Interim Long Report and unaudited Financial Statements for

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, Ita...

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M&G Investment Funds (1) Interim Long Report and unaudited Financial Statements for the six months ended 28 February 2017

Contents M&G Investment Funds (1) Authorised Corporate Director’s Report

Page

1

Financial statements and notes

Page

4

Page

4

M&G Asian Fund

Page

5

M&G European Index Tracker Fund

Page

17

M&G European Select Fund

Page

27

M&G European Smaller Companies Fund

Page

37

M&G Global Basics Fund

Page

49

M&G Global Leaders Fund

Page

61

M&G Global Select Fund

Page

73

M&G Japan Fund

Page

87

M&G Japan Smaller Companies Fund

Page

97

M&G North American Dividend Fund

Page 107

M&G North American Value Fund

Page 119

M&G Pan European Select Fund

Page 131

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

Other regulatory disclosures

Page 143

Glossary

Page 144

M&G Investment Funds (1) Authorised Corporate Director’s Report The Authorised Corporate Director (ACD) of M&G Investment Funds (1) presents its Interim Long Report and unaudited Financial Statements for the six months ended 28 February 2017. The unaudited financial statements of M&G Investment Funds (1) and the investment report and unaudited financial statements and notes of each sub-fund are presented in their individual sections of this report as set out in the contents page. Please note that we have included an explanation of key investment terminology in the ‘Glossary’ (at the back of this report).

M&G Global Select Fund John William Olsen M&G Japan Fund Johan Du Preez M&G Japan Smaller Companies Fund Johan Du Preez M&G North American Dividend Fund John Weavers M&G North American Value Fund Daniel White

Company information M&G Investment Funds (1) is an umbrella Open-Ended Investment Company (OEIC) and contains 12 sub-funds, hereinafter referred to as ‘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 Companies Regulations 2001. It is authorised and regulated by the FCA under the Financial Services and Markets Act 2000. The Company was authorised on 6 June 2001 and was launched on 1 November 2001, following the conversion of a series of authorised unit trusts. The Company’s principal activity is to carry on business as an OEIC. The Company is structured as an umbrella company, and different funds may be established by the ACD from time to time with the agreement of the Depositary and approval from the FCA. The funds are operated separately and the assets of each fund are managed in accordance with the investment objective and policy applicable to that fund. As at 28 February 2017, none of the funds held shares of the other funds within this OEIC. A shareholder is not liable for the debts of the Company and will never be liable to make any further payment to the Company after paying the purchase price of the shares.

Fund managers The following fund managers are employed by M&G Limited which is an associate of M&G Securities Limited. M&G Asian Fund Matthew Vaight

M&G Pan European Select Fund John William Olsen

ACD M&G Securities Limited, Laurence Pountney Hill, London EC4R 0HH, UK Telephone: 0800 390 390 (UK only) (Authorised and regulated by the Financial Conduct Authority. M&G Securities Limited is a member of the Investment Association and of the Tax Incentivised Savings Association.)

Directors of the ACD W 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, UK Telephone: +44 (0)20 7626 4588 (Authorised and regulated by the Financial Conduct Authority)

Registrar International Financial Data Services (UK) Limited, IFDS House, St. Nicholas Lane, Basildon, Essex SS15 5FS, UK (Authorised and regulated by the Financial Conduct Authority)

Depositary National Westminster Bank Plc, Trustee & Depositary Services, Younger Building, 3 Redheughs Avenue, Edinburgh EH12 9RH, UK (Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority)

Independent auditor

M&G European Index Tracker Fund Nigel Booth

Ernst & Young LLP Ten George Street, Edinburgh EH2 2DZ, UK

M&G European Select Fund John William Olsen

Important information

M&G European Smaller Companies Fund Michael Oliveros

Please note that with effect from 16 December 2016:

M&G Global Basics Fund Jamie Horvat & Randeep Somel M&G Global Leaders Fund Aled Smith

• We have discounted the initial charge to zero on all new investments into Sterling shares that currently carry such a charge.

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

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

1

M&G Investment Funds (1) Authorised Corporate Director’s Report Investor information The Prospectus, Instrument of Incorporation, Key Investor Information Documents, the latest Annual or Interim Investment Report and Financial Statements as well as a list of purchases and sales are available free of charge on request from the following addresses. The Instrument of Incorporation can also be inspected at our offices or at the 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 and sign any written communication to M&G. Failure to provide this will affect your ability to transact with us. Telephone: 0800 390 390 (UK only) For security purposes and to improve the quality of our service, we may record and monitor telephone calls. You will require your M&G client reference. Failure to provide this will affect your ability to transact with us.

Customer services and administration for non-UK clients: M&G International Investments Limited, mainBuilding, Taunusanlage 19, 60325 Frankfurt am Main, Germany Please remember to quote your name and M&G client reference and sign any written communication to M&G. Failure to provide this will affect your ability to transact with us. Telephone: +49 69 1338 6767 Email: [email protected] For security purposes and to improve the quality of our service, we may record and monitor telephone calls. You will require your M&G client reference. Failure to provide this will affect your ability to transact with us.

Irish facilities agent: Société Générale SA, 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 Branch Via 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 SA, 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

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

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

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

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

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

For Hong Kong investors The following funds are not authorised in Hong Kong and not available to Hong Kong residents: M&G Asian Fund

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

M&G European Index Tracker Fund M&G European Select Fund M&G European Smaller Companies Fund

German information agent:

M&G Global Select Fund

M&G International Investments Limited, mainBuilding, Taunusanlage 19, 60325 Frankfurt am Main, Germany

M&G Japan Fund

Greek paying agent and distributor:

M&G North American Value Fund

M&G Japan Smaller Companies Fund

Eurobank Ergasias S.A, 8, Othonos Street, 10557 Athens, Greece

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INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

M&G Investment Funds (1) Authorised Corporate Director’s Report Authorised Corporate Director’s Responsibilities The Authorised Corporate Director (ACD) is required to prepare annual and interim long and short reports for the Company. The ACD must ensure that the financial statements, contained in the Long Report, for each of the funds are prepared in accordance with the Investment Association Statement of Recommended Practice for Financial Statements of UK Authorised Funds (SORP) and UK Financial Reporting Standards, and give a true and fair view of the net revenue or 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 manage the Company in accordance with the Collective Investment Schemes sourcebook, as issued (and amended) by the FCA, the Instrument of Incorporation and the Prospectus, and to take reasonable steps for the prevention and detection of fraud or other irregularities.

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

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M&G Investment Funds (1) Financial statements and notes The financial statements for M&G Investment Funds (1) comprise the individual financial statements for each fund and the notes below.

Directors’ statement

Notes to the financial statements

This report has been prepared in accordance with the requirements of the Collective Investment Schemes sourcebook, as issued and amended by the Financial Conduct Authority.

Accounting policies The financial statements of each fund have been prepared in accordance with the historical cost convention, as modified by the revaluation of investments, and in accordance with the Statement of Recommended Practice for Authorised Funds issued by the Investment Association in May 2014.

G W MACDOWALL

}

Directors

L J MUMFORD 11 April 2017

With effect from 1 September 2016, each fund amended its distribution policy in respect of the treatment of certain charges. This is set out in the notes to each fund’s financial statements.

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INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

M&G Asian Fund Authorised Corporate Director’s Report Investment objective and policy The Fund’s sole objective is long term capital growth. It invests wholly or mainly in a range of Asian (including Australasian) securities. When not wholly invested as above, the Fund may also invest in global securities with the exception of Japanese securities.

managing liquidity and default risks as well as reducing market risk. The fund’s risks are measured and managed as an integral part of the investment process. The following table shows the risk number associated with the fund and is based on Sterling Class ‘A’ shares. Low risk Typically lower rewards

Investment approach The M&G Asian Fund employs a bottom-up stockpicking approach to identify companies whose ability to improve their profitability or sustain high levels of profitability over time is, in the fund manager’s opinion, being undervalued. It is the core belief of the fund manager that company-specific factors, not economic growth levels, drive share prices over the long run. Consequently, investment decisions are determined by fundamental analysis of individual companies with a specific focus on their use of capital and profitability. The fund manager applies a strict valuation discipline and looks for companies whose future profitability is, in his opinion, being underappreciated by the market. He also assesses their corporate governance practices to find companies that are run for the benefit of their shareholders. The fund’s country and sector exposure is not influenced by top-down views. The fund invests in two specific types of companies. The first comprises firms with the potential to improve their profitability, either through external change or internal change. The fund also invests in businesses with high levels of profitability where the market does not believe these levels of returns are sustainable over time; we define these as asset growth and quality companies. Investing in these different types of companies is designed to create a balanced portfolio that has the potential to perform in a variety of market conditions. The fund manager aims to hold between 50 and 70 stocks, with a typical holding period of three to five years. Taking a long-term view enables the manager to align his interest with the strategic valuecreating decisions of company management. It also enables him to take advantage of valuation anomalies created by the short-term nature of emerging market investors.

Risk profile

High risk

1

2

Typically higher rewards

3

4

5

6

7

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.

Investment review As at 1 March 2017, for the six months ended 28 February 2017 Performance against objective Between 1 September 2016 (the start of the review period) and 1 March 2017, the M&G Asian Fund produced a positive total return (the combination of income and growth of capital) across all its share classes.[a] Returns from the US dollar share classes were more modest than the sterling and euro share classes due to the relative strength of the US dollar. The fund’s returns in all share classes were ahead of a comparative index, the MSCI Asia Pacific ex Japan Index. Returns for the index were 12.4%, 14.5% and 6.0% in euros, sterling and US dollars, respectively, over the six months. The fund’s sole objective is long-term capital growth. Over five years and since launch, the fund met its investment objective; it delivered a positive return in all share classes, as successful stock selection helped the fund navigate several periods of turbulence in Asian stockmarkets.

Investment performance

The fund invests in shares of companies throughout Asia (excluding Japan), or companies that conduct the majority of their business activities in these countries. It is, therefore, subject to the price volatility of the Asian stockmarket and the performance of individual issuers. The fund may also be influenced by developments in the broader global stockmarket and is subject to fluctuations in currency exchange rates. Asia (ex Japan) is a region that is regarded as having emerging economies. Hence, the fund’s focus on Asia may result in greater volatility compared to a fund that invests mainly in the securities of companies in developed countries. The reasons for this greater volatility include: the financial infrastructure in emerging markets is typically less mature, the regulatory systems and disclosure standards are less developed, and adverse market and political circumstances are more likely to occur in these markets. Diversification across countries, industries and market capitalisation is therefore key in

Asian stockmarkets rose over the six months under review, taking their lead from the US where stockmarkets climbed to record highs following the surprise election of Donald Trump as US president in November 2016. Company share prices were supported by optimism that Trump’s proposed policies such as tax cuts and increased infrastructure spending would lead to stronger global growth and boost corporate profits. Initially, however, share prices of Asian companies fell as Trump’s victory was deemed to be bad news for the region. In particular, investors worried that the introduction of protectionist policies in the US would hurt global trade and the numerous export-focused businesses in Asia. There were also concerns that a stronger US dollar and potentially higher interest rates in the US would create headwinds for a number of Asian nations.

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

5

M&G Asian Fund Authorised Corporate Director’s Report Investment review Investment performance (continued) Investor sentiment was further dampened when the US Federal Reserve raised rates for the first time in a year in December in response to the ongoing US economic recovery. From the end of December, however, there was a notable reversal in investor sentiment and company share prices began to rebound from their earlier declines. Alongside a more positive view of President Trump’s policies, investors were encouraged by robust economic data in China, which suggested that the country’s economy had stabilised after weakness at the start of 2016. With investors in an upbeat mood, there was a notable shift away from ‘defensive’ stocks, which are perceived to be more resilient during times of uncertainty, towards shares in companies that are more closely linked to economic growth. Materials was the best-performing sector as commodity prices continued to recover from lows at the beginning of 2016, driven in part by strong demand from China. Energy stocks also made significant gains, buoyed by oil prices which rallied when some of the leading oil-producing nations agreed to curb output in an attempt to reduce the global glut of oil. Financial stocks advanced too on expectations that the sector would benefit from rising interest rates and stronger economic growth. Information technology was another notable outperformer.

In China, the holding in Fufeng, one of the country’s leading producers of monosodium glutamate, added value. Fufeng’s share price continued to recover from a period of weakness as investors welcomed signs that the food ingredients firm’s profit margins were improving, helped by a new, more efficient process. SK Hynix, a South Korean memory chip maker, was another notable contributor as rising chip prices boosted the firm’s profits. Meanwhile, in the energy sector, Ezion Holdings, a Singapore-listed oil services firm, added value as the company’s shares recouped some of their recent losses on the back of firmer oil prices. Similarly, Orica, an Australian supplier of explosives to the mining industry, benefited from a more positive outlook for the mining sector in light of higher commodity prices. On the other hand, the holding in HollySys Automation Technologies, a Chinese provider of control devices, detracted from performance. The company’s share price retreated during the period as HollySys’s railway division suffered from delays in new orders. Weaker demand from the coal-fired power sector amid a switch to cleaner energy sources is also expected to dampen profits.

On the other hand, the consumer staples, healthcare and telecommunication services sectors lagged as investors shunned companies offering reliable growth and steady income payments, socalled ‘bond proxies’, which have been in favour for the past few years.

As mentioned previously, a number of the fund’s financial holdings made significant gains. However, on the whole, stock selection in financials detracted and this was largely a result of not holding any Australian banks. They constitute a significant weight in the MSCI Asia Pacific ex Japan Index and generally outperformed over the period.

At the country level, Australia’s stockmarket delivered the best returns, lifted by good performance from the numerous financial and materials companies in the market. Singapore, South Korea and Taiwan, three growth-oriented economies, also outperformed. In contrast, the smaller, more domestically focused south-east Asian nations were notable laggards, in particular the Philippines.

In addition, the holding in Indian financial group Axis Bank weighed on performance amid concerns about potentially rising levels of bad debts. Investors also worried that the government’s surprise demonetisation policy, whereby high value currency notes were withdrawn from circulation, would have a negative impact on India’s economy.

Another notable feature of the period was the style shift towards ‘value’. Value stocks, which refer to cheap, out-of-favour companies, outperformed the broader market, which benefited our value-oriented approach. In this environment, the fund delivered returns ahead of the comparative index, with stock selection across a range of areas adding value. The below-index positions in consumer staples and healthcare also helped relative performance as these sectors underperformed. In the industrials sector, the holding in Downer EDI, an Australian engineering contractor, was among the leading contributors. Over the past couple of years, Downer has been shifting its focus away from the struggling mining sector towards transport and infrastructure activities. This strategy is starting to deliver benefits as Downer reported an increase in profits and raised its earnings forecast during the period.

6

Another Australian holding, QBE Insurance, an insurer, made a positive contribution as well. QBE’s share price rallied on the prospect of rising interest rates, which should boost the financial company’s profitability. Elsewhere, the holdings in DBS, a Singaporean bank, and South Korean financial groups Shinhan Financial and Hana Financial were also among the leading contributors.

Meanwhile, in the utilities sector, the holding in Energy Development, a geothermal power producer from the Philippines, was a leading detractor. Utilities were generally out of favour over the period and the company has struggled as low coal prices caused power tariffs to fall.

Investment activities Our value focus is currently leading us towards cheaper, economically sensitive areas of the market which have been out of favour lately, particularly financials and information technology. During the period, we started a position in Cathay Financial Holdings, a Taiwanese financial conglomerate that owns the country’s leading insurance company. In our view, the valuation is attractive and we believe the company should benefit from rising interest rates in the US. We also added to our holding in AIA Group, a Hong Kong-listed Pan-Asia insurance firm with leading market positions in the region. We regard AIA as a high-quality business with attractive growth prospects. The stakes in India’s Axis Bank and Bank Mandiri, one of Indonesia’s leading financial groups, were increased too.

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

M&G Asian Fund Authorised Corporate Director’s Report Investment review Investment activities (continued) In the technology sector, we bought shares in Vtech, a Hong Kongbased supplier of electronic learning products. Investors have been concerned about declining sales and a planned acquisition of a rival firm. We believe the company is a quality business with a track record of profitability. In our view the merger offers long-term benefits, and we bought the shares at what we think is an attractive entry point. We also added to the existing position in Lenovo, a Chinese PC, smartphone and server company.

We recognise though that there are a number of potential headwinds facing Asian companies, not least developments in the West such as President Trump’s trade policies and rising US interest rates. However, given the combination of valuations and fundamentals, we believe that the long-term prospects of Asian companies remain promising. Although there is likely to be turbulence, we believe a selective, valueoriented approach should be rewarded with attractive long-term returns. Matthew Vaight Fund manager An employee of M&G Limited which is an associate of M&G Securities Limited. [a] 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.

Sembcorp Industries, a Singapore-listed utilities firm, joined the portfolio as well. Sembcorp provides power and water services across Asia and the Middle East and has a stake in a shipbuilding company. The market is concerned about low power prices in India and weak demand for ships; however, we believe investors’ worries are excessive and think that the stock is attractively valued. First Pacific, a Hong Kong-based conglomerate with operations in Indonesia and the Philippines, was the final newcomer. We believe the holding company trades at a discount to the value of the underlying companies, which include consumer foods, infrastructure and telecommunication businesses. In terms of complete sales, Hermes Microvision, a Taiwanese technology firm, left the portfolio after the business was taken over, while the small stake in Hong Kong and Shanghai Hotels, a Hong Kong-listed owner of luxury hotels and real estate, was sold as we saw better opportunities elsewhere. We also took profits from a number of stocks that had performed well, including E-Mart, a South Korean retailer, Fufeng, a Chinese monosodium glutamate producer, and Prudential, a UK-listed insurance firm.

Outlook We believe the current outlook for Asian stockmarkets is positive. Even after the gains during the review period, by our assessment, valuations broadly remain attractive. At the same time, we are encouraged by improving corporate performance which, in our view, is what ultimately drives long-term share price performance. After years of Asian firms pursuing growth, we are starting to see evidence of better capital discipline and an increased focus on profitability. We are optimistic that firms, particularly in South Korea, will start to implement more shareholder-friendly policies, which could lead to higher shareholder returns over time. In our view, these positive fundamental trends are not currently reflected in valuations. Within the region, we see this improvement in corporate performance as supportive for the continued switch into the cheaper, ‘value’ segments of the market. Furthermore, the wide valuation gap between ‘growth’ and ‘value’ stocks should also support the performance of value stocks as we believe the spread should narrow over time.

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.

Investments

Portfolio statement as at Holding

28.02.17 28.02.17 31.08.16 $’000 % % United Kingdom 4,811,490 Ophir Energy 167,668 Prudential [a] 1,233,623 2,851,999 2,197,419 3,647,744 54,761 1,012,532 1,019,355 2,343,417 4,661,127

Australia ALS Downer EDI Iluka Resources Mesoblast Mesoblast ADR Nufarm Orica QBE Insurance Group Rex Minerals

8,951 5,596 3,355

1.16 0.73 0.43

1.65

81,064 5,710 15,390 11,419 4,620 353 6,871 14,311 22,143 247

10.51 0.74 1.99 1.48 0.60 0.05 0.89 1.86 2.87 0.03

9.84

China AMVIG Holdings Baidu ADR China Lesso China Resources Power Holdings China Unicom CNOOC Ctrip.com International Dongfeng Motor Far East Horizon Greatview Aseptic Packaging HollySys Automation Technologies Lenovo PICC Property & Casualty Vtech

161,975 5,718 23,949 12,535 8,299 13,041 11,935 10,285 8,469 12,763 12,647 14,682 9,325 8,360 9,967

21.00 0.74 3.11 1.63 1.08 1.69 1.55 1.33 1.10 1.65 1.64 1.90 1.21 1.08 1.29

21.57

16,376,000 138,495 16,862,000 4,588,032 10,722,000 10,091,000 213,062 7,137,000 13,315,000 25,496,000 842,339 15,532,000 5,471,240 883,600

Hong Kong AIA Group CK Hutchison Holdings Fufeng Group HSBC Holdings PCCW Standard Chartered

107,996 25,746 25,500 14,682 13,222 16,341 12,505

14.00 3.34 3.31 1.90 1.71 2.12 1.62

14.68

4,074,000 2,063,850 23,351,000 1,641,927 26,928,006 1,385,619

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

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M&G Asian Fund Authorised Corporate Director’s Report Top ten portfolio transactions

Investments

for the six months to 28 February 2017 Largest purchases

Portfolio statement (continued) as at Holding

28.02.17 28.02.17 31.08.16 $’000 % % 2,128,033 1,298,311 2,133,437 2,229,914

India Axis Bank CESC McLeod Russel India NTPC

Indonesia 9,768,900 Bank Mandiri Philippines 122,931,050 Energy Development 11,158,000 First Pacific 16,171,400 1,832,251 32,360,190 5,475,493 141,144 3,528,200 12,405 498,188 88,103 251,458 23,583 51,482 544,610 440,251 2,329,000 1,252,000 5,010,000 6,101,849 10,064,564 3,159,220 721,000 5,622,178 10,632,000 4,780,000

Singapore CSE Global DBS Group Holdings Ezion Holdings Ezion Holdings wts. 2020 Jardine Matheson Sembcorp Industries

43,433 16,134 16,365 5,491 5,443

5.63 2.09 2.12 0.71 0.71

6.12

8,277 8,277

1.07 1.07

0.82

22,566 14,444 8,122

2.93 1.87 1.06

2.00

55,708 5,605 24,525 8,441 317 8,777 8,043

7.22 0.73 3.18 1.09 0.04 1.14 1.04

5.95

130,235 2,276 15,531 11,609 8,496 40,085 11,587 22,469 18,182

16.88 0.30 2.01 1.50 1.10 5.20 1.50 2.91 2.36

18.40

Taiwan 126,615 Casetek Holdings 7,808 Catcher Technology 10,473 Cathay Financial Holdings 7,868 Chicony Electronics 14,379 Compal Electronics 6,290 Delta Electronics 17,582 eMemory Technology 10,326 Taiwan Semiconductor Manufacturing 34,586 TECO Electric & Machinery 9,586 Yungtay Engineering 7,717

16.42 1.01 1.36 1.02 1.87 0.82 2.28 1.34 4.48 1.24 1.00

16.38

4,701 4,701

0.61 0.61

1.69

751,521

97.43

99.10

13,147

1.70

1.24

South Korea E-Mart Hana Financial Group Hyundai Motor Kia Motors Samsung Electronic Samsung Fire & Marine Insurance Shinhan Financial Group SK hynix

Thailand 8,415,200 Krung Thai Bank Portfolio of investments Eire (‘AAA’ rated money market funds) [b] 13,147,000 Northern Trust Global Fund US dollar

10,293 8,727 8,439 7,929 7,636 7,471 3,618 3,332 2,522 2,434

Other purchases

30,314

Total purchases

92,715

Largest sales

$’000

Hermes Microvision Fufeng Group Krung Thai Bank E-Mart Prudential [a] SK hynix The Hongkong and Shanghai Hotels Downer EDI China Unicom HSBC Holdings

9,400 9,277 7,294 6,237 5,426 5,307 4,717 4,654 4,554 3,905

Other sales

65,852

Total sales

126,623

Purchases and sales exclude the cost and proceeds of ‘AAA’ rated money market funds. [a] Related party to the fund.

13,147

1.70

Total portfolio Net other assets / (liabilities)

764,668 6,692

99.13 0.87

100.34 (0.34)

Net assets attributable to shareholders

771,360

100.00

100.00

All securities are on an official stock exchange listing except where referenced. [a] Related party to the fund. [b] Uncommitted surplus cash is placed into ‘AAA’ rated money market funds with the

aim of reducing counterparty risk.

8

$’000

Vtech Lenovo First Pacific Sembcorp Industries Cathay Financial Holdings AIA Group Axis Bank CK Hutchison Holdings Bank Mandiri PCCW

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

M&G Asian Fund Financial highlights Performance since launch

Fund performance Please note past performance is not a guide to future performance and 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 not get back the original amount you invested.

To give an indication of how the fund has performed since launch, the chart below shows total return of Sterling Class ‘A’ (Accumulation) shares and Sterling Class ‘I’ (Accumulation) shares. August 1996 = 100, plotted monthly

Chart date 1 March 2017

500

Sterling Class ‘I’ (Accumulation) shares*

The following chart and tables show the performance for two of the fund’s share classes – Sterling Class ‘A’ (Accumulation) shares and Sterling Class ‘I’ (Accumulation) shares. We show performance for these two share classes because:

400 300 250 200 170

• The performance of the Sterling Class ‘A’ (Accumulation) share is

140 120

what most individuals investing directly with M&G have received. It has the highest ongoing charge of all the share classes. Performance is shown after deduction of this charge. All investors in the fund therefore received this performance or better.

100 90 80 70

• The performance of the Sterling Class ‘I’ (Accumulation) share is

40

the most appropriate to compare with the average performance of the fund’s comparative sector. It is the share class used by the Investment Association in the calculation of the comparative sector’s average performance. This share class is available for direct investment with M&G subject to minimum investment criteria, or via third parties who may charge additional fees. The performance shown takes the deduction of the ongoing charge for this share class into account but it does not take account of charges applied by any other party through which you may have invested. The fund is available for investment in different share classes, each with varying levels of charges and minimum investments; please refer to the Prospectus for M&G Investment Funds (1), which is available free of charge either from our website at www.mandg.co.uk/prospectuses or by calling M&G Customer Relations.

Sterling Class ‘A’ (Accumulation) shares*

60 50 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

Sterling Class ‘A’ (Accumulation) shares* Sterling Class ‘I’ (Accumulation) shares* MSCI AC Asia Pacific ex Japan Index Morningstar (IA) Asia Pacific excluding Japan sector average* * Income reinvested

Source: Morningstar, Inc. and M&G

When the fund’s objective changed, the comparable index of the fund also changed, and to make a fair comparison the chart above shows performance since the fund’s change of objective. The fund’s Sterling Class ‘I’ (Accumulation) shares were launched on 3 August 2012. Performance data shown prior to this date is that of the fund’s Sterling Class ‘A’ (Accumulation) shares.

Fund level performance Fund net asset value as at

28.02.17 $’000

31.08.16 $’000

31.08.15 $’000

Fund net asset value (NAV)

771,360

733,375

807,742

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

9

M&G Asian Fund Financial highlights Operating charges are the same as the ongoing charges shown in the Key Investor Information Document, other than where an estimate has been used for the ongoing charge because a material change has made the operating charges unreliable as an estimate of future charges.

Fund performance To give an indication of the performance of the fund, the following table shows 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

Portfolio transaction costs

Six Three months years 01.09.16 03.03.14 % [a] % p.a.

Five years 01.03.12 % p.a.

Since launch % p.a.

Euro [b] Class ‘A’

+15.8

+12.4

+8.5

+9.5 [c]

Class ‘C’

+16.2

+13.2

+9.3

+10.2 [c]

+17.6

+13.8

+9.0

+9.2 [e]

Sterling [d] Class ‘A’

For this fund there is no difference between operating charges and ongoing charges figures, unless disclosed under the specific share class performance table.

Class ‘I’

+18.1

+14.7

n/a

+12.2 [f]

Class ‘R’

+17.9

+14.4

n/a

+11.9 [f]

Class ‘X’

+17.6

+13.8

+9.0

+16.4 [g]

US dollar [b] Class ‘A’

+9.4

+2.8

+3.5

+11.4 [h]

Class ‘C’

+9.8

+3.6

+4.3

+12.2 [h]

[a] Absolute basis. [b] Price to price with net income reinvested. [c] 28 November 2001, the launch date of the share class. [d] Price to price with income reinvested. [e] 14 September 1973, the end of the initial offer period of the predecessor unit trust. [f] 3 August 2012, the launch date of the share class. [g] 1 October 2002, the launch date of the share class. [h] 19 December 2008, the launch date of the share class.

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

Portfolio transaction costs are incurred by funds when buying and selling investments. These costs vary depending on the types of investment, their market capitalisation, country of exchange, method of execution and the quality of research provided. They are made up of direct and indirect portfolio transaction costs:

• Direct portfolio transaction costs: Broker execution commission and taxes.

• Indirect portfolio transaction costs: ‘Dealing spread’ – the difference between the buying and selling prices of the fund’s investments; some types of investment, such as fixed interest securities, have no direct transaction costs and only the dealing spread is paid.

Investments are bought or sold by a fund when changes are made to the investment portfolio and in response to net flows of money into or out of the fund from investors buying and selling shares in the fund. To protect existing investors, portfolio transaction costs incurred as a result of investors buying and selling shares in the fund are recovered from those investors through a ‘dilution adjustment’ to the price they pay or receive. The table below shows direct portfolio transaction costs paid by the fund before and after that part of the dilution adjustment relating to direct portfolio transaction costs. To give an indication of the indirect portfolio dealing costs the table also shows the average portfolio dealing spread. Further information on this process is in the Prospectus, which is available free of charge on request either from our website at www.mandg.co.uk/prospectuses or by calling M&G Customer Relations.

Portfolio transaction costs Six months to 28.02.17 Direct portfolio transaction costs [b] %

Year to 31.08.15 %

Average [a] %

Operating charges

Broker commission Taxes

0.06 0.06

0.06 0.05

0.07 0.05

0.06 0.05

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

Costs before dilution adjustments Dilution adjustments [c]

0.12 (0.08)

0.11 (0.07)

0.12 (0.09)

0.11 (0.08)

• Investment management: Charge paid to M&G for investment

Total direct portfolio transaction costs

0.04

0.04

0.03

0.03

28.02.17 %

31.08.16 %

31.08.15 %

0.26

0.28

0.43

management of the fund (also known as Annual Management Charge).

• Administration: Charge paid to M&G for administration services in addition to investment management – any surplus from this charge will be retained by M&G.

• Oversight

and other independent services: Charges paid to providers independent of M&G for services which include depositary, custody and audit.

as at Indirect portfolio transaction costs Average portfolio dealing spread [a] Average of first three columns.

[b] As a percentage of average net asset value. [c] In respect of direct portfolio transaction costs.

The operating charges paid by each share class of the fund are shown in the following performance tables. Operating charges do not include portfolio transaction costs or any entry and exit charges (also known as initial and redemption charges). The charging structures of share classes may differ, and therefore the operating charges may differ.

10

Year to 31.08.16 %

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

Average [a] % 0.32

M&G Asian Fund Financial highlights Euro Class ‘C’ Accumulation share performance

Specific share class performance

The share class was launched on 28 November 2001.

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

Six months to 28.02.17 Euro ¢

Year to 31.08.16 Euro ¢

Year to 31.08.15 Euro ¢

3,808.43 Opening NAV Return before operating charges and after direct portfolio transaction costs 575.71 (19.70) Operating charges

3,525.90

3,694.95

317.81 (35.28)

(130.71) (38.34)

Change in NAV per share

Return after operating charges

Euro Class ‘A’ Accumulation share performance The share class was launched on 28 November 2001.

556.01

282.53

(169.05)

Distributions

n/a

(55.29)

(55.63)

Retained distributions

n/a

55.29

55.63

4,364.44

3,808.43

3,525.90

Six months to 28.02.17 Euro ¢

Year to 31.08.16 Euro ¢

Year to 31.08.15 Euro ¢

Closing NAV

Euro ¢

Euro ¢

Euro ¢

Opening NAV 3,449.85 Return before operating charges and after direct portfolio transaction costs 520.11 Operating charges (31.26)

3,217.85

3,396.92

Costs before dilution adjustments Dilution adjustments [b]

2.48 (1.67)

3.83 (2.32)

4.76 (3.41)

288.24 (56.24)

(116.53) (62.54)

Total direct portfolio transaction costs

0.81

1.51

1.35

232.00

(179.07)

Change in NAV per share

Return after operating charges

488.85

Distributions

n/a

(26.05)

(25.11)

Retained distributions

n/a

26.05

25.11

3,938.70

3,449.85

3,217.85

Closing NAV Direct portfolio transaction costs [a]

Euro ¢

Euro ¢

Euro ¢

Costs before dilution adjustments Dilution adjustments [b]

2.23 (1.50)

3.48 (2.11)

4.39 (3.14)

Total direct portfolio transaction costs

0.73

1.37

1.25

Performance and charges

%

%

%

Direct portfolio transaction costs 0.04 Operating charges 1.73 Return after operating charges +14.17 Historic yield 0.66 Effect on yield of charges offset against capital 0.00

0.04 1.74 +7.21 0.73 0.00

0.03 1.73 -5.27 0.77 0.00

142,932 19.49 3,718,496 3,604.36 2,780.32

181,591 22.48 5,003,076 4,180.57 2,998.38

Direct portfolio transaction costs [a]

%

%

%

0.04 Direct portfolio transaction costs 0.98 Operating charges +14.60 Return after operating charges Historic yield 1.26 0.00 Effect on yield of charges offset against capital

Performance and charges

0.04 0.99 +8.01 1.41 0.00

0.03 0.98 -4.58 1.57 0.00

125,003 17.04 2,945,870 3,954.75 3,056.82

148,581 18.39 3,735,973 4,567.52 3,284.97

Other information 183,235 Closing NAV ($’000) Closing NAV percentage of total fund NAV (%) 23.75 Number of shares 3,960,170 Highest share price (Euro ¢) 4,450.36 Lowest share price (Euro ¢) 3,748.66

Sterling Class ‘A’ Income share performance The share class was launched on 14 September 1973.

Other information Closing NAV ($’000) 153,840 Closing NAV percentage of total fund NAV (%) 19.94 Number of shares 3,684,257 Highest share price (Euro ¢) 4,016.75 Lowest share price (Euro ¢) 3,394.56

Six months to 28.02.17 UK p

Year to 31.08.16 UK p

Year to 31.08.15 UK p

Opening NAV 1,221.09 Return before operating charges and after direct portfolio transaction costs 190.97 Operating charges (11.26)

991.98

1,143.61

256.71 (18.31)

(124.83) (19.72)

Return after operating charges

(144.55)

Change in NAV per share

179.71

238.40

Distributions

n/a

(9.29)

(7.08)

Closing NAV

1,400.80

1,221.09

991.98

Direct portfolio transaction costs [a]

UK p

UK p

UK p

Costs before dilution adjustments Dilution adjustments [b]

0.80 (0.54)

1.13 (0.69)

1.38 (0.99)

Total direct portfolio transaction costs

0.26

0.44

0.39

%

%

%

Direct portfolio transaction costs 0.04 Operating charges 1.73 Return after operating charges +14.72 1.88 Historic yield [c] Effect on yield of charges offset against capital 1.65

Performance and charges

0.04 1.74 +24.03 0.75 0.00

0.03 1.73 -12.64 0.70 0.00

187,766 25.60 11,705,434 1,266.13 907.00

188,419 23.33 12,343,473 1,276.90 928.53

Other information Closing NAV ($’000) 171,958 Closing NAV percentage of total fund NAV (%) 22.29 Number of shares 9,867,985 Highest share price (UK p) 1,415.36 Lowest share price (UK p) 1,202.92

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

11

M&G Asian Fund Financial highlights Sterling Class ‘I’ Accumulation share performance

Specific share class performance

The share class was launched on 3 August 2012.

Return after operating charges

Year to 31.08.16 UK p 1,542.92 399.57 (28.51)

Year to 31.08.16 UK p

Year to 31.08.15 UK p

1,453.84 Opening NAV Return before operating charges and after direct portfolio transaction costs 227.80 (7.62) Operating charges

1,163.21

1,321.64

302.90 (12.27)

(145.48) (12.95)

Change in NAV per share

Sterling Class ‘A’ Accumulation share performance The share class was launched on 14 September 1973. Six months to 28.02.17 UK p Change in NAV per share 1,913.98 Opening NAV Return before operating charges and after direct 299.32 portfolio transaction costs Operating charges (17.64)

Six months to 28.02.17 UK p

Year to 31.08.15 UK p 1,766.15 (192.79) (30.44)

Return after operating charges

220.18

290.63

(158.43)

Distributions

n/a

(21.10)

(18.14)

Retained distributions

n/a

21.10

18.14

1,674.02

1,453.84

1,163.21

Closing NAV

281.68

371.06

(223.23)

Distributions

n/a

(14.45)

(11.21)

Direct portfolio transaction costs [a]

UK p

UK p

UK p

Retained distributions

n/a

14.45

11.21

2,195.66

1,913.98

1,542.92

Costs before dilution adjustments Dilution adjustments [b]

0.96 (0.64)

1.33 (0.81)

1.61 (1.15)

Direct portfolio transaction costs [a] Costs before dilution adjustments Dilution adjustments [b]

UK p 1.26 (0.85)

UK p 1.76 (1.07)

UK p 2.14 (1.53)

Total direct portfolio transaction costs

0.32

0.52

0.46

Total direct portfolio transaction costs

0.41

0.69

0.61

% Performance and charges 0.04 Direct portfolio transaction costs Operating charges 1.73 Return after operating charges +14.72 0.65 Historic yield Effect on yield of charges offset against capital 0.00

% 0.04 1.74 +24.05 0.74 0.00

% 0.03 1.73 -12.64 0.71 0.00

Other information Closing NAV ($’000) 155,992 Closing NAV percentage of total fund NAV (%) 20.22 Number of shares 5,711,060 Highest share price (UK p) 2,218.50 Lowest share price (UK p) 1,885.52

166,448 22.70 6,620,048 1,969.59 1,410.94

165,393 20.48 6,966,135 1,971.99 1,433.99

Closing NAV

%

%

%

0.04 Direct portfolio transaction costs 0.98 Operating charges +15.14 Return after operating charges Historic yield 1.25 0.00 Effect on yield of charges offset against capital

Performance and charges

0.04 0.99 +24.99 1.42 0.00

0.03 0.98 -11.99 1.54 0.00

25,198 3.44 1,319,384 1,495.59 1,067.33

22,571 2.79 1,261,003 1,482.42 1,080.94

Other information 27,198 Closing NAV ($’000) Closing NAV percentage of total fund NAV (%) 3.53 Number of shares 1,306,022 Highest share price (UK p) 1,691.22 Lowest share price (UK p) 1,432.58

Sterling Class ‘R’ Income share performance The share class was launched on 3 August 2012. Six months to 28.02.17 UK p

Year to 31.08.16 UK p

Year to 31.08.15 UK p

Opening NAV 137.68 Return before operating charges and after direct portfolio transaction costs 21.55 Operating charges (0.90)

111.82

129.04

29.04 (1.48)

(14.16) (1.58) (15.74)

Sterling Class ‘I’ Income share performance Change in NAV per share

The share class was launched on 3 August 2012. Six months to 28.02.17 Change in NAV per share UK p Opening NAV 1,378.34 Return before operating charges and after direct portfolio transaction costs 215.96 Operating charges (7.22) Return after operating charges

12

Year to 31.08.16 UK p 1,119.48

Year to 31.08.15 UK p 1,291.96

291.00 (11.81)

(142.05) (12.70)

Return after operating charges

208.74

279.19

Distributions

n/a

(20.33)

(154.75) (17.73)

Closing NAV

1,587.08

1,378.34

1,119.48

Direct portfolio transaction costs [a] Costs before dilution adjustments Dilution adjustments [b]

UK p 0.91 (0.61)

UK p 1.28 (0.78)

UK p 1.58 (1.13)

Total direct portfolio transaction costs

0.30

0.50

0.45

Performance and charges % Direct portfolio transaction costs 0.04 Operating charges 0.98 Return after operating charges +15.14 Historic yield [c] 1.94 Effect on yield of charges offset against capital 0.90

% 0.04 0.99 +24.94 1.45 0.00

% 0.03 0.98 -11.98 1.64 0.00

Other information Closing NAV ($’000) 12,776 Closing NAV percentage of total fund NAV (%) 1.66 Number of shares 647,126 Highest share price (UK p) 1,603.36 Lowest share price (UK p) 1,358.16

11,991 1.63 662,245 1,438.83 1,026.83

9,613 1.19 558,016 1,449.26 1,056.77

20.65

27.56

Distributions

n/a

(1.70)

(1.48)

Closing NAV

158.33

137.68

111.82

Direct portfolio transaction costs [a]

UK p

UK p

UK p

Costs before dilution adjustments Dilution adjustments [b]

0.09 (0.06)

0.13 (0.08)

0.16 (0.11)

Total direct portfolio transaction costs

0.03

0.05

0.05

%

%

%

Direct portfolio transaction costs 0.04 Operating charges 1.23 Return after operating charges +15.00 1.92 Historic yield [c] Effect on yield of charges offset against capital 1.15

Performance and charges

0.04 1.24 +24.65 1.21 0.00

0.03 1.23 -12.20 1.30 0.00

266 0.04 147,292 143.39 102.46

309 0.04 179,420 144.53 105.29

Other information Closing NAV ($’000) 283 Closing NAV percentage of total fund NAV (%) 0.04 Number of shares 143,666 Highest share price (UK p) 159.96 Lowest share price (UK p) 135.65

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

M&G Asian Fund Financial highlights Sterling Class ‘X’ Accumulation share performance

Specific share class performance

The share class was launched on 1 October 2002.

Return after operating charges

Year to 31.08.16 UK p 115.47 30.02 (1.53)

Year to 31.08.16 UK p

Year to 31.08.15 UK p

1,896.08 Opening NAV Return before operating charges and after direct portfolio transaction costs 296.51 (17.48) Operating charges

1,528.50

1,749.73

395.80 (28.22)

(191.18) (30.05)

Change in NAV per share

Sterling Class ‘R’ Accumulation share performance The share class was launched on 3 August 2012. Six months to 28.02.17 UK p Change in NAV per share 143.96 Opening NAV Return before operating charges and after direct 22.53 portfolio transaction costs Operating charges (0.94)

Six months to 28.02.17 UK p

Year to 31.08.15 UK p 131.52 (14.44) (1.61)

Return after operating charges

279.03

367.58

(221.23)

Distributions

n/a

(14.36)

(8.39)

Retained distributions

n/a

14.36

8.39

2,175.11

1,896.08

1,528.50

Closing NAV

21.59

28.49

(16.05)

Distributions

n/a

(1.76)

(1.50)

Direct portfolio transaction costs [a]

UK p

UK p

UK p

Retained distributions

n/a

1.76

1.50

165.55

143.96

115.47

Costs before dilution adjustments Dilution adjustments [b]

1.25 (0.84)

1.74 (1.06)

2.11 (1.51)

Direct portfolio transaction costs [a] Costs before dilution adjustments Dilution adjustments [b]

UK p 0.09 (0.06)

UK p 0.13 (0.08)

UK p 0.16 (0.11)

Total direct portfolio transaction costs

0.41

0.68

0.60

Total direct portfolio transaction costs

0.03

0.05

0.05

% Performance and charges 0.04 Direct portfolio transaction costs Operating charges 1.23 Return after operating charges +15.00 1.05 Historic yield Effect on yield of charges offset against capital 0.00

% 0.04 1.25 +24.67 1.20 0.00

% 0.03 1.23 -12.20 1.29 0.00

Other information Closing NAV ($’000) 252 Closing NAV percentage of total fund NAV (%) 0.03 Number of shares 122,232 Highest share price (UK p) 167.27 Lowest share price (UK p) 141.84

288 0.04 152,232 148.11 105.83

226 0.03 127,236 147.30 107.31

Closing NAV

%

%

%

0.04 Direct portfolio transaction costs 1.73 Operating charges +14.72 Return after operating charges Historic yield 0.65 0.00 Effect on yield of charges offset against capital

Performance and charges

0.04 1.74 +24.05 0.74 0.00

0.03 1.73 -12.64 0.53 0.00

4,461 0.61 179,103 1,951.15 1,397.74

5,997 0.74 254,950 1,953.58 1,420.59

Other information 4,449 Closing NAV ($’000) Closing NAV percentage of total fund NAV (%) 0.58 Number of shares 164,406 Highest share price (UK p) 2,197.73 Lowest share price (UK p) 1,867.87

US dollar Class ‘A’ Accumulation share performance The share class was launched on 19 December 2008. Six months to 28.02.17 US ¢

Year to 31.08.16 US ¢

Year to 31.08.15 US ¢

Opening NAV 2,223.02 Return before operating charges and after direct portfolio transaction costs 211.42 Operating charges (19.47)

2,099.27

2,591.22

160.28 (36.53)

(450.21) (41.74)

Sterling Class ‘X’ Income share performance Change in NAV per share

The share class was launched on 1 October 2002. Six months to 28.02.17 Change in NAV per share UK p Opening NAV 1,219.45 Return before operating charges and after direct portfolio transaction costs 190.70 Operating charges (11.24) Return after operating charges

179.46

Year to 31.08.16 UK p 990.66

Year to 31.08.15 UK p 1,142.31

256.35 (18.29)

(124.68) (19.70)

Return after operating charges

238.06

(144.38)

Distributions

n/a

(9.27)

(7.27)

Closing NAV

1,398.91

1,219.45

990.66

Direct portfolio transaction costs [a] Costs before dilution adjustments Dilution adjustments [b]

UK p 0.80 (0.54)

UK p 1.13 (0.69)

UK p 1.38 (0.99)

Total direct portfolio transaction costs

0.26

0.44

0.39

Performance and charges % Direct portfolio transaction costs 0.04 Operating charges 1.73 Return after operating charges +14.72 Historic yield [c] 1.88 Effect on yield of charges offset against capital 1.65

% 0.04 1.74 +24.03 0.75 0.00

% 0.03 1.73 -12.64 0.72 0.00

Other information Closing NAV ($’000) 13,587 Closing NAV percentage of total fund NAV (%) 1.76 Number of shares 780,723 Highest share price (UK p) 1,413.45 Lowest share price (UK p) 1,201.30

13,792 1.88 860,984 1,264.42 905.79

15,901 1.97 1,043,106 1,275.45 927.47

191.95

123.75

(491.95)

Distributions

n/a

(16.70)

(15.98)

Retained distributions

n/a

16.70

15.98

2,414.97

2,223.02

2,099.27

Direct portfolio transaction costs [a]

US ¢

US ¢

US ¢

Costs before dilution adjustments Dilution adjustments [b]

1.39 (0.93)

2.25 (1.36)

2.93 (2.10)

Total direct portfolio transaction costs

0.46

0.89

0.83

Closing NAV

Performance and charges

%

%

%

0.04 1.73 +8.63 0.69 0.00

0.04 1.75 +5.89 0.73 0.00

0.03 1.73 -18.99 0.75 0.00

Closing NAV ($’000) 15,725 Closing NAV percentage of total fund NAV (%) 2.04 Number of shares 651,158 Highest share price (US ¢) 2,445.66 Lowest share price (US ¢) 2,154.76

24,046 3.28 1,081,682 2,276.87 1,813.63

32,652 4.04 1,555,420 2,627.35 1,993.03

Direct portfolio transaction costs Operating charges Return after operating charges Historic yield Effect on yield of charges offset against capital Other information

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

13

M&G Asian Fund Financial highlights

Specific share class performance US dollar Class ‘C’ Accumulation share performance The share class was launched on 19 December 2008. Six months to 28.02.17 US ¢

Year to 31.08.16 US ¢

Year to 31.08.15 US ¢

2,354.12 Opening NAV Return before operating charges and after direct 224.53 portfolio transaction costs (11.76) Operating charges

2,206.34

2,702.89

169.54 (21.76)

(471.65) (24.90)

Change in NAV per share

Return after operating charges

212.77

147.78

(496.55)

Distributions

n/a

(34.14)

(35.08)

Retained distributions

n/a

34.14

35.08

2,566.89

2,354.12

2,206.34

Direct portfolio transaction costs [a]

US ¢

US ¢

US ¢

Costs before dilution adjustments Dilution adjustments [b]

1.48 (1.00)

2.36 (1.43)

3.09 (2.21)

Total direct portfolio transaction costs

0.48

0.93

0.88

Closing NAV

Performance and charges

%

%

%

0.04 0.98 +9.04 1.34 0.00

0.04 0.99 +6.70 1.41 0.00

0.03 0.98 -18.37 1.59 0.00

Closing NAV ($’000) 32,065 Closing NAV percentage of total fund NAV (%) 4.16 Number of shares 1,249,164 Highest share price (US ¢) 2,599.24 Lowest share price (US ¢) 2,285.66

31,184 4.25 1,324,635 2,396.19 1,912.64

36,489 4.52 1,653,818 2,745.17 2,094.38

Direct portfolio transaction costs Operating charges Return after operating charges Historic yield Effect on yield of charges offset against capital Other information

[a] As a percentage of average net asset value. [b] In respect of direct portfolio transaction costs. [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.

14

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

M&G Asian Fund Financial statements and notes

Financial statements

Notes to the financial statements Accounting policies

Statement of total return 2017 for the six months to 28 and 29 February Income Net capital gains / (losses) Revenue Expenses Net revenue / (expense) before taxation Taxation

$’000

$’000

2016 $’000 $’000

58,512 6,074 (5,294) ______ 780 (443) ______

(72,852) 5,630 (6,006) ______ (376) (586) ______

Net revenue / (expense) after taxation

337

(962)

Total return before equalisation Equalisation

58,849 (23)

(73,814) 116

Change in net assets attributable to shareholders from investment activities

58,826

(73,698)

Statement of change in net assets attributable to shareholders 2017 for the six months to 28 and 29 February Opening net assets attributable to shareholders Amounts received on issue of shares Amounts paid on cancellation of shares Dilution adjustments Change in net assets attributable to shareholders from investment activities (see above) Closing net assets attributable to shareholders

$’000

$’000

2016 $’000 $’000

733,375 89,511 (110,873) ______

The financial statements have been prepared in accordance with the ‘Accounting policies’ set out on page 4.

Distribution policy With effect from 1 September 2016, the distribution policy has been amended so that in determining the amount available for distribution to Income shares, the annual management charge and administration charge are now offset against capital, increasing the amount available for distribution whilst restraining capital performance to an equivalent extent. Marginal tax relief has not been taken into account in respect of expenses offset against capital. In determining the amount available for distribution, ordinary stock dividends have been transferred to capital, reducing the amount available.

807,742 92,413 (117,897) ______

(21,362) 521

(25,484) 505

58,826

(73,698)

771,360

709,065

The opening net assets attributable to shareholders for 2017 differs to the closing position in 2016 by the change in net assets attributable to shareholders for the second half of the comparative financial year.

Balance sheet as at

28 February 2017 $’000

31 August 2016 $’000

764,668

735,834

5,369 3,743

2,867 3,937

773,780

742,638

0 0 (2,420)

(2,309) (1,713) (5,241)

Assets Fixed assets Investments Current assets Debtors Cash and bank balances Total assets Liabilities Creditors Bank overdrafts Distribution payable Other creditors Total liabilities Net assets attributable to shareholders

(2,420)

(9,263)

771,360

733,375

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

15

M&G Asian Fund Financial statements and notes

This page is intentionally blank

16

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

M&G European Index Tracker Fund Authorised Corporate Director’s Report Investment objective and policy

Investment review

The Fund is designed to track the FTSE World Europe ex UK Index.

Investment approach

Performance against objective

The M&G European Index Tracker Fund is a European ex UK fund that tracks the performance of the FTSE World Europe ex UK Index* using a technique called stratified sampling. The fund will normally hold the largest 100 stocks in the index as well as a selection of the remaining smaller stocks to ensure that the fund’s capitalisation and industry weights are in line with the index weightings.

*

FTSE® International. FTSE is a joint trademark of the London Stock Exchange Limited and the Financial Times Limited and is used by FTSE International Limited under licence. The FTSE World Europe ex UK Index is calculated by FTSE International Limited. FTSE International Limited does not sponsor, endorse or promote these products. All copyright in the index values and constituent lists rests with FTSE International Limited. M&G Securities Limited has obtained full licence from FTSE International Limited to use such copyright in the creation of this product.

Risk profile

The fund will typically hold around 350 stocks, including the largest 100 stocks in the index, as well as a selection of the remaining smaller stocks to ensure that the fund’s market capitalisation and industry weights are in line with the index. The fund’s risks are measured and managed as an integral part of the investment process. The following table shows the risk number associated with the fund and is based on Sterling Class ‘A’ shares. Low risk

High risk

Typically lower rewards

2

Typically higher rewards

3

4

5

6

7

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. •

The M&G European Index Tracker is designed to track the FTSE World Europe ex UK Index. Between 1 September 2016 (the start of the review period) and 1 March 2017, the fund’s Sterling Class ‘A’ shares returned 11.1% while the Euro Class ‘A’ shares returned 9.3%, with the difference in returns between the share classes a reflection of currency movements over the period. [a] Meanwhile, the FTSE World Europe ex UK Index returned 13.1% in sterling terms and 11.1% in euro terms. The fund’s underperformance against the index was primarily due to a timing difference in the pricing of the fund and the index. The fund is priced at midday while the index is priced at close of day. This difference in timing was substantial because of a sharp decline in share prices in the morning of 1 September 2016 and a rally in share prices in the afternoon of 1 March 2017.

Investment performance

The fund is designed to track the performance of the FTSE World Europe ex UK Index, which represents a broad spread of European company shares. Its performance, therefore, reflects the price volatility of the European stockmarket and the performance of individual companies.

1

As at 1 March 2017, for the six months ended 28 February 2017

has not changed during this period.

The M&G European Index Tracker Fund tracks the performance of the FTSE World Europe ex UK Index using a technique called ‘stratified sampling’, which is a two-part strategy. Firstly, the portfolio contains the largest European companies in the index in the same proportion as the index. Secondly, we hold shares in some of the remaining companies listed in the index in such a way as to reflect the characteristics of the index. In our opinion, using this method of tracking the index is the best way of minimising the fund’s dealing costs and therefore represents good value for shareholders. As the fund tracks the index, its overall performance can largely be explained by market developments over the period under review. European stockmarkets gained for much of the period under review, with sentiment bolstered by continued support from the European Central Bank (ECB) and increasingly, improved economic data. Throughout the autumn, investors’ attention focused on the US presidential election in early November, leading to volatile markets. The somewhat surprising victory of Donald Trump sparked a significant shift in investor sentiment, with the prospect of higher infrastructure expenditure and lower taxes and regulations expected to boost the US economy, and possibly the global economy too. In December, the ECB announced it would extend its programme of stimulus measures and the continued support should bolster the ongoing economic recovery at a time of considerable political uncertainty. Aside from the UK’s decision to leave the European Union (EU), the region faces a number of significant elections this year. In a positive development for commodities, stronger economic performance from China and the US as the year progressed boosted prices. The price of oil also picked up amid signs that the global glut of crude was easing. Moreover, the oil price rose after both OPEC (The Organization of the Petroleum Exporting Countries) and non-OPEC members agreed to cut production.

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

17

M&G European Index Tracker Fund Authorised Corporate Director’s Report Investment review Investment performance (continued) Turning to the economy, activity in the euro area continues to expand, albeit modestly; quarter-on-quarter growth rose by 0.4% in the fourth quarter of 2016, according to estimates, unchanged on the preceding quarter. Over 2016, the euro area grew by 1.7%. In the most recent quarter, core countries Germany and France recorded decent growth of 0.4%, while Spain’s economy expanded by 0.7%. Inflation too is showing signs of picking up, after a prolonged period of weak growth or declines in consumer prices. In February 2017, initial estimates suggest that inflation rose from 1.8% the previous month, to 2.0%, finally reaching the ECB’s target level. The core rate (excluding energy, food, alcohol and tobacco) remains more subdued at an estimated 0.9%. Nevertheless, the move away from potential deflation, that is, a decrease in the general price level of goods and services, is welcome as falling prices can discourage consumers from spending, in anticipation of further price declines. Meanwhile, unemployment levels continue to improve, albeit slowly and rates for member states are mixed. The unemployment rate for the eurozone was 9.6% in January 2017, unchanged from December 2016. This compares with 10.4% in January 2016. The lowest unemployment rates were recorded in the Czech Republic (3.4%) and Germany (3.8%), while the highest levels were to be found in Greece (23.0% in November) and Spain (18.2%). Southern European countries continue to experience high levels of youth unemployment, with Greece and Spain recording figures of more than 40%, while the rate for Italy was nearly 38%. In a broadly optimistic environment, investors favoured sectors like industrial metals, mining and, to a lesser extent, oil & gas producers. Such sectors tend to be closely associated with economic cycles, and are often more in demand during economic upturns, unlike their ‘defensive’ counterparts, which tend not to be very sensitive to swings in economic conditions. For example, beverages, utilities, tobacco and food producers trailed behind over the period under review. Interestingly, European banks, which have been weak as low interest rates put pressure on profitability, were also among the stronger sectors in a more confident environment and as concerns about a tighter regulatory environment eased. Nevertheless, many banks in the region are struggling with high levels of bad debt.

Meanwhile, a number of companies were added to the index and we subsequently initiated holdings in the portfolio. New entrants included German energy concern Innogy, Swedish real estate company Fastighets AB Balder and Huhtamaki, a global food packaging specialist, headquartered in Finland. Other sales and purchases were made in connection with large cashflows in and out of the fund during the period under review. Specific transactions included Swiss food and beverage business Nestlé, Swiss drug firm Novartis, French oil & gas concern Total and French pharmaceutical company Sanofi.

Outlook Investors in European equities are relatively upbeat; risk appetite has been supported by optimism about the outlook for global growth and rising oil prices. Economic activity appears to be picking up, with a range of data suggesting that the recovery is set to continue. While the picture for the region’s economy is looking more positive than for some time, Europe faces a number of significant political challenges. In particular, against a backdrop of increased support for populist groups, critical elections are due in Europe this year, most notably in France and Germany, which may have far-reaching repercussions. In addition, Greece is back in the news, with the nation’s creditors in disagreement over the next steps for the highly indebted country. More specifically for the economy, higher inflation is likely to weigh on real incomes, potentially leading to reduced expenditure by consumers. Many of Europe’s banks remain troubled by high levels of bad debt and the sector is still fragile. Meanwhile, the UK’s decision to leave the EU will impact the region and market observers await greater clarity about the political, economic and trading prospects for the post-Brexit EU. Furthermore, European exporters may come under pressure should President Trump adopt more protectionist policies, which could potentially dampen international trade. Given this somewhat uncertain backdrop, there is the likelihood of volatility at times, at least in the near term. Nevertheless, for now, investor sentiment is relatively buoyant and European economies at last seem to be showing signs of a more sustained revival. Nigel Booth Fund manager An employee of M&G Limited which is an associate of M&G Securities Limited. [a] 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.

Investment activities In terms of purchases over the review period, we increased our holding in French firm Technip, which is involved in project management, engineering and construction for the energy industry. The purchase was made in connection with Technip’s merger with US company FMC Technologies, with the newly created entity named TechnipFMC.

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.

We increased our position in Spanish financial services company Caixabank to reflect the firm’s increased weighting in the index subsequent to a placing of company shares. A placing involves the sale of securities to institutional investors. We also took the opportunity to buy more shares in Italian financial services company UniCredit as part of a rights issue. A rights issue by a firm gives existing shareholders the right to buy additional new shares in the company. This move enabled us to keep our weighting in the stock in line with the index.

18

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

M&G European Index Tracker Fund Authorised Corporate Director’s Report Portfolio statement (continued)

Investments

as at Holding

Portfolio statement as at Holding

28.02.17 28.02.17 31.08.16 €’000 % %

1,332 5,406 3,136 2,400 734 2,392

Equities Austria Andritz Erste Group OMV Raiffeisen International Bank Vienna Insurance Group Voestalpine

4,365 15,070 1,700 2,919 2,257 5,323 2,737 1,359 1,000 2,350 1,690

Belgium Ageas Anheuser-Busch InBev bpost ENGIE VVPR Strip [a] Groupe Bruxelles Lambert KBC Group Proximus (formerly Belgacom) Solvay Telenet Group UCB Umicore

Czech Republic 3,500 CEZ 2,023 Komercˇní banka 206 2,166 1,664 2,181 13,718 1,516 3,546 1,032 3,782 1,200 34,602 4,425 2,087 14,000 4,202

Denmark AP Moller-Maersk Carlsberg Chr. Hansen Holding Coloplast Danske Bank Dong Energy DSV Genmab ISS JYSKE Bank Novo-Nordisk Novozymes Pandora TDC Vestas Wind Systems

533,769 2,500 16,490 3,136 4,746

Eire Bank of Ireland Glanbia Irish Bank Resolution Corporation [a] Kerry Group Ryanair Holdings

3,299 8,167 1,500 1,388 7,194 2,400 2,659 106,365 2,890 1,900 9,358 11,215 9,736 2,914

Finland Elisa Fortum Huhtamaki Kesko Kone Metso Neste (formerly Neste Oil) Nokia Nokian Renkaat Orion Corporation Series Sampo Stora Enso UPM-Kymmene Wartsila

101,971 490 66 150 113 50 16 95

99.61 0.48 0.06 0.15 0.11 0.05 0.02 0.09

99.27 0.41

2,748 156 1,545 40 0 179 308 76 149 53 158 84

2.69 0.16 1.51 0.04 0.00 0.18 0.30 0.07 0.15 0.05 0.15 0.08

2.98

127 58 69

0.13 0.06 0.07

0.11

3,668 317 178 93 144 432 52 164 191 137 58 1,157 160 225 71 289

3.58 0.31 0.17 0.09 0.14 0.42 0.05 0.16 0.19 0.13 0.06 1.13 0.16 0.22 0.07 0.28

4.11

462 122 46 0 227 67

0.45 0.12 0.04 0.00 0.22 0.07

0.47

2,376 103 118 51 60 303 67 89 514 107 89 402 113 219 141

2.32 0.10 0.12 0.05 0.06 0.30 0.06 0.09 0.50 0.10 0.09 0.39 0.11 0.21 0.14

2.31

28.02.17 28.02.17 31.08.16 €’000 % % 3,573 536 1,778 4,757 1,000 10,057 3,270 1,368 1,850 36,255 580 17,876 17,340 116 3,956 4,797 3,035 10,759 1,313 938 3,303 8,980 6,859 10,000 5,000 10,703 2,473 3,929 1,966 3,522 1,461 7,463 5,000 17,798 3,890 1,205 219 3,785 1,144 932 894 1,734 9,249 462 392 955 1,514 4,237 2,890 4,803 1,087 3,416 4,616 3,423 19,355 1,740 35,942 1,050 4,400 7,755 4,722 4,088 3,195

France Accor Aéroports de Paris Air Liquide Air Liquide (prime de fidélité 2012) Air Liquide (prime de fidélité 2019) Airbus Alstom Arkema Atos AXA BIC BNP Paribas Bollore Bollore RFD 2017 Bouygues Bureau Veritas Cap Gemini Carrefour Casino Guichard Perrachon Christian Dior CNP Assurances Compagnie de Saint Gobain Crédit Agricole Crédit Agricole (prime de fidélité 2012) Crédit Agricole (prime de fidélité 2019) Danone Dassault Systemes Edenred EDF EDF (prime de fidélité 2017) Eiffage ENGIE (prime de fidélité 2017) ENGIE (prime de fidélité 2019) ENGIE (prime de fidélité regd.) Essilor International Eurazeo Eurofins Scientific Eutelsat Communications Faurecia Fonciere Des Regions Gecina Gemalto Groupe Eurotunnel Hermes International Iliad Ingenico Kering Klepierre Lagardère Legrand L’Oréal L’Oréal (prime de fidélité 2012) LVMH Michelin Natixis Numericable - SFR Orange Orpea Pernod Ricard Peugeot Peugeot SA wts. 2017 Publicis Groupe Renault

21,351 132 57 182 486 102 692 83 124 206 803 68 988 63 0 143 86 246 243 66 188 58 405 78 114 57 666 189 84 18 32 98 85 57 203 418 70 85 70 47 71 107 98 82 190 76 81 351 148 68 256 190 596 872 363 100 48 511 86 474 139 19 260 268

20.86 0.13 0.06 0.18 0.47 0.10 0.68 0.08 0.12 0.20 0.78 0.07 0.97 0.06 0.00 0.14 0.08 0.24 0.24 0.06 0.18 0.06 0.39 0.08 0.11 0.05 0.65 0.18 0.08 0.02 0.03 0.10 0.08 0.06 0.20 0.41 0.07 0.08 0.07 0.05 0.07 0.10 0.10 0.08 0.19 0.07 0.08 0.34 0.14 0.07 0.25 0.19 0.58 0.85 0.35 0.10 0.05 0.50 0.08 0.46 0.14 0.02 0.25 0.26

20.62 [b]

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

19

M&G European Index Tracker Fund Authorised Corporate Director’s Report Portfolio statement (continued)

Investments

as at Holding

Portfolio statement (continued) as at Holding

28.02.17 28.02.17 31.08.16 €’000 % % 5,307 5,408 21,293 10,217 3,468 400 7,168 13,295 126 1,500 12,150 6,044 8,776 1,083 1,919 40,671 4,500 9,094 8,605 21,102 761 4,078 3,762 8,515 1,049 17,015 15,246 6,822 159 1,927 3,468 19,162 2,027 705 19,270 26,413 3,600 5,116 17,893 61,739 6,479 35,734 3,136 600 7,666 4,094 1,619 3,873 1,046 2,790 5,186 300 1,216 21,182 2,200 4,938 1,621 1,920

20

France (continued) Rexel Safran Sanofi Schneider Electric SCOR SEB SA SES Global Société Générale Sodexo Sodexo (prime de fidélité regd) STMicroelectronics Suez Environnement Technipfmc Teleperformance Thales Total Valeo Veolia Environnement Vinci Vivendi Wendel Zodiac Aerospace Germany adidas Allianz Axel Springer BASF Bayer Bayerische Motoren Werke Bayerische Motoren Werke Pref. Beiersdorf Brenntag Commerzbank Continental Covestro Daimler Deutsche Bank Deutsche Börse Deutsche Lufthansa Deutsche Post Deutsche Telekom Deutsche Wohnen E.ON Evonik Industries Fraport Fresenius Fresenius Medical Care FUCHS PETROLUB GEA Group Hannover Re HeidelbergCement Henkel Hochtief HUGO BOSS Infineon Technologies Innogy K&S Kion Group LANXESS

81 358 1,716 654 119 49 140 559 13 155 174 85 268 113 175 1,918 262 140 580 353 80 113 21,034 595 1,398 51 1,490 1,583 574 11 166 188 138 390 50 1,316 495 291 71 577 1,007 207 261 95 35 575 321 71 143 112 245 610 43 82 351 74 108 90 123

0.08 0.35 1.68 0.64 0.12 0.05 0.14 0.55 0.01 0.15 0.17 0.08 0.26 0.11 0.17 1.87 0.26 0.14 0.57 0.34 0.08 0.11 20.55 0.58 1.37 0.05 1.46 1.55 0.56 0.01 0.16 0.18 0.14 0.38 0.05 1.29 0.48 0.29 0.07 0.56 0.98 0.20 0.26 0.09 0.04 0.56 0.31 0.07 0.14 0.11 0.24 0.60 0.04 0.08 0.34 0.07 0.11 0.09 0.12

20.15 [b]

28.02.17 28.02.17 31.08.16 €’000 % % 1,335 3,427 804 2,385 3,228 1,041 2,777 1,787 3,266 4,375 4,228 743 9,532 16,469 14,001 1,000 2,339 8,492 4,128 2,240 2,359 1,563 8,839 2,193 2,768

Germany (continued) LEG Linde MAN Merck Metro MTU Aero Engines Munich Re OSRAM Porsche Pref. ProSiebenSat.1 Media QIAGEN RTL RWE SAP Siemens Südzucker Symrise ThyssenKrupp Uniper United Internet Volkswagen Volkswagen Pref. Vonovia Wirecard Zalando

103 521 78 246 95 124 494 100 171 165 114 54 128 1,443 1,710 24 137 200 55 87 339 219 290 95 105

0.10 0.51 0.08 0.24 0.09 0.12 0.48 0.10 0.17 0.16 0.11 0.05 0.13 1.41 1.67 0.02 0.13 0.20 0.05 0.08 0.33 0.22 0.28 0.09 0.10

Greece Alpha Bank Hellenic Telecommunications National Bank of Greece Piraeus Bank

167 66 60 24 17

0.16 0.06 0.06 0.02 0.02

0.14

Hungary 3,295 Gedeon Richter 924 MOL Hungarian Oil and Gas 3,815 OTP Bank

237 70 61 106

0.23 0.07 0.06 0.10

0.20

4,919 353 226 50 165 567 683 106 150 215 545 34 94 162 61 96 105 59 45 172 152 61 142 125 62 489

4.81 0.35 0.23 0.05 0.16 0.55 0.67 0.10 0.15 0.21 0.53 0.03 0.09 0.16 0.06 0.09 0.10 0.06 0.04 0.17 0.15 0.06 0.14 0.12 0.06 0.48

4.52 [b]

38,982 7,002 101,333 94,983

25,816 10,217 7,997 18,885 139,649 46,777 2,332 2,423 20,449 246,514 9,054 7,298 3,289 15,616 12,745 4,393 1,951 105,984 45,270 194,967 96,905 9,057 28,465 21,264 38,900

Italy Assicurazioni Generali Atlantia Banca Mediolanum CNH Industrial Enel Eni EXOR Ferrari NV Fiat Chrysler Automobilies Intesa Sanpaolo Italgas Leonardo (formerly Finmeccanica) Luxottica Group Mediaset Mediobanca Prysmian Recordati Saipem Snam Telecom Italia Telecom Italia (Savings shares) Tenaris Terna UBI Banca UniCredit

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

M&G European Index Tracker Fund Authorised Corporate Director’s Report Portfolio statement (continued)

Investments

as at Holding

Portfolio statement (continued) as at Holding

28.02.17 28.02.17 31.08.16 €’000 % % Netherlands ABN Amro Aegon Akzo Nobel Altice ArcelorMittal ASML Holding Boskalis DSM Heineken Heineken Holding ING Groep Koninklijke Ahold Delhaize KPN NN Group Philips Randstad Holding RELX Unibail-Rodamco Unilever Vopak Wolters Kluwer

7,001 114 176 291 166 291 681 40 220 422 21 938 486 152 179 490 114 287 390 1,294 46 203

6.84 0.11 0.17 0.28 0.16 0.28 0.67 0.04 0.22 0.41 0.02 0.92 0.47 0.15 0.18 0.48 0.11 0.28 0.38 1.26 0.05 0.20

6.98 [b]

5,261 35,312 4,623 8,335 35,073 5,961 1,162 3,565 5,423 300 72,612 24,126 57,029 6,110 17,382 2,091 17,256 1,826 29,113 1,156 5,268

Norway DnB Gjensidige Forsikring Marine Harvest Norsk Hydro Orkla Schibsted ‘A’ Schibsted ‘B’ Statoil Telenor Yara International

1,466 321 52 120 141 121 47 27 301 217 119

1.43 0.31 0.05 0.11 0.14 0.12 0.05 0.03 0.29 0.21 0.12

1.33

20,524 3,468 7,288 26,740 14,530 1,880 1,200 18,021 14,155 3,342

Poland Bank Pekao Bank Zachodni WBK Grupa Azoty KGHM Polska Miedz LPP mBank Orange Polska PGE Polska Grupa PKN Orlen PKO Bank Polski PZU TAURON Polska Energia

833 110 71 24 65 47 25 14 51 172 122 113 19

0.81 0.11 0.07 0.02 0.06 0.05 0.02 0.01 0.05 0.17 0.12 0.11 0.02

0.72

3,420 864 1,442 2,192 35 270 13,000 18,496 7,855 15,845 13,295 27,621

Portugal EDP - Energias de Portugal EDP Renováveis Galp Energia Jerónimo Martins

349 128 15 124 82

0.34 0.13 0.01 0.12 0.08

0.33 [b]

44,075 2,554 8,991 5,434

Spain Abertis Infraestructuras Acciona Acerinox ACS Actividades Aena Amadeus IT Holdings Banco de Sabadell Banco Popular Español

6,952 198 34 25 95 165 342 128 41

6.79 0.19 0.03 0.02 0.09 0.16 0.33 0.13 0.04

6.65 [b]

14,211 480 1,883 3,170 1,221 7,809 91,887 50,286

28.02.17 28.02.17 31.08.16 €’000 % % 263,363 94,365 17,305 119,142 68,051 12,596 4,268 5,544 9,130 4,280 5,643 10,358 394 108,114 20,086 18,101 8,556 20,210 81,254 6,500 18,571 17,795 7,261 4,997 57,383 2,000 3,699 17,885 5,203 7,251 6,912 8,796 3,824 700 4,046 59,407 20,962 5,623 26,644 6,843 7,729 11,499 28,237 19,900 3,900 5,763 51,517 4,000 28,710 35,923 1,805 3,182 1,965 924 4,500 9,350 39,633 951 150 105

Spain (continued) Banco Santander Bankia Bankinter BBVA Caixabank Distribuidora Internacional de Alimentación (DIA) Enagas Endesa Ferrovial Gamesa Technologica Gas Natural Grifols ‘A’ Grifols ‘B’ Iberdrola Inditex Mapfre Red Electrica Repsol Telefónica Sweden Alfa Laval Assa Abloy Atlas Copco Boliden Electrolux ‘B’ Ericsson ‘B’ Fastighets AB Bald Getinge Hennes & Mauritz Hexagon Husqvarna Industrivarden Investor Kinnevik Latour Investment Lundin Petroleum Nordea Bank Sandvik Securitas Skandinaviska Ensklida Skanska SKF Svenska Cellulosa Svenska Handelsbanken Swedbank Swedish Match Tele2 TeliaSonera Trelleborg Volvo Switzerland ABB (Regd.) Actelion (Regd.) Adecco (Regd.) ARYZTA Baloise Holdings (Regd.) Clariant (Regd.) Compagnie Financière Richemont (Regd.) Credit Suisse Group (Regd.) Dufry EMS-Chemie Holdings Galenica

1,351 88 126 734 223

1.32 0.09 0.12 0.72 0.22

66 99 110 164 89 103 214 6 676 607 52 146 283 787

0.06 0.10 0.11 0.16 0.09 0.10 0.21 0.01 0.66 0.59 0.05 0.14 0.28 0.77

6,687 111 341 548 209 125 351 41 59 447 197 58 138 328 97 26 78 653 269 80 288 154 138 331 370 462 114 48 195 77 354

6.53 0.11 0.33 0.54 0.20 0.12 0.34 0.04 0.06 0.44 0.19 0.06 0.13 0.32 0.09 0.03 0.08 0.64 0.26 0.08 0.28 0.15 0.13 0.32 0.36 0.45 0.11 0.05 0.19 0.08 0.35

6.32

20,294 765 457 214 59 113 79

19.82 0.75 0.45 0.21 0.06 0.11 0.08

20.10

649 570 130 81 116

0.63 0.56 0.13 0.08 0.11

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

21

M&G European Index Tracker Fund Authorised Corporate Director’s Report Portfolio statement (continued)

Investments

as at Holding ‘AAA’ rated money market funds [c] 36,000 Northern Trust Global Fund - Sterling

Portfolio statement (continued) as at Holding

28.02.17 28.02.17 31.08.16 €’000 % % 694 184 130 4,176 1,203 9,003 4 1,089 57,698 44,197 676 419 864 13,670 1,178 101 40 1,021 203 300 785 570 1,287 6,033 438 1,727 65,436 2,750

Switzerland (continued) Geberit Givaudan Helvetia Holding Julius Baer Gruppe (Regd.) Kuehne & Nagel LafargeHolcim (Regd.) Lindt & Sprüngli Lonza Group (Regd.) Nestlé (Regd.) Novartis (Regd.) Pargesa Holdings (Bearer) Partners Group (Regd.) PSP Swiss Property Roche Holding ‘Genussscheine’ Schindler Holding SGS (Regd.) Sika Sonova Holding Straumann Holding Sulzer (Regd.) Swatch Group (Bearer) Swiss Life Holdings (Regd.) Swiss Prime Site Swiss Re Swisscom (Regd.) Syngenta (Regd.) UBS Group Zurich Insurance

37,907 5,000 6,716 36,266 25,194 26,183 11,000 11,849 17,000 3,620 2,890 15,000 18,496 14,050 43,932 40,462 15,000

Turkey Akbank Anadolu Efes BIM Birlesik Magazalar Emlak Konut Gayrimenkul Yatirim ENKA Eregli Demir Celik Fabrikalari Halkbank Koç Holding Sabancı Holdings Tofas Turk Otomobil Tüpras¸ Türk Telekom Turkcell Iletisim Turkish Airlines Türkiye Garanti Bankası Türkiye Iş Bankası Türkiye Vakıflar Bankası

Futures contracts 8 Euro Stoxx 50 Index Mar 2017 Portfolio of investments

22

28.02.17 28.02.17 31.08.16 €’000 % %

282 314 69 193 160 482 243 186 4,009 3,235 42 205 76 3,125 211 203 212 125 81 29 247 169 105 509 182 700 954 713

0.27 0.31 0.07 0.19 0.16 0.47 0.24 0.18 3.91 3.16 0.04 0.20 0.07 3.05 0.20 0.20 0.21 0.12 0.08 0.03 0.24 0.16 0.10 0.50 0.18 0.68 0.93 0.70

810 86 26 92 30 37 40 32 46 45 26 64 22 57 20 99 67 21

0.79 0.08 0.03 0.09 0.03 0.04 0.04 0.03 0.04 0.04 0.02 0.06 0.02 0.06 0.02 0.10 0.07 0.02

0.82

2 2

0.00 0.00

0.09

101,973

99.61

99.36

42

0.04

0.00

42

0.04

Total portfolio Net other assets / (liabilities)

102,015 362

99.65 0.35

99.36 0.64

Net assets attributable to shareholders

102,377

100.00

100.00

All securities are on an official stock exchange listing except where referenced. [a] Delisted. [b] The comparative sector weightings have been re-analysed to reflect changes to

the country classifications. [c] Uncommitted surplus cash is placed into ‘AAA’ rated money market funds with the

aim of reducing counterparty risk.

Top ten portfolio transactions for the six months to 28 February 2017 Largest purchases UniCredit Nestlé (Regd.) Daimler Roche Holding ‘Genussscheine’ Technip Air Liquide Novartis (Regd.) Total Sanofi Anheuser-Busch InBev

€’000 616 165 146 126 122 121 118 113 100 78

Other purchases

3,732

Total purchases

5,437

Largest sales

€’000

Nestlé (Regd.) Novartis (Regd.) UniCredit Roche Holding ‘Genussscheine’ Total Bayer SAP BASF Siemens Sanofi

538 395 389 359 235 226 219 219 218 211

Other sales

9,044

Total sales

12,053

Purchases and sales exclude the cost and proceeds of ‘AAA’ rated money market funds.

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

M&G European Index Tracker Fund Financial highlights Performance since launch

Fund performance Please note past performance is not a guide to future performance and 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 not get back the original amount you invested.

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

January 2000 = 100, plotted monthly

Chart date 1 March 2017

300

The following chart and tables reflect the key financial information of a representative share class, Sterling Class ‘A’ (Accumulation) shares. As different share classes have different attributes, for example charging structures and minimum investments, please be aware that their performance may be different. Please refer to the Prospectus for M&G Investment Funds (1), which is available free of charge either from our website at www.mandg.co.uk/prospectuses or by calling M&G Customer Relations.

260 230 200 170 140 120 100 80

Index tracking

70

The tracking difference between the fund’s investment return and that of the FTSE World Europe ex UK Index for the 12 month period ending 28 February 2017 was -0.05% (29 February 2016: +0.13%). The investment returns are calculated gross of fees using end of day pricing in order to be comparable with the index. The historic tracking error of the investment return of the fund relative to the FTSE World Europe ex UK Index for the period ending 28 February 2017 was +0.22% (29 February 2016: +0.21%), which falls within the predicted tracking error range of 0% to 0.50%. Historic tracking error is a measure of the monthly volatility of the investment returns relative to the index over a 36 month period.

60 55 00

01

02

as at

28.02.17 €’000

31.08.16 €’000

31.08.15 €’000

Fund net asset value (NAV)

102,377

102,173

86,817

05

06

07

08

09

10

11

12

13

14

15

16

17

FTSE World Europe ex UK Index Source: Morningstar, Inc. and M&G

To give an indication of the performance of the fund, the following table shows 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 Six Three months years 01.09.16 03.03.14 [a] % % p.a. Euro [b] Class ‘A’

Fund net asset value

04

* Income reinvested

The differences are due to the fund not fully replicating the FTSE World Europe ex UK Index.

Fund level performance

03

Sterling Class ‘A’ (Accumulation) shares*

Sterling [d] Class ‘A’

Five years 01.03.12 % p.a.

Since launch % p.a.

+9.3

+7.8

+10.8

+4.3 [c]

+11.1

+9.2

+11.3

+4.8 [e]

[a] Absolute basis. [b] Price to price with net income reinvested. [c] 28 November 2001, the launch date of the share class. [d] Price to price with income reinvested. [e] 31 January 2000, the end of the initial offer period of the predecessor unit trust.

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

23

M&G European Index Tracker Fund Financial highlights

Fund performance

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

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

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

• Administration: Charge paid to M&G for administration services in addition to investment management – any surplus from this charge will be retained by M&G.

• Oversight

and other independent services: Charges paid to providers independent of M&G for services which include depositary, custody and audit.

Investments are bought or sold by a fund when changes are made to the investment portfolio and in response to net flows of money into or out of the fund from investors buying and selling shares in the fund. To protect existing investors, portfolio transaction costs incurred as a result of investors buying and selling shares in the fund are recovered from those investors through a ‘dilution adjustment’ to the price they pay or receive. The table below shows direct portfolio transaction costs paid by the fund before and after that part of the dilution adjustment relating to direct portfolio transaction costs. To give an indication of the indirect portfolio dealing costs the table also shows the average portfolio dealing spread. Further information on this process is in the Prospectus, which is available free of charge on request either from our website at www.mandg.co.uk/prospectuses or by calling M&G Customer Relations.

Portfolio transaction costs Six months to 28.02.17 % Direct portfolio transaction costs [b]

Year to 31.08.15 %

Average [a] %

Broker commission Taxes

0.01 0.01

0.01 0.01

0.01 0.00

0.01 0.01

Costs before dilution adjustments Dilution adjustments [c]

0.02 (0.02)

0.02 (0.02)

0.01 (0.01)

0.02 (0.02)

Total direct portfolio transaction costs

0.00

0.00

0.00

0.00

28.02.17 %

31.08.16 %

31.08.15 %

0.05

0.05

0.09

The operating charges paid by each share class of the fund are shown in the following performance tables. Operating charges do not include portfolio transaction costs or any entry and exit charges (also known as initial and redemption charges). The charging structures of share classes may differ, and therefore the operating charges may differ.

as at Indirect portfolio transaction costs

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

[c] In respect of direct portfolio transaction costs.

Average portfolio dealing spread [a] Average of first three columns.

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

For this fund there is no difference between operating charges and ongoing charges figures, unless disclosed under the specific share class performance table.

Portfolio transaction costs Portfolio transaction costs are incurred by funds when buying and selling investments. These costs vary depending on the types of investment, their market capitalisation, country of exchange, method of execution and the quality of research provided. They are made up of direct and indirect portfolio transaction costs:

• Direct portfolio transaction costs: Broker execution commission and taxes.

• Indirect portfolio transaction costs: ‘Dealing spread’ – the difference between the buying and selling prices of the fund’s investments; some types of investment, such as fixed interest securities, have no direct transaction costs and only the dealing spread is paid.

24

Year to 31.08.16 %

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

Average [a] % 0.06

M&G European Index Tracker Fund Financial highlights Sterling Class ‘A’ Income share performance

Specific share class performance

The share class was launched on 31 January 2000.

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

Six months to 28.02.17 UK p

Year to 31.08.16 UK p

Year to 31.08.15 UK p

71.20 Opening NAV Return before operating charges and after direct 6.21 portfolio transaction costs Operating charges (0.26)

63.53

64.65

9.81 (0.46)

0.73 (0.47)

Change in NAV per share

Return after operating charges

Euro Class ‘A’ Accumulation share performance The share class was launched on 28 November 2001.

5.95

9.35

0.26

Distributions

n/a

(1.68)

(1.38)

Closing NAV

77.15

71.20

63.53

Six months to 28.02.17 Euro ¢

Year to 31.08.16 Euro ¢

Year to 31.08.15 Euro ¢

Direct portfolio transaction costs [a]

UK p

UK p

UK p

Costs before dilution adjustments Dilution adjustments [b]

0.01 (0.01)

0.01 (0.01)

0.00 0.00

Opening NAV 1,735.75 Return before operating charges and after direct portfolio transaction costs 142.29 Operating charges (6.22)

1,750.80

1,607.88

Total direct portfolio transaction costs

0.00

0.00

0.00

(2.98) (12.07)

155.33 (12.41)

Change in NAV per share

Return after operating charges

136.07

(15.05)

142.92

Distributions

n/a

(39.96)

(37.17)

Retained distributions

n/a

39.96

37.17

1,871.82

1,735.75

1,750.80

Euro ¢

Euro ¢

Euro ¢

Costs before dilution adjustments Dilution adjustments [b]

0.15 (0.15)

0.34 (0.33)

0.11 (0.11)

Total direct portfolio transaction costs

0.00

0.01

0.00

Closing NAV

Performance and charges

%

%

%

0.00 0.71 +8.36 2.63 0.65

0.00 0.70 +14.72 2.33 0.00

0.00 0.70 +0.40 2.23 0.00

Closing NAV (€’000) 40,225 Closing NAV percentage of total fund NAV (%) 39.29 Number of shares 44,430,998 Highest share price (UK p) 79.01 Lowest share price (UK p) 69.44

37,258 36.47 44,387,941 75.31 58.38

38,927 44.84 44,913,511 73.26 58.65

Direct portfolio transaction costs Operating charges Return after operating charges Historic yield [c] Effect on yield of charges offset against capital Other information

Direct portfolio transaction costs [a]

Performance and charges Direct portfolio transaction costs Operating charges Return after operating charges Historic yield Effect on yield of charges offset against capital

%

%

%

0.00 0.70 +7.84 2.07 0.00

0.00 0.71 -0.86 2.26 0.00

0.00 0.70 +8.89 2.19 0.00

Sterling Class ‘A’ Accumulation share performance The share class was launched on 31 January 2000. Six months to 28.02.17 UK p

Year to 31.08.16 UK p

Year to 31.08.15 UK p

Opening NAV 99.60 Return before operating charges and after direct portfolio transaction costs 8.69 Operating charges (0.37)

86.83

86.48

13.40 (0.63)

0.98 (0.63)

Return after operating charges

8.32

12.77

0.35

n/a

(2.29)

(1.84)

Change in NAV per share Other information Closing NAV (€’000) 20,751 Closing NAV percentage of total fund NAV (%) 20.27 Number of shares 1,108,615 Highest share price (Euro ¢) 1,901.38 Lowest share price (Euro ¢) 1,679.68

25,400 24.86 1,463,365 1,894.95 1,499.74

3,468 3.99 197,978 2,010.19 1,460.45

Distributions Retained distributions

n/a

2.29

1.84

107.92

99.60

86.83

Direct portfolio transaction costs [a]

UK p

UK p

UK p

Costs before dilution adjustments Dilution adjustments [b]

0.01 (0.01)

0.02 (0.02)

0.01 (0.01)

Total direct portfolio transaction costs

0.00

0.00

0.00

Closing NAV

Performance and charges

%

%

%

0.00 0.71 +8.35 2.05 0.00

0.00 0.70 +14.71 2.28 0.00

0.00 0.70 +0.40 2.18 0.00

Closing NAV (€’000) 41,401 Closing NAV percentage of total fund NAV (%) 40.44 Number of shares 32,691,167 Highest share price (UK p) 110.53 Lowest share price (UK p) 97.13

39,515 38.67 33,648,641 102.93 79.80

44,422 51.17 37,501,344 98.00 78.79

Direct portfolio transaction costs Operating charges Return after operating charges Historic yield Effect on yield of charges offset against capital Other information

[a] As a percentage of average net asset value. [b] In respect of direct portfolio transaction costs. [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.

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

25

M&G European Index Tracker Fund Financial statements and notes

Financial statements

Notes to the financial statements Accounting policies

Statement of total return 2017 for the six months to 28 and 29 February Income Net capital gains / (losses) Revenue Expenses Net revenue / (expense) before taxation Taxation

€’000

2016 €’000 €’000

€’000 7,254

(6,906)

465 (339) ______ 126 (20) ______

415 (295) ______ 120 (27) ______ 106

93

Total return before equalisation / distributions Equalisation

Net revenue / (expense) after taxation

7,360 (2)

(6,813) (1)

Change in net assets attributable to shareholders from investment activities

7,358

(6,814)

The financial statements have been prepared in accordance with the ‘Accounting policies’ set out on page 4.

Distribution policy With effect from 1 September 2016, the distribution policy has been amended so that in determining the amount available for distribution to Income shares, the annual management charge and administration charge are now offset against capital, increasing the amount available for distribution whilst restraining capital performance to an equivalent extent. Marginal tax relief has not been taken into account in respect of expenses offset against capital.

Statement of change in net assets attributable to shareholders 2017 for the six months to 28 and 29 February Opening net assets attributable to shareholders Amounts received on issue of shares Amounts paid on cancellation of shares Dilution adjustments Change in net assets attributable to shareholders from investment activities (see above) Closing net assets attributable to shareholders

€’000

2016 €’000 €’000

€’000 102,173

86,816

8,509 (15,684) ______

981 (2,484) ______ (7,175) 21

(1,503) 3

7,358

(6,814)

102,377

78,502

The opening net assets attributable to shareholders for 2017 differs to the closing position in 2016 by the change in net assets attributable to shareholders for the second half of the comparative financial year.

Balance sheet as at

28 February 2017 €’000

31 August 2016 €’000

102,015

101,521

679 258

844 1,442

102,952

103,807

(32) 0 (543)

0 (878) (756)

Assets Fixed assets Investments Current assets Debtors Cash and bank balances Total assets Liabilities Creditors Bank overdrafts Distribution payable Other creditors Total liabilities Net assets attributable to shareholders

26

(575)

(1,634)

102,377

102,173

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

M&G European Select Fund Authorised Corporate Director’s Report Investment objective and policy The Fund’s prime objective is long term capital growth. It invests wholly or predominantly in a diversified portfolio of securities of European (excluding United Kingdom) issuers. When not wholly invested as above, it may also invest in companies which are listed or registered outside Europe but trade within it. Income is of secondary importance when investments are selected. The Fund may at any time be concentrated in a limited number of securities.

Investment approach The M&G European Select Fund is a core European (ex UK) equity fund, investing in quality companies, with advantageous characteristic, or ‘economic moats’, to protect their profitability and an element of change helping to drive their value. Importantly, the fund manager invests in businesses where short-term ‘disruptions’ have provided a clear valuation opportunity. The fund manager believes that a focus on both quality and value offers a powerful combination, providing the long-term growth in returns that quality businesses can deliver, as well as the potential boost to a company’s share price when a ‘disruption’ has been resolved and the shares revert to a more appropriate level. Key to his approach is remaining patient and taking a long-term view, both in the entry and exit points of the fund’s holdings. The fund manager keeps the portfolio focused, generally holding between 25 and 35 well-understood stocks, which broadly fall into one of two ‘buckets’ – ‘stable growth’ and ‘opportunities’. Stable growth companies are those that have a proven track record of producing stable earnings. These tend to possess differentiated business models with strong competitive positioning and pricing power. Opportunities companies are in the process of becoming sustainable returns businesses, and should be able to further optimise their returns profile.

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

High risk

Typically lower rewards

1

2

Typically higher rewards

3

4

5

6

7

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.

Investment review As at 1 March 2017, for the six months ended 28 February 2017 Performance against objective Between 1 September 2016 (the start of the review period) and 1 March 2017, the M&G European Select Fund delivered positive returns across all of its share classes.[a] All share classes finished behind a comparable index, the FTSE World Europe ex UK Index. Over the six months, returns from the index were 13.1% and 11.1% in sterling and euros, respectively. Over five years and since launch, the fund has delivered positive capital growth, thus meeting its investment objective.

Investment performance European stockmarkets delivered positive returns for the period under review, with encouraging prospects for economic growth and inflation, as well as a changing political landscape, helping to drive investor sentiment.

Risk profile The fund invests in the shares of companies listed in Europe and is, therefore, subject to the price volatility of the European stockmarket and the performance of individual companies. The fund may also be subject to fluctuations in currency exchange rates. The fund’s focus is on quality businesses where an element of change is helping to drive their value, and these stocks could potentially experience a degree of illiquidity in times of market distress. The fund is a concentrated portfolio of between 25-35 holdings, but is mainly invested in the shares of large and medium-sized companies, which are normally traded with relative ease. The fund also invests in the shares of smaller companies, which can be more unpredictable and difficult to buy and sell. Diversification across countries, industries and market capitalisation is therefore key in managing liquidity risk and reducing market risk. The fund’s risks are measured and managed as an integral part of the investment process.

For most of the period, the market mood was arguably dominated by the run-up to, and aftermath of, the US presidential election. Following swirling speculation over what a Donald Trump victory might mean, his unexpected win sparked a significant, if not surprising, shift in investor sentiment, as the potential for reduced taxes and regulation, as well as a boost to spending on infrastructure, cheered investors. The mood was further enlivened by relatively robust economic data and good corporate results, all of which made investors more willing to take on risk. With that in mind, US stockmarkets hit record highs during the review period, and took other markets, including Europe, along for the ride. The European financial sector particularly benefited from this improved mood, having previously been out of favour. As a result, our belowindex position in the sector weighed on relative returns, as did stock selection within it. Our stockpicking in the consumer goods and healthcare sectors also dragged on performance. At the other end of the spectrum, sectors considered to be more ‘defensive’ (that is, those that have relatively predictable and stable earnings regardless of the state of the economy) underperformed for the period, as investors became more willing to take on risk. These included utilities and telecommunications, both of which lagged against the wider market,

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

27

M&G European Select Fund Authorised Corporate Director’s Report Investment review Investment performance (continued) and our below-index positions in these sectors proved supportive for relative performance – stock selection within the industrials and oil & gas sectors also aided relative returns. At a stock level, the largest detractor for the period was Denmark-listed multinational pharmaceutical company Novo Nordisk, which experienced share price weakness for much of the review period. This was in light of pricing pressure in the US for some of its products, exacerbated by comments from President Donald Trump concerning his determination to lower drug prices. Diversified business services and distribution firm DCC dragged on returns as well. The Irish group saw investors taking profits following a strong run, as the company has experienced ongoing operational success, including solid organic growth and successful merger and acquisition activity (we closed the position during the period under review). It was a similar case for German flavours and fragrances manufacturer Symrise, its shares falling sharply in November despite reporting good numbers, as investors sold shares after an extended period of outperformance. Other detractors included fast fashion retailer H&M and branded jewellery creator Pandora. H&M reported a drop in its annual net profits, largely due to higher purchasing costs from a strengthening US dollar. It also had to discount some of its product lines due to lowerthan-expected sales, partly because customers held off buying new clothes in the spring amid colder weather. Pandora, meanwhile, reported slower revenue growth than anticipated for 2017, as well as squeezed margins in light of higher commodity prices; investors were disappointed as a result. On the upside, the fund’s largest contributor was Swedish copper and zinc producer Boliden. The company has delivered ongoing operational success in both its mining and smelting operations, in an environment of improving metal prices. Following the US elections, there was a surge in the price of industrial metals, in particular copper, in anticipation of a potential increase in infrastructure spending – Boliden’s shares benefited. Aeroplane engine manufacturer and aftermarket service provider MTU Aero Engines aided returns as well. MTU announced expectations for its highly profitable spare parts and maintenance business to generate increasing revenues into 2018, resulting in rising profit margins. The company also said it expected its commercial maintenance segment to lead in terms of growth rates through 2017. Other supportive holdings included premium clothing retailer HUGO BOSS, which saw its share price rise strongly on reports that an activist shareholder had taken a stake in the company, and Anglo-Dutch consumer goods giant Unilever. In light of investors turning from ‘defensive’ companies, shares in Unilever had been suppressed for some time – they then rose sharply on news that competitor Kraft Heinz was seeking a £115 billion bid for the company. Unilever rejected the bid, while upgrading its profit expectations for the year, and announcing a ‘comprehensive review of options’ to improve value for shareholders.

28

Investment activities We run a concentrated portfolio of between 25 and 35 holdings, maintaining a watchlist of around 120 quality ‘moated’ companies that we would like to own when the timing and price are right (moated companies are those where we feel the business model is well protected from competition). We monitor our watchlist closely, waiting patiently for short-term issues, or ‘disruptions’, to create buying opportunities. During the review period, two such opportunities presented themselves. The first was Topdanmark, Denmark’s second-largest insurance company. Topdanmark is the market leader within non-life insurance, with a strong, conservative management team that is highly focused on good governance and delivering shareholder value. We see this as a high quality business where short-term pricing pressure in Denmark created the opportunity to buy the stock at an attractive valuation. We also added a position in Linde, the world’s second-largest supplier of industrial gases. Following a series of beneficial acquisitions, we believe Linde possesses some of the best assets in the industry, with the potential to improve the profitability of those assets. The company is engaged in highly visible long-term projects in captive markets, generates a lot of cash and is very profitable. The end of merger talks with competitor Praxair (which subsequently resumed) created our entry point. Conversely, we exited a number of the fund’s holdings during the period, further concentrating the portfolio (John William Olsen took over management in July 2016, and set about bringing the fund in line with his investment philosophy). These included hearing-aid manufacturer William Demant, food ingredients producer Christian Hansen, market research group GFK and precious metals recycler Umicore. In total, 11 positions left the portfolio during the period under review.

Outlook Over the course of the review period we witnessed a shift in investor sentiment. In risk-averse markets, investors had preferred the perceived safety of more defensive parts of the market – most notably within the consumer staples sector – and were seemingly willing to pay any price to invest in these companies. With the turn in mood, accelerated by the election of Donald Trump, investors have returned to looking at company fundamentals, and a focus on ‘value’ appears to be coming into favour. In this environment, there could be an expectation that a quality-biased portfolio will struggle, but we do not believe that our quality focus will preclude the fund from taking advantage of the rotation into value. This is because ‘quality’ is by no means limited to the defensive, stable, ‘safe’ stocks that previously attracted so much investor attention. We identify quality across sectors, investing in companies with a proven track record of value creation over the business cycle, irrespective of the sector in which they reside.

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

M&G European Select Fund Authorised Corporate Director’s Report Investment review

Portfolio statement (continued) as at Holding

28.02.17 28.02.17 31.08.16 €’000 % %

Outlook (continued)

Personal goods 76,087 HUGO BOSS 44,334 Pandora

9,909 5,137 4,772

6.86 3.56 3.30

6.81

Given the nature of the businesses in which we invest, and the balanced construction of our portfolio, we believe the fund is well positioned to take advantage of the current shift in investor sentiment. As long-term investors, we remain focused on the long-term value of the businesses in which we invest, and continue to be optimistic about their prospects.

Healthcare equipment & services 48,139 Fresenius Medical Care

3,771 3,771

2.61 2.61

4.07

Pharmaceuticals & biotechnology 90,757 Novartis (Regd.) 202,490 Novo-Nordisk

13,412 6,643 6,769

9.28 4.60 4.68

10.29

John William Olsen Fund manager

General retailers 126,011 Hennes & Mauritz

3,150 3,150

2.18 2.18

2.02

Media

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

Banks 572,356 ING Groep 375,031 Svenska Handelsbanken 243,672 UniCredit Non-life insurance 135,776 Topdanmark Financial services

0.00

3.98

10.63 5.11 3.40 2.12

8.27

3,240 3,240

2.24 2.24

0.00

0

0.00

2.60

8,297 8,297

5.74 5.74

3.89

Portfolio of investments Net other assets / (liabilities)

142,865 1,656

98.85 1.15

98.34 1.66

Net assets attributable to shareholders

144,521

100.00

100.00

Software & computer services 94,722 SAP

Investments

0 15,371 7,392 4,913 3,066

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

Portfolio statement

[a] The comparative sector weightings have been re-analysed to reflect changes to

as at Holding

28.02.17 28.02.17 31.08.16 €’000 % % Oil & gas producers 310,842 Statoil

5,198 5,198

Chemicals 57,988 Bayer 35,852 Linde 72,548 Symrise

3.60 3.60

4.30

Top ten portfolio transactions

15,727 6,022 5,453 4,252

10.88 4.17 3.77 2.94

8.44

3,450 3,450

2.39 2.39

2.07

Construction & materials 76,235 Kingspan Group 96,505 LafargeHolcim (Regd.)

7,373 2,213 5,160

5.10 1.53 3.57

4.89 [a]

Aerospace & defence 38,657 MTU Aero Engines

4,592 4,592

3.18 3.18

2.25 [a]

Electronic & electrical equipment 75,369 Schneider Electric

4,821 4,821

3.33 3.33

2.18

Mining 119,870 Boliden

Industrial engineering 65,311 Andritz 309,983 Oerlikon

6,391 3,233 3,158

4.42 2.24 2.18

3.98 [a]

Industrial transportation 139,048 DSV

6,416 6,416

4.44 4.44

4.74

11,401 6,927 4,474

7.89 4.79 3.10

7.50

3,340 3,340

2.31 2.31

3.01

Food producers 100,457 Nestlé (Regd.) 173,306 Unilever

14,683 6,980 7,703

10.16 4.83 5.33

10.24

Leisure goods 154,288 Thule Group

2,323 2,323

1.61 1.61

Support services 158,192 Amadeus IT Holdings 130,988 CTS EVENTIM Automobiles & parts 39,685 Bayerische Motoren Werke

the sector classifications.

2.81 [a]

for the six months to 28 February 2017 Largest purchases

€’000

Linde Topdanmark UniCredit Novo-Nordisk Nestlé (Regd.) HUGO BOSS SAP Bayer Roche Holding ‘Genussscheine’ Novartis (Regd.)

6,235 5,036 4,357 3,631 2,286 2,014 1,717 1,512 1,483 1,473

Other purchases

22,950

Total purchases

52,694

Largest sales

€’000

Roche Holding ‘Genussscheine’ Intrum Justitia Publicis Groupe Nestlé (Regd.) adidas Total Logista Bayer DCC ING Groep

9,185 7,490 6,813 6,263 5,784 5,517 5,249 4,915 4,671 4,480

Other sales

70,226

Total sales

130,593

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

29

M&G European Select Fund Financial highlights Performance since launch

Fund performance Please note past performance is not a guide to future performance and 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 not get back the original amount you invested.

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

July 1972 = 100, plotted monthly 7,000

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

Chart date 1 March 2017

Sterling Class ‘I’ (Accumulation) shares*

5,000 3,000 2,000 1,500

We show performance for these two share classes because:

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

• The performance of the Sterling Class ‘I’ (Accumulation) share is the most appropriate to compare with the average performance of the fund’s comparative sector. It is the share class used by the Investment Association in the calculation of the comparative sector’s average performance. This share class is available for direct investment with M&G subject to minimum investment criteria, or via third parties who may charge additional fees. The performance shown takes the deduction of the ongoing charge for this share class into account but it does not take account of charges applied by any other party through which you may have invested. The fund is available for investment in different share classes, each with varying levels of charges and minimum investments; please refer to the Prospectus for M&G Investment Funds (1), which is available free of charge either from our website at www.mandg.co.uk/prospectuses or by calling M&G Customer Relations.

1,000 700 500

Sterling Class ‘A’ (Accumulation) shares* 300 200 150 100 60 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17

Sterling Class ‘A’ (Accumulation) shares* Sterling Class ‘I’ (Accumulation) shares* * Income reinvested

Source: Morningstar, Inc. and M&G

Ten-year performance Please note that comparative data is not available from fund launch. Therefore a ten-year comparable performance chart is shown below.

Ten years, 1 March 2007 = 100, plotted monthly

Chart date 1 March 2017

200 180

Sterling Class ‘I’ (Accumulation) shares* 160 140

Fund level performance

120

100

Fund net asset value

90

as at

28.02.17 €’000

31.08.16 €’000

31.08.15 €’000

80

Fund net asset value (NAV)

144,521

212,077

230,134

70

Sterling Class ‘A’ (Accumulation) shares*

60 2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Sterling Class ‘A’ (Accumulation) shares* Sterling Class ‘I’ (Accumulation) shares* FTSE World Europe ex UK Index Morningstar (IA) Europe Excluding UK sector average* * Income reinvested

Source: Morningstar, Inc. and M&G

The fund’s Sterling Class ‘I’ (Accumulation) shares were launched on 3 August 2012. Performance data shown prior to this date is that of the fund’s Sterling Class ‘A’ (Accumulation) shares.

30

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

M&G European Select Fund Financial highlights Operating charges are the same as the ongoing charges shown in the Key Investor Information Document, other than where an estimate has been used for the ongoing charge because a material change has made the operating charges unreliable as an estimate of future charges.

Fund performance To give an indication of the performance of the fund, the following table shows 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

For this fund there is no difference between operating charges and ongoing charges figures, unless disclosed under the specific share class performance table.

Portfolio transaction costs

Six Three months years 01.09.16 03.03.14 % [a] % p.a.

Five years 01.03.12 % p.a.

Since launch % p.a.

Euro [b] Class ‘A’

+6.5

+7.3

+9.6

+2.9 [c]

Class ‘C’

+6.9

+8.1

+10.4

+3.7 [c]

Class ‘A’

+8.2

+8.7

+10.1

+9.5 [e]

Class ‘I’

+8.6

+9.5

n/a

+13.4 [f]

Class ‘R’

+8.5

+9.2

n/a

+13.1 [f]

Class ‘X’

+8.2

+8.7

+10.1

+11.3 [g]

Sterling [d]

[a] Absolute basis. [b] Price to price with net income reinvested. [c] 26 November 2001, the launch date of the share class. [d] Price to price with income reinvested. [e] 24 July 1972, the end of the initial offer period of the predecessor unit trust.

Portfolio transaction costs are incurred by funds when buying and selling investments. These costs vary depending on the types of investment, their market capitalisation, country of exchange, method of execution and the quality of research provided. They are made up of direct and indirect portfolio transaction costs:

• Direct portfolio transaction costs: Broker execution commission and taxes.

• Indirect portfolio transaction costs: ‘Dealing spread’ – the difference between the buying and selling prices of the fund’s investments; some types of investment, such as fixed interest securities, have no direct transaction costs and only the dealing spread is paid.

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

Operating charges and portfolio transaction costs

To protect existing investors, portfolio transaction costs incurred as a result of investors buying and selling shares in the fund are recovered from those investors through a ‘dilution adjustment’ to the price they pay or receive. The table below shows direct portfolio transaction costs paid by the fund before and after that part of the dilution adjustment relating to direct portfolio transaction costs. To give an indication of the indirect portfolio dealing costs the table also shows the average portfolio dealing spread.

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

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

[f] 3 August 2012, the launch date of the share class. [g] 1 October 2002, the launch date of the share class.

Operating charges

Portfolio transaction costs

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

Six months to 28.02.17 Direct portfolio transaction costs [b] %



Broker commission Taxes

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

• Administration: Charge paid to M&G for administration services in addition to investment management – any surplus from this charge will be retained by M&G.

• Oversight and other independent services: Charges paid to providers independent of M&G for services which include depositary, custody and audit.

The operating charges paid by each share class of the fund are shown in the following performance tables. Operating charges do not include portfolio transaction costs or any entry and exit charges (also known as initial and redemption charges). The charging structures of share classes may differ, and therefore the operating charges may differ.

Average [a]

Year to 31.08.16 %

Year to 31.08.15 %

0.12 0.01

0.08 0.03

0.04 0.01

0.08 0.02

Costs before dilution adjustments Dilution adjustments [c]

0.13 (0.09)

0.11 (0.01)

0.05 (0.02)

0.10 (0.04)

Total direct portfolio transaction costs

0.04

0.10

0.03

0.06

28.02.17 %

31.08.16 %

31.08.15 %

0.06

0.07

0.12

as at Indirect portfolio transaction costs Average portfolio dealing spread

%

Average [a] % 0.08

[a] Average of first three columns. [b] As a percentage of average net asset value. [c] In respect of direct portfolio transaction costs.

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

31

M&G European Select Fund Financial highlights Euro Class ‘C’ Accumulation share performance

Specific share class performance

The share class was launched on 26 November 2001.

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

Six months to 28.02.17 Euro ¢

Year to 31.08.16 Euro ¢

Year to 31.08.15 Euro ¢

1,626.03 Opening NAV Return before operating charges and after direct portfolio transaction costs 96.98 (7.49) Operating charges

1,618.75

1,427.33

22.10 (14.82)

205.80 (14.38)

Change in NAV per share

Return after operating charges

Euro Class ‘A’ Accumulation share performance The share class was launched on 26 November 2001.

89.49

7.28

191.42

Distributions

n/a

(25.73)

(23.50)

Retained distributions

n/a

25.73

23.50

1,715.52

1,626.03

1,618.75

Six months to 28.02.17 Euro ¢

Year to 31.08.16 Euro ¢

Year to 31.08.15 Euro ¢

Closing NAV

Euro ¢

Euro ¢

Euro ¢

1,451.20 Opening NAV Return before operating charges and after direct 86.32 portfolio transaction costs Operating charges (12.17)

1,455.60

1,293.03

Costs before dilution adjustments Dilution adjustments [b]

1.08 (0.71)

1.83 (0.09)

0.80 (0.28)

19.74 (24.14)

188.35 (25.78)

Total direct portfolio transaction costs

0.37

1.74

0.52

(4.40)

162.57

Change in NAV per share

Return after operating charges

74.15

Distributions

n/a

(12.33)

(13.37)

Retained distributions

n/a

12.33

13.37

1,525.35

1,451.20

1,455.60

Closing NAV Direct portfolio transaction costs [a]

Euro ¢

Euro ¢

Euro ¢

Costs before dilution adjustments Dilution adjustments [b]

0.97 (0.63)

1.65 (0.08)

0.79 (0.28)

Total direct portfolio transaction costs

0.34

1.57

0.51

Performance and charges

%

%

%

0.04 1.68 +5.11 0.80 0.00

0.10 1.68 -0.30 0.78 0.00

0.03 1.68 +12.57 0.99 0.00

Closing NAV (€’000) 2,175 Closing NAV percentage of total fund NAV (%) 1.50 Number of shares 142,569 Highest share price (Euro ¢) 1,542.69 Lowest share price (Euro ¢) 1,368.75

1,890 0.89 130,264 1,569.06 1,250.33

1,990 0.86 136,654 1,643.68 1,162.38

Direct portfolio transaction costs Operating charges Return after operating charges Historic yield Effect on yield of charges offset against capital

Direct portfolio transaction costs [a]

Performance and charges

%

%

%

0.04 0.92 +5.50 1.48 0.00

0.10 0.93 +0.45 1.51 0.00

0.03 0.93 +13.41 1.52 0.00

28 Closing NAV (€’000) Closing NAV percentage of total fund NAV (%) 0.02 Number of shares 1,650 Highest share price (Euro ¢) 1,734.83 Lowest share price (Euro ¢) 1,535.65

27 0.01 1,650 1,748.34 1,395.20

27 0.01 1,650 1,826.27 1,284.36

Direct portfolio transaction costs Operating charges Return after operating charges Historic yield Effect on yield of charges offset against capital Other information

Sterling Class ‘A’ Income share performance The share class was launched on 27 June 1977.

Other information

Six months to 28.02.17 UK p

Year to 31.08.16 UK p

Year to 31.08.15 UK p

Opening NAV 1,695.12 Return before operating charges and after direct portfolio transaction costs 109.46 Operating charges (14.37)

1,482.07

1,437.64

253.28 (25.68)

80.09 (25.34)

Change in NAV per share

Return after operating charges

95.09

227.60

54.75

Distributions

n/a

(14.55)

(10.32)

Closing NAV

1,790.21

1,695.12

1,482.07

Direct portfolio transaction costs [a]

UK p

UK p

UK p

Costs before dilution adjustments Dilution adjustments [b]

1.14 (0.75)

1.76 (0.09)

0.78 (0.27)

Total direct portfolio transaction costs

0.39

1.67

0.51

Performance and charges

%

%

%

0.04 1.67 +5.61 2.18 1.65

0.10 1.68 +15.36 0.79 0.00

0.03 1.69 +3.81 0.76 0.00

Closing NAV (€’000) 56,402 Closing NAV percentage of total fund NAV (%) 39.03 Number of shares 2,684,959 Highest share price (UK p) 1,811.42 Lowest share price (UK p) 1,616.13

125,464 59.16 6,277,734 1,756.96 1,364.92

136,358 59.25 6,744,036 1,642.50 1,296.11

Direct portfolio transaction costs Operating charges Return after operating charges Historic yield [c] Effect on yield of charges offset against capital Other information

32

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

M&G European Select Fund Financial highlights Sterling Class ‘I’ Accumulation share performance

Specific share class performance

The share class was launched on 3 August 2012.

Return after operating charges

Year to 31.08.16 UK p 2,204.69

Year to 31.08.16 UK p

Year to 31.08.15 UK p

1,651.90 Opening NAV Return before operating charges and after direct portfolio transaction costs 106.95 (7.79) Operating charges

1,421.10

1,358.63

244.43 (13.63)

75.86 (13.39)

Change in NAV per share

Sterling Class ‘A’ Accumulation share performance The share class was launched on 24 July 1972. Six months to 28.02.17 Change in NAV per share UK p Opening NAV 2,543.44 Return before operating charges and after direct 164.31 portfolio transaction costs Operating charges (21.62)

Six months to 28.02.17 UK p

Year to 31.08.15 UK p 2,123.67

Return after operating charges Distributions

376.98 (38.23)

118.42 (37.40)

Retained distributions Closing NAV

99.16

230.80

62.47

n/a

(26.22)

(20.65)

n/a

26.22

20.65

1,751.06

1,651.90

1,421.10

142.69

338.75

81.02

Distributions

n/a

(21.63)

(15.21)

Direct portfolio transaction costs [a]

UK p

UK p

UK p

Retained distributions

n/a

21.63

15.21

2,686.13

2,543.44

2,204.69

Costs before dilution adjustments Dilution adjustments [b]

1.12 (0.73)

1.69 (0.08)

0.74 (0.26)

Direct portfolio transaction costs [a] Costs before dilution adjustments Dilution adjustments [b]

Total direct portfolio transaction costs

0.39

1.61

0.48

UK p 1.72 (1.13)

UK p 2.61 (0.13)

UK p 1.15 (0.40)

Total direct portfolio transaction costs

0.59

2.48

0.75

% 0.04 1.68 +5.61 0.79 0.00

% 0.10 1.68 +15.36 0.79 0.00

% 0.03 1.69 +3.82 0.75 0.00

Other information Closing NAV (€’000) 70,142 Closing NAV percentage of total fund NAV (%) 48.53 Number of shares 2,225,346 Highest share price (UK p) 2,717.95 Lowest share price (UK p) 2,424.93

69,394 32.72 2,314,096 2,613.79 2,030.57

79,735 34.65 2,651,013 2,426.47 1,914.87

Closing NAV

Performance and charges Direct portfolio transaction costs Operating charges Return after operating charges Historic yield Effect on yield of charges offset against capital

Performance and charges

%

%

%

0.04 0.93 +6.00 1.47 0.00

0.10 0.93 +16.24 1.53 0.00

0.03 0.94 +4.60 1.52 0.00

5,859 Closing NAV (€’000) Closing NAV percentage of total fund NAV (%) 4.05 Number of shares 285,115 Highest share price (UK p) 1,770.24 Lowest share price (UK p) 1,577.94

5,572 2.63 286,115 1,697.03 1,313.29

3,074 1.34 158,562 1,559.45 1,226.24

Direct portfolio transaction costs Operating charges Return after operating charges Historic yield Effect on yield of charges offset against capital Other information

Sterling Class ‘R’ Income share performance The share class was launched on 3 August 2012. Six months to 28.02.17 UK p

Year to 31.08.16 UK p

Year to 31.08.15 UK p

Opening NAV 153.77 Return before operating charges and after direct portfolio transaction costs 9.96 Operating charges (0.92)

134.47

130.40

23.02 (1.63)

7.27 (1.61)

Sterling Class ‘I’ Income share performance Change in NAV per share

The share class was launched on 3 August 2012. Six months to 28.02.17 Change in NAV per share UK p Opening NAV 1,536.67 Return before operating charges and after direct portfolio transaction costs 99.50 Operating charges (7.24) Return after operating charges Distributions Closing NAV

Year to 31.08.16 UK p 1,343.51

Year to 31.08.15 UK p 1,303.34

230.83 (12.90)

73.16 (13.08)

92.26

217.93

60.08

n/a

(24.77)

(19.91)

Return after operating charges

9.04

21.39

5.66

Distributions

n/a

(2.09)

(1.59)

Closing NAV

162.81

153.77

134.47

Direct portfolio transaction costs [a]

UK p

UK p

UK p

Costs before dilution adjustments Dilution adjustments [b]

0.10 (0.07)

0.16 (0.01)

0.07 (0.02)

0.03

0.15

0.05

1,628.93

1,536.67

1,343.51

Direct portfolio transaction costs [a] Costs before dilution adjustments Dilution adjustments [b]

UK p 1.04 (0.68)

UK p 1.60 (0.08)

UK p 0.72 (0.25)

Total direct portfolio transaction costs

Total direct portfolio transaction costs

0.36

1.52

0.47

% 0.04 0.93 +6.00 2.24 0.90

% 0.10 0.93 +16.22 1.55 0.00

% 0.03 0.94 +4.61 1.55 0.00

Direct portfolio transaction costs Operating charges Return after operating charges Historic yield [c] Effect on yield of charges offset against capital

Other information Closing NAV (€’000) 6,776 Closing NAV percentage of total fund NAV (%) 4.69 Number of shares 354,512 Highest share price (UK p) 1,646.77 Lowest share price (UK p) 1,467.88

6,655 3.14 367,341 1,604.12 1,241.39

5,540 2.41 302,291 1,496.18 1,176.36

Performance and charges Direct portfolio transaction costs Operating charges Return after operating charges Historic yield [c] Effect on yield of charges offset against capital

Performance and charges

%

%

%

0.04 1.18 +5.88 2.22 1.15

0.10 1.18 +15.91 1.30 0.00

0.03 1.19 +4.34 1.25 0.00

Closing NAV (€’000) 181 Closing NAV percentage of total fund NAV (%) 0.13 Number of shares 94,710 Highest share price (UK p) 164.63 Lowest share price (UK p) 146.80

181 0.09 99,710 160.14 124.09

146 0.06 79,710 149.44 117.64

Other information

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

33

M&G European Select Fund Financial highlights Sterling Class ‘X’ Accumulation share performance

Specific share class performance

The share class was launched on 1 October 2002.

Year to 31.08.16 UK p 141.08 24.22 (1.72)

Year to 31.08.16 UK p

Year to 31.08.15 UK p

2,516.67 Opening NAV Return before operating charges and after direct portfolio transaction costs 162.57 (21.39) Operating charges

2,181.50

2,101.31

373.01 (37.84)

117.26 (37.07)

Change in NAV per share

Sterling Class ‘R’ Accumulation share performance The share class was launched on 3 August 2012. Six months to 28.02.17 UK p Change in NAV per share Opening NAV 163.58 Return before operating charges and after direct portfolio transaction costs 10.59 (0.98) Operating charges

Six months to 28.02.17 UK p

Year to 31.08.15 UK p 135.22 7.52 (1.66)

Return after operating charges Distributions Retained distributions

141.18

335.17

80.19

n/a

(21.39)

(15.41)

n/a

21.39

15.41

2,657.85

2,516.67

2,181.50

9.61

22.50

5.86

Closing NAV

Distributions

n/a

(2.19)

(1.64)

Direct portfolio transaction costs [a]

UK p

UK p

UK p

Retained distributions

n/a

2.19

1.64

173.19

163.58

141.08

Costs before dilution adjustments Dilution adjustments [b]

1.70 (1.11)

2.59 (0.13)

1.14 (0.40)

Direct portfolio transaction costs [a] Costs before dilution adjustments Dilution adjustments [b]

UK p 0.11 (0.07)

UK p 0.17 (0.01)

UK p 0.07 (0.03)

Total direct portfolio transaction costs

0.59

2.46

0.74

Total direct portfolio transaction costs

0.04

0.16

0.04

% 0.04 1.19 +5.87 1.24 0.00

% 0.10 1.18 +15.95 1.28 0.00

% 0.03 1.19 +4.33 1.22 0.00

Other information Closing NAV (€’000) 69 Closing NAV percentage of total fund NAV (%) 0.05 Number of shares 34,000 Highest share price (UK p) 175.13 Lowest share price (UK p) 156.15

41 0.02 21,000 168.07 130.23

41 0.02 21,000 154.97 122.01

Return after operating charges

Closing NAV

Performance and charges Direct portfolio transaction costs Operating charges Return after operating charges Historic yield Effect on yield of charges offset against capital

Performance and charges

%

%

%

0.04 1.68 +5.61 0.79 0.00

0.10 1.68 +15.36 0.79 0.00

0.03 1.69 +3.82 0.77 0.00

879 Closing NAV (€’000) Closing NAV percentage of total fund NAV (%) 0.61 Number of shares 28,188 Highest share price (UK p) 2,689.33 Lowest share price (UK p) 2,399.39

872 0.41 29,388 2,586.27 2,009.19

1,061 0.46 35,669 2,400.94 1,894.71

Direct portfolio transaction costs Operating charges Return after operating charges Historic yield Effect on yield of charges offset against capital Other information

[a] As a percentage of average net asset value. [b] In respect of direct portfolio transaction costs. [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.

Sterling Class ‘X’ Income share performance The share class was launched on 1 October 2002. Six months to 28.02.17 Change in NAV per share UK p Opening NAV 1,678.43 Return before operating charges and after direct portfolio transaction costs 108.43 Operating charges (14.27) Return after operating charges

Year to 31.08.15 UK p 1,423.71

250.76 (25.43)

79.41 (25.16)

94.16

225.33

54.25

Distributions

n/a

(14.39)

(10.47)

Closing NAV

1,772.59

1,678.43

1,467.49

Direct portfolio transaction costs [a] Costs before dilution adjustments Dilution adjustments [b]

UK p 1.13 (0.74)

UK p 1.74 (0.08)

UK p 0.77 (0.27)

Total direct portfolio transaction costs

0.39

1.66

0.50

% 0.04 1.68 +5.61 2.18 1.65

% 0.10 1.68 +15.35 0.79 0.00

% 0.03 1.69 +3.81 0.78 0.00

Other information Closing NAV (€’000) 2,010 Closing NAV percentage of total fund NAV (%) 1.39 Number of shares 96,619 Highest share price (UK p) 1,793.58 Lowest share price (UK p) 1,600.21

1,981 0.93 100,109 1,739.64 1,351.48

2,162 0.94 107,976 1,626.62 1,283.57

Performance and charges Direct portfolio transaction costs Operating charges Return after operating charges Historic yield [c] Effect on yield of charges offset against capital

34

Year to 31.08.16 UK p 1,467.49

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

M&G European Select Fund Financial statements and notes

Financial statements

Notes to the financial statements Accounting policies

Statement of total return 2017 for the six months to 28 and 29 February Income Net capital gains / (losses) Revenue Expenses Net revenue / (expense) before taxation Taxation

€’000

€’000

2016 €’000 €’000

12,312 614 (1,758) ______ (1,144) (13) ______

(14,381) 990 (1,862) ______ (872) (70) ______

Net revenue / (expense) after taxation

(1,157)

(942)

Total return before equalisation Equalisation

11,155 (68)

(15,323) 25

Change in net assets attributable to shareholders from investment activities

11,087

(15,298)

Statement of change in net assets attributable to shareholders 2017 for the six months to 28 and 29 February Opening net assets attributable to shareholders Amounts received on issue of shares Amounts paid on cancellation of shares Dilution adjustments Change in net assets attributable to shareholders from investment activities (see above) Unclaimed distributions Closing net assets attributable to shareholders

€’000

€’000

2016 €’000 €’000

212,077 36,959 (115,741) ______

The financial statements have been prepared in accordance with the ‘Accounting policies’ set out on page 4.

Distribution policy With effect from 1 September 2016, the distribution policy has been amended so that in determining the amount available for distribution to Income shares, the annual management charge and administration charge are now offset against capital, increasing the amount available for distribution whilst restraining capital performance to an equivalent extent. Marginal tax relief has not been taken into account in respect of expenses offset against capital. In determining the amount available for distribution, ordinary stock dividends have been transferred to capital, reducing the amount available.

230,134 6,202 (10,270) ______

(78,782) 138

(4,068) 9

11,087 1

(15,298) 1

144,521

210,778

The opening net assets attributable to shareholders for 2017 differs to the closing position in 2016 by the change in net assets attributable to shareholders for the second half of the comparative financial year.

Balance sheet as at

28 February 2017 €’000

31 August 2016 €’000

142,865

208,559

1,580 481

1,861 3,733

144,926

214,153

0 (405)

(1,203) (873)

Assets Fixed assets Investments Current assets Debtors Cash and bank balances Total assets Liabilities Creditors Distribution payable Other creditors Total liabilities Net assets attributable to shareholders

(405)

(2,076)

144,521

212,077

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

35

M&G European Select Fund Financial statements and notes

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36

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

M&G European Smaller Companies Fund Authorised Corporate Director’s Report Investment objective and policy The Fund invests in smaller companies in Europe, with the sole objective of long term capital growth. It will invest wholly or mainly in securities of European companies which constitute the bottom third in terms of total market capitalisation of all publicly listed equity in Europe. When not wholly invested as above, the Fund may only invest in medium and larger capitalised companies in order to enhance the liquidity of the Fund.

Investment approach The M&G European Smaller Companies Fund invests in smaller quality companies, with advantageous characteristics, or ‘economic moats’, to protect their profitability and an element of change helping to drive their value. Importantly, the fund manager invests in businesses where short-term ‘disruptions’ have provided a clear valuation opportunity, and will engage with management where appropriate, to help bring about positive change. The fund manager believes that a focus on both quality and value offers a powerful combination, providing the long-term growth in returns that quality businesses can deliver, as well as the potential boost to a company’s share price when a ‘disruption’ has been resolved and the shares revert to a more appropriate level. Key to his approach is remaining patient and taking a long-term view, both in the entry and exit points of the fund’s holdings. The fund manager keeps the portfolio focused, generally holding fewer than 50 well-understood stocks from a diverse universe of smaller companies, which is often less wellcovered and understood than a universe of larger businesses. Holdings in the fund generally fall into one of two ‘buckets’ – ‘stable growth’ and ‘opportunities’. The manager sees stable growth companies as those that generate high levels of cash with a visible reinvestment plan, and represent lower business risk. Opportunities companies tend to be improving their returns on capital, have more potential for internal change and are more attractively valued at the point of investment.

Risk profile The fund invests in the shares of smaller Europe-listed companies and is, therefore, subject to the price volatility of the European stockmarket and the performance of individual companies. The fund may also be subject to fluctuations in currency exchange rates. The fund’s focus is on smaller companies where the share price movement can be more unpredictable and the shares more difficult to buy and sell compared to those of larger companies. Diversification across countries, industries and market capitalisation is therefore key in managing liquidity risk and reducing market risk. The fund’s risks are measured and managed as an integral part of the investment process.

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

High risk

Typically lower rewards

1

2

Typically higher rewards

3

4

5

6

7

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 changed during this period. From 1 September 2016 to 23 February 2017 the risk number was 6.

Investment review As at 1 March 2017, for the six months ended 28 February 2017 Performance against objective Between 1 September 2016 (the start of the review period) and 1 March 2017, the M&G European Smaller Companies Fund delivered positive returns across all of its share classes.[a] All share classes finished ahead of a comparable index, the Euromoney Smaller European Companies Index. Over the six months, returns from the index were 12.6%, 10.5% and 4.2% in sterling, euros and US dollars respectively. Over five years and since launch, the fund has delivered positive capital growth, thus meeting its investment objective.

Investment performance European stockmarkets delivered positive returns for the period under review, with encouraging prospects for economic growth and inflation, as well as a changing political landscape, helping to drive investor sentiment – smaller European companies delivered returns for the period that were in line with the wider European market. For most of the period, the market mood was arguably dominated by the run-up to, and aftermath of, the US presidential election. Following swirling speculation over what a Donald Trump victory might mean, his unexpected win sparked a significant, if not surprising, shift in investor sentiment, as the potential for reduced taxes and regulation, as well as a boost to spending on infrastructure, cheered investors. The mood was further enlivened by relatively robust economic data and good corporate results, all of which made investors more willing to take on risk. With that in mind, US stockmarkets hit record highs during the review period, and took other markets, including Europe, along for the ride. Among smaller European companies, the basic materials sector particularly benefited from this improved mood, having previously been out of favour. As a result, our below-index position in the sector weighed on relative returns, although this was more than made up for by positive stockpicking within the industrials, technology and oil & gas sectors. Our below-index positions in consumer services and financials also aided relative performance, as both sectors lagged for the period under review.

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

37

M&G European Smaller Companies Fund Authorised Corporate Director’s Report Investment review Investment performance (continued) At a stock level, the largest contributor for the period was AMS, a company that develops and manufactures high-performance sensors for applications across a wide range of industries. AMS reported that it saw potential for strong revenue growth in 2017, helped by its acquisition of optical sensor maker Heptagon in Singapore; its shares rose sharply in reaction. Investors are also expecting the company to benefit from the expected launch of the iPhone 8 in September 2017, further boosting sentiment. Web advertising specialist Criteo delivered solid performance for the period as well. The company’s shares fell sharply after a note was published outlining, what the note’s author believed to be, bad business practices at the company. We thought the thesis of this note was not justified, and bought into the accompanying share price weakness, benefiting when the shares bounced back soon after. The stock, a French business listed in the US, was also aided by a stronger US dollar. Other supportive holdings included German engine manufacturer Deutz and Austrian construction company PORR. Deutz saw its shares rising steadily for most of the review period, having experienced ongoing operational success, including solid sales and improving earnings. PORR, meanwhile, has been buoyed by the increasing consideration of new stimulus measures by European governments, as this could involve infrastructure construction – PORR has particular expertise in tunnelling, and has been moving into infrastructure more generally, including projects in Norway. On the downside, one of the fund’s largest detractors was French warehouse outsourcing specialist ID Logistics. In September the company published results that fell short of expectations, largely as a result of weaker currencies in Argentina, Brazil and South Africa, where it has operations. Also, despite good performance in its home market of France, margins fell in its international business, in part due to the cost of contract start-ups in Europe during the period, along with a difficult operating environment in some developing countries; investors were disappointed and the company’s shares declined. UK-listed healthcare technology company EMIS dragged on returns as well. A major supplier to the UK’s National Health Service, the company announced that new rollouts of its systems in Northern Ireland were progressing more slowly than had previously been expected, while facing an increasingly difficult operating environment as a result of NHS funding pressures.

Investment activities We run a concentrated portfolio of fewer than 50 holdings, maintaining a watchlist of around 200 quality ‘moated’ companies that we would like to own when the timing and price are right (moated companies are those where we feel the business model is well protected from competition). We monitor our watchlist closely, waiting patiently for short-term issues, or ‘disruptions’, to create buying opportunities. During the review period, three such opportunities presented themselves. The first was allergy immunotherapy specialist ALKAbelló. ALK is a quality company that specialises in autoimmune therapy for dust mite and grass allergies. These treatments used to be injectable, which could result in sometimes fatal allergic reactions, but ALK has developed much safer, and easier to administer, pills. These have been approved for distribution to adults in Europe, and the company now aims to get approval for the treatment of asthma in children in Europe and passport the adult approval to the US (the share price declined on news that US pharma Merck had opted out of a joint venture with ALK in the US – as the original deal was too small – providing our investment opportunity). ALK has a unique, well-protected, skill set and we believe is an amazing franchise, having existed since the early 1900s. We see strong growth potential for the business, particularly if its distribution strategy plays out. We bought shares in AMS, the company mentioned above that develops and manufactures high-performance sensors. The stock had come under heavy selling pressure in light of the issues surrounding the Samsung Galaxy – i.e. exploding batteries. We see this as a oneoff issue for the company, which provided the disruption that allowed us to buy the stock at an attractive price. The company’s acquisition of Heptagon is also helping to solidify AMS’ position in optical sensors and, as above, it should stand to benefit from the launch of Apple’s 10-year anniversary iPhone late in 2017. We also added a position in Academedia, the largest independent education provider in Northern Europe. The company is the biggest provider of private education in the Nordic region, receives stable funding from state vouchers, and we think that it will be favoured by increasing regulation in the sector – as a large scale player, it should benefit from consolidation within the market. Conversely, we exited three of the fund’s holdings during the period: medical packaging company Gerresheimer, which we had been reducing for some time, German specialist automotive parts producer ElringKlinger and Swedish credit management services and solutions business Intrum Justitia.

Other detractors included branded jewellery creator Pandora, which reported slower revenue growth than anticipated for 2017, as well as squeezed margins in light of higher commodity prices, and diversified business services and distribution firm DCC. The Irish group saw investors taking profits following a strong run, as the company has experienced ongoing operational success, including solid organic growth and successful merger and acquisition activity.

38

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

M&G European Smaller Companies Fund Authorised Corporate Director’s Report Investment review

Investments

Outlook 2016 demonstrated the difficulties inherent in trying to make predictions. The two standout events that most failed to predict correctly were ‘Brexit’ and the US presidential election. But even if you had predicted correctly, you would have most probably been unsuccessful at forecasting the market rallies that followed. We are not trying to make predictions – we are investing in quality companies where short-term disruptions have created buying opportunities. While the global political climate remains highly uncertain, the more localised exposure of European smaller companies should help minimise these risks. We also believe that European smaller companies are best placed to take advantage of the pro-growth measures recently announced in a number of European countries. We will continue, as always, to remain mindful of short-term disruptions that can create opportunities to buy quality businesses at attractive valuations. As long-term investors, we remain comfortable with the fund’s positioning, and will continue to monitor closely for such opportunities. Michael Oliveros Fund manager

Portfolio statement as at Holding

28.02.17 28.02.17 31.08.16 €’000 % % Oil & gas producers 1,816,692 Ophir Energy

1,993 1,993

1.28 1.28

1.15

Oil equipment, services & distribution 40,063 Schoeller-Bleckmann 77,084 Técnicas Reunidas

5,611 2,796 2,815

3.62 1.80 1.82

3.32

Chemicals 59,589 Frutarom Industries

3,187 3,187

2.05 2.05

2.06

9,781

6.30

6.21 [a]

3,829 2,952 3,000

2.47 1.90 1.93

2,899 2,899

1.87 1.87

1.77 [a]

8,843 3,547 2,536 2,760

5.70 2.29 1.63 1.78

5.52 [a]

16,515 3,338 2,991 2,538 3,599 4,049

10.64 2.15 1.93 1.63 2.32 2.61

9.42 [a]

8,275 3,848 4,427

5.33 2.48 2.85

5.38 [a]

14,963 5,400 3,991 2,914 2,658

9.64 3.48 2.57 1.88 1.71

8.91 [a]

0

0.00

0.95 [a]

Food producers 485,610 Origin Enterprises

3,108 3,108

2.00 2.00

3.67

Household goods & home construction 2,343,652 Cairn Homes 82,930 Leifheit

8,218 3,012 5,206

5.30 1.94 3.36

5.35 [a]

4,651 4,651

3.00 3.00

3.41 [a]

6,191 3,108 3,083

3.99 2.00 1.99

4.14 [a]

Healthcare equipment & services 7,284 Eurofins Scientific 443,261 UDG Healthcare

6,396 2,812 3,584

4.12 1.81 2.31

6.66 [a]

Pharmaceuticals & biotechnology 22,020 ALK-Abelló 1,124,085 Indivior

7,352 2,740 4,612

4.74 1.77 2.97

3.38

9,665 2,095 2,711 4,859

6.23 1.35 1.75 3.13

5.04

Construction & materials 245,672 Arbonia (formerly AFG Arbonia-Forster-Holding AG) 101,715 Kingspan Group 79,220 PORR Aerospace & defence 84,965 LISI Electronic & electrical equipment 3,428 COMET Holding 127,253 Datalogic 77,734 EVS Broadcast Equipment

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

73,140 530,033 88,533 225,412 397,502

Industrial engineering Cargotec Deutz Jungheinrich Pref. (non-voting) Kongsberg Gruppen Oerlikon

Industrial transportation 27,563 ID Logistics 206,454 Logista 115,637 116,863 36,012 1,220,882

Support services Criteo ADR CTS EVENTIM DCC Equiniti Automobiles & parts

Leisure goods 308,901 Thule Group Personal goods 46,028 HUGO BOSS 28,641 Pandora

General retailers 350,000 AcadeMedia 128,184 TAKKT 244,446 WH Smith

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

39

M&G European Smaller Companies Fund Authorised Corporate Director’s Report Top ten portfolio transactions

Investments

for the six months to 28 February 2017

Portfolio statement (continued) as at Holding

28.02.17 28.02.17 31.08.16 €’000 % % Media

0

0.00

1.29

2,580 2,580

1.66 1.66

1.09

Non-life insurance 368,918 Jardine Lloyd Thompson Group

4,463 4,463

2.88 2.88

3.38

Real estate investment trusts 139,233 Shaftesbury

1,488 1,488

0.96 0.96

1.12

Financial services FinTech Group GAM Holding (Regd.) Mutares MyBucks

11,411 4,335 1,927 3,626 1,523

7.35 2.79 1.24 2.34 0.98

9.85 [a]

Software & computer services 297,823 EMIS Group 287,861 Indra Sistemas 33,078 Sopra Steria (formerly Sopra)

10,582 3,163 3,466 3,953

6.82 2.04 2.23 2.55

6.54 [a]

3,322 3,322

2.14 2.14

0.00

151,494

97.62

99.61

1,795

1.16

0.49

Banks 11,315,489 Bank of Ireland

288,998 184,100 236,777 92,582

Technology hardware & equipment 76,328 ams Portfolio of investments ‘AAA’ rated money market funds [b] 1,530,000 Northern Trust Global Fund - Sterling

1,795

1.16

Total portfolio Net other assets / (liabilities)

153,289 1,888

98.78 1.22

100.10 (0.10)

Net assets attributable to shareholders

155,177

100.00

100.00

Largest purchases

€’000

ALK-Abelló AcadeMedia ams EMIS Group Arbonia (formerly AFG Arbonia-Forster-Holding AG) Bank of Ireland Kongsberg Gruppen ID Logistics Criteo ADR Deutz

2,781 2,145 1,846 1,138 938 869 811 742 728 725

Other purchases

1,738

Total purchases

14,459

Largest sales

€’000

Intrum Justitia Gerresheimer Group Chr. Hansen Holding GFK ElringKlinger PORR Deutz Indivior LISI Criteo ADR

3,542 2,878 2,292 1,828 1,352 948 865 573 494 484

Other sales

5,176

Total sales

20,432

Purchases and sales exclude the cost and proceeds of ‘AAA’ rated money market funds.

All securities are on an official stock exchange listing except where referenced. [a] The comparative sector weightings have been re-analysed to reflect changes to

the sector classifications. [b] Uncommitted surplus cash is placed into ‘AAA’ rated money market funds with the

aim of reducing counterparty risk.

40

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

M&G European Smaller Companies Fund Financial highlights Performance since launch

Fund performance Please note past performance is not a guide to future performance and 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 not get back the original amount you invested. The following chart and tables show the performance for two of the fund’s share classes – Sterling Class ‘A’ (Accumulation) shares and Sterling Class ‘I’ (Accumulation) shares. We show performance for these two share classes because:

• The performance of the Sterling Class ‘A’ (Accumulation) share is

To give an indication of how the fund has performed since launch, the chart below shows total return of Sterling Class ‘A’ (Accumulation) shares and Sterling Class ‘I’ (Accumulation) shares. September 1996 = 100, plotted monthly 1,000

Sterling Class ‘I’ (Accumulation) shares* 800 700 600 500 400 350 300 250

what most individuals investing directly with M&G have received. It has the highest ongoing charge of all the share classes. Performance is shown after deduction of this charge. All investors in the fund therefore received this performance or better.

200

• The performance of the Sterling Class ‘I’ (Accumulation) share is

80

the most appropriate to compare with the average performance of the fund’s comparative sector. It is the share class used by the Investment Association in the calculation of the comparative sector’s average performance. This share class is available for direct investment with M&G subject to minimum investment criteria, or via third parties who may charge additional fees. The performance shown takes the deduction of the ongoing charge for this share class into account but it does not take account of charges applied by any other party through which you may have invested. The fund is available for investment in different share classes, each with varying levels of charges and minimum investments; please refer to the Prospectus for M&G Investment Funds (1), which is available free of charge either from our website at www.mandg.co.uk/prospectuses or by calling M&G Customer Relations.

170

Sterling Class ‘A’ (Accumulation) shares*

140 120 100

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

Sterling Class ‘A’ (Accumulation) shares* Sterling Class ‘I’ (Accumulation) shares* Euromoney Smaller European Companies Index Morningstar (IA) European Smaller Companies sector average* * Income reinvested

To give an indication of the performance of the fund, the following table shows 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 Six Three months years 01.09.16 03.03.14 [a] % % p.a.

28.02.17 €’000 155,177

31.08.16 €’000 140,323

Five years 01.03.12 % p.a.

Since launch % p.a.

Euro [b] Class ‘A’

+13.1

+10.1

+14.0

+8.3 [c]

31.08.15 €’000

Class ‘C’

+13.5

+10.9

+14.9

+9.1 [c]

164,977

Sterling [d] Class ‘A’

+15.0

+11.5

+14.5

+10.9 [e]

Class ‘I’

+15.4

+12.4

n/a

+18.3 [f]

Class ‘R’

+15.2

+12.1

n/a

+18.0 [f]

Class ‘X’

+15.0

+11.5

+14.5

+14.3 [g]

Class ‘A’

+6.9

n/a

n/a

+4.3 [h]

Class ‘C’

+7.3

n/a

n/a

+5.1 [h]

Fund net asset value

Fund net asset value (NAV)

Source: Morningstar, Inc. and M&G

The fund’s Sterling Class ‘I’ (Accumulation) shares were launched on 3 August 2012. Performance data shown prior to this date is that of the fund’s Sterling Class ‘A’ (Accumulation) shares.

Fund level performance

as at

Chart date 1 March 2017

US dollar [b]

[a] Absolute basis. [b] Price to price with net income reinvested. [c] 28 November 2001, the launch date of the share class. [d] Price to price with income reinvested. [e] 30 September 1996, the end of the initial offer period of the predecessor unit trust. [f] 3 August 2012, the launch date of the share class. [g] 1 October 2002, the launch date of the share class. [h] 8 August 2014, the launch date of the share class.

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

41

M&G European Smaller Companies Fund Financial highlights

Fund performance

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

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

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

• Administration: Charge paid to M&G for administration services in addition to investment management – any surplus from this charge will be retained by M&G.

• Oversight

and other independent services: Charges paid to providers independent of M&G for services which include depositary, custody and audit.

The operating charges paid by each share class of the fund are shown in the following performance tables. Operating charges do not include portfolio transaction costs or any entry and exit charges (also known as initial and redemption charges). The charging structures of share classes may differ, and therefore the operating charges may differ.

To protect existing investors, portfolio transaction costs incurred as a result of investors buying and selling shares in the fund are recovered from those investors through a ‘dilution adjustment’ to the price they pay or receive. The table below shows direct portfolio transaction costs paid by the fund before and after that part of the dilution adjustment relating to direct portfolio transaction costs. To give an indication of the indirect portfolio dealing costs the table also shows the average portfolio dealing spread. Further information on this process is in the Prospectus, which is available free of charge on request either from our website at www.mandg.co.uk/prospectuses or by calling M&G Customer Relations.

Portfolio transaction costs Six months to 28.02.17 Direct portfolio transaction costs [b] %

Year to 31.08.15 %

Average [a] %

Broker commission Taxes

0.05 0.02

0.14 0.10

0.05 0.05

0.08 0.06

Costs before dilution adjustments Dilution adjustments [c]

0.07 (0.01)

0.24 (0.04)

0.10 (0.04)

0.14 (0.03)

Total direct portfolio transaction costs

0.06

0.20

0.06

0.11

28.02.17 %

31.08.16 %

31.08.15 %

0.24

0.28

0.32

as at Indirect portfolio transaction costs Average portfolio dealing spread [a] Average of first three columns.

[b] As a percentage of average net asset value. [c] In respect of direct portfolio transaction costs.

Operating charges are the same as the ongoing charges shown in the Key Investor Information Document, other than where an estimate has been used for the ongoing charge because a material change has made the operating charges unreliable as an estimate of future charges. For this fund there is no difference between operating charges and ongoing charges figures, unless disclosed under the specific share class performance table.

Portfolio transaction costs Portfolio transaction costs are incurred by funds when buying and selling investments. These costs vary depending on the types of investment, their market capitalisation, country of exchange, method of execution and the quality of research provided. They are made up of direct and indirect portfolio transaction costs:

• Direct portfolio transaction costs: Broker execution commission and taxes.

• Indirect portfolio transaction costs: ‘Dealing spread’ – the difference between the buying and selling prices of the fund’s investments; some types of investment, such as fixed interest securities, have no direct transaction costs and only the dealing spread is paid.

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

42

Year to 31.08.16 %

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

Average [a] % 0.28

M&G European Smaller Companies Fund Financial highlights Euro Class ‘C’ Accumulation share performance

Specific share class performance

The share class was launched on 28 November 2001.

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

Six months to 28.02.17 Euro ¢

Year to 31.08.16 Euro ¢

Year to 31.08.15 Euro ¢

3,327.96 Opening NAV Return before operating charges and after direct portfolio transaction costs 434.32 (15.92) Operating charges

3,221.24

2,733.43

137.14 (30.42)

514.30 (26.49)

Change in NAV per share

Return after operating charges

Euro Class ‘A’ Accumulation share performance The share class was launched on 28 November 2001.

418.40

106.72

487.81

Distributions

n/a

(44.78)

(20.05)

Retained distributions

n/a

44.78

20.05

3,746.36

3,327.96

3,221.24

Six months to 28.02.17 Euro ¢

Year to 31.08.16 Euro ¢

Year to 31.08.15 Euro ¢

Closing NAV

Euro ¢

Euro ¢

Euro ¢

Opening NAV 2,986.95 Return before operating charges and after direct portfolio transaction costs 388.92 Operating charges (25.87)

2,913.17

2,490.33

Costs before dilution adjustments Dilution adjustments [b]

1.17 (0.13)

7.67 (1.45)

2.90 (1.23)

123.09 (49.31)

468.29 (45.45)

Total direct portfolio transaction costs

1.04

6.22

1.67

73.78

422.84

Change in NAV per share

Return after operating charges

363.05

Distributions

n/a

(18.19)

(10.45)

Retained distributions

n/a

18.19

10.45

3,350.00

2,986.95

2,913.17

Closing NAV Direct portfolio transaction costs [a]

Euro ¢

Euro ¢

Euro ¢

Costs before dilution adjustments Dilution adjustments [b]

1.06 (0.12)

6.89 (1.30)

2.76 (1.18)

Total direct portfolio transaction costs

0.94

5.59

1.58

Performance and charges

%

%

%

Direct portfolio transaction costs 0.06 Operating charges 1.68 Return after operating charges +12.15 Historic yield 0.53 Effect on yield of charges offset against capital 0.00

0.20 1.69 +2.53 0.60 0.00

0.06 1.69 +16.98 0.36 0.00

13,935 9.93 466,517 3,159.54 2,560.14

36,485 22.12 1,252,426 3,190.29 2,170.86

Direct portfolio transaction costs [a]

%

%

%

0.06 Direct portfolio transaction costs 0.94 Operating charges +12.57 Return after operating charges Historic yield 1.18 0.00 Effect on yield of charges offset against capital

Performance and charges

0.20 0.94 +3.31 1.33 0.00

0.06 0.94 +17.85 0.62 0.00

666 0.48 20,007 3,500.38 2,840.49

226 0.14 7,014 3,524.63 2,385.15

Other information 1,168 Closing NAV (€’000) Closing NAV percentage of total fund NAV (%) 0.75 Number of shares 31,162 Highest share price (Euro ¢) 3,775.76 Lowest share price (Euro ¢) 3,255.55

Sterling Class ‘A’ Income share performance The share class was launched on 30 September 1996.

Other information Closing NAV (€’000) 14,941 Closing NAV percentage of total fund NAV (%) 9.63 Number of shares 445,997 Highest share price (Euro ¢) 3,376.78 Lowest share price (Euro ¢) 2,918.05

Six months to 28.02.17 UK p

Year to 31.08.16 UK p

Year to 31.08.15 UK p

Opening NAV 328.76 Return before operating charges and after direct portfolio transaction costs 44.63 Operating charges (2.90)

278.80

259.74

56.95 (4.96)

24.97 (4.49) 20.48

Change in NAV per share

Return after operating charges

41.73

51.99

Distributions

n/a

(2.03)

(1.42)

Closing NAV

370.49

328.76

278.80

Direct portfolio transaction costs [a]

UK p

UK p

UK p

Costs before dilution adjustments Dilution adjustments [b]

0.12 (0.01)

0.69 (0.13)

0.27 (0.12)

Total direct portfolio transaction costs

0.11

0.56

0.15

%

%

%

Direct portfolio transaction costs 0.06 Operating charges 1.68 Return after operating charges +12.69 1.82 Historic yield [c] Effect on yield of charges offset against capital 1.65

Performance and charges

0.20 1.69 +18.65 0.61 0.00

0.06 1.69 +7.88 0.51 0.00

83,808 59.73 21,621,923 337.13 259.82

87,706 53.16 23,059,236 293.79 227.11

Other information Closing NAV (€’000) 92,421 Closing NAV percentage of total fund NAV (%) 59.56 Number of shares 21,259,104 Highest share price (UK p) 372.88 Lowest share price (UK p) 326.86

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

43

M&G European Smaller Companies Fund Financial highlights Sterling Class ‘I’ Accumulation share performance

Specific share class performance

The share class was launched on 3 August 2012.

Return after operating charges

Year to 31.08.16 UK p 291.37 59.53 (5.19)

Year to 31.08.16 UK p

Year to 31.08.15 UK p

1,873.64 Opening NAV Return before operating charges and after direct portfolio transaction costs 254.80 (9.20) Operating charges

1,567.32

1,442.01

321.90 (15.58)

139.33 (14.02)

Change in NAV per share

Sterling Class ‘A’ Accumulation share performance The share class was launched on 30 September 1996. Six months to 28.02.17 UK p Change in NAV per share 345.71 Opening NAV Return before operating charges and after direct 46.91 portfolio transaction costs Operating charges (3.05)

Six months to 28.02.17 UK p

Year to 31.08.15 UK p 270.10 25.93 (4.66)

Return after operating charges

245.60

306.32

125.31

Distributions

n/a

(25.19)

(18.38)

Retained distributions

n/a

25.19

18.38

2,119.24

1,873.64

1,567.32

Closing NAV

43.86

54.34

21.27

Distributions

n/a

(2.12)

(1.46)

Direct portfolio transaction costs [a]

UK p

UK p

UK p

Retained distributions

n/a

2.12

1.46

389.57

345.71

291.37

Costs before dilution adjustments Dilution adjustments [b]

0.68 (0.08)

3.93 (0.74)

1.54 (0.65)

Direct portfolio transaction costs [a] Costs before dilution adjustments Dilution adjustments [b]

UK p 0.12 (0.01)

UK p 0.73 (0.14)

UK p 0.28 (0.12)

Total direct portfolio transaction costs

0.60

3.19

0.89

Total direct portfolio transaction costs

0.11

0.59

0.16

% Performance and charges 0.06 Direct portfolio transaction costs Operating charges 1.68 Return after operating charges +12.69 0.53 Historic yield Effect on yield of charges offset against capital 0.00

% 0.20 1.69 +18.65 0.61 0.00

% 0.06 1.69 +7.87 0.50 0.00

Other information Closing NAV (€’000) 25,047 Closing NAV percentage of total fund NAV (%) 16.14 Number of shares 5,479,211 Highest share price (UK p) 392.08 Lowest share price (UK p) 343.71

23,174 16.52 5,685,714 352.33 271.54

26,374 15.99 6,634,714 305.48 236.16

Closing NAV

%

%

%

0.06 Direct portfolio transaction costs 0.94 Operating charges +13.11 Return after operating charges Historic yield 1.16 0.00 Effect on yield of charges offset against capital

Performance and charges

0.20 0.94 +19.54 1.33 0.00

0.06 0.94 +8.69 1.17 0.00

6,335 4.51 286,788 1,908.97 1,465.56

4,374 2.65 204,531 1,640.23 1,262.08

Other information 8,004 Closing NAV (€’000) Closing NAV percentage of total fund NAV (%) 5.16 Number of shares 321,882 Highest share price (UK p) 2,132.42 Lowest share price (UK p) 1,863.26

Sterling Class ‘R’ Income share performance The share class was launched on 3 August 2012. Six months to 28.02.17 UK p

Year to 31.08.16 UK p

Year to 31.08.15 UK p

Opening NAV 177.97 Return before operating charges and after direct portfolio transaction costs 24.19 Operating charges (1.10)

151.00

140.64

30.85 (1.90)

13.56 (1.71) 11.85

Sterling Class ‘I’ Income share performance Change in NAV per share

The share class was launched on 3 August 2012. Six months to 28.02.17 Change in NAV per share UK p Opening NAV 1,782.92 Return before operating charges and after direct portfolio transaction costs 242.63 Operating charges (8.74) Return after operating charges

44

Year to 31.08.16 UK p 1,511.79

Year to 31.08.15 UK p 1,407.64

310.47 (15.03)

136.14 (13.67)

Return after operating charges

233.89

295.44

Distributions

n/a

(24.31)

122.47 (18.32)

Closing NAV

2,016.81

1,782.92

1,511.79

Direct portfolio transaction costs [a] Costs before dilution adjustments Dilution adjustments [b]

UK p 0.64 (0.07)

UK p 3.79 (0.72)

UK p 1.50 (0.64)

Total direct portfolio transaction costs

0.57

3.07

0.86

Performance and charges % Direct portfolio transaction costs 0.06 Operating charges 0.93 Return after operating charges +13.12 Historic yield [c] 1.88 Effect on yield of charges offset against capital 0.90

% 0.20 0.94 +19.54 1.35 0.00

% 0.06 0.94 +8.70 1.21 0.00

Other information Closing NAV (€’000) 6,921 Closing NAV percentage of total fund NAV (%) 4.46 Number of shares 292,428 Highest share price (UK p) 2,029.34 Lowest share price (UK p) 1,773.17

6,251 4.45 297,383 1,841.32 1,413.61

3,108 1.88 150,717 1,601.29 1,231.99

23.09

28.95

Distributions

n/a

(1.98)

(1.49)

Closing NAV

201.06

177.97

151.00

Direct portfolio transaction costs [a]

UK p

UK p

UK p

Costs before dilution adjustments Dilution adjustments [b]

0.06 (0.01)

0.38 (0.07)

0.15 (0.06)

Total direct portfolio transaction costs

0.05

0.31

0.09

%

%

%

Direct portfolio transaction costs 0.06 Operating charges 1.18 Return after operating charges +12.97 1.85 Historic yield [c] Effect on yield of charges offset against capital 1.15

Performance and charges

0.20 1.19 +19.17 1.10 0.00

0.06 1.19 +8.43 1.01 0.00

131 0.09 62,372 183.36 140.95

139 0.08 67,372 159.68 123.05

Other information Closing NAV (€’000) 137 Closing NAV percentage of total fund NAV (%) 0.09 Number of shares 58,204 Highest share price (UK p) 202.32 Lowest share price (UK p) 176.98

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

M&G European Smaller Companies Fund Financial highlights Sterling Class ‘X’ Accumulation share performance

Specific share class performance

The share class was launched on 1 October 2002.

Return after operating charges

Year to 31.08.16 UK p 155.57 31.88 (1.95)

Year to 31.08.16 UK p

Year to 31.08.15 UK p

341.52 Opening NAV Return before operating charges and after direct portfolio transaction costs 46.35 (3.01) Operating charges

287.85

266.83

58.79 (5.12)

25.62 (4.60)

Change in NAV per share

Sterling Class ‘R’ Accumulation share performance The share class was launched on 3 August 2012. Six months to 28.02.17 Change in NAV per share UK p Opening NAV 185.50 Return before operating charges and after direct 25.21 portfolio transaction costs Operating charges (1.15)

Six months to 28.02.17 UK p

Year to 31.08.15 UK p 143.49 13.82 (1.74)

Return after operating charges

43.34

53.67

21.02

Distributions

n/a

(2.09)

(1.47)

Retained distributions

n/a

2.09

1.47

384.86

341.52

287.85

Closing NAV

24.06

29.93

12.08

Distributions

n/a

(2.04)

(1.52)

Direct portfolio transaction costs [a]

UK p

UK p

UK p

Retained distributions

n/a

2.04

1.52

209.56

185.50

155.57

Costs before dilution adjustments Dilution adjustments [b]

0.12 (0.01)

0.72 (0.14)

0.28 (0.12)

Direct portfolio transaction costs [a] Costs before dilution adjustments Dilution adjustments [b]

Total direct portfolio transaction costs

0.11

0.58

0.16

UK p 0.07 (0.01)

UK p 0.39 (0.07)

UK p 0.15 (0.06)

Total direct portfolio transaction costs

0.06

0.32

0.09

Performance and charges % Direct portfolio transaction costs 0.06 Operating charges 1.18 +12.97 Return after operating charges Historic yield 0.95 Effect on yield of charges offset against capital 0.00

% 0.20 1.19 +19.24 1.09 0.00

% 0.06 1.19 +8.42 0.97 0.00

Other information Closing NAV (€’000) 221 Closing NAV percentage of total fund NAV (%) 0.14 Number of shares 90,000 Highest share price (UK p) 210.87 Lowest share price (UK p) 184.46

197 0.14 90,000 189.02 145.30

191 0.12 90,000 162.90 125.54

Closing NAV

%

%

%

0.06 Direct portfolio transaction costs 1.68 Operating charges +12.69 Return after operating charges Historic yield 0.53 0.00 Effect on yield of charges offset against capital

Performance and charges

0.20 1.69 +18.65 0.61 0.00

0.06 1.69 +7.88 0.51 0.00

2,032 1.45 504,507 348.07 268.26

2,400 1.45 611,019 301.78 233.30

Other information 2,104 Closing NAV (€’000) Closing NAV percentage of total fund NAV (%) 1.36 Number of shares 465,807 Highest share price (UK p) 387.33 Lowest share price (UK p) 339.54

US dollar Class ‘A’ Accumulation share performance The share class was launched on 8 August 2014. Six months to 28.02.17 US ¢

Year to 31.08.16 US ¢

Year to 31.08.15 US ¢

Opening NAV 1,037.49 Return before operating charges and after direct portfolio transaction costs 79.07 Operating charges (8.72)

1,024.48

1,023.65

30.60 (17.59)

18.06 (17.23)

Sterling Class ‘X’ Income share performance Change in NAV per share

The share class was launched on 1 October 2002. Six months to 28.02.17 Change in NAV per share UK p Opening NAV 325.20 Return before operating charges and after direct portfolio transaction costs 44.15 Operating charges (2.87) Return after operating charges

41.28

Year to 31.08.16 UK p 275.78

Year to 31.08.15 UK p 256.91

56.34 (4.91)

24.70 (4.44)

51.43

20.26

Return after operating charges

Distributions

n/a

(2.01)

(1.39)

Closing NAV

366.48

325.20

275.78

Direct portfolio transaction costs [a] Costs before dilution adjustments Dilution adjustments [b]

UK p 0.12 (0.01)

UK p 0.69 (0.13)

UK p 0.27 (0.12)

Total direct portfolio transaction costs

0.11

0.56

0.15

Performance and charges % Direct portfolio transaction costs 0.06 Operating charges 1.68 Return after operating charges +12.69 Historic yield [c] 1.82 Effect on yield of charges offset against capital 1.65 Other information Closing NAV (€’000) 4,056 Closing NAV percentage of total fund NAV (%) 2.61 Number of shares 943,099 Highest share price (UK p) 368.85 Lowest share price (UK p) 323.33

% 0.20 1.69 +18.65 0.61 0.00

3,650 2.60 951,988 333.48 257.01

% 0.06 1.69 +7.89 0.50 0.00

3,922 2.38 1,042,491 290.60 224.60

Distributions Retained distributions

70.35

13.01

0.83

n/a

(6.22)

(4.25)

n/a

6.22

4.25

1,107.84

1,037.49

1,024.48

Direct portfolio transaction costs [a]

US ¢

US ¢

US ¢

Costs before dilution adjustments Dilution adjustments [b]

0.36 (0.04)

2.47 (0.47)

1.03 (0.44)

Total direct portfolio transaction costs

0.32

2.00

0.59

Closing NAV

Performance and charges

%

%

%

0.06 1.68 +6.78 0.56 0.00

0.20 1.69 +1.27 0.59 0.00

0.06 1.67 +0.08 0.42 0.00

Closing NAV (€’000) 152 Closing NAV percentage of total fund NAV (%) 0.10 Number of shares 14,538 Highest share price (US ¢) 1,115.76 Lowest share price (US ¢) 995.35

139 0.10 14,938 1,084.49 895.29

48 0.03 5,300 1,082.94 862.37

Direct portfolio transaction costs Operating charges Return after operating charges Historic yield Effect on yield of charges offset against capital Other information

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

45

M&G European Smaller Companies Fund Financial highlights

Specific share class performance US dollar Class ‘C’ Accumulation share performance The share class was launched on 8 August 2014. Six months to 28.02.17 US ¢

Year to 31.08.16 US ¢

Year to 31.08.15 US ¢

1,054.09 Opening NAV Return before operating charges and after direct 79.89 portfolio transaction costs (4.80) Operating charges

1,032.75

1,024.12

30.67 (9.33)

17.30 (8.67)

Change in NAV per share

Return after operating charges Distributions Retained distributions

75.09

21.34

8.63

n/a

(14.26)

(11.72)

n/a

14.26

11.72

1,129.18

1,054.09

1,032.75

Direct portfolio transaction costs [a]

US ¢

US ¢

US ¢

Costs before dilution adjustments Dilution adjustments [b]

0.36 (0.04)

2.52 (0.48)

0.89 (0.38)

Total direct portfolio transaction costs

0.32

2.04

0.51

Closing NAV

Performance and charges

%

%

%

0.06 0.91 +7.12 1.25 0.00

0.20 0.91 +2.07 1.33 0.00

0.06 0.88 +0.84 1.14 0.00

Closing NAV (€’000) 5 Closing NAV percentage of total fund NAV (%) 0.00 Number of shares 500 Highest share price (US ¢) 1,137.68 Lowest share price (US ¢) 1,013.22

5 0.00 500 1,099.90 905.56

4 0.00 500 1,091.10 863.68

Direct portfolio transaction costs Operating charges Return after operating charges Historic yield Effect on yield of charges offset against capital Other information

[a] As a percentage of average net asset value. [b] In respect of direct portfolio transaction costs. [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.

46

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

M&G European Smaller Companies Fund Financial statements and notes

Financial statements

Notes to the financial statements Accounting policies

Statement of total return 2017 for the six months to 28 and 29 February Income Net capital gains / (losses) Revenue Expenses Net revenue / (expense) before taxation Taxation

€’000

€’000

2016 €’000 €’000

17,444 554 (1,147) ______ (593) (3) ______

(6,653) 619 (1,244) ______ (625) (9) ______

Net revenue / (expense) after taxation

(596)

(634)

Total return before equalisation Equalisation

16,848 (1)

(7,287) 50

Change in net assets attributable to shareholders from investment activities

16,847

(7,237)

Statement of change in net assets attributable to shareholders 2017 for the six months to 28 and 29 February Opening net assets attributable to shareholders Amounts received on issue of shares Amounts paid on cancellation of shares Dilution adjustments Change in net assets attributable to shareholders from investment activities (see above) Unclaimed distributions Closing net assets attributable to shareholders

€’000

€’000

2016 €’000 €’000

140,323 3,483 (5,488) ______

The financial statements have been prepared in accordance with the ‘Accounting policies’ set out on page 4.

Distribution policy With effect from 1 September 2016, the distribution policy has been amended so that in determining the amount available for distribution to Income shares, the annual management charge and administration charge are now offset against capital, increasing the amount available for distribution whilst restraining capital performance to an equivalent extent. Marginal tax relief has not been taken into account in respect of expenses offset against capital. In determining the amount available for distribution, ordinary stock dividends have been transferred to capital, reducing the amount available.

164,977 13,702 (34,287) ______

(2,005) 12

(20,585) 75

16,847 0

(7,237) 1

155,177

137,231

The opening net assets attributable to shareholders for 2017 differs to the closing position in 2016 by the change in net assets attributable to shareholders for the second half of the comparative financial year.

Balance sheet as at

28 February 2017 €’000

31 August 2016 €’000

153,289

140,468

554 1,446

527 112

155,289

141,107

0 (112)

(626) (158)

Assets Fixed assets Investments Current assets Debtors Cash and bank balances Total assets Liabilities Creditors Distribution payable Other creditors Total liabilities Net assets attributable to shareholders

(112)

(784)

155,177

140,323

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

47

M&G European Smaller Companies Fund Financial statements and notes

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48

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

M&G Global Basics Fund Authorised Corporate Director’s Report Investment objective and policy

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

The Fund is a global equity fund which invests wholly or mainly in companies operating in basic industries (‘primary’ and ‘secondary’ industries) and also in companies that service these industries. The Fund may also invest in other global equities. The sole aim of the Fund is long term capital growth.

Investment approach The M&G Global Basics Fund employs both a top-down and bottomup investment process. The fund managers seek to identify sectors or industries which are set to benefit from long-term structural changes or themes. This is achieved through the analysis of global macroeconomics, global demographics and government policies and spending, among other considerations. In this way, they look to avoid investing in companies operating in industries which are structurally challenged.

Low risk

High risk

Typically lower rewards

1

2

Typically higher rewards

3

4

5

6

7

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.

Investment review

The bottom-up stock selection process is designed to identify well-run companies trading on attractive valuations and with sustainable growth prospects. The team has a long-term investment horizon, adopting the mentality of a business owner when buying a stock.

As at 1 March 2017, for the six months ended 28 February 2017

The portfolio is constructed in a benchmark-agnostic manner with a focus on diversification and liquidity. It is invested across the marketcap spectrum and is geographically diversified.

Between 1 September 2016 (the start of the review period) and 1 March 2017, the M&G Global Basics Fund produced a positive total return (the combination of income and growth of capital) across all its share classes. [a] However, the fund’s returns in all share classes lagged the comparative index, the FTSE Global Basics Composite Index. Over the six months, returns from the index were 15.0%, 13.0% and 6.5% in sterling, euros and US dollars respectively.

Risk profile

Performance against objective

The fund invests globally in the shares of listed companies and is, therefore, subject to the price volatility of the global stockmarket and the performance of individual companies. The fund may also be subject to fluctuations in currency exchange rates.

Over five years and since launch, the fund has delivered on its sole objective of long-term capital growth in sterling and euro terms, although not in US dollar terms.

The fund’s focus is on companies operating in the basic industries (‘primary’ and ‘secondary’ industries) and also in companies that service these industries. The emphasis is on selecting those companies that are positioned to benefit from the most compelling global economic trends, driven predominantly by emerging markets.

Investment performance

Given its direct and indirect exposure to emerging markets, the fund may be more volatile compared to a fund that invests mainly in the securities of companies in developed countries. The reasons for this greater volatility include: the financial infrastructure in emerging markets is typically less mature, the regulatory systems and disclosure standards are less developed and adverse market and political circumstances are more likely to occur in these markets. However, the fund is mainly invested in the shares of large and medium-sized companies, which are normally traded with relative ease. Moreover, the fund is diversified across countries, industries and market capitalisation, which is key in managing liquidity risk and reducing market risk. The fund’s risks are measured and managed as an integral part of the investment process.

The six months under review was a positive one for stockmarkets globally, with many recording solid gains. Investor attention remained focused on central bank policy, with the US Federal Reserve signalling gradual interest rate hikes and the European Central Bank holding its current course. Meanwhile, the Bank of Japan adjusted its policy in an attempt to hold long-term interest rates at ultra-low levels. Towards the end of September, the oil price benefited from an agreement to cut production by the Organization of the Petroleum Exporting Countries (OPEC). Oil prices then remained firm for most of the period. There was a significant shift in investor sentiment during the final quarter of 2016. In late summer, investors had already begun to challenge the widely held view that interest rates, economic growth and inflation would all stay low for some time. However, following Donald Trump’s victory in the US presidential election, expectations that taxes and regulations would be cut, giving the US economy a boost, became more prevalent. So too did the view that this would lead to higher inflation and interest rates, which contributed to a major switch out of fixed income assets (also known as bonds) into company shares, or equities. Although share price gains were more muted in the first two months of 2017, the S&P 500 Index still remained close to its all-time high.

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

49

M&G Global Basics Fund Authorised Corporate Director’s Report Investment review

Investment activities

Investment performance (continued)

The M&G Global Basics Fund’s investment process is a blend of macroeconomic analysis to identify the industries which are set to benefit from changes to the structure of economies that happen over time, together with in-depth analysis of company fundamentals.

Cyclical sectors (that is, sectors that tend to be more volatile throughout the economic cycle, such as financials, technology and materials) were in favour over the six months. Conversely, defensive sectors (that is, sectors that tend to remain more stable throughout the economic cycle, such as consumer goods and utilities) underperformed. The fund’s main detractor was specialist chemicals company Symrise. Its share price declined as investors downgraded earnings estimates on fears that the company will suffer from increased cost pressures, as commodity prices have firmed. Symrise is a global supplier of fragrances, flavourings, ingredients for cosmetics and nutritional supplements. Its products are widely used by food manufacturers and pharmaceutical companies. Defensive sectors lagged the broader market over the review period and a number of the fund’s detractors came from this area of the market. This was partly due to the stocks being viewed as ‘bond proxies’ (because of their tendency to deliver steady income payments) and selling off as bond prices fell. Shares in Irish food ingredients company Kerry Group fell as investors expressed concerns about a squeeze on the company’s profit margins going forward, if it is unable to pass on the full impact of higher input costs. Despite releasing a positive trading statement, investors took profits in UK-based personal care company PZ Cussons. To an extent, this was due to its exposure to Nigeria, one of its key markets, where trading remains challenging. Ansell, an Australian manufacturer of protective products including products for the healthcare sector, was another notable detractor. The shares suffered on fears that rising rubber costs would squeeze margins. Stock selection in the industrials sector also detracted. Shares in Germany-based industrial company GEA Group, one of the largest suppliers of process technology for the food industry, fell sharply after the company cut sales and profit estimates for the third quarter. On a more positive note, another industrial stock fared more favourably. Shares in Rockwell Automation, a US manufacturer of automation software and equipment, rallied after quarterly earnings topped analysts’ estimates and the company raised guidance for the current financial year. Rockwell also pointed to continued strong demand for its automation products used in car and consumer goods factories. Meanwhile, Microsoft’s share price soared to a record high at one point as third-quarter sales and earnings topped analysts’ expectations. Revenue from the technology giant’s cloud-based services more than doubled, even as demand for PCs remained in the doldrums and the company’s mobile phone efforts collapsed. While consumer goods stocks in general lagged the broader market, Bunge outperformed strongly. The company reported better-thanexpected fourth-quarter earnings and was upbeat about its South American agribusiness, where it sees higher volumes and margins. Elsewhere, shares in Hong Kong & Shanghai Hotels were buoyed by positive news on sales of luxury goods, as the hotel group owns a number of high-end shopping malls in Asia.

50

At present we are focusing on four main themes: health (which includes the challenges of an aging population), security (particularly cyber and food security), infrastructure (including rail transport) and the environment (especially the increasing requirement for energy efficiency and reducing pollution). During the review period, we initiated a position in Roche, one of the principal players in oncology, with a strong focus on research and development. Shares in the Swiss-based pharmaceuticals company displayed some weakness, which allowed us to establish a position at an attractive price. Another health-related company we invested in was Welltower, a real estate investment trust. Welltower is a US company providing premium long-term assisted care for the elderly in the US, Canada and the UK. In the security field, we initiated a holding in Raytheon, a US-based global defence company which has exposure to cyber security. Raytheon is a pure play on defence and government-related end markets, with two thirds of its business coming from the US and one third from the rest of the world. For the first time in around seven years, both US and international spending on key projects is rising, and with its exposure to missile defence and precision weaponry, Raytheon should benefit from this trend. Elsewhere, we established a holding in Alphabet (parent company of Google) as we favour the company for its ability to gather and manage large volumes of data. This should help the firm compete in multiple disciplines, including map technology (autonomous vehicles) and ‘cloud’ computing. Conversely, we closed the position in Umicore, a global materials technology and recycling group, as we believe its valuation has become ‘stretched’. We also took advantage of the recent share price strength in luxury hotels owner and operator Hong Kong & Shanghai Hotels to exit the holding.

Outlook We remain concerned about the backdrop faced by markets, particularly geopolitical and economic risks. Specifically, in Europe, there are a number of concerns around ‘Brexit’, as well as forthcoming elections in other countries and the health of some of the banks. We also have worries about weak economic growth in the region. In the US, we are scrutinising the path of the US economy, in particular the pace of growth and implications for inflation and the direction of interest rates. Investors now appear to be pricing in several interest rate rises for 2017, which has led to long-term interest rates edging up. In our view, this puts at risk the valuation of the market, which already stands on an elevated level. We believe the price-to-earnings multiples of companies could come under pressure as inflation expectations and interest rates rise. (The price-to-earnings multiple is the ratio for valuing a company that measures its current share price relative to its earnings per share.)

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

M&G Global Basics Fund Authorised Corporate Director’s Report Investment review

Portfolio statement (continued) as at Holding

28.02.17 28.02.17 31.08.16 $’000 % %

Outlook (continued) In particular, highly leveraged companies may struggle to roll over their debt, as it becomes due, and as higher interest rates increase their borrowing costs. Companies that have increased borrowings to pay generous dividends or enhance earnings per share through buying back shares are likely to be especially vulnerable. Further afield, the possibility for Chinese economic growth to slow and its currency to come under greater pressure are also at the forefront of investors’ minds. We have a small cash position, which can be deployed to add to existing holdings or to introduce new companies to the fund that fulfil our quality, growth and valuation criteria, and which are likely to benefit from one or more of the themes we are currently focused on: health, security, infrastructure and the environment.

Employees of M&G Limited which is an associate of M&G Securities Limited. [a] 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.

Investments

Portfolio statement 28.02.17 28.02.17 31.08.16 $’000 % % Belgium

0

0.00

1.95

88,955 88,955

3.44 3.44

3.69

67,259 7,295 15,480 44,484

2.60 0.28 0.60 1.72

2.58 [a]

Germany GEA Group Linde Porsche Pref. Siemens Symrise

274,389 35,714 25,800 34,684 81,337 96,854

10.61 1.38 1.00 1.34 3.15 3.74

Netherlands 400,000 Core Laboratories 450,000 NXP Semiconductors

92,524 46,264 46,260

3.58 1.79 1.79

3.20 [a]

Spain 500,000 Amadeus IT Holdings

23,209 23,209

0.90 0.90

0.87

101,067 8,928 92,139

3.91 0.35 3.56

0.31

Eire 1,157,824 Kerry Group France 100,000 Airbus 193,556 Imerys 660,064 Publicis Groupe 912,575 160,000 625,069 628,356 1,558,754

Switzerland 157,500 LafargeHolcim (Regd.) 380,134 Roche Holding ‘Genussscheine’

United Kingdom BHP Billiton BP G4S Genus Hochschild Mining Hutchison China MediTech [b] MD Medical Group GDR PZ Cussons Unilever

Australia 5,085,696 Ansell 326,423 Australian Zircon [c] 45,186,512 Starpharma Hong Kong 5,851,000 BYD Japan 1,615,800 Japan Tobacco 4,800,000 Kirin Holdings

Jamie Horvat & Randeep Somel Co-fund managers

as at Holding

2,800,000 7,436,184 14,000,000 1,850,000 16,332,555 1,100,000 1,314,000 20,820,370 1,463,068

8.34

Singapore 13,238,800 Delfi (formerly Petra Foods) United Arab Emirates 2,857,429 DP World

417,692 45,369 41,706 45,543 40,090 53,395 28,531 11,511 82,130 69,417

16.14 1.75 1.61 1.76 1.55 2.06 1.10 0.45 3.18 2.68

15.88

106,793 83,034 0 23,759

4.13 3.21 0.00 0.92

5.93

34,413 34,413

1.33 1.33

2.77

136,678 54,030 82,648

5.28 2.09 3.19

5.27

21,003 21,003

0.81 0.81

0.88

60,263 60,263

2.33 2.33

1.97

Canada Barrick Gold Dominion Diamond Franco Nevada Iamgold Corporation Osisko Gold Royalties Osisko Gold Royalties wts. 2019 Stella-Jones

94,532 30,310 26,513 12,473 12,942 6,384 167 5,743

3.65 1.17 1.02 0.48 0.50 0.25 0.01 0.22

3.42

1,602,850 3,118,676 194,825 3,310,661 591,928 112,582 184,532

United States Alamos Gold Alphabet Becton Dickinson Booz Allen Hamilton Bunge Cal Maine Foods Honeywell International Jacobs Engineering Group Johnson & Johnson Matthews International MetLife Microsoft National Oilwell Varco Newmont Mining Raytheon ResMed Rockwell Automation Southern Copper Corporation The Scotts Miracle-Gro Company Thermo Fisher Scientific Time Warner United Parcel Service Welltower Yum China Holdings Yum! Brands

989,429 11,255 26,680 37,054 13,538 52,427 20,140 59,509 14,490 79,700 14,660 46,078 128,488 45,210 22,911 43,600 22,013 75,625 34,663 54,962 14,504 19,640 58,324 38,385 16,226 39,347

38.25 0.44 1.03 1.43 0.52 2.03 0.78 2.30 0.56 3.08 0.57 1.78 4.97 1.75 0.89 1.69 0.85 2.92 1.34 2.12 0.56 0.76 2.25 1.48 0.63 1.52

36.94

1,535,401 32,180 202,715 369,190 644,224 530,685 476,490 253,985 651,193 215,747 875,000 2,000,749 1,100,000 674,462 281,602 305,738 500,000 941,414 608,862 91,522 200,000 546,516 548,124 600,722 600,722

30,813 30,813

1.19 1.19

0.00

2,539,019

98.15

94.00

Mexico 9,985,507 Grupo Mexico Portfolio of investments

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

51

M&G Global Basics Fund Authorised Corporate Director’s Report

Investments Portfolio statement (continued) as at Holding Eire (‘AAA’ rated money market funds) [d] 12,139,000 Northern Trust Global Fund - Sterling

28.02.17 28.02.17 31.08.16 $’000 % % 15,101

0.58

0.56

15,101

0.58

Total portfolio Net other assets / (liabilities)

2,554,120 32,919

98.73 1.27

94.56 5.44

Net assets attributable to shareholders

2,587,039

100.00

100.00

All securities are on an official stock exchange listing except where referenced. [a] The comparative weightings have been re-analysed to reflect changes to the

country classifications. [b] AIM quoted. [c] Delisted. [d] Uncommitted surplus cash is placed into ‘AAA’ rated money market funds with the

aim of reducing counterparty risk.

Top ten portfolio transactions for the six months to 28 February 2017 Largest purchases Roche Holding ‘Genussscheine’ Siemens BYD Welltower Raytheon Southern Copper Corporation Alphabet Grupo Mexico Iamgold Corporation Alamos Gold

$’000 90,349 79,167 38,926 38,816 38,687 26,320 25,671 25,425 13,592 13,199

Other purchases

51,853

Total purchases

442,005

Largest sales United Technologies Hongkong and Shanghai Hotels Umicore Elizabeth Arden Ansell Johnson & Johnson The Scotts Miracle-Gro Company Honeywell International PrivateBancorp Franco Nevada

$’000 109,655 82,581 53,519 42,708 33,394 29,208 23,213 18,782 15,164 14,223

Other sales

48,028

Total sales

470,475

Purchases and sales exclude the cost and proceeds of ‘AAA’ rated money market funds.

52

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

M&G Global Basics Fund Financial highlights Performance since launch

Fund performance Please note past performance is not a guide to future performance and 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 not get back the original amount you invested. The following chart and tables show the performance for two of the fund’s share classes – Sterling Class ‘A’ (Accumulation) shares and Sterling Class ‘I’ (Accumulation) shares. We show performance for these two share classes because:

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

• The performance of the Sterling Class ‘I’ (Accumulation) share is the most appropriate to compare with the average performance of the fund’s comparative sector. It is the share class used by the Investment Association in the calculation of the comparative sector’s average performance. This share class is available for direct investment with M&G subject to minimum investment criteria, or via third parties who may charge additional fees. The performance shown takes the deduction of the ongoing charge for this share class into account but it does not take account of charges applied by any other party through which you may have invested. The fund is available for investment in different share classes, each with varying levels of charges and minimum investments; please refer to the Prospectus for M&G Investment Funds (1), which is available free of charge either from our website at www.mandg.co.uk/prospectuses or by calling M&G Customer Relations.

To give an indication of how the fund has performed since launch, the chart below shows total return of Sterling Class ‘A’ (Accumulation) shares and Sterling Class ‘I’ (Accumulation) shares. November 2000 = 100, plotted monthly

Chart date 1 March 2017

500

Sterling Class ‘I’ (Accumulation) shares* 400 350 300 250 200 170 140 120 100 80

Sterling Class ‘A’ (Accumulation) shares* 60 50 00

01

02

03

04

05

06

07

08

09

10

11

12

13

14

15

16

17

Sterling Class ‘A’ (Accumulation) shares* Sterling Class ‘I’ (Accumulation) shares* FTSE Global Basics Composite Index Morningstar (IA) Global sector average* * Income reinvested

Source: Morningstar, Inc. and M&G

When the fund’s objective changed, the comparable index of the fund also changed, and to make a fair comparison the chart above shows performance since the fund’s change of objective. The fund’s Sterling Class ‘I’ (Accumulation) shares were launched on 3 August 2012. Performance data shown prior to this date is that of the fund’s Sterling Class ‘A’ (Accumulation) shares.

Fund level performance Fund net asset value as at Fund net asset value (NAV)

28.02.17 $’000

31.08.16 $’000

31.08.15 $’000

2,587,039

2,675,498

3,084,200

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

53

M&G Global Basics Fund Financial highlights Operating charges and portfolio transaction costs

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

Operating charges

Long-term performance by share class Six Three months years 01.09.16 03.03.14 % [a] % p.a.

Five years 01.03.12 % p.a.

Since launch

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

% p.a.

• Investment management: Charge paid to M&G for investment

Euro [b] Class ‘A’

+6.9

+8.7

+4.2

+7.6 [c]

Class ‘C’

+7.5

+9.8

+5.3

+8.6 [c]

Class ‘A’

+8.8

+10.4

+5.0

+7.8 [e]

Class ‘I’

+9.2

+11.2

n/a

+8.9 [f]

Class ‘R’

+9.1

+11.0

n/a

+8.6 [f]

Class ‘X’

+8.8

+10.4

+5.0

+15.1 [g]

US dollar [b] Class ‘A’

+1.0

-0.5

-0.5

+1.3 [h]

+0.5

[h]

Sterling [d]

Class ‘C’

+1.5

+0.5

+2.3

[a] Absolute basis. [b] Price to price with net income reinvested. [c] 28 November 2001, the launch date of the share class. [d] Price to price with income reinvested. [e] 28 February 1973, the end of the initial offer period of the predecessor unit trust. [f] 3 August 2012, the launch date of the share class. [g] 1 October 2002, the launch date of the share class. [h] 9 March 2007, the launch date of the share class.

54

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

management of the fund (also known as Annual Management Charge).

• Administration: Charge paid to M&G for administration services in addition to investment management – any surplus from this charge will be retained by M&G.

• Oversight

and other independent services: Charges paid to providers independent of M&G for services which include depositary, custody and audit.

The operating charges paid by each share class of the fund are shown in the following performance tables. Operating charges do not include portfolio transaction costs or any entry and exit charges (also known as initial and redemption charges). The charging structures of share classes may differ, and therefore the operating charges may differ. Operating charges are the same as the ongoing charges shown in the Key Investor Information Document, other than where an estimate has been used for the ongoing charge because a material change has made the operating charges unreliable as an estimate of future charges. For this fund there is no difference between operating charges and ongoing charges figures, unless disclosed under the specific share class performance table.

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

M&G Global Basics Fund Financial highlights

Fund performance

Specific share class performance

Portfolio transaction costs Portfolio transaction costs are incurred by funds when buying and selling investments. These costs vary depending on the types of investment, their market capitalisation, country of exchange, method of execution and the quality of research provided. They are made up of direct and indirect portfolio transaction costs:

• Direct portfolio transaction costs: Broker execution commission

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

Euro Class ‘A’ Income share performance The share class was launched on 12 July 2013.

and taxes.

• Indirect portfolio transaction costs: ‘Dealing spread’ – the difference between the buying and selling prices of the fund’s investments; some types of investment, such as fixed interest securities, have no direct transaction costs and only the dealing spread is paid.

Six months to 28.02.17 Euro ¢

Year to 31.08.16 Euro ¢

Year to 31.08.15 Euro ¢

2,824.63 Opening NAV Return before operating charges and after direct 221.25 portfolio transaction costs Operating charges (27.45)

2,518.66

2,541.54

362.58 (49.99)

38.34 (52.29) (13.95)

Change in NAV per share

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

Return after operating charges

To protect existing investors, portfolio transaction costs incurred as a result of investors buying and selling shares in the fund are recovered from those investors through a ‘dilution adjustment’ to the price they pay or receive. The table below shows direct portfolio transaction costs paid by the fund before and after that part of the dilution adjustment relating to direct portfolio transaction costs. To give an indication of the indirect portfolio dealing costs the table also shows the average portfolio dealing spread.

Direct portfolio transaction costs [a]

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

Portfolio transaction costs Six months to 28.02.17 Direct portfolio transaction costs [b] %

Year to 31.08.16 %

Year to 31.08.15 %

Average [a] %

Broker commission Taxes

0.05 0.01

0.06 0.01

0.07 0.01

0.06 0.01

Costs before dilution adjustments Dilution adjustments [c]

0.06 (0.01)

0.07 (0.02)

0.08 (0.03)

0.07 (0.02)

Total direct portfolio transaction costs

0.05

0.05

0.05

0.05

28.02.17 %

31.08.16 %

31.08.15 %

0.26

0.22

0.30

as at Indirect portfolio transaction costs Average portfolio dealing spread

193.80

312.59

Distributions

n/a

(6.62)

(8.93)

Closing NAV

3,018.43

2,824.63

2,518.66

Euro ¢

Euro ¢

Euro ¢

Costs before dilution adjustments Dilution adjustments [b]

0.86 (0.11)

1.73 (0.59)

2.13 (0.82)

Total direct portfolio transaction costs

0.75

1.14

1.31

Performance and charges

%

%

%

0.05 1.92 +6.86 1.84 1.90

0.05 1.92 +12.41 0.23 0.00

0.05 1.93 -0.55 0.34 0.00

Closing NAV ($’000) 4,416 Closing NAV percentage of total fund NAV (%) 0.17 Number of shares 137,983 Highest share price (Euro ¢) 3,059.28 Lowest share price (Euro ¢) 2,720.14

3,857 0.14 122,547 2,871.59 2,251.56

2,750 0.09 96,805 3,031.34 2,341.68

Direct portfolio transaction costs Operating charges Return after operating charges Historic yield [c] Effect on yield of charges offset against capital Other information

Average [a] % 0.26

[a] Average of first three columns. [b] As a percentage of average net asset value. [c] In respect of direct portfolio transaction costs.

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

55

M&G Global Basics Fund Financial highlights Euro Class ‘C’ Accumulation share performance

Specific share class performance

The share class was launched on 28 November 2001.

Six months to 28.02.17 Euro ¢

Year to 31.08.16 Euro ¢

Year to 31.08.15 Euro ¢

2,850.14 Opening NAV Return before operating charges and after direct 223.20 portfolio transaction costs Operating charges (27.66)

2,535.39

2,554.61

Return after operating charges

Year to 31.08.15 Euro ¢

3,280.53 Opening NAV Return before operating charges and after direct portfolio transaction costs 257.88 (15.33) Operating charges

2,889.31

2,882.22

418.62 (27.40)

35.67 (28.58)

Return after operating charges

242.55

391.22

7.09

n/a

(37.16)

(42.05)

Distributions 364.89 (50.14)

33.22 (52.44)

Retained distributions Closing NAV

n/a

37.16

42.05

3,523.08

3,280.53

2,889.31

195.54

314.75

(19.22)

Distributions

n/a

(6.63)

(8.98)

Direct portfolio transaction costs [a]

Euro ¢

Euro ¢

Euro ¢

Retained distributions

n/a

6.63

8.98

3,045.68

2,850.14

2,535.39

Costs before dilution adjustments Dilution adjustments [b]

1.00 (0.12)

1.97 (0.67)

2.42 (0.93)

Total direct portfolio transaction costs

0.88

1.30

1.49

Euro ¢

Euro ¢

Euro ¢

Costs before dilution adjustments Dilution adjustments [b]

0.87 (0.11)

1.73 (0.59)

2.13 (0.82)

Total direct portfolio transaction costs

0.76

1.14

1.31

Closing NAV Direct portfolio transaction costs [a]

Performance and charges

%

%

%

0.05 1.92 +6.86 0.22 0.00

0.05 1.92 +12.41 0.23 0.00

0.05 1.93 -0.75 0.34 0.00

Closing NAV ($’000) 1,708,315 Closing NAV percentage of total fund NAV (%) 66.03 Number of shares 52,907,273 Highest share price (Euro ¢) 3,086.90 Lowest share price (Euro ¢) 2,744.71

1,723,401 64.41 54,269,623 2,890.75 2,266.60

1,663,773 53.95 58,178,164 3,040.77 2,353.74

Direct portfolio transaction costs Operating charges Return after operating charges Historic yield Effect on yield of charges offset against capital Other information

Euro Class ‘C’ Income share performance Six months to 28.02.17 Euro ¢

Year to 31.08.16 Euro ¢

Year to 31.08.15 Euro ¢

Opening NAV 3,165.27 Return before operating charges and after direct portfolio transaction costs 248.90 Operating charges (14.84)

2,820.48

2,855.16

407.44 (26.45)

34.79 (27.80)

Change in NAV per share

Return after operating charges

234.06

380.99

6.99

Distributions

n/a

(36.20)

(41.67)

Closing NAV

3,399.33

3,165.27

2,820.48

Euro ¢

Euro ¢

Euro ¢

0.97 (0.12)

1.87 (0.63)

2.52 (0.97)

Direct portfolio transaction costs [a] Costs before dilution adjustments Dilution adjustments [b] Total direct portfolio transaction costs Performance and charges

0.85

1.24

1.55

%

%

%

0.05 0.93 +7.39 1.82 0.90

0.05 0.94 +13.51 1.13 0.00

0.05 0.91 +0.24 1.49 0.00

Closing NAV ($’000) 1,185 Closing NAV percentage of total fund NAV (%) 0.05 Number of shares 32,892 Highest share price (Euro ¢) 3,444.76 Lowest share price (Euro ¢) 3,054.11

28 0.00 792 3,245.64 2,532.06

31 0.00 978 3,419.69 2,633.92

Direct portfolio transaction costs Operating charges Return after operating charges Historic yield [c] Effect on yield of charges offset against capital

Performance and charges

%

%

%

0.05 0.92 +7.39 1.04 0.00

0.05 0.92 +13.54 1.12 0.00

0.05 0.91 +0.25 1.46 0.00

21,209 Closing NAV ($’000) Closing NAV percentage of total fund NAV (%) 0.82 Number of shares 567,852 Highest share price (Euro ¢) 3,570.13 Lowest share price (Euro ¢) 3,165.26

15,885 0.59 434,591 3,325.82 2,594.59

33,040 1.07 1,013,811 3,452.14 2,659.09

Direct portfolio transaction costs Operating charges Return after operating charges Historic yield Effect on yield of charges offset against capital Other information

Sterling Class ‘A’ Income share performance The share class was launched on 28 February 1973. Six months to 28.02.17 UK p

Year to 31.08.16 UK p

Year to 31.08.15 UK p

Opening NAV 776.01 Return before operating charges and after direct portfolio transaction costs 64.87 Operating charges (6.65)

597.91

655.77

192.31 (10.77)

(43.09) (11.02)

Return after operating charges

(54.11)

Change in NAV per share

The share class was launched on 8 August 2014.

Other information

56

Year to 31.08.16 Euro ¢

Change in NAV per share

Euro Class ‘A’ Accumulation share performance The share class was launched on 28 November 2001.

Change in NAV per share

Six months to 28.02.17 Euro ¢

58.22

181.54

Distributions

n/a

(3.44)

(3.75)

Closing NAV

834.23

776.01

597.91

Direct portfolio transaction costs [a]

UK p

UK p

UK p

Costs before dilution adjustments Dilution adjustments [b]

0.24 (0.03)

0.43 (0.14)

0.51 (0.20)

Total direct portfolio transaction costs

0.21

0.29

0.31

Performance and charges

%

%

%

0.05 1.66 +7.50 1.67 1.65

0.05 1.68 +30.36 0.44 0.00

0.05 1.68 -8.25 0.62 0.00

Closing NAV ($’000) 88,043 Closing NAV percentage of total fund NAV (%) 3.40 Number of shares 8,483,799 Highest share price (UK p) 844.50 Lowest share price (UK p) 755.91

112,998 4.22 11,084,743 807.24 566.54

334,368 10.84 36,342,136 706.13 575.15

Direct portfolio transaction costs Operating charges Return after operating charges Historic yield [c] Effect on yield of charges offset against capital Other information

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

M&G Global Basics Fund Financial highlights Sterling Class ‘I’ Accumulation share performance

Specific share class performance

The share class was launched on 3 August 2012.

Six months to 28.02.17 UK p

Year to 31.08.16 UK p

Year to 31.08.15 UK p

1,184.36 Opening NAV Return before operating charges and after direct 99.02 portfolio transaction costs Operating charges (10.16)

908.28

989.92

Return after operating charges

Year to 31.08.16 UK p

Year to 31.08.15 UK p

1,358.59 Opening NAV Return before operating charges and after direct portfolio transaction costs 113.81 (6.43) Operating charges

1,034.05

1,118.54

334.91 (10.37)

(74.06) (10.43)

Change in NAV per share

Sterling Class ‘A’ Accumulation share performance The share class was launched on 28 February 1973.

Change in NAV per share

Six months to 28.02.17 UK p

Return after operating charges

107.38

324.54

(84.49)

n/a

(15.55)

(15.07)

Distributions 292.46 (16.38)

(65.06) (16.58)

Retained distributions Closing NAV

n/a

15.55

15.07

1,465.97

1,358.59

1,034.05

88.86

276.08

(81.64)

Distributions

n/a

(5.41)

(5.26)

Direct portfolio transaction costs [a]

UK p

UK p

UK p

Retained distributions

n/a

5.41

5.26

1,273.22

1,184.36

908.28

Costs before dilution adjustments Dilution adjustments [b]

0.42 (0.05)

0.75 (0.26)

0.88 (0.34)

Total direct portfolio transaction costs

0.37

0.49

0.54

Direct portfolio transaction costs [a]

UK p

UK p

UK p

Costs before dilution adjustments Dilution adjustments [b]

0.37 (0.05)

0.65 (0.22)

0.77 (0.30)

Total direct portfolio transaction costs

0.32

0.43

0.47

Closing NAV

Performance and charges

%

%

%

0.05 1.67 +7.50 0.42 0.00

0.05 1.67 +30.40 0.46 0.00

0.05 1.68 -8.25 0.57 0.00

Closing NAV ($’000) 269,818 Closing NAV percentage of total fund NAV (%) 10.43 Number of shares 17,035,163 Highest share price (UK p) 1,288.90 Lowest share price (UK p) 1,153.67

287,167 10.73 18,457,412 1,226.59 860.56

521,041 16.89 37,279,528 1,065.98 868.26

Direct portfolio transaction costs Operating charges Return after operating charges Historic yield Effect on yield of charges offset against capital Other information

Sterling Class ‘I’ Income share performance

Performance and charges

%

%

%

0.05 0.92 +7.90 1.04 0.00

0.05 0.91 +31.39 1.14 0.00

0.05 0.93 -7.55 1.46 0.00

246,832 Closing NAV ($’000) Closing NAV percentage of total fund NAV (%) 9.54 Number of shares 13,534,936 Highest share price (UK p) 1,482.71 Lowest share price (UK p) 1,323.72

269,001 10.06 15,072,530 1,406.61 980.30

187,541 6.08 11,786,175 1,210.14 988.35

Direct portfolio transaction costs Operating charges Return after operating charges Historic yield Effect on yield of charges offset against capital Other information

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

Change in NAV per share

Six months to 28.02.17 UK p

Year to 31.08.16 UK p

Year to 31.08.15 UK p 109.06

Year to 31.08.16 UK p

Year to 31.08.15 UK p

Opening NAV 129.01 Return before operating charges and after direct portfolio transaction costs 10.81 Operating charges (0.78)

99.37

Six months to 28.02.17 UK p

32.11 (1.27)

(7.23) (1.28)

Opening NAV 1,289.26 Return before operating charges and after direct portfolio transaction costs 108.02 Operating charges (6.11)

992.84

1,089.93

Return after operating charges

Return after operating charges

The share class was launched on 3 August 2012.

Change in NAV per share

321.31 (9.96)

10.03

30.84

(8.51)

(72.26) (10.16)

Distributions

n/a

(1.20)

(1.18)

Closing NAV

139.04

129.01

99.37

101.91

311.35

(82.42)

Direct portfolio transaction costs [a]

UK p

UK p

UK p

Distributions

n/a

(14.93)

(14.67)

Closing NAV

1,391.17

1,289.26

992.84

Costs before dilution adjustments Dilution adjustments [b]

0.04 0.00

0.07 (0.02)

0.09 (0.03)

Total direct portfolio transaction costs

0.04

0.05

0.06

Direct portfolio transaction costs [a]

UK p

UK p

UK p

Costs before dilution adjustments Dilution adjustments [b]

0.40 (0.05)

0.72 (0.24)

0.86 (0.33)

Total direct portfolio transaction costs

0.35

0.48

0.53

Performance and charges

%

%

%

0.05 0.92 +7.90 1.75 0.90

0.05 0.91 +31.36 1.16 0.00

0.05 0.93 -7.56 1.48 0.00

Closing NAV ($’000) 51,250 Closing NAV percentage of total fund NAV (%) 1.98 Number of shares 2,961,338 Highest share price (UK p) 1,407.07 Lowest share price (UK p) 1,256.20

52,829 1.98 3,119,247 1,350.29 941.22

39,084 1.27 2,558,220 1,179.08 962.98

Direct portfolio transaction costs Operating charges Return after operating charges Historic yield [c] Effect on yield of charges offset against capital Other information

Performance and charges

%

%

%

0.05 1.17 +7.77 1.73 1.15

0.05 1.16 +31.04 0.93 0.00

0.05 1.18 -7.80 1.19 0.00

Closing NAV ($’000) 653 Closing NAV percentage of total fund NAV (%) 0.02 Number of shares 377,655 Highest share price (UK p) 140.67 Lowest share price (UK p) 125.69

716 0.03 422,422 134.82 94.19

280 0.01 182,723 117.78 96.11

Direct portfolio transaction costs Operating charges Return after operating charges Historic yield [c] Effect on yield of charges offset against capital Other information

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

57

M&G Global Basics Fund Financial highlights Sterling Class ‘X’ Accumulation share performance

Specific share class performance

The share class was launched on 1 October 2002.

Return after operating charges

Year to 31.08.16 UK p 102.63 33.56 (1.69)

Year to 31.08.16 UK p

Year to 31.08.15 UK p

1,172.74 Opening NAV Return before operating charges and after direct portfolio transaction costs 98.05 (10.06) Operating charges

899.35

980.19

289.64 (16.25)

(64.43) (16.41)

Return after operating charges

Change in NAV per share

Sterling Class ‘R’ Accumulation share performance The share class was launched on 3 August 2012. Six months to 28.02.17 UK p Change in NAV per share 134.50 Opening NAV Return before operating charges and after direct 11.26 portfolio transaction costs Operating charges (0.81)

Six months to 28.02.17 UK p

Year to 31.08.15 UK p 111.30 (7.36) (1.31)

87.99

273.39

(80.84)

Distributions

n/a

(5.39)

(5.27)

Retained distributions

n/a

5.39

5.27

1,260.73

1,172.74

899.35

Closing NAV

10.45

31.87

(8.67)

Distributions

n/a

(1.24)

(1.21)

Direct portfolio transaction costs [a]

UK p

UK p

UK p

Retained distributions

n/a

1.24

1.21

144.95

134.50

102.63

Costs before dilution adjustments Dilution adjustments [b]

0.36 (0.04)

0.64 (0.22)

0.77 (0.30)

Direct portfolio transaction costs [a] Costs before dilution adjustments Dilution adjustments [b]

UK p 0.04 (0.01)

UK p 0.10 (0.03)

UK p 0.09 (0.03)

Total direct portfolio transaction costs

0.32

0.42

0.47

Total direct portfolio transaction costs

0.03

0.07

0.06

% 0.05 1.17 +7.77 0.84 0.00

% 0.05 1.17 +31.05 0.92 0.00

% 0.05 1.18 -7.79 1.18 0.00

Other information Closing NAV ($’000) 206 Closing NAV percentage of total fund NAV (%) 0.01 Number of shares 114,454 Highest share price (UK p) 146.66 Lowest share price (UK p) 131.04

167 0.01 94,487 139.27 97.27

120 0.00 75,856 120.22 98.10

Closing NAV

Performance and charges Direct portfolio transaction costs Operating charges Return after operating charges Historic yield Effect on yield of charges offset against capital

Performance and charges

%

%

%

0.05 1.67 +7.50 0.42 0.00

0.05 1.67 +30.40 0.46 0.00

0.05 1.68 -8.25 0.58 0.00

95,877 Closing NAV ($’000) Closing NAV percentage of total fund NAV (%) 3.71 Number of shares 6,113,215 Highest share price (UK p) 1,276.26 Lowest share price (UK p) 1,142.35

103,652 3.87 6,728,108 1,214.56 852.09

146,195 4.74 10,563,951 1,055.50 859.72

Direct portfolio transaction costs Operating charges Return after operating charges Historic yield Effect on yield of charges offset against capital Other information

US dollar Class ‘A’ Income share performance The share class was launched on 8 August 2014. Six months to 28.02.17 US ¢

Year to 31.08.16 US ¢

Year to 31.08.15 US ¢

Opening NAV 1,119.41 Return before operating charges and after direct portfolio transaction costs 29.35 Operating charges (10.55)

1,010.49

1,191.51

130.04 (19.18)

(155.80) (21.33) (177.13)

Sterling Class ‘X’ Income share performance Change in NAV per share

The share class was launched on 1 October 2002. Six months to 28.02.17 Change in NAV per share UK p Opening NAV 778.58 Return before operating charges and after direct portfolio transaction costs 65.10 Operating charges (6.68) Return after operating charges

Year to 31.08.15 UK p 657.87

193.16 (10.85)

(43.26) (11.04)

Return after operating charges

58.42

182.31

Distributions

n/a

(3.60)

(3.70)

Closing NAV

837.00

778.58

599.87

Direct portfolio transaction costs [a] Costs before dilution adjustments Dilution adjustments [b]

UK p 0.24 (0.03)

UK p 0.43 (0.15)

UK p 0.52 (0.20)

Total direct portfolio transaction costs

0.21

0.28

0.32

% 0.05 1.67 +7.50 1.69 1.65

% 0.05 1.67 +30.39 0.46 0.00

% 0.05 1.68 -8.25 0.61 0.00

Other information Closing NAV ($’000) 49,618 Closing NAV percentage of total fund NAV (%) 1.92 Number of shares 4,765,370 Highest share price (UK p) 847.31 Lowest share price (UK p) 758.41

51,020 1.91 4,988,458 810.07 568.41

62,311 2.02 6,750,337 708.37 576.98

Performance and charges Direct portfolio transaction costs Operating charges Return after operating charges Historic yield [c] Effect on yield of charges offset against capital

58

Year to 31.08.16 UK p 599.87

(54.30)

18.80

110.86

Distributions

n/a

(1.94)

(3.89)

Closing NAV

1,138.21

1,119.41

1,010.49

Direct portfolio transaction costs [a]

US ¢

US ¢

US ¢

Costs before dilution adjustments Dilution adjustments [b]

0.33 (0.04)

0.66 (0.22)

0.79 (0.30)

Total direct portfolio transaction costs

0.29

0.44

0.49

Performance and charges

%

%

%

0.05 1.93 +1.68 1.88 1.90

0.05 1.93 +10.97 0.17 0.00

0.05 1.90 -14.87 0.38 0.00

Closing NAV ($’000) 49 Closing NAV percentage of total fund NAV (%) 0.00 Number of shares 4,336 Highest share price (US ¢) 1,143.30 Lowest share price (US ¢) 1,065.61

36 0.00 3,215 1,147.93 897.50

5 0.00 431 1,194.36 989.52

Direct portfolio transaction costs Operating charges Return after operating charges Historic yield [c] Effect on yield of charges offset against capital Other information

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

M&G Global Basics Fund Financial highlights US dollar Class ‘C’ Accumulation share performance

Specific share class performance

The share class was launched on 9 March 2007.

Return after operating charges

Year to 31.08.16 US ¢ 1,014.12 131.74 (19.74)

Year to 31.08.16 US ¢

Year to 31.08.15 US ¢

1,235.00 Opening NAV Return before operating charges and after direct portfolio transaction costs 32.53 (5.58) Operating charges

1,101.07

1,284.26

144.20 (10.27)

(171.98) (11.21)

Change in NAV per share

US dollar Class ‘A’ Accumulation share performance The share class was launched on 9 March 2007. Six months to 28.02.17 US ¢ Change in NAV per share 1,126.12 Opening NAV Return before operating charges and after direct 29.48 portfolio transaction costs Operating charges (10.59)

Six months to 28.02.17 US ¢

Year to 31.08.15 US ¢ 1,194.76 (159.07) (21.57)

Return after operating charges

26.95

133.93

(183.19)

Distributions

n/a

(14.12)

(16.36)

Retained distributions

n/a

14.12

16.36

1,261.95

1,235.00

1,101.07

Closing NAV

18.89

112.00

(180.64)

Distributions

n/a

(2.62)

(3.90)

Direct portfolio transaction costs [a]

US ¢

US ¢

US ¢

Retained distributions

n/a

2.62

3.90

1,145.01

1,126.12

1,014.12

Costs before dilution adjustments Dilution adjustments [b]

0.36 (0.05)

0.74 (0.25)

0.95 (0.37)

Total direct portfolio transaction costs

0.31

0.49

0.58

Direct portfolio transaction costs [a] Costs before dilution adjustments Dilution adjustments [b]

US ¢ 0.33 (0.04)

US ¢ 0.68 (0.23)

US ¢ 0.88 (0.34)

Total direct portfolio transaction costs

0.29

0.45

0.54

% 0.05 1.92 +1.68 0.23 0.00

% 0.05 1.92 +11.04 0.23 0.00

% 0.05 1.90 -15.12 0.33 0.00

Other information Closing NAV ($’000) 44,663 Closing NAV percentage of total fund NAV (%) 1.73 Number of shares 3,900,639 Highest share price (US ¢) 1,150.13 Lowest share price (US ¢) 1,071.99

49,379 1.85 4,384,887 1,152.82 901.35

51,045 1.66 5,033,401 1,197.29 989.30

Closing NAV

Performance and charges Direct portfolio transaction costs Operating charges Return after operating charges Historic yield Effect on yield of charges offset against capital

Performance and charges

%

%

%

0.05 0.92 +2.18 1.12 0.00

0.05 0.92 +12.16 1.13 0.00

0.05 0.89 -14.26 1.48 0.00

4,900 Closing NAV ($’000) Closing NAV percentage of total fund NAV (%) 0.19 Number of shares 388,274 Highest share price (US ¢) 1,267.42 Lowest share price (US ¢) 1,178.19

5,357 0.20 433,770 1,263.76 982.44

42,611 1.38 3,869,896 1,289.02 1,073.98

Direct portfolio transaction costs Operating charges Return after operating charges Historic yield Effect on yield of charges offset against capital Other information

[a] As a percentage of average net asset value. [b] In respect of direct portfolio transaction costs. [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.

US dollar Class ‘C’ Income share performance The share class was launched on 8 August 2014. Six months to 28.02.17 Change in NAV per share US ¢ Opening NAV 1,191.41 Return before operating charges and after direct portfolio transaction costs 31.26 Operating charges (5.37) Return after operating charges

Year to 31.08.16 US ¢ 1,074.84

Year to 31.08.15 US ¢ 1,272.22

140.37 (9.95)

(170.46) (10.71) (181.17)

25.89

130.42

Distributions

n/a

(13.85)

(16.21)

Closing NAV

1,217.30

1,191.41

1,074.84

Direct portfolio transaction costs [a] Costs before dilution adjustments Dilution adjustments [b]

US ¢ 0.36 (0.04)

US ¢ 0.77 (0.26)

US ¢ 0.84 (0.33)

Total direct portfolio transaction costs

0.32

0.51

0.51

% 0.05 0.92 +2.17 1.94 0.90

% 0.05 0.91 +12.13 1.15 0.00

% 0.05 0.89 -14.24 1.53 0.00

Other information Closing NAV ($’000) 5 Closing NAV percentage of total fund NAV (%) 0.00 Number of shares 401 Highest share price (US ¢) 1,222.56 Lowest share price (US ¢) 1,136.53

5 0.00 401 1,233.31 958.78

5 0.00 401 1,277.24 1,064.16

Performance and charges Direct portfolio transaction costs Operating charges Return after operating charges Historic yield [c] Effect on yield of charges offset against capital

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

59

M&G Global Basics Fund Financial statements and notes

Financial statements

Notes to the financial statements Accounting policies

Statement of total return 2017 for the six months to 28 and 29 February Income Net capital gains / (losses) Revenue Expenses Net revenue / (expense) before taxation Taxation

$’000

$’000

2016 $’000 $’000

42,741 24,788 (22,238) ______ 2,550 (2,233) ______

(133,132) 27,955 (23,430) ______ 4,525 (2,344) ______

317

2,181

Total return before equalisation Equalisation

Net revenue / (expense) after taxation

43,058 (33)

(130,951) 52

Change in net assets attributable to shareholders from investment activities

43,025

(130,899)

Statement of change in net assets attributable to shareholders 2017 for the six months to 28 and 29 February Opening net assets attributable to shareholders Amounts received on issue of shares Amounts paid on cancellation of shares Dilution adjustments Change in net assets attributable to shareholders from investment activities (see above) Unclaimed distributions Closing net assets attributable to shareholders

$’000

$’000 2,675,498

2016 $’000 $’000

(131,690) 206

3,084,200 150,581 (586,147) ______ (435,566) 822

43,025 0

(130,899) 2

2,587,039

2,518,559

24,712 (156,402) ______

The financial statements have been prepared in accordance with the ‘Accounting policies’ set out on page 4.

Distribution policy With effect from 1 September 2016, the distribution policy has been amended so that in determining the amount available for distribution to Income shares, the annual management charge and administration charge are now offset against capital, increasing the amount available for distribution whilst restraining capital performance to an equivalent extent. Marginal tax relief has not been taken into account in respect of expenses offset against capital. In determining the amount available for distribution, ordinary stock dividends have been transferred to capital, reducing the amount available.

The opening net assets attributable to shareholders for 2017 differs to the closing position in 2016 by the change in net assets attributable to shareholders for the second half of the comparative financial year.

Balance sheet as at

28 February 2017 $’000

31 August 2016 $’000

2,554,120

2,529,876

15,274 23,638

55,232 97,706

2,593,032

2,682,814

(604) 0 (5,389)

0 (1,365) (5,951)

Assets Fixed assets Investments Current assets Debtors Cash and bank balances Total assets Liabilities Creditors Bank overdrafts Distribution payable Other creditors Total liabilities Net assets attributable to shareholders

60

(5,993)

(7,316)

2,587,039

2,675,498

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

M&G Global Leaders Fund Authorised Corporate Director’s Report Investment objective and policy

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

The objective of the fund is to maximise long term total return (the combination of income and growth of capital). The fund invests in a wide range of global equities issued by companies that the fund manager considers to be, or have the potential to be, leading in their field in terms of improving shareholder value.

Investment approach The fund manager selects shares in companies that he believes to be leading in their field, or have the potential to be leading in their field, in terms of improving shareholder value. Importantly, their prospects are not fully reflected in their share prices. The approach has three core beliefs: i) management can make a big difference to the returns shareholders receive; ii) where management decide to allocate resources and capital is key – companies must concentrate resources on those business activities where they have an advantage relative to other companies and can create value; iii) the above factors are only attractive from an investment perspective if they are not yet reflected in the share price. Stocks are selected on a bottom-up basis, that is the fund manager focuses on company fundamentals. He tends to avoid imposing topdown views, that is sector, country or currency selections do not drive stockpicking, but they will be taken into account where they impact on a particular stock or the risk profile of the broader portfolio. The fund usually holds between 50 and 80 stocks, with a typical holding period of three to five years.

Risk profile

Low risk

High risk

Typically lower rewards

1

2

Typically higher rewards

3

4

5

6

7

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 changed during this period. From 1 September 2016 to 30 December 2016 the risk number was 6.

Investment review As at 1 March 2017, for the six months ended 28 February 2017 Performance against objective Between 1 September 2016 (the start of the review period) and 1 March 2017, the M&G Global Leaders Fund produced a positive total return (the combination of income and growth of capital) across all its share classes.[a] However, the fund’s returns in all share classes lagged the comparative index, the MSCI AC World Index. Over the six months, returns from the index were 17.2%, 15.1% and 8.5% in sterling, euros and US dollars respectively.) Over five years and since launch, the fund has delivered on its investment objective of maximising long-term total return.

The fund invests globally in the shares of listed companies and is, therefore, subject to the price volatility of the global stockmarket and the performance of individual companies. The fund may also be subject to fluctuations in currency exchange rates. The fund’s focus is on companies undergoing positive internal change leading to improvements in return on capital, but where the change is not yet reflected in the share price. These stocks could potentially experience a degree of illiquidity in times of market distress. However, the fund is mainly invested in the shares of large and medium-sized companies, which are normally traded with relative ease. The fund also invests in the shares of smaller companies, which can be more unpredictable and difficult to buy and sell. Diversification across countries, industries and market capitalisation is therefore key in managing liquidity risk and reducing market risk. The fund’s risks are measured and managed as an integral part of the investment process.

Investment performance The six months under review was a positive one for stockmarkets globally, with many recording solid gains. Investor attention remained focused on central bank policy, with the US Federal Reserve signalling gradual interest rate hikes and the European Central Bank holding its current course. Meanwhile, the Bank of Japan adjusted its policy in an attempt to hold long-term interest rates at ultra-low levels. Towards the end of September, the oil price benefited from an agreement to cut production by the Organization of the Petroleum Exporting Countries (OPEC). Oil prices then remained firm for most of the period. There was a significant shift in investor sentiment during the final quarter of 2016. In late summer, investors had already begun to challenge the widely held view that interest rates, economic growth and inflation would all stay low for some time. However, following Donald Trump’s victory in the US presidential election, expectations that taxes and regulations would be cut, giving the US economy a boost, became more prevalent. So too did the view that this would lead to higher inflation and interest rates, which contributed to a major switch out of fixed income assets (also known as bonds) into company shares, or equities. Although share price gains were more muted in the first two months of 2017, the S&P 500 Index still remained close to its all-time high.

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

61

M&G Global Leaders Fund Authorised Corporate Director’s Report Investment review Investment performance (continued) Cyclical sectors (that is, sectors that tend to be more volatile throughout the economic cycle, such as financials, technology and materials) were in favour over the six months. Conversely, defensive sectors (that is, sectors that tend to remain more stable throughout the economic cycle, such as consumer goods, healthcare and telecommunications) underperformed. During the review period, the fund’s relative performance was held back by a number of its holdings in the consumer discretionary sector, including Kingfisher, Amer Sports and Hanon Systems. UK-based DIY retailer Kingfisher has reported mixed results in recent months. While third-quarter figures showed that sales were stronger than expected in the UK and Poland, in France, revenues at its Castorama and Brico stores fell by more than expected. However, we note that French consumer confidence appears to be improving, which should encourage consumers to increase spending on ‘big ticket’ items such as houses, which could benefit the DIY market going forward. Amer Sports, a Finnish sporting goods company, also had a difficult six months. Third-quarter results revealed challenging trading conditions, especially in the US. This was followed by weaker-thanexpected fourth-quarter sales and profits. Nevertheless, the company expects sales to increase in 2017. Meanwhile, the share price of South Korean auto parts manufacturer Hanon Systems weakened on news that strikes at car manufacturers Hyundai Motor and Kia Motors would continue for longer than expected. Healthcare stocks lagged the broader market over the six months and the fund’s holding in Mallinckrodt detracted. US-based Mallinckrodt specialises in highly regulated raw materials. Shares in the company fell following news that the Food and Drug Administration (FDA) had proposed to withdraw approval of one of Mallinckrodt’s generic drugs. The FDA believes that it does not have sufficient data to demonstrate that the drug is the bio-equivalent of the branded version. Separately, management warned that it expected further consolidation and pricing pressure in the generics sector. Shares in another defensive company, Ingredion, also hurt performance. Ingredion is a manufacturer of corn-based starch and sweeteners. The company exports the excess high fructose corn syrup (HFCS) it produces and some investors are concerned these exports could be blocked, if US trade was adversely affected by the Trump presidency. However, we believe these fears are overdone as sweeteners, including HFCS, represent less than 10% of Ingredion’s business. On the other hand, the fund’s above-index weighting in technology and stockpicking within the sector added value. Nvidia was the fund’s top contributor and reported excellent results during the review period. The US-based company designs and manufactures high-performance graphics processing units used in high-end gaming computers. Nvidia also manufactures chips for use in data centres and autonomous driving platforms, demand for which is growing even faster.

62

Meanwhile, US-based technology company Xperi (formerly Tessera) appears to be enjoying increased investor interest following its recent purchase of DTS for US$850 million. The acquisition creates a global innovator in premium audio and imaging solutions. On the other hand, not holding shares in Apple detracted. Apple’s share price rallied after the consumer technology giant reported betterthan-expected record quarterly revenues and earnings for the period ending December 2016. Financials were in favour during the review period and a holding in US investment bank Morgan Stanley added value, as its shares bounced on the back of a rally in the banking sector. Investors were hopeful that banking regulations would be eased following the election of Donald Trump.

Investment activities For the M&G Global Leaders Fund, we select stocks from across the global investment universe, identifying companies that are undergoing positive change leading to improvements in return on capital. The observed improvements at the company must not yet be reflected in its share price. Investment activity over the review period included the purchase of G4S, a UK-based global security, facilities management and cash solutions firm. Having expanded away from its core competencies in manned security and systems under the previous management team, the new chief executive officer has committed to rationalising the business portfolio and improving cashflow by exiting non-core businesses and regions. We believe investors are not giving management full credit for these improvements. Furthermore, with a strong market position and a favourable industry tailwind, there is an opportunity for G4S to increase revenues from higher margin services. We also initiated a position in Scout24, a Germany-based provider of digital classified services for the real estate and automotive sectors which also operates in a number of other continental European markets. As the leading player in German real estate listings, the company has a unique opportunity to grow, in our opinion, in a market that is relatively late to move online. Another Germany-based company, industrial group Siemens, also joined the portfolio. The new chief executive at Siemens has instigated a wide-ranging restructuring of the company, which we believe will improve profits going forward. Amongst the measures announced are the listing of Siemens’ healthcare division and a focus on developing innovative technologies for ‘the factory of the future’, that is, 3D printing, lightweight robots and simulation. In the US, we began holdings in SenesTech and Affiliated Managers. SenesTech is an early stage company with promising technology to manage animal pest populations. The company’s first product – for use on rat populations – has received registration approval from the US Environmental Protection Agency. Finally, Affiliated Managers is a diversified asset management firm that uses a partnership approach, which allows affiliates to retain autonomy, but overall, the company has the scale of a global asset manager. Affiliated trades on an attractive valuation relative to the sector and the market. The purchase was funded from the sale of Royal Bank of Scotland. We also exited the holding in American Airlines during the period.

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

M&G Global Leaders Fund Authorised Corporate Director’s Report Investment review

Portfolio statement (continued) as at Holding

28.02.17 28.02.17 31.08.16 $’000 % %

Outlook The potential for increased government spending combined with tax reforms from a Trump-led US government have tipped the odds in favour of faster economic growth and rising interest rates in the near term. Indeed, the US Federal Reserve has recently raised interest rates for the second time in a short space of time. However, our base case is that the forces of global excess capacity and technology are here to stay and economic activity is likely to be less buoyant than the more optimistic expectations in the market. Japan remains the fund’s most significant above-index position. Valuations of Japanese company shares are still attractive, but we accept that government initiatives at the policy level need to be followed through by governance reform at the corporate level. Hence, we believe that selecting companies that are proactively engaged in creating shareholder value will be a key differentiator in this market. Aled Smith Fund manager An employee of M&G Limited which is an associate of M&G Securities Limited. [a] 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.

Investments

Portfolio statement as at Holding

28.02.17 28.02.17 31.08.16 $’000 % % Equities Oil & gas producers 391,886 Lundin Petroleum 2,570,033 MEG Energy Oil equipment, services & distribution 334,568 Petrofac

650,341 21,631 7,976 13,655

97.78 3.25 1.20 2.05

96.36 2.47

3,679 3,679

0.55 0.55

0.61

Chemicals 139,981 Akzo Nobel 157,077 Avery Dennison 300,000 SenesTech

24,440 9,334 12,676 2,430

3.67 1.40 1.91 0.36

3.92 [a]

Construction & materials 446,600 LIXIL Group

10,947 10,947

1.65 1.65

1.48

General industrials 138,542 ITT 49,282 Parker Hannifin 81,380 Siemens

24,102 5,873 7,695 10,534

3.62 0.88 1.16 1.58

1.77 [a]

45,604 4,349 8,870 6,754 15,976 9,655

6.85 0.65 1.33 1.02 2.40 1.45

8.58 [a]

6,673 6,673

1.00 1.00

0.84

Support services 80,918 Cimpress 264,329 CoreLogic 3,672,654 G4S

28,921 6,583 10,391 11,947

4.35 0.99 1.56 1.80

2.22 [a]

Automobiles & parts 1,325,059 Hanon Systems 105,415 Renault

20,093 10,722 9,371

3.02 1.61 1.41

3.43

15,172 15,172

2.28 2.28

2.80

35,604 8,225 13,527 13,852

5.35 1.24 2.03 2.08

5.37 [a]

Leisure goods 427,461 Amer Sports

10,097 10,097

1.52 1.52

2.06

Personal goods 605,752 Crocs

4,059 4,059

0.61 0.61

0.88 [a]

20,757 3,645 17,112

3.12 0.55 2.57

2.38

86,416 11,501 17,040 11,846 13,018 18,091 14,920

12.99 1.73 2.56 1.78 1.96 2.72 2.24

11,223 11,223

1.69 1.69

1.77

49,661 28,368 12,342 8,951

7.47 4.27 1.85 1.35

7.23

13,669 13,669

2.06 2.06

2.76

Fixed line telecommunications 4,305,134 Spark New Zealand

11,114 11,114

1.67 1.67

1.90

Banks 4,653,120 Intesa Sanpaolo 147,713 KBC 1,011,046 Sberbank of Russia ADR

31,100 10,912 9,072 11,116

4.68 1.64 1.37 1.67

5.03

Non-life insurance 2,197,435 AIA Group 712,511 Brasil Insurance

18,296 13,887 4,409

2.75 2.09 0.66

2.24

Life insurance 244,649 MetLife

12,883 12,883

1.94 1.94

1.42

Financial services 83,103 Affiliated Managers 325,658 Morgan Stanley

28,969 14,041 14,928

4.36 2.11 2.25

1.60

215,800 337,401 353,241 201,511 103,400

Electronic & electrical equipment Amano Jabil Circuit Knowles Motorola Solutions Nidec

Industrial engineering 704,448 Bodycote

Food producers 125,806 Ingredion Household goods & home construction 2,710,954 Samsonite International 79,085 Snap-on 77,393 Whirlpool

Healthcare equipment & services 317,603 Mazor Robotics 211,939 Medtronic 65,301 3,918,060 216,998 167,772 397,900 690,800

Pharmaceuticals & biotechnology Amgen Indivior Mallinckrodt Pharmaceuticals Novartis (Regd.) Otsuka Toho

Food & drug retailers 137,861 CVS Health General retailers 33,433 Amazon 1,514,304 Chegg 2,203,158 Kingfisher Travel & leisure 516,593 MGM Resorts International

14.05 [a]

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

63

M&G Global Leaders Fund Authorised Corporate Director’s Report Top ten portfolio transactions

Investments

for the six months to 28 February 2017

Portfolio statement (continued) as at Holding

28.02.17 28.02.17 31.08.16 $’000 % % 16,910 1,596,786 484,276 314,300 2,528,710 114,690

Software & computer services Alphabet Castlight Health Microsoft Nomura Research Institute Rocket Fuel Scout24

Technology hardware & equipment 276,400 FUJIFILM Holdings 124,391 NVIDIA 494,616 Xperi Forward currency contracts ¥(4,528,370,700) Sold for $39,900,000 (expires 13.03.17) Portfolio of investments ‘AAA’ rated money market funds [b] 17,999,000 Northern Trust Global Fund US dollar

9.89 [a]

73,340 14,020 5,828 31,100 10,837 7,536 4,019

11.03 2.11 0.88 4.68 1.63 1.13 0.60

41,891 10,678 12,986 18,227

6.30 1.61 1.95 2.74

9.66

(461)

(0.07)

(0.18)

Largest purchases

$’000

G4S Affiliated Managers Siemens Scout24 Cimpress Hanon Systems Novartis (Regd.) Mazor Robotics MEG Energy Xperi

15,993 11,858 10,039 3,969 3,789 3,625 3,408 3,399 2,949 2,454

Other purchases

12,050

Total purchases

73,533

Largest sales

(461)

(0.07)

649,880

97.71

96.18

17,999

2.71

2.66

17,999

2.71

Total portfolio Net other assets / (liabilities)

667,879 (2,788)

100.42 (0.42)

98.84 1.16

Net assets attributable to shareholders

665,091

100.00

100.00

NVIDIA Jabil Circuit Otsuka Motorola Solutions Samsung Electronic Pref. Microsoft Amazon American Airlines Amgen Indivior

$’000 31,537 13,874 11,093 10,910 10,527 10,316 9,590 8,793 8,748 8,745

Other sales

189,732

Total sales

313,865

All securities are on an official stock exchange listing except where referenced. [a] The comparative sector weightings have been re-analysed to reflect changes to

the sector classifications.

Purchases and sales exclude the cost and proceeds of ‘AAA’ rated money market funds.

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

aim of reducing counterparty risk.

64

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

M&G Global Leaders Fund Financial highlights Performance since launch

Fund performance Please note past performance is not a guide to future performance and 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 not get back the original amount you invested.

To give an indication of how the fund has performed since launch, the chart below shows total return of Sterling Class ‘A’ (Accumulation) shares and Sterling Class ‘I’ (Accumulation) shares. January 2001 = 100, plotted monthly 300 260

The following chart and tables show the performance for two of the fund’s share classes – Sterling Class ‘A’ (Accumulation) shares and Sterling Class ‘I’ (Accumulation) shares. We show performance for these two share classes because:

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

• The performance of the Sterling Class ‘I’ (Accumulation) share is the most appropriate to compare with the average performance of the fund’s comparative sector. It is the share class used by the Investment Association in the calculation of the comparative sector’s average performance. This share class is available for direct investment with M&G subject to minimum investment criteria, or via third parties who may charge additional fees. The performance shown takes the deduction of the ongoing charge for this share class into account but it does not take account of charges applied by any other party through which you may have invested. The fund is available for investment in different share classes, each with varying levels of charges and minimum investments; please refer to the Prospectus for M&G Investment Funds (1), which is available free of charge either from our website at www.mandg.co.uk/prospectuses or by calling M&G Customer Relations.

Chart date 1 March 2017

Sterling Class ‘I’ (Accumulation) shares*

230 200 180 160 140 120 100

Sterling Class ‘A’ (Accumulation) shares* 80 70 60 50 01

02

03

04

05

06

07

08

09

10

11

12

13

14

15

16

17

Sterling Class ‘A’ (Accumulation) shares* Sterling Class ‘I’ (Accumulation) shares* MSCI AC World Index Morningstar (IA) Global sector average* * Income reinvested

Source: Morningstar, Inc. and M&G

When the fund’s objective changed, the comparable index of the fund also changed, and to make a fair comparison the chart above shows performance since the fund’s change of objective. The fund’s Sterling Class ‘I’ (Accumulation) shares were launched on 3 August 2012. Performance data shown prior to this date is that of the fund’s Sterling Class ‘A’ (Accumulation) shares.

Fund level performance Fund net asset value as at

28.02.17 $’000

31.08.16 $’000

31.08.15 $’000

Fund net asset value (NAV)

665,091

889,660

1,129,865

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

65

M&G Global Leaders Fund Financial highlights Operating charges and portfolio transaction costs

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

Operating charges

Long-term performance by share class Six Three months years 01.09.16 03.03.14 % [a] % p.a.

Five years 01.03.12 % p.a.

Since launch

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

% p.a.

• Investment management: Charge paid to M&G for investment

Euro [b] Class ‘A’

+11.1

+10.8

+11.2

+4.7 [c]

Class ‘C’

+11.7

+11.9

+12.3

+5.7 [c]

+13.1

+12.5

+12.0

+8.4 [e]

Sterling [d] Class ‘A’ Class ‘I’

+13.5

+13.4

n/a

+15.1 [f]

Class ‘R’

+13.4

+13.1

n/a

+14.8 [f]

Class ‘X’

+13.1

+12.5

+12.0

+15.9 [g]

+5.0

+1.4

+6.1

+1.1 [h]

+7.1

[h]

US dollar [b] Class ‘A’ Class ‘C’

+5.5

+2.4

+2.1

[a] Absolute basis. [b] Price to price with net income reinvested. [c] 28 November 2001, the launch date of the share class. [d] Price to price with income reinvested. [e] 31 May 1985, the end of the initial offer period of the predecessor unit trust. [f] 3 August 2012, the launch date of the share class. [g] 1 October 2002, the launch date of the share class. [h] 9 March 2007, the launch date of the share class.

66

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

management of the fund (also known as Annual Management Charge).

• Administration: Charge paid to M&G for administration services in addition to investment management – any surplus from this charge will be retained by M&G.

• Oversight

and other independent services: Charges paid to providers independent of M&G for services which include depositary, custody and audit.

The operating charges paid by each share class of the fund are shown in the following performance tables. Operating charges do not include portfolio transaction costs or any entry and exit charges (also known as initial and redemption charges). The charging structures of share classes may differ, and therefore the operating charges may differ. Operating charges are the same as the ongoing charges shown in the Key Investor Information Document, other than where an estimate has been used for the ongoing charge because a material change has made the operating charges unreliable as an estimate of future charges. For this fund there is no difference between operating charges and ongoing charges figures, unless disclosed under the specific share class performance table.

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

M&G Global Leaders Fund Financial highlights

Fund performance

Specific share class performance

Portfolio transaction costs Portfolio transaction costs are incurred by funds when buying and selling investments. These costs vary depending on the types of investment, their market capitalisation, country of exchange, method of execution and the quality of research provided. They are made up of direct and indirect portfolio transaction costs:

• Direct portfolio transaction costs: Broker execution commission

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

Euro Class ‘A’ Accumulation share performance The share class was launched on 28 November 2001.

and taxes.

• Indirect portfolio transaction costs: ‘Dealing spread’ – the difference between the buying and selling prices of the fund’s investments; some types of investment, such as fixed interest securities, have no direct transaction costs and only the dealing spread is paid.

Six months to 28.02.17 Euro ¢

Year to 31.08.16 Euro ¢

Year to 31.08.15 Euro ¢

1,821.78 Opening NAV Return before operating charges and after direct 213.89 portfolio transaction costs Operating charges (18.22)

1,692.43

1,587.27

162.15 (32.80)

138.57 (33.41)

Change in NAV per share

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

Return after operating charges

To protect existing investors, portfolio transaction costs incurred as a result of investors buying and selling shares in the fund are recovered from those investors through a ‘dilution adjustment’ to the price they pay or receive. The table below shows direct portfolio transaction costs paid by the fund before and after that part of the dilution adjustment relating to direct portfolio transaction costs. To give an indication of the indirect portfolio dealing costs the table also shows the average portfolio dealing spread.

Closing NAV

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

195.67

129.35

105.16

Distributions

0.00

(25.12)

(23.42)

Retained distributions

0.00

25.12

23.42

2,017.45

1,821.78

1,692.43

Direct portfolio transaction costs [a]

Euro ¢

Euro ¢

Euro ¢

Costs before dilution adjustments Dilution adjustments [b]

1.51 (0.53)

1.94 (0.43)

1.74 (0.30)

Total direct portfolio transaction costs

0.98

1.51

1.44

%

%

%

Direct portfolio transaction costs 0.10 Operating charges 1.92 Return after operating charges +10.74 0.00 Historic yield [c] Effect on yield of charges offset against capital 0.00

Performance and charges

0.08 1.93 +7.64 1.36 1.75

0.08 1.92 +6.63 1.39 1.75

337,851 37.98 16,644,312 1,887.58 1,432.34

361,500 31.99 18,936,761 1,956.28 1,448.51

Other information

Portfolio transaction costs Six months to 28.02.17 Direct portfolio transaction costs [b] %

Year to 31.08.16 %

Year to 31.08.15 %

Average [a] %

Broker commission Taxes

0.12 0.04

0.09 0.02

0.08 0.02

0.10 0.03

Costs before dilution adjustments Dilution adjustments [c]

0.16 (0.06)

0.11 (0.03)

0.10 (0.02)

0.13 (0.04)

Total direct portfolio transaction costs

0.10

0.08

0.08

0.09

28.02.17 %

31.08.16 %

31.08.15 %

0.10

0.09

0.10

as at Indirect portfolio transaction costs Average portfolio dealing spread

Closing NAV ($’000) 347,059 Closing NAV percentage of total fund NAV (%) 52.18 Number of shares 16,226,812 Highest share price (Euro ¢) 2,050.41 Lowest share price (Euro ¢) 1,767.65

Average [a] % 0.10

[a] Average of first three columns. [b] As a percentage of average net asset value. [c] In respect of direct portfolio transaction costs.

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

67

M&G Global Leaders Fund Financial highlights Sterling Class ‘A’ Accumulation share performance

Specific share class performance

The share class was launched on 31 May 1985.

Return after operating charges

Year to 31.08.16 Euro ¢ 1,930.06

Year to 31.08.16 UK p

Year to 31.08.15 UK p

540.04 Opening NAV Return before operating charges and after direct portfolio transaction costs 66.32 (4.73) Operating charges

432.49

438.75

115.23 (7.68)

5.49 (11.75)

Return after operating charges

61.59

107.55

(6.26)

0.00

(7.25)

(5.97)

Change in NAV per share

Euro Class ‘C’ Accumulation share performance The share class was launched on 28 November 2001. Six months to 28.02.17 Euro ¢ Change in NAV per share 2,098.51 Opening NAV Return before operating charges and after direct 247.04 portfolio transaction costs Operating charges (10.12)

Six months to 28.02.17 UK p

Year to 31.08.15 Euro ¢ 1,792.62

Distributions 186.44 (17.99)

155.04 (17.60)

Retained distributions Closing NAV

7.25

5.97

540.04

432.49

236.92

168.45

137.44

Distributions

(3.26)

(28.79)

(26.60)

Direct portfolio transaction costs [a]

UK p

UK p

UK p

Retained distributions

3.26

28.79

26.60

2,335.43

2,098.51

1,930.06

Costs before dilution adjustments Dilution adjustments [b]

0.45 (0.16)

0.52 (0.12)

0.70 (0.12)

Direct portfolio transaction costs [a] Costs before dilution adjustments Dilution adjustments [b]

Euro ¢ 1.75 (0.62)

Euro ¢ 2.21 (0.49)

Euro ¢ 1.89 (0.32)

Total direct portfolio transaction costs

0.29

0.40

0.58

Total direct portfolio transaction costs

1.13

1.72

1.57

% Performance and charges 0.10 Direct portfolio transaction costs Operating charges 0.92 Return after operating charges +11.29 0.64 Historic yield [c] Effect on yield of charges offset against capital 0.00

% 0.08 0.92 +8.73 1.35 0.75

% 0.08 0.92 +7.67 1.38 0.75

Other information Closing NAV ($’000) 11,332 Closing NAV percentage of total fund NAV (%) 1.71 Number of shares 457,675 Highest share price (Euro ¢) 2,373.20 Lowest share price (Euro ¢) 2,039.78

12,620 1.42 539,740 2,158.16 1,640.86

2,904 0.26 133,401 2,222.43 1,637.98

Closing NAV

%

%

%

0.10 Direct portfolio transaction costs 1.66 Operating charges +11.40 Return after operating charges Historic yield [c] 0.06 0.00 Effect on yield of charges offset against capital

Performance and charges

0.08 1.68 +24.87 1.33 1.50

0.08 1.67 -1.43 1.38 1.50

370,937 41.70 52,287,354 549.64 393.15

593,342 52.51 89,155,188 491.34 401.73

Other information 141,301 Closing NAV ($’000) Closing NAV percentage of total fund NAV (%) 21.25 Number of shares 18,879,562 Highest share price (UK p) 613.07 Lowest share price (UK p) 528.12

Sterling Class ‘I’ Income share performance The share class was launched on 3 August 2012. Six months to 28.02.17 UK p

Year to 31.08.16 UK p

Year to 31.08.15 UK p

Opening NAV 1,593.09 Return before operating charges and after direct portfolio transaction costs 196.14 Operating charges (7.80)

1,284.80

1,311.25

342.51 (12.66)

10.95 (19.54)

Sterling Class ‘A’ Income share performance Change in NAV per share

The share class was launched on 31 May 1985. Six months to 28.02.17 Change in NAV per share UK p Opening NAV 226.02 Return before operating charges and after direct portfolio transaction costs 27.78 Operating charges (2.00)

Year to 31.08.16 UK p 183.66

Year to 31.08.15 UK p 188.87

48.69 (3.26)

2.39 (5.04)

Return after operating charges

Return after operating charges

25.78

45.43

(2.65)

Distributions

(1.41)

(3.07)

(2.56)

Closing NAV

68

0.00 601.63

250.39

226.02

183.66

Direct portfolio transaction costs [a] Costs before dilution adjustments Dilution adjustments [b]

UK p 0.19 (0.07)

UK p 0.22 (0.05)

UK p 0.30 (0.05)

Total direct portfolio transaction costs

0.12

0.17

0.25

Performance and charges % Direct portfolio transaction costs 0.10 Operating charges 1.67 Return after operating charges +11.41 Historic yield [c] 1.43 Effect on yield of charges offset against capital 1.65

% 0.08 1.68 +24.74 1.35 1.50

% 0.08 1.67 -1.40 1.40 1.50

Other information Closing NAV ($’000) 73,656 Closing NAV percentage of total fund NAV (%) 11.07 Number of shares 23,646,890 Highest share price (UK p) 256.59 Lowest share price (UK p) 221.04

78,020 8.77 26,277,613 232.15 166.93

86,109 7.62 30,468,745 210.63 172.92

188.34

329.85

(8.59)

Distributions

(9.94)

(21.56)

(17.86)

Closing NAV

1,771.49

1,593.09

1,284.80

Direct portfolio transaction costs [a]

UK p

UK p

UK p

Costs before dilution adjustments Dilution adjustments [b]

1.35 (0.48)

1.56 (0.35)

2.13 (0.36)

Total direct portfolio transaction costs

0.87

1.21

1.77

%

%

%

Direct portfolio transaction costs 0.10 Operating charges 0.92 Return after operating charges +11.82 1.43 Historic yield [c] Effect on yield of charges offset against capital 0.90

Performance and charges

0.08 0.93 +25.67 1.34 0.75

0.08 0.92 -0.66 1.39 0.75

20,144 2.26 962,582 1,635.80 1,171.73

14,128 1.25 714,608 1,469.16 1,201.73

Other information Closing NAV ($’000) 20,216 Closing NAV percentage of total fund NAV (%) 3.04 Number of shares 917,357 Highest share price (UK p) 1,813.67 Lowest share price (UK p) 1,558.45

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

M&G Global Leaders Fund Financial highlights Sterling Class ‘R’ Accumulation share performance

Specific share class performance

The share class was launched on 3 August 2012.

Six months to 28.02.17 UK p

Year to 31.08.16 UK p

Year to 31.08.15 UK p

1,692.89 Opening NAV Return before operating charges and after direct 208.42 portfolio transaction costs (8.29) Operating charges

1,345.59

1,354.84

Return after operating charges

360.59 (13.29)

10.88 (20.13)

200.13

347.30

(9.25)

(2.64)

(22.66)

(18.50)

Distributions Retained distributions

2.64

22.66

18.50

1,893.02

1,692.89

1,345.59

Direct portfolio transaction costs [a]

UK p

UK p

UK p

Costs before dilution adjustments Dilution adjustments [b]

1.43 (0.51)

1.64 (0.36)

2.19 (0.38)

Total direct portfolio transaction costs

0.92

1.28

1.81

Closing NAV

Performance and charges

%

%

%

Direct portfolio transaction costs 0.10 Operating charges 0.92 Return after operating charges +11.82 0.66 Historic yield [c] Effect on yield of charges offset against capital 0.00

0.08 0.93 +25.81 1.33 0.75

0.08 0.92 -0.68 1.38 0.75

26,899 3.02 1,209,558 1,722.45 1,227.36

18,318 1.62 884,644 1,524.29 1,241.73

Other information Closing NAV ($’000) 28,475 Closing NAV percentage of total fund NAV (%) 4.28 Number of shares 1,209,182 Highest share price (UK p) 1,927.29 Lowest share price (UK p) 1,656.06

Year to 31.08.15 UK p

167.52 Opening NAV Return before operating charges and after direct portfolio transaction costs 20.61 (1.04) Operating charges

133.49

134.74

35.70 (1.67)

1.29 (2.54)

Return after operating charges

19.57

34.03

(1.25)

Distributions

(0.04)

(2.24)

(1.84)

Retained distributions

0.04

2.24

1.84

187.09

167.52

133.49

Direct portfolio transaction costs [a]

UK p

UK p

UK p

Costs before dilution adjustments Dilution adjustments [b]

0.14 (0.05)

0.16 (0.04)

0.22 (0.04)

Total direct portfolio transaction costs

0.09

0.12

0.18

Closing NAV

%

%

%

0.10 Direct portfolio transaction costs 1.17 Operating charges +11.68 Return after operating charges Historic yield [c] 0.45 0.00 Effect on yield of charges offset against capital

Performance and charges

0.08 1.18 +25.49 1.33 1.00

0.08 1.17 -0.93 1.38 1.00

260 0.03 118,031 170.46 121.62

217 0.02 105,597 151.36 123.46

Other information 277 Closing NAV ($’000) Closing NAV percentage of total fund NAV (%) 0.04 Number of shares 119,175 Highest share price (UK p) 190.53 Lowest share price (UK p) 163.86

Sterling Class ‘X’ Income share performance The share class was launched on 1 October 2002. Six months to 28.02.17 UK p

Year to 31.08.16 UK p

Year to 31.08.15 UK p

Opening NAV 223.57 Return before operating charges and after direct portfolio transaction costs 27.48 Operating charges (1.98)

181.67

186.82

48.16 (3.22)

2.37 (4.99)

Change in NAV per share

Sterling Class ‘R’ Income share performance The share class was launched on 3 August 2012. Six months to 28.02.17 Change in NAV per share UK p Opening NAV 157.66 Return before operating charges and after direct portfolio transaction costs 19.41 Operating charges (0.98)

Year to 31.08.16 UK p

Change in NAV per share

Sterling Class ‘I’ Accumulation share performance The share class was launched on 3 August 2012.

Change in NAV per share

Six months to 28.02.17 UK p

Year to 31.08.16 UK p 127.47 33.92 (1.59)

Year to 31.08.15 UK p 130.43

Return after operating charges

25.50

44.94

(2.62)

Distributions

(1.39)

(3.04)

(2.53)

1.26 (2.45)

Closing NAV

247.68

223.57

181.67

Return after operating charges

18.43

32.33

(1.19)

Direct portfolio transaction costs [a]

UK p

UK p

UK p

Distributions

(0.98)

(2.14)

(1.77)

Closing NAV

175.11

157.66

127.47

Costs before dilution adjustments Dilution adjustments [b]

0.19 (0.07)

0.22 (0.05)

0.30 (0.05)

Direct portfolio transaction costs [a] Costs before dilution adjustments Dilution adjustments [b]

UK p 0.13 (0.05)

UK p 0.15 (0.03)

UK p 0.21 (0.04)

Total direct portfolio transaction costs

0.12

0.17

0.25

Total direct portfolio transaction costs

0.08

0.12

0.17

Performance and charges % Direct portfolio transaction costs 0.10 Operating charges 1.17 Return after operating charges +11.69 Historic yield [c] 1.43 Effect on yield of charges offset against capital 1.15

% 0.08 1.18 +25.36 1.35 1.00

% 0.08 1.17 -0.91 1.40 1.00

Other information Closing NAV ($’000) 275 Closing NAV percentage of total fund NAV (%) 0.04 Number of shares 126,402 Highest share price (UK p) 179.32 Lowest share price (UK p) 154.22

259 0.03 125,054 161.91 116.12

285 0.03 145,058 145.90 119.49

%

%

%

Direct portfolio transaction costs 0.10 Operating charges 1.67 Return after operating charges +11.41 1.43 Historic yield [c] Effect on yield of charges offset against capital 1.65

Performance and charges

0.08 1.68 +24.74 1.35 1.50

0.08 1.67 -1.40 1.40 1.50

9,809 1.10 3,339,914 229.64 165.12

10,496 0.93 3,754,714 208.34 171.04

Other information Closing NAV ($’000) 9,985 Closing NAV percentage of total fund NAV (%) 1.50 Number of shares 3,240,882 Highest share price (UK p) 253.80 Lowest share price (UK p) 218.64

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

69

M&G Global Leaders Fund Financial highlights US dollar Class ‘C’ Accumulation share performance

Specific share class performance

The share class was launched on 9 March 2007.

Year to 31.08.16 UK p 426.82 113.74 (7.59)

Year to 31.08.16 US ¢

Year to 31.08.15 US ¢

1,165.77 Opening NAV Return before operating charges and after direct portfolio transaction costs 74.22 (5.54) Operating charges

1,085.44

1,178.64

90.34 (10.01)

(86.78) (6.42)

Change in NAV per share

Sterling Class ‘X’ Accumulation share performance The share class was launched on 1 October 2002. Six months to 28.02.17 Change in NAV per share UK p Opening NAV 532.97 Return before operating charges and after direct 65.50 portfolio transaction costs (4.72) Operating charges

Six months to 28.02.17 US ¢

Year to 31.08.15 UK p 433.00 5.39 (11.57)

Return after operating charges

68.68

80.33

(93.20)

Distributions

(1.72)

(15.88)

(14.91)

Retained distributions

1.72

15.88

14.91

1,234.45

1,165.77

1,085.44

60.78

106.15

(6.18)

Closing NAV

Distributions

0.00

(7.16)

(5.88)

Direct portfolio transaction costs [a]

US ¢

US ¢

US ¢

Retained distributions

0.00

7.16

5.88

593.75

532.97

426.82

Costs before dilution adjustments Dilution adjustments [b]

0.96 (0.34)

1.23 (0.27)

0.69 (0.12)

Direct portfolio transaction costs [a] Costs before dilution adjustments Dilution adjustments [b]

UK p 0.45 (0.16)

UK p 0.52 (0.11)

UK p 0.69 (0.12)

Total direct portfolio transaction costs

0.62

0.96

0.57

Total direct portfolio transaction costs

0.29

0.41

0.57

Performance and charges % Direct portfolio transaction costs 0.10 Operating charges 1.67 +11.40 Return after operating charges Historic yield [c] 0.06 Effect on yield of charges offset against capital 0.00

% 0.08 1.68 +24.87 1.33 1.50

% 0.08 1.67 -1.43 1.38 1.50

Other information Closing NAV ($’000) 21,855 Closing NAV percentage of total fund NAV (%) 3.29 Number of shares 2,958,891 Highest share price (UK p) 605.03 Lowest share price (UK p) 521.21

21,650 2.43 3,092,350 542.43 388.00

23,877 2.11 3,635,414 484.90 396.47

Return after operating charges

Closing NAV

Performance and charges

%

%

%

0.10 0.94 +5.89 0.67 0.00

0.08 0.93 +7.40 1.34 0.75

0.08 0.93 -7.91 1.39 0.75

869 Closing NAV ($’000) Closing NAV percentage of total fund NAV (%) 0.13 Number of shares 70,374 Highest share price (US ¢) 1,245.39 Lowest share price (US ¢) 1,129.18

448 0.05 38,415 1,173.00 927.60

439 0.04 40,356 1,201.17 1,040.74

Direct portfolio transaction costs Operating charges Return after operating charges Historic yield [c] Effect on yield of charges offset against capital Other information

[a] As a percentage of average net asset value. [b] In respect of direct portfolio transaction costs. [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.

US dollar Class ‘A’ Accumulation share performance The share class was launched on 9 March 2007. Six months to 28.02.17 Change in NAV per share US ¢ Opening NAV 1,061.40 Return before operating charges and after direct portfolio transaction costs 67.23 Operating charges (10.25) Return after operating charges

Year to 31.08.15 US ¢ 1,094.68

82.21 (19.02)

(83.52) (12.95)

56.98

63.19

(96.47)

Distributions

0.00

(14.52)

(13.79)

Retained distributions

0.00

14.52

13.79

1,118.38

1,061.40

998.21

Direct portfolio transaction costs [a] Costs before dilution adjustments Dilution adjustments [b]

US ¢ 0.85 (0.30)

US ¢ 1.12 (0.25)

US ¢ 0.67 (0.12)

Total direct portfolio transaction costs

0.55

0.87

0.55

% 0.10 1.92 +5.37 0.00 0.00

% 0.08 1.93 +6.33 1.35 1.75

% 0.08 1.92 -8.81 1.40 1.75

Other information Closing NAV ($’000) 9,791 Closing NAV percentage of total fund NAV (%) 1.47 Number of shares 875,444 Highest share price (US ¢) 1,128.66 Lowest share price (US ¢) 1,026.26

10,763 1.21 1,014,063 1,068.19 849.23

18,250 1.62 1,828,358 1,106.73 963.83

Closing NAV

Performance and charges Direct portfolio transaction costs Operating charges Return after operating charges Historic yield [c] Effect on yield of charges offset against capital

70

Year to 31.08.16 US ¢ 998.21

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

M&G Global Leaders Fund Financial statements and notes

Financial statements

Notes to the financial statements Accounting policies

Statement of total return 2017 for the six months to 28 and 29 February Income Net capital gains / (losses) Revenue Expenses Net revenue / (expense) before taxation Taxation

$’000

$’000

2016 $’000 $’000

36,222 5,106 (6,193) ______ (1,087) (629) ______

(79,276) 7,252 (9,205) ______ (1,953) (926) ______

Net revenue / (expense) after taxation

(1,716)

(2,879)

Total return before distributions Distributions

34,506 (588)

(82,155) (5,291)

Change in net assets attributable to shareholders from investment activities

33,918

(87,446)

Statement of change in net assets attributable to shareholders 2017 for the six months to 28 and 29 February Opening net assets attributable to shareholders Amounts received on issue of shares Amounts paid on cancellation of shares Dilution adjustments Change in net assets attributable to shareholders from investment activities (see above) Retained distributions on Accumulation shares Unclaimed distributions Closing net assets attributable to shareholders

$’000

$’000 889,660

Distribution policy With effect from 1 September 2016, the distribution policy has been amended so that in determining the amount available for reinvestment to Accumulation shares, the annual management charge is no longer offset against capital, reducing the amount available for reinvestment. For Income shares, in addition to the annual management charge, the administration charge is now offset against capital, increasing the amount available for distribution, whilst restraining capital performance to an equivalent extent. Marginal tax relief has not been taken into account in respect of expenses offset against capital.

2016 $’000 $’000

(258,907) 355

1,129,865 46,401 (105,881) ______ (59,480) 113

33,918

(87,446)

57 8

4,642 8

665,091

987,702

34,339 (293,246) ______

The financial statements have been prepared in accordance with the ‘Accounting policies’ set out on page 4.

The opening net assets attributable to shareholders for 2017 differs to the closing position in 2016 by the change in net assets attributable to shareholders for the second half of the comparative financial year.

Balance sheet as at

28 February 2017 $’000

31 August 2016 $’000

668,340

880,985

2,577 340

3,756 9,484

671,257

894,225

(461)

(1,601)

(94) (586) (5,025)

0 (997) (1,967)

Assets Fixed assets Investments Current assets Debtors Cash and bank balances Total assets Liabilities Investment liabilities Creditors Bank overdrafts Distribution payable Other creditors Total liabilities Net assets attributable to shareholders

(6,166)

(4,565)

665,091

889,660

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

71

M&G Global Leaders Fund Financial statements and notes

This page is intentionally blank

72

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

M&G Global Select Fund Authorised Corporate Director’s Report Investment objective

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

The Fund aims to maximise long term total return (the combination of capital growth and income) by investing mainly in a wide range of global equities.

Low risk

High risk

Typically lower rewards

1

Investment policy

2

Typically higher rewards

3

4

5

6

7

The above number: The Fund will invest globally (including the UK) in the equities of companies across a wide range of geographies, sectors and market capitalisations. Income is of secondary importance to capital growth when investments are selected. The Fund may at any time be concentrated in a limited number of equities.

•  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. •

Investment approach The M&G Global Select Fund is a core global equity fund, investing in quality companies, with advantageous characteristics, or ‘economic moats’, to protect their profitability and an element of change helping to drive their value. Importantly, the fund manager invests in businesses where short-term ‘disruptions’ have provided a clear valuation opportunity. The fund manager believes that a focus on both quality and value offers a powerful combination, providing the long-term growth in returns that quality businesses can deliver, as well as the potential boost to a company’s share price when a ‘disruption’ has been resolved and the shares revert to a more appropriate level. Key to his approach is remaining patient and taking a long-term view, both in the entry and exit points of the fund’s holdings. The manager keeps the portfolio focused, generally holding between 30 and 40 well-understood stocks, which broadly fall into one of two ‘buckets’ – ‘stable growth’ and ‘opportunities’. Stable growth companies are those that have a proven track record of producing stable earnings, tending to have very strong market positions or powerful brands, for example. Opportunities companies sit in out-offavour corners of the market where change is not appreciated or risk is overstated. These tend to be less predictable, but with significant growth potential.

Risk profile The fund invests globally in the shares of listed companies and is, therefore, subject to the price volatility of the global stockmarket and the performance of individual companies. The fund may also be subject to fluctuations in currency exchange rates. The fund’s focus is on quality businesses where an element of change is helping to drive their value, and these stocks could potentially experience a degree of illiquidity in times of market distress. The fund is a concentrated portfolio of between 30 and 40 holdings, but is mainly invested in the shares of large and medium-sized companies, which are normally traded with relative ease. Diversification across countries, industries and market capitalisation is key in managing liquidity risk and reducing market risk. The fund’s risks are measured and managed as an integral part of the investment process.

has not changed during this period.

Investment review As at 1 March 2017, for the six months ended 28 February 2017 Performance against objective Between 1 September 2016 (the start of the review period) and 1 March 2017, the M&G Global Select Fund delivered positive total returns (the combination of income and growth of capital) across all of its share classes. [a] All share classes, however, finished behind a comparable index, the MSCI World Index. Over the six months, returns from the index were 17.5%, 15.4% and 8.8% in sterling, euros and US dollars, respectively. Over five years and since launch, the fund has delivered positive total returns, and has remained invested in a diversified portfolio of company shares from anywhere in the world, thus meeting its investment objective.

Investment performance Stockmarkets in developed countries delivered solid returns for the period under review, with positive prospects for global economic growth and inflation, as well as a changing political landscape, helping to drive investor sentiment. For most of the period, the market mood was arguably dominated by the run-up to, and aftermath of, the US presidential election. Following swirling speculation over what a Donald Trump victory might mean, his unexpected win sparked a significant, if not surprising, shift in investor sentiment, as the potential for reduced taxes and regulation, as well as a boost to spending on infrastructure, cheered investors. The mood was further enlivened by relatively robust economic data and good corporate results, all of which made investors more willing to take on risk. With that in mind, US stockmarkets hit record highs during the review period, and took other markets, including Europe, along for the ride. The financial sector was the largest beneficiary of this improved mood, as depressed valuations drew investor attention, particularly in the US. Financials had been out of favour for some time, and we had taken advantage of this to add to existing positions that we thought were looking particularly attractive. At the end of the period under review, nearly a quarter of the fund was invested in the sector, primarily in quality financial institutions in the US. As financials outperformed the

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

73

M&G Global Select Fund Authorised Corporate Director’s Report Investment review Investment performance (continued) wider market, this proved supportive for relative returns, as did our selection of stocks within the sector. Beyond financials, information technology and materials also delivered robust returns, and our below-index positions in these sectors weighed on performance. At the other end of the spectrum, sectors considered to be more ‘defensive’ (that is, those that have relatively predictable and stable earnings regardless of the state of the economy) underperformed for the period, as investors became more willing to take on risk. These included real estate, telecommunications, consumer staples and healthcare, all of which lagged against the wider market. Our below-index positions in the former three sectors proved helpful to relative performance, although our above-index position in healthcare – also representing nearly a quarter of the fund – as well as stock selection within the sector, dragged on returns for the period. At a stock level, the two largest detractors for the period were both pharmaceutical companies – Israel-listed Teva and Danish multinational Novo Nordisk. Teva’s shares, along with other generic drug makers, fell sharply in November on news that US prosecutors investigating potential collusion in the pricing of generic drugs could file charges by the end of 2016 – Teva was among those caught in the investigation’s net. The company has also experienced legal challenges around patents on its branded multiple sclerosis treatment Copaxone, as well as additional issues affecting its generics division; its share price has been suppressed as a result. Novo Nordisk, meanwhile, experienced share price weakness for much of the review period. This was in light of pricing pressure in the US for some of its products, exacerbated by comments from President Donald Trump concerning his determination to lower drug prices. We took advantage of the more attractive valuations to add to our position in the company, believing in the long-term sustainability of the business, despite the short-term issues affecting its share price. In the retail space, some US retailers had a difficult time during the period under review, and this was reflected in the shares of US retailer operator L Brands (the company owns Victoria’s Secret and Bath & Body Works, among others). L Brands’ share price declined after the company reported a drop in same-store sales following a difficult holiday period, which continued into February. Underperformance was primarily driven by Victoria’s Secret, which has felt pressure on sales on the back of the weaker store traffic seen throughout US retail, as well as reduced profit margins in light of discounting. Within industrials, German food processing technology and component maker GEA detracted as well. GEA’s shares suffered after the company reduced its guidance for the year, reflecting a ‘lumpier’than-expected order book in the dairy industry; investors were particularly unnerved by poor communication, as the company had previously confirmed a positive outlook. Swiss global food and beverage company Nestlé and British consumer goods company Reckitt Benckiser also saw some share price weakness, as investors turned away from the perceived safety of consumer staples companies.

74

On the upside, our holdings in the financial sector added value for the period, with the largest contributor being M&T Bank, a communitybased regional lender headquartered in New York. Direct banking and payments company Discover Financial Services, Japanese insurer Tokio Marine, credit card company American Express and financial institution Bank of New York Mellon all delivered strong returns as well. Elsewhere, luxury jeweller Tiffany was also supportive. During the period under review, the company reached a deal with activist investors to appoint three independent directors to its board, who would help oversee the search for a new chief executive (CEO Fredric Cumenal left the company at the beginning of February). Investors anticipated that the new board members would help to accelerate Tiffany’s modernisation, and its shares rose as a result. Other notable holdings included fluid handling systems maker Graco, which published strong results during the period, and Time Warner. The multinational media company’s share price rose sharply on news that US telecom conglomerate AT&T had agreed to acquire the company for US$85.4 billion. The deal remained under regulatory scrutiny at the end of the review period.

Investment activities We run a concentrated portfolio of between 30 and 40 holdings, maintaining a watchlist of around 300 quality ‘moated’ companies that we would like to own when the timing and price are right (moated companies are those where we feel the business model is well protected from competition). We monitor our watchlist closely, waiting patiently for short-term issues, or ‘disruptions’, to create buying opportunities. During the review period, two such opportunities presented themselves. The first was Linde, the world’s second-largest supplier of industrial gases. Following a series of beneficial acquisitions, we believe Linde possesses some of the best assets in the industry, with the potential to improve the profitability of those assets. The company is engaged in highly visible long-term projects in captive markets, generates a lot of cash and is very profitable. The end of merger talks with competitor Praxair (which subsequently resumed) created our entry point. Our other new purchase was Unilever, a high-quality producer of household and beauty products as well as food and beverages. Unilever is very long term, making strategic acquisitions over time to grow and diversify its business, and is stakeholder, not just shareholder, focused. Its shares weakened as investors turned from consumer staples companies, in favour of more growth oriented stocks, allowing us to purchase shares at what we believe to be an attractive valuation. The company is now, in light of an attempted (and subsequently called-off) takeover bid by rival Kraft Heinz, looking at shorter term optimisations in the business, and we believe we will see ongoing improvement in cashflows and profitability. We have watched the stock for some time, waiting for the right entry point, and believe that that patience has now paid off. Conversely, we exited the fund’s holdings in automotive seating and interiors business Adient, a small position that had been spun off from Johnson Controls last year, and cigarette maker British American Tobacco. This was in light of tougher regulations, new technologies – including ‘vaping’ – leading to increased competition and uncertainty, and a belief that tobacco companies were increasingly unlikely to produce the same level returns as they have in the past.

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

M&G Global Select Fund Authorised Corporate Director’s Report Investment review

Investments

Outlook Over the course of the review period we witnessed a shift in investor sentiment. In risk-averse markets, investors had preferred the perceived safety of more defensive parts of the market – most notably within the consumer staples sector – and were seemingly willing to pay any price to invest in these companies. With the turn in mood, accelerated by the election of Donald Trump, investors have returned to looking at company fundamentals, and a focus on ‘value’ appears to be coming into favour. In this environment, there could be an expectation that a quality-biased portfolio will struggle, but we do not believe that our quality focus will preclude the fund from taking advantage of the rotation into value. This is because ‘quality’ is by no means limited to the defensive, stable, ‘safe’ stocks that previously attracted so much investor attention. We identify quality across sectors, investing in companies with a proven track record of value creation over the business cycle, irrespective of the sector in which they reside. Given the nature of the businesses in which we invest, and the balanced construction of our portfolio, we believe the fund is well positioned to take advantage of the current shift in investor sentiment. As long-term investors, we remain focused on the long-term value of the businesses in which we invest, and continue to be optimistic about their prospects. John William Olsen Fund manager An employee of M&G Limited which is an associate of M&G Securities Limited. [a] 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.

Portfolio statement as at Holding

28.02.17 28.02.17 31.08.16 $’000 % % Oil equipment, services & distribution 434,953 National Oilwell Varco

17,877 17,877

2.15 2.15

1.90

Chemicals 154,239 Bayer 113,418 Linde

35,270 16,981 18,289

4.25 2.05 2.20

2.85

General industrials 328,464 GEA Group 345,897 Graco

45,041 12,855 32,186

5.42 1.55 3.87

9.13

Electronic & electrical equipment 216,492 Schneider Electric

14,682 14,682

1.77 1.77

1.93

Food producers 469,195 Nestlé (Regd.) 495,418 Unilever

57,907 34,561 23,346

6.97 4.16 2.81

4.81

Household goods & home construction 188,021 Reckitt Benckiser

17,091 17,091

2.06 2.06

2.05

Personal goods 292,772 Tiffany & Co

26,923 26,923

3.24 3.24

2.72

Tobacco

0

0.00

2.99

Healthcare equipment & services 267,058 Becton Dickinson 326,345 UnitedHealth Group

102,779 48,815 53,964

12.38 5.88 6.50

12.34

Pharmaceuticals & biotechnology 5,147,139 Indivior 1,023,012 Novo-Nordisk 545,915 Teva Pharmaceuticals

78,138 22,385 36,258 19,495

9.41 2.69 4.37 2.35

10.53

General retailers 225,704 L Brands 241,099 Stericycle 1,496,194 WH Smith

63,460 11,825 20,105 31,530

7.64 1.42 2.42 3.80

7.69

25,822 25,822

3.11 3.11

2.68

59,891 18,386 29,828 11,677

7.21 2.21 3.59 1.41

6.63

Non-life insurance 494,530 American International Group 717,500 Tokio Marine Holding

63,083 31,650 31,433

7.59 3.81 3.78

8.37

Financial services 253,489 American Express 661,055 Bank of New York Mellon 429,388 Discover Financial Services

82,205 20,325 31,136 30,744

9.90 2.45 3.75 3.70

9.01

108,771 29,424 20,917 26,298 32,132

13.10 3.54 2.52 3.17 3.87

14.23

Media 262,955 Time Warner Banks 1,342,858 ING Groep 177,599 M&T Bank 1,300,673 Standard Chartered

34,639 195,029 146,573 500,349

Software & computer services Alphabet Ansys International Business Machines Microsoft

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

75

M&G Global Select Fund Authorised Corporate Director’s Report Top portfolio transactions

Investments

for the six months to 28 February 2017 Purchases

Portfolio statement (continued) as at Holding

28.02.17 28.02.17 31.08.16 $’000 % % Technology hardware & equipment 591,440 Johnson Controls

Portfolio of investments ‘AAA’ rated money market funds [a] 3,758,000 Northern Trust Global Fund US dollar

24,971 24,971

3.01 3.01

0.00

823,911

99.21

99.86

3,758

0.45

0.13

3,758

0.45

Total portfolio Net other assets / (liabilities)

827,669 2,811

99.66 0.34

99.99 0.01

Net assets attributable to shareholders

830,480

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.

$’000

Unilever Linde Novo-Nordisk Stericycle Reckitt Benckiser WH Smith

20,182 18,332 17,922 4,053 2,036 1,616

Total purchases

64,141

Largest sales British American Tobacco Shire Tokio Marine Holding UnitedHealth Group Bayer Microsoft M&T Bank Ansys Alphabet Adient

$’000 24,350 9,753 9,680 6,864 6,527 5,918 5,399 5,044 4,470 3,707

Other sales

27,920

Total sales

109,632

Purchases and sales exclude the cost and proceeds of ‘AAA’ rated money market funds.

76

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

M&G Global Select Fund Financial highlights Performance since launch

Fund performance Please note past performance is not a guide to future performance and 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 not get back the original amount you invested.

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

December 1967 = 100, plotted monthly

Chart date 1 March 2017

20,000

The following charts and tables show the performance for two of the fund’s share classes – Sterling Class ‘A’ (Accumulation) shares and Sterling Class ‘I’ (Accumulation) shares. We show performance for these two share classes because:

• The performance of the Sterling Class ‘A’ (Accumulation) share is

15,000

7,000 5,000 3,000 2,000 1,500 1,000

what most individuals investing directly with M&G have received. It has the highest ongoing charge of all the share classes. Performance is shown after deduction of this charge. All investors in the fund therefore received this performance or better.

700

• The performance of the Sterling Class ‘I’ (Accumulation) share is

100 80

the most appropriate to compare with the average performance of the fund’s comparative sector. It is the share class used by the Investment Association in the calculation of the comparative sector’s average performance. This share class is available for direct investment with M&G subject to minimum investment criteria, or via third parties who may charge additional fees. The performance shown takes the deduction of the ongoing charge for this share class into account but it does not take account of charges applied by any other party through which you may have invested. The fund is available for investment in different share classes, each with varying levels of charges and minimum investments; please refer to the Prospectus for M&G Investment Funds (1), which is available free of charge either from our website at www.mandg.co.uk/prospectuses or by calling M&G Customer Relations.

Sterling Class ‘I’ (Accumulation) shares*

10,000

500

Sterling Class ‘A’ (Accumulation) shares* 300 200 150

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

Sterling Class ‘A’ (Accumulation) shares* Sterling Class ‘I’ (Accumulation) shares* * Income reinvested

Source: Morningstar, Inc. and M&G

Ten-year performance Please note that comparative data is not available from fund launch. Therefore a ten-year comparable performance chart is shown below.

Ten years, 1 March 2007 = 100, plotted monthly

Chart date 1 March 2017

270 240

Sterling Class ‘I’ (Accumulation) shares*

220 200 180

Fund level performance

160

Sterling Class ‘A’ (Accumulation) shares* 140

Fund net asset value

120

as at

28.02.17 $’000

31.08.16 $’000

31.08.15 $’000

Fund net asset value (NAV)

830,480

820,854

990,484

100 90 80 70 2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Sterling Class ‘A’ (Accumulation) shares* Sterling Class ‘I’ (Accumulation) shares* MSCI World Index Morningstar (IA) Global sector average* * Income reinvested

Source: Morningstar, Inc. and M&G

The fund’s Sterling Class ‘I’ (Accumulation) shares were launched on 3 August 2012. Performance data shown prior to this date is that of the fund’s Sterling Class ‘A’ (Accumulation) shares.

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

77

M&G Global Select Fund Financial highlights Operating charges and portfolio transaction costs

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

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

Operating charges

Long-term performance by share class Six Three months years 01.09.16 03.03.14 % [a] % p.a.

Five years 01.03.12 % p.a.

Since launch

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

% p.a.

• Investment management: Charge paid to M&G for investment

Euro [b] Class ‘A’

+12.2

+12.8

+11.3

+6.5 [c]

Class ‘B’

+11.9

n/a

n/a

+20.3 [d]

Class ‘C’

+12.7

+13.9

+12.4

+7.4 [c]

Sterling [e] Class ‘A’

+14.1

+14.5

+12.1

+10.7 [f]

Class ‘I’

+14.6

+15.4

n/a

+15.3 [g]

Class ‘R’

+14.4

+15.1

n/a

+15.0 [g]

Class ‘X’

+14.1

+14.5

+12.1

+17.5 [h]

US dollar [b] Class ‘A’

+6.0

+3.2

+6.2

+9.1

Class ‘C’

+6.5

+4.1

+7.2

+10.2 [i]

[i]

[a] Absolute basis. [b] Price to price with net income reinvested. [c] 28 November 2001, the launch date of the share class. [d] 18 March 2016, the launch date of the share class. Absolute basis. [e] Price to price with income reinvested. [f] 19 December 1967, the end of the initial offer period of the predecessor unit trust. [g] 3 August 2012, the launch date of the share class. [h] 1 October 2002, the launch date of the share class.

management of the fund (also known as Annual Management Charge).

• Administration: Charge paid to M&G for administration services in addition to investment management – any surplus from this charge will be retained by M&G.

• Oversight

and other independent services: Charges paid to providers independent of M&G for services which include depositary, custody and audit.

The operating charges paid by each share class of the fund are shown in the following performance tables. Operating charges do not include portfolio transaction costs or any entry and exit charges (also known as initial and redemption charges). The charging structures of share classes may differ, and therefore the operating charges may differ. Operating charges are the same as the ongoing charges shown in the Key Investor Information Document, other than where an estimate has been used for the ongoing charge because a material change has made the operating charges unreliable as an estimate of future charges. For this fund there is no difference between operating charges and ongoing charges figures, unless disclosed under the specific share class performance table.

[i] 19 December 2008, the launch date of the share class.

78

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

M&G Global Select Fund Financial highlights

Fund performance

Specific share class performance

Portfolio transaction costs Portfolio transaction costs are incurred by funds when buying and selling investments. These costs vary depending on the types of investment, their market capitalisation, country of exchange, method of execution and the quality of research provided. They are made up of direct and indirect portfolio transaction costs:

• Direct portfolio transaction costs: Broker execution commission

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

Euro Class ‘A’ Income share performance The share class was launched on 8 August 2014.

and taxes.

• Indirect portfolio transaction costs: ‘Dealing spread’ – the difference between the buying and selling prices of the fund’s investments; some types of investment, such as fixed interest securities, have no direct transaction costs and only the dealing spread is paid.

Six months to 28.02.17 Euro ¢

Year to 31.08.16 Euro ¢

Year to 31.08.15 Euro ¢

2,317.94 Opening NAV Return before operating charges and after direct 289.89 portfolio transaction costs Operating charges (22.67)

2,216.87

1,921.71

150.00 (42.97)

339.77 (42.10) 297.67

Change in NAV per share

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

Return after operating charges

To protect existing investors, portfolio transaction costs incurred as a result of investors buying and selling shares in the fund are recovered from those investors through a ‘dilution adjustment’ to the price they pay or receive. The table below shows direct portfolio transaction costs paid by the fund before and after that part of the dilution adjustment relating to direct portfolio transaction costs. To give an indication of the indirect portfolio dealing costs the table also shows the average portfolio dealing spread.

Direct portfolio transaction costs [a]

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

Portfolio transaction costs Six months to 28.02.17 Direct portfolio transaction costs [b] %

Year to 31.08.16 %

Year to 31.08.15 %

Average [a] %

Broker commission Taxes

0.05 0.01

0.06 0.01

0.03 0.01

0.05 0.01

Costs before dilution adjustments Dilution adjustments [c]

0.06 (0.01)

0.07 (0.02)

0.04 (0.01)

0.06 (0.01)

Total direct portfolio transaction costs

0.05

0.05

0.03

0.05

28.02.17 %

31.08.16 %

31.08.15 %

0.03

0.03

0.10

as at Indirect portfolio transaction costs Average portfolio dealing spread

267.22

107.03

Distributions

n/a

(5.96)

(2.51)

Closing NAV

2,585.16

2,317.94

2,216.87

Euro ¢

Euro ¢

Euro ¢

Costs before dilution adjustments Dilution adjustments [b]

0.65 (0.07)

1.55 (0.43)

0.94 (0.23)

Total direct portfolio transaction costs

0.58

1.12

0.71

%

%

%

Direct portfolio transaction costs 0.05 Operating charges 1.91 Return after operating charges +11.53 1.86 Historic yield [c] Effect on yield of charges offset against capital 1.90

Performance and charges

0.05 1.92 +4.83 0.26 0.00

0.03 1.91 +15.49 0.11 0.00

311 0.04 12,049 2,411.05 1,922.28

32 0.00 1,273 2,504.84 1,794.42

Other information Closing NAV ($’000) 258 Closing NAV percentage of total fund NAV (%) 0.03 Number of shares 9,424 Highest share price (Euro ¢) 2,602.91 Lowest share price (Euro ¢) 2,210.40

Average [a] % 0.05

[a] Average of first three columns. [b] As a percentage of average net asset value. [c] In respect of direct portfolio transaction costs.

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

79

M&G Global Select Fund Financial highlights Euro Class ‘B’ Accumulation share performance

Specific share class performance

The share class was launched on 18 March 2016.

Six months to 28.02.17 Euro ¢

Year to 31.08.16 Euro ¢

Year to 31.08.15 Euro ¢

2,332.46 Opening NAV Return before operating charges and after direct 291.78 portfolio transaction costs (22.88) Operating charges

2,225.04

1,926.61

Return after operating charges Distributions Retained distributions

150.10 (42.68)

340.82 (42.39)

268.90

107.42

298.43

n/a

(5.93)

(2.52)

5.93

2.52

2,601.36

2,332.46

2,225.04

Euro ¢

Euro ¢

Euro ¢

Costs before dilution adjustments Dilution adjustments [b]

0.66 (0.07)

1.54 (0.43)

0.90 (0.22)

Total direct portfolio transaction costs

0.59

1.11

0.68

Direct portfolio transaction costs [a]

Performance and charges

%

%

%

Direct portfolio transaction costs 0.05 Operating charges 1.91 Return after operating charges +11.53 Historic yield 0.23 Effect on yield of charges offset against capital 0.00

0.05 1.92 +4.83 0.25 0.00

0.03 1.91 +15.49 0.01 0.00

69,391 8.45 2,670,087 2,419.91 1,929.35

107,662 10.87 4,289,801 2,511.38 1,799.10

Other information Closing NAV ($’000) 69,919 Closing NAV percentage of total fund NAV (%) 8.42 Number of shares 2,535,290 Highest share price (Euro ¢) 2,619.22 Lowest share price (Euro ¢) 2,224.25

Year to 31.08.15 Euro ¢

1,068.43 Opening NAV Return before operating charges and after direct portfolio transaction costs 133.43 (13.20) Operating charges

1,000.00

n/a

79.72 (11.29)

n/a n/a

Return after operating charges

120.23

68.43

n/a

n/a

(2.39)

n/a

Distributions

n/a

Closing NAV

Year to 31.08.16 Euro ¢

Change in NAV per share

Euro Class ‘A’ Accumulation share performance The share class was launched on 28 November 2001.

Change in NAV per share

Six months to 28.02.17 Euro ¢

Retained distributions Closing NAV

n/a

2.39

n/a

1,188.66

1,068.43

n/a

Direct portfolio transaction costs [a]

Euro ¢

Euro ¢

Euro ¢

Costs before dilution adjustments Dilution adjustments [b]

0.30 (0.03)

0.33 (0.09)

n/a n/a

Total direct portfolio transaction costs

0.27

0.24

n/a

%

%

%

0.05 Direct portfolio transaction costs 2.42 Operating charges +11.25 Return after operating charges Historic yield 0.20 0.00 Effect on yield of charges offset against capital

Performance and charges

0.05 2.41 +6.84 0.22 0.00

n/a n/a n/a n/a n/a

36 0.00 3,000 1,071.41 977.52

n/a n/a n/a n/a n/a

Six months to 28.02.17 Euro ¢

Year to 31.08.16 Euro ¢

Year to 31.08.15 Euro ¢

Opening NAV 2,556.18 Return before operating charges and after direct portfolio transaction costs 320.76 Operating charges (11.87)

2,444.07

2,116.95

166.14 (22.87)

374.84 (22.27) 352.57

Other information 52 Closing NAV ($’000) Closing NAV percentage of total fund NAV (%) 0.01 Number of shares 4,148 Highest share price (Euro ¢) 1,196.92 Lowest share price (Euro ¢) 1,017.96

Euro Class ‘C’ Income share performance The share class was launched on 8 August 2014.

Change in NAV per share

Return after operating charges

308.89

143.27

Distributions

n/a

(31.16)

(25.45)

Closing NAV

2,865.07

2,556.18

2,444.07

Direct portfolio transaction costs [a]

Euro ¢

Euro ¢

Euro ¢

Costs before dilution adjustments Dilution adjustments [b]

0.72 (0.08)

1.73 (0.48)

1.05 (0.26)

Total direct portfolio transaction costs

0.64

1.25

0.79

%

%

%

Direct portfolio transaction costs 0.05 Operating charges 0.91 Return after operating charges +12.08 1.85 Historic yield [c] Effect on yield of charges offset against capital 0.90

Performance and charges

0.05 0.92 +5.86 1.22 0.00

0.03 0.91 +16.65 1.04 0.00

30 0.00 1,045 2,664.43 2,128.38

6 0.00 245 2,776.78 1,979.43

Other information Closing NAV ($’000) 23 Closing NAV percentage of total fund NAV (%) 0.00 Number of shares 745 Highest share price (Euro ¢) 2,884.27 Lowest share price (Euro ¢) 2,441.92

80

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

M&G Global Select Fund Financial highlights Sterling Class ‘A’ Accumulation share performance

Specific share class performance

The share class was launched on 19 December 1967.

Return after operating charges

Year to 31.08.16 Euro ¢ 2,500.39 170.21 (23.14)

Year to 31.08.16 UK p

Year to 31.08.15 UK p

654.86 Opening NAV Return before operating charges and after direct portfolio transaction costs 85.56 (5.68) Operating charges

538.55

504.41

125.80 (9.49)

43.19 (9.05)

Return after operating charges

Change in NAV per share

Euro Class ‘C’ Accumulation share performance The share class was launched on 28 November 2001. Six months to 28.02.17 Euro ¢ Change in NAV per share 2,647.46 Opening NAV Return before operating charges and after direct 332.34 portfolio transaction costs Operating charges (12.45)

Six months to 28.02.17 UK p

Year to 31.08.15 Euro ¢ 2,143.76 379.23 (22.60)

79.88

116.31

34.14

Distributions

n/a

(3.20)

(1.36)

Retained distributions

n/a

3.20

1.36

734.74

654.86

538.55

Closing NAV

319.89

147.07

356.63

Distributions

n/a

(31.85)

(25.86)

Direct portfolio transaction costs [a]

UK p

UK p

UK p

Retained distributions

n/a

31.85

25.86

2,967.35

2,647.46

2,500.39

Costs before dilution adjustments Dilution adjustments [b]

0.19 (0.02)

0.39 (0.11)

0.22 (0.05)

Direct portfolio transaction costs [a] Costs before dilution adjustments Dilution adjustments [b]

Euro ¢ 0.75 (0.08)

Euro ¢ 1.74 (0.48)

Euro ¢ 1.01 (0.25)

Total direct portfolio transaction costs

0.17

0.28

0.17

Total direct portfolio transaction costs

0.67

1.26

0.76

% Performance and charges 0.05 Direct portfolio transaction costs Operating charges 0.91 Return after operating charges +12.08 1.07 Historic yield Effect on yield of charges offset against capital 0.00

% 0.05 0.92 +5.88 1.20 0.00

% 0.03 0.91 +16.64 1.04 0.00

Other information Closing NAV ($’000) 36,151 Closing NAV percentage of total fund NAV (%) 4.35 Number of shares 1,149,189 Highest share price (Euro ¢) 2,987.24 Lowest share price (Euro ¢) 2,529.14

31,717 3.86 1,075,212 2,726.38 2,177.87

28,623 2.89 1,014,909 2,811.33 2,004.46

Closing NAV

%

%

%

0.05 Direct portfolio transaction costs 1.66 Operating charges +12.20 Return after operating charges Historic yield 0.43 0.00 Effect on yield of charges offset against capital

Performance and charges

0.05 1.67 +21.60 0.49 0.00

0.03 1.66 +6.77 0.25 0.00

132,082 16.09 15,353,780 665.09 501.57

227,053 22.92 27,398,188 597.42 472.61

Other information 132,379 Closing NAV ($’000) Closing NAV percentage of total fund NAV (%) 15.94 Number of shares 14,483,260 Highest share price (UK p) 735.52 Lowest share price (UK p) 634.88

Sterling Class ‘I’ Income share performance The share class was launched on 3 August 2012. Six months to 28.02.17 UK p

Year to 31.08.16 UK p

Year to 31.08.15 UK p

Opening NAV 1,608.70 Return before operating charges and after direct portfolio transaction costs 210.65 Operating charges (7.68)

1,329.29

1,248.55

312.00 (12.98)

107.00 (12.43)

Sterling Class ‘A’ Income share performance Change in NAV per share

The share class was launched on 19 December 1967. Six months to 28.02.17 Change in NAV per share UK p Opening NAV 336.76 Return before operating charges and after direct portfolio transaction costs 44.01 Operating charges (2.92) Return after operating charges

41.09

Year to 31.08.16 UK p 278.33

Year to 31.08.15 UK p 261.38

65.00 (4.91)

22.39 (4.70)

60.09

17.69

Return after operating charges

Distributions

n/a

(1.66)

(0.74)

Closing NAV

377.85

336.76

278.33

Direct portfolio transaction costs [a] Costs before dilution adjustments Dilution adjustments [b]

UK p 0.10 (0.01)

UK p 0.20 (0.06)

UK p 0.12 (0.03)

Total direct portfolio transaction costs

0.09

0.14

0.09

Performance and charges % Direct portfolio transaction costs 0.05 Operating charges 1.66 Return after operating charges +12.20 Historic yield [c] 1.71 Effect on yield of charges offset against capital 1.65

% 0.05 1.67 +21.59 0.50 0.00

% 0.03 1.66 +6.77 0.27 0.00

Other information Closing NAV ($’000) 462,539 Closing NAV percentage of total fund NAV (%) 55.70 Number of shares 98,404,276 Highest share price (UK p) 378.25 Lowest share price (UK p) 326.49

462,473 56.34 104,538,931 343.72 259.21

532,345 53.75 124,295,740 309.57 244.89

202.97

299.02

94.57

Distributions

n/a

(19.61)

(13.83)

Closing NAV

1,811.67

1,608.70

1,329.29

Direct portfolio transaction costs [a]

UK p

UK p

UK p

Costs before dilution adjustments Dilution adjustments [b]

0.46 (0.05)

0.98 (0.27)

0.56 (0.14)

Total direct portfolio transaction costs

0.41

0.71

0.42

%

%

%

Direct portfolio transaction costs 0.05 Operating charges 0.91 Return after operating charges +12.62 1.77 Historic yield [c] Effect on yield of charges offset against capital 0.90

Performance and charges

0.05 0.92 +22.49 1.23 0.00

0.03 0.91 +7.57 1.04 0.00

23,534 2.87 1,113,639 1,653.19 1,242.00

15,100 1.52 738,241 1,485.66 1,170.87

Other information Closing NAV ($’000) 24,398 Closing NAV percentage of total fund NAV (%) 2.94 Number of shares 1,082,569 Highest share price (UK p) 1,813.60 Lowest share price (UK p) 1,560.00

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

81

M&G Global Select Fund Financial highlights Sterling Class ‘R’ Accumulation share performance

Specific share class performance

The share class was launched on 3 August 2012.

Return after operating charges

Year to 31.08.16 UK p 1,382.15

Year to 31.08.16 UK p

Year to 31.08.15 UK p

167.59 Opening NAV Return before operating charges and after direct portfolio transaction costs 21.93 (1.02) Operating charges

137.13

127.83

32.16 (1.70)

10.91 (1.61)

Change in NAV per share

Sterling Class ‘I’ Accumulation share performance The share class was launched on 3 August 2012. Six months to 28.02.17 UK p Change in NAV per share 1,693.41 Opening NAV Return before operating charges and after direct 221.73 portfolio transaction costs Operating charges (8.08)

Six months to 28.02.17 UK p

Year to 31.08.15 UK p 1,284.81

Return after operating charges

20.91

30.46

9.30

n/a

(1.62)

(1.05)

Distributions 324.74 (13.48)

110.13 (12.79)

Retained distributions Closing NAV

n/a

1.62

1.05

188.50

167.59

137.13

213.65

311.26

97.34

Distributions

n/a

(20.40)

(14.26)

Direct portfolio transaction costs [a]

UK p

UK p

UK p

Retained distributions

n/a

20.40

14.26

1,907.06

1,693.41

1,382.15

Costs before dilution adjustments Dilution adjustments [b]

0.05 (0.01)

0.10 (0.03)

0.06 (0.01)

Direct portfolio transaction costs [a] Costs before dilution adjustments Dilution adjustments [b]

UK p 0.49 (0.05)

UK p 1.01 (0.28)

UK p 0.57 (0.14)

Total direct portfolio transaction costs

0.04

0.07

0.05

Total direct portfolio transaction costs

0.44

0.73

0.43

% Performance and charges 0.05 Direct portfolio transaction costs Operating charges 0.91 Return after operating charges +12.62 1.06 Historic yield Effect on yield of charges offset against capital 0.00

% 0.05 0.92 +22.52 1.21 0.00

% 0.03 0.91 +7.58 1.03 0.00

Other information Closing NAV ($’000) 83,077 Closing NAV percentage of total fund NAV (%) 10.00 Number of shares 3,501,874 Highest share price (UK p) 1,909.08 Lowest share price (UK p) 1,642.16

79,279 9.66 3,563,837 1,719.29 1,291.65

53,096 5.36 2,496,472 1,528.83 1,204.97

Closing NAV

%

%

%

0.05 Direct portfolio transaction costs 1.16 Operating charges +12.48 Return after operating charges Historic yield 0.85 0.00 Effect on yield of charges offset against capital

Performance and charges

0.05 1.17 +22.21 0.97 0.00

0.03 1.16 +7.28 0.76 0.00

289 0.04 131,175 170.17 128.01

365 0.04 172,592 151.83 119.84

Other information 308 Closing NAV ($’000) Closing NAV percentage of total fund NAV (%) 0.04 Number of shares 131,175 Highest share price (UK p) 188.71 Lowest share price (UK p) 162.51

Sterling Class ‘X’ Income share performance The share class was launched on 1 October 2002. Six months to 28.02.17 UK p

Year to 31.08.16 UK p

Year to 31.08.15 UK p

Opening NAV 336.74 Return before operating charges and after direct portfolio transaction costs 44.00 Operating charges (2.92)

278.31

261.34

65.00 (4.91)

22.40 (4.70) 17.70

Sterling Class ‘R’ Income share performance Change in NAV per share

The share class was launched on 3 August 2012. Six months to 28.02.17 Change in NAV per share UK p Opening NAV 160.86 Return before operating charges and after direct portfolio transaction costs 21.06 Operating charges (0.98) Return after operating charges

82

Year to 31.08.16 UK p 132.93

Year to 31.08.15 UK p 124.85

31.15 (1.65)

10.70 (1.58)

Return after operating charges

20.08

29.50

9.12

Distributions

n/a

(1.57)

(1.04)

Closing NAV

180.94

160.86

132.93

Direct portfolio transaction costs [a] Costs before dilution adjustments Dilution adjustments [b]

UK p 0.05 (0.01)

UK p 0.10 (0.03)

UK p 0.06 (0.01)

Total direct portfolio transaction costs

0.04

0.07

0.05

Performance and charges % Direct portfolio transaction costs 0.05 Operating charges 1.17 Return after operating charges +12.48 Historic yield [c] 1.75 Effect on yield of charges offset against capital 1.15

% 0.05 1.17 +22.19 0.98 0.00

% 0.03 1.16 +7.30 0.78 0.00

Other information Closing NAV ($’000) 405 Closing NAV percentage of total fund NAV (%) 0.05 Number of shares 179,747 Highest share price (UK p) 181.13 Lowest share price (UK p) 155.99

342 0.04 161,836 164.94 124.07

300 0.03 146,870 148.34 117.05

41.08

60.09

Distributions

n/a

(1.66)

(0.73)

Closing NAV

377.82

336.74

278.31

Direct portfolio transaction costs [a]

UK p

UK p

UK p

Costs before dilution adjustments Dilution adjustments [b]

0.10 (0.01)

0.20 (0.06)

0.12 (0.03)

Total direct portfolio transaction costs

0.09

0.14

0.09

%

%

%

Direct portfolio transaction costs 0.05 Operating charges 1.66 Return after operating charges +12.20 1.71 Historic yield [c] Effect on yield of charges offset against capital 1.65

Performance and charges

0.05 1.67 +21.59 0.50 0.00

0.03 1.66 +6.77 0.26 0.00

11,681 1.42 2,640,665 343.69 259.19

13,029 1.32 3,042,241 309.53 244.86

Other information Closing NAV ($’000) 11,352 Closing NAV percentage of total fund NAV (%) 1.37 Number of shares 2,415,192 Highest share price (UK p) 378.22 Lowest share price (UK p) 326.47

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

M&G Global Select Fund Financial highlights US dollar Class ‘A’ Accumulation share performance

Specific share class performance

The share class was launched on 19 December 2008.

Six months to 28.02.17 UK p

Year to 31.08.16 UK p

Year to 31.08.15 UK p

649.36 Opening NAV Return before operating charges and after direct 84.84 portfolio transaction costs Operating charges (5.63)

534.02

500.18

Return after operating charges

124.75 (9.41)

Year to 31.08.16 US ¢

Year to 31.08.15 US ¢

1,935.59 Opening NAV Return before operating charges and after direct portfolio transaction costs 136.78 (18.37) Operating charges

1,869.25

1,892.54

101.73 (35.39)

13.31 (36.60)

Change in NAV per share

Sterling Class ‘X’ Accumulation share performance The share class was launched on 1 October 2002.

Change in NAV per share

Six months to 28.02.17 US ¢

42.79 (8.95)

Return after operating charges

118.41

66.34

(23.29)

Distributions

n/a

(4.89)

(6.94)

Retained distributions

n/a

4.89

6.94

2,054.00

1,935.59

1,869.25

Closing NAV

79.21

115.34

33.84

Distributions

n/a

(3.18)

(1.18)

Direct portfolio transaction costs [a]

US ¢

US ¢

US ¢

Retained distributions

n/a

3.18

1.18

728.57

649.36

534.02

Costs before dilution adjustments Dilution adjustments [b]

0.53 (0.06)

1.27 (0.35)

0.78 (0.19)

Direct portfolio transaction costs [a]

Total direct portfolio transaction costs

0.47

0.92

0.59

UK p

UK p

UK p

Costs before dilution adjustments Dilution adjustments [b]

0.19 (0.02)

0.39 (0.11)

0.22 (0.05)

Total direct portfolio transaction costs

0.17

0.28

0.17

Closing NAV

Performance and charges

%

%

%

0.05 Direct portfolio transaction costs Operating charges 1.66 Return after operating charges +12.20 0.43 Historic yield Effect on yield of charges offset against capital 0.00

0.05 1.67 +21.60 0.49 0.00

0.03 1.66 +6.77 0.22 0.00

7,240 0.88 848,727 659.50 497.35

10,013 1.01 1,218,384 592.40 468.64

Other information Closing NAV ($’000) 7,343 Closing NAV percentage of total fund NAV (%) 0.88 Number of shares 810,224 Highest share price (UK p) 729.34 Lowest share price (UK p) 629.55

US dollar Class ‘A’ Income share performance Six months to 28.02.17 US ¢

Year to 31.08.16 US ¢

Year to 31.08.15 US ¢

Opening NAV 1,919.15 Return before operating charges and after direct portfolio transaction costs 135.68 Operating charges (18.27)

1,858.21

1,888.08

101.02 (35.19)

14.32 (37.27)

117.41

65.83

(22.95)

Distributions

n/a

(4.89)

(6.92)

Closing NAV

2,036.56

1,919.15

1,858.21

Return after operating charges

Direct portfolio transaction costs [a]

US ¢

US ¢

US ¢

Costs before dilution adjustments Dilution adjustments [b]

0.53 (0.06)

1.27 (0.35)

0.80 (0.19)

Total direct portfolio transaction costs

0.47

0.92

0.61

Performance and charges

%

%

%

0.05 1.91 +6.12 1.96 1.90

0.05 1.92 +3.54 0.25 0.00

0.03 1.91 -1.22 0.37 0.00

Closing NAV ($’000) 338 Closing NAV percentage of total fund NAV (%) 0.04 Number of shares 16,595 Highest share price (US ¢) 2,038.73 Lowest share price (US ¢) 1,823.71

318 0.04 16,595 1,944.85 1,619.58

308 0.03 16,595 2,017.28 1,703.81

Direct portfolio transaction costs Operating charges Return after operating charges Historic yield [c] Effect on yield of charges offset against capital

%

%

%

0.05 1.91 +6.12 0.24 0.00

0.05 1.92 +3.55 0.25 0.00

0.03 1.91 -1.23 0.01 0.00

1,571 Closing NAV ($’000) Closing NAV percentage of total fund NAV (%) 0.19 Number of shares 76,474 Highest share price (US ¢) 2,056.19 Lowest share price (US ¢) 1,839.33

1,713 0.21 88,496 1,956.52 1,629.31

2,182 0.22 116,750 2,021.73 1,707.79

Other information

US dollar Class ‘C’ Income share performance The share class was launched on 8 August 2014. Six months to 28.02.17 US ¢

Year to 31.08.16 US ¢

Year to 31.08.15 US ¢

Opening NAV 2,017.65 Return before operating charges and after direct portfolio transaction costs 143.10 Operating charges (8.95)

1,953.07

1,978.04

106.87 (17.42)

13.51 (17.46)

Change in NAV per share

The share class was launched on 8 August 2014.

Change in NAV per share

Performance and charges Direct portfolio transaction costs Operating charges Return after operating charges Historic yield Effect on yield of charges offset against capital

Other information

Return after operating charges

134.15

89.45

(3.95)

Distributions

n/a

(24.87)

(21.02)

Closing NAV

2,151.80

2,017.65

1,953.07

Direct portfolio transaction costs [a]

US ¢

US ¢

US ¢

Costs before dilution adjustments Dilution adjustments [b]

0.51 (0.06)

1.31 (0.36)

0.69 (0.17)

Total direct portfolio transaction costs

0.45

0.95

0.52

Performance and charges

%

%

%

0.05 0.89 +6.65 1.97 0.89

0.05 0.90 +4.58 1.23 0.00

0.03 0.93 -0.20 1.08 0.00

Closing NAV ($’000) 6 Closing NAV percentage of total fund NAV (%) 0.00 Number of shares 259 Highest share price (US ¢) 2,154.09 Lowest share price (US ¢) 1,920.72

5 0.00 259 2,064.21 1,709.73

5 0.00 259 2,132.55 1,787.32

Direct portfolio transaction costs Operating charges Return after operating charges Historic yield [c] Effect on yield of charges offset against capital Other information

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

83

M&G Global Select Fund Financial highlights

Specific share class performance US dollar Class ‘C’ Accumulation share performance The share class was launched on 19 December 2008. Six months to 28.02.17 US ¢

Year to 31.08.16 US ¢

Year to 31.08.15 US ¢

2,083.13 Opening NAV Return before operating charges and after direct 147.99 portfolio transaction costs (9.54) Operating charges

1,991.74

2,002.88

109.55 (18.16)

6.43 (17.57)

Change in NAV per share

Return after operating charges

138.45

91.39

(11.14)

Distributions

n/a

(25.03)

(21.28)

Retained distributions

n/a

25.03

21.28

2,221.58

2,083.13

1,991.74

Direct portfolio transaction costs [a]

US ¢

US ¢

US ¢

Costs before dilution adjustments Dilution adjustments [b]

0.58 (0.06)

1.36 (0.38)

0.77 (0.19)

Total direct portfolio transaction costs

0.52

0.98

0.58

Closing NAV

Performance and charges

%

%

%

0.05 0.91 +6.65 1.13 0.00

0.05 0.92 +4.59 1.20 0.00

0.03 0.93 -0.56 1.03 0.00

Closing NAV ($’000) 361 Closing NAV percentage of total fund NAV (%) 0.04 Number of shares 16,231 Highest share price (US ¢) 2,223.94 Lowest share price (US ¢) 1,983.09

413 0.06 19,806 2,105.26 1,743.87

365 0.04 18,288 2,151.74 1,809.67

Direct portfolio transaction costs Operating charges Return after operating charges Historic yield Effect on yield of charges offset against capital Other information

[a] As a percentage of average net asset value. [b] In respect of direct portfolio transaction costs. [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.

84

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

M&G Global Select Fund Financial statements and notes

Financial statements

Notes to the financial statements Accounting policies

Statement of total return 2017 for the six months to 28 and 29 February Income Net capital gains / (losses) Revenue Expenses Net revenue / (expense) before taxation Taxation

$’000

$’000

2016 $’000 $’000

49,284 5,840 (6,166) ______ (326) (583) ______

(63,647) 7,055 (7,517) ______ (462) (906) ______

Net revenue / (expense) after taxation

(909)

(1,368)

Total return before equalisation Equalisation

48,375 (51)

(65,015) 189

Change in net assets attributable to shareholders from investment activities

48,324

(64,826)

Statement of change in net assets attributable to shareholders 2017 for the six months to 28 and 29 February Opening net assets attributable to shareholders Amounts received on issue of shares Amounts paid on cancellation of shares Dilution adjustments Change in net assets attributable to shareholders from investment activities (see above) Unclaimed distributions Closing net assets attributable to shareholders

$’000

$’000

2016 $’000 $’000

820,854 10,700 (49,430) ______

The financial statements have been prepared in accordance with the ‘Accounting policies’ set out on page 4.

Distribution policy With effect from 1 September 2016, the distribution policy has been amended so that in determining the amount available for distribution to Income shares, the annual management charge and administration charge are now offset against capital, increasing the amount available for distribution whilst restraining capital performance to an equivalent extent. Marginal tax relief has not been taken into account in respect of expenses offset against capital. In determining the amount available for distribution, ordinary stock dividends have been transferred to capital, reducing the amount available.

990,484 49,848 (132,830) ______

(38,730) 30

(82,982) 90

48,324 2

(64,826) 2

830,480

842,768

The opening net assets attributable to shareholders for 2017 differs to the closing position in 2016 by the change in net assets attributable to shareholders for the second half of the comparative financial year.

Balance sheet as at

28 February 2017 $’000

31 August 2016 $’000

827,669

820,801

3,204 764

4,328 504

831,637

825,633

(1) 0 (1,156)

(186) (2,634) (1,959)

Assets Fixed assets Investments Current assets Debtors Cash and bank balances Total assets Liabilities Creditors Bank overdrafts Distribution payable Other creditors Total liabilities Net assets attributable to shareholders

(1,157)

(4,779)

830,480

820,854

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

85

M&G Global Select Fund Financial statements and notes

This page is intentionally blank

86

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

M&G Japan Fund Authorised Corporate Director’s Report Investment objective and policy

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

The Fund invests in a wide range of securities of Japanese issuers, covering most aspects of the economy. Its sole objective is long term capital growth. Income is not a consideration when investments are selected.

Low risk Typically lower rewards

1 Investment approach The M&G Japan Fund screens a wide investment universe to form a concentrated portfolio of Japanese companies that are trading on low valuations relative to their history and the market. The fund aims to achieve sound capital growth over the long term.

The fund holds shares in companies that have attractive valuations relative to the earnings they are likely to generate over the medium to long term. These companies are quite often out of favour with the market for one reason or another. The fund’s investment strategy therefore tends to be contrarian in nature. The fund manager sees investing as a price-sensitive process that takes advantage of the mis-pricing of a company’s shares by the market. Whilst recognising that markets are generally efficient, the fund manager believes that market mis-pricings can and often do occur because human characteristics (such as fear and greed) may prevent investors from always assessing investments rationally. As a result, market prices do not always reflect fundamental values since they may over-shoot and under-shoot. For example, shares in companies become mis-priced when investors are willing to pay a high price for the ‘comfort’ of strong near-term earnings momentum and to be associated with success, whilst they will sell ‘unfashionable’ securities regardless of inherent attractiveness, such as healthy balance sheets and the likely level of longer term earnings. Such behavioural biases are evident in Japan’s equity markets today and can be systemically exploited. The fund manager aims to take advantage of these biases by adopting a disciplined, long-term investment approach.

Risk profile The fund invests in the shares of companies listed in Japan and is, therefore, subject to the price volatility of the Japanese stockmarket and the performance of individual companies. The fund may also be subject to fluctuations in currency exchange rates. The fund’s focus is on companies that are deemed to be undervalued, and these stocks could potentially experience a degree of illiquidity in times of market distress. However, the fund is mainly invested in the shares of large and medium-sized companies, which are normally traded with relative ease. The fund also invests in the shares of smaller companies, which can be more unpredictable and difficult to buy and sell. Diversification across industries and market capitalisation is therefore key in managing liquidity risk and reducing market risk. The fund’s risks are measured and managed as an integral part of the investment process.

2

Typically higher rewards

3

4

5

6

7

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. •

The fund manager applies disciplined and rigorous fundamental analysis during the selection process to ensure a high level of conviction around the valuation for each of the companies held in the fund. The portfolio maintains diversification by typically holding between 30 and 50 stocks.

High risk

has not changed during this period.

Investment review As at 1 March 2017, for the six months ended 28 February 2017 Performance against objective Between 1 September 2016 (the start of the review period) and 1 March 2017, the M&G Japan Fund’s total return (the combination of income and growth of capital) was positive across all its share classes.[a] The fund’s returns were ahead of the comparative index, the MSCI Japan Index. Over the six months, returns from the index were 13.5%, 11.5% and 5.1% in sterling, euros and US dollars respectively. Over five years and since launch, the fund has achieved its objective of long-term capital growth. [a]

Investment performance During the six months under review, the fund generated strong returns and outperformed a rising Japanese stockmarket. Japanese shares were buoyed by a combination of positive factors, namely: supportive monetary policy from the Bank of Japan (the central bank is holding down long-term interest rates, which should encourage borrowing); better-than-expected economic growth in the world’s second-largest economy, China; and in the US, the election of Donald Trump as president, which raised expectations that more business-friendly policies and less regulation would be introduced, which should boost the economy. We take a ‘behavioural’ approach to asset management, which means exploiting price fluctuations caused by other investors’ tendency to let emotions drive their investment decisions. We call these occasions, where we believe prices are moving for non-fundamental reasons, ‘episodes’. We use a disciplined and repeatable framework, which aims to exploit these ‘episodes’. By conducting in-depth analysis, we aim to find companies that are trading at a price which is below that justified by its earnings prospects over the medium to long term. We then construct a portfolio usually consisting of 30 to 50 companies of our best ideas that is reasonably diversified and covers most sectors of the economy. When holdings have performed well, or if we see evidence that fundamentals have changed, capital is then recycled into new opportunities, or holdings that have lagged the broader market.

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

87

M&G Japan Fund Authorised Corporate Director’s Report Investment review Investment performance (continued) Over the review period, fund performance was supported by stock selection in a number of sectors, including financials. While some investors feel the low interest rate environment will prove particularly difficult for the profitability of Japanese financial institutions, we believe the negative sentiment has been overdone. In particular, other investors’ views that interest rates will remain negative for a prolonged period are too pessimistic, in our opinion. Furthermore, the financial stocks we hold in the portfolio are businesses where management are taking action to improve profitability. One such example is Nomura Holdings, which was one of the fund’s top contributors during the review period. We believe the company’s focus on reducing fixed costs and improving capital discipline, through share buybacks, should continue to be positive in the medium term. Shares in the brokerage company rose after it reported better-thanexpected earnings, thanks to greater cost discipline and a surge in trading in its overseas fixed income and Japanese equities divisions. A position in insurer T&D Holdings aided performance as well. In our opinion, T&D is well capitalised and generating excess returns over its cost of capital, even in the low interest rate environment. The insurer is able to achieve this because of its focus on niche products and, in our view, the company is attractively valued. Within our bank holdings, Mitsubishi UFJ Financial was the standout performer. The bank is less reliant on net interest income than some of its competitors, as a high proportion of its revenues are fee-based. Furthermore, it has a large US dollar loan book, which is priced off US interest rates (which are rising) and so is more profitable than yen-denominated loans. We took advantage of the strength in financials over the six months to reduce some holdings and recycle the capital into other areas of the market. Industrial stocks also featured prominently amongst the fund’s contributors. Sumitomo Heavy Industries reported better-thanexpected first-half results, despite a loss at its construction machinery division. Losses there were offset by sales growth and cost-cutting in Sumitomo’s other heavy machinery segments. Meanwhile, Asahi Glass raised guidance for full-year operating profits and announced plans for a substantial share buyback; its shares rallied on the news. There are signs of improved profitability in the core float glass business and the company is also benefiting from stabilising liquid crystal display (LCD) glass substrate prices and strong volume growth, as the unit size of LCD glass is increasing. Elsewhere, Mitsui O.S.K. Lines enjoyed a strong run following the announcement of corporate activity. In October 2016, a merger was announced between the container arms of Mitsui O.S.K. Lines, Nippon Yusen KK, and Kawasaki Kisen Kaisha; the news was well received by investors. Finally, in the technology sector, shares in Rohm responded favourably to the news that it had made progress reducing its cost base. In our view, Rohm’s valuation is improving, helped by an expected enhancement in margins, achieved through the gradual application of its intellectual property in power management integrated circuits.

unit. We have since closed the position as we could not get comfortable with the level of earnings the company will be able to sustain going forward, given its high level of gearing and because it is having to dispose of some of its core assets. Other holdings that cost some performance included NEC and Ricoh. Shares in NEC tumbled after the maker of communications equipment lowered its profit outlook for the year ending March 2017. Revenues are expected to disappoint on the back of delays on a number of contracts. However, in our opinion, a change in business mix at the company should bring about an improvement in earnings in time. Ricoh is a company that manufactures a range of office automation equipment, electronic devices and photographic instruments. Investors have been disappointed with the lack of progress management has made in cutting the company’s cost base. However, we believe there is a real opportunity for this to be addressed going forward, which should result in a substantial improvement in earnings.

Investment activities Investment activity during the review period focused on the recycling of cash out of businesses we believed had become overvalued and topping up holdings which we think were undervalued. In particular, we took advantage of the strength in financials to reduce some holdings. We also reduced the number of holdings in the portfolio in order to concentrate on our highest-conviction ideas. Positions that were closed included technology company Advantest, which has performed very well for the fund, and telecommunication business Nippon Telegraph and Telephone. Denki Kogyo, a company that manufactures and installs telecommunication antennae for mobile communication facilities, and Orix, a financial services company, also left the portfolio. In addition, we exited the holding in Xebio, a retailer specialising in sports equipment and clothing, as it is facing increased competition from other sports retailers, particularly ones with a strong internet offering. At the same time, we initiated a position in Seiko, a manufacturer of watches and electronic devices. The company faces a number of headwinds, including reduced demand for watches following the clampdown on corruption in China, elevated inventory levels, high gold prices and a stronger yen. Seiko also needs to adapt to the threat from smart watches. We accept the short-term outlook for Seiko is uncertain and recognise that margins are under pressure. However, in our view, investors are misinterpreting Seiko’s challenges and therefore, we believe the shares are undervalued.

Outlook We believe the valuation of Japanese shares is compelling. In our opinion, the changes happening in Japan today are structural and can lead to sustained improvement in corporate earnings. Changes to the stewardship and governance codes covering investors have resulted in their increased engagement with companies. In turn, companies have become more focused on shareholder value, and have also significantly improved both their cost structures and profitability. This is good news for the economy, as profitable companies have the resources to invest, and the changing corporate culture will ultimately benefit shareholders. Furthermore, nominal wages finally appear to be growing again and the unemployment rate has fallen to levels not seen in 20 years. Both these changes should help invigorate the Japanese economy.

On the other hand, the principal detractor during the review period was industrial stock Toshiba. Shares in the company fell sharply on concerns over the size of a writedown at its US nuclear construction

88

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

M&G Japan Fund Authorised Corporate Director’s Report Investment review

Portfolio statement (continued) as at Holding

Outlook (continued) However, these changes have not been reflected in market valuations. The experience of the global financial crisis still lingers in many investors’ minds and their beliefs remain anchored in the past. Consequently, some investors are not willing to buy equities at these levels, which is creating significant investment opportunities. In our view, these positive changes in corporate behaviour and the environment in which companies operate should be supportive of sustainable long-term returns. By our assessment, it is now a stockpickers market, well-suited to an active management approach. Johan Du Preez Fund manager An employee of M&G Limited which is an associate of M&G Securities Limited. [a] 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.

28.02.17 28.02.17 31.08.16 ¥’000 % % Pharmaceuticals & biotechnology 464,000 Takeda Pharmaceutical 270,300 207,400 33,600 460,700

Media 783,000 Fuji Media Holdings Fixed line telecommunications

Portfolio statement 28.02.17 28.02.17 31.08.16 ¥’000 % % Equities Chemicals 278,200 DIC 1,158,000 JSR Forestry & paper 1,516,000 Oji Paper Industrial metals & mining 855,700 JFE Holdings Construction & materials 2,727,000 Asahi Glass 593,700 Lixil Group General industrials

57,530,087 3,361,664 1,140,620 2,221,044

96.75 5.65 1.92 3.73

99.59 5.16

814,092 814,092

1.37 1.37

1.36

1,816,223 1,816,223

3.05 3.05

2.53

4,131,201 2,497,932 1,633,269

6.95 4.20 2.75

6.87

3.59

3,372,713 682,778 575,120 488,544 1,626,271

5.67 1.15 0.97 0.82 2.73

3.94

1,210,518 1,210,518

2.04 2.04

1.72

0

0.00

0.19

7,302,372 3,310,242 2,484,562 1,507,568

12.28 5.57 4.18 2.53

14.20

Life insurance 1,008,700 T&D Holdings

1,734,964 1,734,964

2.92 2.92

3.11

Financial services 3,474,700 Nomura Holdings

2,533,751 2,533,751

4.26 4.26

4.90

7,238,923 2,053,719 1,849,985 1,228,875 800,910 1,305,434

12.18 3.45 3.11 2.07 1.35 2.20

12.98

22,049 22,049

0.04 0.04

0.00

Portfolio of investments Net other assets / (liabilities)

57,552,136 1,906,944

96.79 3.21

99.59 0.41

Net assets attributable to shareholders

59,459,080

100.00

100.00

7,361,000 1,891,600 169,500 1,618,000 2,714,000

Technology hardware & equipment NEC Ricoh Rohm Sanken Electric Seiko

Futures contracts 96 TOPIX Index Mar 2017

as at Holding

4.07 4.07

Banks 4,483,600 Mitsubishi UFJ Financial 567,900 Sumitomo Mitsui Financial 374,458 Sumitomo Mitsui Trust Holdings

Investments

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

Top ten portfolio transactions for the six months to 28 February 2017

0

0.00

4.06

Electronic & electrical equipment 3,927,000 Hitachi 4,638,900 Wacom

4,382,219 2,429,242 1,952,977

7.37 4.09 3.28

6.55

Industrial engineering 377,400 Ebara 1,544,000 Sumitomo Heavy Industries

2,474,787 1,247,307 1,227,480

4.16 2.10 2.06

5.43

Industrial transportation 979,000 KYB 4,830,000 Mitsui O.S.K. Lines

2,382,267 590,337 1,791,930

4.00 0.99 3.01

4.30

Support services 1,607,900 Sumitomo

2,423,909 2,423,909

4.08 4.08

3.74

Automobiles & parts 985,500 Honda Motor 1,113,600 Sumitomo Electric Industries

5,472,100 3,436,439 2,035,661

9.20 5.78 3.42

9.55

Leisure goods 1,289,700 Nikon 1,109,000 Panasonic

3,578,304 2,213,125 1,365,179

6.02 3.72 2.30

3.71

877,536 877,536

1.48 1.48

1.70

Personal goods 1,056,000 Onward Holdings

General retailers Dena Komeri Shimamura United Arrows

2,422,544 2,422,544

Largest purchases United Arrows Panasonic Honda Motor Seiko Mitsubishi UFJ Financial Takeda Pharmaceutical Hitachi Wacom Nikon JSR

¥’000 1,351,699 1,325,172 1,284,759 1,190,447 973,762 959,360 826,654 816,851 816,817 781,161

Other purchases

11,706,430

Total purchases

22,033,112

Largest sales

¥’000

Toshiba Sumitomo Heavy Industries Rohm Orix Advantest Xebio KYB Sumitomo Mitsui Trust Holdings Sumitomo Mitsui Financial Shimamura

1,653,646 895,192 876,424 726,545 543,681 468,485 463,407 453,727 352,752 323,886

Other sales

3,918,389

Total sales

10,676,134

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

89

M&G Japan Fund Financial highlights Performance since launch

Fund performance Please note past performance is not a guide to future performance and 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 not get back the original amount you invested.

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

April 1971 = 100, plotted monthly

Chart date 1 March 2017

4,000

Sterling Class ‘I’ (Accumulation) shares*

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

3,000

We show performance for these two share classes because:

1,000

2,000 1,500

800

• The performance of the Sterling Class ‘A’ (Accumulation) share is

600

what most individuals investing directly with M&G have received. It has the highest ongoing charge of all the share classes. Performance is shown after deduction of this charge. All investors in the fund therefore received this performance or better.

400

• The performance of the Sterling Class ‘I’ (Accumulation) share is

100

the most appropriate to compare with the average performance of the fund’s comparative sector. It is the share class used by the Investment Association in the calculation of the comparative sector’s average performance. This share class is available for direct investment with M&G subject to minimum investment criteria, or via third parties who may charge additional fees. The performance shown takes the deduction of the ongoing charge for this share class into account but it does not take account of charges applied by any other party through which you may have invested. The fund is available for investment in different share classes, each with varying levels of charges and minimum investments; please refer to the Prospectus for M&G Investment Funds (1), which is available free of charge either from our website at www.mandg.co.uk/prospectuses or by calling M&G Customer Relations.

300

Sterling Class ‘A’ (Accumulation) shares* 200 150

80 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17

Sterling Class ‘A’ (Accumulation) shares* Sterling Class ‘I’ (Accumulation) shares* * Income reinvested

Source: Morningstar, Inc. and M&G

Ten-year performance Please note that comparative data is not available from fund launch. Therefore a ten-year comparable performance chart is shown below.

Ten years, 1 March 2007 = 100, plotted monthly

Chart date 1 March 2017

240 220

Sterling Class ‘I’ (Accumulation) shares*

200 180 160

Fund level performance

140

Sterling Class ‘A’ (Accumulation) shares* 120

Fund net asset value as at Fund net asset value (NAV)

100

28.02.17 ¥’000

31.08.16 ¥’000

31.08.15 ¥’000

59,459,080

37,289,675

40,187,792

90 80 70 60 2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Sterling Class ‘A’ (Accumulation) shares* Sterling Class ‘I’ (Accumulation) shares* MSCI Japan Index Morningstar (IA) Japan sector average* * Income reinvested

Source: Morningstar, Inc. and M&G

The fund’s Sterling Class ‘I’ (Accumulation) shares were launched on 3 August 2012. Performance data shown prior to this date is that of the fund’s Sterling Class ‘A’ (Accumulation) shares.

90

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

M&G Japan Fund Financial highlights Operating charges and portfolio transaction costs

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

Operating charges

Long-term performance by share class Six Three months years 01.09.16 03.03.14 % [a] % p.a.

Five years 01.03.12 % p.a.

Since launch

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

% p.a.

• Investment management: Charge paid to M&G for investment

Euro [b] Class ‘A’

+22.2

+20.1

+16.0

+4.1 [c]

Class ‘C’

+22.7

+21.0

+16.9

+4.8 [c]

+24.2

+21.6

+16.5

+7.5 [e]

Sterling [d] Class ‘A’ Class ‘I’

+24.7

+22.5

n/a

+21.7 [f]

Class ‘R’

+24.5

+22.2

n/a

+21.4 [f]

Class ‘X’

+24.2

+21.6

+16.5

+9.1 [g]

US dollar [b] Class ‘A’

+15.5

n/a

n/a

+11.2 [h]

n/a

[h]

Class ‘C’

+15.9

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

n/a

+12.0

[a] Absolute basis. [b] Price to price with net income reinvested. [c] 28 November 2001, the launch date of the share class. [d] Price to price with income reinvested. [e] 6 April 1971, the end of the initial offer period of the predecessor unit trust. [f] 3 August 2012, the launch date of the share class. [g] 1 October 2002, the launch date of the share class. [h] 9 October 2015, the launch date of the share class.

management of the fund (also known as Annual Management Charge).

• Administration: Charge paid to M&G for administration services in addition to investment management – any surplus from this charge will be retained by M&G.

• Oversight

and other independent services: Charges paid to providers independent of M&G for services which include depositary, custody and audit.

The operating charges paid by each share class of the fund are shown in the following performance tables. Operating charges do not include portfolio transaction costs or any entry and exit charges (also known as initial and redemption charges). The charging structures of share classes may differ, and therefore the operating charges may differ. Operating charges are the same as the ongoing charges shown in the Key Investor Information Document, other than where an estimate has been used for the ongoing charge because a material change has made the operating charges unreliable as an estimate of future charges. For this fund there is no difference between operating charges and ongoing charges figures, unless disclosed under the specific share class performance table.

Portfolio transaction costs Portfolio transaction costs are incurred by funds when buying and selling investments. These costs vary depending on the types of investment, their market capitalisation, country of exchange, method of execution and the quality of research provided. They are made up of direct and indirect portfolio transaction costs:

• Direct portfolio transaction costs: Broker execution commission and taxes.

• Indirect portfolio transaction costs: ‘Dealing spread’ – the difference between the buying and selling prices of the fund’s investments; some types of investment, such as fixed interest securities, have no direct transaction costs and only the dealing spread is paid.

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

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

91

M&G Japan Fund Financial highlights

Fund performance

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

Operating charges and portfolio transaction costs Portfolio transaction costs (continued) To protect existing investors, portfolio transaction costs incurred as a result of investors buying and selling shares in the fund are recovered from those investors through a ‘dilution adjustment’ to the price they pay or receive. The table below shows direct portfolio transaction costs paid by the fund before and after that part of the dilution adjustment relating to direct portfolio transaction costs. To give an indication of the indirect portfolio dealing costs the table also shows the average portfolio dealing spread. Further information on this process is in the Prospectus, which is available free of charge on request either from our website at www.mandg.co.uk/prospectuses or by calling M&G Customer Relations.

Euro Class ‘A’ Accumulation share performance The share class was launched on 28 November 2001. Six months to 28.02.17 Euro ¢

Year to 31.08.16 Euro ¢

Year to 31.08.15 Euro ¢

1,501.74 Opening NAV Return before operating charges and after direct portfolio transaction costs 344.33 Operating charges (14.05)

1,468.57

1,167.60

57.05 (23.88)

325.80 (24.83)

Change in NAV per share

Return after operating charges

330.28

33.17

300.97

Distributions

n/a

(7.36)

(0.93)

Retained distributions

n/a

7.36

0.93

1,832.02

1,501.74

1,468.57

Closing NAV

Portfolio transaction costs

Direct portfolio transaction costs [a]

Six months to 28.02.17 % Direct portfolio transaction costs [b]

Year to 31.08.16 %

Year to 31.08.15 %

%

Euro ¢

Euro ¢

Euro ¢

Costs before dilution adjustments Dilution adjustments [b]

0.46 (0.46)

2.57 (0.95)

1.79 (1.79)

0.00

1.62

0.00

Broker commission Taxes

0.05 0.00

0.18 0.00

0.12 0.00

0.12 0.00

Total direct portfolio transaction costs

%

%

%

Costs before dilution adjustments Dilution adjustments [c]

0.05 (0.05)

0.18 (0.07)

0.12 (0.12)

0.12 (0.08)

Total direct portfolio transaction costs

0.00

0.11

0.00

0.04

28.02.17 %

31.08.16 %

31.08.15 %

Direct portfolio transaction costs 0.00 Operating charges 1.68 Return after operating charges +21.99 Historic yield 0.39 Effect on yield of charges offset against capital 0.00

0.11 1.68 +2.26 0.49 0.00

0.00 1.69 +25.78 0.07 0.00

0.19

0.17

0.17

4,540,556 12.18 2,628,474 1,602.40 1,187.92

5,616,811 13.98 2,806,163 1,675.91 1,094.13

as at Indirect portfolio transaction costs Average portfolio dealing spread [a] Average of first three columns.

[b] As a percentage of average net asset value. [c] In respect of direct portfolio transaction costs.

92

Average [a]

Average [a] % 0.18

Performance and charges

Other information Closing NAV (¥’000) 6,828,786 Closing NAV percentage of total fund NAV (%) 11.48 Number of shares 3,132,690 Highest share price (Euro ¢) 1,886.66 Lowest share price (Euro ¢) 1,441.19

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

M&G Japan Fund Financial highlights Sterling Class ‘A’ Accumulation share performance

Specific share class performance

The share class was launched on 6 April 1971.

Six months to 28.02.17 Euro ¢

Year to 31.08.16 Euro ¢

Year to 31.08.15 Euro ¢

1,666.54 Opening NAV Return before operating charges and after direct 382.60 portfolio transaction costs Operating charges (8.50)

1,617.51

1,276.46

Return after operating charges

Year to 31.08.16 UK p

Year to 31.08.15 UK p

53.05 Opening NAV Return before operating charges and after direct portfolio transaction costs 12.48 (0.50) Operating charges

44.84

38.66

8.97 (0.76)

6.92 (0.74)

Change in NAV per share

Euro Class ‘C’ Accumulation share performance The share class was launched on 28 November 2001.

Change in NAV per share

Six months to 28.02.17 UK p

Return after operating charges Distributions

63.58 (14.55)

356.16 (15.11)

Retained distributions

11.98

8.21

6.18

n/a

(0.26)

(0.01)

n/a

0.26

0.01

Closing NAV

65.03

53.05

44.84

374.10

49.03

341.05

Distributions

n/a

(21.90)

(12.10)

Direct portfolio transaction costs [a]

UK p

UK p

UK p

Retained distributions

n/a

21.90

12.10

2,040.64

1,666.54

1,617.51

Costs before dilution adjustments Dilution adjustments [b]

0.02 (0.02)

0.08 (0.03)

0.05 (0.05)

Total direct portfolio transaction costs

0.00

0.05

0.00

Euro ¢

Euro ¢

Euro ¢

Costs before dilution adjustments Dilution adjustments [b]

0.50 (0.50)

2.84 (1.04)

1.96 (1.96)

Total direct portfolio transaction costs

0.00

1.80

0.00

Closing NAV Direct portfolio transaction costs [a]

Performance and charges

%

%

%

Direct portfolio transaction costs 0.00 Operating charges 0.92 Return after operating charges +22.45 Historic yield 1.05 Effect on yield of charges offset against capital 0.00

0.11 0.92 +3.03 1.31 0.00

0.00 0.94 +26.72 0.76 0.00

9,839,641 26.38 5,132,789 1,768.00 1,312.84

14,225,489 35.40 6,452,642 1,840.93 1,197.25

Other information Closing NAV (¥’000) 12,898,430 Closing NAV percentage of total fund NAV (%) 21.69 Number of shares 5,312,218 Highest share price (Euro ¢) 2,101.22 Lowest share price (Euro ¢) 1,599.84

Sterling Class ‘A’ Income share performance Six months to 28.02.17 UK p

Year to 31.08.16 UK p

Year to 31.08.15 UK p

Opening NAV 48.37 Return before operating charges and after direct portfolio transaction costs 11.38 Operating charges (0.46)

41.08

35.42

8.23 (0.70)

6.37 (0.70)

Return after operating charges

Performance and charges

%

%

0.11 1.68 +18.31 0.49 0.00

0.00 1.70 +15.99 0.02 0.00

7,729,013 20.72 107,420,684 53.10 38.45

9,070,950 22.57 108,807,688 50.01 36.33

Other information 8,684,234 Closing NAV (¥’000) Closing NAV percentage of total fund NAV (%) 14.61 Number of shares 95,648,603 Highest share price (UK p) 66.35 Lowest share price (UK p) 50.99

Sterling Class ‘I’ Income share performance The share class was launched on 3 August 2012. Six months to 28.02.17 UK p

Year to 31.08.16 UK p

Year to 31.08.15 UK p

Opening NAV 1,905.66 Return before operating charges and after direct portfolio transaction costs 449.00 Operating charges (9.92)

1,618.13

1,395.08

325.69 (15.28)

250.32 (15.00) 235.32

Change in NAV per share

The share class was launched on 9 May 1977.

Change in NAV per share

%

0.00 Direct portfolio transaction costs Operating charges 1.67 +22.58 Return after operating charges Historic yield 0.38 0.00 Effect on yield of charges offset against capital

Return after operating charges

439.08

310.41

Distributions

n/a

(22.88)

(12.27)

Closing NAV

2,344.74

1,905.66

1,618.13

Direct portfolio transaction costs [a]

UK p

UK p

UK p

0.58 (0.58)

2.99 (1.10)

1.93 (1.93)

0.00

1.89

0.00

10.92

7.53

5.67

Distributions

n/a

(0.24)

(0.01)

Closing NAV

59.29

48.37

41.08

Costs before dilution adjustments Dilution adjustments [b] Total direct portfolio transaction costs

Direct portfolio transaction costs [a]

UK p

UK p

UK p

Costs before dilution adjustments Dilution adjustments [b]

0.01 (0.01)

0.08 (0.03)

0.05 (0.05)

Total direct portfolio transaction costs

0.00

0.05

0.00

Performance and charges

%

%

%

Direct portfolio transaction costs 0.00 Operating charges 1.68 Return after operating charges +22.58 Historic yield [c] 1.51 Effect on yield of charges offset against capital 1.65

0.11 1.67 +18.33 0.49 0.00

0.00 1.70 +16.01 0.04 0.00

13,170,313 35.31 200,774,272 48.72 35.30

8,679,350 21.60 113,633,391 45.83 33.29

Other information Closing NAV (¥’000) 27,483,047 Closing NAV percentage of total fund NAV (%) 46.22 Number of shares 331,999,287 Highest share price (UK p) 60.49 Lowest share price (UK p) 46.49

%

%

%

Direct portfolio transaction costs 0.00 Operating charges 0.93 Return after operating charges +23.04 1.56 Historic yield [c] Effect on yield of charges offset against capital 0.90

Performance and charges

0.11 0.92 +19.18 1.21 0.00

0.00 0.94 +16.87 0.77 0.00

229,451 0.62 88,780 1,932.96 1,394.83

269,788 0.67 89,667 1,813.84 1,312.17

Other information Closing NAV (¥’000) 343,876 Closing NAV percentage of total fund NAV (%) 0.58 Number of shares 105,041 Highest share price (UK p) 2,392.06 Lowest share price (UK p) 1,832.21

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

93

M&G Japan Fund Financial highlights Sterling Class ‘R’ Accumulation share performance

Specific share class performance

The share class was launched on 3 August 2012.

Six months to 28.02.17 UK p

Year to 31.08.16 UK p

Year to 31.08.15 UK p

1,976.12 Opening NAV Return before operating charges and after direct 465.51 portfolio transaction costs Operating charges (10.36)

1,657.52

1,418.46

Return after operating charges

334.32 (15.72)

Year to 31.08.15 UK p

195.72 Opening NAV Return before operating charges and after direct portfolio transaction costs 45.93 (1.17) Operating charges

164.53

141.15

32.95 (1.76)

25.29 (1.91)

254.96 (15.90)

Return after operating charges

44.76

31.19

23.38

Distributions

n/a

(1.95)

(0.83)

Retained distributions

n/a

1.95

0.83

240.48

195.72

164.53

Closing NAV

455.15

318.60

239.06

Distributions

n/a

(23.33)

(12.66)

Direct portfolio transaction costs [a]

UK p

UK p

UK p

Retained distributions

n/a

23.33

12.66

2,431.27

1,976.12

1,657.52

Costs before dilution adjustments Dilution adjustments [b]

0.05 (0.05)

0.27 (0.10)

0.20 (0.20)

Total direct portfolio transaction costs

0.00

0.17

0.00

Direct portfolio transaction costs [a]

UK p

UK p

UK p

Costs before dilution adjustments Dilution adjustments [b]

0.61 (0.61)

3.07 (1.13)

2.06 (2.06)

Total direct portfolio transaction costs

0.00

1.94

0.00

Closing NAV

Performance and charges

%

%

%

Direct portfolio transaction costs 0.00 Operating charges 0.93 Return after operating charges +23.03 Historic yield 0.93 Effect on yield of charges offset against capital 0.00

0.11 0.92 +19.22 1.19 0.00

0.00 0.94 +16.85 0.78 0.00

1,373,803 3.68 512,607 1,980.65 1,429.25

1,752,523 4.36 568,631 1,844.00 1,334.44

Other information Closing NAV (¥’000) 2,735,407 Closing NAV percentage of total fund NAV (%) 4.60 Number of shares 805,823 Highest share price (UK p) 2,480.29 Lowest share price (UK p) 1,899.79

Sterling Class ‘R’ Income share performance Six months to 28.02.17 UK p

Year to 31.08.16 UK p

Year to 31.08.15 UK p

Opening NAV 190.25 Return before operating charges and after direct portfolio transaction costs 44.79 Operating charges (1.24)

161.62

139.37

Change in NAV per share

32.47 (1.92)

24.95 (1.88)

43.55

30.55

23.07

Distributions

n/a

(1.92)

(0.82)

Closing NAV

233.80

190.25

161.62

Return after operating charges

Direct portfolio transaction costs [a]

UK p

UK p

UK p

Costs before dilution adjustments Dilution adjustments [b]

0.06 (0.06)

0.30 (0.11)

0.19 (0.19)

Total direct portfolio transaction costs

0.00

0.19

0.00

Performance and charges

%

%

%

Direct portfolio transaction costs 0.00 Operating charges 1.17 Return after operating charges +22.89 Historic yield [c] 1.57 Effect on yield of charges offset against capital 1.15

0.11 1.17 +18.90 1.01 0.00

0.00 1.19 +16.55 0.52 0.00

5,659 0.02 21,931 192.61 139.18

4,818 0.01 16,032 180.89 131.06

Other information Closing NAV (¥’000) 6,899 Closing NAV percentage of total fund NAV (%) 0.01 Number of shares 21,135 Highest share price (UK p) 238.52 Lowest share price (UK p) 182.90

%

%

%

0.00 Direct portfolio transaction costs 1.17 Operating charges +22.87 Return after operating charges Historic yield 0.79 0.00 Effect on yield of charges offset against capital

Performance and charges

0.11 1.15 +18.96 1.00 0.00

0.00 1.19 +16.56 0.48 0.00

32,285 0.09 121,631 196.16 141.71

16,229 0.04 53,046 183.20 132.74

Other information Closing NAV (¥’000) Closing NAV percentage of total fund NAV (%) Number of shares Highest share price (UK p) Lowest share price (UK p)

11,571 0.02 34,463 245.34 188.14

Sterling Class ‘X’ Income share performance The share class was launched on 1 October 2002. Six months to 28.02.17 UK p

Year to 31.08.16 UK p

Year to 31.08.15 UK p

Opening NAV 47.68 Return before operating charges and after direct portfolio transaction costs 11.22 Operating charges (0.45)

40.49

34.92

8.11 (0.69)

6.25 (0.67)

Change in NAV per share

The share class was launched on 3 August 2012.

94

Year to 31.08.16 UK p

Change in NAV per share

Sterling Class ‘I’ Accumulation share performance The share class was launched on 3 August 2012.

Change in NAV per share

Six months to 28.02.17 UK p

Return after operating charges

10.77

7.42

5.58

Distributions

n/a

(0.23)

(0.01)

Closing NAV

58.45

47.68

40.49

Direct portfolio transaction costs [a]

UK p

UK p

UK p

Costs before dilution adjustments Dilution adjustments [b]

0.01 (0.01)

0.07 (0.03)

0.05 (0.05)

Total direct portfolio transaction costs

0.00

0.04

0.00

%

%

%

Direct portfolio transaction costs 0.00 Operating charges 1.67 Return after operating charges +22.59 1.50 Historic yield [c] Effect on yield of charges offset against capital 1.65

Performance and charges

0.11 1.68 +18.33 0.49 0.00

0.00 1.70 +15.98 0.02 0.00

174,085 0.47 2,691,978 48.03 34.80

220,597 0.55 2,929,791 45.18 32.82

Other information Closing NAV (¥’000) 205,378 Closing NAV percentage of total fund NAV (%) 0.35 Number of shares 2,516,678 Highest share price (UK p) 59.63 Lowest share price (UK p) 45.83

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

M&G Japan Fund Financial highlights US dollar Class ‘C’ Accumulation share performance

Specific share class performance

The share class was launched on 9 October 2015.

Six months to 28.02.17 UK p

Year to 31.08.16 UK p

Year to 31.08.15 UK p

52.33 Opening NAV Return before operating charges and after direct 12.31 portfolio transaction costs (0.49) Operating charges

44.23

38.13

Return after operating charges

Year to 31.08.16 US ¢

Year to 31.08.15 US ¢

1,006.41 Opening NAV Return before operating charges and after direct portfolio transaction costs 171.32 (5.19) Operating charges

1,000.00

n/a

14.08 (7.67)

n/a n/a

Change in NAV per share

Sterling Class ‘X’ Accumulation share performance The share class was launched on 1 October 2002.

Change in NAV per share

Six months to 28.02.17 US ¢

Return after operating charges Distributions

8.87 (0.77)

6.83 (0.73)

Retained distributions Closing NAV

166.13

6.41

n/a

n/a

(12.61)

n/a

n/a

12.61

n/a

1,172.54

1,006.41

n/a

11.82

8.10

6.10

Distributions

n/a

(0.25)

(0.01)

Direct portfolio transaction costs [a]

US ¢

US ¢

US ¢

Retained distributions

n/a

0.25

0.01

Closing NAV

64.15

52.33

44.23

Costs before dilution adjustments Dilution adjustments [b]

0.31 (0.31)

1.51 (0.56)

n/a n/a

Direct portfolio transaction costs [a]

UK p

UK p

UK p

Total direct portfolio transaction costs

0.00

0.95

n/a

Costs before dilution adjustments Dilution adjustments [b]

0.02 (0.02)

0.08 (0.03)

0.05 (0.05)

Total direct portfolio transaction costs

0.00

0.05

0.00

Performance and charges

%

%

%

Direct portfolio transaction costs 0.00 Operating charges 1.68 +22.59 Return after operating charges 0.38 Historic yield Effect on yield of charges offset against capital 0.00

0.11 1.68 +18.31 0.49 0.00

0.00 1.70 +16.00 0.02 0.00

188,656 0.51 2,657,982 52.46 38.01

331,237 0.82 4,027,632 49.34 35.84

Other information Closing NAV (¥’000) 229,783 Closing NAV percentage of total fund NAV (%) 0.39 Number of shares 2,565,526 Highest share price (UK p) 65.45 Lowest share price (UK p) 50.30

%

%

%

0.00 Direct portfolio transaction costs 0.93 Operating charges +16.51 Return after operating charges Historic yield 1.06 0.00 Effect on yield of charges offset against capital

Performance and charges

0.11 0.92 +0.64 1.25 0.00

n/a n/a n/a n/a n/a

3,117 0.01 3,000 1,025.16 805.55

n/a n/a n/a n/a n/a

Other information 8,342 Closing NAV (¥’000) Closing NAV percentage of total fund NAV (%) 0.01 Number of shares 6,339 Highest share price (US ¢) 1,195.63 Lowest share price (US ¢) 974.75 [a] As a percentage of average net asset value. [b] In respect of direct portfolio transaction costs. [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.

US dollar Class ‘A’ Accumulation share performance The share class was launched on 9 October 2015. Six months to 28.02.17 US ¢

Year to 31.08.16 US ¢

Year to 31.08.15 US ¢

Opening NAV 999.74 Return before operating charges and after direct portfolio transaction costs 170.25 Operating charges (9.54)

1,000.00

n/a

13.58 (13.84)

n/a n/a

Change in NAV per share

Return after operating charges Distributions Retained distributions

160.71

(0.26)

n/a

n/a

(4.99)

n/a

n/a

4.99

n/a

1,160.45

999.74

n/a

Direct portfolio transaction costs [a]

US ¢

US ¢

US ¢

Costs before dilution adjustments Dilution adjustments [b]

0.31 (0.31)

1.51 (0.55)

n/a n/a

Total direct portfolio transaction costs

0.00

0.96

n/a

Closing NAV

Performance and charges

%

%

%

Direct portfolio transaction costs 0.00 Operating charges 1.70 Return after operating charges +16.08 Historic yield 0.42 Effect on yield of charges offset against capital 0.00

0.11 1.67 -0.03 0.50 0.00

n/a n/a n/a n/a n/a

3,096 0.01 3,000 1,024.92 803.51

n/a n/a n/a n/a n/a

Other information Closing NAV (¥’000) 23,327 Closing NAV percentage of total fund NAV (%) 0.04 Number of shares 17,911 Highest share price (US ¢) 1,183.45 Lowest share price (US ¢) 968.00

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

95

M&G Japan Fund Financial statements and notes

Financial statements

Notes to the financial statements Accounting policies

Statement of total return 2017 for the six months to 28 and 29 February Income Net capital gains / (losses) Revenue Expenses

¥’000

¥’000

The financial statements have been prepared in accordance with the ‘Accounting policies’ set out on page 4.

101,152

(9,616,372) 422,288 (306,214) ______ 116,074 (42,337) ______ 73,737

Total return before equalisation Equalisation

9,250,767 97,378

(9,542,635) 39,278

Change in net assets attributable to shareholders from investment activities

9,348,145

(9,503,357)

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

Statement of change in net assets attributable to shareholders

In determining the amount available for distribution, ordinary stock dividends have been transferred to capital, reducing the amount available.

Net revenue / (expense) before taxation Taxation

9,149,615

2016 ¥’000 ¥’000

458,485 (308,530) ______ 149,955 (48,803) ______

Net revenue / (expense) after taxation

2017 for the six months to 28 and 29 February

¥’000

¥’000

2016 ¥’000 ¥’000

Distribution policy With effect from 1 September 2016, the distribution policy has been amended so that in determining the amount available for distribution to Income shares, the annual management charge and administration charge are now offset against capital, increasing the amount available for distribution whilst restraining capital performance to an equivalent extent.

Opening net assets attributable to shareholders 37,289,675 40,187,792 Amounts received on issue of shares 23,330,594 20,194,767 (9,080,106) Amounts paid on cancellation of shares (10,547,306) Value of in-specie transfers paid 0 (2,651,265) ______ ________ 12,783,288 8,463,396 Dilution adjustments 37,935 41,415 Change in net assets attributable to shareholders from investment activities (see above) 9,348,145 (9,503,357) Unclaimed distributions 37 81 Closing net assets attributable to shareholders

59,459,080

39,189,327

The opening net assets attributable to shareholders for 2017 differs to the closing position in 2016 by the change in net assets attributable to shareholders for the second half of the comparative financial year.

Balance sheet as at

28 February 2017 ¥’000

31 August 2016 ¥’000

57,552,136

37,138,471

584,615 1,659,615

1,086,711 153,629

59,796,366

38,378,811

0 (337,286)

(68,085) (1,021,051)

Assets Fixed assets Investments Current assets Debtors Cash and bank balances Total assets Liabilities Creditors Distribution payable Other creditors Total liabilities Net assets attributable to shareholders

96

(337,286)

(1,089,136)

59,459,080

37,289,675

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

M&G Japan Smaller Companies Fund Authorised Corporate Director’s Report Investment objective and policy

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

The Fund invests wholly or predominantly in securities of smaller Japanese companies, the universe for which is the bottom third in terms of total market capitalisation of all publicly listed equity in Japan. When not wholly invested as above, the Fund may also invest in medium sized and larger companies in order to enhance its liquidity. Its sole objective is long term capital growth.

Low risk

High risk

Typically lower rewards

1

2

Typically higher rewards

3

4

5

6

7

The above number:

Investment approach The M&G Japan Smaller Companies Fund invests in listed smaller Japanese companies to achieve sound capital growth over the long term. The fund manager applies disciplined and rigorous fundamental analysis during the selection process to ensure a high level of conviction around the valuation for each of the companies held in the fund. The fund holds shares in companies that have attractive valuations relative to the earnings they are likely to generate over the medium to long term. These companies are quite often out of favour with the market for one reason or another. The fund’s investment approach therefore tends to be contrarian in nature. The fund manager sees investing as a price-sensitive process that takes advantage of the mis-pricing of a company’s shares by the market. Whilst recognising that markets are generally efficient, the fund manager believes that market mis-pricings can and often do occur because human characteristics (such as fear and greed) may prevent investors from always assessing investments rationally. As a result, market prices do not always reflect fundamental values since they may over-shoot and under-shoot. For example, shares in companies become mis-priced when investors are willing to pay a high price for the ‘comfort’ of strong near-term earnings momentum and to be associated with success, whilst they will sell ‘unfashionable’ securities regardless of inherent attractiveness, such as healthy balance sheets and the likely level of longer term earnings. Such behavioural biases are evident in Japan’s equity markets today and can be systemically exploited. The fund manager aims to take advantage of these biases by adopting a disciplined, long-term investment approach.

Risk profile The fund invests in the shares of smaller Japan-listed companies and is, therefore, subject to the price volatility of the Japanese stockmarket and the performance of individual companies. The fund may also be subject to fluctuations in currency exchange rates. The fund’s focus is on smaller companies where the share price movement can be more unpredictable and the shares more difficult to buy and sell compared to those of larger companies. Diversification is therefore key in managing liquidity risk and reducing market risk. The fund’s risks are measured and managed as an integral part of the investment process.

•  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.

Investment review As at 1 March 2017, for the six months ended 28 February 2017 Performance against objective Between 1 September 2016 (the start of the review period) and 1 March 2017, the M&G Japan Smaller Companies Fund’s total return (the combination of income and growth of capital) was positive across all its share classes.[a] The fund’s returns were ahead of the comparative index, the Russell/Nomura Mid-Small Index. Over the six months, returns from the index were 16.9%, 14.8% and 8.3% in sterling, euros and US dollars respectively. Over five years and since launch, the fund has achieved its objective of long-term capital growth.

Investment performance During the six months under review, the fund generated strong returns and outperformed a rising Japanese stockmarket. Japanese shares were buoyed by a combination of positive factors, namely supportive monetary policy from the Bank of Japan (the central bank is holding down long-term interest rates, which should encourage borrowing); better-than-expected economic growth in the world’s second-largest economy, China; and in the US, the election of Donald Trump as president, which raised expectations that more business-friendly policies and less regulation would be introduced, which should boost the economy. We take a ‘behavioural’ approach to asset management, which means exploiting price fluctuations caused by other investors’ tendency to let emotions drive their investment decisions. We call these occasions, where we believe prices are moving for non-fundamental reasons, ‘episodes’. We use a disciplined and repeatable framework, which aims to exploit these ‘episodes’. By conducting in-depth analysis, we aim to find companies that are trading at a price which is below that justified by its earnings prospects over the medium to long term. We then construct a portfolio usually consisting of 30 to 50 companies of our best ideas from the bottom third of the market in terms of market capitalisation and that is reasonably diversified. When holdings have performed well, or if we see evidence that fundamentals have changed, capital is then recycled into new opportunities, or holdings that have lagged the broader market.

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

97

M&G Japan Smaller Companies Fund Authorised Corporate Director’s Report Investment review Investment performance (continued) Over the review period, fund performance was supported by stock selection across a wide range of sectors. The fund’s top contributor was industrial company Nittoku, which manufactures winding and taping machines used in the production of coils, transformers and motors. We believe Nittoku has a solid business and the company’s shares performed strongly during the period. Sumitomo Heavy Industries reported better-than-expected first-half results, despite a loss at its construction machinery division. Losses there were offset by sales growth and cost-cutting in Sumitomo’s other heavy machinery segments. Mitsui O.S.K. Lines enjoyed a strong run following the announcement of corporate activity. In October 2016, a merger was announced between the container arms of Mitsui O.S.K. Lines, Nippon Yusen KK, and Kawasaki Kisen Kaisha; the news was well received by investors. Elsewhere, a holding in semiconductor business Sanken Electric added value as well. Sanken Electric released solid half-year results and raised revenue and profit guidance for the current financial year. The company’s new management has done a good job in our view, managing inventory effectively and controlling costs. Sumitomo Real Estate Sales acts as a broker for condominiums and residential houses. The company’s share price was struggling earlier in 2016 as investors worried that condominium demand in Japan had peaked. More recently, though, sentiment has improved and its share price has begun to recover. Wacom, a manufacturer of digital input devices such as graphic tablets, which are used in creative and design industries, also added value. The company has strong intellectual property and is the dominant player in the industrial sector, which is the main driver of profits. The company is investing heavily to refresh its product line-up, which we believe will bear fruit in time and, at the current share price, Wacom’s valuation is undemanding. On the other hand, the fund’s principal detractors were Sankyo Tateyama, Oki Electric and Leopalace 21. Sankyo Tateyama manufactures aluminium sashes and construction materials. Shares in the company suffered from setbacks during the review period, hurt by tightening margins and disappointing trading at its recently acquired German and Thai businesses. We believe that the poor results at these divisions has partly obscured better performance at the rest of the business and that, given time, other investors will begin to appreciate the value of the overall business. Oki Electric, a manufacturer of ATMs and printers, is a newcomer to the portfolio. The company has faced a number of challenges recently; in China, one of Oki’s main distributors for ATMs terminated its agreement, and in Brazil, its ATM business has suffered from disappointing sales and poor profitability. Meanwhile, its printer division is struggling. However, we believe these issues are being addressed. Oki has signed up a new distributor in China and, in the long term, Brazil should provide significant growth opportunities. Furthermore, in its printer division, Oki continues to make progress shifting its product

98

mix away from the more commoditised (high volume and low margin) areas of the market, albeit at a slower rate than management had initially indicated. Despite reporting solid results, Leopalace 21, a real estate company that constructs, sells, leases and manages apartments, held back returns, after its shares suffered from investors selling their stakes to take advantage of gains. Some investors are concerned over occupancy levels; however, we believe the negative sentiment has been overdone.

Investment activities Investment activity during the review period focused on the recycling of cash out of businesses we believed had become overvalued and topping up holdings which we think were undervalued. In addition, we initiated positions in Seiko and Oki Electric, mentioned previously. Seiko is a manufacturer of watches and electronic devices. The company faces a number of headwinds, including reduced demand for watches following the clampdown on corruption in China, elevated inventory levels, high gold prices and a stronger yen. Seiko also needs to adapt to the threat from smart watches. We accept the short-term outlook for Seiko is uncertain and recognise that margins are under pressure. However, in our view, investors are misinterpreting Seiko’s challenges and therefore, we believe the shares are undervalued. On the other hand, we exited holdings in technology company Advantest and Chugoku Marine Paints, a leading supplier of marine coatings. Other investors had begun to recognise the strength of Chugoku’s underlying business, which resulted in its shares performing well, so we decided to close the position. In addition, we closed the position in Xebio, a retailer specialising in sports equipment and clothing, as it is facing increased competition from other sports retailers, particularly ones with a strong internet offering. CAC Holdings, an IT service provider, Ahresty, a manufacturer of light alloy diecasts mainly for the auto industry and Tokai Carbon, a stockist of specialist graphite materials used in areas such as the nuclear industry, also left the portfolio.

Outlook We believe the valuation of Japanese shares is compelling. In our opinion, the changes happening in Japan today are structural and can lead to sustained improvement in corporate earnings. Changes to the stewardship and governance codes governing investors have resulted in their increased engagement with companies. In turn, companies have become more focused on shareholder value, and have also significantly improved both their cost structures and profitability. This is good news for the economy, as profitable companies have the resources to invest, and the changing corporate culture will ultimately benefit shareholders. Furthermore, nominal wages finally appear to be growing again and the unemployment rate has fallen to levels not seen in 20 years. Both these changes should help invigorate the Japanese economy. However, these changes have not been reflected in market valuations. The experience of the global financial crisis still lingers in many investors’ minds and their beliefs remain anchored in the past. Consequently, some investors are not willing to buy equities at these levels, which is creating significant investment opportunities.

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

M&G Japan Smaller Companies Fund Authorised Corporate Director’s Report Investment review

Portfolio statement (continued) as at Holding

Outlook (continued) In our view, these positive changes in corporate behaviour and the environment in which companies operate should be supportive of sustainable long-term returns. By our assessment, it is now a stockpickers market, well-suited to an active management approach. Johan Du Preez Fund manager An employee of M&G Limited which is an associate of M&G Securities Limited. [a] 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.

28.02.17 28.02.17 31.08.16 ¥’000 % % Banks 650,000 Awa Bank 133,200 Tokyo Ty Financial

1,022,340 512,850 509,490

3.05 1.53 1.52

4.06

3,308,442 920,635 790,541 567,243 1,030,023

9.86 2.74 2.36 1.69 3.07

7.87

1,280,175 1,280,175

3.82 3.82

4.58

Equity investment instruments 3,479,000 Monex Group

1,022,826 1,022,826

3.05 3.05

2.62

Software & computer services

0

0.00

1.15

Technology hardware & equipment 3,843,192 Daikoku Denki 293,903 OKI Electric Industry 1,175,871 Rohm 786,625 Sanken Electric 611,325 Seiko 975,468

11.46 0.88 3.51 2.34 1.82 2.91

7.32

(2,896) (2,896)

(0.01) (0.01)

0.00

32,398,143

96.61

99.76

108,904

0.32

0.00

484,800 1,339,900 563,300 360,400

Real estate investment & services Iida Group Leopalace21 Sanyo Housing Nagoya Sumitomo Real Estate

Financial services 507,000 IBJ Leasing Company

164,100 736,300 108,500 1,235,000 2,028,000

Investments

Futures contracts 63 TOPIX Index Future March 2017 Portfolio of investments

Portfolio statement as at Holding

28.02.17 28.02.17 31.08.16 ¥’000 % % 32,401,039 96.62 99.76 2,959,474 8.82 11.73 1,023,770 3.05 1,291,581 3.85 644,123 1.92

Equities Chemicals 249,700 DIC 673,400 JSR 245,100 Tocalo Industrial metals & mining 616,300 Sankyo Tateyama

1,027,988 1,027,988

3.07 3.07

3.86

General industrials 866,500 Sumitomo Riko

1,012,072 1,012,072

3.02 3.02

3.55

Electronic & electrical equipment 1,250,000 Denki Kogyo 3,715,700 Wacom

6.74 2.08 4.66

6.43

3,264,622 1,040,084 520,636 1,051,207 652,695

9.73 3.10 1.55 3.13 1.95

10.71

2,021,703 821,889 1,199,814

6.03 2.45 3.58

6.61

Support services 314,000 Hamakyorex 604,000 Hosokawa Micron 733,000 Relia

2,064,631 744,808 502,528 817,295

6.16 2.22 1.50 2.44

6.45

Automobiles & parts 453,300 Nissin Kogyo 200,400 Riken

1,794,563 904,787 889,776

5.35 2.70 2.65

8.08

Leisure goods 808,400 Nikon

1,387,214 1,387,214

4.14 4.14

3.74

636,546 636,546

1.90 1.90

2.25

144,970 144,970

0.43 0.43

1.67

3,349,721 702,734 394,309 621,707 407,120 1,223,851

9.99 2.10 1.18 1.85 1.21 3.65

7.08

Industrial engineering Ebara Mars Engineering Nittoku Engineering Sumitomo Heavy Industries

Industrial transportation 1,363,000 KYB 3,234,000 Mitsui O.S.K. Lines

Personal goods 766,000 Onward Holdings Pharmaceuticals & biotechnology 43,600 Tsumura 148,100 156,100 224,200 28,000 346,700

General retailers cocokara fine Dena Komeri Shimamura United Arrows

108,904

0.32

Total portfolio Net other assets / (liabilities)

32,507,047 1,028,049

96.93 3.07

99.76 0.24

Net assets attributable to shareholders

33,535,096

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.

Top ten portfolio transactions

2,260,560 696,250 1,564,310

314,700 219,400 474,800 821,000

‘AAA’ rated money market funds [a] 780,000 Northern Trust Global Fund - Sterling

for the six months to 28 February 2017 Largest purchases OKI Electric Industry United Arrows Seiko Iida Group Wacom Nikon Sanken Electric Leopalace21 Monex Group Ebara

¥’000 1,226,208 1,006,588 884,849 786,569 773,671 758,885 754,797 638,206 556,630 536,337

Other purchases

9,596,743

Total purchases

17,519,483

Largest sales Tokai Carbon Sumitomo Heavy Industries Tsumura Rohm Ahresty Sanken Electric Xebio Advantest KYB CAC

¥’000 631,107 622,484 517,122 468,229 440,729 354,215 280,630 270,591 251,315 215,948

Other sales

1,514,451

Total sales

5,566,821

Purchases and sales exclude the cost and proceeds of ‘AAA’ rated money market funds.

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

99

M&G Japan Smaller Companies Fund Financial highlights Performance since launch

Fund performance Please note past performance is not a guide to future performance and 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 not get back the original amount you invested. The following chart and tables show the performance for two of the fund’s share classes – Sterling Class ‘A’ (Accumulation) shares and Sterling Class ‘I’ (Accumulation) shares. We show performance for these two share classes because:

• The performance of the Sterling Class ‘A’ (Accumulation) share is

To give an indication of how the fund has performed since launch, the chart below shows total return of Sterling Class ‘A’ (Accumulation) shares and Sterling Class ‘I’ (Accumulation) shares. May 1984 = 100, plotted monthly 1,500 1,200

800 600 500 400 350 300 250

• The performance of the Sterling Class ‘I’ (Accumulation) share is

80

The fund is available for investment in different share classes, each with varying levels of charges and minimum investments; please refer to the Prospectus for M&G Investment Funds (1), which is available free of charge either from our website at www.mandg.co.uk/prospectuses or by calling M&G Customer Relations.

Sterling Class ‘I’ (Accumulation) shares*

1,000

what most individuals investing directly with M&G have received. It has the highest ongoing charge of all the share classes. Performance is shown after deduction of this charge. All investors in the fund therefore received this performance or better.

the most appropriate to compare with the average performance of the fund’s comparative sector. It is the share class used by the Investment Association in the calculation of the comparative sector’s average performance. This share class is available for direct investment with M&G subject to minimum investment criteria, or via third parties who may charge additional fees. The performance shown takes the deduction of the ongoing charge for this share class into account but it does not take account of charges applied by any other party through which you may have invested.

200 160 130

Sterling Class ‘A’ (Accumulation) shares* 100 85

87

91

93

95

97

99

01

03

05

07

28.02.17 ¥’000 33,535,096

31.08.16 ¥’000 15,171,162

31.08.15 ¥’000 22,494,035

09

11

13

15

17

Sterling Class ‘I’ (Accumulation) shares* Russel Nomura Mid-Small Index Morningstar (IA) Japan Smaller Companies sector average* * Income reinvested

Source: Morningstar, Inc. and M&G

The fund’s Sterling Class ‘I’ (Accumulation) shares were launched on 3 August 2012. Performance data shown prior to this date is that of the fund’s Sterling Class ‘A’ (Accumulation) shares. To give an indication of the performance of the fund, the following table shows 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 Six Three months years 01.09.16 03.03.14 [a] % % p.a.

Fund net asset value

Fund net asset value (NAV)

89

Sterling Class ‘A’ (Accumulation) shares*

Fund level performance

as at

Chart date 1 March 2017

Five years 01.03.12 % p.a.

Since launch % p.a.

Euro [b] Class ‘A’

+25.0

+24.2

+21.4

+7.7 [c]

Class ‘C’

+25.5

+25.1

+22.3

+8.5 [c]

Sterling [d] Class ‘A’

+27.1

+25.8

+21.9

+7.8 [e]

Class ‘I’

+27.5

+26.8

n/a

+24.7 [f]

Class ‘R’

+27.4

+26.4

n/a

+24.4 [f]

Class ‘X’

+27.0

+25.8

+21.9

+12.2 [g]

Class ‘A’

+18.1

n/a

n/a

+18.0 [h]

Class ‘C’

+18.6

n/a

n/a

+18.9 [h]

US dollar [b]

[a] Absolute basis. [b] Price to price with net income reinvested. [c] 28 November 2001, the launch date of the share class. [d] Price to price with income reinvested. [e] 15 May 1984, the end of the initial offer period of the predecessor unit trust. [f] 3 August 2012, the launch date of the share class. [g] 1 October 2002, the launch date of the share class. [h] 9 October 2015, the launch date of the share class.

100 INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

M&G Japan Smaller Companies Fund Financial highlights Investments are bought or sold by a fund when changes are made to the investment portfolio and in response to net flows of money into or out of the fund from investors buying and selling shares in the fund.

Fund performance

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

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

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

• Administration: Charge paid to M&G for administration services in addition to investment management – any surplus from this charge will be retained by M&G.

• Oversight

and other independent services: Charges paid to providers independent of M&G for services which include depositary, custody and audit.

To protect existing investors, portfolio transaction costs incurred as a result of investors buying and selling shares in the fund are recovered from those investors through a ‘dilution adjustment’ to the price they pay or receive. The table below shows direct portfolio transaction costs paid by the fund before and after that part of the dilution adjustment relating to direct portfolio transaction costs. To give an indication of the indirect portfolio dealing costs the table also shows the average portfolio dealing spread. Further information on this process is in the Prospectus, which is available free of charge on request either from our website at www.mandg.co.uk/prospectuses or by calling M&G Customer Relations.

Portfolio transaction costs Six months to 28.02.17 % Direct portfolio transaction costs [b]

Year to 31.08.16 %

Year to 31.08.15 %

Average [a] %

Broker commission Taxes

0.07 0.00

0.16 0.00

0.15 0.00

0.13 0.00

Costs before dilution adjustments Dilution adjustments [c]

0.07 (0.07)

0.16 (0.05)

0.15 (0.14)

0.13 (0.09)

Total direct portfolio transaction costs

0.00

0.11

0.01

0.04

28.02.17 %

31.08.16 %

31.08.15 %

0.27

0.24

0.17

The operating charges paid by each share class of the fund are shown in the following performance tables. Operating charges do not include portfolio transaction costs or any entry and exit charges (also known as initial and redemption charges). The charging structures of share classes may differ, and therefore the operating charges may differ.

as at Indirect portfolio transaction costs

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

[c] In respect of direct portfolio transaction costs.

Average portfolio dealing spread

Average [a] % 0.23

[a] Average of first three columns. [b] As a percentage of average net asset value.

For this fund there is no difference between operating charges and ongoing charges figures, unless disclosed under the specific share class performance table.

Portfolio transaction costs Portfolio transaction costs are incurred by funds when buying and selling investments. These costs vary depending on the types of investment, their market capitalisation, country of exchange, method of execution and the quality of research provided. They are made up of direct and indirect portfolio transaction costs:

• Direct portfolio transaction costs: Broker execution commission and taxes.

• Indirect portfolio transaction costs: ‘Dealing spread’ – the difference between the buying and selling prices of the fund’s investments; some types of investment, such as fixed interest securities, have no direct transaction costs and only the dealing spread is paid.

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

101

M&G Japan Smaller Companies Fund Financial highlights Euro Class ‘C’ Accumulation share performance

Specific share class performance

The share class was launched on 28 November 2001.

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

Six months to 28.02.17 Euro ¢

Year to 31.08.16 Euro ¢

Year to 31.08.15 Euro ¢

2,778.17 Opening NAV Return before operating charges and after direct portfolio transaction costs 710.71 (14.82) Operating charges

2,483.03

2,050.60

319.36 (24.22)

454.63 (22.20)

Change in NAV per share

Return after operating charges

Euro Class ‘A’ Accumulation share performance The share class was launched on 28 November 2001.

695.89

295.14

432.43

Distributions

n/a

(32.68)

(18.64)

Retained distributions

n/a

32.68

18.64

3,474.06

2,778.17

2,483.03

Six months to 28.02.17 Euro ¢

Year to 31.08.16 Euro ¢

Year to 31.08.15 Euro ¢

Closing NAV

Euro ¢

Euro ¢

Euro ¢

2,490.82 Opening NAV Return before operating charges and after direct 636.44 portfolio transaction costs Operating charges (24.07)

2,242.98

1,866.26

Costs before dilution adjustments Dilution adjustments [b]

1.16 (1.16)

4.13 (1.17)

3.55 (3.34)

287.16 (39.32)

413.81 (37.09)

Total direct portfolio transaction costs

0.00

2.96

0.21

247.84

376.72

Change in NAV per share

Return after operating charges

612.37

Distributions

n/a

(10.56)

(0.37)

Retained distributions

n/a

10.56

0.37

3,103.19

2,490.82

2,242.98

Closing NAV Direct portfolio transaction costs [a]

Euro ¢

Euro ¢

Euro ¢

Costs before dilution adjustments Dilution adjustments [b]

1.05 (1.05)

3.73 (1.06)

3.30 (3.10)

Total direct portfolio transaction costs

0.00

2.67

0.20

Performance and charges

%

%

%

Direct portfolio transaction costs 0.00 Operating charges 1.69 Return after operating charges +24.59 Historic yield 0.33 Effect on yield of charges offset against capital 0.00

0.11 1.69 +11.05 0.42 0.00

0.01 1.70 +20.19 0.02 0.00

5,587,955 36.83 1,950,294 2,519.73 1,999.39

6,743,152 29.97 2,205,740 2,556.24 1,766.49

Direct portfolio transaction costs [a]

%

%

%

0.00 Direct portfolio transaction costs 0.94 Operating charges +25.05 Return after operating charges Historic yield 0.92 0.00 Effect on yield of charges offset against capital

Performance and charges

0.11 0.94 +11.89 1.15 0.00

0.01 0.94 +21.09 0.76 0.00

1,189,790 7.84 372,306 2,794.78 2,220.87

1,323,930 5.89 391,201 2,821.75 1,942.86

Other information 2,356,764 Closing NAV (¥’000) Closing NAV percentage of total fund NAV (%) 7.03 Number of shares 570,143 Highest share price (Euro ¢) 3,508.90 Lowest share price (Euro ¢) 2,747.41

Sterling Class ‘A’ Income share performance The share class was launched on 15 May 1984.

Other information Closing NAV (¥’000) 13,418,727 Closing NAV percentage of total fund NAV (%) 40.01 Number of shares 3,634,188 Highest share price (Euro ¢) 3,134.69 Lowest share price (Euro ¢) 2,462.48

Six months to 28.02.17 UK p

Year to 31.08.16 UK p

Year to 31.08.15 UK p

Opening NAV 426.32 Return before operating charges and after direct portfolio transaction costs 111.77 Operating charges (4.42)

333.15

300.61

100.78 (6.23)

38.14 (5.57) 32.57

Change in NAV per share

Return after operating charges

107.35

94.55

Distributions

n/a

(1.38)

(0.03)

Closing NAV

533.67

426.32

333.15

Direct portfolio transaction costs [a]

UK p

UK p

UK p

Costs before dilution adjustments Dilution adjustments [b]

0.19 (0.19)

0.57 (0.16)

0.49 (0.47)

Total direct portfolio transaction costs

0.00

0.41

0.02

%

%

%

Direct portfolio transaction costs 0.00 Operating charges 1.70 Return after operating charges +25.18 1.33 Historic yield [c] Effect on yield of charges offset against capital 1.65

Performance and charges

0.11 1.71 +28.38 0.32 0.00

0.01 1.70 +10.83 0.01 0.00

395,814 2.61 684,585 438.14 314.80

4,219,006 18.75 6,810,663 373.84 285.39

Other information Closing NAV (¥’000) 3,306,038 Closing NAV percentage of total fund NAV (%) 9.86 Number of shares 4,436,992 Highest share price (UK p) 535.36 Lowest share price (UK p) 422.09

102 INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

M&G Japan Smaller Companies Fund Financial highlights Sterling Class ‘I’ Accumulation share performance

Specific share class performance

The share class was launched on 3 August 2012.

Return after operating charges

Year to 31.08.16 UK p 349.58 106.09 (6.49)

Year to 31.08.16 UK p

Year to 31.08.15 UK p

2,167.19 Opening NAV Return before operating charges and after direct portfolio transaction costs 567.47 (11.66) Operating charges

1,673.96

1,499.02

510.45 (17.22)

190.98 (16.04)

Change in NAV per share

Sterling Class ‘A’ Accumulation share performance The share class was launched on 15 May 1984. Six months to 28.02.17 UK p Change in NAV per share 449.18 Opening NAV Return before operating charges and after direct 117.41 portfolio transaction costs Operating charges (4.32)

Six months to 28.02.17 UK p

Year to 31.08.15 UK p 315.41 40.04 (5.87)

Return after operating charges

555.81

493.23

174.94

Distributions

n/a

(25.51)

(12.58)

Retained distributions

n/a

25.51

12.58

2,723.00

2,167.19

1,673.96

Closing NAV

113.09

99.60

34.17

Distributions

n/a

(1.88)

(0.03)

Direct portfolio transaction costs [a]

UK p

UK p

UK p

Retained distributions

n/a

1.88

0.03

562.27

449.18

349.58

Costs before dilution adjustments Dilution adjustments [b]

0.91 (0.91)

2.94 (0.83)

2.56 (2.41)

Direct portfolio transaction costs [a] Costs before dilution adjustments Dilution adjustments [b]

UK p 0.19 (0.19)

UK p 0.61 (0.17)

UK p 0.52 (0.49)

Total direct portfolio transaction costs

0.00

2.11

0.15

Total direct portfolio transaction costs

0.00

0.44

0.03

% Performance and charges 0.00 Direct portfolio transaction costs Operating charges 1.69 Return after operating charges +25.18 0.32 Historic yield Effect on yield of charges offset against capital 0.00

% 0.11 1.69 +28.49 0.41 0.00

% 0.01 1.70 +10.83 0.00 0.00

Other information Closing NAV (¥’000) 1,921,271 Closing NAV percentage of total fund NAV (%) 5.73 Number of shares 2,447,337 Highest share price (UK p) 564.05 Lowest share price (UK p) 444.71

1,365,071 9.00 2,240,835 460.15 330.60

2,450,951 10.90 3,770,656 392.25 299.46

Closing NAV

%

%

%

0.00 Direct portfolio transaction costs 0.94 Operating charges +25.65 Return after operating charges Historic yield 0.91 0.00 Effect on yield of charges offset against capital

Performance and charges

0.11 0.94 +29.46 1.16 0.00

0.01 0.95 +11.67 0.76 0.00

4,347,014 28.65 1,478,995 2,219.41 1,588.52

4,371,738 19.44 1,404,543 1,872.88 1,424.56

Other information 8,680,679 Closing NAV (¥’000) Closing NAV percentage of total fund NAV (%) 25.89 Number of shares 2,283,272 Highest share price (UK p) 2,731.57 Lowest share price (UK p) 2,146.32

Sterling Class ‘R’ Income share performance The share class was launched on 3 August 2012. Six months to 28.02.17 UK p

Year to 31.08.16 UK p

Year to 31.08.15 UK p

Opening NAV 208.44 Return before operating charges and after direct portfolio transaction costs 54.55 Operating charges (1.41)

162.94

147.01

49.57 (2.12)

18.70 (1.95) 16.75

Sterling Class ‘I’ Income share performance Change in NAV per share

The share class was launched on 3 August 2012. Six months to 28.02.17 Change in NAV per share UK p Opening NAV 2,085.10 Return before operating charges and after direct portfolio transaction costs 546.14 Operating charges (11.30) Return after operating charges

Year to 31.08.16 UK p 1,630.16

Year to 31.08.15 UK p 1,470.88

496.56 (16.80)

187.16 (15.56)

Return after operating charges

534.84

479.76

Distributions

n/a

(24.82)

171.60 (12.32)

Closing NAV

2,619.94

2,085.10

1,630.16

Direct portfolio transaction costs [a] Costs before dilution adjustments Dilution adjustments [b]

UK p 0.89 (0.89)

UK p 2.87 (0.81)

UK p 2.48 (2.33)

Total direct portfolio transaction costs

0.00

2.06

0.15

Performance and charges % Direct portfolio transaction costs 0.00 Operating charges 0.93 Return after operating charges +25.65 Historic yield [c] 1.51 Effect on yield of charges offset against capital 0.90

% 0.11 0.94 +29.43 1.18 0.00

% 0.01 0.95 +11.67 0.76 0.00

Other information Closing NAV (¥’000) 2,166,538 Closing NAV percentage of total fund NAV (%) 6.46 Number of shares 592,280 Highest share price (UK p) 2,628.23 Lowest share price (UK p) 2,065.12

1,091,743 7.19 386,070 2,160.76 1,546.55

1,273,727 5.66 420,216 1,837.67 1,397.71

53.14

47.45

Distributions

n/a

(1.95)

(0.82)

Closing NAV

261.58

208.44

162.94

Direct portfolio transaction costs [a]

UK p

UK p

UK p

Costs before dilution adjustments Dilution adjustments [b]

0.09 (0.09)

0.29 (0.08)

0.25 (0.23)

Total direct portfolio transaction costs

0.00

0.21

0.02

%

%

%

Direct portfolio transaction costs 0.00 Operating charges 1.19 Return after operating charges +25.49 1.48 Historic yield [c] Effect on yield of charges offset against capital 1.15

Performance and charges

0.11 1.19 +29.12 0.92 0.00

0.01 1.20 +11.39 0.51 0.00

11,913 0.08 42,139 215.48 154.42

15,698 0.07 51,813 183.40 139.66

Other information Closing NAV (¥’000) Closing NAV percentage of total fund NAV (%) Number of shares Highest share price (UK p) Lowest share price (UK p)

17,086 0.05 46,782 262.41 206.42

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

103

M&G Japan Smaller Companies Fund Financial highlights Sterling Class ‘X’ Accumulation share performance

Specific share class performance

The share class was launched on 1 October 2002.

Return after operating charges

Year to 31.08.16 UK p 166.09 50.51 (2.13)

Year to 31.08.16 UK p

Year to 31.08.15 UK p

445.77 Opening NAV Return before operating charges and after direct portfolio transaction costs 116.51 (4.27) Operating charges

346.92

313.02

105.30 (6.45)

39.64 (5.74)

Change in NAV per share

Sterling Class ‘R’ Accumulation share performance The share class was launched on 3 August 2012. Six months to 28.02.17 UK p Change in NAV per share 214.47 Opening NAV Return before operating charges and after direct 56.08 portfolio transaction costs Operating charges (1.41)

Six months to 28.02.17 UK p

Year to 31.08.15 UK p 149.10 18.96 (1.97)

Return after operating charges

112.24

98.85

33.90

Distributions

n/a

(1.88)

(0.04)

Retained distributions

n/a

1.88

0.04

558.01

445.77

346.92

Closing NAV

54.67

48.38

16.99

Distributions

n/a

(1.99)

(0.83)

Direct portfolio transaction costs [a]

UK p

UK p

UK p

Retained distributions

n/a

1.99

0.83

269.14

214.47

166.09

Costs before dilution adjustments Dilution adjustments [b]

0.19 (0.19)

0.61 (0.17)

0.51 (0.48)

Direct portfolio transaction costs [a] Costs before dilution adjustments Dilution adjustments [b]

UK p 0.09 (0.09)

UK p 0.29 (0.08)

UK p 0.25 (0.23)

Total direct portfolio transaction costs

0.00

0.44

0.03

Total direct portfolio transaction costs

0.00

0.21

0.02

% Performance and charges 0.00 Direct portfolio transaction costs Operating charges 1.20 Return after operating charges +25.49 0.72 Historic yield Effect on yield of charges offset against capital 0.00

% 0.11 1.18 +29.13 0.92 0.00

% 0.01 1.20 +11.40 0.51 0.00

60,086 0.40 206,580 219.65 157.42

97,847 0.43 316,836 185.99 141.64

Closing NAV

Other information Closing NAV (¥’000) Closing NAV percentage of total fund NAV (%) Number of shares Highest share price (UK p) Lowest share price (UK p)

67,611 0.20 179,927 269.99 212.38

%

%

%

0.00 Direct portfolio transaction costs 1.69 Operating charges +25.18 Return after operating charges Historic yield 0.33 0.00 Effect on yield of charges offset against capital

Performance and charges

0.11 1.69 +28.49 0.42 0.00

0.01 1.71 +10.83 0.01 0.00

856,715 5.65 1,417,076 456.66 328.10

1,659,372 7.38 2,572,387 389.26 297.18

Other information 1,110,975 Closing NAV (¥’000) Closing NAV percentage of total fund NAV (%) 3.31 Number of shares 1,425,974 Highest share price (UK p) 559.78 Lowest share price (UK p) 441.34

US dollar Class ‘A’ Accumulation share performance The share class was launched on 9 October 2015. Six months to 28.02.17 US ¢

Year to 31.08.16 US ¢

Year to 31.08.15 US ¢

Opening NAV 1,065.05 Return before operating charges and after direct portfolio transaction costs 207.81 Operating charges (10.34)

1,000.00

n/a

79.88 (14.83)

n/a n/a

Sterling Class ‘X’ Income share performance Change in NAV per share

The share class was launched on 1 October 2002. Six months to 28.02.17 Change in NAV per share UK p Opening NAV 423.69 Return before operating charges and after direct portfolio transaction costs 110.74 Operating charges (4.05) Return after operating charges

106.69

Year to 31.08.16 UK p 331.13

Year to 31.08.15 UK p 298.79

100.48 (6.12)

37.94 (5.57)

94.36

32.37

Return after operating charges

Distributions

n/a

(1.80)

(0.03)

Closing NAV

530.38

423.69

331.13

Direct portfolio transaction costs [a] Costs before dilution adjustments Dilution adjustments [b]

UK p 0.18 (0.18)

UK p 0.58 (0.16)

UK p 0.50 (0.47)

Total direct portfolio transaction costs

0.00

0.42

0.03

Performance and charges % Direct portfolio transaction costs 0.00 Operating charges 1.69 Return after operating charges +25.18 Historic yield [c] 1.41 Effect on yield of charges offset against capital 1.65

% 0.11 1.69 +28.50 0.42 0.00

% 0.01 1.71 +10.83 0.01 0.00

257,507 1.70 448,137 435.89 313.16

338,614 1.51 549,959 371.58 283.68

Other information Closing NAV (¥’000) Closing NAV percentage of total fund NAV (%) Number of shares Highest share price (UK p) Lowest share price (UK p)

321,431 0.96 434,061 532.06 419.49

Distributions Retained distributions

197.47

65.05

n/a

n/a

(4.66)

n/a

n/a

4.66

n/a

1,262.52

1,065.05

n/a

Direct portfolio transaction costs [a]

US ¢

US ¢

US ¢

Costs before dilution adjustments Dilution adjustments [b]

0.45 (0.45)

1.42 (0.40)

n/a n/a

Total direct portfolio transaction costs

0.00

1.02

n/a

Closing NAV

%

%

%

Direct portfolio transaction costs 0.00 Operating charges 1.72 Return after operating charges +18.54 Historic yield 0.36 Effect on yield of charges offset against capital 0.00

Performance and charges

0.11 1.69 +6.51 0.43 0.00

n/a n/a n/a n/a n/a

4,233 0.03 3,850 1,074.20 867.51

n/a n/a n/a n/a n/a

Other information Closing NAV (¥’000) 51,512 Closing NAV percentage of total fund NAV (%) 0.15 Number of shares 36,353 Highest share price (US ¢) 1,270.21 Lowest share price (US ¢) 1,062.33

104 INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

M&G Japan Smaller Companies Fund Financial highlights

Specific share class performance US dollar Class ‘C’ Accumulation share performance The share class was launched on 9 October 2015. Six months to 28.02.17 US ¢

Year to 31.08.16 US ¢

Year to 31.08.15 US ¢

1,072.15 Opening NAV Return before operating charges and after direct 209.58 portfolio transaction costs (6.07) Operating charges

1,000.00

n/a

80.43 (8.28)

n/a n/a

Change in NAV per share

Return after operating charges

203.51

72.15

n/a

Distributions

n/a

(12.68)

n/a

Retained distributions

n/a

12.68

n/a

1,275.66

1,072.15

n/a

Closing NAV Direct portfolio transaction costs [a]

US ¢

US ¢

US ¢

Costs before dilution adjustments Dilution adjustments [b]

0.48 (0.48)

1.42 (0.40)

n/a n/a

Total direct portfolio transaction costs

0.00

1.02

n/a

Performance and charges

%

%

%

Direct portfolio transaction costs 0.00 Operating charges 0.93 Return after operating charges +18.98 Historic yield 0.98 Effect on yield of charges offset against capital 0.00

0.11 0.94 +7.22 1.16 0.00

n/a n/a n/a n/a n/a

3,321 0.02 3,000 1,081.09 869.71

n/a n/a n/a n/a n/a

Other information Closing NAV (¥’000) 116,464 Closing NAV percentage of total fund NAV (%) 0.35 Number of shares 81,344 Highest share price (US ¢) 1,283.33 Lowest share price (US ¢) 1,069.75 [a] As a percentage of average net asset value. [b] In respect of direct portfolio transaction costs. [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.

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

105

M&G Japan Smaller Companies Fund Financial statements and notes

Financial statements

Notes to the financial statements Accounting policies

Statement of total return 2017 for the six months to 28 and 29 February Income Net capital gains / (losses) Revenue Expenses

¥’000

2016 ¥’000 ¥’000

¥’000

3,019

(2,624,257) 179,912 (136,711) ______ 43,201 (18,110) ______ 25,091

Total return before equalisation Equalisation

5,367,346 59,150

(2,599,166) 13,886

Change in net assets attributable to shareholders from investment activities

5,426,496

(2,585,280)

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

Statement of change in net assets attributable to shareholders

In determining the amount available for distribution, ordinary stock dividends have been transferred to capital, reducing the amount available.

Net revenue / (expense) before taxation Taxation

5,364,327

The financial statements have been prepared in accordance with the ‘Accounting policies’ set out on page 4.

180,263 (158,679) ______ 21,584 (18,565) ______

Net revenue / (expense) after taxation

2017 for the six months to 28 and 29 February

¥’000

Opening net assets attributable to shareholders 15,171,162 Amounts received on issue of shares 18,790,850 Amounts paid on cancellation of shares (5,890,850) Value of in-specie transfers paid 0 ______ 12,900,000 Dilution adjustments 37,438 Change in net assets attributable to shareholders from investment activities (see above) 5,426,496 Closing net assets attributable to shareholders

2016 ¥’000 ¥’000

¥’000

Distribution policy With effect from 1 September 2016, the distribution policy has been amended so that in determining the amount available for distribution to Income shares, the annual management charge and administration charge are now offset against capital, increasing the amount available for distribution whilst restraining capital performance to an equivalent extent.

22,494,035 5,035,390 (8,096,296) (4,212) ______ (3,065,118) 13,598

33,535,096

(2,585,280) 16,857,235

The opening net assets attributable to shareholders for 2017 differs to the closing position in 2016 by the change in net assets attributable to shareholders for the second half of the comparative financial year.

Balance sheet as at

28 February 2017 ¥’000

31 August 2016 ¥’000

32,509,943

15,134,563

1,089,167 1,101,493

228,641 34,290

34,700,603

15,397,494

(2,896)

0

0 (1,162,611)

(15,479) (210,853)

Assets Fixed assets Investments Current assets Debtors Cash and bank balances Total assets Liabilities Investment liabilities Creditors Distribution payable Other creditors Total liabilities

(1,165,507)

(226,332)

Net assets attributable to shareholders

33,535,096

15,171,162

106 INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

M&G North American Dividend Fund Authorised Corporate Director’s Report •  is not guaranteed and may change over time and the lowest risk number does not mean risk free.

Investment objective



The Fund aims to maximise total return (the combination of capital growth and income) whilst aiming to grow distributions over the long term.

has changed during this period. From 1 September 2016 to 30 December 2016 the risk number was 6.

Investment review Investment policy The Fund will invest mainly in North American equities and may invest across all sectors and market capitalisations. The Fund may also invest in transferable securities issued by companies which are listed, registered or trading within North America and in collective investment schemes. Cash and near cash may be held for ancillary purposes and derivatives, including warrants, may be used for efficient portfolio management and hedging purposes.

Investment approach The M&G North American Dividend Fund employs a bottom-up stockpicking approach, driven by the fundamental analysis of individual companies. The fund manager seeks to invest in companies with excellent capital discipline and long-term dividend growth potential. The fund manager believes rising 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 exposure to a broad range of sectors. He selects stocks with different drivers of dividend growth to construct a portfolio that has the potential to cope in a variety of market conditions. The fund will usually hold around 40 to 50 stocks, with a long-term investment view and a typical holding period of three to five years.

Risk profile The fund invests in the shares of North American companies and is, therefore, subject to the price volatility of the North American stockmarket and the performance of individual companies. The fund may also be subject to fluctuations in currency exchange rates. The fund’s focus is on shares of companies that have the potential to grow their dividends over the long term. Income distributions from the fund’s holdings, however, are not guaranteed and may vary. Diversification across industries and market capitalisation is key in managing liquidity risk and reducing market risk. The fund’s risks are measured and managed as an integral part of the investment process. The following table shows the risk number associated with the fund and is based on Sterling Class ‘A’ shares. Low risk

High risk

Typically lower rewards

1

2

Typically higher rewards

3

4

5

6

7

As at 1 March 2017, for the six months ended 28 February 2017 Distribution summary Over the six-month period, the fund distributed income of 13.00 cents per US dollar Class ‘A’ (Income) share. This is the same distribution as the payment made in the same period last year. We focus on companies with the propensity to increase dividends over three to five years, and we are pleased with the current progress of our underlying holdings. (Dividends represent a share in the profits of a company and are paid out to the company’s shareholders at set times of the year.) All of the fund’s holdings that reported dividends over the period grew their payments or held them flat. The majority of our holdings announced increases of 5% to 15%, and it was pleasing that a range of sectors featured among this core group of dividend growers. Some of the largest increases came from Nike (consumer discretionary), FIS (information technology), Becton Dickinson (healthcare), Union Pacific (industrials), and BlackRock (financials). Reynolds American, the tobacco company, was also in this core group, and the 11% increase that it announced in February was in fact its second raise over the past year. It was even more encouraging that three firms surpassed this range: Broadcom, the semiconductor technology firm, doubled its quarterly payment in December; Home Depot, the home improvement supplies retailer, raised its dividend by 29% and MasterCard, the electronic payments company, increased its dividend by 16%. Only a handful of the fund’s holdings increased their dividends by less than 5% or held them flat. There were no cuts. We are on track to meet the fund’s objective of growing its distribution this financial year. This is pleasing because, as we have mentioned previously, we had feared that a change in the fund’s tax status might thwart our ability to deliver on this objective. The fund’s distribution and distribution yield are shown in the ‘Specific share class performance’ tables in this report. The distribution is subject to a number of influences, including changes in the market environment and the fund’s tax status, and as a result, there is no guarantee that the fund will increase the distribution in every reporting period.

Performance against objective Between 1 September 2016 and 1 March 2017, the fund’s total return (the combination of income and growth of capital) was positive across all its share classes [a] and ahead of the S&P 500, a comparative index. The index returned 20.5%, 18.3% and 11.5% in sterling, euro and US dollar terms, respectively. The fund has met its objective of maximising total return since it was introduced in April 2015 and over five years. As noted previously, growing distributions has not been part of the fund’s objective for long enough for us to assess its performance in this regard.

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.

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

107

M&G North American Dividend Fund Authorised Corporate Director’s Report Investment review Investment performance During the review period, North American (and indeed global) stockmarkets experienced a meaningful rotation away from defensive sectors and towards the cyclical areas of the market. (Defensive stocks are companies that tend to have stable earnings and are less affected by peaks and troughs in the economy; cyclical stocks are those that are more sensitive to economic activity.) This shift in market sentiment was accelerated by Donald Trump’s election as US president, which sparked a reappraisal of economic prospects, but the trend had started several months before. In this environment, financials performed best, supported by the announcement of interest rate hikes from the Federal Reserve (the Fed), whereas the healthcare sector was the notable laggard as a result of concerns over drug pricing in the US. Fixed income assets, also known as bonds, sold off, and the ‘bond-proxy’ sectors of telecommunications and utilities consequently struggled as safety was no longer so highly prized. (Bond proxies are stocks with bond-like characteristics.) Energy-related industries benefited from a rally in the oil price after The Organization of the Petroleum Exporting Countries (OPEC) announced a production cut in November. Against this background, Methanex, the methanol producer, made the largest contribution to fund performance, returning just under 80% over the review period. (All references to returns and percentage changes are implicitly in US dollars, unless stated otherwise.) The company announced solid third- and fourth-quarter results, which reinforce our conviction in the strength of its fundamentals and potential for cash generation. Methanex’s performance was also supported by the favourable environment for methanol prices and the positive sentiment towards energy-related stocks following news of OPEC’s production cut. Trading at a meaningful discount to the replacement cost of assets and generating significant free cashflow (that is to say, the cashflow generated from operating activities after deducting the company’s spending requirements), we continue to believe that the market underappreciates Methanex’s fundamentals and that its valuation is far from appropriate levels. Two of our holdings generated significant returns in the wake of takeover bids. In October, Reynolds American received a takeover bid from British American Tobacco (BAT), as a result of which its share price jumped 17%. Then, in January, Reynolds accepted a higher offer from BAT, leading to further gains and to the stock returning 26% over the review period. Time Warner, the media and entertainment group, saw its share price increase by 12% after telecoms conglomerate AT&T agreed to acquire the company. Mead Johnson, the nutrition company, was also a recipient of a takeover offer. Reckitt Benckiser made a bid to acquire the firm in February, causing Mead Johnson’s share price to rise by 20%. M&T Bank led the pack in financials, returning over 40% during the period. A combination of strong third-quarter results, the market’s rotation towards cyclical sectors and the rising interest rate environment in the US propelled the company’s share price. Wells Fargo, our second-largest US bank holding, performed well for similar reasons and returned 15% over the period. We continue to believe that these stocks are cheap and positioned to perform well as interest rates edge up.

The fund’s technology holdings added value as a result of their positive earnings announcements. Broadcom made a significant contribution to fund performance after it carried the momentum from its first-quarter results in December through to the end of the review period. MasterCard and Microsoft also performed well, announcing earnings ahead of market expectations in consecutive quarters in October and January. By contrast, Sabre, the travel software company, was the largest detractor from fund performance due to underwhelming results and the lowering of expectations. Medtronic, a medical equipment firm, was the second-biggest detractor after it lowered its guidance for the financial year and struggled in the context of the broader rotation away from defensives. We believe that new products should drive revenue back to previous expectations and therefore we continue to back the holding. UnitedHealth bucked the trend in defensives and managed to rank as one of the top contributors to fund performance, which was particularly pleasing. In November, its positive outlook for 2017 was well received, and its fourth-quarter earnings sent its share price even higher in January. Allergan, the pharmaceutical firm that joined the fund in November, reported strong fourth-quarter earnings in February and was consequently another healthcare holding to outperform.

Investment activities There were eight new purchases and four complete sales from September to February, and the fund therefore ended the review period with 43 holdings. It was a relatively busy period in terms of activity as we took advantage of market volatility to initiate various new positions. We established a position in Six Flags, the theme-park owner, in September. Its business model is highly cash-generative, with substantial growth opportunities in its core markets through innovation and pricing, as well as the potential to cut costs and improve efficiency. In addition, the company has a long-term strategy for international expansion driven by licensing, and has highly profitable existing agreements in Dubai, China and Vietnam. We also initiated a position in Gibson Energy, the Canadian infrastructure business. It has high cashflow visibility, long-term contracts and potential for stable dividend growth over time. In October, we bought a stake in First Republic Bank, which boasts a long history of profitable organic growth and solid financial foundations: excellent credit quality, a loan book with low loan-to-value ratios, and high deposit funding. The purchase was well-timed – we bought the shares just before the rally in US financials entered full swing – and we believe that the stock can continue to grow at doubledigit rates going forward. November saw us start a position in Nike in order to capitalise on the underperformance of the US consumer discretionary sector. In our view, the company is relatively sheltered from the structural challenges to the US retail market as a result of the strength of its brand, the quality of its customer service, and its technical superiority in the athletic footwear segment. Further, it boasts geographical diversification, with the majority of sales coming from outside the US. In this context, we believe that the stock’s underperformance was overdone, and since purchase it has started to show signs of rallying.

108 INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

M&G North American Dividend Fund Authorised Corporate Director’s Report Investment review Investment activities (continued) We also initiated a position in pharmaceutical company Allergan, one of the global leaders in the highly attractive aesthetic healthcare space, in the same month. The company’s balance sheet is solid, its valuation is undemanding, and it appears to offer strong potential for dividend growth after announcing its first-ever dividend in November. Our additions to the healthcare space were rounded out in January when we purchased shares in Anthem, one of the largest managed care organisations in the US. In our view, the stock has the potential for meaningful earnings growth in the coming years and is cheap relative to peers. In February, American Express, the credit and charge card firm, joined the fund. The company has managed to fight back from its difficulties following CostCo’s decision to move its co-branded card to Visa by aggressively cutting costs, using excess capital to fund a large buyback, and increasing marketing to acquire new volume in the non-co-branded space. Although American Express has rebounded by 30% from its lows, its valuation still looks compelling and it offers potential for double-digit dividend growth. We also bought shares in Constellation Brands, the beverage producer and supplier, after a period of weakness driven by the negative rhetoric surrounding President Trump’s trade policy, which markets have been linking to the fact that a significant portion of the company’s sales come from selling imported Mexican beer brands in the US. However, the firm’s pricing and sourcing mean that it has significant protection against the implications of a Border Tax Adjustment. Outside of this, it continues to grow strongly on both top and bottom line, and has a long runway for growth in the mid-teens to continue for many years to come. Turning to sales, we closed out our position in fast-food company Yum! Brands in November. The shares returned more than 20% over the course of 2016, and we had been reducing it gradually over time and recycling the proceeds into cheaper, more conventional consumer staples names, such as Mead Johnson (before Reckitt Benckiser announced its takeover bid). We also sold our stake in Nordstrom, the fashion retailer, which was not a successful investment, despite rebounding by more than 40% between its low in June and the point of sale. We decided to sell after reassessing the likelihood of the firm realising meaningful returns on its internal investments. Additionally, the sell-off in US retail had created more attractive opportunities elsewhere in the market. In December, we completed the sale of our stake in Inter Pipeline, realising profits after the stock returned over 40% in 2016 in Canadian dollar terms. We recycled the money from this position into Keyera, another Canadian energy firm, on relative value grounds. We completed the sale of Chubb, the property and casualty insurer, in February. The stock performed very well since it was bought in its original guise in April 2015, but we had concerns about the level of debt in the enlarged company following the acquisition by ACE. With the potential benefits of the deal seemingly reflected in the price, we took the opportunity to recycle the proceeds into better ideas. We would be happy to invest in Chubb again, but only at a better entry point.

We also modified the scaling of various positions across the period. We reduced the size of our holdings in Time Warner and Reynolds American after the takeover offers caused rapid increases in their share prices. In addition, we realised profits in some of the other positions that had performed particularly well, including Broadcom, UnitedHealth and M&T Bank. These moves funded some of our purchases, and also gave us room to scale into other positions, such as PrairieSky Royalty and Altria.

Outlook Donald Trump’s election as US president in November has certainly had a meaningful impact on financial markets, even in advance of his inauguration in January. With a long list of policy ambitions and a populist style, many industries and investments are likely to see higher levels of “political risk” and volatility over the next few weeks, months and years. Throughout this, our approach and focus will not change. We will continue to look for companies that are long-term winners, and have the ability and intention to grow dividends to shareholders at an attractive pace over time. To the extent that there is extra volatility in the market, we will be ready to act if any of these names are caught up unfairly in political ‘noise’. Although the market has moved upwards noticeably in a short space of time recently, we continue to find areas of attractive valuation in specific stocks as noted above. However, in certain areas, especially industrials, we feel that valuations have moved well ahead of fundamentals and that, regardless of whether the administration passes its proposed US$1 trillion infrastructure package, many of these names offer unappealing returns over the medium term at current valuations. On a more positive note, fiscal policy is an area that might have the potential to meaningfully change the valuation of many stocks in the market and we continue to monitor those on our investible list that might have material upside should these policies come to fruition. What appears more tangible, though, is that the market’s recent rotation has created an environment in which valuation matters again, which should be rewarding for our style of investing. In this light, the strength of the fund’s performance over the review period has been pleasing, but we believe that it is only the beginning of a meaningful move in the right direction for our approach. Dividend trends across the fund are positive and reflect well on the companies’ growth potential and financial stability. Going forward, we will continue to invest only in companies that we feel are attractively valued and that have the capacity to grow above market levels. There are still significant gaps between the fundamentals of many of our current holdings and their valuations in the market, and we are hopeful that these will continue to close in 2017 and drive further outperformance. John Weavers Fund manager An employee of M&G Limited which is an associate of M&G Securities Limited. [a] 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.

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

109

M&G North American Dividend Fund Authorised Corporate Director’s Report Portfolio statement (continued)

Investments

as at Holding

Portfolio statement as at Holding

28.02.17 28.02.17 31.08.16 $’000 % %

28.02.17 28.02.17 31.08.16 $’000 % % 322,740 225,524 516,496 914,894

Software & computer services FIS MasterCard Microsoft Sabre

104,629 26,662 24,936 33,169 19,862

14.37 3.66 3.42 4.56 2.73

16.69

39,834 8,536 31,298

5.47 1.17 4.30

6.33

720,579

98.99

98.29

3,913

0.54

1.69

3,913

0.54

(500)

(0.07)

(1)

0.00

(25)

0.00

(488)

(0.07)

0.00

0.00 [a]

68,889 9,621 10,605 27,210 21,453

9.46 1.32 1.45 3.74 2.95

10.14 [a]

77,036 18,139 58,897

10.58 2.49 8.09

7.16

9,608 9,608

1.32 1.32

1.31

Industrial engineering 48,789 Rockwell Automation

7,379 7,379

1.01 1.01

1.24

Industrial transportation 84,666 Union Pacific

9,099 9,099

1.25 1.25

0.96

14

0.00

Beverages 51,793 Constellation Brands

8,170 8,170

1.12 1.12

0.00

Total portfolio Net other assets / (liabilities)

723,992 3,923

99.46 0.54

99.93 0.07

Food producers 99,800 Mead Johnson Nutrition 168,240 Mondele¯z International

16,132 8,768 7,364

2.22 1.21 1.01

1.65

Net assets attributable to shareholders

727,915

100.00

100.00

Personal goods 128,204 Nike 73,766 Ralph Lauren

13,281 7,396 5,885

1.83 1.02 0.81

1.09

Tobacco 235,285 Altria Group 648,019 Reynolds American

57,456 17,545 39,911

7.89 2.41 5.48

7.54

85,635 12,968 9,447 25,950 37,270

11.77 1.78 1.30 3.57 5.12

12.52

Pharmaceuticals & biotechnology 59,730 Allergan 148,307 Johnson & Johnson

32,861 14,710 18,151

4.52 2.02 2.50

2.79

Food & drug retailers 184,578 Cardinal Health

15,226 15,226

2.09 2.09

2.47

General retailers 158,330 Home Depot 121,397 L Brands

29,357 22,997 6,360

4.03 3.16 0.87

3.99

Oil & gas producers

679,245 356,970 837,964 926,984

Oil equipment, services & distribution Gibson Energy Keyera Pembina Pipeline PrairieSky Royalty

Chemicals 198,609 LyondellBasell 1,125,056 Methanex Electronic & electrical equipment 159,039 Emerson Electric

78,644 51,680 321,407 225,390

Healthcare equipment & services Anthem Becton Dickinson Medtronic UnitedHealth Group

Media 97,647 Time Warner

Portfolio of investments

(0.05)

[a] The comparative sector weightings have been re-analysed to reflect changes

to sector classifications. aim of reducing counterparty risk.

Top ten portfolio transactions

2.83

35,746 28,504 7,242

4.91 3.92 0.99

5.40

61,810 5,232 9,741 21,916 24,921

8.49 0.72 1.34 3.01 3.42

7.95

Non-life insurance 122,800 Arthur J. Gallagher & Co. 31,831 The Travelers Companies

10,882 6,997 3,885

1.50 0.96 0.54

2.51

Financial services 136,208 American Express 29,665 BlackRock 166,651 Invesco

27,960 10,921 11,599 5,440

3.84 1.50 1.59 0.75

3.72

Banks First Republic Bank San Francisco JPMorgan Chase M&T Bank Wells Fargo

Forward currency contracts for share class hedging CAD152,077 Bought for €109,469 (expires 08.03.17) €2,565,281 Bought for CAD3,616,900 (expires 08.03.17) €25,383,799 Bought for $27,404,168 (expires 08.03.17) €(1,862,422) Sold for $1,988,557 (expires 08.03.17)

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

1.32 1.32

54,858 107,717 130,492 429,226

‘AAA’ rated money market funds [b] 3,913,000 Northern Trust Global Fund US dollar

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

9,589 9,589

Travel & leisure 538,824 Las Vegas Sands 120,702 Six Flags Entertainment

Technology hardware & equipment 62,334 Apple 146,752 Broadcom

for the six months to 28 February 2017 Largest purchases Allergan Anthem American Express Gibson Energy Constellation Brands PrairieSky Royalty Nike Six Flags Entertainment Reynolds American Altria Group

$’000 12,205 11,793 10,816 9,018 7,805 6,945 6,872 6,542 6,480 6,014

Other purchases

76,613

Total purchases

161,103

Largest sales Inter Pipeline Reynolds American Time Warner Broadcom UnitedHealth Group M&T Bank Yum! Brands BlackRock Becton Dickinson MasterCard

$’000 15,015 11,794 11,734 10,493 9,303 7,034 6,183 4,815 4,526 4,155

Other sales

39,722

Total sales

124,774

Purchases and sales exclude the cost and proceeds of ‘AAA’ rated money market funds.

110 INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

M&G North American Dividend Fund Financial highlights Performance since launch

Fund performance Please note past performance is not a guide to future performance and 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 not get back the original amount you invested. The following chart and tables show the performance for two of the fund’s share classes – Sterling Class ‘A’ (Accumulation) shares and Sterling Class ‘I’ (Accumulation) shares.

To give an indication of how the fund has performed since launch, the chart below shows total return of Sterling Class ‘A’ (Accumulation) shares and Sterling Class ‘I’ (Accumulation) shares. December 1972 = 100, plotted monthly

Chart date 1 March 2017

20,000 12,000

Sterling Class ‘I’ (Accumulation) shares* 7,000 4,000 2,000

We show performance for these two share classes because: 1,000

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

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

600 400 250

Sterling Class ‘A’ (Accumulation) shares*

150 100 60 30 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17

Sterling Class ‘A’ (Accumulation) shares* Sterling Class ‘I’ (Accumulation) shares* S&P 500 Index Morningstar (IA) North American sector average* * Income reinvested

Source: Morningstar, Inc. and M&G

The fund’s Sterling Class ‘I’ (Accumulation) shares were launched on 3 August 2012. Performance data shown prior to this date is that of the fund’s Sterling Class ‘A’ (Accumulation) shares.

The fund is available for investment in different share classes, each with varying levels of charges and minimum investments; please refer to the Prospectus for M&G Investment Funds (1), which is available free of charge either from our website at www.mandg.co.uk/prospectuses or by calling M&G Customer Relations.

Fund level performance Fund net asset value as at

28.02.17 $’000

31.08.16 $’000

31.08.15 $’000

Fund net asset value (NAV)

727,915

604,031

711,282

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

111

M&G North American Dividend Fund Financial highlights

Fund performance To give an indication of the performance of the fund, the following table shows 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 Six Three months years 01.09.16 03.03.14 [a] % % p.a.

Five years 01.03.12 % p.a.

Since launch % p.a.

Euro [b] Class ‘A’

+21.2

+18.5

+16.7

+4.7 [c]

Class ‘A-H’

+14.2

+7.9

+11.0

+6.7 [d]

Class ‘C’

+21.6

+19.4

+17.6

+5.4 [c]

Class ‘C-H’

+14.5

+8.7

+11.8

+9.6 [e]

The operating charges paid by each share class of the fund are shown in the following performance tables. Operating charges do not include portfolio transaction costs or any entry and exit charges (also known as initial and redemption charges). The charging structures of share classes may differ, and therefore the operating charges may differ. Operating charges are the same as the ongoing charges shown in the Key Investor Information Document, other than where an estimate has been used for the ongoing charge because a material change has made the operating charges unreliable as an estimate of future charges. For this fund there is no difference between operating charges and ongoing charges figures, unless disclosed under the specific share class performance table.

Portfolio transaction costs

Sterling [f] Class ‘A’

+23.1

+20.0

+17.3

+9.3 [g]

Class ‘I’

+23.6

+20.9

n/a

+19.7 [h]

Portfolio transaction costs are incurred by funds when buying and selling investments. These costs vary depending on the types of investment, their market capitalisation, country of exchange, method of execution and the quality of research provided. They are made up of direct and indirect portfolio transaction costs:

Class ‘R’

+23.4

+20.6

n/a

+19.4 [h]

• Direct portfolio transaction costs: Broker execution commission

Class ‘X’

+23.1

+20.0

+17.3

+12.5 [i]

US dollar [b] Class ‘A’

+14.5

+8.4

+11.4

+5.2 [j]

Class ‘C’

+14.9

+9.2

+12.2

+6.0 [j]

[a] Absolute basis. [b] Price to price with net income reinvested. [c] 28 November 2001, the launch date of the share class. [d] 12 September 2008, the launch date of the share class. [e] 1 October 2010, the launch date of the share class. [f] Price to price with income reinvested. [g] 18 December 1972, the end of the initial offer period of the predecessor unit trust. [h] 3 August 2012, the launch date of the share class. [i] 1 October 2002, the launch date of the share class. [j] 9 March 2007, the launch date of the share class.

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

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

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

• Administration: Charge paid to M&G for administration services in addition to investment management – any surplus from this charge will be retained by M&G.

• Share class hedging: Charge paid to M&G for currency hedging services to minimise exchange rate risk for the share class.

and taxes.

• Indirect portfolio transaction costs: ‘Dealing spread’ – the difference between the buying and selling prices of the fund’s investments; some types of investment, such as fixed interest securities, have no direct transaction costs and only the dealing spread is paid.

Investments are bought or sold by a fund when changes are made to the investment portfolio and in response to net flows of money into or out of the fund from investors buying and selling shares in the fund. To protect existing investors, portfolio transaction costs incurred as a result of investors buying and selling shares in the fund are recovered from those investors through a ‘dilution adjustment’ to the price they pay or receive. The table below shows direct portfolio transaction costs paid by the fund before and after that part of the dilution adjustment relating to direct portfolio transaction costs. To give an indication of the indirect portfolio dealing costs the table also shows the average portfolio dealing spread. Further information on this process is in the Prospectus, which is available free of charge on request either from our website at www.mandg.co.uk/prospectuses or by calling M&G Customer Relations.

Portfolio transaction costs Six months to 28.02.17 Direct portfolio transaction costs [b] %

Year to 31.08.16 %

Year to 31.08.15 %

Average [a] %

Broker commission Taxes

0.05 0.00

0.05 0.00

0.11 0.00

0.07 0.00

Costs before dilution adjustments Dilution adjustments [c]

0.05 (0.03)

0.05 (0.02)

0.11 (0.06)

0.07 (0.04)

Total direct portfolio transaction costs

0.02

0.03

0.05

0.03

28.02.17 %

31.08.16 %

31.08.15 %

0.07

0.03

0.05

as at Indirect portfolio transaction costs Average portfolio dealing spread [a] Average of first three columns.

[b] As a percentage of average net asset value. [c] In respect of direct portfolio transaction costs.

• Oversight

and other independent services: Charges paid to providers independent of M&G for services which include depositary, custody and audit.

112 INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

Average [a] % 0.05

M&G North American Dividend Fund Financial highlights Euro Class ‘A’ Accumulation share performance

Specific share class performance

The share class was launched on 28 November 2001.

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

Six months to 28.02.17 Euro ¢

Year to 31.08.16 Euro ¢

Year to 31.08.15 Euro ¢

1,666.94 Opening NAV Return before operating charges and after direct portfolio transaction costs 351.08 (14.90) Operating charges

1,502.91

1,326.70

189.76 (25.73)

201.94 (25.73)

Change in NAV per share

Return after operating charges

Euro Class ‘A’ Income share performance The share class was launched on 8 August 2014.

336.18

164.03

176.21

Distributions

(4.19)

(38.47)

(10.42)

Retained distributions

4.19

38.47

10.42

2,003.12

1,666.94

1,502.91

Six months to 28.02.17 Euro ¢

Year to 31.08.16 Euro ¢

Year to 31.08.15 Euro ¢

Closing NAV

Euro ¢

Euro ¢

Euro ¢

Opening NAV 1,615.71 Return before operating charges and after direct portfolio transaction costs 339.87 Operating charges (14.59)

1,492.21

1,326.27

Costs before dilution adjustments Dilution adjustments [b]

0.44 (0.28)

0.81 (0.32)

1.80 (0.88)

186.86 (25.58)

202.87 (26.51)

Total direct portfolio transaction costs

0.16

0.49

0.92

161.28

176.36

Change in NAV per share

Return after operating charges

325.28

Distributions

(15.80)

(37.78)

(10.42)

Closing NAV

1,925.19

1,615.71

1,492.21

Direct portfolio transaction costs [a]

Euro ¢

Euro ¢

Euro ¢

Costs before dilution adjustments Dilution adjustments [b]

0.43 (0.27)

0.80 (0.32)

1.87 (0.92)

Total direct portfolio transaction costs

0.16

0.48

0.95

Performance and charges

%

%

%

Direct portfolio transaction costs 0.02 Operating charges 1.67 Return after operating charges +20.13 Historic yield 1.98 Effect on yield of charges offset against capital 1.67

0.03 1.66 +10.81 2.32 1.66

0.05 1.66 +13.30 2.57 0.00

Direct portfolio transaction costs [a]

%

%

%

0.02 Direct portfolio transaction costs 1.66 Operating charges +20.17 Return after operating charges Historic yield [c] 0.71 0.01 Effect on yield of charges offset against capital

Performance and charges

0.03 1.66 +10.91 2.29 1.66

0.05 1.66 +13.28 2.57 0.00

39,906 6.61 2,148,603 1,667.72 1,326.84

63,003 8.86 3,716,533 1,765.72 1,246.83

Other information 46,363 Closing NAV ($’000) Closing NAV percentage of total fund NAV (%) 6.37 Number of shares 2,183,219 Highest share price (Euro ¢) 2,020.33 Lowest share price (Euro ¢) 1,613.06

Euro Class ‘A-H’ Accumulation share performance The share class was launched on 12 September 2008.

Other information Closing NAV ($’000) 581 Closing NAV percentage of total fund NAV (%) 0.08 Number of shares 28,455 Highest share price (Euro ¢) 1,949.60 Lowest share price (Euro ¢) 1,563.45

320 0.05 17,756 1,639.36 1,310.70

395 0.06 23,481 1,765.26 1,246.42

Six months to 28.02.17 Euro ¢

Year to 31.08.16 Euro ¢

Year to 31.08.15 Euro ¢

Opening NAV 1,523.34 Return before operating charges and after direct portfolio transaction costs 225.11 Operating charges (13.36)

1,402.73

1,447.87

144.53 (23.92)

(19.96) (25.18)

Change in NAV per share

Return after operating charges

211.75

120.61

(45.14)

Distributions

(3.77)

(34.72)

(7.41)

Retained distributions

3.77

34.72

7.41

1,735.09

1,523.34

1,402.73

Closing NAV Direct portfolio transaction costs [a]

Euro ¢

Euro ¢

Euro ¢

Costs before dilution adjustments Dilution adjustments [b]

0.39 (0.25)

0.74 (0.30)

1.76 (0.86)

Total direct portfolio transaction costs

0.14

0.44

0.90

%

%

%

Direct portfolio transaction costs 0.02 Operating charges 1.68 Return after operating charges +13.90 0.72 Historic yield [c] Effect on yield of charges offset against capital 0.01

Performance and charges

0.03 1.68 +8.60 2.25 1.68

0.05 1.69 -3.12 2.57 0.00

7,381 1.22 434,897 1,533.06 1,249.66

8,691 1.22 549,284 1,547.97 1,312.82

Other information Closing NAV ($’000) 6,755 Closing NAV percentage of total fund NAV (%) 0.93 Number of shares 367,237 Highest share price (Euro ¢) 1,734.23 Lowest share price (Euro ¢) 1,487.27

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

113

M&G North American Dividend Fund Financial highlights Euro Class ‘C-H’ Accumulation share performance

Specific share class performance

The share class was launched on 1 October 2010.

Year to 31.08.16 Euro ¢ 1,610.87

Year to 31.08.15 Euro ¢ 1,427.29

202.64 (15.14)

217.88 (15.94)

361.65

187.50

Distributions

(17.21)

(41.00)

(18.36)

Closing NAV

2,101.81

1,757.37

1,610.87

Euro ¢ 0.47 (0.29)

Euro ¢ 0.87 (0.35)

Euro ¢ 2.04 (1.00)

0.18

0.52

1.04

% Performance and charges Direct portfolio transaction costs 0.02 Operating charges 0.91 +20.58 Return after operating charges 1.98 Historic yield Effect on yield of charges offset against capital 0.91

% 0.03 0.91 +11.64 2.32 0.91

% 0.05 0.91 +14.15 2.57 0.00

Other information Closing NAV ($’000) 521 Closing NAV percentage of total fund NAV (%) 0.07 Number of shares 23,371 Highest share price (Euro ¢) 2,128.18 Lowest share price (Euro ¢) 1,701.05

458 0.08 23,371 1,773.16 1,419.73

425 0.06 23,371 1,908.57 1,342.71

Costs before dilution adjustments Dilution adjustments [b] Total direct portfolio transaction costs

Year to 31.08.15 Euro ¢

1,582.97 Opening NAV Return before operating charges and after direct portfolio transaction costs 233.31 (7.71) Operating charges

1,444.69

1,483.27

152.00 (13.72)

(24.17) (14.41)

Return after operating charges

225.60

138.28

(38.58)

(8.89)

(35.90)

(16.30)

Distributions

Return after operating charges

Direct portfolio transaction costs [a]

Year to 31.08.16 Euro ¢

Change in NAV per share

Euro Class ‘C’ Income share performance The share class was launched on 8 August 2014. Six months to 28.02.17 Euro ¢ Change in NAV per share 1,757.37 Opening NAV Return before operating charges and after direct 370.28 portfolio transaction costs Operating charges (8.63)

Six months to 28.02.17 Euro ¢

201.94

Retained distributions Closing NAV

8.89

35.90

16.30

1,808.57

1,582.97

1,444.69

Direct portfolio transaction costs [a]

Euro ¢

Euro ¢

Euro ¢

Costs before dilution adjustments Dilution adjustments [b]

0.41 (0.26)

0.77 (0.31)

1.81 (0.89)

Total direct portfolio transaction costs

0.15

0.46

0.92

%

%

%

0.02 Direct portfolio transaction costs 0.93 Operating charges +14.25 Return after operating charges Historic yield [c] 1.30 0.01 Effect on yield of charges offset against capital

Performance and charges

0.03 0.93 +9.57 2.23 0.93

0.05 0.94 -2.60 2.57 0.00

19,404 3.21 1,100,176 1,592.69 1,292.48

18,349 2.58 1,126,027 1,592.15 1,346.06

Other information 20,892 Closing NAV ($’000) Closing NAV percentage of total fund NAV (%) 2.87 Number of shares 1,089,617 Highest share price (Euro ¢) 1,807.64 Lowest share price (Euro ¢) 1,545.93

Sterling Class ‘A’ Income share performance The share class was launched on 28 March 1977.

Euro Class ‘C’ Accumulation share performance

Six months to 28.02.17 UK p

Year to 31.08.16 UK p

Year to 31.08.15 UK p

Opening NAV 1,497.51 Return before operating charges and after direct portfolio transaction costs 323.73 Operating charges (13.65)

1,195.17

1,150.89

356.40 (21.41)

72.39 (20.99) 51.40

The share class was launched on 28 November 2001. Six months to 28.02.17 Change in NAV per share Euro ¢ Opening NAV 1,833.85 Return before operating charges and after direct portfolio transaction costs 387.34 Operating charges (9.06) Return after operating charges

378.28

Year to 31.08.16 Euro ¢ 1,641.04

Year to 31.08.15 Euro ¢ 1,437.91

208.33 (15.52)

218.25 (15.12)

192.81

203.13

Distributions

(10.75)

(42.12)

Retained distributions

10.75

42.12

18.38

2,212.13

1,833.85

1,641.04

Direct portfolio transaction costs [a] Costs before dilution adjustments Dilution adjustments [b]

Euro ¢ 0.49 (0.31)

Euro ¢ 0.89 (0.36)

Euro ¢ 1.92 (0.94)

Total direct portfolio transaction costs

0.18

0.53

0.98

Performance and charges % Direct portfolio transaction costs 0.02 Operating charges 0.91 Return after operating charges +20.63 Historic yield [c] 1.27 Effect on yield of charges offset against capital 0.01

% 0.03 0.91 +11.75 2.29 0.91

% 0.05 0.91 +14.13 2.57 0.00

Other information Closing NAV ($’000) 5,876 Closing NAV percentage of total fund NAV (%) 0.81 Number of shares 250,542 Highest share price (Euro ¢) 2,230.91 Lowest share price (Euro ¢) 1,775.18

5,794 0.96 283,574 1,833.46 1,453.69

7,372 1.04 398,266 1,922.52 1,352.61

Closing NAV

(18.38)

Change in NAV per share

Return after operating charges

310.08

334.99

Distributions

(14.74)

(32.65)

(7.12)

Closing NAV

1,792.85

1,497.51

1,195.17

Direct portfolio transaction costs [a]

UK p

UK p

UK p

Costs before dilution adjustments Dilution adjustments [b]

0.41 (0.25)

0.67 (0.27)

1.47 (0.72)

Total direct portfolio transaction costs

0.16

0.40

0.75

%

%

%

Direct portfolio transaction costs 0.02 Operating charges 1.67 Return after operating charges +20.71 Historic yield 1.93 Effect on yield of charges offset against capital 1.67

Performance and charges

0.03 1.66 +28.03 2.18 1.66

0.05 1.66 +4.47 2.57 0.00

70,190 11.62 3,567,993 1,536.65 1,126.43

114,027 16.03 6,199,992 1,389.63 1,084.86

Other information Closing NAV ($’000) 112,135 Closing NAV percentage of total fund NAV (%) 15.40 Number of shares 5,027,793 Highest share price (UK p) 1,799.18 Lowest share price (UK p) 1,451.18

114 INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

M&G North American Dividend Fund Financial highlights Sterling Class ‘I’ Accumulation share performance

Specific share class performance

The share class was launched on 3 August 2012.

Return after operating charges

Year to 31.08.16 UK p 1,547.40 466.35 (27.83)

Year to 31.08.16 UK p

Year to 31.08.15 UK p

1,869.47 Opening NAV Return before operating charges and after direct portfolio transaction costs 405.70 (9.35) Operating charges

1,445.74

1,373.57

438.21 (14.48)

86.01 (13.84)

Change in NAV per share

Sterling Class ‘A’ Accumulation share performance The share class was launched on 18 December 1972. Six months to 28.02.17 UK p Change in NAV per share 1,985.92 Opening NAV Return before operating charges and after direct 430.15 portfolio transaction costs Operating charges (18.05)

Six months to 28.02.17 UK p

Year to 31.08.15 UK p 1,481.26 93.07 (26.93)

Return after operating charges

396.35

423.73

72.17

Distributions

(10.97)

(39.95)

(16.25)

Retained distributions Closing NAV

10.97

39.95

16.25

2,265.82

1,869.47

1,445.74

412.10

438.52

66.14

Distributions

(5.02)

(42.63)

(8.23)

Direct portfolio transaction costs [a]

UK p

UK p

UK p

Retained distributions

5.02

42.63

8.23

2,398.02

1,985.92

1,547.40

Costs before dilution adjustments Dilution adjustments [b]

0.51 (0.32)

0.83 (0.33)

1.77 (0.87)

Direct portfolio transaction costs [a] Costs before dilution adjustments Dilution adjustments [b]

UK p 0.54 (0.33)

UK p 0.87 (0.35)

UK p 1.88 (0.93)

Total direct portfolio transaction costs

0.19

0.50

0.90

Total direct portfolio transaction costs

0.21

0.52

0.95

% Performance and charges 0.02 Direct portfolio transaction costs Operating charges 1.66 Return after operating charges +20.75 0.72 Historic yield [c] Effect on yield of charges offset against capital 0.01

% 0.03 1.66 +28.34 2.15 1.66

% 0.05 1.66 +4.47 2.57 0.00

Other information Closing NAV ($’000) 132,216 Closing NAV percentage of total fund NAV (%) 18.16 Number of shares 4,432,123 Highest share price (UK p) 2,396.75 Lowest share price (UK p) 1,924.53

121,867 20.18 4,671,379 2,019.25 1,462.85

223,821 31.47 9,399,789 1,788.53 1,396.28

Closing NAV

%

%

%

0.02 Direct portfolio transaction costs 0.91 Operating charges +21.20 Return after operating charges Historic yield [c] 1.25 0.01 Effect on yield of charges offset against capital

Performance and charges

0.03 0.91 +29.31 2.14 0.91

0.05 0.91 +5.25 2.57 0.00

149,540 24.76 6,089,177 1,900.29 1,367.56

108,821 15.30 4,891,465 1,666.20 1,296.01

Other information 169,196 Closing NAV ($’000) Closing NAV percentage of total fund NAV (%) 23.24 Number of shares 6,002,659 Highest share price (UK p) 2,264.64 Lowest share price (UK p) 1,812.26

Sterling Class ‘R’ Income share performance The share class was launched on 3 August 2012. Six months to 28.02.17 UK p

Year to 31.08.16 UK p

Year to 31.08.15 UK p

Opening NAV 177.06 Return before operating charges and after direct portfolio transaction costs 38.30 Operating charges (1.12)

140.60

135.20

42.08 (1.77)

8.49 (1.73)

Sterling Class ‘I’ Income share performance Change in NAV per share

The share class was launched on 3 August 2012. Six months to 28.02.17 Change in NAV per share UK p Opening NAV 1,776.58 Return before operating charges and after direct portfolio transaction costs 384.69 Operating charges (8.88) Return after operating charges

375.81

Year to 31.08.16 UK p 1,407.32

Year to 31.08.15 UK p 1,352.17

421.80 (13.96)

84.76 (13.62)

407.84

71.14

Distributions

(17.50)

(38.58)

(15.99)

Closing NAV

2,134.89

1,776.58

1,407.32

Direct portfolio transaction costs [a] Costs before dilution adjustments Dilution adjustments [b]

UK p 0.48 (0.30)

UK p 0.80 (0.32)

UK p 1.74 (0.85)

Total direct portfolio transaction costs

0.18

0.48

0.89

Performance and charges % Direct portfolio transaction costs 0.02 Operating charges 0.91 Return after operating charges +21.15 Historic yield 1.92 Effect on yield of charges offset against capital 0.91

% 0.03 0.91 +28.98 2.18 0.91

% 0.05 0.91 +5.26 2.57 0.00

74,437 12.32 3,189,496 1,822.42 1,330.79

55,700 7.83 2,572,048 1,640.34 1,275.88

Other information Closing NAV ($’000) 90,087 Closing NAV percentage of total fund NAV (%) 12.38 Number of shares 3,392,081 Highest share price (UK p) 2,142.42 Lowest share price (UK p) 1,722.15

Return after operating charges

37.18

40.31

6.76

Distributions

(1.74)

(3.85)

(1.36)

Closing NAV

212.50

177.06

140.60

Direct portfolio transaction costs [a]

UK p

UK p

UK p

Costs before dilution adjustments Dilution adjustments [b]

0.05 (0.03)

0.08 (0.03)

0.17 (0.09)

Total direct portfolio transaction costs

0.02

0.05

0.08

%

%

%

Direct portfolio transaction costs 0.02 Operating charges 1.16 Return after operating charges +21.00 Historic yield 1.93 Effect on yield of charges offset against capital 1.16

Performance and charges

0.03 1.16 +28.67 2.18 1.16

0.05 1.16 +5.00 2.57 0.00

264 0.04 113,526 181.64 132.81

205 0.03 94,473 163.76 127.53

Other information Closing NAV ($’000) Closing NAV percentage of total fund NAV (%) Number of shares Highest share price (UK p) Lowest share price (UK p)

254 0.04 96,241 213.25 171.61

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

115

M&G North American Dividend Fund Financial highlights Sterling Class ‘X’ Accumulation share performance

Specific share class performance

The share class was launched on 1 October 2002.

Year to 31.08.16 UK p 143.44 43.40 (1.83)

Year to 31.08.16 UK p

Year to 31.08.15 UK p

1,956.98 Opening NAV Return before operating charges and after direct portfolio transaction costs 423.86 (17.77) Operating charges

1,524.84

1,459.65

459.69 (27.55)

91.70 (26.51)

Change in NAV per share

Sterling Class ‘R’ Accumulation share performance The share class was launched on 3 August 2012. Six months to 28.02.17 UK p Change in NAV per share 185.01 Opening NAV Return before operating charges and after direct 40.13 portfolio transaction costs Operating charges (1.18)

Six months to 28.02.17 UK p

Year to 31.08.15 UK p 136.62 8.57 (1.75)

Return after operating charges

406.09

432.14

65.19

Distributions

(4.97)

(41.98)

(8.58)

Retained distributions

4.97

41.98

8.58

2,363.07

1,956.98

1,524.84

Closing NAV

Return after operating charges

38.95

41.57

6.82

Distributions

(0.88)

(3.96)

(1.37)

Direct portfolio transaction costs [a]

UK p

UK p

UK p

Retained distributions

0.88

3.96

1.37

223.96

185.01

143.44

Costs before dilution adjustments Dilution adjustments [b]

0.53 (0.33)

0.87 (0.35)

1.85 (0.91)

Direct portfolio transaction costs [a] Costs before dilution adjustments Dilution adjustments [b]

UK p 0.05 (0.03)

UK p 0.08 (0.03)

UK p 0.17 (0.09)

Total direct portfolio transaction costs

0.20

0.52

0.94

Total direct portfolio transaction costs

0.02

0.05

0.08

% Performance and charges 0.02 Direct portfolio transaction costs Operating charges 1.16 Return after operating charges +21.05 1.08 Historic yield [c] Effect on yield of charges offset against capital 0.01

% 0.03 1.16 +28.98 2.14 1.16

% 0.05 1.16 +4.99 2.57 0.00

Other information Closing NAV ($’000) 155 Closing NAV percentage of total fund NAV (%) 0.02 Number of shares 55,741 Highest share price (UK p) 223.83 Lowest share price (UK p) 179.33

190 0.03 78,113 188.08 135.66

125 0.02 56,226 165.47 128.87

Closing NAV

%

%

%

0.02 Direct portfolio transaction costs 1.66 Operating charges +20.75 Return after operating charges Historic yield [c] 0.72 0.01 Effect on yield of charges offset against capital

Performance and charges

0.03 1.66 +28.34 2.15 1.66

0.05 1.66 +4.47 2.57 0.00

44,502 7.37 1,731,070 1,989.86 1,441.52

53,058 7.46 2,261,211 1,762.43 1,375.92

Other information 47,985 Closing NAV ($’000) Closing NAV percentage of total fund NAV (%) 6.59 Number of shares 1,632,322 Highest share price (UK p) 2,361.84 Lowest share price (UK p) 1,896.51

US dollar Class ‘A’ Income share performance The share class was launched on 8 August 2014. Six months to 28.02.17 US ¢

Year to 31.08.16 US ¢

Year to 31.08.15 US ¢

Opening NAV 1,412.31 Return before operating charges and after direct portfolio transaction costs 213.11 Operating charges (11.10)

1,320.31

1,373.39

146.96 (22.57)

(20.10) (23.53) (43.63)

Sterling Class ‘X’ Income share performance Change in NAV per share

The share class was launched on 1 October 2002. Six months to 28.02.17 Change in NAV per share UK p Opening NAV 1,495.33 Return before operating charges and after direct portfolio transaction costs 323.17 Operating charges (13.55)

Year to 31.08.16 UK p 1,193.41

Year to 31.08.15 UK p 1,149.31

355.95 (21.43)

72.34 (20.99)

Return after operating charges

309.62

334.52

Distributions

(14.71)

(32.60)

51.35 (7.25)

Closing NAV

1,790.24

1,495.33

1,193.41

Direct portfolio transaction costs [a] Costs before dilution adjustments Dilution adjustments [b]

UK p 0.40 (0.25)

UK p 0.67 (0.27)

UK p 1.47 (0.72)

Total direct portfolio transaction costs

0.15

0.40

0.75

Performance and charges % Direct portfolio transaction costs 0.02 Operating charges 1.66 Return after operating charges +20.71 Historic yield 1.93 Effect on yield of charges offset against capital 1.66

% 0.03 1.66 +28.03 2.18 1.66

% 0.05 1.66 +4.47 2.57 0.00

Other information Closing NAV ($’000) 13,327 Closing NAV percentage of total fund NAV (%) 1.83 Number of shares 598,407 Highest share price (UK p) 1,796.57 Lowest share price (UK p) 1,449.07

12,437 2.06 633,140 1,534.42 1,124.79

13,683 1.92 745,090 1,387.73 1,083.38

Return after operating charges

202.01

124.39

Distributions

(13.00)

(32.39)

(9.45)

Closing NAV

1,601.32

1,412.31

1,320.31

Direct portfolio transaction costs [a]

US ¢

US ¢

US ¢

Costs before dilution adjustments Dilution adjustments [b]

0.33 (0.21)

0.71 (0.28)

1.64 (0.81)

Total direct portfolio transaction costs

0.12

0.43

0.83

Performance and charges

%

Direct portfolio transaction costs 0.02 Operating charges 1.66 Return after operating charges +14.30 Historic yield 2.04 Effect on yield of charges offset against capital 1.62

% 0.03 1.62* +9.42 2.28 1.62

% 0.05 1.66 -3.18 2.57 0.00

Other information Closing NAV ($’000) 331 Closing NAV percentage of total fund NAV (%) 0.05 Number of shares 20,682 Highest share price (US ¢) 1,606.98 Lowest share price (US ¢) 1,378.83

*

87 0.01 6,171 1,435.97 1,165.78

103 0.01 7,833 1,471.78 1,246.17

Due to a large creation during the period, 1.66% is a more reliable estimate of the ongoing charges.

116 INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

M&G North American Dividend Fund Financial highlights US dollar Class ‘C’ Accumulation share performance

Specific share class performance

The share class was launched on 9 March 2007.

Return after operating charges

Year to 31.08.16 US ¢ 1,330.80

Year to 31.08.16 US ¢

Year to 31.08.15 US ¢

1,564.34 Opening NAV Return before operating charges and after direct portfolio transaction costs 238.63 (7.49) Operating charges

1,417.17

1,451.95

160.47 (13.30)

(21.28) (13.50)

Change in NAV per share

US dollar Class ‘A’ Accumulation share performance The share class was launched on 9 March 2007. Six months to 28.02.17 US ¢ Change in NAV per share 1,458.09 Opening NAV Return before operating charges and after direct 221.55 portfolio transaction costs Operating charges (12.59)

Six months to 28.02.17 US ¢

Year to 31.08.15 US ¢ 1,373.67

Return after operating charges Distributions

149.79 (22.50)

(19.45) (23.42)

Retained distributions Closing NAV

231.14

147.17

(34.78)

(8.72)

(35.36)

(15.91)

8.72

35.36

15.91

1,795.48

1,564.34

1,417.17

208.96

127.29

(42.87)

Distributions

(3.51)

(33.14)

(9.45)

Direct portfolio transaction costs [a]

US ¢

US ¢

US ¢

Retained distributions

3.51

33.14

9.45

1,667.05

1,458.09

1,330.80

Costs before dilution adjustments Dilution adjustments [b]

0.41 (0.25)

0.76 (0.30)

1.72 (0.84)

Direct portfolio transaction costs [a] Costs before dilution adjustments Dilution adjustments [b]

US ¢ 0.37 (0.23)

US ¢ 0.71 (0.28)

US ¢ 1.64 (0.80)

Total direct portfolio transaction costs

0.16

0.46

0.88

Total direct portfolio transaction costs

0.14

0.43

0.84

% Performance and charges 0.02 Direct portfolio transaction costs Operating charges 1.66 Return after operating charges +14.33 0.74 Historic yield [c] Effect on yield of charges offset against capital 0.01

% 0.03 1.66 +9.56 2.26 1.66

% 0.05 1.66 -3.12 2.57 0.00

Other information Closing NAV ($’000) 34,676 Closing NAV percentage of total fund NAV (%) 4.76 Number of shares 2,080,101 Highest share price (US ¢) 1,666.18 Lowest share price (US ¢) 1,423.57

23,540 3.90 1,614,461 1,469.10 1,181.07

24,445 3.44 1,836,895 1,473.19 1,247.48

Closing NAV

%

%

%

0.02 Direct portfolio transaction costs 0.91 Operating charges +14.78 Return after operating charges Historic yield [c] 1.32 0.01 Effect on yield of charges offset against capital

Performance and charges

0.03 0.91 +10.38 2.25 0.91

0.05 0.91 -2.40 2.57 0.00

33,696 5.58 2,154,034 1,575.93 1,261.95

19,036 2.67 1,343,330 1,563.69 1,319.86

Other information 46,545 Closing NAV ($’000) Closing NAV percentage of total fund NAV (%) 6.40 Number of shares 2,592,347 Highest share price (US ¢) 1,794.54 Lowest share price (US ¢) 1,527.79 [a] As a percentage of average net asset value. [b] In respect of direct portfolio transaction costs. [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.

US dollar Class ‘C’ Income share performance The share class was launched on 8 August 2014. Six months to 28.02.17 Change in NAV per share US ¢ Opening NAV 1,499.33 Return before operating charges and after direct portfolio transaction costs 228.05 Operating charges (7.05)

Year to 31.08.16 US ¢ 1,391.14

Year to 31.08.15 US ¢ 1,441.29

155.38 (12.72)

(21.30) (13.32)

Return after operating charges

221.00

142.66

(34.62)

Distributions

(14.02)

(34.47)

(15.53)

Closing NAV

1,706.31

1,499.33

1,391.14

Direct portfolio transaction costs [a] Costs before dilution adjustments Dilution adjustments [b]

US ¢ 0.38 (0.24)

US ¢ 0.74 (0.29)

US ¢ 1.70 (0.83)

Total direct portfolio transaction costs

0.14

0.45

0.87

Performance and charges % Direct portfolio transaction costs 0.02 Operating charges 0.90 Return after operating charges +14.74 Historic yield 2.05 Effect on yield of charges offset against capital 0.90

% 0.03 0.90 +10.25 2.28 0.90

% 0.05 0.91 -2.40 2.57 0.00

Other information Closing NAV ($’000) 20 Closing NAV percentage of total fund NAV (%) 0.00 Number of shares 1,171 Highest share price (US ¢) 1,712.34 Lowest share price (US ¢) 1,464.25

18 0.00 1,171 1,524.30 1,232.56

23 0.00 1,671 1,551.95 1,310.22

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

117

M&G North American Dividend Fund Financial statements and notes

Financial statements

Notes to the financial statements Accounting policies

Statement of total return 2017 for the six months to 28 and 29 February Income Net capital gains / (losses) Revenue Expenses Net revenue / (expense) before taxation Taxation

$’000

$’000

2016 $’000 $’000

89,090 8,506 (4,381) ______ 4,125 (1,113) ______

(18,817) 9,242 (4,617) ______ 4,625 (1,205) ______

3,012

3,420

Total return before distributions Distributions

Net revenue / (expense) after taxation

92,102 (3,412)

(15,397) (6,694)

Change in net assets attributable to shareholders from investment activities

88,690

(22,091)

Statement of change in net assets attributable to shareholders 2017 for the six months to 28 and 29 February Opening net assets attributable to shareholders Amounts received on issue of shares Amounts paid on cancellation of shares Dilution adjustments Change in net assets attributable to shareholders from investment activities (see above) Retained distributions on Accumulation shares Unclaimed distributions Closing net assets attributable to shareholders

$’000

$’000

2016 $’000 $’000

604,031

711,282

149,291 (115,994) ______

The financial statements have been prepared in accordance with the accounting policies set out on page 4.

Distribution policy With effect from 1 September 2016, the distribution policy has been amended so that in determining the amount available for reinvestment to Accumulation shares, the annual management charge, administration charge and share class hedging charge are no longer offset against capital, reducing the amount available for reinvestment. The audit, depositary, and safe custody charges continue to be offset against capital, increasing the amount available for reinvestment, whilst restraining capital performance to an equivalent extent. In determining the amount available for distribution to Income shares, all expenses with the exception of overdraft interest continue to be offset against capital, increasing the amount available for distribution, whilst restraining capital performance to an equivalent extent. Marginal tax relief has not been taken into account in respect of expenses offset against capital.

84,823 (175,730) ______ 33,297 164

(90,907) 98

88,690

(22,091)

1,733 0

4,735 3

727,915

603,120

The opening net assets attributable to shareholders for 2017 differs to the closing position in 2016 by the change in net assets attributable to shareholders for the second half of the comparative financial year.

Balance sheet as at

28 February 2017 $’000

31 August 2016 $’000

724,506

603,911

5,032 4,919

2,745 745

734,457

607,401

(514)

(288)

0 (881) (5,147)

(201) (1,452) (1,429)

Assets Fixed assets Investments Current assets Debtors Cash and bank balances Total assets Liabilities Investment liabilities Creditors Bank overdrafts Distribution payable Other creditors Total liabilities Net assets attributable to shareholders

(6,542)

(3,370)

727,915

604,031

118 INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

M&G North American Value Fund Authorised Corporate Director’s Report Investment objective and policy

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

The Fund aims to achieve long-term capital growth through investment in North American securities of North American companies using a value based investment philosophy.

Low risk

High risk

Typically lower rewards

1

Investment approach

2

Typically higher rewards

3

4

5

6

7

The above number: The M&G North American Value Fund employs a bottom-up stockpicking approach to identify shares of North American companies that the fund manager believes are undervalued. He seeks to identify companies that are mispriced, while trying to avoid firms that are cheap for a reason and whose share prices are unlikely to improve over time. The fund’s approach combines strict value-focused screening with rigorous qualitative analysis to ensure the fund has a consistent and disciplined value bias, without compromising on the robustness of the companies in the portfolio. Stock selection involves three stages: screening, fundamental analysis and portfolio construction. The screening process is used to find the cheapest 25% of companies in each sector. The manager then undertakes fundamental analysis of these companies to identify and exclude those with structural and financial problems that could prevent the share price recovering. The final stage is portfolio construction where the aim is to create a diversified portfolio of 60-100 companies whose true value the manager believes is being mispriced. The main driver of returns is expected to be the value style rather than any individual sector or stock. The fund has a long-term investment horizon (stocks are typically held for three to five years) to give time for share prices to reach a valuation that reflects the true value of the business.

Risk profile The fund invests in the shares of North American companies and is, therefore, subject to the price volatility of the North American stockmarkets and the performance of individual companies. The fund may also be subject to fluctuations in currency exchange rates. The fund’s focus is on companies that are deemed to be undervalued or out of favour with the market, and whose potential value, in the fund manager’s view, is yet to be reflected in the share price. These stocks could potentially experience a degree of illiquidity in times of market distress. However, the fund is mainly invested in the shares of large and medium-sized companies, which are normally traded with relative ease. The fund also invests in the shares of smaller companies, which can be more unpredictable and difficult to buy and sell. Diversification across industries and market capitalisation is therefore key in managing liquidity risk and reducing market risk. The fund’s risks are measured and managed as an integral part of the investment process.

•  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 changed during this period. From 1 September 2016 to 30 December 2016 the risk number was 6.

Investment review As at 1 March 2017, for the six months ended 28 February 2017 Performance against objective Between 1 September 2016 (the start of the review period) and 1 March 2017, the M&G North American Value Fund produced a positive total return (the combination of income and growth of capital) across all its share classes. [a] Returns from the US dollar share classes were more modest than the sterling and euro share classes due to the relative strength of the US dollar. The fund’s returns in the euro and US dollar share classes were slightly ahead of a comparative index, the S&P 500 Index, while the sterling share classes were broadly in line. Over the six months, returns for the index were 18.3%, 20.5% and 11.5% in euros, sterling and US dollars, respectively. The fund’s relative performance was dampened by a timing difference between the midday pricing of the fund and the close-of-day pricing of the index. The fund’s pricing at midday in London meant that it missed some of the gains by the S&P 500 Index on the last day of the reporting period. Over five years and since launch, the fund met its investment objective; it delivered a positive return, reflecting value added through stock selection and the robust recovery of US stockmarkets after the global financial crisis in 2008/9.

Investment performance US stockmarkets continued their multi-year run of gains during the six months under review and climbed to record highs by the end of the period. The principal driver was the surprise election of Donald Trump as US president in November 2016 and expectations of higher earnings growth. Ahead of the vote there had been considerable uncertainty about the outcome and company share prices had retreated. However, Trump’s victory sparked a sudden and powerful stockmarket rally, with investor confidence fuelled by the prospect of policies such as tax cuts and infrastructure spending designed to boost the US economy.

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

119

M&G North American Value Fund Authorised Corporate Director’s Report Investment review Investment performance (continued) The upturn in sentiment took place against the backdrop of a steadily improving economy. The employment market remained in good shape with consistently robust job creation figures and wage growth. Consumer spending, which is one of the most important elements of the US economy, also remained strong, arguably supported by the healthy labour market. The ongoing US economic recovery encouraged the US Federal Reserve (the Fed) to remove some of the stimulus measures put in place after the financial crisis of 2008/9. In December, the Fed raised interest rates for the first time in a year. As inflationary pressures started to increase towards the end of the period, investors anticipated that the Fed would increase borrowing costs further in the coming months. Amid the optimism that followed the election of Donald Trump, there was a notable shift away from ‘defensive’ stocks, which are perceived to be resilient during times of market uncertainty, towards shares in companies that are more closely linked to economic growth. Financials was the best-performing area as investors expected the sector to benefit from rising interest rates and stronger economic activity. Similarly, the industrials sector, which includes engineering and transport firms, performed well. Information technology stocks rallied too, in particular, semiconductor and hardware firms. On the other hand, the prospect of higher interest rates dampened demand for stocks delivering steady income payments, so-called ‘bond proxies’, which have been in favour for the past few years. Consumer staples, healthcare and telecommunication services companies were notable underperformers. Energy stocks were lacklustre too. Another notable feature of the period was the style shift towards ‘value’. Value stocks, which refer to cheap, out-of-favour companies, outperformed over the six months, which provided a tailwind for the fund’s value-focused approach. Value’s recovery in 2016 after a sustained period of underperformance was welcome. However, we are pleased that the fund has been able to keep pace with the broader market in the past few years when value underperformed. Turning to fund performance over the review period, the largest contributor to relative returns was the above-index position in financials as the sector made significant gains. The holdings in financial groups Goldman Sachs, JPMorgan Chase, Citigroup and PNC Financial Services were among the leading contributors to performance as their share prices advanced on the prospect of higher interest rates, which should boost their profitability, as well as potential regulatory reform of the banking sector. Stock selection in the industrials sector was positive too. The holding in Spirit AeroSystems, a manufacturer of aircraft parts, added value as the company’s share price rose on better-than-expected results and higher revenue forecasts. Increased demand for parts from Airbus, one of the firm’s biggest customers, boosted profits. Oshkosh, a manufacturer of speciality vehicles, was a notable contributor too. As a supplier of vehicles to the military, Oshkosh’s share price advanced amid expectations of increased defence spending under President Trump.

Meanwhile, ManpowerGroup, a recruitment firm with businesses in the US and Europe, also rallied. We purchased the stock when the share price fell after the UK voted in June 2016 to leave the European Union. Since then the shares have rebounded, buoyed by optimism about the economic outlook in both the US and Europe. Elsewhere, the holding in Western Digital, a hard disk manufacturer, also added value after reporting robust results. Investors are increasingly optimistic about Western Digital’s prospects following its recent acquisition of SanDisk, a manufacturer of memory storage products. On the other hand, stock selection in the consumer discretionary sector cost some performance, with retailer Target among the leading detractors. Target’s share price fell on the back of a decline in quarterly earnings, following a disappointing holiday season, and a weak outlook for sales. The holding in media company News Corporation also weighed on performance as quarterly profits declined. The owner of newspapers including the Wall Street Journal is facing a decrease in print advertising income. In the energy sector, the holdings in Hess and Occidental Petroleum, two oil & gas exploration firms, detracted as they suffered from depressed oil prices. Both firms are looking to increase production by investing in new projects. Meanwhile, not owning shares in large index constituent Apple was the biggest single detractor from performance. Shares in the technology firm climbed to the highest ever level on better-thanexpected quarterly earnings and record iPhone sales, stemming the decline seen in recent years.

Investment activities During the review period, we added several new holdings to the portfolio from a range of different sectors. At the end of the period, the fund held 85 stocks. In the consumer staples sector, we started a position in Coca-Cola European Partners, which was formed in 2016 when three European Coke bottlers merged. In our view, the shares trade on an attractive valuation, and once the restructuring is complete, the company’s cashflows should benefit from cost savings, synergies and reduced capital expenditure. We also identified two attractive opportunities in the financial sector: Affiliated Managers, an asset management company, and Voya Financial, a provider of investments and life insurance. Despite concerns about declining inflows for active investment managers, Affiliated Managers is well positioned and has consistently generated inflows greater than the rest of the market. Meanwhile, we believe Voya has a robust balance sheet and should benefit from rising interest rates. Consumer discretionary stock Extended Stay America was another newcomer. The operator of extended stay hotels is beginning to realise value by selling and franchising a number of its hotels. Moreover, following a period of heavy investment in the business, cashflows are expected to increase. In contrast, we closed the position in Ingevity, a speciality chemicals manufacturer, which was spun out in 2016 from current holding WestRock, a paper and packaging business. The shares have subsequently risen and were sold on valuation grounds.

120 INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

M&G North American Value Fund Authorised Corporate Director’s Report Investment review

Investments

Investment activities (continued) The stake in People’s United Bank, a diversified financial company, was sold. The stock had performed relatively well and we considered Voya Financial to have more attractive risk/reward characteristics. Ingram Micro, a distributor of computer and technology products, also left the portfolio as it was taken over during the period. We also sold the shares in pharmaceutical firm Shire that we received when it acquired Baxalta, which was held in the fund. The UK-listed shares received no longer fit the fund’s mandate.

Outlook The return to favour of the ‘value’ style during the period under review was extremely pleasing as value has faced significant headwinds in recent years. What was also encouraging was that the fund ‘captured the value tailwind’ without taking large positions in the most distressed sectors. Even after value’s strong recent performance, we believe the outlook for a selective value approach remains positive.

Portfolio statement as at Holding

28.02.17 28.02.17 31.08.16 $’000 % % 109,253 1,140,583 218,545 154,393 923,112 104,727 140,684

Oil & gas producers Chevron Cobalt International Energy ConocoPhillips Hess Kosmos Energy Occidental Petroleum Suncor Energy

Oil equipment, services & distribution 54,852 Helmerich & Payne 234,808 McDermott International Chemicals Forestry & paper 75,463 Domtar

Underpinning this view is the wide divergence in valuations between the most expensive part of the market and the cheapest – it remains almost as wide as it has ever been. We believe the potential rewards from investing in value stocks could be significant if this valuation gap continues to narrow. The ongoing economic recovery in the US and improvement in company earnings should also be supportive of a value-based approach. While we are optimistic about value’s long-term prospects, we recognise that there may be some challenges along the way. Given the strength of recent market moves and the shift to value stocks, value’s outperformance will not necessarily continue in a straight line. This has been evidenced so far in 2017 as value has paused for breath. There are also plenty of political and economic uncertainties that could unsettle investors, not least the lack of clarity surrounding President Trump’s policies. In this environment, we believe a selective value approach is essential. We will continue to apply our disciplined stockpicking approach to identify companies that are being mispriced by the market, while avoiding stocks with material problems that could prevent the share price from recovering. We believe the fund is well placed to be able to capture the value opportunities that exist in the US market, while being well diversified across sectors amid an uncertain environment. Daniel White Fund manager An employee of M&G Limited which is an associate of M&G Securities Limited. [a] 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.

7.78 1.96 0.14 1.67 1.31 0.89 1.10 0.71

7.63

5,539 3,762 1,777

0.89 0.60 0.29

0.53

0

0.00

0.60

2,919 2,919

0.47 0.47

0.67

0

0.00

0.00 [a]

7,445 7,445

1.20 1.20

1.03

3,532 3,532

0.57 0.57

1.03

Aerospace & defence 103,508 Spirit AeroSystems

6,396 6,396

1.03 1.03

0.86

General industrials 13,869 Parker Hannifin 96,512 WestRock

7,351 2,165 5,186

1.18 0.35 0.83

1.70 [a]

Electronic & electrical equipment 274,326 AVX 357,137 Celestica 186,776 Vishay Intertechnology

12,219 4,370 4,833 3,016

1.97 0.70 0.78 0.49

2.19 [a]

Industrial engineering 12,619 Cummins 61,340 Oshkosh 131,108 SPX FLOW

10,624 1,892 4,172 4,560

1.70 0.30 0.67 0.73

2.52 [a]

8,711 1,554 7,157

1.40 0.25 1.15

1.36

16,406 1,568 6,282 8,556

2.64 0.25 1.01 1.38

1.96 [a]

Automobiles & parts 160,399 General Motors 109,136 Magna International

10,752 5,978 4,774

1.73 0.96 0.77

1.75 [a]

Beverages 256,372 Coca-Cola European Partners 102,631 Molson Coors Brewing

19,184 8,970 10,214

3.09 1.44 1.65

1.47 [a]

10,239 1,258 3,874 5,107

1.65 0.20 0.63 0.82

2.63

6,421 6,421

1.03 1.03

0.97 [a]

0

0.00

0.00 [a]

Industrial metals & Mining

The outperformance in 2016 was modest compared to the extent of value’s underperformance since 2007. Therefore, in our opinion, the ‘value’ style still has further to go before it has reversed its notable underperformance in recent years.

48,365 12,210 867 10,352 8,137 5,539 6,856 4,404

Mining 219,151 Newmont Mining Construction & materials 33,771 Eagle Materials

Industrial transportation 191,905 Euronav 36,824 FedEx Support services 94,523 Conduent 64,226 ManpowerGroup 1,151,511 Xerox

Food producers 30,773 ConAgra Foods 98,228 Lamb Weston Holdings 81,898 Tyson Foods Household goods & home construction 118,377 Energizer Leisure goods

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

121

M&G North American Value Fund Authorised Corporate Director’s Report Portfolio statement (continued)

Investments

as at Holding

Portfolio statement (continued) as at Holding

28.02.17 28.02.17 31.08.16 $’000 % % Personal goods 161,800 Coach 142,486 Columbia Sportswear 73,954 Kimberly-Clark

24,148 6,263 8,079 9,806

3.88 1.01 1.30 1.57

3.39 [a]

Tobacco 146,686 Altria Group

10,938 10,938

1.76 1.76

2.13 4.15 [a]

67,858 120,492 86,728 27,379

Healthcare equipment & services Anthem Livanova Owens & Minor Stryker

23,857 11,189 6,012 3,136 3,520

3.84 1.80 0.97 0.50 0.57

Pharmaceuticals & biotechnology Abbott Laboratories AbbVie Eli Lilly Johnson & Johnson Merck Pfizer

69,168 10,618 5,148 6,607 17,570 11,222 18,003

11.13 1.71 0.83 1.06 2.83 1.80 2.90

11.89

233,632 82,746 79,544 143,559 170,438 525,174

5,353 5,353

0.86 0.86

0.92

Food & drug retailers 84,934 Weis Markets

2.69 0.66 0.36 1.67

2.95

Media 312,898 Comcast 326,865 News

16,012 11,743 4,269

2.58 1.89 0.69

2.89

Travel & leisure 164,221 Carnival 321,188 Extended Stay America

14,755 9,201 5,554

2.37 1.48 0.89

1.34

Fixed line telecommunications 295,414 AT&T 222,270 Centurylink

17,816 12,348 5,468

2.87 1.99 0.88

2.79

Electricity 286,800 Exelon

10,485 10,485

1.69 1.69

1.48

54,711 2,271 14,396 17,576 8,975 3,345 8,148

8.80 0.36 2.32 2.83 1.44 0.54 1.31

9.29

19,830 8,798 5,405

3.19 1.42 0.87

3.48 [a]

5,627

0.90

7,133 7,133

1.15 1.15

1.38

28,406 4,998 4,641 8,506 4,130 6,131

4.56 0.80 0.75 1.37 0.66 0.98

4.00

Non-life insurance 137,462 American International Group 114,831 Loews 115,007 The Hartford Financial Services Group Life insurance 135,457 MetLife 29,581 98,539 34,122 290,438 147,807

Financial services Affiliated Managers Bank of New York Mellon Goldman Sachs Group KCG Voya Financial

232,182 138,391 54,552 339,815 84,929 96,280 257,704 59,182 94,042

Technology hardware & equipment Cisco Systems Corning Harris Hewlett-Packard Enterprise Intel Mellanox Technologies Micron Technology Qorvo Western Digital

‘AAA’ rated money market funds [b] 24,819,000 Northern Trust Global Fund US dollar

42,951 23,494 19,457

6.91 3.78 3.13

6.96

50,559 7,954 3,825 6,075 7,578 3,100 4,747 6,121 4,002 7,157

8.13 1.28 0.62 0.98 1.22 0.50 0.76 0.98 0.64 1.15

8.01 [a]

588,957

94.74

95.95

24,819

3.99

4.01

24,819

3.99

Total portfolio Net other assets / (liabilities)

613,776 7,925

98.73 1.27

99.96 0.04

Net assets attributable to shareholders

621,701

100.00

100.00

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

16,732 4,115 2,223 10,394

Banks Capitol Federal Financial Citigroup JPMorgan Chase PNC Financial Services Washington Federal Wells Fargo

Software & computer services 27,657 Alphabet 302,974 Microsoft

Portfolio of investments

General retailers 89,169 Best Buy 39,521 Dillard’s 155,300 Target

148,749 239,849 194,365 70,049 97,229 140,338

28.02.17 28.02.17 31.08.16 $’000 % %

[a] The comparative sector weightings have been re-analysed to reflect changes

to the sector classifications. [b] Uncommitted surplus cash is placed into ‘AAA’ rated money market funds with the

aim of reducing counterparty risk.

Top ten portfolio transactions for the six months to 28 February 2017 Largest purchases

$’000

Coca-Cola European Partners Pfizer Target Extended Stay America Affiliated Managers Xerox Voya Financial Mellanox Technologies Kimberly-Clark Molson Coors Brewing

8,887 5,362 5,295 5,026 4,911 4,783 4,594 4,368 4,121 3,586

Other purchases

52,994

Total purchases

103,927

Largest sales

$’000

ConAgra Foods Bank of New York Mellon Altria Group Ingevity Corporation Best Buy Goldman Sachs Group Eagle Materials Huntington Bancshares Stryker Kimberly-Clark

5,778 4,455 3,899 3,776 3,672 3,568 3,381 2,669 2,605 2,451

Other sales

51,812

Total sales

88,066

Purchases and sales exclude the cost and proceeds of ‘AAA’ rated money market funds.

122 INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

M&G North American Value Fund Financial highlights Performance since launch

Fund performance Please note past performance is not a guide to future performance and 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 not get back the original amount you invested.

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

July 2005 = 100, plotted monthly

Chart date 1 March 2017

400

The following chart and tables show the performance for two of the fund’s share classes – Sterling Class ‘A’ (Accumulation) shares and Sterling Class ‘I’ (Accumulation) shares. We show performance for these two share classes because:

350 300

Sterling Class ‘I’ (Accumulation) shares*

250 200 170

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

• The performance of the Sterling Class ‘I’ (Accumulation) share is the most appropriate to compare with the average performance of the fund’s comparative sector. It is the share class used by the Investment Association in the calculation of the comparative sector’s average performance. This share class is available for direct investment with M&G subject to minimum investment criteria, or via third parties who may charge additional fees. The performance shown takes the deduction of the ongoing charge for this share class into account but it does not take account of charges applied by any other party through which you may have invested. The fund is available for investment in different share classes, each with varying levels of charges and minimum investments; please refer to the Prospectus for M&G Investment Funds (1), which is available free of charge either from our website at www.mandg.co.uk/prospectuses or by calling M&G Customer Relations.

140 120 100

Sterling Class ‘A’ (Accumulation) shares* 80 70 60 50 05

06

07

08

09

10

11

12

13

28.02.17 $’000

31.08.16 $’000

31.08.15 $’000

Fund net asset value (NAV)

621,701

531,205

511,373

16

17

S&P 500 Index Morningstar (IA) North American sector average* * Income reinvested

Source: Morningstar, Inc. and M&G

The fund’s Sterling Class ‘I’ (Accumulation) shares were launched on 3 August 2012. Performance data shown prior to this date is that of the fund’s Sterling Class ‘A’ (Accumulation) shares. To give an indication of the performance of the fund, the following table shows 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 Six Three months years 01.09.16 03.03.14 % [a] % p.a.

as at

15

Sterling Class ‘I’ (Accumulation) shares*

Fund level performance Fund net asset value

14

Sterling Class ‘A’ (Accumulation) shares*

Five years 01.03.12 % p.a.

Since launch % p.a.

Euro [b] Class ‘A’

+18.4

+19.0

+18.0

+6.5 [c]

Class ‘C’

+18.9

+19.9

+18.9

+7.3 [c]

Sterling [d] Class ‘A’

+20.3

+20.5

+18.5

+8.6 [c]

Class ‘I’

+20.8

+21.4

n/a

+22.2 [e]

Class ‘R’

+20.6

+21.1

n/a

+21.8 [e]

Class ‘X’

+20.3

+20.5

+18.5

+8.6 [c]

US dollar [b] Class ‘A’

+11.9

+8.8

+12.6

+3.9 [f]

Class ‘C’

+12.3

+9.7

+13.4

+4.7 [f]

[a] Absolute basis. [b] Price to price with net income reinvested. [c] 1 July 2005, 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] 9 March 2007, the launch date of the share class.

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

123

M&G North American Value Fund Financial highlights

Fund performance

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

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

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

• Administration: Charge paid to M&G for administration services in addition to investment management – any surplus from this charge will be retained by M&G.

• Oversight

and other independent services: Charges paid to providers independent of M&G for services which include depositary, custody and audit.

The operating charges paid by each share class of the fund are shown in the following performance tables. Operating charges do not include portfolio transaction costs or any entry and exit charges (also known as initial and redemption charges). The charging structures of share classes may differ, and therefore the operating charges may differ.

To protect existing investors, portfolio transaction costs incurred as a result of investors buying and selling shares in the fund are recovered from those investors through a ‘dilution adjustment’ to the price they pay or receive. The table below shows direct portfolio transaction costs paid by the fund before and after that part of the dilution adjustment relating to direct portfolio transaction costs. To give an indication of the indirect portfolio dealing costs the table also shows the average portfolio dealing spread. Further information on this process is in the Prospectus, which is available free of charge on request either from our website at www.mandg.co.uk/prospectuses or by calling M&G Customer Relations.

Portfolio transaction costs Six months to 28.02.17 Direct portfolio transaction costs [b] %

Year to 31.08.16 %

Year to 31.08.15 %

Average [a] %

Broker commission Taxes

0.02 0.00

0.03 0.00

0.05 0.00

0.03 0.00

Costs before dilution adjustments Dilution adjustments [c]

0.02 (0.02)

0.03 (0.02)

0.05 (0.04)

0.03 (0.02)

Total direct portfolio transaction costs

0.00

0.01

0.01

0.01

28.02.17 %

31.08.16 %

31.08.15 %

0.04

0.03

0.04

as at Indirect portfolio transaction costs Average portfolio dealing spread [a] Average of first three columns.

[b] As a percentage of average net asset value. [c] In respect of direct portfolio transaction costs.

Operating charges are the same as the ongoing charges shown in the Key Investor Information Document, other than where an estimate has been used for the ongoing charge because a material change has made the operating charges unreliable as an estimate of future charges. For this fund there is no difference between operating charges and ongoing charges figures, unless disclosed under the specific share class performance table.

Portfolio transaction costs Portfolio transaction costs are incurred by funds when buying and selling investments. These costs vary depending on the types of investment, their market capitalisation, country of exchange, method of execution and the quality of research provided. They are made up of direct and indirect portfolio transaction costs:

• Direct portfolio transaction costs: Broker execution commission and taxes.

• Indirect portfolio transaction costs: ‘Dealing spread’ – the difference between the buying and selling prices of the fund’s investments; some types of investment, such as fixed interest securities, have no direct transaction costs and only the dealing spread is paid.

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

124 INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

Average [a] % 0.04

M&G North American Value Fund Financial highlights Euro Class ‘C’ Accumulation share performance

Specific share class performance

The share class was launched on 1 July 2005.

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

Six months to 28.02.17 Euro ¢

Year to 31.08.16 Euro ¢

Year to 31.08.15 Euro ¢

1,922.55 Opening NAV Return before operating charges and after direct portfolio transaction costs 360.41 (9.38) Operating charges

1,707.45

1,521.54

231.33 (16.23)

201.78 (15.87)

Change in NAV per share

Return after operating charges

Euro Class ‘A’ Accumulation share performance The share class was launched on 1 July 2005.

351.03

215.10

185.91

Distributions

n/a

(19.13)

(17.90)

Retained distributions

n/a

19.13

17.90

2,273.58

1,922.55

1,707.45

Six months to 28.02.17 Euro ¢

Year to 31.08.16 Euro ¢

Year to 31.08.15 Euro ¢

Closing NAV

Euro ¢

Euro ¢

Euro ¢

Opening NAV 1,766.85 Return before operating charges and after direct portfolio transaction costs 330.60 Operating charges (15.74)

1,581.08

1,419.44

Costs before dilution adjustments Dilution adjustments [b]

0.22 (0.22)

0.55 (0.36)

0.86 (0.63)

213.13 (27.36)

188.53 (26.89)

Total direct portfolio transaction costs

0.00

0.19

0.23

185.77

161.64

Change in NAV per share

Return after operating charges

314.86

Distributions

n/a

(5.32)

(4.35)

Retained distributions

n/a

5.32

4.35

2,081.71

1,766.85

1,581.08

Closing NAV Direct portfolio transaction costs [a]

Euro ¢

Euro ¢

Euro ¢

Costs before dilution adjustments Dilution adjustments [b]

0.21 (0.21)

0.50 (0.33)

0.80 (0.58)

Total direct portfolio transaction costs

0.00

0.17

0.22

Performance and charges

%

%

%

Direct portfolio transaction costs 0.00 Operating charges 1.66 Return after operating charges +17.82 Historic yield 0.26 Effect on yield of charges offset against capital 0.00

0.01 1.66 +11.75 0.30 0.00

0.01 1.66 +11.39 0.27 0.00

33,375 6.28 1,695,330 1,782.00 1,410.00

25,199 4.93 1,413,054 1,819.05 1,329.14

Direct portfolio transaction costs [a]

%

%

%

0.00 Direct portfolio transaction costs 0.91 Operating charges +18.26 Return after operating charges Historic yield 0.84 0.00 Effect on yield of charges offset against capital

Performance and charges

0.01 0.91 +12.60 0.99 0.00

0.01 0.91 +12.22 1.05 0.00

41,167 7.75 1,921,782 1,929.00 1,527.00

9,681 1.89 502,625 1,958.88 1,426.12

Other information 43,964 Closing NAV ($’000) Closing NAV percentage of total fund NAV (%) 7.07 Number of shares 1,823,960 Highest share price (Euro ¢) 2,304.10 Lowest share price (Euro ¢) 1,856.49

Sterling Class ‘A’ Income share performance The share class was launched on 1 July 2005.

Other information Closing NAV ($’000) 45,846 Closing NAV percentage of total fund NAV (%) 7.37 Number of shares 2,077,394 Highest share price (Euro ¢) 2,109.91 Lowest share price (Euro ¢) 1,705.61

Six months to 28.02.17 UK p

Year to 31.08.16 UK p

Year to 31.08.15 UK p

Opening NAV 107.43 Return before operating charges and after direct portfolio transaction costs 20.72 Operating charges (0.97)

83.33

81.35

25.94 (1.52)

3.66 (1.45)

Return after operating charges

Change in NAV per share

19.75

24.42

2.21

Distributions

n/a

(0.32)

(0.23)

Closing NAV

127.18

107.43

83.33

Direct portfolio transaction costs [a]

UK p

UK p

UK p

Costs before dilution adjustments Dilution adjustments [b]

0.01 (0.01)

0.03 (0.02)

0.04 (0.03)

Total direct portfolio transaction costs

0.00

0.01

0.01

%

%

%

Direct portfolio transaction costs 0.00 Operating charges 1.66 Return after operating charges +18.38 1.44 Historic yield [c] Effect on yield of charges offset against capital 1.65

Performance and charges

0.01 1.66 +29.31 0.30 0.00

0.01 1.66 +2.72 0.27 0.00

244,575 46.04 173,305,625 109.10 79.71

269,652 52.73 210,289,562 94.58 76.39

Other information Closing NAV ($’000) 258,413 Closing NAV percentage of total fund NAV (%) 41.57 Number of shares 163,340,030 Highest share price (UK p) 127.74 Lowest share price (UK p) 103.86

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

125

M&G North American Value Fund Financial highlights Sterling Class ‘I’ Accumulation share performance

Specific share class performance

The share class was launched on 3 August 2012.

Six months to 28.02.17 UK p

Year to 31.08.16 UK p

Year to 31.08.15 UK p

110.44 Opening NAV Return before operating charges and after direct 21.30 portfolio transaction costs (1.00) Operating charges

85.41

83.14

Return after operating charges

Year to 31.08.16 UK p

Year to 31.08.15 UK p

2,094.58 Opening NAV Return before operating charges and after direct portfolio transaction costs 404.78 (10.53) Operating charges

1,607.66

1,553.47

503.04 (16.12)

69.49 (15.30)

Change in NAV per share

Sterling Class ‘A’ Accumulation share performance The share class was launched on 1 July 2005.

Change in NAV per share

Six months to 28.02.17 UK p

Return after operating charges

394.25

486.92

54.19

n/a

(20.81)

(16.90)

Distributions 26.58 (1.55)

3.75 (1.48)

Retained distributions Closing NAV

n/a

20.81

16.90

2,488.83

2,094.58

1,607.66

20.30

25.03

2.27

Distributions

n/a

(0.33)

(0.24)

Direct portfolio transaction costs [a]

UK p

UK p

UK p

Retained distributions

n/a

0.33

0.24

130.74

110.44

85.41

Costs before dilution adjustments Dilution adjustments [b]

0.25 (0.25)

0.54 (0.36)

0.83 (0.60)

Direct portfolio transaction costs [a]

UK p

UK p

UK p

Total direct portfolio transaction costs

0.00

0.18

0.23

Costs before dilution adjustments Dilution adjustments [b]

0.01 (0.01)

0.03 (0.02)

0.04 (0.03)

Total direct portfolio transaction costs

0.00

0.01

0.01

Closing NAV

Performance and charges

%

%

%

Direct portfolio transaction costs 0.00 Operating charges 1.66 +18.38 Return after operating charges 0.25 Historic yield Effect on yield of charges offset against capital 0.00

0.01 1.66 +29.31 0.30 0.00

0.01 1.66 +2.73 0.28 0.00

2,907 0.55 2,003,966 111.83 81.69

4,981 0.98 3,790,577 96.67 78.14

Other information Closing NAV ($’000) 3,325 Closing NAV percentage of total fund NAV (%) 0.54 Number of shares 2,044,129 Highest share price (UK p) 131.33 Lowest share price (UK p) 106.77

%

%

%

0.00 Direct portfolio transaction costs 0.92 Operating charges +18.82 Return after operating charges Historic yield 0.83 0.00 Effect on yield of charges offset against capital

Performance and charges

0.01 0.91 +30.29 1.00 0.00

0.01 0.91 +3.49 1.05 0.00

19,351 3.64 703,278 2,120.18 1,543.02

18,504 3.62 748,003 1,814.49 1,460.44

Other information 41,452 Closing NAV ($’000) Closing NAV percentage of total fund NAV (%) 6.67 Number of shares 1,338,860 Highest share price (UK p) 2,498.94 Lowest share price (UK p) 2,025.56

Sterling Class ‘R’ Income share performance The share class was launched on 3 August 2012. Six months to 28.02.17 UK p

Year to 31.08.16 UK p

Year to 31.08.15 UK p

Opening NAV 200.78 Return before operating charges and after direct portfolio transaction costs 38.75 Operating charges (1.27)

155.69

152.01

48.63 (1.99)

6.83 (1.90)

Sterling Class ‘I’ Income share performance Change in NAV per share

The share class was launched on 3 August 2012. Six months to 28.02.17 UK p

Year to 31.08.16 UK p

Year to 31.08.15 UK p

Opening NAV 2,008.50 Return before operating charges and after direct portfolio transaction costs 387.97 Operating charges (9.99)

1,557.26

1,520.67

487.04 (15.63)

68.10 (14.98)

377.98

471.41

53.12

n/a

(20.17)

(16.53)

Change in NAV per share

Return after operating charges Distributions Closing NAV

Return after operating charges

2,386.48

2,008.50

1,557.26

Direct portfolio transaction costs [a]

UK p

UK p

UK p

Costs before dilution adjustments Dilution adjustments [b]

0.24 (0.24)

0.53 (0.35)

0.81 (0.59)

Total direct portfolio transaction costs

0.00

0.18

0.22

Performance and charges

%

%

%

Direct portfolio transaction costs 0.00 Operating charges 0.91 Return after operating charges +18.82 Historic yield [c] 1.49 Effect on yield of charges offset against capital 0.90

0.01 0.91 +30.27 1.01 0.00

0.01 0.91 +3.49 1.06 0.00

23,155 4.36 877,584 2,053.47 1,494.46

20,057 3.92 836,977 1,776.26 1,429.65

Other information Closing NAV ($’000) 29,824 Closing NAV percentage of total fund NAV (%) 4.80 Number of shares 1,004,585 Highest share price (UK p) 2,396.17 Lowest share price (UK p) 1,942.26

37.48

46.64

4.93

Distributions

n/a

(1.55)

(1.25)

Closing NAV

238.26

200.78

155.69

Direct portfolio transaction costs [a]

UK p

UK p

UK p

Costs before dilution adjustments Dilution adjustments [b]

0.02 (0.02)

0.05 (0.03)

0.08 (0.06)

Total direct portfolio transaction costs

0.00

0.02

0.02

%

%

%

Direct portfolio transaction costs 0.00 Operating charges 1.16 Return after operating charges +18.67 1.47 Historic yield [c] Effect on yield of charges offset against capital 1.15

Performance and charges

0.01 1.16 +29.96 0.77 0.00

0.01 1.16 +3.24 0.80 0.00

225 0.04 85,398 204.81 149.25

134 0.03 55,587 177.29 142.87

Other information Closing NAV ($’000) 207 Closing NAV percentage of total fund NAV (%) 0.03 Number of shares 69,876 Highest share price (UK p) 239.24 Lowest share price (UK p) 194.14

126 INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

M&G North American Value Fund Financial highlights Sterling Class ‘X’ Accumulation share performance

Specific share class performance

The share class was launched on 1 July 2005.

Six months to 28.02.17 UK p

Year to 31.08.16 UK p

Year to 31.08.15 UK p

207.20 Opening NAV Return before operating charges and after direct 40.00 portfolio transaction costs (1.31) Operating charges

159.43

154.45

Return after operating charges

Year to 31.08.16 UK p

Year to 31.08.15 UK p

110.66 Opening NAV Return before operating charges and after direct portfolio transaction costs 21.34 (1.00) Operating charges

85.58

83.31

26.64 (1.56)

3.75 (1.48)

Return after operating charges

20.34

25.08

2.27

n/a

(0.33)

(0.23)

Change in NAV per share

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

Change in NAV per share

Six months to 28.02.17 UK p

Distributions 49.80 (2.03)

6.89 (1.91)

Retained distributions Closing NAV

n/a

0.33

0.23

131.00

110.66

85.58

38.69

47.77

4.98

Distributions

n/a

(1.58)

(1.25)

Direct portfolio transaction costs [a]

UK p

UK p

UK p

Retained distributions

n/a

1.58

1.25

245.89

207.20

159.43

Costs before dilution adjustments Dilution adjustments [b]

0.01 (0.01)

0.03 (0.02)

0.04 (0.03)

Direct portfolio transaction costs [a]

UK p

UK p

UK p

Total direct portfolio transaction costs

0.00

0.01

0.01

Costs before dilution adjustments Dilution adjustments [b]

0.02 (0.02)

0.05 (0.04)

0.08 (0.06)

Total direct portfolio transaction costs

0.00

0.01

0.02

Closing NAV

Performance and charges

%

%

%

Direct portfolio transaction costs 0.00 Operating charges 1.16 +18.67 Return after operating charges 0.64 Historic yield Effect on yield of charges offset against capital 0.00

0.01 1.16 +29.96 0.77 0.00

0.01 1.16 +3.22 0.78 0.00

308 0.06 113,120 209.75 152.85

317 0.06 129,262 180.12 145.16

Other information Closing NAV ($’000) 324 Closing NAV percentage of total fund NAV (%) 0.05 Number of shares 106,035 Highest share price (UK p) 246.90 Lowest share price (UK p) 200.36

%

%

%

0.00 Direct portfolio transaction costs 1.66 Operating charges +18.38 Return after operating charges Historic yield 0.25 0.00 Effect on yield of charges offset against capital

Performance and charges

0.01 1.66 +29.31 0.30 0.00

0.01 1.66 +2.72 0.27 0.00

130,588 24.58 89,831,538 112.05 81.86

126,698 24.78 96,213,165 96.86 78.25

Other information 136,919 Closing NAV ($’000) Closing NAV percentage of total fund NAV (%) 22.02 Number of shares 84,016,816 Highest share price (UK p) 131.59 Lowest share price (UK p) 106.98

US dollar Class ‘A’ Accumulation share performance The share class was launched on 9 March 2007. Six months to 28.02.17 US ¢

Year to 31.08.16 US ¢

Year to 31.08.15 US ¢

Opening NAV 1,315.48 Return before operating charges and after direct portfolio transaction costs 170.49 Operating charges (11.25)

1,191.70

1,250.99

144.10 (20.32)

(38.48) (20.81)

Sterling Class ‘X’ Income share performance Change in NAV per share

The share class was launched on 1 July 2005. Six months to 28.02.17 UK p

Year to 31.08.16 UK p

Year to 31.08.15 UK p

Opening NAV 107.46 Return before operating charges and after direct portfolio transaction costs 20.72 Operating charges (0.97)

83.35

81.37

25.95 (1.52)

3.66 (1.45)

Return after operating charges

24.43

2.21

Change in NAV per share

19.75

Return after operating charges

159.24

123.78

(59.29)

Distributions

n/a

(3.91)

(3.26)

Retained distributions

n/a

3.91

3.26

1,474.72

1,315.48

1,191.70

Closing NAV

Distributions

n/a

(0.32)

(0.23)

Closing NAV

127.21

107.46

83.35

Direct portfolio transaction costs [a]

US ¢

US ¢

US ¢

0.15 (0.15)

0.37 (0.25)

0.62 (0.45)

0.00

0.12

0.17

Direct portfolio transaction costs [a]

UK p

UK p

UK p

Costs before dilution adjustments Dilution adjustments [b]

Costs before dilution adjustments Dilution adjustments [b]

0.01 (0.01)

0.03 (0.02)

0.04 (0.03)

Total direct portfolio transaction costs

Total direct portfolio transaction costs

0.00

0.01

0.01

Performance and charges

%

%

%

Direct portfolio transaction costs 0.00 Operating charges 1.66 Return after operating charges +18.38 Historic yield [c] 1.44 Effect on yield of charges offset against capital 1.65

0.01 1.66 +29.31 0.30 0.00

0.01 1.66 +2.72 0.28 0.00

Other information Closing NAV ($’000) 2,777 Closing NAV percentage of total fund NAV (%) 0.45 Number of shares 1,755,101 Highest share price (UK p) 127.78 Lowest share price (UK p) 103.89

2,494 0.47 1,766,613 109.14 79.73

2,627 0.51 2,047,433 94.61 76.44

%

%

%

Direct portfolio transaction costs 0.00 Operating charges 1.65 Return after operating charges +12.11 Historic yield 0.27 Effect on yield of charges offset against capital 0.00

Performance and charges

0.01 1.66 +10.39 0.30 0.00

0.01 1.66 -4.74 0.27 0.00

15,389 2.90 1,169,867 1,319.00 1,068.00

18,518 3.62 1,553,928 1,298.09 1,131.97

Other information Closing NAV ($’000) 19,279 Closing NAV percentage of total fund NAV (%) 3.10 Number of shares 1,307,307 Highest share price (US ¢) 1,480.18 Lowest share price (US ¢) 1,278.24

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

127

M&G North American Value Fund Financial highlights

Specific share class performance US dollar Class ‘C’ Accumulation share performance The share class was launched on 9 March 2007. Six months to 28.02.17 US ¢

Year to 31.08.16 US ¢

Year to 31.08.15 US ¢

1,412.87 Opening NAV Return before operating charges and after direct 183.67 portfolio transaction costs (6.74) Operating charges

1,270.30

1,323.57

154.49 (11.92)

(41.20) (12.07)

Change in NAV per share

Return after operating charges

176.93

142.57

(53.27)

Distributions

n/a

(14.04)

(13.33)

Retained distributions

n/a

14.04

13.33

1,589.80

1,412.87

1,270.30

Direct portfolio transaction costs [a]

US ¢

US ¢

US ¢

Costs before dilution adjustments Dilution adjustments [b]

0.16 (0.16)

0.40 (0.27)

0.65 (0.48)

Total direct portfolio transaction costs

0.00

0.13

0.17

Closing NAV

Performance and charges

%

%

%

Direct portfolio transaction costs 0.00 Operating charges 0.92 Return after operating charges +12.52 Historic yield 0.89 Effect on yield of charges offset against capital 0.00

0.01 0.91 +11.22 0.99 0.00

0.01 0.91 -4.02 0.90 0.00

17,671 3.33 1,250,746 1,416.00 1,142.00

15,005 2.93 1,181,194 1,333.70 1,031.60

Other information Closing NAV ($’000) 39,371 Closing NAV percentage of total fund NAV (%) 6.33 Number of shares 2,476,452 Highest share price (US ¢) 1,595.49 Lowest share price (US ¢) 1,374.84 [a] As a percentage of average net asset value. [b] In respect of direct portfolio transaction costs. [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.

128 INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

M&G North American Value Fund Financial statements and notes

Financial statements

Notes to the financial statements Accounting policies

Statement of total return 2017 for the six months to 28 and 29 February Income Net capital gains / (losses) Revenue Expenses Net revenue / (expense) before taxation Taxation

$’000

$’000

2016 $’000 $’000

63,582 6,037 (4,152) ______ 1,885 (866) ______

(16,348) 5,633 (3,775) ______ 1,858 (830) ______

Net revenue / (expense) after taxation

1,019

1,028

Total return before equalisation Equalisation

64,601 118

(15,320) 53

Change in net assets attributable to shareholders from investment activities

64,719

(15,267)

Statement of change in net assets attributable to shareholders 2017 for the six months to 28 and 29 February Opening net assets attributable to shareholders Amounts received on issue of shares Amounts paid on cancellation of shares Dilution adjustments Change in net assets attributable to shareholders from investment activities (see above) Closing net assets attributable to shareholders

$’000

$’000

2016 $’000 $’000

531,205 107,568 (81,887) ______

The financial statements have been prepared in accordance with the ‘Accounting policies’ set out on page 4.

Distribution policy With effect from 1 September 2016, the distribution policy has been amended so that in determining the amount available for distribution to Income shares, the annual management charge and administration charge are now offset against capital, increasing the amount available for distribution whilst restraining capital performance to an equivalent extent. Marginal tax relief has not been taken into account in respect of expenses offset against capital. In determining the amount available for distribution, ordinary stock dividends have been transferred to capital, reducing the amount available.

511,373 73,160 (99,692) ______

25,681 96

(26,532) 93

64,719

(15,267)

621,701

469,667

The opening net assets attributable to shareholders for 2017 differs to the closing position in 2016 by the change in net assets attributable to shareholders for the second half of the comparative financial year.

Balance sheet as at

28 February 2017 $’000

31 August 2016 $’000

613,776

530,999

6,585 8,656

933 791

629,017

532,723

0 (7,316)

(979) (539)

Assets Fixed assets Investments Current assets Debtors Cash and bank balances Total assets Liabilities Creditors Distribution payable Other creditors Total liabilities Net assets attributable to shareholders

(7,316)

(1,518)

621,701

531,205

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

129

M&G North American Value Fund Financial statements and notes

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130 INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

M&G Pan European Select Fund Authorised Corporate Director’s Report Investment objective and policy

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

The Fund invests wholly or mainly in European (including UK) companies. The Fund may also invest in companies outside Europe but only when these companies derive the majority of their income from European activity. The objective is to maximise long term total return (the combination of income and growth of capital). The Fund may at any time be concentrated in a limited number of securities.

Low risk

High risk

Typically lower rewards

1

2

Typically higher rewards

3

4

5

6

7

The above number:

Investment approach The M&G Pan European Select Fund is a concentrated portfolio of quality European companies, with advantageous characteristics, or ‘economic moats’, to protect their profitability and an element of change helping to drive their value. Importantly, the fund manager invests in businesses where short-term ‘disruptions’ have provided a clear valuation opportunity. The fund manager believes that a focus on both quality and value offers a powerful combination, providing the long-term growth in returns that quality businesses can deliver, as well as the potential boost to a company’s share price when a ‘disruption’ has been resolved and the shares revert to a more appropriate level. Key to his approach is remaining patient and taking a long-term view, both in the entry and exit points of the fund’s holdings. The fund manager keeps the portfolio focused, generally holding between 25 and 35 well-understood stocks, which broadly fall into one of two ‘buckets’ – ‘stable growth’ and ‘opportunities’. Stable growth companies are those that have a proven track record of producing stable earnings, tending to have very strong market positions or powerful brands, for example. Opportunities companies sit in out-of-favour corners of the market where change is not appreciated or risk is overstated. These tend to be less predictable, but with significant growth potential.

•  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.

Investment review As at 1 March 2017, for the six months ended 28 February 2017 Performance against objective Between 1 September 2016 (the start of the review period) and 1 March 2017, the M&G Pan European Select Fund delivered positive total returns (the combination of income and growth of capital) across its euro and sterling share classes, while its US dollar share classes declined, reflecting currency moves. All share classes finished behind a comparable index, the MSCI Europe Index. Over the six months, returns from the index were 12.6%, 10.5% and 4.3% in sterling, euros and US dollars, respectively. Over five years and since launch, the fund has met its objective of delivering positive total returns. [a]

Investment performance

Risk profile The fund invests in the shares of companies listed in Europe, including the UK. It is, therefore, subject to the price volatility of the European and UK stockmarkets and the performance of individual companies. The fund may also be subject to fluctuations in currency exchange rates. The fund’s focus is on quality businesses where an element of change is helping to drive their value, and these stocks could potentially experience a degree of illiquidity in times of market distress. The fund is a concentrated portfolio of between 25 and 35 holdings, but is mainly invested in the shares of large and medium-sized companies, which are normally traded with relative ease. Diversification across countries, industries and market capitalisation is key in managing liquidity risk and reducing market risk. The fund’s risks are measured and managed as an integral part of the investment process.

European stockmarkets delivered positive returns for the period under review, with encouraging prospects for economic growth and inflation, as well as a changing political landscape, helping to drive investor sentiment. For most of the period, the market mood was arguably dominated by the run-up to, and aftermath of, the US presidential election. Following swirling speculation over what a Donald Trump victory might mean, his unexpected win sparked a significant, if not surprising, shift in investor sentiment, as the potential for reduced taxes and regulation, as well as a boost to spending on infrastructure, cheered investors. The mood was further enlivened by relatively robust economic data and good corporate results, all of which made investors more willing to take on risk. With that in mind, US stockmarkets hit record highs during the review period, and took other markets, including Europe, along for the ride. The materials and financial sectors were particular beneficiaries of this improved mood, with both sectors having previously been out of favour. As a result, our below-index positions in these sectors weighed on relative returns, as did stock selection within them. Our stockpicking in the industrials and healthcare sectors also dragged on performance. At the other end of the spectrum, sectors considered to be more

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

131

M&G Pan European Select Fund Authorised Corporate Director’s Report Investment review Investment performance (continued) ‘defensive’ (that is, those that have relatively predictable and stable earnings regardless of the state of the economy) underperformed for the period, as investors became more willing to take on risk. These included real estate, utilities, telecommunications and consumer staples, all of which lagged against the wider market – our below-index positions in these sectors proved supportive for relative performance. At a stock level, the largest detractor was Denmark-listed multinational pharmaceutical company Novo Nordisk, which experienced share price weakness for much of the review period. This was in light of pricing pressure in the US for some of its products, exacerbated by comments from President Donald Trump concerning his determination to lower drug prices. We took advantage of the more attractive valuations to add to our position in the company, believing in the longterm sustainability of the business, despite the short-term issues affecting its share price. Within industrials, German food processing technology and component maker GEA detracted as well. GEA’s shares suffered after the company reduced its guidance for the year, reflecting a ‘lumpier’than-expected order book in the dairy industry; investors were particularly unnerved by poor communication, as the company had previously confirmed a positive outlook. Other detractors included British building supplies retailer Travis Perkins, fast fashion retailer H&M and branded jewellery creator Pandora. Travis Perkins’ share price fell sharply following the UK’s referendum decision to leave the European Union, and then remained weak through most of the review period. This was a similar case for many domestically focused retailers in the UK. H&M reported a drop in its annual net profits, largely due to higher purchasing costs from a strengthening US dollar. It also had to discount some of its product lines due to lower-than-expected sales, partly because customers held off buying new clothes in the spring amid colder weather. Pandora, meanwhile, reported slower revenue growth than anticipated for 2017, as well as squeezed margins in light of higher commodity prices; investors were disappointed. On the upside, shares in Anglo-Dutch consumer goods giant Unilever had been suppressed for some time, providing the opportunity for us to invest in the company in February. Unilever’s share price subsequently rose sharply on news that competitor Kraft Heinz was seeking a £115 billion bid for the company. Unilever rejected the bid, while upgrading its profit expectations for the year, and announcing a “comprehensive review of options” to improve value for shareholders. In the energy sector, our holding in Statoil performed well, benefiting from improvement in the oil price, while some of our retailer positions bucked the general negative trend in the sector and delivered good returns. These included premium clothing retailer HUGO BOSS, which saw its share price rise strongly on reports that an activist shareholder had taken a stake in the company, and retailer WH Smith. WH Smith reported better-than-expected sales over the Christmas period, with overall profit growth for the full year expected to be ahead of previous forecasts. That growth was driven by the company’s travel concessions in airports and train stations, which is where we have always seen the real value of the business.

Elsewhere, Dutch financial institution ING Groep buoyed returns as well, aided by increasing positive investor sentiment in the financial sector. ING also reported a stronger-than-expected rise in quarterly profits, driven by growth in interest income, improvement in margins and a positive contribution from new markets, particularly through online banking.

Investment activities We run a concentrated portfolio of between 25 and 35 holdings, maintaining a watchlist of around 120 quality ‘moated’ companies that we would like to own when the timing and price are right (moated companies are those where we feel the business model is well-protected from competition). We monitor our watchlist closely, waiting patiently for short-term issues, or ‘disruptions’, to create buying opportunities. During the review period, four such opportunities presented themselves. The first was Topdanmark, Denmark’s second-largest insurance company. We see this as a high-quality business where short-term pricing pressure in Denmark created the opportunity to buy the stock at an attractive valuation. We added a position in Linde, the world’s second-largest supplier of industrial gases. Following a series of beneficial acquisitions, we believe Linde possesses some of the best assets in the industry, with the potential to improve the profitability of those assets. The company is engaged in highly visible long-term projects in captive markets, generates a lot of cash and is very profitable. We bought shares in Akzo Nobel, a Dutch-listed manufacturer of decorative paints, performance coatings and speciality chemicals. We believe this is a quality company with a strong brand, excellent distribution networks and, as the largest coating and paint company globally, scale advantages that make it difficult to compete with. The company is also top-rated in terms of environmental, social and governance (ESG) factors, being an innovation leader in organic and renewable sources, with a strong focus on minimising its carbon footprint. Our other new purchase was Unilever, a high-quality producer of household and beauty products as well as food and beverages. Unilever is very long term, making strategic acquisitions over time to grow and diversify its business, and is stakeholder, not just shareholder, focused. Its shares weakened as investors turned from consumer staples companies, in favour of more growth oriented stocks, providing our entry point. The company is now, in light of the attempted (and subsequently called-off) takeover bid by rival Kraft Heinz, looking at shorter term optimisations in the business, and we believe we will see ongoing improvement in cashflows and profitability. We have watched the stock for some time, waiting for the right entry point, and believe that that patience has now paid off. Conversely, we exited five of the fund’s holdings during the period. Danish medical equipment maker Ambu and German sportswear manufacturer adidas both left the portfolio on valuation grounds. We closed the position in UK-listed banking group Barclays due to uncertainty in the medium-term UK housing market raising some concerns, as Barclays has been aggressively building its mortgage book. We exited cigarette maker British American Tobacco, in light of tougher regulations, new technologies – including ‘vaping’ – leading to increased competition and uncertainty, and a belief that tobacco

132 INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

M&G Pan European Select Fund Authorised Corporate Director’s Report Investment review

Investments

Investment activities (continued) companies were increasingly unlikely to produce the same level of returns as they have in the past. Finally, we sold our shares in multinational publishing and education business Pearson, having lost faith in the investment case.

Outlook Over the course of the review period we witnessed a shift in investor sentiment. In risk-averse markets, investors had preferred the perceived safety of more defensive parts of the market – most notably within the consumer staples sector – and were seemingly willing to pay any price to invest in these companies. With the turn in mood, accelerated by the election of Donald Trump, investors have returned to looking at company fundamentals, and a focus on ‘value’ appears to be coming into favour. In this environment, there could be an expectation that a quality-biased portfolio will struggle, but we do not believe that our quality focus will preclude the fund from taking advantage of the rotation into value. This is because ‘quality’ is by no means limited to the defensive, stable, ‘safe’ stocks that previously attracted so much investor attention. We identify quality across sectors, investing in companies with a proven track record of value creation over the business cycle, irrespective of the sector in which they reside. Given the nature of the businesses in which we invest, and the balanced construction of our portfolio, we believe the fund is wellpositioned to take advantage of the current shift in investor sentiment. As long-term investors, we remain focused on the long-term value of the businesses in which we invest, and continue to be optimistic about their prospects. John William Olsen Fund manager

Portfolio statement as at Holding

28.02.17 28.02.17 31.08.16 €’000 % % Oil & gas producers 705,656 Statoil

11,800 11,800

4.01 4.01

3.38

Chemicals 135,303 Akzo Nobel 44,815 Bayer 60,588 Linde

22,380 8,511 4,654 9,215

7.60 2.89 1.58 3.13

3.73

Construction & materials 154,150 LafargeHolcim (Regd.)

8,243 8,243

2.80 2.80

2.53

General industrials 163,704 GEA Group

6,043 6,043

2.05 2.05

3.19

Electronic & electrical equipment 137,068 Schneider Electric

8,768 8,768

2.98 2.98

2.91

Industrial engineering 346,079 Jungheinrich Pref. (non-voting)

9,920 9,920

3.37 3.37

3.37

Industrial transportation 296,974 DSV

13,704 13,704

4.65 4.65

5.02

Support services 313,589 Amadeus IT Holdings 232,885 CTS EVENTIM 441,360 Travis Perkins

29,639 13,730 7,954 7,955

10.06 4.66 2.70 2.70

9.55

6,148 6,148

2.09 2.09

2.29

21,605 12,945 8,660

7.34 4.40 2.94

5.81

9,109 9,109

3.09 3.09

2.60

15,371 7,443 7,928

5.22 2.53 2.69

7.17

Automobiles & parts 73,058 Bayerische Motoren Werke Food producers 186,306 Nestlé (Regd.) 194,834 Unilever Household goods & home construction 106,237 Reckitt Benckiser Personal goods 110,228 HUGO BOSS 73,669 Pandora

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

Tobacco

0

0.00

3.40

Healthcare equipment & services 103,097 Fresenius Medical Care

8,076 8,076

2.74 2.74

4.82

Pharmaceuticals & biotechnology 560,566 GlaxoSmithKline 2,663,095 Indivior 418,643 Novo-Nordisk

35,725 10,804 10,925 13,996

12.13 3.67 3.71 4.75

11.21

20,208 6,761 13,447

6.87 2.30 4.57

6.10

General retailers 270,447 Hennes & Mauritz 676,511 WH Smith Media 962,362 564,867 488,808 377,552

Banks ING Groep Standard Chartered Svenska Handelsbanken UniCredit

Non-life insurance 834,070 Hiscox Life insurance 212,009 Topdanmark Software & computer services 187,840 SAP Portfolio of investments

0

0.00

2.63

28,367 12,429 4,784 6,404 4,750

9.63 4.22 1.62 2.18 1.61

9.88

10,511 10,511

3.57 3.57

3.52

5,060 5,060

1.72 1.72

0.00

16,453 16,453

5.59 5.59

5.09

287,130

97.51

98.20

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

133

M&G Pan European Select Fund Authorised Corporate Director’s Report

Investments Portfolio statement (continued) as at Holding

28.02.17 28.02.17 31.08.16 €’000 % % ‘AAA’ rated money market funds [a] 5,679,000 Northern Trust Global Fund - Sterling

6,664

2.26

2.33

6,664

2.26

Total portfolio Net other assets / (liabilities)

293,794 673

99.77 0.23

100.53 (0.53)

Net assets attributable to shareholders

294,467

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.

Top ten portfolio transactions for the six months to 28 February 2017 Largest purchases

€’000

Linde Novo-Nordisk Akzo Nobel Unilever SAP WH Smith Topdanmark UniCredit Amadeus IT Holdings ING Groep

9,065 8,429 8,265 7,394 5,732 5,569 5,316 5,179 4,939 4,755

Other purchases

63,680

Total purchases

128,323

Largest sales

€’000

British American Tobacco adidas Pearson Bayer Barclays UniCredit Ambu DSV GEA Group Nestlé (Regd.)

6,729 6,301 4,714 3,769 2,994 2,814 2,634 1,222 1,109 350

Other sales

3,958

Total sales

36,594

Purchases and sales exclude the cost and proceeds of ‘AAA’ rated money market funds.

134 INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

M&G Pan European Select Fund Financial highlights Performance since launch

Fund performance Please note past performance is not a guide to future performance and 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 not get back the original amount you invested.

To give an indication of how the fund has performed since launch, the chart below shows total return of Sterling Class ‘A’ (Accumulation) shares and Sterling Class ‘I’ (Accumulation) shares. September 1989 = 100, plotted monthly

Chart date 1 March 2017

1,000 800

The following chart and tables show the performance for two of the fund’s share classes – Sterling Class ‘A’ (Accumulation) shares and Sterling Class ‘I’ (Accumulation) shares. We show performance for these two share classes because:

Sterling Class ‘I’ (Accumulation) shares* 600 500 400 350 300

• The performance of the Sterling Class ‘A’ (Accumulation) share is

250

what most individuals investing directly with M&G have received. It has the highest ongoing charge of all the share classes. Performance is shown after deduction of this charge. All investors in the fund therefore received this performance or better.

170

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

Sterling Class ‘A’ (Accumulation) shares* 200 140 120 100 80 70 89

91

93

95

97

99

01

03

05

07

09

11

13

15

17

Sterling Class ‘A’ (Accumulation) shares* Sterling Class ‘I’ (Accumulation) shares* MSCI Europe Index Morningstar (IA) Europe Including UK sector average* * Income reinvested

Source: Morningstar, Inc. and M&G

The fund’s Sterling Class ‘I’ (Accumulation) shares were launched on 3 August 2012. Performance data shown prior to this date is that of the fund’s Sterling Class ‘A’ (Accumulation) shares.

The fund is available for investment in different share classes, each with varying levels of charges and minimum investments; please refer to the Prospectus for M&G Investment Funds (1), which is available free of charge either from our website at www.mandg.co.uk/prospectuses or by calling M&G Customer Relations.

Fund level performance Fund net asset value as at

28.02.17 €’000

31.08.16 €’000

31.08.15 €’000

Fund net asset value (NAV)

294,467

191,928

245,560

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

135

M&G Pan European Select Fund Financial highlights Operating charges and portfolio transaction costs

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

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

Operating charges

Long-term performance by share class Six Three months years 01.09.16 03.03.14 % [a] % p.a.

Five years 01.03.12 % p.a.

Since launch

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

% p.a.

• Investment management: Charge paid to M&G for investment

Euro [b] Class ‘A’

+2.6

+7.3

+9.3

+4.1 [c]

Class ‘B’

+2.4

n/a

n/a

+9.7 [d]

Class ‘C’

+3.0

+8.1

+10.1

+4.9 [c]

Sterling [e] Class ‘A’

+4.3

+8.7

+9.8

+8.1 [f]

Class ‘I’

+4.7

+9.5

n/a

+13.1 [g]

Class ‘R’

+4.6

+9.3

n/a

+12.8 [g]

Class ‘X’

+4.3

+8.7

+9.8

+12.6 [h]

US dollar [b] Class ‘A’

-3.0

n/a

n/a

+0.3

Class ‘C’

-2.7

n/a

n/a

+1.0 [i]

[i]

[a] Absolute basis. [b] Price to price with net income reinvested. [c] 28 November 2001, the launch date of the share class. [d] 18 March 2016, the launch date of the share class. Absolute basis. [e] Price to price with income reinvested. [f] 29 September 1989, the end of the initial offer period of the predecessor unit trust. [g] 3 August 2012, the launch date of the share class. [h] 1 October 2002, the launch date of the share class.

management of the fund (also known as Annual Management Charge).

• Administration: Charge paid to M&G for administration services in addition to investment management – any surplus from this charge will be retained by M&G.

• Oversight

and other independent services: Charges paid to providers independent of M&G for services which include depositary, custody and audit.

The operating charges paid by each share class of the fund are shown in the following performance tables. Operating charges do not include portfolio transaction costs or any entry and exit charges (also known as initial and redemption charges). The charging structures of share classes may differ, and therefore the operating charges may differ. Operating charges are the same as the ongoing charges shown in the Key Investor Information Document, other than where an estimate has been used for the ongoing charge because a material change has made the operating charges unreliable as an estimate of future charges. For this fund there is no difference between operating charges and ongoing charges figures, unless disclosed under the specific share class performance table.

[i] 8 August 2014, the launch date of the share class.

136 INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

M&G Pan European Select Fund Financial highlights

Fund performance

Specific share class performance

Portfolio transaction costs Portfolio transaction costs are incurred by funds when buying and selling investments. These costs vary depending on the types of investment, their market capitalisation, country of exchange, method of execution and the quality of research provided. They are made up of direct and indirect portfolio transaction costs:

• Direct portfolio transaction costs: Broker execution commission

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

Euro Class ‘A’ Accumulation share performance The share class was launched on 28 November 2001.

and taxes.

• Indirect portfolio transaction costs: ‘Dealing spread’ – the difference between the buying and selling prices of the fund’s investments; some types of investment, such as fixed interest securities, have no direct transaction costs and only the dealing spread is paid.

Six months to 28.02.17 Euro ¢

Year to 31.08.16 Euro ¢

Year to 31.08.15 Euro ¢

1,791.43 Opening NAV Return before operating charges and after direct 56.21 portfolio transaction costs Operating charges (14.78)

1,712.31

1,517.49

107.86 (28.74)

223.29 (28.47)

Change in NAV per share

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

Return after operating charges

To protect existing investors, portfolio transaction costs incurred as a result of investors buying and selling shares in the fund are recovered from those investors through a ‘dilution adjustment’ to the price they pay or receive. The table below shows direct portfolio transaction costs paid by the fund before and after that part of the dilution adjustment relating to direct portfolio transaction costs. To give an indication of the indirect portfolio dealing costs the table also shows the average portfolio dealing spread.

Closing NAV

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

41.43

79.12

194.82

Distributions

0.00

(45.62)

(44.57)

Retained distributions

0.00

45.62

44.57

1,832.86

1,791.43

1,712.31

Direct portfolio transaction costs [a]

Euro ¢

Euro ¢

Euro ¢

Costs before dilution adjustments Dilution adjustments [b]

1.71 (1.62)

1.54 (0.55)

0.38 (0.28)

Total direct portfolio transaction costs

0.09

0.99

0.10

Performance and charges

%

%

%

0.01 1.70 +2.31 1.07 0.00

0.06 1.68 +4.62 2.49 1.50

0.00 1.68 +12.84 2.62 1.50

Closing NAV (€’000) 112,142 Closing NAV percentage of total fund NAV (%) 38.08 Number of shares 6,118,422 Highest share price (Euro ¢) 1,856.75 Lowest share price (Euro ¢) 1,668.64

13,136 6.85 733,275 1,848.75 1,488.66

11,571 4.71 675,770 1,927.64 1,375.48

Direct portfolio transaction costs Operating charges Return after operating charges Historic yield [c] Effect on yield of charges offset against capital Other information

Portfolio transaction costs Six months to 28.02.17 Direct portfolio transaction costs [b] %

Year to 31.08.16 %

Year to 31.08.15 %

Average [a] %

Broker commission Taxes

0.08 0.11

0.08 0.01

0.01 0.01

0.06 0.04

Costs before dilution adjustments Dilution adjustments [c]

0.19 (0.18)

0.09 (0.03)

0.02 (0.02)

0.10 (0.08)

Total direct portfolio transaction costs

0.01

0.06

0.00

0.02

28.02.17 %

31.08.16 %

31.08.15 %

0.05

0.06

0.09

as at Indirect portfolio transaction costs Average portfolio dealing spread

Average [a] % 0.07

[a] Average of first three columns. [b] As a percentage of average net asset value. [c] In respect of direct portfolio transaction costs.

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

137

M&G Pan European Select Fund Financial highlights Sterling Class ‘A’ Income share performance

Specific share class performance

The share class was launched on 29 September 1989.

Year to 31.08.16 Euro ¢ 1,000.00

Year to 31.08.16 UK p

Year to 31.08.15 UK p

191.32 Opening NAV Return before operating charges and after direct portfolio transaction costs 6.97 (1.59) Operating charges

162.23

160.04

36.89 (2.86)

9.33 (2.82)

Change in NAV per share

Euro Class ‘B’ Accumulation share performance The share class was launched on 18 March 2016. Six months to 28.02.17 Euro ¢ Change in NAV per share 1,064.43 Opening NAV Return before operating charges and after direct 33.32 portfolio transaction costs Operating charges (11.39)

Six months to 28.02.17 UK p

Year to 31.08.15 Euro ¢ n/a

Return after operating charges

5.38

34.03

6.51

Distributions

(0.91)

(4.94)

(4.32)

195.79

191.32

162.23

74.39 (9.96)

n/a n/a

Closing NAV

21.93

64.43

n/a

Direct portfolio transaction costs [a]

UK p

UK p

UK p

Distributions

0.00

(19.30)

n/a

Retained distributions

0.00

19.30

n/a

Costs before dilution adjustments Dilution adjustments [b]

0.18 (0.17)

0.15 (0.05)

0.04 (0.03)

1,086.36

1,064.43

n/a

Total direct portfolio transaction costs

0.01

0.10

0.01

Direct portfolio transaction costs [a] Costs before dilution adjustments Dilution adjustments [b]

Euro ¢ 1.01 (0.96)

Euro ¢ 0.42 (0.15)

Euro ¢ n/a n/a

Total direct portfolio transaction costs

0.05

0.27

n/a

% 0.01 2.19 +2.06 0.83 0.00

% 0.06 2.17 +6.44 2.48 2.00

% n/a n/a n/a n/a n/a

Other information Closing NAV (€’000) 108 Closing NAV percentage of total fund NAV (%) 0.04 Number of shares 9,907 Highest share price (Euro ¢) 1,100.60 Lowest share price (Euro ¢) 990.59

32 0.02 3,000 1,072.77 952.42

n/a n/a n/a n/a n/a

Return after operating charges

Closing NAV

Performance and charges Direct portfolio transaction costs Operating charges Return after operating charges Historic yield [c] Effect on yield of charges offset against capital

The share class was launched on 28 November 2001. Year to 31.08.16 Euro ¢ 1,904.11 120.71 (17.67)

%

%

%

0.01 1.68 +2.81 2.75 1.65

0.06 1.68 +20.98 2.54 1.50

0.00 1.68 +4.07 2.68 1.50

Closing NAV (€’000) 86,418 Closing NAV percentage of total fund NAV (%) 29.35 Number of shares 37,615,647 Highest share price (UK p) 198.28 Lowest share price (UK p) 178.92

86,393 45.01 38,299,702 200.74 151.29

146,674 59.73 66,272,804 183.01 145.51

Other information

Sterling Class ‘A’ Accumulation share performance The share class was launched on 29 September 1989. Six months to 28.02.17 UK p

Year to 31.08.16 UK p

Year to 31.08.15 UK p

Opening NAV 386.16 Return before operating charges and after direct portfolio transaction costs 14.03 Operating charges (3.21)

318.98

306.54

72.81 (5.63)

17.85 (5.41)

Change in NAV per share

Euro Class ‘C’ Accumulation share performance Six months to 28.02.17 Change in NAV per share Euro ¢ Opening NAV 2,007.15 Return before operating charges and after direct portfolio transaction costs 63.06 Operating charges (8.99)

Performance and charges Direct portfolio transaction costs Operating charges Return after operating charges Historic yield [c] Effect on yield of charges offset against capital

Year to 31.08.15 Euro ¢ 1,674.82 246.84 (17.55)

Return after operating charges

10.82

67.18

12.44

Distributions

0.00

(9.75)

(8.30)

Retained distributions

0.00

9.75

8.30

396.98

386.16

318.98

Closing NAV

Return after operating charges

54.07

103.04

229.29

Distributions

(1.17)

(50.91)

(49.48)

Direct portfolio transaction costs [a]

UK p

UK p

UK p

Costs before dilution adjustments Dilution adjustments [b]

0.37 (0.35)

0.30 (0.11)

0.07 (0.05)

Total direct portfolio transaction costs

0.02

0.19

0.02

Retained distributions

1.17

50.91

49.48

2,061.22

2,007.15

1,904.11

Euro ¢ 1.88 (1.79)

Euro ¢ 1.72 (0.62)

Euro ¢ 0.42 (0.32)

0.09

1.10

0.10

% 0.01 0.93 +2.69 1.81 0.00

% 0.06 0.93 +5.41 2.48 0.75

% 0.00 0.93 +13.69 2.62 0.75

Other information Closing NAV (€’000) 22,165 Closing NAV percentage of total fund NAV (%) 7.53 Number of shares 1,075,357 Highest share price (Euro ¢) 2,087.88 Lowest share price (Euro ¢) 1,872.08

20,558 10.71 1,024,259 2,059.82 1,661.02

18,606 7.58 977,156 2,139.95 1,519.50

Closing NAV Direct portfolio transaction costs [a] Costs before dilution adjustments Dilution adjustments [b] Total direct portfolio transaction costs Performance and charges Direct portfolio transaction costs Operating charges Return after operating charges Historic yield [c] Effect on yield of charges offset against capital

Performance and charges

%

%

%

0.01 1.68 +2.80 1.16 0.00

0.06 1.68 +21.06 2.48 1.50

0.00 1.68 +4.06 2.62 1.50

Closing NAV (€’000) 52,251 Closing NAV percentage of total fund NAV (%) 17.74 Number of shares 11,217,090 Highest share price (UK p) 400.18 Lowest share price (UK p) 361.08

52,537 27.37 11,539,174 395.95 297.54

56,320 22.93 12,941,886 352.05 278.69

Direct portfolio transaction costs Operating charges Return after operating charges Historic yield [c] Effect on yield of charges offset against capital Other information

138 INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

M&G Pan European Select Fund Financial highlights Sterling Class ‘R’ Income share performance

Specific share class performance

The share class was launched on 3 August 2012. Year to 31.08.16 UK p

Year to 31.08.15 UK p

147.60 Opening NAV Return before operating charges and after direct portfolio transaction costs 5.37 (0.86) Operating charges

124.52

122.37

28.43 (1.54)

6.96 (1.51)

Change in NAV per share

Sterling Class ‘I’ Income share performance The share class was launched on 3 August 2012. Six months to 28.02.17 UK p Change in NAV per share 1,494.22 Opening NAV Return before operating charges and after direct 54.58 portfolio transaction costs Operating charges (6.87)

Six months to 28.02.17 UK p

Year to 31.08.16 UK p 1,257.43 287.53 (12.27)

Year to 31.08.15 UK p 1,230.22

Return after operating charges

4.51

26.89

5.45

Distributions

(0.70)

(3.81)

(3.30)

72.91 (12.27)

Closing NAV

151.41

147.60

124.52

Return after operating charges

47.71

275.26

60.64

Direct portfolio transaction costs [a]

UK p

UK p

UK p

Distributions

(7.14)

(38.47)

(33.43)

Closing NAV

1,534.79

1,494.22

1,257.43

Costs before dilution adjustments Dilution adjustments [b]

0.14 (0.13)

0.12 (0.04)

0.03 (0.02)

Direct portfolio transaction costs [a] Costs before dilution adjustments Dilution adjustments [b]

UK p 1.44 (1.37)

UK p 1.20 (0.43)

UK p 0.30 (0.22)

Total direct portfolio transaction costs

0.01

0.08

0.01

Total direct portfolio transaction costs

0.07

0.77

0.08

% 0.01 0.93 +3.19 2.73 0.90

% 0.06 0.93 +21.89 2.53 0.75

% 0.00 0.93 +4.93 2.67 0.75

Other information Closing NAV (€’000) 10,727 Closing NAV percentage of total fund NAV (%) 3.64 Number of shares 595,661 Highest share price (UK p) 1,553.05 Lowest share price (UK p) 1,399.96

10,434 5.44 592,296 1,567.15 1,176.61

6,375 2.60 371,647 1,414.41 1,120.36

Performance and charges Direct portfolio transaction costs Operating charges Return after operating charges Historic yield [c] Effect on yield of charges offset against capital

Performance and charges

%

%

%

0.01 1.18 +3.06 2.74 1.15

0.06 1.18 +21.59 2.54 1.00

0.00 1.18 +4.45 2.67 1.00

Closing NAV (€’000) 220 Closing NAV percentage of total fund NAV (%) 0.07 Number of shares 123,645 Highest share price (UK p) 153.22 Lowest share price (UK p) 138.20

161 0.08 92,645 154.82 116.39

156 0.06 91,534 140.20 111.18

Direct portfolio transaction costs Operating charges Return after operating charges Historic yield [c] Effect on yield of charges offset against capital Other information

Sterling Class ‘R’ Accumulation share performance The share class was launched on 3 August 2012. Six months to 28.02.17 UK p

Year to 31.08.16 UK p

Year to 31.08.15 UK p

Opening NAV 166.24 Return before operating charges and after direct portfolio transaction costs 6.05 Operating charges (0.97)

136.63

130.65

31.30 (1.69)

7.60 (1.62)

Sterling Class ‘I’ Accumulation share performance Change in NAV per share

The share class was launched on 3 August 2012. Six months to 28.02.17 Change in NAV per share UK p Opening NAV 1,680.78 Return before operating charges and after direct portfolio transaction costs 61.23 Operating charges (7.73) Return after operating charges

53.50

Year to 31.08.16 UK p 1,377.97

Year to 31.08.15 UK p 1,314.27

316.27 (13.46)

76.77 (13.07)

302.81

63.70

Distributions

(0.81)

(42.29)

(35.79)

Retained distributions

0.81

42.29

35.79

Closing NAV

1,734.28

1,680.78

1,377.97

Direct portfolio transaction costs [a] Costs before dilution adjustments Dilution adjustments [b]

UK p 1.62 (1.53)

UK p 1.31 (0.47)

UK p 0.32 (0.24)

Total direct portfolio transaction costs

0.09

0.84

0.08

% 0.01 0.93 +3.18 1.82 0.00

% 0.06 0.92 +21.98 2.48 0.75

% 0.00 0.93 +4.85 2.61 0.75

Other information Closing NAV (€’000) 6,268 Closing NAV percentage of total fund NAV (%) 2.13 Number of shares 307,983 Highest share price (UK p) 1,746.80 Lowest share price (UK p) 1,574.61

6,125 3.19 309,100 1,722.82 1,289.70

3,116 1.27 165,777 1,516.40 1,196.00

Performance and charges Direct portfolio transaction costs Operating charges Return after operating charges Historic yield [c] Effect on yield of charges offset against capital

Return after operating charges

5.08

29.61

5.98

Distributions

0.00

(4.20)

(3.55)

Retained distributions

0.00

4.20

3.55

171.32

166.24

136.63

Direct portfolio transaction costs [a]

UK p

UK p

UK p

Costs before dilution adjustments Dilution adjustments [b]

0.16 (0.15)

0.13 (0.05)

0.03 (0.02)

Total direct portfolio transaction costs

0.01

0.08

0.01

Closing NAV

Performance and charges

%

%

%

0.01 1.17 +3.06 1.58 0.00

0.06 1.17 +21.67 2.49 1.00

0.00 1.18 +4.58 2.61 1.00

Closing NAV (€’000) 99 Closing NAV percentage of total fund NAV (%) 0.03 Number of shares 49,120 Highest share price (UK p) 172.57 Lowest share price (UK p) 155.64

126 0.07 64,120 170.42 127.73

131 0.05 70,075 150.51 118.86

Direct portfolio transaction costs Operating charges Return after operating charges Historic yield [c] Effect on yield of charges offset against capital Other information

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

139

M&G Pan European Select Fund Financial highlights US dollar Class ‘A’ Accumulation share performance

Specific share class performance

The share class was launched on 8 August 2014.

Sterling Class ‘X’ Income share performance The share class was launched on 1 October 2002. Six months to 28.02.17 UK p Change in NAV per share 189.24 Opening NAV Return before operating charges and after direct 6.88 portfolio transaction costs Operating charges (1.57)

Year to 31.08.16 UK p 160.46

Year to 31.08.15 UK p 158.31

36.50 (2.83)

9.22 (2.80)

Return after operating charges

5.31

33.67

6.42

Distributions

(0.90)

(4.89)

(4.27)

Closing NAV

193.65

189.24

160.46

Costs before dilution adjustments Dilution adjustments [b]

UK p 0.18 (0.17)

UK p 0.15 (0.05)

UK p 0.04 (0.03)

Total direct portfolio transaction costs

0.01

0.10

0.01

% 0.01 1.68 +2.81 2.75 1.65

% 0.06 1.68 +20.98 2.54 1.50

% 0.00 1.68 +4.06 2.67 1.50

Other information Closing NAV (€’000) 1,347 Closing NAV percentage of total fund NAV (%) 0.46 Number of shares 592,650 Highest share price (UK p) 196.12 Lowest share price (UK p) 176.96

1,401 0.73 627,780 198.55 149.64

1,617 0.66 738,548 181.01 143.92

Direct portfolio transaction costs [a]

Performance and charges Direct portfolio transaction costs Operating charges Return after operating charges Historic yield [c] Effect on yield of charges offset against capital

Sterling Class ‘X’ Accumulation share performance The share class was launched on 1 October 2002. Six months to 28.02.17 UK p

Year to 31.08.16 UK p

Year to 31.08.15 UK p

Opening NAV 381.62 Return before operating charges and after direct portfolio transaction costs 13.86 Operating charges (3.17)

315.23

302.93

Change in NAV per share

Six months to 28.02.17 US ¢ Change in NAV per share Opening NAV 1,030.40 Return before operating charges and after direct portfolio transaction costs (19.33) (7.97) Operating charges Return after operating charges Distributions Retained distributions

Year to 31.08.16 US ¢ 996.97

Year to 31.08.15 US ¢ 1,032.83

49.81 (16.38)

(18.24) (17.62)

(27.30)

33.43

(35.86)

0.00

(26.15)

(25.84)

0.00

26.15

25.84

1,003.10

1,030.40

996.97

Direct portfolio transaction costs [a] Costs before dilution adjustments Dilution adjustments [b]

US ¢ 0.92 (0.87)

US ¢ 0.88 (0.32)

US ¢ 0.23 (0.17)

Total direct portfolio transaction costs

0.05

0.56

0.06

Performance and charges Direct portfolio transaction costs Operating charges Return after operating charges Historic yield [c] Effect on yield of charges offset against capital

% 0.01 1.68 -2.65 1.13 0.00

% 0.06 1.67 +3.35 2.48 1.50

% 0.00 1.66 -3.47 2.62 1.50

Other information 173 Closing NAV (€’000) 0.06 Closing NAV percentage of total fund NAV (%) Number of shares 18,274 Highest share price (US ¢) 1,055.53 Lowest share price (US ¢) 925.60

134 0.07 14,465 1,051.19 871.33

44 0.02 5,000 1,106.29 904.68

Closing NAV

US dollar Class ‘C’ Accumulation share performance The share class was launched on 8 August 2014. Six months to 28.02.17 Change in NAV per share US ¢ Opening NAV 1,046.67 Return before operating charges and after direct portfolio transaction costs (19.35) Operating charges (4.60) Return after operating charges

Year to 31.08.16 US ¢ 1,005.13

Year to 31.08.15 US ¢ 1,033.31

50.54 (9.00)

(19.23) (8.95)

(23.95)

41.54

(28.18)

Distributions

(0.48)

(26.55)

(26.44)

Retained distributions

0.48

26.55

26.44

1,022.72

1,046.67

1,005.13

71.95 (5.56)

17.63 (5.33)

10.69

66.39

12.30

Closing NAV

Distributions

0.00

(9.63)

(8.19)

Retained distributions

0.00

9.63

8.19

392.31

381.62

315.23

Direct portfolio transaction costs [a] Costs before dilution adjustments Dilution adjustments [b]

US ¢ 0.96 (0.91)

US ¢ 0.94 (0.34)

US ¢ 0.20 (0.15)

Total direct portfolio transaction costs

0.05

0.60

0.05

Direct portfolio transaction costs [a]

UK p

UK p

UK p

Costs before dilution adjustments Dilution adjustments [b]

0.37 (0.35)

0.30 (0.11)

0.07 (0.05)

Total direct portfolio transaction costs

0.02

0.19

0.02

Performance and charges Direct portfolio transaction costs Operating charges Return after operating charges Historic yield [c] Effect on yield of charges offset against capital

% 0.01 0.93 -2.29 1.90 0.00

% 0.06 0.91 +4.13 2.48 0.75

% 0.00 0.88 -2.73 2.66 0.75

Other information Closing NAV (€’000) 1,675 Closing NAV percentage of total fund NAV (%) 0.57 Number of shares 173,610 Highest share price (US ¢) 1,072.36 Lowest share price (US ¢) 941.99

5 0.00 500 1,067.64 881.41

4 0.00 500 1,112.94 905.98

Return after operating charges

Closing NAV

Performance and charges

%

%

%

0.01 1.68 +2.80 1.16 0.00

0.06 1.68 +21.06 2.48 1.50

0.00 1.68 +4.06 2.61 1.50

Closing NAV (€’000) 874 Closing NAV percentage of total fund NAV (%) 0.30 Number of shares 189,848 Highest share price (UK p) 395.46 Lowest share price (UK p) 356.83

886 0.46 196,909 391.29 294.03

946 0.39 219,896 347.90 275.42

Direct portfolio transaction costs Operating charges Return after operating charges Historic yield [c] Effect on yield of charges offset against capital Other information

[a] As a percentage of average net asset value. [b] In respect of direct portfolio transaction costs. [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.

140 INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

M&G Pan European Select Fund Financial statements and notes

Financial statements

Notes to the financial statements Accounting policies

Statement of total return 2017 for the six months to 28 and 29 February Income Net capital gains / (losses) Revenue Expenses Net revenue / (expense) before taxation Taxation

€’000

€’000

2016 €’000 €’000

6,812 1,156 (1,595) ______ (439) (9) ______

(7,345) 692 (1,491) ______ (799) 18 ______

Net revenue / (expense) after taxation

(448)

(781)

Total return before distributions Distributions

6,364 (822)

(8,126) (530)

Change in net assets attributable to shareholders from investment activities

5,542

(8,656)

Statement of change in net assets attributable to shareholders 2017 for the six months to 28 and 29 February Opening net assets attributable to shareholders Amounts received on issue of shares Amounts paid on cancellation of shares Dilution adjustments Change in net assets attributable to shareholders from investment activities (see above) Retained distributions on Accumulation shares Unclaimed distributions Closing net assets attributable to shareholders

€’000

€’000

Distribution policy With effect from 1 September 2016, the distribution policy has been amended so that in determining the amount available for reinvestment to Accumulation shares, the annual management charge is no longer offset against capital, reducing the amount available for reinvestment. For Income shares, in addition to the annual management charge, the administration charge is now offset against capital, increasing the amount available for distribution, whilst restraining capital performance to an equivalent extent. Marginal tax relief has not been taken into account in respect of expenses offset against capital.

2016 €’000 €’000

191,928 121,730 (25,011) ______

The financial statements have been prepared in accordance with the ‘Accounting policies’ set out on page 4.

245,560 8,645 (68,171) ______

96,719 254

(59,526) 57

5,542

(8,656)

16 8

243 9

294,467

177,687

The opening net assets attributable to shareholders for 2017 differs to the closing position in 2016 by the change in net assets attributable to shareholders for the second half of the comparative financial year.

Balance sheet as at

28 February 2017 €’000

31 August 2016 €’000

293,794

192,952

Assets Fixed assets Investments Current assets Debtors Total assets

1,380

1,411

295,174

194,363

(459) (248)

(2,291) (144)

Liabilities Creditors Distribution payable Other creditors Total liabilities Net assets attributable to shareholders

(707)

(2,435)

294,467

191,928

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

141

M&G Pan European Select Fund Financial statements and notes

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142 INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

M&G Investment Funds (1) Other regulatory disclosures

Swiss investor information For funds registered in Switzerland we are required by FINMA to disclose the Total Expense Ratio (TER). For these funds the TERs are the same as the operating charges disclosed in each fund’s financial highlights section.

Hong Kong investor information The total investment costs as at 28 February 2017 for the following funds are: Fund M&G Global Basics Fund M&G Global Leaders Fund

Total investment at cost $2,288,866,000 $557,217,000

M&G North American Dividend Fund

$614,995,000

M&G Pan European Select Fund

€273,294,000

INTERIM LONG REPORT AND UNAUDITED FINANCIAL STATEMENTS • February 2017

143

Glossary Accumulation shares: A type of share where distributions are automatically reinvested and reflected in the value of the shares.

Accumulation units: A type of unit where distributions are automatically reinvested and reflected in the value of the units. Asset: Anything having commercial or exchange value that is owned by a business, institution or individual.

Asset allocation: Apportioning a portfolio’s assets according to risk tolerance and investment goals. Asset class: Category of assets, such as cash, company shares, fixed income securities and their sub-categories, as well as tangible assets such as real estate.

Bond: A loan in the form of a security, usually issued by a government or company, which normally pays a fixed rate of interest over a given time period, at the end of which the initial amount borrowed is repaid.

Bond issue: A set of fixed income securities offered for sale to the public by a company or government. If the bonds are sold for the first time, it is called a ‘new issue’.

Bottom-up selection: Selecting stocks based on the attractiveness of a company.

Bunds: Fixed income securities issued by the German government. Capital: Refers to the financial assets, or resources, that a company has to fund its business operations.

Capital growth: Occurs when the current value of an investment is greater than the initial amount invested. Capital return: The term for the gain or loss derived from an investment over a particular period. Capital return includes capital gain or loss only and excludes income (in the form of interest or dividend payments). Cash equivalents: Deposits or investments with similar characteristics to cash.

Comparative sector: A group of funds with similar investment objectives and/or types of investment, as classified by bodies such as the Investment Association (IA) or Morningstar™. Sector definitions are mostly based on the main assets a fund should invest in, and may also have a geographic focus. Sectors can be the basis for comparing the different characteristics of similar funds, such as their performance or 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 and services. The contents of the basket are meant to be representative of products and services we typically spend our money on. Convertible bonds: Fixed income securities that can be exchanged for predetermined amounts of company shares at certain times during their life. Corporate bonds: Fixed income securities issued by a company. They are also known as bonds and can offer higher interest payments than bonds issued by governments as they are often considered more risky.

Coupon: The interest paid by the government or company that has raised a loan by selling bonds.

Credit: The borrowing capacity of an individual, company or government. More narrowly, the term is often used as a synonym for fixed income securities issued by companies. Credit default swaps (CDS): Are a type of derivative, namely financial instruments whose value, and price, are dependent on one or more underlying assets. CDS are insurance-like contracts that allow investors to transfer the risk of a fixed income security defaulting to another investor. Credit rating: An independent assessment of a borrower’s ability to repay its debts. A high rating indicates that the credit rating agency considers the issuer to be at low risk of default; likewise, a low rating indicates high risk of default. Standard & Poor’s, Fitch and Moody’s are the three most prominent credit rating agencies. Default means that a company or government is unable to meet interest payments or repay the initial investment amount at the end of a security’s life.

Credit rating agency: A company that analyses the financial strength of issuers of fixed income securities and attaches a rating to their debt. Examples include Standard & Poor’s and Moody’s.

Credit risk: Risk that a financial obligation will not be paid and a loss will 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 to meet its debt obligations. This research seeks to identify the appropriate level of default risk associated with investing in that particular bond.

Credit spread: The difference between the yield of a corporate bond, a fixed income security issued by a company, and a government bond of the same life span. Yield refers to the income received from an investment and is expressed as a percentage of the investment’s current market value. Default: When a borrower does not maintain interest payments or repay the amount borrowed when due.

Default risk: Risk that a debtholder will not receive interest and full repayment of the loan when due. Derivatives: Financial instruments whose value, and price, are dependent on one or more underlying assets. Derivatives can be used to gain exposure to, or to help protect against, expected changes in the value of the underlying investments. Derivatives may be traded on a regulated exchange or traded over the counter. Developed economy/market: Well-established economies with a high degree of industrialisation, standard of living and security. Dilution adjustments: The dilution adjustment is used to protect ongoing investors against the transaction charges incurred in investing or divesting in respect of creations and cancellations. The dilution adjustment is made up of the direct and indirect transaction charges. In the financial statements the direct transaction charges as a percentage of average NAV will be disclosed. This percentage will take account of those direct transaction charges that have been recovered through the dilution adjustment leaving a percentage that just represents the costs incurred in portfolio management.

Distribution: Distributions represent a share in the income of the fund and are paid out to Income shareholders or reinvested for Accumulation shareholders at set times of the year (monthly, quarterly, half-yearly or annually). They may either be in the form of interest distributions or dividend distributions.

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M&G Example Fund Glossary Example Second Line Distribution yield: Expresses the amount that is expected to be

Futures: A futures contract is a contract between two parties to buy or

distributed by the fund over the next 12 months as a percentage of the share price as at a certain date. It is based on the expected gross income less the ongoing charges.

sell a particular commodity or financial instrument at a pre-determined price at a future date. Futures are traded on a regulated exchange.

Diversification: The practice of investing in a variety of assets. This is a risk management technique where, in a well-diversified portfolio, any loss from an individual holding should be offset by gains in other holdings, thereby lessening the impact on the overall portfolio.

Dividend: Dividends represent a share in the profits of a company and are paid out to the company’s shareholders at set times of the year.

Duration: A measure of the sensitivity of a fixed income security, also called a bond, or bond fund to changes in interest rates. The longer a bond or bond fund’s duration, the more sensitive it is to interest rate movements.

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 to changes in interest rates. Emerging economy or market: Economies in the process of rapid growth and increasing industrialisation. Investments in emerging markets are generally considered to be riskier than those in developed markets.

Equities: Shares of ownership in a company. Exchange traded: Usually refers to investments traded on an exchange, such as company shares on a stock exchange.

Ex-dividend, ex-distribution or XD date: The date on which declared distributions officially belong to underlying investors.

Exposure: The proportion of a fund invested in a particular share/fixed income security, sector/region, usually expressed as a percentage of the overall portfolio. Fixed income security: A loan in the form of a security, usually issued by a government or company, which normally pays a fixed rate of interest over a given time period, at the end of which the initial amount 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 a reference interest rate.

Foreign exchange: The exchange of one currency for another, or the conversion of one currency into another currency. Foreign exchange also refers to the global market where currencies are traded virtually around the clock. The term foreign exchange is usually abbreviated as ‘forex’ and occasionally as ‘FX’.

Foreign exchange (FX) strategy: Currencies can be an asset

Gilts: Fixed income securities issued by the UK government. Government bonds: Fixed income securities issued by governments, that normally pay a fixed rate of interest over a given time 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 (net asset value) has reached at the end of any 12-month accounting period. High yield bonds: Fixed income securities issued by companies with a low credit rating from a recognised credit rating agency. They are considered 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 meet interest payments or repay the initial investment amount at the end of a security’s life. Historic yield: The historic yield reflects distributions declared over the past 12 months as a percentage of the share price, as at the date shown. Income yield: Refers to the income received from an investment and is usually expressed annually as a percentage based on the investment’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 as cash on the payment date. Income units: A type of unit where distributions are paid out as cash on the payment date. Index tracking: A fund management strategy that aims to match the returns from a particular index.

Index-linked bonds: Fixed income securities where both the value of the loan and the interest payments are adjusted in line with inflation over the life of the security. Also referred to as inflation-linked bonds.

Inflation: The rate of increase in the cost of living. Inflation is usually quoted as an annual percentage, comparing the average price this month with the same month a year earlier.

Inflation risk: The risk that inflation will reduce the return of an investment in real terms.

class in its own right, along with company shares, fixed income securities, property and cash. Foreign exchange strategy can therefore be a source of investment returns.

Initial public offering (IPO): The first sale of shares by a private

Forward contract: A contract between two parties to buy or sell a

value if interest rates rise.

particular commodity or financial instrument at a pre-determined price at 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’s fundamentals pertain specifically to that company, and are factors such as 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 fundamentals are factors such as inflation, employment, economic growth.

company to the public.

Interest rate risk: The risk that a fixed income investment will lose Interest rate swap: An agreement between two parties to swap a fixed interest payment with a variable interest payment over a specified period of time. Investment Association (IA): The UK trade body that represents fund managers. It works with investment managers, liaising with government on matters of taxation and regulation, and also aims to help investors understand the industry and the investment options available to them.

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Glossary Issuer: An entity that sells securities, such as fixed income securities

Over-the-counter (OTC): Whereby financial assets are traded

and company shares.

directly between two parties. This is in contrast to exchange trading, which is carried out through exchanges set up specifically for the purpose of trading. OTC is also known as off-exchange trading.

Investment grade bonds: Fixed income securities issued by a company with a medium or high credit rating from a recognised credit rating agency. They are considered to be at lower risk from default than those issued by companies with lower credit ratings. Default means that a company or government is unable to meet interest payments or repay the initial investment amount at the end of a security’s life.

Issuer: An entity that sells securities, such as fixed income securities and company shares.

Leverage: When referring to a company, leverage is the level of a company’s debt in relation to its assets. A company with significantly more debt than capital is considered to be leveraged. It can also refer to a fund that borrows money or uses derivatives to magnify an investment position.

Liquidity: A company is considered highly liquid if it has plenty of cash at its disposal. A company’s shares are considered highly liquid if they can be easily bought or sold since large amounts are regularly traded.

Long position: Refers to ownership of a security held in the expectation that the security will rise in value. Macroeconomic: Refers to the performance and behaviour of an economy at the regional or national level. Macroeconomic factors such as economic output, unemployment, inflation and investment are key indicators of economic performance. Sometimes abbreviated to ‘macro’.

Maturity: The length of time until the initial investment amount of a fixed income security is due to be repaid to the holder of the security.

Modified duration: A measure of the sensitivity of a fixed income security, called a bond, or bond fund to changes in interest rates. The longer a bond or bond fund’s duration, the more sensitive it is to interest rate movements.

Monetary easing: When central banks lower interest rates or buy securities on the open market to increase the money in circulation.

Monetary policy: A central bank’s regulation of money in circulation and interest rates.

Monetary tightening: When central banks raise interest rates or sell 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

Overweight: If a fund is ‘overweight’ a stock, it holds a larger proportion of that stock than the comparable index or sector.

Payment date: The date on which distributions will be paid by the fund to investors, usually the last business day of the month.

Physical assets: An item of value that has tangible existence, for example, cash, equipment, inventory or real estate. Physical assets can also refer to securities, such as company shares or fixed income securities.

Portfolio transaction cost: The cost of trading, such as brokerage, clearing, exchange fees and bid-offer spread as well as taxes such as stamp duty.

Preference shares: Preference shares are a loan to a company that may be traded in the same way as ordinary shares, but generally have a higher yield and pay dividends on fixed dates. Preference shares have varying characteristics as to the treatment of the principal and the dividend payment, which includes ranking them above ordinary shares when it comes to dividend payments. Principal: The face value of a fixed income security, which is the amount due back to the investor by the borrower when the security reaches the end of its life.

Private placement: An offer of sale of securities to a relatively small number of investors selected by the company, generally investment banks, mutual funds, insurance companies or pension funds. Real yield: The return of an investment, adjusted for changes in prices in an economy.

Retail Prices Index (RPI): A UK inflation index that measures the rate 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 what is expected. Risk includes the possibility of losing some or all of the original investment. Risk management: The term used to describe the activities the fund manager undertakes to limit the risk of a loss in a fund.

Risk premium: The difference between the return from a risk-free asset, such as a high-quality government bond or cash, and the return from an investment in any other asset. The risk premium can be considered the ‘price’ or ‘pay-off’ for taking on increased risk. A higher risk premium implies higher risk.

to cash.

Risk-free asset: An asset that notionally carries no risk of non-

Net asset value (NAV): A fund’s net asset value is calculated

payment by the borrower such as a high-quality fixed income security issued by a government or cash.

by taking the current value of the fund’s assets and subtracting its liabilities.

Open-ended investment company (OEIC): A type of managed

Risk/reward ratio: A ratio comparing the expected returns of an investment with the amount of risk undertaken.

fund, whose value is directly linked to the value of the fund’s underlying investments.

Safe-haven assets: Refers to assets that investors perceive to be

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 the future.

Security: Financial term for a paper asset – usually a share in a company or a fixed income security also known as a bond.

relatively safe from suffering a loss in times of market turmoil.

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Glossary Share class: Each M&G fund has different share classes, such as

Underlying yield: Refers to the income received by a managed

A, R and I. Each has a different level of charges and minimum investment. Details on charges and minimum investments can be found in the Key Investor Information Documents.

fund, and is usually expressed annually as a percentage based on the fund’s current value.

Share class hedging: Activities undertaken in respect of hedged shares to mitigate the impact on performance of exchange rate movements between the fund’s currency exposure and the investor’s chosen currency.

Short position: A way for a fund manager to express his or her view that the market might fall in value.

Short selling: This often refers to the practice whereby an investor sells an asset they do not own. The investor borrows the asset from someone who does own it and pays a fee. The investor must eventually 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 they sold it for, thus making a profit. The contrary may also occur.

Short-dated corporate bonds: Fixed income securities issued by companies and repaid over relatively short periods. Short-dated government bonds: Fixed income securities issued by governments and repaid over relatively short periods.

Sovereign debt: Debt of a government. Also referred to as government bonds.

Sub-investment grade bonds: Fixed income securities issued by a company with a low rating from a recognised credit rating agency. They are considered to be at higher risk from default than those issued by companies with higher credit ratings. Default means that a company or government is unable to meet interest payments or repay the initial investment amount at the end of a security’s life.

Top-down investing: An investment approach that analyses economic factors, ie surveys the ‘big picture’, before selecting which companies to invest in. The top-down investor will look at which industries are likely to generate the best returns in certain economic conditions and limit the search to that area.

Total return: The term for the gain or loss derived from an investment over a particular period. Total return includes income (in the form of interest 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 income security, also called a bond, can be assigned by credit rating agencies. Bonds that are rated AAA are perceived to have the lowest risk of default. Default means that a company or government is unable to meet interest payments or repay the initial investment amount at the end of a security’s life.

Underweight: If a portfolio is ‘underweight’ a stock, it holds a smaller proportion of that stock than the comparable index or sector. Unit trust: A type of managed fund, whose value is directly linked to the value of the fund’s underlying investments.

Unit/share type: Type of units/shares held by investors in a trust or fund (unit/share types differ by features such as whether income is to be paid out as cash or reinvested on the payment date). Valuation: The worth of an asset or company based on its current price.

Volatile: When the value of a particular share, market or sector swings up and down fairly frequently and/or significantly, it is considered volatile. Volatility: The degree to which a given security, fund, or index rapidly changes. It is calculated as the degree of deviation from the norm for that type of investment over a given time period. The higher the volatility, the riskier the security tends to be. Warrant: A security issued by a company that gives the holder the right to buy shares in that company at a specified price and within a certain timeframe. Yield: This refers to either the interest received from a fixed income security or to the dividends received from a share. It is usually expressed as a percentage based on the investment’s costs, its current market value or its face value. Dividends represent a share in the profits of the company and are paid out to a company’s shareholders at set times of the year. Yield (equity): Refers to the dividends received by a holder of company shares and is usually expressed annually as a percentage based on the investment’s cost, its current market value or face value. Dividends represent a share in the profits of the company and are paid out to a company’s shareholders at set times of the year.

Yield (bonds): This refers to the interest received from a fixed income security and is usually expressed annually as a percentage based on the investment’s cost, its current market value or its face value.

Yield (income): Refers to the income received from an investment and is usually expressed annually as a percentage based on the investment’s cost, its current market value or face value.

UCITS: Stands for Undertakings for Collective Investment in Transferable Securities. This is the European regulatory framework for an investment vehicle that can be marketed across the European Union and is designed to enhance the single market in financial assets while maintaining high levels of investor protection.

Unconstrained: The term used to describe the mandate of a fund whereby the manager has the freedom to invest according to his or her own strategy, not being obliged to allocate capital according to the weightings of any index, for example.

Underlying value: The fundamental value of a company, reflecting both tangible and intangible assets, rather than the current market value.

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.

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Notes

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