m&g investment funds (11) · important information (continued) on 5 august 2019, both funds in...

M&G Investment Funds (11)Annual Long Report and audited Financial Statementsfor the year ended 30 April 2020

M&G Investment Funds (11)

Authorised Corporate Director’s Report Page 1

Directors’ statement

Depositary’s Responsibilities and Report Page 3

Independent Auditor’s Report Page 4

Financial statements and notes Page 6

Authorised Corporate Director’s Reports, including the financial highlights and financialstatements and notes for:

M&G Episode Income Fund Page 10

M&G Global Target Return Fund Page 33

Other regulatory disclosures Page 50

Glossary Page 51

Contents

The Authorised Corporate Director (ACD) of M&G InvestmentFunds (11) presents its Annual Long Report and audited FinancialStatements for the year ended 30 April 2020.

The audited financial statements of M&G Investment Funds (11)and the investment report and audited financial statements andnotes of each sub-fund are presented in their individual sectionsof this report as set out in the contents page.

Please note that we have included an explanation of keyinvestment terminology in the ‘Glossary’ (at the back of thisreport).

Company informationM&G Investment Funds (11) is an umbrella Open-EndedInvestment Company (OEIC) and contains two sub-funds,hereinafter referred to as ‘funds’ in the rest of this report. TheCompany is a non-UCITS Retail Scheme (NURS) and, for thepurposes of the AIFMD, qualifies as an alternative investmentfund (AIF), as defined in the Collective Investment Schemessourcebook, as issued (and amended) by the Financial ConductAuthority (FCA). This OEIC is an Investment Company withVariable Capital (ICVC) incorporated under the Open-EndedInvestment Companies Regulations 2001. It is authorised andregulated by the FCA under the Financial Services and MarketsAct 2000.

The Company was authorised on 1 October 2010, the M&GEpisode Income Fund was launched on 11 November 2010 andthe M&G Global Target Return Fund was launched on13 December 2016.

The Company’s principal activity is to carry on business as anOEIC. The Company is structured as an umbrella company, anddifferent funds may be established by the ACD from time to timewith the agreement of the Depositary and approval from the FCA.The funds are operated separately and the assets of each fundare managed in accordance with the investment objective andpolicy applicable to that fund.

As at 30 April 2020, none of the funds held shares of the otherfunds within this OEIC.

A shareholder is not liable for the debts of the Company and willnever be liable to make any further payment to the Companyafter paying the purchase price of the shares.

Fund managers

The following fund managers are employed by M&G FA Limited(formerly M&G Limited) which is an associate of M&G SecuritiesLimited.

M&G Episode Income FundSteven Andrew

M&G Global Target Return FundTristan Hanson

ACD

M&G Securities Limited,10 Fenchurch Avenue, London EC3M 5AG, UKTelephone: 0800 390 390 (UK only)

(Authorised and regulated by the Financial Conduct Authority.M&G Securities Limited is a member of the InvestmentAssociation and of the Investing and Saving Alliance (formerlyTax Incentivised Savings Association)).

Directors of the ACD

M Ammon*, G N Cotton**, C Dobson (non executive director),N M Donnelly, S A Fitzgerald, P R Jelfs,M McGrade (non executive director), L J Mumford* Resigned 17 October 2019.

** Resigned 27 September 2019.

Investment manager

M&G Investment Management Limited,10 Fenchurch Avenue, London EC3M 5AG, UKTelephone: +44 (0)20 7626 4588

(Authorised and regulated by the Financial Conduct Authority)

Registrar

SS&C Financial Services Europe Ltd*,SS&C House, St. Nicholas Lane, Basildon, Essex SS15 5FS, UK(Authorised and regulated by the Financial Conduct Authority)* DST Financial Services Europe Ltd changed its name to SS&C Financial Services

Europe Ltd on 31 March 2020.

Depositary

NatWest Trustee & Depositary Services Limited, DrummondHouse, 1 Redheughs Avenue, Edinburgh EH12 9RH, UK(Authorised and regulated by the Financial Conduct Authority)

Independent auditor

Ernst & Young LLPAtria One,144 Morrison Street, Edinburgh EH3 8EX, UK

Important informationOn 8 April 2019, both funds in M&G Investment Funds(11) launched Sterling Class ‘PP’ (Accumulation) shares.

As mentioned in the shareholder letter on 17 June 2019, we havemade changes to the way we charge for M&G funds based in theUK, starting on Thursday 1 August 2019. The annual chargeshould be simpler to understand and be easier to compare toother fund charges. We have combined all the charges that makeup the current Ongoing Charge Figure (OCF) into a single annualcharge. Only exceptional items such as unforeseen legal and taxexpenses, also known as extraordinary expenses, will be excludedfrom the annual charge. To find out the new annual charge andthe OCF on the KIID for the share class(es) you are invested in,visit our website www.mandg.co.uk.


Authorised Corporate Director’s Report

ANNUAL LONG REPORT AND AUDITED FINANCIAL STATEMENTS • APRIL 2020 1

http://www.mandg.co.uk.

Important information (continued)On 5 August 2019, both funds in M&G Investment Funds(11) launched Sterling Class ‘PP’ (Income) shares.

The World Health Organisation declared the COVID-19 outbreaka pandemic on 11 March 2020.

Global financial markets have been reacting to the outbreak. Allmarkets have incurred increased volatility and uncertainty sincethe onset of the pandemic.

The ACD has also noted the operational risks that are posed to theCompany and its service providers due to global and localmovement restrictions that have been enacted by variousgovernments.

The COVID-19 pandemic is an unprecedented event and theeventual impact on the global economy and markets will largelydepends on the scale and duration of the outbreak. The ACD willcontinue to monitor this situation.

Investor informationThe Prospectus, Instrument of Incorporation, Key InvestorInformation Documents, costs and charges illustration, the latestAnnual or Interim Investment Report and Financial Statements aswell as a list of purchases and sales are available free of charge onrequest from the following address. The Instrument ofIncorporation can also be inspected at our offices or at the officeof the Depositary.

Customer services and administration for UK clients:

M&G Securities Limited,PO Box 9039, Chelmsford CM99 2XG, UK

Please remember to quote your name and M&G client referenceand sign any written communication to M&G. Failure to providethis will affect your ability to transact with us.

Telephone: 0800 390 390 (UK only)

For security purposes and to improve the quality of our service, wemay record and monitor telephone calls. You will require yourM&G client reference. Failure to provide this will affect your abilityto transact with us.

Authorised Corporate Director’sResponsibilitiesThe Authorised Corporate Director (ACD) is required to prepareannual and interim long reports for the Company. The ACD mustensure that the financial statements, contained in this report, foreach of the funds are prepared in accordance with theInvestment Association Statement of Recommended Practice forFinancial Statements of UK Authorised Funds (SORP) and UKFinancial Reporting Standards, and give a true and fair view of thenet revenue or expenses and net capital gains or losses for theaccounting period, and the financial position at the end of thatperiod.

The ACD is required to keep proper accounting records, and tomanage the Company in accordance with the CollectiveInvestment Schemes sourcebook, as issued (and amended) bythe FCA, the Instrument of Incorporation and the Prospectus, andto take reasonable steps for the prevention and detection of fraudor other irregularities.

Directors’ statementThis report has been prepared in accordance with therequirements of the Collective Investment Schemes sourcebook,as issued and amended by the Financial Conduct Authority.

M&G Securities Limited1 July 2020



ANNUAL LONG REPORT AND AUDITED FINANCIAL STATEMENTS • APRIL 20202

Statement of the Depositary’sResponsibilities and Report of theDepositary to the Shareholders of M&GInvestment Funds (11) (‘the Company’) forthe period ended 30 April 2020The Depositary must ensure that the Company is managed inaccordance with the Financial Conduct Authority’s CollectiveInvestment Schemes sourcebook, the Open-Ended InvestmentCompanies Regulations 2001 (SI2001/1228) (the OEICRegulations), as amended, the Financial Services and Markets Act2000, as amended, (together ‘the Regulations’), the Company’sInstrument of Incorporation and Prospectus (together ‘theScheme documents’) as detailed below.

The Depositary must in the context of its role act honestly, fairly,professionally, independently and in the interests of the Companyand its investors.

The Depositary is responsible for the safekeeping of all custodialassets and maintaining a record of all other assets of theCompany in accordance with the Regulations.

The Depositary must ensure that:

• the Company’s cashflows are properly monitored and thatcash of the Company is booked into the cash accounts inaccordance with the Regulations;

• the sale, issue, redemption and cancellation of shares arecarried out in accordance with the Regulations;

• the value of shares in the Company is calculated inaccordance with the Regulations;

• any consideration relating to transactions in the Company’sassets is remitted to the Company within the usual time limits;

• the Company’s income is applied in accordance with theRegulations; and

• the instructions of the Authorised Fund Manager (‘the AFM’)are carried out (unless they conflict with the Regulations).

The Depositary also has a duty to take reasonable care to ensurethat the Company is managed in accordance with theRegulations and the Scheme documents in relation to theinvestment and borrowing powers applicable to the Company.

Having carried out such procedures as we consider necessary todischarge our responsibilities as Depositary of the Company, it isour opinion, based on the information available to us and theexplanations provided, that in all material respects the Company,acting through the AFM:

i) has carried out the issue, sale, redemption and cancellation,and calculation of the price of the Company’s shares and theapplication of the Company’s income in accordance with theRegulations and the Scheme documents of the Company, and

ii) has observed the investment and borrowing powers andrestrictions applicable to the Company.

Edinburgh NatWest Trustee and1 July 2020 Depositary Services Limited


Depositary’s Responsibilities and Report


Independent Auditor’s Report to theshareholders of M&G Investment Funds (11)Opinion

We have audited the financial statements of M&G InvestmentFunds (11) ICVC (“the Company”) for the year ended 30 April2020 which comprise the Statement of Total Return andStatement of Change in Net Assets Attributable to Shareholderstogether with the Balance Sheet for each of the Company’s funds,the accounting policies of the Company, the related notes foreach fund and the Distribution Tables, including the summary ofsignificant accounting policies. The financial reporting frameworkthat has been applied in their preparation is applicable law andUnited Kingdom Accounting Standards (United KingdomGenerally Accepted Accounting Practice) including FRS 102 ‘TheFinancial Reporting Standard applicable to the UK and Republicof Ireland’.

In our opinion, the financial statements:

• give a true and fair view of the financial position of theCompany comprising each of its funds as at 30 April2020 and of the net revenue and the net capital losses on thescheme property of the Company comprising each of itsfunds for the year then ended; and

• have been properly prepared in accordance with UnitedKingdom Generally Accepted Accounting Practice includingFRS 102 ‘The Financial Reporting Standard applicable in theUK and Republic of Ireland’.

Basis for opinion

We conducted our audit in accordance with InternationalStandards on Auditing (UK) (ISAs (UK)) and applicable law. Ourresponsibilities under those standards are further described in theAuditor’s responsibilities for the audit of the financial statementssection of our report below. We are independent of the Companyin accordance with the ethical requirements that are relevant toour audit of the financial statements in the UK, including theFRC’s Ethical Standard, and we have fulfilled our other ethicalresponsibilities in accordance with these requirements.

We believe that the audit evidence we have obtained is sufficientand appropriate to provide a basis for our opinion.

Conclusions relating to going concern

We have nothing to report in respect of the following matters inrelation to which the ISAs (UK) require us to report to you where:

• the ACD’s use of the going concern basis of accounting in thepreparation of the financial statements is not appropriate; or

• the ACD has not disclosed in the financial statements anyidentified material uncertainties that may cast significantdoubt about the company’s ability to continue to adopt thegoing concern basis of accounting for a period of at leasttwelve months from the date when the financial statementsare authorised for issue.

Other information

The other information comprises the information included in theannual report, other than the financial statements and ourauditor’s report thereon. The ACD is responsible for the otherinformation.

Our opinion on the financial statements does not cover the otherinformation and, except to the extent otherwise explicitly statedin this report, we do not express any form of assurance conclusionthereon.

In connection with our audit of the financial statements, ourresponsibility is to read the other information and, in doing so,consider whether the other information is materially inconsistentwith the financial statements or our knowledge obtained in theaudit or otherwise appears to be materially misstated. If weidentify such material inconsistencies or apparent materialmisstatements, we are required to determine whether there is amaterial misstatement in the financial statements or a materialmisstatement of the other information. If, based on the work wehave performed, we conclude that there is a materialmisstatement of the other information, we are required to reportthat fact.

We have nothing to report in this regard.

Opinions on other matters prescribed by the rules of theCollective Investment Schemes sourcebook of the FinancialConduct Authority

In our opinion:

• the financial statements have been properly prepared inaccordance with the Statement of Recommended Practicerelating to Authorised Funds, the rules of the CollectiveInvestment Schemes sourcebook of the Financial ConductAuthority and the Instrument of Incorporation;

• the information given in the ACD’s report for the financialyear for which the financial statements are prepared isconsistent with the financial statements; and

• there is nothing to indicate that proper accounting recordshave not been kept or that the financial statements are not inagreement with those records.


Independent Auditor’s Report


Independent Auditor’s Report to theshareholders of M&G InvestmentFunds (11)Matters on which we are required to report by exception

We have nothing to report in respect of the following matter inrelation to which the rules of the Collective Investment Schemessourcebook of the Financial Conduct Authority require us to reportto you if, in our opinion:

• we have not received all the information and explanationswhich, to the best of our knowledge and belief, are necessaryfor the purposes of our audit.

Responsibilities of the Authorised Corporate Director (ACD)

As explained more fully in the ACD’s responsibilities statement setout on page 2, the ACD is responsible for the preparation of thefinancial statements and for being satisfied that they give a trueand fair view, and for such internal control as the ACD determinesis necessary to enable the preparation of financial statementsthat are free from material misstatement, whether due to fraud orerror.

In preparing the financial statements, the ACD is responsible forassessing the Company’s ability to continue as a going concern,disclosing, as applicable, matters related to going concern andusing the going concern basis of accounting unless the ACD eitherintends to liquidate the Company or to cease operations, or hasno realistic alternative but to do so.

Auditor’s responsibilities for the audit of the financialstatements

Our objectives are to obtain reasonable assurance about whetherthe financial statements as a whole are free from materialmisstatement, whether due to fraud or error, and to issue anauditor’s report that includes our opinion. Reasonable assuranceis a high level of assurance, but is not a guarantee that an auditconducted in accordance with ISAs (UK) will always detect amaterial misstatement when it exists. Misstatements can arisefrom fraud or error and are considered material if, individually or inthe aggregate, they could reasonably be expected to influencethe economic decisions of users taken on the basis of thesefinancial statements.

A further description of our responsibilities for the audit of thefinancial statements is located on the Financial ReportingCouncil’s website athttps://www.frc.org.uk/auditorsresponsibilities.This description forms part of our auditor’s report.

Use of our report

This report is made solely to the Company’s shareholders, as abody, pursuant to Paragraph 4.5.12 of the rules of the CollectiveInvestment Schemes sourcebook of the Financial ConductAuthority. Our audit work has been undertaken so that we might

state to the Company’s shareholders those matters we arerequired to state to them in an auditor’s report and for no otherpurpose. To the fullest extent permitted by law, we do not acceptor assume responsibility to anyone other than the company andthe Company’s shareholders as a body, for our audit work, for thisreport, or for the opinions we have formed.

Edinburgh Ernst & Young LLP1 July 2020 Statutory Auditor

(1) The maintenance and integrity of the M&G website is theresponsibility of the ACD; the work carried out by the auditors doesnot involve consideration of these matters and, accordingly, theauditors accept no responsibility for any changes that may haveoccurred to the financial statements since they were initiallypresented on the website.

(2) Legislation in the United Kingdom governing the preparation anddissemination of financial statements may differ from legislation inother jurisdictions.


Independent Auditor’s Report


The financial statements for M&G Investment Funds (11) comprisethe individual financial statements for each fund and the notesbelow.

Notes to the financial statements1 Statement of compliance

The financial statements of M&G Investment Funds (11) havebeen prepared in compliance with UK Financial Reporting Standard102 (FRS 102) and in accordance with the Statement ofRecommended Practice (SORP) for Authorised Funds issued by theInvestment Association in May 2014 and amended in June 2017.

2 Summary of significant accounting policies

a) Basis of preparation

There are no material events that have been identified that maycast significant doubt on the Company’s ability to continue as agoing concern for at least the next twelve months from the datethese financial statements are authorised for issue. The ACDbelieves that the Company has adequate resources to continue inoperational existence for the foreseeable future and, followingconsideration of the impact of COVID-19 they continue to adoptthe going concern basis in preparing the financial statements. TheACD has made an assessment of each of the sub-funds’ ability tocontinue as a going concern which is made as at the date of issueof these financial statements and considered liquidity, declines inglobal capital markets, investor intention, known redemption levels,expense projections, key service provider’s operational resilience,and the impact of COVID-19.

The financial statements of M&G Investment Funds (11) areprepared on a going concern basis, under the historical costconvention as modified by the revaluation of certain financialassets and liabilities measured at fair value through profit or loss.

b) Functional and presentational currency

The functional and presentational currency of M&G InvestmentFunds (11) is UK sterling.

c) Exchange rates

Transactions in currencies other than each fund’s functionalcurrency are translated at the rate of exchange ruling on the date ofthe transaction and where applicable assets and liabilities aretranslated into the fund’s functional currency at the rate ofexchange ruling as at 12 noon on 30 April 2020 being the lastbusiness day of the accounting period.

d) Investments - recognition and valuation

The provisions of both Section 11 and Section 12 of FRS 102 havebeen applied in full. All investments have been designated as fairvalue through profit and loss and recognised initially at fair value,which is normally the transaction price (excluding transaction costsand accrued interest).

At the end of the reporting period all investments have beenmeasured at their fair value using the prices and the portfolioholdings determined at 12 noon on 30 April 2020, being the lastvaluation point of the accounting period, as this is not materiallydifferent from a valuation carried out at close of business on thebalance sheet date.

Where separate bid and offer prices are available, the bid price isused for investment assets and the offer price for investmentliabilities. Otherwise, the single price or most recent transactionprice is used. Interest accrued is not included in the fair value. Themethods of determining fair value for the principal classes ofinvestment are:

• Equities and debt securities which are traded on an activemarket are included at the quoted price, which is normally thebid price, excluding any accrued interest in respect of bonds.

• Equities traded on the Alternative Investment Market (AIM),whose liquidity cannot be guaranteed, are included at theirquoted bid price as this represents the most objective andappropriate method of valuation.

• Collective investment schemes operated by the ACD areincluded at either their cancellation price for dual priced fundsor their single price for single priced funds.

• Collective investment schemes operated by another managerare included at either their bid price for dual priced funds ortheir single price for single priced funds.

• Other equities and debt securities which are unquoted or notactively traded on a quoted market are included at a valueestimated by the ACD using an appropriate valuationtechnique, excluding any accrued interest in respect of bonds.

• Exchange traded futures and options are included at the costof closing out the contract at the balance sheet date.

• Over the counter equity options, credit default swaps, interestrate swaps, asset swaps and inflation swaps are included at avalue provided by Markit Valuations Limited, an independentcredit derivative price provider. Their fair value excludes anyaccrued interest in respect of derivatives where the income isrevenue in nature.

• Forward currency contracts, for share class hedging andinvestment, are included at a value determined by referenceto current forward exchange rates for contracts with similarmaturity profiles.

e) Recognition of income and expenses

• Dividends, including ordinary stock dividends, from equityinvestments are recognised when the security is quoted ex-dividend.

• Distributions from collective investment schemes arerecognised when the scheme is priced ex-distribution.

• Interest income, including coupons from debt securities andbank interest is recognised on an accruals basis.


Financial statements and notes


Notes to the financial statements2 Summary of significant accounting policies (continued)

e) Recognition of income and expenses (continued)• Underwriting commission is recognised when the issue takes

place.

• Revenue from derivatives is recognised on an accruals basis.

• Fee rebates from investing in other collective investmentschemes are recognised on an accruals basis.

• Expenses are recognised on an accruals basis.

f) Treatment of income and expenses

• Any increases or decreases in the fair value of investmentsand gains and losses realised on sales of investments aretreated as capital and recognised in net capital gains /(losses).

• The value of any enhancement to a stock dividend is treatedas capital.

• Ordinary equity dividends, including ordinary stock dividendsare treated as revenue.

• Special dividends, share buy backs or additional share issuesmay be treated as revenue or capital depending on the factsof each particular case.

• Distributions from collective investment schemes are treatedas revenue in nature, except for any element of equalisation,which represents the average amount of income included inthe price paid for the collective investment scheme, which istreated as capital.

• Debt security interest comprises the coupon interest and thedifference between the purchase price and the expectedmaturity price spread over its expected remaining life. This istreated as revenue with the difference adjusting the cost ofthe shares and treated as capital.

• Other interest income, such as bank interest is treated asrevenue.

• Underwriting commission is treated as revenue, except wherethe fund is required to take up all or some of the sharesunderwritten, in which case a proportion of the commissionreceived is deducted from the cost of the shares and treatedas capital.

• The treatment of the income on derivative contracts dependsupon the nature of the transaction. Both motive andcircumstances are used to determine whether the returnsshould be treated as capital or revenue. Where positions areundertaken to protect or enhance capital, and thecircumstances support this, the returns are recognised in netcapital gains; similarly where the motives and circumstancesare to generate or protect revenue, and the circumstancessupport this, the returns are included within net revenuebefore taxation. Where positions generate total returns it willgenerally be appropriate to apportion such returns betweencapital and revenue to properly reflect the nature of thetransaction.

• Expenses relating to the purchase and sale of investments aretreated as capital; all other expenses are treated as revenue.

• Rebates of charges from holdings in collective investmentschemes are treated as revenue or capital in accordance withthe underlying scheme’s distribution policy.

g) Tax

Dividends and similar income receivable are recognised at anamount that includes any withholding tax but excludesirrecoverable tax credits. Any withholding tax suffered is shown aspart of the tax charge.

Tax is accounted for at the appropriate rate of corporation tax withrelief for double taxation taken where appropriate. The taxaccounting treatment follows the principal amounts involved.

Deferred tax is recognised in respect of temporary timingdifferences that have originated but not reversed by the balancesheet date. Deferred tax is measured on a non-discounted basis, atthe average rate of tax expected to apply in the period in which itexpects the deferred tax to be realised or settled. A deferred taxasset is only recognised to the extent that it is more likely than notthat the asset will be recovered.

Marginal tax relief has not been taken into account in respect ofexpenses offset against capital.

h) Allocation of returns to share classes

The annual charge, annual management charge, any share classhedging returns and associated share class hedging charge aredirectly attributable to individual share classes. All other returns areapportioned to each fund’s share classes pro-rata to the value ofthe net assets of the relevant share class on the day that theincome or expenses are recognised.

All available net revenue accounted for in accordance with theabove policies and adjusted where relevant by any specificdistribution policies set out in the notes to that fund’s financialstatements, is distributed to holders of Income shares or retainedand reinvested for holders of Accumulation shares. Shouldexpenses and taxation together exceed revenue, there will be nodistribution and the shortfall will be met from capital.

Distributions which have remained unclaimed by shareholders formore than six years are credited to the capital property of the fund.




Notes to the financial statements3 Risk management policies

The ACD is responsible for establishing, implementing andmaintaining an adequate and documented risk managementpolicy for identifying, measuring and managing all risks to whichfunds are or might be exposed.

The Company’s investment activities expose it to various types ofrisk which are associated with the financial instruments andmarkets in which it invests; market risk, credit risk and liquidity risk.

These financial statements are designed to enable users toevaluate the nature and extent of those risks and how they aremanaged.

The following risk management policies are applicable to the funds,with specific risk disclosures set out in the notes to the financialstatements of each fund.

Market risk

Market risk is the risk of loss resulting from fluctuations in themarket value of positions in a fund’s portfolio attributable tochanges in market variables, such as interest rates, exchange rates,equity and commodity prices or an issuer’s creditworthiness.

In relation to market risk, processes are applied that take account ofthe investment objective and policy of each fund. All funds aresubject to an investment oversight process in accordance with thetype and nature of the fund. In addition all funds are monitored forcompliance within regulatory limits.

In measuring and monitoring market risk, the global exposure of afund may be calculated using a ‘commitment’ approach or ‘Value atRisk’ (VaR) approach.

Commitment approach

The commitment approach is applied for funds investing only intraditional asset classes, namely equities, fixed income, moneymarket instruments and collective investment schemes.

In addition, the approach is applied for funds which use or intend touse derivatives or instruments embedding derivatives, but only forefficient portfolio management purposes, or in a simple way notnecessarily restricted to efficient portfolio management.

Under the commitment approach the global exposure of funds ismeasured and monitored using a commitment (adjusted notional)methodology.

Market risk is considered on a daily basis and forms the foundationof investment oversight analysis. This can include for each fund(but is not limited to) the analysis of factors such as fundconcentration; style, geographical, industry and marketcapitalisation biases; active, systematic and specific riskmeasurements; active money; and beta characteristics.

Value at Risk approach

The Value at Risk (VaR) approach is a methodology for estimatingthe maximum potential loss due to market risk based on historicmarket volatilities and correlations. More particularly, the VaRapproach gives a broad indication of the maximum potential lossat a given confidence level (probability), over a specific time periodunder normal market conditions.

Instrument and portfolio modelling techniques are based onmarket accepted practices and are subject to regular audit (back-testing). Market risk factors that are analysed include LIBOR / swaprates, government yield curves, equity prices, exchange rates,market volatility, credit spreads and credit default swap (CDS)spreads.

The VaR model is based on a Monte Carlo process with actual VaRbeing reported on the basis of a 99% confidence interval over a onemonth period (20 business days). Risk factor history used in theMonte Carlo process is based on 250 business days. From thevariance / covariance matrices, a parametric Monte Carlo scenarioset of 5,000 simulations is derived and applied to the fund.

VaR does have limitations in its ability to present valid levels of riskin extreme market conditions. Accordingly, the Risk Analysis teamalso carries out monthly stress testing and scenario based analysis.Stress testing allows for extreme sets of market circumstanceswhich may not be reflected in historical data sets thereby enablingfurther assessment of combinations of market movements whichmay cause serious damage to portfolio values. The key element tothe scenario based analysis is challenging the correlationassumptions implicit within statistical based models such as VaR.

The stress test and scenario based analysis is customised for eachfund type and the VaR analysis is produced on a daily basis.

The table below shows funds using the ‘commitment’ approach andthose using the ‘Value at Risk (VaR)’ approach:Fund Global exposure approachM&G Episode Income Fund VaR

M&G Global Target Return Fund VaR

Liquidity risk following market events of early 2020

The market events of early 2020 have meant that in some cases,particularly in the fixed income area, available market liquidity hasdeclined. The liquidity monitoring and escalation process at M&Gremains the same, but has monitored and reported on a morefrequent basis as the liquidity picture has changed faster than inmore normal markets.

Liquidity risk

Liquidity risk is the risk that a fund’s holdings cannot be sold,liquidated or closed out at limited cost in an adequately short timeframe and that the ability of the scheme to comply at any time withits obligation to sell and redeem shares is thereby compromised.

The overall liquidity profile for each fund is reviewed and updatedregularly. The liquidity profile takes into account investment,cashflow and market liquidity considerations.




Notes to the financial statements3 Risk management policies (continued)

Investment liquidity considerations include an assessment of assetclass liquidity conditions, liquidity of underlying holdings, portfolioconstruction and concentration, the scale of individual stockownership and the nature of the investment strategy.

Cashflow liquidity is managed in each fund on a daily basis usingreports that include subscription and redemption information aswell as the impact of trading, derivative lifecycle events andcorporate action activity. In addition to the daily reporting, the fundmanagers are provided with reporting that highlights the impact ofreasonably predictable events in the portfolio, including anallowance for the potential future exposures that might result fromderivative exposures.

Market (or distribution-related) considerations include anassessment of asset demand, fund growth, client concentrationand the persistency of the client base. Supplementary to this,market liquidity stress tests are carried out on a monthly basis for allsophisticated funds.

Credit risk

For funds exposed to credit risk, the credit rating, yield and maturityof each interest bearing security is considered to determine if theyield fully reflects the risk. The capital value of interest-bearingsecurities within the funds will fall in the event of the default orperceived increased credit risk of an issuer.

The capital value of interest-bearing securities within a fund mayalso be affected by interest rate fluctuations such that wheninterest rates rise, the capital value of the interest-bearing securitiesis likely to fall and vice versa.

Funds investing in derivatives are exposed to counterparty risk. Thisis the risk that the other party to the transaction fails to fulfil theirobligations, either by failing to pay or failing to deliver securities. Tominimise this risk, carefully selected, financially strong and well-established counterparties are selected following a thorough duediligence review and collateral is posted daily (in the form of cash orhigh-quality government bonds). Derivative positions are valued ona mark-to-market basis (revalued to reflect prevailing market prices)daily and collateral moves from one counterparty to the other toreflect movements in the unrealised profit or loss. As a result, themaximum loss to the fund would be limited to that day’s pricemovements in affected derivatives contracts.

For funds in which they are used, credit default swaps are boughtand sold in response to detailed credit research to take advantageof anticipated movements in credit spreads on individual stocksand baskets of securities. When a fund buys a credit default swapthe default risk associated with the underlying security transfers tothe counterparty. When a fund sells a credit default swap the fundassumes the credit risk of the underlying security.




Investment objectiveThe fund aims to generate a growing level of income over anythree-year period. The fund also aims to provide capital growth of2-4% per annum over any three-year period.

There is no guarantee that the fund will achieve its objective overthis, or any other, period. The income distributions and the valueof your investment may rise and fall and investors may not recoupthe original amount they invested.

Investment policyThe fund manager adopts a flexible approach to the allocation ofcapital between asset classes in response to changes in economicconditions and the valuation of assets. Central to this approach isthe identification of episodes, which are periods of time duringwhich, in the fund manager’s view, asset prices become over- orunder-stated, relative to objective valuation measures, due to theemotional reaction of investors to events. These episodes canexist over both the short and medium term. The fund invests intransferable securities, fixed income assets (including, but notlimited to, corporate bonds and government and publicsecurities), warrants, cash, and near cash. Exposure to theseassets, and to property, may be gained via collective investmentschemes and derivatives (including equity index futures, currencyforwards, interest rate swaps, and other liquid derivatives). Themanager may seek to minimise currency risk through thecombination of diversification and hedging. Derivatives may alsobe used for efficient portfolio management purposes. More than70% of the fund will be in sterling or hedged back to sterling.

Investment approachThe fund manager seeks to achieve the fund’s objectives whilstmanaging risk by investing globally across multiple asset classes,sectors, currencies and countries. Where the fund managerbelieves opportunities are limited to a few areas, the portfoliomay be very concentrated in certain assets or markets. The fundmanager will typically take investment positions in individualshares or bonds, but may also take positions at an index or sectorlevel via derivatives.

The fund manager looks to generate a growing level of income byinvesting in assets that offer a regular income such as dividend-paying equities, corporate bonds and government bonds. Thefund will typically invest 20-50% of its assets in equities, 40-80%in bonds and up to 20% in other assets, which can includeconvertibles.

BenchmarkBenchmark: None

The fund is actively managed and it has no benchmark. Investorscan assess the performance of the fund by its objective to providea growing level of income and capital growth of 2 to 4% per

annum, both measured over any three-year period. The fund'sannual report for each financial year will include details of thefund’s performance in relation to its objective.

Risk profileThe fund invests globally in a broad range of assets, includingcompany shares (equities), fixed income securities (bonds),currencies and other assets such as property shares andconvertible bonds. The fund is, therefore, subject to the pricevolatility of global financial and currency markets.

The fund adopts a flexible approach to the allocation of capitalbetween asset classes in response to changes in economicconditions and the valuation of assets, and the manager will seekto maximise portfolio diversity wherever possible. The fund has abias towards income-producing assets. Income distributions fromthe fund’s holdings, however, are not guaranteed and may vary.

The blend of assets held in the fund is regularly adjusteddepending on where the manager sees the most value and tomanage risks, including liquidity, credit, currency and market risks.The fund’s risks are measured and managed as an integral part ofthe investment process.

The following table shows the risk number associated with thefund and is based on Sterling Class ‘A’ shares.

Low risk High risk

Typically lower rewards Typically higher rewards

1 2 3 4 5 6 7The above number:

• is based on the rate at which the value of the fund has moved up anddown in the past and is based on historical data so may not be areliable indicator of the future risk profile of the fund.

• is not guaranteed and may change over time and the lowest risknumber does not mean risk free.

• has not changed during this period.

Investment reviewAs at 1 May 2020, for the year ended 30 April 2020

Distribution summary

The fund distributed 12 monthly payments totalling 4.41p perSterling Class ‘A’ (Income) share over the 12 months under review.This represents an increase of 2.0% from the 4.32p distributedduring the same period a year earlier. As at the end of thereporting period, the payout represented a yield (distributedincome as a percentage of the share price at the end of theperiod) of 3.98%. This was higher than the 3.5% level of a yearearlier.

M&G Episode Income Fund



Distribution summary (continued)

In respect of the Sterling Class ‘I’ (Income) shares, the funddistributed 12 monthly payments totalling 42.67p per SterlingClass ‘I’ (Income) share over the 12 months under review. Thisrepresents an increase of 3.9% from the 41.06p distributed duringthe same period a year earlier. As at the end of the reportingperiod, the payout represented a yield (distributed income as apercentage of the share price at the end of the period) of 3.84%.This was higher than the 3.3% level of a year earlier.

The fund’s distribution and distribution yield are as shown under‘Specific share class performance’ tables in this report. This fundprovides a variable level of income.

Performance against objective

Between 1 May 2019 (the start of the review period) and 1 May2020, the M&G Episode Income Fund produced a negative totalreturn (the combination of income and growth of capital) acrossall of its share classes. The fund’s performance was behind that ofthe average fund in its peer group, the IA Mixed Investment 20-60% Shares Sector, which declined -4.4% over the same period

The fund has achieved its aim of generating a growing level ofincome over the three-year period to 1 May 2020, although it hasnot achieved its objective of delivering capital growth between2-4%*.* For the performance of each share class, please refer to the ‘Long-term

performance by share class’ table in the ‘Fund performance’ section of this report.

Investment performance

The investment environment changed markedly over the reviewperiod. Initially, investors were encouraged by the increasinglyaccommodative stance of central banks and hopes that a tradedeal could be agreed between the US and China, and most assetsrose in price. However, the impact of the coronavirus and theeffect of the measures being taken to contain it caused a massivereversal. All the previous gains in the prices of company shares(also known as equities, which offer investors ownership stakes incompanies) were quickly wiped out as investors flocked into cash.Despite starting to recover late in the review period, apparently inresponse to the unprecedented levels of support for the economy,businesses and households pledged by governments and centralbanks, share prices remain significantly lower than at the start ofthe period.

Over the 12 months to 30 April 2020, most stockmarkets fell, ledby certain emerging markets, the UK and Europe, although USmarkets delivered positive returns. The weakest market, however,was oil, where the price collapsed on the reduction in demand andthe inability of producers to agree production cuts. This meantthat the energy sector was the weakest area of the stockmarket,although shares in the financial, travel and leisure, industrial andbasic materials sectors also declined substantially. Technologyand healthcare were among the few industrial groupings to riseover the period.

Bonds fared better than equities. (Bonds are loans that areextended by an investor to an issuer – such as a company orgovernment – in exchange for regular interest payments. Bonds

issued by companies are referred to as ‘corporate bonds’ or ‘credit’,while those issued by governments are called ‘governmentbonds’.) Government bonds issued by developed countriesperformed remarkably well, led by bonds from the US and UK,although bonds issued by emerging countries declined, as theytend to be riskier. Investment grade credit - so called because thebonds are classified as “investment grade” by rating agencies asthey are issued by companies with fewer risks of default, or non-payment of interest or principal - did well, while high yield bonds(classified as non-investment grade by rating agencies), issued bycompanies with less robust balance sheets and therefore higherrisk of default, weakened.

Throughout the period, we maintained a belief that equities weremore attractively valued than most mainstream governmentbonds and, until the COVID-19 outbreak, a conviction that theglobal economy was in a reasonably stable position. Therefore,the fund was positioned to be broadly pro-growth and pro-risk,with a high allocation towards equities. When selected carefully,shares can pay healthy levels of dividend - an importantconsideration given the fund’s income objective. This stanceproved successful as investors’ appetite for risk improved through2019 and the early weeks of 2020, when several majorstockmarkets hit record highs. However, when concerns about thecoronavirus caused panic-selling of risk assets towards the end ofthe period, the only diversification came from our holdings of USgovernment bonds.

The fund’s losses were driven by the allocation to equities,particularly our holdings of shares in European banks, which wereadversely affected by central banks slashing interest rates and bythe dismal short-term prospects for the economy. Banks in the US,Canada and Japan also detracted from performance, albeit not tothe same extent, although almost all our equity holdings declinedduring the period. The exceptions were technology stocks in theUS, which generated modest value.

Although the Japanese yen, US dollar and euro all strengthenedrelative to the pound over the 12 months, boosting the returnsfrom assets denominated in those currencies to sterling-basedinvestors, our hedging activities reduced this effect as it meant wemissed out on some of the strength of the currencies. (Hedging isthe act of entering into a financial contract in order to protectagainst changes in exchange rates).

Emerging market government bonds also cost the fund somevalue, with local currency weakness compounding losses in bondsfrom South Africa and eroding gains in bonds from Mexico, Braziland Colombia. Our exposure to UK commercial property, throughthe M&G Property Portfolio, declined slightly.

On the other hand, our holdings of corporate bonds in the USgenerated modest value, but it was our allocation to developedmarket government bonds, especially from the US, that did mostto offset the losses generated by our equity exposure. Not only didUS bonds benefit from the multiple reductions in US interest ratesthroughout the period but they also acted as ‘safe havens’ when




Investment performance (continued)

investors fled riskier assets in March 2020. US government bondsgenerated most value for the fund and bonds from Italy andSpain also made positive contributions to performance.

Investment activities

We used the occurrence of price swings in the first nine months ofthe review period to carefully assess whether there had been anychange in the economic background that would justify the sharpmovements in price or whether they were simply driven by shifts ininvestors’ sentiment. On certain occasions, we adjusted the fund’spositioning in response to changes in asset prices that we thoughtwould eventually be ‘corrected’. The outbreak of coronavirus andthe shutdown of economic activity led to more extreme pricemoves towards the end of the review period, and has raisedfundamental questions over when ‘normality’ might return. It is attimes like these that we must trust in our investment philosophy.We know that we cannot predict what is going to happen with anymore accuracy than anyone else, so will be guided by where wesee the most value among the various asset classes and invest forthe longer term accordingly.

The main change to the fund’s positioning in the review periodwas a reduction in the allocation to government bonds fromdeveloped countries. We took advantage of remarkably strongrallies in mainstream government bonds that enabled us torealise profits by selling our holdings of 10-year US governmentbonds and also bonds from Spain and Italy. While keepingexposure to US and Italian government bonds, we tacticallyadjusted our weightings, reducing exposure when their yieldsdeclined and using subsequent price weakness to rebuildpositions. We have been switching from US government bondswith maturity of around 20 years into those with 30 years’ life soas to benefit from the greater yields on longer dated bonds. Latein the review period, we further scaled back our holdings of Italianbonds in order to diversify our exposure given the otheropportunities available. For example, we bought exposure to arange of European and US investment grade corporate bonds.

We maintain our belief that equities are attractively valuedrelative to other asset classes and, therefore, keep a bias towardsthe asset class, with the allocation remaining towards the top ofthe typical range. We did, however, make adjustments in thebreakdown of our holdings. We used price weakness in August2019 to add to the fund’s exposure to shares in the US and HongKong, while scaling back holdings of Korean equities. Largeradditions were made in March 2020 when, following steep pricefalls, we purchased bank equities from the US, Europe andCanada, as well as US technology stocks.

Following the widespread sell-off in March 2020, we subsequentlybegan to diversify the fund’s exposure to European equities. Wescaled back our positions in banks to reinvest in consumer staplesand technology stocks. Although many European financials are inrobust health and there are signs of merger activity in the sector,we took the opportunity to use lower share prices to broaden ourrange of holdings.

In other activity, we added modest exposure to infrastructurestocks, particularly companies operating in renewable energy.Infrastructure investment tends to pay good levels of income andwe believe may offer some diversification from equity holdings.We also added a corporate bond issued by a supranationalorganisation denominated in Indonesian rupiah so as to expandour emerging market exposure.

We increased our positions in government bonds from Colombia,Peru, Brazil, Chile and South Africa. These emerging marketgovernment bonds provide attractive yields (yield refers to theincome received from an investment and is usually expressed as apercentage of the investment’s current market value; bond yieldsmove inversely to prices) and have the potential to provide adegree of variation from other assets.

Finally, our exposure to Japanese yen was increased, as we feltthat the currency, which traditionally functions as a safe haven intimes of market dislocation, may provide some diversification inthe event of further sell-offs.

Outlook

It is our belief that the imminent virus-induced recession will notbe a ‘traditional’, long drawn-out one. The downturn has not beencaused by bad policy decisions, but is being ‘voluntarily’ imposedon the world’s economy in order to protect the health of thepopulation. Global economies entered the current period of crisisin a fairly healthy state, with few structural problems. Obviously,the restrictions on activity mean that economic data will bedreadful in the coming months, as we are seeing at the moment,and it is probably counter-productive to spend too much timeexamining each release. However, given the amount of supportbeing given by governments and central banks, we feel theeconomy should be able to return to some sort of normalityrelatively quickly, although there will, of course, be somecasualties. It is impossible to know how long it will be before wesee a rebound in activity. As such, we are closely monitoringevents in countries taking steps to ease the lockdown, andwatching the actions of policymakers.

In our view, the unprecedented levels of help being given bygovernments and central banks should boost the recovery oncewe get over the worst of the effects of the virus. As markets tendto move ahead of anticipated improvements, any possiblerebound could be rapid.

In the meantime, we retain our focus on equities, with theallocation to the asset class close to the top of the typical range.Share prices remain significantly below the levels seen at the startof 2020 and, although earnings expectations are beingdowngraded, equities seem to offer a better chance of deliveringgood returns than, for example, mainstream government bonds.Most developed government bonds, apart from long-dated USbonds, seem unlikely to provide much support in the event offurther share price sell-offs, as their yields are so low.

As an income fund, we are closely monitoring the situationregarding the payment of equity dividends. Recently, we haveseen many companies announcing the suspension or reduction oftheir dividend, not as an expression of deteriorating business




Outlook (continued)

fundamentals but a consequence of the current uniquecircumstances. Companies are either channelling cash to wherethey feel it is most needed or being told by regulators not toreward shareholders at the moment. This behaviour is takingplace with banks as well as businesses in other sectors. As thingsreturn to normal over the next few months, we would expect manyof these dividend payments to be reinstated.

Although some equity dividends may be cut, the portfoliocontinues to benefit from its multi-asset characteristics anddiversification of sources of income. At the moment, based onconsensus forecasts, around half of the expected income isderived from our equity holdings, with emerging marketgovernment bonds also contributing significantly. In terms offuture distributions, our aim is to continue to grow them over timeby focusing on long-term capital growth

Nonetheless, the distribution of the fund is likely to be adverselyaffected in the short term. We have the ability to adjust thedistribution over the next 12 months depending on the futuredividend policies of the underlying holdings. This could mean thatdistributions are somewhat lower in the first few months of thefiscal year, but increase later.

We feel that the recent volatility has presented some compellingopportunities to benefit from asset prices potentially recovering,which would lead to capital growth and in turn support the fund inachieving its objectives of growth in both capital and income overthe medium term.

Steven AndrewFund manager

Employee of M&G FA Limited (formerly M&G Limited) which is an associate of M&GSecurities Limited.

Please note that the views expressed in this Report should not be taken as arecommendation or advice on how the fund or any holding mentioned in the Reportis likely to perform. If you wish to obtain financial advice as to whether an investmentis suitable for your needs, you should consult a Financial Adviser.




Portfolio statement

as at 30 AprilHolding

2020£'000

2020%

2019%

EQUITIES 412,108 49.35 47.32United Kingdom 25,054 3.00 3.04UK equities 25,054 3.00 3.04

50,728 BAE Systems 271 0.03944,508 British Land REIT 3,915 0.47444,807 GlaxoSmithKline 7,506 0.90

3,089,305 Greencoat UK Wind 4,208 0.51775,700 HSBC 3,285 0.39206,911 IG 1,599 0.19

1,986,198 Legal & General 4,270 0.51

Belgium 5,350 0.64 0.94Belgian equities 5,350 0.64 0.94

121,426 KBC 5,350 0.64

France 25,714 3.08 2.63French equities 25,714 3.08 2.63

190,685 BNP Paribas 4,911 0.5976,520 Capgemini 5,775 0.6994,707 Danone 5,224 0.6315,127 LVMH 4,756 0.57

2,648,895 Natixis 5,048 0.60

Germany 14,245 1.71 2.26German equities 14,245 1.71 2.26

71,127 BASF 2,988 0.36168,682 Daimler 4,718 0.57

36,330 Münchener Rückversicherungs-Gesellschaft 6,539 0.78

Guernsey 4,232 0.51 0.00Guernsey equities 4,232 0.51 0.00

3,342,527 Renewables Infrastructure 4,232 0.51

Ireland 0 0.00 0.40

Italy 17,823 2.13 3.25Italian equities 17,823 2.13 3.25

1,336,207 Banca Mediolanum 6,604 0.794,119,035 Intesa Sanpaolo 5,194 0.621,288,934 Mediobanca 6,025 0.72

Netherlands 9,964 1.19 1.14Dutch equities 9,964 1.19 1.14

778,382 ING 3,524 0.42161,144 Unilever 6,440 0.77

Spain 23,030 2.76 4.41Spanish equities 23,030 2.76 4.41

8,621,259 Banco de Sabadell 2,888 0.353,194,409 Banco Santander 5,843 0.701,152,049 Bankinter 3,868 0.462,561,908 BBVA 6,718 0.80

176,384 Inditex 3,713 0.45

United States 138,542 16.59 10.29US equities 138,542 16.59 10.29

341,264 5th Third Bancorp 5,368 0.6498,667 American Express 7,588 0.9157,093 Apple 13,124 1.57

306,682 Bank of America 6,070 0.73348,661 CenturyLink 3,071 0.37225,438 Cisco Systems 7,810 0.93136,844 Citigroup 5,496 0.66197,400 Consolidated Communications 967 0.12776,805 Ford Motor 3,260 0.39

39,409 Home Depot 6,991 0.8494,646 JPMorgan Chase 7,397 0.89

455,185 KeyCorp 4,454 0.5364,203 M&T Bank 6,088 0.7317,058 MasterCard 3,864 0.46

102,123 Microsoft 14,455 1.73145,021 Pfizer 4,419 0.53




Portfolio statement (continued)


2020£'000

2020%

2019%

EQUITIES (continued)United States (continued)US equities (continued)

71,818 PNC Financial Services 6,372 0.7679,820 Quest Diagnostics 7,245 0.87

189,983 Trust Financial 5,950 0.7137,468 UnitedHealth 8,607 1.03

221,492 US Bancorp 6,808 0.81131,217 Wells Fargo 3,138 0.38

Canada 17,987 2.15 2.38Canadian equities 17,987 2.15 2.38

140,072 Bank of Montreal 6,024 0.72202,237 Bank of Nova Scotia 6,742 0.81

10,595 Fairfax Financial 2,452 0.29206,594 Shaw Communications 2,769 0.33

Japan 105,521 12.64 13.19Japanese quities 105,521 12.64 13.19

1,677 Advance Residence Investment REIT 4,119 0.491,418,100 Chiba Bank 5,328 0.64

130,200 East Japan Railway 7,686 0.92318,800 Hitachi 7,743 0.93414,100 Honda Motor 8,105 0.97562,300 Itochu 8,950 1.07

2,521 Japan Retail Fund Investment REIT 2,235 0.27417,900 Mitsubishi 7,194 0.86

1,138,700 Mitsubishi UFJ Financial 3,708 0.444,913,200 Mizuho Financial 4,631 0.56

911,000 Nissan Motor 2,526 0.301,735,200 Nomura 5,850 0.70

597,900 ORIX 5,777 0.69780,700 Panasonic 4,834 0.58

1,737,500 Resona 4,391 0.53496,300 Sumitomo 4,565 0.55223,000 Sumitomo Mitsui Financial 4,748 0.57136,800 Sumitomo Mitsui Trust 3,241 0.39198,000 West Japan Railway 9,890 1.18

Australia 3,778 0.45 0.53Australian equities 3,778 0.45 0.53

53,299 Commonwealth Bank of Australia 1,748 0.211,109 Pendal 3 0.00

1,345,093 Stockland REIT 2,027 0.24

Hong Kong 4,555 0.55 0.00Hong Kong equities 4,555 0.55 0.00

10,466,000 Lenovo 4,555 0.55

Singapore 0 0.00 0.05

South Korea 6,498 0.78 2.36South Korean equities 6,498 0.78 2.36

74,874 Coway 3,006 0.36179,814 Kia Motors 3,492 0.42

Taiwan 2,344 0.28 0.15Taiwanese quities 2,344 0.28 0.15

1,133,600 Hon Hai Precision Industry 2,344 0.28

Bermuda 5,126 0.61 0.00Bermudian equities 5,126 0.61 0.00

2,339,000 Kerry Properties 5,126 0.61

Brazil 2,256 0.27 0.29Brazilian equities 2,256 0.27 0.29

134,800 Banco do Brasil 597 0.07232,466 SulAmérica 1,659 0.20

Cayman Islands 89 0.01 0.01Cayman Island equities 89 0.01 0.01

372,000 Yip's Chemical 89 0.01






2020£'000

2020%

2019%

FIXED INCOME 346,988 41.56 48.20United Kingdom 6,568 0.80 5.41Government bonds 0 0.00 4.44

Below investment grade corporate bonds 2,001 0.25 0.44£646,000 Marks & Spencer 4.75% 12/06/2025 637 0.09

£89,000 Tesco 6.125% 24/02/2022 96 0.01£1,280,000 Virgin Media Secured Finance 4.875% 15/01/2027 1,268 0.15

Corporate bonds with no credit rating 4,567 0.55 0.53£1,401,000 Admiral 5.5% 25/07/2024 1,551 0.19£1,620,000 BUPA Finance 5% 25/04/2023 1,723 0.21£1,347,000 John Lewis 6.125% 21/01/2025 1,293 0.15

UK interest rate swaps 0 0.00 0.00

Italy 36,838 4.41 7.64Government bonds 36,838 4.41

€40,801,000 Italy (Republic of) 2.7% 01/03/2047 36,838 4.41

Luxembourg 0 0.00 0.17Government bonds 0 0.00 0.17

Netherlands 502 0.06 0.17Below investment grade corporate bonds 502 0.06

£440,000 innogy Finance 5.625% 06/12/2023 502 0.06

Poland 12,749 1.53 1.48Government bonds 12,749 1.53

PLN59,340,000 Poland (Republic of) 5.75% 23/09/2022 12,749 1.53

Spain 0 0.00 1.80Government bonds 0 0.00 1.80

United States 142,486 17.06 18.59Government bonds 122,460 14.66 18.19

US$38,190,800 US Treasury 2.75% 15/08/2042 39,874 4.77US$73,175,800 US Treasury 3% 15/02/2048 82,586 9.89

Below investment grade corporate bonds 1,995 0.24 0.22US$2,524,000 Ford Motor Credit 5.875% 02/08/2021 1,995 0.24

Corporate bonds with no credit rating 18,031 2.16 0.18IDR327,570,000,000 Inter-American Development Bank 7.875% 14/03/2023 17,969 2.15

US$1,869,000 TRU Taj 12% 15/08/2021 [a] 0 0.00£150,000 Washington Mutual Bank 5.5% 10/06/2059 [a] 0 0.00

US$1,423,000 Windstream 9% 30/06/2025 62 0.01

Brazil 21,028 2.52 2.69Government bonds 21,028 2.52

BRL124,869,000 Brazil (Federal Republic of) 10% 01/01/2023 21,028 2.52

Chile 6,052 0.72 0.25Government bonds 6,052 0.72

CLP5,810,000,000 Chile (Republic of) 4% 01/03/2023 6,052 0.72

Colombia 23,656 2.83 1.27Government bonds 23,656 2.83

COP99,108,800,000 Colombia (Republic of) 10% 24/07/2024 23,656 2.83

Malaysia 742 0.09 0.08Government bonds 742 0.09

MYR2,971,000 Malaysia (Govt. of) 4.232% 30/06/2031 611 0.07MYR628,000 Malaysia (Govt. of) 4.498% 15/04/2030 131 0.02

Mexico 21,892 2.62 2.69Government bonds 21,808 2.61 2.68

MXN596,759,000 Mexico (United Mexican States) 8.5% 18/11/2038 21,808 2.61

Below investment grade corporate bonds 84 0.01 0.01MXN2,500,000 América Móvil 6.45% 05/12/2022 84 0.01

Peru 8,538 1.02 0.34Government bonds 8,538 1.02

PEN30,151,000 Peru (Republic of) 6.95% 12/08/2031 8,538 1.02

South Africa 21,434 2.57 2.69Government bonds 21,434 2.57

ZAR772,598,172 South Africa (Republic of) 6.25% 31/03/2036 21,434 2.57






2020£'000

2020%

2019%

FIXED INCOME (continued)Fixed income portfolios 44,503 5.33 2.93Other 44,503 5.33 2.93

82,534 iShares USD Corporate Bond ETF 8,214 0.9871,685 iShares Core EUR Corporate Bond 8,085 0.97

1,398,000 M&G (Lux) Emerging Markets Hard Currency Bond Fund US dollar 'C' (Income) [b] 9,405 1.13650,000 SPDR® Barclays 10+ Year US Corporate Bond ETF 18,799 2.25

PROPERTY 25,542 3.06 3.26United Kingdom 25,542 3.06 3.26

2,569,137 M&G Property Portfolio Sterling Class ‘I’ (Income) [b] [c] 25,542 3.06

CURRENCY (369) (0.05) (0.19)Forward currency contracts (369) (0.05) (0.19)

AU$(3,814,742) Sold for £1,932,309 (expires 17.07.20) (63) (0.01)CA$(28,632,124) Sold for £16,336,196 (expires 17.07.20) (163) (0.02)

€7,647,351 Bought for £6,673,323 (expires 17.07.20) (16) 0.00€4,751,955 Bought for £4,195,316 (expires 17.07.20) (59) (0.01)

€(158,421,838) Sold for £138,550,195 (expires 17.07.20) 646 0.08€(8,124,992) Sold for £7,097,928 (expires 17.07.20) 25 0.00€(8,096,419) Sold for £7,054,240 (expires 17.07.20) 6 0.00

¥(8,569,215,928) Sold for £63,899,588 (expires 17.07.20) (413) (0.05)PLN(64,246,273) Sold for £12,343,333 (expires 17.07.20) 37 0.01US$(10,814,889) Sold for £8,665,679 (expires 17.07.20) 23 0.00

US$(5,611,877) Sold for £4,500,124 (expires 17.07.20) 16 0.00US$(313,883,697) Sold for £250,416,809 (expires 17.07.20) (408) (0.05)

Portfolio of investments 784,269 93.92 98.59

CASH EQUIVALENTS 0 0.00 2.49'AAA' rated money market funds [d] 0 0.00 2.49

Total portfolio (notes 2c & 2d on page 6) 784,269 93.92 101.08Net other assets / (liabilities) 50,771 6.08 (1.08)

Net assets attributable to shareholders 835,040 100.00 100.00

All securities are on an official stock exchange listing except where referenced.

[a] Defaulted bond.

[b] Related party.

[c] Suspended.

[d] Uncommitted surplus cash is placed into ‘AAA’ rated money market funds with the aim of reducing counterparty risk.




Fund performancePlease note past performance is not a guide to futureperformance and the value of investments, and the income fromthem, will fluctuate. This will cause the fund price to fall as well asrise and you may not get back the original amount you invested.

The following charts and tables reflect the key financialinformation of a representative share class, Sterling Class ‘A’(Accumulation) shares. As different share classes have differentattributes, for example charging structures and minimuminvestments, please be aware that their performance may bedifferent. For more information on the different share classes inthis fund please refer to the Prospectus for M&G InvestmentFunds (11), which is available free of charge either from ourwebsite at www.mandg.co.uk/prospectuses or by calling M&GCustomer Relations.

Fund level performanceFund net asset value

as at 30 April2020£'000

2019£'000

2018£'000

Fund net asset value (NAV) 835,040 902,407 829,425

Performance since launchTo give an indication of how the fund has performed since launch,the chart below shows total return of Sterling Class ‘A’(Accumulation) shares.

100

130

110

120

140

150

200

180

160

952010 2011 2012 2013 2014 2015 2017 20202018 20192016

November 2010 = 100, plotted monthly Chart date 1 May 2020

Sterling Class ‘A’ (Accumulation) shares*

* Income reinvested Source: Morningstar, Inc. and M&G

Historic yieldThe chart below shows the historic yield of the Sterling Class ‘A’(Income) shares.

3.4

3.5

3.6

3.9

3.8

3.7

4.0

4.1

4.2

4.3

3.3Sep 17Jun 17 Dec 17 Mar 18 Sep 18Jun 18 Dec 18 Dec 19Mar 19 Mar 20Sep 19 May 20Jun 19

Chart date 1 May 2020

Sterling Class ‘A’ (Income) shares yield*

* Income reinvested Source: Morningstar, Inc. and M&G

Historical yield over 3 years, plotted monthly

Historic yield: The historic yield reflects distributions declaredover the past twelve months as a percentage of the mid-marketprice, as at the date shown. It does not include any preliminarycharge and investors may be subject to tax on their distributions.

Distribution since launchThe chart below shows the annual distribution of Sterling Class ‘A’(Income) shares since launch.

0.5

1.0

4.0

4.5

3.0

3.5

2.5

1.5

2.0

5.0

0.02011* 2012 20142013 2015 2016 2018 202020192017

Source: M&G

Annual distributions since launch Chart date 1 May 2020

Years ending April

* Partial fund financial year distributions

Sterling Class ‘A’ (Income) shares

Dis

trib

ution (

pence p

er

share

)


Financial highlights


To give an indication of the performance of the fund, thefollowing table shows the compound rate of return, per annum,over the period. Calculated on a price to price basis with incomereinvested.

Long-term performance by share classOneyear

01.05.19% [a]

Threeyears

02.05.17% p.a.

Fiveyears

01.05.15% p.a.

Sincelaunch

% p.a.Sterling [b]

Class 'A' -7.2 -0.8 +1.3 +4.9 [c]

Class 'I' -6.7 -0.2 +1.9 +5.0 [d]

Class 'PP' -6.6 n/a n/a -5.6 [e]

Class 'R' -6.9 -0.4 +1.7 +4.8 [d]

Class 'X' -7.2 -0.8 +1.3 +4.9 [c]

[a] Absolute basis.

[b] Price to price with income reinvested.

[c] 11 November 2010, the launch date of the fund.

[d] 3 August 2012, the launch date of the share class.

[e] 8 April 2019 the launch date of the share class.

Operating charges and portfolio transactioncostsWe explain below the payments made to meet the ongoing costsof investing and managing the fund, comprising operatingcharges and portfolio transaction costs.

Operating chargesOperating charges include payments made to M&G and toproviders independent of M&G:

• Annual charge: Charge paid to M&G covering the annualcost of M&G managing and administering the fund and thecosts of third parties providing services to the fund. From1 August 2019, this charge rolls all costs that make up theoperating charges into one annual charge.For every £1 billion of a fund’s net asset value, a discount of0.02% will be applied to that fund’s annual charge (up to amaximum of 0.12%).

• Extraordinary legal and tax expenses: Costs thatspecifically relate to legal or tax claims that are bothexceptional and unforeseeable. Such expenses areuncommon, and would not be expected in most years.Although they result in a short-term cost to the fund, generallythey can deliver longer term benefits for investors.

• Investment management: Charge paid to M&G forinvestment management of the fund. From 1 August2019 this charge forms part of the annual charge.

• Administration: Charge paid for administration services inaddition to investment management – any surplus from thischarge will be retained by M&G. From 1 August 2019 thischarge is rolled into the annual charge.

• Oversight and other independent services: Charges paidto providers independent of M&G for services which includedepositary, custody and audit. From 1 August 2019 thesecharges will be paid by M&G and rolled into the annualcharge.

• Ongoing charges from underlying funds: Ongoing chargeson holdings in underlying funds that are not rebated. From1 August 2019 charges from underlying funds (excludingInvestment Trust Companies and Real Estate InvestmentTrusts) will be rebated.

The operating charges paid by each share class of the fund areshown in the following performance tables. These charges do notinclude portfolio transaction costs or any entry and exit charges(also known as initial and redemption charges). The chargingstructures of share classes may differ, and therefore the operatingcharges may differ.

Once the annual charge has been operational for twelve months,operating charges will be in line with the ongoing charges shownin the Key Investor Information Document, other than wherethere have been extraordinary legal or tax expenses, or anestimate has been used for the ongoing charge because amaterial change has made the operating charges unreliable as anestimate of future charges.

Portfolio transaction costsPortfolio transaction costs are incurred by funds when buying andselling investments. These costs vary depending on the types ofinvestment, their market capitalisation, country of exchange andmethod of execution. They are made up of direct and indirectportfolio transaction costs:

• Direct portfolio transaction costs: Broker executioncommission and taxes.

• Indirect portfolio transaction costs: ‘Dealing spread’ – thedifference between the buying and selling prices of the fund’sinvestments; some types of investment, such as fixed interestsecurities, have no direct transaction costs and only thedealing spread is paid.

Investments are bought or sold by a fund when changes aremade to the investment portfolio and in response to net flows ofmoney into or out of the fund from investors buying and sellingshares in the fund.

To protect existing investors, portfolio transaction costs incurredas a result of investors buying and selling shares in the fund arerecovered from those investors through a ‘dilution adjustment’ tothe price they pay or receive. The table below shows directportfolio transaction costs paid by the fund before and after thatpart of the dilution adjustment relating to direct portfoliotransaction costs. To give an indication of the indirect portfoliodealing costs the table also shows the average portfolio dealingspread.




Operating charges and portfolio transactioncosts

Portfolio transaction costs (continued)

Further information on this process is in the Prospectus, which isavailable free of charge on request either from our website atwww.mandg.co.uk/prospectuses or by calling M&G CustomerRelations.

Portfolio transaction costs

for the year to 30 April 2020 2019 2018 Average [a]

Direct portfolio transaction costs [b] % % % %Broker commission 0.01 0.01 0.03 0.02Taxes 0.01 0.01 0.03 0.02

Costs before dilution adjustments 0.02 0.02 0.06 0.04Dilution adjustments [c] 0.00 (0.01) (0.01) (0.01)

Total direct portfolio transaction costs 0.02 0.01 0.05 0.03

as at 30 April 2020 2019 2018 Average [a]

Indirect portfolio transaction costs % % % %Average portfolio dealing spread 0.47 0.32 0.29 0.36

[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 thistable for an explanation of dilution adjustments.

Specific share class performanceThe following tables show the performance of each share class. All‘Performance and charges’ percentages represent an annual rateexcept for the ‘Return after operating charges’ which is calculatedas a percentage of the opening net asset value per share (NAV).‘Dilution adjustments’ are only in respect of direct portfoliotransaction costs.

Historic yields for the current year are calculated as at 15 May2020.

Sterling Class 'A' Income share performanceThe share class was launched on 11 November 2010.for the year to 30 April 2020 2019 2018

Change in NAV per share UK p UK p UK p

Opening NAV 123.28 129.50 125.80Return before operating charges and after

direct portfolio transaction costs (4.27) 0.02 10.46Operating charges (1.72) (1.92) (2.01)

Return after operating charges (5.99) (1.90) 8.45

Distributions (4.41) (4.32) (4.75)

Closing NAV 112.88 123.28 129.50

Direct portfolio transaction costs UK p UK p UK p

Costs before dilution adjustments 0.03 0.02 0.08Dilution adjustments [a] (0.01) (0.01) (0.01)

Total direct portfolio transaction costs 0.02 0.01 0.07

Performance and charges % % %

Direct portfolio transaction costs [b] 0.02 0.01 0.05Operating charges [c] 1.37 1.55 1.56Return after operating charges -4.86 -1.47 +6.72Historic yield 4.01 3.54 3.63Effect on yield of charges offset against capital 1.36 1.53 1.53

Other information

Closing NAV (£'000) 54,876 75,329 66,094Closing NAV percentage of total fund NAV (%) 6.57 8.35 7.97Number of shares 48,614,880 61,101,946 51,037,890Highest share price (UK p) 132.63 130.76 133.48Lowest share price (UK p) 102.91 117.76 126.34




Specific share class performance

Sterling Class 'A' Accumulation share performanceThe share class was launched on 11 November 2010.for the year to 30 April 2020 2019 2018





Distributions (3.77) (3.30) (3.62)

Retained distributions 3.77 3.30 3.62

Closing NAV 159.71 168.33 170.75






Other information


Sterling Class 'I' Income share performanceThe share class was launched on 3 August 2012.for the year to 30 April 2020 2019 2018


Opening NAV 1,228.57 1,280.86 1,234.87Return before operating charges and after

direct portfolio transaction costs (44.48) (1.39) 101.11Operating charges (10.05) (9.84) (10.27)


Distributions (42.67) (41.06) (44.85)

Closing NAV 1,131.37 1,228.57 1,280.86






Other information

Closing NAV (£'000) 328,119 367,350 350,297Closing NAV percentage of total fund NAV (%) 39.30 40.71 42.23Number of shares 29,001,978 29,900,618 27,348,689Highest share price (UK p) 1,326.49 1,293.62 1,316.27Lowest share price (UK p) 1,030.07 1,169.32 1,240.61

Sterling Class 'I' Accumulation share performanceThe share class was launched on 3 August 2012.for the year to 30 April 2020 2019 2018


Opening NAV 1,559.52 1,572.39 1,463.43Return before operating charges and after



Distributions (42.30) (39.71) (42.47)


Closing NAV 1,486.29 1,559.52 1,572.39






Other information

Closing NAV (£'000) 390,200 414,132 370,068Closing NAV percentage of total fund NAV (%) 46.73 45.89 44.62Number of shares 26,253,233 26,555,145 23,535,447Highest share price (UK p) 1,726.46 1,587.89 1,592.74Lowest share price (UK p) 1,343.71 1,460.93 1,470.23

Sterling Class 'PP' Income share performanceThe share class was launched on 5 August 2019.for the year to 30 April 2020 2019 2018


Opening NAV 100.00 n/a n/aReturn before operating charges and after

direct portfolio transaction costs (7.12) n/a n/aOperating charges (0.42) n/a n/a

Return after operating charges (7.54) n/a n/a

Distributions (2.49) n/a n/a

Closing NAV 89.97 n/a n/a


Costs before dilution adjustments 0.02 n/a n/aDilution adjustments [a] 0.00 n/a n/a

Total direct portfolio transaction costs 0.02 n/a n/a


Direct portfolio transaction costs [b] 0.02 n/a n/aOperating charges 0.56 n/a n/aReturn after operating charges -7.54 n/a n/aHistoric yield 3.86 n/a n/aEffect on yield of charges offset against capital 0.55 n/a n/a

Other information

Closing NAV (£'000) 15,288 n/a n/aClosing NAV percentage of total fund NAV (%) 1.83 n/a n/aNumber of shares 16,991,625 n/a n/aHighest share price (UK p) 105.41 n/a n/aLowest share price (UK p) 81.89 n/a n/a





Sterling Class 'PP' Accumulation share performanceThe share class was launched on 8 April 2019.for the year to 30 April 2020 2019 2018


Opening NAV 100.25 100.00 n/aReturn before operating charges and after

direct portfolio transaction costs (3.93) 0.32 n/aOperating charges (0.58) (0.07) n/a

Return after operating charges (4.51) 0.25 n/a

Distributions (2.93) (0.35) n/a

Retained distributions 2.93 0.35 n/a

Closing NAV 95.74 100.25 n/a


Costs before dilution adjustments 0.02 0.02 n/aDilution adjustments [a] 0.00 0.00 n/a

Total direct portfolio transaction costs 0.02 0.02 n/a


Direct portfolio transaction costs [b] 0.02 0.01 n/aOperating charges 0.55 0.54 n/aReturn after operating charges -4.50 +0.25 n/aHistoric yield 3.14 2.31 n/aEffect on yield of charges offset against capital 0.01 0.02 n/a

Other information

Closing NAV (£'000) 3,345 2,263 n/aClosing NAV percentage of total fund NAV (%) 0.40 0.25 n/aNumber of shares 3,493,940 2,257,388 n/aHighest share price (UK p) 111.16 100.86 n/aLowest share price (UK p) 86.53 99.91 n/a

Sterling Class 'R' Income share performanceThe share class was launched on 3 August 2012.for the year to 30 April 2020 2019 2018





Distributions (4.26) (4.11) (4.50)

Closing NAV 111.20 121.06 126.53






Other information


Sterling Class 'R' Accumulation share performanceThe share class was launched on 3 August 2012.for the year to 30 April 2020 2019 2018





Distributions (3.85) (3.62) (3.91)


Closing NAV 146.43 153.96 155.54






Other information


Sterling Class 'X' Income share performanceThe share class was launched on 11 November 2010.for the year to 30 April 2020 2019 2018





Distributions (4.42) (4.33) (4.75)

Closing NAV 112.95 123.35 129.57






Other information






Sterling Class 'X' Accumulation share performanceThe share class was launched on 11 November 2010.for the year to 30 April 2020 2019 2018





Distributions (3.78) (3.30) (3.62)


Closing NAV 159.77 168.40 170.81






Other information

Closing NAV (£'000) 1,206 1,426 1,585Closing NAV percentage of total fund NAV (%) 0.14 0.16 0.19Number of shares 754,848 846,569 928,134Highest share price (UK p) 185.75 172.45 173.28Lowest share price (UK p) 144.51 158.09 160.63

[a] In respect of direct portfolio transaction costs.


[c] Following the change in charging structure, you may see variances between thecomparative and current year figures.




Financial statementsStatement of total return

2020 2019for the year to 30 April Note £'000 £'000 £'000 £'000IncomeNet capital gains / (losses) 3 (67,135) (27,339)Revenue 5 35,287 31,874

Expenses 6 (7,986) (7,331)

Net revenue / (expense) before taxation 27,301 24,543Taxation 7 (3,622) (3,327)

Net revenue / (expense) after taxation 23,679 21,216

Total return before distributions (43,456) (6,123)Distributions 8 (27,927) (25,330)

Change in net assets attributable to shareholders from investment activities (71,383) (31,453)

Statement of change in net assets attributable to shareholders2020 2019

for the year to 30 April £'000 £'000 £'000 £'000

Opening net assets attributable to shareholders 902,407 829,425Amounts received on issue of shares 80,447 137,515Amounts paid on cancellation of shares (88,503) (43,841)

(8,056) 93,674Dilution adjustments 215 230Change in net assets attributable to shareholders from investment activities (see above) (71,383) (31,453)Retained distributions on Accumulation shares 11,847 10,515Unclaimed distributions 10 16

Closing net assets attributable to shareholders 835,040 902,407




2020 2019as at 30 April Note £'000 £'000

Assets

Fixed assetsInvestments 785,391 891,644

Current assetsDebtors 9 10,072 8,999Cash and bank balances 10 46,114 8,099Cash equivalents 0 22,514

Total assets 841,577 931,256Liabilities

Investment liabilities (1,122) (1,962)

CreditorsDistribution payable (1,877) (2,373)Other creditors 11 (3,538) (24,514)

Total liabilities (6,537) (28,849)

Net assets attributable to shareholders 835,040 902,407



Financial statements (continued)Balance sheet


Notes to the financial statements

1 Accounting policies

The financial statements have been prepared in accordance withthe ‘Summary of significant accounting policies’ set out onpages 6 and 7.

2 Distribution policy

In determining the amount available for reinvestment toAccumulation shares, all expenses with the exception of theannual charge, annual management charge, administrationcharge and overdraft interest are offset against capital, increasingthe amount available for reinvestment whilst restraining capitalperformance to an equivalent extent. In determining the amountavailable for distribution to Income shares, all expenses with theexception of overdraft interest are offset against capital,increasing the amount available for distribution whilst restrainingcapital performance to an equivalent extent.


3 Net capital gains / (losses)

2020 2019for the year to 30 April £'000 £'000Non-derivative securities [a] (43,722) (12,681)Derivative contracts [a] (19,198) (15,602)Currency gains / (losses) [a] (4,538) 601Management charge rebates taken to capital 235 300Administration charge rebates taken to capital 89 52Transaction charges (1) (9)

Net capital gains / (losses) (67,135) (27,339)

[a] Comprises realised gains of £615,000 and unrealised losses of£68,073,000 (2019: realised losses of £8,710,000 and unrealised losses of£18,972,000). Certain realised gains and losses in the current year wereunrealised in the prior year.

4 Portfolio transactions and associated costs

The following tables show portfolio transactions and theirassociated transaction costs. For more information about thenature of the costs please see the section on ‘Operating chargesand portfolio transaction costs’ on pages 19 and 20.

for the year to 30 April2020£'000

% oftransaction

2019£'000

% oftransaction

a) PurchasesEquitiesEquities before transaction costs 123,789 95,873Commissions 44 0.04 52 0.05Taxes 75 0.06 82 0.09

Equities after transaction costs 123,908 96,007

Debt securities 197,922 187,928

Collective investment schemesCollective investment schemes beforetransaction costs 23,988 5,981Commissions 8 0.03 0 0.00Taxes 21 0.09 0 0.00

Collective investment schemesafter transaction costs 24,017 5,981

Total purchases after transactioncosts 345,847 289,916

b) SalesEquitiesEquities before transaction costs 55,585 53,321Commissions (31) 0.06 (20) 0.04Taxes (31) 0.06 (1) 0.00


Debt securities 352,589 115,963

Other transaction typesCorporate actions 0 1,025

Total sales after transaction costs 408,112 170,288

c) Direct portfolio transaction costs2020£'000

% ofaverage NAV

2019£'000

% ofaverage NAV

Commissions paidEquities 75 0.01 72 0.01Collective investment schemes 8 0.00 0 0.00

Total commissions paid 83 0.01 72 0.01

Taxes paidEquities 106 0.01 83 0.01Collective investment schemes 21 0.00 0 0.00

Total taxes paid 127 0.01 83 0.01

Total direct portfolio transactioncosts [a] 210 0.02 155 0.02

d) Indirect portfolio transactioncosts % %

Portfolio dealing spread [b] 0.47 0.32

[a] Costs before dilution adjustments. Please refer to the ‘Financial highlights’section for the effect of dilution adjustments.

[b] Average portfolio dealing spread at the balance sheet date.




Notes to the financial statements5 Revenue

2020 2019for the year to 30 April £'000 £'000Administration charge rebates 0 1Bank interest 59 55Distributions from collective investment schemes: non-taxable 317 318Distributions from collective investment schemes: taxable 1,363 1,317Distributions from collective investment schemes: propertyincome dividends 1,240 964Dividends from equity investments: non-taxable 15,965 13,561Dividends from equity investments: taxable 597 559HM Revenue & Customs interest 0 (1)Interest distributions 142 145Interest on debt securities 15,565 14,948Management charge rebates 0 (19)Rebate of ongoing charges from underlying funds 39 0Stock dividends 0 26

Total revenue 35,287 31,874

6 Expenses2020 2019

for the year to 30 April £'000 £'000

Payable to the ACD or associateAnnual charge 5,979 0Annual management charge [a] [b] 1,584 5,834Administration charge [a] [c] 343 1,270

7,906 7,104

Payable to the Depositary or associateDepositary's charge (including VAT) [a] 13 49

Other expensesAudit fee (including VAT) [a] [d] 3 11Interest payable 18 7Legal fees 0 3Safe custody charge [a] 46 144Tax consultancy fee 0 13

67 178

Total expenses 7,986 7,331

[a] The segregated charges shown above for annual management, administration,depositary, audit and safe custody are those paid by the fund up to and including31 July 2019. As of 1 August 2019 these charges have been replaced by thesingle annual charge.

[b] This charge excludes management charge rebates received from M&G SecuritiesLimited, or an associate, in relation to the annual management charge of theunderlying collective investment schemes for which M&G Securities Limited, oran associate, acts as Authorised Corporate Director.These rebates have been recognised as either capital or revenue in notes 3 and5 and amount to £235,000 (2019: £300,000) and £nil (2019: £(19,000)).

[c] This charge excludes administration charge rebates received from M&GSecurities Limited, or an associate, in relation to the administration charge of theunderlying collective investment schemes for which M&G Securities Limited, oran associate, acts as Authorised Corporate Director.These rebates have been recognised as either capital or revenue in notes 3 and5 and amount to £89,000 (2019: £52,000) and £nil (2019: £1,000).

[d] Audit fees for the financial year ending 2020 were £11,000 (including VAT).

7 Taxation2020 2019


a) Analysis of charge in the yearCorporation tax 2,271 2,198Withholding tax 1,529 1,280Current double taxation relief (174) (143)Deferred tax (note 7c) (4) (8)

Total taxation 3,622 3,327

b) Factors affecting taxation charge for the yearNet revenue / (expense) before taxation 27,301 24,543

Corporation tax at 20% 5,460 4,909Effects of:Tax on management and administration charge rebates takento capital 64 70Dividends from equity investments: non-taxable (3,193) (2,712)Stock dividends not taxable 0 (5)Distributions from collective investment schemes: non-taxable (64) (64)Withholding tax 1,529 1,280Total double taxation relief (174) (151)

Total tax charge (note 7a) 3,622 3,327

c) Provision for deferred taxationProvision at the start of the year 71 79Deferred tax in profit and loss account (note 7a) (4) (8)

Provision at the end of the year 67 71

8 Distributions

2020 2019for the year to 30 April Inc [a] Acc [b] Inc [a] Acc [b]

Dividend distributions £'000 £'000 £'000 £'000First interim 1,272 2,153 1,154 995Second interim 1,310 615 1,054 447Third interim 1,329 852 1,119 715Fourth interim 1,342 885 1,108 877Fifth interim 1,361 1,358 1,110 867Sixth interim 1,364 862 1,067 812Seventh interim 1,398 865 1,120 932Eighth interim 1,391 540 1,090 769Ninth interim 1,273 725 1,254 777Tenth interim 1,073 644 1,253 656Eleventh interim 1,049 1,350 1,269 1,182Final 1,877 998 2,373 1,486

Total net distributions 27,886 25,486Income deducted on cancellation of

shares 196 71Income received on issue of shares (155) (227)

Distributions 27,927 25,330

Net revenue / (expense) per statement oftotal return 23,679 21,216

Expenses offset against capital 4,222 4,102Sharing of relief between classes 26 12

Distributions 27,927 25,330

[a] Distributions payable on Income shares.

[b] Retained distributions on Accumulation shares.




Notes to the financial statements9 Debtors

2020 2019as at 30 April £'000 £'000Administration charge rebates due 0 3Amounts receivable on issues of shares 178 383Corporation tax recoverable 254 0Debt security interest receivable 4,474 4,729Deposit interest receivable 0 10Distributions receivable 291 338Dividends receivable 2,365 2,917Management charge rebates due 8 18Rebate of ongoing charges from underlying funds 2 0Sales awaiting settlement 1,765 0Withholding tax recoverable 735 601

Total debtors 10,072 8,999

10 Cash and bank balances2020 2019

as at 30 April £'000 £'000Cash held as bank balances 46,114 8,099

Total cash and bank balances 46,114 8,099

11 Other creditors2020 2019

as at 30 April £'000 £'000ACD's annual management charge payable 0 377Administration charge payable 0 82Amounts payable on cancellation of shares 879 165Annual charge payable 189 0Bank overdraft interest payable 1 0Corporation tax payable 0 1,062Deferred taxation 67 71Expenses payable 2 65Purchases awaiting settlement 2,400 22,692

Total other creditors 3,538 24,514

12 Contingent assets, liabilities and outstandingcommitments

There were no contingent assets, liabilities or outstandingcommitments at the balance sheet date (2019: same).

13 Shares in issue

The following table shows each class of share in issue during theyear. Each share class has the same rights on winding up howeverthey may have different charging structures as set out in note 14.

Opening Movements ClosingShare class 01.05.19 Issued Cancelled 30.04.20

SterlingClass 'A' Income 61,101,946 3,598,955 (16,086,021) 48,614,880Class 'A' Accumulation 12,849,766 4,020,396 (1,115,939) 15,754,223Class 'I' Income 29,900,618 1,628,336 (2,526,976) 29,001,978Class 'I' Accumulation 26,555,145 1,618,846 (1,920,758) 26,253,233Class 'PP' Income 0 17,204,000 (212,375) 16,991,625Class 'PP' Accumulation 2,257,388 1,648,776 (412,224) 3,493,940Class 'R' Income 5,908,423 676,404 (1,590,603) 4,994,224Class 'R' Accumulation 2,469,118 673,038 (730,372) 2,411,784Class 'X' Income 7,558,057 99,574 (788,093) 6,869,538Class 'X' Accumulation 846,569 49,774 (141,495) 754,848

14 Charging structure

The table below sets out the charging structure for each class ofshare. The charging structure is the same for both Income andAccumulation shares of each class.

Share class

Entrycharge

%

Exitcharge

%

Annualcharge [a]

%

SterlingClass 'A' n/a n/a 1.30Class 'I' n/a n/a 0.80Class 'PP' n/a n/a 0.55Class 'R' n/a n/a 1.05Class 'X' n/a n/a 1.30

[a] The amounts shown are the maximum annual charge. M&G will apply a discountof 0.02% for every £1 billion of a fund’s net asset value. This is assessed quarterlyand implemented on a forward basis no later than 13 business days after quarterend.

15 Related parties

M&G Securities Limited, as Authorised Corporate Director (ACD),is a related party and acts as principal on all the transactions ofshares in the fund except with in specie transactions, where M&GSecurities Limited acts as an agent. The aggregate moniesreceived through issues, and paid on cancellations, are disclosedin the ‘Statement of change in net assets attributable toshareholders’ and note 8. Amounts due to / from M&G SecuritiesLimited in respect of share transactions at the year end aredisclosed in notes 9 and 11 where applicable.

Amounts paid to M&G Securities Limited in respect of the annualcharge, ACD’s annual management charge and administrationcharge are disclosed in note 6. Amounts due at the year end fromthe annual charge are disclosed in note 11.

Amounts paid to M&G Securities Limited in respect of rebatearrangements for the ACD’s annual management charge andadministration charge are disclosed in notes 3 and 5. Amountsdue at the year end from the ACD, and/or associate, in respect ofthese rebates are disclosed in note 9.

During the year, there were transactions in shares in relatedparties of M&G Securities Limited with a total value of £nil (2019:£5,981,000).

At the balance sheet date, the fund held shares in related partiesof M&G Securities Limited with a value of £34,947,000 (2019:£39,947,000).

At the balance sheet date, shareholders from within M&G plc, ofwhich M&G Securities Limited is a wholly owned subsidiary, haveholdings totalling 2.52% (2019: 1.85%) of the fund’s shares.




Notes to the financial statements16 Events after the balance sheet date

There were no events after the balance sheet date to disclose.

17 Fair value analysis

Financial instruments have been measured at their fair value andhave been classified below using a hierarchy that reflects thesignificance of the inputs used in measuring their fair value:

Level 1: Unadjusted quoted price in an active market for anidentical instrument

This includes instruments such as publicly traded equities, highlyliquid bonds (e.g. Government bonds) and exchange tradedderivatives (e.g. futures) for which quoted prices are readily andregularly available.

Level 2: Valuation technique using observable market data

This includes instruments such as over-the-counter (OTC)derivatives, debt securities, convertible bonds, mortgage-backedsecurities, asset-backed securities and open-ended funds whichhave been valued using models with observable market datainputs.

Level 3: Valuation technique using unobservable inputs

This refers to instruments which have been valued using modelswith unobservable data inputs. This includes single broker-pricedinstruments, suspended/unquoted securities, private equity,unlisted closed-ended funds and open-ended funds withrestrictions on redemption rights. However no such financialinstruments were held. However no such financial instrumentswere held.

as at 30 AprilAssets

2020Liabilities

2020Assets

2019Liabilities

2019Basis of valuation £'000 £'000 £'000 £'000Level 1 606,505 0 647,229 0Level 2 178,886 (1,122) 244,415 (1,962)Level 3 0 0 0 0

785,391 (1,122) 891,644 (1,962)

In accordance with FRS 102 (22.4a) the shares in issue for eachclass meet the definition of a puttable instrument as theshareholders have the right to sell the shares back to the issuer.The shares in the fund may be issued and redeemed on anybusiness day at the quoted price. These shares are not traded onan exchange. However, the price is observable and transactionswithin the fund take place regularly at that price. The shares inissue as detailed in note 13 meet the definition of a level 2financial instrument ‘Valuation techniques using observablemarket data’.

18 Risk management policies

The general risk management policies for the fund are set out innote 3 to the financial statements on pages 7 to 9.

19 Market risk sensitivity and exposure

VaR is the risk measurement methodology used to assess thefund’s leverage and market risk volatility. When VaR is calculatedas a percentage of the net asset value it may not be greater thanthe VaR limit set for the fund.

The VaR limit set during the financial year to 30 April 2020 was11% (30 April 2019: 11%).

The lowest, highest and average VaR, as well as utilisation of VaRwith reference to the limit above, are calculated during thefinancial years ended 30 April 2020 and 30 April 2019.

2020

2020Utilisation

of VaR [a] 2019

2019Utilisation

of VaR [a]

for the year to 30 April % of VaR 11% % of VaR 11%Lowest 3.61 32.82 3.12 28.40Highest 14.13 [b] 128.45 4.08 37.09Average 5.25 47.72 3.53 32.05

[a] The VaR on the fund has been divided by its maximum limit.

[b] Due to market volatility caused by the COVID-19 pandemic there was a passivebreach of the internally set M&G Episode Income Fund upper VaR limit. Therecent volatility has been more abrupt than the 2008-09 crisis on which theselimits were initially modelled. This limit is under frequent review. The fundremains below the regulatory upper VaR limit and is being monitored withincreased oversight.

20 Credit risk

The fund is exposed to credit risk both through the credit qualityof the investments it holds and through the derivative positionswith counterparties. The table below shows the credit quality ofthe investments held in the portfolio.

2020 2019as at 30 April £'000 £'000Investment grade securities 208,605 347,808Below investment grade securities 46,360 54,326Unrated securities 126,003 32,802Other investments 403,301 454,746

Total 784,269 889,682




Notes to the financial statements20 Credit risk (continued)

The tables below show the exposure to counterparties. Collateralis posted daily, in the form of cash or high-quality governmentbonds, to minimise this exposure.

Forwardcurrency

contractsas at 30 April 2020 £'000Bank of America Merrill Lynch (384)Citigroup (407)JPMorgan (226)Morgan Stanley 53Standard Chartered Bank (59)State Street Bank 654

Total (369)

Swaps

Forwardcurrency

contractsas at 30 April 2019 £'000 £'000BNP Paribas (12) 0Citigroup 0 56HSBC 0 10JPMorgan 0 (359)State Street Bank 0 (1,551)UBS 0 168

Total (12) (1,676)

Net exposure represents the mark-to-market value of derivativecontracts less any cash collateral held. Positive exposurerepresents the fund’s exposure to that counterparty. Negativeamounts are not an exposure to the fund.

21 Leverage risk

Funds using VaR approaches are required to disclose the level ofleverage employed during the financial reporting period.Derivatives can be used by the fund to generate market exposureto investments exceeding the net asset value. As a result of thisexposure, the size of any positive or negative movement inmarkets may have a more significant effect on the net asset valueof the fund.

The lowest, highest and average level of leverage employed andutilisation of the leverage level calculated during the financialyears ended 30 April 2020 and 30 April 2019 are disclosed in thetable below.

2020 [a] 2020 [a] 2019 [a] 2019 [a]

for the year to 30 April £'000 % [b] £'000 % [b]

Lowest 492,267 59.60 1,284,715 150.00Highest 2,104,835 260.25 2,551,219 298.00Average 734,855 80.43 1,434,924 170.00

[a] Leverage has been calculated using the Gross Sum of Notional Approach forderivative positions only (including forward currency contracts) and excludes allphysical holdings.

[b] Expressed as a percentage over fund valuation.

22 Dividend distribution tables

This fund pays monthly ordinary distributions and the followingtable sets out the distribution periods.

Monthly distribution periodsStart End Xd Payment

First interim 01.05.19 31.05.19 03.06.19 30.06.19Second interim 01.06.19 30.06.19 01.07.19 31.07.19Third interim 01.07.19 31.07.19 01.08.19 31.08.19Fourth interim 01.08.19 31.08.19 02.09.19 30.09.19Fifth interim 01.09.19 30.09.19 01.10.19 31.10.19Sixth interim 01.10.19 31.10.19 01.11.19 30.11.19Seventh interim 01.11.19 30.11.19 02.12.19 31.12.19Eighth interim 01.12.19 31.12.19 01.01.20 31.01.20Ninth interim 01.01.20 31.01.20 03.02.20 29.02.20Tenth interim 01.02.20 29.02.20 02.03.20 31.03.20Eleventh interim 01.03.20 31.03.20 01.04.20 30.04.20Final 01.04.20 30.04.20 01.05.20 31.05.20

The following tables set out for each distribution the rates pershare for both Group 1 and Group 2 shares.

Group 1 shares are those purchased prior to a distribution periodand therefore their income rate is the same as the distributionrate.

Group 2 shares are those purchased during a distribution periodand therefore their distribution rate is made up of income andequalisation. Equalisation is the average amount of incomeincluded in the purchase price of all Group 2 shares and isrefunded to the holders of these shares as a return of capital.Being capital it is not liable to Income Tax. Instead, it must bededucted from the cost of shares for Capital Gains Tax purposes.The tables below show the split of the Group 2 rates into theincome and equalisation components.

Sterling Class 'A' Income sharesOrdinary distributions Group 2 Group 1 & 2for the year Income Equalisation Distributionto 30 April 2020 2020 2020 2019

UK p UK p UK p UK pFirst interim 0.0159 0.3252 0.3411 0.3327Second interim 0.0000 0.3515 0.3515 0.3039Third interim 0.0000 0.3568 0.3568 0.3207Fourth interim 0.0000 0.3556 0.3556 0.3146Fifth interim 0.0000 0.3621 0.3621 0.3146Sixth interim 0.0000 0.3635 0.3635 0.3023Seventh interim 0.0000 0.3671 0.3671 0.3162Eighth interim 0.0000 0.3664 0.3664 0.3075Ninth interim 0.0000 0.3396 0.3396 0.3413Tenth interim 0.0000 0.3246 0.3246 0.3415Eleventh interim 0.0000 0.2852 0.2852 0.3424Final 0.1318 0.4669 0.5987 0.7861




Notes to the financial statements22 Dividend distribution tables (continued)

Sterling Class 'A' Accumulation sharesOrdinary distributions Group 2 Group 1 & 2for the year Income Equalisation Distributionto 30 April 2020 2020 2020 2019


Sterling Class 'I' Income sharesOrdinary distributions Group 2 Group 1 & 2for the year Income Equalisation Distributionto 30 April 2020 2020 2020 2019


Sterling Class 'I' Accumulation sharesOrdinary distributions Group 2 Group 1 & 2for the year Income Equalisation Distributionto 30 April 2020 2020 2020 2019


Sterling Class 'PP' Income sharesOrdinary distributions Group 2 Group 1 & 2for the year Income Equalisation Distributionto 30 April 2020 2020 2020 2019

UK p UK p UK p UK pFirst interim n/a n/a n/a n/aSecond interim n/a n/a n/a n/aThird interim n/a n/a n/a n/aFourth interim 0.0000 0.2817 0.2817 n/aFifth interim 0.0528 0.2343 0.2871 n/aSixth interim 0.0000 0.2883 0.2883 n/aSeventh interim 0.0000 0.2907 0.2907 n/aEighth interim 0.0329 0.2580 0.2909 n/aNinth interim 0.0363 0.1949 0.2312 n/aTenth interim 0.0194 0.1783 0.1977 n/aEleventh interim 0.1451 0.0819 0.2270 n/aFinal 0.3906 0.0000 0.3906 n/a

Sterling Class 'PP' Accumulation sharesOrdinary distributions Group 2 Group 1 & 2for the year Income Equalisation Distributionto 30 April 2020 2020 2020 2019

UK p UK p UK p UK pFirst interim 0.2239 0.2891 0.5130 n/aSecond interim 0.1020 0.0567 0.1587 n/aThird interim 0.0648 0.1513 0.2161 n/aFourth interim 0.1128 0.1069 0.2197 n/aFifth interim 0.2501 0.0821 0.3322 n/aSixth interim 0.1177 0.1002 0.2179 n/aSeventh interim 0.0130 0.2031 0.2161 n/aEighth interim 0.1059 0.0369 0.1428 n/aNinth interim 0.0317 0.1521 0.1838 n/aTenth interim 0.0012 0.1614 0.1626 n/aEleventh interim 0.2867 0.0370 0.3237 n/aFinal 0.1788 0.0639 0.2427 0.3548

Sterling Class 'R' Income sharesOrdinary distributions Group 2 Group 1 & 2for the year Income Equalisation Distributionto 30 April 2020 2020 2020 2019





Notes to the financial statements22 Dividend distribution tables (continued)

Sterling Class 'R' Accumulation sharesOrdinary distributions Group 2 Group 1 & 2for the year Income Equalisation Distributionto 30 April 2020 2020 2020 2019


Sterling Class 'X' Income sharesOrdinary distributions Group 2 Group 1 & 2for the year Income Equalisation Distributionto 30 April 2020 2020 2020 2019


Sterling Class 'X' Accumulation sharesOrdinary distributions Group 2 Group 1 & 2for the year Income Equalisation Distributionto 30 April 2020 2020 2020 2019





Investment objectiveThe fund aims to achieve a total return (the combination ofincome and capital growth) of at least 4% per annum above the3-month GBP LIBOR rate, before any charges are taken, in anymarket conditions and over any three year period. LIBOR is therate at which banks borrow money from each other.

The fund aims to achieve this while seeking to minimise thedegree to which the value of the fund fluctuates over time(volatility), while also seeking to limit monthly losses. Managingthe fund in this way reduces its ability to achieve returnssignificantly above 3-month GBP LIBOR plus 4%.

There is no guarantee that the fund will achieve a positive returnover three years, or any other period, and investors may not getback the original amount they invested.

Investment policyThe fund has a highly flexible investment approach with thefreedom to invest in different types of investment assets fromanywhere in the world. The fund manager’s approach combinesin-depth research to determine the value of assets over themedium to long term, together with analysis of market reactionsto events, to identify investment opportunities.

The fund may at any one time invest in the following assetclasses: fixed income securities (including, but not limited to,corporate bonds and government and public securities) companyshares, currencies, cash, near cash and deposits. The fund willmostly gain exposure to these assets by investing throughderivatives, but may also invest directly, or by investing throughother funds. Derivatives are financial contracts whose value isderived from an underlying asset. In cases where the fundmanager believes that investment opportunities are limited to afew areas, or where available investment opportunities would addtoo much risk, the fund may hold a high level of cash. At any onetime the geographical range of the fund may be more focusedrather than globally diversified.

The fund may also invest in other transferable securities andwarrants (allowing the fund manager to buy stocks for a fixedprice until a certain date) which may be from anywhere in theworld and denominated in any currency.

The fund may take short positions (holding derivatives with theaim of delivering a positive return when the assets they are linkedto fall in value) in markets, currencies, securities, and groups ofsecurities. The fund also has the flexibility to gain exposure toinvestments exceeding the net asset value of the fund in order toincrease potential returns in both rising and falling markets.

Derivatives can be used to meet the fund’s investment objectiveand for efficient portfolio management.

Investment approachThe fund manager adopts a flexible approach to the allocation ofcapital between asset classes in response to changes in economicconditions and the valuation of assets, guided by a robustvaluation framework. The fund manager seeks to respond toopportunities created by asset prices moving away from areasonable sense of ‘fair’ value due to investors reactingemotionally to events. The blend of investments held in the fundis actively adjusted depending on where the fund manager seesthe most value and to manage risks in order to limit monthlylosses. The fund manager will seek to manage risk by combiningdiversified and relatively uncorrelated assets (which are assetsaffected by market conditions in different ways) and byemploying derivative strategies to help protect or profit fromfalling markets. In cases where the fund manager believes thatinvestment opportunities are limited to a few areas, or where theavailable investment opportunities would add too much risk tothe fund, the fund may hold high levels of cash.

The fund manager believes that this approach has the potentialto limit monthly losses to less than 3% in normal to stressed timesand less than 6% in highly stressed times. The fund managerbelieves the fund has the potential to deliver an annualisedvolatility (the degree to which the value of the fund fluctuatesover any 12-month period) of between 3% and 7%. The fundmanager will ensure the fund’s 1-month 99% VaR remains below6%.

BenchmarkBenchmark: 3-month GBP LIBOR + 4%.

The fund is actively managed. The benchmark is a target whichthe fund seeks to achieve. The rate has been chosen as the fund’starget benchmark as it is an achievable performance target giventhe fund’s investment policy. The target benchmark is used solelyto measure the fund’s performance objective and does notconstrain the fund’s portfolio construction.

For unhedged share classes, the rate is shown in the share classcurrency. For Euro hedged share classes, the benchmark is the3-month EURIBOR + 4%.

Risk profileThe fund invests globally in a broad range of assets, includingcompany shares (equities), fixed income securities (bonds),currencies and other assets such as REITs, infrastructure-relatedsecurities, convertible bonds and asset-backed securities. Thefund is, therefore, subject to the price volatility of global financialand currency markets.

The fund adopts a flexible approach to the allocation of capitalbetween asset classes in response to changes in economicconditions and the valuation of assets.

M&G Global Target Return Fund



Risk profile (continued)

Investments are mainly implemented through exchange tradedderivatives and over the counter securities, physical assets andcash or cash equivalents.

The fund can be positioned to benefit from a rise or fall in thevalue of any asset class (such as company shares or bonds) atoverall fund level. This means if asset prices move in the oppositedirection to that expected, the fund can incur a loss.

Due to the fund’s defensive nature and strong focus on riskmanagement, the fund manager observes defined thresholdsrelated to risk measures including volatility, monthly losses andvalue at risk.

The following table shows the risk number associated with thefund and is based on Sterling Class ‘A’ shares.

Low risk High risk

Typically lower rewards Typically higher rewards

1 2 3 4 5 6 7The above number:

• is based on the rate at which the value of the fund has moved up anddown in the past and is based on historical data so may not be areliable indicator of the future risk profile of the fund.

• is not guaranteed and may change over time and the lowest risknumber does not mean risk free.

• has not changed during this period.

Investment reviewAs at 1 May 2020, for the year ended 30 April 2020

Performance against objective

Between 1 May 2019 (the start of the review period) and 1 May2020, the M&G Global Target Return Fund delivered a negativetotal return (the combination of capital growth and income)across the different share classes and lagged the 3-month LIBOR+4%, which stood at 4.9% over this period.

Over three years, the fund was broadly flat and hence has not metits performance objective, which is to deliver annualised returns ofat least 3-month LIBOR + 4%, before charges, over any three-yearperiod*. Three-month LIBOR + 4% stood at 4.7% p.a. over threeyears. Despite strong performance in the initial part of this three-year period, overall performance was negatively impacted by aprotracted US-China trade war and the recent outbreak ofcoronavirus.* For the performance of each share class, please refer to the ‘Long-term

performance by share class’ table in the ‘Fund performance’ section of this report.

Performance review

The US-China trade war dragged on fund returns for most of theperiod under review, before the spread of coronavirus around theworld triggered historic asset price declines in the first quarter of2020. We had taken steps in January and February to reduce

portfolio risk, which helped to keep fund losses in Marchmeaningfully lower than those experienced by wider markets,particularly in global equities and many emerging market assets.Following this volatility, we added some risk back to the portfolio,which enabled the fund to participate in strong market rallies inApril.

Equities (company shares) were the largest detractor fromperformance, despite the fund’s diversified exposure to a range ofstockmarkets and preferred sectors, due to the global nature andextent of market declines. Positions in banks and miningcompanies were among the notable underperformers during thereview period. Losses were mitigated by actively scaling fundpositioning, which is a core part of the investment strategy. Inearly 2020, we felt that equities had become expensive andvulnerable to the downside, which prompted us to scale backexposure. This helped to reduce the effects of stockmarketdeclines on the portfolio.

In fixed income, short positions (which seeks to profit from falls inasset prices) in German and UK government bonds dragged onperformance, as bond yields experienced sustained declines toreach historic lows in the summer of 2019. (Bond yields refer tothe interest received from a fixed income security, which is usuallyexpressed annually as a percentage based on the investment’scost, its current market value or its face value. Bond yields typicallymove in the opposite direction to bond prices.)

Long exposure (which seeks to profit from increases in assetprices) to selected emerging market bonds also detracted fromperformance, notably those from South Africa and Mexico. Thesepositions have provided useful diversification at times, due totheir ability to behave independently of assets from developedmarkets and the attractive yields they offer. However, they havebeen particularly affected by the heightened market volatility thisyear.

US Treasuries and credit default swaps (CDS) on emerging marketsovereign debt were the main sources of positive returns duringthe review period. We also tactically scaled our exposure to theseassets, which further protected the portfolio.

Investment activities

The fund has a flexible mandate, which enabled us to respond tomarket events throughout the review period by taking a highlyactive approach to managing asset allocation.

In the second quarter of 2019, we felt investors had becomeexcessively pessimistic around the potential effects of the US-China trade dispute on the global economy at that time. As such,we increased equity exposure with a view to capturing theelevated risk premium available. At the same time, we felt coregovernment bond yields were unjustifiably low, with manyoffering negative real or even nominal yields. This prompted us toincrease our short positions in German and UK governmentbonds.

While some of this additional risk was successful, providingopportunities to take some profits in July, the fund was adverselyaffected by heightened political tensions between the US and




Investment activities (continued)

China in August. As such, we actively reduced portfolio risk in thethird quarter of 2019 by closing several equity positions, as well asreducing exposure to some emerging market assets, in line withthe fund’s strict risk management process.

In late August and September, we added risk back to the portfolio,which allowed us to participate in stockmarket recoveries. At thestart of 2020, we felt many equity markets had begun to lookexpensive again and vulnerable to the downside. Although itseems difficult to imagine now, US stockmarkets reached all-timehighs in mid-February. By this time, we had significantly reducednet equity exposure, which helped to protect the portfolio fromthe subsequent volatility, although the extent of market declinesstill resulted in material losses. We had also begun to reduce ourshort positions in government bonds in January, as yields hadrisen considerably from their previous lows. By late February wehad closed these short positions.

Following major sell-offs in corporate bond markets in March, wesignificantly increased our exposure to this asset class through arange of positions. These included adding a basket of corporatebonds via primary and secondary market activity; new positions incorporate bond funds managed by M&G; and selling CDS indices.

Outlook

While market fundamentals have undoubtedly changedfollowing the global outbreak of coronavirus, we feel declines inasset prices in some areas were exacerbated by signs of panic andforced selling. This appears evidenced by recent market rallies. Webelieve the recent introduction of some additional ‘risk-on’positions to the portfolio, while still leaving significant scope tomake additional changes if further volatility arises, should leavethe fund well placed for the period ahead.

We must recognise that this is a very uncertain situation and it isappropriate to retain a high degree of humility in terms of whatwe think we can know. At the same time, it remains to be seen howsignificant the longer term effects will be on the global economy,or if the main effects will be mostly temporary or at least limitedto certain sectors. As such, we will continue to manage theportfolio with a view to generating positive returns over themedium term, aiming to capture opportunities that presentthemselves, while adhering to the fund’s strict risk managementprocesses.

Asset breakdownLong

exposure%

Shortexposure

%

Netexposure

%Equities 12.54 -3.10 9.44UK 1.36 0.00 1.36Europe 4.24 0.00 4.24US 0.00 -3.10 -3.10Japan 1.64 0.00 1.64Asia Pacific ex Japan 3.57 0.00 3.57Global equity funds 1.16 0.00 1.16Other 0.57 0.00 0.57

Equity options (nominal) 0.00 0.00 0.00

Government bonds 16.94 0.00 16.94UK 0.00 0.00 0.00Europe 0.00 0.00 0.00US 0.00 0.00 0.00Japan 0.00 0.00 0.00Asia Pacific ex Japan 0.96 0.00 0.96Other 15.98 0.00 15.98

Corporate bonds 26.02 0.00 26.02Investment grade 25.12 0.00 25.12High yield 0.90 0.00 0.90

Bond options (nominal) 0.00 0.00 0.00

Credit default swaps 4.03 -24.08 -20.05

Alternative 4.89 0.00 4.89Convertible bonds 0.00 0.00 0.00Property funds / Infrastructure 3.11 0.00 3.11Private loans 0.00 0.00 0.00

Source: M&G

Equity options (nominal): The total value of all the equity options held in the fundexpressed as a percentage of net asset value (NAV). Bond options (nominal): Thetotal value of all the bond options held in the fund expressed as a percentage of netasset value (NAV). Private loans: A loan provided by a non-bank lender, generally ata specific interest rate and for a predetermined length of time.

Tristan HansonFund manager

Employee of M&G FA Limited (formerly M&G Limited) which is an associate of M&GSecurities Limited.

Please note that the views expressed in this Report should not be taken as arecommendation or advice on how the fund or any holding mentioned in the Reportis likely to perform. If you wish to obtain financial advice as to whether an investmentis suitable for your needs, you should consult a Financial Adviser.




Portfolio statement


2020£'000

2020%

2019%

EQUITIES 9,435 11.57 12.38Software & computer services 656 0.80 0.56

1,162,100 NetLink NBN 656 0.80

Banks 1,884 2.31 4.47146,394 Banco BPM 145 0.18144,125 Bankia 123 0.15

21,246 BBVA 56 0.0730,270 CaixaBank 45 0.05

628,000 Chongqing Rural Commercial Bank 220 0.2713,163 Commerzbank 40 0.05

3,299 Erste 58 0.0710,503 ING 47 0.06

277,006 Intesa Sanpaolo 349 0.4382,800 Kasikornbank 176 0.22

684,847 Lloyds Banking 223 0.273,202 Société Générale 41 0.05

16,907 Standard Chartered 72 0.0946,277 UniCredit 289 0.35

Finance & credit services 0 0.00 0.51

Equity investment instruments 1,693 2.07 1.09160,970 3i Infrastructure 423 0.52623,203 BioPharma Credit 477 0.58806,913 Greencoat Renewables [a] 793 0.97

Real estate investment & services 209 0.26 0.0019,000 Sun Hung Kai Properties 209 0.26

Real estate investment trusts 219 0.27 0.414,065 Unibail-Rodamco-Westfield (Amsterdam listing) 206 0.25

263 Unibail-Rodamco-Westfield (France listing) 13 0.02

Industrial transportation 221 0.27 0.00518,000 COSCO SHIPPING Ports 221 0.27

Industrial metals & mining 0 0.00 1.00

Non-renewable energy 236 0.29 0.00668,000 Sinopec Kantons 236 0.29

Electricity 202 0.25 0.00214,000 China Resources Power 202 0.25

Equity derivatives 150 0.19 0.15Equity futures contracts 150 0.19 0.15

1 DAX Index Jun 2020 51 0.0614 FTSE 100 Index Jun 2020 156 0.1916 Hang Seng China Enterprise Index May 2020 28 0.0420 KOSPI 200 Index Jun 2020 (16) (0.02)

(22) S&P 500 E-Mini Index Jun 2020 (111) (0.14)30 STOXX Europe 600 Utilities Index Jun 2020 21 0.03

4 TOPIX Index June 2020 21 0.03

Equity options 0 0.00 0.00

Equity portfolios 3,965 4.86 4.1923,567 iShares Core MSCI Emerging Markets Investable Market Index ETF 475 0.58

237,649 M&G (Lux) European Strategic Value Fund Euro Class 'CI' (Accumulation) [b] 1,639 2.01841,616 M&G Global Listed Infrastructure Fund Sterling Class 'I' (Income) [b] 947 1.16

1,869,505 M&G Japan Fund Sterling Class 'A' (Income) [b] 904 1.11

FIXED INCOME 69,757 85.49 81.56Debt securities 66,000 80.89 78.17'AAA' credit rated bonds 5,286 6.48 4.94

£775,000 European Bank for Reconstruction & Development FRN 0.4763% 27/02/2023 773 0.95£1,650,000 Export Development Canada FRN 0.3965% 17/01/2025 1,642 2.01

£878,000 Holmes Master Issuer FRN 1.0977% 15/10/2054 867 1.06£273,000 Lanark Master Issuer FRN 1.14% 22/12/2069 268 0.33£875,000 Nationwide Building Society FRN 0.6168% 10/01/2025 867 1.06£876,000 Permanent Master Issuer FRN 1.1077% 15/07/2058 869 1.07

'AA' credit rated bonds 39,654 48.60 64.56US$333,000 Abu Dhabi (Emirate of) 2.5% 16/04/2025 273 0.33US$200,000 Abu Dhabi (Emirate of) 3.125% 16/04/2030 170 0.21






2020£'000

2020%

2019%

FIXED INCOME (continued)Debt securities (continued)'AA' credit rated bonds (continued)

US$200,000 Abu Dhabi (Emirate of) 3.875% 16/04/2050 171 0.21US$490,000 Anheuser-Busch InBev Worldwide 4.5% 01/06/2050 441 0.54US$490,000 Anheuser-Busch InBev Worldwide 4.6% 01/06/2060 439 0.54

€129,000 Bank of America Var. Rate 3.648% 31/03/2029 132 0.16US$490,000 BP Capital Markets America 3.543% 06/04/2027 411 0.50US$490,000 BP Capital Markets America 3.633% 06/04/2030 421 0.52US$970,000 Credit Suisse 2.8% 08/04/2022 792 0.97

US$1,500,000 Israel (State of) 3.8% 13/05/2060 1,270 1.56US$510,000 JPMorgan Chase Var. Rate 2.522% 22/04/2031 416 0.51US$510,000 JPMorgan Chase Var. Rate 3.109% 22/04/2041 428 0.52

£612,000 Royal Bank of Canada FRN 0.5367% 30/01/2025 599 0.73€141,000 Shell International Finance 1.875% 07/04/2032 132 0.16

US$490,000 Toyota Motor Credit 3% 01/04/2025 416 0.51£6,100,000 UK Treasury 0% 11/05/2020 6,100 7.48£6,500,000 UK Treasury 0% 18/05/2020 6,500 7.97£4,100,000 UK Treasury 0% 26/05/2020 4,100 5.02£5,000,000 UK Treasury 0% 13/07/2020 4,998 6.13£5,100,000 UK Treasury 0% 20/07/2020 5,098 6.25£5,450,000 UK Treasury 0% 27/07/2020 5,448 6.68

£900,000 UK Treasury 0% 01/09/2020 899 1.10

'A' credit rated bonds 2,011 2.46 0.00€103,000 Airbus 2.375% 07/04/2032 99 0.12€440,000 Anheuser-Busch InBev 2.875% 02/04/2032 423 0.52€169,000 Anheuser-Busch InBev 3.7% 02/04/2040 171 0.21

US$510,000 JPMorgan Chase Var. Rate 2.083% 22/04/2026 412 0.50US$510,000 JPMorgan Chase Var. Rate 3.109% 22/04/2051 428 0.52

€421,000 Lloyds Bank Corporate Markets 2.375% 09/04/2026 382 0.47€100,000 Total Capital International 1.994% 08/04/2032 96 0.12

'BBB' credit rated bonds 9,444 11.57 2.86US$200,000 Anglo American Capital 5.625% 01/04/2030 176 0.21

€447,000 APT Pipelines 2% 15/07/2030 394 0.48€200,000 Auchan 2.875% 29/01/2026 176 0.22

US$182,000 Broadcom 4.7% 15/04/2025 160 0.20US$248,000 Broadcom 5% 15/04/2030 223 0.27US$490,000 Citigroup Var. Rate 3.106% 08/04/2026 409 0.50

€110,000 Firmenich Productions Participations SAS 1.75% 30/04/2030 97 0.12US$66,000 Fox 3.5% 08/04/2030 57 0.07

€165,000 Fresenius 1.625% 08/10/2027 148 0.18US$970,000 Indonesia (Republic of) 3.85% 15/10/2030 804 0.98US$273,000 Indonesia (Republic of) 4.45% 15/04/2070 218 0.27

IDR14,101,000,000 Indonesia (Republic of) 8.25% 15/05/2036 762 0.93€102,000 Lloyds Banking Var. Rate 3.5% 01/04/2026 96 0.12

US$490,000 Lloyds Banking Var. Rate 3.87% 09/07/2025 411 0.50US$1,008,000 Mexico (United Mexican States) 4.75% 27/04/2032 806 0.99US$1,048,000 Mexico (United Mexican States) 5% 27/04/2051 788 0.97

MXN25,000,000 Mexico (United Mexican States) 8% 07/11/2047 863 1.06MXN19,400,000 Mexico (United Mexican States) 8.5% 18/11/2038 709 0.87

US$1,010,000 Micron Technology 2.497% 24/04/2023 823 1.01US$470,000 Morgan Stanley Var. Rate 3.622% 01/04/2031 414 0.51

€452,000 Volkswagen Financial Services 3.375% 06/04/2028 436 0.53€500,000 Vonovia Finance 2.25% 07/04/2030 474 0.58

'BB' credit rated bonds 3,835 4.70 2.77BRL4,000,000 Brazil (Federal Republic of) 10% 01/01/2029 689 0.84US$1,100,000 South Africa (Republic of) 5.875% 22/06/2030 806 0.99

ZAR68,254,000 South Africa (Republic of) 8.5% 31/01/2037 2,340 2.87

'B' credit rated bonds 1,245 1.53 2.45US$1,565,000 Turkey (Republic of) 7.625% 26/04/2029 1,245 1.53

Bonds with no credit rating 4,525 5.55 0.59US$490,000 Baidu 3.075% 07/04/2025 400 0.49US$490,000 Baidu 3.425% 07/04/2030 410 0.50

£269,194 Bowbell 1% 16/04/2056 265 0.33£378,564 CMF 2020-1 FRN 0.964% 16/01/2057 370 0.45






2020£'000

2020%

2019%

FIXED INCOME (continued)Debt securities (continued)Bonds with no credit rating (continued)

£877,000 Coventry Building Society FRN 0.5869% 15/01/2025 867 1.06£360,000 Darrowby No. 5 FRN 1.06% 20/12/2057 355 0.44£569,000 Finsbury Square 2020-1 FRN 1.2% 16/03/2070 557 0.68£876,000 Leeds Building Society FRN 0.6068% 15/01/2025 869 1.07£440,288 Tower Bridge Funding No. 4 FRN 1.9702% 20/12/2062 432 0.53

Debt derivatives (355) (0.44) (1.80)Credit default swaps (355) (0.44) (1.38)

US$11,037,227 China (Republic of) Dec 2024 (260) (0.32)€3,724,000 Markit iTraxx Europe Xover Series 32 V1 4 Year Dec 2024 50 0.06

US$13,245,102 Philippines (Republic of) Dec 2024 (145) (0.18)

Interest rate swaps 0 0.00 (0.25)

Interest rate futures 0 0.00 (0.17)

Fixed income portfolios 4,112 5.04 5.19359,668 M&G (Lux) Global Corporate Bond Fund US Dollar Class 'CI' (Accumulation) [b] 3,381 4.14

54,831 M&G Global High Yield Bond Fund Sterling Class 'I' (Accumulation) [b] 731 0.90

CURRENCY (72) (0.09) 0.40Forward currency contracts (72) (0.09) 0.40

AU$(1,388,899) Sold for £715,977 (expires 22.05.20) (11) (0.01)CHF(789,518) Sold for £620,602 (expires 22.05.20) (30) (0.04)

CLP859,904,877 Bought for $1,030,752 (expires 22.05.20) 0 0.00€4,042,654 Bought for £3,551,093 (expires 22.05.20) (35) (0.04)

€(14,571,089) Sold for £12,558,447 (expires 22.05.20) (113) (0.14)HK$99,742,920 Bought for $12,841,752 (expires 25.09.20) 8 0.01

IDR162,765,215 Bought for $2,259,843 (expires 22.05.20) (77) (0.10)¥32,706,888 Bought for £252,837 (expires 22.05.20) (8) (0.01)

¥(151,998,134) Sold for £1,080,483 (expires 22.05.20) (60) (0.07)MXN(31,182,821) Sold for £1,264,947 (expires 22.05.20) 217 0.27

MXN31,182,821 Bought for £1,058,959 (expires 22.05.20) (11) (0.01)RUB70,738,538 Bought for $1,103,479 (expires 22.05.20) (112) (0.14)SG$(2,227,459) Sold for £1,229,978 (expires 22.05.20) (33) (0.04)

KRW799,332,403 Bought for $647,360 (expires 22.05.20) 7 0.01THB8,898,142 Bought for $273,705 (expires 22.05.20) 1 0.00

TW$18,190,230 Bought for $608,365 (expires 22.05.20) 3 0.00US$(34,078,339) Sold for £27,489,682 (expires 22.05.20) 251 0.31

US$2,323,165 Bought for THB73,022,944 (expires 22.05.20) 53 0.06US$1,863,749 Bought for KRW2,210,338,453 (expires 22.05.20) 39 0.05US$1,137,873 Bought for INR82,267,058 (expires 22.05.20) 35 0.04US$4,073,099 Bought for TWD121,291,871 (expires 22.05.20) (6) (0.01)

US$14,521,099 Bought for HKD113,830,479 (expires 25.09.20) (116) (0.14)US$5,430,625 Bought for £4,536,039 (expires 22.05.20) (195) (0.24)

ZAR(23,684,648) Sold for £1,188,282 (expires 22.05.20) 144 0.18ZAR23,684,648 Bought for £1,067,652 (expires 22.05.20) (23) (0.03)

Portfolio of investments 79,120 96.97 94.34

SHARE CLASS HEDGING 0 0.00 0.00Forward currency contracts for share class hedging 0 0.00 0.00

€28,326 Bought for £24,788 (expires 03.06.20) 0 0.00€(92) Sold for £80 (expires 03.06.20) 0 0.00

Total portfolio (notes 2c & 2d on page 6) 79,120 96.97 94.34Net other assets / (liabilities) 2,474 3.03 5.66

Net assets attributable to shareholders 81,594 100.00 100.00

All securities are on an official stock exchange listing except where referenced.

[a] AIM quoted.

[b] Related party.




Fund performance

Please note past performance is not a guide to futureperformance and the value of investments, and the income fromthem, will fluctuate. This will cause the fund price to fall as well asrise and you may not get back the original amount you invested.

The following chart and tables reflect the key financialinformation of a representative share class, Sterling Class ‘A’(Accumulation) shares. As different share classes have differentattributes, for example charging structures and minimuminvestments, please be aware that their performance may bedifferent. For more information on the different share classes inthis fund please refer to the Prospectus for M&G InvestmentFunds (11), which is available free of charge either from ourwebsite at www.mandg.co.uk/prospectuses or by calling M&GCustomer Relations.

Fund level performance

Fund net asset value

as at 30 April2020£'000

2019£'000

2018£'000

Fund net asset value (NAV) 81,594 97,276 93,593

Performance since launchTo give an indication of how the fund has performed since launch,the chart below shows total return of Sterling Class ‘A’(Accumulation) shares.

Jun 17 May 20Dec 17 Dec 18Jun 18 Dec 19Jun 19

98

100

102

106

104

108

120

114

112

116

118

110

96

December 2016 = 100, plotted monthly Chart date 1 May 2020

Sterling Class ‘A’ (Accumulation) shares (net of OCF)*

M&G Global Target Return Fund Sterling (gross of OCF)*

3-month GBP LIBOR +4%

* Income reinvested

The past performance shown here is for returns before the ongoing charges figure is taken

(gross of OCF) as well as returns after the ongoing charges figure is taken (net of OCF).

Source: Morningstar, Inc. and M&G

To give an indication of the performance of the fund, thefollowing table shows the compound rate of return, per annum,over the period. Calculated on a price to price basis with incomereinvested.

Long-term performance by share classOneyear

01.05.19% [a]

Threeyears

02.05.17% p.a.

Fiveyears

01.05.15% p.a.

Sincelaunch

% p.a.Euro [b]

Class 'Z-H' -2.1 n/a n/a -2.5 [c]

Sterling [b]

Class 'A' -1.9 -0.0 n/a +0.3 [d]

Class 'I' -1.7 +0.1 n/a +0.5 [d]

Class 'L' -1.5 +0.3 n/a +0.5 [e]

Class 'PP' -1.7 n/a n/a -1.6 [f]

[a] Absolute basis.

[b] Price to price with income reinvested.

[c] 20 April 2018, the launch date of the share class.

[d] 13 December 2016, the launch date of the fund.

[e] 24 February 2017, the launch date of the share class.

[f] 8 April 2019, the launch date of the share class.

Operating charges and portfolio transactioncostsWe explain below the payments made to meet the ongoing costsof investing and managing the fund, comprising operatingcharges and portfolio transaction costs.

Operating chargesOperating charges include payments made to M&G and toproviders independent of M&G:

• Annual charge: Charge paid to M&G covering the annualcost of M&G managing and administering the fund and thecosts of third parties providing services to the fund. From1 August 2019, this charge rolls all costs that make up theoperating charges into one annual charge.For every £1 billion of a fund’s net asset value, a discount of0.02% will be applied to that fund’s annual charge (up to amaximum of 0.12%).

• Extraordinary legal and tax expenses: Costs thatspecifically relate to legal or tax claims that are bothexceptional and unforeseeable. Such expenses areuncommon, and would not be expected in most years.Although they result in a short-term cost to the fund, generallythey can deliver longer term benefits for investors.

• Investment management: Charge paid to M&G forinvestment management of the fund. From 1 August2019 this charge forms part of the annual charge.

• Administration: Charge paid for administration services inaddition to investment management – any surplus from thischarge will be retained by M&G. From 1 August 2019 thischarge is rolled into the annual charge.

• Share class hedging: Charge paid to M&G for currencyhedging services to minimise exchange rate risk for the shareclass. From 1 August 2019 this charge is rolled into the annualcharge.




Operating charges and portfolio transactioncosts

Operating charges (continued)

• Oversight and other independent services: Charges paidto providers independent of M&G for services which includedepositary, custody and audit. From 1 August 2019 thesecharges will be paid by M&G and rolled into the annualcharge.

• Ongoing charges from underlying funds: Ongoing chargeson holdings in underlying funds that are not rebated. From1 August 2019 charges from underlying funds (excludingInvestment Trust Companies and Real Estate InvestmentTrusts) will be rebated.

The operating charges paid by each share class of the fund areshown in the following performance tables. These charges do notinclude portfolio transaction costs or any entry and exit charges(also known as initial and redemption charges). The chargingstructures of share classes may differ, and therefore the operatingcharges may differ.

Once the annual charge has been operational for twelve months,operating charges will be in line with the ongoing charges shownin the Key Investor Information Document, other than wherethere have been extraordinary legal or tax expenses, or anestimate has been used for the ongoing charge because amaterial change has made the operating charges unreliable as anestimate of future charges.

Portfolio transaction costsPortfolio transaction costs are incurred by funds when buying andselling investments. These costs vary depending on the types ofinvestment, their market capitalisation, country of exchange andmethod of execution. They are made up of direct and indirectportfolio transaction costs:

• Direct portfolio transaction costs: Broker executioncommission and taxes.

• Indirect portfolio transaction costs: ‘Dealing spread’ – thedifference between the buying and selling prices of the fund’sinvestments; some types of investment, such as fixed interestsecurities, have no direct transaction costs and only thedealing spread is paid.

Investments are bought or sold by a fund when changes aremade to the investment portfolio and in response to net flows ofmoney into or out of the fund from investors buying and sellingshares in the fund.

To protect existing investors, portfolio transaction costs incurredas a result of investors buying and selling shares in the fund arerecovered from those investors through a ‘dilution adjustment’ tothe price they pay or receive. The table below shows directportfolio transaction costs paid by the fund before and after that

part of the dilution adjustment relating to direct portfoliotransaction costs. To give an indication of the indirect portfoliodealing costs the table also shows the average portfolio dealingspread.

Further information on this process is in the Prospectus, which isavailable free of charge on request either from our website atwww.mandg.co.uk/prospectuses or by calling M&G CustomerRelations.

Portfolio transaction costs

for the year to 30 April 2020 2019 2018 Average [a]

Direct portfolio transaction costs [b] % % % %Broker commission 0.02 0.02 0.02 0.02Taxes 0.01 0.01 0.01 0.01

Costs before dilution adjustments 0.03 0.03 0.03 0.03Dilution adjustments [c] 0.00 0.00 0.00 0.00

Total direct portfolio transaction costs 0.03 0.03 0.03 0.03

as at 30 April 2020 2019 2018 Average [a]

Indirect portfolio transaction costs % % % %Average portfolio dealing spread 0.30 0.12 0.11 0.18

[a] Average of first three columns.


[c] In respect of direct portfolio transaction costs. Please see the section above thistable for an explanation of dilution adjustments.




Specific share class performanceThe following tables show the performance of each share class. All‘Performance and charges’ percentages represent an annual rateexcept for the ‘Return after operating charges’ which is calculatedas a percentage of the opening net asset value per share (NAV).‘Dilution adjustments’ are only in respect of direct portfoliotransaction costs.

Historic yields for the current year are calculated as at 15 May2020.

Euro Class 'Z-H' Accumulation share performanceThe share class was launched on 20 April 2018.for the year to 30 April 2020 2019 2018

Change in NAV per share Euro ¢ Euro ¢ Euro ¢

Opening NAV 969.63 1,001.25 1,000.00Return before operating charges and after



Distributions (13.84) (10.76) (0.24)


Closing NAV 950.28 969.63 1,001.25

Direct portfolio transaction costs Euro ¢ Euro ¢ Euro ¢

Costs before dilution adjustments 0.24 0.30 0.01Dilution adjustments [a] 0.00 (0.03) 0.00




Other information

Closing NAV (£'000) 25 25 27Closing NAV percentage of total fund NAV (%) 0.03 0.03 0.03Number of shares 3,005 3,005 3,005Highest share price (Euro ¢) 978.68 1,000.69 1,002.23Lowest share price (Euro ¢) 896.28 940.84 999.73

Sterling Class 'A' Accumulation share performanceThe share class was launched on 13 December 2016.for the year to 30 April 2020 2019 2018





Distributions (0.82) (0.58) (0.47)


Closing NAV 101.19 103.00 105.67


Costs before dilution adjustments 0.03 0.03 0.03Dilution adjustments [a] 0.00 0.00 0.00




Other information

Closing NAV (£'000) 926 1,393 1,027Closing NAV percentage of total fund NAV (%) 1.14 1.43 1.10Number of shares 915,439 1,352,631 971,496Highest share price (UK p) 104.24 105.62 106.16Lowest share price (UK p) 95.33 99.77 101.23

Sterling Class 'I' Accumulation share performanceThe share class was launched on 13 December 2016.for the year to 30 April 2020 2019 2018





Distributions (0.99) (0.74) (0.63)


Closing NAV 101.74 103.40 105.90






Other information






Sterling Class 'L' Accumulation share performanceThe share class was launched on 24 February 2017.for the year to 30 April 2020 2019 2018





Distributions (1.24) (0.82) (0.71)


Closing NAV 101.78 103.19 105.60






Other information


Sterling Class 'PP' Income share performanceThe share class was launched on 5 August 2019.for the year to 30 April 2020 2019 2018


Opening NAV 100.00 n/a n/aReturn before operating charges and after

direct portfolio transaction costs 1.25 n/a n/aOperating charges (0.41) n/a n/a

Return after operating charges 0.84 n/a n/a

Distributions (1.46) n/a n/a

Closing NAV 99.38 n/a n/a


Costs before dilution adjustments 0.02 n/a n/aDilution adjustments [a] 0.00 n/a n/a

Total direct portfolio transaction costs 0.02 n/a n/a


Direct portfolio transaction costs [b] 0.03 n/a n/aOperating charges 0.56 n/a n/aReturn after operating charges +0.84 n/a n/aHistoric yield 1.62 n/a n/aEffect on yield of charges offset against capital 0.55 n/a n/a

Other information

Closing NAV (£'000) 20 n/a n/aClosing NAV percentage of total fund NAV (%) 0.02 n/a n/aNumber of shares 20,000 n/a n/aHighest share price (UK p) 103.80 n/a n/aLowest share price (UK p) 94.97 n/a n/a

Sterling Class 'PP' Accumulation share performanceThe share class was launched on 8 April 2019.for the year to 30 April 2020 2019 2018


Opening NAV 99.88 100.00 n/aReturn before operating charges and after

direct portfolio transaction costs (0.97) (0.05) n/aOperating charges (0.55) (0.07) n/a

Return after operating charges (1.52) (0.12) n/a

Distributions (1.04) (0.81) n/a

Retained distributions 1.04 0.81 n/a

Closing NAV 98.36 99.88 n/a


Costs before dilution adjustments 0.02 0.03 n/aDilution adjustments [a] 0.00 0.00 n/a

Total direct portfolio transaction costs 0.02 0.03 n/a


Direct portfolio transaction costs [b] 0.03 0.03 n/aOperating charges 0.57 0.60 n/aReturn after operating charges -1.52 -0.12 n/aHistoric yield 1.07 0.83 n/aEffect on yield of charges offset against capital 0.00 0.00 n/a

Other information

Closing NAV (£'000) 20 20 n/aClosing NAV percentage of total fund NAV (%) 0.02 0.02 n/aNumber of shares 20,000 20,000 n/aHighest share price (UK p) 101.25 100.61 n/aLowest share price (UK p) 92.64 99.73 n/a

[a] In respect of direct portfolio transaction costs.


[c] Following the change in charging structure, you may see variances between thecomparative and current year figures.




Financial statementsStatement of total return

2020 2019for the year to 30 April Note £'000 £'000 £'000 £'000IncomeNet capital gains / (losses) 3 (2,378) (3,347)Revenue 5 1,601 1,505

Expenses 6 (425) (623)

Net revenue / (expense) before taxation 1,176 882Taxation 7 (195) (136)

Net revenue / (expense) after taxation 981 746

Total return before distributions (1,397) (2,601)Distributions 8 (999) (749)

Change in net assets attributable to shareholders from investment activities (2,396) (3,350)

Statement of change in net assets attributable to shareholders2020 2019

for the year to 30 April £'000 £'000 £'000 £'000

Opening net assets attributable to shareholders 97,276 93,593Amounts received on issue of shares 1,558 24,335Amounts paid on cancellation of shares (15,770) (18,052)

(14,212) 6,283Dilution adjustments 2 12Change in net assets attributable to shareholders from investment activities (see above) (2,396) (3,350)Retained distributions on Accumulation shares 924 738

Closing net assets attributable to shareholders 81,594 97,276




2020 2019as at 30 April Note £'000 £'000

Assets

Fixed assetsInvestments 80,482 93,921

Current assetsDebtors 9 757 312Cash and bank balances 10 5,221 6,506

Total assets 86,460 100,739Liabilities

Investment liabilities (1,362) (2,153)

CreditorsOverdrawn positions at futures clearing houses and collateral manager (1,258) (1,168)Other creditors 11 (2,246) (142)

Total liabilities (4,866) (3,463)

Net assets attributable to shareholders 81,594 97,276



Financial statements (continued)Balance sheet


Notes to the financial statements

1 Accounting policies

The financial statements have been prepared in accordance withthe ‘Summary of significant accounting policies’ set out onpages 6 and 7.

2 Distribution policy

In determining the amount available for distribution to Incomeshares, the annual charge, annual management charge andadministration charge are offset against capital, increasing theamount available for distribution whilst restraining capitalperformance to an equivalent extent.


3 Net capital gains / (losses)

2020 2019for the year to 30 April £'000 £'000Non-derivative securities [a] (256) (810)Derivative contracts [a] (2,168) (2,448)Currency gains / (losses) [a] 31 (99)Management charge rebates taken to capital 14 15Administration charge rebates taken to capital 1 2Transaction charges (2) (7)Rebate of ongoing charges from underlying funds taken to capital 2 0

Net capital gains / (losses) (2,378) (3,347)

[a] Comprises realised losses of £1,449,000 and unrealised losses of£944,000 (2019: realised losses of £2,166,000 and unrealised losses of£1,191,000). Certain realised gains and losses in the current year were unrealisedin the prior year.

4 Portfolio transactions and associated costs

The following tables show portfolio transactions and theirassociated transaction costs. For more information about thenature of the costs please see the section on ‘Operating chargesand portfolio transaction costs’ on pages 39 and 40.

for the year to 30 April2020£'000

% oftransaction

2019£'000

% oftransaction

a) PurchasesEquitiesEquities before transaction costs 9,649 4,945Commissions 2 0.02 2 0.03Taxes 6 0.06 10 0.19


Debt securities [a] 162,504 207,077

Collective investment schemesCollective investment schemes beforetransaction costs 9,307 8,319Commissions 1 0.01 2 0.03


Total purchases after transactioncosts 181,469 220,355

b) SalesEquitiesEquities before transaction costs 11,469 3,235Commissions (3) 0.03 (1) 0.03Taxes (2) 0.02 (0) 0.00


Debt securities [a] 173,741 199,368

Collective investment schemesCollective investment schemes beforetransaction costs 10,017 8,664Commissions (3) 0.02 (2) 0.03


Total sales after transaction costs 195,219 211,264

c) Direct portfolio transaction costs2020£'000

% ofaverage NAV

2019£'000

% ofaverage NAV

Commissions paidEquities 5 0.01 3 0.00Collective investment schemes 4 0.01 4 0.01Derivatives 3 0.00 10 0.01

Total commissions paid 12 0.02 17 0.02

Taxes paidEquities 8 0.01 10 0.01Derivatives 3 0.00 3 0.00

Total taxes paid 11 0.01 13 0.01

Total direct portfolio transactioncosts [b] 23 0.03 30 0.03

d) Indirect portfolio transaction costs % %Portfolio dealing spread [c] 0.30 0.12

[a] These transaction types do not attract direct portfolio transaction costs.

[b] Costs before dilution adjustments. Please refer to the ‘Financial highlights’section for the effect of dilution adjustments.

[c] Average portfolio dealing spread at the balance sheet date.




Notes to the financial statements5 Revenue

2020 2019for the year to 30 April £'000 £'000Administration charge rebates 1 5Bank interest 12 10Derivative revenue (9) (59)Distributions from collective investment schemes: non-taxable 84 68Distributions from collective investment schemes: taxable 43 102Distributions from collective investment schemes: propertyincome dividends 6 0Dividends from equity investments: non-taxable 311 288Dividends from equity investments: taxable 36 14Interest on debt securities 1,088 1,059Management charge rebates 27 15Rebate of ongoing charges from underlying funds 2 0Stock dividends 0 3

Total revenue 1,601 1,505

6 Expenses2020 2019


Payable to the ACD or associateAnnual charge 273 0Annual management charge [a] [b] 108 443Administration charge [a] [c] 36 148

417 591

Payable to the Depositary or associateDepositary's charge (including VAT) [a] 2 9

Other expensesAudit fee (including VAT) [a] [d] 3 17Dividend charges 0 1Interest payable 1 0Safe custody charge [a] 2 5

6 23

Total expenses 425 623

[a] The segregated charges shown above for annual management, administration,depositary, audit and safe custody are those paid by the fund up to and including31 July 2019. As of 1 August 2019 these charges have been replaced by thesingle annual charge.

[b] This charge excludes management charge rebates received from M&G SecuritiesLimited, or an associate, in relation to the annual management charge of theunderlying collective investment schemes for which M&G Securities Limited, oran associate, acts as Authorised Corporate Director.These rebates have been recognised as either capital or revenue in notes 3 and5 and amount to £14,000 (2019: £15,000) and £27,000 (2019: £15,000).

[c] This charge excludes administration charge rebates received from M&GSecurities Limited, or an associate, in relation to the administration charge of theunderlying collective investment schemes for which M&G Securities Limited, oran associate, acts as Authorised Corporate Director.These rebates have been recognised as either capital or revenue in notes 3 and5 and amount to £1,000 (2019: £2,000) and £1,000 (2019: £5,000).

[d] Audit fees for the financial year ending 2020 were £11,000 (including VAT).

7 Taxation2020 2019


a) Analysis of charge in the yearCorporation tax 160 108Withholding tax 37 39Current double taxation relief (17) (17)Capital gains tax (India) 15 0Prior year adjustment 0 6Deferred tax (note 7c) 0 0

Total taxation 195 136

b) Factors affecting taxation charge for the yearNet revenue / (expense) before taxation 1,176 882

Corporation tax at 20% 235 177Effects of:

Tax on management and administration charge rebates takento capital 4 4Dividends from equity investments: non-taxable (79) (58)Stock dividends not taxable 0 (1)Distributions from collective investment schemes: non-taxable 0 (14)Withholding tax 37 39Total double taxation relief (17) (17)Capital gains tax (India) 15 0Prior year adjustment 0 6

Total tax charge (note 7a) 195 136

c) Provision for deferred taxationProvision at the start of the year 0 0Deferred tax in profit and loss account (note 7a) 0 0

Provision at the end of the year 0 0

The fund has not recognised a deferred tax asset in the current financial year(2019: same).

8 Distributions

2020 2019for the year to 30 April Inc [a] Acc [b] Inc [a] Acc [b]

Dividend distributions £'000 £'000 £'000 £'000Final 0 [c] 924 n/a 738

Total net distributions 924 738Income deducted on cancellation ofshares 82 78Income received on issue of shares (7) (67)

Distributions 999 749

Net revenue / (expense) per statement oftotal return 981 746Sharing of relief between classes 3 3Capital gains tax offset against capital 15 0

Distributions 999 749

[a] Distributions payable on Income shares.

[b] Retained distributions on Accumulation shares.

[c] Distribution is less than £1,000.




Notes to the financial statements9 Debtors

2020 2019as at 30 April £'000 £'000Amounts receivable on issues of shares 0 25Debt security interest receivable 196 246Derivative revenue receivable 19 0Dividends receivable 18 35Futures interest receivable 3 0Management charge rebates due 2 2Sales awaiting settlement 507 0Withholding tax recoverable 5 4Other debtors 7 0

Total debtors 757 312

10 Cash and bank balances2020 2019

as at 30 April £'000 £'000Amounts held at futures clearing houses and collateral manager 1,767 2,278Cash held as bank balances 3,454 4,228

Total cash and bank balances 5,221 6,506

11 Other creditors2020 2019

as at 30 April £'000 £'000ACD's annual management charge payable 0 26Administration charge payable 0 9Amounts payable on cancellation of shares 59 0Annual charge payable 9 0Corporation tax payable 143 91Derivative expense payable 0 8Expenses payable 2 8Purchases awaiting settlement 2,033 0

Total other creditors 2,246 142

12 Contingent assets, liabilities and outstandingcommitments

There were no contingent assets, liabilities or outstandingcommitments at the balance sheet date (2019: same).

13 Shares in issue

The following table shows each class of share in issue during theyear. Each share class has the same rights on winding up howeverthey may have different charging structures as set out in note 14.

Opening Movements ClosingShare class 01.05.19 Issued Cancelled 30.04.20

EuroClass 'Z-H' Accumulation 3,005 0 0 3,005

SterlingClass 'A' Accumulation 1,352,631 168,243 (605,435) 915,439Class 'I' Accumulation 39,365,709 1,348,062 (14,701,777) 26,011,994Class 'L' Accumulation 53,430,292 0 (241,603) 53,188,689Class 'PP' Income 0 20,000 0 20,000Class 'PP' Accumulation 20,000 0 0 20,000

14 Charging structure

The table below sets out the charging structure for each class ofshare. The charging structure is the same for both Income andAccumulation shares of each class.

Share class

Entrycharge

%

Exitcharge

%

Annualcharge [a]

%

EuroClass 'Z-H' n/a n/a 0.00

SterlingClass 'A' n/a n/a 0.85Class 'I' n/a n/a 0.65Class 'L' n/a n/a 0.55Class 'PP' n/a n/a 0.55

[a] The amounts shown are the maximum annual charge. M&G will apply a discountof 0.02% for every £1 billion of a fund’s net asset value. This is assessed quarterlyand implemented on a forward basis no later than 13 business days after quarterend.

15 Related parties

M&G Securities Limited, as Authorised Corporate Director (ACD),is a related party and acts as principal on all the transactions ofshares in the fund except with in specie transactions, where M&GSecurities Limited acts as an agent. The aggregate moniesreceived through issues, and paid on cancellations, are disclosedin the ‘Statement of change in net assets attributable toshareholders’ and note 8. Amounts due to / from M&G SecuritiesLimited in respect of share transactions at the year end aredisclosed in notes 9 and 11 where applicable.

Amounts paid to M&G Securities Limited in respect of the annualcharge, ACD’s annual management charge and administrationcharge are disclosed in note 6. Amounts due at the year end inrespect of the annual charge are disclosed in note 11.

Amounts paid to M&G Securities Limited in respect of rebatearrangements for the ACD’s annual management charge andadministration charge are disclosed in notes 3 and 5. Amountsdue at the year end from the ACD, and/or associate, in respect ofthese rebates are disclosed in note 9.

During the year, there were transactions with related parties ofM&G Securities Limited with a total value of £9,879,000 (2019:£297,000).

At the balance sheet date, the fund held shares in related partiesof M&G Securities Limited with a value of £7,602,000 (2019:£4,061,000).

At the balance sheet date, shareholders from within M&G plc, ofwhich M&G Securities Limited is a wholly owned subsidiary, haveholdings totalling 12.48% (2019: 13.92%) of the fund’s shares.

16 Events after the balance sheet date

There were no events after the balance sheet date to disclose.

17 Fair value analysis

Financial instruments have been measured at their fair value andhave been classified below using a hierarchy that reflects thesignificance of the inputs used in measuring their fair value:




Notes to the financial statements17 Fair value analysis (continued)

Level 1: Unadjusted quoted price in an active market for anidentical instrument

This includes instruments such as publicly traded equities, highlyliquid bonds (e.g. Government bonds) and exchange tradedderivatives (e.g. futures) for which quoted prices are readily andregularly available.

Level 2: Valuation technique using observable market data

This includes instruments such as over-the-counter (OTC)derivatives, debt securities, convertible bonds, mortgage-backedsecurities, asset-backed securities and open-ended funds whichhave been valued using models with observable market datainputs.

Level 3: Valuation technique using unobservable inputs

This refers to instruments which have been valued using modelswith unobservable data inputs. This includes single broker-pricedinstruments, suspended/unquoted securities, private equity,unlisted closed-ended funds and open-ended funds withrestrictions on redemption rights. However no such financialinstruments were held. However no such financial instrumentswere held.

as at 30 AprilAssets

2020Liabilities

2020Assets

2019Liabilities

2019Basis of valuation £'000 £'000 £'000 £'000Level 1 39,215 (127) 80,645 (171)Level 2 41,267 (1,235) 13,276 (1,982)Level 3 0 0 0 0

80,482 (1,362) 93,921 (2,153)

In accordance with FRS 102 (22.4a) the shares in issue for eachclass meet the definition of a puttable instrument as theshareholders have the right to sell the shares back to the issuer.The shares in the fund may be issued and redeemed on anybusiness day at the quoted price. These shares are not traded onan exchange. However, the price is observable and transactionswithin the fund take place regularly at that price. The shares inissue as detailed in note 13 meet the definition of a level 2financial instrument ‘Valuation techniques using observablemarket data’.

18 Risk management policies

The general risk management policies for the fund are set out innote 3 to the financial statements on pages 7 to 9.

19 Market risk sensitivity and exposure

VaR is the risk measurement methodology used to assess thefund’s leverage and market risk volatility. When VaR is calculatedas a percentage of the net asset value it may not be greater thanthe VaR limit set for the fund.

The VaR limit set during the financial year to 30 April 2020 was6% (2019: 6%).

The lowest, highest and average VaR, as well as utilisation of VaRwith reference to the limit above, are calculated during thefinancial years ended 30 April 2020 and 30 April 2019.

2020

2020Utilisation

of VaR [a] 2019

2019Utilisation

of VaR [a]

for the year to 30 April % of VaR 6% % of VaR 6%Lowest 1.05 17.50 1.28 21.41Highest 7.84 [b] 130.67 2.81 46.87Average 3.17 52.76 2.06 34.38

[a] The VaR on the fund has been divided by its maximum limit.

[b] Due to market volatility caused by the COVID-19 pandemic there was a passivebreach of the internally set M&G Global Target Return Fund upper VaR limit. Therecent volatility has been more abrupt than the 2008-09 crisis on which theselimits were initially modelled. This limit is under frequent review. The fundremains below the regulatory upper VaR limit and is being monitored withincreased oversight.

20 Credit risk

The fund is exposed to credit risk both through the credit qualityof the investments it holds and through the derivative positionswith counterparties. The table below shows the credit quality ofthe investments held in the portfolio.

2020 2019as at 30 April £'000 £'000Investment grade securities 56,395 70,378Below investment grade securities 5,080 5,071Unrated securities 4,525 578Other investments 13,120 15,741

Total 79,120 91,768

The tables below show the exposure to counterparties. Collateralis posted daily, in the form of cash or high-quality governmentbonds, to minimise this exposure.

Swaps

Forwardcurrency

contracts Futuresas at 30 April 2020 £'000 £'000 £'000Bank of America Merrill Lynch 0 0 150Barclays Bank 0 (271) 0Citigroup 50 (30) 0JPMorgan (405) 324 0State Street Bank 0 (21) 0UBS 0 (74) 0

Total (355) (72) 150

Swaps

Forwardcurrency

contracts Futuresas at 30 April 2019 £'000 £'000 £'000Bank of America Merrill Lynch 0 0 (6)Barclays Bank 117 13 0Citigroup (1,169) 19 0Goldman Sachs (393) 0 0Royal Bank of Scotland 0 3 0State Street Bank 0 363 0UBS (141) (7) 0

Total (1,586) 391 (6)

Net exposure represents the mark-to-market value of derivativecontracts less any cash collateral held. Positive exposurerepresents the fund’s exposure to that counterparty. Negativeamounts are not an exposure to the fund.




Notes to the financial statements21 Leverage risk

Funds using VaR approaches are required to disclose the level ofleverage employed during the financial reporting period.

Derivatives can be used by the fund to generate market exposureto investments exceeding the net asset value. As a result of thisexposure, the size of any positive or negative movement inmarkets may have a more significant effect on the net asset valueof the fund.

The lowest, highest and average level of leverage employed andutilisation of the leverage level calculated during the financialyears ended 30 April 2020 and 30 April 2019 are disclosed in thetable below.

2020 [a] 2020 [a] 2019 [a] 2019 [a]

for the year to 30 April £'000 % [b] £'000 % [b]

Lowest 95,999 113.33 182,655 191.00Highest 284,006 310.63 415,688 371.00Average 161,037 179.84 239,672 241.00

[a] Leverage has been calculated using the Gross Sum of Notional Approach forderivative positions only (including forward currency contracts) and excludes allphysical holdings.

[b] Expressed as a percentage over fund valuation.

22 Exchange rate risk for hedged share classes

This fund contains hedged share classes. These share classesoperate currency hedges designed to reduce the impact ofexchange rates in certain circumstances. As a result, profit andloss on the currency hedges may impact the liquidity of the overallfund. On a day to day basis this is monitored using reporting fromthe outsourced provider of the hedged share class service. On anongoing basis the size of the hedged share classes is monitored toensure that unforeseen exchange rate volatility can beadequately managed without significantly impacting allshareholders. The exposure to forward currency contracts forshare class hedging at the year-end accounting date is disclosedin the portfolio statement on page 38.

23 Dividend distribution tables

This fund pays annual ordinary distributions and the followingtable sets out the distribution period.

Annual distribution periodStart End Xd Payment

Final 01.05.19 30.04.20 01.05.20 30.06.20

The following tables set out for each distribution the rates pershare for both Group 1 and Group 2 shares.

Group 1 shares are those purchased prior to a distribution periodand therefore their income rate is the same as the distributionrate.

Group 2 shares are those purchased during a distribution periodand therefore their distribution rate is made up of income andequalisation. Equalisation is the average amount of incomeincluded in the purchase price of all Group 2 shares and is

refunded to the holders of these shares as a return of capital.Being capital it is not liable to Income Tax. Instead, it must bededucted from the cost of shares for Capital Gains Tax purposes.The tables below show the split of the Group 2 rates into theincome and equalisation components.

Euro Class 'Z-H' Accumulation sharesOrdinary distributions Group 2 Group 1 & 2for the year Income Equalisation Distributionto 30 April 2020 2020 2020 2019

Euro ¢ Euro ¢ Euro ¢ Euro ¢Final 13.8386 0.0000 13.8386 10.7574

Sterling Class 'A' Accumulation sharesOrdinary distributions Group 2 Group 1 & 2for the year Income Equalisation Distributionto 30 April 2020 2020 2020 2019

UK p UK p UK p UK pFinal 0.3845 0.4367 0.8212 0.5755

Sterling Class 'I' Accumulation sharesOrdinary distributions Group 2 Group 1 & 2for the year Income Equalisation Distributionto 30 April 2020 2020 2020 2019


Sterling Class 'L' Accumulation sharesOrdinary distributions Group 2 Group 1 & 2for the year Income Equalisation Distributionto 30 April 2020 2020 2020 2019


Sterling Class 'PP' Income sharesOrdinary distributions Group 2 Group 1 & 2for the year Income Equalisation Distributionto 30 April 2020 2020 2020 2019

UK p UK p UK p UK pFinal 1.4581 0.0000 1.4581 n/a

Sterling Class 'PP' Accumulation sharesOrdinary distributions Group 2 Group 1 & 2for the year Income Equalisation Distributionto 30 April 2020 2020 2020 2019





Alternative Investment Fund ManagersDirective (AIFMD)In accordance with the AIFMD we are required to report toinvestors on the ‘leverage’ of the funds and any ‘specialarrangements’ that exist in relation to each fund’s assets.

Value assessmentFrom 31 July 2020, we will be publishing an annual valueassessment delivered to investors in this fund, including anassessment of our charges and services, and how we compare toour competitors. This will be available at https://www.mandg.co.uk/investor/fund-prices-performance/annual-value-assessment/.

LeverageUnder AIFMD, leverage is defined as any method by which eachfund increases its exposure through borrowing or the use ofderivatives. This exposure must be calculated in two ways, the‘gross method’ and the ‘commitment method’. The fund must notexceed maximum exposures under both methods.

‘Gross method’ is calculated as the sum of all positions of the fund(both positive and negative), that is, all eligible assets, liabilitiesand derivatives, including derivatives held for risk reductionpurposes.

‘Commitment method’ exposure is also calculated as the sum ofall positions of the fund (both positive and negative), but afternetting off derivative and security positions as specified byAIFMD rules.

Therefore as at 30 April 2020 the total amount of leverage is asfollows:

Gross method:M&G Episode Income Fund 62.63%M&GGlobal Target Return Fund 186.43%

Commitment method:M&G Episode Income Fund 0.16%M&GGlobal Target Return Fund 59.58%

Special arrangementsA ‘Special Arrangement’ is an arrangement in relation to fundassets that results in an investor or group of investors receivingdifferent redemption rights to those generally available toinvestors in a given share class.

The funds had no assets subject to special arrangements for theperiod ending 30 April 2020.

RemunerationIn line with the requirements of the Alternative Investment FundManagers Directive (“AIFMD”), M&G Securities Limited (the“AIFM”) is subject to a remuneration policy which is consistentwith the principles outlined in the European Securities andMarkets Authority guidelines on sound remuneration policiesunder the AIFMD.

The remuneration policy is designed to ensure that any relevantconflicts of interest can be managed appropriately at all timesand that the remuneration of employees is in line with the riskpolicies and objectives of the alternative investment fundsmanaged by the AIFM. Further details of the remuneration policycan be found here: https://www.mandg.com/about-us/policies-and-business-principles. The remuneration policy and itsimplementation is reviewed on an annual basis, or morefrequently where required, and is approved by the M&G plc BoardRemuneration Committee.

The AIFM is required under the AIFMD to make quantitativedisclosures of remuneration. These disclosures are made in linewith M&G’s interpretation of currently available guidance onquantitative remuneration disclosures. As market or regulatoryguidance evolves, M&G may consider it appropriate to makechanges to the way in which quantitative disclosures arecalculated. Members of staff and senior management typicallyprovide both AIFMD and non-AIFMD related services and have anumber of areas of responsibility. Therefore, only the portion ofremuneration for those individuals’ services which may beattributable to the AIFM is included in the remuneration figuresdisclosed. Accordingly the figures are not representative of anyindividual’s actual remuneration.

M&G Securities Limited does not directly employ any staffmembers. However, for the financial year ended 31 December2019, aggregate remuneration of £2,263,768 (£496,699 inrespect of fixed remuneration and £1,767,069 in respect ofvariable remuneration) was paid to individuals whose actionsmay have a material impact on the risk profile of the AIFM, ofwhich £55,360 related to senior management.


Other regulatory disclosures


Accumulation shares: A type of share where distributions areautomatically reinvested and reflected in the value of the shares.

Accumulation units: A type of unit where distributions are automaticallyreinvested and reflected in the value of the units.

Asset: Anything having commercial or exchange value that is owned by abusiness, institution or individual.

Asset allocation: Apportioning a portfolio’s assets according to risktolerance and investment goals.

Asset class: Category of assets, such as cash, company shares, fixedincome securities and their sub-categories, as well as tangible assets suchas real estate.

Bond: A loan in the form of a security, usually issued by a government orcompany, which normally pays a fixed rate of interest over a given timeperiod, at the end of which the initial amount borrowed is repaid.

Bond issue: A set of fixed income securities offered for sale to the publicby a company or government. If the bonds are sold for the first time, it iscalled a ‘new issue’.

Bottom-up selection: Selecting stocks based on the attractiveness of acompany.

Bunds: Fixed income securities issued by the German government.

Capital: Refers to the financial assets, or resources, that a company has tofund its business operations.

Capital growth: Occurs when the current value of an investment isgreater than the initial amount invested.

Capital return: The term for the gain or loss derived from an investmentover a particular period. Capital return includes capital gain or loss onlyand excludes income (in the form of interest or dividend payments).

Cash equivalents: Deposits or investments with similar characteristics tocash.

Charity Authorised Investment Fund (CAIF) : An investment entitythat is both a registered charity and an authorised investment fund. TheCAIF must comply with charity law as well as financial services laws andregulations, and is usually treated as a registered charity for tax purposes.

Comparative sector: A group of funds with similar investment objectivesand/or types of investment, as classified by bodies such as the InvestmentAssociation (IA) or Morningstar™. Sector definitions are mostly based onthe main assets a fund should invest in, and may also have a geographicfocus. Sectors can be the basis for comparing the different characteristicsof similar funds, such as their performance or charging structure.

Consumer Prices Index (CPI): An index used to measure inflation, whichis the rate of change in prices for a basket of goods and services. Thecontents of the basket are meant to be representative of products andservices we typically spend our money on.

Convertible bonds: Fixed income securities that can be exchanged forpredetermined amounts of company shares at certain times during theirlife.

Corporate bonds: Fixed income securities issued by a company. They arealso known as bonds and can offer higher interest payments than bondsissued by governments as they are often considered more risky.

Coupon: The interest paid by the government or company that has raiseda loan by selling bonds.

Credit: The borrowing capacity of an individual, company or government.More narrowly, the term is often used as a synonym for fixed incomesecurities issued by companies.

Credit default swaps (CDS): Are a type of derivative, namely financialinstruments whose value, and price, are dependent on one or moreunderlying assets. CDS are insurance-like contracts that allow investors totransfer the risk of a fixed income security defaulting to another investor.

Credit rating: An independent assessment of a borrower’s ability to repayits debts. A high rating indicates that the credit rating agency considersthe issuer to be at low risk of default; likewise, a low rating indicates highrisk of default. Standard & Poor’s, Fitch and Moody’s are the three mostprominent credit rating agencies. Default means that a company orgovernment is unable to meet interest payments or repay the initialinvestment amount at the end of a security’s life.

Credit rating agency: A company that analyses the financial strength ofissuers of fixed income securities and attaches a rating to their debt.Examples include Standard & Poor’s and Moody’s.

Credit risk: Risk that a financial obligation will not be paid and a loss willresult for the lender.

Credit selection: The process of evaluating a fixed income security, alsocalled a bond, in order to ascertain the ability of the borrower to meet itsdebt obligations. This research seeks to identify the appropriate level ofdefault risk associated with investing in that particular bond.

Credit spread: The difference between the yield of a corporate bond, afixed income security issued by a company, and a government bond of thesame life span. Yield refers to the income received from an investment andis expressed as a percentage of the investment’s current market value.

Default: When a borrower does not maintain interest payments or repaythe amount borrowed when due.

Default risk: Risk that a debtholder will not receive interest and fullrepayment of the loan when due.

Derivatives: Financial instruments whose value, and price, are dependenton one or more underlying assets. Derivatives can be used to gainexposure to, or to help protect against, expected changes in the value ofthe underlying investments. Derivatives may be traded on a regulatedexchange or traded over the counter.

Developed economy/market: Well-established economies with a highdegree of industrialisation, standard of living and security.

Dilution adjustments: The dilution adjustment is used to protectongoing investors against the transaction charges incurred in investing ordivesting in respect of creations and cancellations. The dilutionadjustment is made up of the direct and indirect transaction charges. Inthe financial statements the direct transaction charges as a percentage ofaverage NAV will be disclosed. This percentage will take account of thosedirect transaction charges that have been recovered through the dilutionadjustment leaving a percentage that just represents the costs incurred inportfolio management.

Distribution: Distributions represent a share in the income of the fundand are paid out to Income shareholders or reinvested for Accumulationshareholders at set times of the year (monthly, quarterly, half-yearly orannually). They may either be in the form of interest distributions ordividend distributions.

Distribution yield: Expresses the amount that is expected to bedistributed by the fund over the next 12 months as a percentage of theshare price as at a certain date. It is based on the expected gross incomeless the ongoing charges.

Diversification: The practice of investing in a variety of assets. This is arisk management technique where, in a well-diversified portfolio, any lossfrom an individual holding should be offset by gains in other holdings,thereby lessening the impact on the overall portfolio.

Glossary


Dividend: Dividends represent a share in the profits of a company and arepaid out to the company’s shareholders at set times of the year.

Duration: A measure of the sensitivity of a fixed income security, alsocalled a bond, or bond fund to changes in interest rates. The longer a bondor bond fund’s duration, the more sensitive it is to interest ratemovements.

Duration risk: The longer a fixed income security, also called a bond, orbond fund’s duration, the more sensitive and therefore at risk it is tochanges in interest rates.

Emerging economy or market: Economies in the process of rapidgrowth and increasing industrialisation. Investments in emerging marketsare generally considered to be riskier than those in developed markets.

Equities: Shares of ownership in a company.

Exchange traded: Usually refers to investments traded on an exchange,such as company shares on a stock exchange.

Ex-dividend, ex-distribution or XD date: The date on which declareddistributions officially belong to underlying investors.

Exposure: The proportion of a fund invested in a particular share/fixedincome security, sector/region, usually expressed as a percentage of theoverall portfolio.

Fixed income security: A loan in the form of a security, usually issued by agovernment or company, which normally pays a fixed rate of interest overa given time period, at the end of which the initial amount borrowed isrepaid. Also referred to as a bond.

Floating rate notes (FRNs): Securities whose interest (income)payments are periodically adjusted depending on the change in areference interest rate.

Foreign exchange: The exchange of one currency for another, or theconversion of one currency into another currency. Foreign exchange alsorefers to the global market where currencies are traded virtually aroundthe clock. The term foreign exchange is usually abbreviated as ‘forex’ andoccasionally as ‘FX’.

Foreign exchange (FX) strategy: Currencies can be an asset class in itsown right, along with company shares, fixed income securities, propertyand cash. Foreign exchange strategy can therefore be a source ofinvestment returns.

Forward contract: A contract between two parties to buy or sell aparticular commodity or financial instrument at a pre-determined price ata future date. Examples include forward currency contracts.

Fundamentals (company): A basic principle, rule, law, or the like, thatserves as the groundwork of a system. A company’s fundamentals pertainspecifically to that company, and are factors such as its business model,earnings, balance sheet and debt.

Fundamentals (economic): A basic principle, rule, law, or the like, thatserves as the groundwork of a system. Economic fundamentals are factorssuch as inflation, employment, economic growth.

Futures: A futures contract is a contract between two parties to buy or sella particular commodity or financial instrument at a predetermined priceat a future date. Futures are traded on a regulated exchange.

Gilts: Fixed income securities issued by the UK government.

Government bonds: Fixed income securities issued by governments, thatnormally pay a fixed rate of interest over a given time period, at the end ofwhich the initial investment is repaid.

Hedging: A method of reducing unnecessary or unintended risk.

High water mark (HWM): The highest level that a fund’s NAV (net assetvalue) has reached at the end of any 12-month accounting period.

High yield bonds: Fixed income securities issued by companies with a lowcredit rating from a recognised credit rating agency. They are consideredto be at higher risk of default than better quality, ie higher-rated fixedincome securities but have the potential for higher rewards. Defaultmeans that a company or government is unable to meet interestpayments or repay the initial investment amount at the end of a security’slife.

Historic yield: The historic yield reflects distributions declared over thepast 12 months as a percentage of the share price, as at the date shown.

Income yield: Refers to the income received from an investment and isusually expressed annually as a percentage based on the investment’scost, its current market value or face value.

Index: An index represents a particular market or a portion of it, serving asa performance indicator for that market.

Income shares: A type of share where distributions are paid out as cashon the payment date.

Income units: A type of unit where distributions are paid out as cash onthe payment date.

Index tracking: A fund management strategy that aims to match thereturns from a particular index.

Index-linked bonds: Fixed income securities where both the value of theloan and the interest payments are adjusted in line with inflation over thelife of the security. Also referred to as inflation-linked bonds.

Inflation: The rate of increase in the cost of living. Inflation is usuallyquoted as an annual percentage, comparing the average price this monthwith the same month a year earlier.

Inflation risk: The risk that inflation will reduce the return of aninvestment in real terms.

Initial public offering (IPO): The first sale of shares by a privatecompany to the public.

Interest rate risk: The risk that a fixed income investment will lose value ifinterest rates rise.

Interest rate swap: An agreement between two parties to swap a fixedinterest payment with a variable interest payment over a specified periodof time.

Investment Association (IA): The UK trade body that represents fundmanagers. It works with investment managers, liaising with governmenton matters of taxation and regulation, and also aims to help investorsunderstand the industry and the investment options available to them.

Issuer: An entity that sells securities, such as fixed income securities andcompany shares.

Investment grade bonds: Fixed income securities issued by a companywith a medium or high credit rating from a recognised credit ratingagency. They are considered to be at lower risk from default than thoseissued by companies with lower credit ratings. Default means that acompany or government is unable to meet interest payments or repay theinitial investment amount at the end of a security’s life.

Issuer: An entity that sells securities, such as fixed income securities andcompany shares.

Leverage: When referring to a company, leverage is the level of acompany’s debt in relation to its assets. A company with significantlymore debt than capital is considered to be leveraged. It can also refer to afund that borrows money or uses derivatives to magnify an investmentposition.

Liquidity: A company is considered highly liquid if it has plenty of cash atits disposal. A company’s shares are considered highly liquid if they can beeasily bought or sold since large amounts are regularly traded.

Glossary


Long position: Refers to ownership of a security held in the expectationthat the security will rise in value.

Macroeconomic: Refers to the performance and behaviour of aneconomy at the regional or national level. Macroeconomic factors such aseconomic output, unemployment, inflation and investment are keyindicators of economic performance. Sometimes abbreviated to ‘macro’.

Maturity: The length of time until the initial investment amount of afixed income security is due to be repaid to the holder of the security.

Modified duration: A measure of the sensitivity of a fixed incomesecurity, called a bond, or bond fund to changes in interest rates. Thelonger a bond or bond fund’s duration, the more sensitive it is to interestrate movements.

Monetary easing: When central banks lower interest rates or buysecurities on the open market to increase the money in circulation.

Monetary policy: A central bank’s regulation of money in circulation andinterest rates.

Monetary tightening: When central banks raise interest rates or sellsecurities on the open market to decrease the money in circulation.

Morningstar™: A provider of independent investment research, includingperformance statistics and independent fund ratings.

Near cash: Deposits or investments with similar characteristics to cash.

Net asset value (NAV): A fund’s net asset value is calculated by takingthe current value of the fund’s assets and subtracting its liabilities.

Ongoing Charge Figure: The Ongoing Charge Figure includes charges forthe following items: management of the fund (also known as AnnualManagement Charge), administration services, services provided byexternal parties which include depository, custody and audit, as well asincorporating the ongoing charge figure from funds held in the portfolio(taking into account any rebates).

Open-ended investment company (OEIC): A type of managed fund,whose value is directly linked to the value of the fund’s underlyinginvestments.

Options: Financial contracts that offer the right, but not the obligation, tobuy or sell an asset at a given price on or before a given date in the future.

Over-the-counter (OTC): Whereby financial assets are traded directlybetween two parties. This is in contrast to exchange trading, which iscarried out through exchanges set up specifically for the purpose oftrading. OTC is also known as off-exchange trading.

Overweight: If a fund is ‘overweight’ a stock, it holds a larger proportion ofthat stock than the comparable index or sector.

Payment date: The date on which distributions will be paid by the fund toinvestors, usually the last business day of the month.

Physical assets: An item of value that has tangible existence, forexample, cash, equipment, inventory or real estate. Physical assets canalso refer to securities, such as company shares or fixed income securities.

Portfolio transaction cost: The cost of trading, such as brokerage,clearing, exchange fees and bid-offer spread as well as taxes such asstamp duty.

Preference shares: Preference shares are a loan to a company that maybe traded in the same way as ordinary shares, but generally have a higheryield and pay dividends on fixed dates. Preference shares have varyingcharacteristics as to the treatment of the principal and the dividendpayment, which includes ranking them above ordinary shares when itcomes to dividend payments.

Principal: The face value of a fixed income security, which is the amountdue back to the investor by the borrower when the security reaches theend of its life.

Private placement: An offer of sale of securities to a relatively smallnumber of investors selected by the company, generally investment banks,mutual funds, insurance companies or pension funds.

Property Expense Ratio (PER): Property expenses are the operatingexpenses that relate to the management of the property assets in theportfolio. These include: insurance and rates, rent review and leaserenewal costs and maintenance and repairs, but not improvements. Theydepend on the level of activity taking place within the fund. The PropertyExpense Ratio is the ratio of property expenses to the fund’s net assetvalue.

Real yield: The return of an investment, adjusted for changes in prices inan economy.

Retail Prices Index (RPI): A UK inflation index that measures the rate ofchange in prices for a basket of goods and services in the UK, includingmortgage payments and council tax.

Risk: The chance that an investment’s return will be different to what isexpected. Risk includes the possibility of losing some or all of the originalinvestment.

Risk management: The term used to describe the activities the fundmanager undertakes to limit the risk of a loss in a fund.

Risk premium: The difference between the return from a risk-free asset,such as a high-quality government bond or cash, and the return from aninvestment in any other asset. The risk premium can be considered the‘price’ or ‘pay-off’ for taking on increased risk. A higher risk premiumimplies higher risk.

Risk-free asset: An asset that notionally carries no risk of nonpayment bythe borrower such as a high-quality fixed income security issued by agovernment or cash.

Risk/reward ratio: A ratio comparing the expected returns of aninvestment with the amount of risk undertaken.

Safe-haven assets: Refers to assets that investors perceive to be relativelysafe from suffering a loss in times of market turmoil.

Security: Financial term for a paper asset – usually a share in a companyor a fixed income security also known as a bond.

Share class: Each M&G fund has different share classes, such as A, R andI. Each has a different level of charges and minimum investment. Detailson charges and minimum investments can be found in the Key InvestorInformation Documents.

Share class hedging: Activities undertaken in respect of hedged sharesto mitigate the impact on performance of exchange rate movementsbetween the fund’s currency exposure and the investor’s chosen currency.

Short position: A way for a fund manager to express his or her view thatthe market might fall in value.

Short selling: This often refers to the practice whereby an investor sells anasset they do not own. The investor borrows the asset from someone whodoes own it and pays a fee. The investor must eventually return theborrowed asset by buying it in the open market. If the asset has fallen inprice, the investor buys it for less than they sold it for, thus making a profit.The contrary may also occur.

Short-dated corporate bonds: Fixed income securities issued bycompanies and repaid over relatively short periods.

Short-dated government bonds: Fixed income securities issued bygovernments and repaid over relatively short periods.

Sovereign debt: Debt of a government. Also referred to as governmentbonds.

Glossary


Sub-investment grade bonds: Fixed income securities issued by acompany with a low rating from a recognised credit rating agency. Theyare considered to be at higher risk from default than those issued bycompanies with higher credit ratings. Default means that a company orgovernment is unable to meet interest payments or repay the initialinvestment amount at the end of a security’s life.

Top-down investing: An investment approach that analyses economicfactors, ie surveys the ‘big picture’, before selecting which companies toinvest in. The top-down investor will look at which industries are likely togenerate the best returns in certain economic conditions and limit thesearch to that area.

Total return: The term for the gain or loss derived from an investmentover a particular period. Total return includes income (in the form ofinterest or dividend payments) and capital gains.

Treasuries: Fixed income securities issued by the US government.

Triple A or AAA rated: The highest possible rating a fixed incomesecurity, also called a bond, can be assigned by credit rating agencies.Bonds that are rated AAA are perceived to have the lowest risk of default.Default means that a company or government is unable to meet interestpayments or repay the initial investment amount at the end of a security’slife.

UCITS: Stands for Undertakings for Collective Investment in TransferableSecurities. This is the European regulatory framework for an investmentvehicle that can be marketed across the European Union and is designedto enhance the single market in financial assets while maintaining highlevels of investor protection.

Unconstrained: The term used to describe the mandate of a fundwhereby the manager has the freedom to invest according to his or herown strategy, not being obliged to allocate capital according to theweightings of any index, for example.

Underlying value: The fundamental value of a company, reflecting bothtangible and intangible assets, rather than the current market value.

Underlying yield: Refers to the income received by a managed fund, andis usually expressed annually as a percentage based on the fund’s currentvalue.

Underweight: If a portfolio is ‘underweight’ a stock, it holds a smallerproportion of that stock than the comparable index or sector.

Unit trust: A type of managed fund, whose value is directly linked to thevalue of the fund’s underlying investments.

Unit/share type: Type of units/shares held by investors in a trust or fund(unit/share types differ by features such as whether income is to be paidout as cash or reinvested on the payment date).

Valuation: The worth of an asset or company based on its current price.

Volatile: When the value of a particular share, market or sector swings upand down fairly frequently and/or significantly, it is considered volatile.

Volatility: The degree to which a given security, fund, or index rapidlychanges. It is calculated as the degree of deviation from the norm for thattype of investment over a given time period. The higher the volatility, theriskier the security tends to be.

Warrant: A security issued by a company that gives the holder the right tobuy shares in that company at a specified price and within a certaintimeframe.

Yield: This refers to either the interest received from a fixed incomesecurity or to the dividends received from a share. It is usually expressed asa percentage based on the investment’s costs, its current market value orits face value. Dividends represent a share in the profits of the companyand are paid out to a company’s shareholders at set times of the year.

Yield (equity): Refers to the dividends received by a holder of companyshares and is usually expressed annually as a percentage based on theinvestment’s cost, its current market value or face value. Dividendsrepresent a share in the profits of the company and are paid out to acompany’s shareholders at set times of the year.

Yield (bonds): This refers to the interest received from a fixed incomesecurity and is usually expressed annually as a percentage based on theinvestment’s cost, its current market value or its face value.

Yield (income): Refers to the income received from an investment and isusually expressed annually as a percentage based on the investment’scost, its current market value or face value.

Glossary

Issued by M&G Securities Limited authorised and regulated by the Financial ConductAuthority Registered Office: 10 Fenchurch Avenue, London EC3M 5AG Registered inEngland: No. 90776


59627_CR_300621