M&G Managed Growth Fund

M&G Managed Growth Fund a sub-fund of M&G Investment Funds (4) Annual Short Report October 2015 For the year ended 31 October 2015

Fund information The Authorised Corporate Director (ACD) of M&G Investment Funds (4) presents its Annual Short Report for M&G Managed Growth Fund which contains a review of the fund s investment activities and investment performance during the period. The ACD s Annual Long Report and audited Financial Statements for M&G Investment Funds (4), 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 (formerly the Investment Management Association) and of the Tax Incentivised Savings Association.) 1

Investment objective The Fund s objective is to achieve long term capital growth. Policy for achieving objective The Fund is an actively managed fund investing predominantly in collective investment schemes in order to provide a well diversified exposure to global equities. The Fund may also invest in other collective investment schemes and directly in securities, fixed income assets, warrants, money market instruments, deposits, cash, near cash, and derivatives for the purposes of efficient portfolio management. Investment approach The M&G Managed Growth Fund invests primarily in M&G s funds but also in appropriate collectives where M&G does not have a focused capability. The fund also holds up to 20% of its value in direct equities and cash. While the fund is theoretically able to invest in other asset classes, the fund manager generally believes that equities represent the best opportunities for long-term growth. The fund is well diversified across capitalisation tiers and international areas. The fund manager will use his judgement to decide on individual fund exposures whilst further diversifying the fund s exposures through investments directly into equities. Close consultation with M&G s fund managers and analyst team on the investment strategies and styles of individual M&G funds is a key part of the decision-making process. Asset allocation decisions will also be considered, and valuation remains core to any decision. 2

Fund information Risk profile The fund is exposed to company shares directly and through other funds that invest in company shares. It is, therefore, subject to the price volatility of the global stockmarket and the performance of individual companies. The fund may also be subject to fluctuations in currency exchange rates. Diversification across industries and market capitalisation is key in managing liquidity risk and reducing market risk. The fund s risks are measured and managed as an integral part of the investment process. The risk management policies are set out in note 2 of the Annual Long Report and audited Financial Statements for M&G Investment Funds (4). The following table shows the risk number associated with the fund and is based on Sterling Class X 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 October 2014 to 10 December 2014 the risk number was 6. 3

Investment review As at 2 November 2015, for the year ended 31 October 2015 Share class performance The M&G Managed Growth Fund produced a negative total return (the combination of income and growth of capital) across all share classes over the 12-month review period. The fund underperformed a comparative index, the FTSE World Index, which registered a positive total return of 5.7% over the same period. Stock selection, in particular, detracted from fund performance. Investment performance The period under review was a turbulent one across global financial markets, but stockmarkets in particular, making for a difficult environment for the fund. Investor sentiment turned more nervous as a series of factors dominated news headlines. They range from geopolitical concerns in Ukraine and some eurozone countries including Greece, Spain and Portugal, worries over emerging market economies, especially China, and speculation about when the US central bank would raise interest rates. Emerging markets were the hardest hit, which meant the fund s significant exposure to emerging markets proved challenging in terms of performance. Meanwhile, over the review period as a whole, the US stockmarket, and in particular the mega and large companies within it, performed strongly. As such, the fund suffered from having low exposure to US company shares, or equities. The fund s holdings in the M&G Global Emerging Markets Fund and the M&G Global Basics Fund lost the most value. The M&G Global Emerging Markets Fund suffered from the turbulence in the region s company shares over the review period, with the holdings in Brazil and in First Quantum Minerals, a Canadian copper miner, amongst the biggest fallers. The key drivers of emerging markets underperformance were investor fears about the implication of slower growth in China and how a tapering of US central bank measures to support economic recovery might affect developing nations. The strong rebound in performance in the US stockmarket, coupled with a continued strengthening dollar, presented a detrimental headwind for the M&G Global Basics Fund. The fund s largest country exposure is the US, but the weighting is materially light relative to the 4

Investment review FTSE World Index. Sector biases also detracted. Mining now represents such a small portion of global indices that the fund s 7-10% above-index position in the sector detracted from performance on a relative basis. This is despite the fact that the portfolio s exposure to the sector was reduced over the past two years. On a more positive note, the fund s holdings in the M&G Global Growth Fund and the M&G Pan European Dividend Fund added the most value. The M&G Global Growth Fund benefited from its above-index position in both the US and Europe as well as its above-index weighting in the consumer discretionary sector (such as automobiles, media and retailing) and its below-index weighting in energy stocks. Performance was also buoyed by below-index positions in some regions that are heavily focused on commodities, particularly Australia and Brazil. The M&G Pan European Dividend Fund s performance was aided by a combination of stock selection within medium-sized and smaller companies, low levels of exposure to areas such as commodities and utility companies, and by focusing on financials and industrial stocks. Notably at a stock level, performance was boosted by holdings in two Italian banks, Intesa Sanpaolo and Banca IFIS, as well as UK-listed packaging business DS Smith and speciality plastics manufacturer Essentra. Investment activities The most notable changes to the portfolio came late in the review period following a change in management of the fund on 1 September 2015. There are, however, no significant changes to the fund the portfolio remained at least 80% invested in other M&G funds and is largely biased towards equities. However, over time, we expect the M&G Managed Growth Fund will be brought more in line with the M&G s Multi Asset team s top-down investment approach, whereby we survey the big picture by analysing the macroeconomic factors when selecting investments. Any changes will be part of the ongoing management of the fund and in line with its current objective. As part of the Multi Asset team s approach, the fund will primarily invest in M&G funds and exchange traded funds (ETFs), rather than hold positions in individual shares. ETFs are investable securities that track an index, a commodity, fixed income securities, or a basket of assets. As such, we have sold all of the fund s individual shareholdings, for example, Microsoft. However, the fund can also invest to a limited extent in fixed income securities and other assets. 5

Since the change in management, we have made some modest adjustments to give the fund a more varied country and sector exposure. In line with this, the holding in the M&G Global Basics Fund, which was close to 20% previously, has been reduced to around 4%. This represents a move to positions that can be traded quickly to allow us to make tactical changes in response to market movements. We have also increased the fund s exposure to the US by investing in an S&P 500 Index ETF and a US financial ETF (which gives access to a basket of US banking stocks). In addition, we have added a position in the M&G Japan Fund, a fund which invests in a wide range of Japanese company shares. Outlook The dominant topic for investors today remains global monetary policy activity. Markets have set themselves in policy watch mode. From this point, even a small surprise from the central banks could trigger significant price action. In such an environment, we believe it is more important than ever to focus more on fundamentals, in terms of what trends in data are indicating about the health of the global economy. Nothing we have seen in recent data has prompted us to materially reassess our view that the global economy as a whole is growing at a moderate pace, while inflation remains low. So our global economic outlook remains broadly positive, although we expect the bouts of short-term turbulence that have characterised global financial markets over the past 12 months to remain a key feature for some time yet. David Fishwick Fund manager [a] An employee of M&G Limited which is an associate of M&G Securities Limited. [a] For the review period up to 31 August 2015, Randeep Somel was the fund manager. David Fishwick, Head of the M&G Multi Asset team, was appointed fund manager on 1 September 2015. 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 Value 31.10.15 31.10.14 Holding 000 % % Equity portfolios [a] Continental Europe 6.74 5.34 3,644,659 M&G European Fund 55,045 6.74 Far East 17.68 8.80 6,377,902 M&G Asian Fund 66,886 8.19 185,579,464 M&G Japan Fund 77,480 9.49 Global 47.27 69.32 5,717,380 M&G Global Basics Fund 34,849 4.27 49,620,646 M&G Global Emerging Markets Fund 89,332 10.94 59,568,085 M&G Global Growth Fund 170,716 20.90 26,653,374 M&G Pan European Dividend Fund 32,682 4.00 37,914,732 M&G Recovery Fund Sterling Class C (Income) 44,895 5.50 495,941 Red Fort Partnership (Accumulation) 13,553 1.66 North America 8.78 2.11 81,828,968 M&G North American Value Fund 71,690 8.78 Equities Belgium 0.00 0.51 Eire 0.00 0.33 Germany 0.00 2.31 Luxembourg 0.00 1.29 United Kingdom 0.00 3.48 Malaysia 0.00 0.40 United States 0.00 5.58 Non-equity investments North America 18.21 0.00 990,000 Source Financials S&P US Select ETF 85,673 10.50 272,840 Source S&P 500 ETF (Income) 62,984 7.71 Portfolio of investments 805,785 98.68 99.47 Net other assets 10,740 1.32 0.53 Net assets attributable to shareholders 816,525 100.00 100.00 All securities are on an official stock exchange listing except where referenced. [a] All holdings in M&G collective investment schemes are in Sterling Class A (Income) shares unless otherwise stated. 7

Top portfolio transactions for the year ended 31 October 2015 Purchases [a] 000 Source Financials S&P US Select ETF 80,540 M&G Japan Fund 74,260 Source S&P 500 ETF (Income) 58,670 M&G North American Value Fund 52,000 MetLife 11,358 M&G Pan European Dividend Fund 9,945 NXP Semiconductors 4,669 Total purchases 291,442 Largest sales [a] 000 M&G Global Basics Fund 209,274 M&G Global Real Estate Securities Fund 48,449 Microsoft 27,586 Cobham 18,456 Bayerische Motoren Werke 15,057 United Technologies 14,826 M&G Asian Fund 14,000 Samsonite International 12,121 M&G Global Emerging Markets Fund 11,000 MetLife 10,299 Other sales 53,850 Total sales 434,918 [a] All holdings in M&G collective investment schemes are in Sterling Class A (Income) shares unless otherwise stated. 8

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. To give an indication of how the results of the investment activities during the year have affected the performance of the fund the following information shows the returns attributable to a representative share class. For the specific performance of your share class please refer to the Annual Long Report and audited Financial Statements for M&G Investment Funds (4), which is available free of charge either from our website at www.mandg.co.uk/reports or by calling M&G Customer Relations. Performance since launch To give an indication of how the fund has performed since launch, the graph below shows total return of Sterling Class X (Income) shares. 450 400 360 330 300 270 240 220 200 180 160 140 120 October 1994 = 100, plotted monthly Chart date 2 November 2015 100 90 95 97 99 01 03 05 07 09 11 13 15 Sterling Class X (Income) shares* * Net income reinvested Source: M&G 9

The following table shows the compound rate of return, per annum, over the period. Calculated on a price to price basis with net income reinvested. Long-term performance one year three years five years since 03.11.14 02.11.12 02.11.10 launch % [a] % p.a. % p.a. % p.a. Sterling Class X -1.4 +0.8 +0.2 +9.1 [b] [a] Absolute basis. [b] 28 October 1994, the end of the initial offer period of the predecessor unit trust. Yield Historic yield as at 02.11.15 Inc Acc Sterling % % Class X 0.57 n/a Historic yield: The historic yield reflects distributions declared over the past twelve months as a percentage of the mid-market price, as at the date shown. It does not include any preliminary charge and investors may be subject to tax on their distributions. Income Dividend income Calendar Distributed Reinvested year Interim Final Total Sterling (net) p p p p Class X 2010 0.0260 0.0610 0.0870 n/a 2011 0.0090 0.1400 0.1490 n/a 2012 nil 0.1820 0.1820 n/a 2013 nil 0.3627 0.3627 n/a 2014 0.1149 0.3763 0.4912 n/a 2015 [a] 0.1424 0.2910 0.4334 n/a [a] Up to final: ex-distribution date 2 November 2015; payment date 31 December 2015. 10

Financial highlights Fund performance Ongoing charges Ongoing charges figure [a] 31.10.15 31.10.14 Sterling % % Class X 1.73 1.73 [a] The ongoing charges figure is the ratio of the relevant annualised total disclosable costs of each share class from the most recent reporting period to the average net asset value for that share class over the same period. Fund performance Net asset value Net asset value Net asset value per share as at per share as at % change 31.10.15 31.10.14 Inc Acc Inc Acc Inc Acc Sterling p p p p % % Class X 75.79 n/a 76.85 n/a -1.38 n/a Prices Calendar Income shares Accumulation shares year Highest Lowest Highest Lowest Sterling (net) p p p p Class X 2010 81.87 64.06 n/a n/a 2011 82.75 67.72 n/a n/a 2012 [a] [b] 78.23 67.03 n/a n/a 2013 83.17 72.88 n/a n/a 2014 81.22 72.65 n/a n/a 2015 [c] 85.91 70.50 n/a n/a [a] The Prudential Growth Trust merged into the M&G Managed Growth Fund immediately after 17 February 2012. [b] The Prudential Managed Growth Trust merged into the M&G Managed Growth Fund immediately after 22 June 2012. [c] To 2 November 2015. 11

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. Ongoing charges from underlying funds: Ongoing charges on holdings in underlying funds that are not rebated. 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. 12

Financial highlights Operating charges and portfolio transaction costs 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. Direct portfolio transaction costs [a] Three year 31.10.15 31.10.14 31.10.13 average % % % % Broker commission 0.02 0.02 0.02 0.02 Taxes 0.00 0.00 0.05 0.02 Costs before dilution adjustments 0.02 0.02 0.07 0.04 Dilution adjustments [b] 0.00 (0.01) (0.01) (0.01) Total direct portfolio transaction costs 0.02 0.01 0.06 0.03 [a] As a percentage of average net asset value. [b] In respect of direct portfolio transaction costs. 13

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. 52124_SR_311216