M&G Investment Funds (4) Annual Short Report December 2010 For the year ended 31 October 2010 M&G Managed Fund a sub-fund of M&G Investment Funds (4)
AUTHORISED CORPORATE DIRECTOR S REPORT Investment objective of the M&G Managed Fund The Fund s objective is to maximise total return (the combination of income and growth of capital). Policy for achieving the objective of the M&G Managed Fund The Fund invests mainly in securities, fixed income assets, warrants, money market instruments, deposits, cash, near cash and property mainly via collective investment schemes, but, with the exception of property, may invest directly in these assets. The Fund may also invest directly in derivative instruments for the purposes of investment and efficient portfolio management. Risk profile All stockmarket investments carry risk, the fund s prices will fluctuate and you may not get back your original investment. Past performance is not a guide to future performance. The level of income is not fixed and will vary. A rising rate of inflation will have the effect of reducing the actual value of any gain by an equivalent amount. The current tax regimes applicable to investors in this fund are not guaranteed and may change in the future. Where the fund s charges are taken from capital, this will increase the level of income at the expense of capital growth. The value of overseas investments may be affected by currency exchange rates. The fund can hold fixed interest investments. Interest rate fluctuations may affect the capital value of investments within the fund. Capital values are likely to fall when interest rates rise and vice versa. The value of your investment will fall if the issuer defaults or is perceived as an increased credit risk. Unlike the income from a single bond, yields may vary and the level of income may fluctuate. It is anticipated that the use of derivatives will not increase the risk profile or volatility of the fund. Although the investment manager will select the counterparties with which it enters into derivative transactions with due skill and care, there will be residual risk that the counterparty may default on its obligations or become insolvent.
Investment approach The M&G Managed Fund invests in a range of assets, including equities, fixed interest securities, property, money market instruments, cash and near cash, through collective investment schemes and, with the exception of property, through direct holdings as well. The fund manager works as part of a multi-asset team, which has the discretion to select from the full range of M&G equity, fixed interest and property funds and other securities, including external funds. Asset allocation is complemented by a systematic approach identifying themes, regional preferences, sectors and investment styles. The multi-asset team determines the portfolio s asset allocation between the various securities, as well as the fund s geographical spread.
INVESTMENT ACTIVITIES OVER THE REPORT PERIOD As at 1 November 2010, for the year ended 31 October 2010 We topped up the positions in a number of funds, including the M&G Global Basics Fund and the M&G Global Dividend Fund. The rationale for investing in the former is that we feel that demand for infrastructure development will drive commodity and basic resources markets higher over the long term. Meanwhile, the M&G Global Dividend Fund focuses on strong dividend growth as a key element of a company s investment case. In order to increase the flexibility of the portfolio, we sold holdings in some funds, including the M&G Dividend Fund and the M&G Recovery Fund. Instead, we chose to gain broad equity market exposure through index futures, which we can use to tactically change our exposure very quickly. Some of the largest transactions over the review period involved the purchase and sale of futures contracts. Futures are issued for a threemonth period, after which if we wish to continue to hold the contract we will roll the future effectively selling it on expiry and buying the new one. In terms of rolling contracts in the portfolio, transactions involved the S&P 500 Index (maturing in June and September 2010), which provides exposure to the US stockmarket. In order to reduce the currency risk across the portfolio, we started a position in the Deutsche Bank ETF S&P Currency Returns Fund. This holding is designed to generate returns from currency movements and should offset some of the volatility of the underlying holdings. Finally, we started a new position in ETFS Agriculture, an agricultural commodities exchange traded fund in order to benefit from a trend towards more intensive farming, as rural populations, notably in emerging markets, increasingly move to urban locations. In addition, the exposure brings diversification benefits to the fund. George Tsinonis Fund manager George Tsinonis is an employee of M&G Limited which is an associate of M&G Securities Limited. At the start of the review period David Jane was the fund manager. 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.
FUND SUMMARY DISTRIBUTION DATES AND FUND FACTS Distribution type xd payment First interim 01.12.10 31.12.10 Second interim 04.01.11 31.01.11 Third interim 01.02.11 28.02.11 Fourth interim 01.03.11 31.03.11 Fifth interim 01.04.11 30.04.11 Sixth interim 03.05.11 31.05.11 Seventh interim 01.06.11 30.06.11 Eighth interim 01.07.11 31.07.11 Ninth interim 01.08.11 31.08.11 Tenth interim 01.09.11 30.09.11 Eleventh interim 03.10.11 31.10.11 Final 01.11.11 30.11.11 Final distribution Inc Acc Total Expense Ratio [b] 30.11.10 [a] 01.11.10 [a] 31.10.10 31.10.09 Sterling p p % % Class A 0.0776 0.0946 1.89 1.87 Class X 0.0777 n/a 1.89 1.87 The Portfolio Turnover Rate (PTR) for the 12 months ending 31 October 2010 was 86.91% compared with 154.54% for the year ending 31 October 2009. [c] [a] The date on which the final distribution will be paid to Income shareholders and credited to Accumulation shareholders. [b] The Total Expense Ratio (TER) shows the relevant annualised operating expenses of each share class from the most recent reporting period as a single percentage of the average net asset value for that share class over the same period. [c] The Portfolio Turnover Rate (PTR) is a ratio that reflects the volume of trading within the fund over the course of a 12 month period. The PTR is calculated by taking the sum of all transactions in securities less the sum of all transactions in the fund s shares and is expressed as a percentage of the fund s average net asset value. Income accrued from interest-bearing securities is distributed on an effective yield basis. FUND PERFORMANCE Performance of share classes Net asset value Net asset value per share as at per share as at Net asset value 31.10.10 31.10.09 % change Inc Acc Inc Acc Inc Acc Sterling p p p p % % Class A 42.46 51.07 38.36 45.14 +10.69 +13.14 Class X 42.33 n/a 38.24 n/a +10.70 n/a
PRICES Income shares Accumulation shares Calendar year Highest Lowest Highest Lowest Sterling (net) p p p p Class A 2005 38.84 31.94 41.77 33.86 2006 43.40 37.81 47.18 40.91 2007 [a] 47.32 42.24 52.08 46.34 2008 45.72 29.93 51.12 34.33 2009 [b] 40.78 30.04 47.91 34.62 2010 [c] 43.64 38.22 51.88 45.68 Class X 2005 38.74 31.86 n/a n/a 2006 43.28 37.71 n/a n/a 2007 [a] 47.19 42.13 n/a n/a 2008 45.59 29.84 n/a n/a 2009 [b] 40.65 29.95 n/a n/a 2010 [c] 43.51 38.11 n/a n/a [a] On 16 January 2007 the fund s objective was changed. [b] The M&G Balanced Portfolio merged into the M&G Managed Fund immediately after 13 March 2009. [c] To 1 November 2010. Past performance is no indication of current or future performance and the performance data does not take account of the commissions and costs incurred on the issue and redemption of shares. The price of shares and the income from them may go down as well as up, and you may get back less than you invested.
INCOME Dividend income per share Calendar Distributed Reinvested year Interims Final Interim Total Sterling (net) p p p p p Class A 2005 0.5000 0.2140 nil 0.7140 0.7591 2006 0.4850 0.1530 nil 0.6380 0.6908 2007 0.5410 0.3710 0.0400 0.9520 1.0488 2008 0.5000 0.5280 nil 1.0280 1.1566 2009 0.5000 0.4330 0.0380 0.9710 1.1222 2010 [a] 0.7750 0.0776-0.8526 1.0156 Class X 2005 0.5000 0.2140 nil 0.7140 n/a 2006 0.4830 0.1530 nil 0.6360 n/a 2007 0.5410 0.3710 0.0400 0.9520 n/a 2008 0.5000 0.5270 nil 1.0270 n/a 2009 0.5000 0.4310 0.0370 0.9680 n/a 2010 [a] 0.7730 0.0777-0.8507 n/a [a] Up to final: ex-distribution date 1 November 2010; payment date 30 November 2010. MAJOR HOLDINGS The top ten holdings at the end of this year and the previous year end are shown below. [a] % of sub-fund as at % of sub-fund as at 31.10.10 31.10.09 M&G Property Portfolio M&G Global Basics Fund 8.44 Sterling Class S (Income) 6.55 SG Japan CoreAlpha Fund SG Japan CoreAlpha Fund (Accumulation) 6.90 (Accumulation) 5.98 M&G European Strategic Value Fund 5.49 M&G European Strategic Value Fund 5.42 ishares MSCI Brazil Index Fund M&G Smaller Companies Fund 4.68 (Income) 5.26 M&G European Special M&G European Special Situations Fund 4.28 Situations Fund 4.51 ishares FTSE 100 4.24 M&G Dividend Fund 4.42 M&G UK Growth Fund 4.07 M&G UK Growth Fund 4.24 M&G Income Fund 3.97 M&G Pan European Fund 3.84 M&G Property Portfolio Sterling Class S (Income) 3.76 M&G Global Convertibles Fund 3.66 M&G European Smaller Companies Fund 3.75 M&G Smaller Companies Fund 3.40 [a] All holdings in M&G collective investment schemes are in Sterling Class A (Income) shares / units unless otherwise stated.
CLASSIFICATION OF INVESTMENTS The table below shows the percentage holding per sector. % of sub-fund as at 31.10.10 31.10.09 [a] Equity portfolios Continental Europe 16.21 16.58 United Kingdom 12.72 15.28 Emerging markets 0.54 0.00 Far East 3.32 2.22 Global 11.89 4.68 Japan 6.90 5.98 Equities France 1.95 0.60 Switzerland 2.40 0.89 United Kingdom 10.09 16.58 Japan 0.00 1.06 Singapore 0.49 0.00 Canada 0.00 0.73 United States 4.78 3.62 Non-equity investments Commodities 8.95 3.59 United Kingdom 4.24 0.00 Emerging markets 1.65 5.26 Far East 0.00 4.16 Global 1.98 0.00 Japan 1.29 0.00 Property portfolios 6.11 8.57 Bond portfolios 1.22 10.02 Forward currency contracts 0.06 0.00 Index Futures contracts 0.12 (0.03) [a] The comparative sector weightings have been re-analysed to reflect changes to the sector classifications.
OTHER INFORMATION The information in this report is designed to enable shareholders to make an informed judgment on the activities of the sub-fund during the period covered by the report and the results of those activities at the end of the year. For more information about the activities and performance of the sub-fund during this and the previous year, please contact the Authorised Corporate Director (ACD). Short Reports This Short Report is issued in accordance with the requirements of the Collective Investment Schemes sourcebook as issued (and amended) by the Financial Services Authority. This Short Report does not contain the Financial Statements of the M&G Managed Fund, and it is unaudited. Investment Report and Financial Statements A copy of the ACD s Annual Investment Report and Financial Statements for M&G Investment Funds (4), which incorporates all the sub-fund s annual investment reports and audited financial statements is available free of charge on request from our website at www.mandg.co.uk/reports or by calling M&G Customer Relations on 0800 390 390. Notes to shareholders Please note that with effect from 1 November 2010 the provision of Fund Accounting and the daily calculation of fund prices (Price Making) for all our funds is being undertaken by State Street Bank and Trust Company. Authorised Corporate Director M&G Securities Limited, Laurence Pountney Hill, London EC4R 0HH Telephone: 0800 390 390 (Authorised and regulated by the Financial Services Authority) Investment Manager M&G Investment Management Limited, Laurence Pountney Hill, London EC4R 0HH Telephone: 020 7626 4588 (Authorised and regulated by the Financial Services Authority) Fund manager George Tsinonis (an employee of M&G Limited which is an associate of M&G Securities Limited) Registrar International Financial Data Services (UK) Limited, IFDS House, St. Nicholas Lane, Basildon, Essex SS15 5FS (Authorised and regulated by the Financial Services Authority) Depositary The Royal Bank of Scotland plc, Trustee & Depositary Services, The Broadstone, 50 South Gyle Crescent, Edinburgh EH12 9UZ (Authorised and regulated by the Financial Services Authority)
Independent auditors PricewaterhouseCoopers LLP, Hay s Galleria, 1 Hay s Lane, London SE1 2RD M&G is a member of the Investment Management Association and of the Tax Incentivised Savings Association. The Instrument of Incorporation can be inspected at our offices or at the office of the Depositary. How to contact us * ** 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 Services Authority and provides investment products. The company s registered office is Laurence Pountney Hill, London EC4R 0HH. Registered in England number 90776. 27911_SR_311211