European Equity Income Breaking down the barriers in the search for yield

1. European Equity IncomeBreaking down the barriers in the search for yield Aaron Barnfather Director of Investment Management (European Equities)

2. Europe's ageing population – the dependency ratio* 32 27 % 22 17 1995 2000 2005 2010 2015 EU 15 United Kingdom US The building blocks are in place for a European equity income market Europe's ageing population – the dependency ratio* • Europe has one of the fastest ageing populations in the world • By 2015 nearly 1 in 3 people over the age of 15 will be economically inactive (65+) • This drives demand for savings, investments and pensions • An ageing population increasingly requires income from its investments, accentuating the hunt for yield Source: *Goldman Sachs, Dec 2006

3. 30 25 20 % 15 10 5 0 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 Germany Spain Italy Czech Republic Hungary The building blocks are in place for a European equity income market Interest rates are low in Europe** • Falling interest rates and bond yields around the world have reduced investors’ income • Investors are being forced to look at alternative investments to bonds and deposit accounts • High European dividend yields and growing income streams are becoming increasingly attractive to investors Source: **Datastream, Dec 2006

4. 60 50 % 40 30 20 10 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Germany Ireland Czech Republic Greece The building blocks are in place for a European equity income market Corporation tax is falling in Europe*** • European governments are now locked in battle to reduce corporation tax • – Holland, Spain and Germany are cutting currently • This leaves a larger profit pool for investors, improving the outlook for dividend payments and dividend growth • This creates a positive environment for improved shareholder returns Source: ***KPMG, Dec 2006

5. The importance of dividends in total returns has increased over time 10-year rolling real returns Europe ex UK • Dividend payments and dividend growth have accounted for 78% of total returns over the last 25 years • Dividends have become more important over time within the total return 17.5 12.5 7.5 % 2.5 -2.5 -7.5 72- 73- 74- 75- 76- 77- 78- 79- 80- 81- 82- 83- 84- 85- 86- 87- 88- 89- 90- 91- 92- 93- 94- 95- 96- 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 3.6 3.5 4.5 5.0 4.3 5.3 5.7 5.8 6.4 6.1 6.3 4.6 4.5 3.8 3.0 2.9 3.5 3.1 3.0 3.4 3.4 2.9 2.6 2.8 2.5 Dividend yield -1.2 -1.2 -0.4 0.1 2.9 2.3 2.4 3.8 3.8 3.9 4.3 3.5 2.6 2.5 2.1 3.4 5.1 5.4 6.0 6.9 5.8 5.4 6.6 7.0 8.1 Real dividend growth -5.4 -2.7 0.0 2.8 3.7 6.2 5.0 6.5 7.9 6.0 6.4 4.6 5.5 3.1 1.7 3.9 7.7 5.1 6.1 4.8 3.2 0.0 -0.2 0.4 -1.0 Valuation change Source: Dresdner Kleinwort

6. Europe's dividend culture is beginning to mature Europe ex UK dividends paid out annually – a rising trend £m Source: MSCI, Worldscope, Morgan Stanley Research

7. 3.5 3.0 2.5 2.0 1.5 Multiples x 1.0 0.5 0.0 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 A broad spectrum of income opportunities • Dividend cover remains at close to historical highs • Making dividend levels sustainable • And providing the potential for further growth Europe ex UK Free Cash Flow Dividend Cover Ratio* Source: *Lehman Brothers, FTSE Jan 1988 to Dec 2006

8. Numerous European stocks offer generous yields Top 10 yields in the FTSE W Europe ex UK Index Source: Datastream, Newton as at 12 Dec 2006 A wide choice of higher yielding markets and stocks

9. Europe already demonstrates key attributes for a successful income fund– High yield stocks have consistently outperformed the market Europe ex UK high dividend yield basket vs FTSE World Europe ex UK (total return) 300 250 200 % y-o-y 150 100 50 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 • Chart shows the relative performance of a high dividend yield basket of stocks relative to the FTSE World Europe ex UK Index. The high dividend yield basket is the top quartile of the largest 300 stocks in the FTSE World Europe ex UK Index screened by dividend yield Source: Lehman Brothers, WorldScope, FTSE, Datastream, Dec 1989 to Nov 2006

10. Important information • FOR PROFESSIONAL INVESTORS ONLY • Past performance is not a guide to the future. Please remember that the value of shares and the income from them can fall as well as rise and investors may not get back the full amount originally invested. The value of overseas securities will be influenced by the rate of exchange which is used to convert these to sterling. This presentation may not be used for the purpose of an offer or solicitation in any jurisdiction or in any circumstances in which such offer or solicitation is unlawful or not authorised. The information contained in the document should not be construed as a recommendation to buy or sell a security. If the portfolio invests in sub-investment grade bonds that typically have a low credit rating these carry a high degree of default risk, which can affect the capital value of your investment. • Hypothetical or simulated performance results have certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading/returns. No representation is being made that any fund will or is likely to achieve profits or losses similar to those shown. • Newton Asian Income Fund, Newton Global Higher Income Fund, Newton European Higher Income Fund and Newton Higher Income Fund are sub-funds within the Mellon Investment Funds ICVC (an investment Company with Variable Capital), for which Newton Investment Management Limited is the authorised investment adviser. Mellon Fund Managers Limited is the Authorised Corporate Director. • Companies in the Asian Income Fund, Newton Global Higher Income Fund and Newton European Higher Income Fund’s portfolios may generate profits and pay dividends in foreign currencies and the funds will therefore be exposed to changes in currency rates. All funds mentioned may deduct charges from capital, which may affect their growth. All of the above funds are subject to a concentration risk which can occur when a fund is invested in a limited number of securities. Newton Asian Income Fund, Newton Global Higher Income Fund and Newton European Higher Income Fund can invest in emerging markets and it should be noted that these markets have additional risks associated with local custody and registration practices that may be less developed than mature markets. • A copy of the full prospectus and Simplified Prospectus can be obtained by calling 0800 614 330. • This presentation is issued and approved in the UK by Mellon Global Investments Limited. Mellon Global Investments Limited, Mellon Financial Centre, 160 Queen Victoria Street, London EC4V 4LA. Registered in England No. 1118580. Newton Investment Management Limited, Mellon Fund Managers Limited and Mellon Global Investments Limited are authorised and regulated by the Financial Services Authority and are ultimately owned by Mellon Financial Corporation. • A Mellon Financial CompanySM