M&G European Select Fund a sub-fund of M&G Investment Funds (1) Annual Short Report August 2017 For the year ended 31 August 2017
Fund information The Authorised Corporate Director (ACD) of M&G Investment Funds (1) presents its Annual Short Report for M&G European Select 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 (1), 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.) Important information Please note that with effect from 16 December 2016: We have discounted the initial charge to zero on all new investments into sterling share classes that currently carry such a charge. We have waived the exit charges on future withdrawals from all Sterling Class X shares. Investment objective and policy The Fund s prime objective is long term capital growth. It invests wholly or predominantly in a diversified portfolio of securities of European (excluding United Kingdom) issuers. When not wholly invested as above, it may also invest in companies which are listed or registered outside Europe but trade within it. Income is of secondary importance when investments are selected. The Fund may at any time be concentrated in a limited number of securities. Investment approach The M&G European Select Fund invests in the shares of European (ex UK) companies with sustainable competitive advantages, which have the opportunity to reinvest their capital at high rates of return. Central to the fund manager s approach is the capital allocation strategy of the businesses in which he invests. In light of this, the manager focuses on companies that recognise the importance of growing dividends, which in turn instils capital discipline and ensures that the highest returning growth projects are prioritised. The fund manager believes that, as a result of his focus on capital discipline and dividends, the dividend growth of the fund s holdings is likely to be higher than that of a broad index of European (ex UK) equities over the long term. He expects this premium dividend growth to drive the fund s long-term capital growth, as well as growth in the fund s income distributions. The fund will usually hold between 25 and 35 stocks, with a long-term investment view of three years or more. 1 2
Fund information Investment review Risk profile The fund invests in the shares of companies listed in Europe and is, therefore, subject to the price volatility of the European stockmarket and the performance of individual companies. The fund may also be subject to fluctuations in currency exchange rates. The fund s focus is on businesses displaying capital discipline and these stocks could potentially experience a degree of illiquidity in times of market distress. The fund is a concentrated portfolio of between 25-35 holdings, but is mainly invested in the shares of large and medium-sized companies, which are normally traded with relative ease. The fund also invests in the shares of smaller companies, which can be more unpredictable and difficult to buy and sell. Diversification across countries, industries and market capitalisation is therefore 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. Please note that the risk management policies are set out in full in the financial statements and notes sections of the Annual Long Report and audited Financial Statements of M&G Investment Funds (1). The following table shows the risk number associated with the fund and is based on Sterling Class A shares. Low risk Typically lower rewards The above number: High risk 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 1 September 2016 to 27 April 2017 the risk number was 6. As at 1 September 2017, for the year ended 31 August 2017 Performance against objective Between 1 September 2016 (the start of the review period) and 1 September 2017, the M&G European Select Fund delivered positive returns across all of its share classes.* All share classes finished behind a comparable index, the FTSE World Europe ex UK Index. Over the 12 months, returns from the index were 27.3% and 17.0% in sterling and euros, respectively. Over five years and since launch, the fund has delivered positive capital growth, thus meeting its investment objective. To give an indication of 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 and Sterling Class I (Accumulation) shares. Calculated on a price to price basis with income reinvested. Long-term performance One Three Five year years years Since 01.09.16 01.09.14 03.09.12 launch % [a] % p.a. % p.a. % p.a. Sterling [b] Class A +23.4 +13.7 +14.1 +9.7 [c] Class I +24.4 +14.6 +15.0 +15.0 [d] [a] Absolute basis. [b] Price to price with income reinvested. [c] 24 July 1972, the end of the initial offer period of the predecessor unit trust. [d] 3 August 2012, the launch date of the share class. 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. Investment performance The period under review was eventful for European stockmarkets. As we started the period, investors had broadly switched their attention to elections in the US, having previously been focused on the aftermath of the UK referendum on EU membership. Markets were turbulent in the run-up to November s Presidential contest, but then rose steadily following the surprise election of Donald Trump, as the 3 4
Investment review potential for reduced taxes and regulation, as well as a prospective boost to spending on infrastructure, cheered US investors this positive mood was reflected in Europe. Following a lull as we entered the new year, markets then maintained their upward trajectory for much of the period under review, with political and economic developments in Europe helping to drive sentiment on the continent. In political terms, the tide of populism highlighted in 2016 by the Brexit decision in the UK and Donald Trump s presidency in the US was stemmed in Europe, with elections in Holland and France failing to elect candidates from the extremes of the political spectrum; this had a positive effect on markets. Investors were also enlivened by strong business sentiment and accelerating economic activity, which helped to drive earnings. The euro s value, as well, was boosted by Emmanuel Macron s clear-cut win in the French presidential election, while strong economic data from across the region helped to extend gains. With a sharp fall in eurozone unemployment and business confidence surveys continuing their positive trend, Europe has appeared to be in the midst of a broad-based upturn, helping to further improve investor confidence. The currency strength, however, had ramifications for euro denominated investments while stockmarkets continued to deliver positive returns in sterling and US dollar terms, returns in euro flattened as we moved through the end of the period under review, reflecting the euro s relative rise in value. Against this background, the financial, industrials and technology sectors delivered strong performance, as did the more defensive (that is, with relatively predictable and stable earnings regardless of the state of the overall economy) utilities sector. Other more defensive sectors though, including healthcare and telecommunications, lagged the wider market, as did consumer related stocks. The fund s relative underperformance was largely driven by stock selection within the consumer goods sector, while selection within healthcare also weighed on returns. On the plus side, stockpicking within industrials and financials was supportive. At an individual stock level, the fund s largest detractor for the period under review was branded jewellery creator Pandora. Having performed well for some time, the company s shares slid after it forecast for slower revenue growth than anticipated, as well as squeezed margins in light of higher commodity prices. The company s slower revenue growth largely resulted from its operations in the US, where the retail environment has been particularly challenging. As we neared the end of the review period, though, Pandora reported an increase in US like-for-like sales, driven by more effective advertising and promotions. 5 Shares in fast fashion retailer Hennes & Mauritz, meanwhile, also declined, after the company reported a drop in net profits, largely due to higher purchasing costs from a strengthening US dollar. It also had to discount some of its lines in light of lower-than-expected sales, amid difficult conditions for retailers; investors were disappointed. Other laggards included Norwegian oil & gas producer Statoil, whose performance suffered along with other energy companies in light of weakness in the oil price, and German flavours and fragrances manufacturer Symrise. Symrise is a specialist chemicals company, globally supplying fragrances, flavourings and ingredients for cosmetics and nutritional supplements. Its products are widely used by food manufacturers and pharmaceutical companies. Its share price declined as investors downgraded earnings estimates on fears that the company would suffer from increased cost pressures, as commodity prices have firmed. (The shares of both Statoil and Symrise were sold following a change in fund management in July 2017 please see the investment activities section of this report for further details). On the upside, one of the fund s largest contributors was Dutch financial institution ING, which benefited from positive sentiment in the European financial sector, buoyed by the potential for rising interest rates. The company has also delivered ongoing operational success, including good retail expansion into online banking, and this has pleased investors. Elsewhere within financials, Italian global banking and financial services company UniCredit also delivered strong performance. Danish transport and logistics company DSV buoyed returns as well. The company reported very strong results, with each of its divisions Air & Sea, Road, and Solutions significantly outpacing market growth. The positive developments were largely the result of the continued successful integration of US-based freight forwarding business UTi, acquired by DSV in January 2016. Other supportive holdings included airline industry IT outsourcing business Amadeus IT Holdings and Aeroplane engine manufacturer and aftermarket service provider MTU Aero Engines. During the review period, Amadeus IT Holdings published strong numbers, with solid year-on-year growth in profits and revenues. This was driven by the company s distribution and IT solutions businesses, as well as through successful acquisitions, including Navitaire a provider for the low-cost segment of the airline industry acquired last year. Amadeus shares bounced back from a sharp decline at the end of May, which followed two European airlines announcing new fees on tickets purchased through global distribution systems that facilitate booking transactions between travel services and agencies. 6
Investment review MTU Aero Engines, meanwhile, announced expectations for its highly profitable spare parts and maintenance business to generate increasing revenues into 2018, with this change in mix resulting in rising profit margins. The company also said it expected its commercial maintenance segment to lead in terms of growth rates through 2017; investors were pleased. Investment activities Portfolio activity over the review period was significantly higher than usual, reflecting a reorganisation of the fund as a result of a change in management at the beginning of July 2017. Many of the fund s holdings were replaced at this point and the portfolio realigned to better fit the new investment philosophy. The majority of this realignment was completed by the financial year end, with the associated costs entirely borne by M&G. We look for companies with sustainable competitive advantages, which have the opportunity to reinvest their capital at high rates of return. Central to our approach is the capital allocation strategy of the businesses in which we invest. In light of this, we focus on companies that recognise the importance of growing dividends, which in turn instills capital discipline and ensures that the highest returning growth projects are prioritised. We expect that, as a result of our focus on growing dividends, the dividend growth of the fund s holdings is likely to be higher than that of a broad index of European (ex UK) equities over the long term. We expect this premium dividend growth to drive the fund s long-term capital growth and growth in the fund s income distributions. As previously, the fund will usually hold between 25 and 35 stocks, with a long-term investment view of three years or more. As part of the fund s realignment, we sold 12 holdings that we didn t feel fit with our investment philosophy, while adding 17 new holdings to the portfolio. As a result, the fund increased its relative positioning in the financial sector, while decreasing its positioning in basic materials other weightings in the portfolio were adjusted marginally. It is worth noting that these changes in allocation were not based on a view of these particular sectors, but rather were the result of fundamental, selective stockpicking. As an example of one of our new holdings, we bought shares in Erste Group. The Austrian bank with leading market positions in central and eastern Europe is benefiting from loan growth, high net interest margin and improving asset quality. The balance sheet is supportive of a rising dividend and the valuation is undemanding on a significant discount to its peers. 7 Another new holding was professional services company Bureau Veritas. The business of testing, inspection and certification, in which the company specialises, has benefited from structural growth driven by regulation, outsourcing, the need for independent verification and increased complexity, and its high barriers to entry have resulted in good pricing power. Bureau Veritas produces a lot of cash, and we think that market expectations for the French company look too low given the potential for bolt-on acquisitions, a cyclical recovery in some of its end markets (construction, marine, oil & gas) and improving profitability. The business was valued at a very significant discount to its peers at the time of purchase. Outlook European stocks have attracted much attention this year because earnings growth in the region is considerably better than it has been for many years. The pattern of successive downgrades every year since 2011 has not recurred. We are encouraged by the favourable backdrop, but the long-term attraction of the European stockmarket lies in the long-term potential of its underlying companies, not the short-term macroeconomic environment. The importance of being selective cannot be emphasised enough. Europe continues to offer excellent opportunities for long-term stockpickers, particularly outside the largest companies which are struggling to grow. Medium-sized companies remain a source of attractive opportunities given their potential to deliver long-term growth for the benefit of shareholders. As active investors, we remain focused on the analysis of company fundamentals and valuation in the strong belief that these factors drive stockmarket returns over the long term. We remain committed to our conviction-based approach, and we are ready to take advantage of new opportunities. We remain dedicated to our task of generating excellent returns for our clients. We believe that the cash generative nature of the companies we are invested in, combined with their attractive valuation in the stockmarket, stands us in good stead for the future, and we appreciate your continued support. Phil Cliff Fund manager An employee of M&G Limited which is an associate of M&G Securities Limited. At the start of the review period John William Olsen was the fund manager. * For the performance of each share class, please refer to the Long-term performance by share class table in the Fund performance section of the Annual Long Report and audited Financial Statements for M&G Investment Funds (1). 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. 8
Investment review Portfolio statement as at 31 August 2017 2017 2016 Holding 000 % % Oil & gas producers 3,121 2.01 4.30 224,628 Galp Energia 3,121 2.01 Chemicals 8,515 5.49 8.44 45,131 Bayer 4,861 3.13 22,599 Linde 3,654 2.36 Mining 0 0.00 2.07 Construction & materials 7,633 4.92 4.89 [a] 176,221 CRH 5,167 3.33 76,235 Kingspan Group 2,466 1.59 Aerospace & defence 0 0.00 2.25 [a] General industrials 6,056 3.90 0.00 55,026 Siemens 6,056 3.90 Electronic & electrical equipment 4,681 3.02 2.18 79,003 Legrand 4,681 3.02 Industrial engineering 8,764 5.65 3.98 [a] 299,504 Alfa Laval 5,673 3.66 261,971 Oerlikon 3,091 1.99 Industrial transportation 5,003 3.22 4.74 84,301 DSV 5,003 3.22 Support services 12,929 8.33 7.50 66,171 Amadeus IT Holdings 3,421 2.20 249,337 Bureau Veritas 4,943 3.19 123,316 CTS EVENTIM 4,565 2.94 Automobiles & parts 4,527 2.92 3.01 126,973 Nokian Renkaat 4,527 2.92 Food producers 12,236 7.88 10.24 81,400 Nestlé (Regd.) 5,805 3.74 128,769 Unilever 6,431 4.14 Household goods & home construction 1,687 1.09 0.00 980,045 Cairn Homes 1,687 1.09 Leisure goods 2,472 1.59 2.81 [a] 154,288 Thule Group 2,472 1.59 Personal goods 7,802 5.03 6.81 54,603 HUGO BOSS 3,895 2.51 44,334 Pandora 3,907 2.52 Healthcare equipment & services 4,175 2.69 4.07 53,387 Fresenius Medical Care 4,175 2.69 Portfolio statement (continued) as at 31 August 2017 2017 2016 Holding 000 % % Pharmaceuticals & biotechnology 17,976 11.58 10.29 194,401 Essity Aktiebolag 4,500 2.90 90,757 Novartis (Regd.) 6,365 4.10 33,623 Roche Holding Genussscheine 7,111 4.58 Food & drug retailers 2,186 1.41 0.00 53,904 Galenica Santé 2,186 1.41 General retailers 2,060 1.33 2.02 97,326 Hennes & Mauritz 2,060 1.33 Media 4,888 3.15 3.98 278,309 RELX 4,888 3.15 Banks 15,361 9.90 8.27 839,509 Allied Irish Banks 4,208 2.71 146,012 Erste Group 5,203 3.35 399,430 ING Groep 5,950 3.84 Non-life insurance 8,149 5.25 0.00 36,382 Hannover Re 3,718 2.40 99,535 Sampo 4,431 2.85 Financial services 4,115 2.65 2.60 100,701 Banca IFIS 4,115 2.65 Software & computer services 0 0.00 3.89 Technology hardware & equipment 7,874 5.07 0.00 53,122 ams 3,219 2.07 240,809 Infineon Technologies 4,655 3.00 Portfolio of investments 152,210 98.08 98.34 Net other assets / (liabilities) 2,983 1.92 1.66 Net assets attributable to shareholders 155,193 100.00 100.00 All securities are on an official stock exchange listing except where referenced. [a] The comparative sector weightings have been re-analysed to reflect changes to the sector classifications. 9 10
Investment review Financial highlights Fund performance Top ten portfolio transactions for the year to 31 August 2017 Largest purchases 000 Roche Holding Genussscheine 8,829 Linde 6,958 Siemens 6,601 CRH 5,527 Alfa Laval 5,401 Topdanmark 5,036 Erste Group 4,965 Legrand 4,921 RELX 4,898 Bureau Veritas 4,843 Other purchases 80,061 Total purchases 138,040 Largest sales 000 SAP 11,159 Roche Holding Genussscheine 9,185 Novo-Nordisk 8,777 Svenska Handelsbanken 7,981 MTU Aero Engines 7,714 Nestlé (Regd.) 7,622 Intrum Justitia 7,490 ING Groep 7,061 LafargeHolcim (Regd.) 6,892 Publicis Groupe 6,813 Other sales 133,413 Total sales 214,107 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 charts and tables show the performance for two of the fund s share classes Sterling Class A (Accumulation) shares and Sterling Class I (Accumulation) shares. We show performance for these two share classes because: The performance of the Sterling Class A (Accumulation) share is what most individuals investing directly with M&G have received. It has the highest ongoing charge of all the share classes. Performance is shown after deduction of this charge. All investors in the fund therefore received this performance or better. The performance of the Sterling Class I (Accumulation) share is the most appropriate to compare with the average performance of the fund s comparative sector. It is the share class used by the Investment Association in the calculation of the comparative sector s average performance. This share class is available for direct investment with M&G subject to minimum investment criteria, or via third parties who may charge additional fees. The performance shown takes the deduction of the ongoing charge for this share class into account but it does not take account of charges applied by any other party through which you may have invested. The fund is available for investment in different share classes, each with varying levels of charges and minimum investments; please refer to the Prospectus for M&G Investment Funds (1), which is available free of charge either from our website at www.mandg.co.uk/prospectuses or by calling M&G Customer Relations. For the specific performance tables of all share classes, please refer to the Annual Long Report and audited Financial Statements for M&G Investment Funds (1), which is available free of charge either from our website at www.mandg.co.uk/reports or by calling M&G Customer Relations. Fund level performance Fund net asset value 2017 2016 2015 as at 31 August 000 000 000 Fund net asset value (NAV) 155,193 212,077 230,134 11 12
Financial highlights Fund performance Performance since launch To give an indication of how the fund has performed since launch, the chart below shows total return of Sterling Class A (Accumulation) shares and Sterling Class I (Accumulation) shares. Ten-year performance Please note that comparative data is not available from fund launch. Therefore a ten-year comparable performance chart is shown below. Ten years, 1 September 2007 = 100, plotted monthly Chart date 1 September 2017 July 1972 = 100, plotted monthly Chart date 1 September 2017 200 7,000 5,000 Sterling Class I (Accumulation) shares* 180 160 Sterling Class I (Accumulation) shares* 3,000 140 2,000 1,500 120 1,000 700 500 300 200 150 100 60 Sterling Class A (Accumulation) shares* 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 Sterling Class A (Accumulation) shares* Sterling Class I (Accumulation) shares* * Income reinvested Source: Morningstar, Inc. and M&G 100 90 80 Sterling Class A (Accumulation) shares* 70 60 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Sterling Class A (Accumulation) shares* Sterling Class I (Accumulation) shares* FTSE World Europe ex UK Index Morningstar (IA) Europe Excluding UK sector average* * Income reinvested Source: Morningstar, Inc. and M&G The fund s Sterling Class I (Accumulation) shares were launched on 3 August 2012. Performance data shown prior to this date is that of the fund s Sterling Class A (Accumulation) shares. 13 14
Financial highlights Fund performance To give an indication of how the fund has performed during the period the tables below show the performance of Sterling Class A (Accumulation) shares and Sterling Class I (Accumulation) shares. All Performance and charges percentages represent an annual rate except for the Return after operating charges which is calculated as a percentage of the opening net asset value per share (NAV). Dilution adjustments are only in respect of direct portfolio transaction costs. Sterling Class A Accumulation share performance The share class was launched on 24 July 1972. for the year to 31 August 2017 2016 2015 Change in NAV per share UK p UK p UK p Opening NAV 2,543.44 2,204.69 2,123.67 Return before operating charges and after direct portfolio transaction costs 595.07 376.98 118.42 Operating charges (46.30) (38.23) (37.40) Return after operating charges 548.77 338.75 81.02 Distributions (11.89) (21.63) (15.21) Retained distributions 11.89 21.63 15.21 Closing NAV 3,092.21 2,543.44 2,204.69 Direct portfolio transaction costs UK p UK p UK p Costs before dilution adjustments 4.90 2.61 1.15 Dilution adjustments [a] (1.60) (0.13) (0.40) Total direct portfolio transaction costs 3.30 2.48 0.75 Performance and charges % % % Direct portfolio transaction costs [b] 0.12 0.10 0.03 Operating charges 1.68 1.68 1.69 Return after operating charges +21.58 +15.36 +3.82 Historic yield 0.38 0.79 0.75 Effect on yield of charges offset against capital 0.00 0.00 0.00 Other information Closing NAV ( 000) 71,380 69,394 79,735 Closing NAV percentage of total fund NAV (%) 45.99 32.72 34.65 Number of shares 2,125,792 2,314,096 2,651,013 Highest share price (UK p) 3,107.40 2,613.79 2,426.47 Lowest share price (UK p) 2,424.93 2,030.57 1,914.87 Sterling Class I Accumulation share performance The share class was launched on 3 August 2012. for the year to 31 August 2017 2016 2015 Change in NAV per share UK p UK p UK p Opening NAV 1,651.90 1,421.10 1,358.63 Return before operating charges and after direct portfolio transaction costs 388.18 244.43 75.86 Operating charges (16.68) (13.63) (13.39) Return after operating charges 371.50 230.80 62.47 Distributions (22.09) (26.22) (20.65) Retained distributions 22.09 26.22 20.65 Closing NAV 2,023.40 1,651.90 1,421.10 Direct portfolio transaction costs UK p UK p UK p Costs before dilution adjustments 3.19 1.69 0.74 Dilution adjustments [a] (1.04) (0.08) (0.26) Total direct portfolio transaction costs 2.15 1.61 0.48 Performance and charges % % % Direct portfolio transaction costs [b] 0.12 0.10 0.03 Operating charges 0.93 0.93 0.94 Return after operating charges +22.49 +16.24 +4.60 Historic yield 1.08 1.53 1.52 Effect on yield of charges offset against capital 0.00 0.00 0.00 Other information Closing NAV ( 000) 6,024 5,572 3,074 Closing NAV percentage of total fund NAV (%) 3.88 2.63 1.34 Number of shares 274,161 286,115 158,562 Highest share price (UK p) 2,033.09 1,697.03 1,559.45 Lowest share price (UK p) 1,577.94 1,313.29 1,226.24 [a] In respect of direct portfolio transaction costs. [b] As a percentage of average net asset value. 15 16
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, unless disclosed under the specific share class performance table. 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 and method of execution. They are made up of direct and indirect portfolio transaction costs: Direct portfolio transaction costs: Broker execution commission and taxes. 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. To give an indication of the indirect portfolio dealing costs the table also shows the average portfolio dealing spread. 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. Portfolio transaction costs for the year to 31 August 2017 2016 2015 Average [a] Direct portfolio transaction costs [b] % % % % Broker commission 0.11 0.08 0.04 0.07 Taxes 0.07 0.03 0.01 0.04 Costs before dilution adjustments 0.18 0.11 0.05 0.11 Dilution adjustments [c] (0.06) (0.01) (0.02) (0.03) Total direct portfolio transaction costs 0.12 0.10 0.03 0.08 as at 31 August 2017 2016 2015 Average [a] Indirect portfolio transaction costs % % % % Average portfolio dealing spread 0.07 0.07 0.12 0.09 [a] Average of first three columns. [b] As a percentage of average net asset value. [c] In respect of direct portfolio transaction costs. Please see the section above this table for an explanation of dilution adjustments. 17 18
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. 55273_SR_311018