.95)


Closing NAV 69.24 65.67 61.78











Other information

Closing NAV (£’000) 459,881 508,135 766,703


Number of shares 664,216,712 773,805,749 1,240,996,096



Sterling Class ‘I’ Income share performanceThe share class was launched on 2 July 2007.


Opening NAV 40.52 39.07 38.49




Distributions (1.61) (1.42) (1.46)

Closing NAV 41.44 40.52 39.07











Other information

Closing NAV (£’000) 2,235,091 2,429,683 2,358,071


Number of shares 5,394,151,045 5,996,199,649 6,035,813,975



Sterling Class ‘I’ Accumulation share performanceThe share class was launched on 2 July 2007.


Opening NAV 68.09 63.81 61.05




Distributions (2.27) (2.34) (2.34)


Closing NAV 72.12 68.09 63.81











Other information

Closing NAV (£’000) 618,336 654,547 502,975


Number of shares 857,427,451 961,297,408 788,288,187



Sterling Class ‘R’ Income share performanceThe share class was launched on 3 August 2012.


Opening NAV 108.29 104.41 102.86




Distributions (4.29) (3.52) (3.63)

Closing NAV 110.46 108.29 104.41











Other information

Closing NAV (£’000) 4,014 4,171 3,633


Number of shares 3,633,768 3,851,873 3,479,537






Sterling Class ‘R’ Accumulation share performanceThe share class was launched on 3 August 2012.


Opening NAV 120.92 113.54 108.85Return before operating charges and after directportfolio transaction costs 8.38 9.22 6.52



Distributions (3.72) (3.88) (3.88)


Closing NAV 127.78 120.92 113.54


Costs before dilution adjustments 0.00 0.00 0.00Dilution adjustments [a] 0.00 0.00 0.00



Direct portfolio transaction costs [b] 0.00 0.00 0.00Operating charges 0.91 0.91 0.91Return after operating charges +5.99 +7.19 +5.03Distribution yield 2.77 3.11 3.33Effect on yield of charges offset against capital 0.00 0.00 0.00

Other information

Closing NAV (£’000) 1,913 6,220 2,686Closing NAV percentage of total fund NAV (%) 0.05 0.14 0.06Number of shares 1,496,999 5,143,782 2,365,517Highest share price (UK p) 129.31 120.92 119.60Lowest share price (UK p) 121.77 112.80 108.20

Sterling Class ‘X’ Income share performanceThe share class was launched on 15 April 1994.


Opening NAV 40.51 39.06 38.48Return before operating charges and after directportfolio transaction costs 2.79 3.13 2.30Operating charges (0.53) (0.56) (0.56)


Distributions (1.60) (1.12) (1.16)

Closing NAV 41.17 40.51 39.06





Direct portfolio transaction costs [b] 0.00 0.00 0.00Operating charges 1.28* 1.41 1.41Return after operating charges +5.58 +6.58 +4.52Distribution yield [c] 3.67 2.61 2.83Effect on yield of charges offset against capital 1.15 0.00 0.00

Other information

Closing NAV (£’000) 457,161 479,592 544,995Closing NAV percentage of total fund NAV (%) 11.08 10.68 11.33Number of shares 1,110,390,963 1,183,823,837 1,395,225,350Highest share price (UK p) 43.16 40.73 41.67Lowest share price (UK p) 40.38 38.64 38.24

* As the annual management charge has been discounted during the period, 1.16%

is a more reliable estimate of the period to 30.06.17 ongoing charges.

Sterling Class ‘X’ Accumulation share performanceThe share class was launched on 15 April 1994.


Opening NAV 63.79 60.14 57.89




Distributions (1.71) (1.74) (1.75)


Closing NAV 67.20 63.79 60.14







Operating charges 1.28* 1.41 1.41




Other information

Closing NAV (£’000) 26,392 27,390 32,243


Number of shares 39,274,822 42,936,027 53,614,694





[a] In respect of direct portfolio transaction costs.

[b] As a percentage of average net asset value.

[c] Following the change in charging structure, you may see variances between the

comparative and current year figures.




Financial statements

Statement of total return

2017 2016for the year to 30 June Note £’000 £’000 £’000 £’000

Income

Net capital gains / (losses) 3 128,029 163,126

Revenue 5 170,375 195,633

Expenses 6 (36,525) (39,953) ______ ______Net revenue / (expense) beforetaxation 133,850 155,680

Taxation 7 (1) (22) ______ ______Net revenue / (expense) aftertaxation 133,849 155,658

Total return before distributions 261,878 318,784Distributions 8 (159,417) (155,645)

Change in net assets attributableto shareholders from investmentactivities 102,461 163,139

Statement of change in net assets attributable to shareholders

2017 2016for the year to 30 June £’000 £’000 £’000 £’000

Opening net assets attributable toshareholders 4,490,189 4,807,312Amounts received on issue of shares 360,567 592,941

Amounts paid on cancellation of shares (861,227) (1,109,504) ______ _______ (500,660) (516,563)

Dilution adjustments 3,981 2,946

Change in net assets attributable toshareholders from investment activities(see above) 102,461 163,139

Retained distributions on Accumulationshares 31,160 33,336

Unclaimed distributions 34 19

Closing net assets attributable toshareholders 4,127,165 4,490,189

Balance sheet

2017 2016as at 30 June Note £’000 £’000

Assets

Fixed assets Investments 4,102,527 4,464,563

Current assets Debtors 9 72,576 96,289

Cash and bank balances 10 9,730 30,843

Total assets 4,184,833 4,591,695

Liabilities Investment liabilities (3,269) (53,184)

Creditors Overdrawn positions at futures clearing houses and collateral manager (520) 0

Distribution payable (29,033) (34,792)

Other creditors 11 (24,846) (13,530)

Total liabilities (57,668) (101,506)

Net assets attributable to shareholders 4,127,165 4,490,189


1 Accounting policies

The financial statements have been prepared in accordance with the‘Summary of significant accounting policies’ set out on pages 6 and 7.

2 Distribution policy

With effect from 1 July 2016 the distribution policy has been amendedso that in determining the amount available for distribution to Incomeshares, the annual management charge and administration charge arenow offset against capital, increasing the amount available fordistribution whilst restraining capital performance to an equivalent extent.

3 Net capital gains / (losses) 2017 2016for the year to 30 June £’000 £’000

Non-derivative securities 131,223 271,658

Derivative contracts 5,162 (109,574)

Currency gains / (losses) (8,336) 1,059

Transaction charges (20) (17)

Net capital gains / (losses) 128,029 163,126

4 Portfolio transactions and associated costs

The following tables show portfolio transactions and their associatedtransaction costs. For more information about the nature of the costsplease see the section on ‘Operating charges and portfolio transactioncosts’ on page 21.

2017 2016 for the year to 30 June £’000 £’000

a) Purchases Debt securities [a] 1,268,647 1,160,857

Total purchases 1,268,647 1,160,857

b) Sales Debt securities [a] 1,653,560 1,599,543

Other transaction types Corporate actions 115,618 110,005

Total sales 1,769,178 1,709,548

c) Direct portfolio transaction costs

There were no direct portfolio transaction costs

d) Indirect portfolio transaction costs % %

Portfolio dealing spread [b] 0.70 0.85

[a] These transaction types do not attract direct portfolio transaction costs.

[b] Average portfolio dealing spread at the balance sheet date.

5 Revenue 2017 2016for the year to 30 June £’000 £’000

Bank interest 44 45

Derivative revenue (4,541) (5,012)

Interest distributions 212 342

Interest on debt securities 174,660 200,258

Total revenue 170,375 195,633


M&G Corporate Bond Fund Financial statements and notes

6 Expenses 2017 2016for the year to 30 June £’000 £’000

Payable to the ACD or associate Annual management charge 29,530 32,657

Administration charge 6,627 6,915

36,157 39,572

Payable to the Depositary or associate Depositary’s charge (including VAT) 157 162

Other expenses Audit fee (including VAT) 10 10

Interest payable 12 19

Safe custody charge 189 190

211 219

Total expenses 36,525 39,953

7 Taxation 2017 2016for the year to 30 June £’000 £’000

a) Analysis of charge in the year Corporation tax 0 0

Withholding tax 1 22

Deferred tax (note 7c) 0 0

Total taxation 1 22

b) Factors affecting taxation charge for the year Net revenue before taxation 133,850 155,680

______ ______Corporation tax at 20% 26,770 31,136

Effects of:

Interest distributions (26,770) (31,136)


Total tax charge (note 7a) 1 22

c) Provision for deferred taxation Provision at the start of the year 0 0

Deferred tax in profit and loss account (note 7a) 0 0

Provision at the end of the year 0 0

The fund has not recognised a deferred tax asset in the current financial year (2016:

same).

Interest distributions have been made in respect of all distributions during the current

and preceding periods. Income tax at 20% will be accounted for on shareholders’

behalf to HM Revenue & Customs up to 31 December 2016.

8 Distributions 2017 2016for the year to 30 June Inc [a] Acc [b] Inc [a] Acc [b]

Interest distributions £’000 £’000 £’000 £’000

First interim 25,591 7,355 23,341 8,921

Second interim 25,012 7,263 22,110 8,300

Third interim 28,698 8,260 22,771 8,282

Final 29,037 8,282 21,345 7,833

Total net distributions 139,498 122,903

Income tax deducted at source 16,716 30,942

Interest distributions 156,214 153,845

Income deducted on cancellation of shares 4,147 3,991

Income received on issue of shares (944) (2,191)

Distributions 159,417 155,645

Net revenue / (expense) per statement oftotal return 133,849 155,658

Expenses offset against capital 25,550 0

Undistributed income brought forward 22 9

Undistributed income carried forward (4) (22)


[a] Distributions payable on Income shares.

[b] Retained distributions on Accumulation shares.

9 Debtors 2017 2016as at 30 June £’000 £’000

Amounts receivable on issues of shares 2,221 3,326

Currency deals outstanding 0 343

Debt security interest receivable 65,327 77,639

Derivative revenue receivable 5 0

Distributions receivable 15 31

Sales awaiting settlement 5,008 14,950

Total debtors 72,576 96,289

10 Cash and bank balances 2017 2016as at 30 June £’000 £’000

Amounts held at futures clearing houses and collateral manager 6,229 24,359

Cash held as bank balances 3,501 6,484

Total cash and bank balances 9,730 30,843

11 Other creditors 2017 2016as at 30 June £’000 £’000

ACD’s annual management charge payable 832 843

Administration charge payable 191 185

Amounts payable on cancellation of shares 5,692 3,537


Derivative expense payable 206 482

Expenses payable 63 82

Purchases awaiting settlement 17,862 8,059

Total other creditors 24,846 13,530

12 Contingent assets, liabilities and outstandingcommitments

There were no contingent assets, liabilities or outstandingcommitments at the balance sheet date (2016: same).




13 Shares in issue

The following table shows each class of share in issue during the year.Each share class has the same rights on winding up however theymay have different charging structures as set out in note 14.

Opening Movements ClosingShare class 01.07.16 Issued Cancelled 30.06.17

Euro Class ‘A’ Accumulation 1,839,784 511,929 (1,185,822) 1,165,891Class ‘C’ Accumulation 216,258 31,404 (74,541) 173,121

Sterling Class ‘A’ Income 859,822,404 16,139,916 (142,603,060) 733,359,260Class ‘A’ Accumulation 773,805,749 4,305,390 (113,894,427) 664,216,712Class ‘I’ Income 5,996,199,649 705,521,776 (1,307,570,380) 5,394,151,045Class ‘I’ Accumulation 961,297,408 47,964,934 (151,834,891) 857,427,451Class ‘R’ Income 3,851,873 689,251 (907,356) 3,633,768Class ‘R’ Accumulation 5,143,782 625,035 (4,271,818) 1,496,999Class ‘X’ Income 1,183,823,837 22,745,785 (96,178,659) 1,110,390,963Class ‘X’ Accumulation 42,936,027 4,415,978 (8,077,183) 39,274,822

14 Charging structure

The table below sets out the charging structure for each class of share.The charging structure is the same for both Income and Accumulationshares of each class.

Annual Entry Exit management charge charge chargeShare class % % %

Euro Class ‘A’ 3.25 n/a 1.25

Class ‘C’ 1.25 n/a 0.50

Sterling Class ‘A’ 3.00 [a] n/a 1.00

Class ‘I’ 1.00 [a] n/a 0.50

Class ‘R’ 1.00 [a] n/a 0.75

Class ‘X’ nil 4.50 [b] 1.00

[a] With effect from 16 December 2016, the entry charge has been discounted to

zero on all investments into sterling share classes.

[b] With effect from 16 December 2016, the exit charge has been waived on future

withdrawals from all Sterling Class ‘X’ shares.

15 Related parties

M&G Securities Limited, as Authorised Corporate Director (ACD), is arelated party and acts as principal on all the transactions of shares inthe fund except with in specie transactions, where M&G SecuritiesLimited acts as an agent. The aggregate monies received throughissues, and paid on cancellations, are disclosed in the ‘Statement ofchange in net assets attributable to shareholders’ and note 8. Amountsdue to / from M&G Securities Limited in respect of share transactionsat the year end are disclosed in notes 9 and 11 where applicable.

Amounts paid to M&G Securities Limited in respect of the ACD’sannual management charge and administration charge are disclosedin note 6. Amounts due at the year end in respect of the ACD’sannual management charge and administration charge are disclosedin note 11.

At the balance sheet date, shareholders from within Prudential plc, ofwhich M&G Securities Limited is a wholly owned subsidiary, haveholdings totalling 33.43% (2016: 20.18%) of the fund’s shares.

16 Events after the balance sheet date

There were no events after the balance sheet date to disclose.

17 Portfolio fair value analysis

Financial instruments have been measured at their fair value and havebeen classified below using a hierarchy that reflects the significanceof the inputs used in measuring their fair value:

Level 1: Quoted prices for identical instruments in active markets

This includes instruments such as publicly traded equities; highly liquidbonds (e.g. Government bonds) and exchange traded derivatives (e.g.futures) for which quoted prices are readily and regularly available.

Level 2: Valuation techniques using observable market data

This includes publicly traded corporate bonds and instruments whichhave been valued using models with observable market data inputssuch as quoted prices for similar instruments, interest rates, yieldcurves or credit spreads. Over-the-counter instruments have also beenincluded in the category.

Level 3: Valuation techniques using non-observable market data

This refers to instruments which have been valued using models withnon-observable market data inputs. This includes private equity,unlisted closed-ended funds and investment analyst recommendedprices where the market price is deemed to not be a truerepresentation of fair value. However no such financial instrumentswere held. Assets Liabilities Assets Liabilitiesas at 30 June 2017 2017 2016 2016Valuation technique £’000 £’000 £’000 £’000

Level 1 234,346 0 423,589 (14,943)

Level 2 3,868,181 (3,269) 4,040,974 (38,241)

Level 3 0 0 0 0

4,102,527 (3,269) 4,464,563 (53,184)

In accordance with FRS 102 (22.4a) the shares in issue for each classmeet the definition of a puttable instrument as the shareholders havethe right to sell the shares back to the issuer. The shares in the fundmay be issued and redeemed on any business day at the quoted price.These shares are not traded on an exchange. However, the price isobservable and transactions within the fund take place regularly at thatprice. The shares in issue as detailed in note 13 meet the definition ofa level 2 financial instrument ‘Valuation techniques using observablemarket data’.


The general risk management policies for the fund are set out in note3 to the financial statements on pages 7 and 8.




19 Market risk

VaR is the risk measurement methodology used to assess the fund’sleverage and market risk volatility. When VaR is calculated as apercentage of the net asset value it may not be greater than the VaRlimit set for the fund.

The VaR limit set during the financial year to 30 June 2017 was 11%(2016: 11%).

The lowest, highest and average VaR calculated during the financialyears ended 30 June 2017 and 30 June 2016 are disclosed in thetable below. The lowest, highest and average utilisation of VaR is withreference to the limit above.

2017 2016for the year to 30 June % %

Lowest 2.94 2.63

Highest 3.70 3.75

Average 3.34 3.09

20 Credit risk 2017 2016as at 30 June £’000 £’000

Investment grade securities 3,348,062 3,727,081

Below investment grade securities 139,496 147,066

Unrated securities 521,210 515,041

Other investments 90,490 22,191

Total 4,099,258 4,411,379

21 Counterparty exposure Forward Collateral Collateral currency held as held as Net Swaps contracts Futures cash debt exposureas at 30 June 2017 £’000 £’000 £’000 £’000 £’000 £’000

Bank of AmericaMerrill Lynch (103) 2,184 978 2,449 0 5,508

Barclays (148) 0 0 70 0 (78)

BNP Paribas 0 202 0 820 0 1,022

Citigroup (2,096) 176 0 2,340 0 420

Credit Suisse (132) 0 0 0 0 (132)

HSBC 0 388 0 0 0 388

National Australia Bank 0 808 0 0 0 808

State Street Bank 0 234 0 0 0 234

UBS 0 126 0 30 0 156

Total (2,479) 4,118 978 5,709 0 8,326

Forward Collateral Collateral currency held as held as Net Swaps contracts Futures cash debt exposureas at 30 June 2016 £’000 £’000 £’000 £’000 £’000 £’000

Bank of AmericaMerrill Lynch 0 0 (11,022) 24,359 0 13,337

BNP Paribas 0 (3,308) 0 0 4,384 1,076

Citigroup 56 (3,312) 0 0 0 (3,256)

Credit Suisse (93) 0 0 0 0 (93)

HSBC 0 (941) 0 0 1,559 618

J.P.Morgan 68 (2,100) 0 0 7,878 5,846

National Australia Bank 0 (4,946) 0 0 6,402 1,456

Royal Bank of Scotland 0 (15,175) 0 0 19,857 4,682

Standard Chartered Bank 0 (2,126) 0 0 2,689 563

UBS 0 (4,700) 0 0 6,977 2,277

Total 31 (36,608) (11,022) 24,359 49,746 26,506

Net exposure represents the mark-to-market value of derivative contracts less any

cash collateral held. Positive exposure represents the fund’s exposure to that

counterparty. Negative amounts are not an exposure to the fund.

22 Leverage risk

Funds using VaR approaches are required to disclose the level ofleverage employed during the financial reporting period.

Derivatives can be used by the fund to generate market exposure toinvestments exceeding the net asset value. As a result of thisexposure, the size of any positive or negative movement in marketsmay have a more significant effect on the net asset value of the fund.

The lowest, highest and average level of leverage employed andutilisation of the leverage level calculated during the financial yearsended 30 June 2017 and 30 June 2016 are disclosed in the table below.

2017 2017 2016 2016for the year to 30 June £’000 % £’000 %

Lowest 5,026,194 120 5,386,282 118

Highest 6,101,171 130 6,182,367 131

Average 5,026,194 123 5,705,155 124




23 Interest distribution tables

This fund pays quarterly interest distributions and the following tablesets out the distribution periods.

Quarterly distribution periods Start End Xd Payment

First interim 01.07.16 30.09.16 03.10.16 30.11.16

Second interim 01.10.16 31.12.16 03.01.17 28.02.17

Third interim 01.01.17 31.03.17 03.04.17 31.05.17

Final 01.04.17 30.06.17 03.07.17 31.08.17

The following tables set out for each distribution the rates per sharefor both Group 1 and Group 2 shares.

Group 1 shares are those purchased prior to a distribution period andtherefore their income rate is the same as the distribution rate.

Group 2 shares are those purchased during a distribution period andtherefore their distribution rate is made up of income and equalisation.Equalisation is the average amount of income included in thepurchase price of all Group 2 shares and is refunded to the holders ofthese shares as a return of capital. Being capital it is not liable toIncome Tax. Instead, it must be deducted from the cost of shares forCapital Gains Tax purposes. The tables below show the split of theGroup 2 rates into the income and equalisation components.

Euro Class ‘A’ Accumulation shares

Interest distributions Gross Income tax Net Equal-for the year income deducted income isation Distributionto 30 June 2017 2017 2017 2017 2017 2016

Group 1 ¢ ¢ ¢ ¢ ¢ ¢First interim 11.4076 - 11.4076 - 11.4076 14.5889

Second interim 11.9360 - 11.9360 - 11.9360 14.0531

Third interim 11.3687 - 11.3687 - 11.3687 13.7523

Final 11.1601 - 11.1601 - 11.1601 12.5166

Group 2 First interim 5.8994 - 5.8994 5.5082 11.4076 14.5889

Second interim 7.9018 - 7.9018 4.0342 11.9360 14.0531

Third interim 5.5057 - 5.5057 5.8630 11.3687 13.7523

Final 7.9663 - 7.9663 3.1938 11.1601 12.5166

Euro Class ‘C’ Accumulation shares



Second interim 16.3962 - 16.3962 - 16.3962 18.5792

Third interim 15.6701 - 15.6701 - 15.6701 18.1632

Final 15.7262 - 15.7262 - 15.7262 16.9387


Second interim 13.7297 - 13.7297 2.6665 16.3962 18.5792

Third interim 7.2106 - 7.2106 8.4595 15.6701 18.1632

Final 7.2164 - 7.2164 8.5098 15.7262 16.9387

Sterling Class ‘A’ Income shares


Group 1 p p p p p pFirst interim 0.4010 0.0802 0.3208 - 0.3208 0.2500

Second interim 0.4115 0.0823 0.3292 - 0.3292 0.2388

Third interim 0.3894 0.0000 0.3894 - 0.3894 0.2492

Final 0.3993 0.0000 0.3993 - 0.3993 0.2372

Group 2 First interim 0.1706 0.0341 0.1365 0.1843 0.3208 0.2500

Second interim 0.1909 0.0382 0.1527 0.1765 0.3292 0.2388

Third interim 0.1465 0.0000 0.1465 0.2429 0.3894 0.2492

Final 0.1932 0.0000 0.1932 0.2061 0.3993 0.2372

Sterling Class ‘A’ Accumulation shares



Second interim 0.4745 0.0949 0.3796 - 0.3796 0.3796

Third interim 0.4520 0.0000 0.4520 - 0.4520 0.3992

Final 0.4599 0.0000 0.4599 - 0.4599 0.3824


Second interim 0.2293 0.0459 0.1834 0.1962 0.3796 0.3796

Third interim 0.2383 0.0000 0.2383 0.2137 0.4520 0.3992

Final 0.2240 0.0000 0.2240 0.2359 0.4599 0.3824

Sterling Class ‘I’ Income shares



Second interim 0.4125 0.0825 0.3300 - 0.3300 0.2772

Third interim 0.3907 0.0000 0.3907 - 0.3907 0.2888

Final 0.4012 0.0000 0.4012 - 0.4012 0.2788


Second interim 0.2389 0.0478 0.1911 0.1389 0.3300 0.2772

Third interim 0.1403 0.0000 0.1403 0.2504 0.3907 0.2888

Final 0.2084 0.0000 0.2084 0.1928 0.4012 0.2788

Sterling Class ‘I’ Accumulation shares



Second interim 0.5820 0.1164 0.4656 - 0.4656 0.4544

Third interim 0.5556 0.0000 0.5556 - 0.5556 0.4776

Final 0.5714 0.0000 0.5714 - 0.5714 0.4648


Second interim 0.3175 0.0635 0.2540 0.2116 0.4656 0.4544

Third interim 0.2381 0.0000 0.2381 0.3175 0.5556 0.4776

Final 0.2899 0.0000 0.2899 0.2815 0.5714 0.4648




Sterling Class ‘R’ Income shares



Second interim 1.1015 0.2203 0.8812 - 0.8812 0.6892

Third interim 1.0425 0.0000 1.0425 - 1.0425 0.7196

Final 1.0699 0.0000 1.0699 - 1.0699 0.6876


Second interim 0.7490 0.1498 0.5992 0.2820 0.8812 0.6892

Third interim 0.4085 0.0000 0.4085 0.6340 1.0425 0.7196

Final 0.4594 0.0000 0.4594 0.6105 1.0699 0.6876

Sterling Class ‘R’ Accumulation shares



Second interim 0.9500 0.1900 0.7600 - 0.7600 0.7560

Third interim 0.9093 0.0000 0.9093 - 0.9093 0.7928

Final 0.9416 0.0000 0.9416 - 0.9416 0.7660


Second interim 0.5916 0.1183 0.4733 0.2867 0.7600 0.7560

Third interim 0.7595 0.0000 0.7595 0.1498 0.9093 0.7928

Final 0.6775 0.0000 0.6775 0.2641 0.9416 0.7660

Sterling Class ‘X’ Income shares



Second interim 0.4115 0.0823 0.3292 - 0.3292 0.2196

Third interim 0.3890 0.0000 0.3890 - 0.3890 0.2300

Final 0.3988 0.0000 0.3988 - 0.3988 0.2164


Second interim 0.1320 0.0264 0.1056 0.2236 0.3292 0.2196

Third interim 0.1261 0.0000 0.1261 0.2629 0.3890 0.2300

Final 0.1323 0.0000 0.1323 0.2665 0.3988 0.2164

Sterling Class ‘X’ Accumulation shares



Second interim 0.4260 0.0852 0.3408 - 0.3408 0.3392

Third interim 0.4386 0.0000 0.4386 - 0.4386 0.3580

Final 0.4464 0.0000 0.4464 - 0.4464 0.3396


Second interim 0.1609 0.0322 0.1287 0.2121 0.3408 0.3392

Third interim 0.1571 0.0000 0.1571 0.2815 0.4386 0.3580

Final 0.2304 0.0000 0.2304 0.2160 0.4464 0.3396




23 Interest distribution tables (continued)


Investment objective and policy

The Fund invests mainly in a range of UK equities with the aim ofachieving a steadily increasing income stream. The Fund will target ayield higher than that of the FTSE All-Share Index. Subject to this, theaim will be to maximise total return (the combination of income andgrowth of capital).

Investment approach

The M&G Dividend Fund employs a bottom-up stockpicking approach,driven by the fundamental analysis of individual companies. The fundmanager seeks to invest in companies with excellent capital disciplineand long-term dividend growth potential. The fund manager believesrising dividends create upward pressure on the value of shares.Dividend yield is not the primary consideration for stock selection.

The fund manager aims to create a diversified portfolio with exposureto a broad range of sectors. He selects stocks with different drivers ofdividend growth to construct a portfolio that has the potential to copein a variety of market conditions. The fund invests with a long-terminvestment view and a typical holding period of three to five years.

Risk profile

The fund invests in the shares of UK-listed companies and is,therefore, subject to the price volatility of the UK stockmarket and theperformance of individual companies. The fund’s focus is on sharesof companies that have the potential to grow their dividends over thelong term. Income distributions from the fund’s holdings, however, arenot guaranteed and may vary. Diversification is therefore key inmanaging liquidity risk and reducing market risk. The fund’s risks aremeasured and managed as an integral part of the investment process.


The above number:





mean risk free.


Low risk High risk


1 2 3 4 5 6 7

Investment review


Distribution summary

Over the 12-month review period, the fund distributed income of2.9472 pence per Sterling Class ‘A’ (Income) share. This representsan increase of 3.7% on the previous year. The payout represented ayield (distributed income as a percentage of the published share priceon 3 July 2017) of 4.54% versus a yield of 3.59% for the FTSE All-Share Index, a comparative index.

We are pleased that fund distributions have grown over the past year,in line with the fund’s objective and ahead of the rate of UK inflation.Domestic prices have risen over the past year as sterling’s weaknessled to the higher cost of imported goods. UK inflation as defined bythe Retail Price Index was 3.5% over 12 months, while the ConsumerPrices Index was 2.6%.

In our previous reports, we expressed our concern about the prospectsfor dividends in the UK, not just because of the uncertainties createdby Brexit, but because of the challenges faced by UK companies,whether domestic or multinational, to grow. We highlighted in theinterim report when the reporting season was just beginning that therewas a distinct lack of dividend growth among the UK’s largestcompanies. (Dividends represent a share in the profits of a companyand are paid out to the company’s shareholders at set times of theyear.) The oil majors Royal Dutch Shell and BP held their dividendsflat in US dollars, while HSBC did the same in banks. These dollarearners benefited from sterling’s decline, but favourable currencymovements mask a harsh reality. These large multinationals arestruggling to deliver underlying growth and the higher dividendsreceived by sterling-based investors were purely a function of changesin the rate of currency. GlaxoSmithKline was more disappointing stillwith a dividend that was unchanged in sterling, while Vodafone failedto inspire with a 2% dividend increase in euros. Only British AmericanTobacco (BAT) reported a respectable dividend increase among themarket’s biggest constituents.

To add to the gloom, dividend cuts remained a feature with Pearsonbeing one of this year’s high-profile casualties. The world’s leadingeducational publisher reneged on its dividend commitment as a resultof mounting pressures in its business, particularly in North America.The shares were punished accordingly. We had a zero holding in themedia company. Competitive pressures also affected the dividends ofJ Sainsbury, TalkTalk Telecom and Drax which are more focused onthe domestic economy. We did not have any exposure to thesecompanies either. Food retail, telecommunications and utilities are oftenassociated with stability, but their perception as safe havens proved tobe at odds with their commercial reality. Companies with greatereconomic sensitivity were also not immune. Foxtons, London’s leadingestate agent, lowered its dividend in response to tougher tradingconditions, while its peer Countrywide eliminated its paymentcompletely. We were not invested in any of these companies as a resultof our selective approach and our unflinching focus on dividend growth.

Although we have been cautious about the progress of dividends inthe UK market overall, we have been keen to emphasise the excellentopportunities for those who are prepared to look beneath the surface.Being selective is paramount. In this context, we are pleased that themajority of the fund’s holdings continued to deliver dividend growth inthe region of between 5% and 15%. BAT, the fund’s largest holding,raised its dividend for 2016 by 10%, up from 4% in 2015. Imperial

M&G Dividend Fund Authorised Corporate Director’s Report

Brands, another large tobacco holding, continued to deliver on its targetof 10% dividend growth. Financials were also well represented in thiscore group with 12% dividend increases from Prudential and Aviva.Both insurers rank among the fund’s top 10 holdings.

Micro Focus in the technology sector provided the biggest dividendincrease during the review period. In July 2016, the infrastructuresoftware group reported a 38% dividend increase for the financial yearended April, followed by the announcement in December of a 76%dividend increase for the six months ended October. Micro Focus paysdividends in US dollars. In between these routine announcements, thecompany also announced a special dividend to accompany the newsof the acquisition of Hewlett Packard Enterprise (HPE)’s softwarebusiness. The special dividend, which was equivalent to more than7% of the company’s market value at the end of the review period, isexpected to be paid before the deal is completed in September 2017.

Elsewhere, media made a strong contribution to the fund’s distributionafter satellite company SES raised its dividend by 21% in euros andRELX, the provider of information and analytics, increased thepayment by the same amount in sterling. DS Smith (packaging) andIntermediate Capital (asset management) were also among thecompanies that delivered dividend growth of more than 15%.

Not all of our holdings delivered growth, however. AstraZeneca andBP held their dividends flat in US dollars although the strength of thecurrency resulted in an increase for sterling-based investors. Essentrawas one of a handful of companies that left their dividend unchangedin sterling. There were no dividend cuts in the fund during the periodunder review.

In addition to growth in regular dividends, we saw the continuation ofspecial dividends as a theme. Micro Focus was not alone in stating itsintention to make a one-off payment. Jupiter Fund Managementannounced a special dividend which was 15% higher than the previousyear, while Compass (food service), GVC (online gaming) and Admiral(insurance) reported special dividends, not for the first time. Weapplaud the discipline of returning excess cash to shareholders ifcompanies cannot invest that cash in a disciplined manner. That saida number of special dividends were not repeated this year. Theinsurers Hiscox and Prudential chose not to pay a special dividendalong with the retailer Dunelm, but all three companies reported asignificant uptick in the growth of their regular dividends. All threecompanies doubled the rate of growth with their full-year dividendsrising by more than 10%.

Against this backdrop, we also maintained a yield above that of theFTSE All-Share Index. The challenges presented by the concentrationof yield in the UK market have been well documented and theassessment of potential risks associated with individual high-yieldingstocks remains of the utmost importance. We believe from ourthorough company analysis that the fund’s higher yield has beenachieved with due consideration of its sustainability. We continue tobe selective about the dividend streams we back and remain scepticalabout the dividend-paying capacity of certain high yielding stocks. Forexample up until now, we have avoided Royal Dutch Shell, the UK’slargest company, which is paying an uncovered dividend, that is to sayit is paying out more than the earnings generated by the business.With our core holdings, we endeavour to strike a sensible balance

between long-term dividend progression and attractive valuation in fullrecognition of the fact that the combination of a high yield and risingdistribution is important to our clients. We remain committed todelivering on these twin income objectives.

The fund’s distribution and distribution yield are shown in the ‘Specificshare class performance’ tables in the Annual Long Report andaudited Financial Statements. The distribution is subject to changesin the market environment and there is no guarantee that the fund willincrease the distribution in every reporting period. In keeping with prioryears under the fund manager’s tenure, special dividends formed akey component of the fund’s income and these dividends should beseen as special and not necessarily recurring.


Between 1 July 2016 (the start of the review period) and 3 July 2017,the fund delivered a positive total return (the combination of incomeand growth of capital) across its share classes. However, not all of thefund’s share classes delivered returns ahead of the FTSE All-ShareIndex which returned 17.6% over the 12-month period. That said thefund achieved all three aspects of its objective during the past year bygrowing distributions, generating a yield higher than that of the FTSEAll-Share Index and delivering a positive total return through thecombination of income and capital growth. Over a longer timeframe offive years, the fund has delivered on all three aspects of its objective.*


The fund delivered positive returns during the 12-month review periodwhich provided a favourable background for stockmarkets. The UKmarket recovered from the initial shock of Brexit with the FTSE All-Share Index reaching a record high in May. Basic materials andfinancials led the market higher as sectors with economic sensitivityoutperformed. By contrast defensive stocks, that is, shares ofcompanies that tend to have steady earnings and are less affected bythe peaks and troughs in the economy, failed to keep up.Telecommunications and utilities generated negative returns in a risingmarket, while consumer goods and healthcare also lagged.

Positive stock selection was the key driver of performance with thefund adding value across a broad range of sectors. Financials wereprominent among the top positive contributors with Nordea making thebiggest impact. The Scandinavian bank, which we prefer to thealternatives in the UK, returned more than 60% in sterling over thepast year, followed by Intermediate Capital and Jupiter FundManagement which continued to deliver strong growth in theirrespective businesses.

Micro Focus was another notable contributor after the shares returned45%. The acquisition of HPE’s software business was well receivedby the market as the deal provides scale in a defensive industry withhigh recurring revenues. We like the strong cashflow characteristicsof the business model and believe there is considerable scope toimprove profitability.

ConvaTec in the healthcare sector was another strong performer. Theprovider of medical products for the management of chronic conditionsmade its stockmarket debut in October and the company has leadingpositions in large and structurally growing markets. Cash generationis robust with high recurring revenues and we believe the dividend cangrow quickly from a low base.



Distribution summary (continued)

Investment review

Golar LNG bucked the trend in an underperforming oil & gas sectorwhich struggled as the oil price drifted from its peak. Golar, whoseshares are listed in the US, returned almost 50% in sterling. Thecompany which owns and operates a fleet of liquefied natural gas(LNG) carriers is one of the few that we like in the oil & gas sectorbecause of its new low cost infrastructure for Floating Liquefied NaturalGas projects, and its projects which are able to generate cash with thegas price at lower levels. The fund also benefited from not owning RoyalDutch Shell whose shares made little progress as the market rallied.The oil major accounts for more than 7% of the FTSE All-Share Index.

However, looking at the market’s biggest constituents, the fund’s zeroweighting in HSBC for most of the past 12 months held backperformance. Shares of the global bank returned more than 60% overthe year and accounted for more than 6% of the FTSE All-Share Indexat the end of the review period. Not owning Barclays and LloydsBanking Group also added to the pain. We continue to be scepticalabout UK banks because we believe that the regulatory andcompetitive pressures, particularly for the domestic players, providesignificant headwinds from a fundamental perspective.

The fund’s relatively small weighting in banks was a key factor in sectorallocation having a negative effect, alongside the minimal exposure tomining. Not owning Glencore which returned almost 90% during theperiod was particularly unhelpful but we remain unconvinced aboutthe capital discipline of many mining companies. We continue tobelieve that we can find better opportunities in other industries wherecompanies have greater control of their own destiny. The fund’s limitedexposure to the negative returns in utilities and telecommunicationsprovided some relief, but it was not enough to alter the outcome ofnegative sector allocation.

Looking at the stocks we own, Dunelm and Imperial Brands were theleading detractors. Dunelm came under pressure after its tradingstatement in January was poorly received. The retailer isoutperforming a difficult home furnishings market, but the companyhighlighted that profitability is being affected by sterling’s weakness.The acquisition of the loss-making Worldstores out of bankruptcy alsohad an impact but will accelerate improvements to its delivery networkand its e-commerce capabilities.

Our holding in Imperial Brands experienced a rollercoaster ride withthe first bout of underperformance occurring in November. DonaldTrump’s surprise victory in the US presidential election led to areappraisal of economic prospects with the result that investors soughtout economic sensitivity to the detriment of defensive sectors in thestockmarket. The negative sentiment took its toll on Imperial Brands,but the shares quickly recovered, recouping most of the lost groundby April. The shares weakened again, however, as the companyhighlighted additional investments into branding and marketing.Imperial Brands reported first-half results (the company’s financial yearends in September) which were in line with expectations and wecontinue to believe that the shares are attractively valued. The stockoffers a dividend yield of 5% with the dividend growing at 10%. Thevaluations attached to our tobacco holdings, including BAT, are muchmore compelling than those of other consumer goods companieswhich are relatively expensive. Valuation is a crucial aspect of ourinvestment process and we continue to apply this discipline in ourquest to deliver excellent returns for our clients.


As an active investor focused on fundamental analysis, investmentdecisions are based on detailed company research and the rigorousassessment of valuation. We determine whether a stock merits itsplace in the fund through the close examination of corporate strategies.Dialogue with senior management is integral to our approach. We aimto make informed judgments through human engagement. In the samespirit, we place great emphasis on company site visits as a means ofdeveloping a deep understanding of companies. As a long-terminvestor with an investment horizon of three years or more, we seekbroader insight into a company. Understanding the operational andcultural aspects of a business enhances our understanding of acompany’s financial performance and helps us ultimately to form amore considered view. It is also important that our engagement withcompanies captures best corporate governance practices to ensurethat the business is being managed in the interests of all stakeholders,including shareholders and employees. M&G has a long history ofengaging companies in this way and we have a team dedicated tocorporate governance and stewardship issues which works alongsidethe investment teams. We pursue a collaborative approach involvingmany investment experts to identify the best opportunities available forour clients and provide stewardship for our investments.

The application of our approach has resulted in 12 new purchases and13 complete sales over the past year. Prudential was the biggestpurchase. The insurer is a beneficiary of long-term growth trends,particularly in Asia, but the stock made little progress for much of 2016,especially in US dollars. We have owned the stock in the past and sawan opportunity to re-enter in November. We also bought Sampo, theFinnish insurer, and Admiral, the car insurance specialist. The fund’sexposure to insurance rose as a result of these new purchases,although the increase was tempered by the sale of Legal & General,Lancashire Holdings and Direct Line Insurance. We saw a greatopportunity to realign our insurance holdings into those with better long-term growth prospects without paying excessively for those prospects.

Elsewhere in financials, we started a new position in Tritax Big Box, areal estate investment trust specialising in distribution centres andlogistics hubs which are pivotal to the operational efficiency of retailers,both online and conventional. We bought the shares in a placing andthe company will use the proceeds to acquire new assets. Tritax iscommitted to a progressive dividend policy and the shares offered adividend yield of 4.7% at purchase. On the other hand, we sold P2PGlobal Investments, an investment trust dedicated to loans forconsumers and small and medium-sized businesses.

The fund’s exposure to the broader financials sector is now larger thanthe weighting represented in the FTSE All-Share Index, but we haveno exposure to UK banks following the sale of HSBC early in thereview period. Since then, Nordea has been our only bank holding.Even with our lone representative, we have been taking profits after astrong rally in the shares.

Outside financials, we bought IMI in industrials. The engineeringcompany is a potential beneficiary of a recovery with many of themarkets it serves, particularly energy-related activities, at cyclical lows.We also started new holdings in Howden Joinery and VolkerWesselswhich are potential beneficiaries of a recovery in construction.Countryside Properties, a home builder and urban regenerationspecialist, was another new holding based on a similar theme. In adiverse industrials sector, we also added to Essentra on weaknessafter the shares were oversold. The support services company whichsupplies plastic, packaging and fibre products has been underpressure after a series of profit warnings, but we see significant value



Investment performance (continued)

Investment review

in the company. The company welcomed a new chief executive inJanuary and his plans to stabilise the business provided comfort tothe market. Essentra was the biggest positive contributor to fundperformance in the first six months of 2017. In terms of sales, wereduced our holding in BAE Systems, the defence company, whoseshares have performed well for the fund. The stock has returned morethan 50% since its initial purchase in September 2015.

In other sectors with economic sensitivity, we started a new holding inMethanex, the world’s leading producer of methanol. The methanolprice is recovering from cyclical lows and we believe the potential forcash generation is significantly underappreciated by the market. Thepurchase of Methanex in the basic materials sector wascounterbalanced by the sale of Rio Tinto and Covestro, both of whichdelivered excellent performance. Shares of the mining group Rio Tintoreturned more than 60% during the course of 2016, while Covestro,the German chemicals company, saw its market value increase almostthreefold since its spin-off from Bayer.

In oil & gas, we bought Prosafe which provides accommodationvessels for the offshore industry. The company successfullycompleted its refinancing and we believe the stock’s valuation canrecover from its current distressed levels. Despite this new purchase,the fund’s weighting in the sector declined as we trimmed ourexposure to BP. Similar to our aversion to mining, we see betteropportunities in other industries.

In consumer services, we started a new holding in Ascential, thebusiness-to-business media company which is focused on events andinformation services. The business model is highly cash generativeand we believe the growth profile is attractive. Also in media, we soldour holding in WPP following a strong run. The advertising groupreturned 45% after we first bought the shares in September 2015.

Turning to defensive sectors, we supported the initial public offeringof ConvaTec in healthcare. We also added to our holding inAstraZeneca whose pipeline in oncology could lead to significantgrowth. GlaxoSmithKline provided the source of cash as we sold themajority of our holding. We also exited our position in Novartis, theSwiss pharmaceuticals group, which had been a great long-termcontributor through share-price performance and currency.

BT Group and Tate & Lyle were the other defensive stocks sold in theirentirety. BT continues to face significant regulatory headwinds and thedividend looks increasingly challenged given a likely ramp up in capitalexpenditure, while we took advantage of a burst of performance toexit Tate & Lyle as the prospects for dividend growth look weak.

As a result of these transactions, the number of holdings dropped to45 from the same time last year. We remain committed to our aim ofproviding a concentrated fund of best ideas.

Investment activity, however, is not confined to the buying and sellingof shares in the stockmarket. Providing financing for companiesseeking capital is an important role of the fund management industry,particularly at a time when bank lending has been insufficient to meetcorporate needs. Management of our clients’ money entails providingfinancial support for growing businesses, which in turn makes a direct

contribution to the broader economy. We act as owners of businessesto participate in their future development. To this end, we invested£57 million in financing activities during the past 12 months, up from£51 million in the previous year, with the investments spread across avariety of businesses with no particular bias in terms of company sizeor sector. As with all investments, being selective is paramount, but webelieve there are excellent growth opportunities for both companiesand investors to share in the common goal of long-term success.

Outlook

The UK’s vote to leave the European Union has had widerepercussions for financial markets and the economic impact is likelyto remain unclear for the foreseeable future. The uncertainties wereexacerbated towards the end of the review period with theConservatives failing to secure a majority in parliament, butmacroeconomic concerns and the political climate should not deterinvestors from the stockmarket, in our view. The UK stockmarketcontinues to offer excellent opportunities for long-term stockpickers,particularly outside the largest companies which are struggling to grow.Medium-sized companies remain a source of attractive opportunitiesgiven their potential to deliver long-term growth for the benefit ofshareholders. The UK is also home to a multitude of global businesseswhich are not reliant on the fortunes of the UK economy. We seek toinvest in companies with greater control over their own destiny. Evenamong more domestically biased businesses, there are attractiveopportunities for growth.

With this in mind, our focus remains resolutely on the analysis ofcompany fundamentals and valuation, in the strong belief that thesefactors drive stockmarket returns over the long term. We remaincommitted to our pursuit of a dividend growth strategy, and throughthe application of our conviction-based approach, we are ready to takeadvantage of new opportunities. We believe that the potential forinvestors in the stockmarket is best captured by a concentratedportfolio of best ideas and we remain dedicated to our task ofgenerating excellent returns for our clients.

We are encouraged by the fund’s holdings which continue to raise theirdividends in line with previous years and although special dividendsare not as prevalent as they once were, we believe that the cashgenerative nature of the companies we are invested in, combined withtheir attractive valuation in the stockmarket, stands us in good steadfor the future. The fund’s yield of 4.54%, which we aim to grow overtime, offers a favourable proposition for long-term investors, in our view.We appreciate your continued support.

Phil CliffFund manager










Investment activities (continued)

Investment review

Investments

Portfolio statement


Equities 1,315,456 102.10 100.57 Oil & gas producers 42,293 3.28 5.83 9,457,227 BP 42,293 3.28

Oil equipment, services & distribution 35,810 2.78 1.55 [a]

1,638,815 Golar LNG 28,398 2.20

2,990,875 Prosafe 7,412 0.58

Chemicals 23,408 1.82 0.73 700,000 Methanex 23,408 1.82

Mining 0 0.00 1.91

Construction & materials 12,807 0.99 0.00 603,512 Volkerwessels 12,807 0.99

Aerospace & defence 31,168 2.42 4.33 4,889,133 BAE Systems 31,168 2.42

General industrials 42,447 3.30 2.86 8,883,918 DS Smith 42,447 3.30

Industrial engineering 88,426 6.86 3.49 3,079,119 IMI 37,042 2.87

722,074 Kone 28,356 2.20

428,437 Spirax-Sarco Engineering 23,028 1.79

Industrial transportation 0 0.00 0.00 [a]

Support services 89,555 6.95 3.83 9,230,000 Essentra 52,334 4.06

3,810,809 Howden Joinery Group 15,506 1.20

6,667,000 IWG (formerly Regus) 21,715 1.69

Beverages 20,917 1.62 2.02 3,020,502 Britvic 20,917 1.62

Food producers 0 0.00 1.88

Household goods & home construction 17,325 1.34 0.81 10,424,086 McCarthy & Stone 17,325 1.34

Leisure goods 36,321 2.82 0.00 2,209,326 Compass Group 36,321 2.82

Tobacco 131,110 10.18 11.52 1,642,581 British American Tobacco 86,465 6.71

1,276,291 Imperial Brands 44,645 3.47

Healthcare equipment & services 28,163 2.19 0.00 8,822,962 ConvaTec 28,163 2.19

Pharmaceuticals & biotechnology 77,348 6.00 10.97 1,113,073 AstraZeneca 57,813 4.49

1,186,432 GlaxoSmithKline 19,535 1.51

General retailers 37,109 2.88 4.66 3,301,707 Dunelm Group 19,909 1.55

8,221,883 Saga 17,200 1.33

Media 101,654 7.89 9.20 1,903,670 Ascential 6,101 0.47

2,450,000 RELX 40,915 3.18

2,977,905 SES Global FDR 54,638 4.24

Travel & leisure 26,805 2.08 4.50 3,543,304 GVC Holdings 26,805 2.08

Fixed line telecomunications 0 0.00 3.19

Electricity 17,614 1.37 2.29 1,199,876 SSE 17,614 1.37

Banks 28,469 2.21 4.04 2,879,734 Nordea Bank 28,469 2.21

Non-life insurance 70,621 5.48 4.55 1,135,970 Admiral Group 22,810 1.77

2,032,719 Hiscox 25,795 2.00

552,474 Sampo 22,016 1.71

Life insurance 142,268 11.04 5.31 9,161,940 Aviva 48,833 3.79

4,500,000 Phoenix Group 34,875 2.71

3,281,596 Prudential [b] 58,560 4.54

Real estate investment trusts 64,659 5.02 2.50 6,072,138 Countryside Properties 20,658 1.60

15,850,463 Hansteen Holdings REIT 19,782 1.54

3,593,563 NewRiver REIT 12,247 0.95

326,687 NewRiver REIT subscription shares 0 0.00

8,172,162 Tritax Big Box REIT 11,972 0.93

Financial services 93,992 7.30 4.68 3,743,000 Intermediate Capital Group 31,160 2.42

7,005,000 Jupiter Fund Management 35,340 2.75

1,120,285 Provident Financial 27,492 2.13

Equity investment instruments 18,527 1.44 1.39 1,240,394 Honeycomb Investment Trust 14,203 1.10

532,126 Ranger Direct Lending Fund 4,324 0.34

Software & computer services 36,640 2.84 2.53 1,611,974 Micro Focus International 36,640 2.84

Unlisted 0 0.00 0.00 377,518 Izodia [c] 0 0.00

Forward currency contracts 990 0.08 (0.03) €(49,810,516) Sold for £43,900,000 (expires 13.09.17) 64 0.01

$(64,738,323) Sold for £50,700,000 (expires 13.09.17) 926 0.07


‘AAA’ rated money market funds [d] 8,633 0.67 0.73 8,633,000 Northern Trust Global Fund - Sterling 8,633 0.67

Total portfolio (notes 2c & 2d on page 6) 1,325,079 102.85 101.27Net other assets / (liabilities) (36,761) (2.85) (1.27)



[a] The comparative sector weightings have been re-analysed to reflect changes to

the sector classifications.

[b] Related party to the fund.

[c] Suspended.

[d] Uncommitted surplus cash is placed into ‘AAA’ rated money market funds with the






Top ten portfolio transactions

for the year to 30 June 2017

Largest purchases £’000

Prudential [a] 51,512

IMI 37,775

Methanex 22,904

ConvaTec 22,554

Admiral Group 22,487

AstraZeneca 20,576

Sampo 19,998

Countryside Properties 18,927

Howden Joinery Group 16,107

Essentra 13,966

Other purchases 161,625

Total purchases 408,431

Largest sales £’000

GlaxoSmithKline 52,705

BP 35,889

Novartis (Regd.) 35,529

BAE Systems 34,925

BT Group 31,680

Nordea Bank 30,213

Tate & Lyle 28,992

Rio Tinto 27,471

Direct Line Insurance Group 26,205

Saga 19,504

Other sales 185,984

Total sales 509,097

Purchases and sales exclude the cost and proceeds of ‘AAA’ rated money market

funds.

[a] Related party to the fund.



Investments

Fund performance


The following charts and tables show the performance for two of thefund’s share classes – Sterling Class ‘A’ (Accumulation) shares andSterling Class ‘I’ (Accumulation) shares.







2017 2016 2015as at 30 June £’000 £’000 £’000


Share class performance since launch

To give an indication of how the fund has performed since launch, thechart below shows performance of Sterling Class ‘A’ (Accumulation)shares and Sterling Class ‘A’ (Income) shares. With Accumulationshares, income received from an investment is reinvested, while withIncome shares, the income is paid out to shareholders.

Ten-year performance

Please note that comparative data is not available from fund launch.Therefore a ten-year comparable performance chart is shown below.

The fund’s Sterling Class ‘I’ (Accumulation) shares were launched on3 August 2012. Performance data shown prior to this date is that ofthe fund’s Sterling Class ‘A’ (Accumulation) shares.

200150

100

70

2,000

300

1,000700500

1,500

3,000

5,0007,000

10,000

15,000

25,000

40,000

757371696765 7977 81 83 85 87 979189 93 95 0399 01 0905 07 11 13 15 17

Share class graph. From May 1964 = 100, plotted monthly. Chart date 3 July 2017

Sterling Class ‘A’

Sterling Class ‘A’ (Income) shares



80

70

60

120

100

140

180

160

502007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Ten years, 3 July 2007 = 100, plotted monthly Chart date 3 July 2017



FTSE All-Share Index


Morningstar (IA) UK Equity Income sector average*


M&G Dividend Fund Financial highlights

Historic yield

The chart below shows the historic yield of Sterling Class ‘A’ (Income)shares against that of a comparative index.

Historic yield: The historic yield reflects distributions declared over thepast twelve months as a percentage of the mid-market price, as at thedate shown. It does not include any preliminary charge and investorsmay be subject to tax on their distributions.

Distribution since launch

The charts below show the annual distribution of Sterling Class ‘A’(Income) shares and Sterling Class ‘I’ (Income) shares since launch.

2

4

6

8

10

12

14

16

65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17

Yield comparison from May 1964 = 100, plotted monthly Chart date 3 July 2017

Sterling Class ‘A’ (Income) shares yield

FTSE All-Share Index yield

Source: Morningstar, Inc. and M&G

0.0

0.5

1.0

2.0

2.5

1.5

3.0

65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17

Annual distributions since launch of the share class Chart date 3 July 2017


Year ending June

Dis

trib

utio

n (p

ence

per

sha

re)

Source: M&G




Sterling [b] Class ‘A’ +16.2 +7.1 +9.4 +11.3 [c]

Class ‘C’ +18.0 +8.7 +11.0 +7.2 [d]

Class ‘I’ +17.1 +7.9 n/a +10.1 [e]

Class ‘R’ +16.8 +7.6 n/a +9.8 [e]

Class ‘X’ +16.2 +7.1 +9.4 +8.2 [f]

[a] Absolute basis.

[b] Price to price with income reinvested.

[c] 6 May 1964, the end of the initial offer period of the predecessor unit trust.

[d] 3 January 2006, the launch date of the share class.

[e] 3 August 2012, the launch date of the share class.

[f] 1 October 2002, the launch date of the share class.

0.0

10.0

30.0

20.0

50.0

40.0

60.0

2013 2014 2015 2016 2017


Sterling Class ‘I’ (Income) shares

Year ending June

Dis

trib

utio

n (p

ence

per

sha

re)

Source: M&G



Fund performance



Operating charges













To protect existing investors, portfolio transaction costs incurred as aresult of investors buying and selling shares in the fund are recoveredfrom those investors through a ‘dilution adjustment’ to the price theypay or receive. The table below shows direct portfolio transaction costspaid by the fund before and after that part of the dilution adjustmentrelating to direct portfolio transaction costs. To give an indication of theindirect portfolio dealing costs the table also shows the averageportfolio dealing spread.



for the year to 30 June 2017 2016 2015 Average [a]

Direct portfolio transaction costs [b] % % % %

Broker commission 0.04 0.05 0.04 0.04

Taxes 0.10 0.15 0.08 0.11

Costs before dilution adjustments 0.14 0.20 0.12 0.15

Dilution adjustments [c] (0.02) (0.03) (0.02) (0.02)

Total direct portfolio transaction costs 0.12 0.17 0.10 0.13






[c] In respect of direct portfolio transaction costs.



Fund performance



Sterling Class ‘A’ Income share performanceThe share class was launched on 6 May 1964.


Opening NAV 56.52 61.14 59.34



Return after operating charges 11.44 (1.78) 4.53

Distributions (2.95) (2.84) (2.73)

Closing NAV 65.01 56.52 61.14



Dilution adjustments [a] (0.01) (0.02) (0.02)





Return after operating charges +20.24 -2.91 +7.63

Historic yield [c] 4.55 4.91 4.40


Other information

Closing NAV (£’000) 364,142 331,842 410,004


Number of shares 560,171,148 587,109,164 670,549,627



Sterling Class ‘A’ Accumulation share performanceThe share class was launched on 6 May 1964.


Opening NAV 594.58 612.62 568.76




Distributions (20.18) (28.70) (26.37)


Closing NAV 714.80 594.58 612.62









Historic yield 2.83 4.72 4.25


Other information

Closing NAV (£’000) 88,701 80,425 94,465


Number of shares 12,409,112 13,526,383 15,419,752



Sterling Class ‘C’ Income share performanceSterling Class ‘C’ shares are not generally available to all investors.

The share class was launched on 3 January 2006.


Opening NAV 66.76 71.13 67.99




Distributions (3.51) (3.33) (3.15)

Closing NAV 77.96 66.76 71.13











Other information

Closing NAV (£’000) 687,746 674,464 705,210


Number of shares 882,227,059 1,010,299,299 991,504,569





Sterling Class ‘I’ Income share performanceThe share class was launched on 3 August 2012.


Opening NAV 1,113.45 1,195.32 1,151.24




Distributions (58.30) (55.79) (53.17)

Closing NAV 1,290.34 1,113.45 1,195.32











Other information

Closing NAV (£’000) 86,799 77,633 54,178


Number of shares 6,726,821 6,972,258 4,532,489

Highest share price (UK p) 1,373.16 1,230.91 1,294.80

Lowest share price (UK p) 1,127.65 1,053.70 1,060.31

Sterling Class ‘I’ Accumulation share performanceThe share class was launched on 3 August 2012.


Opening NAV 1,327.98 1,358.02 1,251.31




Distributions (56.52) (63.88) (58.27)


Closing NAV 1,608.51 1,327.98 1,358.02











Other information

Closing NAV (£’000) 19,636 16,664 12,028


Number of shares 1,220,766 1,254,832 885,734





Opening NAV 110.26 118.67 114.58




Distributions (5.76) (5.53) (5.28)

Closing NAV 127.45 110.26 118.67











Other information

Closing NAV (£’000) 8,925 1,017 1,210


Number of shares 7,002,965 922,826 1,019,301





Opening NAV 131.47 134.79 124.51




Distributions (5.22) (6.34) (5.79)


Closing NAV 158.85 131.47 134.79











Other information

Closing NAV (£’000) 396 173 116


Number of shares 249,149 131,843 85,873






Sterling Class ‘X’ Income share performanceThe share class was launched on 1 October 2002.


Opening NAV 56.78 61.43 59.61




Distributions (2.96) (2.86) (2.74)

Closing NAV 65.30 56.78 61.43











Other information

Closing NAV (£’000) 27,807 26,226 30,566


Number of shares 42,580,816 46,187,806 49,761,291



Sterling Class ‘X’ Accumulation share performanceThe share class was launched on 1 October 2002.


Opening NAV 588.17 606.02 562.67




Distributions (19.97) (28.39) (26.09)


Closing NAV 707.10 588.17 606.02











Other information

Closing NAV (£’000) 4,166 3,636 4,193


Number of shares 589,155 618,235 691,877





[c] Current year figures have been estimated to reflect the change in charging

structure and therefore you may see variances between comparative and current

year figures.







Income

Net capital gains / (losses) 3 198,367 (76,200)

Revenue 5 61,112 62,524



Total return before distributions 248,646 (24,683)Distributions 8 (58,715) (61,599)

Change in net assets attributableto shareholders from investmentactivities 189,931 (86,282)




Value of in specie transfers received 9,067 0

Amounts paid on cancellation of shares (173,160) (160,972) ______ ______ (117,565) (19,323)

Dilution adjustments 388 603

Change in net assets attributable toshareholders from investment activities(see above) 189,931 (86,282)




Balance sheet

2017 2016as at 30 June Note £’000 £’000

Assets



Cash and bank balances 10 919 14,644

Total assets 1,330,851 1,254,283

Liabilities Investment liabilities 0 (372)

Creditors Distribution payable (38,693) (40,012)

Other creditors 11 (3,840) (1,819)







With effect from 1 July 2016, the distribution policy has been amendedso that in determining the amount available for reinvestment toAccumulation shares, the annual management charge andadministration charge are no longer offset against capital, reducingthe amount available for reinvestment. The audit, depositary and safecustody charges continue to be offset against capital, increasing theamount available for reinvestment, whilst restraining capitalperformance to an equivalent extent. In determining the amountavailable for distribution to Income shares, all expenses with theexception of overdraft interest continue to be offset against capital,increasing the amount available for distribution whilst restraining capitalperformance to an equivalent extent.

In order to conduct a controlled dividend flow to shareholders, interimdistributions will be at the fund manager’s discretion, up to themaximum of the distributable income available for the period.


Non-derivative securities 197,363 (76,123)

Derivative contracts 1,227 (372)

Currency gains / (losses) (217) 301


Net capital gains / (losses) 198,367 (76,200)


M&G Dividend Fund Financial statements and notes



2017 % of 2016 % offor the year to 30 June £’000 transaction £’000 transaction

a) Purchases Equities Equities before transaction costs 389,002 593,733

Commissions 180 0.05 347 0.06

Taxes 1,294 0.33 1,924 0.32

Equities after transaction costs 390,476 596,004

Other transaction types Corporate actions 8,888 0

In specie In specie before transactions costs 9,022 0

Taxes 45 0.50 0 0.00

In specie after transaction costs 9,067 0

Total purchases after transactioncosts 408,431 596,004

b) Sales Equities Equities before transaction costs 509,384 634,689

Commissions (287) 0.06 (368) 0.06

Total sales after transaction costs 509,097 634,321

2017 % of 2016 % ofc) Direct portfolio transaction costs £’000 average NAV £’000 average NAV

Commissions paid Equities 467 0.04 715 0.05

Taxes paid Equities 1,339 0.10 1,924 0.15

Total direct portfolio transactioncosts [a] 1,806 0.14 2,639 0.20



[a] Costs before dilution adjustments. Please refer to the ‘Financial highlights’ section

for the effect of dilution adjustments.



Bank interest 1 0

Dividends from equity investments: non-taxable 54,164 58,274

Dividends from equity investments: taxable 3,541 1,150


Stock dividends 3,079 2,968

Underwriting commission 289 103





10,005 9,990





64 61






Total taxation 701 893

b) Factors affecting taxation charge for the year Net revenue / (expense) before taxation 50,980 52,410


Effects of:

Dividends from equity investments: non-taxable (10,833) (11,655)

Stock dividends not taxable (616) (593)

Current year expenses not utilised 1,253 1,766






The fund has not recognised a deferred tax asset of £35,432,000 (2016: £34,179,000)

arising as a result of having excess management expenses. We do not expect this

asset to be utilised in the foreseeable future.


Dividend distributions £’000 £’000 £’000 £’000

Interim 14,905 848 15,892 1,422

Final 38,693 2,508 40,013 3,509






Expenses offset against capital 8,437 10,082

Undistributed income carried forward (1) 0








Amounts receivable on issues of shares 281 614


Dividends receivable 3,323 3,027

Sales awaiting settlement 0 7,267

Tax recoverable 192 0

Withholding tax recoverable 1,056 935



Cash held as bank balances 919 14,644

Total cash and bank balances 919 14,644




Amounts payable on cancellation of shares 915 403


Purchases awaiting settlement 2,589 1,141




13 Shares in issue



Sterling Class ‘A’ Income 587,109,164 10,635,139 (37,573,155) 560,171,148

Class ‘A’ Accumulation 13,526,383 50,483 (1,167,754) 12,409,112

Class ‘C’ Income 1,010,299,299 42,470,243 (170,542,483) 882,227,059

Class ‘I’ Income 6,972,258 374,345 (619,782) 6,726,821

Class ‘I’ Accumulation 1,254,832 139,074 (173,140) 1,220,766

Class ‘R’ Income 922,826 8,285,317 (2,205,178) 7,002,965

Class ‘R’ Accumulation 131,843 139,848 (22,542) 249,149

Class ‘X’ Income 46,187,806 1,289,166 (4,896,156) 42,580,816

Class ‘X’ Accumulation 618,235 42,364 (71,444) 589,155





Class ‘C’ nil n/a nil

Class ‘I’ 1.00 [a] n/a 0.75

Class ‘R’ 1.00 [a] n/a 1.00

Class ‘X’ nil 4.50 [b] 1.50





15 Related parties


Amounts paid to M&G Securities Limited in respect of the ACD’s annualmanagement charge and administration charge are disclosed in note 6.Amounts due at the year end in respect of the ACD’s annualmanagement charge and administration charge are disclosed in note 11.

During the year, there were transactions in Prudential plc, a relatedparty of M&G Securities Limited with a total value of £51,512,000(2016: £51,508,000).

At the balance sheet date, the fund held shares in related parties ofM&G Securities Limited with a value of £58,560,000 (2016: £nil).















Level 1 1,315,456 0 1,218,934 0

Level 2 9,623 0 8,861 (372)

Level 3 0 0 0 0

1,325,079 0 1,227,795 (372)




19 Market risk sensitivity

A five per cent increase in the value of the fund’s investment portfoliowould have the effect of increasing the return and net assets by£65,822,000 (2016: £60,928,000). A five per cent decrease wouldhave an equal and opposite effect.

20 Currency risk sensitivity

Currency risk is not considered significant for the fund and is thereforenot disclosed.

21 Interest rate risk sensitivity

As the majority of the fund’s financial assets are non-interest bearing,the risk is not considered significant and is therefore not disclosed.

22 Credit risk sensitivity

Credit risk is not considered significant for the fund and is thereforenot disclosed.

23 Counterparty exposure Forward currency Net contracts exposureas at 30 June 2017 £’000 £’000

State Street Bank 990 990

Total 990 990

Forward currency Net contracts exposureas at 30 June 2016 £’000 £’000

State Street Bank (372) (372)

Total (372) (372)




24 Dividend distribution tables

This fund pays semi-annual ordinary distributions and the followingtable sets out the distribution periods.

Semi-annual distribution periods Start End Xd Payment

Interim 01.07.16 31.12.16 03.01.17 28.02.17

Final 01.01.17 30.06.17 03.07.17 31.08.17








Ordinary distributions Group 2 Group 1 & 2for the year Income Equalisation Distributionto 30 June 2017 2017 2017 2016

p p p pInterim 0.2283 0.5722 0.8005 0.8005

Final 0.9987 1.1480 2.1467 2.0424



p p p pInterim 0.5346 4.3594 4.8940 8.0184

Final 5.6253 9.6629 15.2882 20.6856

Sterling Class ‘C’ Income shares


p p p pInterim 0.1015 0.8471 0.9486 0.9344

Final 1.4307 1.1306 2.5613 2.3993



p p p pInterim 5.1731 10.6216 15.7947 15.6709

Final 8.3029 34.2011 42.5040 40.1234



p p p pInterim 0.1613 14.3642 14.5255 17.7988

Final 17.5601 24.4296 41.9897 46.0783



p p p pInterim 0.3741 1.1891 1.5632 1.5552

Final 1.9296 2.2721 4.2017 3.9769



p p p pInterim 0.0000 1.3194 1.3194 1.7690

Final 2.8972 1.0002 3.8974 4.5673



p p p pInterim 0.2537 0.5506 0.8043 0.8042

Final 1.4601 0.6965 2.1566 2.0517



p p p pInterim 0.0000 4.8420 4.8420 7.9318

Final 11.7333 3.3904 15.1237 20.4627




24 Dividend distribution tables (continued)


Investment objective

The Fund aims to maximise total return (the combination of incomeand growth of capital).

Investment policy

The Fund invests mainly in debt instruments issued by emergingmarket borrowers, including government, government agency andcorporate debt. There are no restrictions on the currencies to whichthe Fund may be exposed. Derivatives may be used for investmentpurposes as well as for efficient portfolio management. The Fund mayalso invest in collective investment schemes, other transferablesecurities (including other debt instruments), cash and near cash,deposits, warrants and money market instruments.

M&G has the discretion to identify the countries that it considers toqualify as emerging markets although these will typically be those thatthe IMF or World Bank define as emerging or developing economies.

Investment approach

The fund’s investment approach begins with a top-down assessmentof macroeconomic factors such as global risk appetite and structuralglobal growth catalysts. On a regional and country-specific level,factors such as monetary and fiscal policies, capital flows, and politicaland regulatory environments will be assessed. The result of thisanalysis will help inform the fund’s country and currency allocationsand its duration. Individual credit selection is determined by a thoroughcredit analysis and an assessment of valuations. Both macroeconomicand stock-specific analysis is undertaken in close conjunction with thedeputy fund manager and the internal credit analysts. The fund isdiversified by investing in a range of assets across global emergingmarkets and is unconstrained by a benchmark with a flexible strategy.

Risk profile

The fund invests mainly in fixed income securities, or bonds, issued bygovernments and companies in emerging markets. It can also invest inemerging market currencies. It is, therefore, subject to the price volatilityof the global bond market and the performance of individual issuers.The fund is also subject to fluctuations in currency exchange rates.

The fund’s focus is on emerging markets, and hence it may be morevolatile compared to a fund that invests mainly in the securities ofcompanies in developed countries. The reasons for this greatervolatility include: the financial infrastructure in emerging markets istypically less mature, the regulatory systems and disclosure standardsare less developed and adverse market and political circumstancesare more likely to occur in these markets.

The fund is fully flexible and may use derivatives to achieve themanager’s desired exposure to emerging market bonds andcurrencies. In association with the use of derivatives, including thoseinstruments not traded through an exchange, collateral is deposited,in order to mitigate the risk that a counterparty may default on itsobligations or become insolvent.



The above number:





mean risk free.


Investment review



Between 1 July 2016 (the start of the review period) and 3 July 2017,the M&G Emerging Markets Bond Fund produced positive total returns(the combination of income and growth of capital) across all of itsdifferent share classes.* The fund’s unhedged sterling share classesdelivered moderately higher returns than the other share classes, anoutcome that largely resulted from the fund’s maintenance of asizeable exposure to the US dollar throughout the review period.Relevantly, the US dollar strengthened in value against the Britishpound during the period, which provided a tailwind to the performanceof the fund’s unhedged sterling share classes, although this trend waspartially reversed during the first half of 2017. In contrast, the US dollarweakened in value against the euro, which contributed to the fund’sunhedged euro share classes delivering the lowest returns.

Positive returns were generally recorded across the main segmentsof the emerging bond markets, which helped the fund’s overallperformance. However, the returns from emerging bond marketsnotably declined in October and November in 2016, before turningpositive again in December and during the first two quarters of 2017.The fund’s objective is to maximise total returns.


While the performance of global bond markets ebbed and flowed attimes during the 12 months to 30 June 2017, emerging market bondsgenerally delivered positive returns for the period. (Bonds are loansthat are extended by an investor to an issuing entity – such as acompany or government – in exchange for regular interest payments.Bonds issued by companies are referred to as ‘corporate bonds’, whilethose issued by governments are called ‘government bonds’.)

Throughout most of the review period, the performance of emergingmarket bonds was helped by factors such as the significant monetarystimulus policies from central banks in Europe and Japan. This activitywas largely aimed at maintaining low interest rates in these regions,

Low risk High risk


1 2 3 4 5 6 7

M&G Emerging Markets Bond Fund Authorised Corporate Director’s Report

which kept government bond yields at very low, or even negative,levels. In turn, this backdrop supported the investment appeal ofpositive-yielding areas of the bond markets, such as could be foundin emerging countries. (Bond yields refer to the interest received froma fixed interest security, which is usually expressed annually as apercentage based on the investment’s cost, its current market valueor its face value.) Also importantly, as the second half of the periodprogressed, there were encouraging signals that the pace of globaleconomic growth was picking up.

At the same time, however, investors had to assess factors such asthe US presidential election result, as well as the trend of rising USinterest rates. Higher interest rates typically dampen sentiment towardsbonds and, given the importance of the US market, the effects ofincreased US rates can be felt internationally. The presidential vote,meanwhile, focused attention on the potentially adverse implicationsfor emerging markets from a Donald Trump administration, includingfrom possible trade protectionist and anti-immigration measures. Thenew president was opposed, for example, to joining the newly createdTrans-Pacific Partnership (TPP), and the US subsequently withdrewfrom the regional free-trade bloc.

Against this backdrop, the performance of emerging bond markets,and the fund, notably weakened in October and November. However,we sought to limit the effect of these considerations in the fund byavoiding exposure to emerging countries with deep economic ties tothe US. In preference, we favoured those with stronger links to otherregions, such as in eastern Europe where economic links with theEuropean Union (EU) are important.

As 2017 progressed, political considerations in Europe also played apart in influencing investor sentiment globally. For example, muchattention stayed focused on the polls for the upcoming Frenchelections, where the prospect remained that a sizeable anti-EuropeanUnion vote would be registered. However, the eventual victory ofEmmanuel Macron, a centrist, strongly pro-EU candidate, wasgenerally well received in financial markets. In turn, emerging marketbonds were among those areas that delivered gains following theelection result.

Throughout the period, we maintained the belief that a key performancecontributor when investing in emerging bond markets is the rightallocation of a portfolio’s assets between corporate bonds andgovernment bonds, denominated in either local currencies or ‘hard’currencies such as the US dollar and euro. In turn, the portfolio remaineddiversified across emerging market regions, with allocations acrossthese different segments of the market. This positioning supported thefund’s performance as each area produced positive returns.

In addition, we maintained a sizeable exposure to the US dollar. Thispositioning helped the returns of the fund’s unhedged sterling shareclasses as the US currency increased in value versus the Britishpound. However, it detracted from the returns of the unhedged euroshare classes as the US dollar fell in value against the single currency.


Our main investment activity in the opening months of the reviewperiod included reducing the portfolio’s allocation to corporate bonds,mainly where we felt that valuations had risen to levels that offeredless upside potential. Sales included bonds from pesticides supplierAgro-K and gaming company CIRSA, which has a large presence inLatin America.

Later in 2016, we also became wary towards emerging marketeconomies that have strong links to the US, as we anticipated thepossibility that Donald Trump could win the presidential election. Withinthis theme, we sold down the fund’s exposure to the Mexican peso,although an allocation to the currency was subsequently re-openedgiven the size of its decline following the election’s result.

In other regions, the fund’s transaction activity in the aftermath of theUS election included the sale of government bonds from Vietnam. Wefelt the country stood to lose out from any moves towards tradeprotection measures in the US, as well as the president-elect’s statedintention to withdraw from the TPP trade agreement. In contrast, webought bonds from the government of Hungary, believing that thesecurities had become oversold as its economy is far less exposed totrade with the US.

In the second half of the review period, increasing the fund’s exposureto local currency-denominated government bonds was among ourmain investment themes. In our view, the appeal of this segment ofthe market has been helped by factors such as the weakeningperformance of the US dollar and the higher yields that could be foundin this area. Our transaction activity included topping up an existinglocal currency sovereign holding in South Africa in March, partly onthe view that the market became oversold after the removal of thecountry’s finance minister and a broader cabinet reshuffle.

Among larger markets in Asia, we maintained a cautious view towardsChina, partly given factors such as the uncertain path of US-Chinarelations under the new US administration. Our preferred allocationsin the region included to Indonesia, where we added governmentbonds, as well as India, where we added to our rupee exposure. Thelatter is an example of an important emerging country that is relativelyclosed economically and, as such, has relatively low trade andimmigration ties with the US.

Towards the end of the review period, we added back some corporatebond exposure on a selective basis where we believed attractivevaluations could be found. This activity included purchases of bondsfrom telecommunications group Vimpelcom, Turkish bank Yapi Kredi,and diversified Mexican conglomerate Kuo.

Outlook

Sentiment towards emerging market bonds has recently beenfavoured by factors such as strengthening global economic growth andreduced political concerns in developed countries. While we believethat investors were right to weigh up the potentially adverseimplications for emerging markets of a Donald Trump presidency, therhetoric of the new administration towards key issues such as NAFTA(the North American Free Trade Agreement) has softened somewhatsince his inauguration in January. In Europe, meanwhile, the result ofthe French presidential election notably helped to boost investors’sentiment globally.




Investment review

Against this backdrop, some of the risks that were weighing on theoutlook for emerging markets have diminished. In addition, we thinkother factors should continue to support the emerging bond markets,including the wide diversity of its sovereign and corporate bond universe.We also believe the creditworthiness, or credit quality, of emergingmarket bond issuers should stabilise as economic growth forecastsedge upwards across most developed and developing countries.

For bond markets globally, higher US interest rates remain a topicaltheme. In a number of emerging market economies, we believe thishigher US rate environment is less challenging than it would have beena few years ago, given considerations such as the improvements theyhave made to their current account positions and adjustments towardshaving lower overall levels of US dollar-denominated debt. However,rising US interest rates can cause a headwind for other emergingeconomies. This is particularly the case for those that are more relianton US dollar funding, such as in a number of countries in the Sub-Saharan Africa region. In our assessment, countries with lower debtlevels or higher reliance on domestic funding, such as Russia, Brazil,and selectively in Eastern Europe, should be able to better navigatethis environment.

Other factors in the outlook for emerging bond markets that must bemonitored closely include fluctuating oil and commodity prices, as wellas Brexit and its impact on Europe. While weighing up such relevantthemes, we think attractive opportunities can still be found through aflexible and globally diversified approach to emerging market bondinvesting. As always, we will seek to take advantage of the fund’sflexibility that allows us to invest emerging market bonds andcurrencies that we believe offer the best relative value and avoidcountries or industries where the outlook is unfavourable.

Claudia CalichFund manager









2.15%

1.02%

8.20%

23.48%

23.49%

26.04%

1.40%

0.00%

14.34%

-0.05%

0.05%

0.51%

0.00%

4.01%

7.38%

21.45%

22.76%

21.00%

1.49%

0.13%

17.00%

0.19%

3.98%

-0.01%

Debt securities







‘CCC’ credit rated bonds

‘D’ credit rated bonds




Forward currency contracts for share class hedging


30 June 2016





Outlook (continued)

Investment review

Investments

Portfolio statement

as at 30 June 2017 2017 2016Holding $’000 % %

Debt securities 523,858 100.12 95.22 ‘AAA’ credit rated bonds 11,264 2.15 0.00 SGD15,000,000 Singapore (Republic of) 4% 2018 11,264 2.15

‘AA’ credit rated bonds 5,360 1.02 4.01 $5,350,000 US Treasury 1.875% 2017 5,360 1.02

‘A’ credit rated bonds 42,927 8.20 7.38 ILS35,000,000 Israel (State of) 4% 2018 10,241 1.96

$7,000,000 Israel (State of) 4.5% 2043 7,397 1.41

MXN184,000,000 Mexico (United Mexican States) 10% 2024 12,155 2.32

PEN35,500,000 Peru (Republic of) 8.2% 2026 13,134 2.51

‘BBB’ credit rated bonds 122,829 23.48 21.45 $4,000,000 Banco Inbursa 4.375% 2027 3,982 0.76

$3,500,000 Bharti Airtel International (Netherlands) 5.35% 2024 3,704 0.71

COP10,000,000,000 Bogota Distrio Capital 9.75% 2028 3,460 0.66

COP10,285,000,000 Findeter 7.875% 2024 3,432 0.66

IDR168,000,000,000 Indonesia (Republic of) 8.25% 2036 13,484 2.58

£3,350,000 Mexico (United Mexican States) 5.625% 2114 4,614 0.88

$6,500,000 Morocco (Kingdom of) 5.5% 2042 7,212 1.38

$4,800,000 Panama (Republic of) 8.875% 2027 6,828 1.30

$4,000,000 Peru (Republic of) 8.75% 2033 6,131 1.17

PHP330,000,000 Philippines (Republic of) 6.25% 2036 7,388 1.41

€4,500,000 Romania (Republic of) 3.875% 2035 5,364 1.03

RUB680,000,000 Russia (Federation of) 8.15% 2027 11,933 2.28

ZAR158,000,000 South Africa (Republic of) 8.75% 2048 10,827 2.07

$3,250,000 Southern Copper 6.75% 2040 3,736 0.71

$3,700,000 Tengizchevroil 4% 2026 3,566 0.68

THB233,000,000 Thailand (Kingdom of) 1.25% IL 2028 6,595 1.26

$3,500,000 Turk Telekomunikas 4.875% 2024 3,513 0.67

UYU125,000,000 Uruguay (Republic of) 4.375% 2028 7,678 1.47

$4,250,000 Uruguay (Republic of) 5.1% 2050 4,328 0.83

UYU140,290,000 Uruguay (Republic of) 9.875% 2022 5,054 0.97

‘BB’ credit rated bonds 122,895 23.49 22.76 $6,000,000 Brazil (Federal Republic of) 8.25% 2034 7,463 1.43

BRL36,500,000 Brazil (Federal Republic of) 10% 2025 10,740 2.05

$5,000,000 Croatia (Republic of) 5.5% 2023 5,469 1.05

$5,500,000 Dominican Republic 7.45% 2044 6,274 1.20

DOP37,000,000 Dominican Republic 10.4% 2019 792 0.15

DOP172,400,000 Dominican Republic 15% 2019 3,958 0.76

DOP75,000,000 Dominican Republic 16.95% 2022 1,976 0.38

$3,050,000 Gaz Capital 7.288% 2037 3,608 0.69

$4,322,000 Grupo Kuo SAB de 5.75% 2027 4,332 0.83

$2,950,000 Grupo Unicomer 7.875% 2024 3,160 0.60

$6,500,000 Guatemala (Republic of) 4.5% 2026 6,570 1.26

$3,200,000 InRetail Consumer 5.25% 2021 3,301 0.63

$6,071,000 Jordan (Kingdom of) 6.125% 2026 6,207 1.19

€4,150,000 Macedonia (Govt. of) 5.625% 2023 5,151 0.98

$5,000,000 MAF Global Securities 5.5% Perp. 5,044 0.96

$5,500,000 Paraguay (Republic of) 6.1% 2044 6,110 1.17

$3,333,000 Perusahaan Listrik Negara 4.125% 2027 3,270 0.62

$7,244,000 Petrobras Global Finance 7.375% 2027 7,631 1.46

$8,700,000 Portugal (Republic of) 5.125% 2024 8,852 1.69

$4,250,000 Transnet SOC 4% 2022 4,135 0.79

$4,615,000 Turkey (Republic of) 6% 2027 4,914 0.94

TRY26,500,000 Turkey (Republic of) 10.6% 2026 7,665 1.46

$3,500,000 Vimpelcom 4.95% 2024 3,498 0.67

$2,800,000 Yapı ve Kredi Bankası 5.85% 2024 2,775 0.53

‘B’ credit rated bonds 136,246 26.04 21.00 €4,500,000 Albania (Republic of) 5.75% 2020 5,620 1.07

ARS49,000,000 Argentina (Republic of) 21.2% 2018 2,997 0.57

ARS80,000,000 Argentina (Republic of) 22.75% 2018 4,886 0.93

€2,339,376 Argentina (Republic of) Var. Rate 2033 2,827 0.54

$4,524,000 Buenos Aires (Province of) 7.875% 2027 4,709 0.90

$3,500,000 Cameroon (Republic of) 9.5% 2025 4,119 0.79

$3,700,000 Cordoba (Province of) 7.125% 2021 3,903 0.75

$8,000,000 Córdoba (Province of) 7.125% 2027 7,984 1.52

$9,000,000 Ecuador (Republic of) 8.75% 2023 8,825 1.69

EGP44,000,000 Egypt (Arab Republic of) 0% 2017 (1 Aug) 2,387 0.46

EGP45,000,000 Egypt (Arab Republic of) 0% 2017 (24 Oct) 2,331 0.44

$5,000,000 Egypt (Arab Republic of) 8.5% 2047 5,385 1.03

$2,800,000 Ghana (Republic of) 9.25% 2022 3,016 0.58

$5,500,000 Honduras (Republic of) 7.5% 2024 6,091 1.16

$5,000,000 Jamaica (Govt. of) 8% 2039 5,893 1.13

$5,150,000 Kenya (Republic of) 6.875% 2024 5,266 1.01

$5,000,000 Marfrig Holdings 7% 2024 4,820 0.92

$4,000,000 Neuquen (Province of) 7.5% 2025 4,120 0.79

$4,800,000 Nigeria (Federal Republic of) 6.375% 2023 4,939 0.94

$3,768,750 Northern Lights III 7% 2019 3,874 0.74

$3,250,000 Pakistan (Islamic Republic of) 7.875% 2036 3,368 0.64

$4,100,000 Pakistan (Islamic Republic of) 8.25% 2024 4,646 0.89

$1,800,000 Rwanda (Republic of) 6.625% 2023 1,850 0.35

$6,200,000 Rwanda (Republic of) 6.625% 2023 144A 6,378 1.22

$3,800,000 Senegal (Republic of) 8.75% 2021 4,331 0.83

$4,700,000 Sri Lanka (Republic of) 6.85% 2025 4,957 0.95

$7,000,000 Ukraine (Republic of) 7.75% 2022 7,046 1.35

$3,500,000 YPF Sociedad Anónima 8.5% 2025 3,943 0.75

$5,500,000 Zambia (Republic of) 8.5% 2024 5,735 1.10

‘CCC’ credit rated bonds 7,312 1.40 1.49 $10,000,000 PDVSA 5.375% 2027 3,577 0.68

$9,000,000 Venezuela (Republic of) 7% 2038 3,735 0.72

‘D’ credit rated bonds 0 0.00 0.13

Bonds with no credit rating 75,025 14.34 17.00 $5,350,000 Armenia (Republic of) 7.15% 2025 5,842 1.12

$3,850,000 Banco de Bogotá 6.25% 2026 4,091 0.78

€3,500,000 Central Bank Tunisia 5.625% 2024 4,041 0.77

€6,900,000 Cote d’Ivoire 5.125% 2025 7,962 1.52

$4,350,000 DP World 6.85% 2037 5,115 0.98

$4,500,000 Fibra Uno Administración 6.95% 2044 4,768 0.91

$2,700,000 Genneia 8.75% 2022 2,875 0.55

$4,000,000 GTLK Europe DAC 5.125% 2024 3,989 0.76

INR1,000,000,000 National Highways 7.3% 2022 15,653 2.99

$2,600,000 Oschadbank 9.375% 2023 2,659 0.51

$5,500,000 Royal Capital Var. Rate Perp. (4.875%) 5,489 1.05






$3,400,000 Southern Gas Corridor 6.875% 2026 3,680 0.71

$1,400,000 SSB No.1 Var. Rate 2025 1,429 0.27

$2,700,000 Tanzania (United Republic of) FRN 2020 2,824 0.54

$4,600,000 Türkiye Cumhuriyeti Ziraat Bankası 4.75% 2021 4,608 0.88

Forward currency contracts (293) (0.05) 0.19 EGP64,785,000 Bought for $3,500,000 (expires 20.09.17) (1) 0.00

€(28,180,000) Sold for $31,529,156 (expires 26.07.17) (643) (0.12)

ILS69,709,600 Bought for $19,298,265 (expires 26.07.17) 657 0.13

ILS(69,709,600) Sold for $19,666,149 (expires 26.07.17) (289) (0.06)

£(2,800,000) Sold for $3,625,790 (expires 20.09.17) (17) 0.00

Portfolio of investments 523,565 100.07 95.41

‘AAA’ rated money market funds [a] 280 0.05 3.98 280,000 Northern Trust Global Fund - US dollar 280 0.05

Forward currency contracts for share class hedging 2,652 0.51 (0.01) €97,746,891 Bought for $109,139,994 (expires 26.07.17) 2,456 0.47

€(699,432) Sold for $784,489 (expires 26.07.17) (14) 0.00

£7,544,065 Bought for $9,587,558 (expires 26.07.17) 210 0.04

£(158,374) Sold for $201,078 (expires 26.07.17) (5) 0.00

CHF294,940 Bought for $303,324 (expires 26.07.17) 5 0.00

Total portfolio (notes 2c & 2d on page 6) 526,497 100.63 99.38Net other assets / (liabilities) (3,289) (0.63) 0.62

Net assets attributable to shareholders 523,208 100.00 100.00








Bonds with no credit rating (continued)

Investments

Fund performance









2017 2016 2015as at 30 June $’000 $’000 $’000

Fund net asset value (NAV) 523,208 225,690 190,905



The fund’s Sterling Class ‘I’ (Accumulation) shares were launched on19 April 2012. Performance data shown prior to this date is that of thefund’s Sterling Class ‘A’ (Accumulation) shares.

120

140

180

160

200

230

260

300

350

400

450

500

110

10099 00 0201 03 04 0605 121110090807 13 14 15 16 17



October 1999 = 100, plotted monthly Chart date 3 July 2017



Morningstar IA Global Emerging Markets Bond sector average*



M&G Emerging Markets Bond Fund Financial highlights




Euro [b] Class ‘A’ +6.9 +11.3 +7.9 +8.8 [c]

Class ‘A-H’ +7.3 n/a n/a +4.0 [d]

Class ‘B’ +6.3 +10.7 n/a +9.8 [e]

Class ‘B-H’ +6.7 n/a n/a +8.0 [f]

Class ‘C’ +7.5 +11.9 +8.4 +9.4 [c]

Class ‘C-H’ +7.9 n/a n/a +4.5 [d]

Sterling [g] Class ‘A’ +11.6 +14.1 +9.0 +9.2 [h]

Class ‘I’ +12.3 +14.6 +9.5 +10.0 [c]

Class ‘I-H’ +8.8 n/a n/a +7.7 [i]

Class ‘R’ +11.9 +14.3 n/a +8.8 [j]

Class ‘X’ +11.6 +14.1 +9.0 +8.8 [k]

Swiss franc [b] Class ‘A’ +7.9 +7.5 n/a +7.0 [e]

Class ‘A-H’ +6.8 n/a n/a +6.0 [i]

Class ‘C’ +8.6 +8.1 n/a +7.6 [e]

Class ‘C-H’ +7.5 n/a n/a +6.6 [i]

US dollar [b] Class ‘A’ +9.3 +4.7 +5.7 +5.8 [c]

Class ‘C’ +10.0 +5.3 +6.3 +6.4 [c]

[a] Absolute basis.


[c] 19 April 2012, the launch date of the share class.

[d] 10 November 2014, the launch date of the share class.

[e] 26 July 2013, the launch date of the share class.

[f] 11 September 2015, the launch date of the share class.

[g] Price to price with income reinvested.

[h] 1 October 2002, the launch date of the share class.

[i] 24 July 2015, the launch date of the share class.

[j] 3 August 2012, the launch date of the share class.

[k] 15 October 1999, the end of the initial offer period of the predecessor unit trust.



Operating charges




• Share class hedging: Charge paid to M&G for currency hedgingservices to minimise exchange rate risk for the share class.







Fund performance

Performance since launch (continued)






To protect existing investors, portfolio transaction costs incurred as aresult of investors buying and selling shares in the fund are recoveredfrom those investors through a ‘dilution adjustment’ to the price theypay or receive. As the fund invests mainly in fixed interest securities,the direct transaction costs paid on other investments are too small tobe reflected in the table below. To give an indication of the indirectportfolio dealing costs the table below shows the average portfoliodealing spread.









Euro Class ‘A’ Income share performanceThe share class was launched on 12 July 2013.


Opening NAV 1,259.58 1,239.75 1,077.38




Distributions (78.68) (60.11) (55.37)

Closing NAV 1,276.15 1,259.58 1,239.75











Other information

Closing NAV ($’000) 16,157 4,982 4,049


Number of shares 1,110,158 354,898 292,104





Fund performance


Euro Class ‘A’ Accumulation share performanceThe share class was launched on 19 April 2012.


Opening NAV 1,431.23 1,342.93 1,115.26




Distributions (69.34) (65.77) (58.11)


Closing NAV 1,539.01 1,431.23 1,342.93











Other information

Closing NAV ($’000) 61,484 10,627 27,133


Number of shares 3,503,064 666,181 1,807,147



Euro Class ‘A-H’ Income share performanceThe share class was launched on 10 November 2014.


Opening NAV 927.01 924.35 1,000.00

Return before operating charges and after directportfolio transaction costs 86.69 60.13 (22.90)


Return after operating charges 72.71 46.65 (31.67)

Distributions (56.04) (43.99) (43.98)

Closing NAV 943.68 927.01 924.35








Return after operating charges +7.84 +5.05 -3.17



Other information

Closing NAV ($’000) 2,008 854 237


Number of shares 186,595 82,630 22,939

Highest share price (Euro ¢) 984.95 956.52 1,000.11

Lowest share price (Euro ¢) 913.41 861.67 930.43

Euro Class ‘A-H’ Accumulation share performanceThe share class was launched on 10 November 2014.


Opening NAV 1,022.27 970.39 1,000.00




Distributions (47.89) (46.83) (44.57)


Closing NAV 1,104.43 1,022.27 970.39











Other information

Closing NAV ($’000) 20,783 4,128 64


Number of shares 1,650,000 362,325 6,000


Lowest share price (Euro ¢) 1,016.30 927.51 933.49

Euro Class ‘B’ Income share performanceThe share class was launched on 11 September 2015.


Opening NAV 1,038.16 1,000.00 n/a

Return before operating charges and after directportfolio transaction costs 94.76 98.43 n/a

Operating charges (21.64) (15.75) n/a

Return after operating charges 73.12 82.68 n/a

Distributions (64.70) (44.52) n/a

Closing NAV 1,046.58 1,038.16 n/a


Costs before dilution adjustments 0.00 0.00 n/a

Dilution adjustments [a] 0.00 0.00 n/a

Total direct portfolio transaction costs 0.00 0.00 n/a


Direct portfolio transaction costs [b] 0.00 0.00 n/a

Operating charges 1.95 1.95 n/a

Return after operating charges +7.04 +8.27 n/a

Distribution yield [c] 6.67 4.10 n/a

Effect on yield of charges offset against capital 1.90 0.00 n/a

Other information

Closing NAV ($’000) 2,418 127 n/a

Closing NAV percentage of total fund NAV (%) 0.46 0.06 n/a

Number of shares 202,551 11,000 n/a

Highest share price (Euro ¢) 1,141.50 1,081.20 n/a

Lowest share price (Euro ¢) 1,052.12 952.40 n/a




Euro Class ‘B’ Accumulation share performanceThe share class was launched on 26 July 2013.


Opening NAV 1,339.52 1,263.21 1,054.12




Distributions (57.59) (55.39) (48.65)


Closing NAV 1,433.36 1,339.52 1,263.21











Other information

Closing NAV ($’000) 10,843 2,323 2,434


Number of shares 663,282 155,563 172,333



Euro Class ‘B-H’ Income share performanceThe share class was launched on 11 September 2015.


Opening NAV 1,017.65 1,000.00 n/a





Closing NAV 1,030.89 1,017.65 n/a











Other information

Closing NAV ($’000) 2,414 34 n/a




Lowest share price (Euro ¢) 999.95 945.59 n/a

Euro Class ‘B-H’ Accumulation share performanceThe share class was launched on 11 September 2015.


Opening NAV 1,063.05 1,000.00 n/a





Retained distributions 44.14 43.99 n/a

Closing NAV 1,142.87 1,063.05 n/a









Distribution yield 4.63 4.12 n/a


Other information

Closing NAV ($’000) 2,048 60 n/a




Lowest share price (Euro ¢) 1,054.64 967.26 n/a

Euro Class ‘C’ Income share performanceThe share class was launched on 8 August 2014.


Opening NAV 1,318.90 1,298.04 1,151.77




Distributions (82.95) (69.36) (65.05)

Closing NAV 1,344.79 1,318.90 1,298.04











Other information

Closing NAV ($’000) 22 21 181


Number of shares 1,434 1,434 12,434








Euro Class ‘C’ Accumulation share performanceThe share class was launched on 19 April 2012.

for the year to 30 June 2017 2016 2015Change in NAV per share Euro ¢ Euro ¢ Euro ¢Opening NAV 1,462.29 1,365.07 1,128.00Return before operating charges and after directportfolio transaction costs 132.77 110.20 248.92



Distributions (80.78) (74.06) (65.20)


Closing NAV 1,582.14 1,462.29 1,365.07

Direct portfolio transaction costs Euro ¢ Euro ¢ Euro ¢Costs before dilution adjustments 0.00 0.00 0.01Dilution adjustments [a] 0.00 0.00 0.00


Performance and charges % % %Direct portfolio transaction costs [b] 0.00 0.00 0.00Operating charges 0.80* 0.94 0.95Return after operating charges +8.20 +7.12 +21.02Distribution yield 5.87 5.08 5.69Effect on yield of charges offset against capital 0.00 0.00 0.00

Other information Closing NAV ($’000) 51,564 4,125 2,144Closing NAV percentage of total fund NAV (%) 9.86 1.83 1.12Number of shares 2,857,779 253,108 140,483Highest share price (Euro ¢) 1,668.92 1,475.88 1,478.75Lowest share price (Euro ¢) 1,481.60 1,289.37 1,133.03

* As the annual management charge has been discounted during the period, 0.80%is a more reliable estimate of the period to 30.06.17 ongoing charges.

Euro Class ‘C-H’ Income share performanceThe share class was launched on 10 November 2014.

for the year to 30 June 2017 2016 2015Change in NAV per share Euro ¢ Euro ¢ Euro ¢Opening NAV 923.51 921.44 1,000.00Return before operating charges and after directportfolio transaction costs 86.46 59.57 (24.06)



Distributions (56.24) (48.83) (48.70)

Closing NAV 946.21 923.51 921.44

Direct portfolio transaction costs Euro ¢ Euro ¢ Euro ¢Costs before dilution adjustments 0.00 0.00 0.01Dilution adjustments [a] 0.00 0.00 0.00


Performance and charges % % %Direct portfolio transaction costs [b] 0.00 0.00 0.00Operating charges 0.83* 0.95 0.97Return after operating charges +8.55 +5.52 -2.99Distribution yield [c] 6.55 5.14 5.73Effect on yield of charges offset against capital 0.77 0.00 0.00

Other information Closing NAV ($’000) 279 10 9Closing NAV percentage of total fund NAV (%) 0.05 0.00 0.01Number of shares 25,896 1,000 1,000Highest share price (Euro ¢) 987.18 955.43 1,000.14Lowest share price (Euro ¢) 912.82 859.17 928.66


Euro Class ‘C-H’ Accumulation share performanceThe share class was launched on 10 November 2014.


Opening NAV 1,027.37 971.09 1,000.00




Distributions (54.82) (51.88) (49.23)


Closing NAV 1,116.73 1,027.37 971.09











Other information

Closing NAV ($’000) 82,780 4,299 11


Number of shares 6,499,831 375,402 1,000


Lowest share price (Euro ¢) 1,023.89 931.35 933.83



Sterling Class ‘A’ Income share performanceThe share class was launched on 1 October 2002.


Opening NAV 91.59 77.62 75.97




Distributions (6.04) (4.16) (3.61)

Closing NAV 98.68 91.59 77.62











Other information

Closing NAV ($’000) 4,399 3,114 3,416


Number of shares 3,434,988 2,520,881 2,801,098






Sterling Class ‘A’ Accumulation share performanceThe share class was launched on 1 October 2002.





Distributions (9.95) (8.58) (7.20)


Closing NAV 221.99 194.94 158.96






Other information

Closing NAV ($’000) 3,387 2,342 4,946Closing NAV percentage of total fund NAV (%) 0.65 1.04 2.59Number of shares 1,175,620 890,630 1,979,716Highest share price (UK p) 229.28 198.50 175.06Lowest share price (UK p) 200.31 153.28 150.23

Sterling Class ‘I’ Income share performanceThe share class was launched on 19 April 2012.





Distributions (8.12) (6.15) (5.38)

Closing NAV 133.08 122.73 104.02





Direct portfolio transaction costs [b] 0.00 0.00 0.00Operating charges 0.81* 0.94 0.95Return after operating charges +15.05 +23.90 +7.44Distribution yield [c] 6.66 5.08 5.69Effect on yield of charges offset against capital 0.75 0.00 0.00

Other information

Closing NAV ($’000) 73,978 32,244 21,918Closing NAV percentage of total fund NAV (%) 14.14 14.29 11.48Number of shares 42,832,068 19,477,416 13,408,022Highest share price (UK p) 142.65 127.65 116.94Lowest share price (UK p) 126.17 100.39 101.96


Sterling Class ‘I’ Accumulation share performanceThe share class was launched on 19 April 2012.


Opening NAV 142.11 115.43 108.51




Distributions (8.26) (6.89) (5.79)


Closing NAV 162.75 142.11 115.43











Other information

Closing NAV ($’000) 133,202 41,633 23,478


Number of shares 63,063,127 21,719,701 12,942,916





Sterling Class ‘I-H’ Income share performanceThe share class was launched on 24 July 2015.


Opening NAV 100.35 100.00 n/a





Closing NAV 104.06 100.35 n/a







Operating charges 0.82* 0.96 n/a




Other information

Closing NAV ($’000) 8,354 27 n/a


Number of shares 6,185,809 20,000 n/a

Highest share price (UK p) 108.60 103.33 n/a

Lowest share price (UK p) 100.04 92.57 n/a






Sterling Class ‘I-H’ Accumulation share performanceThe share class was launched on 24 July 2015.


Opening NAV 104.83 100.00 n/aReturn before operating charges and after directportfolio transaction costs 11.49 6.81 n/a







Costs before dilution adjustments 0.00 0.00 n/aDilution adjustments [a] 0.00 0.00 n/a



Direct portfolio transaction costs [b] 0.00 0.00 n/aOperating charges 0.82* 0.96 n/aReturn after operating charges +10.09 +5.92 n/aDistribution yield 5.78 5.34 n/aEffect on yield of charges offset against capital 0.00 0.00 n/a

Other information

Closing NAV ($’000) 984 28 n/aClosing NAV percentage of total fund NAV (%) 0.19 0.01 n/aNumber of shares 659,831 20,000 n/aHighest share price (UK p) 116.25 105.65 n/aLowest share price (UK p) 104.94 94.65 n/a




Opening NAV 115.11 97.55 95.48Return before operating charges and after directportfolio transaction costs 18.34 24.27 8.10Operating charges (1.51) (1.22) (1.23)


Distributions (7.60) (5.49) (4.80)

Closing NAV 124.34 115.11 97.55





Direct portfolio transaction costs [b] 0.00 0.00 0.00Operating charges 1.19 1.19 1.20Return after operating charges +14.62 +23.63 +7.20Distribution yield [c] 6.66 4.84 5.43Effect on yield of charges offset against capital 1.15 0.00 0.00

Other information

Closing NAV ($’000) 137 134 101Closing NAV percentage of total fund NAV (%) 0.03 0.06 0.05Number of shares 84,847 86,453 65,731Highest share price (UK p) 133.65 119.61 109.61Lowest share price (UK p) 118.33 94.12 95.62



Opening NAV 131.44 106.96 100.74




Distributions (7.12) (6.10) (5.11)


Closing NAV 150.09 131.44 106.96











Other information

Closing NAV ($’000) 19 30 28


Number of shares 9,971 17,000 17,000





Opening NAV 90.24 76.48 74.86




Distributions (5.95) (4.09) (3.56)

Closing NAV 97.23 90.24 76.48











Other information

Closing NAV ($’000) 10,426 9,281 9,317


Number of shares 8,262,050 7,624,722 7,752,294











Distributions (9.97) (8.61) (7.19)


Closing NAV 222.49 195.39 159.32






Other information

Closing NAV ($’000) 5,402 91,898 88,402Closing NAV percentage of total fund NAV (%) 1.03 40.72 46.31Number of shares 1,870,725 34,870,263 35,307,897Highest share price (UK p) 229.81 198.97 175.50Lowest share price (UK p) 200.78 153.67 150.58

Swiss franc Class ‘A’ Accumulation share performanceThe share class was launched on 26 July 2013.

for the year to 30 June 2017 2016 2015Change in NAV per share Swiss ¢ Swiss ¢ Swiss ¢

Opening NAV 1,199.02 1,075.65 1,044.03Return before operating charges and after directportfolio transaction costs 115.93 139.78 47.98Operating charges (18.62) (16.41) (16.36)


Distributions (57.90) (55.03) (49.83)


Closing NAV 1,296.33 1,199.02 1,075.65

Direct portfolio transaction costs Swiss ¢ Swiss ¢ Swiss ¢





Other information

Closing NAV ($’000) 552 177 156Closing NAV percentage of total fund NAV (%) 0.11 0.08 0.08Number of shares 40,847 14,434 13,434Highest share price (Swiss ¢) 1,350.30 1,209.43 1,172.78Lowest share price (Swiss ¢) 1,210.97 1,057.02 986.43

Swiss franc Class ‘A-H’ Accumulation share performanceThe share class was launched on 24 July 2015.


Opening NAV 1,036.22 1,000.00 n/a






Closing NAV 1,114.19 1,036.22 n/a











Other information

Closing NAV ($’000) 253 32 n/a



Highest share price (Swiss ¢) 1,128.53 1,044.42 n/a

Lowest share price (Swiss ¢) 1,027.83 942.88 n/a

Swiss franc Class ‘C’ Accumulation share performanceThe share class was launched on 26 July 2013.


Opening NAV 1,216.85 1,086.06 1,048.87




Distributions (67.05) (61.57) (55.73)


Closing NAV 1,323.85 1,216.85 1,086.06











Other information

Closing NAV ($’000) 61 55 16



Highest share price (Swiss ¢) 1,377.73 1,227.39 1,181.31

Lowest share price (Swiss ¢) 1,229.05 1,068.18 993.73






Swiss franc Class ‘C-H’ Accumulation share performanceThe share class was launched on 24 July 2015.


Opening NAV 1,041.13 1,000.00 n/aReturn before operating charges and after directportfolio transaction costs 94.83 50.01 n/a





Closing NAV 1,126.83 1,041.13 n/a


Costs before dilution adjustments 0.00 0.00 n/aDilution adjustments [a] 0.00 0.00 n/a



Direct portfolio transaction costs [b] 0.00 0.00 n/aOperating charges 0.85* 0.96 n/aReturn after operating charges +8.23 +4.11 n/aDistribution yield 5.75 5.14 n/aEffect on yield of charges offset against capital 0.00 0.00 n/a

Other information

Closing NAV ($’000) 56 115 n/aClosing NAV percentage of total fund NAV (%) 0.01 0.05 n/aNumber of shares 4,734 10,747 n/aHighest share price (Swiss ¢) 1,140.99 1,049.37 n/aLowest share price (Swiss ¢) 1,035.16 945.28 n/a


US dollar Class ‘A’ Income share performanceThe share class was launched on 8 August 2014.

for the year to 30 June 2017 2016 2015Change in NAV per share US ¢ US ¢ US ¢

Opening NAV 1,106.69 1,092.72 1,160.89Return before operating charges and after directportfolio transaction costs 125.33 81.90 (2.36)Operating charges (16.54) (15.70) (14.98)


Distributions (68.16) (52.23) (50.83)

Closing NAV 1,147.32 1,106.69 1,092.72

Direct portfolio transaction costs US ¢ US ¢ US ¢




Direct portfolio transaction costs [b] 0.00 0.00 0.00Operating charges 1.44 1.44 1.45Return after operating charges +9.83 +6.06 -1.49Distribution yield [c] 6.66 4.59 5.21Effect on yield of charges offset against capital 1.40 0.00 0.00

Other information

Closing NAV ($’000) 823 327 176Closing NAV percentage of total fund NAV (%) 0.16 0.14 0.09Number of shares 71,706 29,550 16,050Highest share price (US ¢) 1,197.01 1,142.21 1,189.96Lowest share price (US ¢) 1,100.93 1,022.37 1,096.50

US dollar Class ‘A’ Accumulation share performanceThe share class was launched on 19 April 2012.


Opening NAV 1,216.19 1,143.30 1,159.22




Distributions (58.10) (55.33) (51.20)


Closing NAV 1,336.66 1,216.19 1,143.30











Other information

Closing NAV ($’000) 13,349 7,637 2,114


Number of shares 998,719 627,984 184,838

Highest share price (US ¢) 1,352.09 1,224.31 1,189.79

Lowest share price (US ¢) 1,217.09 1,095.80 1,097.56

US dollar Class ‘C’ Income share performanceThe share class was launched on 8 August 2014.


Opening NAV 1,122.39 1,108.12 1,176.40




Distributions (69.34) (58.79) (57.59)

Closing NAV 1,171.00 1,122.39 1,108.12











Other information

Closing NAV ($’000) 8,973 3,812 5


Number of shares 766,299 339,654 425








US dollar Class ‘C’ Accumulation share performanceThe share class was launched on 19 April 2012.


Opening NAV 1,242.33 1,163.58 1,174.25




Distributions (67.76) (62.26) (57.59)


Closing NAV 1,375.54 1,242.33 1,163.58











Other information

Closing NAV ($’000) 6,053 1,214 570


Number of shares 440,025 97,706 48,978














2017 2016for the year to 30 June Note $’000 $’000 $’000 $’000

Income


Revenue 5 25,239 12,176






2017 2016for the year to 30 June $’000 $’000 $’000 $’000

Opening net assets attributable toshareholders 225,690 190,905Amounts received on issue of shares 454,935 72,031

Amounts paid on cancellation of shares (195,981) (46,181) ______ ______ 258,954 25,850

Dilution adjustments 1,657 288



Closing net assets attributable toshareholders 523,208 225,690

Balance sheet

2017 2016as at 30 June Note $’000 $’000

Assets

Fixed assets Investments 527,466 224,311


Cash and bank balances 10 755 449

Total assets 546,532 235,934

Liabilities Investment liabilities (969) (31)

Creditors Bank overdrafts (2,048) (1,608)




Net assets attributable to shareholders 523,208 225,690





With effect from 1 July 2016 the distribution policy has been amendedso that in determining the amount available for distribution to Incomeshares, the annual management charge, administration charge andthe share class hedging charge are now offset against capital,increasing the amount available for distribution whilst restraining capitalperformance to an equivalent extent.

3 Net capital gains / (losses) 2017 2016for the year to 30 June $’000 $’000


Derivative contracts 4,255 450

Currency gains / (losses) 32 40




The following tables show portfolio transactions and their associatedtransaction costs. For more information about the nature of the costsplease see the section on ‘Operating charges and portfolio transactioncosts’ on pages 55 and 56.

2017 2016 for the year to 30 June $’000 $’000

a) Purchases Debt securities [a] 765,005 215,198

b) Sales Debt securities [a] 462,025 178,158


Total sales 472,334 180,558

c) Indirect portfolio transaction costs % %




5 Revenue 2017 2016for the year to 30 June $’000 $’000

Bank interest 19 1

Derivative revenue 75 0





M&G Emerging Markets Bond Fund Financial statements and notes

6 Expenses 2017 2016for the year to 30 June $’000 $’000

Payable to the ACD or associate Annual management charge 3,797 2,079Administration charge 618 288Share class hedging charge 12 1

4,427 2,368


Other expenses Audit fee (including VAT) 14 15Interest payable 23 4Legal fees 0 3Safe custody charge 112 44Tax fees (including VAT) [a] 0 2

149 68


[a] Fees of $nil (2016: $2,000) paid to overseas firms affiliated with Ernst & Young

LLP.

7 Taxation 2017 2016for the year to 30 June $’000 $’000

a) Analysis of charge in the year Corporation tax 0 16Withholding tax 133 79Current double taxation relief 0 (16)Deferred tax (note 7c) 0 0


b) Factors affecting taxation charge for the year Net revenue / (expense) before taxation 20,633 9,723 ______ ______Corporation tax at 20% 4,127 1,945

Effects of: Interest distributions (4,127) (1,929)Withholding tax 133 79Total double taxation relief 0 (16)


c) Provision for deferred taxation Provision at the start of the year 0 0Deferred tax in profit and loss account (note 7a) 0 0


The fund does not have an unrecognised deferred tax asset at the year end

(2016: same).



behalf to HM Revenue & Customs where applicable up to 31 December 2016.


Interest distributions $’000 $’000 $’000 $’000

Interim 1,989 6,148 1,007 2,814Final 4,077 10,034 1,188 3,495

Total net distributions 22,248 8,504Income tax deducted at source 1,124 1,626

Interest distributions 23,372 10,130Income deducted on cancellation of shares 2,923 543Income received on issue of shares (4,949) (1,029)


Net revenue per statement of total return 20,500 9,644Expenses offset against capital 846 0




9 Debtors 2017 2016as at 30 June $’000 $’000

Amounts receivable on issues of shares 5,262 2,314Currency deals outstanding 3,522 1,177Debt security interest receivable 9,525 3,774Distributions receivable 2 3Sales awaiting settlement 0 3,906


10 Cash and bank balances 2017 2016as at 30 June $’000 $’000

Cash held as bank balances 755 449

Total cash and bank balances 755 449

11 Other creditors 2017 2016as at 30 June $’000 $’000

ACD’s annual management charge payable 127 65Administration charge payable 23 9Amounts payable on cancellation of shares 173 438Currency deals outstanding 3,526 1,180Expenses payable 59 30Purchases awaiting settlement 12,321 4,831Share class hedging charge payable 1 0







13 Shares in issue



Euro Class ‘A’ Income 354,898 833,620 (78,360) 1,110,158

Class ‘A’ Accumulation 666,181 4,149,234 (1,312,351) 3,503,064

Class ‘A-H’ Income 82,630 118,942 (14,977) 186,595

Class ‘A-H’ Accumulation 362,325 4,132,962 (2,845,287) 1,650,000

Class ‘B’ Income 11,000 197,967 (6,416) 202,551

Class ‘B’ Accumulation 155,563 534,579 (26,860) 663,282

Class ‘B-H’ Income 3,005 202,821 (530) 205,296

Class ‘B-H’ Accumulation 5,078 155,917 (3,884) 157,111

Class ‘C’ Income 1,434 0 0 1,434

Class ‘C’ Accumulation 253,108 3,005,492 (400,821) 2,857,779

Class ‘C-H’ Income 1,000 24,896 0 25,896

Class ‘C-H’ Accumulation 375,402 6,486,763 (362,334) 6,499,831

Sterling Class ‘A’ Income 2,520,881 1,092,190 (178,083) 3,434,988

Class ‘A’ Accumulation 890,630 562,584 (277,594) 1,175,620

Class ‘I’ Income 19,477,416 26,190,112 (2,835,460) 42,832,068

Class ‘I’ Accumulation 21,719,701 48,476,768 (7,133,342) 63,063,127

Class ‘I-H’ Income 20,000 6,322,200 (156,391) 6,185,809

Class ‘I-H’ Accumulation 20,000 653,946 (14,115) 659,831

Class ‘R’ Income 86,453 38,732 (40,338) 84,847

Class ‘R’ Accumulation 17,000 0 (7,029) 9,971

Class ‘X’ Income 7,624,722 1,799,042 (1,161,714) 8,262,050

Class ‘X’ Accumulation 34,870,263 2,160,926 (35,160,464) 1,870,725

Swiss franc Class ‘A’ Accumulation 14,434 33,350 (6,937) 40,847

Class ‘A-H’ Accumulation 3,000 24,771 (6,021) 21,750

Class ‘C’ Accumulation 4,400 0 0 4,400

Class ‘C-H’ Accumulation 10,747 0 (6,013) 4,734

US dollar Class ‘A’ Income 29,550 55,032 (12,876) 71,706

Class ‘A’ Accumulation 627,984 693,512 (322,777) 998,719

Class ‘C’ Income 339,654 614,378 (187,733) 766,299

Class ‘C’ Accumulation 97,706 449,867 (107,548) 440,025



Annual Share class Entry Exit management hedging charge charge charge chargeShare class % % % %

Euro Class ‘A’ 4.00 n/a 1.25 n/a

Class ‘A-H’ 4.00 n/a 1.25 [a]

Class ‘B’ 1.25 n/a 1.75 n/a

Class ‘B-H’ 1.25 n/a 1.75 [a]

Class ‘C’ 1.25 n/a 0.60 n/a

Class ‘C-H’ 1.25 n/a 0.60 [a]

Sterling Class ‘A’ 3.00 [b] n/a 1.25 n/a

Class ‘I’ 1.00 [b] n/a 0.60 n/a

Class ‘I-H’ 1.00 [b] n/a 0.60 [a]

Class ‘R’ 1.00 [b] n/a 1.00 n/a

Class ‘X’ nil 4.50 [c] 1.25 n/a

Swiss franc Class ‘A’ 4.00 n/a 1.25 n/a

Class ‘A-H’ 4.00 n/a 1.25 [a]

Class ‘C’ 1.25 n/a 0.60 n/a

Class ‘C-H’ 1.25 n/a 0.60 [a]

US dollar Class ‘A’ 4.00 n/a 1.25 n/a

Class ‘C’ 1.25 n/a 0.60 n/a

[a] This charge may vary between 0.01% and 0.055%.

[b] With effect from 16 December 2016, the entry charge has been discounted to


[c] With effect from 16 December 2016, the exit charge has been waived on future


15 Related parties


Amounts paid to M&G Securities Limited in respect of the ACD’sannual management charge, administration charge and share classhedging charge are disclosed in note 6. Amounts due at the year endin respect of the ACD’s annual management charge, administrationcharge and share class hedging charge are disclosed in note 11.














This refers to instruments which have been valued using models withnon-observable market data inputs. This includes private equity,unlisted closed-ended funds and investment analyst recommendedprices where the market price is deemed to not be a truerepresentation of fair value. However no such financial instrumentswere held. Assets Liabilities Assets Liabilitiesas at 30 June 2017 2017 2016 2016Valuation technique $’000 $’000 $’000 $’000

Level 1 5,360 0 7,169 0

Level 2 522,106 (969) 217,142 (31)

Level 3 0 0 0 0

527,466 (969) 224,311 (31)




19 Market risk



The lowest, highest and average VaR calculated during the financialyears ended 30 June 2017 and 30 June 2016 are disclosed in the tablebelow. The lowest, highest and average utilisation of VaR is withreference to the limit above.


Lowest 4.56 5.71

Highest 11.67 10.14

Average 6.07 6.97

20 Credit risk 2017 2016as at 30 June $’000 $’000

Investment grade securities 182,380 74,104




Total 526,497 224,280

21 Counterparty exposure Forward currency Net contracts exposureas at 30 June 2017 $’000 $’000

Citigroup (1) (1)

State Street Bank 2,072 2,072

UBS 288 288

Total 2,359 2,359

Forward currency Net contracts exposureas at 30 June 2016 $’000 $’000

State Street Bank 404 404

Total 404 404




22 Leverage risk




2017 2017 2016 2016for the year to 30 June $’000 % $’000 %

Lowest 199,921 116 134,469 110

Highest 943,933 178 202,923 147

Average 199,921 132 159,950 123




23 Exchange rate risk for hedged share classes

This fund contains hedged share classes. These share classesoperate currency hedges designed to reduce the impact of exchangerates in certain circumstances. As a result, profit and loss on thecurrency hedges may impact the liquidity of the overall fund. On a dayto day basis this is monitored using reporting from the outsourcedprovider of the hedged share class service. On an ongoing basis thesize of the hedged share classes is monitored to ensure thatunforeseen exchange rate volatility can be adequately managedwithout significantly impacting all shareholders.


This fund pays semi-annual interest distributions and the followingtable sets out the distribution periods.


Interim 01.07.16 31.12.16 03.01.17 28.02.17

Final 01.01.17 30.06.17 03.07.17 31.08.17




Euro Class ‘A’ Income shares


Group 1 ¢ ¢ ¢ ¢ ¢ ¢Interim 38.6253 - 38.6253 - 38.6253 29.8640

Final 40.0558 - 40.0558 - 40.0558 30.2430

Group 2 Interim 19.6086 - 19.6086 19.0167 38.6253 29.8640

Final 18.6642 - 18.6642 21.3916 40.0558 30.2430



Group 1 ¢ ¢ ¢ ¢ ¢ ¢Interim 32.9798 - 32.9798 - 32.9798 32.2603

Final 36.3651 - 36.3651 - 36.3651 33.5138

Group 2 Interim 18.0242 - 18.0242 14.9556 32.9798 32.2603

Final 16.7782 - 16.7782 19.5869 36.3651 33.5138

Euro Class ‘A-H’ Income shares


Group 1 ¢ ¢ ¢ ¢ ¢ ¢Interim 26.9661 - 26.9661 - 26.9661 21.9897

Final 29.0768 - 29.0768 - 29.0768 21.9970

Group 2 Interim 16.5357 - 16.5357 10.4304 26.9661 21.9897

Final 11.6281 - 11.6281 17.4487 29.0768 21.9970

Euro Class ‘A-H’ Accumulation shares


Group 1 ¢ ¢ ¢ ¢ ¢ ¢Interim 22.3536 - 22.3536 - 22.3536 23.0825

Final 25.5321 - 25.5321 - 25.5321 23.7478

Group 2 Interim 15.9940 - 15.9940 6.3596 22.3536 23.0825

Final 9.5125 - 9.5125 16.0196 25.5321 23.7478

Euro Class ‘B’ Income shares


Group 1 ¢ ¢ ¢ ¢ ¢ ¢Interim 31.8162 - 31.8162 - 31.8162 22.1913

Final 32.8885 - 32.8885 - 32.8885 22.3334

Group 2 Interim 13.1408 - 13.1408 18.6754 31.8162 22.1913

Final 11.8423 - 11.8423 21.0462 32.8885 22.3334

Euro Class ‘B’ Accumulation shares


Group 1 ¢ ¢ ¢ ¢ ¢ ¢Interim 27.1640 - 27.1640 - 27.1640 27.2359

Final 30.4296 - 30.4296 - 30.4296 28.1519

Group 2 Interim 12.5329 - 12.5329 14.6311 27.1640 27.2359

Final 13.2393 - 13.2393 17.1903 30.4296 28.1519

Euro Class ‘B-H’ Income shares


Group 1 ¢ ¢ ¢ ¢ ¢ ¢Interim 29.4978 - 29.4978 - 29.4978 21.9596

Final 31.7865 - 31.7865 - 31.7865 21.5720

Group 2 Interim 7.1931 - 7.1931 22.3047 29.4978 21.9596

Final 6.1047 - 6.1047 25.6818 31.7865 21.5720




Euro Class ‘B-H’ Accumulation shares


Group 1 ¢ ¢ ¢ ¢ ¢ ¢Interim 20.4270 - 20.4270 - 20.4270 21.9596

Final 23.7176 - 23.7176 - 23.7176 22.0331

Group 2 Interim 7.7112 - 7.7112 12.7158 20.4270 21.9596

Final 9.9685 - 9.9685 13.7491 23.7176 22.0331

Euro Class ‘C’ Income shares


Group 1 ¢ ¢ ¢ ¢ ¢ ¢Interim 40.6194 - 40.6194 - 40.6194 34.3677

Final 42.3306 - 42.3306 - 42.3306 34.9923

Group 2 Interim 40.6194 - 40.6194 0.0000 40.6194 34.3677

Final 42.3306 - 42.3306 0.0000 42.3306 34.9923



Group 1 ¢ ¢ ¢ ¢ ¢ ¢Interim 38.4819 - 38.4819 - 38.4819 36.3405

Final 42.3029 - 42.3029 - 42.3029 37.7216

Group 2 Interim 12.7393 - 12.7393 25.7426 38.4819 36.3405

Final 26.0003 - 26.0003 16.3026 42.3029 37.7216

Euro Class ‘C-H’ Income shares


Group 1 ¢ ¢ ¢ ¢ ¢ ¢Interim 27.0340 - 27.0340 - 27.0340 24.4072

Final 29.2052 - 29.2052 - 29.2052 24.4260

Group 2 Interim 27.0340 - 27.0340 0.0000 27.0340 24.4072

Final 0.8885 - 0.8885 28.3167 29.2052 24.4260

Euro Class ‘C-H’ Accumulation shares


Group 1 ¢ ¢ ¢ ¢ ¢ ¢Interim 25.6021 - 25.6021 - 25.6021 25.6620

Final 29.2169 - 29.2169 - 29.2169 26.2210

Group 2 Interim 17.1474 - 17.1474 8.4547 25.6021 25.6620

Final 19.2653 - 19.2653 9.9516 29.2169 26.2210



Group 1 p p p p p pInterim 2.9525 0.5905 2.3620 - 2.3620 1.5460

Final 3.0883 - 3.0883 - 3.0883 1.7784

Group 2 Interim 1.5338 0.3068 1.2270 1.1350 2.3620 1.5460

Final 1.3465 - 1.3465 1.7418 3.0883 1.7784




Final 5.2303 - 5.2303 - 5.2303 3.7032

Group 2 Interim 2.9238 0.5848 2.3390 1.4398 3.7788 3.1584

Final 2.3754 - 2.3754 2.8549 5.2303 3.7032




Final 4.1588 - 4.1588 - 4.1588 2.6272

Group 2 Interim 2.0555 0.4111 1.6444 1.5208 3.1652 2.2896

Final 1.7880 - 1.7880 2.3708 4.1588 2.6272




Final 4.3388 - 4.3388 - 4.3388 2.9764

Group 2 Interim 2.2110 0.4422 1.7688 1.3704 3.1392 2.5380

Final 2.2681 - 2.2681 2.0707 4.3388 2.9764

Sterling Class ‘I-H’ Income shares



Final 3.2484 - 3.2484 - 3.2484 2.1888

Group 2 Interim 0.2106 0.0421 0.1685 2.2031 2.3716 2.1076

Final 2.0476 - 2.0476 1.2008 3.2484 2.1888





Sterling Class ‘I-H’ Accumulation shares



Final 3.0525 - 3.0525 - 3.0525 2.2352

Group 2 Interim 1.6315 0.3263 1.3052 0.8196 2.1248 2.1076

Final 1.0601 - 1.0601 1.9924 3.0525 2.2352




Final 3.8878 - 3.8878 - 3.8878 2.3480

Group 2 Interim 2.3199 0.4640 1.8559 1.1133 2.9692 2.0464

Final 2.9741 - 2.9741 0.9137 3.8878 2.3480




Final 3.7221 - 3.7221 - 3.7221 2.6304

Group 2 Interim 2.9276 0.5855 2.3421 0.3727 2.7148 2.2448

Final 3.7221 - 3.7221 0.0000 3.7221 2.6304




Final 3.0427 - 3.0427 - 3.0427 1.7508

Group 2 Interim 1.4581 0.2916 1.1665 1.1611 2.3276 1.5244

Final 1.5384 - 1.5384 1.5043 3.0427 1.7508




Final 5.2330 - 5.2330 - 5.2330 3.7156

Group 2 Interim 3.0686 0.6137 2.4549 1.3339 3.7888 3.1748

Final 3.3760 - 3.3760 1.8570 5.2330 3.7156

Swiss franc Class ‘A’ Accumulation shares


Group 1 ¢ ¢ ¢ ¢ ¢ ¢Interim 27.2752 - 27.2752 - 27.2752 26.9620

Final 30.6234 - 30.6234 - 30.6234 28.0728

Group 2 Interim 9.6762 - 9.6762 17.5990 27.2752 26.9620

Final 7.9545 - 7.9545 22.6689 30.6234 28.0728

Swiss franc Class ‘A-H’ Accumulation shares


Group 1 ¢ ¢ ¢ ¢ ¢ ¢Interim 22.5626 - 22.5626 - 22.5626 23.6584

Final 25.8872 - 25.8872 - 25.8872 23.8423

Group 2 Interim 19.8587 - 19.8587 2.7039 22.5626 23.6584

Final 15.2362 - 15.2362 10.6510 25.8872 23.8423

Swiss franc Class ‘C’ Accumulation shares


Group 1 ¢ ¢ ¢ ¢ ¢ ¢Interim 31.6402 - 31.6402 - 31.6402 30.1743

Final 35.4054 - 35.4054 - 35.4054 31.3927

Group 2 Interim 31.6402 - 31.6402 0.0000 31.6402 30.1743

Final 35.4054 - 35.4054 0.0000 35.4054 31.3927

Swiss franc Class ‘C-H’ Accumulation shares


Group 1 ¢ ¢ ¢ ¢ ¢ ¢Interim 25.8278 - 25.8278 - 25.8278 26.1176

Final 29.6152 - 29.6152 - 29.6152 26.4129

Group 2 Interim 25.8278 - 25.8278 0.0000 25.8278 26.1176

Final 29.6152 - 29.6152 0.0000 29.6152 26.4129

US dollar Class ‘A’ Income shares


Group 1 ¢ ¢ ¢ ¢ ¢ ¢Interim 32.1505 - 32.1505 - 32.1505 25.6735

Final 36.0089 - 36.0089 - 36.0089 26.5567

Group 2 Interim 16.9044 - 16.9044 15.2461 32.1505 25.6735

Final 14.1619 - 14.1619 21.8470 36.0089 26.5567





US dollar Class ‘A’ Accumulation shares


Group 1 ¢ ¢ ¢ ¢ ¢ ¢Interim 26.5175 - 26.5175 - 26.5175 26.8394

Final 31.5824 - 31.5824 - 31.5824 28.4933

Group 2 Interim 15.6643 - 15.6643 10.8532 26.5175 26.8394

Final 14.5875 - 14.5875 16.9949 31.5824 28.4933

US dollar Class ‘C’ Income shares


Group 1 ¢ ¢ ¢ ¢ ¢ ¢Interim 32.6467 - 32.6467 - 32.6467 28.9922

Final 36.6921 - 36.6921 - 36.6921 29.7932

Group 2 Interim 6.5932 - 6.5932 26.0535 32.6467 28.9922

Final 13.8422 - 13.8422 22.8499 36.6921 29.7932

US dollar Class ‘C’ Accumulation shares


Group 1 ¢ ¢ ¢ ¢ ¢ ¢Interim 30.9854 - 30.9854 - 30.9854 30.2021

Final 36.7775 - 36.7775 - 36.7775 32.0621

Group 2 Interim 22.9771 - 22.9771 8.0083 30.9854 30.2021

Final 23.2425 - 23.2425 13.5350 36.7775 32.0621






Investment objective up to 24 May 2017The Fund aims to maximise total return (the combination of income

and growth of capital) while generating a higher level of income than

that from European government bonds of similar maturities.


The Fund invests mainly in investment grade corporate bondsdenominated in any European currency. The Fund may also invest inhigh yield corporate bonds, government and public securitiesdenominated in any European currency. The Fund’s exposure to bonds,government and other public securities may be gained through the useof derivatives. The Fund may also invest in other assets, includingcollective investment schemes, other transferable securities, cash andnear cash, deposits, warrants, money market instruments and otherderivative instruments which may be denominated in any major globalcurrency. Any non-European currency exposures within the Fund maybe managed by currency hedges in European currencies.




At least 70% of the Fund is invested in investment grade corporatebonds denominated in any European currency. The Fund may alsoinvest in high yield corporate bonds, government and public securitiesdenominated in any European currency. The Fund’s exposure tobonds, government and other public securities may be gained throughthe use of derivatives. Derivatives may also be used for efficientportfolio management. The Fund may also invest in collectiveinvestment schemes, other transferable securities, cash, near cash,other money market instruments, warrants and other derivativeinstruments which may be denominated in any major global currency.More than 70% of the Fund will be in euro or hedged back to euro.

Investment approach

The fund manager believes that bond returns are driven by acombination of macroeconomic, asset, sector, geography and stock-level factors. A dynamic investment approach is followed, allowing thefund manager to change the blend of duration and credit exposurebased on the outlook. A high level of diversification, across individualissuers, sectors and geographies is an essential part of theinvestment process.

Risk profile

A minimum of 70% of the fund is invested in investment gradecorporate bonds denominated in any European currency. It is primarilysubject to the price volatility of the European bond market as well asthe performance of individual issuers. It is also influenced bydevelopments in the broader global bond market. In addition, the fundis subject to fluctuations in currency exchange rates.

Up to 30% of the fund may be invested in high yield corporatebonds, government and public securities denominated in anyEuropean currency. Some of these securities may be higher riskassets that could potentially experience a degree of illiquidity intimes of market distress.

The fund’s exposure to debt securities may be gained through the useof derivatives. In association with the use of derivatives, includingthose instruments not traded through an exchange, collateral isdeposited, in order to mitigate the risk that a counterparty may defaulton its obligations or become insolvent.



The above number:





mean risk free.


Low risk High risk


1 2 3 4 5 6 7

M&G European Corporate Bond Fund Authorised Corporate Director’s Report

Investment review



Between 1 July 2016 (the start of the review period) and 3 July 2017,the M&G European Corporate Bond Fund produced positive totalreturns (the combination of income and growth of capital) across itsdifferent share classes.* Global corporate bond markets gained inaggregate over the 12 months, which helped the performance of all ofthe fund’s share classes. Accordingly, over the review period, the fundhas met its objective of providing income** and capital growth.


On the whole, the 12 months under review was a positive period forcorporate bonds in what was a ‘game of two halves’ for the globaleconomy. (Bonds are loans in the form of a security, usually issued bya government (government bonds) or company (corporate bonds),which normally pay a fixed rate of interest over a given time period, atthe end of which the initial amount borrowed is repaid.) Considerableeconomic and political turbulence occurred during the first half of theperiod that gave way to a steady pick-up in activity in 2017.

At the start of the review period, the UK was experiencing considerablepolitical turmoil following the unexpected ‘leave’ result of the June 2016referendum regarding its membership of the European Union (EU),which most economists expected would weaken the economic outlook,not only in the UK but also in the EU. In October, a few months afterthe momentous Brexit vote, the Bank of England began a newprogramme of buying selected corporate bonds, with the aim ofkeeping interest rates low and promoting lending activity.

Brexit-related uncertainty – over the timing and exact form that thecountry’s departure from the EU might take – was a significant driverof market movements for the remainder of 2016. The final months of2016 delivered further political surprises, the most significant of whichwas Donald Trump’s US presidential election victory in November. Theresult caused US government bonds (also known as US Treasuries)to suffer their worst month in seven years.

Politics continued to dominate financial markets into 2017, with Dutchparliamentary elections, the UK’s formal triggering of Article 50, andthe hotly contested presidential elections in France, among the mainevents. This took place against a backdrop of broadly positiveeconomic data releases, indicating that the global economy is in goodhealth. However, bond prices experienced a drop at the end of theperiod after hints from central bankers that interest rates were to rise.

The current environment of low interest rates and steady economicgrowth proved generally supportive for corporate bond markets. Thefund delivered a positive return over the review period, helped by itsallocation to bonds from the financial sector. The fund’s exposure toUS assets also helped its performance as US corporate bondsgenerally performed better than their euro counterparts.


During the 12-month period, we added bonds issued by companiesoperating in sectors we believe are likely to benefit from the graduallygrowing global economy. For example, we increased the allocation tobanks and insurance firms. Notable purchases over the year includedeuro-denominated bonds from J.P.Morgan, Goldman Sachs, Citi andMorgan Stanley.

However, the reduced premium now offered by financials over theindustrial sector (following sharp rallies in the former) means that wehave had to become more selective when buying financial issues. Forthis reason, we added asset-backed securities (financial securitiesbacked by financial assets such as loans or mortgages) to the portfolio,as their floating rate nature (whereby the interest payments areadjusted in line with interest rates) protects their value in anenvironment where interest rates are edging up.

As an extension of the financial theme, towards the end of the period,we also bought bank bonds further down the capital structure (thosethat are lower priority for repayment should the issuer get into financialdifficulty). We believe these bonds provide a good trade-off in termsof the potential risk and reward offered.

We also assessed that value could be found in some newly issued,euro-denominated bonds from US companies. These assets are alsoknown as ‘reverse yankee’ bonds, whereby US companies look toraise money in this way to benefit from the cheaper borrowing costscurrently available in Europe compared to their domestic market.Reverse yankee issues held by the fund include bonds from USmultinational conglomerate Honeywell and US medical equipmentmanufacturers Thermo Fisher Scientific and Zimmer Biomet.

Elsewhere, we switched from bonds with lower credit ratings to thosewith higher ratings on a selective basis. For some time, we hadfavoured having a relatively high exposure to lower rated bonds basedon our assessment of the attractive relative value they offered.However, we began to believe that the valuation of these assets wasless compelling after they had delivered decent performance in themarket. Given this view, we sought to take profits on some holdings oflower rated bonds and reinvest in higher quality securities. Within thistheme, for example, we added bonds from technology group Apple,while issues from telecommunications company Sprint were sold.Other purchases included bonds from Verizon, the global wirelesscommunications group, and Balder, a Swedish real estate firm.

We reduced the fund’s overall allocation to the industrial sector as webelieve it is possible that companies within this sector could be takingon too much debt to maintain their financial stability.



Outlook

We believe we are entering a period of normalisation: growth andinflation are picking up and central banks are adjusting their policiesaccordingly. In our opinion, US and UK politics will remain keythroughout 2017, while there is also a busy political calendar in Europethis year that is exerting further influence on markets. PresidentTrump’s policies of reducing taxation and encouraging companies torepatriate funds currently held offshore should prove supportive for UScorporate bond markets. However, the biggest danger to markets isTrump’s unpredictability – something that markets and investors willhave to get used to.

Yet while President Trump may be able to stop the march ofglobalisation partially, from a US perspective, we expect that thistheme will remain intact, albeit less aggressively. Meanwhile, with UKpolitics in uncertain territory following a hung parliament andimminent Brexit negotiations, it will be several years until any deal isconcluded. Notwithstanding this, the UK’s economy seems to bemaking steady progress.

In our opinion, the global economy remains in reasonable health, andcompany default rates are staying low. As a result, we are still positiveon corporate bonds, especially investment grade issues. By contrast,we retain a cautious view on government bonds. We believe thatfurther interest rate rises in the US are likely this year, as the USFederal Reserve looks to contain inflation.

Stefan IsaacsFund manager




** The fund’s distribution and distribution yield are as shown in the ‘Specific share

class performance’ tables in the ‘Fund performance’ section of this report. This

fund provides a variable level of income.






Investments

Portfolio statement

as at 30 June 2017 2017 2016Holding €’000 % %

Debt securities 1,870,921 96.05 96.13 ‘AAA’ credit rated bonds 234,476 12.04 15.13 £6,095,639 Dukinfield FRN 2052 7,019 0.36

€8,000,000 Germany (Federal Republic of) 0% 2021 8,119 0.42



€30,000,000 Germany (Federal Republic of) 1.75% IL 2020 36,073 1.85

€3,700,000 Germany (Federal Republic of) 2.25% 2021 4,105 0.21



€10,136,000 Harvest CLO VIII FRN 2026 10,141 0.52


€7,300,000 Johnson & Johnson 0.25% 2022 7,294 0.37

€23,000,000 Johnson & Johnson 0.65% 2024 23,055 1.18

€18,000,000 Johnson & Johnson 4.75% 2019 20,026 1.03

€10,000,000 Microsoft 2.125% 2021 10,764 0.55

12.04%

10.56%

25.47%

34.37%

6.01%

0.34%

7.26%

0.06%

0.07%

0.09%

-0.01%

15.13%

8.64%

20.44%

35.50%

6.75%

0.84%

8.83%

0.15%

0.29%

-0.37%

0.02%

Debt securities










Interest rate futures contracts



30 June 2016




Investment review


€7,300,000 Johnson & Johnson 0.25% 2022 7,294 0.37

€23,000,000 Johnson & Johnson 0.65% 2024 23,055 1.18

€18,000,000 Johnson & Johnson 4.75% 2019 20,026 1.03

€10,000,000 Microsoft 2.125% 2021 10,764 0.55

€5,000,000 Microsoft 3.125% 2028 5,969 0.31

$7,500,000 Microsoft 3.5% 2035 6,572 0.34

€1,866,593 Paragon Mortgages No.11 FRN 2041 A2B 1,795 0.09




€5,000,000 Wellcome Trust 1.125% 2027 4,997 0.26

‘AA’ credit rated bonds 205,660 10.56 8.64 €3,000,000 3M Company 0.95% 2023 3,067 0.16

€8,421,000 Apple 0.875% 2025 8,372 0.43

€5,000,000 Apple 1% 2022 5,134 0.26

€10,000,000 Apple 1.625% 2026 10,430 0.54

€2,500,000 Apple 2% 2027 2,683 0.14

€5,026,348 AyT Hipotecario Mixto FRN 2041 4,833 0.25

€18,000,000 Berkshire Hathaway Finance 1.125% 2027 17,525 0.90


€19,048,000 Coca-Cola 1.125% 2027 18,923 0.97

€3,963,000 Deutsche Bahn Finance 1.5% 2032 3,922 0.20

€5,725,000 Fingrid 3.5% 2024 6,767 0.35

€4,000,000 France (Govt of) 0% 2022 4,010 0.21

€12,000,000 France (Govt of) 0.25% 2026 11,495 0.59

€2,500,000 GE Capital European Funding 0.8% 2022 2,538 0.13


€14,643,000 General Electric Capital 1.25% 2023 15,115 0.78

£5,000,000 Natixis 5.875% 2020 6,391 0.33

€3,652,000 Nestlé Finance International 2.125% 2021 3,954 0.20

€14,815,000 Novartis Finance 0.125% 2023 14,400 0.74



€479,656 Paragon Mortgages No.13 FRN 2039 A2B 460 0.02

€2,296,694 Paragon Mortgages No.8 FRN 2035 A2B 2,247 0.11

€2,500,000 Procter & Gamble 2% 2022 2,690 0.14

€5,000,000 Roche Finance Europe 0.875% 2025 5,067 0.26

€5,300,000 Sanofi 0% 2020 5,290 0.27

€8,000,000 Svenska Handelsbanken 2.625% 2022 8,859 0.45

€11,000,000 Wal-Mart Stores 4.875% 2029 15,236 0.78


‘A’ credit rated bonds 496,147 25.47 20.44 €10,000,000 Airbus Group 0.875% 2026 9,838 0.51

€12,000,000 Allianz Finance II Var. Rate 2041 (5.75%) 15,335 0.79

€5,000,000 Allianz Var. Rate Perp. (4.75%) 5,758 0.30

€5,000,000 América Móvil 4.125% 2019 5,442 0.28

€5,000,000 Amgenc 1.25% 2022 5,154 0.26

€3,000,000 Anheuser-Busch InBev 2.7% 2026 3,372 0.17


€14,000,000 Aon 2.875% 2026 15,263 0.78

€3,000,000 Banco Santander 6.75% Perp. 3,219 0.17

€16,000,000 Bankia 4.125% 2036 20,298 1.04

£2,500,000 Barclays Bank 9.5% 2021 3,628 0.19

€3,500,000 BASF Finance Europe 2% 2022 3,792 0.19

€4,100,000 BG Energy Capital 3.625% 2019 4,393 0.23

€5,000,000 BHP Billiton Finance 2.25% 2020 5,312 0.27

€2,185,000 BNP Paribas 1.5% 2025 2,197 0.11

€9,278,000 BNP Paribas FRN 2024 9,305 0.48

€1,938,000 BP Capital Markets 1.117% 2024 1,960 0.10

€3,333,000 Carnival 1.875% 2022 3,513 0.18

€3,000,000 CEZ 4.5% 2020 3,373 0.17

€2,500,000 CEZ 4.875% 2025 3,142 0.16

€9,750,000 Cloverie Var. Rate 2039 (7.5%) 11,139 0.57


€7,000,000 DAA Finance 1.554% 2028 6,949 0.36

€5,000,000 EDF 4% 2025 6,109 0.31

€2,500,000 EDF 4.125% 2027 3,110 0.16

€1,500,000 EDF 6.25% 2021 1,818 0.09

€6,664,000 ELM Var. Rate Perp. (2.6%) 6,764 0.35

€1,063,720 EMAC De (2006-1) FRN 2048 1,054 0.05

€1,990,000 EnBW International 6.125% 2039 3,236 0.17

€13,000,000 ENGIE 5.95% 2111 21,369 1.10

€5,000,000 Engie Var. Rate 2020 (1.375%) 5,171 0.27

€3,000,000 ESB Finance 2.125% 2027 3,210 0.17

€1,050,000 GIE Suez Alliance 5.75% 2023 1,361 0.07

€5,000,000 Honeywell 0.65% 2020 5,059 0.26

€5,000,000 Honeywell International 1.3% 2023 5,151 0.26

€3,000,000 HSBC Holdings 0.875% 2024 2,971 0.15

€5,000,000 HSBC Holdings 1.5% 2022 5,212 0.27

€2,475,000 HSBC Holdings 4.75% Perp. 2,470 0.13

€5,000,000 Hutchison Whampoa 1.375% 2021 5,142 0.26

€5,000,000 Illinois Tool Works 1.75% 2022 5,298 0.27

€4,333,000 JPMorgan Chase 0.625% 2024 4,234 0.22

€8,000,000 JPMorgan Chase 1.375% 2021 8,303 0.43

€10,925,000 JPMorgan Chase 1.5% 2026 11,001 0.57

€6,857,000 JPMorgan Chase 2.875% 2028 7,771 0.40

€2,439,000 JPMorgan Chase Var. Rate 2018 (1.638%) 2,439 0.13

€3,200,000 Klépierre 1.375% 2027 3,211 0.16

$5,000,000 Legrande France 8.5% 2025 5,700 0.29

£3,913,000 Lloyds Bank 4.875% 2027 5,615 0.29

€2,506,920 Magellan Mortgages No.3 FRN 2058 3A 2,334 0.12

€2,800,170 Magellan Mortgages No.4 FRN 2059 4A 2,525 0.13

$6,856,625 Mitchells & Butlers Finance FRN 2030 5,291 0.27


€4,000,000 Munich Re Finance Var. Rate 2042 (6.25%) 4,947 0.25

€1,283,264 Paragon Mortgages No.7 FRN 2034 1,254 0.06

€9,680,000 Philip Morris International 2.875% 2024 10,937 0.56


€3,958,000 Prologis 3% 2022 4,352 0.22

€1,677,000 Prologis 3.375% 2024 1,919 0.10

€5,000,000 Rabobank 4% 2022 5,811 0.30

€4,000,000 Rabobank Var. Rate Perp. (5.5%) 4,229 0.22


€1,800,000 Réseau de Transport dÉlectricité 1% 2026 1,770 0.09

€1,481,776 RMAC 2005-Ns1 FRN 2037 A2C 1,435 0.07

£8,855,454 RMAC 2006-Ns4 FRN 2044 A3A 9,654 0.50



€5,000,000 Microsoft 3.125% 2028 5,969 0.31

$7,500,000 Microsoft 3.5% 2035 6,572 0.34





€5,000,000 Wellcome Trust 1.125% 2027 4,997 0.26

‘AA’ credit rated bonds 205,660 10.56 8.64 €3,000,000 3M Company 0.95% 2023 3,067 0.16

€8,421,000 Apple 0.875% 2025 8,372 0.43

€5,000,000 Apple 1% 2022 5,134 0.26

€10,000,000 Apple 1.625% 2026 10,430 0.54

€2,500,000 Apple 2% 2027 2,683 0.14

€5,026,348 AyT Hipotecario Mixto FRN 2041 4,833 0.25



€19,048,000 Coca-Cola 1.125% 2027 18,923 0.97

€3,963,000 Deutsche Bahn Finance 1.5% 2032 3,922 0.20

€5,725,000 Fingrid 3.5% 2024 6,767 0.35

€4,000,000 France (Govt of) 0% 2022 4,010 0.21

€12,000,000 France (Govt of) 0.25% 2026 11,495 0.59



€14,643,000 General Electric Capital 1.25% 2023 15,115 0.78

£5,000,000 Natixis 5.875% 2020 6,391 0.33





€479,656 Paragon Mortgages No.13 FRN 2039 460 0.02


€2,500,000 Procter & Gamble 2% 2022 2,690 0.14

€5,000,000 Roche Finance Europe 0.875% 2025 5,067 0.26

€5,300,000 Sanofi 0% 2020 5,290 0.27

€8,000,000 Svenska Handelsbanken 2.625% 2022 8,859 0.45

€11,000,000 Wal-Mart Stores 4.875% 2029 15,236 0.78


‘A’ credit rated bonds 496,147 25.47 20.44 €10,000,000 Airbus Group 0.875% 2026 9,838 0.51

€13,000,000 Allianz Finance II Var. Rate 2041 (5.75%) 15,335 0.79

€5,000,000 Allianz Var. Rate Perp. (4.75%) 5,758 0.30

€5,000,000 América Móvil 4.125% 2019 5,442 0.28

€5,000,000 Amgen 1.25% 2022 5,154 0.26



€14,000,000 Aon 2.875% 2026 15,263 0.78

€3,000,000 Banco Santander 6.75% Perp. 3,219 0.17

€16,000,000 Bankia 4.125% 2036 20,298 1.04

£2,500,000 Barclays Bank 9.5% 2021 3,628 0.19

€3,500,000 BASF Finance Europe 2% 2022 3,792 0.19

€4,100,000 BG Energy Capital 3.625% 2019 4,393 0.23

€5,000,000 BHP Billiton Finance 2.25% 2020 5,312 0.27

€2,185,000 BNP Paribas 1.5% 2025 2,197 0.11

€9,278,000 BNP Paribas FRN 2024 9,305 0.48

€1,938,000 BP Capital Markets 1.117% 2024 1,960 0.10

€3,333,000 Carnival 1.875% 2022 3,513 0.18

€3,000,000 CEZ 4.5% 2020 3,373 0.17

€2,500,000 CEZ 4.875% 2025 3,142 0.16



€7,000,000 DAA Finance 1.554% 2028 6,949 0.36

€5,000,000 EDF 4% 2025 6,109 0.31

€2,500,000 EDF 4.125% 2027 3,110 0.16

€1,500,000 EDF 6.25% 2021 1,818 0.09

€6,664,000 ELM Var. Rate Perp. (2.6%) 6,764 0.35

€1,063,720 EMAC De (2006-1) FRN 2048 1,054 0.05

€1,990,000 EnBW International 6.125% 2039 3,236 0.17

€13,000,000 Engie E 5.95% 2111 21,369 1.10

€5,000,000 Engie Var. Rate 2020 (1.375%) 5,171 0.27

€3,000,000 ESB Finance 2.125% 2027 3,210 0.17

€1,050,000 GIE Suez Alliance 5.75% 2023 1,361 0.07



€3,000,000 HSBC Holdings 0.875% 2024 2,971 0.15

€5,000,000 HSBC Holdings 1.5% 2022 5,212 0.27

€2,475,000 HSBC Holdings 4.75% Perp. 2,470 0.13

€5,000,000 Hutchison Whampoa 1.375% 2021 5,142 0.26

€5,000,000 Illinois Tool Works 1.75% 2022 5,298 0.27

€4,333,000 JPMorgan Chase 0.625% 2024 4,234 0.22

€8,000,000 JPMorgan Chase 1.375% 2021 8,303 0.43

€10,925,000 JPMorgan Chase 1.5% 2026 11,001 0.57

€6,857,000 JPMorgan Chase 2.875% 2028 7,771 0.40

€2,439,000 JPMorgan Chase Var. Rate 2018 (1.638%) 2,439 0.13

€3,200,000 Klépierre 1.375% 2027 3,211 0.16

$5,000,000 Legrande France 8.5% 2025 5,700 0.29

£3,913,000 Lloyds Bank 4.875% 2027 5,615 0.29

€2,506,920 Magellan Mortgages No.3 FRN 2058 2,334 0.12

€2,800,170 Magellan Mortgages No.4 FRN 2059 2,525 0.13

$6,856,625 Mitchells & Butlers Finance FRN 2030 5,291 0.27


€4,000,000 Munich Re Finance Var. Rate 2042 (6.25%) 4,947 0.25




€3,958,000 Prologis 3% 2022 4,352 0.22

€1,677,000 Prologis 3.375% 2024 1,919 0.10

€5,000,000 Rabobank 4% 2022 5,811 0.30



€1,800,000 Réseau de Transport dÉlectricité 1% 2026 1,770 0.09

€1,481,776 RMAC 2005-Ns1 FRN 2037 1,435 0.07

£8,855,454 RMAC 2006-Ns4 FRN 2044 9,654 0.50

€5,000,000 Scentre Management 1.5% 2020 5,156 0.27

€2,400,000 SCOR 3.875% Perp. 2,604 0.13

€3,500,000 SEB 1.5% 2024 3,526 0.18

€16,548,000 Shell International Finance 1% 2022 17,026 0.87

€2,500,000 Shell International Finance 4.375% 2018 2,598 0.13

€14,385,361 Silverback Finance 3.1261% 2037 14,443 0.74

€3,500,000 Société Générale 4% 2023 4,026 0.21





‘AAA’ credit rated bonds (continued)




€5,000,000 Scentre Management 1.5% 2020 5,156 0.27

€2,400,000 SCOR 3.875% Perp. 2,604 0.13

€3,500,000 SEB 1.5% 2024 3,526 0.18

€16,548,000 Shell International Finance 1% 2022 17,026 0.87

€2,500,000 Shell International Finance 4.375% 2018 2,598 0.13

€14,385,361 Silverback Finance 3.1261% 2037 14,443 0.74

€3,500,000 Société Générale 4% 2023 4,026 0.21

€2,865,000 Statkraft 2.5% 2022 3,154 0.16

€3,400,000 Sumitomo Mitsui Banking 2.75% 2023 3,773 0.19

€5,500,000 Thales Group 0.75% 2023 5,543 0.28

€2,500,000 Total Capital International 0.25% 2023 2,451 0.13


€14,333,000 Total Var. Rate Perp. (2.25%) 14,506 0.75


€6,491,000 UBS 1.125% 2020 6,685 0.34

€6,230,000 Vier Gas Transport 3.125% 2023 7,136 0.37

€4,773,000 Wells Fargo 1% 2027 4,560 0.23

€2,338,000 Wells Fargo 1.625% 2025 2,420 0.12

€12,000,000 Wells Fargo 2.25% 2023 12,969 0.67

€7,000,000 Wells Fargo 2.625% 2022 7,691 0.40

‘BBB’ credit rated bonds 669,496 34.37 35.50 €8,000,000 AG Insurance 3.5% 2047 8,360 0.43

€4,184,000 América Móvil Var. Rate 2073 (6.375%) 4,953 0.25

€2,169,000 American International Group 1.875% 2027 2,150 0.11

€15,250,000 American International Group FRN 14,106 0.72

€4,170,000 Arion Bank 0.75% 2020 4,168 0.21

€6,667,000 AT&T 3.375% 2034 7,028 0.36

€13,000,000 AT&T 3.55% 2032 14,106 0.72

€7,000,000 Aviva Var. Rate 2043 (6.125%) 8,383 0.43

€1,210,000 Aviva Var. Rate 2044 (3.875%) 1,300 0.07

€1,948,000 Aviva Var. Rate 2045 (3.375%) 2,005 0.10

€5,043,000 AXA Var. Rate 2043 (5.125%) 5,989 0.31

€10,000,000 Banco Bilbao Vizcaya Argentaria Var. Rate Perp. (7%) 10,242 0.53

€14,000,000 Bank of America 0.75% 2023 13,729 0.70

€4,375,000 Bank of America 1.375% 2021 4,519 0.23

€7,000,000 Bank of America 2.375% 2024 7,530 0.39

€5,000,000 Bank of America FRN 2023 5,008 0.26

€3,000,000 Barclays Bank 6.625% 2022 3,720 0.19

€4,115,000 BAT Holdings 3.125% 2029 4,619 0.24

£5,000,000 BAT International Finance 2.25% 2052 4,645 0.24

€3,000,000 BAT International Finance 2.75% 2025 3,300 0.17


€5,618,000 Bayer Var. Rate 2075 (2.375%) 5,665 0.29

€3,885,000 Bayer Var. Rate 2075 (3%) 4,038 0.21

€5,000,000 Becton Dickinson 1.9% 2026 4,968 0.26

€1,000,000 BNP Paribas 4.875% Perp. 1,019 0.05

€5,266,000 BNP Paribas Var. Rate 2026 (2.875%) 5,582 0.29

€5,000,000 BPCE 2.75% 2027 5,291 0.27

€3,000,000 Citigroup 1.375% 2021 3,110 0.16

€15,000,000 Citigroup 1.5% 2028 14,577 0.75

€9,000,000 Citigroup 1.75% 2025 9,339 0.48

€4,091,000 Citycon 3.75% 2020 4,474 0.23

€13,000,000 Coentreprise de Transport d’Electricite 1.5% 2028 12,801 0.66

€5,395,000 Commerzbank 4% 2026 5,820 0.30

$3,000,000 Commerzbank 8.125% 2023 3,167 0.16

$1,987,000 CoreStates Capital III FRN 2027 1,642 0.08

€6,200,000 Crédit Agricole 1.875% 2026 6,349 0.33

€5,000,000 Crédit Agricole 2.625% 2027 5,231 0.27

€2,000,000 Credit Agricole Var. Rate 2048 (4.75%) 2,224 0.11

£3,750,000 Credit Suisse Group Funding 3% 2022 4,512 0.23

€6,000,000 Credit Suisse Var. Rate 2025 (5.75%) 6,762 0.35

€5,000,000 Deutsche Telekom International Finance 0.25% 2021 4,989 0.26



€1,545,000 ELM 3.375% 2047 1,629 0.08

€2,200,000 ELM Var. Rate Perp. (4.5%) 2,391 0.12

€5,000,000 Eni 1.5% 2026 5,065 0.26

€7,000,000 Eni 3.75% 2025 8,377 0.43

€3,950,000 EXOR 2.5% 2024 4,166 0.21

€5,000,000 FCE Bank 1.134% 2022 5,042 0.26

€1,636,000 FCE Bank 1.615% 2023 1,665 0.09

€5,898,686 GAMMA - Sociedade de Titularização de Créditos FRN 2060 5,440 0.28

€4,482,000 GELF 0.875% 2022 4,451 0.23

€9,251,000 GELF 1.75% 2021 9,599 0.49

£1,370,000 GKN Holdings 3.375% 2032 1,558 0.08

€2,000,000 Glencore Finance Europe 1.25% 2021 2,030 0.10

€2,625,000 Global Switch Holdings 2.25% 2027 2,650 0.14

€7,674,000 Goldman Sachs Group 1.25% 2025 7,566 0.39





£4,100,000 HSBC Holdings Var. Rate 2022 (6.375%) 4,729 0.24

€6,900,000 Iberdrola International 3.5% 2021 7,687 0.40

€1,782,000 Imperial Brands Finance 1.375% 2025 1,774 0.09

€8,000,000 ING Bank 3.625% 2026 8,729 0.45

€13,000,000 Intesa Sanpaolo 2% 2021 13,701 0.70

$7,000,000 Intesa Sanpaolo 6.5% 2021 6,868 0.35

€7,000,000 Intesa Sanpaolo Var. Rate Perp. (4.75%) 7,261 0.37

€5,000,000 Italy (Republic of) 1.3% IL 2028 5,098 0.26

€10,000,000 Italy (Republic of) 2.2% 2027 10,070 0.52

€1,000,000 Johnson Controls 1.375% 2025 993 0.05

€4,500,000 KBC Groep 0.75% 2022 4,514 0.23

€1,000,000 Kraft Heinz Foods 1.5% 2024 1,006 0.05

€1,000,000 Kraft Heinz Foods 2% 2023 1,042 0.05


£1,067,000 LafargeHolcim Sterling Finance (Netherlands) 3% 2032 1,199 0.06

€1,980,000 Liberty Mutual Group 2.75% 2026 2,117 0.11

£4,000,000 Lloyds Bank 7.625% 2025 6,135 0.31

€5,000,000 LYB International Finance 1.875% 2022 5,170 0.27

€3,000,000 McDonalds 0.5% 2021 3,012 0.16

€3,000,000 McDonalds 2% 2023 3,201 0.16


€2,865,000 Statkraft 2.5% 2022 3,154 0.16

€3,400,000 Sumitomo Mitsui Banking 2.75% 2023 3,773 0.19

€5,500,000 Thales Group 0.75% 2023 5,543 0.28





€6,491,000 UBS 1.125% 2020 6,685 0.34

€6,230,000 Vier Gas Transport 3.125% 2023 7,136 0.37

€4,773,000 Wells Fargo 1% 2027 4,560 0.23

€2,338,000 Wells Fargo 1.625% 2025 2,420 0.12

€12,000,000 Wells Fargo 2.25% 2023 12,969 0.67

€7,000,000 Wells Fargo 2.625% 2022 7,691 0.40

‘BBB’ credit rated bonds 669,496 34.37 35.50 €8,000,000 AG Insurance 3.5% 2047 8,360 0.43

€4,184,000 América Móvil Var. Rate 2073 (6.375%) 4,953 0.25

€2,169,000 American International Group 1.875% 2027 2,150 0.11

€15,250,000 American International Group FRN 14,106 0.72

€4,170,000 Arion Bank 0.75% 2020 4,168 0.21

€6,667,000 AT&T 3.375% 2034 7,028 0.36

€13,000,000 AT&T 3.55% 2032 14,106 0.72

€7,000,000 Aviva Var. Rate 2043 (6.125%) 8,383 0.43

€1,210,000 Aviva Var. Rate 2044 (3.875%) 1,300 0.07

€1,948,000 Aviva Var. Rate 2045 (3.375%) 2,005 0.10

€5,043,000 AXA Var. Rate 2043 (5.125%) 5,989 0.31

€10,000,000 Banco Bilbao Vizcaya Argentaria Var. Rate Perp. (7%) 10,242 0.53

€14,000,000 Bank of America 0.75% 2023 13,729 0.70

€4,375,000 Bank of America 1.375% 2021 4,519 0.23

€7,000,000 Bank of America 2.375% 2024 7,530 0.39

€5,000,000 Bank of America FRN 2023 5,008 0.26

€3,000,000 Barclays Bank 6.625% 2022 3,720 0.19

€4,115,000 BAT Holdings 3.125% 2029 4,619 0.24


€3,000,000 BAT International Finance 2.75% 2025 3,300 0.17


€5,618,000 Bayer Var. Rate 2075 (2.375%) 5,665 0.29

€3,885,000 Bayer Var. Rate 2075 (3%) 4,038 0.21

€5,000,000 Becton Dickinson 1.9% 2026 4,968 0.26

€1,000,000 BNP Paribas 4.875% Perp. 1,019 0.05

€5,266,000 BNP Paribas Var. Rate 2026 (2.875%) 5,582 0.29

€5,000,000 BPCE 2.75% 2027 5,291 0.27

€3,000,000 Citigroup 1.375% 2021 3,110 0.16

€15,000,000 Citigroup 1.5% 2028 14,577 0.75

€9,000,000 Citigroup 1.75% 2025 9,339 0.48

€4,091,000 Citycon 3.75% 2020 4,474 0.23

€13,000,000 Coentreprise de Transport d’Electricite 1.5% 2028 12,801 0.66

€5,395,000 Commerzbank 4% 2026 5,820 0.30

$3,000,000 Commerzbank 8.125% 2023 3,167 0.16

$1,987,000 CoreStates Capital III FRN 2027 1,642 0.08

€6,200,000 Crédit Agricole 1.875% 2026 6,349 0.33

€5,000,000 Crédit Agricole 2.625% 2027 5,231 0.27

€2,000,000 Credit Agricole Var. Rate 2048 (4.75%) 2,224 0.11

£3,750,000 Credit Suisse Group Funding 3% 2022 4,512 0.23

€6,000,000 Credit Suisse Var. Rate 2025 (5.75%) 6,762 0.35




€1,545,000 ELM 3.375% 2047 1,629 0.08

€2,200,000 ELM Var. Rate Perp. (4.5%) 2,391 0.12

€5,000,000 Eni 1.5% 2026 5,065 0.26

€7,000,000 Eni 3.75% 2025 8,377 0.43

€3,950,000 EXOR 2.5% 2024 4,166 0.21

€5,000,000 FCE Bank 1.134% 2022 5,042 0.26

€1,636,000 FCE Bank 1.615% 2023 1,665 0.09

€5,898,686 GAMMA - Sociedade de Titularização de Créditos FRN 2060 5,440 0.28

€4,482,000 GELF 0.875% 2022 4,451 0.23

€9,251,000 GELF 1.75% 2021 9,599 0.49

£1,370,000 GKN Holdings 3.375% 2032 1,558 0.08

€2,000,000 Glencore Finance Europe 1.25% 2021 2,030 0.10

€2,625,000 Global Switch Holdings 2.25% 2027 2,650 0.14






£4,100,000 HSBC Holdings Var. Rate 2022 (6.375%) 4,729 0.24

€6,900,000 Iberdrola International 3.5% 2021 7,687 0.40

€1,782,000 Imperial Brands Finance 1.375% 2025 1,774 0.09

€8,000,000 ING Bank 3.625% 2026 8,729 0.45

€13,000,000 Intesa Sanpaolo 2% 2021 13,701 0.70

$7,000,000 Intesa Sanpaolo 6.5% 2021 6,868 0.35

€7,000,000 Intesa Sanpaolo Var. Rate Perp. (4.75%) 7,261 0.37

€5,000,000 Italy (Republic of) 1.3% IL 2028 5,098 0.26

€10,000,000 Italy (Republic of) 2.2% 2027 10,070 0.52

€1,000,000 Johnson Controls 1.375% 2025 993 0.05

€4,500,000 KBC Groep 0.75% 2022 4,514 0.23


€1,000,000 Kraft Heinz Foods 2% 2023 1,042 0.05


£1,067,000 LafargeHolcim Sterling Finance (Netherlands) 3% 2032 1,199 0.06

€1,980,000 Liberty Mutual Group 2.75% 2026 2,117 0.11

£4,000,000 Lloyds Bank 7.625% 2025 6,135 0.31

€5,000,000 LYB International Finance 1.875% 2022 5,170 0.27

€3,000,000 McDonalds 0.5% 2021 3,012 0.16

€3,000,000 McDonalds 2% 2023 3,201 0.16

€515,000 Mondelez International 2.375% 2035 495 0.03

€4,125,000 Morgan Stanley 1% 2022 4,153 0.21

€9,857,000 Morgan Stanley 1.375% 2026 9,569 0.49

€7,500,000 Morgan Stanley 1.75% 2025 7,693 0.39

€3,200,000 Morgan Stanley 1.875% 2023 3,353 0.17

€5,100,000 Morgan Stanley 5.375% 2020 5,897 0.30

€4,765,000 NET4GAS S.R.O. 2.5% 2021 5,081 0.26









€3,048,000 NGG Finance Var. Rate 2076 (4.25%) 3,289 0.17

€2,000,000 Nielsen Norman Group Var. Rate 2044 (4.625%) 2,211 0.11

€7,000,000 Nielsen Norman Group Var. Rate Perp. (4.5%) 7,410 0.38

€6,205,000 Orange Var. Rate Perp. (5%) 6,950 0.36

€9,455,000 Origin Energy Finance 2.5% 2020 10,045 0.52

€3,689,000 Petróleos Mexicanos 2.75% 2027 3,317 0.17

€9,000,000 Prologis International Funding II 2.75% 2018 9,305 0.48

€1,158,000 Prologis International Funding II 2.875% 2022 1,252 0.06

€2,800,000 Rabobank Var. Rate 2026 (2.5%) 2,938 0.15

€3,000,000 Ryanair 1.875% 2021 3,164 0.16

€10,000,000 Santander Issuances 2.5% 2025 10,242 0.53

€934,000 Smiths Group 2% 2027 950 0.05

€3,711,000 Southern Power 1% 2022 3,720 0.19

€2,975,000 Standard Chartered 4% 2025 3,200 0.16

€5,000,000 Teva Pharmaceutical Finance 1.125% 2024 4,796 0.25

€5,956,000 Teva Pharmaceutical Finance 1.25% 2023 5,871 0.30

€1,000,000 Thermo Fisher Scientific 1.45% 2027 982 0.05

$2,500,000 Time Warner Cable 7.3% 2038 2,820 0.15

€1,111,000 Transmission Finance 1.5% 2023 1,144 0.06

€22,000,000 UBS Var. Rate 2026 (4.75%) 24,263 1.25

€3,500,000 Uniqa Insurance Var. Rate 2043 (6.875%) 4,272 0.22

€4,819,000 Urenco Finance 2.375% 2024 5,182 0.27

€1,800,000 Urenco Finance 2.5% 2021 1,928 0.10

€10,000,000 Verizon Communications 0.875% 2025 9,556 0.49



€2,660,000 Vesteda Finance 1.75% 2019 2,728 0.14

€4,714,000 Vodafone Group 2.2% 2026 5,027 0.26

€5,000,000 Volkswagen Financial Services 0.75% 2021 5,049 0.26

€1,000,000 Volkswagen International Finance 1.625% 2030 944 0.05

€6,000,000 Volkswagen International Finance Var. Rate Perp. (4.625%) 6,428 0.33

€4,000,000 Volkswagen Leasing GMBH 2.625% 2024 4,357 0.22

€3,818,000 Vonovia Finance 3.625% 2021 4,310 0.22

€7,000,000 W.P.Carey Eurobond 2.25% 2024 7,221 0.37

€2,500,000 Walgreens Boots Alliance 2.125% 2026 2,579 0.13

€3,000,000 Zimmer Biomet 2.425% 2026 3,114 0.16

‘BB’ credit rated bonds 117,062 6.01 6.75 €5,000,000 ABN Amro Bank Var. Rate Perp. (5.75%) 5,289 0.27

£600,000 Bank of Scotland Var. Rate Perp. (7.281%) 854 0.04

€7,000,000 Credit Agricole Var. Rate Perp. (6.5%) 7,646 0.39

€6,800,000 EDF Var. Rate Perp. (4.125%) 7,171 0.37

€3,000,000 EDF Var. Rate Perp. (5%) 3,212 0.17

€4,000,000 EDF Var. Rate Perp. (5.375%) 4,418 0.23

€5,000,000 Intesa Sanpaolo 2.855% 2025 5,019 0.26

€5,000,000 Intesa Sanpaolo 3.928% 2026 5,288 0.27

€4,000,000 Intesa Sanpaolo 6.625% 2023 4,913 0.25

€8,000,000 KBC Groep 5.625% Perp. 8,247 0.42

€5,000,000 KPN Var. Rate Perp. (6.125%) 5,313 0.27

€5,000,000 Lloyds Bank Var. Rate Perp. (6.375%) 5,353 0.27

£1,500,000 Lloyds Bank Var. Rate Perp. (7%) 1,768 0.09

€800,000 National Westminster Bank Var. Rate Perp. (6.625%) 762 0.04

€3,571,000 Royal Bank of Scotland 3.625% 2024 3,700 0.19

€11,950,000 Société Générale Var. Rate Perp. (9.375%) 14,086 0.72

€3,500,000 Solvay Finance Var. Rate Perp. (5.425%) 4,008 0.21

€1,190,000 Stora Enso 2.5% 2027 1,181 0.06

€1,250,000 Telecom Italia 7.75% 2033 1,734 0.09

€2,500,000 Telefónica (Europe) 4.2% Perp. 2,656 0.14

€4,000,000 UBS Var. Rate Perp. (5.75%) 4,409 0.23

€1,000,000 Unicredit 6.95% 2022 1,207 0.06

€5,000,000 Unicredit Var. Rate 2025 (5.75%) 5,451 0.28

€5,000,000 Unitymedia Hessen 4% 2025 5,273 0.27


‘B’ credit rated bonds 6,695 0.34 0.84 €2,111,000 Intesa Sanpaolo Var. Rate Perp. (7.75%) 2,338 0.12

€2,730,000 Numericable Group 5.375% 2022 2,845 0.14

€1,500,000 Royal Bank of Scotland 5.5% Perp. 1,512 0.08

Bonds with no credit rating 141,385 7.26 8.83 €7,500,000 ALME Loan Funding II FRN 2033 7,535 0.39

€5,000,000 Altarea 2.25% 2024 4,938 0.25

$6,000,000 American Tower Trust 3.07% 2048 5,312 0.27

€15,519,000 Arbour Clo FRN 2030 15,674 0.80

€5,213,000 ASML 1.625% 2027 5,253 0.27



€9,524,000 ATON 3.875% 2018 9,664 0.50

€1,100,000 Brisa Concessão Rodoviária 2.375% 2027 1,112 0.06

€2,300,000 Bureau Veritas 1.125% 2023 2,296 0.12

€3,900,000 Bureau Veritas 3.125% 2021 4,212 0.22

€5,121,000 Channel Link Enterprises Finance 1.761% IL 2050 5,149 0.26

€1,400,000 Eurogrid 1.625% 2023 1,467 0.07

€1,230,000 EWE 5.25% 2021 1,465 0.07

€5,800,000 Groupe Bruxelles Lambert 1.375% 2024 5,788 0.30

€2,000,000 Hammerson 1.75% 2023 2,074 0.11

€2,000,000 Lagardère 1.625% 2024 1,975 0.10

€3,000,000 Lagardère 4.125% 2017 3,037 0.16

€2,700,000 Lehman Brothers Holdings Var. Rate 2040 (0%) [a] 0 0.00



€6,567,000 Oak Hill FRN 2030 6,580 0.34

€3,233,000 SELP Finance 1.25% 2023 3,182 0.16

€1,450,000 Suez Environnement 5.5% 2024 1,916 0.10

€1,700,000 Suez Environnement Var. Rate. Perp. (2.875%) 1,744 0.09

€10,535,000 Symrise 4.125% 2017 10,669 0.55

€12,000,000 Telefónica (Germany) 2.375% 2021 12,809 0.66

€3,400,000 Total Infrastructures Gaz France 4.339% 2021 3,889 0.20

€3,199,160 Valencia Hipotecario 2 FRN 2043 3,143 0.16

€6,400,000 Vilmorin & Cie 2.375% 2021 6,650 0.34





‘BBB’ credit rated bondss (continued)




Credit default swaps 1,136 0.06 0.15 €(5,000,000) BP Jun 2023 78 0.00

€(5,000,000) Glencore Finance Europe Jun 2022 789 0.04

€(10,000,000) Heathrow Funding Dec 2022 23 0.00

€(2,000,000) Markit iTraxx Europe Series 26 5 Year Dec 2021 46 0.01

€100,000,000 Markit iTraxx Europe Series 27 5 Year Jun 2022 (2,190) (0.10)

€(86,000,000) Markit iTraxx Europe Series 27 10 Year Jun 2027 83 0.00

€(50,000,000) Markit iTraxx Europe Snr Fin Series 26 5 Year Dec 2021 1,184 0.06

€(25,000,000) Markit iTraxx Europe Snr Fin Series 27 5 Year Jun 2022 581 0.03

€22,500,000 Markit iTraxx Europe Sub Fin Series 26 5 Year Dec 2021 183 0.00

€(10,000,000) Repsol Mar 2021 135 0.01

€(5,000,000) Telefónica Mar 2021 95 0.00

€10,000,000 Volkswagen Dec 2017 (46) 0.00

€(10,000,000) Volkswagen Jun 2023 155 0.01

€(5,000,000) Xstrata Dec 2017 20 0.00

Forward currency contracts 1,348 0.07 0.29 £(84,538,779) Sold for €96,229,400 (expires 26.07.17) 67 0.00

$(73,519,285) Sold for €65,676,817 (expires 26.07.17) 1,281 0.07

Interest rate futures contracts 1,828 0.09 (0.37) (738) 10 Year US Treasury Note Sep 2017 175 0.01

382 Euro Bobl Sep 2017 (504) (0.03)

(223) Euro Bund Sep 2017 549 0.03

(297) Euro Buxl Sep 2017 903 0.05

(294) UK Long Gilt Bond Sep 2017 705 0.03


Forward currency contracts for share class hedging (195) (0.01) 0.02 CHF14,169,491 Bought for €13,053,368 (expires 26.07.17) (91) 0.00

CHF(260,140) Sold for €238,008 (expires 26.07.17) 0 0.00

$5,287,367 Bought for €4,736,191 (expires 26.07.17) (105) (0.01)

$(110,975) Sold for €98,220 (expires 26.07.17) 1 0.00

Total portfolio (notes 2c & 2d on page 6) 1,875,038 96.26 96.22Net other assets / (liabilities) 72,838 3.74 3.78



[a] Defaulted bond.





Investments

Fund performance









2017 2016 2015as at 30 June €’000 €’000 €’000








Euro [b] Class ‘A’ +2.5 +2.3 +4.4 +4.1 [c]

Class ‘C’ +3.0 +2.8 +4.9 +4.8 [c]

Sterling [d] Class ‘A’ +7.3 +5.4 +5.9 +5.6 [c]

Class ‘I’ +7.8 +5.8 n/a +6.5 [e]

Class ‘R’ +7.6 +5.6 n/a +6.3 [e]

Class ‘X’ +7.2 +5.2 +5.8 +5.5 [c]

Swiss franc [b] Class ‘A-H’ +1.9 +1.7 n/a +3.3 [f]

Class ‘C-H’ +2.5 +2.2 n/a +3.8 [f]

US dollar [b] Class ‘A-H’ +4.2 n/a n/a +3.2 [g]

Class ‘C-H’ +4.7 n/a n/a +3.8 [g]

[a] Absolute basis.[b] Price to price with gross income reinvested.[c] 13 January 2003, the launch date of the fund.[d] Price to price with income reinvested.[e] 3 August 2012, the launch date of the share class.[f] 28 September 2012, the launch date of the share class.[g] 8 August 2014, the launch date of the share class.

140

150

160

170

180

190

210

230

250

130

120

110

1000302 04 05 06 07 08 09 10 11 12 13 14 15 16 17



January 2003 = 100, plotted monthly Chart date 3 July 2017



Morningstar EUR Corporate Bond sector average*



M&G European Corporate Bond Fund Financial highlights



Operating charges























Fund performance





Opening NAV 1,641.34 1,616.63 1,628.97




Distributions (39.06) (25.37) (26.71)

Closing NAV 1,648.51 1,641.34 1,616.63











Other information

Closing NAV (€’000) 61,925 49,730 37,805


Number of shares 3,756,411 3,029,832 2,338,500



Euro Class ‘A’ Accumulation share performanceThe share class was launched on 13 January 2003.


Opening NAV 1,730.02 1,677.73 1,663.43




Distributions (21.17) (26.46) (27.50)


Closing NAV 1,778.94 1,730.02 1,677.73











Other information

Closing NAV (€’000) 1,043,611 1,538,271 1,599,372


Number of shares 58,664,612 88,916,333 95,329,629





Opening NAV 1,828.33 1,800.83 1,827.23




Distributions (43.61) (37.37) (39.27)

Closing NAV 1,845.62 1,828.33 1,800.83











Other information

Closing NAV (€’000) 7,320 10,054 4,072


Number of shares 396,648 549,906 226,091





Euro Class ‘C’ Accumulation share performanceThe share class was launched on 13 January 2003.


Opening NAV 1,906.43 1,839.44 1,814.68




Distributions (33.16) (38.41) (39.53)


Closing NAV 1,969.95 1,906.43 1,839.44











Other information

Closing NAV (€’000) 663,444 790,278 1,216,513


Number of shares 33,678,325 41,453,258 66,135,056



Sterling Class ‘A’ Income share performanceThe share class was launched on 13 January 2003.


Opening NAV 73.16 62.04 70.41




Distributions (1.83) (1.06) (1.08)

Closing NAV 78.14 73.16 62.04











Other information

Closing NAV (€’000) 731 809 1,918


Number of shares 821,998 913,973 2,200,568



Sterling Class ‘A’ Accumulation share performanceThe share class was launched on 13 January 2003.


Opening NAV 100.94 84.54 94.71




Distributions (1.30) (1.45) (1.48)


Closing NAV 110.24 100.94 84.54











Other information

Closing NAV (€’000) 51,566 81,255 138,135


Number of shares 41,102,044 66,514,023 116,245,925





Opening NAV 1,144.69 970.79 1,101.84




Distributions (28.64) (21.90) (22.39)

Closing NAV 1,228.81 1,144.69 970.79











Other information

Closing NAV (€’000) 16,496 22,170 34,566


Number of shares 1,179,640 1,600,435 2,533,215


Lowest share price (UK p) 1,163.17 962.12 971.95






Opening NAV 1,234.89 1,030.10 1,149.44




Distributions (22.51) (23.40) (23.49)


Closing NAV 1,354.69 1,234.89 1,030.10











Other information

Closing NAV (€’000) 16,011 14,297 8,368


Number of shares 1,038,578 956,684 577,983





Opening NAV 114.48 97.08 110.18




Distributions (2.85) (1.93) (1.98)

Closing NAV 122.58 114.48 97.08











Other information

Closing NAV (€’000) 44 52 42


Number of shares 31,201 37,585 31,248





Opening NAV 122.64 102.51 114.61




Distributions (1.90) (2.04) (2.06)


Closing NAV 134.23 122.64 102.51











Other information

Closing NAV (€’000) 72 53 52


Number of shares 47,000 36,000 36,000



Sterling Class ‘X’ Income share performanceThe share class was launched on 13 January 2003.


Opening NAV 73.05 61.95 70.30




Distributions (1.82) (0.89) (0.92)

Closing NAV 77.94 73.05 61.95











Other information

Closing NAV (€’000) 1,121 1,354 2,245


Number of shares 1,263,973 1,531,909 2,577,706








Sterling Class ‘X’ Accumulation share performanceThe share class was launched on 13 January 2003.


Opening NAV 98.80 82.92 93.07Return before operating charges and after directportfolio transaction costs 10.45 17.36 (8.64)



Distributions (1.15) (1.20) (1.21)


Closing NAV 107.80 98.80 82.92





Direct portfolio transaction costs [b] 0.00 0.00 0.00Operating charges 1.27* 1.41 1.41Return after operating charges +9.23 +19.44 -10.65Distribution yield 0.77 1.01 1.43Effect on yield of charges offset against capital 0.00 0.00 0.00

Other information

Closing NAV (€’000) 68,340 52,020 47,452Closing NAV percentage of total fund NAV (%) 3.50 1.99 1.45Number of shares 55,704,735 43,505,203 40,715,450Highest share price (UK p) 110.19 100.09 94.93Lowest share price (UK p) 100.66 82.16 82.69


Swiss franc Class ‘A-H’ Accumulation share performanceThe share class was launched on 28 September 2012.


Opening NAV 1,134.46 1,108.65 1,105.56Return before operating charges and after directportfolio transaction costs 39.49 38.97 16.56



Distributions (13.56) (17.14) (17.83)


Closing NAV 1,160.41 1,134.46 1,108.65






Other information

Closing NAV (€’000) 3,495 23,264 181,182Closing NAV percentage of total fund NAV (%) 0.18 0.89 5.51Number of shares 329,288 2,230,266 16,992,832Highest share price (Swiss ¢) 1,172.82 1,143.55 1,160.97Lowest share price (Swiss ¢) 1,138.83 1,087.30 1,108.62

Swiss franc Class ‘C-H’ Accumulation share performanceThe share class was launched on 28 September 2012.


Opening NAV 1,156.44 1,123.91 1,115.62




Distributions (19.81) (23.25) (23.78)


Closing NAV 1,189.05 1,156.44 1,123.91











Other information

Closing NAV (€’000) 9,187 9,147 10,494


Number of shares 844,811 860,245 970,848


Lowest share price (Swiss ¢) 1,162.30 1,106.23 1,119.92

US dollar Class ‘A-H’ Income share performanceThe share class was launched on 8 August 2014.


Opening NAV 1,010.48 987.12 1,000.00




Distributions (24.28) (15.45) (15.50)

Closing NAV 1,032.42 1,010.48 987.12











Other information

Closing NAV (€’000) 112 121 45


Number of shares 12,385 13,385 5,086


Lowest share price (US ¢) 1,016.09 968.99 990.70




US dollar Class ‘A-H’ Accumulation share performanceThe share class was launched on 8 August 2014.


Opening NAV 1,042.98 1,002.87 1,000.00




Distributions (12.64) (15.78) (15.58)


Closing NAV 1,090.91 1,042.98 1,002.87











Other information

Closing NAV (€’000) 3,604 5,680 7,302


Number of shares 376,804 607,054 814,044



US dollar Class ‘C-H’ Income share performanceThe share class was launched on 8 August 2014.


Opening NAV 1,010.01 986.63 1,000.00




Distributions (24.35) (20.46) (20.19)

Closing NAV 1,037.17 1,010.01 986.63











Other information

Closing NAV (€’000) 111 110 18


Number of shares 12,179 12,179 2,000



US dollar Class ‘C-H’ Accumulation share performanceThe share class was launched on 8 August 2014.


Opening NAV 1,053.97 1,008.18 1,000.00




Distributions (18.32) (21.01) (20.87)


Closing NAV 1,107.10 1,053.97 1,008.18











Other information

Closing NAV (€’000) 686 14,949 69


Number of shares 70,714 1,580,824 7,624


Lowest share price (US ¢) 1,059.90 1,001.28 999.52










2017 2016for the year to 30 June Note €’000 €’000 €’000 €’000

Income


Revenue 5 56,316 75,510






2017 2016for the year to 30 June €’000 €’000 €’000 €’000


Amounts paid on cancellation of shares (1,222,283) (1,545,025) _______ _______ (733,330) (747,369)





Balance sheet

2017 2016as at 30 June Note €’000 €’000

Assets




Total assets 1,983,755 2,639,949

Liabilities Investment liabilities (2,936) (15,982)

Creditors Distribution payable (500) (545)









3 Net capital gains / (losses) 2017 2016for the year to 30 June €’000 €’000


Derivative contracts 24,333 (6,371)

Currency gains / (losses) (2,491) (2,749)





2017 2016 for the year to 30 June €’000 €’000


b) Sales Debt securities [a] 1,404,715 1,239,187


Total sales 1,418,268 1,275,001

2017 % of 2016 % ofc) Direct portfolio transaction costs €’000 average NAV €’000 average NAV

Commissions paid Derivatives 53 0.00 108 0.00

Total direct portfolio transactioncosts 53 0.00 108 0.00






M&G European Corporate Bond Fund Financial statements and notes

5 Revenue 2017 2016for the year to 30 June €’000 €’000

Bank interest 15 15

Derivative revenue (2,489) (5,554)



6 Expenses 2017 2016for the year to 30 June €’000 €’000



Share class hedging charge 6 20

22,954 27,269





332 287


7 Taxation 2017 2016for the year to 30 June €’000 €’000



Current double taxation relief 0 (9)


Total taxation 2 44



Effects of:

Interest distributions (6,586) (9,559)


Total double taxation relief 0 (9)





The fund has not recognised a deferred tax asset in the current financial year

(2016: same).





Interest distributions €’000 €’000 €’000 €’000

First interim 560 9,239 340 12,491

Second interim 623 8,823 348 11,090

Third interim 638 5,874 312 9,730

Final 500 5,927 341 10,578


Income tax deducted at source 270 627






Expenses offset against capital 981 0





9 Debtors 2017 2016as at 30 June €’000 €’000

Amounts receivable on issues of shares 5,917 13,345

Currency deals outstanding 11,716 958



Withholding tax recoverable 68 1


10 Cash and bank balances 2017 2016as at 30 June €’000 €’000

Amounts held at futures clearing houses and collateral manager 4,438 21,515



11 Other creditors 2017 2016as at 30 June €’000 €’000




Currency deals outstanding 11,708 958

Derivative expense payable 247 314


Purchases awaiting settlement 7,413 0







13 Shares in issue



Euro Class ‘A’ Income 3,029,832 1,845,651 (1,119,072) 3,756,411

Class ‘A’ Accumulation 88,916,333 2,708,271 (32,959,992) 58,664,612

Class ‘C’ Income 549,906 193,679 (346,937) 396,648

Class ‘C’ Accumulation 41,453,258 17,288,137 (25,063,070) 33,678,325

Sterling Class ‘A’ Income 913,973 240,540 (332,515) 821,998


Class ‘I’ Income 1,600,435 1,593,885 (2,014,680) 1,179,640

Class ‘I’ Accumulation 956,684 302,326 (220,432) 1,038,578

Class ‘R’ Income 37,585 3,511 (9,895) 31,201


Class ‘X’ Income 1,531,909 34,704 (302,640) 1,263,973


Swiss franc Class ‘A-H’ Accumulation 2,230,266 37,096 (1,938,074) 329,288

Class ‘C-H’ Accumulation 860,245 30,944 (46,378) 844,811

US dollar Class ‘A-H’ Income 13,385 6,000 (7,000) 12,385

Class ‘A-H’ Accumulation 607,054 3,500 (233,750) 376,804

Class ‘C-H’ Income 12,179 0 0 12,179

Class ‘C-H’ Accumulation 1,580,824 123,260 (1,633,370) 70,714





Class ‘C’ 1.25 n/a 0.50 n/a

Sterling Class ‘A’ 3.00 [a] n/a 1.00 n/a

Class ‘I’ 1.00 [a] n/a 0.50 n/a

Class ‘R’ 1.00 [a] n/a 0.75 n/a

Class ‘X’ nil 4.50 [b] 1.00 n/a

Swiss franc Class ‘A-H’ 3.25 n/a 1.00 [c]

Class ‘C-H’ 1.25 n/a 0.50 [c]

US dollar Class ‘A-H’ 3.25 n/a 1.00 [c]

Class ‘C-H’ 1.25 n/a 0.50 [c]





[c] This charge may vary between 0.01% and 0.055%.

15 Related parties













This refers to instruments which have been valued using models withnon-observable market data inputs. This includes private equity,unlisted closed-ended funds and investment analyst recommendedprices where the market price is deemed to not be a true representationof fair value. However no such financial instruments were held.

Assets Liabilities Assets Liabilitiesas at 30 June 2017 2017 2016 2016Valuation technique €’000 €’000 €’000 €’000

Level 1 151,352 (504) 284,989 (12,193)

Level 2 1,726,622 (2,432) 2,245,957 (3,789)

Level 3 0 0 0 0

1,877,974 (2,936) 2,530,946 (15,982)






The general risk management policies for the fund are set out in note3 to the financial statements on page 7 and 8.

19 Market risk



The lowest, highest and average VaR calculated during the financialyears ended 30 June 2017 and 30 June 2016 are disclosed in the tablebelow. The lowest, highest and average utilisation of VaR is withreference to the limit above.


Lowest 1.65 1.91

Highest 2.35 2.60

Average 1.88 2.26

20 Credit risk 2017 2016as at 30 June €’000 €’000

Investment grade securities 1,605,779 2,083,240




Total 1,875,038 2,514,964

21 Counterparty exposure Forward Collateral Collateral currency held as held as Net Swaps contracts Futures cash debt exposureas at 30 June 2017 €’000 €’000 €’000 €’000 €’000 €’000

Bank of AmericaMerrill Lynch 0 0 1,828 2,328 0 4,156

Barclays Bank 203 0 0 0 0 203

BNP Paribas 789 0 0 0 0 789

Citigroup 581 67 0 0 0 648

Credit Suisse 509 0 0 0 0 509

Deutsche Bank 23 0 0 0 0 23

Goldman Sachs 1,184 0 0 0 0 1,184

J.P.Morgan (2,153) 0 0 2,110 0 (43)

State Street Bank 0 1,086 0 0 0 1,086

Total 1,136 1,153 1,828 4,438 0 8,555

Forward Collateral Collateral currency held as held as Net Swaps contracts Futures cash debt exposureas at 30 June 2016 €’000 €’000 €’000 €’000 €’000 €’000

Bank of AmericaMerrill Lynch 217 0 (9,748) 17,744 0 8,213

Barclays Bank 1,506 0 0 0 0 1,506

Credit Suisse (644) 0 0 290 744 390

Deutsche Bank (383) 0 0 343 0 (40)

HSBC 0 (107) 0 0 0 (107)

J.P.Morgan 3,274 4,954 0 278 0 8,506

Royal Bank of Scotland 0 181 0 0 0 181

State Street Bank 0 (1,832) 0 2,860 0 1,028

UBS 0 4,967 0 0 0 4,967

Total 3,970 8,163 (9,748) 21,515 744 24,644




22 Leverage risk




2017 2017 2016 2016for the year to 30 June €’000 % €’000 %

Lowest 2,557,366 133 3,614,035 145

Highest 4,372,700 164 5,950,680 187

Average 2,557,366 144 4,286,953 155









First interim 01.07.16 30.09.16 03.10.16 30.11.16

Second interim 01.10.16 31.12.16 03.01.17 28.02.17

Third interim 01.01.17 31.03.17 03.04.17 31.05.17

Final 01.04.17 30.06.17 03.07.17 31.08.17



Group 2 shares are those purchased during a distribution period andtherefore their distribution rate is made up of income and equalisation.Equalisation is the average amount of income included in the purchaseprice of all Group 2 shares and is refunded to the holders of theseshares as a return of capital. Being capital it is not liable to Income Tax.Instead, it must be deducted from the cost of shares for Capital GainsTax purposes. The tables below show the split of the Group 2 ratesinto the income and equalisation components.




Second interim 10.1876 - 10.1876 - 10.1876 6.3625

Third interim 9.3150 - 9.3150 - 9.3150 6.2866

Final 9.3872 - 9.3872 - 9.3872 6.3043


Second interim 5.6008 - 5.6008 4.5868 10.1876 6.3625

Third interim 5.3240 - 5.3240 3.9910 9.3150 6.2866

Final 5.3437 - 5.3437 4.0435 9.3872 6.3043




Second interim 5.6233 - 5.6233 - 5.6233 6.6374

Third interim 5.0009 - 5.0009 - 5.0009 6.5604

Final 4.8268 - 4.8268 - 4.8268 6.6098


Second interim 2.8685 - 2.8685 2.7548 5.6233 6.6374

Third interim 3.1939 - 3.1939 1.8070 5.0009 6.5604

Final 2.1831 - 2.1831 2.6437 4.8268 6.6098




Second interim 11.3690 - 11.3690 - 11.3690 9.3159

Third interim 10.4089 - 10.4089 - 10.4089 9.2566

Final 10.5023 - 10.5023 - 10.5023 9.3634


Second interim 6.2251 - 6.2251 5.1439 11.3690 9.3159

Third interim 3.8349 - 3.8349 6.5740 10.4089 9.2566

Final 6.2836 - 6.2836 4.2187 10.5023 9.3634




Second interim 8.6917 - 8.6917 - 8.6917 9.5472

Third interim 7.8988 - 7.8988 - 7.8988 9.5210

Final 7.8635 - 7.8635 - 7.8635 9.7078


Second interim 3.8778 - 3.8778 4.8139 8.6917 9.5472

Third interim 5.1256 - 5.1256 2.7732 7.8988 9.5210

Final 2.5017 - 2.5017 5.3618 7.8635 9.7078




Second interim 0.4775 0.0955 0.3820 - 0.3820 0.2012

Third interim 0.4313 - 0.4313 - 0.4313 0.2128

Final 0.4448 - 0.4448 - 0.4448 0.2272


Second interim 0.1634 0.0327 0.1307 0.2513 0.3820 0.2012

Third interim 0.1095 - 0.1095 0.3218 0.4313 0.2128

Final 0.2071 - 0.2071 0.2377 0.4448 0.2272




Second interim 0.3465 0.0693 0.2772 - 0.2772 0.2764

Third interim 0.3026 - 0.3026 - 0.3026 0.2932

Final 0.2991 - 0.2991 - 0.2991 0.3128


Second interim 0.1223 0.0245 0.0978 0.1794 0.2772 0.2764

Third interim 0.1970 - 0.1970 0.1056 0.3026 0.2932

Final 0.1524 - 0.1524 0.1467 0.2991 0.3128







Second interim 7.4835 1.4967 5.9868 - 5.9868 4.1556

Third interim 6.7647 - 6.7647 - 6.7647 4.4112

Final 6.9925 - 6.9925 - 6.9925 4.7256


Second interim 3.5686 0.7137 2.8549 3.1319 5.9868 4.1556

Third interim 3.1899 - 3.1899 3.5748 6.7647 4.4112

Final 4.4743 - 4.4743 2.5182 6.9925 4.7256




Second interim 5.9185 1.1837 4.7348 - 4.7348 4.4248

Third interim 5.3022 - 5.3022 - 5.3022 4.7244

Final 5.4076 - 5.4076 - 5.4076 5.0872


Second interim 3.7731 0.7546 3.0185 1.7163 4.7348 4.4248

Third interim 2.6154 - 2.6154 2.6868 5.3022 4.7244

Final 2.2737 - 2.2737 3.1339 5.4076 5.0872




Second interim 0.7410 0.1482 0.5928 - 0.5928 0.3660

Third interim 0.6754 - 0.6754 - 0.6754 0.3900

Final 0.6978 - 0.6978 - 0.6978 0.4156


Second interim 0.3339 0.0668 0.2671 0.3257 0.5928 0.3660

Third interim 0.3077 - 0.3077 0.3677 0.6754 0.3900

Final 0.3294 - 0.3294 0.3684 0.6978 0.4156




Second interim 0.4990 0.0998 0.3992 - 0.3992 0.3872

Third interim 0.4478 - 0.4478 - 0.4478 0.4140

Final 0.4509 - 0.4509 - 0.4509 0.4428


Second interim 0.2286 0.0457 0.1829 0.2163 0.3992 0.3872

Third interim 0.2128 - 0.2128 0.2350 0.4478 0.4140

Final 0.4509 - 0.4509 0.0000 0.4509 0.4428




Second interim 0.4770 0.0954 0.3816 - 0.3816 0.1704

Third interim 0.4567 - 0.4567 - 0.4567 0.1796

Final 0.4145 - 0.4145 - 0.4145 0.1892


Second interim 0.1641 0.0328 0.1313 0.2503 0.3816 0.1704

Third interim 0.1435 - 0.1435 0.3132 0.4567 0.1796

Final 0.1930 - 0.1930 0.2215 0.4145 0.1892




Second interim 0.2810 0.0562 0.2248 - 0.2248 0.2288

Third interim 0.2960 - 0.2960 - 0.2960 0.2416

Final 0.2925 - 0.2925 - 0.2925 0.2560


Second interim 0.0790 0.0158 0.0632 0.1616 0.2248 0.2288

Third interim 0.0941 - 0.0941 0.2019 0.2960 0.2416

Final 0.1157 - 0.1157 0.1768 0.2925 0.2560




Second interim 3.5693 - 3.5693 - 3.5693 4.1679

Third interim 3.2350 - 3.2350 - 3.2350 4.2427

Final 3.0904 - 3.0904 - 3.0904 4.2683


Second interim 1.5070 - 1.5070 2.0623 3.5693 4.1679

Third interim 0.9328 - 0.9328 2.3022 3.2350 4.2427

Final 2.5182 - 2.5182 0.5722 3.0904 4.2683








Second interim 5.1456 - 5.1456 - 5.1456 5.7373

Third interim 4.7520 - 4.7520 - 4.7520 5.7136

Final 4.6884 - 4.6884 - 4.6884 5.8214


Second interim 0.1851 - 0.1851 4.9605 5.1456 5.7373

Third interim 4.4306 - 4.4306 0.3214 4.7520 5.7136

Final 1.7363 - 1.7363 2.9521 4.6884 5.8214

US dollar Class ‘A-H’ Income shares



Second interim 6.1583 - 6.1583 - 6.1583 3.8009

Third interim 5.9298 - 5.9298 - 5.9298 3.9201

Final 5.9104 - 5.9104 - 5.9104 3.8210


Second interim 6.1583 - 6.1583 0.0000 6.1583 3.8009

Third interim 5.9298 - 5.9298 0.0000 5.9298 3.9201

Final 5.9104 - 5.9104 - 5.9104 3.8210

US dollar Class ‘A-H’ Accumulation shares



Second interim 3.2219 - 3.2219 - 3.2219 3.8684

Third interim 3.0775 - 3.0775 - 3.0775 4.0014

Final 2.9246 - 2.9246 - 2.9246 3.9421


Second interim 2.7226 - 2.7226 0.4993 3.2219 3.8684

Third interim 3.0775 - 3.0775 0.0000 3.0775 4.0014

Final 2.9246 - 2.9246 - 2.9246 3.9421

US dollar Class ‘C-H’ Income shares



Second interim 6.1791 - 6.1791 - 6.1791 5.0203

Third interim 5.9463 - 5.9463 - 5.9463 5.1238

Final 5.9336 - 5.9336 - 5.9336 5.1272


Second interim 6.1791 - 6.1791 0.0000 6.1791 5.0203

Third interim 5.9463 - 5.9463 0.0000 5.9463 5.1238

Final 5.9336 - 5.9336 - 5.9336 5.1272

US dollar Class ‘C-H’ Accumulation shares



Second interim 4.6363 - 4.6363 - 4.6363 5.1289

Third interim 4.4842 - 4.4842 - 4.4842 5.2896

Final 4.4134 - 4.4134 - 4.4134 5.3185


Second interim 4.6363 - 4.6363 0.0000 4.6363 5.1289

Third interim 2.5212 - 2.5212 1.9630 4.4842 5.2896

Final 3.9027 - 3.9027 0.5107 4.4134 5.3185






Investment objective up to 24 May 2017The Fund aims to maximise total return (the combination of income

and growth of capital) while generating a high level of income.


The Fund mainly invests in higher yielding debt instrumentsdenominated in any European currency and will normally be managedto give investors exposure to European currencies. The Fund’sexposure to higher yielding debt instruments may be gained throughthe use of derivatives. The Fund may also invest in other assetsincluding collective investment schemes, government and publicsecurities and other transferable securities, cash and near cash,deposits, warrants, money market instruments and other derivativeinstruments which may be denominated in any major global currency.Any non-European currency exposures within the Fund may bemanaged by currency hedges in European currencies.




At least 70% of the Fund is invested in higher yielding debt instrumentsdenominated in any European currency and will normally be managedto give investors exposure to European currencies. The Fund’sexposure to higher yielding debt instruments may be gained throughthe use of derivatives. Derivatives may also be used for efficientportfolio management. The Fund may also invest in collectiveinvestment schemes, government and public securities and othertransferable securities, cash, near cash, other money marketinstruments, warrants and other derivative instruments which may bedenominated in any major global currency. Any non-Europeancurrency exposures within the Fund may be managed by currencyhedges in European currencies. More than 70% of the Fund will be ineuro or hedged back to euro.

Investment approach

The fund manager concentrates on bottom-up analysis of individualbond issues while remaining aware of macroeconomicdevelopments. Emphasis is placed upon investigating the ability ofa company or government to meet its interest payments, especiallyduring unfavourable economic conditions. Credit risk is constantlymonitored and typically spread across a variety of countries andindustrial sectors.

Risk profile

The fund invests mainly in higher yielding fixed income securitiesdenominated in any European currency. It is primarily subject to theprice volatility of the European bond market as well as theperformance of individual issuers. It is also influenced bydevelopments in the broader global bond market. In addition, the fundis subject to fluctuations in currency exchange rates.

The fund’s focus on higher yielding debt securities implies that it mayexperience greater volatility than a fund that invests primarily ininvestment grade debt securities as higher risk assets could potentiallyexperience a degree of illiquidity in times of market distress.

The fund’s exposure to debt securities may be gained through the useof derivatives. In association with the use of derivatives, includingthose instruments not traded through an exchange, collateral isdeposited, in order to mitigate the risk that a counterparty may defaulton its obligations or become insolvent.



The above number:





mean risk free.


Investment review



Between 1 July 2016 (the start of the review period) and 3 July 2017,the M&G European High Yield Bond Fund produced a positive totalreturn (the combination of income and growth of capital) across allshare classes*, thus meeting its objective of providing income** andcapital growth.

Low risk High risk


1 2 3 4 5 6 7

M&G European High Yield Bond Fund Authorised Corporate Director’s Report


The 12 months under review was a positive period for high yield bondmarkets, helped by a further steady increase in global economicactivity and supportive policy from the world’s central banks. (High yieldbonds are fixed income securities issued by companies with a lowcredit rating. They therefore pay a higher rate of interest than theirmore highly rated counterparts to compensate investors for the greaterpossibility that the issuer might be unable to meet its obligations, or inother words, default.)

A stabilisation in oil prices, following steep declines in 2014 and 2015,was another key driver, especially for US high yield bonds given thismarket’s significant exposure to the energy sector. While performancein the European high yield market was somewhat more mixed –particularly in the first half of the review period – an encouragingimprovement in economic data and the ongoing stimulus measuresfrom the European Central Bank (ECB) proved supportive overall.

The surprise US election result in November was well received by UShigh yield bond markets, with President Trump’s ‘reflationary’ policyproposals (tax cuts and increased infrastructure spending) helping toboost investor sentiment. Around this time, issues from US high yieldenergy companies also benefited from further strength in oil pricesfollowing an agreement from the Organization of the PetroleumExporting Countries (OPEC) to cut production.

In contrast, the bank-heavy European high yield market struggledthroughout 2016 against a backdrop of heightened political tensions.As well as the surprise ‘Brexit’ outcome, markets also had to contendwith Austrian elections and an Italian referendum on constitutionalreform. Meanwhile, negative headlines around corporate profits andpossible regulatory fines in the financial sector also dampened investorappetite late in 2016.

However, an encouraging improvement in global economic data duringthe early months of 2017 provided some fresh impetus for high yieldmarkets. Indeed, for the first time in many years, there was evidenceof a synchronised upswing in global growth, with much of theimprovement in economic data coming from outside the US.

The economic situation in Europe in particular looks considerablybrighter than this time last year. The unemployment rate has fallenback below 10% for the first time since 2011, while business surveyssuggest a sustained pick-up in growth over the coming months.Political tensions also receded, with Emmanuel Macron’s decisivevictory in the French election helping to drive strong gains acrossEuropean high yield markets towards the end of the review period.

Performance was positive across all of the fund’s share classes.Careful individual bond selection, along with meaningful allocations tothe US and single B rated companies, supported fund performance.Gains were offset to an extent by the fund’s defensive sectorpositioning, which included only minimal exposures to the stronglyperforming energy and basic industry sectors.


Throughout the period, the fund was positioned with a bias towardsdefensive, non-cyclical companies offering resilient cashflows, suchas packaging companies and cable businesses. We also see goodvalue in specific areas of the leisure sector, such as Las Vegas casinooperator Caesars, and a number of debt consolidation companies,businesses which have strong underlying assets.

While not accounting for a significant part of the European high yieldmarket, we nevertheless maintain minimal exposure to the energyand commodity sectors. Following very strong gains over the past12 months, we think these sectors by and large look fully priced and,as a consequence, no longer provide sufficient compensation forthe risks.

In regional allocation terms, we reduced the fund’s US exposure fromaround 25% to 18%, partly as a consequence of the significantoutperformance of US high yield versus its European counterpart overthe past year. While the US exposure remains relatively high for aEuropean-focused high yield fund, it should be noted that part of thisallocation consists of lower risk assets such as core governmentbonds, where we favour US government bonds (Treasuries) overGerman government bonds.

Over the past year, we have gradually reduced risk in the fund bydecreasing our exposure to lower rated single B bonds, as valuationsstarted to look less compelling following strong performance, whileincreasing the allocation to more highly rated BB bonds. We also tookthe opportunity to reduce exposure to companies which have had aparticularly good run, including bonds from Entertainment One, UPCand real estate business, Akelius.

Outlook

In the current environment where interest rates are low and manyassets are generating a low prospective return, or yield, we thinkEuropean high yield bonds continue to offer an attractive source ofincome. Despite recent market strength, we believe these assetsremain fairly priced in the context of the current low defaultenvironment and against a backdrop of gradual economic expansion.However, given the extent of the recent gains, and at this stage ofeconomic cycle, we are taking a cautious stance. We maintain ourpreference for companies with stable cashflows and strong balancesheets which are not overly exposed to the economic cycle.

We remain cautiously positioned in the periphery of the eurozone,where we see more immediate risks, especially in the banking sector.The latest prominent example in Italy was Monte dei Paschi, where abail-in of institutional bondholders was needed to help recapitalise thebank and to put it on a more stable footing. More recently, we haveseen some sharp price movements of Banco Popular as the strugglingSpanish bank was bought by Santander. These examples serve as areminder that high yield investments do not come without risk,notwithstanding the current very low default rates. It also outlines theimportance of company analysis and security selection to make surethe right risks are taken on.



Investment review

We are also cautious on retailers, with many of the issuers from thissector facing depressed margins and a low turnover of inventory. UKapparel retailers in particular face heavy foreign exchange costheadwinds following the Brexit vote which weakens their credit profile.In addition, the sector is facing major challenges as shoppers moveincreasingly towards online spending and away from traditional bricks-and-mortar stores. Businesses who are slow to adapt to the newenvironment will clearly struggle over the coming years, so we continueto be very selective in this space.

James Tomlins Fund manager




** The fund’s distribution and distribution yield are as shown in the ‘Specific share

class performance’ tables in the ‘Fund performance’ section of this report. This

fund provides a variable level of income.






0.59%

10.72%

0.00%

0.83%

5.41%

43.48%

20.13%

1.50%

0.00%

3.78%

1.64%

0.19%

-0.01%

0.00%

1.95%

12.12%

2.55%

5.01%

40.37%

25.18%

2.40%

0.57%

4.23%

0.62%

-0.60%

0.00%

Equities

Debt securities







‘CCC’ credit rated bonds

‘D’ credit rated bonds






30 June 2016


Investments

Portfolio statement


Equities 731 0.59 0.00 2,070,568 Codere 731 0.59

5,628,959 New World Resources [a] 0 0.00

Debt securities 105,800 85.85 94.38 ‘AAA’ credit rated bonds 13,210 10.72 1.95 €1,000,000 Germany (Federal Republic of) 0% 2020 1,015 0.82



‘AA’ credit rated bonds 0 0.00 12.12

‘A’ credit rated bonds 1,018 0.83 2.55 Total Var. Rate Perp. (3.369%) 1,018 0.83

‘BBB’ credit rated bonds 6,666 5.41 5.01 €1,600,000 American International Group FRN 1,480 1.20

€2,400,000 Commerzbank 7.75% 2021 2,934 2.38

€750,000 MPT Operating Partnership 3.325% 2025 776 0.63

$1,650,000 UBS Var. Rate 2023 (4.75%) 1,476 1.20

‘BB’ credit rated bonds 53,585 43.48 40.37 $1,500,000 Ally Financial 3.25% 2018 1,327 1.08

€300,000 Altice Financing 6.5% 2022 315 0.26

€254,000 Aramark International Finance 3.125% 2025 264 0.20

€1,100,000 Ardagh Packaging Finance 2.75% 2024 1,120 0.91

€911,688 Ardagh Packaging Finance 4.25% 2022 930 0.75

€500,000 Areva 4.875% 2024 551 0.45

£667,000 Arrow Global Finance 5.125% 2024 785 0.64

€250,000 Arrow Global Finance FRN 2023 261 0.21

€723,000 Axalta Coating System 3.75% 2025 759 0.62

€404,000 Axalta Coating System 4.25% 2024 430 0.35

£100,000 B&M European Value 4.125% 2022 118 0.10

€350,000 Bank of Ireland 7.375% Perp. 380 0.31

€1,400,000 Bank of Ireland Var. Rate 2024 (4.25%) 1,477 1.20

€400,000 Cable Communications Systems 5.0% 2023 420 0.34

€400,000 CaixaBank Var. Rate. Perp. (6.75%) 422 0.34

€740,000 Catalent Pharma Solutions 4.75% 2024 792 0.64

$400,000 CenturyLink 7.5% 2024 384 0.31

€193,000 Colfax 3.25% 2025 197 0.16

$225,000 Credit Suisse Group Var. Rate Perp. (7.125%) 212 0.17

$225,000 Credit Suisse Var. Rate Perp. (6.25%) 209 0.17

$900,000 Credit Suisse Var. Rate Perp. (7.5%) 885 0.72

€3,600,000 Crown European Holdings 3.375% 2025 3,730 3.03

£221,000 Drax Finco FRN 2022 256 0.21

€471,000 Dufry Finance 4.5% 2023 500 0.41

€700,000 Fiat Finance & Trade 6.625% 2018 730 0.59

€750,000 Gestamp Funding Luxembourg 3.5% 2023 780 0.63



Outlook (continued)

Investment review

€226,000 Grupo Antolin 3.25% 2024 231 0.19

$200,000 Grupo Unicomer 7.875% 2024 188 0.15

€2,000,000 Hanesbrands Finance 3.5% 2024 2,091 1.70

€1,120,000 Ineos Finance 4% 2023 1,152 0.93

$950,000 ING Groep 6% Perp. 852 0.69

€630,000 International Game Technology 4.125% 2020 672 0.54

$400,000 International Game Technology 5.625% 2020 371 0.30

€250,000 Intesa Sanpaolo 6.625% 2023 307 0.25

€390,000 Intrum Justitia 3.125% 2024 388 0.31

€300,000 KBC Groep 5.625% Perp. 309 0.25

€500,000 KBC Groep Var. Rate Perp. (5.625%) 516 0.42

€1,190,000 KPN Var. Rate Perp. (6.125%) 1,264 1.02

€295,000 Lincoln Finance 6.875% 2021 316 0.26

€400,000 Lloyds Bank Var. Rate Perp. (6.375%) 428 0.35

€1,370,000 Merlin Entertainment 2.75% 2022 1,426 1.16

€228,000 Nassa Topco 2.875% 2024 236 0.19

£220,000 Nationwide Building Society Var. Rate Perp. (6.875%) 257 0.21

€810,000 Nomad Foods 3.25% 2024 823 0.67

€1,000,000 Novalis 3% 2022 1,026 0.83

€1,522,000 OI European Group 3.125% 2024 1,543 1.25

€612,000 OI European Group 6.75% 2020 725 0.59

€324,000 Promontoria MCS FRN 2021 336 0.27

€736,000 QuintilesIMS 3.25% 2025 747 0.61

€1,450,000 Samvardhana Motherson 4.125% 2021 1,479 1.20

€478,000 Schaeffler Verwaltung Zwei 2.75% Pik 2021 485 0.39

€462,000 Silgan Holdings 3.25% 2025 472 0.38

€600,000 Smurfit Kappa Acquisitions 2.375% 2024 614 0.50

€850,000 Smurfit Kappa Acquisitions 2.75% 2025 877 0.71

€1,850,000 SPCM 2.875% 2023 1,882 1.53

€238,000 Stora Enso 2.5% 2027 236 0.19

€990,000 TA Manufacturing 3.625% 2023 1,018 0.83

€100,000 Telenet Finance V 4.875% 2027 109 0.09

$1,400,000 Tenet Healthcare FRN 2020 1,240 1.01

€675,000 Unicredit Var. Rate 2025 (5.75%) 736 0.60

€169,000 Unitymedia Hessen 3.5% 2027 174 0.14

€900,000 Unitymedia Hessen 4% 2025 949 0.77



$300,000 Virgin Media Secured Finance 5.25% 2026 270 0.22

£316,000 William Hill 4.875% 2023 369 0.30

€1,350,000 Wind Acquisition Finance 4% 2020 1,364 1.11

€300,000 ZF North America Capital 2.25% 2019 310 0.25

€1,300,000 ZF North American Capital 2.75% 2023 1,395 1.13

€3,550,000 Ziggo Secured Finance 3.75% 2025 3,701 3.00

‘B’ credit rated bonds 24,807 20.13 25.18 €145,000 Altice Financing 9% 2023 162 0.13

£643,000 AMC Entertainment 6.375% 2024 783 0.64

€670,000 ARD Finance 6.625% 2023 710 0.58

£360,000 Ardagh Packaging Finance 4.75% 2027 409 0.33

£213,000 Aston Martin Capital 5.75% 2022 254 0.21

€154,000 Banijay Group 4% 2022 156 0.13

€450,000 Barclays Bank Var. Rate Perp. (8%) 493 0.40

$200,000 Barclays Bank Var. Rate Perp. (8.25%) 186 0.15

€419,000 Burger King France 6% 2024 445 0.36

£902,000 Cabot Financial Luxembourg 7.5% 2023 1,106 0.90

€371,000 Carlson Travel FRN 2023 374 0.30

€500,000 CMF 9% 2022 499 0.41

£536,000 Cognita Financing 7.75% 2021 634 0.52

£244,000 CPUK Finance 4.25% 2047 279 0.23

€620,000 eircom Finance 4.25% 2022 648 0.53

£500,000 Garfunkelux Holdco 8.5% 2022 609 0.49

€300,000 Garfunkelux Holdco 7.5% 2022 320 0.26

€359,000 HP Pelzer 4.125% 2024 370 0.30

£400,000 Iceland Bondco 6.25% 2021 470 0.38

£800,000 Intergen 7.5% 2021 875 0.71

€450,000 Intesa Sanpaolo Var. Rate Perp. (7%) 474 0.38

€213,000 Intesa Sanpaolo Var. Rate Perp. (7.75%) 236 0.19

€146,000 Marcolin FRN 2023 149 0.12

€2,080,000 Matterhorn Telecom 3.875% 2022 2,134 1.73

€500,000 Matterhorn Telecom FRN 2023 503 0.41

$400,000 Neptune Finco 10.875% 2025 421 0.34

€548,000 Netflix 3.625% 2027 557 0.45



€531,000 Nuovo Trasporto Viaggiatori FRN 2023 538 0.44

€455,000 Nyrstar 6.875% 2024 461 0.37

€185,000 Paprec Holding 7.375% 2023 200 0.16

£325,000 Premier Foods Finance FRN 2022 372 0.30

€710,000 PSPC Escrow 6% 2023 744 0.60

$300,000 Royal Bank of Scotland Var. Rate Perp. (7.5%) 271 0.22

€100,000 Schmolz+Bickenbach 5.625% 2022 105 0.09

€350,000 Schumann 7% 2023 348 0.28

£258,000 Stonegate Pub Company 4.875% 2022 299 0.24

€248,000 The Chemours Company 6.125% 2023 262 0.21

€625,000 United Group 7.875% 2020 649 0.53

€393,000 Unitymedia Kabel 3.75% 2027 REGS 402 0.33

€150,000 Veritas 7.5% 2023 161 0.13

€1,420,000 VRX Escrow 4.5% 2023 1,162 0.94

$800,000 VTR Finance 6.875% 2024 743 0.60

€1,100,000 Wind Acquisition Finance 7% 2021 1,142 0.93

‘CCC’ credit rated bonds 1,849 1.50 2.40 $1,450,000 Caesars Entertainment Resort Properties 8% 2020 1,310 1.06

$353,000 Carlson Travel 9.5 2024 317 0.26

€200,000 Swissport Investment 9.75% 2022 222 0.18

‘D’ credit rated bonds 0 0.00 0.57








Bonds with no credit rating 4,665 3.78 4.23 €182,000 Assicurazioni Generali Var. Rate 2047 (5.5%) 202 0.16

€600,000 Banco Bilbao Vizcaya Argentaria Var. Rate Perp. (7%) 615 0.49

€400,000 Banco Santander Var. Rate Perp. (6.25%) 411 0.33

€324,000 Belden 3.375% 2027 322 0.26

£250,000 Care UK Health FRN 2019 281 0.23

€100,000 Eurofins Scientific 4.875% Perp. 107 0.09

€641,964 Hellas Telecom III 8.5% 2013 [b] 0 0.00

£309,000 KIRS Midco 3 8.375% 2023 346 0.28

€600,000 Lehman Brothers Holdings Var. Rate 2040 (0%) [b] 0 0.00

€929,000 Progroup FRN 2024 933 0.76

$1,250,000 Société Générale Var. Rate 2020 (6%) 1,096 0.89

€350,000 Unicredit Var. Rate Perp. (6.75%) 352 0.29

Credit default swaps 2,026 1.64 0.62 €(2,500,000) Markit iTraxx Europe Xover Series 26 5 Year Jun 2022 287 0.23

€(15,000,000) Markit iTraxx Europe Xover Series 27 5 Year Jun 2022 1,723 1.39

€(250,000) Selecta Group Dec 2021 16 0.02

Forward currency contracts 236 0.19 (0.60) £(7,925,907) Sold for €9,007,810 (expires 20.09.17) 3 0.00

$(13,781,378) Sold for €12,267,889 (expires 20.09.17) 233 0.19


Forward currency contracts for share class hedging (15) (0.01) 0.00 CHF65,375 Bought for €60,225 (expires 26.07.17) (1) 0.00

$719,562 Bought for €644,552 (expires 26.07.17) (14) (0.01)

$(52,460) Sold for €46,418 (expires 26.07.17) 0 0.00

Total portfolio (notes 2c & 2d on page 6) 108,778 88.26 94.40Net other assets / (liabilities) 14,467 11.74 5.60



[a] Suspended.

[b] Defaulted bond.





Investments

Fund performance









2017 2016 2015as at 30 June €’000 €’000 €’000





80

90

120110

100

130

160

145

180

200

220

240260

300

7065

99 00 0201 03 04 0605 121110090807 13 14 1615 17




Morningstar Europe High Yield Bond sector average*





M&G European High Yield Bond Fund Financial highlights

Distribution since launch

The charts below show the annual distribution of Sterling Class ‘A’(Income) shares and Sterling Class ‘I’ (Income) shares since launch.

0.0

0.5

1.0

2.0

2.5

3.0

1.5

3.5

2000* 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Annual distributions since launch of the fund Chart date 3 July 2017


Year ending June

Dis

trib

utio

n (p

ence

per

sha

re)

Source: M&G

* Partial fund financial year distributions

0.0

10.0

30.0

20.0

50.0

40.0

60.0

2013 2014 2015 2016 2017


Sterling Class ‘I’ (Income) shares

Year ending June

Dis

trib

utio

n (p

ence

per

sha

re)

Source: M&G




Euro [b] Class ‘A’ +8.8 +3.0 +7.5 +7.8 [c]

Class ‘B’ +8.3 +2.5 n/a +4.8 [d]

Class ‘C’ +9.4 +3.5 +8.1 +7.5 [c]

Sterling [e] Class ‘A’ +13.8 +5.7 +8.6 -13.5 [f]

Class ‘I’ +14.3 +6.2 n/a +9.0 [g]

Class ‘R’ +14.1 +6.0 n/a +8.8 [g]

Class ‘X’ +13.8 +5.7 +8.6 +4.9 [h]

Swiss franc [b] Class ‘A-H’ +8.3 n/a n/a +4.8 [i]

Class ‘C-H’ +8.8 n/a n/a +5.3 [i]

US dollar [b] Class ‘A-H’ +10.7 n/a n/a +4.7 [j]

Class ‘C-H’ +11.2 n/a n/a +5.2 [j]

[a] Absolute basis.



[d] 26 July 2013, the launch date of the share class.

[e] Price to price with income reinvested.


[g] 3 August 2012, the launch date of the share class.

[h] 15 October 1999, the end of the initial offer period of the predecessor unit trust.

[i] 25 September 2015, the launch date of the share class.

[j] 8 August 2014, the launch date of the share class.



Fund performance



Operating charges























Fund performance





Opening NAV 2,398.89 2,463.32 2,571.97




Distributions (116.01) (90.28) (103.91)

Closing NAV 2,488.21 2,398.89 2,463.32











Other information

Closing NAV (€’000) 3,410 2,793 2,846


Number of shares 137,030 116,430 115,512





Opening NAV 2,725.59 2,697.10 2,701.94




Distributions (93.75) (100.20) (110.82)


Closing NAV 2,961.42 2,725.59 2,697.10











Other information

Closing NAV (€’000) 58,025 59,501 63,716


Number of shares 1,959,377 2,183,046 2,362,366



Euro Class ‘B’ Income share performanceThe share class was launched on 11 September 2015.


Opening NAV 958.25 1,000.00 n/a



Return after operating charges 76.86 (10.45) n/a










Return after operating charges +8.02 -1.05 n/a



Other information

Closing NAV (€’000) 415 29 n/a




Lowest share price (Euro ¢) 962.24 922.22 n/a



Euro Class ‘B’ Accumulation share performanceThe share class was launched on 26 July 2013.


Opening NAV 1,105.07 1,098.92 1,106.36




Distributions (32.10) (35.28) (39.69)


Closing NAV 1,194.70 1,105.07 1,098.92











Other information

Closing NAV (€’000) 2,210 1,658 540


Number of shares 184,957 150,040 49,065





Opening NAV 2,386.06 2,450.24 2,536.49




Distributions (115.65) (102.32) (116.15)

Closing NAV 2,487.33 2,386.06 2,450.24











Other information

Closing NAV (€’000) 27 74 4


Number of shares 1,097 3,097 197





Opening NAV 2,606.98 2,566.85 2,558.61




Distributions (103.70) (108.60) (118.22)


Closing NAV 2,846.75 2,606.98 2,566.85











Other information

Closing NAV (€’000) 17,966 27,199 12,968


Number of shares 631,107 1,043,301 505,210





Opening NAV 41.99 37.12 43.65




Distributions (2.13) (1.48) (1.65)

Closing NAV 46.30 41.99 37.12











Other information

Closing NAV (€’000) 2,081 1,668 2,555


Number of shares 3,948,334 3,282,646 4,899,285








Opening NAV 102.19 87.71 99.78




Distributions (3.68) (3.53) (3.83)


Closing NAV 117.69 102.19 87.71











Other information

Closing NAV (€’000) 810 739 3,014


Number of shares 604,660 597,640 2,444,997





Opening NAV 1,114.56 985.48 1,159.18




Distributions (56.68) (44.60) (49.34)

Closing NAV 1,235.47 1,114.56 985.48











Other information

Closing NAV (€’000) 6,832 6,878 6,889


Number of shares 485,908 509,952 497,276





Opening NAV 1,311.52 1,121.08 1,270.42




Distributions (54.60) (51.39) (54.80)


Closing NAV 1,517.21 1,311.52 1,121.08











Other information

Closing NAV (€’000) 16,017 9,125 12,358


Number of shares 927,635 574,966 784,202





Opening NAV 111.47 98.56 115.91




Distributions (5.66) (4.20) (4.66)

Closing NAV 123.26 111.47 98.56











Other information

Closing NAV (€’000) 64 71 105


Number of shares 45,874 52,874 76,000








Opening NAV 130.36 111.64 126.76




Distributions (5.09) (4.80) (5.16)


Closing NAV 150.48 130.36 111.64











Other information

Closing NAV (€’000) 17 30 96


Number of shares 10,000 19,000 61,000





Opening NAV 41.91 37.06 43.58




Distributions (2.13) (1.48) (1.65)

Closing NAV 46.23 41.91 37.06











Other information

Closing NAV (€’000) 12,836 13,367 15,666


Number of shares 24,399,934 26,353,309 30,079,112





Opening NAV 102.13 87.65 99.70




Distributions (3.68) (3.54) (3.82)


Closing NAV 117.62 102.13 87.65











Other information

Closing NAV (€’000) 1,897 1,794 3,396


Number of shares 1,417,421 1,451,362 2,756,503



Swiss franc Class ‘A-H’ Accumulation share performanceThe share class was launched on 25 September 2015.


Opening NAV 999.51 1,000.00 n/a



Return after operating charges 80.70 (0.49) n/a



Closing NAV 1,080.21 999.51 n/a








Return after operating charges +8.07 -0.05 n/a



Other information









Swiss franc Class ‘C-H’ Accumulation share performanceThe share class was launched on 25 September 2015.


Opening NAV 1,003.29 1,000.00 n/a






Closing NAV 1,089.45 1,003.29 n/a











Other information






US dollar Class ‘A-H’ Income share performanceThe share class was launched on 8 August 2014.


Opening NAV 953.43 971.10 1,000.00




Distributions (46.56) (35.63) (39.00)

Closing NAV 1,005.09 953.43 971.10











Other information

Closing NAV (€’000) 302 101 118


Number of shares 34,290 11,790 13,610

Highest share price (US ¢) 1,027.40 994.06 1,011.67

Lowest share price (US ¢) 957.50 913.08 963.45

US dollar Class ‘A-H’ Accumulation share performanceThe share class was launched on 8 August 2014.


Opening NAV 1,028.25 1,010.07 1,000.00




Distributions (35.47) (37.68) (39.69)


Closing NAV 1,136.10 1,028.25 1,010.07











Other information

Closing NAV (€’000) 238 860 358


Number of shares 23,918 93,218 39,659



US dollar Class ‘C-H’ Income share performanceThe share class was launched on 8 August 2014.


Opening NAV 951.57 970.36 1,000.00




Distributions (46.73) (40.75) (43.99)

Closing NAV 1,008.42 951.57 970.36











Other information

Closing NAV (€’000) 18 17 17



Highest share price (US ¢) 1,030.71 993.78 1,011.75





US dollar Class ‘C-H’ Accumulation share performanceThe share class was launched on 8 August 2014.


Opening NAV 1,037.82 1,013.64 1,000.00




Distributions (41.43) (43.23) (44.69)


Closing NAV 1,151.89 1,037.82 1,013.64











Other information

Closing NAV (€’000) 20 19 18














2017 2016for the year to 30 June Note €’000 €’000 €’000 €’000

Income


Revenue 5 5,550 6,634



Total return before distributions 9,896 472Distributions 8 (4,365) (4,933)



2017 2016for the year to 30 June €’000 €’000 €’000 €’000


Amounts paid on cancellation of shares (42,671) (75,185) ______ ______ (11,486) 1,395






Balance sheet

2017 2016as at 30 June Note €’000 €’000

Assets




Total assets 124,800 128,659

Liabilities Investment liabilities (15) (1,319)










3 Net capital gains / (losses) 2017 2016for the year to 30 June €’000 €’000


Derivative contracts 899 1,171

Currency gains / (losses) (424) 2,139





2017 2016 for the year to 30 June €’000 €’000


Other transaction types Corporate actions 312 0

Total purchases 50,878 63,632


c) Direct portfolio transaction costs

There were no direct portfolio transaction costs





5 Revenue 2017 2016for the year to 30 June €’000 €’000

Bank interest 0 2

Derivative revenue 654 623




M&G European High Yield Bond Fund Financial statements and notes

6 Expenses 2017 2016for the year to 30 June €’000 €’000


Administration charge 177 194

1,463 1,632




Legal fees 0 1


35 45


7 Taxation 2017 2016for the year to 30 June €’000 €’000




Total taxation 3 12

b) Factors affecting taxation charge for the year Net revenue/ (expense) before taxation 4,041 4,945

______ ______Corporation tax at 20% 808 989

Effects of:

Interest distributions (808) (989)







(2016: same).



behalf to HM Revenue & Customs up to 31 December 2016.


Interest distributions €’000 €’000 €’000 €’000

First interim 249 783 219 1,034

Second interim 268 773 210 1,049

Third interim 296 738 202 1,012

Final 288 758 185 874




Income deducted on cancellation of shares 225 346

Income received on issue of shares (170) (485)







9 Debtors 2017 2016as at 30 June €’000 €’000





Sales awaiting settlement 1,110 457



10 Cash and bank balances 2017 2016as at 30 June €’000 €’000



11 Other creditors 2017 2016as at 30 June €’000 €’000



Amounts payable on cancellation of shares 195 1,012



Purchases awaiting settlement 968 0







13 Shares in issue



Euro Class ‘A’ Income 116,430 31,400 (10,800) 137,030Class ‘A’ Accumulation 2,183,046 481,398 (705,067) 1,959,377Class ‘B’ Income 3,000 39,000 0 42,000Class ‘B’ Accumulation 150,040 90,678 (55,761) 184,957Class ‘C’ Income 3,097 400 (2,400) 1,097Class ‘C’ Accumulation 1,043,301 175,040 (587,234) 631,107

Sterling Class ‘A’ Income 3,282,646 825,875 (160,187) 3,948,334Class ‘A’ Accumulation 597,640 222,427 (215,407) 604,660Class ‘I’ Income 509,952 81,667 (105,711) 485,908Class ‘I’ Accumulation 574,966 439,977 (87,308) 927,635Class ‘R’ Income 52,874 0 (7,000) 45,874Class ‘R’ Accumulation 19,000 0 (9,000) 10,000Class ‘X’ Income 26,353,309 533,544 (2,486,919) 24,399,934Class ‘X’ Accumulation 1,451,362 177,060 (211,001) 1,417,421

Swiss franc Class ‘A-H’ Accumulation 3,002 0 0 3,002Class ‘C-H’ Accumulation 3,003 0 0 3,003

US dollar Class ‘A-H’ Income 11,790 30,500 (8,000) 34,290Class ‘A-H’ Accumulation 93,218 0 (69,300) 23,918Class ‘C-H’ Income 2,000 0 0 2,000Class ‘C-H’ Accumulation 2,000 0 0 2,000





Class ‘B’ 1.25 n/a 1.75 n/a

Class ‘C’ 1.25 n/a 0.75 n/a

Sterling Class ‘A’ 3.00 [a] n/a 1.25 n/a

Class ‘I’ 1.00 [a] n/a 0.75 n/a

Class ‘R’ 1.00 [a] n/a 1.00 n/a

Class ‘X’ nil 4.50 [b] 1.25 n/a

Swiss franc Class ‘A-H’ 3.25 n/a 1.25 [c]

Class ‘C-H’ 1.25 n/a 0.75 [c]

US dollar Class ‘A-H’ 3.25 n/a 1.25 [c]

Class ‘C-H’ 1.25 n/a 0.75 [c]





[c] This charge may vary between 0.01% and 0.055%.

15 Related parties













This refers to instruments which have been valued using models withnon-observable market data inputs. This includes private equity,unlisted closed-ended funds and investment analyst recommendedprices where the market price is deemed to not be a truerepresentation of fair value. However no such financial instrumentswere held. Assets Liabilities Assets Liabilitiesas at 30 June 2017 2017 2016 2016Valuation technique €’000 €’000 €’000 €’000

Level 1 13,210 0 17,728 0Level 2 95,583 (15) 102,517 (1,319)Level 3 0 0 0 0

108,793 (15) 120,245 (1,319)







19 Market risk





Lowest 1.72 1.98

Highest 3.36 5.10

Average 2.56 3.36

20 Credit risk 2017 2016as at 30 June €’000 €’000




Other investments 2,978 26

Total 108,778 118,926

21 Counterparty exposure Forward currency Net Swaps contracts exposureas at 30 June 2017 €’000 €’000 €’000

Bank of America Merrill Lynch 0 232 232

Barclays 1,034 0 1,034

Citigroup 418 0 418

J.P.Morgan 574 0 574

State Street Bank 0 (11) (11)

Total 2,026 221 2,247

Forward currency Net Swaps contracts exposureas at 30 June 2016 €’000 €’000 €’000

Bank of America Merrill Lynch 66 0 66

Barclays 88 0 88

Credit Suisse 630 0 630

State Street Bank 0 (761) (761)

Total 784 (761) 23




22 Leverage risk



The lowest, highest and average level of leverage employed andutilisation of the leverage level calculated during the financial yearsended 30 June 2017 and 30 June 2016 are disclosed in the tablebelow.

2017 2017 2016 2016for the year to 30 June €’000 % €’000 %

Lowest 141,893 118 124,835 125

Highest 229,985 183 231,502 169

Average 141,893 136 174,796 135






First interim 01.07.16 30.09.16 03.10.16 30.11.16

Second interim 01.10.16 31.12.16 03.01.17 28.02.17

Third interim 01.01.17 31.03.17 03.04.17 31.05.17

Final 01.04.17 30.06.17 03.07.17 31.08.17



Group 2 shares are those purchased during a distribution period andtherefore their distribution rate is made up of income and equalisation.Equalisation is the average amount of income included in the purchaseprice of all Group 2 shares and is refunded to the holders of theseshares as a return of capital. Being capital it is not liable to Income Tax.Instead, it must be deducted from the cost of shares for Capital GainsTax purposes. The tables below show the split of the Group 2 rates intothe income and equalisation components.







Second interim 30.8251 - 30.8251 - 30.8251 23.1814

Third interim 28.7951 - 28.7951 - 28.7951 22.8679

Final 27.5597 - 27.5597 - 27.5597 20.3835


Second interim 6.7819 - 6.7819 24.0432 30.8251 23.1814

Third interim 6.1053 - 6.1053 22.6898 28.7951 22.8679

Final 18.2735 - 18.2735 9.2862 27.5597 20.3835




Second interim 25.2195 - 25.2195 - 25.2195 25.6415

Third interim 23.6151 - 23.6151 - 23.6151 25.5099

Final 21.8542 - 21.8542 - 21.8542 22.9409


Second interim 7.5162 - 7.5162 17.7033 25.2195 25.6415

Third interim 13.9171 - 13.9171 9.6980 23.6151 25.5099

Final 5.1765 - 5.1765 16.6777 21.8542 22.9409

Euro Class ‘B’ Income shares



Second interim 12.2907 - 12.2907 - 12.2907 8.0535

Third interim 11.4649 - 11.4649 - 11.4649 7.9378

Final 10.9599 - 10.9599 - 10.9599 6.8986


Second interim 6.3202 - 6.3202 5.9705 12.2907 8.0535

Third interim 3.0208 - 3.0208 8.4441 11.4649 7.9378

Final 2.2259 - 2.2259 8.7340 10.9599 6.8986

Euro Class ‘B’ Accumulation shares



Second interim 8.7344 - 8.7344 - 8.7344 9.1305

Third interim 8.1192 - 8.1192 - 8.1192 9.0215

Final 7.2989 - 7.2989 - 7.2989 7.8904


Second interim 4.9991 - 4.9991 3.7353 8.7344 9.1305

Third interim 3.7814 - 3.7814 4.3378 8.1192 9.0215

Final 2.0770 - 2.0770 5.2219 7.2989 7.8904




Second interim 30.6920 - 30.6920 - 30.6920 26.0761

Third interim 28.7241 - 28.7241 - 28.7241 25.7694

Final 27.5411 - 27.5411 - 27.5411 23.5166


Second interim 30.6920 - 30.6920 0.0000 30.6920 26.0761

Third interim 28.7241 - 28.7241 0.0000 28.7241 25.7694

Final 27.5411 - 27.5411 0.0000 27.5411 23.5166




Second interim 27.6513 - 27.6513 - 27.6513 27.5660

Third interim 26.0422 - 26.0422 - 26.0422 27.5560

Final 24.6200 - 24.6200 - 24.6200 25.2833


Second interim 16.6974 - 16.6974 10.9539 27.6513 27.5660

Third interim 15.0402 - 15.0402 11.0020 26.0422 27.5560

Final 12.2289 - 12.2289 12.3911 24.6200 25.2833




Second interim 0.5680 0.1136 0.4544 - 0.4544 0.2884

Third interim 0.5230 0.0000 0.5230 - 0.5230 0.3060

Final 0.5129 0.0000 0.5129 - 0.5129 0.2900


Second interim 0.2743 0.0549 0.2194 0.2350 0.4544 0.2884

Third interim 0.2641 0.0000 0.2641 0.2589 0.5230 0.3060

Final 0.3059 0.0000 0.3059 0.2070 0.5129 0.2900








Second interim 0.9935 0.1987 0.7948 - 0.7948 0.6836

Third interim 0.9163 0.0000 0.9163 - 0.9163 0.7324

Final 0.8685 0.0000 0.8685 - 0.8685 0.7024


Second interim 0.8825 0.1765 0.7060 0.0888 0.7948 0.6836

Third interim 0.4862 0.0000 0.4862 0.4301 0.9163 0.7324

Final 0.3838 0.0000 0.3838 0.4847 0.8685 0.7024




Second interim 15.1100 3.0220 12.0880 - 12.0880 8.6560

Third interim 13.9287 0.0000 13.9287 - 13.9287 9.1884

Final 13.6762 0.0000 13.6762 - 13.6762 8.8728


Second interim 6.3510 1.2702 5.0808 7.0072 12.0880 8.6560

Third interim 3.9224 0.0000 3.9224 10.0063 13.9287 9.1884

Final 4.3896 0.0000 4.3896 9.2866 13.6762 8.8728




Second interim 14.6225 2.9245 11.6980 - 11.6980 9.9388

Third interim 13.5466 0.0000 13.5466 - 13.5466 10.6260

Final 13.1204 0.0000 13.1204 - 13.1204 10.3572


Second interim 9.6478 1.9296 7.7182 3.9798 11.6980 9.9388

Third interim 3.3504 0.0000 3.3504 10.1962 13.5466 10.6260

Final 3.1026 0.0000 3.1026 10.0178 13.1204 10.3572




Second interim 1.5095 0.3019 1.2076 - 1.2076 0.8180

Third interim 1.3902 0.0000 1.3902 - 1.3902 0.8664

Final 1.3647 0.0000 1.3647 - 1.3647 0.8288


Second interim 0.6865 0.1373 0.5492 0.6584 1.2076 0.8180

Third interim 0.6500 0.0000 0.6500 0.7402 1.3902 0.8664

Final 0.6691 0.0000 0.6691 0.6956 1.3647 0.8288




Second interim 1.3775 0.2755 1.1020 - 1.1020 0.9332

Third interim 1.2594 0.0000 1.2594 - 1.2594 0.9812

Final 1.2149 0.0000 1.2149 - 1.2149 0.9664


Second interim 1.3775 0.2755 1.1020 0.0000 1.1020 0.9332

Third interim 1.2594 0.0000 1.2594 0.0000 1.2594 0.9812

Final 1.2149 0.0000 1.2149 0.0000 1.2149 0.9664




Second interim 0.5670 0.1134 0.4536 - 0.4536 0.2884

Third interim 0.5225 0.0000 0.5225 - 0.5225 0.3056

Final 0.5120 0.0000 0.5120 - 0.5120 0.2900


Second interim 0.1781 0.0356 0.1425 0.3111 0.4536 0.2884

Third interim 0.1776 0.0000 0.1776 0.3449 0.5225 0.3056

Final 0.1224 0.0000 0.1224 0.3896 0.5120 0.2900




Second interim 0.9940 0.1988 0.7952 - 0.7952 0.6868

Third interim 0.9155 0.0000 0.9155 - 0.9155 0.7328

Final 0.8680 0.0000 0.8680 - 0.8680 0.7020


Second interim 0.4396 0.0879 0.3517 0.4435 0.7952 0.6868

Third interim 0.4117 0.0000 0.4117 0.5038 0.9155 0.7328

Final 0.2973 0.0000 0.2973 0.5707 0.8680 0.7020




Second interim 9.0529 - 9.0529 - 9.0529 9.3378

Third interim 8.6151 - 8.6151 - 8.6151 9.2973

Final 7.9233 - 7.9233 - 7.9233 8.3570


Second interim 9.0529 - 9.0529 0.0000 9.0529 9.3378

Third interim 8.6151 - 8.6151 0.0000 8.6151 9.2973

Final 7.9233 - 7.9233 0.0000 7.9233 8.3570








Second interim 10.4375 - 10.4375 - 10.4375 10.5776

Third interim 9.9887 - 9.9887 - 9.9887 10.5334

Final 9.3822 - 9.3822 - 9.3822 9.6669


Second interim 10.4375 - 10.4375 0.0000 10.4375 10.5776

Third interim 9.9887 - 9.9887 0.0000 9.9887 10.5334

Final 9.3822 - 9.3822 0.0000 9.3822 9.6669

US dollar Class ‘A-H’ Income shares



Second interim 12.0377 - 12.0377 - 12.0377 8.9151

Third interim 11.8112 - 11.8112 - 11.8112 9.1955

Final 11.2091 - 11.2091 - 11.2091 8.0581


Second interim 5.7225 - 5.7225 6.3152 12.0377 8.9151

Third interim 0.0000 - 0.0000 11.8112 11.8112 9.1955

Final 11.2091 - 11.2091 0.0000 11.2091 8.0581

US dollar Class ‘A-H’ Accumulation shares



Second interim 9.2219 - 9.2219 - 9.2219 9.4576

Third interim 9.1672 - 9.1672 - 9.1672 9.7433

Final 8.3861 - 8.3861 - 8.3861 8.6015


Second interim 9.2219 - 9.2219 0.0000 9.2219 9.4576

Third interim 1.9784 - 1.9784 7.1888 9.1672 9.7433

Final 1.8820 - 1.8820 6.5041 8.3861 8.6015

US dollar Class ‘C-H’ Income shares



Second interim 12.0375 - 12.0375 - 12.0375 10.2653

Third interim 11.8739 - 11.8739 - 11.8739 10.4223

Final 11.2880 - 11.2880 - 11.2880 9.3010


Second interim 12.0375 - 12.0375 0.0000 12.0375 10.2653

Third interim 11.8739 - 11.8739 0.0000 11.8739 10.4223

Final 11.2880 - 11.2880 0.0000 11.2880 9.3010

US dollar Class ‘C-H’ Accumulation shares



Second interim 10.7330 - 10.7330 - 10.7330 10.8142

Third interim 10.6233 - 10.6233 - 10.6233 11.1330

Final 9.9770 - 9.9770 - 9.9770 10.0380


Second interim 10.7330 - 10.7330 0.0000 10.7330 10.8142

Third interim 10.6233 - 10.6233 0.0000 10.6233 11.1330

Final 9.9770 - 9.9770 0.0000 9.9770 10.0380







The portfolio is normally limited to shares of investment trustcompanies. These shares provide a wide spread of investment in theUK and overseas stock markets and are often available at substantialdiscounts in relation to underlying asset values. Income is not a majorfactor, and the yield can be expected to be slightly less than theaverage for investment trust companies.

Investment approach

The M&G Fund of Investment Trust Shares is a diversified portfolio ofapproximately 60 investment companies with exposure to the UK andoverseas. The fund manager uses his judgement to decide upon areasand investment vehicles from which long-term growth (over five yearsor more) can be obtained. Additional criteria used include theinvestment philosophy and objective of the underlying holdings andthe ability of each manager to deliver on them; and the discount atwhich its shares are trading. Holdings may be sold if there is a changein the fund manager’s view; a failure of the underlying company todeliver on stated objectives; corporate activity, which leads the fundmanager to take profits; or if the fund manager believes a holding hasbecome overvalued.

Risk profile

The fund invests in the shares of investment trust companies and isexposed to a wide spread of investments in the UK and overseasstockmarkets. The fund is, therefore, subject to the price volatility ofthe global stockmarkets and the performance of individual investmenttrust companies. The fund is also subject to fluctuations in currencyexchange rates. Diversification across markets, industries and assetclasses is therefore key in managing liquidity risk and reducing marketrisk. The fund’s risks are measured and managed as an integral partof the investment process.


The above number:





mean risk free.

• has changed during this period. From 1 July 2016 to 23 March 2017 the risk

number was 5.

Low risk High risk


1 2 3 4 5 6 7

Investment review



The M&G Fund of Investment Trust Shares continued to be investedin accordance with its investment objective over the period under review.

Between 1 July 2016 (the start of the review period) and 3 July 2017,the fund’s Sterling Class ‘A’ and ‘X’ shares produced a total return (thecombination of income and growth of capital) of 30.8% and 30.5%,respectively*. Meanwhile, the FTSE All-Share Equity InvestmentInstruments Index, which is an index of comparable investment trusts,returned 26.8%.


Global stockmarkets were on an upward trend for much of the 12months under review, as investors generally shrugged off concernsabout the UK’s decision to leave the European Union (EU), terroristactivity and an attempted coup in Turkey. Meanwhile, economic datafrom the major developed countries has mainly been encouraging,which supported sentiment.

The unexpected victory of Donald Trump in the US presidentialelection in November led to some volatility and mixed reactions aroundthe globe. Some emerging and Asian markets were weak at this timedue to concerns about the possibility of protectionist trade measuresfrom the new president. In the US, expectations of pro-growth policies,particularly the prospect of increased government spending, drove thestockmarket higher. Elsewhere, investors in many markets increasinglyfelt the expected measures could benefit the global economy. However,this optimism was tempered somewhat in the spring following thedefeat of important health policy reforms in the US as investors startedto question the ability of President Trump to push through his policies.

In other markets, investors were relieved in the spring of 2017 aspopulist contenders failed to overturn mainstream candidates in keyelections in the Netherlands and France. In June, market observerswere largely unfazed by the unexpected result of the UK generalelection, which led the ruling Conservative Party to form a minoritygovernment with the support of Northern Ireland’s DemocraticUnionist Party.

In this buoyant environment, the FTSE World Index produced solidgains of 22.1% in sterling terms, with all major markets producingpositive returns over the 12 months.

Turning to individual markets, the US stockmarket was robust for muchof the period under review, with some better-than-expected economicgrowth supporting investor sentiment. In response to the ongoingeconomic recovery, the US Federal Reserve raised interest rates threetimes during the period under review. Meanwhile, a number of politicalcontroversies coming out of Washington during the spring dampenedsentiment at times. The fund’s US holdings added modest value, withcontributors including Gabelli Value Plus+ Trust.

Elsewhere, the Japanese stockmarket produced very solid gains inlocal currency terms, although the weakness of the Japanese yendampened returns from this market a little in sterling terms. Japanesecompany shares, or equities, were buoyed by continued supportivemonetary policy from the Bank of Japan and, after initial concerns,better-than-expected economic growth in China. The fund’s presence

M&G Fund of Investment Trust Shares Authorised Corporate Director’s Report

in Japan was favourable overall; a holding in the Baillie Gifford JapanTrust was helpful, although the allocation to Japanese smallercompanies held back returns.

The mood of investors in many Asian and emerging markets wassimilarly affected by news flow regarding the health of the Chineseeconomy, with doubts early in the review period giving way to improvedsentiment as China’s economy appeared to stabilise. Greaterconfidence about prospects for the global economy also boostedregional stockmarkets.

In this environment, Asian and emerging markets rose sharply overthe 12 months under review. In terms of Asian holdings in the portfolio,Schroder Asian Total Return Investment and Weiss Korea OpportunityFund added value, while the fund’s presence in emerging markets heldback returns overall. Specific detractors included Fundsmith EmergingEquities Trust.

Commodity prices were supported by stronger economic performancefrom China and the US for much of the period. Miners performed well,while oil stocks came under pressure at times despite the efforts ofoil-producing nations to reduce the global supply glut, leading tobroadly flat returns for the full period. In terms of the fund’s holdings,Blackrock World Mining added modest value.

In other markets, economic activity in Europe appears to be pickingup, and a range of data suggests that the recovery is set to continue.Indeed, the European Central Bank (ECB) felt sufficiently confident toreduce the scale of its asset-purchase programme, which wasdesigned to support the economy. Against this backdrop, the Europeanstockmarket produced healthy gains over the 12 months under review,with the relative strength of the euro bolstering returns in sterlingterms. The fund’s holdings in European assets contributed positivelyto performance, with JPMorgan European Smaller CompaniesInvestment Trust and The European Investment Trust adding notablevalue over the 12 months.

UK company shares largely shrugged aside an uncertain geopoliticaland economic backdrop to produce solid returns over the reviewperiod. However, sterling subsequently came under pressure and theBritish pound remains significantly weaker against the US dollar andeuro than pre-referendum levels. UK economic data has beengenerally better than expected, but the most recent figures suggestthat domestic economic growth is slowing. Against this backdrop, theUK stockmarket produced healthy gains over the 12 months, althoughit trailed most major markets. The fund’s UK holdings held back returnsoverall, although UK smaller companies added value. Specificcontributors included River & Mercantile UK Micro Cap Investment andArtemis Alpha Trust, while positions in Keystone Investment Trust andValue & Income Trust detracted.

The fund’s global equity holdings performed well, with MonksInvestment Trust and Miton Global Opportunities adding significantvalue, while Ruffer Investment cost some performance.

The fund’s range of ‘specialist’ holdings was positive for returns overall,with specific contributors including Polar Capital Technology Trust, butBBGI (formerly Bilfinger Berger Global Infrastructure Fund)disappointed. Meanwhile, the fund’s private equity assets were positivefor performance; both F&C Private Equity Trust and PantheonInternational added solid value.


We started a new position in PRS REIT, where the government hastaken a 10% stake. PRS REIT is building a portfolio of newlyconstructed, professionally managed housing in locations outsideLondon. The private rental company aims to build quality family homesnear good schools and transport links. The company believes it hasthe potential to deliver an attractive level of dividend income togetherwith the prospect of capital growth.

We also initiated a holding in Greencoat UK Wind, which has aninteresting project pipeline in UK windfarms. Aside from its own merits,Greencoat provides useful diversification, which is particularlyappealing in the current uncertain environment.

In other transactions, we added to the position in BACIT, which wasformed in 2012 with the ultimate goal of helping to find a cure forcancer. In December 2016, BACIT bought the life-science subsidiaryof global charitable foundation Wellcome Trust, Syncona Partners,with the new entity becoming known as Syncona. The aim of the movewas an attempt to address the lack of long-term capital that thecompanies believe is holding back the commercialisation of lifescience research projects.

We have traditionally had a relatively light presence in the US marketin the fund, which has been performing well in recent years, and weadded to our exposure to US equities. We achieved this via a derivativeinstrument providing access to the S&P 500 Index, rather than directlythrough a financial holding. The asset is very easily accessible, whichshould enable us to move swiftly should the US stocks fall deeply outof favour with investors at any point.

In terms of sales, we closed the positions in JPMorgan GlobalConvertibles and Better Capital following disappointing performances.In addition, we trimmed the positions in Fundsmith Emerging EquitiesTrust and Montanaro UK Smaller Companies Investment Trust as wefeel there are better opportunities elsewhere. We also reduced theposition in Scottish Mortgage Investment Trust, although the holdingremains the largest position in the fund.

Elsewhere, Aberdeen Frontier Markets was wound up as part of arestructuring process and we took the opportunity to exit the holdingas the new structure was not as compelling as the previous entity. Wealso reduced the position in The European Investment Trust followingthe sudden departure of the underlying fund manager. We continueto monitor the holding.

Outlook

The global economy continues to advance, with many major marketsreleasing positive data, and investor sentiment remains positive.However, a range of issues have the potential to throw up unexpecteddevelopments, which could lead to periods of volatility in the near term.

For example, more than a year on from the UK’s referendum on EUmembership, there is still little clarity about the government’s objectivesin the Brexit negotiations. Moreover, post the general election in June,the UK government’s position and ability to push through its aimsregarding Brexit and policies in general have been weakened. In theUS, investors have become less convinced that President Trump willbe able to implement his policy goals; meanwhile, the InternationalMonetary Fund has cut its growth forecasts for the US for this yearand next. In Europe, while elections earlier in the year have passedsmoothly, Germany faces key elections in the autumn.




Investment review

The fund is invested in a range of assets across differentgeographies, company sizes and specialist investments. The aim ofthis diversified approach is to provide access to potentially strongperformances while minimising the effects of any short-term volatility.As ever, we continue to look for mispriced assets and attractiveinvestment opportunities from around the world. In selecting potentialinvestments, we also pay close attention to the ability of the fundmanagers of the underlying holdings.

Richard O’ConnorFund manager








Investments

Portfolio statement


Flexible investment 3,890 10.10 8.56 [a]

400,000 Miton Global Opportunities Investment Trust (formerly Miton Worldwide Growth Investment Trust) 990 2.57

700 Personal Assets Trust 285 0.74

50,000 RIT Capital Partners 965 2.51

325,000 Ruffer Investment Company Red. Pref. shares 764 1.98

550,000 Syncona (formerly BACIT Investment Trust) 886 2.30

Global 6,320 16.41 17.31 [a]

110,000 Alliance Trust 771 2.00

31,000 Caledonia Investments 928 2.41

38,000 Hansa Trust ‘A’ shares 338 0.88

200,000 Monks Investment Trust 1,396 3.63

466,000 Scottish Mortgage Investment Trust 1,873 4.86

101,300 Witan Investment Trust 1,014 2.63

UK all companies 2,437 6.33 6.66 190,000 Artemis Alpha Trust 532 1.38

40,000 Keystone Investment Trust 704 1.83

40,991 Mercantile Investment Trust 781 2.03

435,000 Woodford Patient Capital Trust 420 1.09

UK equity income 1,496 3.88 4.13 113,400 Finsbury Growth & Income Trust 815 2.11

251,710 Value & Income Trust 681 1.77

UK smaller companies 971 2.52 2.47 83,000 Montanaro UK Smaller Companies Investment Trust 440 1.14

331,675 River & Mercantile UK Micro Cap Fund 531 1.38

Europe 2,020 5.25 5.96 535,000 Fidelity European Values 1,174 3.05

300,000 JPMorgan European Income Investment Trust 486 1.26

39,000 The European Investment Trust 360 0.94

European smaller companies 1,105 2.87 2.49 295,000 JPMorgan European Smaller Companies Investment Trust 1,105 2.87

North America 2,212 5.74 6.08 500,000 Gabelli Value Plus+ Trust 650 1.69

289,000 JPMorgan American Investment Trust 1,102 2.86

460,000 Middlefield Canadian Income Trusts 460 1.19

North American smaller companies 809 2.10 2.18 31,109 North Atlantic Smaller Companies Investment Trust 809 2.10

Global emerging markets 1,992 5.17 7.79 [a]

58,000 Aberdeen Emerging Markets Investment Company 330 0.86

22,500 Fundsmith Emerging Equities Trust 259 0.67

100,000 Templeton Emerging Markets Investment Trust 675 1.75

333,600 Utilico Emerging Markets 728 1.89

Asia Pacific - excluding Japan 2,845 7.39 7.31 387,000 Aberdeen Asian Income Fund 817 2.12

295,000 Edinburgh Dragon Trust 1,036 2.69

104,802 Schroder Asian Total Return Investment Company 323 0.84

382,500 Weiss Korea Opportunity Fund [b] 669 1.74

Japan 998 2.59 2.54 149,000 Baillie Gifford Japan Trust 998 2.59

Japanese smaller companies 1,567 4.07 4.48 119,500 Baillie Gifford Shin Nippon 837 2.17

200,000 JPMorgan Japan Smaller Companies Investment Trust 730 1.90

Private equity 2,066 5.36 4.89 298,000 F&C Private Equity Trust 995 2.58

59,000 Pantheon International 1,071 2.78

Property 1,521 3.95 4.40 350,000 Ediston Property Investment Company REIT 383 0.99

331,403 TR Property Investment Trust 1,138 2.96

Specialist 4,629 12.02 12.39 [a]

623,296 BBGI 899 2.33

100,000 Biotech Growth Trust 761 1.98

136,000 BlackRock World Mining Trust 454 1.18

473,042 CATCo Reinsurance Opportunities Fund 490 1.27

232,500 Ecofin Global Utilities and Infrastructure 295 0.77

287,000 Greencoat UK Wind 351 0.91

14,832 P2P Global Investments 131 0.34

128,000 Polar Capital Technology Trust 1,248 3.24





Outlook (continued)

Investment review

Real estate investment trusts 188 0.49 0.00 180,000 PRS REIT 188 0.49

Unquoted / unlisted 0 0.00 0.00 75,000 Bioscience Investment Trust 0 0.00

2,000,000 M&G Equity Investment Trust (capital shares) 0 0.00

1,305,397 M&G Equity Investment Trust (income shares) 0 0.00

26,744 Thompson Clive Investment Trust 0 0.00

Futures (3) (0.01) (0.01) 16 E-Mini S&P 500 Sep 2017 (3) (0.01)


‘AAA’ rated money market funds [c] 1,473 3.82 0.49 1,473,000 Northern Trust Global Fund - Sterling 1,473 3.82

Total portfolio (notes 2c & 2d on page 6) 38,536 100.05 100.12Net other assets / (liabilities) (21) (0.05) (0.12)





[b] AIM quoted.

[c] Uncommitted surplus cash is placed into ‘AAA’ rated money market funds with the


Top portfolio transactions


Purchases £’000

Ecofin Global Utilities and Infrastructure 469

Greencoat UK Wind 320

PRS REIT 184

Utilico Emerging Markets 102

EF Realisation 88

Syncona (formerly BACIT Investment Trust) 66

BBGI 19



Ecofin Water & Power Opportunities 872

Aberdeen Frontier Market 685

The European Investment Trust 443

Fundsmith Emerging Equities Trust 308

Scottish Mortgage Investment Trust 229

Personal Assets Trust 196

Monks Investment Trust 176

JPMorgan American Investment Trust 142

River & Mercantile UK Micro Cap Fund 83

Baillie Gifford Japan Trust 77

Other sales 509

Total sales 3,720


funds.





Investments

Fund performance


The following charts and tables reflect the key financial information ofa representative share class, Sterling Class ‘A’ (Accumulation) shares.As different share classes have different attributes, for examplecharging structures and minimum investments, please be aware thattheir performance may be different. Please refer to the Prospectus forM&G Investment Funds (3), which is available free of charge eitherfrom our website at www.mandg.co.uk/prospectuses or by calling M&GCustomer Relations.



2017 2016 2015as at 30 June £’000 £’000 £’000



To give an indication of how the fund has performed since launch, thechart below shows total return of Sterling Class ‘A’ (Accumulation)shares.

50

100

150 200

300

500

700

1,000

1,500 2,000

3,000

5,000

10,000

7,000

15,000

69 15131103 05 090701999795939189878583817977757371 17

May 1968 = 100, plotted monthly Chart date 3 July 2017









Class ‘X’ +30.5 +11.4 +13.1 +9.7 [d]

[a] Absolute basis.


[c] 10 May 1968, the end of the initial offer period of the predecessor unit trust.

[d] 1 October 2002, the launch date of the share class.

100

80

60

160

130

200

280

240

502007 2008 2009 2010 2011 2012 2013 2014 2015 2016



FTSE World Index


FTSE All-Share Equity Investment Instruments Index


M&G Fund of Investment Trust Shares Financial highlights



Operating charges



















Taxes 0.00 0.01 0.00 0.00












Fund performance



Sterling Class ‘A’ Income share performanceThe share class was launched on 10 May 1968.


Opening NAV 1,748.21 1,762.05 1,665.13




Distributions (33.90) (13.57) (10.42)

Closing NAV 2,248.17 1,748.21 1,762.05











Other information

Closing NAV (£’000) 15,182 11,947 12,704


Number of shares 675,331 683,381 720,967





Opening NAV 4,009.95 4,010.72 3,767.59

Return before operating charges and after directportfolio transaction costs 1,284.56 46.38 289.99


Return after operating charges 1,228.19 (0.77) 243.13

Distributions (23.70) (30.92) (23.61)


Closing NAV 5,238.14 4,009.95 4,010.72











Other information

Closing NAV (£’000) 21,664 17,294 18,924


Number of shares 413,580 431,292 471,844





Opening NAV 1,756.77 1,770.86 1,673.53




Distributions (34.00) (4.95) (1.81)

Closing NAV 2,253.91 1,756.77 1,770.86











Other information

Closing NAV (£’000) 1,028 902 839


Number of shares 45,605 51,355 47,347









Opening NAV 3,768.90 3,788.54 3,576.68

Return before operating charges and after directportfolio transaction costs 1,205.87 43.29 275.06


Return after operating charges 1,143.13 (19.64) 211.86

Distributions (12.67) (10.58) (3.78)


Closing NAV 4,912.03 3,768.90 3,788.54











Other information

Closing NAV (£’000) 641 594 670


Number of shares 13,043 15,753 17,693









year figures.







Income

Net capital gains / (losses) 3 9,016 (333)

Revenue 5 614 636

Expenses 6 (422) (381) ______ ______Net revenue / (expense) beforetaxation 192 255

Taxation 7 0 0 ______ ______Net revenue / (expense) aftertaxation 192 255

Total return before distributions 9,208 (78)Distributions 8 (346) (236)

Change in net assets attributableto shareholders from investmentactivities 8,862 (314)



Opening net assets attributable toshareholders 30,737 33,137Amounts received on issue of shares 419 528



Change in net assets attributable toshareholders from investment activities(see above) 8,862 (314)

Retained distributions on Accumulationshares 100 137



Balance sheet

2017 2016as at 30 June Note £’000 £’000

Assets


Current assets Debtors 9 72 76


Total assets 38,703 30,910


Creditors Overdrawn positions at futures clearing houses andcollateral manager (23) (31)

Distribution payable (139) (66)

Other creditors 11 (23) (72)

Total liabilities (188) (173)







In determining the amount available for distribution, ordinary stockdividends have been transferred to capital, reducing the amount available.


Non-derivative securities 8,909 (340)Derivative contracts 110 10Currency gains / (losses) 1 1Transaction charges (4) (4)

Net capital gains / (losses) 9,016 (333)




a) Purchases Equities Equities before transaction costs 1,247 1,379 Taxes 1 0.08 5 0.36


b) Sales Equities Equities before transaction costs 3,036 2,927 Commissions (1) 0.03 (2) 0.07


Other transaction types Corporate actions 685 0




Taxes paid Equities 1 0.00 5 0.01

Total direct portfolio transactioncosts [a] 2 0.01 7 0.02



[a] Costs before dilution adjustments. Please refer to the ‘Financial highlights’ sectionfor the effect of dilution adjustments.



M&G Fund of Investment Trust Shares Financial statements and notes


Dividends from equity investments: non-taxable 567 596

Dividends from equity investments: taxable 26 19


Stock dividends 19 19

Total revenue 614 636


Payable to the ACD or associate Annual management charge 357 322


410 369



Total expenses 422 381




Total taxation 0 0

b) Factors affecting taxation charge for the year Net revenue / (expense) before taxation 192 255


Effects of:

Dividends from equity investments: non-taxable (113) (119)

Stock dividends not taxable (4) (4)

Offshore income tax gains 34 26

Current year expenses not utilised 45 46






arising as a result of having excess management expenses and interest distributions.

We do not expect this asset to be utilised in the foreseeable future.



Interim 106 35 30 43

Final 139 65 66 94

Total net distributions 345 233



Distributions 346 236

Net revenue / (expense) per statement oftotal return 192 255


Stock dividends not distributed (19) (19)

Distributions 346 236




Dividends receivable 70 75

Tax recoverable 2 1

Total debtors 72 76


Amounts held at futures clearing houses and collateral manager 88 46








Total other creditors 23 72



13 Shares in issue



Sterling Class ‘A’ Income 683,381 8,950 (17,000) 675,331


Class ‘X’ Income 51,355 0 (5,750) 45,605

Class ‘X’ Accumulation 15,753 0 (2,710) 13,043








Class ‘X’ nil 4.50 [b] 1.00





15 Related parties














Level 1 37,066 (3) 30,629 (4)

Level 2 1,473 0 150 0

Level 3 0 0 0 0

38,539 (3) 30,779 (4)



The general risk management policies for the fund are set out in note3 to the financial statements on page 7 and 8.


A five per cent increase in the value of the fund’s investment portfoliowould have the effect of increasing the return and net assets by£1,853,000 (2016: £1,531,000). A five per cent decrease would havean equal and opposite effect.










23 Counterparty exposure Collateral held as Net Futures cash exposureas at 30 June 2017 £’000 £’000 £’000

Bank of America Merrill Lynch (3) 65 62

Total (3) 65 62

Collateral held as Net Futures cash exposureas at 30 June 2016 £’000 £’000 £’000

Bank of America Merrill Lynch (4) 15 11

Total (4) 15 11







Interim 01.07.16 31.12.16 03.01.17 28.02.17

Final 01.01.17 30.06.17 03.07.17 31.08.17






p p p pInterim 7.7777 6.8468 14.6245 4.2326

Final 9.5622 9.7147 19.2769 9.3353



p p p pInterim 7.6351 0.8137 8.4488 9.6272

Final 4.8491 10.3976 15.2467 21.2965



p p p pInterim 8.1971 6.4766 14.6737 0.0000

Final 10.3062 9.0206 19.3268 4.9541



p p p pInterim 0.0000 0.0000 0.0000 0.0000

Final 12.4940 0.1771 12.6711 10.5795





Investment objective

The Fund aims to maximise total return (the combination of incomeand growth of capital).

Investment policy

The portfolio will mainly consist of investment grade government debtsecurities, including government guaranteed debt securities, and willbe invested on a global basis. The Fund’s exposure to investmentgrade government debt may be gained through the use of derivatives.The Fund may also invest in other government and public securities,collective investment schemes, other transferable securities, other debtinstruments, cash and near cash, deposits, warrants, money marketinstruments and other derivative instruments. The Fund may usederivatives for Efficient Portfolio Management purposes.

Investment approach

The M&G Global Government Bond Fund invests mainly ininvestment grade government bonds on a global basis. Its investmentapproach is driven primarily by the fund manager’s views onmacroeconomic factors such as economic growth, interest rates andinflation. This assessment determines the individual governmentbonds from different countries in which the manager believes the fundshould invest in order to achieve its objective. It also influences theportfolio’s mix of interest rate risk and currency exposure. Thesefactors, along with the manager’s selection of government bondholdings, drive the fund’s long-term performance. With the activemanagement of the fund’s currency exposures being one of thesedrivers, its returns will include a higher degree of currency risk thandomestic fixed income funds.

Risk profile

The fund invests mainly in investment grade government bonds,including government-guaranteed debt securities, on a global basis. Itis, therefore, subject to the price volatility of the global bond marketand the performance of individual issuers. It is also subject tofluctuations in currency exchange rates.

The fund’s exposure to investment grade government debt may begained through the use of derivatives. In association with the use ofderivatives, including those instruments not traded through anexchange, collateral is deposited, in order to mitigate the risk that acounterparty may default on its obligations or become insolvent.

Up to 30% of the fund’s assets may be invested in non-investment gradegovernment debt securities, which are higher risk assets that couldpotentially experience a degree of illiquidity in times of market distress.



The above number:





mean risk free.


Investment review



Between 1 July 2016 (the start of the review period) and 3 July 2017,the M&G Global Government Bond Fund produced a mixedperformance across its different share classes*. During the period, theoutlook for government bonds became more challenging againstfactors such as firmer inflation trends and rising US interest rates. Inaddition, towards the end of the period, expectations began toincrease that central banks in Europe might start to reduce theirimportant economic stimulus programmes, which weighed on investorsentiment towards bonds. In turn, this backdrop contributed to declinesbeing recorded among mainstream government bond markets.

The variance in returns between the fund’s share classes resulted fromsignificant movements in the currency markets. For the sterling shareclasses, the decline in value of the British pound against manycurrencies provided some upside to the fund’s performance as theportfolio remained largely invested in non-sterling assets. However, theeuro generally performed well in the currency markets, which detractedfrom the returns of the fund’s euro share classes as a sizeable part ofthe portfolio was invested in non-euro assets. The fund’s objective isto maximise total returns.


A number of key themes were in focus among global investors goinginto the second half of 2016. In Europe, for example, much attentioncentred on the implications of the UK’s unexpected referendum voteto leave the European Union (EU), with most economists expectingthat this would weaken the economic outlook, not only in the UK butalso in the EU.

Importantly, this backdrop influenced the Bank of England (BoE) andEuropean Central Bank (ECB) to maintain significant economicstimulus programmes, which included their own buying activity in bondmarkets. The central banks also sought to hold interest rates at low,

Low risk High risk


1 2 3 4 5 6 7

M&G Global Government Bond Fund Authorised Corporate Director’s Report

or even reduced, levels. In turn, these policies provided some supportto the performance of government bond markets during the openingmonths of the review period. (Bonds are loans that are extended byan investor to an issuing entity – such as a company or government –in exchange for regular interest payments. Bonds issued by companiesare referred to as ‘corporate bonds’, while those issued bygovernments are called ‘government bonds’.)

In the US, however, the country’s strengthening economic recoverycontinued to prompt the US Federal Reserve (Fed) to raise interestrates. Having introduced its first rate rise for many years at the end of2015, the Fed announced three more increases of 0.25% each duringthe review period. Higher interest rates typically dampen investorsentiment towards bonds and, given the importance of the US market,the effects of increased US rates can be felt internationally.

In addition, bond markets reacted with uncertainty to the election ofDonald Trump as US president in November. Relevantly, investorsassessed that the new president might introduce some of his headlinepolicies of significant infrastructure spending and big cuts in corporationtax. As a result, a sizeable increase could follow in governmentborrowing, with implications for higher inflation, and sentiment towardsgovernment bonds typically dampens against such considerations.

As the review period progressed, rising inflation became a maineconomic theme not only in the US as its economy performed well, butalso in the UK and Europe. In the UK, rising consumer prices werelargely driven by a steep fall in the value of sterling following the Brexitvote, as a declining currency pushes import costs upwards. In theeurozone, meanwhile, improving economic growth data led to firmerinflation readings, which prompted the ECB to confirm in Decemberthat the monthly size of its stimulus programme would be moderated.Towards the end of the review period, expectations increased againthat the ECB and BoE might look to scale back their stimulus measuresas inflation continued to edge upwards.

Political considerations also played a part in influencing sentiment inEuropean financial markets in the latter part of the review period.These included the unpredictable outcome of the French presidentialelection, with the possibility that an anti-European Union (EU) votecould win the contest. While anticipation of the election initiallyconcerned investors, financial markets globally found relief in late Aprilas a pro-EU candidate emerged as the first-round leader. This positivereaction continued when the candidate, Emmanuel Macron, wasconfirmed the victor in May. In the UK, however, a general election inJune delivered a surprising result of no winner with an overall majority.

Against these significant economic and political factors, while theperformance of global government bonds ebbed and flowed,mainstream markets recorded declines for the review period. Thisbackdrop weighed on the fund’s returns as it remained invested in adiversified portfolio of global government bonds. However, significant

movements in the currency markets provided some variance in returnsbetween the fund’s share classes. For the sterling share classes, forexample, the decline in value of the British pound against manycurrencies provided some upside to the fund’s performance as theportfolio was kept largely invested in non-sterling assets. However, theeuro generally performed well in the currency markets, which detractedfrom the returns of the fund’s euro share classes as a sizeable part ofthe portfolio was invested in non-euro assets.


While maintaining a globally diversified government bond fund, ourportfolio activity during the period included lowering the fund’s overallexposure to US government bonds. The adjustment was taken againstthe backdrop of rising interest rates in the US.

We also reduced the fund’s exposure to German government bonds.This largely reflected the changing outlook for this segment of themarket amid the rising inflation environment in Europe, as well as theincreased expectations that the ECB would taper its importantstimulus measures.

Throughout the period, in addition to developed industrialised nations,we also closely monitored investment opportunities in emergingmarkets. In our view, government bond valuations in the latter arealooked relatively attractive on a selective basis and we held allocationsin the fund from across the main emerging market regions.

Relevantly, the investment case for emerging market bonds washelped by factors such as continued low interest rates in Europe andJapan. This backdrop kept government bond yields in these areas atvery low (or even negative) levels. In turn, this environment supportedthe proposition of higher yielding areas of the bond markets, such ascould be found in emerging countries for taking on a higher degree ofrisk. (Bond yields refer to the interest received from a fixed interestsecurity, which is usually expressed annually as a percentage basedon the investment’s cost, its current market value or its face value.)

Within this theme, bonds from the governments of Indonesia,Argentina and Israel were among our preferred investments, whileMexico ranked as the fund’s largest allocation to an emerging marketat the end of the review period.

Outlook

Through the fund’s flexible investment approach, our activemanagement of the portfolio’s allocations to different countries, as wellas its currency positioning, remain important drivers of its long-termreturns. In addition, we continued to position the fund so that itsperformance should be less sensitive to the prospect of rising interestrates, a strategy known as holding short duration. During the reviewperiod, the extent of the fund’s short duration positioning wasincreased against the backdrop of rising interest rate expectations.

At the end of the period, we continued to invest the fund in a globallydiversified portfolio of government bonds. These holdings consistedof bonds not only from large developed nations such as Japan, theUS, Germany, and the UK, but also from select emerging economies.




Investment review

In our assessment, value can still be found in the latter area whencomparing their valuations to government bonds of developedcountries. We also believe that the creditworthiness of emergingmarkets should be supported by improving global economic growth.While we felt investors were right to weigh up the potentially adverseimplications for emerging markets of a Donald Trump presidency, therhetoric of the new administration towards key issues such as NAFTA(the North American Free Trade Agreement) has softened somewhatsince his inauguration in January. In Europe, meanwhile, the result ofthe French presidential election notably helped to boost investors’sentiment globally, including towards emerging market assets.

Overall, our investment strategy remains based on seeking the mostattractive value in the global government bond markets amid theprevailing economic conditions, while avoiding those countries wherethe outlook is less favourable.

Claudia CalichFund manager









Investments

Portfolio statement


Debt securities 72,600 95.51 96.32 ‘AAA’ credit rated bonds 7,948 10.45 18.57 AUD2,200,000 Australia (Commonwealth of) 2.75% 2024 1,728 2.27

DKK6,500,000 Denmark (Kingdom of) 3% 2021 1,137 1.50


NOK6,500,000 Norway (Kingdom of) 2% 2023 808 1.06

SEK14,000,000 Sweden (Kingdom of) 2.25% 2032 1,868 2.46

‘AA’ credit rated bonds 17,123 22.53 20.70 CLP700,000,000 Chile (Republic of) 5.5% 2020 1,115 1.47

CZK32,000,000 Czech (Republic of) 4.6% 2018 1,466 1.93

$1,000,000 Kuwait (State Of) 3.5% 2027 1,021 1.34

NZD2,000,000 New Zealand (Govt. of) 2.5% IL 2035 1,577 2.08

£2,500,000 Treasury 1.25% 2018 3,276 4.31

$8,700,000 US Treasury 0.75% 2018 8,668 11.40

10.45%

22.53%

19.66%

23.57%

6.17%

8.49%

4.64%

0.11%

0.02%

2.27%

18.57%

20.70%

19.16%

16.72%

13.40%

3.01%

4.76%

0.00%

0.50%

1.26%

Debt securities












30 June 2016





Investment review

‘A’ credit rated bonds 14,942 19.66 19.16 ILS5,700,000 Israel (State of) 4% 2018 1,668 2.20

$1,100,000 Israel (State of) 4.5% 2043 1,162 1.53

¥700,000,000 Japan (Govt of) 0.1% 2018 6,258 8.23

MXN35,000,000 Mexico (United Mexican States) 6.5% 2022 1,931 2.54

PEN4,800,000 Peru (Republic of) 8.2% 2026 1,776 2.34

PLN3,700,000 Poland (Republic of) 3.25% 2025 1,004 1.32

$1,000,000 Slovenia (Republic of) 5.5% 2022 1,143 1.50

‘BBB’ credit rated bonds 17,914 23.57 16.72COP3,000,000,000 Colombia (Republic of) 6% 2028 933 1.23

$800,000 Indonesia (Republic of) 4.35% 2024 835 1.10

IDR10,000,000,000 Indonesia (Republic of) 8.25% 2036 803 1.06

IDR11,000,000,000 Indonesia (Republic of) 9% 2029 939 1.23

$800,000 Kazakhstan (Republic of) 5.125% 2025 868 1.14

£792,000 Mexico (United Mexican States) 5.625% 2114 1,091 1.43

€500,000 Morocco (Kingdom of) 3.5% 2024 620 0.81

$800,000 Morocco (Kingdom of) 5.5% 2042 887 1.17

$600,000 Panama (Republic of) 8.875% 2027 854 1.12

$600,000 Peru (Republic of) 8.75% 2033 920 1.21

$637,500 Petroleos Mexicano 2.46% 2025 640 0.84

PHP40,000,000 Philippines (Republic of) 6.25% 2036 895 1.18

$500,000 Philippines (Republic of) 9.5% 2030 801 1.05

€1,000,000 Romania (Republic of) 3.875% 2035 1,192 1.57

RON3,500,000 Romania (Republic of) 5.8% 2027 1,008 1.33

RUB60,000,000 Russia (Federation of) 8.15% 2027 1,053 1.39

ZAR13,700,000 South Africa (Republic of) 8.75% 2048 939 1.24

THB40,000,000 Thailand (Kingdom of) 1.25% IL 2028 1,132 1.49

UYU8,822,396 Uruguay (Republic of) 5% IL 2018 729 0.96

UYU21,509,000 Uruguay (Republic of) 9.875% 2022 775 1.02

‘BB’ credit rated bonds 6,451 8.49 13.40 BRL3,500,000 Brazil (Federal Republic of) 10% 2025 1,030 1.36

DOP31,000,000 Dominican Republic 10.4% 2019 663 0.87

$700,000 Guatemala (Republic of) 5.75% 2022 763 1.00

€650,000 Macedonia (Govt. of) 5.625% 2023 807 1.06

$600,000 MFB Hungarian Development Bank 6.25% 2020 664 0.87

$600,000 Paraguay (Republic of) 6.1% 2044 667 0.88

$1,200,000 Portugal (Republic of) 5.125% 2024 1,221 1.61

TL2,200,000 Turkey (Republic of) 10.6% 2026 636 0.84

‘B’ credit rated bonds 4,692 6.17 3.01 €500,000 Albania (Republic of) 5.75% 2020 624 0.82

ARS12,000,000 Argentina (Republic of) 21.2% 2018 734 0.97

ARS10,000,000 Argentina (Republic of) 22.75% 2018 611 0.80

€825,662 Argentina (Republic of) Var. Rate 2033 (7.82%) 998 1.31

$500,000 Ecuador (Republic of) 8.75% 2023 490 0.64

EGP6,000,000 Egypt (Arab Republic of) 0% 2017 326 0.43

TRY800,000 Honduras (Republic of) 8.75% 2020 909 1.20

Bonds with no credit rating 3,530 4.64 4.76 €800,000 Cote d’Ivoire 5.125% 2025 923 1.21

$1,000,000 KSA Sukuk 2.894% 2022 1,002 1.32

INR100,000,000 Rural Electrification 9.04% 2019 1,605 2.11

Credit default swaps 86 0.11 0.00 $1,000,000 Korea International Bond Dec 2021 (23) (0.03)

$3,000,000 Markit CDX Emerging Markets Series 26 5 Year Dec 2021 109 0.14

Forward currency contracts 15 0.02 0.50 EGP9,255,000 Bought for $500,000 (expires 20.09.17) 0 0.00

€1,148,172 Bought for £1,000,000 (expires 20.09.17) 13 0.02

£1,000,000 Bought for €1,134,572 (expires 20.09.17) 2 0.00


‘AAA’ rated money market funds [a] 1,721 2.27 1.26 1,721,000 Northern Trust Global Fund - US dollar 1,721 2.27

Total portfolio (notes 2c & 2d on page 6) 74,422 97.91 98.08Net other assets / (liabilities) 1,591 2.09 1.92











Fund performance









2017 2016 2015as at 30 June $’000 $’000 $’000








Euro [b] Class ‘A’ -1.8 n/a n/a +7.7 [c]

Class ‘C’ -1.3 n/a n/a +8.3 [c]


Class ‘I’ +3.2 +12.3 n/a +4.2 [f]

Class ‘R’ +3.0 +12.0 n/a +4.0 [f]

Swiss franc [b] Class ‘A’ -0.8 n/a n/a +4.1 [c]

Class ‘C’ -0.3 n/a n/a +4.6 [c]

US dollar [b] Class ‘A’ +0.4 n/a n/a +2.1 [c]

Class ‘C’ +1.0 n/a n/a +2.7 [c]

[a] Absolute basis.


[c] 22 August 2014, the launch date of the share class.


[e] 4 October 1999, the end of the initial offer period of the predecessor unit trust.

[f] 3 August 2012, the launch date of the share class.

120

130

140

150

180

200

160

220

240

260

280

300

100

110

9599 00 0201 03 04 0605 121110090807 13 14 15 16 17






Morningstar (IA) Global Bond sector average*



M&G Global Government Bond Fund Financial highlights



Operating charges



















Taxes 0.00 0.00 0.00 0.00


Dilution adjustments [c] 0.00 0.00 0.00 0.00










Fund performance



Euro Class ‘A’ Income share performanceThe share class was launched on 22 August 2014.


Opening NAV 1,226.01 1,121.26 1,000.00

Return before operating charges and after directportfolio transaction costs (0.38) 138.27 135.51


Return after operating charges (15.45) 123.75 124.19

Distributions (40.78) (19.00) (2.93)

Closing NAV 1,169.78 1,226.01 1,121.26








Return after operating charges -1.26 +11.04 +12.42



Other information

Closing NAV ($’000) 3,426 755 68


Number of shares 256,797 55,260 5,386



Euro Class ‘A’ Accumulation share performanceThe share class was launched on 22 August 2014.


Opening NAV 1,248.80 1,124.07 1,000.00




Distributions (27.44) (19.13) (3.08)


Closing NAV 1,233.05 1,248.80 1,124.07











Other information

Closing NAV ($’000) 5,521 1,917 1,231


Number of shares 392,596 137,745 97,938





Opening NAV 1,225.30 1,120.51 1,000.00




Distributions (41.48) (25.46) (8.38)

Closing NAV 1,175.01 1,225.30 1,120.51











Other information

Closing NAV ($’000) 7 7 6


Number of shares 500 500 500





Euro Class ‘C’ Accumulation share performanceThe share class was launched on 22 August 2014.


Opening NAV 1,261.31 1,129.06 1,000.00




Distributions (34.68) (25.78) (8.38)


Closing NAV 1,252.06 1,261.31 1,129.06











Other information








Opening NAV 96.60 76.06 74.16




Distributions (3.40) (1.43) (0.19)

Closing NAV 98.02 96.60 76.06











Other information

Closing NAV ($’000) 3,813 4,442 12,854


Number of shares 2,997,769 3,409,000 10,753,913





Opening NAV 126.77 98.57 95.92




Distributions (2.95) (1.87) (0.24)


Closing NAV 132.84 126.77 98.57











Other information

Closing NAV ($’000) 9,228 9,724 15,804


Number of shares 5,352,374 5,686,909 102,202,676





Opening NAV 1,116.35 879.00 857.12




Distributions (39.41) (21.49) (6.68)

Closing NAV 1,138.41 1,116.35 879.00











Other information

Closing NAV ($’000) 17,908 12,179 2,761


Number of shares 1,212,092 808,857 199,884

Highest share price (UK p) 1,239.86 1,148.20 981.26







Opening NAV 1,157.67 896.49 868.92




Distributions (33.10) (22.13) (6.83)


Closing NAV 1,218.46 1,157.67 896.49











Other information

Closing NAV ($’000) 35,205 32,422 18,374


Number of shares 2,226,239 2,076,382 1,304,216

Highest share price (UK p) 1,286.17 1,178.92 996.84




Opening NAV 111.63 87.90 85.70




Distributions (3.93) (1.92) (0.44)

Closing NAV 113.55 111.63 87.90











Other information

Closing NAV ($’000) 136 86 79


Number of shares 91,923 57,000 57,000





Opening NAV 115.13 89.33 86.75




Distributions (2.99) (1.96) (0.46)


Closing NAV 120.91 115.13 89.33











Other information

Closing NAV ($’000) 102 42 58


Number of shares 65,122 26,736 41,000



Swiss franc Class ‘A’ Accumulation share performanceThe share class was launched on 22 August 2014.


Opening NAV 1,124.23 966.39 1,000.00



Return after operating charges (7.43) 157.84 (33.61)

Distributions (25.61) (18.24) (2.92)


Closing NAV 1,116.80 1,124.23 966.39








Return after operating charges -0.66 +16.33 -3.36



Other information





Lowest share price (Swiss ¢) 1,102.10 975.77 928.80




Swiss franc Class ‘C’ Accumulation share performanceThe share class was launched on 22 August 2014.


Opening NAV 1,134.62 970.54 1,000.00



Return after operating charges (1.93) 164.08 (29.46)

Distributions (31.57) (23.58) (7.94)


Closing NAV 1,132.69 1,134.62 970.54








Return after operating charges -0.17 +16.91 -2.95



Other information





Lowest share price (Swiss ¢) 1,114.64 980.13 930.82

US dollar Class ‘A’ Income share performanceThe share class was launched on 22 August 2014.


Opening NAV 1,029.66 944.59 1,000.00




Distributions (33.74) (16.48) (2.99)

Closing NAV 1,005.29 1,029.66 944.59











Other information

Closing NAV ($’000) 166 5 5


Number of shares 16,558 500 500



US dollar Class ‘A’ Accumulation share performanceThe share class was launched on 22 August 2014.


Opening NAV 1,049.32 947.49 1,000.00




Distributions (22.80) (15.96) (2.99)


Closing NAV 1,059.91 1,049.32 947.49











Other information

Closing NAV ($’000) 177 152 57


Number of shares 16,714 14,514 6,000



US dollar Class ‘C’ Income share performanceThe share class was launched on 22 August 2014.


Opening NAV 1,029.02 943.85 1,000.00




Distributions (35.17) (21.45) (7.81)

Closing NAV 1,009.77 1,029.02 943.85











Other information









US dollar Class ‘C’ Accumulation share performanceThe share class was launched on 22 August 2014.


Opening NAV 1,060.08 951.66 1,000.00




Distributions (29.87) (21.69) (7.87)


Closing NAV 1,077.79 1,060.08 951.66











Other information

Closing NAV ($’000) 300 5 5


Number of shares 27,800 500 500












2017 2016for the year to 30 June Note $’000 $’000 $’000 $’000

Income

Net capital gains / (losses) 3 (726) 4,654

Revenue 5 2,431 1,492

Expenses 6 (590) (483) ______ ______Net revenue / (expense) beforetaxation 1,841 1,009

Taxation 7 (23) (29) ______ ______Net revenue / (expense) aftertaxation 1,818 980

Total return before distributions 1,092 5,634Distributions 8 (1,974) (980)

Change in net assets attributableto shareholders from investmentactivities (882) 4,654


2017 2016for the year to 30 June $’000 $’000 $’000 $’000


Amounts paid on cancellation of shares (23,817) (29,175) ______ ______ 13,793 5,119


Change in net assets attributable toshareholders from investment activities(see above) (882) 4,654

Retained distributions on Accumulationshares 1,259 591


Balance sheet

2017 2016as at 30 June Note $’000 $’000

Assets




Total assets 77,047 70,681



Other creditors 11 (549) (8,516)








3 Net capital gains / (losses) 2017 2016for the year to 30 June $’000 $’000

Non-derivative securities (106) 3,357Derivative contracts (591) 1,632Currency gains / (losses) (23) (329)Transaction charges (6) (6)

Net capital gains / (losses) (726) 4,654



2017 % of 2016 % offor the year to 30 June $’000 transaction $’000 transaction



Other transaction types Corporate actions 2,547 0

Total sales 83,076 59,161

2017 % of 2016 % ofc) Direct portfolio transaction costs $’000 average NAV $’000 average NAV

Commissions paid Derivatives 0 0.00 1 0.00

Total direct portfolio transactioncosts [b] 0 0.00 1 0.00


Portfolio dealing spread [c] 0.37 0.39


[b] Costs before dilution adjustments. Please refer to the ‘Financial highlights’ sectionfor the effect of dilution adjustments.

[c] Average portfolio dealing spread at the balance sheet date.

5 Revenue 2017 2016for the year to 30 June $’000 $’000

Bank interest 3 0

Derivative revenue 0 (125)





M&G Global Government Bond Fund Financial statements and notes

6 Expenses 2017 2016for the year to 30 June $’000 $’000

Payable to the ACD or associate Annual management charge 443 369


548 445




Legal fees 0 2


Tax fees (including VAT) 0 1

36 33

Total expenses 590 483

7 Taxation 2017 2016for the year to 30 June $’000 $’000



Current double taxation relief 0 (6)





Effects of:

Interest distributions (368) (196)


Total double taxation relief 0 (6)






(2016: same).





Interest distributions $’000 $’000 $’000 $’000

Interim 209 555 73 168

Final 462 704 166 423

Total net distributions 1,930 830





Distributions 1,974 980

Net revenue / (expense) per statement oftotal return 1,818 980


Distributions 1,974 980



9 Debtors 2017 2016as at 30 June $’000 $’000



Debt security interest receivable 1,025 581





10 Cash and bank balances 2017 2016as at 30 June $’000 $’000



11 Other creditors 2017 2016as at 30 June $’000 $’000






Purchases awaiting settlement 0 8,407

Total other creditors 549 8,516






13 Shares in issue



Euro Class ‘A’ Income 55,260 217,792 (16,255) 256,797


Class ‘C’ Income 500 0 0 500

Class ‘C’ Accumulation 500 0 0 500

Sterling Class ‘A’ Income 3,409,000 322,208 (733,439) 2,997,769


Class ‘I’ Income 808,857 484,811 (81,576) 1,212,092


Class ‘R’ Income 57,000 34,923 0 91,923


Swiss franc Class ‘A’ Accumulation 500 0 0 500

Class ‘C’ Accumulation 500 0 0 500

US dollar Class ‘A’ Income 500 26,958 (10,900) 16,558


Class ‘C’ Income 500 0 0 500

Class ‘C’ Accumulation 500 27,300 0 27,800





Class ‘C’ 1.25 n/a 0.50

Sterling Class ‘A’ nil n/a 1.00

Class ‘I’ 1.00 [a] n/a 0.50

Class ‘R’ 1.00 [a] n/a 0.75

Swiss franc Class ‘A’ 4.00 n/a 1.00

Class ‘C’ 1.25 n/a 0.50

US dollar Class ‘A’ 4.00 n/a 1.00

Class ‘C’ 1.25 n/a 0.50



15 Related parties



At the balance sheet date, there were no material shareholders fromwithin Prudential plc, of which M&G Securities Limited is a whollyowned subsidiary (2016: same).










This refers to instruments which have been valued using models withnon-observable market data inputs. This includes private equity,unlisted closed-ended funds and investment analyst recommendedprices where the market price is deemed to not be a truerepresentation of fair value. However no such financial instrumentswere held. Assets Liabilities Assets Liabilitiesas at 30 June 2017 2017 2016 2016Valuation technique $’000 $’000 $’000 $’000

Level 1 20,609 0 24,363 0Level 2 53,836 (23) 36,315 (106)Level 3 0 0 0 0

74,445 (23) 60,678 (106)







19 Market risk





Lowest 3.14 2.93

Highest 4.56 5.25

Average 3.79 4.22

20 Credit risk 2017 2016as at 30 June $’000 $’000





Total 74,422 60,572

21 Counterparty exposure Forward currency Net Swaps contracts exposureas at 30 June 2017 $’000 $’000 $’000

Citigroup 109 0 109

J.P.Morgan (23) 0 (23)

State Street Bank 0 15 15

Total 86 15 101

Forward currency Net Swaps contracts exposureas at 30 June 2016 $’000 $’000 $’000

State Street Bank 0 307 307

Total 0 307 307




22 Leverage risk




2017 2017 2016 2016for the year to 30 June $’000 % $’000 %

Lowest 53,067 101 38,725 117

Highest 73,878 145 91,271 279

Average 53,067 113 57,465 172


This fund pays semi-annual interest distributions and the followingtable sets out the distribution periods.


Interim 01.07.16 31.12.16 03.01.17 28.02.17

Final 01.01.17 30.06.17 03.07.17 31.08.17






Group 1 ¢ ¢ ¢ ¢ ¢ ¢Interim 19.5489 - 19.5489 - 19.5489 6.5047

Final 21.2280 - 21.2280 - 21.2280 12.4932

Group 2 Interim 4.9601 - 4.9601 14.5888 19.5489 6.5047

Final 10.7316 - 10.7316 10.4964 21.2280 12.4932






Group 1 ¢ ¢ ¢ ¢ ¢ ¢Interim 12.3580 - 12.3580 - 12.3580 6.5298

Final 15.0867 - 15.0867 - 15.0867 12.6005

Group 2 Interim 7.6400 - 7.6400 4.7180 12.3580 6.5298

Final 4.5602 - 4.5602 10.5265 15.0867 12.6005



Group 1 ¢ ¢ ¢ ¢ ¢ ¢Interim 19.7880 - 19.7880 - 19.7880 9.5604

Final 21.6900 - 21.6900 - 21.6900 15.9040

Group 2 Interim 19.7880 - 19.7880 0.0000 19.7880 9.5604

Final 21.6900 - 21.6900 0.0000 21.6900 15.9040



Group 1 ¢ ¢ ¢ ¢ ¢ ¢Interim 15.8400 - 15.8400 - 15.8400 9.5604

Final 18.8440 - 18.8440 - 18.8440 16.2240

Group 2 Interim 15.8400 - 15.8400 0.0000 15.8400 9.5604

Final 18.8440 - 18.8440 0.0000 18.8440 16.2240




Final 1.7788 0.0000 1.7788 - 1.7788 0.7808

Group 2 Interim 0.8291 0.1658 0.6633 0.6367 1.3000 0.3668

Final 0.8399 0.0000 0.8399 0.9389 1.7788 0.7808




Final 1.6249 0.0000 1.6249 - 1.6249 1.0220

Group 2 Interim 0.6618 0.1324 0.5294 0.5294 1.0588 0.4736

Final 0.6033 0.0000 0.6033 1.0216 1.6249 1.0220




Final 20.6292 0.0000 20.6292 - 20.6292 11.1580

Group 2 Interim 10.5188 2.1038 8.4150 6.6118 15.0268 6.0304

Final 13.2613 0.0000 13.2613 7.3679 20.6292 11.1580




Final 17.8414 0.0000 17.8414 - 17.8414 11.5564

Group 2 Interim 6.5081 1.3016 5.2065 6.9991 12.2056 6.1456

Final 9.1105 0.0000 9.1105 8.7309 17.8414 11.5564




Final 2.0572 0.0000 2.0572 - 2.0572 1.0172

Group 2 Interim 0.7496 0.1499 0.5997 0.8951 1.4948 0.5156

Final 1.7608 0.0000 1.7608 0.2964 2.0572 1.0172




Final 1.6245 0.0000 1.6245 - 1.6245 1.0416

Group 2 Interim 1.2173 0.2435 0.9738 0.1174 1.0912 0.5236

Final 0.6094 0.0000 0.6094 1.0151 1.6245 1.0416

Swiss franc Class ‘A’ Accumulation shares


Group 1 ¢ ¢ ¢ ¢ ¢ ¢Interim 11.3660 - 11.3660 - 11.3660 6.3611

Final 14.2460 - 14.2460 - 14.2460 11.8780

Group 2 Interim 11.3660 - 11.3660 0.0000 11.3660 6.3611

Final 14.2460 - 14.2460 0.0000 14.2460 11.8780





Swiss franc Class ‘C’ Accumulation shares


Group 1 ¢ ¢ ¢ ¢ ¢ ¢Interim 14.4320 - 14.4320 - 14.4320 8.9600

Final 17.1400 - 17.1400 - 17.1400 14.6200

Group 2 Interim 14.4320 - 14.4320 0.0000 14.4320 8.9600

Final 17.1400 - 17.1400 0.0000 17.1400 14.6200

US dollar Class ‘A’ Income shares


Group 1 ¢ ¢ ¢ ¢ ¢ ¢Interim 15.5019 - 15.5019 - 15.5019 5.6360

Final 18.2344 - 18.2344 - 18.2344 10.8420

Group 2 Interim 8.1848 - 8.1848 7.3171 15.5019 5.6360

Final 4.3157 - 4.3157 13.9187 18.2344 10.8420

US dollar Class ‘A’ Accumulation shares


Group 1 ¢ ¢ ¢ ¢ ¢ ¢Interim 9.8340 - 9.8340 - 9.8340 5.3882

Final 12.9622 - 12.9622 - 12.9622 10.5695

Group 2 Interim 9.8340 - 9.8340 0.0000 9.8340 5.3882

Final 6.5379 - 6.5379 6.4243 12.9622 10.5695

US dollar Class ‘C’ Income shares


Group 1 ¢ ¢ ¢ ¢ ¢ ¢Interim 16.2040 - 16.2040 - 16.2040 8.0420

Final 18.9620 - 18.9620 - 18.9620 13.4080

Group 2 Interim 16.2040 - 16.2040 0.0000 16.2040 8.0420

Final 18.9620 - 18.9620 0.0000 18.9620 13.4080

US dollar Class ‘C’ Accumulation shares


Group 1 ¢ ¢ ¢ ¢ ¢ ¢Interim 13.3680 - 13.3680 - 13.3680 8.0760

Final 16.5046 - 16.5046 - 16.5046 13.6120

Group 2 Interim 13.3680 - 13.3680 0.0000 13.3680 8.0760

Final 0.9066 - 0.9066 15.5980 16.5046 13.6120







The Fund predominantly invests in a diversified range of securitiesissued by companies which are out of favour, in difficulty or whosefuture prospects are not fully recognised by the market. The sole aimof the Fund is capital growth. There is no particular income yield target.

Investment approach

The M&G Recovery Fund invests in companies that are out of favourwith the stockmarket where a good management team is makingconcerted efforts to turn the business around. The fund manager takesa long-term view with a typical holding period of five years or moreand aims to provide a diversified portfolio of up to 100 stocks.Developing a constructive dialogue with company management is afundamental part of the investment process and the fund manager willnot invest in a company unless he has met the management team first.

Risk profile

The fund invests in the shares of UK-listed companies and is,therefore, subject to the price volatility of the UK stockmarket and theperformance of individual companies. The fund’s focus is oncompanies that are out of favour with the market, and these stockscould potentially experience a degree of illiquidity in times of marketdistress. However, the fund is mainly invested in the shares of largeand medium-sized companies, which are normally traded with relativeease. The fund also invests in the shares of smaller and AIM-listedcompanies, which can be more unpredictable and difficult to buy andsell. Diversification across industries and market capitalisation istherefore key in managing liquidity risk and reducing market risk. Thefund’s risks are measured and managed as an integral part of theinvestment process.


The above number:





mean risk free.

• has changed during this period. From 1 July 2016 to 30 December 2016 the risk

number was 6.

Low risk High risk


1 2 3 4 5 6 7

Investment review



The M&G Recovery Fund aims to deliver capital growth by investingat least 80% of the portfolio in the shares of UK-listed companies that,at the time of investment, are out of favour with the stockmarket, andwhere the fund manager believes a good management team is makingconcerted efforts to turn the business around. The fund achieved thisobjective as it produced a positive total return (the combination ofincome and growth of capital) across all share classes between 1 July2016 (the start of the review period) and 3 July 2017.* The fund’sreturns in all share classes exceeded that of a comparative index, theFTSE All-Share Index. Over the same period, returns for the indexwere 17.6% and 12.3% in sterling and euros, respectively.


The fund delivered strong returns over the 12-month review period,significantly outperforming its comparative index, the FTSE All-ShareIndex. We saw outperformance in a number of companies across theportfolio, with stock selection in the industrials and healthcare sectorsin particular adding value.

Politics dominated stockmarkets over the period, which began with thereferendum vote in the UK to leave the European Union. Sharesinitially came under pressure, especially those of companies thatgenerate most of their earnings in the UK. They were particularly hardhit by the sharp fall in the value of sterling that followed the vote.However, the stockmarket reaction proved to be short-lived, recoveringstrongly over the second half of 2016 (the first half of the reviewperiod), as investor expectations of higher interest rates and higherinflation grew. This was characterised by an increase in investordemand for stocks over bonds and for riskier company stocks over‘safer’ stocks where there is a greater element of certainty aroundfuture earnings. This market rotation was given a further boost inNovember following the unexpected election of Donald Trump as USpresident. (Bonds are loans in the form of a security, usually issuedby a government or company, which normally pays a fixed rate ofinterest over a given time period, at the end of which the initial amountborrowed is repaid.)

Moving into 2017, many riskier company shares initially continued tooutperform, but soon began to fade as investors lost faith in some ofPresident Trump’s election promises being fulfilled. Closer to home,Prime Minister May triggered Article 50 in March to begin the two-yearexit process from the European Union and suggestions that hergovernment was in favour of a ‘hard Brexit’ prompted nervousnessamongst investors and a move back towards perceived safer stocks.This trend continued as concerns around the global growth outlookincreased and commodity prices weakened. The prime minister calleda snap election in June, which unexpectedly resulted in a hungparliament, with the government needing the support of theDemocratic Unionist Party (DUP) to stay in power. Although this raisedpolitical uncertainty, positive earnings growth and the prospect of a‘softer Brexit’ after the election result enabled investors to shrug asidethe uncertainty. Bond yields rose towards the end of the review periodamidst speculation about a move towards the end of the era of cheapmoney – ‘quantitative easing’ - and the potential for higher interestrates from central banks in the UK and Europe. Riskier company

M&G Recovery Fund Authorised Corporate Director’s Report

shares benefited from this sentiment. (Bond yield refers to the interestreceived from a fixed income security and is usually expressedannually as a percentage based on the investment’s cost, its currentmarket value or its face value.)

The change in market sentiment and investor expectations on growthand inflation, together with a different attitude to risk (particularly in thefirst half of the period), was beneficial for the fund. Investors were morewilling to consider those economically sensitive companies, where thefund has significant exposure. In addition, the accompanying increasein merger & acquisition activity highlighted some of the unrealisedvalue in the portfolio.

Contributors to performance came from a broad range of sectors. Ourtop contributor over the period was industrial threads manufacturerCoats. The company resolved issues with its three pension funds,freeing up management to focus on growing the business. Thepension fund issues have undoubtedly held the business back inrecent years, but management’s resolution, together with Coats’ entryinto the FTSE 250, have boosted the shares.

Equipment rental group Lavendon was also a top contributor. InNovember 2016, Lavendon became the subject of competing hostilebids from two European suitors – Belgian group TVH and Frenchgroup Loxam – when the share price was 139 pence. We felt the initialbids were too low and did not acknowledge Lavendon’s value potential.The deal was eventually concluded with Loxam in February at 270pence a share.

Stobart Group, owner of London Southend Airport as well asengineering and biomass energy businesses, also added value.Stobart’s management has an ambitious plan to develop the company,including growing the passenger numbers at Southend from 1 millionper annum to 3 million, and managing the disposals of theinfrastructure assets. The company recently spun off the Eddie Stobarttransport business at an attractive valuation. Management has alsostated its intention to maintain an increased level of quarterly dividendpayments to reflect the cash generation of the group.

In previous years, when the market environment was rewarding ‘safer’stocks, we have on a number of occasions, noted how those stocksthat we do not own have been detrimental to performance. Over thisreview period, it has been pleasing to see that not owning many ofthese ‘safer’ stocks, which by definition do not qualify as recoveryopportunities, has added to performance. These included ImperialBrands and National Grid.

Elsewhere, our underweight position to the large mining companiesdetracted, as did the holding in Tullow Oil, while a couple of ourholdings in the technology sector suffered some stock-specific issues.Tullow Oil had a difficult 12 months as market sentiment deterioratedtowards the energy sector. However, in our view, the share price doesnot reflect the potential of the company: Tullow has good assets,expertise in oil exploration, sound management and an improvingbalance sheet.

In technology, satellite operator Avanti Communications saw furtherweakness in its share price amidst investor frustration at the speed atwhich the company is winning new business. However, Avanti recentlyagreed a new three-year US$100 million debt facility and announced

a new contact win for the deployment of satellite communicationsservices for government sites across Africa. In April, ImaginationTechnologies was informed by Apple – Imagination’s largest customer– that it will no longer use Imagination’s intellectual property in its newproducts in 15 months to two years’ time. So far, it has been difficult toassess whether or not this will result in any material settlement for thecompany; however, in June, Imagination’s management decided to sellthe business. By the end of the period, the shares had recoveredsomewhat, reflecting interest from a number of parties.


Merger & acquisition (M&A) activity on the fund picked up over thereview period. The takeover of mineral sands miner, Sierra Rutile (heldon the fund) by fellow miner, Iluka Resources, completed in December.In the same month, Germany’s Deutsche Post completed the takeoverof UK Mail (held on the fund). In both takeover deals, we took the cashon to the fund. Lavendon was also taken over by peer Loxam (as notedearlier) and broadcaster Sky received a bid from 21st Century Fox. Wetook the opportunity to sell the position for cash.

The more vibrant M&A activity is particularly helpful for our stage 2companies and for propelling the portfolio to a higher level of value asour stage 3 companies exit. Crucially though, we are not willing sellersat the wrong price. Where we have the ability and influence to, we arehappy to say no. We want to achieve the best for our investors and forall shareholders in the company. It is an ongoing concern for us thatthere are companies in the portfolio that are undervalued and thereforevulnerable to bids that are too low and we will do our best in preventingour shareholders being disadvantaged in these circumstances.

Over the 12 months, we made eight new purchases on the fund,including BT, Hutchison China Meditech (Chi-Med), Rolls Royce andIP Groep. BT is focused on improving operational performance throughrestructuring and cost-cutting. The company’s pension deficit is alsomaterially improving which should help BT to increase dividends andreduce debt.

Chi-Med is a healthcare group based primarily in China. The companycontinues to make good progress by broadening and deepening itsdrug research & development (R&D) pipeline through its InnovationPlatform. Chi-Med’s distribution business in China generatessignificant cashflow that helps to fund its research & development andthe company is successfully transitioning into a fully-fledgedpharmaceutical business. However, as part of this transformation, thecompany has taken a listing on the NASDAQ market in the US, whichhas led to short-term technical pressure on the shares. We aresupportive of Chi-Med’s strategy to list on NASDAQ and believe thecompany is in a strong position for future growth.

Rolls Royce is undergoing a restructuring, but has a solid franchiseand high-quality technology. The shares have been weakened bycontract losses and a large fine from the Serious Fraud Office overbribery payments. We have confidence in the new management andchief executive.

IP Group creates and builds companies based on the intellectualproperty arising (mainly) from a network of universities with which ithas contractual commercialisation and investment agreements. Weopened the position by participating in the company’s £207 millionfund-raising to strengthen the balance sheet, which should enable IPto advance its portfolio and support its new Australian franchise. Thecompany has also recently made an offer for peer TouchstoneInnovations, where we await developments.




Investment review

We made a number of complete sales on the fund over the period inaddition to those companies that left the portfolio through takeovers.The sales included BCA Marketplace, GlaxoSmithKline (GSK) andC&C. We made a good return on BCA, owner of the second-hand carwebsite ‘Webuyanycar.com’, however, the shares had reached fairvalue and we had corporate governance concerns that we were notconvinced would be resolved to shareholders’ satisfaction. GSK hadbeen a good holding and was sold on valuation grounds, while brewerC&C had run into difficulties with its acquisition of a US cider businessand we therefore decided to dispose of the holding.

Outlook

We are pleased with the fund’s performance over the period, with valuebeing realised across the portfolio. During the difficult times, weremained committed to our investment proposition – buying whereother people have been selling, backing the companies we areinvested in and supporting the management – and feel we are nowstarting to reap the benefits of our commitment.

A return to a more normal macroeconomic environment, as centralbanks around the world look to bring the era of quantitative easing toa close, should provide a more conducive market backdrop forrecovery investing, even though the UK faces some specific challengeson the domestic front. Nonetheless, we find there are plenty ofrecovery opportunities regardless of how the market and the economyare performing. Companies follow their own lifecycle and we arelooking for those that are valued at a much lower level than we thinkthey are worth.

What is important in driving fund performance is our focus on companyspecifics and company managements continuing to deliver on theirpromised strategies.

Tom DobellFund manager








Investments

Portfolio statement


Oil & gas producers 358,218 11.61 14.07 22,565,018 African Petroleum 8,885 0.29

51,610,000 BP 230,800 7.48

16,592,508 Great Eastern Energy GDR 5,310 0.17

8,970,675 Nostrum Oil & Gas 43,302 1.40

87,688,530 Providence Resources [a] 13,811 0.45

38,175,775 Tap Oil 1,311 0.04

36,291,030 Tullow Oil 54,799 1.78

Oil equipment, services & distribution 29,760 0.96 1.25 6,700,000 Cape 12,462 0.40

17,000,682 Lamprell 17,298 0.56

Alternative energy 0 0.00 0.41

Industrial metals & mining 74,777 2.42 2.26 75,000,000 Bluejay Mining [a] 10,500 0.34

9,922,628 First Quantum Minerals 64,277 2.08

Mining 199,792 6.48 6.52 8,399,642 Bacanora Minerals [a] 6,468 0.21

466,926,944 Coal of Africa [a] 13,074 0.43

17,855,335 Kenmare Resources 43,746 1.42

40,788 Kenmare Resources wts. 2019 0 0.00

25,848,162 Petra Diamonds 27,761 0.90

1,625,040 Rio Tinto 53,366 1.73

30,237,094 St Barbara 51,919 1.68

28,247,500 Sylvania Platinum [a] 2,472 0.08

55,536,586 White Energy Company 986 0.03

Construction & materials 131,753 4.27 4.29 14,636,984 Balfour Beatty 39,403 1.28

3,319,554 CRH 92,350 2.99

Aerospace & defence 81,490 2.64 2.47 29,000,000 Cobham 37,642 1.22

3,775,000 Meggitt 18,177 0.59

6,125,132 QinetiQ Group 16,666 0.54

1,000,000 Rolls-Royce Holdings 9,005 0.29

General industrials 169,239 5.49 3.14 [b]

130,550,862 Coats Group 101,047 3.28

4,283,430 Smiths Group 68,192 2.21

Electronic & electrical equipment 30,073 0.97 1.19 4,228,506 Morgan Advanced Materials 12,034 0.39

4,810,425 Xaar 18,039 0.58

Industrial engineering 49,231 1.60 0.98 26,500,000 Renold 13,648 0.44

37,976,192 Severfield 29,526 0.96

83,539,919 TP Group [a] 6,057 0.20

Industrial transportation 77,257 2.50 1.62 5,812,903 Avation 12,905 0.42

60,634,550 Mercantile Ports [a] 2,577 0.08

20,806,726 Stobart Group 61,775 2.00

Support services 165,000 5.35 5.60 [b]

3,250,000 Essentra 18,427 0.60

913,641 Grafton Group 6,469 0.21

7,773,967 Homeserve 57,372 1.86

25,401,331 IWG (formerly Regus) 82,732 2.68

Beverages 0 0.00 0.87

Food producers 29,164 0.95 1.50 7,287,630 REA Holdings 23,029 0.75

46,304,408 Zambeef Products [a] 6,135 0.20



Investment activities (continued)

Investment review


Healthcare equipment & services 45,847 1.49 1.54 5,300,213 UDG Healthcare 45,847 1.49

Pharmaceuticals & biotechnology 318,807 10.33 11.95 6,550,000 Eco Animal Health [a] 39,955 1.29

1,874,897 GW Pharmaceuticals ADR 144,288 4.68

2,190,838 Hutchison China Meditech ADR 39,349 1.28

40,081,175 Mesoblast 48,413 1.57

1,038,939 Mesoblast ADR 6,284 0.20

536,658,885 Oxford Biomedica 40,518 1.31

General retailers 121,406 3.94 3.93 11,000,000 Dixons Carphone 31,196 1.01

5,500,000 Kingfisher 16,736 0.55

19,899,040 Mothercare 23,133 0.75

24,063,560 Saga 50,341 1.63

Media 75,027 2.44 3.57 26,450,941 Entertainment One 58,483 1.90

2,360,000 Pearson 16,544 0.54

Travel & leisure 276,565 8.96 6.87 1,600,450 Carnival 81,863 2.65

8,000,000 Dalata Hotel Group 33,996 1.10

3,421,198 easyJet 46,802 1.52

46,650,000 EI Group (formerly Enterprise Inns) 60,179 1.95

67,133,072 fastjet 12,084 0.39

9,321,340 fastjet wts. 2021 0 0.00

11,380,525 National Express 41,641 1.35

Fixed line telecommunications 22,814 0.74 0.00 7,795,787 BT Group 22,814 0.74

Mobile telecommunications 2,533 0.08 0.67 27,359,073 Avanti Communications [a] 2,533 0.08

Electricity 34,868 1.13 1.67 34,149,791 KSK Power Ventur 17,075 0.55

38,681,231 OPG Power Ventures [a] 17,793 0.58

Banks 463,782 15.03 11.38 35,453,004 HSBC Holdings 252,993 8.20

162,100,000 Lloyds Banking Group 107,845 3.49

18,825,000 Royal Bank of Scotland Group 47,081 1.53

7,171,057 Standard Chartered 55,863 1.81

Non-life insurance 15,157 0.49 0.89 2,642,930 Novae Group 15,157 0.49

Life insurance 202,676 6.57 6.22 17,968,153 Aviva 95,770 3.10

5,990,831 Prudential [c] 106,906 3.47

Financial services 38,254 1.24 1.96 17,857,142 IP Group 24,214 0.78

3,000,000 TP Icap (formerly Tullett Prebon) 14,040 0.46

Equity investment instruments 3,777 0.12 0.10 410,580 Gresham House Strategic [a] 3,777 0.12

Software & computer services 38,569 1.25 1.20 [b]

6,615,674 Actual Experience [a] 17,532 0.57

11,302,515 Blancco Technology [a] 16,954 0.55

2,916,666 Watchstone 4,083 0.13

Technology hardware & equipment 36,266 1.18 1.70 7,951,272 Frontier Smart Technologies (formerly Toumaz) [a] 7,395 0.24

19,025,797 Imagination Technologies Group 28,871 0.94

Unquoted / unlisted 0 0.00 0.00 38,761,085 African Minerals [d] 0 0.00

39,868,814 Alizyme [d] 0 0.00

3,094,020 Izodia [d] 0 0.00


‘AAA’ rated money market funds [e] 4,680 0.15 0.45 4,680,000 Northern Trust Global Fund - Sterling 4,680 0.15

Total portfolio (notes 2c & 2d on page 6) 3,111,740 100.86 100.27Net other assets / (liabilities) (26,643) (0.86) (0.27)



[a] AIM quoted.

[b] The comparative sector weightings have been re-analysed to reflect changes to

the quoted sector classifications.

[c] Related party to the fund.

[d] Suspended.

[e] Uncommitted surplus cash is placed into ‘AAA’ rated money market funds with the





Kenmare Resources 37,236

BT Group 25,378

IP Group 25,000

Essentra 17,611

McCarthy & Stone 16,831

Tullow Oil 15,939

Hutchison China Meditech ADR 15,631

fastjet 12,462

HSBC Holdings 11,976

Standard Chartered 11,113




GlaxoSmithKline 97,945

Royal Dutch Shell ‘B’ 78,960

Lavendon Group 78,051

BP 66,242

BCA Marketplace 57,017

HSBC Holdings 45,371

Sky 44,391

Sierra Rutile 41,528

CRH 40,364

STERIS 37,321

Other sales 614,782

Total sales 1,201,972


funds.







Fund performance









2017 2016 2015as at 30 June £’000 £’000 £’000






The fund’s Sterling Class ‘I’ (Accumulation) shares were launched on15 January 2010. Performance data shown prior to this date is that ofthe fund’s Sterling Class ‘A’ (Accumulation) shares.

100

200

300

500 700

1,000

1,5002,000

3,000

5,000 7,000

10,000

15,000

25,000

40,000

60,000

13 1511090705030199979593918987858381797775737169 17

May 1969 = 100, plotted monthly Chart date 3 July 2017






60

80

70

120

100

140

180

160

552007 2008 2009 2010 2011 2012 2013 2014 2015 2016





FTSE All-Share Index



Morningstar (IA) UK All Companies sector average*


M&G Recovery Fund Financial highlights




Euro [b] Class ‘A’ +19.6 -0.8 +3.4 +6.8 [c]

Class ‘C’ +20.5 -0.1 +4.1 +7.6 [c]


Class ‘C’ +27.4 +4.0 +6.8 +9.7 [f]

Class ‘I’ +26.4 +3.2 +6.0 +5.6 [g]

Class ‘R’ +26.1 +3.0 n/a +5.6 [h]

Class ‘X’ +25.5 +2.4 +5.2 +9.4 [i]

[a] Absolute basis.

[b] Price to price with net income reinvested.



[e] 23 May 1969, the end of the initial offer period of the predecessor unit trust.

[f] 1 July 2004, the launch date of the share class.

[g] 15 January 2010, the launch date of the share class.

[h] 3 August 2012, the launch date of the share class.

[i] 1 October 2002, the launch date of the share class.



Operating charges















Fund performance







Taxes 0.02 0.02 0.02 0.02














Opening NAV 2,161.61 2,836.50 2,603.27




Distributions (9.77) (25.87) (18.45)


Closing NAV 2,588.06 2,161.61 2,836.50











Other information

Closing NAV (£’000) 10,739 10,559 22,647


Number of shares 472,232 591,129 1,122,199





Fund performance

Portfolio transaction costs (continued)



Opening NAV 2,397.69 3,122.73 2,844.54




Distributions (31.40) (48.04) (42.57)


Closing NAV 2,892.31 2,397.69 3,122.73











Other information

Closing NAV (£’000) 14,157 9,441 52,748


Number of shares 557,008 476,506 2,374,244



Sterling Class ‘A’ Income share performanceThe share class was launched on 27 June 1977.


Opening NAV 111.85 127.83 133.04

Return before operating charges and after directportfolio transaction costs 32.75 (12.77) (2.21)


Return after operating charges 30.55 (14.68) (4.33)

Distributions (2.73) (1.30) (0.88)

Closing NAV 139.67 111.85 127.83








Return after operating charges +27.31 -11.48 -3.25



Other information

Closing NAV (£’000) 529,572 463,186 664,201


Number of shares 379,165,975 414,104,046 519,614,031





Opening NAV 254.06 287.04 296.70




Distributions (1.22) (2.91) (1.97)


Closing NAV 323.47 254.06 287.04











Other information

Closing NAV (£’000) 769,199 983,361 1,646,231


Number of shares 237,792,926 387,051,472 573,521,234




The share class was launched on 1 July 2004.


Opening NAV 112.10 128.14 133.39




Distributions (2.76) (3.04) (2.82)

Closing NAV 142.12 112.10 128.14











Other information

Closing NAV (£’000) 105,916 100,463 128,312


Number of shares 74,523,640 89,619,819 100,137,925






Sterling Class ‘C’ Accumulation share performanceSterling Class ‘C’ shares are not generally available to all investors.

The share class was launched on 1 July 2004.


Opening NAV 302.06 336.17 342.33




Distributions (6.92) (8.03) (7.27)


Closing NAV 390.40 302.06 336.17











Other information

Closing NAV (£’000) 546,007 679,884 860,896


Number of shares 139,858,895 225,080,167 256,086,785



Sterling Class ‘I’ Income share performanceThe share class was launched on 15 January 2010.


Opening NAV 111.77 127.75 132.98




Distributions (2.74) (2.16) (1.85)

Closing NAV 140.63 111.77 127.75











Other information

Closing NAV (£’000) 175,603 158,735 221,119


Number of shares 124,865,425 142,016,993 173,091,131



Sterling Class ‘I’ Accumulation share performanceThe share class was launched on 15 January 2010.


Opening NAV 265.81 298.06 305.78




Distributions (3.68) (5.07) (4.27)


Closing NAV 340.98 265.81 298.06











Other information

Closing NAV (£’000) 672,526 606,968 557,780


Number of shares 197,234,721 228,343,644 187,139,455








Opening NAV 96.13 109.87 114.36




Distributions (2.35) (1.61) (1.31)

Closing NAV 120.65 96.13 109.87











Other information

Closing NAV (£’000) 2,130 1,776 2,220


Number of shares 1,765,807 1,847,161 2,020,934





Opening NAV 101.72 114.35 117.60




Distributions (1.10) (1.68) (1.35)


Closing NAV 130.16 101.72 114.35











Other information

Closing NAV (£’000) 1,032 920 1,736


Number of shares 792,930 904,763 1,517,777





Opening NAV 112.58 128.66 133.91Return before operating charges and after directportfolio transaction costs 32.97 (12.86) (2.23)



Distributions (2.75) (1.30) (0.89)

Closing NAV 140.58 112.58 128.66


Costs before dilution adjustments 0.07 0.06 0.08Dilution adjustments [a] (0.06) (0.03) (0.07)



Direct portfolio transaction costs [b] 0.01 0.03 0.00Operating charges 1.66 1.66 1.66Return after operating charges +27.31 -11.49 -3.26Historic yield [c] 1.93 1.14 0.68Effect on yield of charges offset against capital 1.65 0.00 0.00

Other information




Opening NAV 251.40 284.03 293.59Return before operating charges and after directportfolio transaction costs 73.65 (28.37) (4.88)



Distributions (1.21) (2.89) (1.93)


Closing NAV 320.08 251.40 284.03


Costs before dilution adjustments 0.15 0.13 0.18Dilution adjustments [a] (0.13) (0.07) (0.16)



Direct portfolio transaction costs [b] 0.01 0.03 0.00Operating charges 1.66 1.66 1.66Return after operating charges +27.32 -11.49 -3.26Historic yield 0.37 1.13 0.68Effect on yield of charges offset against capital 0.00 0.00 0.00

Other information




[c] Current year figures have been estimated to reflect the change in chargingstructure and therefore you may see variances between comparative and currentyear figures.







Income


Revenue 5 88,715 109,677








Amounts paid on cancellation of shares (1,031,158) (1,060,491) _______ _______ (970,972) (755,201)






Balance sheet

2017 2016as at 30 June Note £’000 £’000

Assets




Total assets 3,120,644 3,267,789

Liabilities

Creditors Bank overdrafts 0 (7,102)










In determining the amount available for distribution, ordinary stockdividends have been transferred to capital, reducing the amountavailable.







M&G Recovery Fund Financial statements and notes


The following tables show portfolio transactions and their associatedtransaction costs. For more information about the nature of the costsplease see the section on ‘Operating charges and portfolio transactioncosts’ on pages 152 and 153.



Commissions 93 0.03 224 0.08

Taxes 606 0.22 837 0.28




b) Sales Equities Equities before transaction costs 1,124,837 1,031,657

Commissions (913) 0.08 (1,080) 0.10

Taxes (3) 0.00 (2) 0.00

Equities after transaction costs 1,123,921 1,030,575


Total sales after transaction costs 1,201,972 1,034,752


Commissions paid Equities 1,006 0.03 1,304 0.04


Total direct portfolio transactioncosts [a] 1,615 0.05 2,143 0.06







Bank interest 1 19




Stock dividends 21,032 6,243






37,489 42,731





Tax fees (including VAT) 0 14

125 103









Effects of:


Stock dividends not taxable (4,206) (1,249)

Current year expenses not utilised 7,332 8,461


Prior year adjustment to expenses not utilised 0 29






arising as a result of having excess management expenses. We do not expect this asset

to be utilised in the foreseeable future.



Interim 6,879 6,311 5,207 19,294

Final 11,095 14,932 7,383 25,465







Stock dividends not distributed (21,032) (6,243)


Undistributed income carried forward (1) (2)










Dividends receivable 4,476 6,231

Sales awaiting settlement 1,240 792











Purchases awaiting settlement 0 19




13 Shares in issue



Euro Class ‘A’ Accumulation 591,129 332,075 (450,972) 472,232

Class ‘C’ Accumulation 476,506 189,241 (108,739) 557,008

Sterling Class ‘A’ Income 414,104,046 3,883,683 (38,821,754) 379,165,975


Class ‘C’ Income 89,619,819 2,112,047 (17,208,226) 74,523,640

Class ‘C’ Accumulation 225,080,166 955,494 (86,176,765) 139,858,895

Class ‘I’ Income 142,016,993 7,716,635 (24,868,203) 124,865,425


Class ‘R’ Income 1,847,161 234,379 (315,733) 1,765,807


Class ‘X’ Income 71,819,773 677,682 (8,136,267) 64,361,188






Class ‘C’ 3.25 n/a 0.75



Class ‘I’ 1.00 [a] n/a 0.75

Class ‘R’ 1.00 [a] n/a 1.00

Class ‘X’ nil 4.50 [b] 1.50





15 Related parties



During the year, there were transactions in Prudential plc, a relatedparty of M&G Securities Limited with a total value of £37,262,000(2016: £52,815,000).

At the balance sheet date, the fund held shares in related parties of M&GSecurities Limited with a value of £106,906,000 (2016: £105,655,000).















Level 1 3,107,060 0 3,242,629 0

Level 2 4,680 0 14,681 0

Level 3 0 0 0 0

3,111,740 0 3,257,310 0






20 Currency risk 2017 2016as at 30 June £’000 £’000

Currency exposure in respect of the fund Australian dollar 103,965 98,718

Canadian dollar 64,276 74,053

Euro 34,313 47,191

Norwegian krone 8,885 4,208

Sterling 2,683,531 2,889,628

US dollar 190,127 134,733

Total 3,085,097 3,248,531








Interim 01.07.16 31.12.16 03.01.17 28.02.17

Final 01.01.17 30.06.17 03.07.17 31.08.17






¢ ¢ ¢ ¢Interim 0.0000 0.0664 0.0664 9.8461

Final 9.7069 0.0000 9.7069 16.0220



¢ ¢ ¢ ¢Interim 0.0000 9.5700 9.5700 21.3745

Final 11.3379 10.4936 21.8315 26.6676






p p p pInterim 0.3435 0.6720 1.0155 0.4603

Final 0.8614 0.8548 1.7162 0.8351



p p p pInterim 0.0000 0.0081 0.0081 1.0314

Final 0.7422 0.4710 1.2132 1.8815



p p p pInterim 0.2022 0.8181 1.0203 1.3522

Final 0.9191 0.8205 1.7396 1.6906

Sterling Class ‘C’ Accumulation shares


p p p pInterim 0.8171 1.6823 2.4994 3.5472

Final 1.3335 3.0910 4.4245 4.4868



p p p pInterim 0.0000 1.0160 1.0160 0.9043

Final 0.8268 0.8980 1.7248 1.2592



p p p pInterim 0.0538 1.0481 1.1019 2.1124

Final 1.1783 1.3954 2.5737 2.9617



p p p pInterim 0.4351 0.4385 0.8736 0.6504

Final 0.5626 0.9180 1.4806 0.9614



p p p pInterim 0.0624 0.2197 0.2821 0.6734

Final 0.3083 0.5098 0.8181 1.0064



p p p pInterim 0.3875 0.6346 1.0221 0.4643

Final 0.9507 0.7768 1.7275 0.8403



p p p pInterim 0.0000 0.0081 0.0081 1.0234

Final 0.5117 0.6888 1.2005 1.8620







The Fund invests in smaller companies, where good management canhave most impact on earnings. Investment in such shares can offerprospects of above average capital growth. Income is not a majorfactor and the yield can be expected to be less than that of the FTSEAll-Share Index.

Investment approach

The fund invests in companies from the bottom 10%, by value, of theUK stockmarket. The investment team takes a bottom-up approach tostockpicking and aims to construct a well-diversified portfolio ofbetween 60 and 65 stocks. They adopt a long-term perspective withparticular focus placed on three specific criteria: scarce assets, growthdrivers and valuation.

Scarce assets are the key elements that enable companies to generatesustainable, attractive returns. Depending on the nature of thebusiness, scarce assets may be tangible, intangible or organisational.

Growth drivers provide companies with the opportunity to reinvest theirreturns profitably. They may include shifts in the commercial orregulatory environment, changes in customer behaviour or expansioninto new markets.

Valuation is critical for differentiating between great companies andgreat investments. A comprehensive but flexible approach to companyvaluation is undertaken; a wide range of metrics are monitored toensure an appropriate valuation for each individual company.

The quality of company management is central to the successfulexploitation of scarce assets and growth drivers. Company meetingsare therefore a crucial component of the investment process.

Risk profile

The fund invests in the shares of smaller UK-listed companies and is,therefore, subject to the price volatility of the UK stockmarket and theperformance of individual companies. The fund’s focus is on smallercompanies and it can also invest in the shares of AIM-listedcompanies. Shares in both types of company can be moreunpredictable and difficult to buy and sell compared to those of largercompanies. Diversification is therefore key in managing liquidity riskand reducing market risk. The fund’s risks are measured and managedas an integral part of the investment process.


The above number:





mean risk free.


Investment review



Between 1 July 2016 (the start of the review period) and 3 July 2017,the M&G Smaller Companies Fund delivered a positive total return(the combination of income and growth of capital) across all of itsshare classes*. Accordingly, over this time frame, the fund met itsinvestment objective of capital growth. The fund finished the periodahead of a comparative index, the Numis Smaller Companies ex ITIndex, which returned 27.2%.


The past 12 months have been an extraordinary period for the UKstockmarket, which has survived a series of events that in ordinarycircumstances could have been expected to result in an increase inrisk aversion. Instead the small, medium-sized and larger companyindices have all rallied from their low point at the start of the period,and all three established new all-time highs in the process.Compared to the 27.2% return by the Numis Index, the market movesresulted in the FTSE 100 Index of larger companies returning 16.6%over the period and the FTSE 250 Index of medium-sized companiesreturning 20.6%.

Events with the potential to cause an upset included the UK’s surprisevote to leave the European Union just before the start of the reportingperiod in June 2016, the election of President Trump in the US inNovember amidst talk of a rise in protectionism, and a confrontationwith China. There was also a marked slowdown in UK first-quartereconomic growth and an unwelcome currency-induced increase ininflation. In addition, Article 50 of the Lisbon Treaty was triggered inMarch and was followed up by the commencement of the two-yearBrexit negotiations in June amidst a cloud of uncertainty after theunexpected outcome to the snap general election.

A big influence on the market over the past year has been sterlingwhich, together with the maintenance of low interest rates, hasenabled the market to absorb much of the uncertainty. However, afterdeclining by 16% against the US dollar in 2016 on Brexit concerns,the first half of 2017 has seen sterling recover by 5%. Last year’sdevaluation created a tailwind for companies with overseas markets,

Low risk High risk


1 2 3 4 5 6 7

M&G Smaller Companies Fund Authorised Corporate Director’s Report

which particularly drove the larger company FTSE 100 Index upwards,as the translational effect boosted their earnings in sterling terms. Butthis has faded and the expected boost to exports from a weakercurrency has been slow to emerge. However, smaller and medium-sized companies have generally benefited in 2017 from a strongerpound against the US dollar reducing their import costs.

In addition to the currency move, the swift appointment of a new primeminister in July last year and prompt action by the Bank of England inAugust to support the economy did much to improve sentiment. TheBank’s measures included a cut in interest rates to 0.25%, additionalquantitative easing and a scheme to encourage bank lending.

Against this background, the M&G Smaller Companies Fund finishedthe 12-month period ahead of the Numis Smaller Companies ex ITIndex. This was principally due to stock selection mainly across thetechnology, financials, travel & leisure and healthcare sectors. Furthervalue was added through sector allocation, notably as a result ofabove-market positions in software firms, housebuilders andconstruction companies, and below-market positions in consumerstaples, energy, retailers and telecommunication stocks. Someperformance was surrendered in the basic materials sector, through azero exposure to miners, although this was partially offset by the fund’sexposure to chemicals manufacturers.

The principal individual contributors to the fund’s performance over theperiod included one of the UK’s largest debt recovery firms, ArrowGlobal, online travel agency On The Beach, camera equipmentmanufacturer Vitec and UK brick maker Forterra. Arrow Globalbenefited from the post-Brexit vote rebound, as it produced some goodresults and increased its dividend payout. (Dividends represent a sharein the profits of a company and are paid out to the company’sshareholders at set times of the year.) A weak pound and terrorismhas not deterred British holidaymakers from their foreign beachholidays, and On The Beach is increasingly taking market share fromhigh street travel agents, which was reflected in an improved first-halfperformance. Vitec delivered results ahead of expectations, followinga long period of restructuring. Forterra is benefiting from the boom innew home construction to meet the nation’s housing shortage.


We took advantage of the market conditions early on in the period toestablish holdings in good-quality companies that had sold offaggressively. These included real estate investment trust (REIT)Workspace Group and Irish food producer Greencore. In addition, newpositions were started in UK housebuilder Countryside Properties andSDL, a translation technology business.

Workspace is a London-focused provider of short-term flexible spacefor small and medium enterprises (SMEs). The shares hadunderperformed as REITs in general suffered from concerns thatBrexit could result in a rise in vacancy rates. Workspace’s shares weretrading at a substantial discount to net asset value, which we believedmore than reflected Brexit-related worries.

Greencore is a convenience food producer providing ready meals andsandwiches for customers such as Marks & Spencer. The companyhas a dominant market position in the UK, and strong growth driversin light of consumer trends towards higher demand for conveniencefoods. The fund became involved with Greencore at the start of 2017when it took part in a rights issue by the company to pay for a majoracquisition in the US to diversify the business.

Countryside Properties, which is the fund’s largest holding, is a hybridbusiness combining a traditional housebuilder with a capital-lightpartnerships arm that provides social housing for local authorities,which has worked well against the housing shortage backdrop.

In the case of SDL, we are backing the new management vision forturning around the company as it seeks to capitalise on theproliferation of global content and the move to make this more uniform.

In addition, we topped up some existing holdings where we have astrong conviction, such as wealth manager Brewin Dolphin, exhibitionsand business information company Ascential, automotive retailer VertuMotors, UK brick maker Forterra and retirement home builderMcCarthy & Stone.

Notable amongst the sales were companies that had become too bigfor the fund. These included software group Micro Focus, the UK’slargest food wholesale operator, Booker, and online gaming groupGVC. Micro Focus was propelled into the FTSE 100 Index followingits agreement to purchase the non-core segment of Hewlett Packard’ssoftware arm. Due to complete in September, the deal is one of thelargest by a UK firm in recent years and is expected to make MicroFocus one of the world’s leading software companies. Meanwhile,Booker had delivered years of good performance, and GVC hadoutperformed on the back of last year’s acquisition of rival Bwin.

In addition, a number of positions were reduced following goodperformance, including buy-to-let mortgage lender Paragon Group,document management and relocation service Restore, cameraequipment manufacturer Vitec, online travel agency On The Beach,niche speciality chemicals manufacturer Synthomer (formerly YuleCatto), wealth manager Rathbone Brothers, construction business Hill& Smith, and software firms Sophos and Accesso Technology.

Elsewhere, we sold out of the fund’s positions altogether where wefelt the investment case had deteriorated. These included technologyhardware group Sepura, property developer Market Tech Holdings andoil services provider Cape.

Outlook

Although global equity markets have rallied strongly over the past 12months, this has mostly been driven by low interest rates together withmonetary stimulus from the central banks and, in the case of the UK,by moves in the exchange rate. Recently, there has been a noticeableshift towards improving corporate earnings growth supporting markets,making valuation levels look more attractive. Companies have begunto invest more, instead of returning spare cash to investors, as theyhave felt increased confidence about the pick-up in the globaleconomy, led by the US, but with signs of a broad improvement thisyear across the European economy, the UK’s largest export market.




Investment review

At home in the UK, higher prices as a result of rising import costscombined with stagnant wage growth have started to put pressure onconsumer spending. Consequently, with growth in the UK economyexpected to remain subdued this year, and given the uncertainties ofthe Brexit negotiations along with doubts over the longevity of TheresaMay’s minority government, the Bank of England seems unlikely tosanction an interest rate rise in the short term. Encouragingly, thereare some signs that inflation has almost reached its peak, as thecurrency effect has eased and the oil price has fallen back.

Within the smaller companies segment, whilst conscious of the risks,we remain cautiously optimistic about the prospects for the rest of2017, given the number of quality, niche companies in the UK, a pick-up in merger and acquisition activity, the significant number ofcompanies being brought to the market to raise capital and thestrength of corporate balance sheets. The one certainty is that therewill be continued uncertainty in the months to come. For long-terminvestors, though, the current conditions can present selectiveopportunities to take advantage of attractive valuations. In thecircumstances, our policy is to remain focused on companyfundamentals. Given the diverse range of companies and sectorsavailable in the UK, we believe there will always be scope forstockpickers to exploit the market conditions.

Garfield KiffFund manager








Investments

Portfolio statement


Oil & gas producers 6,064 1.40 1.84 3,546,091 Cairn Energy 6,064 1.40

Oil equipment, services & distribution 4,475 1.04 1.89 8,250,000 Gulf Marine Services 4,475 1.04

Chemicals 18,693 4.33 6.13 2,501,799 Synthomer 12,211 2.83

342,783 Victrex 6,482 1.50

Construction & materials 36,116 8.36 8.67 3,220,076 Forterra 8,187 1.90

594,171 Kier Group 7,344 1.70

5,295,299 Low & Bonar 4,501 1.04

1,653,339 Polypipe 6,311 1.46

2,709,095 Tyman 9,773 2.26

Aerospace & defence 15,286 3.54 2.82 [a]

3,560,650 Senior 8,364 1.94

335,704 Ultra Electronics Holdings 6,922 1.60

General industrials 7,740 1.79 0.00 10,000,000 Coats Group 7,740 1.79

Electronic & electrical equipment 10,069 2.33 0.00 2,600,000 Luceco 6,136 1.42

1,048,717 Xaar 3,933 0.91

Industrial engineering 17,052 3.95 3.91 [a]

654,625 Hill & Smith Holdings 9,001 2.08

810,000 Vitec Group 8,051 1.87

Industrial transportation 8,436 1.95 2.31 520,753 James Fisher & Sons 8,436 1.95

Support services 25,466 5.89 5.12 9,541,158 Digital Barriers [b] 2,576 0.60

3,302,524 Equiniti 8,141 1.88

750,000 Paysafe Group 3,855 0.89

1,780,401 Restore [b] 7,869 1.82

6,019,247 St. Ives 3,025 0.70

Beverages 5,205 1.20 0.86 3,071,091 Stock Spirits Group 5,205 1.20

Food producers 13,255 3.07 2.28 911,876 Dairy Crest Group 5,494 1.27

3,149,555 Greencore 7,761 1.80


700,000 Redrow 3,847 0.89

2,273,309 UP Global Sourcing 4,677 1.08

Leisure goods 0 0.00 0.78

Healthcare equipment & services 5,538 1.28 1.54 535,635 Consort Medical 5,538 1.28

Pharmaceuticals & biotechnology 15,577 3.61 5.93 852,420 Clinigen Group [b] 7,297 1.69

487,064 Dechra Pharmaceuticals 8,280 1.92

Food & drug retailers 5,756 1.33 2.07 1,890,153 Conviviality Retail [b] 5,756 1.33

General retailers 8,531 1.97 4.03 1,766,975 GAME Digital 407 0.09

2,829,348 Topps Tiles 2,334 0.54

12,000,000 Vertu Motors [b] 5,790 1.34



Outlook (continued)

Investment review

Media 24,637 5.70 4.20 3,140,279 Ascential 10,065 2.33

2,525,000 Tarsus group 6,994 1.62

3,224,554 Wilmington 7,578 1.75

Travel & leisure 14,982 3.47 4.43 2,429,834 On the Beach Group 9,519 2.20

2,310,811 Rank Group 5,463 1.27

Banks 0 0.00 0 [a]

Non-life insurance 8,569 1.98 2.15 1,225,000 Lancashire Holdings 8,569 1.98

Life insurance 0 0.00 0.91

Real estate investment & services 23,315 5.40 2.84 3,623,641 Countryside Properties 12,327 2.85

1,698,600 Helical 5,079 1.18

1,415,656 Safestore REIT 5,909 1.37

Real estate investment trusts 20,188 4.67 3.38 6,022,307 Hansteen Holdings REIT 7,516 1.74

3,492,680 LondonMetric Property REIT 5,833 1.35

775,000 Workspace Group REIT 6,839 1.58

Financial services 43,616 10.10 8.27 [a]

1,447,652 Alpha FX [b] 6,225 1.44

2,558,437 Arrow Global Group 10,394 2.41

2,040,500 Brewin Dolphin Holdings 6,960 1.61

1,214,237 OneSavings Bank 4,610 1.07

98,421 Paragon Group of Companies 423 0.10

313,737 Rathbone Brothers 7,950 1.84

1,113,498 Sanne 7,054 1.63

Software & computer services 65,529 15.17 18.24 430,164 accesso Technology Group [b] 7,442 1.72

691,014 EMIS Group [b] 6,326 1.47

1,035,000 FDM Group 7,840 1.82

185,250 Fidessa Group 4,363 1.01

2,503,936 GB Group [b] 8,613 1.99

2,832,400 iomart [b] 8,745 2.02

1,150,000 SDL 7,015 1.62

1,920,930 Softcat 7,455 1.73

1,750,000 Sophos 7,730 1.79

Technology hardware & equipment 0 0.00 1.08


‘AAA’ rated money market funds [c] 17,528 4.06 2.34 17,528,000 Northern Trust Global Fund - Sterling 17,528 4.06

Total portfolio (notes 2c & 2d on page 6) 435,510 100.80 100.17Net other assets / (liabilities) (3,477) (0.80) (0.17)





[b] AIM quoted.

[c] Uncommitted surplus cash is placed into ‘AAA’ rated money market funds with the





Countryside Properties 9,317

Greencore 7,269

Tarsus group 6,685

Workspace Group REIT 6,208

SDL 5,551

Gulf Marine Services 5,223

Coats Group 5,201

Helical 5,037

Hays 3,982

Luceco 3,958




Micro Focus International 10,301

Galliford Try 6,932

Vectura Group 6,616

Elementis 6,596

First Derivatives 5,146

Hays 4,987

accesso Technology Group 4,355

Paragon Group of Companies 4,127

DFS Furniture 4,075

Cape 3,986

Other sales 74,438

Total sales 131,559

Purchases and sales exclude the cost and proceeds of ‘AAA’ rated money market funds.





Investments

Fund performance









2017 2016 2015as at 30 June £’000 £’000 £’000







100

150 200

300

500 700

1,000

1,5002,000

3,000

5,000 7,000

10,000

15,000 20,000

30,000

50,000

151311090705030199979593918987858381797775737167 69 17

September 1967 = 100, plotted monthly Chart date 3 July 2017






70

80

60

140

120

100

160

240

180

200

220

502007 2008 2009 2010 2011 2012 2013 2014 2015 2016





Numis Smaller Companies ex IT Index



Morningstar (IA) UK Smaller Companies sector average*


M&G Smaller Companies Fund Financial highlights





Class ‘C’ +37.6 +12.6 +16.0 +11.6 [d]

Class ‘I’ +36.5 +11.7 n/a +15.8 [e]

Class ‘R’ +36.2 +11.5 n/a +15.5 [e]

Class ‘X’ +35.5 +10.9 +14.2 +14.3 [f]

[a] Absolute basis.


[c] 27 September 1967, the end of the initial offer period of the predecessor unit trust.

[d] 3 January 2006, the launch date of the share class.

[e] 3 August 2012, the launch date of the share class.




Operating charges



















Taxes 0.11 0.09 0.07 0.09












Fund performance



Sterling Class ‘A’ Income share performanceThe share class was launched on 27 September 1967.


Opening NAV 256.37 288.01 264.22




Distributions (8.25) (2.54) (2.33)

Closing NAV 348.07 256.37 288.01











Other information

Closing NAV (£’000) 130,658 102,760 125,384


Number of shares 37,537,892 40,083,309 43,534,192



Sterling Class ‘A’ Accumulation share performanceThe share class was launched on 27 September 1967.


Opening NAV 628.59 699.65 636.41




Distributions (7.74) (6.18) (5.63)


Closing NAV 875.06 628.59 699.65











Other information

Closing NAV (£’000) 40,706 31,245 41,157


Number of shares 4,651,811 4,970,752 5,882,510




The share class was launched on 3 January 2006.


Opening NAV 261.79 294.30 269.86




Distributions (8.49) (7.07) (6.50)

Closing NAV 360.88 261.79 294.30











Other information

Closing NAV (£’000) 178,146 133,037 159,587


Number of shares 49,364,337 50,817,659 54,225,396







Opening NAV 1,390.20 1,562.32 1,432.92




Distributions (44.92) (25.64) (23.63)

Closing NAV 1,901.88 1,390.20 1,562.32











Other information

Closing NAV (£’000) 50,774 37,335 36,952


Number of shares 2,669,660 2,685,583 2,365,202





Opening NAV 1,473.92 1,628.24 1,469.91




Distributions (31.73) (26.83) (24.36)


Closing NAV 2,067.30 1,473.92 1,628.24











Other information

Closing NAV (£’000) 21,077 15,453 13,759


Number of shares 1,019,549 1,048,446 845,053





Opening NAV 139.01 156.20 143.28




Distributions (4.49) (2.17) (2.00)

Closing NAV 189.69 139.01 156.20











Other information

Closing NAV (£’000) 538 319 410


Number of shares 283,787 229,108 262,351





Opening NAV 145.90 161.58 146.21




Distributions (2.69) (2.25) (2.05)


Closing NAV 204.13 145.90 161.58











Other information

Closing NAV (£’000) 74 77 53


Number of shares 36,061 53,089 33,000








Opening NAV 256.25 287.88 264.10




Distributions (8.25) (2.54) (2.35)

Closing NAV 347.91 256.25 287.88











Other information

Closing NAV (£’000) 6,711 5,563 6,694


Number of shares 1,928,862 2,170,910 2,325,276





Opening NAV 621.15 691.37 628.92




Distributions (7.65) (6.11) (5.49)


Closing NAV 864.71 621.15 691.37











Other information

Closing NAV (£’000) 3,349 2,623 3,414


Number of shares 387,234 422,224 493,771







year figures.







Income


Revenue 5 10,671 9,657


Taxation 7 0 (4) ______ ______Net revenue / (expense) aftertaxation 7,072 6,095









Retained distributions on Accumulationshares 731 617



Balance sheet

2017 2016as at 30 June Note £’000 £’000

Assets



Cash and bank balances 10 641 1,265

Total assets 437,513 332,886

Liabilities

Creditors Distribution payable (4,769) (2,962)

Other creditors 11 (711) (1,512)








In determining the amount available for distribution, ordinary stockdividends have been transferred to capital, reducing the amount available.







M&G Smaller Companies Fund Financial statements and notes





Commissions 49 0.05 104 0.08

Taxes 426 0.40 364 0.27


Other transaction types Corporate actions 0 1,029


b) Sales Equities Equities before transaction costs 131,650 140,415

Commissions (91) 0.07 (147) 0.10


Other transaction types Corporate actions 0 10,364





Total direct portfolio transactioncosts [a] 566 0.15 615 0.16







Bank interest 1 1




Stock dividends 262 0






3,561 3,522




10 9




Withholding tax 0 4


Total taxation 0 4



Effects of:


Stock dividends not taxable (52) 0

Current year expenses not utilised 589 570

Withholding tax 0 4

Prior year adjustment to expenses not utilised 0 24






arising as a result of having excess management expenses. We do not expect this

asset to be utilised in the foreseeable future.



Interim 3,960 326 2,500 260

Final 4,769 405 2,962 357







Stock dividends not distributed (262) 0










Dividends receivable 1,327 948




Cash held as bank balances 641 1,265

Total cash and bank balances 641 1,265






Purchases awaiting settlement 356 1,162

Total other creditors 711 1,512



13 Shares in issue



Sterling Class ‘A’ Income 40,083,309 846,232 (3,391,649) 37,537,892

Class ‘A’ Accumulation 4,970,752 72,907 (391,848) 4,651,811

Class ‘C’ Income 50,817,659 333,131 (1,786,453) 49,364,337

Class ‘I’ Income 2,685,583 83,322 (99,245) 2,669,660

Class ‘I’ Accumulation 1,048,446 183,645 (212,542) 1,019,549

Class ‘R’ Income 229,108 89,550 (34,871) 283,787


Class ‘X’ Income 2,170,910 44,562 (286,610) 1,928,862

Class ‘X’ Accumulation 422,224 60,896 (95,886) 387,234






Class ‘I’ 1.00 [a] n/a 0.75

Class ‘R’ 1.00 [a] n/a 1.00

Class ‘X’ nil 4.50 [b] 1.50





15 Related parties

M&G Securities Limited, as Authorised Corporate Director (ACD), is arelated party and acts as principal on all the transactions of shares inthe fund except with in specie transactions, where M&G SecuritiesLimited acts as an agent. The aggregate monies received throughissues, and paid on cancellations, are disclosed in the ‘Statement ofchange in net assets attributable to shareholders’ and note 8. Amountsdue to / from M&G Securities Limited in respect of share transactionsat the year end are disclosed in notes 9 and11 where applicable.
















Level 1 417,982 0 321,292 0

Level 2 17,528 0 7,688 0

Level 3 0 0 0 0

435,510 0 328,980 0















Interim 01.07.16 31.12.16 03.01.17 28.02.17

Final 01.01.17 30.06.17 03.07.17 31.08.17






p p p pInterim 2.5414 1.1738 3.7152 1.0212

Final 2.7002 1.8339 4.5341 1.5214



p p p pInterim 1.6060 1.6663 3.2723 2.4764

Final 2.5548 1.9120 4.4668 3.7066



p p p pInterim 2.0857 1.7230 3.8087 3.2594

Final 2.6629 2.0218 4.6847 3.8060






p p p pInterim 10.9443 9.2415 20.1858 11.4171

Final 14.2821 10.4497 24.7318 14.2183



p p p pInterim 3.7871 10.2833 14.0704 11.9067

Final 9.2244 8.4315 17.6559 14.9245



p p p pInterim 1.0002 1.0170 2.0172 0.9450

Final 1.8652 0.6028 2.4680 1.2222



p p p pInterim 1.1602 0.0293 1.1895 0.9794

Final 1.5024 0.0000 1.5024 1.2731



p p p pInterim 2.4575 1.2561 3.7136 1.0215

Final 3.5003 1.0316 4.5319 1.5201



p p p pInterim 1.8642 1.3694 3.2336 2.4494

Final 2.3730 2.0415 4.4145 3.6621






M&G Investment Funds (3)Other regulatory disclosures

Remuneration

In line with the requirements of the Undertakings for CollectiveInvestment in Transferable Securities (UCITS) V, the Manager issubject to a remuneration policy which is consistent with the principlesoutlined in SYSC19E of the FCA Handbook (UCITS RemunerationCode).

The remuneration policies are designed to ensure that any relevantconflicts of interest can be managed appropriately at all times and thatthe remuneration of its staff is in line with the risk policies andobjectives of the UCITS it manages. Further details of theremuneration policy applicable at an M&G Limited level can be foundhere: http://www.mandg.com/en/corporate/about-mg/our-people/.

The UCITS Remuneration Code applies in full for the first time forM&G’s 2017 performance year. Quantitative remuneration disclosureswill be made following completion of the 2017 performance year (therelevant data/information to make these disclosures will only beavailable at this time).

Swiss investor information

For funds registered in Switzerland we are required by FINMA todisclose the Total Expense Ratio (TER).

For these funds the TERs are the same as the operating chargesdisclosed in each fund’s financial highlights section under‘Performance and charges’.

Accumulation shares: A type of share where distributions areautomatically reinvested and reflected in the value of the shares.

Accumulation units: A type of unit where distributions areautomatically reinvested and reflected in the value of the units.

Asset: Anything having commercial or exchange value that is ownedby a business, institution or individual.

Asset allocation: Apportioning a portfolio’s assets according to risktolerance and investment goals.

Asset class: Category of assets, such as cash, company shares,fixed income securities and their sub-categories, as well as tangibleassets such as real estate.

Bond:A loan in the form of a security, usually issued by a governmentor company, which normally pays a fixed rate of interest over a giventime period, at the end of which the initial amount borrowed is repaid.

Bond issue: A set of fixed income securities offered for sale to thepublic by a company or government. If the bonds are sold for the firsttime, it is called a ‘new issue’.

Bottom-up selection: Selecting stocks based on the attractivenessof a company.

Bunds: Fixed income securities issued by the German government.

Capital: Refers to the financial assets, or resources, that a companyhas to fund its business operations.

Capital growth: Occurs when the current value of an investment isgreater than the initial amount invested.

Capital return: The term for the gain or loss derived from aninvestment over a particular period. Capital return includes capital gainor loss only and excludes income (in the form of interest or dividendpayments).

Cash equivalents: Deposits or investments with similarcharacteristics to cash.

Comparative sector: A group of funds with similar investmentobjectives and/or types of investment, as classified by bodies such asthe Investment Association (IA) or Morningstar™. Sector definitionsare mostly based on the main assets a fund should invest in, and mayalso have a geographic focus. Sectors can be the basis for comparingthe different characteristics of similar funds, such as their performanceor charging structure.

Consumer Prices Index (CPI): An index used to measure inflation,which is the rate of change in prices for a basket of goods andservices. The contents of the basket are meant to be representativeof products and services we typically spend our money on.

Convertible bonds: Fixed income securities that can be exchangedfor predetermined amounts of company shares at certain times duringtheir life.

Corporate bonds: Fixed income securities issued by a company.They are also known as bonds and can offer higher interest paymentsthan bonds issued by governments as they are often considered morerisky.

Coupon: The interest paid by the government or company that hasraised a loan by selling bonds.

Credit: The borrowing capacity of an individual, company orgovernment. More narrowly, the term is often used as a synonym forfixed income securities issued by companies.

Credit default swaps (CDS): Are a type of derivative, namelyfinancial instruments whose value, and price, are dependent on oneor more underlying assets. CDS are insurance-like contracts that allowinvestors to transfer the risk of a fixed income security defaulting toanother investor.

Credit rating: An independent assessment of a borrower’s ability torepay its debts. A high rating indicates that the credit rating agencyconsiders the issuer to be at low risk of default; likewise, a low ratingindicates high risk of default. Standard & Poor’s, Fitch and Moody’sare the three most prominent credit rating agencies. Default meansthat a company or government is unable to meet interest payments orrepay the initial investment amount at the end of a security’s life.

Credit rating agency: A company that analyses the financialstrength of issuers of fixed income securities and attaches a rating totheir debt. Examples include Standard & Poor’s and Moody’s.

Credit risk: Risk that a financial obligation will not be paid and a losswill result for the lender.

Credit selection: The process of evaluating a fixed income security,also called a bond, in order to ascertain the ability of the borrower tomeet its debt obligations. This research seeks to identify theappropriate level of default risk associated with investing in thatparticular bond.

Credit spread: The difference between the yield of a corporate bond,a fixed income security issued by a company, and a government bondof the same life span. Yield refers to the income received from aninvestment and is expressed as a percentage of the investment’scurrent market value.

Default: When a borrower does not maintain interest payments orrepay the amount borrowed when due.

Default risk: Risk that a debtholder will not receive interest and fullrepayment of the loan when due.

Derivatives: Financial instruments whose value, and price, aredependent on one or more underlying assets. Derivatives can be usedto gain exposure to, or to help protect against, expected changes inthe value of the underlying investments. Derivatives may be traded ona regulated exchange or traded over the counter.

Developed economy/market:Well-established economies with ahigh degree of industrialisation, standard of living and security.

Dilution adjustments: The dilution adjustment is used to protectongoing investors against the transaction charges incurred in investingor divesting in respect of creations and cancellations. The dilutionadjustment is made up of the direct and indirect transaction charges.In the financial statements the direct transaction charges as apercentage of average NAV will be disclosed. This percentage will takeaccount of those direct transaction charges that have been recoveredthrough the dilution adjustment leaving a percentage that justrepresents the costs incurred in portfolio management.

Distribution: Distributions represent a share in the income of thefund and are paid out to Income shareholders or reinvested forAccumulation shareholders at set times of the year (monthly, quarterly,half-yearly or annually). They may either be in the form of interestdistributions or dividend distributions.

Distribution yield: Expresses the amount that is expected to bedistributed by the fund over the next 12 months as a percentage of theshare price as at a certain date. It is based on the expected grossincome less the ongoing charges.


Glossary


M&G Example Fund Example Second LineGlossary

Diversification: The practice of investing in a variety of assets. Thisis a risk management technique where, in a well-diversified portfolio,any loss from an individual holding should be offset by gains in otherholdings, thereby lessening the impact on the overall portfolio.

Dividend: Dividends represent a share in the profits of a companyand are paid out to the company’s shareholders at set times of theyear.

Duration:A measure of the sensitivity of a fixed income security, alsocalled a bond, or bond fund to changes in interest rates. The longer abond or bond fund’s duration, the more sensitive it is to interest ratemovements.

Duration risk: The longer a fixed income security, also called a bond,or bond fund’s duration, the more sensitive and therefore at risk it is tochanges in interest rates.

Emerging economy or market:Economies in the process of rapidgrowth and increasing industrialisation. Investments in emergingmarkets are generally considered to be riskier than those in developedmarkets.

Equities: Shares of ownership in a company.

Exchange traded: Usually refers to investments traded on anexchange, such as company shares on a stock exchange.

Ex-dividend, ex-distribution or XD date: The date on whichdeclared distributions officially belong to underlying investors.

Exposure: The proportion of a fund invested in a particularshare/fixed income security, sector/region, usually expressed as apercentage of the overall portfolio.

Fixed income security: A loan in the form of a security, usuallyissued by a government or company, which normally pays a fixed rateof interest over a given time period, at the end of which the initialamount borrowed is repaid. Also referred to as a bond.

Floating rate notes (FRNs): Securities whose interest (income)payments are periodically adjusted depending on the change in areference interest rate.

Foreign exchange: The exchange of one currency for another, orthe conversion of one currency into another currency. Foreignexchange also refers to the global market where currencies are tradedvirtually around the clock. The term foreign exchange is usuallyabbreviated as ‘forex’ and occasionally as ‘FX’.

Foreign exchange (FX) strategy: Currencies can be an assetclass in its own right, along with company shares, fixed incomesecurities, property and cash. Foreign exchange strategy can thereforebe a source of investment returns.

Forward contract: A contract between two parties to buy or sell aparticular commodity or financial instrument at a pre-determined priceat a future date. Examples include foward currency contracts.

Fundamentals (company): A basic principle, rule, law, or the like,that serves as the groundwork of a system. A company’sfundamentals pertain specifically to that company, and are factors suchas its business model, earnings, balance sheet and debt.

Fundamentals (economic): A basic principle, rule, law, or the like,that serves as the groundwork of a system. Economic fundamentalsare factors such as inflation, employment, economic growth.

Futures: A futures contract is a contract between two parties to buyor sell a particular commodity or financial instrument at a pre-determined price at a future date. Futures are traded on a regulatedexchange.

Gilts: Fixed income securities issued by the UK government.

Government bonds: Fixed income securities issued bygovernments, that normally pay a fixed rate of interest over a giventime period, at the end of which the initial investment is repaid.

Hedging: A method of reducing unnecessary or unintended risk.

High water mark (HWM): The highest level that a fund’s NAV (netasset value) has reached at the end of any 12-month accountingperiod.

High yield bonds: Fixed income securities issued by companies witha low credit rating from a recognised credit rating agency. They areconsidered to be at higher risk of default than better quality, ie higher-rated fixed income securities but have the potential for higher rewards.Default means that a company or government is unable to meetinterest payments or repay the initial investment amount at the end ofa security’s life.

Historic yield: The historic yield reflects distributions declared overthe past 12 months as a percentage of the share price, as at the dateshown.

Income yield:Refers to the income received from an investment andis usually expressed annually as a percentage based on theinvestment’s cost, its current market value or face value.

Index: An index represents a particular market or a portion of it,serving as a performance indicator for that market.

Income shares: A type of share where distributions are paid out ascash on the payment date.

Income units:A type of unit where distributions are paid out as cashon the payment date.

Index tracking:A fund management strategy that aims to match thereturns from a particular index.

Index-linked bonds: Fixed income securities where both the valueof the loan and the interest payments are adjusted in line with inflationover the life of the security. Also referred to as inflation-linked bonds.

Inflation: The rate of increase in the cost of living. Inflation is usuallyquoted as an annual percentage, comparing the average price thismonth with the same month a year earlier.

Inflation risk: The risk that inflation will reduce the return of aninvestment in real terms.

Initial public offering (IPO): The first sale of shares by a privatecompany to the public.

Interest rate risk: The risk that a fixed income investment will losevalue if interest rates rise.

Interest rate swap: An agreement between two parties to swap afixed interest payment with a variable interest payment over a specifiedperiod of time.

Investment Association (IA): The UK trade body that representsfund managers. It works with investment managers, liaising withgovernment on matters of taxation and regulation, and also aims tohelp investors understand the industry and the investment optionsavailable to them.

Issuer: An entity that sells securities, such as fixed income securitiesand company shares.

Investment grade bonds: Fixed income securities issued by acompany with a medium or high credit rating from a recognised creditrating agency. They are considered to be at lower risk from default thanthose issued by companies with lower credit ratings. Default meansthat a company or government is unable to meet interest payments orrepay the initial investment amount at the end of a security’s life.

Issuer: An entity that sells securities, such as fixed income securitiesand company shares.

Leverage: When referring to a company, leverage is the level of acompany’s debt in relation to its assets. A company with significantlymore debt than capital is considered to be leveraged. It can also referto a fund that borrows money or uses derivatives to magnify aninvestment position.

Liquidity: A company is considered highly liquid if it has plenty ofcash at its disposal. A company’s shares are considered highly liquidif they can be easily bought or sold since large amounts are regularlytraded.

Long position: Refers to ownership of a security held in theexpectation that the security will rise in value.

Macroeconomic: Refers to the performance and behaviour of aneconomy at the regional or national level. Macroeconomic factors suchas economic output, unemployment, inflation and investment are keyindicators of economic performance. Sometimes abbreviated to‘macro’.

Maturity: The length of time until the initial investment amount of afixed income security is due to be repaid to the holder of the security.

Modified duration: A measure of the sensitivity of a fixed incomesecurity, called a bond, or bond fund to changes in interest rates. Thelonger a bond or bond fund’s duration, the more sensitive it is to interestrate movements.

Monetary easing: When central banks lower interest rates or buysecurities on the open market to increase the money in circulation.

Monetary policy:A central bank’s regulation of money in circulationand interest rates.

Monetary tightening: When central banks raise interest rates orsell securities on the open market to decrease the money in circulation.

Morningstar™: A provider of independent investment research,including performance statistics and independent fund ratings.

Near cash: Deposits or investments with similar characteristics tocash.

Net asset value (NAV): A fund’s net asset value is calculated bytaking the current value of the fund’s assets and subtracting itsliabilities.

Open-ended investment company (OEIC): A type of managedfund, whose value is directly linked to the value of the fund’s underlyinginvestments.

Options: Financial contracts that offer the right, but not the obligation,to buy or sell an asset at a given price on or before a given date in thefuture.

Over-the-counter (OTC): Whereby financial assets are tradeddirectly between two parties. This is in contrast to exchange trading,which is carried out through exchanges set up specifically for thepurpose of trading. OTC is also known as off-exchange trading.

Overweight: If a fund is ‘overweight’ a stock, it holds a largerproportion of that stock than the comparable index or sector.

Payment date: The date on which distributions will be paid by thefund to investors, usually the last business day of the month.

Physical assets: An item of value that has tangible existence, forexample, cash, equipment, inventory or real estate. Physical assetscan also refer to securities, such as company shares or fixed incomesecurities.

Portfolio transaction cost: The cost of trading, such as brokerage,clearing, exchange fees and bid-offer spread as well as taxes such asstamp duty.

Preference shares: Preference shares are a loan to a company thatmay be traded in the same way as ordinary shares, but generally havea higher yield and pay dividends on fixed dates. Preference shareshave varying characteristics as to the treatment of the principal andthe dividend payment, which includes ranking them above ordinaryshares when it comes to dividend payments.

Principal: The face value of a fixed income security, which is theamount due back to the investor by the borrower when the securityreaches the end of its life.

Private placement:An offer of sale of securities to a relatively smallnumber of investors selected by the company, generally investmentbanks, mutual funds, insurance companies or pension funds.

Property Expense Ratio (PER): Property expenses are theoperating expenses that relate to the management of the propertyassets in the portfolio. These include: insurance and rates, rent reviewand lease renewal costs and maintenance and repairs, but notimprovements. They depend on the level of activity taking place withinthe fund. The Property Expense Ratio is the ratio of property expensesto the fund’s net asset value.

Real yield: The return of an investment, adjusted for changes inprices in an economy.

Retail Prices Index (RPI): A UK inflation index that measures therate of change in prices for a basket of goods and services in the UK,including mortgage payments and council tax.

Risk: The chance that an investment’s return will be different to whatis expected. Risk includes the possibility of losing some or all of theoriginal investment.

Risk management: The term used to describe the activities the fundmanager undertakes to limit the risk of a loss in a fund.

Risk premium: The difference between the return from a risk-freeasset, such as a high-quality government bond or cash, and the returnfrom an investment in any other asset. The risk premium can beconsidered the ‘price’ or ‘pay-off’ for taking on increased risk. A higherrisk premium implies higher risk.

Risk-free asset: An asset that notionally carries no risk of non-payment by the borrower such as a high-quality fixed income securityissued by a government or cash.


Glossary

Risk/reward ratio: A ratio comparing the expected returns of aninvestment with the amount of risk undertaken.

Safe-haven assets: Refers to assets that investors perceive to berelatively safe from suffering a loss in times of market turmoil.

Security: Financial term for a paper asset – usually a share in acompany or a fixed income security also known as a bond.

Share class: Each M&G fund has different share classes, such as A,R and I. Each has a different level of charges and minimuminvestment. Details on charges and minimum investments can befound in the Key Investor Information Documents.

Share class hedging: Activities undertaken in respect of hedgedshares to mitigate the impact on performance of exchange ratemovements between the fund’s currency exposure and the investor’schosen currency.

Short position: A way for a fund manager to express his or her viewthat the market might fall in value.

Short selling: This often refers to the practice whereby an investorsells an asset they do not own. The investor borrows the asset fromsomeone who does own it and pays a fee. The investor musteventually return the borrowed asset by buying it in the open market.If the asset has fallen in price, the investor buys it for less than theysold it for, thus making a profit. The contrary may also occur.

Short-dated corporate bonds: Fixed income securities issued bycompanies and repaid over relatively short periods.

Short-dated government bonds: Fixed income securities issuedby governments and repaid over relatively short periods.

Sovereign debt: Debt of a government. Also referred to asgovernment bonds.

Sub-investment grade bonds: Fixed income securities issued bya company with a low rating from a recognised credit rating agency.They are considered to be at higher risk from default than those issuedby companies with higher credit ratings. Default means that a companyor government is unable to meet interest payments or repay the initialinvestment amount at the end of a security’s life.

Top-down investing: An investment approach that analyseseconomic factors, ie surveys the ‘big picture’, before selecting whichcompanies to invest in. The top-down investor will look at whichindustries are likely to generate the best returns in certain economicconditions and limit the search to that area.

Total return: The term for the gain or loss derived from an investmentover a particular period. Total return includes income (in the form ofinterest or dividend payments) and capital gains.

Treasuries: Fixed income securities issued by the US government.

Triple A or AAA rated: The highest possible rating a fixed incomesecurity, also called a bond, can be assigned by credit rating agencies.Bonds that are rated AAA are perceived to have the lowest risk ofdefault. Default means that a company or government is unable tomeet interest payments or repay the initial investment amount at theend of a security’s life.

UCITS: Stands for Undertakings for Collective Investment inTransferable Securities. This is the European regulatory framework foran investment vehicle that can be marketed across the EuropeanUnion and is designed to enhance the single market in financial assetswhile maintaining high levels of investor protection.

Unconstrained: The term used to describe the mandate of a fundwhereby the manager has the freedom to invest according to his orher own strategy, not being obliged to allocate capital according to theweightings of any index, for example.

Underlying value: The fundamental value of a company, reflectingboth tangible and intangible assets, rather than the current marketvalue.

Underlying yield:Refers to the income received by a managed fund,and is usually expressed annually as a percentage based on the fund’scurrent value.

Underweight: If a portfolio is ‘underweight’ a stock, it holds a smallerproportion of that stock than the comparable index or sector.

Unit trust: A type of managed fund, whose value is directly linked tothe value of the fund’s underlying investments.

Unit/share type: Type of units/shares held by investors in a trust orfund (unit/share types differ by features such as whether income is tobe paid out as cash or reinvested on the payment date).

Valuation: The worth of an asset or company based on its currentprice.

Volatile: When the value of a particular share, market or sectorswings up and down fairly frequently and/or significantly, it isconsidered volatile.

Volatility: The degree to which a given security, fund, or index rapidlychanges. It is calculated as the degree of deviation from the norm forthat type of investment over a given time period. The higher thevolatility, the riskier the security tends to be.

Warrant: A security issued by a company that gives the holder theright to buy shares in that company at a specified price and within acertain timeframe.

Yield: This refers to either the interest received from a fixed incomesecurity or to the dividends received from a share. It is usuallyexpressed as a percentage based on the investment’s costs, its currentmarket value or its face value. Dividends represent a share in theprofits of the company and are paid out to a company’s shareholdersat set times of the year.

Yield (equity): Refers to the dividends received by a holder ofcompany shares and is usually expressed annually as a percentagebased on the investment’s cost, its current market value or face value.Dividends represent a share in the profits of the company and are paidout to a company’s shareholders at set times of the year.

Yield (bonds): This refers to the interest received from a fixed incomesecurity and is usually expressed annually as a percentage based onthe investment’s cost, its current market value or its face value.

Yield (income): Refers to the income received from an investmentand is usually expressed annually as a percentage based on theinvestment’s cost, its current market value or face value.


Glossary

M&G Securities Limited is authorised and regulated by the Financial Conduct

Authority and provides investment products. The Company’s registered office is

Laurence Pountney Hill, London EC4R 0HH. Registered in England number 90776.

55244_CR_310818