MG Investment Funds (2) by ijr13051

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									Prospectus.

M&G Investment Funds (2).

   Issued by M&G Securities Limited



           29 August 2007
                                                 Prospectus.
   This document constitutes the Prospectus for M&G                               This Prospectus has been approved for the purpose of section 21(1)
INVESTMENT FUNDS (2) (the ‘Company’) which has been                            of the Financial Services and Markets Act 2000 by M&G Securities
prepared in accordance with the Open-Ended Investment Companies                Limited.
Regulations 2001 and the rules contained in the Collective Investment
Schemes Sourcebook published by the FSA as part of its Handbook of                The Depositary is not a person responsible for the information
Rules and Guidance.                                                            contained in this Prospectus and accordingly does not accept any
                                                                               responsibility therefore under the Regulations or otherwise.
   The Prospectus is dated and is valid as at 29 August 2007.
                                                                                  If you are in any doubt about the contents of this Prospectus you
  Copies of this Prospectus have been sent to the Financial Services           should consult your professional adviser.
Authority and The Royal Bank of Scotland plc as Depositary.

    The Prospectus is based on information, law and practice at the
date hereof but where it refers to any statutory provision or regulation
this includes any modification or re-enactment that has been made.
The Company is not bound by any out of date prospectus when it has
issued a new prospectus and potential investors should check that they
have the most recently published prospectus.

   M&G Securities Limited, the Authorised Corporate Director of
the Company, is the person responsible for the information
contained in this Prospectus. To the best of its knowledge and belief
(having taken all reasonable care to ensure that such is the case) the
information contained herein does not contain any untrue or
misleading statement or omit any matters required by the Regulations
to be included in it. M&G Securities Limited accepts responsibility
accordingly. No person has been authorised by the Company to give
any information or to make any representations in connection with
the offering of Shares other than those contained in the Prospectus
and, if given or made, such information or representations must not
be relied on as having been made by the Company. The delivery of this
Prospectus (whether or not accompanied by any reports) or the issue
of Shares shall not, under any circumstances, create any implication
that the affairs of the Company have not changed since the date
hereof.

   The distribution of this Prospectus and the offering of Shares in
certain jurisdictions may be restricted. Persons into whose possession
this Prospectus comes are required by the Company to inform
themselves about and to observe any such restrictions. This Prospectus
does not constitute an offer or solicitation by anyone in any
jurisdiction in which such offer or solicitation is not authorised or to
any person to whom it is unlawful to make such offer or solicitation.

   Shares in the Company are not listed on any investment exchange.

   Potential investors should not treat the contents of this Prospectus
as advice relating to legal, taxation, investment or any other matters
and are recommended to consult their own professional advisers
concerning the acquisition, holding or disposal of Shares.

   The provisions of the Instrument of Incorporation are binding on
each of its Shareholders (who are taken to have notice of them).




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                                                                                                                                     IF2/290807/ENG/r01
                                                  Contents.
                                              M&G Investment Funds (2).
 Definitions.                                           4       32 Shareholder meetings and voting rights               16
 1   The Company                                        5       33 Taxation                                             16
 2 Company structure                                    5       33.4 Taxation of the investor                           17
 3   Shares                                             5       34 Income equalisation                                  17
 4 Management and administration                        6       35 Winding up of the Company or a
 5   The Depositary                                     7            sub-fund of the Company                            17
 6 The Investment Manager                               7       36 General information                                  18
 7   Administrator and Registrar                        7       37 European Savings Directive                           19
 8 The Auditor                                          7       38 Complaints                                           19
 9 Register of shareholders                             7       39 Marketing outside the UK                             19
 10 Buying, selling and switching shares                7       40 Markets for the Sub-fund                             19
 11 Buying shares                                       8       APPENDIX 1 - DETAILS OF THE SUB-FUNDS OF
 12 Selling shares                                      8       M&G INVESTMENT FUNDS (2)                                20

 13 Switching and converting shares                     8       APPENDIX 2 - INVESTMENT MANAGEMENT AND
 14 Dealing charges                                     9       BORROWING POWERS OF THE COMPANY                         25

 15 Other dealing information                          10       APPENDIX 3 - ELIGIBLE SECURITIES AND DERIVATIVES
                                                                MARKETS                                                 29
 16 Stamp Duty Reserve Tax (‘SDRT’)                    10
 17 Money laundering                                   11       APPENDIX 4 - INFORMATION FOR NON-UK INVESTORS           30
 18 Restrictions on dealing                            11       APPENDIX 5 - PERFORMANCE BAR CHARTS                      31
 19 Suspension of dealings in the Company              11       APPENDIX 5a - EURO PERFORMANCE BAR CHARTS               33
 20 Governing law                                      11       Directory.                                             34
 21 Valuation of the Company                           11
 22 Calculation of the net asset value                 11
 23 Price per share in each sub-fund
      and each class                                   12
 24 Pricing basis                                      12
 25 Publication of prices                              12
 26 Risk factors                                       13
 27 Fees and expenses                                  14
 28 Charges payable to the ACD                         14
 29 Investment Manager’s fees                          15
 30 Depositary’s fee, charges and expenses             15
 31 Allocation of fees and expenses
      between sub-funds                                16


             Customer Helpline: 0800 390 390
Non-UK investors should refer to Appendix 4



                                                            3
                                                                                                             IF2/290807/ENG/r01
                                                  Definitions.
Accumulation Share: a share in the Company in respect of which                   scheme property: the property of the Company to be given to the
income allocated thereto is credited periodically to capital pursuant to         Depositary for safekeeping, as required by the Regulations;
the Regulations;
                                                                                 Share or Shares: a share or shares in the Company (including larger
ACD: M&G Securities Limited, the Authorised Corporate Director of                denomination Shares and fractions), or where appropriate a share or
the Company;                                                                     shares in any other M&G OEIC;
ACD Agreement: The agreement to be entered into between the                      Shareholder: a holder of registered or bearer shares in the Company;
Company and the ACD authorising the ACD to manage the affairs of the
Company;                                                                         Sub-fund or sub-fund: a sub-fund of the Company (bearing part of the
                                                                                 scheme property of the Company which is pooled separately) and to
Class or Classes: in relation to Shares, means (according to the context)        which specific assets and liabilities of the Company may be allocated and
all of the Shares related to a single sub-fund or a particular class or          which is invested in accordance with the investment objective applicable
classes of Share related to a single sub-fund;                                   to that sub-fund;
COLL: refers to the appropriate chapter or rule in the Collective                switch: the exchange of Shares of one Class or sub-fund for Shares of
Investment Schemes Sourcebook issued by the FSA as amended or re-                another Class or sub-fund of any M&G OEIC.
enacted from time to time;
Client Account: A bank account held by us in accordance with the FSA
Handbook of Rules and Guidance;
Company: M&G Investment Funds (2);
Dealing Day: Monday to Friday except for bank holidays in England and
Wales and other days at the ACD’s discretion;
Depositary: The Royal Bank of Scotland plc, the depositary of the
Company;
fraction: a smaller denomination share (on the basis that one thousand
smaller denomination shares make one larger denomination share);
FSA: the Financial Services Authority;
Income Share: a share in the Company in respect of which income
allocated thereto is distributed periodically to the holders thereof
pursuant to the Regulations;
Instrument of Incorporation: the instrument of incorporation of the
Company as amended from time to time;
Investment Manager: one or more of the companies appointed as the
investment manager by the ACD shown in section 6, as the context may
require;
ISA: an individual savings account established under The Individual
Savings Account Regulations 1998;
M&G OEIC: M&G Investment Funds (1), M&G Investment Funds (2),
M&G Investment Funds (3), M&G Investment Funds (4), M&G
Investment Funds (5), M&G Investment Funds (6) or any other open-
ended investment company with variable capital incorporated in
England and Wales and managed by the ACD;
Member State: those countries which are members of the European
Union or the European Economic Area at any given time;
Net Asset Value or NAV: the value of the scheme property of the
Company (or of any sub-fund as the context requires) less the liabilities
of the Company (or of the sub-fund concerned) as calculated in
accordance with the Company’s Instrument of Incorporation;
PEP: a personal equity plan established under The Personal Equity Plan
Regulations 1989;
principally: within an investment objective, at least 80% of the portfolio
i.e. a sub-fund which invests principally in UK companies should have
at least 80% of its assets, by value, in UK stocks;
the Regulations: the Open-Ended Investment Companies Regulations
2001 and the rules contained in the Collective Investment Schemes
Sourcebook published by the FSA as part of its Handbook of Rules and
Guidance;
SDRT: Stamp Duty Reserve Tax;



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                                                                                                                                          IF2/290807/ENG/r01
                                                 Prospectus.
1     The Company                                                              2.4    When there is more than one sub-fund in issue, each sub-fund
                                                                                      has a specific portfolio of assets and investments to which each
1.1   M&G INVESTMENT FUNDS (2) is an Open-Ended                                       sub-fund’s assets and liabilities are attributable and investors
      Investment Company with variable capital, incorporated in                       should view each sub-fund as a separate investment entity.
      England and Wales under registered number IC 116 and
      authorised by the Financial Services Authority with effect from 1        2.5Investors should be aware that the Company’s creditors may however
      August 2001. The Company has been established for unlimited              look to all the Company’s assets for payment regardless of the sub-fund
      duration.                                                                in respect of which the debt has arisen. Assets may be re-allocated to and
                                                                               from other sub-funds if it is necessary to do so to satisfy any creditor
      The Company has been certified by the FSA complying with the             proceeding against the Company. In the event that any assets are so re-
      conditions necessary for it to enjoy the rights conferred by the         allocated, the ACD will advise Shareholders in the next report to
      EC Directive on undertakings for collective investment in                Shareholders (see also paragraph 26 - Risk Factors).
      transferable securities (‘UCITS’).
                                                                               2.6    Each sub-fund will be charged with the liabilities, expenses, costs
1.2   The Head Office of the Company is at Laurence Pountney Hill,                    and charges of the Company attributable to that sub-fund and
      London EC4R 0HH and is also the address of the place in the                     within the sub-funds charges will be allocated between share
      United Kingdom for service on the Company of notices or other                   classes in accordance with the terms of issue of those share
      documents required or authorised to be served on it. The                        classes.
      Company does not have any interest in immovable property or
      any tangible moveable property.                                          2.7    Any assets, liabilities, expenses, costs or charges not attributable
                                                                                      to a particular sub-fund may be allocated by the ACD in a
1.3   The base currency of the Company is pounds sterling.                            manner which is fair to Shareholders as a whole but they will
1.4   The maximum share capital of the Company is currently                           normally be allocated to all sub-funds pro rata to the value of the
      £250,000,000,000 and the minimum is £100. Shares in the                         net assets of the relevant sub-funds.
      Company have no par value and therefore the share capital of the
      Company at all times equals the Company’s current Net Asset              3      Shares
      Value.                                                                   3.1    Classes of Share within the sub-funds
1.5   Shareholders in the Company are not liable for the debts of the                 3.1.1    Several share classes may be issued in respect of a sub-
      Company (see also paragraph 26 - Risk Factors).                                          fund. The Instrument of Incorporation allows gross
1.6   The Company has been established as an ‘umbrella company’ (as                            income and gross accumulation Shares to be issued as
      defined in the Regulations) and therefore different sub-funds                            well as net income and net accumulation Shares. Net
      may be formed by the ACD, subject to approval from the FSA.                              Shares are Shares in respect of which income allocated
      On the establishment of a new sub-fund or share class an                                 to them is distributed periodically to the relevant
      updated prospectus will be prepared setting out the relevant                             Shareholders (in the case of income Shares) or credited
      information concerning the new sub-fund or share class.                                  periodically to capital (in the case of accumulation
                                                                                               Shares), in either case in accordance with relevant tax
2     Company structure                                                                        law net of any tax deducted or accounted for by the
                                                                                               Company. Gross Shares are income or accumulation
2.1   The Company is an umbrella company. The assets of each sub-                              Shares where, in accordance with relevant tax law,
      fund are treated as separate from those of every other sub-fund                          distribution or allocation of income is made without
      and will be invested in accordance with that sub-fund’s own                              any UK tax being deducted or accounted for by the
      investment objective and policy.                                                         Company. Currently, however, only net income and net
2.2   At present, there are 9 sub-funds which are available for                                accumulation Shares are available, and all references in
      investment:                                                                              this Prospectus to income and accumulation Shares are
                                                                                               to net income and net accumulation Shares. The share
      M&G Extra Income Fund,                                                                   classes in issue for each sub-fund are shown in
      M&G Gilt & Fixed Interest Income Fund,                                                   Appendices 1 & 4. These are one or more of the
                                                                                               following:
      M&G High Interest Fund,
                                                                                               Sterling Class A Net Income Shares
      M&G High Yield Corporate Bond Fund,
                                                                                               Sterling Class A Net Accumulation Shares
      M&G Income Fund,
                                                                                               Sterling Class X Net Income Shares
      M&G Index Tracker Fund,
                                                                                               Sterling Class X Net Accumulation Shares
      M&G Long Dated Sterling Bond Fund,
                                                                                               Sterling Class C Net Income Shares
      M&G Real Yield Fund,
                                                                                               Euro Class ‘A’ Net Accumulation Shares
      M&G UK Growth Fund.
                                                                                               Euro Class ‘C’ Net Accumulation Shares
      These sub-funds are all UCITS schemes within the meaning of
      the Regulations.                                                                         The following share classes may be launched by the
                                                                                               ACD; market conditions will largely dictate the timing
2.3   The investment objective, investment policy and other details of                         of the launch:
      each sub-fund are set out in Appendices 1 & 4. The investment
      and borrowings powers under the Regulations applicable to each                           Sterling Class C Net Accumulation Shares
      sub-fund are set out in Appendix 2 and the eligible securities and                       Euro Class ‘A’ Net Income Shares
      derivatives markets on which the sub-funds can invest are set out
      in Appendix 3.                                                                           Euro Class ‘C’ Net Income Shares
                                                                                               Euro Class ‘B’ Net Accumulation Shares

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                                                                                                                                          IF2/290807/ENG/r01
                                                 Prospectus.
              Euro Class ‘B’ Net Income Shares                                                 Mr Martin Lewis,
              Sterling Class C Shares are available only to a company                          Mr Graham MacDowall,
              which the ACD deems to be an associate company or to
              other collective investment schemes managed by the                               Mr Laurence Mumford,
              ACD or a company which the ACD deems to be an                                    Mr William Nott,
              associate company.
                                                                                               Mr Edward Rosengarten,
      3.1.2   Any sub-fund may make available such further classes of
              Share as the ACD may decide.                                                     Mr Leslie Scrine,

      3.1.3   Holders of Income Shares are entitled to be paid the                             Mr Gary Shaughnessy,
              income attributed to such Shares on the relevant                                 Mr John Talbot.
              interim and annual allocation dates net of tax. The
              price of such Shares immediately after the end of the                            All of the directors have significant business activities
              relevant accounting period reduces to reflect these                              which are not connected to those of the ACD but of
              allocations of income.                                                           other companies within the M&G Group. Mr Gary
                                                                                               Shaugnessy has other business activities within the
      3.1.4   Holders of Accumulation Shares are not entitled to be                            Prudential Group.
              paid the income attributable to such Shares but that
              income is automatically transferred to (and retained as                  4.1.3   The ACD is responsible for managing and
              part of) the capital assets of the relevant sub-fund                             administering the Company’s affairs in compliance with
              immediately after the relevant interim and / or annual                           the Regulations. Other companies for which the ACD
              accounting dates. The price of such Shares continues to                          has these responsibilities are M&G Investment Funds
              reflect this retention of the income entitlement, which                          (1), M&G Investment Funds (3), M&G Investment
              will be transferred after deduction of applicable tax.                           Funds (4), M&G Investment Funds (5), M&G
                                                                                               Investment Funds (6), and M&G Investment Funds (7).
      3.1.5   Where a sub-fund has different classes of Share                                  The ACD is also the Manager of the M&G Property
              available, each class may attract different charges and                          Portfolio, and the managing agent for The Equities
              expenses and so monies may be deducted from classes in                           Investment Fund for Charities, The Charibond
              unequal proportions. For this and like reasons, the                              Charities Fixed Interest Common Investment Fund,
              proportionate interests of the classes within a sub-fund                         and The National Association of Almshouses Common
              will vary from time to time.                                                     Investment Fund.
      3.1.6   When different sub-funds are available, Shareholders               4.2   Terms of Appointment
              will be entitled (subject to certain restrictions) to switch
              all or some of their Shares in a sub-fund for Shares in                  4.2.1   The ACD Agreement provides that the appointment of
              within a different sub-fund or a different M&G OEIC.                             the ACD is for an initial period of three years and
              Details of this switching facility and the restrictions are                      thereafter may be terminated upon 12 months written
              set out in paragraph 13 of this document.                                        notice by either the ACD or the Company, although in
                                                                                               certain circumstances the agreement may be terminated
      3.1.7   Holders of Income Shares may convert all or some of                              forthwith by notice in writing by the ACD to the
              their Shares to Accumulation Shares of the same Class                            Company or the Depositary, or by the Depositary or the
              in the same sub-fund, and holders of Accumulation                                Company to the ACD. The ACD cannot be replaced
              Shares may convert all or some of their Shares to                                until the FSA has approved the appointment of another
              Income Shares of the same Class in the same sub-fund.                            director in place of the retiring ACD. The ACD
              Details of this conversion facility are set out in                               Agreement may be inspected at the offices of the ACD
              paragraph 13.9 of this document.                                                 during normal business hours by any Shareholder or
                                                                                               any Shareholder’s duly authorised agent. Alternatively, a
4     Management and administration                                                            copy of the ACD Agreement may be sent to any
4.1   Authorised Corporate Director                                                            Shareholder at his request within 10 days of the
                                                                                               Company’s receipt of such request.
      4.1.1   The Authorised Corporate Director of the Company is
              M&G Securities Limited which is a private company                        4.2.2   The ACD is entitled to its pro rata fees and expenses to
              limited by shares incorporated in England and Wales                              the date of termination and any additional expenses
              under the Companies Acts 1862 to 1900 on 12                                      necessarily realised in settling or realising any
              November 1906. The ultimate holding company of the                               outstanding obligations. No compensation for loss of
              ACD is Prudential plc, a company incorporated in                                 office is provided for in the agreement. The ACD
              England and Wales.                                                               Agreement provides indemnities by the Company to the
                                                                                               ACD other than for matters arising by reason of the
      4.1.2   Registered Office and Head Office:                                               ACD’s negligence, default, breach of duty or breach of
              Laurence Pountney Hill, London EC4R 0HH.                                         trust in the performance of the ACD’s duties and
                                                                                               obligations.
              Share Capital:
                                                                                       4.2.3   The ACD is under no obligation to account to the
              Authorised                              £100,000                                 Depositary or the Shareholders for any profit it makes
                                                                                               on the issue or re-issue of Shares or cancellation of
              Issued and paid-up                      £100,000                                 Shares which it has redeemed. The fees to which the
                                                                                               ACD is entitled are set out in Section 28.
              Directors:
              Miss Deborah Carter,
              Mr Christopher Jackson,
                                                                             6
                                                                                                                                        IF2/290807/ENG/r01
                                                 Prospectus.
5     The Depositary                                                           6     The Investment Manager
      The Royal Bank of Scotland plc is the Depositary of the                        The ACD has appointed the investment managers shown in the
      Company. The Depositary is a public limited company                            paragraphs below to provide investment management and
      incorporated in Scotland. Subject to the Regulations the                       advisory services in respect of the sub-funds identified in
      Depositary is responsible for the safekeeping of the property of               Appendices 1 & 4. The Investment Manager has authority to
      the Company entrusted to it and has a duty to take reasonable                  make decisions on behalf of the Company and the ACD in
      care to ensure that the Company is managed in accordance with                  respect of the acquisition and disposal of property at any time
      the provisions of the Regulations relating to the pricing of, and              comprising the relevant sub-fund and to advise in respect of the
      dealing in, Shares of the Company and to the allocation of the                 rights associated with the holding of such property. Each
      income of the Company. The appointment of the Depositary was                   Investment Manager has been appointed under an agreement
      made under an agreement between the Company, the ACD and                       between the ACD and the Investment Manager whereby the ACD
      the Depositary.                                                                accepts responsibility for all these services provided by the
                                                                                     Investment Manager to the Company.
5.1   Registered Office:
                                                                               6.1   M&G Investment Management Limited (“MAGIM”)
      36 St Andrew Square, Edinburgh EH3 2YB.
                                                                                     6.1.1    MAGIM’s principal activities are acting as an investment
5.2   Head Office:                                                                            manager.
      Gogarburn, PO Box 1000, EH12 1HQ.                                              6.1.2    The investment management agreement may be
5.3   Ultimate Holding Company:                                                               terminated on six months written notice by MAGIM or
                                                                                              the ACD.
      The Royal Bank of Scotland Group plc.
                                                                                     6.1.3    MAGIM is an associate of the ACD by being a subsidiary
5.4   Principal Business Activity:                                                            of Prudential plc.
      The principal business activity of the Depositary is banking.            6.2   State Street Global Advisers Limited
5.5   Terms of Appointment:                                                          6.2.1    State Street Global Advisers Limited’s principal
      5.5.1    The Depositary provides its services under the terms of                        activities are acting as an investment manager.
               a depositary agreement between the Company and the                    6.2.2    The investment management agreement may be
               Depositary (the ‘Depositary Agreement’). Subject to the                        terminated on six months written notice by the ACD,
               Regulations, the Depositary has full power under the                           or immediately by State Street Global Advisers Limited
               Depositary Agreement to delegate (and authorise its                            subject to the completion of outstanding transactions.
               sub-delegates to sub-delegate) all or any part of its
               duties as Depositary.                                           7     Administrator and Registrar
      5.5.2    The Depositary Agreement may be terminated by three                   The ACD employs International Financial Data Services (UK)
               months notice given by either the Company or the                      Limited (‘IFDS’) to provide certain administration services and
               Depositary, provided that the Depositary may not                      act as registrar to the Company.
               voluntarily retire except on the appointment of a new
               Depositary.                                                     8     The Auditor
      5.5.3    The Depositary Agreement contains indemnities by the                  The auditor of the Company is PricewaterhouseCoopers LLP
               Company in favour of the Depositary against (other                    whose address is Southwark Towers, 32 London Bridge Street,
               than in certain circumstances) any liability incurred by              London SE1 9SY.
               the Depositary as a consequence of its safe keeping of
               any of the scheme property or incurred by it as a               9     Register of shareholders
               consequence of the safe keeping of any of the scheme
               property by anyone retained by it to assist it to perform             The Register of Shareholders is maintained by IFDS at its office
               its functions of the safe keeping of the scheme property              at IFDS House, St Nicholas Lane, Basildon, Essex SS15 5FS and
               and also (in certain circumstances) exempts the                       may be inspected at that address during normal business hours by
               Depositary from liability.                                            any Shareholder or any Shareholder’s duly authorised agent.
      5.5.4    The Depositary is entitled to the fees, charges and             10    Buying, selling and switching shares
               expenses detailed under ‘Depositary’s Fee, Charges and
               Expenses’ in paragraph 30.                                            The address for postal dealing is P.O. Box 9039, Chelmsford,
                                                                                     CM99 2XG. Telephone deals can be placed between 8.00 am and
      5.5.5    The Depositary has appointed The Northern Trust                       6.00 pm UK time on each Dealing Day (except for Christmas Eve
               Company to assist the Depositary in performing its                    and New Year’s Eve when the office closes early) for the sale,
               functions of custodian of the documents of title or                   redemption and switching of Shares. Deals will be effected at
               documents evidencing title to the property of the                     prices determined at the next valuation point (12.00 noon UK
               Company. The relevant arrangements prohibit The                       time) following receipt of the request, i.e. on a forward pricing
               Northern Trust Company as such custodian from                         basis. Subject to paragraphs 11, 12 and 13, requests may be made
               releasing the documents into the possession of a third                by post, telephone or any electronic or other means which the
               party without the consent of the Depositary. The                      ACD may from time to time determine, either directly or via an
               Depositary has appointed International Financial Data                 authorised intermediary.
               Services (UK) Limited in its capacity as registrar to
               assist the Depositary in performing its functions in                  Prices for M&G Investment Funds (2) are calculated every
               relation to the distribution of income.                               Dealing Day at the valuation point. Postal deals received at our
                                                                                     postal dealing address and requests communicated by other
                                                                                     means to the ACD before the valuation point will be dealt with at
                                                                                     the price calculated on that Dealing Day; requests received after
                                                                           7
                                                                                                                                      IF2/290807/ENG/r01
                                                    Prospectus.
       the valuation point will be dealt with at the price calculated on the       12     Selling shares
       next following Dealing Day.
                                                                                   12.1   Procedure for investors in Sterling Share Classes
11     Buying shares                                                                      (Non-UK investors should refer to Appendix 4)
11.1   Procedure for investors in Sterling Share Classes                                  12.1.1   Shareholders have the right to sell Shares back to the
       (Non-UK investors should refer to Appendix 4)                                               ACD or require that the ACD arranges for the
                                                                                                   Company to buy their Shares on any Dealing Day unless
       11.1.1   On any given Dealing Day the ACD will be willing to sell                           the value of Shares which a Shareholder wishes to sell
                Shares of at least one Class in each sub-fund. Shares can                          will mean that the Shareholder will hold Shares with a
                be bought as a lump sum investment or by way of a                                  value less than the required minimum holding for the
                regular savings plan. Postal applications may be made                              sub-fund concerned, in which case the Shareholder
                on application forms obtained from the ACD.                                        may be required to sell the entire holding.
                Alternatively, lump sum investment can be made under
                approved circumstances by telephoning M&G’s                               12.1.2   Requests to sell Shares may be made by post, telephone,
                Customer Dealing Line 0800 328 3196 between 8.00                                   or any electronic or other means which the ACD may
                am and 6.00 pm UK time on Dealing Days.                                            from time to time determine, either directly or via an
                                                                                                   authorised intermediary; the ACD may require
       11.1.2   The ACD has the right to reject, on reasonable grounds                             telephonic or electronic requests to be confirmed in
                relating to the circumstances of the applicant, any                                writing.
                application for Shares in whole or part, and in this
                event the ACD will return any money sent, or the                   12.2   Documents the Seller will receive
                balance of such monies, at the risk of the applicant. The                 A contract note giving details of the Shares sold and the price
                ACD may also cancel any previously accepted request                       used will be sent to the selling Shareholder (the first named, in
                for the issue of Shares in the event of either non-                       the case of joint Shareholders) or to an authorised agent,
                payment of the amount due, including any provision                        together (if required and sufficient written instructions
                for SDRT, or undue delay in payment by the applicant,                     transferring title back to the ACD signed by all holders have not
                including the non-clearance of cheques or other                           already been given) with a form of renunciation for completion
                documents presented in payment.                                           and execution by the Shareholder (and, in the case of a joint
       11.1.3   Any subscription monies remaining after a whole                           holding, by all the joint holders), not later than the end of the
                number of Shares has been issued may not be returned                      business day following the valuation point by reference to which
                to the applicant. Instead, fractions may be issued in                     the price is determined. Payment of proceeds will be made within
                such circumstances. A fraction is equivalent to one                       four business days of the later of:
                thousandth of a larger denomination Share.                                12.2.1   receipt by the ACD, when required, of the form of
11.2   Documentation                                                                               renunciation (or other sufficient written instructions)
                                                                                                   duly signed by all the relevant Shareholders and
       11.2.1   A contract note giving details of the Shares purchased                             completed as to the appropriate number of Shares,
                and the price used will be issued by the end of the                                together with any other appropriate evidence of title;
                business day following the valuation point by reference                            and
                to which the price is determined, together with, where
                appropriate, a notice of the applicant’s right to cancel.                 12.2.2 the valuation point following receipt by the ACD of the
                                                                                                 request to sell.
       11.2.2   Payment for Shares purchased by post must accompany
                the application; payment for Shares purchased by other                    12.2.3 The requirement for a form of renunciation is normally
                means must be made by no later than four business days                           waived if all the following conditions are met:
                after the valuation point following receipt of the                                 • Dealing instructions are given by the registered
                instructions to purchase.                                                            holder in person;
       11.2.3   Currently share certificates will not be issued in respect                         • The holding is registered in a sole name;
                of Shares. Ownership of Shares will be evidenced by an
                entry on the Company’s Register of Shareholders.                                   • The sale proceeds are to be made payable to the
                Statements in respect of periodic allocations of income                              registered holder at their registered address, which
                of each sub-fund will show the number of Shares held                                 has not changed within the previous 30 days; and
                by the recipient in the sub-fund in respect of which the                           • The total amount payable in respect of sales by that
                allocation is made. Individual statements of a                                       holder on one business day does not exceed £7,000.
                Shareholder’s Shares will also be issued at any time on
                request by the registered holder (or, when Shares are              12.3   Minimum redemption
                jointly held, the first named holder).                                    Subject to the Shareholder maintaining the minimum holding
       11.2.4   The Company has the power to issue bearer Shares but                      stated in this Prospectus, part of a Shareholder’s holding may be
                has no plans to do so.                                                    sold but the ACD reserves the right to refuse a request to sell
                                                                                          Shares if the value of the class of Shares of any sub-fund to be
11.3   Minimum subscriptions and holdings                                                 sold is less than the sum specified in Appendices 1 & 4.
       11.3.1   The minimum initial lump sum and regular savings
                plan subscriptions for Shares and the minimum                      13     Switching and converting shares
                holding in the sub-funds are set out for each sub-fund             13.1   Holders of Shares in a sub-fund may at any time switch all or
                in Appendices 1 & 4. If at any time a Shareholder’s                       some of their Shares of one sub-fund (‘Original Shares’) for
                holding is below the specified minimum, the ACD                           Shares of sub-fund of this or another M&G OEIC (‘New Shares’)
                reserves the right to sell the Shares and send the                        provided they are eligible to hold Shares in that class or sub-
                proceeds to the Shareholder.                                              fund. The number of New Shares issued will be determined by

                                                                               8
                                                                                                                                           IF2/290807/ENG/r01
                                                  Prospectus.
       reference to the respective prices of New Shares and Original             14.2   Redemption Charge
       Shares at the valuation point applicable at the time the Original
       Shares are redeemed and the New Shares are issued.                               14.2.1   The ACD may make a charge on the cancellation and
                                                                                                 redemption (including transfer) of Shares. At present,
13.2   Switching may be effected by giving instructions to the ACD and                           a redemption charge is levied only on the selling of
       the Shareholder may be required to complete a form of                                     Shares in a sub-fund which does not have an initial
       renunciation (which, if required - see paragraph 12.2.3 - in the                          charge on the buying of Shares. Other Shares issued
       case of joint Shareholders must be signed by all the joint                                and bought, and persons known to the ACD to have
       holders).                                                                                 made arrangements for the regular purchase of other
                                                                                                 Shares while this Prospectus is in force, will not be
13.3   The ACD may at its discretion charge a fee on the switching of                            subject to any redemption charge introduced in the
       Shares between sub-funds (see paragraph 14.3). When a fee is                              future in respect of those Shares. Currently, those
       charged it will not exceed the aggregate of the relevant                                  Shares deemed to carry a redemption charge will carry a
       redemption and initial charges in respect of the Original Shares                          reducing redemption charge calculated in accordance
       and the New Shares.                                                                       with the table below. With accumulation shares, where
13.4   If the switch would result in the Shareholder holding a number                            any income is reinvested back into the share price, the
       of Original Shares or New Shares of a value which is less than the                        valuation when calculating a redemption will include
       minimum holding in the sub-fund concerned the ACD may, if it                              the capital gain associated with this reinvested income.
       thinks fit, switch the whole of the applicant’s holding of Original                       In relation to the imposition of a redemption charge as
       Shares to New Shares or refuse to effect any switch of the                                set out above, where Shares of the class in question have
       Original Shares. No switches will be effected during any period                           been purchased at different times by a redeeming
       when the right of Shareholders to require the redemption of                               Shareholder, the Shares to be redeemed shall be
       their Shares is suspended. The general provision on procedures                            deemed to be the Shares which incur the least cost to the
       relating to redemption will apply equally to a switch. Switch                             Shareholder and thereafter the Shares purchased first in
       instructions must be received by the ACD before the valuation                             time by that Shareholder.
       point on a Dealing Day in the sub-fund or sub-funds concerned                             Redemption charge table
       to be dealt with at the prices at those valuation points on that
       Dealing Day, or at such other date as may be approved by the                              The deduction from the mid value for redemption
       ACD. Switch requests received after a valuation point will be held                        before the following anniversaries would be:
       over until the valuation point in the next Dealing Day in the
       relevant sub-fund or sub-funds.                                                           1st year                              4.5%

13.5   The ACD may adjust the number of New Shares to be issued to                               2nd year                              4.0%
       reflect the imposition of any switching fee together with any                             3rd year                              3.0%
       other charges or levies in respect of the issue or sale of the New
       Shares or repurchase or cancellation of the Original Shares as                            4th year                              2.0%
       may be permitted pursuant to the Regulations.                                             5th year                              1.0%
13.6   Please note that a switch of Shares in one sub-fund for Shares in                         Thereafter                            Nil
       any other sub-fund is treated as a redemption and sale and will,
       for persons subject to UK taxation, be a realisation for the                     14.2.2 The ACD may not introduce or increase a redemption
       purposes of capital gains taxation.                                                     charge on Shares unless:
13.7   A Shareholder who switches Shares in one sub-fund for Shares                              14.2.2.1 the ACD has complied with the Regulations
       in any other sub-fund has no right by law to withdraw from or                                      in relation to that introduction or change;
       cancel the transaction.                                                                            and
13.8   Terms and current charges for the switching of Shares of any class                        14.2.2.2 the ACD has revised the Prospectus to reflect
       of any sub-fund, including for the Shares issued by another                                        the introduction or change and the date of its
       M&G OEIC or for the switching of units in a regulated scheme                                       commencement and has made the revised
       operated by the ACD, may be obtained from the ACD.                                                 Prospectus available.
13.9   Conversions of Income Shares to Accumulation Shares and of                       14.2.3 In the event of a change to the rate or method of
       Accumulation Shares to Income Shares of the same Class in the                           calculation of a redemption charge, details of the
       same sub-fund are undertaken by reference the respective Share                          previous rate or method of calculation will be available
       prices. For persons subject to UK taxation, this will not be a                          from the ACD.
       realisation for the purposes of capital gains taxation.
                                                                                 14.3   Switching Fee
14     Dealing charges                                                                  On the switch of Shares of a sub-fund for Shares of another sub-
14.1   Initial Charge                                                                   fund the Instrument of Incorporation authorises the Company
                                                                                        to impose a switching fee. The fee will not exceed an amount
       The ACD may impose a charge on the buying of Shares. This                        equal to the aggregate of the then prevailing redemption charge
       charge is a percentage of the total amount of your investment and                (if any) in respect of Original Shares and the initial charge (if
       is deducted from your investment before Shares are purchased.                    any) in respect of New Shares and is payable to the ACD.
       The current level in relation to the sub-funds are set out for each
       sub-fund in Appendices 1 & 4 and are subject to discounts that                   14.3.1   If the switch is between sub-funds and would be a large
       the ACD at its absolute discretion may apply from time to time.                           deal for purposes of SDRT (see paragraph 16.3) then
       Increases from the current rates of charge can only be made in                            applicable further charges may be imposed. Subject to
       accordance with the Regulations and after the ACD has revised                             this, the ACD will normally waive the initial charge (if
       the Prospectus to reflect the increased rate.                                             any) in respect of New Shares if a switch is made to the
                                                                                                 same class of Share within a different sub-fund.

                                                                             9
                                                                                                                                             IF2/290807/ENG/r01
                                                   Prospectus.
15     Other dealing information                                                                   M&G Extra Income Fund                   +0.70% / -0.30%
15.1   Dilution                                                                                    M&G Gilt & Fixed Interest
                                                                                                   Income Fund                             +0.03% / -0.03%
       15.1.1   The basis on which each sub-fund’s investments are
                valued for the purpose of calculating the price of Shares                          M&G High Interest Fund                  +0.05% / -0.05%
                as stipulated in the Regulations and the Company’s
                Instrument of Incorporation is summarised in section                               M&G High Yield Corporate
                22. However, the actual cost of purchasing or selling                              Bond Fund                               +0.31% / -0.31%
                investments for a sub-fund may deviate from the mid-                               M&G Income Fund                         +0.75% / -0.26%
                market value used in calculating the price of Shares in
                the sub-fund due to dealing costs such as broking                                  M&G Index Tracker Fund                  +0.67% / -0.17%
                charges, taxes, and any spread between the buying and                              M&G Long Dated Sterling
                selling prices of the underlying investments. These                                Bond Fund                               +0.04% / -0.04%
                dealing costs can have an adverse effect on the value of
                the sub-fund, known as “dilution”. The Regulations                                 M&G Real Yield Fund                     +0.17% / -0.17%
                allow the cost of dilution to be met directly from the                             M&G UK Growth Fund                      +0.73% / -0.24%
                sub-fund’s assets or to be recovered from investors on
                the purchase or redemption of Shares in the sub-fund
                                                                                                   Positive dilution adjustment figures indicate a typical
                inter alia by means of a dilution adjustment to the
                                                                                                   increase from mid price when the Sub-fund is
                dealing price, and this is the policy which has been
                                                                                                   experiencing net issues. Negative dilution adjustment
                adopted by the ACD. The ACD shall comply with
                                                                                                   figures indicate a typical decrease from mid price when
                COLL 6.3.8R in its application of any such dilution
                                                                                                   the sub-fund is experiencing net redemptions. Figures
                adjustment. The ACD’s policy is designed to minimise
                                                                                                   are based on the historic costs of dealing in the
                the impact of dilution on any sub-fund.
                                                                                                   underlying investments of the relevant sub-funds for
       15.1.2   The dilution adjustment for each sub-fund will be                                  the twelve months to 30 June 2007, including any
                calculated by reference to the estimated costs of dealing                          spreads, commissions and transfer taxes.
                in the underlying investments of that sub-fund,
                                                                                   15.2   In specie issues and redemptions
                including any dealing spreads, commissions and
                transfer taxes. The need to apply a dilution adjustment                   At its absolute discretion the ACD may agree or determine that
                will depend on the relative volume of sales (where they                   the settlement of issue or redemption transactions may be
                are issued) to redemptions (where they are cancelled) of                  effected by the transfer of property into or out of the assets of the
                shares. The ACD may apply a dilution adjustment on                        Company on such terms as the ACD shall decide in consultation
                the issue and redemption of such shares if, in its                        with the investment manager and the Depositary. In the case of
                opinion, the existing shareholders (for sales) or                         redemptions, the ACD shall give notice to the Shareholder prior
                remaining shareholders (for redemptions) might be                         to the redemption proceeds becoming payable of its intention to
                adversely affected, and if in applying a dilution                         transfer property to the Shareholder and request consent thereto
                adjustment, so far as practicable, it is fair to all                      or to elect to receive the proceeds of a sale of that property.
                shareholders and potential shareholders. In specie
                transfers will not be taken into account when                             The ACD may also offer to sell an investor’s property and invest
                determining any dilution adjustment and any incoming                      the proceeds by purchasing Shares in the Company, subject to
                portfolio will be valued on the same basis as the sub-                    detailed terms and conditions available upon request.
                fund is priced (i.e. offer plus notional dealing charges,          15.3   Client Account
                mid, or bid less notional dealing charges). When a
                dilution adjustment is not applied there may be a                         Cash may be held for you in a client account in certain
                dilution of the assets of the sub-fund which may                          circumstances. Interest is not paid on any such balances.
                constrain the future growth of that sub-fund.
                                                                                   16     Stamp Duty Reserve Tax (‘SDRT’)
       15.1.3   The ACD may alter its current dilution adjustment
                policy by giving shareholders at least 60 days’ notice and         16.1   HM Treasury regulations require a 0.5% SDRT charge to be
                amending the Prospectus before the change takes effect.                   made on the value of Shares redeemed by the ACD and on
                                                                                          certain other transfers of Shares. The HM Treasury regulations
       15.1.4   Based on experience, the ACD would typically expect to                    call these transactions “surrenders”. The liability for SDRT is
                make a dilution adjustment on most days, and this                         calculated for each week by reference to Share sales and
                would ordinarily be of the magnitude shown in the table                   redemptions in that and the following week. This basic charge
                below. The ACD reserves the right to adjust the price by                  may be reduced if more Shares of the relevant type or class are
                a lesser amount but will always make such an adjustment                   surrendered than issued over the relevant period or if the sub-
                in a fair manner solely to reduce dilution and not for                    fund is invested in assets that are exempt from stamp duty and
                the purpose of creating a profit or avoiding a loss for the               SDRT, i.e. other than in UK equities. When a sub-fund does not
                account of the ACD or an associate. It should be noted                    issue any Shares during the relevant period or is invested wholly
                that as dilution is related to inflows and outflows of                    in exempt investments, there is no liability to SDRT.
                monies and the purchase and sale of investments it is
                not possible to predict accurately if and when dilution            16.2   This charge may have an adverse effect on the value of the sub-
                will occur and to what extent.                                            fund. The Regulations allow the cost of SDRT to be met directly
                                                                                          from the sub-fund’s assets or to be recovered from incoming
                Dilution adjustment table                                                 investors as an entry charge or to outgoing investors as an exit
                Typical dilution adjustments for the following sub-                       charge. It is the ACD’s current policy for the Company to meet
                funds would be:                                                           any liability for SDRT from the property of the Company and to
                                                                                          allocate any payment to the sub-fund(s) whose share class
                                                                                          surrenders have given rise to the charge. The ACD considers that

                                                                              10
                                                                                                                                               IF2/290807/ENG/r01
                                                   Prospectus.
       paying SDRT out of a sub-fund is efficient administratively and                    or suffering any other adverse consequence (including a
       will have a minimal effect on its performance.                                     requirement to register under any securities or investment or
                                                                                          similar laws or governmental regulations of any country or
16.3   It is not the ACD’s current intention to require the payment of a                  territory) or by virtue of which the Shareholder or Shareholders
       further provision for SDRT by incoming or redeeming                                in question is/are not qualified to hold such Shares or if it
       Shareholders but it reserves the right to charge investors an                      reasonably believes this to be the case, the ACD may give notice
       SDRT provision of up to 0.5% on purchases exceeding                                to the Shareholder(s) of the affected Shares requiring the
       £1million. Any such provision will be paid to the Depositary to                    transfer of such Shares to a person who is qualified or entitled to
       become part of the property of the relevant sub-fund.                              own them or that a request in writing be given for the
       The Company may refuse to register a transfer of Shares unless                     redemption of such Shares. If any Shareholder upon whom such
       there has been paid, for the account of the Company, an amount                     a notice is served does not within thirty days after the date of such
       determined by the ACD not exceeding the amount that would be                       notice transfer their affected Shares to a person qualified to own
       derived by applying the rate of stamp duty reserve tax to the                      them or submit a written request for their redemption to the
       market value of the Shares being transferred. This shall not apply                 ACD or establish to the satisfaction of the ACD (whose
       to transfers excluded by Schedule 19 of the Finance Act 1999                       judgement is final and binding) that they or the beneficial owner
       from a charge to Stamp Duty Reserve Tax.                                           are qualified and entitled to own the affected Shares, they shall be
                                                                                          deemed upon the expiration of that thirty day period to have
17     Money laundering                                                                   given a request in writing for the redemption or cancellation (at
                                                                                          the discretion of the ACD) of all the affected Shares pursuant to
       As a result of legislation in force in the United Kingdom to                       the Regulations.
       prevent money laundering, firms conducting investment
       business are responsible for compliance with money laundering                      A Shareholder who becomes aware that they are holding or own
       regulations. In certain circumstances investors may be asked to                    affected Shares shall forthwith, unless they have already received
       provide proof of identity when buying or selling shares.                           a notice as aforesaid, either transfer all their affected Shares to a
       Normally this will not result in any delay in carrying out                         person qualified to own them or submit a request in writing to
       instructions but, should the ACD request additional                                the ACD for the redemption of all their affected Shares.
       information, this may mean that instructions will not be carried                   Where a request in writing is given or deemed to be given for the
       out until the information is received. In these circumstances, the                 redemption of affected Shares, such redemption will be effected
       ACD may refuse to issue or, redeem Shares, release the proceeds                    in the same manner as provided for under the Regulations, if
       of redemption or carry out such instructions.                                      effected at all.
18     Restrictions on dealing                                                     19     Suspension of dealings in the Company
       The ACD may from time to time impose such restrictions as it                19.1   The ACD may with the agreement of the Depositary, or must if
       may think necessary for the purpose of ensuring that no Shares                     the Depositary so requires, for a period of up to 28 days suspend
       are acquired or held by any person in breach of the law or                         the issue, sale, cancellation and redemption of Shares or any class
       governmental regulation (or any interpretation of a law or                         of Shares in any or all of the sub-funds if the ACD or the
       regulation by a competent authority) of any country or territory.                  Depositary is of the opinion that due to exceptional
       In this connection, the ACD may, inter alia, reject in its                         circumstances there is good and sufficient reason to do so having
       discretion any application for the issue, sale, redemption,                        regard to the interests of Shareholders.
       cancellation or switch of Shares or require the mandatory
       redemption of Shares or transfer of Shares to a person qualified            19.2   Re-calculation of the Share price for the purpose of sales and
       to hold them.                                                                      purchases will commence at the time the suspension is ended or
                                                                                          at the next relevant valuation point following the ending of the
       The distribution of this prospectus and the offering of Shares in                  suspension.
       or to persons resident in or nationals of or citizens of
       jurisdictions outside the UK or who are nominees of, custodians
       or trustees for, citizens or nationals of other countries may be            20     Governing law
       affected by the laws of the relevant jurisdictions. Such                           All deals in Shares are governed by English law.
       Shareholders should inform themselves about and observe any
       applicable legal requirements. It is the responsibility of any              21     Valuation of the Company
       Shareholder to satisfy himself as to the full observance of the laws
       and regulatory requirements of the relevant jurisdiction,                   21.1   The price of a Share of a particular class in the Company is
       including obtaining any governmental, exchange control or                          calculated by reference to the Net Asset Value of the sub-fund to
       other consents which may be required, or compliance with other                     which it relates and attributable to that class and adjusted for the
       necessary formalities needing to be observed and payment of any                    effect of charges applicable to that class and further adjusted to
       issue, transfer or other taxes or duties due in such jurisdiction.                 reduce any dilutive effect of dealing in the sub-fund (for more
       Any such Shareholder will be responsible for any such issue,                       detail of dilution adjustment see 15.1). The Net Asset Value per
       transfer or other taxes or payments by whomsoever payable and                      Share of a sub-fund is currently calculated at 12.00 noon UK
       the Company (and any person acting on behalf of it) shall be fully                 time on each Dealing Day.
       indemnified and held harmless by such Shareholder for any such              21.2   The ACD may at any time during a Dealing Day carry out an
       issue, transfer or other taxes or duties as the Company (and any                   additional valuation if the ACD considers it desirable to do so.
       person acting on behalf of it) may be required to pay.
       If it comes to the notice of the ACD that any Shares (“affected             22     Calculation of the net asset value
       Shares”) are owned directly or beneficially in breach of any law or         22.1   The value of the scheme property of the Company or sub-fund
       governmental regulation (or any interpretation of a law or                         (as the case may be) shall be the value of its assets less the value of
       regulation by a competent authority) of any country or territory,                  its liabilities determined in accordance with the following
       which would (or would if other Shares were acquired or held in                     provisions.
       like circumstances) result in the Company incurring any liability
       to taxation which the Company would not be able to recoup itself
                                                                              11
                                                                                                                                                IF2/290807/ENG/r01
                                                  Prospectus.
22.2   All the scheme property (including receivables) of the Company             22.7   Subject to paragraphs 22.8 and 22.9 below, agreements for the
       (or the sub-fund) is to be included, subject to the following                     unconditional sale or purchase of property which are in existence
       provisions.                                                                       but uncompleted shall be assumed to have been completed and
                                                                                         all consequential action required to have been taken. Such
22.3   Property which is not cash (or other assets dealt with in paragraph               unconditional agreements need not be taken into account if
       22.4) or a contingent liability transaction shall be valued as                    made shortly before the valuation takes place and, in the opinion
       follows and the prices used shall be (subject as follows) the most                of the ACD, their omission will not materially affect the final net
       recent prices which it is practicable to obtain:                                  asset value amount.
       22.3.1 units or shares in a collective investment scheme:                  22.8 Futures or contracts for differences which are not yet due to be
                22.3.1.1 if, a single price for buying and selling units               performed and unexpired and unexercised written or purchased
                         is quoted, at the most recent such price; or                  options shall not be included under paragraph 22.7.
                22.3.1.2 if, separate buying or selling prices are                22.9 All agreements are to be included under paragraph 22.7 which
                         quoted, at the average of the two prices                      are, or ought reasonably to have been, known to the person
                         provided the buying price has been reduced                    valuing the property.
                         by any initial charge included therein and the           22.10 An estimated amount for anticipated tax liabilities at that point
                         selling price excludes any exit or redemption                  in time including (as applicable and without limitation) capital
                         charge attributable thereto; or                                gains tax, income tax, corporation tax, value added tax, stamp
                22.3.1.3 if, in the opinion of the ACD, the price                       duty, stamp duty reserve tax and any foreign taxes and duties will
                         obtained is unreliable or no recent traded                     be deducted.
                         price is available or no recent price exists, at         22.11 An estimated amount for any liabilities payable out of the scheme
                         a value which, in the opinion of the ACD, is                   property and any tax thereon treating periodic items as accruing
                         fair and reasonable;                                           from day to day will be deducted.
       22.3.2 any other transferable security:                                    22.12 The principal amount of any outstanding borrowings whenever
                22.3.2.1 if, a single price for buying and selling the                  repayable and any accrued but unpaid interest on borrowings will
                         security is quoted, at that price; or                          be deducted.
                22.3.2.2 if, separate buying and selling prices are               22.13 An estimated amount for accrued claims for repayments of tax of
                         quoted, the average of those two prices; or                    whatever nature to the Company which may be recoverable will
                                                                                        be added.
                22.3.2.3 if, in the opinion of the ACD, the price
                         obtained is unreliable or no recent traded               22.14 Any other credits or amounts due to be paid into the scheme
                         price is available or if no price exists, at a                 property will be added.
                         value which in the opinion of the ACD is fair            22.15 A sum representing any interest or any income accrued due or
                         and reasonable;                                                deemed to have accrued but not received will be added.
       22.3.3 property other than that described in 22.3.1 and 22.3.2             22.16 The amount of any adjustment deemed necessary by the ACD to
              above: at a value which, in the opinion of the ACD,                       ensure that the Net Asset Value is based on the most recent
              represents a fair and reasonable mid-market price.                        information and is fair to all Shareholders will be added or
22.4 Cash and amounts held in current and deposit accounts and in                       deducted as appropriate.
     other time-related deposits shall normally be valued at their                22.17 Currencies or values in currencies other than pounds sterling
     nominal values.                                                                    shall be converted at the relevant valuation point at a rate of
22.5   Property which is a contingent liability transaction shall be                    exchange that is not likely to result in any material prejudice to
       treated as follows:                                                              the interests of Shareholders or potential Shareholders.
       22.5.1   if a written option (and the premium for writing the              23     Price per share in each sub-fund and each class
                option has become part of the scheme property), the
                amount of the net valuation of premium receivable shall                  The price per Share at which Shares are bought by investors is the
                be deducted. If the property is an off-exchange                          sum of the Net Asset Value of a Share adjusted to reduce any
                derivative the method of valuation shall be agreed                       dilutive effect of dealing in the sub-fund (for more detail of
                between the ACD and Depositary;                                          dilution adjustment see 15.1) before any initial charge. The price
                                                                                         per Share at which Shares are sold by investors is the Net Asset
       22.5.2 if an off-exchange future, it will be included at the net                  Value per Share adjusted to reduce any dilutive effect of dealing
              value of closing out in accordance with a valuation                        in the sub-fund (for more detail of dilution adjustment see 15.1)
              method agreed between the ACD and the Depositary;                          before any applicable redemption charge. In addition, there may,
       22.5.3 if any other form of contingent liability transaction, it                  for both purchases and sales, be a charge for SDRT as described
              will be included at the net value of margin on closing                     in paragraph 16.
              out (whether as a positive or negative value). If the
              property is an off-exchange derivative, it shall be                 24     Pricing basis
              included at a method of valuation agreed between the                       The Company deals on a forward pricing basis. A forward price
              ACD and Depositary.                                                        is the price calculated at the next valuation point after the
22.6 In determining the value of the scheme property, all instructions                   purchase or sale is agreed.
     given to issue or cancel Shares shall be assumed to have been
     carried out (and any cash paid or received) whether or not this is           25     Publication of prices
     the case.                                                                           (Non-UK investors should refer to Appendix 4)



                                                                             12
                                                                                                                                            IF2/290807/ENG/r01
                                                  Prospectus.
       The most recent price of Shares appear daily on our web-site at                            considered less attractive to hold than similar
       www.mandg.co.uk or can be obtained from our Customer                                       investments and the capital value of the investment will
       Services Department on 0800 390390. The most recent price of                               decrease accordingly. There is a greater risk of this
       Sterling Class C shares appear on M&G’s intranet site.                                     occurring in respect of ‘sub investment grade’ corporate
                                                                                                  bonds as more commonly included within the portfolio
26     Risk factors                                                                               of the M&G High Yield Corporate Bond Fund.
       Potential investors should consider the following risk factors                    26.6.4 Yields may vary and the level of income from these sub-
       before investing in the Company.                                                         fund may fluctuate significantly. This is because the
                                                                                                holdings within the sub-funds’ portfolios and their
26.1   General                                                                                  values will change over time.
       The investments of the Company are subject to normal market                       26.6.5 Where a distribution yield is higher than a redemption
       fluctuations and other risks inherent in investing in securities.                        yield it means income is paid at the expense of capital.
       Past performance is not a guide to future performance. There
       can be no assurance that any appreciation in value of investments          26.7   Tracker sub-funds
       will occur or that the investment objectives of any sub-fund will
       actually be achieved. The value of investments and the income                     M&G Index Tracker Fund: the value of your investment will
       derived from them may fall as well as rise and investors may not                  depend on the performance of the FTSE All-Share Index and the
       recoup the original amount invested in the Company. This is                       success of the Sub-fund in tracking that index.
       because your investment’s value is linked to the performance of            26.8 Sub-funds buying a dividend
       the individual equities and/or bonds held by the sub-fund’s
       portfolio. The level of income is not fixed and may vary. This is                 In respect of the M&G Extra Income Fund and the M&G Income
       because the income from equities is not fixed and/or the                          Fund, on occasions, the ACD may make an investment with a
       holdings in fixed-interest securities will change over time.                      view to securing a particular dividend to enhance distributable
                                                                                         income. This can act as a constraint on capital performance.
26.2 Effect of Initial Charge
                                                                                  26.9 Liabilities of the Company
       Where any initial charge is imposed, investors who sell Shares
       after a short period may not (even in the absence of a fall in the                26.9.1 Although each sub-fund so far as possible will be treated
       value of the relevant investments) realise the amount originally                         as bearing the liabilities, expenses, costs and charges
       invested. Therefore, the Shares should be viewed as a long-term                          attributable to it, if its assets are not sufficient the ACD
       investment.                                                                              may re-allocate assets, liabilities, expenses, costs and
                                                                                                charges between the sub-funds in a manner which is fair
26.3 Suspension of Dealings in Shares                                                           to the Shareholders of the Company generally. The
       Investors are reminded that in certain circumstances their right                         ACD would normally expect any such re-allocation to
       to sell or redeem Shares may be suspended (see paragraph 19                              be effected on a pro rata basis having regard to the Net
       ‘Suspension of dealings in the Company’).                                                Asset Values of the relevant sub-funds. If there is any
                                                                                                such re-allocation the ACD will advise Shareholders of
26.4 Currency Exchange Rates                                                                    it in the next succeeding annual or half-yearly report to
                                                                                                Shareholders.
       Depending on the extent to which a sub-fund may hold non-
       sterling assets and an investor’s currency of reference, currency                 26.9.2 Shareholders are not, however, liable for the debts of
       fluctuations may adversely affect the value of an investment. This                       the Company. A Shareholder is not liable to make any
       is because such investments are generally bought and sold in the                         further payment to the Company after he has paid in
       local currency of the country the assets are registered in rather                        full for the purchase of Shares.
       than sterling and their values must be converted back into
       sterling when calculating the value of the sub-fund’s portfolio.           26.10 Inflation

26.5 Charges to Capital                                                                  A rising rate of inflation will have the effect of reducing the actual
                                                                                         value of any gain by an equivalent amount.
       Where the investment objective of a sub-fund is to treat the
       generation of income as a higher or equal (in the long term)               26.11 Taxation
       priority to capital growth, all or part of the ACD’s fee as well as               The current tax regime applicable to investors in collective
       certain other charges, net of the attributable tax effect, may be                 investment schemes is not guaranteed and may be subject to
       charged against capital instead of against income and may                         change. Such changes may include those arising as a consequence
       constrain capital growth of the sub-fund. This policy currently                   of changes to tax treaties between the UK and other countries.
       applies to the M&G Extra Income Fund and the M&G Income
       Fund.                                                                      26.12 Cancellation rights

26.6 Risks affecting all fixed interest sub-funds                                        When cancellation rights are applicable and are exercised, the full
                                                                                         amount invested may not be returned if the price falls before we
       26.6.1 Interest rate fluctuations are likely to affect the capital                are aware that the contract has been cancelled.
              value of investments within these sub-funds. When
              long-term interest rates rise the capital value of shares is        26.13 Currency Hedging
              likely to fall and visa versa.                                             Currency hedging transactions in relation to one Share Class
       26.6.2 The effect will be more apparent on sub-funds which                        comprise a potential risk that liabilities arising from currency
              invest significantly in long dated securities such as the                  hedging transactions may affect the NAV of other Share Classes
              M&G Long Dated Sterling Bond Fund and the M&G                              of the same sub-fund.
              Gilt & Fixed Interest Income Fund.
       26.6.3 The value of your investment will fall in the event of the
              default or perceived increased credit risk of an issuer.
              This is because such investments will generally be
                                                                             13
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                                                   Prospectus.
27     Fees and expenses                                                                           27.1.3.12 any value added or similar tax relating to any
                                                                                                             charge or expense set out herein.
27.1   General
                                                                                          27.1.4   Expenses are allocated between capital and income in
       27.1.1    The fees, costs and expenses relating to the                                      accordance with the Regulations. The ACD and the
                 authorisation and incorporation and establishment of                              Depositary have agreed that the ACD’s remuneration as
                 the Company, the offer of Shares, the preparation and                             Administrator, the Depositary’s fees, custody charges,
                 printing of this Prospectus and the fees of the                                   audit fees and the fees of the FSA or other regulatory
                 professional advisers to the Company in connection                                authority (plus any value added tax thereon where
                 with the offer will be borne by the ACD.                                          applicable) are charged against the income of each sub-
       27.1.2    The direct establishment costs of each sub-fund formed                            fund with the exception of the M&G Extra Income
                 or share class created after this Prospectus is superseded                        Fund and the M&G Income Fund, in respect of which
                 may be borne by the relevant sub-fund or by the ACD at                            these fees are charged against capital.
                 its discretion.                                                          27.1.5   In certain circumstances, the Investment Manager may
       27.1.3    The Company may pay out of the property of the                                    participate in a commission sharing arrangement. This
                 Company charges and expenses incurred by the                                      is a term given to the system of commission payments
                 Company, which will include the following expenses:                               awarded to participating brokers from the Investment
                                                                                                   Manager which are then used to pay other third party
                 27.1.3.1   the fees and expenses payable to the                                   research providers. The participating brokers agree to
                            Depositary and to the ACD, and, where not                              “give up” commission payments (of typically 60-70%
                            met by the ACD, the fees of the investment                             per trade) to the research provider. This arrangement is
                            manager;                                                               founded on the basis that the participating broker keeps
                 27.1.3.2 broker’s commission, fiscal charges                                      part of the commission (30-40%) for the execution
                          (including stamp duty and / or Stamp Duty                                service and the research provider receives commission
                          Reserve Tax) and other disbursements which                               for the research services provided to the Investment
                          are necessarily incurred in effecting                                    Manager.
                          transactions for the sub-funds and are
                          normally shown in contract notes,                        28     Charges payable to the ACD
                          confirmation notes and difference accounts               28.1   In payment for carrying out its duties and responsibilities the
                          as appropriate;                                                 ACD is entitled to deduct an annual fee from each share class in
                 27.1.3.3 any fees, expenses or disbursements of any                      each sub-fund. The charge is based on a percentage per annum
                          legal or other professional adviser of the                      of the Net Asset Value of the sub-fund attributable to each share
                          Company;                                                        class, calculated on a mid-market basis, at the rates set out in
                                                                                          Appendices 1 & 4.
                 27.1.3.4 any costs incurred in respect of meetings of
                          Shareholders convened on a requisition by                28.2 The annual fee accrues daily and is payable fortnightly in
                          Shareholders but not those convened by the                    advance. The current annual fees for the share classes of each
                          ACD or an associate of the ACD;                               sub-fund are set out in Appendices 1 & 4.

                 27.1.3.5 liabilities on unitisation, amalgamation or              28.3   Where a sub-fund invests in the units or shares of another
                          reconstruction including certain liabilities                    collective investment scheme managed by the ACD or an
                          arising after transfer of property to the sub-                  associate (this includes companies with which the ACD is linked
                          funds in consideration for the issue of                         by common management or control, or by a direct or indirect
                          Shares as more fully detailed in the                            holding of more than 10% of the capital or voting rights), the
                          Regulations;                                                    ACD will reduce its annual remuneration to the extent that an
                                                                                          equivalent charge has been borne by the underlying funds. Such
                 27.1.3.6 interest on borrowings and charges incurred                     underlying funds will waive any initial or redemption charges
                          in effecting or terminating such borrowings                     which may otherwise apply.
                          or in negotiating or varying the terms of such
                          borrowings;                                              28.4 The ACD is also entitled to reimbursement of all reasonable,
                                                                                        properly vouched, out of pocket expenses incurred in the
                 27.1.3.7 taxation and duties payable in respect of the                 performance of its duties, including stamp duty and stamp duty
                          property of the sub-funds or of the issue or                  reserve tax on transactions in Shares.
                          redemption of Shares, including SDRT;
                                                                                   28.5   Where the investment objective of a sub-fund is to treat the
                 27.1.3.8 the audit fees of the Auditor (including value                  generation of income as a higher priority than capital growth, or
                          added tax) and any expenses of the Auditor;                     the generation of income and capital growth have equal priority,
                 27.1.3.9 the fees of the FSA in accordance with the                      all or part of the ACD’s fee may be charged against capital instead
                          FSA’s Fee Manual, together with any                             of against income, subject to the approval of the Depositary. This
                          corresponding periodic fees of any                              treatment of the ACD’s fee may increase the amount of income
                          regulatory authority in a country or territory                  available for distribution to Shareholders in the sub-fund
                          outside the United Kingdom in which                             concerned, but may constrain capital growth. In respect of the
                          Shares in the Company are or may be                             M&G Extra Income Fund and the M&G Income Fund, the ACD
                          marketed;                                                       and Depositary have agreed that the ACD’s fee is charged each
                                                                                          sub-fund’s capital property. For all other sub-funds, the ACD’s
                 27.1.3.10 the Depositary will also be reimbursed out of                  fee is charged against their income property.
                           the property of the Company for expenses
                           detailed in paragraph 30.2.                             28.6 If a share class’s expenses in any period exceed the income the
                                                                                        ACD may take that excess from the capital property attributable
                 27.1.3.11 any payments otherwise due by virtue of the                  to that share class.
                           Regulations; and
                                                                              14
                                                                                                                                             IF2/290807/ENG/r01
                                                  Prospectus.
28.7   The ACD may introduce a new category of remuneration for its               30.2   The Depositary will also be paid out of the property attributable
       services or increase the current rate or amount of its                            to each Sub-fund, expenses properly incurred in the
       remuneration payable out of the scheme property of the                            performance of, or arranging the performance of, functions
       Company or the initial charge in accordance with the Regulations                  conferred on it by the Depositary Agreement, the Regulations or
       and once the ACD has made available a revised Prospectus                          by the general law including but not limited to:
       reflecting the introduction or new rate and the date of its
       commencement.                                                                     (i)   the acquisition holding and disposal of property;

28.8 The ACD is entitled to charge fees for administrative and                           (ii) the collection and distribution to shareholders of
     registration services to the Company at the rates set out in                             dividends, interest and any other income;
     Appendices 1 & 4 (plus any Value Added Tax thereon where                            (iii) the maintenance of distribution accounts;
     applicable) for the following:
                                                                                         (iv) the conversion of foreign currency;
       28.8.1 any costs incurred in making any offer of Shares, or in
              the preparation and printing of any Prospectus (and any                    (v)   registration of assets in the name of the Depositary or its
              amendments thereto) together with the fees for                                   nominee or agents;
              professional services provided to the Company in                           (vi) borrowings, stocklending or other permitted transactions;
              connection with such offer;
                                                                                         (vii) communications with any parties (including telex,
       28.8.2 fees and expenses in respect of establishing and                                 facsimile, SWIFT and electronic mail);
              maintaining the register of Shareholders;
                                                                                         (viii) taxation matters;
       28.8.3 any costs incurred in or about the listing of Shares in
              the Company on any Stock Exchange and the creation,                        (ix) insurance matters;
              conversion and cancellation of Shares;                                     (x)   costs relating to banking and banking transactions;
       28.8.4 any costs incurred by the Company in publishing the                        (xi) preparation of the Depositary’s annual report;
              price of the Shares in a national or other newspaper;
                                                                                         (xii) taking professional advice;
       28.8.5 any costs incurred in producing and dispatching any
              payments made by the Company, or the yearly and half-                      (xiii) conducting legal proceedings;
              yearly reports of the Company;
                                                                                         (xiv) the convening and / or attendance at meetings of
       28.8.6 any costs incurred in taking out and maintaining an                              shareholders; and
              insurance policy in relation to the Company or the
                                                                                         (xv) modification of the Instrument of Incorporation,
              ACD;
                                                                                              Prospectus, and negotiation and / or modification of the
       28.8.7 any costs incurred in respect of meetings of                                    Depositary Agreement and any other agreement entered
              Shareholders convened for any purpose excluding those                           into between the Depositary and its delegates.
              convened on a requisition by Shareholders;
                                                                                         The Depositary shall be entitled to recover its fees, charges and
       28.8.8 any expense incurred in relation to company secretarial                    expenses when the relevant transaction or other dealing is
              duties including the cost of maintenance of minute                         effected or relevant service is provided or as may otherwise be
              books and other documentation required to be                               agreed between the Depositary and the Company or the ACD.
              maintained by the Company; and
                                                                                  30.3   The Depositary has appointed The Northern Trust Company as
       28.8.9 any value added or similar tax relating to any charge or                   the custodian of the property of the Company and is entitled to
              expense set out herein.                                                    receive reimbursement of the custodian’s fees as an expense of the
                                                                                         Company. Transaction charges vary from country to country,
29     Investment Manager’s fees                                                         dependent on the markets and the value of the stock involved,
                                                                                         and, where levied, currently range from £4 to £80. These
       The investment manager’s fees and expenses (plus value added                      charges accrue at the time the transactions are effected and are
       tax thereon where applicable) will be paid by the ACD out of its                  payable as soon as is reasonably practicable, and in any event not
       remuneration under the ACD Agreement.                                             later than the last business day of the month when such charges
                                                                                         arose or as otherwise agreed between the Depositary and the
30     Depositary’s fee, charges and expenses                                            ACD. Custody charges again vary from country to country
30.1   The Depositary receives for its own account a periodic fee payable                depending on the markets and the value of the stock involved,
       out of the property attributable to each Sub-fund, with the                       and, where levied currently range from 0.001% per annum to
       property of each Sub-fund being valued and such remuneration                      0.30% per annum of the value of the relevant property of the
       accruing and being paid on the same basis as the ACD’s periodic                   relevant Sub-fund. Custody charges accrue and are payable as
       charge. The rate of the periodic fee is agreed between the ACD                    agreed from time to time by the ACD and the Depositary.
       and the Depositary. The charge is calculated on a sliding scale for        30.4   On a winding up of the Company, the termination of a sub-fund
       each Sub-fund on the following basis:                                             or the redemption of a class of shares, the Depositary will be
       0.0075 % per annum of the first £150 million of the Scheme                        entitled to its pro rata fees, charges and expenses to the date of
       Property,                                                                         winding up, the termination, or the redemption (as appropriate)
                                                                                         and any additional expenses necessarily realised in settling or
       0.005% per annum of the next £500 million of the Scheme                           receiving any outstanding obligations. No compensation for loss
       Property,                                                                         of office is provided for in the agreement with the Depositary.
       0.0025 % per annum of the balance.                                                Any Value Added Tax on any fees, charges or expenses payable to
       These rates can be varied from time to time in accordance with                    the Depositary will be added to such fees, charges or expenses.
       the Regulations.                                                           30.5   Expenses not directly attributable to a particular sub-fund will be
                                                                                         allocated between sub-funds. In each such case such expenses
                                                                             15
                                                                                                                                            IF2/290807/ENG/r01
                                                   Prospectus.
       and disbursements will also be payable if incurred by any person            32.4 Voting Rights
       (including the ACD or any associate or nominee of the
       Depositary or of the ACD) who has had the relevant duty                            32.4.1 At a meeting of Shareholders, on a show of hands every
       delegated to it pursuant to the Regulations by the Depositary.                            Shareholder who (being an individual) is present in
                                                                                                 person or (being a corporation) is present by its
30.6   The following further expenses may also be paid out of the                                representative properly authorised in that regard, has
       property of the Company:                                                                  one vote.
       30.6.1   all charges imposed by, and any expenses of, any agents                   32.4.2 On a poll vote, a Shareholder may vote either in person
                appointed by the Depositary to assist in the discharge of                        or by proxy. The voting rights attaching to each Share
                its duties;                                                                      are such proportion of the voting rights attaching to all
                                                                                                 the Shares in issue that the price of the Share bears to
       30.6.2 all charges and expenses incurred in connection with                               the aggregate price(s) of all the Shares in issue as at a
              the collection and distribution of income;                                         cut-off date selected by the ACD which is a reasonable
       30.6.3 all charges and expenses incurred in relation to the                               time before the notice of meeting is deemed to have
              preparation of the Depositary’s annual report to                                   been served.
              Shareholders;                                                               32.4.3 A Shareholder entitled to more than one vote need not,
       30.6.4 all charges and expenses incurred in relation to                                   if he votes, use all his votes or cast all the votes he uses
              stocklending.                                                                      in the same way.
30.7   Subject to current HM Revenue & Customs regulations, value                         32.4.4 Except where the Regulations or the Instrument of
       added tax at the prevailing rate may be payable in addition to the                        Incorporation of the Company require an
       Depositary’s remuneration, the custodian’s remuneration and                               extraordinary resolution (which needs 75% of the votes
       the above expenses.                                                                       cast at the meeting to be in favour for the resolution to
                                                                                                 be passed) any resolution required will be passed by a
30.8   In the case of the M&G High Interest Fund, the Depositary’s and                           simple majority of the votes validly cast for and against
       custodian’s remuneration are currently borne by the ACD.                                  the resolution.

31     Allocation of fees and expenses between sub-funds                                  32.4.5 The ACD may not be counted in the quorum for a
                                                                                                 meeting and neither the ACD nor any associate (as
       All the above fees, duties and charges (other than those borne by                         defined in the Regulations) of the ACD is entitled to
       the ACD) will be charged to the sub-fund in respect of which they                         vote at any meeting of the Company except in respect of
       were incurred but where an expense is not considered to be                                Shares which the ACD or associate holds on behalf of or
       attributable to any one sub-fund, the expense will normally be                            jointly with a person who, if the registered Shareholder,
       allocated to all sub-funds pro rata to the value of the Net Assets                        would be entitled to vote and from whom the ACD or
       of the sub-funds, although the ACD has discretion to allocate                             associate has received voting instructions.
       these fees and expenses in a manner which it considers fair to
       Shareholders generally.                                                            32.4.6 ‘Shareholders’ in this context of this paragraph 32
                                                                                                 means Shareholders as at a cut-off date selected by the
32     Shareholder meetings and voting rights                                                    ACD which is a reasonable time before the notice of the
                                                                                                 relevant meeting was deemed to have been served but
32.1   Annual General Meeting                                                                    excludes holders of Shares who are known to the ACD
       In accordance with the provisions of the Open-Ended                                       not to be Shareholders at the time of the meeting.
       Investment Companies (Amendment) Regulations 2005, the                             32.4.7 Investors in Euro Share Classes whose holdings are
       Company has elected not to hold annual general meetings.                                  registered through M&G International Investments
32.2 Requisitions of Meetings                                                                    Nominees Limited will be offered a vote at general
                                                                                                 meetings when M&G International Investments
       32.2.1 The ACD or the Depositary may requisition a general                                Limited considers, at its sole discretion, that the
              meeting at any time.                                                               investors’ interests may be materially affected.
       32.2.2 Shareholders may also requisition a general meeting of               32.5   Class and sub-fund Meetings
              the Company. A requisition by Shareholders must state
              the objects of the meeting, be dated, be signed by                          The above provisions, unless the context otherwise requires,
              Shareholders who, at the date of the requisition, are                       apply to class meetings and meetings of sub-funds as they apply
              registered as holding not less than one-tenth in value of                   to general meetings of Shareholders.
              all Shares then in issue and the requisition must be                 32.6 Variation of Class Rights
              deposited at the head office of the Company. The ACD
              must convene a general meeting no later than eight                          The rights attached to a class or sub-fund may not be varied
              weeks after receipt of such requisition.                                    without the sanction of a resolution passed at a meeting of
                                                                                          Shareholders of that class or sub-fund by a 75% majority of those
32.3 Notice and Quorum                                                                    votes validly cast for and against such resolution (an
       Shareholders will receive at least 14 days notice of a Shareholders’               ‘extraordinary resolution’).
       meeting (other than an adjourned meeting where a shorter
       period of notice can apply) and are entitled to be counted in the           33     Taxation
       quorum and vote at such meeting either in person or by proxy.               33.1   General
       The quorum for a meeting is two Shareholders, present in
       person or by proxy. The quorum for an adjourned meeting is                         The information given under this heading does not constitute
       one Shareholder present in person or by proxy. Notices of                          legal or tax advice and prospective investors should consult their
       meetings and adjourned meetings will be sent to Shareholders at                    own professional advisers about the implications of subscribing
       their registered addresses.                                                        for, buying, holding, exchanging, selling or otherwise disposing

                                                                              16
                                                                                                                                             IF2/290807/ENG/r01
                                                    Prospectus.
       of Shares under the laws of the jurisdiction in which they may be                             reclaimable tax to purchase further Accumulation
       subject to tax.                                                                               shares in that sub-fund. If we do so we will waive any
                                                                                                     initial charge due to us on such re-investment. These
33.2 Taxation of the Company                                                                         re-investments will be made fourteen days before the
       33.2.1 Income                                                                                 relevant published income allocation date.
                Each sub-fund will be liable to corporation tax on its                      33.4.4 Capital gains
                taxable income less expenses at the lower rate of income                             Profits arising on disposal of shares are subject to capital
                tax (currently 20%).                                                                 gains tax. However, if the total gains from all sources
       33.2.2 Capital gains                                                                          realised by an individual share holder in a tax year, after
                                                                                                     deducting allowable losses, are less than the annual
                Capital gains accruing to a sub-fund will be exempt                                  exemption, there is no capital gains tax to apply. Taper
                from UK tax.                                                                         relief and indexation may be available to further reduce
33.3   Distributions                                                                                 any liability to tax. Where income equalisation applies
                                                                                                     (see below), the buying price of Shares includes accrued
       Sub-funds with over 60% invested in qualifying assets (broadly                                income which is repaid to the investor with the first
       interest paying) throughout the relevant distribution period can                              allocation of income following the purchase. This
       elect to make interest distributions (currently the M&G Gilt &                                repayment is deemed to be a repayment of capital and is
       Fixed Interest Income Fund, the M&G High Interest Fund, the                                   therefore made without deduction of tax but must be
       M&G High Yield Corporate Bond Fund, the M&G Long Dated                                        deducted from the investor’s base cost of the relevant
       Sterling Bond Fund and the M&G Real Yield Fund). In all other                                 Shares for purposes of calculating any liability to capital
       cases they will pay dividend distributions.                                                   gains tax.

33.4 Taxation of the investor                                                                        The above statements are only intended as a general
                                                                                                     summary of UK tax law and practice as at the date of this
       33.4.1 Dividend distributions - UK resident individual                                        Prospectus and may change in the future. Any investor
              shareholders                                                                           who is in any doubt as to his or her UK tax position in
                The distributions paid out or accumulated are                                        relation to the Company should consult a UK
                dividends which carry a tax credit at the rate of 10% of                             professional adviser.
                the gross income. Individual shareholders whose
                income is within the lower or base rate bands will have              34     Income equalisation
                no further tax to pay. Higher rate taxpayers can set the             34.1   Income equalisation will be applied to Shares issued by the
                tax credit against their tax liability, which will be charged               Company.
                at a rate of 32.5% on dividend income. The
                distribution and associated tax credit should be entered             34.2 Part of the purchase price of a Share reflects the relevant share of
                separately on income tax returns. For non taxpayers,                      accrued income received or to be received by the Company. This
                none of the tax credit is refundable.                                     capital sum is returned to a Shareholder with the first allocation
                                                                                          of income in respect of a Share issued during the relevant
       33.4.2 Dividend distributions - UK resident corporate                              accounting period.
              shareholders
                                                                                     34.3   The amount of income equalisation is calculated by dividing the
                Distributions will be divided into that part which relates                  aggregate of the amounts of income included in the price of
                to UK dividend income of the Fund, and that part                            Shares issued to or bought by Shareholders in an annual or
                which relates to other income. The part relating to UK                      interim accounting period (see paragraph 36.2.1) by the number
                dividend income is not taxable. The tax credit received                     of those Shares and applying the resultant average to each of the
                in respect of it cannot be reclaimed. The other part is                     Shares in question.
                taxable as if it were interest and is subject to corporation
                tax. The taxable part of the distribution is received net            35     Winding up of the Company or a sub-fund of the
                of an income tax deduction of 20% which can be offset                       Company
                against a shareholder’s liability to corporation tax and
                may be recoverable. The tax voucher will show the ratio              35.1   The Company shall not be wound up except as an unregistered
                between the part relating to UK dividend income                             company under Part V of the Insolvency Act 1986 or under the
                (franked investment income) and the part relating to                        Regulations. A sub-fund may only be wound up under the
                taxable annual payments and also shows, in terms of a                       Regulations.
                pence per share rate, the tax which can be recovered.                35.2   Where the Company or a sub-fund is to be wound up under the
       33.4.3 Interest distributions                                                        Regulations, such winding up may only be commenced following
                                                                                            approval by the FSA. The FSA may only give such approval if the
                These are paid after deduction of income tax at the rate                    ACD provides a statement (following an investigation into the
                of 20%. The tax deducted will be creditable against an                      affairs of the Company) either that the Company will be able to
                investor’s liability to tax on interest distributions.                      meet its liabilities within 12 months of the date of the statement
                Individuals paying tax at 10% or 22% will not be subject                    or that the Company will be unable to do so.
                to further taxation; however, starting rate taxpayers are
                entitled to recover the tax in excess of the starting rate,          35.3   The Company or a sub-fund may be wound up under the
                and higher rate taxpayers will be liable to pay a further                   Regulations if:
                20%. Non-taxpayers and UK resident corporate                                35.3.1   an extraordinary resolution to that effect is passed by
                shareholders should be able to reclaim from HM                                       Shareholders; or
                Revenue & Customs the 20% tax deducted and, in
                certain circumstances, may be eligible to receive it gross.                 35.3.2 the period (if any) fixed for the duration of the
                Where a gross payment is made and the investor holds                               Company or a particular sub-fund by the Instrument of
                Accumulation shares, we intend to use any element of                               Incorporation expires, or the event (if any) occurs on
                                                                                17
                                                                                                                                                IF2/290807/ENG/r01
                                                    Prospectus.
                the occurrence of which the Instrument of                                  to the Registrar of Companies within two months of the
                Incorporation provides that the Company or a                               termination of the winding up.
                particular sub-fund is to be wound up (for example, if
                the share capital of the Company is below its prescribed            35.9   As the Company is an umbrella company, any liabilities
                minimum or (in relation to any sub-fund) the Net Asset                     attributable or allocated to a sub-fund under the Regulations
                Value of the sub-fund is less than £10,000,000, or if a                    shall be met first out of the scheme property attributable or
                change in the laws or regulations of any country means                     allocated to that sub-fund.
                that, in the ACD’s opinion, it is desirable to terminate            35.10 If the liabilities of a sub-fund are greater than the proceeds of the
                the sub-fund); or                                                         realisation of the scheme property attributable or allocated to the
       35.1.3   on the date of effect stated in any agreement by the FSA                  sub-fund, the deficit shall be met out of the scheme property
                to a request by the ACD for the revocation of the                         attributable or allocated to sub-funds in respect of which the
                authorisation order in respect of the Company or the                      proceeds of realisation exceed liabilities and will be divided
                sub-fund.                                                                 between the sub-funds in a manner which is fair to Shareholders
                                                                                          in those sub-funds.
35.4   On the occurrence of any of the above:
       35.4.1 Regulations 6.2, 6.3 and 5 relating to Dealing,                       36     General information
              Valuation and Pricing and Investment and Borrowing                    36.1   Accounting Periods
              will cease to apply to the Company or the sub-fund;
                                                                                           The annual accounting period of the Company ends each year on
       35.4.2 the Company will cease to issue and cancel Shares in the                     31 May (the accounting reference date). The half-yearly
              Company or the sub-fund and the ACD shall cease to                           accounting period ends each year on 30 November.
              sell or redeem Shares or arrange for the Company to
              issue or cancel them for the Company or the sub-fund;                 36.2 Income Allocations

       35.4.3 no transfer of a Share shall be registered and no other                      36.2.1 Allocations of income are made in respect of the income
              change to the register shall be made without the                                    available for allocation in each annual accounting
              sanction of the ACD;                                                                period and, for certain sub-funds, each interim
                                                                                                  accounting period (see Appendices 1 & 4).
       35.4.4 where the Company is being wound up, the Company
              shall cease to carry on its business except in so far as it is               36.2.2 Distributions of income for each sub-fund are paid on
              beneficial for the winding up of the Company;                                       or before the annual income allocation date of 30
                                                                                                  September and where applicable on or before one or
       35.4.5 the corporate status and powers of the Company and,                                 more of the interim allocation dates of 31 March, 30
              subject to the provisions of Clauses 35.4.1 and 35.4.2                              June and 31 December in each year.
              above, the powers of the ACD shall remain until the
              Company is dissolved.                                                        36.2.3 If a distribution remains unclaimed for a period of six
                                                                                                  years after it has become due, it will be forfeited and will
35.5   The ACD shall, as soon as practicable after the Company or the                             revert to the Company.
       sub-fund falls to be wound up, realise the assets and meet the
       liabilities of the Company or the sub-fund and, after paying out                    36.2.4 The amount available for allocation in any accounting
       or retaining adequate provision for all liabilities properly payable                       period is calculated by taking the aggregate of the
       and retaining provision for the costs of winding up, arrange for                           income received or receivable for the account of the
       the Depositary to make one or more interim distributions out of                            relevant sub-fund in respect of that period, and
       the proceeds to Shareholders proportionately to their rights to                            deducting the charges and expenses of the relevant sub-
       participate in the scheme property of the Company or the sub-                              fund paid or payable out of income in respect of that
       fund. When the ACD has caused all of the scheme property to be                             accounting period. The ACD then makes such other
       realised and all of the liabilities of the Company or the sub-fund                         adjustments as it considers appropriate (and after
       to be realised, the ACD shall arrange for the Depositary also to                           consulting the auditor as appropriate) in relation to
       make a final distribution to Shareholders as at (or prior to) the                          taxation, income equalisation, income unlikely to be
       date on which the final account is sent to Shareholders of any                             received within 12 months following the relevant
       balance remaining, if applicable, in proportion to their holdings                          income allocation date, income which should not be
       in the Company or the sub-fund.                                                            accounted for on an accrual basis because of lack of
                                                                                                  information as to how it accrues, transfers between the
35.6   On completion of a winding up of the Company, the Company                                  income and capital account and any other adjustments
       will be dissolved and any money which is legitimately the property                         which the ACD considers appropriate after consulting
       of the Company (including unclaimed distributions) and                                     the auditor.
       standing to the account of the Company, will be paid into court
       within one month of dissolution.                                                              The amount initially deemed available in respect of any
                                                                                                     one class of Share may be reduced if the income
35.7   Following the completion of the winding up of the Company or                                  attributed to another class of Share in the same sub-
       the sub-fund, the ACD shall provide written confirmation to the                               fund is less than the charges applicable to that class of
       Registrar of Companies and shall notify the FSA that it has done                              Share.
       so.
                                                                                           36.2.5 Income from debt securities
35.8   Following the completion of a winding up of either the Company
       or a sub-fund, the ACD must prepare a final account showing                                   Income from debt securities is recognised on an
       how the winding up took place and how the scheme property was                                 effective yield basis. Effective yield is an income
       distributed. The auditor of the Company shall make a report in                                calculation that takes account of amortisation of any
       respect of the final account stating their opinion as to whether                              discount or premium on the purchase price of the debt
       the final account has been properly prepared. This final account                              security over the remaining life of the security.
       and the auditor’s report must be sent to the FSA, to each                           36.2.6 Distributions made to the first named joint
       Shareholder and, in the case of the winding up of the Company,                             Shareholder are as effective a discharge to the Company
                                                                               18
                                                                                                                                               IF2/290807/ENG/r01
                                                 Prospectus.
                and the ACD as if the first named Shareholder had been          37     European Savings Directive
                a sole Shareholder.
                                                                                       In order to fulfil our obligations under the European Savings
       36.2.7 Income produced by the sub-fund’s investment                             Directive we are required to obtain evidence of the tax
              decisions accumulates during each accounting period.                     identification number, or country and date of birth of investors
              If, at the end of the accounting year, income exceeds                    who are resident outside the United Kingdom for tax purposes.
              expenses, the net income of the sub-fund is available to                 If certain conditions apply, information about your M&G
              be distributed to Shareholders. In order to conduct a                    holding may be passed to HM Revenue & Customs in order to be
              controlled dividend flow to Shareholders, interim                        passed on to other tax authorities. Such information will be
              distributions will be, at the investment manager’s                       passed to HM Revenue & Customs where you sell shares in a sub-
              discretion, up to a maximum of the distributable                         fund if the sub-fund has invested more than 40% of its assets
              income available for the period. All remaining income                    directly or indirectly in money debts, or where distributions are
              is distributed in accordance with the Regulations.                       made (either paid out or reinvested) by a sub-fund which has
                                                                                       invested more than 15% of its assets in money debts.
       36.2.8 If you invest in the M&G High Interest Fund you may
              choose to have an income reinvested in further shares of
              that sub-fund. Reinvestment of allocations of income is           38     Complaints
              made fourteen days before any income allocation date.                    If you wish to complain about any aspect of the service you have
                                                                                       received or to request a copy of M&G’s complaints handling
36.3   Fewer than two sub-funds                                                        procedures, please contact M&G Customer Relations, PO Box
       If, for a period of 24 consecutive months beginning at any time                 9039, Chelmsford CM99 2XG. If your complaint is not dealt
       after the first issue of Shares in the Company, Shares in respect               with to your satisfaction, you can then complain to: The
       of fewer than two sub-funds are in issue, the Directors must take               Financial Ombudsman Service (FOS), South Quay Plaza, 183
       such action as is necessary to change the category of the Company               Marsh Wall, London E14 9SR.
       or cause Shares in respect of more than one sub-fund to be in
       issue. This does not apply if winding up of the Company has              39     Marketing outside the UK
       begun on or before the expiry of the 24-month period.                    39.1   The Company’s Shares are marketed in overseas jurisdictions.
36.4 Annual Reports                                                                    Paying agents in non UK countries where Shares are registered
                                                                                       for retail sale may charge investors for their services.
       Annual reports of the Company are published within four
       months of each annual accounting period and half-yearly reports          39.2   The Shares in the Sub-funds have not been and will not be
       are published within two months of each half-yearly accounting                  registered under the United States Securities Act of 1933, as
       period and are available to Shareholders on request.                            amended, or registered or qualified under the securities laws of
       Shareholders will receive copies of the annual and half-yearly                  any state of the United States and may not be offered, sold,
       short reports on publication.                                                   transferred or delivered, directly or indirectly, to any investors
                                                                                       within the United States or to, or for the account of, US Persons
       Investors who hold Euro Share Classes through M&G                               except in certain limited circumstances pursuant to a transaction
       International Investments Nominees Limited will receive copies                  exempt from such registration or qualification requirements.
       of the annual and half-yearly short reports for the Company on                  None of the Shares have been approved or disapproved by the US
       publication.                                                                    Securities and Exchange Commission, any state securities
36.5   Documents of the Company                                                        commission in the United States or any other US regulatory
                                                                                       authority, nor have any of the foregoing authorities passed upon
       (Non-UK investors should refer to Appendix 4)                                   or endorsed the merits of the offering of the Shares or the
       36.5.1   The following documents may be inspected free of                       accuracy or adequacy of the prospectus. The Sub-funds will not
                charge between 9.00 am and 5.00 pm UK time every                       be registered under the United States Investment Company Act
                Dealing Day at the offices of the ACD at Laurence                      of 1940, as amended.
                Pountney Hill, London EC4R 0HH:
                                                                                40     Markets for the Sub-fund
                36.5.1.1 the most recent annual and half-yearly
                         reports of the Company;                                       Sub-funds are marketable to all retail investors.

                36.5.1.2 the Instrument of Incorporation (and any
                         amending instrument of incorporation);
                36.5.1.3 information on the risk management
                         methods used in relation to the sub-funds,
                         the quantitative limits which apply to that
                         risk management and any developments in
                         the risk and yields of the main categories of
                         investment.
                          Shareholders may obtain copies of the above
                          documents from the above addresses. The
                          ACD may make a charge at its discretion for
                          copies of certain documents.
36.6 Notices
       Notices to Shareholders will normally be given in writing to the
       Shareholder’s registered address (or, at the discretion of the
       ACD, such other address which we may hold for the purposes of
       correspondence).

                                                                           19
                                                                                                                                           IF2/290807/ENG/r01
                                    APPENDIX 1 - DETAILS OF THE SUB-FUNDS OF M&G INVESTMENT FUNDS (2)

1.1 M&G Extra Income Fund.                                                                                  1.2 M&G Gilt & Fixed Interest Income Fund.
Investment objective and policy.                                                                            Investment objective and policy.
The Fund invests mainly in a range of UK equities with the aim of achieving a high income stream            The Fund is designed to provide a high and secure income, with stability of capital. The Fund invests
which also increases over time. The target yield is 50% higher than that of the FTSE All-Share Index        in short, medium or long-dated government stocks according to M&G’s view at any given moment
but this may vary in the shorter term. Although income will be the primary consideration, the               of the likely course of interest rates and trend of the gilt-edged market. The Fund is able to invest a
investment manager will also be mindful of total return (the combination of income and growth of            proportion of the assets in dated debenture or loan stocks, if these provide good relative value. More
capital).                                                                                                   than 35% in value of the property of the Fund consists of government and other public securities
Accounting reference date:           31 May                                                                 issued or guaranteed by the Government of the United Kingdom (including the Scottish
                                                                                                            Administration, the Executive Committee of the Northern Ireland Assembly and the National
Income allocation date:              On or before 30 September (Final); 31 December (Interim); 31           Assembly of Wales) and it is intended that this should continue to be the case.
                                     March (Interim); 30 June (Interim).                                    Accounting reference date:            31 May
Available share classes/types:       Net income and net accumulation shares in Sterling Class A             Income allocation date:                On or before 30 September (Final); 31 December (Interim); 31
                                     and X; net income shares in Sterling Class C                                                                  March (Interim); 30 June (Interim)

Investment minima                                                                                           Available share classes/types:        Net income and net accumulation shares in Sterling Class A

Lump sum initial investment          Class A: £500                                                          Investment minima
                                     Class X: £500
                                     Class C: £500,000                                                      Lump sum initial investment           Class A: £500

Lump sum subsequent investment       Class A: £10                                                           Lump sum subsequent investment        Class A: £10
                                     Class X: £10                                                           Lump sum holding                       Class A: £500
                                     Class C: £25,000
                                                                                                            Regular saving (per month)             Class A: £10
Lump sum holding                     Class A: £500
                                                                                                            Redemption                             Class A: £10
                                     Class X: £500
                                     Class C: £500,000
                                                                                                            Charges and Expenses
Regular saving (per month)           Class A: £10
                                                                                                            Initial charge                         Class A: nil
                                     Class X: £10
                                     Class C: n/a                                                           Redemption charge                      Class A: n/a
Redemption                           Class A: £10                                                           ACD’s annual remuneration              Class A: 0.75%
                                     Class X: £10                                                           ACD’s remuneration for
                                     Class C: £25,000                                                       Administrative and Registration
                                                                                                            services:                              0.15% of ‘NAV’ per annum
Charges and Expenses
                                                                                                            Investment Manager:                    M&G Investment Management Limited
Initial charge                       Class A: 4%
                                                                                                            Valuation point:                       12.00 noon UK time
                                     Class X: nil
                                     Class C: nil                                                           Launch date:                           24 January 2002
Redemption charge                    Class A: n/a
                                     Class X: 4.5%#
                                     Class C: n/a
ACD’s annual remuneration            Class A: 1.25%
                                     Class X: 1.25%
                                     Class C: 0.00%
ACD’s remuneration for
Administrative and Registration
services:                            0.15% of ‘NAV’ per annum
Investment Manager:                  M&G Investment Management Limited
Valuation point:                     12.00 noon UK time
Launch date:                         24 January 2002
#   Please see paragraph 14.2 for details.




                                                                                                       20
                                                                                                                                                                                             IF2/290807/ENG/r01
                             APPENDIX 1 - DETAILS OF THE SUB-FUNDS OF M&G INVESTMENT FUNDS (2) (continued)

1.3 M&G High Interest Fund.                                                                                     1.4 M&G High Yield Corporate Bond Fund.
Investment objective and policy.                                                                                Investment objective and policy.
Designed to provide income with stability of capital by investing in fixed interest securities which fit        The Fund invests predominantly in higher yielding fixed and variable rate securities, including
the purposes of the Scheme. These may include (but are not restricted to) floating rate notes, gilts,           corporate bonds and debentures. The Fund is designed to maximise total return while generating a
Treasury Bills and other instruments traded on the London Discount Market. More than 35% of                     high level of income. In addition to sterling denominated securities, the portfolio may include gilts
the value of the property of the Fund may be invested in government and other public securities                 and securities denominated in other European currencies, US dollars or yen, should the
issued by the Government of the United Kingdom (including the Scottish Administration, the                      investment managers deem these to be appropriate investments. The sterling based nature of the
Executive Committee of the Northern Ireland Assembly and the National Assembly of Wales). The                   investor base will be considered at all times. The investment manager has the power to use futures
investment manager will hedge the property of the Scheme against fluctuations in price as and when              traded or dealt on eligible derivatives markets (currently being The London International Financial
they consider it appropriate with a view to achieving stability of capital. When entering into hedging,         Futures and Options Exchange) for the purpose of hedging the capital value of the Fund against the
transactions are likely to be by way of traded futures and options although over-the-counter                    risks of adverse movements in long term interest rates. Any currency exposures within the Fund may
transactions may also be used.                                                                                  be managed by forward currency hedges into sterling.
Accounting reference date:             31 May                                                                   Accounting reference date:            31 May
Income allocation date:                On or before 30 September (Final); 31 December (Interim); 31             Income allocation date:               On or before 30 September (Final); 31 October (Interim); 30
                                       March (Interim); 30 June (Interim)                                                                             November (Interim); 31 December (Interim); 31 January
Available share classes/types:         Net income shares in Sterling Class A                                                                          (Interim); 28 February (Interim); 31 March (Interim); 30 April
                                                                                                                                                      (Interim); 31 May (Interim); 30 June (Interim); 31 July
Investment minima                                                                                                                                     (Interim); 31 August (Interim)

Lump sum initial investment            Class A: £500                                                            Available share classes/types:        Net income and net accumulation shares in Sterling Class A, X
                                                                                                                                                      and C†
Lump sum subsequent investment         Class A: £10
Lump sum holding                       Class A: £500                                                            Investment minima
Regular saving (per month)             Class A: £10                                                             Lump sum initial investment           Class A: £500
                                                                                                                                                      Class X: £500
Redemption                             Class A: £10
                                                                                                                                                      Class C†: £500,000
Charges and Expenses                                                                                            Lump sum subsequent investment        Class A: £10
                                                                                                                                                      Class X: £10
Initial charge                         Class A: nil
                                                                                                                                                      Class C†: £25,000
Redemption charge                      Class A: n/a
                                                                                                                Lump sum holding                      Class A: £500
ACD’s annual remuneration              Class A: 0.5%                                                                                                  Class X: £500
ACD’s remuneration for                                                                                                                                Class C†: £500,000
Administrative and Registration                                                                                 Regular saving (per month)            Class A: £10
services:                              0.15% of ‘NAV’ per annum                                                                                       Class X: £10
Investment Manager:                    M&G Investment Management Limited                                                                              Class C†: n/a
Valuation point:                       12.00 noon UK time                                                       Redemption                            Class A: £10
                                                                                                                                                      Class X: £10
Launch date:                           24 January 2002                                                                                                Class C†: £25,000

                                                                                                                Charges and Expenses
                                                                                                                Initial charge                        Class A: 3%
                                                                                                                                                      Class X: nil
                                                                                                                                                      Class C†: -
                                                                                                                Redemption charge                     Class A: n/a
                                                                                                                                                      Class X: 4.5%#
                                                                                                                                                      Class C†: n/a
                                                                                                                ACD’s annual remuneration             Class A: 1.25%
                                                                                                                                                      Class X: 1.25%
                                                                                                                                                      Class C†: -
                                                                                                                ACD’s remuneration for
                                                                                                                Administrative and Registration
                                                                                                                services:                             0.15% of ‘NAV’ per annum
                                                                                                                Investment Manager:                   M&G Investment Management Limited
                                                                                                                Valuation point:                      12.00 noon UK time
                                                                                                                Launch date:                          24 January 2002
                                                                                                                †   This share class may be launched by the ACD at some point in the future: Market conditions
                                                                                                                    will largely dictate the timing of the launch.
                                                                                                                #   Please see paragraph 14.2 for details.




                                                                                                           21
                                                                                                                                                                                                IF2/290807/ENG/r01
                             APPENDIX 1 - DETAILS OF THE SUB-FUNDS OF M&G INVESTMENT FUNDS (2) (continued)

1.5 M&G Income Fund.                                                                                          1.6 M&G Index Tracker Fund.
Investment objective and policy.                                                                              Investment objective and policy.
The Fund invests mainly in a range of UK equities with the aim of achieving income growth. The                The Fund is designed to track the FTSE All-Share Index. The investment advisers have full
target yield is at least 15% higher than that of the FTSE All-Share Index. Subject to this, the aim is        discretionary investment management powers within the confines of this investment objective of the
to maximise total return (the combination of income and growth of capital).                                   Fund.
Accounting reference date:            31 May                                                                  Accounting reference date:           31 May
Income allocation date:               On or before 30 September (Final); 31 March (Interim)                   Income allocation date:              On or before 30 September (Final); 31 March (Interim)
Available share classes/types:        Net income and net accumulation shares in Sterling Class A, X           Available share classes/types:       Net income and net accumulation shares in Sterling Class A
                                      and C†
                                                                                                              Investment minima
Investment minima                                                                                             Lump sum initial investment          Class A: £500
Lump sum initial investment           Class A: £500                                                           Lump sum subsequent investment       Class A: £10
                                      Class X: £500
                                      Class C†: £500,000                                                      Lump sum holding                     Class A: £500
Lump sum subsequent investment        Class A: £10                                                            Regular saving (per month)           Class A: £10
                                      Class X: £10                                                            Redemption                           Class A: £10
                                      Class C†: £25,000
Lump sum holding                      Class A: £500                                                           Charges and Expenses
                                      Class X: £500                                                           Initial charge                       Class A: nil
                                      Class C†: £500,000
                                                                                                              Redemption charge                    Class A: n/a
Regular saving (per month)            Class A: £10
                                                                                                              ACD’s annual remuneration            Class A: 0.3%
                                      Class X: £10
                                      Class C†: n/a                                                           ACD’s remuneration for
                                                                                                              Administrative and Registration
Redemption                            Class A: £10
                                                                                                              services:                            0.15% of ‘NAV’ per annum
                                      Class X: £10
                                      Class C†: £25,000                                                       Investment Manager:                  State Street Global Advisors Limited
                                                                                                              Valuation point:                     12.00 noon UK time
Charges and Expenses
                                                                                                              Launch date:                         24 January 2002
Initial charge                        Class A: 4%
                                      Class X: nil
                                      Class C†: -
Redemption charge                     Class A: n/a
                                      Class X: 4.5%#
                                      Class C†: n/a
ACD’s annual remuneration             Class A: 1.5%
                                      Class X: 1.5%
                                      Class C†: -
ACD’s remuneration for
Administrative and Registration
services:                             0.15% of ‘NAV’ per annum
Investment Manager:                   M&G Investment Management Limited
Valuation point:                      12.00 noon UK time
Launch date:                          24 January 2002
†   This share class may be launched by the ACD at some point in the future: Market conditions
    will largely dictate the timing of the launch.
#   Please see paragraph 14.2 for details.




                                                                                                         22
                                                                                                                                                                                            IF2/290807/ENG/r01
                             APPENDIX 1 - DETAILS OF THE SUB-FUNDS OF M&G INVESTMENT FUNDS (2) (continued)

1.7 M&G Long Dated Sterling Bond Fund.                                                                    1.8 M&G Real Yield Fund.
Following a Shareholder vote on 8 August 2007, the M&G Long Dated Sterling Bond Fund is
expected to be merged into the M&G Gilt & Fixed Interest Income Fund (also a Sub-fund of M&G              Investment objective and policy.
Investment Funds (2)) on 14 September 2007.                                                               The Fund aims to secure the value of capital and income from the effects of inflation, with a long
Once the merger takes place, the M&G Long Dated Sterling Bond Fund will no longer be available            term total return in excess of any upward movement in the UK Retail Prices Index. The portfolio
for investment.                                                                                           will normally focus on index linked gilts, though may contain other securities consistent with this
                                                                                                          aim. Non-sterling denominated securities may be held and, if deemed appropriate by the
Investment objective and policy.                                                                          investment manager, the associated currency risks hedged. More than 35% of the value of the
                                                                                                          property of the Fund may be invested in Government and other public securities issued or
The Fund aims to provide a higher total return than the FTSE Actuaries Government Securities UK           guaranteed by any of:
Gilts over 15 years Index, through investment predominantly in ultra-long dated sterling
denominated securities. Non-sterling denominated securities may also be held and, if deemed               • the Government of the United Kingdom (including the Scottish Administration, the
appropriate by the investment manager, the associated currency risks hedged. More than 35% of the              Executive Committee of the Northern Ireland Assembly and the National Assembly of
value of the property of the Fund may be invested in Government and other public securities issued             Wales) or of a member State other than the United Kingdom;
or guaranteed by any of:                                                                                  • the Government of Australia, Canada, Japan, New Zealand, Switzerland, USA;
• the Government of the United Kingdom (including the Scottish Administration, the                        • the African Development Bank, Asian Development Bank, Eurofima, European Economic
     Executive Committee of the Northern Ireland Assembly and the National Assembly of                         Community, European Bank for Reconstruction and Development, European Coal and
     Wales) or of a Member State other than the United Kingdom;                                                Steel Community, European Investment Bank, International Bank for Reconstruction and
• the Government of Australia, Canada, Japan, New Zealand, Switzerland, USA;                                   Development, International Financial Corporation.
• the African Development Bank, Asian Development Bank, Eurofima, European Economic                       Accounting reference date:           31 May
     Community, European Bank for Reconstruction and Development, European Coal and                       Income allocation date:              On or before 30 September (Final); 31 March (Interim)
     Steel Community, European Investment Bank, International Bank for Reconstruction and
     Development, International Financial Corporation.                                                    Available share classes/types:       Net income and net accumulation shares in Sterling Class A
Accounting reference date:           31 May
                                                                                                          Investment minima
Income allocation date:              On or before 30 September (Final); 31 March (Interim)
                                                                                                          Lump sum initial investment          Class A: £500
Available share classes/types:       Net income and net accumulation shares in Sterling Class A
                                                                                                          Lump sum subsequent investment       Class A: £10
Investment minima                                                                                         Lump sum holding                     Class A: £500
Lump sum initial investment          Class A: £500                                                        Regular saving (per month)           Class A: £10
Lump sum subsequent investment       Class A: £10                                                         Redemption                           Class A: £10
Lump sum holding                     Class A: £500
                                                                                                          Charges and Expenses
Regular saving (per month)           Class A: £10
                                                                                                          Initial charge                       Class A: nil
Redemption                           Class A: £10
                                                                                                          Redemption charge                    Class A: n/a
Charges and Expenses                                                                                      ACD’s annual remuneration            Class A: 0.5%
Initial charge                       Class A: nil                                                         ACD’s remuneration for
                                                                                                          Administrative and Registration
Redemption charge                    Class A: n/a
                                                                                                          services:                            0.15% of ‘NAV’ per annum
of amount redeemed                   Class X: -
                                     Class C: -                                                           Investment Manager:                  M&G Investment Management Limited
ACD’s annual remuneration            Class A: 0.5%                                                        Valuation point:                     12.00 noon UK time
ACD’s remuneration for                                                                                    Launch date:                         24 January 2002
Administrative and Registration
services:                            0.15% of ‘NAV’ per annum
Investment Manager:                  M&G Investment Management Limited
Valuation point:                     12.00 noon UK time
Launch date:                         24 January 2002




                                                                                                     23
                                                                                                                                                                                        IF2/290807/ENG/r01
                             APPENDIX 1 - DETAILS OF THE SUB-FUNDS OF M&G INVESTMENT FUNDS (2) (continued)

1.9 M&G UK Growth Fund.
Investment objective and policy.
The Fund invests principally in the equities of UK companies with high growth potential with the
sole objective of capital growth. Income considerations are ignored.
Accounting reference date:          31 May
Income allocation date:             On or before 30 September (Final); 31 March (Interim)
Available share classes/types:      Net income and net accumulation shares in Sterling Class A, X
                                    and C†

Investment minima
Lump sum initial investment         Class A: £500
                                    Class X: £500
                                    Class C†: £500,000
Lump sum subsequent investment      Class A: £10
                                    Class X: £10
                                    Class C†: £25,000
Lump sum holding                    Class A: £500
                                    Class X: £500
                                    Class C†: £500,000
Regular saving (per month)          Class A: £10
                                    Class X: £10
                                    Class C†: n/a
Redemption                          Class A: £10
                                    Class X: £10
                                    Class C†: £25,000

Charges and Expenses
Initial charge                      Class A: 4%
                                    Class X: nil
                                    Class C†: -
Redemption charge                   Class A: n/a
                                    Class X: 4.5%#
                                    Class C†: n/a
ACD’s annual remuneration           Class A: 1.5%
                                    Class X: 1.5%
                                    Class C†: -
ACD’s remuneration for
Administrative and Registration
services:                           0.15% of ‘NAV’ per annum
Investment Manager:                 M&G Investment Management Limited
Valuation point:                    12.00 noon UK time
Launch date:                        24 January 2002
†   This share class may be launched by the ACD at some point in the future: Market conditions
    will largely dictate the timing of the launch.
#   Please see paragraph 14.2 for details.




                                                                                                    24
                                                                                                             IF2/290807/ENG/r01
                  APPENDIX 2 - INVESTMENT MANAGEMENT AND BORROWING POWERS OF THE COMPANY
The property of each sub-fund will be invested with the aim of achieving             6     Eligible markets regime: purpose
the investment objective of that sub-fund but subject to the limits on
                                                                                     6.1   To protect investors the markets on which investments of the
investment set out in this section of the Prospectus and Chapter 5 of the
                                                                                           sub-fund are dealt in or traded on should be of an adequate
Regulations (the Collective Investment Schemes Sourcebook “COLL”
                                                                                           quality (“eligible”) at the time of acquisition of the investment
5.2 to 5.5) that are applicable to UCITS Schemes. These limits apply to
                                                                                           and until it is sold.
each sub-fund as summarised below:
                                                                                     6.2   Where a market ceases to be eligible, investments on that market
1      General rules of investment                                                         cease to be approved securities. The 10% restriction on investing
1.1    The Instrument of Incorporation permits the ACD to utilise the                      in non approved securities applies and exceeding this limit
       investment and borrowing powers permitted by a UCITS scheme                         because a market ceases to be eligible will generally be regarded as
       which complies with Chapter 5 of COLL. The ACD manages the                          an inadvertent breach.
       Funds in accordance with the investment and borrowing powers                  6.3   A market is eligible for the purposes of the rules if it is:
       set out below.
                                                                                           6.3.1    a regulated market; or
1.2    The ACD’s investment policy may mean that at times, where it is
       considered appropriate, the property of the sub-fund will not be                    6.3.2    a market in an EEA State which is regulated, operates
       fully invested and that prudent levels of liquidity will be                                  regularly and is open to the public.
       maintained.                                                                   6.4   A market not falling within paragraph 6.3 is eligible for the
                                                                                           purposes of Chapter 5 of the Regulations if:
2      Prudent spread of risk
                                                                                           6.4.1    the ACD, after consultation and notification with the
2.1    The ACD must ensure that, taking account of the investment
                                                                                                    Depositary, decides that market is appropriate for
       objectives and policy of the sub-fund, the scheme property of the
                                                                                                    investment of or dealing in the scheme property;
       sub-fund aims to provide a prudent spread of risk.
                                                                                           6.4.2    the market is included in a list in the prospectus; and
3      Cover
                                                                                           6.4.3    the Depositary has taken reasonable care to determine
3.1    No agreement by or on behalf of the sub-fund to dispose of                                   that:
       property or rights may be made unless:
                                                                                                    (a) adequate custody arrangements can be provided
       3.1.1    the obligation to make the disposal and any other                                       for the investment dealt in on that market; and
                similar obligation could be immediately honoured by
                the sub-fund by delivery of property or the assignment                              (b) all reasonable steps have been taken by the ACD in
                (or, in Scotland, assignation) of rights; and                                           deciding whether that market is eligible.
       3.1.2    the property and rights at 3.1.1 are owned by the sub-               6.5   In paragraph 6.4, a market must not be considered appropriate
                fund at the time of the agreement.                                         unless it is regulated, operates regularly, is recognised as a market
                                                                                           or exchange or as a self-regulatory organisation by an overseas
3.2    Paragraph 3.1 does not apply to a deposit.                                          regulator, is open to the public, is adequately liquid and has
                                                                                           adequate arrangements for unimpeded transmission of income
4      Transferable Securities                                                             and capital to or for the order of investors.
4.1    A transferable security is an investment falling within article 76            6.6   The eligible markets for each sub-fund are set out in Appendix
       (Shares etc), article 77 (Instruments creating or acknowledging                     3.
       indebtedness), article 78 (Government and public securities),
       article 79 (Instruments giving entitlement to investments) and                7     Spread: general
       article 80 (Certificates representing certain securities) of the
       Regulated Activities Order.                                                   7.1   This rule on spread does not apply to government and public
                                                                                           securities.
4.2    An investment is not a transferable security if the title to it cannot
       be transferred, or can be transferred only with the consent of a              7.2   For the purposes of this requirement companies included in the
       third party.                                                                        same group for the purposes of consolidated accounts as defined
                                                                                           in accordance with Directive 83/349/EEC or in the same group
4.3    In applying paragraph 4.2 to an investment which is issued by a                     in accordance with international accounting standards are
       body corporate, and which is an investment falling within articles                  regarded as a single body.
       76 (Shares, etc) or 77 (Instruments creating or acknowledging
       indebtedness) of the Regulated Activities Order, the need for any             7.3   Not more than 5% in value of the scheme property is to consist
       consent on the part of the body corporate or any members or                         of transferable securities issued by any single body.
       debenture holders of it may be ignored.                                       7.4   The limit of 5% in paragraph 7.3 is raised to 10% in respect of up
4.4    An investment is not a transferable security unless the liability of                to 40% in value of the scheme property.
       the holder of it to contribute to the debts of the issuer is limited          7.5   In applying paragraphs 7.3 and 7.4 certificates representing
       to any amount for the time being unpaid by the holder of it in                      certain securities are treated as equivalent to the underlying
       respect of the investment.                                                          security.
5      UCITS schemes - general                                                       7.6   Not more than 20% in value of the scheme is to consist of
                                                                                           transferable securities issued by the same group (as referred to in
5.1    The scheme property of the sub-fund must, except where
                                                                                           paragraph 7.2).
       otherwise provided in this section of the Prospectus and Chapter
       5 of COLL, consist of any or all of transferable securities.                  7.7   In applying the limits in paragraphs 7.3 to 7.6, not more than
                                                                                           20% in value of the scheme property is to consist of any
5.2    Transferable securities held within the sub-fund must (subject to
                                                                                           combination of two or more of the following:
       paragraph 5.3) be admitted to or dealt on an eligible market as
       described below.                                                                    7.7.1    transferable securities issued by; or
5.3    Not more than 10% in value of the scheme property of the sub-                       7.7.2    deposits made with; or
       fund is to consist of transferable securities, which are not
       approved securities.                                                                7.7.3    exposures from OTC derivatives transactions made
                                                                                                    with;
5.4    It is not intended that the sub-fund will have an interest in any
       immovable property or tangible movable property.                                             a single body.

                                                                                25
                                                                                                                                                IF2/290807/ENG/r01
           APPENDIX 2 - INVESTMENT MANAGEMENT AND BORROWING POWERS OF THE COMPANY (continued)

8      Spread: Government and public securities                                           10.1.2   the rights conferred by the proposed warrant and all
                                                                                                   other warrants forming part of the scheme property at
8.1    The above restrictions do not apply to Government and public
                                                                                                   the time of the acquisition of the proposed warrant will
       securities. The restrictions in relation to such securities are set
                                                                                                   be exercised (whether or not it is intended that they will
       out below (“such securities”).
                                                                                                   be);
8.2    Where no more than 35% in value of the scheme property is
                                                                                                   it is reasonably foreseeable that the right conferred by
       invested in such securities issued by any one body, there is no
                                                                                                   the proposed warrant could be exercised by a sub-fund
       limit on the amount which may be invested in such securities or
                                                                                                   without contravening the rules in Chapter 5 of COLL.
       in any one issue.
                                                                                   10.2   A transferable security on which any sum is unpaid falls within a
8.3    A sub-fund may invest more than 35% in value of the scheme
                                                                                          power of investment only if it is reasonably foreseeable that the
       property in such securities issued by any one body provided that:
                                                                                          amount of any existing and potential call for any sum unpaid
       8.3.1    the ACD has before any such investment is made                            could be paid by the sub-fund, at the time when payment is
                consulted with the Depositary and as a result considers                   required, without contravening the rules in Chapter 5 of COLL.
                that the issuer of such securities is one which is
                                                                                   10.3   A warrant which is an investment falling within article 80 of the
                appropriate in accordance with the investment
                                                                                          Regulated Activities Order (Certificates representing certain
                objectives of the authorised fund;
                                                                                          securities) and which is akin to an investment falling within
       8.3.2    no more than 30% in value of the scheme property                          article 79 (Instruments giving entitlement to investments) of the
                consists of such securities of any one issue;                             Regulated Activities Order may not be included in the scheme
                                                                                          property unless it is listed on an eligible securities market.
       8.3.3    the scheme property includes such securities issued by
                that or another issuer, of at least six different issues;          10.4   Not more than 5% in value of the scheme property of a sub-fund
                                                                                          is to consist of warrants.
       8.3.4    the disclosures required by the FSA have been made.
8.4    The rules in paragraph 8.3 apply to the sub-funds listed in                 11     Significant influence
       Appendix 1 only where that sub-fund’s investment objective and              11.1   The Company must not acquire transferable securities issued by
       policy specifically states more than 35% of the scheme property                    a body corporate and carrying rights to vote (whether or not on
       of that sub-fund is or may be invested in certain securities (which                substantially all matters) at a general meeting of that body
       are listed in the investment objective and policy).                                corporate if:
8.5    In relation to such securities:                                             11.2   immediately before the acquisition, the aggregate of any such
       8.5.1    issue, issued and issuer include guarantee, guaranteed                    securities held by the sub-fund gives the sub-fund power
                and guarantor; and                                                        significantly to influence the conduct of business of that body
                                                                                          corporate; or
       8.5.2    an issue differs from another if there is a difference as
                to repayment date, rate of interest, guarantor or other            11.3   the acquisition gives the Company that power.
                material terms of the issue.                                       11.4   For the purpose of paragraph 11.3, the Company is to be taken to
                                                                                          have power significantly to influence the conduct of business of a
9      Investment in collective investment schemes                                        body corporate if it can, because of the transferable securities
9.1    Up to 5% in value of the property of a sub-fund may be invested                    held by it, exercise or control the exercise of 20% or more of the
       in units or shares in one or more:                                                 voting rights in that body corporate (disregarding for this
                                                                                          purpose any temporary suspension of voting rights in respect of
       9.1.1    UCITS schemes (which themselves invest                                    the transferable securities of that body corporate).
                predominantly in securities and which restricts its use
                of derivatives to efficient portfolio management and its           12     Concentration
                use of warrants to 5% of the value of its property) for the
                avoidance of doubt this includes Securities schemes and                   The Company:
                Money Markets schemes; or                                          12.1   must not acquire transferable securities (other than debt
       9.1.2    certain recognised schemes, as defined in s270 the                        securities) which:
                Financial Services and Markets Act 2000, subject in each                  12.1.1   do not carry a right to vote on any matter at a general
                case that certain conditions are met and in particular                             meeting of the body corporate that issued them; and
                that the second scheme has terms which prohibit more
                than 10% in value of the scheme property consisting of                    12.1.2   represent more than 10% of those securities issued by
                units in collective investment schemes.                                            that body corporate;
9.2    Subject to the rules in COLL 5.2.16R and the value stated in 9.1            12.2   must not acquire more than 10% of the debt securities issued by
       above, investments in collective investment schemes may be in                      any single body;
       schemes which are managed or operated by (or, in the case of                12.3   must not acquire more than 10% of the units in a collective
       companies incorporated under the OEIC Regulations, have as                         investment scheme;
       their authorised corporate director) the ACD or an associate of
       the ACD.                                                                    12.4   must not acquire more than 10% of the money market
                                                                                          instruments issued by any single body; and
9.3    A sub-fund cannot invest in other sub-funds of the Company,
       but may invest in shares of a sub-fund of another company.                  12.5   need not comply with the limits in paragraphs 12.2 to 12.4 if, at
                                                                                          the time of acquisition, the net amount in issue of the relevant
10     Investment in warrants and nil and partly paid                                     investment cannot be calculated.
       securities
10.1   A warrant (“the proposed warrant”) falls within any power of                13     Cover
       investment only if, on the assumptions that:                                13.1   Where the FSA Rules allow a transaction to be entered into or an
                                                                                          investment to be retained only (for example investment in
       10.1.1   there is no change to the scheme property between the                     warrants and nil and partly paid securities and the general power
                acquisition of the proposed warrant and its exercise;                     to accept or underwrite) if possible obligations arising out of the
                and                                                                       investment transactions or out of the retention would not cause
                                                                                          any breach of any limits in COLL 5, it must be assumed that the

                                                                              26
                                                                                                                                             IF2/290807/ENG/r01
           APPENDIX 2 - INVESTMENT MANAGEMENT AND BORROWING POWERS OF THE COMPANY (continued)
       maximum possible liability of the sub-fund under any of those                                         another currency. This aim also permits the
       rules has also been provided for.                                                                     use of stock index contracts to change the
                                                                                                             exposure from one market to another, a
13.2   Where a rule in COLL permits an investment transaction to be                                          technique known as ‘tactical asset allocation’.
       entered into or an investment to be retained only if that
       investment transaction, or the retention or other similar                                  14.6.3.2 Reduction of cost allows for the use of
       transactions are covered:                                                                           futures or options contracts, either on
                                                                                                           specific stocks or on an index, in order to
       13.2.1   it must be assumed that in applying any of those rules,                                    minimise or eliminate the effect of changing
                the sub-fund must also simultaneously satisfy any other                                    prices of stocks to be bought or sold.
                obligation relating to cover; and
                                                                                                  14.6.3.3 The aims of reduction of risk or cost,
       13.2.2 no element of cover must be used more than once.                                             together or separately, allow the ACD on a
                                                                                                           temporary basis to use the technique of
14     Efficient Portfolio Management                                                                      tactical asset allocation. Tactical asset
14.1   The Company may use its property to enter into transactions for                                     allocation permits the ACD to undertake a
       the purposes of efficient portfolio management (‘EPM’) and may                                      switch in exposure by use of derivatives,
       enter into any transaction to hedge (i.e. with the purpose of                                       rather than through sale and purchase of the
       preserving the value of an asset or assets of a sub-fund).                                          scheme property. If an EPM transaction for
                                                                                                           the Company relates to the acquisition or
14.2   Permitted EPM transactions (excluding stock lending                                                 potential acquisition of transferable
       arrangements) are transactions in derivatives (i.e. options,                                        securities, the ACD must intend that the
       futures or contracts for differences) dealt in or traded on an                                      Company should invest in transferable
       approved derivatives market; off exchange futures, options or                                       securities within a reasonable time and the
       contracts for differences resembling options; or synthetic futures                                  ACD shall thereafter ensure that, unless the
       in certain circumstances. The Company may enter into approved                                       position has itself been closed out, that
       derivatives transactions on derivatives markets which are eligible.                                 intention is realised within that reasonable
       Eligible derivatives markets are those which the ACD after                                          time.
       consultation with the Depositary has decided are appropriate for
       the purpose of investment of or dealing in the scheme property                             14.6.3.4 The generation of additional capital or
       with regard to the relevant criteria set out in the Regulations and                                 income for the Company or sub-fund with
       the Guidance on eligible markets issued by the FSA as amended                                       no or an acceptably low level of risk means
       from time to time.                                                                                  the ACD reasonably believes that the
                                                                                                           Company or sub-fund is certain (or certain
14.3   The eligible derivatives markets for the Company are set out in                                     barring events which are not reasonably
       Appendix 3.                                                                                         foreseeable) to derive a benefit.
14.4   New eligible derivatives markets may be added to a sub-fund in                                        The generation of additional capital or
       accordance with the Regulations and only after the ACD has                                            income may arise out of taking advantage of
       revised the prospectus accordingly.                                                                   price imperfections or from the receipt of a
14.5   Any forward transactions must be with an approved counterparty                                        premium for writing of covered call or
       (eligible institutions, money market institutions etc). A                                             covered put options (even if the benefit is
       derivatives or forward transaction which would or could lead to                                       obtained at the expense of the foregoing of
       delivery of scheme property to the Depositary in respect of the                                       yet greater benefit) or pursuant to
       Company may be entered into only if such scheme property can                                          stocklending as permitted by the
       be held by the Company, and the ACD reasonably believes that                                          Regulations. The relevant purpose must
       delivery of the property pursuant to the transactions will not lead                                   relate to scheme property; scheme property
       to a breach of the Regulations.                                                                       (whether precisely identified or not) which is
                                                                                                             to be or is proposed to be acquired for the
14.6   There is no limit on the amount of the scheme property which                                          Company; and anticipated cash receipts of
       may be used for EPM but the transactions must satisfy three                                           the Company, if due to be received at some
       broadly-based requirements:                                                                           time and likely to be received within one
       14.6.1   A transaction must reasonably be believed by the ACD                                         month.
                to be economically appropriate to the efficient portfolio         14.7   Each EPM transaction must be fully covered ‘individually’ by
                management of the Company. This means that                               scheme property of the right kind (i.e. in the case of exposure in
                transactions undertaken to reduce risk or cost (or both)                 terms of property, appropriate transferable securities or other
                must alone or in combination with other EPM                              property; and, in the case of exposure in terms of money, cash,
                transactions diminish a risk or cost of a kind or level                  near-cash instruments, borrowed cash or transferable securities
                which it is sensible to reduce and transactions                          which can be sold to realise the appropriate cash). It must also be
                undertaken to generate additional capital or income                      covered ‘globally’ (i.e. after providing cover for existing EPM
                must confer a benefit on the Company or the sub-fund.                    transactions there is adequate cover for another EPM transaction
       14.6.2 EPM may not include speculative transactions.                              within the scheme property - there can be no gearing). Scheme
                                                                                         property and cash can be used only once for cover and, generally,
       14.6.3 The purpose of an EPM transaction for the Company                          scheme property is not available for cover if it is the subject of a
              must be to achieve one of the following aims in respect                    stocklending transaction. The EPM lending transaction in a back
              of the Company or a sub-fund:                                              to back currency borrowing (i.e. borrowing permitted in order
                • reduction of risk                                                      to reduce or eliminate risk arising by reason of fluctuations in
                                                                                         exchange rates) does not require cover.
                • reduction of cost
                • the generation of additional capital or income
                                                                                  15     Stocklending
                                                                                  15.1   As an extension of EPM explained above, the Company or the
                14.6.3.1 Reduction of risk allows for the use of the                     Depositary at the request of the Company, may enter into certain
                         technique of cross-currency hedging in                          stocklending arrangements in respect of the Company or a sub-
                         order to switch all or part of the Company’s                    fund. The Company or the Depositary delivers securities which
                         or sub-fund’s exposure away from a currency                     are the subject of the stocklending arrangement in return for an
                         the ACD considers unduly prone to risk, to

                                                                             27
                                                                                                                                             IF2/290807/ENG/r01
           APPENDIX 2 - INVESTMENT MANAGEMENT AND BORROWING POWERS OF THE COMPANY (continued)
       agreement that securities of the same kind and amount should be
       redelivered to the Company or the Depositary at a later date. The
       Company or the Depositary at the time of delivery receives
       collateral to cover the risk of the future redelivery not being
       completed. There is no limit on the value of the property of the
       Company which may be the subject of stocklending
       arrangements.
15.2   Stocklending arrangements must be an arrangement of the kind
       described in Section 263B of the Taxation of Chargeable Gains
       Act 1992. The arrangements must also comply with the
       requirements of the Regulations.

16     Underwriting
16.1   Underwriting and sub-underwriting contracts and placings may
       also, subject to certain conditions set out in the Regulations, be
       entered into for the account of the Company or sub-fund.

17     Borrowing Powers
17.1   The ACD may, on the instructions of the Company and subject
       to the Regulations, borrow money from an eligible institution
       for the use of the Company on the terms that the borrowing is to
       be repayable out of the scheme property.
17.2   Borrowing must be on a temporary basis, not persistent and in
       any event must not exceed three months without the prior
       consent of the Depositary, which may be given only on such
       conditions as appear appropriate to the Depositary to ensure that
       the borrowing does not cease to be on a temporary basis.
17.3   The ACD must ensure that borrowing does not, on any business
       day, exceed 10% of the value of the scheme property.
17.4   These borrowing restrictions do not apply to ‘back to back’
       borrowing for currency hedging purposes.




                                                                            28
                                                                                          IF2/290807/ENG/r01
                                         APPENDIX 3 - ELIGIBLE SECURITIES AND DERIVATIVES MARKETS

Eligible Securities Markets.                                                                    Eligible Derivatives Markets.
Where permitted by their objective and policy, a sub-fund may deal in any securities
market that is:                                                                                 EUROPE          EUREX

a) a regulated market; or                                                                       Belgium         Eurolist, Brussels
                                                                                                Denmark         Copenhagen Stock Exchange
b) a market in an EEA State which is regulated, operates regularly and is open to the
public; or                                                                                      France          Eurolist, Paris
                                                                                                Germany         EUREX
c) a market which the ACD, after consultation with the Depositary, decides is
appropriate for investment of or dealing in the scheme property (see Appendix 2, 6.4            Netherlands     Eurolist, Amsterdam
for more detail).                                                                               Switzerland     EUREX
In addition, up to 10% in value of a sub-fund may be invested in transferable securities        UK              The London International Financial Futures and Options Exchange
which are not approved securities.                                                                              (Euronext LIFFE)
                                                                                                                The London Securities and Derivatives Exchange (OMLX)
For the purposes of “c” above, the securities markets listed below have been deemed
appropriate.                                                                                    AMERICAS

EUROPE                                                                                          Canada          The Montreal Exchange

Switzerland          SWX (Swiss Stock Exchange)                                                 United States   Chicago Board of Trade (CBOT)
                                                                                                                Chicago Mercantile Exchange
Turkey               Istanbul Stock Exchange                                                                    Chicago Board Options Exchange (CBOE)

AMERICAS                                                                                        AFRICA
Brazil               Bovespa (Bolsa de Valores de Sao Paulo)                                    South Africa    The South African Futures Exchange (SAFEX)
Canada               Toronto Stock Exchange
                     TSX Venture Exchange                                                       FAR EAST
Mexico               Bolsa Mexicana de Valores (Mexican Stock Exchange)                         Australia       Sydney Futures Exchange
United States        New York Stock Exchange                                                    Hong Kong       Hong Kong Exchanges
                     American Stock Exchange (AMEX)                                             Japan           Tokyo Stock Exchange Futures & Options Market
                     Boston Stock Exchange (BSE)                                                                Osaka Securities Futures and Options Market
                     Chicago Stock Exchange (CHX)
                     The NASDAQ Stock Market                                                    Korea           KRX
                     USA OTC NASDAQ                                                             New Zealand     New Zealand Futures Exchange
                     National Stock Exchange
                                                                                                Singapore       Singapore Exchange (SGX)
                     Pacific Stock Exchange
                     Philadelphia Stock Exchange
                     The market in transferable securities issued by or on behalf of the
                     Government of the United States of America conducted through those
                     persons for the time being recognised and supervised by the Federal
                     Reserve Bank of New York and known as primary dealers.

AFRICA
South Africa         The JSE Securities Exchange
                     The Bond Exchange of South Africa (BESA)

FAR EAST
Australia            The Australian Stock Exchange (ASX)
China                Shanghai Stock Exchange
                     Shenzhen Stock Exchange
Hong Kong            Hong Kong Exchanges
                     Growth Global Enterprise Market (GEM)
India                The Bombay Stock Exchange Ltd
                     National Stock Exchange of India
Indonesia            Jakarta Stock Exchange
                     Surabaya Stock Exchange
Japan                Tokyo Stock Exchange
                     Nagoya Stock Exchange
                     Osaka Securities Exchange
                     Sapporo Stock Exchange
                     JASDAQ
Korea                KRX
Malaysia             Bursa Malaysia Berhad
New Zealand          The New Zealand Stock Exchange
Philippines          Philippine Stock Exchange (PSE)
Singapore            Singapore Stock Exchange (SGX)
Sri Lanka            Colombo Stock Exchange
Taiwan               Taiwan Stock Exchange
                     Gre Tai (Taiwan OTC)
Thailand             The Stock Exchange of Thailand (SET)


                                                                                           29
                                                                                                                                                                  IF2/290807/ENG/r01
                                                        APPENDIX 4 - INFORMATION FOR NON-UK INVESTORS

4.10 M&G UK Growth Fund.
Investment objective and policy.
The Fund invests principally in the equities of UK companies with high growth potential with the
sole objective of capital growth. Income considerations are ignored.
Accounting reference date:          31 May
Income allocation date:             On or before 30 September (Final); 31 March (Interim)
Available share classes/types:      Net income shares in Euro Class A†, B† and C†; Net
                                    accumulation shares in Euro Class A, B† and C

Investment minima
Lump sum initial investment         Class A: ¤1,000
                                    Class B†: ¤1,000
                                    Class C: ¤500,000
Lump sum subsequent investment      Class A: ¤75
                                    Class B†: ¤250
                                    Class C: ¤50,000
Lump sum holding                    Class A: ¤1,000
                                    Class B†: ¤1,000
                                    Class C: ¤500,000
Regular saving (per month)          Class A: ¤75
                                    Class B†: ¤75
                                    Class C: n/a
Redemption                          Class A: ¤75
                                    Class B†: ¤150
                                    Class C: ¤50,000

Charges and Expenses
Initial charge                      Class A: 5.25%
                                    Class B†: nil
                                    Class C: 3.25%
Redemption charge                   Class A: n/a
                                    Class B†: 1%
                                    Class C: n/a
ACD’s annual remuneration           Class A: 1.5%
                                    Class B†: 1.75%
                                    Class C: 0.75%
ACD’s remuneration for
Administrative and Registration
services:                           0.15% of ‘NAV’ per annum
Investment Manager:                 M&G Investment Management Limited
Valuation point:                    12.00 noon UK time
Launch date:                        31 August 2007
†   This share class may be launched by the ACD at some point in the future: market conditions
    will largely dictate the timing of the launch.




                                                                                                   30
                                                                                                        IF2/290807/ENG/r01
                                                                                                 APPENDIX 5 - PERFORMANCE BAR CHARTS
                                                                                                        Past performance is not a guide to future performance.

M&G Extra Income Fund Bar Chart                                                                                                               M&G Gilt & Fixed Interest Income Fund Bar Chart
              to end June each year                        M&G Extra Income Fund                                                                        to end June each year                 M&G Gilt & Fixed Interest Income Fund
     35                                                                                                                                           20
                30.3
     30
                                                                                                                                                  15       14.1
     25
                                                                                                        20.9
     20
                                                                                                                                                                                                                                                          9.7
                                                                                                                                                  10
     15                                                                                                             12.3          12.5                                  7.9
                                                                                           12.0                                                                                                                              7.2
     10                                                                                                                                                                                                       5.3
                                                       7.1
                                                                                                                                                    5
        5                     3.9                                                                                                                                                    2.8         2.5
                                           1.1
        0                                                                                                                                           0
                                                                               -0.8                                                                                                                                                                                    -0.4
        -5
                                                                                                                                                                                                                                           -2.5                                    -2.4
                                                                   -6.6
    -10                                                                                                                                            -5
               Jun 97- Jun 98- Jun 99- Jun 00- Jun 01- Jun 02- Jun 03- Jun 04- Jun 05- Jun 06-                                                           Jun 97- Jun 98- Jun 99- Jun 00- Jun 01- Jun 02- Jun 03- Jun 04- Jun 05- Jun 06-
               Jun 98 Jun 99 Jun 00 Jun 01 Jun 02 Jun 03 Jun 04 Jun 05 Jun 06 Jun 07                                                                     Jun 98 Jun 99 Jun 00 Jun 01 Jun 02 Jun 03 Jun 04 Jun 05 Jun 06 Jun 07
              Source: Morningstar Inc and M&G, last 10 years, % return, bid to bid, net income reinvested, sterling Share Class A                             Source: Morningstar Inc, last 10 years, % return, bid to bid, net income reinvested, sterling Share Class A




 The cumulative performance over the last 10 years is 132.4%                                                                                   The cumulative performance over the last 10 years is 52.2%




M&G High Interest Fund Bar Chart                                                                                                              M&G High Yield Corporate Bond Fund Bar Chart
         to end June each year                              M&G High Interest Fund                                                                      to end June each year                  M&G High Yield Corporate Bond Fund
    6                                                                                                                                             14
              5.5
                                                                                                                                                                                                                            11.7
                                                                                                                                                  12
    5                                   4.7          4.8                                                                                                                                                                                                10.5
                            4.4                                                                                                                   10
                                                                                                        4.0
    4                                                             3.8                                                             3.7               8
                                                                                                                     3.6
                                                                                                                                                                                                                                            6.3
                                                                                                                                                    6
                                                                                           2.9                                                                                                                                                                          4.3
    3                                                                          2.7                                                                                                                                                                                                  4.1
                                                                                                                                                    4

    2                                                                                                                                               2                                1.1

                                                                                                                                                    0
    1
                                                                                                                                                   -2
                                                                                                                                                                                                             -1.8
                                                                                                                                                                                                -2.6
    0                                                                                                                                              -4
             Jun 97- Jun 98- Jun 99- Jun 00- Jun 01- Jun 02- Jun 03- Jun 04- Jun 05- Jun 06-                                                             Jun 97- Jun 98- Jun 99- Jun 00- Jun 01- Jun 02- Jun 03- Jun 04- Jun 05- Jun 06-
             Jun 98 Jun 99 Jun 00 Jun 01 Jun 02 Jun 03 Jun 04 Jun 05 Jun 06 Jun 07                                                                       Jun 98 Jun 99 Jun 00 Jun 01 Jun 02 Jun 03 Jun 04 Jun 05 Jun 06 Jun 07
                    Source: Morningstar Inc, last 10 years, % return, bid to bid, net income reinvested, sterling Share Class A                            Source: Morningstar Inc, years since launch, % return, bid to bid, net income reinvested, sterling Share Class X




 The cumulative performance over the last 10 years is 48.3%                                                                                    The cumulative performance since launch is 56.4%




M&G Income Fund Bar Chart                                                                                                                     M&G Index Tracker Fund Bar Chart
              to end June each year                           M&G Income Fund                                                                            to end June each year                        M&G Index Tracker Fund
     40                                                                                                                                            30
                                                                                                                                                                                                    M&G Index Tracker              FTSE All-Share Index


                29.0                                                                                                                                                                                                                                                  19.6 19.7
     30                                                                                                                                            20                                                                                            16.9   17.5
                                                                                                                                                                                                                                                               18.7                      18.3
                                                                                                                                                                                                                                          15.7                                    15.4


                                                                                                                                                                       10.0 10.1
     20                                                                                                 16.8                                       10
                                                                                           15.3                                                                                     5.7 5.1

                                                                                                                                  11.7
                                                                                                                     9.3
     10                                                                                                                                             0
                              5.4
                                                       2.1
        0                                                                                                                                         -10                                           -7.6 -7.8
                                                                                                                                                                                                                            -8.8
                                                                                                                                                                                                                                   -9.7
                                          -0.8
                                                                               -4.7                                                                                                                         -15.7
                                                                                                                                                                                                                    -14.8

    -10                                                                                                                                           -20

                                                                  -13.7
    -20                                                                                                                                           -30
               Jun 97- Jun 98- Jun 99- Jun 00- Jun 01- Jun 02- Jun 03- Jun 04- Jun 05- Jun 06-                                                            Jun 97- Jun 98- Jun 99- Jun 00- Jun 01- Jun 02- Jun 03- Jun 04- Jun 05- Jun 06-
               Jun 98 Jun 99 Jun 00 Jun 01 Jun 02 Jun 03 Jun 04 Jun 05 Jun 06 Jun 07                                                                      Jun 98 Jun 99 Jun 00 Jun 01 Jun 02 Jun 03 Jun 04 Jun 05 Jun 06 Jun 07
                    Source: Morningstar Inc, last 10 years, % return, bid to bid, net income reinvested, sterling Share Class A                            Source: Morningstar Inc, years since launch, % return, bid to bid, net income reinvested, sterling Share Class A




 The cumulative performance over the last 10 years is 86.1%                                                                                                                          The cumulative performance since launch is 57.8%
                                                                                                                                               The cumulative performance for the FTSE All-Share Index is 67.0%




                                                                                                                                         31
                                                                                                                                                                                                                                                                       IF2/290807/ENG/r01
                                                                             APPENDIX 5 - PERFORMANCE BAR CHARTS (continued)
                                                                                                   Past performance is not a guide to future performance.

M&G Long Dated Sterling Bond Fund Bar Chart                                                                                                M&G Real Yield Fund Bar Chart
          to end June each year                 M&G Long Dated Sterling Bond Fund                                                                    to end June each year                        M&G Real Yield Fund
    15                                                                                                                                         12
                                                                                                   13.0
    12                                                                                                                                         10                                                                                            9.1

                                                                                                                                                8
      9                                                                                                                                                                                                 6.7          6.8
                                                              6.5          6.6                                                                  6
      6
                                                                                                                                                4
      3                                                                                                                                                                                                                          2.0                      2.2
                                                                                                                                                2                                                                                                                        1.6

      0
                                                                                                                                                0
                                                                                                               -1.0
     -3                                          -2.4                                 -2.4                                                      -2
                                                                                                                                                                                           -1.8
                                                                                                                               -4.3
     -6                                                                                                                                         -4
          Jun 97- Jun 98- Jun 99- Jun 00- Jun 01- Jun 02- Jun 03- Jun 04- Jun 05- Jun 06-                                                            Jun 97- Jun 98- Jun 99- Jun 00- Jun 01- Jun 02- Jun 03- Jun 04- Jun 05- Jun 06-
          Jun 98 Jun 99 Jun 00 Jun 01 Jun 02 Jun 03 Jun 04 Jun 05 Jun 06 Jun 07                                                                      Jun 98 Jun 99 Jun 00 Jun 01 Jun 02 Jun 03 Jun 04 Jun 05 Jun 06 Jun 07
            Source: Morningstar Inc, years since launch, % return, bid to bid, net income reinvested, sterling Share Class A                          Source: Morningstar Inc, years since launch, % return, bid to bid, net income reinvested, sterling Share Class A




 The cumulative performance since launch is 23.0%                                                                                           The cumulative performance since launch is 36.7%




M&G UK Growth Fund Bar Chart
           to end June each year                        M&G UK Growth Fund
     40
             34.9

     30                                                                                                        28.4


                                                                                                   18.6
     20                                                                                                                      15.8
                                                                                      13.1
                          8.7
     10                               6.9


      0


    -10
                                                 -10.3                     -9.7

    -20
                                                             -19.3

    -30
           Jun 97- Jun 98- Jun 99- Jun 00- Jun 01- Jun 02- Jun 03- Jun 04- Jun 05- Jun 06-
           Jun 98 Jun 99 Jun 00 Jun 01 Jun 02 Jun 03 Jun 04 Jun 05 Jun 06 Jun 07
               Source: Morningstar Inc, last 10 years, % return, bid to bid, net income reinvested, sterling Share Class A




 The cumulative performance over the last 10 years is 104.3%




                                                                                                                                      32
                                                                                                                                                                                                                                                         IF2/290807/ENG/r01
                                                                              APPENDIX 5a - EURO PERFORMANCE BAR CHARTS
                                                                                               Past performance is not a guide to future performance.

M&G UK Growth Fund Bar Chart
          to end June each year                       M&G UK Growth Fund
     50
           40.1
     40

     30                                                                                                     25.4
                                                                                   17.3        17.8                     19.0
     20
                                  10.4
     10                7.9

      0

    -10                                        -5.7

    -20                                                               -15.9

    -30                                                   -25.0

    -40
          Jun 97- Jun 98- Jun 99- Jun 00- Jun 01- Jun 02- Jun 03- Jun 04- Jun 05- Jun 06-
          Jun 98 Jun 99 Jun 00 Jun 01 Jun 02 Jun 03 Jun 04 Jun 05 Jun 06 Jun 07
              Source: Morningstar Inc, last 10 years, % return, bid to bid, net income reinvested, euro Share Class A




 The cumulative performance over the last 10 years is 104.6%




                                                                                                                               33
                                                                                                                                                        IF2/290807/ENG/r01
                                                     Directory.
The Company and Head Office:
M&G Investment Funds (2)
Laurence Pountney Hill
London EC4R 0HH

Authorised Corporate Director:
M&G Securities Limited
Laurence Pountney Hill
London EC4R 0HH

Investment Managers:
M&G Investment Management Limited
Laurence Pountney Hill
London EC4R 0HH
State Street Global Advisers Limited
21 St James Square
London
SW1Y 4SS

Custodian:
The Northern Trust Company
50 Bank Street
Canary Wharf
London E14 5NT

Depositary:
The Royal Bank of Scotland plc
The Broadstone
50 South Gyle Crescent
Edinburgh EH12 9UZ

Registrar:
International Financial Data Services (UK) Limited
PO Box 9039
Chelmsford
CM99 2XG

Auditor:
PricewaterhouseCoopers LLP
Southwark Towers
32 London Bridge Street
London SE1 9SY




                                                              M&G Securities Limited is authorised and regulated by the Financial Services
                                                              Authority and provides investment products. The company's registered office is
                                                              Laurence Pountney Hill, London EC4R 0HH. Registered in England number 90776.

                                                         34
                                                                                                                           IF2/290807/ENG/r01
20690_LR

								
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