M&G Index Tracker Fund

M&G Index Tracker Fund a sub-fund of M&G Investment Funds (2) Interim Short Report November 2015 For the six months ended 30 November 2015

Fund information The Authorised Corporate Director (ACD) of M&G Investment Funds (2) presents its Interim Short Report for M&G Index Tracker Fund which contains a review of the sub-fund s investment activities and investment performance during the period. The ACD s Interim Long Report and unaudited Financial Statements for M&G Investment Funds (2), incorporating all the sub-funds and a Glossary of terms is available free of charge either from our website at www.mandg.co.uk/reports or by calling M&G Customer Relations on 0800 390 390. ACD M&G Securities Limited, Laurence Pountney Hill, London EC4R 0HH Telephone: 0800 390 390 (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.) Investment objective and policy The Fund is designed to track the FTSE All-Share Index. The fund manager has full discretionary investment management powers within the confines of this investment objective of the Fund. Investment approach The M&G Index Tracker Fund is a UK fund that broadly replicates the FTSE All-Share Index*. The fund holds nearly all of the companies in the index and closely matches the weight that each represents in the FTSE All-Share Index. * The shares in the M&G Index Tracker Fund are not in any way sponsored, endorsed, sold or promoted by FTSE International Limited ( FTSE ) or by the London Stock Exchange Limited (the Exchange ) or by The Financial Times Limited ( FT ) and neither FTSE nor Exchange nor FT makes any warranty or representation whatsoever, expressly or implicitly, either as to the results to be obtained from the use of the FTSE All-Share Index ( the Index ) and / or the figure at which the said Index stands at any particular time on any particular day or otherwise. The Index is compiled and calculated by FTSE. However, neither FTSE nor Exchange nor FT shall be liable (whether in negligence or otherwise) to any person for any error in the Index and neither FTSE nor Exchange nor FT shall be under any obligation to advise any person of any error therein. FTSE, FT-SE and Footsie are trade marks of the London Stock Exchange Limited and The Financial Times Limited and are used by FTSE International Limited under licence. All-Share is a trade mark of FTSE International Limited. 1

Risk profile The fund is designed to track the performance of the FTSE All-Share Index, which represents a broad spread of UK company shares. Its performance, therefore, reflects the price volatility of the UK stockmarket and the performance of individual companies. The fund holds nearly all of the companies in the index and closely matches the weight that each represents in the FTSE All-Share 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 The above number: Typically higher rewards 1 2 3 4 5 6 7 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 31 May 2015 to 26 November 2015 the risk number was 6. 2

Investment review As at 1 December 2015, for the six months ended 30 November 2015 Performance against objective The M&G Index Tracker Fund is designed to track the FTSE All-Share Index. Over the six months under review, the fund s Sterling A and C share classes fell by more than 6% [a]. In comparison, the FTSE All-Share Index declined by 5.6% in sterling terms. The difference in performance was primarily due to a negative swing in the pricing basis of the fund over the period [b]. Investment performance As the fund tracks the index, its overall performance can largely be explained by market developments over the six months under review. In a global economy, the fates of individual markets are often closely connected to each other. As a result, the performance and prospects of the UK stockmarket tend to be affected by developments around the world. It was a turbulent six months for investors in the UK stockmarket, as various factors caused unease, which was particularly severe at times. Concern about the slowdown in China s economic growth was a dominant theme during the period under review, dampening sentiment in many global markets. Investors feared that the weaker pace of expansion in China would lead to reduced demand for other countries exports, which could threaten the global economic recovery. China s stockmarket itself had been performing well in the first half of 2015, but the rally ran out of steam in June as investors worried that it had risen too far, too quickly. Furthermore, in a surprise move, China devalued its currency in August, leading to significant volatility in global stockmarkets. Away from China, uncertainty over precisely when the US Federal Reserve planned to raise interest rates also weighed on investor sentiment. Following months of speculation, a small increase was finally announced in December 2015, as expected, with further hikes likely to be only gradual. 3

Another significant factor affecting sentiment was the continued low prices for oil and other commodities. Although cheaper oil and raw materials are beneficial for consumers and many businesses because of lower costs, it is damaging for those firms and economies that produce these items, putting their profits under pressure. Despite the challenges, sentiment was buoyant at times, most notably in October, as policymakers in Europe, Japan and China showed their willingness to pursue accommodative measures to boost their economies. A supportive stance in Europe is particularly welcome for the UK, as the eurozone represents a major trading partner. Meanwhile, the UK economy grew an estimated 0.4% in the third quarter of 2015, continuing a trend of steady, albeit modest, growth since the start of the year. In the most recent three-month period, output increased in three of the main industrial groups in the economy; services, production and agriculture, while construction fell. The labour market continues to pick up; the unemployment rate fell to 5.3% in the three months to September 2015, compared with 6.0% a year earlier. The fall in unemployment has been broadly based, affecting the levels of both short- and long-term unemployment. Meanwhile, inflation, as measured by the Consumer Prices Index, persists at low levels and remains some way off the Bank of England s (BoE s) target of 2.0%. In the year to November 2015, inflation was 0.1%, with falling energy and fuel prices contributing to the trend of negligible inflation that the UK has experienced since the start of 2015. In the UK stockmarket, at a sector level, the strongest areas included a number of industries that tend to be less sensitive to economic cycles. For example, food producers, beverages, telecommunications and tobacco companies featured among the top performers. In contrast, oil-related stocks, along with industrial metals and mining firms, declined sharply, reflecting the weakness in commodity prices, as mentioned earlier. In terms of individual stocks, brewing and beverage firm SABMiller, British American Tobacco and telecommunications firm BT featured among the top performers over the review period. On the other hand, energy firms BP and Royal Dutch Shell, commodity trading and mining firm Glencore and mining and metals company BHP Billiton lagged the broader market. 4

Investment review Investment activities Merger and acquisition activity over the six months resulted in some stocks leaving the FTSE All-Share Index and therefore the fund. For example, semiconductor and software provider CSR and healthcare services company Synergy Health exited the index in connection with their transactions with US firms, making them ineligible for inclusion in the fund. CSR was bought by Qualcomm while Synergy Health merged with Steris. Similarly, Domino Printing was bought by Japanese business Brother Industries and subsequently left the index and fund. A number of stocks joined the index, and therefore the fund, over the six months. Entrants to the fund included discount retailer B&M European Value Retail, Auto Trader Group, which is an automotive classified advertising business, and retail bank Aldermore Group. Other purchases involved cases where the government sold a stake in partially state-owned concerns, increasing the amount of shares available to the public. For example, in August the government began selling its majority holding in banking group Royal Bank of Scotland; the government had taken a large stake in the bank as part of a rescue plan at the start of the financial crisis in 2008. In a separate transaction in October 2015, the government completed the sale of its remaining stake in Royal Mail. Meanwhile, some holdings were adjusted as a result of changes in their index weighting; for example, we added to the position in Lloyds Banking Group and trimmed the position in consumer goods firm Reckitt Benckiser to reflect their altered weightings. Outlook In the BoE s opinion, momentum in the domestic economy remains resilient; consumer confidence is firm, while real income growth this year is expected to be the strongest since the financial crisis. Although economic growth has moderated, it is expected to pick up a little towards the middle of 2016, with reduced unemployment and stronger productivity supporting real incomes and consumption. Moreover, interest rates remain low, which should encourage investment, and the housing market is in relatively good shape. The eurozone economy is still expanding, albeit at only a modest rate, which is supportive for the UK economy. However, the prospect of a referendum on the UK s continued membership of the European Union by the end of 2017 is likely to lead to uncertainty for investors in the domestic stockmarket. Global geopolitical tension may also result in heightened caution at times. 5

The domestic economy is relatively solid, with advances in economic activity and employment levels, although unexpected challenges may hinder progress. Meanwhile, UK companies are in reasonable financial shape and the valuations of UK stocks remain favourable. Despite the potential for short-term setbacks, we believe that prospects for the UK stockmarket remain positive, particularly for investors with an eye on the longer term. Richard O Connor Fund manager An employee of M&G Limited which is an associate of M&G Securities Limited. [a] For the specific performance of your share class, please refer to the Interim Long Report and unaudited Financial Statements for M&G Investment Funds (2). [b] M&G funds moved to swinging single pricing in October 2005. This method uses a dilution adjustment within the share price, aimed at protecting existing shareholders from a dilution in the fund price, which can occur when large deals are placed to buy or sell shares. The method has the effect of moving the single price up or down from the mid-price, known as swinging. Over the review period, the price swung lower, thus detracting from the fund s performance. 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. 6

Investment review Portfolio statement Oil & gas producers 10.48 11.45 814,675 BG Group 8,440 1.72 4,354,000 BP 16,883 3.44 140,479 Cairn Energy 201 0.04 219,103 EnQuest 50 0.01 34,869 Exillon Energy 39 0.01 171,134 Ophir Energy 169 0.03 132,419 Premier Oil 96 0.02 930,276 Royal Dutch Shell A 15,378 3.13 578,986 Royal Dutch Shell B 9,666 1.97 57,952 Soco International 80 0.02 218,672 Tullow Oil 426 0.09 Oil equipment, services & distribution 0.32 0.48 95,155 Amec Foster Wheeler 415 0.08 28,743 Cape 73 0.01 36,317 Hunting 121 0.02 89,336 John Wood Group 498 0.10 61,939 Lamprell 67 0.01 63,597 Petrofac 515 0.10 Chemicals 0.71 0.74 54,890 Alent 276 0.06 15,087 Carclo 20 0.00 32,373 Croda International 919 0.19 133,051 Elementis 333 0.07 49,211 Johnson Matthey 1,391 0.28 60,858 Synthomer 193 0.04 18,711 Victrex 358 0.07 Forestry & paper 0.28 0.25 89,167 Mondi 1,365 0.28 Industrial metals & mining 0.02 0.04 75,589 Evraz 61 0.01 42,743 Ferrexpo 11 0.00 59,886 South32 34 0.01 Mining 3.40 5.50 36,524 Acacia Mining 63 0.01 313,992 Anglo American 1,267 0.26 87,038 Antofagasta 438 0.09 344,772 Aquarius Platinum 38 0.01 504,883 BHP Billiton 3,932 0.80 260,758 Centamin 158 0.03 42,184 Fresnillo 301 0.06 29,397 Gem Diamonds 30 0.01 7

Portfolio statement (continued) Mining (continued) 2,799,359 Glencore 2,649 0.54 59,009 Hochschild Mining 31 0.01 66,302 KAZ Minerals (formerly Kazakhmys) 65 0.01 626,476 Kenmare Resources 4 0.00 11,273 Kenmare Resources Wts. 2019 0 0.00 131,167 Lonmin 2 0.00 6,033,682 Lonmin (nil paid) 2 0.00 95,780 Petra Diamonds 55 0.01 48,066 Polymetal International 258 0.05 22,594 Randgold Resources 898 0.18 293,385 Rio Tinto 6,422 1.31 24,685 Vedanta Resources 92 0.02 Construction & materials 1.14 1.01 171,310 Balfour Beatty 434 0.09 17,276 Costain Group 61 0.01 193,906 CRH 3,822 0.78 19,719 Galliford Try 284 0.06 28,988 Henry Boot 64 0.01 18,581 Keller Group 152 0.03 22,616 Kier Group 305 0.06 70,763 Low & Bonar 46 0.01 48,210 Marshalls 158 0.03 9,357 Morgan Sindall 70 0.01 14,371 Norcros 28 0.01 33,000 Polypipe 110 0.02 40,000 Tyman 100 0.02 Aerospace & defence 1.87 2.15 6,707 Avon Rubber 70 0.01 755,317 BAE Systems 3,916 0.80 48,122 Chemring Group 91 0.02 262,647 Cobham 791 0.16 193,409 Meggitt 748 0.15 151,544 QinetiQ Group 391 0.08 437,611 Rolls-Royce Holdings 2,656 0.54 100,908 Senior 251 0.05 16,139 Ultra Electronics Holdings 319 0.06 General industrials 0.74 0.69 6,871 British Polythene Industries 48 0.01 229,597 DS Smith 948 0.19 171,066 Rexam 974 0.20 58,688 RPC Group 448 0.09 94,207 Smiths Group 966 0.20 67,840 Vesuvius 230 0.05 8

Investment review 9 Portfolio statement (continued) Electronic & electrical equipment 0.48 0.53 7,665 Dialight 39 0.01 84,873 e2v Technologies 197 0.04 90,930 Halma 782 0.16 25,000 HellermannTyton 119 0.02 69,363 Morgan Advanced Materials 172 0.04 13,436 Oxford Instruments 88 0.02 8,968 Renishaw 164 0.03 29,238 Spectris 516 0.11 55,780 TT electronics 81 0.02 17,246 Xaar 76 0.02 3,641 XP Power 52 0.01 Industrial engineering 0.70 0.84 46,912 Bodycote 266 0.05 46,004 Fenner 70 0.01 152 Goodwin 3 0.00 15,645 Hill & Smith Holdings 112 0.02 67,350 IMI 633 0.13 244,096 Melrose Industries 700 0.14 67,066 Renold 38 0.01 211,840 Rotork 384 0.08 69,710 Severfield 44 0.01 18,278 Spirax-Sarco Engineering 566 0.12 11,460 Vitec Group 69 0.01 51,652 Weir Group 611 0.12 Industrial transportation 0.40 0.31 251,576 BBA Aviation 446 0.09 3,455 Braemar Shipping Services 15 0.00 8,159 Clarkson 193 0.04 10,291 James Fisher & Sons 101 0.02 217,417 Royal Mail 1,061 0.22 74,400 Stobart Group 76 0.02 4,535 UK Mail Group 14 0.00 30,574 Wincanton 61 0.01 Support services 5.04 4.91 58,875 Aggreko 589 0.12 121,847 Ashtead Group 1,327 0.27 121,657 Babcock International Group 1,320 0.27 41,651 Berendsen 441 0.09 32,181 Brammer 49 0.01 79,785 Bunzl 1,531 0.31 160,344 Capita Group 2,035 0.41 104,391 Carillion 328 0.07 58,424 Connect Group 96 0.02

Portfolio statement (continued) Support services (continued) 21,302 DCC 1,271 0.26 23,266 De La Rue 103 0.02 26,590 Diploma 187 0.04 102,107 Electrocomponents 243 0.05 63,414 Essentra 537 0.11 238,117 Experian 2,941 0.60 372,555 G4S 838 0.17 52,000 Grafton Group Units 352 0.07 347,564 Hays 506 0.10 67,066 Hogg Robinson 49 0.01 61,358 Homeserve 259 0.05 150,920 Howden Joinery Group 771 0.16 34,764 Interserve 184 0.04 38,566 Intertek Group 1,083 0.22 11,593 John Menzies 43 0.01 39,138 Lavendon Group 52 0.01 21,982 Mears Group 97 0.02 75,070 Michael Page International 381 0.08 85,169 Mitie Group 264 0.05 31,624 Northgate 125 0.03 15,904 PayPoint 152 0.03 84,583 Premier Farnell 87 0.02 166,747 Regus 579 0.12 440,527 Rentokil Initial 699 0.14 13,784 Ricardo 122 0.02 16,475 Robert Walters 60 0.01 52,457 RPS Group 120 0.02 273,336 Serco Group 301 0.06 93,455 Shanks Group 91 0.02 150,196 SIG 207 0.04 121,687 Speedy Hire 43 0.01 31,412 St. Ives 68 0.01 27,858 SThree 92 0.02 59,418 Travis Perkins 1,201 0.24 3,773 Vp 28 0.01 23,860 W.S. Atkins 376 0.08 63,789 Wolseley 2,451 0.50 51,002 Xchanging 92 0.02 Automobiles & parts 0.25 0.27 408,451 GKN 1,228 0.25 Beverages 4.48 3.81 32,431 A.G. Barr 170 0.03 60,383 Britvic 435 0.09 10

Investment review Portfolio statement (continued) Beverages (continued) 47,353 Coca-Cola Hellenic 757 0.15 599,348 Diageo 11,537 2.35 225,763 SABMiller 9,098 1.85 45,816 Stock Spirits Group 50 0.01 Food producers 2.65 2.37 6,813 Anglo-Eastern Plantations 38 0.01 83,690 Associated British Foods 2,948 0.60 15,497 Cranswick 273 0.06 31,306 Dairy Crest Group 188 0.04 37,445 Devro 109 0.02 104,127 Greencore 343 0.07 16,578 Hilton Food Group 86 0.02 166,618 Premier Foods 65 0.01 112,489 Tate & Lyle 661 0.13 288,111 Unilever 8,309 1.69 Household goods & home construction 3.34 3.01 236,503 Barratt Developments 1,412 0.29 29,857 Bellway 774 0.16 30,413 Berkeley Group Holdings 965 0.20 32,574 Bovis Homes Group 307 0.06 60,000 Crest Nicholson 314 0.06 44,304 McBride 69 0.01 8,932 MJ Gleeson 46 0.01 73,570 Persimmon 1,394 0.28 150,900 Reckitt Benckiser 9,445 1.92 52,897 Redrow 235 0.05 774,166 Taylor Wimpey 1,485 0.30 Leisure goods 0.02 0.02 73,700 Photo-Me International 113 0.02 Personal goods 0.35 0.41 106,364 Burberry Group 1,325 0.27 72,948 PZ Cussons 233 0.05 7,938 SuperGroup 131 0.03 Tobacco 5.25 4.52 445,599 British American Tobacco 17,481 3.56 230,042 Imperial Tobacco 8,288 1.69 Healthcare equipment & services 0.63 0.63 22,000 Al Noor Hospitals Group 254 0.05 12,913 Consort Medical 128 0.03 216,835 Smith & Nephew 2,435 0.50 83,002 Spire Healthcare 264 0.05 11

Portfolio statement (continued) Pharmaceuticals & biotechnology 7.84 7.71 301,910 AstraZeneca 13,648 2.78 92,641 BTG 567 0.12 29,313 Dechra Pharmaceuticals 287 0.06 19,815 Genus 285 0.06 1,157,000 GlaxoSmithKline 15,787 3.22 33,324 Hikma Pharmaceuticals 716 0.15 157,840 Indivior 301 0.06 140,645 Shire 6,596 1.34 29,000 Skyepharma 94 0.02 99,406 Vectura Group 169 0.03 Food & drug retailers 1.37 1.43 378,804 Booker Group 677 0.14 24,944 Greggs 308 0.06 339,017 J Sainsbury 865 0.18 105,504 Ocado Group 400 0.08 1,953,862 Tesco 3,304 0.67 64,324 UDG Healthcare 345 0.07 532,351 Wm Morrison Supermarkets 818 0.17 General retailers 2.90 2.63 146,475 AA 395 0.08 155,052 B&M European Value Retailers 489 0.10 51,838 Card Factory 189 0.04 9,782 Carpetright 45 0.01 116,804 Darty 114 0.02 306,023 Debenhams 254 0.05 13,624 Dignity 335 0.07 230,640 Dixons Carphone 1,118 0.23 22,551 Dunelm Group 219 0.04 21,315 Findel 48 0.01 48,578 Halfords Group 180 0.04 203,526 Home Retail Group 209 0.04 115,579 Inchcape 906 0.18 19,156 JD Sports Fashion 186 0.04 104,363 JUST EAT 457 0.09 555,000 Kingfisher 1,972 0.40 61,504 Laura Ashley Holdings 17 0.00 72,422 Lookers 122 0.03 392,871 Marks & Spencer Group 1,966 0.40 35,146 Mothercare 76 0.02 48,869 N Brown Group 171 0.03 36,023 NEXT 2,844 0.58 337,904 Pendragon 147 0.03 12

Investment review Portfolio statement (continued) General retailers (continued) 75,000 Pets at home 199 0.04 63,197 Poundland Group 135 0.03 119,000 Saga 251 0.05 60,566 Sports Direct International 438 0.09 7,563 Ted Baker 245 0.05 23,713 Topps Tiles 36 0.01 27,515 WH Smith 475 0.10 Media 3.91 3.61 9,581 4imprint Group 119 0.02 170,920 Auto Trader Group 698 0.14 11,581 Bloomsbury Publishing 18 0.00 34,934 Centaur Media 23 0.00 60,666 Entertainment One 130 0.03 10,593 Euromoney Institutional Investor 96 0.02 51,271 Huntsworth 21 0.00 164,542 Informa 1,023 0.21 64,604 ITE Group 98 0.02 905,736 ITV 2,451 0.50 103,728 Moneysupermarket.com 334 0.07 197,586 Pearson 1,638 0.33 271,591 RELX (formerly Reed Elsevier) 3,273 0.67 24,285 Rightmove 964 0.20 255,172 Sky 2,858 0.58 58,726 Trinity Mirror 93 0.02 111,600 UBM 565 0.12 19,037 UTV Media 33 0.01 309,219 WPP 4,759 0.97 Travel & leisure 4.54 4.21 19,456 888 Holdings 32 0.01 21,550 Betfair Group 792 0.16 172,913 bwin.party digital entertainment 180 0.04 44,818 Carnival 1,573 0.32 50,177 Cineworld 266 0.05 408,454 Compass Group 4,705 0.96 33,431 Domino s Pizza 346 0.07 59,574 easyjet 990 0.20 122,704 Enterprise Inns 128 0.03 280,496 FirstGroup 294 0.06 8,404 Fuller Smith & Turner A 94 0.02 9,796 Go-Ahead Group 258 0.05 71,211 Greene King 599 0.12 56,980 InterContinental Hotels Group 1,463 0.30 13

Portfolio statement (continued) Travel & leisure (continued) 454,134 International Consolidated Airlines Group 2,614 0.53 29,673 J.D.Wetherspoon 213 0.04 234,689 Ladbrokes 271 0.06 130,101 Marston s 222 0.05 147,547 Merlin Entertainment 603 0.12 38,526 Millennium & Copthorne Hotels 185 0.04 63,496 Mitchells & Butlers 207 0.04 118,447 National Express 381 0.08 53,272 Playtech 426 0.09 53,388 Punch Taverns 68 0.01 35,036 Rank Group 97 0.02 47,418 Restaurant Group 311 0.06 77,480 SSP 242 0.05 102,684 Stagecoach Group 364 0.07 349,133 Thomas Cook Group 414 0.08 104,106 TUI 1,155 0.24 44,779 Whitbread 2,017 0.41 211,957 William Hill 757 0.15 1,807 Wizz Air Holdings 32 0.01 Fixed line telecommunications 2.27 1.93 1,998,163 BT Group 10,001 2.04 662,130 Cable & Wireless Communications 499 0.10 132,444 KCOM Group 127 0.03 127,305 TalkTalk Telecom 307 0.06 17,051 Telecom Plus 188 0.04 Mobile telecommunications 3.15 3.25 103,312 Inmarsat 1,144 0.23 6,349,713 Vodafone Group 14,309 2.92 Electricity 0.73 0.81 97,507 Drax Group 220 0.04 235,990 SSE 3,386 0.69 Gas, water & multi-utilities 3.01 2.91 1,208,028 Centrica 2,634 0.54 903,922 National Grid 8,415 1.71 98,682 Pennon Group 861 0.18 57,395 Severn Trent 1,290 0.26 163,279 United Utilities 1,586 0.32 Banks 10.22 10.83 57,704 Aldermore Group 136 0.03 3,986,000 Barclays 8,931 1.82 9,871 BGEO (formerly Bank of Georgia Holdings) 186 0.04 14

Investment review Portfolio statement (continued) Banks (continued) 4,663,363 HSBC Holdings 24,837 5.06 14,612,917 Lloyds Banking Group 10,613 2.16 752,000 Royal Bank of Scotland Group 2,300 0.47 498,000 Standard Chartered 2,784 0.57 142,285 Standard Chartered (nil paid) 133 0.03 55,000 Virgin Money Holdings (UK) 196 0.04 Non-life insurance 1.24 1.04 48,548 Admiral Group 785 0.16 118,589 Amlin 782 0.16 146,552 Beazley 573 0.12 328,707 Direct Line Insurance Group 1,340 0.27 60,000 esure 149 0.03 67,041 Hiscox 676 0.14 34,469 Jardine Lloyd Thompson Group 308 0.06 40,879 Lancashire Holdings 275 0.06 13,566 Novae Group 118 0.02 246,256 RSA Insurance Group 1,081 0.22 Life insurance 5.01 4.84 958,155 Aviva 4,911 1.00 32,423 Chesnara 107 0.02 1,431,219 Legal & General Group 3,876 0.79 1,178,042 Old Mutual 2,476 0.50 73,710 Partnership Assurance 98 0.02 55,657 Phoenix Group 506 0.10 610,674 Prudential [a] 9,432 1.92 123,584 St. James s Place 1,254 0.26 473,222 Standard Life 1,960 0.40 Real estate investment & services 0.87 0.81 176,010 Capital & Counties Properties 771 0.16 184,740 Capital & Regional 130 0.03 5,485 CLS Holdings 99 0.02 36,000 Countrywide 139 0.03 983 Daejan Holdings 58 0.01 123,795 F&C Commercial Property Trust 168 0.03 59,655 F&C UK Real Estate 59 0.01 55,000 Foxtons Group 97 0.02 99,935 Grainger Trust 244 0.05 29,362 Helical Bar 133 0.03 27,203 Kennedy Wilson Europe Real Estate 327 0.07 23,460 LSL Property Services 72 0.01 82,043 Medicx Fund 69 0.01 500 Mountview Estates 57 0.01 127,327 Picton Property Income 91 0.02 15

Portfolio statement (continued) Real estate investment & services (continued) 112,230 Raven Russia 48 0.01 252,982 Redefine International 134 0.03 74,152 Safestore 261 0.05 31,357 Savills 279 0.06 85,961 Schroder Real Estate Investment Trust 51 0.01 43,703 St. Modwen Properties 188 0.04 25,908 Standard Life Investment Property Income Trust 22 0.00 115,000 Tritax Big Box 150 0.03 54,660 U and I Group (formerly Development Securities) 124 0.03 147,517 UK Commercial Property Trust 122 0.03 49,935 UNITE Group 332 0.07 Real estate investment trusts 2.23 2.03 6,335 A&J Mucklow Group 32 0.01 394,308 Assura Group 214 0.04 31,055 Big Yellow Group 246 0.05 248,488 British Land 2,077 0.42 24,261 Derwent London 911 0.19 82,924 Great Portland Estates 722 0.15 186,919 Hammerson 1,140 0.23 183,113 Hansteen Holdings 214 0.04 231,071 Intu Properties 748 0.15 192,018 Land Securities Group 2,366 0.48 140,566 LondonMetric Property 231 0.05 20,656 McKay Securities Group 56 0.01 167,264 Primary Health Properties 177 0.04 179,014 Segro 782 0.16 68,328 Shaftesbury 632 0.13 7,700 Town Centre Securities 25 0.01 36,907 Workspace Group 349 0.07 Financial services 2.86 2.71 233,828 3i Group 1,171 0.24 237,247 Aberdeen Asset Management 761 0.16 27,293 Allied Minds 116 0.02 113,848 Ashmore Group 290 0.06 59,960 Brewin Dolphin Holdings 156 0.03 9,245 Charles Taylor Consulting 25 0.01 35,971 Close Brothers Group 505 0.10 55,349 Hargreaves Lansdown 825 0.17 262,726 Henderson Group 806 0.16 131,220 ICAP 665 0.14 89,675 IG Group Holdings 694 0.14 16

Investment review Portfolio statement (continued) Financial services (continued) 85,151 Intermediate Capital Group 520 0.11 61,570 International Personal Finance 229 0.05 119,245 Investec 672 0.14 112,569 IP Group 271 0.06 103,664 Jupiter Fund Management 487 0.10 24,496 LMS Capital 19 0.00 73,545 London Stock Exchange 1,942 0.40 402,744 Man Group 656 0.13 72,188 Paragon Group of Companies 276 0.06 37,250 Provident Financial 1,342 0.27 10,371 Rathbone Brothers 230 0.05 27,758 Schroders 829 0.17 55,393 SVG Capital 268 0.05 52,033 Tullett Prebon 182 0.04 Equity investment instruments 3.83 3.61 138,203 3i Infrastructure 239 0.05 49,232 Aberdeen Asian Income Fund 76 0.02 14,869 Aberdeen Asian Smaller Companies Investment Trust 109 0.02 35,696 Aberdeen New Dawn Investment Trust 53 0.01 27,450 Aberdeen UK Tracker Trust 84 0.02 23,204 Aberforth Smaller Companies Trust 262 0.05 13,112 Advance Developing Markets Trust 52 0.01 140,503 Alliance Trust 717 0.15 11,508 Artemis Alpha Trust 28 0.01 1,001 Artemis Alpha Trust (subscription shares) 0 0.00 18,284 Asian Total Return Investment Company 35 0.01 129,668 BACIT Investment Trust 167 0.03 16,767 Baillie Gifford Japan Trust 79 0.02 26,893 Bankers Investment Trust 169 0.03 5,733 Baring Emerging Europe 30 0.01 7,235 BH Global 93 0.02 10,152 BH Macro 203 0.04 22,605 Biotech Growth Trust 162 0.03 19,051 BlackRock Commodities Income Investment Trust 11 0.00 36,406 BlackRock Frontier Investment Trust 37 0.01 5,410 BlackRock Greater Europe Investment Trust (subscription shares) 0 0.00 70,554 BlackRock Income Trust (formerly British Assets Trust) 98 0.02 17

Portfolio statement (continued) Equity investment instruments (continued) 9,332 BlackRock Latin American Investment Trust 27 0.01 15,746 BlackRock Smaller Companies Investment Trust 149 0.03 19,967 BlackRock Throgmorton Trust 66 0.01 44,057 BlackRock World Mining Trust 84 0.02 119,052 Bluecrest Allblue Investment Trust 228 0.05 81,569 Bluefield Solar Income Fund 84 0.02 37,724 British Empire Securities & General Trust 176 0.04 7,952 Brunner Investment Trust 43 0.01 10,566 Caledonia Investments 249 0.05 646 Capital Gearing Trust 21 0.00 15,860 City Merchants High Yield Trust 29 0.01 12,000 City of London Investment Group 39 0.01 68,252 City of London Investment Trust 264 0.05 36,288 Dunedin Income Growth Investment Trust 85 0.02 19,162 Dunedin Smaller Companies Investment Trust 38 0.01 52,621 Ecofin Water & Power Opportunities 64 0.01 49,418 Edinburgh Dragon Trust 117 0.02 48,494 Edinburgh Investment Trust 347 0.07 12,019 Edinburgh Worldwide Investment Trust 54 0.01 9,776 Electra Private Equity 354 0.07 14,371 EP Global Opportunities 33 0.01 21,354 F&C Capital & Income Investment Trust 56 0.01 17,778 F&C Global Smaller Companies 175 0.04 26,956 F&C Private Equity Trust 61 0.01 12,948 Fidelity Asian Values 31 0.01 156,951 Fidelity China Special Situations 212 0.04 105,890 Fidelity European Values 176 0.04 64,515 Fidelity Special Values 127 0.03 18,655 Finsbury Growth & Income Trust 109 0.02 138,001 Foreign & Colonial Investment Trust 611 0.12 36,000 Foresight Solar Fund 36 0.01 6,000 Fundsmith Emerging Equities Trust 57 0.01 143,224 GCP Infrastructure 171 0.04 31,754 Genesis Emerging Markets 145 0.03 18,845 Graphite Enterprise Trust 110 0.02 110,845 Greencoat UK Wind 121 0.02 1,000 Hansa Trust 8 0.00 18

Investment review Portfolio statement (continued) Equity investment instruments (continued) 13,666 Henderson Alternative Strategies Trust (formerly Henderson Value Trust) 30 0.01 19,162 Henderson Diversified Income 17 0.00 7,185 Henderson European Focus Trust 74 0.02 4,288 Henderson EuroTrust 38 0.01 22,794 Henderson Far East Income 64 0.01 14,784 Henderson Global Trust 54 0.01 28,474 Henderson High Income Trust 51 0.01 20,599 Henderson Smaller Companies Investment Trust 134 0.03 20,371 Herald Investment Trust 150 0.03 9,684 HG Capital Trust 107 0.02 307,640 HICL Infrastructure 469 0.10 64,010 Impax Environmental Markets 99 0.02 224,578 International Public Partnerships 309 0.06 18,633 INVESCO Asia Trust 33 0.01 13,876 INVESCO Income Growth Trust 39 0.01 11,694 INVESCO Perpetual UK Smaller Companies Investment Trust 45 0.01 218,701 John Laing Infrastructure Fund 257 0.05 64,465 JP Morgan American Investment Trust 179 0.04 24,860 JPMorgan Asian Investment Trust 53 0.01 19,298 JPMorgan Chinese Investment Trust (Bonus issue) 32 0.01 14,381 JPMorgan Claverhouse Investment Trust 88 0.02 27,028 JPMorgan Emerging Markets Investment Trust 150 0.03 30,134 JPMorgan European Investment Trust 71 0.01 41,600 JPMorgan European Smaller Companies Investment Trust 108 0.02 84,000 JPMorgan Global Convertibles Income Fund 77 0.02 70,540 JPMorgan Global Emerging Market 62 0.01 30,674 JPMorgan Indian Investment Trust 151 0.03 7,856 JPMorgan Japan Smaller Companies Investment Trust 19 0.00 1,571 JPMorgan Japan Smaller Companies Investment Trust (subscription shares) 0 0.00 37,340 JPMorgan Japanese Investment Trust 105 0.02 5,749 JPMorgan Mid Cap Investment Trust 59 0.01 8,793 JPMorgan Overseas Investment Trust 91 0.02 13,206 JPMorgan Russian Securities 43 0.01 19

Portfolio statement (continued) Equity investment instruments (continued) 4,461 JPMorgan Smaller Companies Investment Trust 40 0.01 892 JPMorgan Smaller Companies Investment Trust (subscription shares) 1 0.00 20,877 Jupiter European Opportunities Trust 122 0.03 4,455 Jupiter US Smaller Companies 27 0.01 4,407 Keystone Investment Trust 79 0.02 28,440 Law Debenture 142 0.03 9,558 Lowland Investment 126 0.03 6,893 Majedie Investments 17 0.00 6,477 Martin Currie Asia Unconstrained Trust (formerly Martin Currie Pacific Trust) 17 0.00 30,524 Martin Currie Global Portfolio Trust (formerly Martin Currie Portfolio Investment Trust) 54 0.01 24,467 Mercantile Investment Trust 430 0.09 22,619 Merchants Trust 98 0.02 44,162 Middlefield Canadian Income Trusts Red. Pref. Shares 34 0.01 62,629 Monks Investment Trust 261 0.05 9,072 Montanaro UK Smaller Companies Investment Trust 45 0.01 15,376 Murray Income Trust 105 0.02 29,533 Murray International Trust 247 0.05 301,748 NB Global Floating Rate Income Fund 279 0.06 11,497 New India Investment Trust 36 0.01 45,000 NextEnergy Solar Fund 47 0.01 8,548 North American Income Trust 71 0.01 2,919 North Atlantic Smaller Companies Investment Trust 64 0.01 12,000 P2P Global Investments 118 0.02 28,753 Pacific Assets Trust 53 0.01 14,559 Pacific Horizon Investment Trust 24 0.00 13,513 Pantheon International Participations 175 0.04 57,585 Perpetual Income & Growth Investment Trust 241 0.05 394 Personal Assets Trust 137 0.03 23,952 Polar Capital Global Healthcare Growth and Income Trust 41 0.01 32,466 Polar Capital Technology Trust 202 0.04 32,591 RIT Capital Partners 515 0.10 20

Investment review Portfolio statement (continued) Equity investment instruments (continued) 33,743 Ruffer Investment Company Red. Pref. shares 71 0.01 36,469 Schroder Asia Pacific Fund 96 0.02 20,096 Schroder Global Real Estate Securities (formerly ING Global Real Estate Income Securities) 24 0.01 18,236 Schroder Income Growth Fund 48 0.01 19,162 Schroder Japan Growth Fund 30 0.01 46,527 Schroder Oriental Income Fund 85 0.02 32,730 Schroder UK Growth Fund 52 0.01 7,670 Schroder UK Mid & Small Cap Fund 35 0.01 31,306 Scottish American Investment 81 0.02 28,095 Scottish Investment Trust 169 0.03 297,325 Scottish Mortgage Investment Trust 813 0.17 8,864 Scottish Oriental Small Companies Trust 66 0.01 20,541 Securities Trust of Scotland 26 0.01 13,252 Standard Life Equity Income Trust 60 0.01 19,011 Standard Life European Private Equity Trust 39 0.01 7,059 Standard Life UK Smaller 25 0.01 14,154 Temple Bar Investment Trust 150 0.03 84,079 Templeton Emerging Markets Investment Trust 351 0.07 70,000 The Diverse Income Trust 67 0.01 13,277 The European Investment Trust 94 0.02 171,238 The Renewables Infrastructure Group 170 0.03 12,510 TR European Growth Trust 73 0.01 90,729 TR Property Investment Trust 272 0.06 45,234 Troy Income & Growth Trust 33 0.01 70,000 TwentyFour Income Fund 79 0.02 53,319 Utilico Emerging Markets 89 0.02 10,663 Utilico Emerging Markets (subscription shares) 1 0.00 17,183 Value & Income Trust 44 0.01 45,659 Witan Investment Trust 358 0.07 17,102 Witan Pacific Investment Trust 38 0.01 193,141 Woodford Patient Capital Trust 197 0.04 12,710 Worldwide Healthcare Trust 234 0.05 Non-equity investment instruments 0.05 0.04 110,728 BBGI (formerly Bilfinger Berger Global Infrastructure Fund) 142 0.03 21,000 International Biotechnology Trust 111 0.02 21

Portfolio statement (continued) Software & computer services 0.75 0.67 14,801 AVEVA 319 0.06 21,300 Computacenter 171 0.03 11,560 Fidessa Group 224 0.05 43,857 Micro Focus International 564 0.12 53,898 NCC Group 154 0.03 5,389 NCC Group (Subscription shares) 0 0.00 251,919 Sage Group 1,457 0.30 22,606 SDL 101 0.02 31,792 Servelec Group 102 0.02 49,962 Telecity Group 611 0.12 Technology hardware & equipment 0.94 0.98 337,216 ARM Holdings 3,777 0.77 62,171 Imagination Technologies Group 121 0.02 84,419 Laird 296 0.06 78,003 Pace 306 0.06 32,568 Sepura 59 0.01 162,534 Spirent Communications 113 0.02 Unquoted / unlisted 0.00 0.00 1,754 Alternative Investment Strategies [b] 0 0.00 10,204 Bioscience Investment Trust [c] 0 0.00 21,000 Dexion Equity Alternative [d] 0 0.00 12,707 Electric & General Investment Trust [e] 0 0.00 3,374 Gartmore Irish Growth Fund [f] 0 0.00 Futures contracts 0.02 0.01 65 FTSE 100 Dec 2015 120 0.02 Portfolio of investments 492,234 100.29 100.00 AAA rated money market funds [g] 0.40 0.61 1,985,000 Northern Trust Global Fund - Sterling 1,985 0.40 Total portfolio 494,219 100.69 100.61 Net other liabilities (3,409) (0.69) (0.61) Net assets attributable to shareholders 490,810 100.00 100.00 All securities are on an official stock exchange listing except where referenced. [a] Related party to the fund. [b] Delisted on 9 June 2014. [c] Delisted on 29 April 2005. [d] Delisted on 7 December 2012. [e] Delisted on 1 November 2011. [f] Delisted on 20 April 2011. [g] Uncommitted surplus cash is placed into AAA rated money market funds with the aim of reducing counterparty risk. 22

Investment review Top ten portfolio transactions For the six months to 30 November 2015. Largest purchases 000 Lloyds Banking Group 1,365 Royal Bank of Scotland Group 828 HSBC Holdings 614 B&M European Value Retailers 541 Auto Trader Group 525 Royal Mail 322 Glencore 306 BBA Aviation rights 260 Virgin Money Holdings (UK) 245 Assura Group 218 Other purchases 3,745 Total purchases 8,969 Largest sales 000 CSR 343 Steris 338 Domino Printing Sciences 242 Synergy Health 210 Reckitt Benckiser 177 BP 166 Colt Group 155 SSE 148 Quintain Estates & Development 143 Royal Dutch Shell B 128 Other sales 1,698 Total sales 3,748 23

Financial highlights 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 graph and tables reflect the key financial information of a representative share class, Sterling Class A shares. As different share classes have different attributes, for example charging structures, please be aware that their performance may be different. Therefore, for the specific performance table of your share class please refer to the Interim Long Report and unaudited Financial Statements for M&G Investment Funds (2), which is available free of charge either from our website at www.mandg.co.uk/reports or by calling M&G Customer Relations. Index tracking The tracking difference between the fund s investment return and that of the FTSE All-Share Index for the 12 month period ending 30 November 2015 was +0.16%. 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 All-Share Index for the period ending 30 November 2015 was 0.07%, which falls within the predicted tracking error range of 0% to 0.30%. Historic tracking error is a measure of the monthly volatility of the investment returns relative to the index over a 36 month period. The differences are due to the fund not fully replicating the FTSE All-Share Index. Fund level performance Fund net asset value 30.11.15 31.05.15 31.05.14 as at 000 000 000 Fund net asset value (NAV) 490,810 533,642 517,299 24

Financial highlights Fund performance Performance since launch To give an indication of how the fund has performed since launch, the graph below shows total return of Sterling Class A (Accumulation) shares against a comparable index. February 1998 = 100, plotted monthly Chart date 1 December 2015 260 230 200 180 160 140 120 100 90 80 70 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 Sterling Class A (Accumulation) shares* FTSE All-Share Index * Net income reinvested Source: Morningstar, Inc. and M&G To give an indication of how the results of the investment activities during the period have affected the performance of the fund the following table shows the compound rate of return, per annum, over the period for Sterling Class A (Accumulation) shares. Calculated on a price to price basis with income reinvested. Long-term performance Six Three Five Since months years years launch 01.06.15 03.12.12 01.12.10 % [a] % p.a. % p.a. % p.a. Sterling [b] Class A -6.7 +7.7 +6.9 +4.4 [c] [a] Absolute basis. [b] Price to price with net income reinvested. [c] 27 February 1998, the launch date of the predecessor unit trust. 25

Specific share class performance To give an indication of how the fund has performed during the period the table below shows the performance of Sterling Class A (Accumulation) shares. Sterling Class A Accumulation share performance The share class was launched on 27 February 1998. Six months to Year to Year to 30.11.15 31.05.15 31.05.14 Change in NAV per share UK p UK p UK p Opening NAV 114.92 106.56 98.21 Return before operating charges and after direct portfolio transaction costs (8.17) 8.85 8.82 Operating charges (0.25) (0.49) (0.47) Return after operating charges (8.42) 8.36 8.35 Closing NAV 106.50 114.92 106.56 Retained distributions 1.66 3.33 3.08 Direct portfolio transaction costs [a] UK p UK p UK p Costs before dilution adjustments 0.01 0.00 0.01 Dilution adjustments [b] (0.01) 0.00 (0.01) Total direct portfolio transaction costs 0.00 0.00 0.00 Performance and charges % % % Direct portfolio transaction costs 0.00 0.00 0.00 Operating charges 0.46 0.46 0.46 Return after operating charges -7.33 +7.85 +8.50 Historic yield 3.41 2.99 2.89 Effect on yield of charges offset against capital n/a n/a n/a Other information Closing NAV ( 000) 136,358 146,006 139,220 Closing NAV percentage of total fund NAV (%) 27.78 27.36 26.91 Number of shares 128,034,661 127,047,849 130,651,230 Highest share price (UK p) 114.47 115.68 106.93 Lowest share price (UK p) 99.10 96.50 91.23 [a] As a percentage of average net asset value. [b] In respect of direct portfolio transaction costs. 26

Financial highlights 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. 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. 27

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, taxes, and costs of research from brokers and other research providers. 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. 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. 28

Financial highlights Operating charges and portfolio transaction costs Portfolio transaction costs Six months to Year to Year to Average [a] 30.11.15 31.05.15 31.05.14 Direct portfolio transaction costs [b] % % % % Broker commission 0.00 0.00 0.00 0.00 Taxes 0.01 0.01 0.02 0.01 Costs before dilution adjustments 0.01 0.01 0.02 0.01 Dilution adjustments [c] (0.01) (0.01) (0.02) (0.01) Total direct portfolio transaction costs 0.00 0.00 0.00 0.00 [a] Average of first three columns. [b] As a percentage of average net asset value. [c] In respect of direct portfolio transaction costs. 29

Contact Customer Relations* 0800 390 390 Write to us at:** M&G Securities Limited PO Box 9039 Chelmsford CM99 2XG Our website: www.mandg.co.uk Email us with queries: info@mandg.co.uk * 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. ** Please remember to quote your name and M&G client reference and sign any written communication to M&G. Failure to provide this may affect your ability to transact with us. Please note that information contained within an email cannot be guaranteed as secure. We advise that you do not include any sensitive information when corresponding with M&G in this way. 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. 53615_SR_310716