M&G Prudent Allocation Fund Fund

Questionnaire

A flexible asset allocation process to manage risk through a diversified portfolio

that can invest in a variety of assets, including equities, government bonds and

corporate bonds, across all major investable markets.

The potential to deliver returns between 3% and 6% pa1, while managing volatility

between 3% and 7% pa over the medium term2, with positive returns over rolling

three years, although this is subject to change. There is no guarantee that the

Fund will achieve a positive return over this, or any other, period and investors

may not recoup the original amount they invested.

A robust and repeatable approach – combining valuation analysis and

behavioural finance – used by M&G’s Multi Asset team for over 15 years.

1 The potential return is quoted net of charges on a total return basis (combination of income and capital growth)

and calculated over a three- to five-year period. 2 The potential volatility figures are calculated on a monthly basis

over the medium term.

Contents

Fund management team

Investment objective and strategy

Investment process

Portfolio construction

Risk management

Key fund facts

Additional information

Company details

Dealing

Risk management

Compliance

Other

Fund management team

The management team

The managers of the M&G Prudent Allocation Fund are Juan Nevado and Craig Moran. They are members of M&G’s

Multi Asset team, headed by Dave Fishwick. The managers have been in charge of the fund since launch in April 2015.

Team structure and responsibilities

The M&G Multi Asset team

Juan Nevado and Craig Moran are both longstanding members of the M&G Multi Asset team. The team comprises a

close-knit group of experienced fund managers, all trained economists with average investment experience of over

15 years. The core members of the team have been applying their unique investment philosophy and process for

over a decade, first managing multi-asset mandates for the Prudential Life Fund and then using the approach for the

M&G Multi Asset funds. A great deal of research is conducted within the team, meaning that although Juan and

Craig are ultimately responsible for all investment decisions for the M&G Prudent Allocation Fund, they are

constantly sharing and testing ideas with the other multi-asset fund managers, fund managers’ assistants and

investment specialists.

Co-Fund Manager: Craig Moran

Craig Moran was appointed deputy fund manager of the M&G Episode

Allocation Fund and the M&G Dynamic Allocation Fund in 2011. In April

2015 he was appointed co-manager of the M&G Prudent Allocation

Fund on launch. Craig joined M&G in 2005 as a performance and risk

analyst and was later promoted to a fund managers' assistant to the

Multi Asset team. In 2010, he became the team's investment analyst.

Craig holds a bachelor of business degree from Queensland University

of Technology and a masters in applied finance and investments from

the Financial Services Institute of Australasia. He is a CFA

charterholder.

Co-Fund Manager: Juan Nevado

Juan Nevado joined PPM (now M&G) in 1988 and has been working as

part of the Multi Asset team led by Dave Fishwick since 1999. In

January 2011, Juan was appointed co-manager of the M&G Episode

Allocation Fund and the M&G Dynamic Allocation Fund. In November

2013 and April 2015, he was also appointed deputy manager of the

M&G Income Allocation Fund and co-manager of the M&G Prudential

Allocation Fund respectively upon their launches. Prior to joining M&G,

Juan worked as a bond economist at the Bank of Montreal, and before

that, as an economist for the Commodities Research Unit, a private

business consultancy specialising in macro/micro research on

commodities markets. Juan has a BSc in economics from the LSE and

an MA in economics from Warwick University.

Multi Asset: experienced team with a rigorous valuation framework

Source: M&G as at 31 December 2016. Please note that not all funds are registered in all jurisdictions.

Common philosophy

The M&G Multi Asset team’s principles are based on:

A disciplined valuation framework which exploits emotional bias in the pricing of risk

Repeatable process applicable to the most liquid asset classes

Behavioural analysis to identify cause of valuation misalignment

Asset allocation as the primary driver of performance

All of M&G’s multi-asset strategies are managed within a single global investment framework under the direction of

Dave Fishwick. Underpinning this framework is the belief that the best approach to managing a portfolio lies in

flexibly allocating capital between global asset classes in response to changes in asset valuations, and

understanding the behavioural and economic drivers of those valuations.

Each individual manager or co-management team is responsible for deciding how the team’s asset allocation

decisions are employed within each fund portfolio, taking account of the fund's specific investment objectives and its

risk/reward profile. Portfolio positions are not expected to contradict the team’s view on markets and asset pricing.

Investment objective and strategy

Potential to deliver returns between 3% and 6% pa1, with volatility between 3% and 7%

pa over the medium term2, and positive returns over rolling three years, although this

is subject to change

A flexible asset allocation process that seeks to manage risk by building a diversified

portfolio

A unique investment strategy that combines valuation analysis and behavioural

finance

Investment objective

The fund aims to deliver positive total returns in any three-year period from a flexibly managed portfolio of global

assets.

There is no guarantee that the fund will achieve a positive return over this, or any other, period and investors may

not recoup the original amount they invested.

Investment strategy

The managers believe that no one has the edge in attempting to predict market movements, therefore they avoid

forecasting and instead focus on what current asset valuations are signalling about the attractiveness of different

assets, and why.

The M&G Prudent Allocation Fund seeks to generate returns and manage volatility through the flexible allocation of

capital between asset classes, guided by a robust valuation framework. In particular, the managers seek to respond

to occasions where asset prices move away from a reasonable sense of ‘fair’ value due to investors overreacting to

events and allowing their emotions to cloud rational judgment. They believe such occasions create opportunities

because short-term emotional responses should be less important than underlying fundamentals over the medium

and long term.

The M&G Prudent Allocation Fund’s approach seeks to take advantage of these emotionally driven misalignments,

establishing asset positions that stand to benefit as prices gravitate back towards their longer term normalised

valuation.

An in-depth assessment of long-term valuation signals is an integral part of the fund’s investment process, in order to

establish a sense of fair value. However, the strategy does not rely on a purely quantitative approach. These models

can fall into their own traps, not only with regards to the technical difficulties in their creation, but especially because

of their failure to adapt to changes in the economic environment. The managers’ ability to examine the economic

environment and make judgements as to the validity of valuation signals constitute a significant aspect of the fund’s

investment process.

1 The potential return is quoted net of charges on a total return basis (combination of income and capital growth)

and calculated over a three- to five-year period. 2 The potential volatility figures are calculated on a monthly basis

over the medium term.

Investment process

A disciplined valuation framework prevents the managers falling victim to behavioural

biases

The ability to understand the behavioural nature of the mispricing of assets is key

Portfolio construction is essential to achieve the fund’s objectives

The process of idea generation

1. Strategic assessment: valuation stage

The starting point of the investment process is an objective examination of a wide-ranging investment universe,

including equities, fixed interest, and other assets across developed and emerging markets via the ‘valuation

framework’.

Valuation is key. The managers assess what they would consider to be fair value for a wide range of assets around

the world in light of historical expected returns, economic theories and investors’ preferences for each asset class.

This is called ‘neutrality’. They then compare this neutrality with the real yield of these assets to create a robust

valuation framework (see chart below). The objectivity and discipline of this analysis helps to prevent Juan and Craig

themselves from falling victim to the very emotional biases they look to exploit.

Sample of assets – real yields against an assessment of neutrality

Source: M&G. Please note this chart is for illustrative purposes only and does not reflect current market data. Real yields calculated as nominal

yield adjusted for expected inflation for fixed income securities, and as one-year forward earnings based on consensus earnings deflated by one-

year inflation expectations over current price for equities. This chart represents just the starting point for the team’s investment process;

behavioural finance insights are crucial to its interpretation. M&G does not have house views.

Where an asset’s real yield is not in line with neutrality, the managers would consider that the current valuation is

signalling either that the asset is ‘cheap’ (if it is offering a real yield higher than neutrality), or ‘expensive’ (if it is

offering a real yield lower than neutrality). This chart gives the fund managers a good starting point to look for

potential opportunities across a wide spectrum and to focus their analysis on the most attractive asset classes.

Valuations analysis is carried out by the fund managers; however, they also make extensive use of a wide variety of

both internal and external resources.

A great deal of research is conducted within the Multi Asset team, meaning that although the managers are

ultimately responsible for all investment decisions for the M&G Prudent Allocation Fund, they also communicate daily

with their peers on the Multi Asset team, with the team all sitting together in our London office. Research within the

team includes use of analysis produced via a dedicated multi-asset team research programme which involves a

weekly meeting where the fund managers and the other members of the team discuss the research done on specific

global investment themes. The fund managers are also assisted in portfolio construction by specialised in-house

research analysts from across M&G, including equity, fixed income and property teams. Furthermore, the managers

have frequent access to wider Prudential group resources and meet every quarter with members of various

Prudential teams from around the world to discuss research and ideas at the Global Macro Forum.

In terms of external resources, the team uses both investment banking research and independent research.

2. Tactical assessment: behavioural stage

If the valuation stage identifies that certain assets are under- or overpriced, particularly where an asset price has

moved rapidly, the managers seek to identify what is driving this. There may be a valid reason (if there has been

genuine fundamental change) for the price movement or it could be due to human behavioural factors – investors

may be reacting emotionally to events and therefore ignoring the more important normal/fundamental investment

factors. The team identifies three factors that can help to recognise a behavioural event:

Focus on a single story – when market participants draw their attention to a single specific event and disregard

other information

Inconsistent responses – when the market behaves differently from the manner suggested by economic

developments

Rapid price movement – of any asset class either up or downwards, suggesting an ill-considered response

Over the medium to long term, the managers would expect such mispricing to correct. Therefore these behaviourally

driven episodes may create opportunities for investment.

3. Portfolio construction

If the managers establish that price movements are inconsistent with the true value of the assets, they may decide to

take an investment position. They will then decide whether to own the asset and in what proportion, in order to best

meet the fund’s return and risk aspirations, within the constraints specific to the fund.

Portfolio construction

Asset allocation and selection are the primary drivers of performance

Position sizes considered in context of total portfolio volatility

Portfolio construction is not a static process; volatility and correlation patterns are

constantly changing

Internal limits are subject to change

Portfolio construction

The main drivers of returns and volatility of the fund are the allocation to and selection of the different asset classes.

As described, the managers use a combined strategic valuation and tactical behavioural approach to identify assets

which they believe to be mispriced. The managers feel these types of opportunities are most easily observed at the

asset class, geographic or sector level, but individual security selection has little relevance. As such, they take a top-

down approach to asset allocation across a wide-ranging investment universe. Timing is vital as they look to be

invested in the right assets, at the right time. In order to allow the fund managers to take advantage of market

opportunities, the fund can express relative value views by using short positions (although it must maintain net

positive exposure to each asset class) and can use limited leverage.

Fixed income exposure

The fund managers’ internal limit for investing in fixed income securities (including cash) is between 45% and 100%

of the fund. Neutrality, or an indication of exposure should fixed income markets be at fair value, is set at 70%.

The fund can use duration hedging strategies and can also go negative duration to a maximum of -3 years fixed

income duration.

Government debt instruments are selected according to the fund managers’ macro views. The investment decision is

focused on the desired position on the yield curve in the context both of the overall portfolio and the prevailing

macroeconomic backdrop. As with other areas of the portfolio, holdings are globally diversified.

When assessing credit, analysis of valuation and fundamentals is conducted at the ‘index’ level taking into

consideration credit ratings, duration, geographical and (less frequently) sector characteristics. Starting from a macro

analysis of market opportunities, the fund managers identify interesting exposures within various corporate credit

regions and sectors. With all positions, the fund managers seek to implement the asset class exposure in the

cheapest, most efficient and liquid way, primarily at the index level. Their investment decisions are taken in the

context of the overall portfolio.

The fund managers have access to the breadth of M&G resources and capabilities in fixed income, and regularly

consult with the analysts and fund managers within the Retail Fixed Interest team.

Equity exposure

The fund managers’ internal limit for equity exposure is between 0% and 35% of the fund. Neutrality, or an indication

of exposure should equity markets be at fair value, is set at 20%. Relative value positions are allowed within the

equity exposure; however, we believe that those are more likely to occur when we observe high level of dispersion

within equity markets.

As the opportunities the managers look to exploit are most easily identifiable at the broad geographic level, most of

the equity exposure is achieved via index futures. This also affords the fund greater liquidity and flexibility than

buying and selling individual physical stocks. However, the managers are also able to exercise a high degree of

selectivity by implementing exposures to particular sectors or themes within regional markets, where they observe

particularly compelling opportunities. In these cases, they will construct baskets of individual stocks from within a

certain sector. In addition to using their own macro views, valuation framework and subjectivity to select equity

exposures, the managers also have access to M&G resources and capabilities in equities, including the analysts and

fund managers with the Equities team.

Alternatives exposure

The fund managers’ internal limit for exposure to alternative assets is between 0% and 20% of the fund. Neutrality is

set at 10%. Alternatives assets would include REITs exposure, convertible bonds, infrastructure etc. These positions

should support the fund in achieving diversification.

Currency exposure

Although currency positioning can be an additional driver of returns, the fund managers would not expect this to be

the main driver of performance over the medium term. Also, as the fund is managed in euros for European investors

the fund managers will aim to achieve the returns in euros. Given the low appetite for risk in this fund, they feel the

minimum investment in euros should be 60%.

Collectives

The fund managers may also hold up to 10% in collectives at any time. They will only invest in other M&G funds to

ensure cost efficiency and transparency, owing to their close relationship with colleagues across M&G’s business.

NB, all the above are internal limits and are subject to change.

Risk management

Understanding correlation patterns is key to portfolio diversification

Asset allocation and selection aims to take the right level of risk

Independent team of risk analysts and monitoring professionals support the fund

manager

Correlations and risk management

The M&G Multi Asset team believes that risk is best considered as the probability of losing money over a significant

period of time. Volatility, on the other hand, measures how much the price of an asset may move in either direction

over time.

While maintaining a diversified portfolio to try and minimise volatility is a sensible approach, it is important to

recognise that statically holding a variety of asset classes based on the assumption that they will each have a

different impact on portfolio risk by consistently behaving in a particular way, may not provide effective diversification.

It is important to understand and challenge the correlation patterns among different asset classes and not simply rely

on the historical correlations drawn from past performance. In order to construct a truly diversified portfolio, it is

paramount to maintain an objective view of asset valuations and also to take into account the effect that human

behaviour and investor psychology can have on asset pricing and their relative movements.

Taking some level of risk can be helpful, even essential, in meeting investment goals, as long as sufficient

compensation is being paid for taking that risk. Through a diversified, flexible portfolio, the fund managers aim to add

value by taking the right level of risk at the right price.

Monitoring of investment risk

Risk management for a fund is the responsibility of the fund managers. They are supported in this by an independent

team of risk analysts and monitoring professionals. The Risk team is independent of the Investment Management

team and provides investment risk analysis and monitoring across a broad spectrum of M&G fund management

activities including fixed interest, multi-asset and structured fund mandates and investment vehicles. Since 2001 the

Risk team has undertaken in-depth risk analysis on client funds that use derivative-based strategies. The team runs

risk models that provide regular – daily and monthly – risk monitoring and analysis reports in order to determine

whether the funds remain within their specified risk parameters.

Risk analysis

A team of risk analysts undertakes quantitative modelling and analysis, providing support and challenge to the

investment management process. The funds are reviewed by the Risk Analysis team on a monthly basis, with a

focus on their sensitivity to core market risk factors, sector and issuer/country concentration. The analysts pay

particular attention to any derivative activity and any implied leverage or shorting. The team has reporting lines

independent of the front office and report into the Group Risk Director.

Risk monitoring

The Risk Monitoring team is responsible for monitoring against risk limits, as required for those funds that have

adopted full wider powers under UCITS regulations. The Risk Monitoring team reviews on a daily basis the funds’

VaR results and compares them with the prescribed limits. VaR limits for the funds have been established in line with

the specific fund mandate; compliance/non-compliance with prescribed limits is reported to the fund managers and

M&G’s Compliance Monitoring unit. For the M&G Prudent Allocation Fund, the lower VaR limit is 0% and upper limit

is 8%, both on a 99% one-month basis.

Risk management process

The risk management process has several key objectives such as:

To monitor each fund’s overall risk position against specified risk limits established in line with its objectives and

investment policy

To provide effective risk analysis on portfolios including;

o provision of portfolio risk analysis identifying key risk factor positioning

o provision of risk sensitivities including VaR, stress test and scenario analysis

To provide oversight for senior management that funds are being managed in line with mandates

o highlighting key risks

o ensuring that adequate debate on risks takes place between the fund managers and senior

management team

Key fund facts

Fund name M&G Prudent Allocation Fund

Fund legal structure OEIC, incorporated in the UK

Inception date 23 April 2015

Investment policy/strategy The fund may invest in a range of fixed income assets, equities, collective investment

schemes, other transferable securities, cash and near cash, deposits, warrants and money

market instruments. Derivatives may also be used, for both hedging and investment

purposes.

Asset allocation is central to the fund’s investment philosophy and is based on the fund

manager’s macroeconomic outlook, asset class valuations and active risk management in

portfolio construction. The fund seeks to manage risk by investing globally in multiple asset

classes. As such the portfolio may be diversified across asset classes, sectors, currencies

and countries although, at the fund manager’s discretion, there may be some periods

where the portfolio will have a higher than usual concentration of asset or market exposure.

The fund will not have the majority of its assets in equities.

Fund currency EUR

Compliance regulation UCITS

NAV calculation frequency Daily

NAV redemption frequency Daily

Jurisdictions where the fund

is registered

UK

Financial services regulator Financial Conduct Authority (FCA)

Management company M&G Securities Limited

Investment manager M&G Investment Management Limited

Fund managers' names Juan Nevado, Craig Moran

Fund manager's location London, UK

Administrator/Custodian State Street Bank and Trust Company

Registrar and Transfer Agent International Financial Data Services (UK) Limited

Dealing point 12:00 UK time

Dealing frequency Daily, each UK business day

Pricing frequency Daily, each UK business day, 12:00 UK time

Countries where registered

for sale

Germany, Austria, Spain, France, Italy, Luxembourg, Switzerland, Netherlands, Denmark,

Finland, Norway, Sweden, Ireland, Belgium, Greece, Portugal. (Please note that the same

share classes are not necessarily registered for sale in all countries).

Share

class

Share

type

Management

fees (% pa)

Ongoing

charge (%) SEDOL code ISIN

Mex

ID

Bloomberg

ticker code

CHF A-H Acc 1.40% 1.59% BD20Q66 GB00BD20Q667 MGXZO MGPACAH LN

CHF C-H Acc 0.60% 0.79% BD20Q88 GB00BD20Q881 MGXZQ MGPACCH LN

Euro A Acc 1.40% 1.59% BV8BTV5 GB00BV8BTV53 MGAAFP MGPAAEA LN

Euro A Inc 1.40% 1.59% BV8BTW6 GB00BV8BTW60 MGAAFQ MGPAAEI LN

Euro B Acc 1.90% 2.09% BYQRC39 GB00BYQRC390 H5XXA MGPAEBA LN

Euro B Inc 1.90% 2.09% BYQRC40 GB00BYQRC408 H5XXB MGPAEBI LN

Euro C Acc 0.60% 0.78% BV8BTX7 GB00BV8BTX77 MGAAFR MGPACEA LN

Euro C Inc 0.60% 0.78% BV8BTY8 GB00BV8BTY84 MGAAFS MGPACEI LN

USD A-H Acc 1.40% 1.60% BV8BTZ9 GB00BV8BTZ91 MGAAFT MGPAAUA LN

USD A-H Inc 1.40% 1.60% BV8BV08 GB00BV8BV087 MGAAFU MGPAAUI LN

USD C-H Acc 0.60% 0.78% BV8BV19 GB00BV8BV194 MGAAFV MGPACUA LN

USD C-H Inc 0.60% 0.80% BV8BV20 GB00BV8BV202 MGAAFW MGPACUI LN

Source: M&G, as at 28 February 2017. Ongoing charges as at 31 October 2016.

Additional information

Support available to the fund management team

Our fund managers are ultimately responsible for all investment decisions. However, they have access to extensive

investment resources, including Multi Asset team peers, and dedicated risk professionals.

They are supported by the following specialist teams within M&G:

Research analysts

Investment specialists

M&G Risk team

Dealers

In addition, support is provided by front, middle and back office departments including the following:

Performance Analytics

Investment Marketing

Marketing

Legal & Compliance

Business Management

This structure is intended to ensure that the management team is focused entirely on fund management.

Fund manager responsibilities and focus

Our fund managers are fully committed to and focused on fund management. They have full responsibility for the

investment performance of the funds under their management. As M&G Multi Asset team members, they are also

actively involved in the generation and discussion of investment ideas by the team. Other activities include

communication with clients invested in our funds and occasional meetings with external consultants and ratings

agencies. All other activities not directly related to fund management are undertaken by the support teams at M&G.

Fund manager succession plan

Our succession plan relies on the strength of the investment teams and the common elements of our investment

processes. Since the fund managers work closely together and share a common investment philosophy and

language we are confident that our funds could be seamlessly managed should a member leave. Research is

conducted within the Multi Asset team using a single global investment framework. All the strategies – and individual

portfolios within them – have a deputy fund manager who is fully aware of the way the portfolio is managed and its

key positions. The deputy fund manager is also supported by the other fund managers and fully qualified to take over

management.

Company remuneration policy

Internally, M&G has a strong and integrated set of compensation practices designed to reflect people’s contribution

as well as their output. The objective of M&G’s approach to remuneration is to facilitate the achievement of business

objectives. Central to this is the need to ensure that M&G can attract, retain and motivate the necessary calibre of

talent required to deliver the business objectives. This in turn requires that the remuneration philosophy is flexible

enough to respond to market changes, enhances the team-based culture, supports M&G values and delivers fair

reward commensurate with the performance achieved. The remuneration structures and policies are designed to

reward employees through the investment cycle.

For the majority of retail fund managers, bonuses are primarily linked to three-year investment performance of funds

within their remit. The final bonus figure will be determined on a discretionary basis by management taking into

account other factors such as net inflows over the year, contribution to the investment floor and wider business,

client servicing, risk and compliance (both investment and business related). For a small number of senior retail fund

managers there is also a link to the profitability of their franchise.

An amount of the annual bonus will be delivered in cash. Processes then apply to ensure an appropriate proportion

of their annual award is delivered in long-term form/ deferred. This approach ensures alignment with market and

good business practice and is consistent with the direction of remuneration regulation.

Sound risk management, appropriate alignment with business objectives and good governance are all critical in the

ongoing management of these elements. These are achieved by appropriate oversight and review processes. M&G

aims to provide individuals with the potential to earn at the upper quartile of market practice at a total compensation

level for exceptional performance.

Fund manager stake in the investment management company

As M&G is wholly owned by Prudential plc, our fund managers do not have a direct shareholding in the management

company. They do, however, have a stake in the ownership of the company through M&G’s long-term incentive plan,

which combines phantom equity and options over phantom equity in M&G. The scheme is designed to provide a

meaningful stake in the future growth of the value of the company to those who have a significant role to play in its

development.

M&G

Company details

Company

Questionnaire

Company details

M&G history

M&G was founded under its original name of Municipal and General Securities in 1901 as the financial arm of a

British engineering company. M&G revolutionised British finance in 1931 when it launched the first mutual fund for

the general public. Since that time, the firm has concentrated on the management of investment funds.

In 1999, M&G merged with Prudential plc, a leading international financial services group with more than 26 million

customers worldwide. Based in London, M&G manages investment funds for its individual and institutional clients,

and also acts as European investment manager for Prudential plc.

M&G has funds under management with a total value of £264.8 billion (€310.2 billion, US$327.2 billion) as at 31

December 2016, (including Prudential’s long-term business funds), making it one of Europe’s leading fund providers.

Ownership structure

M&G is wholly owned by Prudential plc, a UK-listed international financial services company.

Source: M&G, 7 June 2016

Assets under management

As at 31 December 2016, the total assets under management by M&G were £264.8 billion. These are managed on

behalf of retail, institutional and internal clients. Types of assets are shown in the following tables in sterling, euro

and US dollar.

Total assets under management as at 31 December 2016

Asset class £ million € million US$ million

Equity 57,675 67,567 71,267

Fixed Income 168,002 196,815 207,592

Property 24,231 28,368 29,941

Cash 14,917 17,476 18,249

Total 264,826 333,867 327,232

Source: M&G as at 31 December 2016

Total assets under management as at 31 December 2015

Asset class £ million € million US$ million

Equity 53,712 72,876 79,166

Fixed Income 156,607 212,484 230,823

Property 23,370 31,708 34,445

Cash 12,381 16,799 18,249

Total 246,070 333,867 362,683

Source: M&G as at 31 December 2015

Total assets under management as at 31 December 2014

Asset class £ million € million US$ million

Equity 64,009 82,479 99,806

Fixed Income 163,402 210,551 254,784

Property 21,400 27,575 33,368

Cash 14,566 18,769 22,712

Other 620 800 967

Total 263,997 340,173 411,637

Source: M&G as at 31 December 2014

Organisational structure

Source: M&G, 29 March 2017

Anne Richards was appointed Chief Executive of M&G Investments and executive director of Prudential plc in June

2016. Prior to this, Anne was Global Chief Investment Officer and Head of the EMEA region for Aberdeen Asset

Management, a U.K. FTSE 100 listed company. Before joining Aberdeen in 2003 Anne was joint Managing Director

and Chief Investment Officer of Edinburgh Fund Managers, a boutique investment company also listed on the UK

stock exchange. Her investment career as a fund manager and analyst has spanned 24 years and included time

with Mercury Asset Management, later MLIM, J P Morgan Investment Management and Alliance Capital.

Before moving into investment management, Anne spent six years working as an engineer, including a spell as a

research scientist at CERN. Anne has a degree in Electronics and Electrical Engineering from the University of

Edinburgh and an MBA from INSEAD. Anne is also on the Board of Leaders of 2020 Women on Boards, a US

organisation which aims to increase the proportion of women on corporate boards. From 2012 until February 2016,

Anne was a non-executive director of Esure Group plc.

Regulation

The company is registered in the United Kingdom and registered as necessary in the other jurisdictions in which it

operates.

M&G Securties Limited (MGSL) and M&G Investment Management Limited are authorised and regulated by the

Financial Conduct Authority (FCA).

M&G, as part of its commitment to the FCA’s principle of open and co-operative dealing with the regulator, holds

regular meetings with the FCA to discuss all relevant matters.

Investment ethos

At M&G we are totally committed to increasing the real value of our customers’ wealth through active investment

management based on consistent adherence to sound investment principles.

M&G offers a wide range of investment solutions for retail and institutional clients, including fixed income, equity,

multi-asset, property and other alternative strategies. Our culture is based on a shared set of values focusing on

investment leadership, innovation and transparency. We believe that talented fund managers should be free to

express their views with conviction, supported by a robust framework of portfolio construction and risk management.

We are an investment-led business dedicated to the provision of excellent client service.

Competitive advantages

M&G is a genuinely independent fund manager with no allied distribution network in the various markets in which it

operates. We believe the main distinguishing feature that differentiates M&G from its competitors is its specialisation

in an active bottom-up process, identifying those investments that will deliver superior returns for shareholders over

the long term.

In our view, M&G has several competitive advantages over its peers:

M&G is specialised in the selection of securities and manages many funds with excellent profitability. Its

active management is backed by a long track record in innovation and safety;

M&G provides investors with a transparent and robust architecture of research, portfolio construction and

risk processes;

M&G enhances the freedom of its fund managers, investing in their talent and providing the necessary

support to allow them to concentrate on their best investment ideas;

Portfolio construction is assisted by specialised in-house research and a dedicated risk management and

portfolio strategy team;

M&G managers form a closely-knit team: based in a single location, the company’s corporate culture

stimulates debate and discussion to identify the most promising investment opportunities;

M&G’s size and presence across multiple markets enables the company to maintain excellent relationships

with the management teams of the companies in which it invests.

Corporate governance and stewardship

M&G has clearly formulated ESG (environment, social, governance) policies and the approach stems directly from

our founding values of integrity, security and prudence. These values remain as strong today as ever and drive our

commitment to the well-being of our customers, employees, agents and the communities in which we operate.

We have five corporate responsibility themes:

Fair and transparent products meeting customer needs

Best people for the best-performing business

Protecting the environment

Supporting local communities

Accountability and governance

At M&G we believe the long-term success of companies is supported by high standards of corporate governance,

and that social and environmental factors can also have a meaningful impact on company performance. We expect

well-managed businesses as a matter of course to embrace wider social and environmental issues in taking their

businesses forward and find it helpful if they publish the guidelines they adopt in dealing with them. We look for a

well-reasoned and practical approach and recognise that this can vary according to each company's circumstances.

Responsible investment

As environmental, social and governance factors are incorporated into our investment processes, everyone at M&G

who is involved in investing shares in this responsibility. We also have individuals with specific responsibility for

coordinating activity within each asset class. Finally, the M&G Responsible Investment Advisory Committee (RIAC)

oversees the governance and management of responsible investment activities. The committee’s members include

representatives from each business unit involved in investment management as well as from the distribution teams.

We produce an annual report 1 which outlines our stewardship activities over the year.

In publicly listed companies responsibility for stewardship is shared. The primary responsibility rests with the board of

the company, which oversees the actions of its management. Investors in the company also play an important role in

holding the board to account for the fulfilment of its responsibilities.

Voting policy

At M&G, an active voting policy is an integral part of our investment policy. By exercising our votes we seek to both

add value and to protect our interests as shareholders. We have a long history of activism and we have a dedicated

Corporate Finance department that maintains an ongoing dialogue with the companies in which M&G invests. You

can find our voting record on our website here.2

We look to work with the management of companies we hold, and where we have a differing opinion, we will hold

management accountable and/or work with them to understand our view point. Investee companies are monitored

closely, both in terms of their performance for creating shareholder value and issues arising from how companies are

directed and controlled.

United Nations Principles for Responsible Investment (UNPRI)

M&G is a signatory to the United Nations-backed Principles for Responsible Investment (UNPRI) and has long been

an active advocate of responsible share ownership. We have a dedicated Corporate Finance and Stewardship team

to oversee our stewardship of investee companies.

As professional investors, our overriding obligation is to act in the best interests of our clients. Many factors affect the

investment decisions we make in this regard, and we believe that it is our duty to consider all of them. Ensuring the

proper governance of investee companies is always central to our thinking, and we believe that environmental and

social issues should also be taken fully into account.

The UNPRI initiative is an international network of investors working together to put the six Principles for

Responsible Investment into practice. Its goal is to understand the implications of sustainability for investors and

support signatories to incorporate these issues into their investment decision making and ownership practices.

Further reading

Both our voting record and the overall principles we adopt – contained within our document, ‘Issues Arising from

Share Ownership’ 3 – are available on our public website www.mandg.co.uk

Please refer to the following link for further information on our approach to responsible investment: M&G

Responsible Investment 4

1 http://www.mandg.com/-/media/Literature/UK/Corporate/MG_Corporate-Finance-and-Stewardship-Report-2016_2017-01.pdf

2 http://www.mandg.com/en/corporate/about-mg/investment-philosophy/voting-history/

3 http://www.mandg.com/-/media/Literature/UK/Corporate/MandG-Issues-Arising-From-Share-ownership.pdf

4 http://www.mandg.com/en/corporate/about-mg/responsible-investment/

Dealing

Equities dealing

Equity trades are executed on behalf of all fund managers by a central dealing desk, consisting of five dealers.

The fund manager enters trade instructions on M&G’s order management system. The instruction is checked for

validity against any pre-trade compliance rules (including a restricted dealing list). If the trade is deemed acceptable

then it will be sent to the dealing team.

Deals are conducted in such a way as to maintain equality of treatment between all client funds. All funds for which a

particular deal is being conducted will have their orders completely filled or will receive the same proportion of the

stock available if it is not possible to satisfy the overall demand for the stock immediately. This is particularly

important when a transaction is completed over a period of time and involves a number of differently priced deals. In

these circumstances, stock will be allocated at the same average price to all client funds.

Once the broker has confirmed the deal with the dealer the trade is sent electronically from the order management

system to M&G’s back office.

The Quasar accounting system is connected to the trading system (OMS) by a real time interface. Trades are fed

straight through to the accounting system as they are dealt and confirmed. Settlement of trades is also carried out

using the Quasar system. All accounting records are maintained on Quasar in real time and the system supports

production of daily asset valuations and unit prices as well as periodic accounting statements.

M&G’s dealing team may only deal with approved brokers (where both the risk and legal departments have approved

the broker’s terms of business and deemed them to be creditworthy). M&G does not use prime brokers.

Fixed income dealing

M&G’s long-standing presence within fixed income markets has helped to establish value-adding relationships and

forge a reputation in conduct of putting our clients’ interests first. The Fixed Income business has a central dealing

team of five FCA approved dealers who coordinate trades across M&G’s fund management teams to minimise

transaction costs and ensure all clients are treated fairly. The dealers have a dedicated support team who liaise with

M&G front and back office functions and externally with market counterparties to ensure all issues within the trade

lifecycle are resolved in an efficient manner. The team is responsible for transacting a wide array of instruments

including but not limited to, government bonds, investment grade and high yield corporates, ABS, emerging market

debt as well as exchange-traded and OTC derivatives. Trade instruction and execution is via the front office order

management system which includes an integrated compliance module to ensure instructions are within IA

(Investment Association) restrictions. Counterparty credit limits are also in place and monitored by the dealers on an

intra-day basis.

The dealers use a benchmark of seeking three quotes per trade. If the dealer does not deem it appropriate to

approach three counterparties due to the characteristics of an order, a rationale will be provided; responses are

reviewed by the head of the desk as well as (in due course) Compliance and Internal Audit.

Best execution

M&G will take all reasonable steps to obtain, when executing orders, the best possible result for our clients, taking

into account the following execution factors: price, cost, speed, assurance of execution/settlement, size, nature or

any other consideration relevant to the execution of the order. In most cases, price (and size) will be the main

factor(s) determining whether or not we will execute an order.

The dealing desk executes orders with a variety of counterparties who are each under obligation to provide us with

best execution too. The dealers will decide on the counterparty and/or the venue according to the requirements of

each and every order.

We take all reasonable steps to ensure that our order execution policy is properly applied. Consequently, our dealing

processes are overseen by senior management who evaluate, on a periodic basis, the range of all the execution

channels used to determine whether the best result has been achieved on a consistent basis or whether changes to

our execution arrangements are needed. This oversight is monitored by our Compliance department. In addition, our

order execution policy is reviewed annually.

Risk management

Operational risk

The board of MGSL is responsible for ensuring it has robust risk governance arrangements, which include a clear

organisational structure with well defined, transparent and consistent lines of responsibility. The board delegates

responsibility for oversight of the investment management and operational activities carried out for the funds to two

senior committees, namely the Retail Investment Committee (RIC) and the Retail Investment Operations Committee

(RIOC). RIC maintains oversight of fund investment risks and RIOC maintains oversight of fund operational risks.

The MGSL Board includes the following key representatives:

MGSL Chief Executive Officer (Chair)

MGSL Legal Director

MGSL Compliance Director

M&G Chief Operating Officer

M&G Risk Director

MAGIM Business Management Director

MGSL delegates investment management responsibilities to MAGIM.

The MAGIM Board is responsible for overall risk control and receives quarterly reports from all business units. The

MAGIM Board delegates to the MAGIM Risk Committee responsibility for ensuring that all MAGIM business units

establish and maintain appropriate systems for monitoring and controlling investment exposures. These business units

are supported by several centralised functions: Compliance, Risk, Operations, Human Resources, Finance and Audit.

On an annual basis each business unit presents its investment risk controls to the MAGIM Risk Committee for review

and challenge, with specific reference to changes in process and control over the previous 12 months. Additionally,

the committee, which meets on a monthly basis, is ultimately responsible for the fair value and new markets process.

Fund level risk

At the individual fund level, risk management is the responsibility of the relevant fund management team, supported

by risk teams applicable to each asset class.

M&G has two primary independent risk teams: the Portfolio Construction & Risk team (PCR) and the Risk Analysis

team. The PCR team is devoted to monitoring equity strategies, whilst the Risk Analysis team focuses on fixed

income, convertibles and multi-asset funds. The risk teams are independent of fund management and have different

reporting lines. Their roles are consultative and they therefore do not impose decisions on the fund managers.

Each quarter, risk results from all funds are reviewed by M&G’s Investment Oversight Committee, which ensures

each fund is managed in line with its investment objectives. The committee also provides senior management insight

into how each fund is being managed in terms of the drivers of investment risk and performance, as well as acting in

a supportive role to help fund managers in delivering performance. The oversight committee considers relevant risk

metrics, fund positioning, performance attribution, trading activity and liquidity analysis, with any issues raised

discussed with the relevant fund managers as required. They will then decide whether or not they are comfortable

with the analysis and subsequent fund manager comments and hence, whether any further investigation and

possible action are required.

Business continuity

Full disaster recovery procedures are in place at M&G and disaster recovery tests are carried out annually. The

disaster recovery site is situated at Chelmsford with a separate site designated for file storage and systems back-up.

We define a disaster recovery event as a situation that prevents access to our normal offices and requires the

relocation of staff and/or systems. We define business continuity disruption as an event that causes a temporary

interruption to our business processes. This disruption can be of varying scale and duration.

The objectives of the M&G disaster recovery plans are to:

Establish an effective organisational structure to manage a disaster affecting any M&G offices

Ensure the safety and welfare of M&G staff affected by an incident

Ensure the rapid re-establishment of critical assets and business functions

Ensure effective relations with the media and clients

Organise internal communications with affected employees

A nominated member of the M&G board has specific responsibility for the strategic development of company-wide

business continuity and disaster recovery programmes. Day-to-day management of disaster recovery planning in

M&G is the responsibility of the Information & Risk Management department. Each senior manager in M&G has

responsibility for business continuity planning for their area or department.

The FCA requires a specific level of business continuity and disaster recovery planning.

To date it has not been necessary to activate the off-site Disaster Recovery site in Chelmsford. The plan is tested at

least annually.

Compliance

Compliance team

The Chief Compliance Officer (CCO) leads, directs and manages the activity of the Compliance Department and

retains overall accountability for Compliance services delivered. The CCO ensures that the Compliance Department

actively supports the Business in delivering M&G’s corporate strategy in a manner that is compliant with applicable

laws, regulations, business standards, rules of conduct and established industry practices. The CCO reports to the

M&G Chief Executive. The M&G Compliance Department comprises the following teams:

Compliance Strategy and Regulatory Development

Regulatory Liaison

Compliance Advisory

Central Compliance

Financial Crime Compliance

The Compliance Department, on a day-to-day basis, is responsible for overseeing the operation of the compliance

framework, for undertaking key compliance activities and for providing assurance on whether Compliance policies

and procedures are being complied with. The Compliance Department provides:

Independent oversight over the the M&G regulated entities and third party outsourced operations through an

agreed risk based Compliance Plan and Compliance Monitoring Plan;

Ongoing advice, support and training to the business on Compliance matters and regulatory obligations and

risks;

Policies and procedures to support the business in meeting their obligations and managing their risks;

Regular reporting to relevant boards and committees on the regulatory risk profile of the firm and results of

Compliance oversight activities;

Reporting to the FCA in line with FCA requirements; and

Systems and controls to prevent the exposure of M&G and its customers to the threat of financial crime.

Other

Custodian

The custodian of M&G Retail funds is State Street (appointed by NatWest/RBS, the depositary).

The depositary is responsible for the safekeeping of fund assets and has appointed State Street to act as custodian.

However, the depositary remains responsible for the actions of the custodian and monitors its effectiveness and

standing on an ongoing basis.

Non-cash assets of the M&G funds are held in separate client accounts with the custodian, in the name of the

depositary on behalf of each M&G fund. These assets are ring-fenced from the assets of both the custodian and

depositary and are therefore protected from claims of the creditors of those entities.

Counterparties

Custodian – State Street

Depositary – National Westminster Bank

Registrar – International Financial Data Services (UK)

Auditor – Ernst & Young

In addition, fund accounting, taxation and pricing operations are performed by State Street. Dealing is performed by

an internal team – we do not use prime brokers – and, as a major institutional investor, we have access to a large

number of brokers.

The value of investments will fluctuate, which will cause fund prices to fall as well as rise and investors may not get back the original amount invested. For Investment

Professionals and Institutional Investors only. Not for onward distribution. No other persons should rely on any information contained within. For

Switzerland: Distribution of this document in or from Switzerland is not permissible with the exception of the distribution to Qualified Investors according

to the Swiss Collective Investment Schemes Act, the Swiss Collective Investment Schemes Ordinance and the respective Circular issued by the Swiss

supervisory authority ("Qualified Investors"). Supplied for the use by the initial recipient (provided it is a Qualified Investor) only. In Spain the M&G

Investment Funds are registered for public distribution under Art. 15 of Act 35/2003 on Collective Investment Schemes as follows: M&G Investment Funds (1) reg. no

390, M&G Investment Funds (2) reg. no 601, M&G Investment Funds (3) reg. no 391, M&G Investment Funds (5) reg. no 972, M&G Investment Funds (7) reg. no 541,

M&G Investment Funds (9) reg. no 930, M&G Investment Funds (12) reg. no 1415, M&G Investment Funds (14) reg. no 1243, M&G Global Dividend Fund reg. no 713,

M&G Dynamic Allocation Fund reg. no 843, M&G Global Macro Bond Fund reg. no 1056 and M&G Optimal Income Fund reg. no 522, M&G (Lux) Investment Funds 1

reg. no 1551. The collective investment schemes referred to in this document (the "Schemes") are open-ended investment companies with variable capital,

incorporated in England and Wales in respect of M&G Investment Funds and in Luxembourg in respect of M&G (Lux) Investment Funds. In the Netherlands, all funds

referred to, are registered with the Dutch regulator, the AFM. This information is not an offer or solicitation of an offer for the purchase of investment shares in one of

the Funds referred to herein. Purchases of a Fund should be based on the current Prospectus. The Instrument of Incorporation, Prospectus, Key Investor Information

Document, annual or interim Investment Report and Financial Statements, are available free of charge, in paper form, from the ACD: M&G Securities Limited,

Laurence Pountney Hill, London, EC4R 0HH, GB; or one of the following - M&G International Investments Limited, German branch, mainBuilding, Taunusanlage 19,

60325 Frankfurt am Main; the Austrian paying agent: Société Générale Vienna Branch, Zweigniederlassung Wien Prinz Eugen-Strasse, 8-10/5/Top 11 A-1040 Wien,

Austria; the Luxembourg paying agent Société Générale Bank & Trust SA, Centre operational 28-32, place de la Gare L-1616 Luxembourg; the Danish paying agent:

Nordea Bank Danmark A/S Issuer Services, Securities Services, Hermes Hus, Helgeshøj Allé 33, Postbox 850, DK-0900, Copenhagen C, Denmark; Allfunds Bank,

Calle Estafeta, No 6 Complejo Plaza de la Fuente, La Moraleja, 28109, Alcobendas, Madrid, Spain; M&G International Investments Limited, the French branch; from

the French centralising agent of the Fund: RBC Investors Services Bank France; or from the Swedish paying agent: Nordea Bank AB (publ), Smålandsgatan 17, 105

71 Stockholm, Sweden. For Switzerland, please refer to M&G International Investments Switzerland AG, Talstrasse 66, 8001 Zurich or Société Générale, Paris, Zurich

Branch, Talacker 50, P.O. Box 5070, 8021 Zurich, which acts as the Swiss representative of the Schemes (the "Swiss Representative") and acts as their Swiss paying

agent. For Italy, they can also be obtained on the website: www.mandgitalia.it. For Germany and Austria, copies of the Instrument of incorporation, annual or interim

Investment Report, Financial Statements and Prospectus are available in English and the Prospectus and Key Investor Information Documents/s are available in

German. Before subscribing investors should read the Prospectus, which includes investment risks relating to these funds. The information contained herein is

not a substitute for independent advice. In Switzerland, this financial promotion is issued by M&G International Investments Switzerland AG, authorised and regulated

by the Swiss Federal Financial Market Supervisory Authority. Elsewhere, it is issued by M&G International Investments Ltd. Registered Office: Laurence Pountney Hill,

London EC4R 0HH, authorised and regulated by the Financial Conduct Authority in the UK. Registered in England No. 4134655 and has a branch located in France, 6

rue Lamennais 34, Paris 75008, registered on the Trade Register of Paris, No. 499 832 400 and a branch in Spain, with corporate domicile at Plaza de Colón 2, Torre

II, Planta 14, 28046, Madrid, registered with the Commercial Registry of Madrid under Volume 32.573, sheet 30, page M-586297, inscription 1, CIF W8264591B and

registered with the CNMV under the number 79. The Portuguese Securities Market Commission (Comissão do Mercado de Valores Mobiliários, the “CMVM”) has

received a passporting notification under Directive 2009/65/EC of the European Parliament and of the Council and the Commission Regulation (EU) 584/2010 enabling

the fund to be distributed to the public in Portugal. M&G International Limited is duly passported into Portugal to provide certain investment services in such jurisdiction

on a cross-border basis and is registered for such purposes with the CMVM and is therefore authorised to conduct the marketing (comercialização) of funds in

Portugal.

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