PERFORMANCE REVIEW EASTSPRING INVESTMENTS FUNDS MONTHLY INCOME PLAN (MIP) ( THE FUND )

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1 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Rebased to 100 INVESTMENT OBJECTIVE The investment objective of the Sub-Fund is to seek to provide investors with regular income and capital growth by investing: (i) 30% to 70% of its assets into the Luxembourg domiciled Eastspring Investments U.S. High Yield Bond Fund (the U.S. High Yield Bond ); and (ii) 30% to 70% of its assets into the Luxembourg domiciled Eastspring Investments Asian Bond Fund (the Asian Bond ), (collectively, the Underlying Funds ). The Sub-Fund may in addition, at the Manager s absolute discretion, invest up to 20% of its assets in any other Asia Pacific investments (including real estate investment trusts, dividend yielding Equities and any other subfunds of the Eastspring Investments (the Eastspring Investments Umbrella Fund ), subject to the prior approval of the Authority where necessary). FUND DETAILS Benchmark 50% JP Morgan Asia Credit Ind & 50% BofA Merrill Lynch USD High Yield Constrained Ind- hedged to SGD* Portfolio Manager Joanna Ong HOW HAS MIP PERFORMED TO THE END OF NOVEMBER 2015? Year to date, on a bid-to-bid basis in SGD, Eastspring Investments Funds - Monthly Income Plan Class A declined 2.74% and underperformed its benchmark by 4.11%. Class M declined 2.65% and underperformed its benchmark by 4.02%. Year to date 2015, on a offer-to-bid basis in SGD, Eastspring Investments Funds - Monthly Income Plan Class A declined 7.60% and underperformed its benchmark by 8.97%. Class M declined 7.52% and underperformed its benchmark by 8.89%. Over the course of the year, allocating out of Asia Bond subportfolio into Singapore High Dividend Equity has negatively impacted the performance of the Fund as equities were broadly weaker while Asian bond markets have outperformed. Credit selection within the US High Yield sub-portfolio also detracted value. CHART 1: YEAR TO DATE PERFORMANCE UNDERLYING ASSETS (SGD, BID-BID) Share class Inception date Currency A 1-Feb-05 SGD M 1-Feb-05 SGD M (RMB hedged) 2-Sep-13 CNH Eastspring Investments - Asian Bond Fund Class D (SGD Hedged) Eastspring Investments - US High Yield Bond Fund Class D (SGD Hedged) Eastspring Investments Funds Monthly Income Plan Class M (SGD) MIP Equity Portfolio (SGD) 90 Source: Eastspring Investments. All data as of 30 November 2015 unless otherwise stated. For long form of abbreviations, refer to the Glossary of terms Note: U.S. High Yield Sub-Portfolio = Eastspring Investments U.S. High Yield Bond Fund (Class D), Asian Bond Sub-Portfolio = Eastspring Investments Note: Net income reinvested; Offer-bid includes 5% Initial Sales Charge; Performance and benchmark values are rounded off to 1 decimal place The historical performance is not indicative of the future or likely performance of Eastspring Investments or the Fund. Page 1

2 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 (Returns rebased to 100, USD) WHY HAS THERE BEEN WEAKNESS IN US HIGH YIELD YEAR TO DATE? US High Yield has suffered in tandem with falling commodity prices. 13% of the US High Yield Index is directly related to the energy sector while another 12% of the US High Yield Index is in basic materials and mining. The commodity sector had suffered a double whammy of both lower demand as China demand for industrial materials waned; and at the same time, supply has ballooned. This has caused the rapid decline of commodity prices. The over-production vis-a vis lower demand has been most evident in the energy sector. The US shale revolution which really only began post the 2008/2009 crisis resulted in large supply coming on-stream, exacerbated by OPEC s decision not to curtail supply even as oil prices fell. As a result, revenues and profits of commodity related companies have taken a hit. Equity prices of these companies have fallen while bond investors have become wary of the serviceability of the high yield debt issued by these companies. In response, commodity companies have slashed jobs, improved efficiency, consolidated operations and restricted exploration and production activities. However, investors continue to worry about how low commodity prices can get as production outpaces demand. Given the high proportion of US high yield companies in the energy and materials sector (in comparison to say, the US equity market), investors have been pulling money out of US high yield market. Selling has intensified in recent months. The emergence of ETF vehicles have also resulted in selling down the entire US HY sector as opposed to just the energy related sub-sectors. Hence, there is a very real spillover effect from energy related high yield issues to the other sub sectors of the US High Yield Index. All key sectors in the US High Yield Index are now in negative returns so far this year CHART 2: MONTHLY RETURNS OF US HIGH YIELD SUB SECTORS US HY Index: -2.1% US HY Healthcare Sub Sector: -5.2% US HY Technology Sub Sector: -6.3% 80 US HY Telecom Sub Sector: -9.3% US HY Energy Sub Sector: -13.0% US HY Metals/Mining Sub Sector: -28.1% 70 Source: Eastspring Investments. All data as of 30 November 2015 unless otherwise stated. For long form of abbreviations, refer to the Glossary of terms Note: U.S. High Yield Sub-Portfolio = Eastspring Investments U.S. High Yield Bond Fund (Class D), Asian Bond Sub-Portfolio = Eastspring Investments Note: US High Yield Index refers to the BofA Merrill Lynch USD High Yield Constrained Index Page 2

3 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 (Returns rebased to 100, USD) WHAT HAS SUPPORTED RETURNS FOR ASIAN USD BONDS YEAR TO DATE? The US Fed s decision to keep policy rate unchanged has provided room for risk assets to do well. The largely dovish bias of other major central banks, such as the ECB and People s Bank of China, also underpinned the improvement in risk appetite. Year-to-date, Asian USD-denominated bonds delivered a positive return as coupon accrual buffered the impact of modest credit spread widening. The positive performance was led by the Asian high yield corporate sector, as higher coupon accrual offset the effects of spread widening. The extent of spread widening of Asian high yield has been a lot more muted compared to the US high yield sector, in part due to the lower energy and commodityrelated corporate exposures in the former. It is worth noting that Chinese home builders U.S.-dollar bonds have been a stand-out winner among global assets this year, driven by Chinese liquidity, competitive yields, cyclical recovery, and lighter restrictions to raise onshore debt, government measures to support home buying and a perceived flight to quality from Chinese Equities to Chinese Bonds. CHART 3: YTD PERFORMANCE OF JACI 5 SECTORS JPM JACI INDEX: +3.1% 6.3%JPM JACI CORPORATE NON INV GRADE: +6.3% JPM JACI FINANCIAL:+3.6% JPM JACI CORPORATE INVESTMENT GRADE: +2.9% JPM JACI QUASI-SOVEREIGN:+1.8% JPM JACI SOVEREIGN: +1.1% Source: Eastspring Investments, Investments. JP All Morgan, data as All of 30 data November as of November unless 2015 otherwise unless stated. otherwise For stated. long For form long of abbreviations, form of abbreviations, refer to the refer Glossary to the of Glossary terms Note: of terms U.S. High Note: Yield U.S. Sub-Portfolio High Yield Sub-Portfolio = Eastspring = Eastspring Investments Investments U.S. High Yield U.S. Bond High Fund Yield (Class Bond Fund D), Asian (Class Bond D), Sub-Portfolio Asian Bond = Sub-Portfolio Eastspring Investments = Eastspring Investments - Asian Bond - Fund Asian (Class Bond Fund D). (Class D). Note: Asian Bond Index refers to the JP Morgan Asia Credit Index ( JACI ) Page 3

4 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 (Returns rebased to 100, USD) HOW HAS THE OFF BENCHMARK EQUITY ALLOCATION PERFORMED? Year to date, the main detractor of the MIP returns has been the off benchmark allocation to Singapore High Dividend Equity. This equity allocation registered negative returns but still beat the broader Singapore Index. In our view, recent weak price movements are due to poor stock market performance in general and also fears over rising interest rates with Fed contemplating its first rate hike this month, the first in almost 10 years. The Fed action is well anticipated and in our view, not necessarily a bad thing as it removes an overhang, and also underscores the Fed s confidence in the growth path of the US economy. More relevant to fixed income and yield assets such as real estate investment trusts ( REITs )and dividend stocks, we expect the pace of future rate increase to be very gradual and hence should be manageable for yield assets. REITs is about 35% of the equity portfolio (or 3.5% of MIP fund), with the rest in dividend stocks, such as banks, transport, telecommunication services. These are higher quality names with good assets, strong sponsors (pipeline) and good management teams. Gearing is also at very manageable levels for these REITs and most of debt has been converted to fixed rate, so there is less risk to impact of rising rates. However, we recognize that the near-term sentiments over the Singapore equity market may continue to be weak, and stock prices remain volatile. But the stability in the dividend payouts from these high quality companies means that the high dividend yield will be a strong contributor to medium-term returns for investors. 110 CHART 4: MIP EQUITY ALLOCATION PERFORMANCE VS MSCI SG FREE MIP Equity Portfolio (SGD) MSCI Singapore (index returns) 80 Source: Eastspring Investments. All data as of 30 November 2015 unless otherwise stated. For long form of abbreviations, refer to the Glossary of terms Note: U.S. High Yield Sub-Portfolio = Eastspring Investments U.S. High Yield Bond Fund (Class D), Asian Bond Sub-Portfolio = Eastspring Investments Page 4

5 HOW DOES THE PORTFOLIO MANAGER VIEW EACH OF THE UNDERLYING ASSET? US High Yield We have turned more cautious on this asset class as broad macro and fundamental indicators have deteriorated. There has also been evidence of a persistent spillover of the High Yield energy sector to the rest of the sectors in high yield credit with spread widening across different industries, other than Energy and Materials As the negative price action is no longer confined to the energy sector, we are more concerned now that the weakness in US HY may persist in the short-term. Additionally, Energy corporate fundamentals have clearly deteriorated, with leverage ratios trending higher while default rates has been inching up, mostly in the energy sector. Having said that, high yield spread valuation has become very attractive now. Absolute yield is now in excess of 9%, and spread to treasury of 700bps+, with the energy sector spread of 1300bps, just 200bps shy of the historic high during the GFC. Current implied credit default rate is already well above actual default rate, suggesting that market has already started pricing in the deteriorating credit fundamentals. We also do not think that we are likely to see a repeat of the credit market meltdown seen during the GFC, as macro environment and central bank policies are a lot more supportive now than before. The case for US High yield remains as these companies will benefit from the ongoing relative strength of US growth. In addition, should interest rates rise, US High yield has historically been relatively less susceptible to a rise in government bond yields as its higher absolute yield level offers more carry to offset any negative impact from a rise in government bond yields. CHART 5: US HIGH YIELD OPTION ADJUSTED SPREAD 7.0 (%) US High Yield Option Adjusted Spread (%) Dec-15 Oct-15 Aug-15 Jun-15 Apr-15 Feb-15 Dec-14 Source: Eastspring Investments, Investments. BofA All data Merrill as Lynch, of 30 November All data as 2015 of 30 unless November otherwise 2015 stated. unless For otherwise long stated. form of For abbreviations, long form of refer abbreviations, to the Glossary refer to of the terms Glossary Note: of U.S. terms High Note: Yield US Sub-Portfolio High Yield Index = Eastspring refers to the Investments BofA Merrill U.S. Lynch High Yield USD Bond High Fund Yield (Class Constrained D), Asian Index. Bond The Sub-Portfolio BofA Merrill = Eastspring Lynch Option-Adjusted Investments Spreads - Asian Bond (OASs) Fund are (Class the calculated D). spreads between a computed OAS index of all bonds in a given rating category and a spot Treasury curve. An OAS index is constructed using each constituent bond's OAS, weighted by market capitalization. Page 5

6 Return (Annualised %) HOW DOES THE PORTFOLIO MANAGER VIEW EACH OF THE UNDERLYING ASSET TYPE? Asian USD Bond Exposure to Asian Bonds provides investors with the opportunity to grow along with Asian economies and corporates. Following significant structural economic reforms that have taken place in the past decade, the sovereign credit ratings of many Asian countries are generally improving. The U.S. dollar bond market in Asia is also more liquid than before and offers attractive yields over their U.S. counterparts. Investors of Asian Bonds can also expect falling of interest rates to add to the total return. For investors looking to lower the volatility of their investments, Asia bonds are ideal as they have only about half the volatility of U.S. equities and about one-third the volatility of Asia ex-japan equities, making it one of the least volatile international asset classes. Historically, Asia bonds are also are not perfectly correlated to major asset classes and this provides fulfills the diversification needs of investors. Asian Bonds however, are exposed to risk sentiment and could suffer should there be a risk adverse environment as issues of capital flight, debt serviceability and a slower state of Chinese growth weigh on investors minds. CHART 6: RISK/RETURN PERFORMANCE OF ASIAN BONDS VS. OTHER ASSET CLASSES JACI (Asian Credits) JACI High Yield ( Asian High Yield Credits) JPM EMBIG (Global Emerging Market Bonds) MSCI AC Asia ex Japan (Asian Equities) 6 HSBC ALBI (Asian Local Bonds) BofAml US High Yield (US High Yield credits) 4 Citi US Treasury/ Agency (US Govt Bonds) Citi World Govt Bond (Global Bonds) S&P 500 Index (US Equities) MSCI AC World US$ (Global Equities) Risk (Std Dev, annualised %) Source: Bloomberg, Eastspring Investments. Eastspring Investments, All data as of from 30 end November 2000 unless to otherwise end September stated. 2015, For long in USD, form of based abbreviations, monthly refer data; to Various the Glossary markets of are terms represented Note: U.S. by High following Yield indexes Sub-Portfolio : Asian = High Eastspring Yield Credits Investments JACI U.S. High High Yield Yield Index, Bond Asian Fund Credits (Class D), JACI Asian Asia Bond Credit Sub-Portfolio Index, Asian = Local Eastspring Bonds Investments HSBC Asian - Asian Local Bond Bond Fund Index, (Class US D). Govt Bonds Citi US Treasury/Agency, Global Bonds Citi World Govt Bond, US High Yield Credits BofAML US High Yield, Global Emerging Market Bonds JPM EMBIG, Asian Equities MSCI Asia Ex Japan, Global Equities MSCI AC World US$, US Equities S&P 500 Index. Note: The chart above is included for illustrative purposes only, and may not be indicative of the future or likely performance of the markets. Page 6

7 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 HOW DOES THE PORTFOLIO MANAGER VIEW EACH OF THE UNDERLYING ASSET? Singapore High Dividend Equity Singapore high dividend stocks provide payouts that not only act as a buffer in down markets but also offer a boost to total return in up markets. The higher than average yield also ensures a buffer from rising US interest rates. One of the characteristics of high dividend stocks is the lower volatility when compared to the market thus owning this companies enable MIP investors to participate in equity markets with less turbulence as they add stability to investors in terms of price movement and income streams. The high dividend stocks that we hold have stable cash flows and manageable leverage levels which ensures the sustainability of the company dividend policy which helps MIP to meet target payouts. CHART 7: MIP EQUITY DY VS. SINGAPORE AVERAGE VS. ASIA AVERAGE 6 (%) Asia Singapore MIP Equity Source: Eastspring Investments, Investments. Bloomberg, All data as All of 30 data November as of November unless 2015 otherwise unless stated. otherwise For stated. long For form long of abbreviations, form of abbreviations, refer to the refer Glossary to the Glossary of terms of Note: terms U.S. Note: High Singapore Yield Sub-Portfolio average refers = Eastspring to MSCI Singapore Investments Free U.S. Index. High Asia Yield average Bond refers Fund (Class to MSCI D), Asian ex Bond Japan Sub-Portfolio Index = Eastspring Investments Page 7

8 WHAT IS THE OUTLOOK OF THE MIP PORTFOLIO MANAGER FOR 2016 AND HOW IS THE FUND POSITIONED? The past year has been a relatively challenging one for investors. At the time of writing, most equity markets have declined on the year while returns on sovereign bonds and most credit markets have been equally dismal. Looking forward, we note that the trend of underperformance in emerging markets is not new and has been underway since It probably reflects the secular slowdown in China s trend growth and shift in growth composition from manufacturing and infrastructure to services. As a result, there has been reduced demand for commodities, basic materials and capital goods that has been exacerbated by the dramatic increase or excess supply in these goods over the past five years. The ongoing weakness in global manufacturing, trade, Asian exports, commodity and producer prices is evidence of this trend. While this condition is well appreciated, our fear is that it is legitimate and not fully played out nor priced into all related assets. However, US and Europe show firmer trends with growth in the domestic US and European economy. The US unemployment rate is near full employment (5.1%), housing activity is contributing to growth. In Europe, loan growth is expanding for the first time in ten years. At the same time, low headline and core inflation is likely to maintain interest rates at extremely accommodative levels. We also think that High yields and EM could face more challenging times. The challenges noted above have been evident in the credit markets with widening high yield spreads in the US corporate bond market largely as the energy sector got sold off. While high yield spreads offer above average levels of spread (or risk) compensation, a genuine profit recession would be challenging for sector fundamentals. A rise in default rates is also plausible next year. Similarly, the weakness in commodity prices and the US dollar strength has exacerbated and contributed to the material declines in commodity linked EM currencies; a number are trading at 2002 trough levels in nominal terms and while external sovereign debt and imbalances are lower than in the past, private sector credit has increased since the last crisis and might contribute to a challenging phase for EM next year if US dollar strength and/or commodity price weakness persists. The Portfolio Manager has been active over the course of the Fund responding to market conditions and trying to achieve the investment objective of the strategy. An example would be the reduction in US HY minimum allowable 30% from Oct 2007 through May 2008 as historically low credit spreads did not compensate for the heightened risk. Currently, the Portfolio Manager maintains its preference for US high yield over Asian US dollar bonds due relative attractiveness. However, the Portfolio Manager feels it is appropriate that we reduce the position into the rest of the year, in view of the possibility of the continued weakness in this asset class, weighed down by low oil prices. We still think spread valuations remain very attractive currently. We will be closely monitoring the macro environment, price action and credit fundamentals. High dividend stocks remain as the Funds most preferred asset class. The current equity allocation consists of high quality companies in terms of superior assets, strong development pipeline and good management teams. Debt for these companies is also very manageable and most of the debt has been locked in to minimize exposure to rising US interest rates. In terms of stock selection, we continue to focus more on bottom-up stock selection. We will also continue to seek dividend yield ideas from overseas but recognize the need to balance between achieving a high dividend yield and its underlying risks. All in all, the high dividend yields, diversification from USD interest rate risk, as well as potential capital upside should enhance the Fund s ability to achieve its medium term return target. Source: Eastspring Investments, Investments. Bloomberg, All data as All of 30 data November as of November unless 2015 otherwise unless stated. otherwise For stated. long For form long of abbreviations, form of abbreviations, refer to the refer Glossary to the Glossary of terms of Note: terms U.S. High Yield Sub-Portfolio = Eastspring Investments U.S. High Yield Bond Fund (Class D), Asian Bond Sub-Portfolio = Eastspring Investments Page 8

9 Porfolio Weight (%) CHART 8: HISTORICAL ASSET ALLOCATION (% OF PORTFOLIO) 100% 90% Cash & Equivalent Asian Equities 80% 70% Asian USD Bonds 60% 50% 40% 30% 20% 10% US High Yield Bonds Cut US high yield to the min allowable 30% since Oct 2007 through May 2008 Historic low credit spreads did not compensate for the heightened risk 0% Feb/05 Feb/06 Feb/07 Feb/08 Feb/09 Feb/10 Feb/11 Feb/12 Feb/13 Feb/14 Feb/15 US High Yield Bonds Asian USD Bonds Asian Equities Cash & Equalviant CHART 9: SUSTAINABLE DIVIDENDS WELL SUPPORTED BY UNDERLYING ASSETS Eastspring Investments Funds Monthly Income Plan Running Yield: 6.3% Eastspring Investments- US High Yield Bond Fund Current Yield: 7.8% Eastspring Investments- Asian Bond Fund Current Yield: 4.6% Asian High Dividend Yielding Equities Current Dividend Yield: 5.6% Source: Eastspring Investments, Investments. Bloomberg, All data as All of 30 data November as of November unless 2015 otherwise unless stated. otherwise For stated. long For form long of abbreviations, form of abbreviations, refer to the refer Glossary to the of Glossary terms Note: of terms U.S. High Note: Yield U.S. Sub-Portfolio High Yield Sub-Portfolio = Eastspring = Eastspring Investments Investments U.S. High Yield U.S. Bond High Fund Yield (Class Bond Fund D), Asian (Class Bond D), Sub-Portfolio Asian Bond = Sub-Portfolio Eastspring Investments = Eastspring Investments - Asian Bond - Fund Asian (Class Bond Fund D). (Class D). Page 9

10 GLOSSARY OF TERMS Abbreviation EM U.S. USD REITs MSCI SGD Fed BofAML PBoC RRR RMB CNY PSL CBD Hukou SOE M&A DY ECB JACI Long form Emerging Markets United States of America U.S. Dollar Real Estate Investment Trusts Morgan Stanley Capital International Singapore Dollars U.S. Federal Reserve Bank of America Merrill Lynch People s Bank of China Reserve Requirement Ratio Renminbi Chinese Yuan Pledged Supplementary Lending China Development Bank China household registration system State Owned Enterprise Merger and Acquisition Dividend Yield European Central Bank JP Morgan Asia Credit Index Source: Eastspring Investments. All data as of 30 November 2015 unless otherwise stated. For long form of abbreviations, refer to the Glossary of terms Note: U.S. High Yield Sub-Portfolio = Eastspring Investments U.S. High Yield Bond Fund (Class D), Asian Bond Sub-Portfolio = Eastspring Investments Page 10

11 Disclaimer The name of the Fund Eastspring Investments Funds - Monthly Income Plan should not be taken as implying that monthly or regular distributions in respect of units will be made. Distribution payout shall, at the sole discretion of the Manager, be made out of either (a) income; or (b)net capital gains of the Fund; or (c) capital of the Fund or a combination of (a) and/or (b) and/or (c). There is no guarantee that any distribution will be made or that the frequency and amount of distributions as set out in the prospectus will be met. When distributions are declared and paid out (including out of capital) with respect to the Fund, the net assets attributable to the relevant class of Units will stand reduced by an amount equivalent to the product of the number of Units outstanding and distribution amount declared per Unit. Payout is computed based on initial issue price of its respective classes of units. This document is solely for information and may not be published, circulated, reproduced or distributed in whole or part to any other person without the prior written consent of Eastspring Investments (Singapore) Limited ( Eastspring Singapore ) (UEN: H). This document is not an offer, solicitation of an offer, or a recommendation to transact in the investment units in the Fund(s). The information contained herein does not have any regards to the specific investment objectives, financial situation or particular needs of any person. A prospectus in relation to the Fund(s) is available and a copy of the prospectus may be obtained from Eastspring Singapore and its distribution partners. Investors should read the prospectus and seek professional advice before making any investment decision. In the event that investor chooses not to seek advice, he should consider carefully whether the Fund in question is suitable for him. The value of units in the Fund(s) and the income accruing to the units, if any, may fall or rise. Past performance of the Fund(s)/manager is not necessarily indicative of the future performance. Any prediction, projection or forecast on the economy, securities markets or the economic trends of the markets targeted by the Fund(s) is not necessarily indicative of the future performance of the Fund(s). An investment in the Fund(s) is subject to investment risks, including the possible loss of the principal amount invested. Whilst Eastspring Singapore has taken all reasonable care to ensure that the information contained in this document is not untrue or misleading at the time of publication, Eastspring Singapore cannot guarantee its accuracy or completeness. Any opinion or estimate contained in this document is subject to change without notice. The fund(s)/ underlying fund(s) may use derivative instruments for efficient portfolio management and hedging purposes. Eastspring Singapore is an ultimately wholly-owned subsidiary of Prudential plc of the United Kingdom. Eastspring Singapore and Prudential plc are not affiliated in any manner with Prudential Financial, Inc., a company whose principal place of business is in the United States of America. Eastspring Investments (Singapore) Limited (UEN H) 10 Marina Boulevard #32-01 Marina Bay Financial Centre Tower 2 Singapore Tel: Fax: eastspring.com.sg Page 11