Half-yearly report

1/23/2009, 5:24 PM (Source: GlobeNewswire)
M&G High Income Investment Trust P.L.C.

Second Interim Results

I would like to take this opportunity to welcome all the former M&G Income Investment Company
Limited (M&G Income) shareholders who became shareholders in the Company following M&G Income's
winding-up in October. Clearly, these are difficult economic times. Shareholders may take
encouragement from the recent relative performance of the Company.

Performance during the period


The Company's revenue earnings per Package Unit were 3.60p. In respect of the review period,
the Company declared two quarterly dividends of 1.20p and 2.20p per Income Share respectively.
Normally the Company's dividend policy is that the fourth interim dividend is the largest
payment. However in the current financial year, the larger second dividend reflects a temporary
change in the phasing of the Company's dividend policy to coincide with the M&G Income scheme
of reconstruction ('the Scheme'). This and the declaration of a special dividend of 0.90p per
Income Share with the same record and payment date enabled substantially all of the Company's
revenue reserves to be paid to shareholders who were on the Company's share register prior to
the Scheme becoming effective. This makes a total of 4.30p compared with a total of 2.40p
declared in respect of the same period last year. Consequently, dividends declared in the
second half of the year are likely to be well below those declared in the equivalent period
last year. The November annual rate of inflation as measured by the Retail Prices Index (RPI)
was 3.0%. As at the period end, the mid-market price yield on the Company's Package Units was
6.9%, compared with the yield of 4.7% on the FTSE All-Share Index.

On a net asset value (NAV) basis, each Package Unit produced a negative total return of 19.8%
over the six months to 30 November 2008. This was considerably better than the negative total
returns of 29.3% and 22.5% respectively on the FTSE All-Share Index and the FTSE 350 Higher
Yield Index over the same period.

Over the review period, the discount to the Package Unit NAV widened from 4.0% to 5.0%, the
mid-market price at the period end being 98p and the Package Unit NAV 103.13p. On a mid-market
price basis, each Package Unit produced a negative total return of 20.3%.

Long-term performance

The Company continues to meet its income objectives. Two quarterly dividends were declared in
respect of the review period, as well as the special dividend referred to above, providing
shareholders with a level of income higher than that on the FTSE All-Share Index. With the
level of dividend cuts increasing across the UK equity market, it may be difficult to maintain
our underlying ordinary dividend payout next year.

Over an extraordinarily testing six-month period for equity markets, the Company's negative
total return is unsurprising. However, the defensive stance of the Company's portfolio ensured
that the Company continued its impressive long-term relative performance. Indeed, over one,
two, three, five years and since inception in 1997, the Company's Package Unit NAV total return
has exceeded that on the FTSE All-Share Index. This record has been built over more than a
decade of varying stock market conditions, including long phases of underperformance for high
yielding shares, reflecting well on the consistent approach of the Company's investment
managers.

M&G Recovery Investment Company Limited

The Company recently released the following announcement to the London Stock Exchange
concerning proposals which, if approved, will we believe be of benefit to shareholders:

"Participation in the proposed reconstruction of M&G Recovery Investment Company Limited

The Board of M&G High Income Investment Trust Plc ("M&G High") is in discussions with the Board
of M&G Recovery Investment Company Limited ("M&G Recovery") which is intending to put forward
proposals to coincide with its scheduled wind up date of 31 March 2009.


Under the proposals, M&G Recovery will be wound up and its shareholders will be offered the
choice of a tax and cost efficient rollover into new shares to be issued by M&G High, a full
cash exit (at liquidation value) and at least one open-ended investment company managed by M&G,
the manager of M&G High and M&G Recovery.

M&G Recovery currently has gross assets of £124 million whilst M&G High has gross assets of
£141 million and has a wind up date of 17 March 2017. Both companies are managed by the same
investment team at M&G, have similar investment objectives and are split capital investment
companies.

Precise details of the proposals will be announced in February 2009."

Effect on dividends for the year ending 2009

The Board is reviewing its usual dividend distribution pattern for the current year in view of
the fact that issuing new shares under the above proposals would result in the dilution of the
revenue reserves attributable to each Income Share. If the proposals are approved, the usual
final interim dividend will be replaced by a fourth and a fifth interim dividend, the former
only being payable to Income Shareholders on the register before any M&G Recovery shareholders
join the register as a result of the scheme.

Outlook

Consensus forecasts for the UK economy suggest negative economic growth in the range of 1.3% to
1.7% in 2009, with recovery getting under way in the second half of the year. However, this
relatively optimistic scenario takes little account of the downward lurch in all sectors of the
economy since mid-September both in the UK and overseas and its likely continuation. Business
confidence has plummeted, with manufacturing and service companies accelerating job cuts,
scaling back capital investment and focusing on survival. Likewise, consumers are fearful and
uncertain about the future and are likely to prioritise the rebuilding of their depleted
savings rather than increasing discretionary spending. Recovery in the battered housing market
also seems distant. The position of the UK is exacerbated by the global nature of the downturn,
which is now impacting even China and other emerging countries, hitherto widely believed to
have been less vulnerable to any setback. The existence of such a range of powerful headwinds,
together with a weakened and as yet semi-functional banking system, implies a high risk that
the current recession will be severe and protracted.

In mitigation, there are offsetting factors. Oil prices have tumbled. The authorities are not
standing idly by and allowing the economy to collapse though whether or not the chosen 'cures'
will work in practice is open to debate as is the potential long-term damage to the economy if
they fail. Base rates have been lowered aggressively and, with inflation predicted to fall
below the Government's 2% target by mid-2009, a further cut to 1.5% has been implemented.
Having provided billions of funds to rebuild bank balance sheets, the government has signalled
its continuing support for the banking system, aimed at restoring normal credit availability.
It has also announced a £20 billion reflation package, largely funded by record volumes of gilt
issuance. On 19 January the Government announced a further plan to attempt to protect the
banking system from systemic failure including an insurance scheme for bad or doubtful debts
(the Asset Protection Scheme).

The deteriorating global economic outlook is inevitably putting severe pressures on companies,
with limited credit availability compounding the impact of falling revenues. Company profits
typically decline by an average of 30% to 40% during recessions, implying that the recent
pattern of downgrades and of dividend cuts is set to continue in 2009. Restructuring, cost
cutting and cash conservation are likely to be the order of the day. Deluged with so much bad
news and with the bear market having lasted nearly eighteen months, investor confidence stands
at rock bottom levels. Valuations are low by historic standards, with the market yield now
above that on long dated UK government bonds (gilts). Perhaps history is not a good benchmark
in these exceptional conditions. Faced with so many uncertainties, buyers are reluctant to
commit themselves. Rebuilding investor confidence will take time and will depend on firm
evidence of problems being solved and of the medicine being liberally ladled out by the
authorities having its desired effect. There is a risk that the economic situation may worsen
in the short term.

The point of maximum pessimism (though difficult to identify) is a good time for investors to
hold their nerve and seek out opportunities to buy attractively valued shares in companies with
sustainable long-term prospects. The Company's portfolio is defensively positioned and we
believe is relatively well placed to support the current level of ordinary dividend payments
this year, but it is a challenging environment for dividends.
Severe stock market downturns invariably bring indiscriminate selling of shares in good and bad
companies, even bringing normally low yield growth stocks into the orbit of income fund
managers. We will continue to be opportunistic, without compromising our well-honed investment
strategy. We believe the Company's portfolio is well placed in these volatile circumstances.



Responsibility statement

To the best of my knowledge and belief this statement includes a fair review of the information
required by the FSA handbook (DTR 4
* 2
* 7R and DTR 4
* 3
* 8R).

F C Carr
(Chairman)



Income statement (unaudited)

For the six months ended For year ended
30 November 2008 30 November 2007 31 May 2008
Revenue Capital Total Revenue Capital Total Revenue Capital Total
£000 £000 £000 £000 £000 £000 £000 £000 £000
-------- -------- ------ -------- -------- ------- -------- ------- --------
Net losses on - (13,812) (13,812) - (9,132) (9,132) - (16,816) (16,816)
investments
Income 2,571 - 2,571 1,947 - 1,947 3,965 - 3,965
Investment (131) (266) (397) 83 167 250 (42) (83) (125)
management fee
Other expenses (88) - (88) (63) - (63) (130) - (130)
------- ------- ------ ------- ------- ------- ------ -------- --------
Net return
before finance 2,352 (14,078) (11,726) 1,967 (8,965) (6,998) 3,793 (16,899) (13,106)
cost and tax
Finance costs: - (1,736) (1,736) - (1,223) (1,223) - (2,495) (2,495)
Appropriations
Finance costs: (3,802) - (3,802) (1,821) - (1,821) (3,107) - (3,107)
Dividends
------- ------- ------ ------- ------- ------- ------ -------- --------
Net return on
ordinary (1,450) (15,814) (17,264) 146 (10,188) (10,042) 686 (19,394) (18,708)
activities
before tax
Tax on - - -
ordinary - - - - - -
activities
------- ------- ------ ------- ------- ------- ------ -------- --------
Net return on
ordinary (1,450) (15,814) (17,264) 146 (10,188) (10,042) 686 (19,394) (18,708)
activities
after tax
------- ------- ------ ------- ------- ------- ------ -------- --------
Return per
Zero Dividend - 2.66p 2.66p - 2.28p 2.28p - 4.66p 4.66p
Preference
Share
Revenue
earnings / 3.60p (18.64)p (15.04)p 3.67p - 3.67p 7.08p - 7.08p
return per
Income Share
Return per - (5.55)p (5.55)p - (19.02)p (19.02)p - (36.22)p (36.22)p
Capital Share
Total return
per Income and 3.60p (24.19)p (20.59)p 3.67p (19.02)p (15.35)p 7.08p (36.22)p (29.14)p
Growth Unit
Total return
per Package 3.60p (21.53)p (17.93)p 3.67p (16.74)p (13.07)p 7.08p (31.56)p (24.48)p
Unit

Return per Income Share is calculated on the basis of net capital
losses for the period, after deduction for appropriations in respect
of Zero Dividend Preference Shares and after offsetting maximum
capital losses against Capital Shares, of £12,185,000 (2007: nil) and
a weighted average number of 65,383,651 shares (2007:53,552,179
shares) in issue during the year.

The total column of this statement is the profit and loss account of
the Company. The revenue return and capital return columns are
supplementary to this and are prepared under the guidance published
by the Association of Investment Companies.

All items in the above statement derive from continuing operations.
No operations were acquired or discontinued during the period.

A statement of Total Recognised Gains and Losses is not required as
all gains and losses of the Company have been reflected in the above
statement.

Earnings per Package Unit for the six months to 30 November 2008 have
been calculated using the weighted average shares in issue during the
period to reflect the issue of shares after the winding up of M&G
Income Investment Company Limited. Shareholders should note that as
at 30 November 2008 the amount standing to the revenue reserve was
0.87p.


Statement of movements in net assets attributable to shareholders
(unaudited)


For the six months ended 30.11.08 30.11.07
£000 £000
---------- ----------
Return on ordinary activities after tax (17,264) (10,042)
Finance costs: Appropriations 1,736 1,223
Issue of Package Units 83,651 -
Cost of issuing Package Units (416) -
---------- ----------
Net movement in net assets attributable 67,707 (8,819)
to shareholders
Opening net assets attributable to 73,391 89,604
shareholders (all non-equity)
---------- ----------
Closing net assets attributable to 141,098 80,785
shareholders (all non-equity)
---------- ----------





















Balance sheet (unaudited)
As at 30.11.08 30.11.07 31.05.08

£000 £000 £000
------- ------- -------
Fixed assets
Portfolio of investments 138,978 78,465 69,192
------- ------- -------
Current assets
Debtors 2,908 1,441 1,434
Cash at bank and short-term deposits 2,215 1,002 2,814
------- ------- -------
5,123 2,443 4,248
------- ------- -------
Total financial assets 144,101 80,908 73,440
Creditors: Amounts falling due within one (3,003) (123) (49)
year
------- ------- -------
Net assets attributable to shareholders 141,098 80,785 73,391
(all non-equity)
------- ------- -------





Net assets attributable to Shareholders (unaudited)
As at
30.11.08 30.11.07 31.05.08

£000 £000 £000
------- ------- -------
Zero Dividend Preference Shareholders 79,264 28,325 29,641
Income Shareholders 61,834 39,581 40,121
Capital Shareholders - 12,879 3,629
-------- ------- --------
Net assets attributable to shareholders 141,098 80,785 73,391
(all non-equity)
-------- -------- --------


The net assets attributable to shareholders have been calculated in
accordance with the Company's Articles of Association and the net
asset values (per share) applicable to each class of shareholding as
shown below.
Each class of the Company's shares meets the definition of a
liability and therefore the Company has no equity shares.
This does not affect the rights and benefits of each class.
The Condensed Financial Statements have been prepared in accordance
with the Statement: Half Yearly Financial Reports issued by the
Accounting Standards Board.


As at 30.11.08 30.11.07

Net asset value per
Zero Dividend 57.93p 52.89p
Preference Share
Net asset value per 45.20p 73.91p
Income Share
Net asset value per - 24.05p
Capital Share
Net asset value per 45.20p 97.96p
Income & Growth Unit
Net asset value per 103.13p 150.85p
Package Unit
Cash flow statement (unaudited)
For the six months For the year
ended ended

30.11.08 30.11.07 31.05.08
£000 £000 £000 £000 £000 £000
-------- -------- ------ -------- -------- -------
Net cash
inflow from 1,792 1,368 2,655
operating
activities
Servicing of
finance
Dividends
paid (2,142) (1,821) (3,107)
(non-equity)
Financial
investment
Capital 298 216 215
distributions
Purchase of (10,373) (4,309) (12,073)
investments
Sale of 7,921 4,918 14,494
investments
------- ------ -------
(2,154) 825 2,636

Financing
Shares 2,321 - -
issued for
cash
Share (416) - -
issue cost
------- ------ -------
1905 - -
------- ------- -------
Net (599) 372 2,184
(decrease) /
increase in
cash
------- ------- -------




Portfolio of investments
As at 30 November 2008



Oil & gas producers 17.04
BP 12,090 8.57
Royal Dutch Shell 'B' 11,951 8.47

Chemicals 0.92
Johnson Matthey 1,120 0.79
Yule Catto 188 0.13

Mining 1.38
Anglo American 794 0.56
Lonmin 1,160 0.82

Aerospace & defence 0.06
Rolls-Royce Group 86 0.06

Construction & materials 0.23
Low & Bonar 184 0.13
Marshalls 148 0.10

Electronic & electric equipment 0.90
Halma 447 0.32
Renishaw 812 0.58

General industrials 0.87
Smith (D.S.) 527 0.37
Smiths Group 710 0.50

Industrial engineering 1.22
IMI 827 0.59
Rotork 394 0.28
Vitec Group 499 0.35

Industrial transportation 0.28
Wincanton 395 0.28

Support services 3.36
Acal 101 0.07
Bunzl 944 0.67
Davis Service Group 786 0.56
Electrocomponents 737 0.52
Filtrona 892 0.63
Hays 518 0.37
Premier Farnell 210 0.15
Rentokil Initial 301 0.21
Smiths News 256 0.18

Automobiles & parts 0.40
GKN 567 0.40

Beverages 0.81
Diageo 1,138 0.81

Food producers 4.61
Tate & Lyle 1,620 1.15
Unilever 4,879 3.46

Personal goods 0.44
PZ Cussons 614 0.44

Tobacco 4.19
British American Tobacco 4,258 3.02
Imperial Tobacco 1,646 1.17

Pharmaceuticals & biotechnology 9.81
AstraZeneca 4,919 3.49
GlaxoSmithKline 8,919 6.32

Food & drug retailers 0.42
Sainsbury (J.) 592 0.42

General retailers 2.52
Carpetright 116 0.08
Halfords Group 1,359 0.96
Kesa Electricals 334 0.24
Kingfisher 854 0.61
NEXT 846 0.60
Topps Tiles 49 0.03


Media 2.84
Daily Mail & General Trust 'A' 221 0.16
(non-voting)
Pearson 2,368 1.68
Reed Elsevier 1,385 0.98
Trinity Mirror 25 0.02

Travel & leisure 1.68
Compass Group 1,658 1.18
Holidaybreak 186 0.13
William Hill 520 0.37

Fixed line telecommunications 2.08
BT Group 2,932 2.08

Mobile telecommunications 5.92
Vodafone Group 8,355 5.92

Electricity 0.57
Scottish & Southern Energy 806 0.57

Gas, water & multi-utilities 4.04
National Grid 2,006 1.42
Northumbrian Water Group 654 0.46
Pennon Group 479 0.34
Severn Trent 1,341 0.95
United Utilities 1,226 0.87

Banks 6.60
Barclays 113 0.08
Barclays 9.75% Cnv. 2009 56 0.04
HSBC Holdings 7,964 5.64
Lloyds TSB Group 1,186 0.84

Equity investment instruments 0.44
Ecofin Water & Power Opportunities 263 0.19
Blackrock Commodities Income Investment 360 0.25
Trust

General financial 0.94
Close Brothers Group 831 0.59
Provident Financial 497 0.35

Life insurance 4.39
Aviva 2,837 2.01
Friends Provident 321 0.23
Legal & General Group 1,706 1.21
Old Mutual 70 0.05
Prudential 1,257 0.89

Non-life insurance 0.98
Jardine Lloyd Thompson Group 624 0.44
RSA Insurance Group (formerly Royal & 768 0.54
Sun Alliance)

Real estate investment trusts 0.45
Alpha Pyrenees Trust 133 0.09
Land Securities Group 99 0.07
Segro 403 0.29

Software & computer services 0.52
Sage Group 734 0.52

Non-convertible preference shares 3.39
Aviva 8.75% Cum. Irrd. Pref. 1,598 1.13
General Accident 8.875% Cum. Irrd. 784 0.56
Pref.
HBOS 6.475% Non-cum. Pref. 630 0.45
HBOS 9.25% Non-cum. Irrd. Pref. 522 0.37
HBOS 9.75% Non-cum. Irrd. Pref. 517 0.37
Royal & Sun Alliance 7.375% Cum. Irrd. 236 0.17
Pref.
Standard Chartered 7.375% Non-cum. Irrd. 485 0.34
Pref.

'AAA' credit rated bonds 6.11
Finland (Republic of) 9.375% 2010 696 0.49
GE Capital UK Funding FRN 2010 662 0.47
Treasury 4.75% 2010 7,266 5.15

'AA' credit rated bonds 0.63
BP Capital Markets 5.75% 2010 408 0.29
Land Securities Capital Markets Var. 476 0.34
Rate 2013

'A' credit rated bonds 3.06
E.ON International Finance 6.375% 2012 510 0.36
France Telecom 5.5% 2012 493 0.35
France Telecom 7.5% 2011 749 0.53
HSBC Holdings Var. Rate 2018 1,061 0.75
London Merchant Securities 6.5% 2026 237 0.17
National Grid Gas 6% 2017 493 0.35
RWE Finance 6.375% 2013 776 0.55

'BBB' credit rated bonds 2.95
AXA Var. Rate Perp. 419 0.30
British Telecommunications 8% 2016 680 0.48
Deutsche Telekom 7.125% 2012 833 0.59
DWR Cymru Financing Var. Rate 2036 731 0.52
Imperial Tobacco Finance 6.25% 2018 412 0.29
Imperial Tobacco Finance 6.875% 2012 442 0.31
Sutton Bridge Financing 8.625% 2022 348 0.25
Thames Water Utilities Finance 4.75% 298 0.21
2010

Bonds with no credit rating 1.45
Blue Circle Industries 10.75% 2013 521 0.37
Brixton 5.25% 2015 573 0.41
John Lewis 6.375% 2012 668 0.47
Shaftesbury 8.5% 2024 283 0.20

Total investments 138,978 98.50
Net other assets 2,120 1.50
Net assets attributable to shareholders 141,098 100.00
(all non-equity)

The interim report will not be advertised in the press,
but copies are available from the registered office,
Laurence Pountney Hill, London, EC4R 0HH.

J. P. McClelland
Secretary
21 January 2009
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