M&G European Inflation Linked Corporate Bond Fund

April 2012

Ben Lord, Fund Manager

2

Biography

• Jim Leaviss is Head of Fixed Interest at M&G International

• He joined M&G in 1997 after five years at the Bank of England

• As well as heading up the team, Jim is the fund manager of the M&G

Global Macro Bond fund, the M&G Gilt and Fixed Interest fund, and co-

manager on the M&G Inflation Linked Corporate Bond funds

• Ben Lord joined M&G in 2007 and was appointed fund manager of the

M&G High Interest Fund in February 2009

• Since launch in September 2010, he has also been the co-fund manager

on the M&G UK Inflation Linked Corporate Bond Fund and the M&G

European Inflation Linked Corporate Bond Fund

• Ben previously worked at Gordian Knot as a credit analyst covering

global financial institutions

• He obtained an MA (Hons) from the University of Edinburgh and is a CFA

charterholder

Co-fund managers

3

M&G European Inflation Linked Corporate Bond Fund

Source: M&G Investment Information, as at 30 March 2012

September 2010

Jim Leaviss Co-fund manager

Ben Lord Co-fund manager

Fund size

Sector

Inception

€101.5m

Morningstar EUR

Inflation-Linked Bond

Fund facts

4 Source: M&G, Morningstar as at 31 March 2012. Pan European database, Bid-to-bid, gross income reinvested, Euro A Share class

M&G European Inflation Linked Corporate Bond Fund In

de

xe

d t

o 1

00

=

17

/09

/20

10

Performance since inception in September 2010

94.0

96.0

98.0

100.0

102.0

104.0

106.0

108.0

Chart Title

MSTAR PE EUR Corporate Bond Sector MSTAR EUR Government Bond Sector

M&G European Inflation Linked Corporate Bond Mstar EUR Inflation-Linked Bond Sector

EU Harmonized Indices of Consumer Prices

M&G European Inflation Linked Corporate Bond Fund – performance since inception

5

M&G

• Index-Linked Fixed Income

• M&G European Inflation Linked Corporate Bond Fund

• Fund positioning

Agenda

6

Comparing nominal bonds and index-linked bonds

Nominal bond: yield – inflation = real yield

Today 3% Inflation +1%

Nominal real yield -1% -2%

Linker real yield inflation-0.5% inflation-0.5%

Index-linked bonds remove future inflation uncertainty

2% - 3% = -1%

Index-linked bond: real yield = realised inflation + real yield

Inflation - 0.5%

7

Inflation (CPI) Assumption 3% 4% 5%

Nominal 2015 OAT real yield -2.0% -2.8% -3.8%

Linker 2015 OATi real yield -0.8% -0.8% -0.8%

Veolia 2016 IL corp real yield 1.9% 1.9% 1.9%

Source: M&G as at 31 March 2012

Payoff profiles

8

Long-term, global reasons to consider inflation protection

• Demographics

– Population growth

9

World population

0

1

2

3

4

5

6

7

8

9

10

1950 1975 2000 2025 2050

bn

Source: DB Research, as at. January 2012.

10

Long-term, global reasons to consider inflation protection

• Demographics

– Population growth

– Dependency ratio

11

5

15

25

35

45

55

65

75

1950

1960

1970

1980

1990

2000

2010

2020

2030

2040

2050

U.K U.S

France Germany

Italy Japan

%

Old age dependency ratio

Source: DB Research, as at. 18 January 2012.

12

Long-term, global reasons to consider inflation protection

• Demographics

– Population growth

– Dependency ratio

• Globalisation

13

Long-term, global reasons to consider inflation protection

• Demographics

– Population growth

– Dependency ratio

• Globalisation

• The end of the gold standard

14

Global inflation series re-based to 1 in December 1899 on a log scale

10,000,000,000,000

1,000,000,000,000

100,000,000,000

10,000,000,000

1,000,000,000

100,000,000

10,000,000

1,000,000

100,000

10,000

1,000

100

1

0

0

10

Germany

Italy

France

Japan

Spain

UK

US

Switzerland

1971 1913

Source: Deutsche Bank, GFD , 12 September 2011

15

-2

-1

0

1

2

3

4

5

CPI YoY

Inflationtarget

%

Does the ECB now have an inflationary bias?

Source: Bloomberg, as at 31 December 2011

%

16

Inflation expectations

Source: Bloomberg, as at 31 March 2012

Driven by stronger growth, higher commodity prices,

higher taxes, and QE fears

%

5 year breakeven rates for US, UK and Germany

0.5

1.0

1.5

2.0

2.5

3.0

Feb-11 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12

UK

US

GER

17

M&G

• Index-Linked Fixed Income

• M&G European Inflation Linked Corporate Bond Fund

• Fund positioning

Agenda

18

Fund Objective

Aims to deliver CPI after fees over the medium term

19 Source: Bloomberg, as at 31 March 2012

%

10y IL and conventional yields

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Jun-09 Oct-09 Feb-10 Jun-10 Oct-10 Feb-11 Jun-11 Oct-11 Feb-12

10Y Bund

10Y IL Bund

Conventional and inflation-linked 10y bund yields (%)

20 Source: M&G as at 31 March 2012

Breakevens are exceptionally cheap at the front end

Bond = OBLi 2.25 2013

1.7

2.0

1.0

1.1

1.2

1.3

1.4

1.5

1.6

1.7

1.8

1.9

2.0

2.1

Implied Breakeven Reasonable

Outperformance 0.3

21

2.3%

2.3% 3.7%

5.7%

Spread =

What am I buying when I purchase an inflation-linked

corporate bond?

An inflation-linked corporate bond is a combination

of duration risk and credit risk, plus inflation

Source: Bloomberg, M&G as at 31 March 2012

BT I/L 2025 BBB

PURE INTEREST RATE RISK (Duration)

Risk-free yield =

2024 gilt linker

PURE CREDIT RISK (Spread)

REALISABLE YIELD

= + +

=

Risk-Free + Spread + Realised Inflation =

-0.3%

-0.3%

22

Some issuers of inflation-linked corporate bonds

23

1.5%

CDS + government linker = synthetic inflation linked corp

Synthetic Vivendi linker

Credit default swap (Pure Credit Risk):

Vivendi CDS 5y =

Source: Bloomberg, M&G as at 31 March 2012

Synthetic inflation-linked corporate bonds

Pure interest rate risk (duration):

UKTI gilt 2.5% 2016 “Risk free” yield =

= Risk Free + CDS spread + RPI

= + +

=

1.5%

3.7%

How to create one

-1.8%

-1.8%

3.4%

24

M&G

• Index-Linked Fixed Income

• M&G European Inflation Linked Corporate Bond Fund

• Fund positioning

Agenda

25 Source: Bloomberg, M&G as at 31 March 2012

Overall fund duration: 1.3 year

M&G European Inflation Linked Corporate Bond Fund

Core of fund in index linked credit,

Fund positioning

Asset Allocation (Fund %) Credit Split incl. Derivatives (Fund %)

Synthetic IL Bonds 33.2

Index Linked Government

Bonds 15.9

Index Linked Corporate

bonds 21.5

Fixed 19.9

FRN 8.8

Cash 0.6

15.4

13.8

38.2

23.3

3.6

3.7

0.0

1.3

0.6

AAA

AA

A

BBB

BB

B

CCC & Below

NR

Cash

26

We have been flexible and taken advantage of recent

volatility

Built up cash before summer, and quickly deployed cash

after spreads widened.

Source: Bloomberg, M&G as at 31 March 2012

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

45.00%

50.00%

50

150

250

350

450

550

650

750

850

Dec-10 Feb-11 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12

iTraxx Main (LHS) iTraxx Xover (LHS) M&G UK Inflation Linked Corporate Bond risk free cash level (RHS)

27 Source: M&G as at 31 March 2012

Fund duration Duration positioning since inception in September 2010

Fund duration (LHS) Vs. 5y bund linker and 10y conventional bund (RHS)

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

0.0

1.0

2.0

3.0

4.0

Fund 10y Bund 5y IL Bund

28

Financials sector exposure

Source: M&G as at 31 March 2012

Financials Exposure Feb12 Financials Exposure Dec 11

M&G European Inflation Linked Corporate Bond Fund

ML EMU Corporate index

6.0 4.6

45.1

4.0

Banks Insurers

20.1

5.4

44.7

4.3

Banking Insurance

29

Conclusions

• Long-term demographics and global factors support inflation

• Central banking: risks growing, inflationary bias a fact

• Credit is cheap. A combination of (cheap) inflation protection and

(cheap) credit could be a very wise strategy

30

Appendix

31

Banking exposure

Source: M&G as at 31 March 2012

Capital Structure breakdown Feb 12 Capital Structure breakdown Dec 11

Senior unsecured

4.5

Lower Tier 2

1.5

Senior Unsecured

13.8

Lower Tier 2 6.4

32

Fund facts

Top 15 holdings

Rank Issuer Issue(s) Fund %

1 Bundesrepublik Deutschland Bundesobligat Multiple 22.6

2 United Kingdom Gilt Inflation Linked Multiple 20.7

3 United States Treasury Inflation Indexed Tii 0 5/8 04/15/13 4.1

4 Severn River Crossing Plc Sevriv 6 1/8 06/30/13 3.9

5 Toyota Motor Credit Corp Toyota 2.413 05/30/17 3.7

6 Tesco Plc Tscoln 4 09/08/16 3.0

7 Oresundsbro Konsortiet Orekon 3.4 09/28/14 2.3

8 Jpmorgan Chase Bank Na Jpm 5 3/8 09/28/16 2.2

9 Sweden Government Bond Sgb 3 1/2 12/01/15 #3105 1.7

10 Wells Fargo Bank Na Wfc 5 1/4 08/01/23 1.6

11 Asif Iii Jersey Ltd Aig 5 3/8 10/14/16 1.5

12 Deco Series Deco 2005-uk1x A1 1.4

13 Hannover Finance Luxembourg Sa Hanrue 5 3/4 02/26/24 1.4

14 Royal Bank Of Scotland Plc/the Rbs 6 3/8 04/29/14 1.3

15 Bank Of America Corp Bac 5 1/4 11/09/16 1.0

Source: Bloomberg, M&G as at 31 March 2012

33

Fund facts Top 15 CDS Positions

Source: Bloomberg, M&G as at 31 March 2012

Rank Company Fund %

1 Allianz Finance Ii Bv 2.0

2 Edf Sa 2.0

3 E.on International Finance Bv 2.0

4 Hsbc Bank Plc 1.9

5 Procter and Gamble Co/the 1.7

6 Itrx Xover S16 5 Year 1.5

7 Anheuser-busch Inbev Nv 1.5

8 Imperial Tobacco Finance Plc 1.4

9 US Bancorp 1.3

10 Heineken Nv 1.3

11 Telefonaktiebolaget Lm Ericsson 1.3

12 Vivendi Sa 1.2

13 Baa Funding Ltd 1.1

14 Wesfarmers Ltd 1.1

15 Ppr 1.0

34

0.0%

5.0%

10.0%

15.0%

Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12

30 day VaR @99% Upper Limit Lower Limit

Source: M&G, as at 31 March 2012

Value at Risk Well below 10% upper limit

Value at Risk (VaR)

Daily monitoring of global exposure using VaR with methodology 99% one month with an equally weighted

observation period (history) of 250 business days.

Prices may fluctuate and you may not get back your original investment.

This document is designed for investment professionals’ use only, not for onward distribution to any other person or entity.

For Switzerland: Distribution of this document in or from Switzerland is not permissible with the exception of the distribution to qualified investors according to the Swiss

Collective Investment Schemes Act, the Swiss Collective Investment Schemes Ordinance and the respective Circular issued by the Swiss supervisory authority ("Qualified

Investors"). Supplied for the use by the initial recipient (provided it is a Qualified Investor) only. In Spain the M&G Investment Funds are registered for public distribution under Art.

15 of Act 35/2003 on Collective Investment Schemes as follows: M&G Investment Funds (1) reg. no 390, M&G Investment Funds (2) reg. no 601, M&G Investment Funds (3) reg. no 391,

M&G Investment Funds (5) reg. no 972, M&G Investment Funds (7) reg. no 541, M&G Investment Funds (9) reg. no 930, M&G Global Dividend Fund reg. no 713 M&G Dynamic

Allocation Fund reg. no 843 and M&G Optimal Income Fund reg. no 522. The collective investment schemes referred to in this document (the "Schemes") are open-ended investment

companies with variable capital, incorporated in England and Wales. This information is not an offer or solicitation of an offer for the purchase of investment shares in one of the Funds

referred to herein. Purchases of a Fund should be based on the current prospectus. The prospectus, Key Investor Information Document (KIID), annual report and subsequent semi-

annual report, are available free of charge, in paper form, from the ACD: M&G Securities Limited, Laurence Pountney Hill, London, EC4R 0HH, GB, or one of the following: M&G

International Investments Limited, German branch, Bleidenstraße 6-10, D-60311 Frankfurt am Main, the German paying agent J.P. Morgan AG, Junghofstraße 14, D-60311 Frankfurt am

Main, the Austrian paying agent, Raiffeisen Bank International A.G., Am Stadtpark 9, A-1030 Wien, the Luxembourg paying agent, J.P. Morgan Bank Luxembourg S.A., European Bank &

Business Center, 6 c route de Treves, 2633 Senningerberg, Luxembourg, the Danish paying agent, Nordea Bank Danmark A/S Issuer Services, Securities Services, Hermes Hus,

Helgeshøj Allé 33, Postbox 850, DK-0900, Copenhagen C, Denmark, Allfunds Bank, Calle Estafeta, No 6 Complejo Plaza de la Fuente, La Moraleja 28109, Alcobendas, Madrid, M&G

International Investments Limited, 34 Avenue Matignon, 75008, Paris, France or from the French centralising agent of the Fund: RBC Dexia Investors Services Bank France. For

Switzerland: Please refer to M&G International Investments Ltd., Bleidenstraße 6-10, D-60311 Frankfurt am Main. For Italy, they can also be obtained from one of the appointed paying

agents, details of which can be found by visiting the contact section on the following website: www.mandg-investments.it. Before subscribing you should read the prospectus, which

includes investment risks relating to these funds. This financial promotion is published by M&G International Investments Ltd. Registered Office: Laurence Pountney Hill, London EC4R

0HH, authorised and regulated by the Financial Services Authority and registered with the CNMV in Spain. Past performance is not a guide to future performance. Performance stats

are quoted gross of Italian tax (12.5%) on capital gains.