aviva

AVIVA INVESTORS

Justin Craib-Cox, Fund Manager

The document is for investment professionals only. It is not to be viewed by or used with retail clients.

INVESTING IN GLOBAL CONVERTIBLE BONDS FOR ABSOLUTE RETURNS

December 2011

THE CONVERTIBLE BOND MARKET

2

CONVERTIBLE BOND BEHAVIOUR

For illustrative purposes only

Equity Price

Pri

ce

Convertible bond

Equity Value

Bond Floor

Bond-likeThe equity option has little value. The convertible behaves like an underlying corporate bond

HybridThe convertible has “hybrid” qualities. This is the interesting point where equity and bond characteristics overlap

Equity-likeThe equity option is “in the money” and so is valuable. The convertible behaves like the equity

3

Global convertibles presentation

CONVERTIBLES ARE A DIVERSE $495 BILLION MARKET

Source: UBS as at 13 October 2011Convertibles = UBS Global Convertible Bond Index

Breakdown by region of issue S&P credit rating breakdown by issuer

4

0%

2%

4%

6%

8%

10%

12%

14%

16%

Breakdown by sector of issuer

USA 47%

Europe 27%

Asia ex-Japan 10%

Japan 10%

Other markets 4%

AAA 3%

AA 1%

A 13%

BBB 17%

Sub-investment grade 22%

Not rated 45%


BENEFITS OF OWNING CONVERTIBLES

5

ASYMMETRIC RETURNS – YEARLY PROFILE (1994 TO 2010)

Source: Bloomberg & Aviva Investors. 31 December 1993 – 31 December 2010Stocks = MSCI AC World Daily TR Gross (USD); Convertibles = UBS Global Convertible Bond Index (USD)Past performance is not a guide to the future

Historical studies of calendar year returns for convertible bonds and equities have shown that:

– When equity markets have risen, the convertible bond market has risen, on average, by 70% of the rise in equity prices

– More importantly, when equity markets have fallen, convertible bonds have only fallen by, on average, 48% of the drop in equity prices

15%

-12%

19%

-23%

-30%

-20%

-10%

0%

10%

20%

30%

Average Positive Return Average NegativeReturn

UBS Global Convertible Bond Index

MSCI World TR Gross

70%

48%

6


CONVERTIBLE BOND ATTRIBUTES PROVIDE DIVERSIFICATION

Convertible bond attributes provide a very different risk/return outcome than an equity/credit mix

Optionality provides asymmetry and a different risk set

60-70% of the issuers in the UBS Global Convertibles index do not issue conventional corporate bonds.

Independent supply and demand, price relative to fair value are among other major differences

Not equities but equity options

Population of issuers

Otherfactors

7


KEY ELEMENTS OF CONVERTIBLE BOND RETURNS

Source: Bloomberg & Aviva Investors as at 31 July 2010Credit = Barclays Capital Global Aggregate Corporate Index, Equities = MSCI AC World Daily TR Gross USD Index, Convertibles = UBS Global Convertible Bond Index

– Equities have driven approximately 50% of return, credit 30% and convertible specific attributes around 20%

– Other factors include convertible bond specific factors such as volatility and supply and demand

– Convertibles can be seen as a good diversifier within a balanced portfolio

0%

10%

20%

30%

40%

50%

60%

Credit Equities Other

8

Performance attribution from September 2000 to July 2010 (based on monthly returns)


HIGHER RISK-ADJUSTED RETURNSGLOBAL CONVERTIBLES VS. GLOBAL EQUITIES


9

More return Less risk

Source: Bloomberg & Aviva Investors, performance shown as at 30 September 2011Performance is shown for the UBS Global Convertible Bond Index (USD) and MSCI AC World Daily TR Gross USD IndexPast Performance is not a guide to the future

-2%

0%

2%

4%

6%

8%

10%

3 years p.a. 5 years p.a. 10 years p.a.

Annualised Return


MSCI World TR Gross

0

10

20

%

Annualised Volatility (10 years)


MSCI World TR Gross

WHY BUY CONVERTIBLES NOW?

10

7.0%

7.2%

7.4%

7.6%

7.8%

8.0%

8.2%

8.4%

8.6%

8.8%

9.0%

9.2%

9.4%

9.6%

3% 8% 13%

Re

turn

Risk

Including Converts Excluding Converts

EFFICIENT FRONTIER ANALYSISIMPROVED RISK/RETURN PROFILE OF A PORTFOLIO

Convertibles expand the efficient frontier Portfolio mix for the efficient frontier

Efficient frontier for stocks (S&P500 index) & bonds (BoAML Corp. & Govt. Master Index B0A0), with and without convertibles (BoAML All Traditional Convertibles V0A0) as at 31 March 2011Source: Bank of America Merrill Lynch Convertible Research (12/1989-03/2011)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

4.3% 4.5% 5.5% 7.3% 9.3% 11.5%

Weig

ht

RiskConverts Bonds

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

7.28% 7.50% 8.00% 8.50% 9.00% 9.51%Weig

ht

ReturnConverts Bonds

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

4.5% 6.3% 10.4% 15.0% 16.8%

Weig

ht

Risk

Bonds Stocks

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

7.05% 7.50% 8.00% 8.50% 8.69%

Weig

ht

Return

Bonds Stocks

11


CONVERTIBLE BONDS IN VOLATILE MARKETS

0

10

20

30

40

50

60

70

Jan-9

2

Jan-9

4

Jan-9

6

Jan-9

8

Jan-0

0

Jan-0

2

Jan-0

4

Jan-0

6

Jan-0

8

Jan-1

0

VIX Index

Source: Bloomberg as at 31 October 2011

– Higher trending volatility benefits convertible bonds valuations as the equity option takes on value

– Implied volatilities of convertible bonds are longer-term than the VIX index

– If short-term volatility is sustained at these higher levels over a reasonable period of time, longer-term volatility gradually rises benefiting convertible bond valuation

Volatile markets benefit convertible valuations

12


OUTLOOK FOR THE CONVERTIBLE BOND MARKET

We believe that:

– Convertibles are particularly attractive given the current market volatility

– The embedded option is more valuable

– The short duration nature of the asset class adds strength to the defensiveness of the bond component

– The convertible market is now theoretically cheap

– This should all combine to produce good results for convertibles going forward

Source: Aviva Investors as at 31 October 2011

Convertibles are still an attractive asset class within a diversified portfolio

13


CONVERTIBLES: ACCESS EQUITIES EXPOSURE WITH A LOWER RISK PROFILE

Why convertible bonds now? We believe that:

– Convertibles as an asset class are proven to have superior risk adjusted returns over the past 10 years. This characteristic is resilient during market stress.

– Credit and equities look cheap now. Convertible bonds gives an investor a balanced means to increase exposure to both with a better risk profile

– Convertible bonds are now cheap. They have cheapened by around 4% relative to their fair value over the summer and now offer the potential for excess returns

14Source: Aviva Investors as at 31 October 2011

CONVERTIBLES: ABSOLUTE RETURN APPROACH

Reduce volatility of returns while capturing positive risk / reward profile of the asset class

– Hedging equity exposure: Can be directional or in full

– Other possible hedges: Credit risk, interest rate risk, overlays

– Possible to pursue this strategy via a UCITS IV framework

15

APPENDIX

16

AVIVA INVESTORS – GLOBAL CONVERTIBLES FUND PERFORMANCE

Performance versus benchmark to 31 October 2011

Source: Lipper Hindsight & Aviva Investors 31 October 2011. Data is representative of share class I and is provided net of fees with gross income reinvested in USD. Since inception figures date as of 1 February 2003, I (USD) share class launch date was 21 January 2003. Performance data on A and B share classes is available on request. Past performance is not a guide to the future.*From 1 June 2010, UBS Global Focus Convertible Bond Index (USD) replaced the UBS Global Convertible Bond Index (USD) which had been the fund's benchmark since 1 July 2009. Prior to 1 July 2009, UBS Global Focus Convertible Bond (USD) Index and before 31 March 2008 UBS Global Costed Focus Convertible Bond (USD) Index.

3 months 6 months YTD 1 year 3 years p.a. 5 years p.a.Sinceinception p.a.

Aviva Investors Global Convertibles Fund -3.93% -7.02% -0.82% 0.79% 15.06% 3.98% 6.89%

Benchmark* -4.21% -7.27% -0.87% 0.09% 14.94% 3.23% 6.10%

0%10%20%30%40%50%60%70%80%90%

100%

Feb

-03

Ma

y-0

3

Aug-0

3

No

v-03

Feb

-04

Ma

y-0

4

Aug-0

4

No

v-04

Feb

-05

Ma

y-0

5

Aug-0

5

No

v-05

Feb

-06

Ma

y-0

6

Aug-0

6

No

v-06

Feb

-07

Ma

y-0

7

Aug-0

7

No

v-07

Feb

-08

Ma

y-0

8

Aug-0

8

No

v-08

Feb

-09

Ma

y-0

9

Aug-0

9

No

v-09

Feb

-10

Ma

y-1

0

Aug-1

0

No

v-10

Feb

-11

Ma

y-1

1

Aug-1

1

Percentage Growth Total Return

Aviva Investors Global Convertibles I Benchmark


PORTFOLIO CHARACTERISTICSAVIVA INVESTORS – GLOBAL CONVERTIBLES FUND

Regional breakdown


Credit rating breakdown

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Materials Industrials ConsumerDiscretionary

ConsumerStaples

TelecomsServices

Energy Financials Health Care InformationTechnology

Utilities

Sector breakdown

USA 39%

Europe 27%

Asia & Other 33%

AAA 3%

AA 9%

A 21%

BBB 28%

BB 21%

B 10%

CCC and below 8%


AVIVA INVESTORS – GLOBAL CONVERTIBLES ABSOLUTE RETURN FUND PERFORMANCE

Fund performance to 31 October 2011

Source: Aviva Investors & Lipper Hindsight as at 31 October 2011. Performance is shown net of all fees for I USD share class. Inception date 16 December 2009. *Since inception figures date as of 1 January 2010, the first full month of performance.

Past performance is not a guide to the future. The value of an investment and any income from it can go down as well as up and you may not get back your original investment.

1 month 3 months 6 months YTD 1 yearSince inception p.a.*

Aviva Investors - Global Convertibles Absolute Return Fund 1.38% -4.50% -6.21% -2.35% -1.41% 2.55%

LIBOR USD 1 month 0.02% 0.06% 0.11% 0.19% 0.23% 0.25%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

Dec-09 Feb-10 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11 Aug-11 Oct-11

Percentage Growth Total Return

Aviva Investors - Global Convertibles Absolute Return Fund LIBOR USD 1 month


PORTFOLIO CHARACTERISTICSAVIVA INVESTORS – GLOBAL CONVERTIBLES ABSOLUTE RETURN FUND

Regional breakdown


Currency breakdown

0%

5%

10%

15%

20%

25%

30%

35%

Materials Industrials ConsumerCyclical

ConsumerStaples

TelecomsServices

Energy Financials HealthCare

InformationTechnology

Utilities BasicIndustries

Cash & FXG/L

Sector breakdown

USA 50%

Europe 6%

Asia 39%

Other 6%

USD 84%

HKD 12%

CNY 7%

Other -3%


-2

-1

0

1

2

3

4

5

6

7

8

Dec-1998 Jun-2000 Dec-2001 Jun-2003 Dec-2004 Jun-2006 Dec-2007 Jun-2009 Dec-2010

Perc

en

tag

e D

isco

ut

(%)

G300 (VG00) - global index

FAIR VALUE OVER THE PAST 10 YEARS

Source: Bank of America Merrill Lynch as at 30 September 2011

Outright Funds Dominant in Convertibles Space

October 1998, Prior All Time Cheapness

Supply Exceeded Demand

Falling Stocks

Demand Exceeded Supply

2005 Correction

2006 Richening

2007-2008 Credit Correction

October 2008, New All Time Cheapness

Declining spreads

Hedge Funds Influx

On a global basis convertibles now trade close to bond + option fair value

21


WEEKLY FAIR VALUE OVER THE PAST 3 MONTHS

Source: Bank of America Merrill Lynch as at 06 October 2011

On a regional basis disparities in fair value exist

22


-1

0

1

2

3

4

5

6

Perc

en

tag

e D

isco

un

t (%

)

ASIA

EUROPE

USA

CONVERTIBLE NEW ISSUANCE

Annual Convertible Issuance 1998-2011

Source: UBS as at 30 September 2011 23


0

20

40

60

80

100

120

140

160

180

200

220

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011(Ann.)

US

$b

n

Other Japan Asia Europe US

30%

35%

40%

45%

50%

55%

60%

65%

70%

May-0

2

Oct-

02

Mar-

03

Au

g-0

3

Jan

-04

Ju

n-0

4

No

v-0

4

Ap

r-05

Sep

-05

Feb

-06

Ju

l-06

Dec-0

6

May-0

7

Oct-

07

Mar-

08

Au

g-0

8

Jan

-09

Ju

n-0

9

No

v-0

9

Ap

r-10

Sep

-10

Feb

-11

Ju

l-11

Fund delta

DELTA CHARACTERISTICSAVIVA INVESTORS – GLOBAL CONVERTIBLES FUND


24

Data relates to the Aviva Investors – Global Convertibles Fund and UBS Global Focus Convertible Bond IndexSource: Aviva Investors & UBS as at 31 October 2011

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

May-0

2

Oct-

02

Mar-

03

Aug

-03

Jan

-04

Jun

-04

No

v-0

4

Ap

r-05

Sep

-05

Feb-0

6

Jul-

06

Dec-0

6

May-0

7

Oct-

07

Mar-

08

Aug

-08

Jan

-09

Jun

-09

No

v-0

9

Ap

r-10

Sep

-10

Feb-1

1

Jul-

11

Relative delta

KEY CHARACTERISTICS

Aviva Investors – Global Convertibles FundAviva Investors – Global Convertibles Absolute Return Fund

Investment objective / policy

The fund aims to achieve capital growth or income by investing in convertible bonds and convertible preference shares of worldwide issuers.

The fund aims to achieve a positive return under all market conditions by taking long positions on short-dated, high-quality global convertible bonds directly or through the use of financial derivative instruments and by taking synthetic covered short positions on equity related securities

Performance target0.75% (gross of fees) its benchmark the UBS Global Focus Convertible Bond Index

8% p.a. (gross of fees)

Fund size $2,221.38 million (as at 31 October 2011) $284.60 million (as at 31 October 2011)

Legal structure Luxembourg domiciled UCITS IV SICAV Luxembourg domiciled UCITS IV SICAV

CurrencyUSD (GBP hedged and unhedged & EUR hedged share classes available)

USD (all share classes are currency hedged, GBP & EUR also available)

Liquidity Daily Daily

Leverage None Up to two times NAV

Tools used Convertible bonds and preference shares onlyConvertible bonds, long and short CFDs, with some options and CDX/CDS

Minimum investment (institutional share class)

USD 500,000 (GBP 500,000 & EUR 500,000) USD 500,000 (GBP 500,000 & EUR 500,000)

Fund launch date 9 April 2002 16 December 2009

Annual management charge (institutional share class)

0.60% 0.75% + 10% performance fee

25


BIOGRAPHIES

Shawn Mato CFASenior Fund Manager

Shawn joined the investment industry in 1994

Main Responsibilities Fund manager of convertible bonds at Aviva Investors

Experience & Qualifications Shawn joined Aviva Investors in July 2001 and joined Aviva Investors Global Convertible Bond team in June 2004.Previously he was responsible for the analysis of the US technology sector. Prior to joining Aviva Investors, he worked at Dresdner Kleinwort Wasserstein as an Equity Research Associate where he covered US technology companies with an emphasis on software. Before this Shawn worked at Deloitte and Touche LLP as a financial consultant and Nomura Securities as a US Government Bond Trader. Shawn holds a BSc in Business and Finance from the University of New Hampshire and an MBA in Finance with Honours from Fordham University in New York. Shawn is also a CFA charterholder and a member of the Boston Securities Analyst Society.

David Clott, CFASenior Fund Manager

David joined the investment industry in 1992

Main Responsibilities Fund manager of convertible bonds at Aviva Investors

Experience & Qualifications David joined the firm in 1999 as a US convertible bond manager. He co-founded the global convertibles funds in April, 2002. He began his career with Phoenix Investment Partners in 1992, working initially as an Equity Analyst and later a Convertible Securities Analyst. David then joined HSB Group in 1998 as a Portfolio Manager and Equity Analyst.David holds a BSc in Business Administration and Finance from Bryant College and is a Chartered Financial Analyst.David is also a CFA charterholder and a member of the Boston Society of Financial Analysts.

26


BIOGRAPHIES

Brendan Ryan, CFAResearch Analyst

Joined investment industry in 2004

Main ResponsibilitiesFundamental research on companies with convertible bond exposure for the global convertibles team

Experience & QualificationsBrendan joined Aviva in 2011. He has significant multi-asset class experience (6 years of high-yield, leveraged loan, structured finance, and equity coverage). He also has multiple industry coverage, including chemicals, oil & gas, print media, automotives, industrials, metals & mining, business services, and technology. Prior to joining Aviva Investors, he has held various roles at Cypress Tree Investment Management LLC focussing on debt and reorganized equity of distressed / bankrupt firms from 2008-2010 – this included positions on steering committees and leading creditor groups. Brendan holds a BS in Biology from Boston College and an MBA in Management/ Finance from the Massachusetts Institute of Technology. He is also a CFA charterholder.

Justin Craib-CoxFund Manager


Main ResponsibilitiesFund manager of convertible bonds at Aviva Investors

Experience & QualificationsJustin joins Aviva Investors from M&G Investments where he was an Analyst, researching and investing in convertibles across the global market. Previous to this, Justin worked at Northern Trust acting as a Financial and Strategic Analyst for product and corporate development activities. Before moving to London, Justin was based in Chicago where he gained experience at Morningstar as an Equity Analyst and Nuveen Investments as a Research Analyst.Justin gained a BA in English and History from the University of Virginia in addition to an MSc in Finance from London Business School.

27


BIOGRAPHY

Keith Kelsall, CFAClient Portfolio Manager


Main ResponsibilitiesKeith is the client portfolio manager for convertible bonds and credit strategies

Experience & QualificationsKeith joined Aviva in 2009. Prior to joining Aviva Investors Keith worked at Barclays Global Investors as a senior fixed income product specialist. Prior to this position Keith was a senior fixed income portfolio manager at Daiwa SB Investments and a fixed income portfolio manager at Fiduciary Trust. Keith began his investment career as a fixed income analyst at Deutsche Bank.Keith holds a BA in economics, accounting and financial management from Sheffield university. Keith is also a CFA charterholder.

28


SHARE CLASSESAVIVA INVESTORS – GLOBAL CONVERTIBLES FUND

Source: Aviva Investors as at 30 September 2011

Share class Annual management charge

ISIN code Bloomberg code

A$ 1.20% LU0274938744 AVGCFAU LX

B$ 1.20% LU0144879052 PRUGLCF LX

Bx$ 1.20% LU0401378400 AVGCBXU LX

C$ 1.20% LU0144879219 PRIGCR1 LX

I$ 0.60% LU0160787601 PRIGCI1 LX

A€ hedge 1.20% LU0280566992 AVGAHEU LX

B€ hedge 1.20% LU0280567701 AVABHEU LX

Bx€ hedge 1.20% LU0641119903 AVGCBXH LX

I€ hedge 0.60% LU0280568261 AVAIHEU LX

Ax£ 1.20% LU0280567370 AVGAXGB LX

Ix£ 0.60% LU0280568428 AVIXGBP LX

Ax£ hedge 1.20% LU0367993077 AVGCGBH LX

Ix£ hedge 0.60% LU0367993150 AVGIXHG LX

Fund managers: David Clott, Shawn Mato & Justin Craib-Cox

Benchmark: UBS Global Focus Convertible Bond Index

Fund currency: USD

29


SHARE CLASSESAVIVA INVESTORS – GLOBAL CONVERTIBLES ABSOLUTE RETURN FUND

Share class Annual management charge

ISIN code Bloomberg code

I$ 0.75% LU0459997697 AIGCAUI LX

A€ hedge 1.50% LU0459998232 AVGCAAH LX

B€ hedge 1.50% LU0459998315 AIGCABH LX

I€ hedge 0.75% LU0459998588 AIGCIHE LX

Ix€ hedge 0.75% LU0643905549 AVGCLXH LX

I£x hedge 0.75% LU0459999123 AIGCIXH LX

Source: Aviva Investors as at 30 September 2011

Fund managers: David Clott & Shawn Mato

Indicative benchmark: 1 month USD LIBOR

Fund currency: USD

30


IMPORTANT INFORMATION

Except where stated as otherwise, the source of all information is Aviva Investors as at 31 October 2011.

Past performance is not a guide to the future.

Any opinions expressed are based on the internal forecasts of Aviva Investors and they should not be relied upon as indicating any guarantee of return from an investment managed by Aviva Investors. No part of this document is intended to constitute advice or recommendations of any nature.

Performance figures sourced from Lipper Hindsight and illustrated on a bid to bid, gross income reinvested basis in the currency shown. Other information sourced from Aviva Investors. The value of an investment in the funds can go down as well as up and can fluctuate in response to changes in exchange rates.

The value of an investment and any income from it can go down as well as up. Investors may not get back the original amount invested.

The distribution and offering of shares may be restricted by law in certain jurisdictions. This document should not be taken as a recommendation or offer by anyone in any jurisdiction in which such an offer is not authorised or to any person to whom it is unlawful to make such an offer or solicitation.

Copies of the Full and Simplified Prospectus together with the Report and Accounts of the SICAV are available free of charge from Aviva Investors, No. 1 Poultry, London EC2R 8EJ

On 1 April 2008 the SICAV changed its name from Aviva Morley to Aviva Investors. Please read the current Prospectus for full details of the current fund range before investing.

Aviva Investors is a business name of Aviva Investors UK Funds Limited, a distributor of the Funds. Aviva Investors Global Services Limited is the Authorised Fund Manager of the funds.

Aviva Investors UK Funds Limited. Registered in England No. 2503054. Authorised and regulated by the Financial Services Authority. FSA Registered No. 147088. Registered address: No. 1 Poultry, London EC2R 8EJ. An Aviva company. www.avivainvestors.co.uk

CI061857 11/2011

31


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