M&G Income Allocation Fund Webcast

December 2014

Jonathan Willcocks, Managing Director - Global Head of Retail Sales

2

Fund factsM&G Income Allocation Fund

Source: M&G, 30 November 2014.*ISIN is for euro accumulation A share class

Launch: November 2013

Fund manager: Steven Andrew, since launch

Deputy manager: Juan Nevado

Fund size: €508 million

Sector: Morningstar EUR Moderate Allocation Global Sector Average

ISIN: GB00BBCR3283*

3

Performance since launchM&G Income Allocation Fund

Total return* and capital-only performance

Source: Morningstar Inc., 28 November 2014. Euro A class shares, price to price. Total return: accumulation shares, net income reinvested. Capital-only: income shares, capital-only, income distributed and not reinvested. Both series are rebased to 100 as at 7 November 2013.

Nov-1

3

Dec-1

3

Jan-

14

Feb-1

4

Mar

-14

Apr-1

4

May

-14

Jun-

14

Jul-1

4

Aug-1

4

Sep-1

4

Oct-14

Nov-1

496

98

100

102

104

106

108

110

112

114

Total return Capital-only

Ind

ex,

re

ba

sed

to 1

00

+13.3%

+9.6%

*The combination of income and growth of capital

4

Steven AndrewBiography

• Steven joined M&G in 2005 as a member of the Portfolio Strategy & Risk team, before moving to the Multi Asset team, where he helped to formulate asset allocation strategies for M&G’s multi-asset fund range

• In November 2010, he was appointed manager of the M&G Episode Income Fund. Three years later, he became manager of the M&G Income Allocation Fund upon its launch

• Prior to joining M&G, Steven worked at F&C Asset Management, Merrill Lynch and the Bank of England

• He graduated from the University of London in 1997 with a degree in financial economics

M&G Income Allocation Fund

Steven Andrew, Fund Manager

December 2014

6

Agenda

Global market perspectives

M&G Income Allocation Fund

Fund proposition

Investment philosophy & fund positioning

7

Valuation signals are clearEquities, still attractive

Source: Datastream, 27 November 2014. Equity proxy is S&P 500

-3%

-1%

1%

3%

5%

7%

9%

11%

Equity

10-year US Treasury

Cash

US prospective real yields

8

The factsBusiness confidence is improving

Source: Bloomberg, 30 November 2014

UK

US

EuropeChina

Purchasing managers’ indices

Dec-0

630

35

40

45

50

55

60

65

Ind

ex

9

The factsInflation remains low

Source: Datastream, 15 October 2014

Dec-0

6

May

-07

Sep-0

7

Feb-0

8

Jul-0

8

Nov-0

8

Apr-0

9

Sep-0

9

Feb-1

0

Jun-

10

Nov-1

0

Apr-1

1

Aug-1

1

Jan-

12

Jun-

12

Oct-12

Mar

-13

Aug-1

3

Jan-

14

May

-14

Oct-14

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

USUKEurope

China

Inflation – Consumer Prices Index

10

The factsPolicy makers are still accommodative

Source: Bloomberg, 28 November 2014

Base rates at all time lows

Base rates still at all time lows

Jan-

07

Apr-0

7

Jul-0

7

Oct-07

Jan-

08

Apr-0

8

Jul-0

8

Oct-08

Jan-

09

Apr-0

9

Jul-0

9

Oct-09

Jan-

10

Apr-1

0

Jul-1

0

Oct-10

Jan-

11

Apr-1

1

Jul-1

1

Oct-11

Jan-

12

Apr-1

2

Jul-1

2

Oct-12

Jan-

13

Apr-1

3

Jul-1

3

Oct-13

Jan-

14

Apr-1

4

Jul-1

4

Oct-14

0%

1%

2%

3%

4%

5%

6%

7%

UK US Europe

11

Why multi-asset for incomeTraditional sources of income

Source: Datastream, Bloomberg, M&G, 31 October 2014

Risks of seeking income from a single asset class are low returns and high volatility

Asset class yields

1999

1999

2000

2000

2001

2001

2002

2003

2003

2004

2004

2005

2006

2006

2007

2007

2008

2008

2009

2010

2010

2011

2011

2012

2013

2013

2014

2014

0%

1%

2%

3%

4%

5%

6%

7%

8%

European corporate bonds German 10-year bundsMSCI World Index (dividend yield) Cash (euribor)

12

Why multi-asset for incomeCombining the benefits of different sources of income

Risk of capital volatility and loss

Static coupon

Potential for regularly accruing income

Bonds

−−+

Risk of capital volatility and loss

Dividend uncertainty and calendar effects

Potential for growing distributions

Equity

−−+

Asset allocation aims to mitigate volatility and

offer potential to generate capital return+

Potential for regularly accruing income+Potential for growing distributions+Multi-

asset

13

Agenda

Global market perspectives

M&G Income Allocation Fund

Fund proposition

Investment philosophy & fund positioning

14

Proposition: income and capital growth

• Designed to use the flexibility of multi-asset investing to generate:

*4% is a gross target yield and represents the fund’s total distribution over 12 months as a percentage of the current share price before tax. Please note that this is not guaranteed and may be revised in the future. The ongoing charge is taken from investments held in the fund’s portfolio and not from the income these investments produce. **This is approximately half the volatility of equities over the long term

M&G Income Allocation Fund

Uses a similar investment approach as a current UK fund with a 3-year track record

Income yield* of 4% pa distributed monthly

Capital growth of 2% to 4% pa over the long term

And volatility between 4% and 10% pa over the long term**

15

Diversified sources of income

Source: M&G, 10 November 2014. *Expected income for the next 12 months

M&G Income Allocation Fund

Asset class Contribution to distribution* Average yield

Equity 1.9% 3.7%

Corporate bonds 0.4% 4.5%

Mainstream government bonds 0.4% 2.6%

Non-mainstream government bonds 1.4% 5.9%

Total 4.1% 4.2%

16

Asset allocation to navigate a volatile environmentPast performance of a UK-based fund with a similar investment approach

This UK-based fund is not available to European investors. European investors can invest in the EUR share class of the M&G Income Allocation Fund. Both funds are managed by Steven Andrew. The UK fund may invest in physical property, while the European version, being UCITS, may not. The UK-based fund has a minimum exposure of 70% to GBP, while the European version has a minimum exposure of 70% to EUR. These are internal guidelines and are subject to change. The past performance of the UK-based fund has been included purely to illustrate the fund manager's investment approach for an existing fund. The provision of this information should not be taken as a recommendation or advice regarding the UK-based fund. Please note the differences between the UK- based fund and the M&G Income Allocation Fund. The UK-based fund is not registered for sale or distribution outside of the UK.

Performance since launch of different asset classes

Source: Datastream, 28 November 2014. Sterling A income class shares. Rebased at 11 November 2010. Global equities as represented by the FTSE All World

UK-based fund

Global equities

10-year Treasury

M&G Income Allocation Fund

Nov-1

0

Feb-1

1

Jun-

11

Sep-1

1

Jan-

12

Apr-1

2

Jul-1

2

Nov-1

2

Feb-1

3

Jun-

13

Sep-1

3

Dec-1

3

Apr-1

4

Jul-1

4

Nov-1

480

90

100

110

120

130

140

150

160

170

To

tal r

etu

rn (

reb

ase

d to

10

0)

17

Delivering a growing income streamPast performance of a UK-based fund with a similar investment approach

This UK-based fund is not available to European investors. European investors can invest in the EUR share class of the M&G Income Allocation Fund. Both funds are managed by Steven Andrew. The UK fund may invest in physical property, while the European version, being UCITS, may not. The UK-based fund has a minimum exposure of 70% to GBP, while the European version has a minimum exposure of 70% to EUR. These are internal guidelines and are subject to change. The past performance of the UK-based fund has been included purely to illustrate the fund manager's investment approach for an existing fund. The provision of this information should not be taken as a recommendation or advice regarding the UK-based fund. Please note the differences between the UK-based fund and the M&G Income Allocation Fund. The UK-based fund is not registered for sale or distribution outside of the UK.

Source: M&G, Bloomberg, 21 November 2014, sterling A income class shares, price to price.*12 November 2010.Gross yield is the total distribution over 12 months as a percentage of the current share price before UK tax. **4% is a gross target yield and represents the fund’s total distribution over 12 months as a percentage of the current share price before tax. Please note that this is not guaranteed and may be revised in the future. The ongoing charge is taken from investments held in the fund’s portfolio and not from the income these investments produce. ***Capital gain calculated as the performance of the income share class as of 31 October 2014.

Nov-1

0

Jan-

11

Mar

-11

May

-11

Jul-1

1

Sep-1

1

Nov-1

1

Jan-

12

Mar

-12

May

-12

Jul-1

2

Sep-1

2

Nov-1

2

Jan-

13

Mar

-13

May

-13

Jul-1

3

Sep-1

3

Nov-1

3

Jan-

14

Mar

-14

May

-14

Jul-1

4

Sep-1

4

Nov-1

485

90

95

100

105

110

115

120

NA

V p

er

sha

re

2011 In-come

£41.96

2012 In-come£45.37

2013 In-come£47.85

*Gross income distribution per £1,000 invested

This is gross of the 10% dividend tax charged to UK investors

Capital performance and income distributions since launch*

+20%

Targeted Delivered

Average income yield** (annual) 4% 4.1%

Annualised capital gain*** 2-4% 4.3%

Annualised volatility 4-10% 6.1%

18

Agenda

Global market perspectives

M&G Income Allocation Fund

Fund proposition

Investment philosophy & fund positioning

19

Building blocks of our investment strategyM&G Multi Asset team

A robust, repeatable approach

Strategic assessment

Assets prices

Fundamental analysis

Tactical assessment

Investors’ behaviour

Market volatility

Portfolio construction

Correlation analysis

Fund’s objectives

20

Current portfolioM&G Income Allocation Fund

Source: M&G, 30 November 2014. *This is mainly diversified securities such as real estate, convertible bonds and preferred shares

Allocation ranges NeutralityEquity 10-50% 30%Fixed income 40-80% 60%Other 0-20% 10%Currency Min. 70% in EUR

Neutrality Current allocationRange

0%

5%

10%

15%

20%

25%

30%

35%

40%

Global equity Global fixed interest

0%

10%

20%

30%

40%

50%

60%

Other*

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

21

Fund positioningM&G Income Allocation Fund

Source: M&G, 30 November 2014

Equity exposure, 48.2%

UK United States Europe Asia ex Japan Canada Japan Emerging markets

0%

3%

6%

9%

12%

15%

18%

15.0%

13.7%

8.7%

4.7%

2.7%1.8% 1.6%

September2014

Portfolio

MSCI AC World

Average forward P/E

12.2X 15.3X

22

Market volatilitySmall ‘episodes’ provided an opportunity to add to equities

FTSE 100 and S&P 500 Indices (rebased to 100)

Jan-

14

Jan-

14

Jan-

14

Feb-1

4

Feb-1

4

Mar

-14

Mar

-14

Mar

-14

Apr-1

4

Apr-1

4

May

-14

May

-14

May

-14

Jun-

14

Jun-

14

Jun-

14

Jul-1

4

Jul-1

4

Aug-1

4

Aug-1

4

Aug-1

4

Sep-1

4

Sep-1

4

Oct-14

Oct-14

Oct-14

Nov-1

4

Nov-1

485

90

95

100

105

110

115

Source: Datastream, 27 November 2014

Increase in equity exposure

FTSE 100

S&P 500

Added to both UK and US equity exposure

Added to UK equity

Opened German equity position

US equity ‘housekeeping’

Dax 30

Ind

ice

s re

ba

sed

, 3

1 D

ece

mb

er

20

13

Added to German equity

position

23

Fund positioningM&G Income Allocation Fund

Source: M&G, 30 November 2014.*Fixed income exposure excludes cash

Fixed income exposure, 46.8*%

US

30-

yrs

Ger

man

y 30

-yrs

UK

30-

yrs

Sou

th A

frica

22-

yrs

New

Zea

land

10-

yrs

Bra

zil 5

-yrs

Mex

ico

25-y

rsP

hilip

pine

s 10

-yrs

Col

ombi

a 10

-yrs

A

ustra

lia 1

0-yr

s

Chi

le 5

-yrs

US

cor

pora

te b

onds

UK

cor

pora

te b

onds

0%

2%

4%

6%

8%

5.1%4.6%

3.0% 2.9% 2.9% 2.9% 2.9% 2.6% 2.5% 2.2% 2.1%

6.5%6.0%

Government bonds Credit

24

Long dated gilts and TreasuriesNow less attractive, after the ‘Tapering episode’ unwound

May

-14

Jul-1

4

Aug-1

4

Sep-1

4

Oct-14

Nov-1

42.65%

2.75%

2.85%

2.95%

3.05%

3.15%

3.25%

3.35%

3.45%

3.55%

Yie

ld

Source: Datastream, 27 November 2014

Mainstream long dated government bonds reduced in 2014

30Y Treasury

30Y gilt

Reduced UK gilts

Reduced US Treasury

Reduced US Treasury

UK and US 30-year government bond yields

Reduced UK gilts and US Treasury

25

Summary

Income yield objective is defined as gross yield which is the total distribution over 12 months, before tax, as a percentage of the share price

• Overweight equities. Exposure to companies that pay a growing dividend

• Underweight fixed income

• Overweight in USD, underweight in EUR

• A solution for investors seeking a growing income

• Seeks to generate a growing income stream of 4% pa and capital growth of 2% to 4% pa

• A top-down approach that provides a regular, growing and diversified income stream

Philosophy

Positioning

26

27

The value of stockmarket 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 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 (8) reg. no 1100, M&G Investment Funds (9) reg. no 930, 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. 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 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 German paying agent J.P. Morgan AG, Junghofstraße 14, D-60311 Frankfurt am Main, the Austrian paying agent, Raiffeisen Bank International A.G., Am Stadtpark 9, A-1030 Wien, the Luxembourg paying agent, J.P. Morgan Bank Luxembourg S.A., European Bank & Business Center, 6 c route de Treves, 2633 Senningerberg, 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, M&G International Investments Limited, the French branch, or from the French centralising agent of the Fund: RBC Dexia Investors Services Bank France. For Switzerland: Please refer to M&G International Investments Ltd., mainBuilding, Taunusanlage 19, 60325 Frankfurt am Main, or, for Sweden, from the paying agent, Skandinaviska Enskilda Banken AB (publ), Sergels Torg 2, 106 40 Stockholm, Sweden. For Italy, they can also be obtained on the website: www.mandgitalia.it. Before subscribing you should read the Prospectus, which includes investment risks relating to these funds. This financial promotion is published 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. It also has a branch located in France, 6 rue Lamennais, Paris 75008, registered on the Trade Register of Paris, No 499 832 400 and is also registered with the CNMV in Spain. Past performance is not a guide to future performance. Performance stats are quoted gross of Italian tax on capital gains.