M&G Investment Funds (3) Annual Long Report and audited Financial Statements for the year ended 30 June 2021 Contents Authorised Corporate Director’s Report.......... 1 Directors’ statement ......................... 4 Depositary’s Responsibilities and Report......... 5 Independent Auditor’s Report .................. 6 Financial statements and notes................. 9 Authorised Corporate Director’s Reports, including the financial highlights and financial statements and notes for: M&G Corporate Bond Fund ................... 15 M&G Dividend Fund ......................... 57 M&G Emerging Markets Bond Fund ............ 90 M&G European Corporate Bond Fund .......... 130 M&G Global Government Bond Fund ........... 167 M&G Recovery Fund ......................... 202 M&G Smaller Companies Fund ................ 238 Other regulatory disclosures ................... 266 Glossary .................................... 267 Annual Long Report and audited Financial Statements • June 2021 Authorised Corporate Director’s Report The Authorised Corporate Director (ACD) of M&G A shareholder is not liable for the debts of the Company Investment Funds (3) presents its Annual Long Report and will never be liable to make any further payment to and audited Financial Statements for the year ended the Company after paying the purchase price of the 30 June 2021. shares. The audited financial statements of Fund managers M&G Investment Funds (3) and the investment report The following fund managers are employed by M&G FA and audited financial statements and notes of each Limited which is an associate of M&G Securities sub-fund are presented in their individual sections of Limited. this report as set out in the contents page. M&G Corporate Bond Fund Please note that we have included an explanation of key Richard Woolnough & Ben Lord investment terminology in the ‘Glossary’ (at the back of this report). M&G Dividend Fund Michael Stiasny Company information M&G Emerging Markets Bond Fund Claudia Calich M&G Investment Funds (3) is an umbrella Open-Ended Investment Company (OEIC) and contains seven M&G European Corporate Bond Fund sub-funds, hereinafter referred to as ‘funds’ in the rest Stefan Isaacs of this report. Each fund is a UCITS (Undertakings for M&G Global Government Bond Fund Collective Investment in Transferable Securities) Eva Sun-Wai scheme as defined in the Collective Investment Please note that effective from 4 January 2021, Eva Sun-Wai replaced Schemes sourcebook, as issued (and amended) by the Claudia Calich as fund manager. Financial Conduct Authority (FCA). This OEIC is an M&G Recovery Fund Investment Company with Variable Capital (ICVC) Michael Stiasny incorporated under the Open-Ended Investment Please note that effective from 31 December 2020, Michael Stiasny Companies Regulations 2001. It is authorised and replaced Tom Dobell as fund manager. regulated by the FCA under the Financial Services and M&G Smaller Companies Fund Markets Act 2000. Garfield Kiff The Company was authorised on 8 August 2001 and Please note that effective from 1 July 2021, James Taylor replaced Garfield was launched on 7 March 2002, following the Kiff as fund manager. conversion of a series of authorised unit trusts. ACD The Company’s principal activity is to carry on business M&G Securities Limited, as an OEIC. The Company is structured as an umbrella 10 Fenchurch Avenue, London EC3M 5AG, UK company, and different funds may be established by Telephone: 0800 390 390 (UK only) the ACD from time to time with the agreement of the (Authorised and regulated by the Financial Conduct Depositary and approval from the FCA. The funds are Authority. M&G Securities Limited is a member of the operated separately and the assets of each fund are Investment Association and of the Investing and Saving managed in accordance with the investment objective Alliance) and policy applicable to that fund. As at 30 June 2021 none of the funds held shares of the Directors of the ACD N J Brooks*, C Dobson (non executive director), other funds within this OEIC. S A Fitzgerald, P R Jelfs, M McGrade (non executive director), L J Mumford * Appointed 19 May 2021. Annual Long Report and audited Financial Statements • June 2021 1 Authorised Corporate Director’s Report Investment manager On 15 December 2020, the following share classes M&G Investment Management Limited, were closed within the M&G Global Government Bond 10 Fenchurch Avenue, London EC3M 5AG, UK Fund: Euro Class ‘A’ Income, Euro Class ‘A’ Telephone: +44 (0)20 7626 4588 Accumulation, Euro Class ‘C’ Accumulation, Swiss franc (Authorised and regulated by the Financial Conduct Class ‘A’ Accumulation, Swiss franc Class ‘C’ Authority) Accumulation, US dollar Class ‘A’ Income, US dollar Class ‘A’ Accumulation and US dollar Class ‘C’ Registrar Accumulation. SS&C Financial Services Europe Ltd, There was a reduction in the annual charge on some SS&C House, St. Nicholas Lane, Basildon, Essex share classes from 15 February 2021. The reduction in SS15 5FS, UK annual charge varies across the M&G funds and the (Authorised and regulated by the Financial Conduct detail was communicated in the shareholder letter Authority) dated 15 January 2021. Depositary On 15 March 2021 the Sterling Class ‘PP-H’ Income NatWest Trustee & Depositary Services Limited, share and Sterling Class ‘PP-H’ Accumulation share House A, Floor 0, 175 Glasgow Road, Gogarburn, were launched in M&G Emerging Markets Bond Fund. EdinburghEH121HQ,UK On 25 March 2021 the investment policy was changed (Authorised and regulated by the Financial Conduct for M&G Corporate Bond Fund. Authority) On 19 April 2021 the investment objective and Independent auditor benchmark were changed for M&G Global Government Ernst & Young LLP Bond Fund. Atria One, 144 Morrison Street, Edinburgh EH3 8EX, UK The World Health Organisation declared the COVID-19 outbreak a pandemic on 11 March 2020. Annual value assessment The COVID-19 pandemic has been an unprecedented An annual assessment report is available which shows event. After an initial period of increased market the value provided to investors in each of volatility and uncertainty, there has been a marked M&G’s UK-based funds. The assessment report recovery in global markets, bolstered by supportive evaluates whether M&G’s charges are justified in the economic policies from governments and positive news context of the overall service delivered to its investors. on vaccines for COVID-19. The report can be found at www.mandg.co.uk/valueassessment The ACD continues to monitor the ongoing operational risks that are posed to the Company and its service providers due to global and local movement restrictions Important information that have been enacted by various governments. On 16 July 2020, the following share classes were closed within the M&G Global Government Bond Investor information Fund: Euro Class ‘C’ Income and US dollar Class ‘C’ Income. The Prospectus, Instrument of Incorporation, Key Investor Information Documents, costs and charges On 15 December 2020, the following share classes illustration, the latest Annual or Interim Investment were closed within the M&G Corporate Bond Fund and Report and Financial Statements as well as a list of the M&G Recovery Fund: Euro Class ‘A’ Accumulation purchases and sales are available free of charge on and Euro Class ‘C’ Accumulation. request from the following addresses. The Instrument 2 Annual Long Report and audited Financial Statements • June 2021 Authorised Corporate Director’s Report of Incorporation can also be inspected at our offices or attheofficeoftheDepositary. Customer services and administration for UK clients: M&G Securities Limited, PO Box 9039, Chelmsford CM99 2XG, UK Please remember to quote your name and M&G client reference and sign any written communication to M&G. Failure to provide this will affect your ability to transact with us. Telephone: 0800 390 390 (UK only) For security purposes and to improve the quality of our service, we may record and monitor telephone calls. You will require your M&G client reference. Failure to provide this will affect your ability to transact with us. Customer services and administration for non-UK clients: M&G Securities Limited, c/o RBC I&TS, 14, Porte de France, L-4360 Esch-sur-Alzette, Grand Duchy of Luxembourg Please remember to quote your name and M&G client reference and sign any written communication to M&G. Failure to provide this will affect your ability to transact with us. Telephone: +352 2605 9944 Email: [email protected] For security purposes and to improve the quality of our service, we may record and monitor telephone calls. You will require your M&G client reference. Failure to provide this will affect your ability to transact with us. Swiss paying agent and representative: Société Générale, Paris, Zurich Branch, Talacker 50, 8021 Zurich, Switzerland Annual Long Report and audited Financial Statements • June 2021 3 Authorised Corporate Director’s Report Authorised Corporate Director’s Responsibilities The Authorised Corporate Director (ACD) is required to prepare annual and interim long reports for the Company. The ACD must ensure that the financial statements, contained in this report, for each of the funds are prepared in accordance with the Investment Association Statement of Recommended Practice for Financial Statements of UK Authorised Funds (SORP) and UK Financial Reporting Standards, and give a true and fair view of the net revenue or expenses and net capital gains or losses for the accounting period, and the financial position at the end of that period. The ACD is required to keep proper accounting records, and to manage the Company in accordance with the Collective Investment Schemes sourcebook, as issued (and amended) by the FCA, the Instrument of Incorporation and the Prospectus, and to take reasonable steps for the prevention and detection of fraud or other irregularities. Additionally, the ACD is responsible for preparing the financial statements on a going concern basis unless it is appropriate to presume that the Company or its sub-funds will not continue in operation.