NMA CONFERENCE

January 2012Julie Dickson, CFA

This document is for investment professionals only. The content is not approved for use with retail investors.

THE CASE FOR INVESTING IN DIVIDENDS

1 Why equity income strategies

2 Income in the US equity market

AGENDA

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KEY MESSAGES

– The case for dividend strategies remains strong and compelling, especially in this environment

– During periods of high market volatility investors seek safe havens

– US treasury bonds

– Absolute return strategies

– Flight to quality

– Typically this results in compressed yields in fixed income – the price of certainty becomes expensive

– Equities are shunned in favour of asset-protecting strategies

– Equity yields become more attractive as equity prices drop

– Opportunities for finding yield extends well beyond large cap companies

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WHY EQUITY INCOME BOND YIELDS ARE LESS ATTRACTIVE RELATIVE TO DIVIDENDS

– 10-year US benchmark Treasury yield is now at historical low

– Dividends are barely off their lows despite near full recovery of earnings, healthy corporate balance sheets

with record cash, therefore we think further dividends hikes are likely

– Such rare situations provides additional valuation support to high dividend yielding stocks, that in our view

should comfortably outperform bonds over the long term

Source: Factset and bloomberg as of end of December 2011

12/3

1/19

53

8/3/

1955

3/3/

1957

10/3

/195

8

5/3/

1960

12/3

/196

1

7/3/

1963

2/3/

1965

9/3/

1966

4/3/

1968

11/3

/196

9

6/3/

1971

1/3/

1973

8/3/

1974

3/3/

1976

10/3

/197

7

5/3/

1979

12/3

/198

0

7/3/

1982

2/3/

1984

9/3/

1985

4/3/

1987

11/3

/198

8

6/3/

1990

1/3/

1992

8/3/

1993

3/3/

1995

10/3

/199

6

5/3/

1998

12/3

/199

9

7/3/

2001

2/3/

2003

9/3/

2004

4/3/

2006

11/3

/200

7

6/3/

2009

1/3/

2011

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

S&P 500 Dividend Yield (%) 10-Yr T-Bond Yield (%)

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Payment of dividends is an indication of quality of earnings

WHY EQUITY INCOMESTABILITY OF DIVIDENDS

– Even in periods of earnings downturns dividends tend to be stable as shown in the chart above

– One advantage of income investing is that when a dividend is initiated by a company, it is difficult to cut that dividend and not send a wrong warning signal to the market place.

– Stable dividends generally signal good financial health

US EQUITY MARKETOUR PHILOSOPHY AND WHY DIVIDENDS?

Performance: Dividend paying stocks outperform non-dividend payers

– Numerous studies have demonstrated that dividend paying stocks deliver higher returns (over the long-term) with lower risk than non-dividend payers.1

Conviction: Paying dividends requires real earnings

– Companies that pay consistent dividends are typically financially sound and seek to maximise proper utilisation of free cash flow.

Sentiment: Dividends currently receive favourable tax treatment

– The Jobs and Growth Tax Relief Reconciliation Act of 2003 lowered the top rate on qualified dividend income to 15%.

Demand: Demographic trends favour income-orientated investments

– Retiring baby boomers will increasingly demand investments that offer current income and growth to keep up with inflation.

1Source: Ned Davis Research, Inc. Past performance is not a guide to the future. 6

US EQUITY MARKETHIGHER RETURNS AND LESS RISK

1Source: Ned Davis Research, Inc. Past performance is not a guide to the future. From 1/1/72 to 31/8/11Performance based on The Standard & Poor’s 500 (S&P 500) Composite Stock Price Index, a widely accepted, unmanaged index of U.S. stock market performance. Dividend Paying and Non-Paying dividend stocks are defined by each stock’s dividend policy that is determined on a rolling 12-month basis. Ned Davis Research classifies a stock as a dividend-paying stock if it pays a cash dividend any time during the previous 12 months. For instance, if a stock pays a dividend on July 1, it will be classified as a dividend-paying stock through June 30 of the following year. The index returns are calculated using monthly equal-weighted geometric averages of the total returns of all dividend-paying (or non-paying) stocks. A stock’s return is only included during the period it is a component of the S&P 500 Index. The dividend figure used to categorize the stock is the company’s indicated annual dividend, which may be different from the actual dividends paid in a particular month. Dividend Growers/Initiators is a subset of dividend-paying stocks and include stocks that increased their dividend anytime in the last 2 months. Once an increase occurs, it remains classified as a grower for 12 months or until another change in dividend policy. Investorscannot invest in any index. Actual investment returns may vary

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Dividend growers / Initiators Dividend Paying stock Non Dividend Paying stock0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

9.37% 8.60%

1.49%

16.27% 17.06%

25.69%

Average annual return Standard Deviation

S&P 500 Index

US EQUITY MARKETSCARCITY OF DIVIDENDS DURING RECESSIONS

8Source : Source: Ned Davis Research, Inc. Past performance is not a guide to the future. From 1/1/72 to 13/12/11

Monthly Data 12/31/1972 - 12/31/2011

RRA01

12/31/2011 = 298

Companies that have grown dividends in the past 12 months. Shaded areas represent NBER-defined recessions. 135 140 145 150 155 160 165 170 175 180 185 190 195 200 205 210 215 220 225 230 235 240 245 250 255 260 265 270 275 280 285 290 295 300 305 310 315 320 325 330 335 340 345 350 355 360 365 370 375 380 385 390

135 140 145 150 155 160 165 170 175 180 185 190 195 200 205 210 215 220 225 230 235 240 245 250 255 260 265 270 275 280 285 290 295 300 305 310 315 320 325 330 335 340 345 350 355 360 365 370 375 380 385 390

1975 1980 1985 1990 1995 2000 2005 2010

Number of S&P 500 Dividend Growers & Initiators

Copyright 2012 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. . www.ndr.com/vendorinfo/ . For data vendor disclaimers refer to www.ndr.com/copyright.htmlSee NDR Disclaimer at

# of Firms Wtd. Avg. Yield1

Mkt. Cap < $2 b 775 5.20%

$2 b < Mkt. Cap < $15 b 326 4.12%

Mkt. Cap > $15 b 189 3.79%

US EQUITY MARKET THE DIVIDEND ALL-CAP ADVANTAGE

– The small cap asset class offers a broader universe of high income stocks and features a higher weighted average

yield.

– Sufficient universe remains following period of substantial dividend cuts.

1Universe: U.S. listed equity; 40% > yield > 2%; mkt cap > $1 million; data as of 15.10.2011. Source: River Road Asset Management, LLC and FactSet Research Systems Inc. Shown as supplemental information to the DAV and DAV II Composites. Please see appendix for disclosure presentation.

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IN A NUTSHELL

– The low growth environment ahead is favorable to income strategies

– Investment strategy focusing on income tend to have delivered better returns to non income focused strategies

with a lower volatility

– Dividends are also a qualitative assessment of the ability of a company to generate future cash flow and the

quality of earnings

– Yield is available across sectors and market capitalisation

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AVIVA INVESTORS US EQUITY INCOME FUND

– Team + Process = Results

Unique philosophy/proven process

– Emphasise consistent, low volatility, high alpha returns

– No black box; combination of proven fundamentals & hard work

– Structured sell discipline

Experience/outstanding culture

– Experienced portfolio management team dedicated to value discipline

– Portfolio managers average over 19 years experience

– No investment professional turnover since team inception

Henry W. Sanders III, CFA Fund managerRiver Road asset management

Aviva Investors US Equity Income Fund

Fund manager Henry W. Sanders III, CFA

Deputy fund manager Thomas S. Forsha, CFA

Launch date 8 July 2011

Yield target Russell 3000 Value +1.5%

Distribution frequency Quarterly

Benchmark Russell 3000 Value Index

Valuation frequency Daily

Settlement T + 4

IMA sector North America

Currency of fund GBP

Fund structure UCITS compliant ICVC

IMPORTANT NOTES

This document is intended for institutional or professional investors and experienced advisors only. It is not to be view by or used with private investors. Past performance is not a guide to the future.

Investments in smaller companies may be less liquid than in larger companies and price swings may be greater than in larger companies. Therefore, they are generally a higher risk investment than larger companies.

Any future returns and opinions expressed are based on the internal forecasts of Aviva Investors and should not be relied upon as indicating any guarantee of return from an investment managed by Aviva Investors. No part of this document is intended to constitute advice or recommendations of any nature.

The value of an investment in the Fund can go down as well as up and can fluctuate in response to changes in exchange rates. Where performance has been illustrated it is not intended to be a guide to the future. The value of an investment in a fund and the income from it can go down as well as up.

Full details of the Aviva Investors products and services are available on request.

Aviva Investors is a business name of Aviva Investors UK Fund Services Limited, the Authorised Fund Manager. Registered in England No. 1973412. Authorised and regulated by the Financial Services Authority. FSA Registered No. 119310. Registered address: No 1. Poultry, London EC2R 8EJ. An Aviva company. www.avivainvestors.co.uk

CI062027 01/2012

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