55235_SR_310818

Contact

Customer Relations* 0800 390 390

Write to us at:**M&G Securities Limited

PO Box 9039

Chelmsford

CM99 2XG

Our website: www.mandg.co.uk

Email us with queries:†

info@mandg.co.uk

*

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.

** Please remember to quote your name and M&G client reference and sign any written communication to M&G. Failure to provide this may affect your ability to transact with us.

† Please note that information contained within an email cannot be guaranteed as secure. We advise that you do not include any sensitive information when corresponding with M&G in this way.

M&G Securities Limited is authorised and regulated by the Financial Conduct Authorityand provides investment products. The company’s registered office is LaurencePountney Hill, London EC4R 0HH. Registered in England number 90776.

Annual Short Report June 2017For the year ended 30 June 2017

a sub-fund of M&G Investment Funds (3)

M&G Corporate BondFund

2

Fund information

1

The Authorised Corporate Director (ACD) of M&G Investment Funds (3)presents its Annual Short Report for M&G Corporate Bond Fund whichcontains a review of the fund’s investment activities and investmentperformance during the period. The ACD’s Annual Long Report andaudited Financial Statements for M&G Investment Funds (3),incorporating all the sub-funds and a Glossary of terms is availablefree of charge either from our website at www.mandg.co.uk/reportsor by calling M&G Customer Relations on 0800 390 390.

ACDM&G Securities Limited, Laurence Pountney Hill, London EC4R 0HH Telephone: 0800 390 390

(Authorised and regulated by the Financial Conduct Authority. M&G Securities Limited is a member of the Investment Associationand of the Tax Incentivised Savings Association.)

Important information

In the 2016 Budget, the UK government announced that, effective from6 April 2017, interest distributions from open-ended investmentcompanies (OEICs) may be paid without deducting income tax(currently 20%).

As a result, prices for the sterling share classes of M&G’s bond fundswill be calculated without an accrual for the deduction of income tax.This change, for different funds, has been phased in between October2016 and March 2017.

From 1 January 2017 the M&G Corporate Bond Fund’s prices for thesterling share classes are now calculated without income taxdeducted.

Please note that with effect from 16 December 2016:

• We have discounted the initial charge to zero on all newinvestments into sterling share classes that currently carry such acharge.

• We have waived the exit charges on future withdrawals from allSterling Class ‘X’ shares.

• We have discounted the annual management charge (AMC) forSterling Class ‘X’ shares.

The initial charge on all sterling share classes and the exit chargeson all Sterling Class ‘X’ shares were effectively removed as from28 April 2017.

The AMC for Sterling Class ‘X’ shares was effectively reduced from1.25% to 1.00% from 28 April 2017.

Fund information

3 4

Investment approach

The Fund’s strategy is based on the principle that corporate bondmarket returns are driven by a combination of macroeconomic, asset,sector and stock-level factors. As different factors dominate returns atdifferent stages of the economic cycle, the manager applies a dynamicinvestment approach, changing the blend of duration and creditexposure in the portfolio to weight them appropriately. The fundmanager has the investment freedom to take a high-convictionapproach when selecting credits for the portfolio. Diversification –across individual issuers as well as industries – is an essential elementof the Fund’s strategy to limit the potential for losses in the event ofdefault. The Fund’s investment style combines top-down and bottom-up analysis, and the fund manager is assisted in the selection ofindividual credits by a large team of independent sovereign and publiccredit analysts.

Risk profile

The fund invests mainly in sterling-denominated fixed incomesecurities, or bonds, issued by UK companies. It is primarily subject tothe price volatility of the UK bond market as well as the performanceof individual issuers. It is also influenced by developments in thebroader global bond market. In addition, the fund is subject tofluctuations in currency exchange rates.

The fund’s focus is on high-quality corporate bonds, securities that arenormally traded with relative ease. Up to 20% of the fund may beinvested in other fixed income investments, such as governmentbonds, which are typically highly liquid assets, or high yield corporatebonds, which are higher risk assets that could potentially experiencea degree of illiquidity in times of market distress.

The fund’s exposure to debt securities may be gained through the useof derivatives. In association with the use of derivatives, includingthose instruments not traded through an exchange, collateral isdeposited in order to mitigate the risk that a counterparty may defaulton its obligations or become insolvent.

Portfolio diversification is key in managing liquidity and default risks aswell as reducing market risk. The fund’s risks are measured andmanaged as an integral part of the investment process.

Investment objective up to 24 May 2017The Fund aims to achieve a higher total return (the combination of

income and growth of capital) from investment than would be

obtainable in UK government fixed interest securities (ie gilts) of

similar maturities.

Investment policy up to 24 May 2017

The Fund invests mainly in sterling denominated corporate debtinstruments. The Fund’s exposure to corporate debt may be gainedthrough the use of derivatives. Any currency exposures within theFund may be managed by currency hedges into sterling. The Fundmay also invest in other assets including collective investmentschemes, other transferable securities and other debt instruments(including corporate debt and government and public securitiesdenominated in any currency), cash and near cash, deposits,warrants, money market instruments and other derivative instruments.

Investment objective from 25 May 2017

The Fund aims to provide income and capital growth.

Investment policy from 25 May 2017

At least 70% of the Fund is invested in sterling-denominated corporatedebt instruments. The Fund’s exposure to corporate debt may begained through the use of derivatives. Derivatives may also be usedfor efficient portfolio management. Any currency exposures within theFund may be managed by currency hedges into sterling. The Fundmay also invest in collective investment schemes, other transferablesecurities and other debt instruments (including corporate debt andgovernment and public securities denominated in any currency), cash,near cash, other money market securities, warrants and otherderivative instruments.

Investment review

6

Fund information

5

As at 3 July 2017, for the year ended 30 June 2017

Performance against objective

In the 12-month period between 1 July 2016 and 3 July 2017, the M&GCorporate Bond Fund produced a positive total return (capitalperformance with income reinvested) across all sterling share classes.Due to the weakness of sterling against the euro over this period,investors in euro share classes received lower returns.*

The M&G Corporate Bond Fund invests predominantly in high qualitysterling-denominated corporate bonds with the aim of providingincome and capital growth.

Bonds are loans that are extended by an investor to an issuing entity– such as a company or government – in exchange for regular interestpayments. Bonds issued by companies are referred to as ‘corporatebonds’, while those issued by governments are called ‘governmentbonds’. Investment grade corporate bonds refer to fixed incomesecurities issued by a company with a medium or high credit ratingfrom a recognised credit rating agency. They are considered to be atlower risk of non-repayment than those issued by companies withlower credit ratings (known as high yield bonds). The performance ofinvestment grade corporate bond markets can be influenced by theperformance of government bonds.

To give an indication of the performance of the fund, the following tableshows the compound rate of return, per annum, over the period forSterling Class ‘A’ (Accumulation) shares and Sterling Class ‘I’(Accumulation) shares. Calculated on a price to price basis withincome reinvested.

Please note that the risk management policies are set out in full in thefinancial statements and notes sections of the Annual Long Reportand audited Financial Statements of M&G Investment Funds (3).

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

The above number:

•  is based on the rate at which the value of the fund has moved up and down in the

past and is based on historical data so may not be a reliable indicator of the future

risk profile of the fund.

•  is not guaranteed and may change over time and the lowest risk number does not

mean risk free.

• has not changed during this period.

Low risk High risk

Typically lower rewards Typically higher rewards

1 2 3 4 5 6 7

8

Investment review

7

Politics continued to dominate financial markets in early 2017, withDutch parliamentary elections, the UK’s formal triggering of Article 50,and the run-up to hotly contested presidential elections in France,among the main events. These took place against a backdrop ofbroadly positive economic data releases, indicating that the globaleconomy is in good health.

For the first time in a long while, the economic situation in Europe inparticular looks considerably brighter. The unemployment rate hasfallen back below 10% for the first time since 2011, while businesssurveys suggest a further steady pick-up in growth over the comingmonths. Political tensions also receded, with Emmanuel Macron’sdecisive victory in the French election helping to boost Europeanmarkets towards the end of the review period.

In the UK, snap parliamentary elections held in June that resulted in ahung parliament only served to muddy the waters as Brexit talksformally began. Despite this uncertain result, markets were relativelyunmoved. However, a speech by Bank of England governor MarkCarney right at the end of the reporting period caused investors tojudge that the timing of a first interest rate increase in some 10 yearsmight have moved forward, leading to greater volatility and pushingthe currency higher.

Sterling corporate bonds experienced mixed fortunes over the 12-month period, but prices generally rose, and as a result the funddelivered positive returns for investors in all of its sterling share classes.

Investment activities

One of the key drivers of a bond fund’s performance is its ability toadjust the portfolio’s sensitivity to changes in interest rates, known as‘duration’. Immediately after the UK referendum, we increased thefund’s duration by around one year to 7.1 years. We then reduced itslightly to 6.9 years in October 2016. From then on, it moved in a bandbetween 6.9 and 7.1 years for the remainder of the period, stayingroughly the same amount short relative to the fund’s comparable index,the iBoxx £ Corporate Index.

Long-term performance

One Three Five Since year years years launch 01.07.16 03.07.14 03.07.12 % [a] % p.a. % p.a. % p.a.

Sterling [b] Class ‘A’ +4.1 +5.2 +5.3 +6.4 [c]

Class ‘I’ +4.6 +5.7 +5.7 +7.3 [d]

[a] Absolute basis.

[b] Price to price with income reinvested.

[c] 15 April 1994. All performance data prior to 11 March 2002 (the launch date of

the share class) has been calculated by reference to a conversion factor due to a

change of the nominated share class.

[d] 2 July 2007, the launch date of the share class.

Please note past performance is not a guide to future performanceand the value of investments, and the income from them, will fluctuate.This will cause the fund price to fall as well as rise and you may notget back the original amount you invested.

Investment performance

The period under review began immediately following the UK’ssurprise vote in favour of leaving the European Union (EU). Followingan initial sell-off, markets regained their footing in July, calmed byexpectations that the Bank of England would implement policymeasures to mitigate any potential negative consequences of the‘Brexit’ vote. In August, the central bank met those expectations,announcing a package of measures designed to shore up theeconomy, including a reduction of the base interest rate to 0.25% anda new round of quantitative easing. This included an undertaking tobuy selected corporate bonds, a programme that began in Septemberand provided further support to the UK corporate bond market.

Brexit-related uncertainty – over the timing, and exact form that thecountry’s departure from the EU might take – was a significant driverof market movements for the remainder of the year. The last fewmonths of 2016 delivered further political surprises, the mostsignificant of which was Donald Trump’s US presidential electionvictory in November. The result caused US government bonds to suffertheir worst month in seven years.

10

Investment review

9

We believe that UK monetary policy is working and we are at, or closeto, full employment. Due to sterling’s weakness since the Brexit vote,inflation is once again back on the agenda in the UK. This weaknessis arguably helping to keep the UK competitive, despite Brexit-relateduncertainty. While it will be almost two years until any Brexit deal isconcluded, until then we consider that the UK’s economy is workingwell at near full capacity, and that the Bank of England should beginto remove some of the support it has provided to markets.

In our view, the global economy is in reasonable health, we are in aperiod of synchronised global growth, and company default ratesremain low. We are therefore positive on corporate bonds, especiallyissues from US companies. However we are cautious on governmentbonds, believing that they are already expensive and therefore thereis little more upside but considerable downside as further interest raterises in the US are likely.

Richard WoolnoughFund manager

An employee of M&G Limited which is an associate of M&G Securities Limited.

* For the performance of each share class, please refer to the ‘Long-term

performance by share class’ table in the ‘Fund performance’ section of the Annual

Long Report and audited Financial Statements for M&G Investment Funds (3).

Please note that the views expressed in this Report should not be taken as a

recommendation or advice on how the fund or any holding mentioned in the Report

is likely to perform. If you wish to obtain financial advice as to whether an investment

is suitable for your needs, you should consult a Financial Adviser.

Having reduced the fund’s exposure to investment grade bonds andincreased its cash position and allocation to government bonds aroundthe time of the EU referendum to moderate its risk profile, we thengradually reversed these moves over the reporting period. At times,when European government bonds were negatively affected byconcerns about political developments in the region, we tookadvantage of these valuations and added them to the portfolio.

We added a number of bonds from financial companies, for examplefrom Goldman Sachs, Morgan Stanley and HSBC. We believe thatsuch banks can do well in a reflationary environment. We remainhighly selective when lending to financials and work closely with ourteam of credit analysts when making investment decisions.

We sold a number of holdings that performed well over the reportingperiod, including some from the European Investment Bank, Walmartand Amgen.

We have been finding significant opportunities in the asset-backedsecurities market, especially those backed by residential andcommercial mortgages. Such securities tend to be floating rate innature, meaning they adjust periodically depending on the change ina reference interest rate, and should therefore perform well even wheninterest rates rise. Even if it is not yet clear what Brexit will mean forthe UK economy in the long term, consumers will carry on makingmortgage payments. There has never been a default on a UKmortgage-backed security, even during the financial crisis.

Outlook

US and UK politics will remain key for the remainder of 2017, whileEurope’s heavy political calendar continues to influence markets. Thebiggest danger remains President Trump’s unpredictability –something that markets are still getting used to. President Trump’splanned tax reforms and policies to encourage corporate repatriationof funds should prove supportive for US corporate bond markets ifthey are introduced.

12

Financial highlightsFund performance

11

Please note past performance is not a guide to future performanceand the value of investments, and the income from them, will fluctuate.This will cause the fund price to fall as well as rise and you may notget back the original amount you invested.

The following chart and tables show the performance for two of thefund’s share classes – Sterling Class ‘A’ (Accumulation) shares andSterling Class ‘I’ (Accumulation) shares.

We show performance for these two share classes because:

• The performance of the Sterling Class ‘A’ (Accumulation) share iswhat most individuals investing directly with M&G have received. Ithas the highest ongoing charge of all the share classes.Performance is shown after deduction of this charge. All investorsin the fund therefore received this performance or better.

• The performance of the Sterling Class ‘I’ (Accumulation) share isthe most appropriate to compare with the average performance ofthe fund’s comparative sector. It is the share class used by theInvestment Association in the calculation of the comparativesector’s average performance. This share class is available fordirect investment with M&G subject to minimum investment criteria,or via third parties who may charge additional fees. Theperformance shown takes the deduction of the ongoing charge forthis share class into account but it does not take account of chargesapplied by any other party through which you may have invested.

The fund is available for investment in different share classes, each withvarying levels of charges and minimum investments; please refer to theProspectus for M&G Investment Funds (3), which is available free ofcharge either from our website at www.mandg.co.uk/prospectuses or bycalling M&G Customer Relations. For the specific performance tablesof all share classes, please refer to the Annual Long Report andaudited Financial Statements for M&G Investment Funds (3), which isavailable free of charge either from our website atwww.mandg.co.uk/reports or by calling M&G Customer Relations.

Fund level performance

Fund net asset value

2017 2016 2015as at 30 June £’000 £’000 £’000

Fund net asset value (NAV) 4,127,165 4,490,189 4,807,312

Classification of investments

9.43%

10.09%

17.61%

43.99%

3.34%

0.04%

12.63%

-0.01%

0.10%

0.02%

-0.05%

2.13%

8.66%

14.17%

20.22%

39.95%

3.15%

0.13%

11.47%

0.00%

-0.81%

-0.25%

0.00%

1.55%

Debt securities

‘AAA’ credit rated bonds

‘AA’ credit rated bonds

‘A’ credit rated bonds

‘BBB’ credit rated bonds

‘BB’ credit rated bonds

‘B’ credit rated bonds

Bonds with no credit rating

Credit default swaps

Forward currency contracts

Interest rate futures contracts

Interest rates swaps

‘AAA’ rated money market funds [a]

Source: M&G30 June 2017

30 June 2016

% of the fund value(net assets attributable to shareholders)

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

14

Financial highlightsFund performance

13

To give an indication of how the fund has performed during the periodthe tables below show the performance of Sterling Class ‘A’(Accumulation) shares and Sterling Class ‘I’ (Accumulation) shares.

All ‘Performance and charges’ percentages represent an annual rateexcept for the ‘Return after operating charges’ which is calculated asa percentage of the opening net asset value per share (NAV). ‘Dilutionadjustments’ are only in respect of direct portfolio transaction costs.

Sterling Class ‘A’ Accumulation share performanceThe share class was launched on 15 April 1994.

for the year to 30 June 2017 2016 2015Change in NAV per share UK p UK p UK p

Opening NAV 65.67 61.78 59.35

Return before operating charges and after directportfolio transaction costs 4.54 5.01 3.54

Operating charges (0.79) (0.73) (0.72)

Return after operating charges 3.75 4.28 2.82

Distributions (1.84) (1.95) (1.95)

Retained distributions 1.66 1.56 1.56

Closing NAV 69.24 65.67 61.78

Direct portfolio transaction costs UK p UK p UK p

Costs before dilution adjustments 0.00 0.00 0.00

Dilution adjustments [a] 0.00 0.00 0.00

Total direct portfolio transaction costs 0.00 0.00 0.00

Performance and charges % % %

Direct portfolio transaction costs [b] 0.00 0.00 0.00

Operating charges 1.16 1.16 1.16

Return after operating charges +5.71 +6.93 +4.75

Distribution yield 2.52 2.86 3.08

Effect on yield of charges offset against capital 0.00 0.00 0.00

Other information

Closing NAV (£’000) 459,881 508,135 766,703

Closing NAV percentage of total fund NAV (%) 11.14 11.32 15.95

Number of shares 664,216,712 773,805,749 1,240,996,096

Highest share price (UK p) 70.07 65.67 65.14

Lowest share price (UK p) 66.07 61.38 58.99

Performance since launch

To give an indication of how the fund has performed since launch, thechart below shows total return of Sterling Class ‘A’ (Accumulation)shares and Sterling Class ‘I’ (Accumulation) shares.

The fund’s Sterling Class ‘I’ (Accumulation) shares were launched on2 July 2007. Performance data shown prior to this date is that of thefund’s Sterling Class ‘A’ (Accumulation) shares.

120

140

160

180

230

200

260

300

350

400

450

100

9094 95 96 999897 00 01 0302 121110090807060504 13 14 15 16 17

Sterling Class ‘A’ (Accumulation) shares*

Sterling Class ‘I’ (Accumulation) shares*

April 1994 = 100, plotted monthly Chart date 3 July 2017

Sterling Class ‘I’ (Accumulation) shares*

Sterling Class ‘A’ (Accumulation) shares*

Morningstar (IA) £ Corporate Bond sector average*

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

Financial highlightsOperating charges and portfolio transaction costs

16

Financial highlightsFund performance

15

Sterling Class ‘I’ Accumulation share performanceThe share class was launched on 2 July 2007.

for the year to 30 June 2017 2016 2015Change in NAV per share UK p UK p UK p

Opening NAV 68.09 63.81 61.05

Return before operating charges and after directportfolio transaction costs 4.73 5.18 3.65

Operating charges (0.47) (0.43) (0.42)

Return after operating charges 4.26 4.75 3.23

Distributions (2.27) (2.34) (2.34)

Retained distributions 2.04 1.87 1.87

Closing NAV 72.12 68.09 63.81

Direct portfolio transaction costs UK p UK p UK p

Costs before dilution adjustments 0.00 0.00 0.00

Dilution adjustments [a] 0.00 0.00 0.00

Total direct portfolio transaction costs 0.00 0.00 0.00

Performance and charges % % %

Direct portfolio transaction costs [b] 0.00 0.00 0.00

Operating charges 0.66 0.66 0.66

Return after operating charges +6.26 +7.44 +5.29

Distribution yield 3.02 3.36 3.58

Effect on yield of charges offset against capital 0.00 0.00 0.00

Other information

Closing NAV (£’000) 618,336 654,547 502,975

Closing NAV percentage of total fund NAV (%) 14.98 14.58 10.46

Number of shares 857,427,451 961,297,408 788,288,187

Highest share price (UK p) 72.98 68.09 67.16

Lowest share price (UK p) 68.62 63.39 60.69

[a] In respect of direct portfolio transaction costs.

[b] As a percentage of average net asset value.

We explain below the payments made to meet the ongoing costs ofinvesting and managing the fund, comprised of operating charges andportfolio transaction costs.

Operating charges

Operating charges include payments made to M&G and to providersindependent of M&G:

• Investment management: Charge paid to M&G for investmentmanagement of the fund (also known as Annual ManagementCharge).

• Administration: Charge paid to M&G for administration servicesin addition to investment management – any surplus from thischarge will be retained by M&G.

• Oversight and other independent services: Charges paid toproviders independent of M&G for services which includedepositary, custody and audit.

Operating charges do not include portfolio transaction costs or any entryand exit charges (also known as initial and redemption charges). Thecharging structures of share classes may differ, and therefore theoperating charges may differ.

Operating charges are the same as the ongoing charges shown in theKey Investor Information Document, other than where an estimate hasbeen used for the ongoing charge because a material change has madethe operating charges unreliable as an estimate of future charges.

For this fund there is no difference between operating charges andongoing charges figures, unless disclosed under the specific shareclass performance table.

Financial highlightsOperating charges and portfolio transaction costs

17

Portfolio transaction costs

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

• Direct portfolio transaction costs: Broker execution commissionand taxes.

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

Investments are bought or sold by a fund when changes are made tothe investment portfolio and in response to net flows of money into orout of the fund from investors buying and selling shares in the fund.

To protect existing investors, portfolio transaction costs incurred as aresult of investors buying and selling shares in the fund are recoveredfrom those investors through a ‘dilution adjustment’ to the price theypay or receive. As the fund invests mainly in fixed interest securities,the direct transaction costs paid in other investments are too small tobe reflected in the table below. To give an indication of the indirectportfolio dealing costs the table below shows the average portfoliodealing spread.

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

Portfolio transaction costs

as at 30 June 2017 2016 2015 Average [a]

Indirect portfolio transaction costs % % % %

Average portfolio dealing spread 0.70 0.85 0.70 0.75

[a] Average of first three columns.

55235_SR_310818

Contact

Customer Relations* 0800 390 390

Write to us at:**M&G Securities Limited

PO Box 9039

Chelmsford

CM99 2XG

Our website: www.mandg.co.uk

Email us with queries:†

info@mandg.co.uk

*

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.

** Please remember to quote your name and M&G client reference and sign any written communication to M&G. Failure to provide this may affect your ability to transact with us.

† Please note that information contained within an email cannot be guaranteed as secure. We advise that you do not include any sensitive information when corresponding with M&G in this way.

M&G Securities Limited is authorised and regulated by the Financial Conduct Authorityand provides investment products. The company’s registered office is LaurencePountney Hill, London EC4R 0HH. Registered in England number 90776.

Annual Short Report June 2017For the year ended 30 June 2017

a sub-fund of M&G Investment Funds (3)

M&G Corporate BondFund