Final Results

7/30/2009, 1:36 PM (Source: GlobeNewswire)
M&G High Income Investment Trust P.L.C.
Final Results
For the year ended 31 May 2009

Chairman's statement and Management Report

I would like to take this opportunity to welcome the former M&G
Recovery Investment Company Limited (M&G Recovery) shareholders who
became shareholders in the Company following M&G Recovery's
winding-up in March. Market conditions were very difficult at
wind-up, but as a result of the upswing in markets since then,
Package Unit holders have benefited from an 11.2% improvement in NAV
from transfer to the end of May.

Performance during the year

The Company's revenue earnings per Package Unit were 6.04p. A fifth
interim dividend of 0.25p was declared. However, this includes an
additional 0.05p above that anticipated in the Prospectus issued in
connection with the M&G Recovery Investment Company scheme of
reconstruction. This was as a result of generating more income than
anticipated between the date of the Prospectus and the year end, and
to ensure that the Company continues to comply with the provisions in
Section 842 of the Income & Corporation Taxes Act 1988 on income
retention.

In respect of the year, the Company declared five interim dividends
totalling 5.85p per Income Share, a 0.9% increase in the underlying
dividend on last year. Together with a special dividend of 0.90p per
Income Share, this made a total of 6.75p. This represents an increase
of 5.5% compared with the total of 6.40p (including a special
dividend of 0.60p) declared in respect of the previous year. The
inflation rate as measured by the latest Retail Prices Index (RPI) in
May 2009 was minus 1.1%. As at the year end, the yield on the
Company's Package Units was 5.7%, compared with the yield of 4.6% on
the FTSE All- Share Index.

During the year the Board adopted a temporary change in the phasing
of the Company's dividend policy to accommodate the M&G Income
Investment Company Limited and M&G Recovery Investment Company
Limited schemes of reconstruction. Total dividends of 4.30p per
Income Share (including a special dividend of 0.90p) was declared in
respect of the first half of the year, with 2.45p being declared in
respect of the second half. In the coming year, the Company intends
to revert to its normal dividend phasing policy, with its weighting
of distribution towards the second half.

On a net asset value (NAV) basis, each Package Unit delivered a
negative total return of 17.7% over the year to 31 May 2009. Whilst
disappointing in absolute terms, this was better than the negative
total returns of 23.7% and 22.9% respectively from the FTSE All-Share
Index and the FTSE 350 Higher Yield Index over the same period.

As at the year end, there was a market price discount on the
Company's Package Units of 6.9% to the NAV, compared with 4.0% as at
31 May 2008, the mid-market price at the year end being 96.0p and the
NAV 103.12p. On a mid-market price basis, there was a negative total
return on the Company's Package units of 19.9% over the year to 31
May 2009. For a detailed description of the management of the
portfolio during the period, I refer you to the Investment Review in
the Annual Report and Financial Statements for the year ended 31 May
2009.

Long term performance

The Company continues to meet its income objectives. Total dividends
of 6.75p were declared in respect of the year, including the income
reserves special dividend of 0.90p, an increase of 5.5% compared with
the total of 6.40p in the previous year. This maintained the record
of uninterrupted dividend growth since the Company's launch in 1997.
The outlook for dividends has become even more uncertain but provided
that the Directors consider revenue reserves and profits to be
sufficient, they would hope to declare total ordinary dividends for
the financial year ending 31 May 2010 of 5.85p. This should not
however be taken to be a profit or dividend forecast.

The relative out performance of the Company's Package Unit NAV over
the year under review against the FTSE All-Share Index over the same
period went some way towards narrowing the shortfall in the return on
the Company's NAV compared with that on the FTSE All-Share Index over
the past three and five years. Moreover, the annualised return on the
Company's NAV since launch in 1997 remains above that on the FTSE
All-Share Index.

Share buy backs and treasury shares

Following discussions with its advisers, the Board has to seek
shareholder approval to grant the Board discretionary powers to buy
back shares to either cancel such shares or hold them as Package
Units in treasury for sale or cancellation at a later date as set out
in Resolution 8 in the Annual Report and Financial Statements for the
year ended 31 May 2009. The rationale for proposing a facility to
hold package units in treasury in addition to the existing powers to
buy back and cancel package units is that it will provide the Board
with a means by which it can supplement market liquidity in the
Package Units. It is anticipated that the facility may be used to
assist in meeting demand for Package Units and Income & Growth Units
associated with the reinvestment of dividends and on other occasions
as the Board determines. In order to minimise the dilution effect to
the NAV, we are proposing that these powers are subject to a number
of restrictions in addition to those required by regulation. All the
relevant restrictions are set out in more detail in the Annual Report
and Financial Statements for the year ended 31 May 2009. Further, the
Board will only purchase shares after taking into consideration the
effects on earnings per share.

Whilst held in treasury, the Package Units will be treated as if
cancelled and, therefore, they will carry no entitlement to dividends
or to voting rights.

If the Board were to decide to use its authority to buy back shares
under the proposed broader powers, it would, at that time, determine
for the benefit of the shareholders as a whole, whether the shares
purchased should be immediately cancelled or held in treasury. If it
decides to hold the shares in treasury, it may decide at a later date
to cancel them. Further, the board will only purchase shares after
taking into consideration the effects on earnings per share.

VAT

In the Directors' Report in the Annual Financial Statements for the
year ended 31May 2008, we reported that a payment was expected by way
of a VAT repayment following agreement with M&G that in light of the
HMRC confirmation in November 2007 that fund management services
supplied to investment companies were VAT exempt, M&G would refund
(i) all amounts charged to the Company in relation to VAT plus
interest since April 2004 including amounts it was unable to recover
against HMRC and (ii) for periods prior to April 2004, all amounts
M&G was able to recover against HMRC. Payment in the sum of £843,140
was received by the Company on 15 August 2008.

During the course of the year, the Board has been in discussion with
PwC Legal regarding its proposals to issue proceedings against HMRC
on behalf of companies in liquidation to which certain of PwC's
partners are appointed liquidators by way of a restitutionary claim
in respect of VAT payments made on investment management fees. The
Board understands that these proceedings are expected to be initiated
very shortly ('the Lead Proceedings'). In this connection, the
Company has entered into a consultancy agreement with PwC with a view
to bringing its own restitutionary proceedings on the same legal
basis as the Lead Proceedings so as to enable further recoveries of
VAT to be secured. Whilst there is no certainty as to the ultimate
outcome of the Company's proposed litigation, the Board believes that
on balance the potential benefits to shareholders justify the
estimated costs. The timescale for the ultimate resolution of the
Lead Proceedings, and therefore any proceedings which the Company
brings in its own name, is likely to take a number of years.

Investment policy

Following discussions with M&G, the Board has decided to make a minor
amendment to the Company's investment policy to increase the maximum
number of permitted stocks within the portfolio from 100 to 120. The
rationale for the proposed increase is to help improve the overall
liquidity of the enlarged equity portfolio following the M&G Income
Investment Company Limited and M&G Recovery Investment Company
Limited schemes of reconstruction and to allow for a greater number
of holdings in mid and small cap stocks when the economic outlook
improves. The Board does not regard this change as material and, on
this basis shareholder approval is not therefore required.

Outlook

The balance of recent reports suggest that the worst of the recession
may be over, with some economists now predicting a return to modest
growth by the second half of 2009. Surveys of business and consumer
confidence showed a marked improvement from the depths plumbed during
the winter months, with most respondents expecting the economic
outlook to improve. Optimistic reports of 'green shoots' have
multiplied. Industrial output increased modestly in May and activity
in services appears to be on a rising trend once more. Retail sales
also appear resilient, with lower inflation and reduced mortgage
bills outweighing stagnant earnings and reduced return on cash-based
savings. Likewise, the housing market is busier and prices rose in
May, although the availability of mortgage finance remains
constrained. Base rates may well remain at their current level of
0.5% for some time and the Bank of England is likely to continue its
initiative to support government bond prices. However, there are
constraints on recovery and a strong possibility that a prolonged
phase of mediocre growth is in prospect.

Unemployment is widely predicted to rise from 2.38 million to over 3
million, credit availability is still restricted and household debt
remains high. In addition, the alarming rise in the public sector net
borrowing to 12.4% of GDP in 2009/10 and official forecasts of a
prolonged period of abnormally high government debt is highly likely
to lead to an 'age of austerity', involving tax increases and cuts in
public spending. Although inflation could trend lower in the near
term, there is a growing risk that a combination of higher commodity
prices, a possible further slide in sterling and the consequences of
current excessively loose fiscal and monetary policies may create
renewed upward inflation pressures.

On the whole, the corporate sector, particularly large companies with
top quality credit ratings have managed to cope comparatively well so
far during recession. Record amounts have been raised from equity and
corporate bond issues, costs have been pared back and balance sheets
strengthened. Further rights issues are likely to add to the £40
billion announced so far in 2009. The overall level of company
profits is likely to be lower in 2009 and further cuts in dividends
are possible. However, profitability should improve in 2010 even in
this 'age of austerity', albeit modestly.

The recent stock market rally has disproportionately favoured shares
in cyclical sectors which are deemed to be the best recovery plays.
Many of the defensive high yielding shares which form the core of the
Company's portfolio have been overlooked and consequently remain
undervalued, particularly on a yield basis. A few examples illustrate
this point. Royal Dutch Shell in the oil & gas sector and
GlaxoSmithKline in pharmaceuticals are both financially robust
leading global players in their respective industries. Their yields
are 6.2% and 5.6% respectively, at the top end of their historic
relative range and well above the current market average of 4.4%. In
an uncertain environment, we are comfortable focusing on such stocks
that are well placed to meet the Company's core objectives.

Government bond prices have drifted lower since early March with
buyers demanding ever increasing yields to compensate for the
implicit risks arising from the deterioration of government finances,
the surge in issuance and the possibility of a rebound in inflation.
However, their safe haven status might again come into play in the
event of any disappointment in economic recovery hopes. Although
potentially exposed to many of the influences facing government
securities, good quality corporate bonds currently offer yields of at
least 2% higher than government bonds of similar duration. They form
a key part of the Company's fixed income portfolio and are expected
to deliver positive returns over the coming year.

Perhaps our biggest worry now is the further damage to the country
that could be wrought by the malicious hand of a dying and
discredited Government, still pretending that they are capable of
prudent governance. It is hard to conclude that any of their 'big
projects' has been successful, and success now seems to be measured
by their ability to dance away from responsibility or blame. Let us
pray that their death rattle is swift and conclusive.

Responsibility statements

To the best of my knowledge and belief:

a ) this statement includes a fair review of the development and
performance of the business and the position of the Company together
with a description of the principal risks and uncertainties that the
Company faces; and

b) the financial statements, prepared in accordance with United
Kingdom Accounting Standards, give a true and fair view of the
assets, liabilities, financial position and losses of the Company.



F C Carr
(Chairman)




Income statement (audited)


for the year 2009 2008
ended 31 May
Revenue Capital Total Revenue Capital Total
£000 £000 £000 £000 £000 £000
-------- -------- ------- -------- ------- --------
Net losses on - (8,160) (8,160) - (16,816) (16,816)
investments
Income 7,248 - 7,248 3,965 - 3,965
Investment (373) (758) (1,131) (42) (83) (125)
management fee
Other expenses (176) - (176) (130) - (130)
------- ------- ------- ------ -------- --------
Net return
before finance 6,699 (8,918) (2,219) 3,794 (16,900) (13,106)
costs and tax
Finance costs: - (5,779) (5,779) - (2,495) (2,495)
Appropriations
Finance costs: (6,779) - (6,779) (3,107) - (3,107)
Dividends
------- ------- ------- ------ -------- --------
Net return on
ordinary (80) (14,697) (14,777) 686 (19,394) (18,708)
activities
before tax
Tax on ordinary - - - - - -
activities
------- ------- ------- ------ -------- --------
Net return on
ordinary (80) (14,697) (14,777) 686 (19,394) (18,708)
activities
after tax
------- ------- ------- ------ -------- --------
Return per Zero
Dividend - 5.21p 5.21p - 4.66p 4.66p
Preference
Share
Revenue
earnings / 6.04p (9.98)p (3.94)p 7.08p - 7.08p
return per
Income Share
Return per - (3.27)p (3.27)p - (36.22)p (36.22)p
Capital Share
Total return
per Income and 6.04p (13.25)p (7.21)p 7.08p (36.22)p (29.14)p
Growth Unit
Total return
per Package 6.04p (8.04)p (2.00)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 year, after deduction for appropriations in respect of
Zero Dividend Preference Shares and after offsetting maximum capital
losses against Capital Shares, of £11,068,000 (31.05.2008: nil) and a
weighted average number of 110,848,036 shares (31.05.2008: 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 year.

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.

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



For the year ended 31 May 2009 2008
£000 £000
---------- ----------
Return on ordinary activities after tax (14,777) (18,708)
Finance costs: Appropriations 5,779 2,495
Issue of Package Units 140,505 -
Cost of issuing Package Units (416) -
Repurchase of Package Units (including (1,596) -
related costs)
---------- ----------
Net movement in net assets attributable 129,495 (16,213)
to shareholders
Opening net assets attributable to 73,391 89,604
shareholders (all non-equity)
---------- ----------
Closing net assets attributable to 202,886 73,391
shareholders (all non-equity)
---------- ----------





Balance sheet (audited)
As at 31 May 2009 2008

£000 £000
------- -------
Fixed assets
Portfolio of investments 198,335 69,192
------- -------
Current assets
Debtors 2,353 1,434
Cash at bank and short-term deposits 3,842 2,814
------- -------
6,195 4,248
------- -------
Total financial assets 204,530 73,440
Creditors: Amounts falling due within one year (1,644) (49)
------- -------
Net assets attributable to shareholders (all 202,886 73,391
non-equity)
------- -------



Net assets attributable to Shareholders comprise:
As at 31 May
2009 2008

£000 £000
------- -------
Zero Dividend Preference Shareholders 119,243 29,641
Income Shareholders 83,643 40,121
Capital Shareholders - 3,629
-------- --------
Net assets attributable to shareholders (all 202,886 73,391
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
breakdown of the net assets attributable to shareholders into the
capital and reserves attributable to them is given in the notes
below.


As at 31 May 2009 2008

Net asset value per Zero Dividend Preference Share 60.61p 55.35p
Net asset value per Income Share 42.51p 74.92p
Net asset value per Capital Share - 6.78p
Net asset value per Income & Growth Unit 42.51p 81.70p
Net asset value per Package Unit 103.12p 137.05p



Cash flow statement (audited)


For the year ended 31 May 2009 2008
£000 £000 £000 £000
------ -------- -------- -------
Net cash inflow from operating 4,866 2,655
activities
Servicing of finance
Dividends paid (non-equity) (5,426) (3,107)
Financial investment
Capital distributions 298 215
Purchase of investments [a] (37,665) (12,073)
Sale of investments 34,921 14,494
------ -------
(2,446) 2,636
Financing
Repurchase of Package Units (1,596) -
(including related costs)
Shares issued for cash 6,046 -
Share issue costs (416) -
------ -------
4,034 -
------- -------
Net increase in cash 1,028 2,184
------- -------


[a] Purchase of investments does not include the transfers of
securities under the rollover schemes, which were non-cash movements.

Notes to the Financial Statements

1. Accounting policies

a) Basis of accounting: These financial statements have been prepared
in accordance with the historical cost convention, as modified by the
revaluation of investments, in accordance with applicable United
Kingdom Accounting and Financial Reporting Standards and the
Statement of Recommended Practice for Financial Statements of
Investment Trust Companies (SORP) issued by the Association of
Investment Companies in December 2005.

b) Portfolio of investments: All investments have been designated as
'at fair value through profit or loss'. Purchases of investments are
initially recognised on the trade date at fair value, being the
consideration paid, and subsequently valued at their fair value,
excluding any accrued interest, at the balance sheet date. The fair
value for listed investments is deemed to be bid value. Investments
are derecognised on the trade date of the sale.

c) Recognition of Income: Income from quoted equity shares is
recognised net of attributable tax credits when the security is
quoted ex-dividend. Interest on debt securities and income from
preference shares is accounted for on an effective yield basis. Bank
interest and underwriting commission are accounted for on an accruals
basis.

d) Stock dividends: The ordinary element of stocks received in lieu
of cash dividends is recognised as revenue. Any enhancement above the
cash dividend is treated as capital.

e) Special dividends: These are recognised when the security is
quoted ex-dividend and treated as either revenue or capital depending
upon the nature and circumstances of the dividend receivable.

f) Investment management fees: These have been charged 33% to the
revenue account and 67% to capital reserve - realised. This is in
line with the Board's expected long term split of returns in the form
of capital gains and income respectively from the investment
portfolio of the Company. The charge to the capital reserve -
realised allows for corporation tax relief on that proportion. Relief
on expenses charged to the capital account has been allowed for at
the corporation tax rate for the Company.

g) Other expenses: All expenses (other than those incidental to the
purchase or sale of investments) are charged against revenue on an
accruals basis.

h) Appropriations: Appropriations for premiums payable on redemption
are accounted for as finance costs and transferred from capital
reserves - realised. They represent an apportionment of the increase
in the redemption value of Zero Dividend Preference Shares over the
amounts originally subscribed.

i) Dividends payable to Income Shareholders: Dividends approved by
the board and declared after the balance sheet date, in respect of
the net revenue for the period, are recognised as a finance cost when
the shareholders' right to receive them is established.

j) Capital reserves: Gains and losses on the realisation of
investments together with finance costs, expenses and appropriations
in accordance with the above policies are accounted for in capital
reserves - realised. Increases and decreases in the valuation of
investments held at the balance sheet date are accounted for in
capital reserves - unrealised.

k) Share capital: All classes of the Company's shares meet the
definition of a financial liability under FRS 25 therefore the
Company has no equity shares and appropriations in respect of Zero
Dividend Preference Shares and dividends payable to Income
Shareholders are accounted for as finance costs. The appropriations
are charged 100% to capital and dividends are charged 100% to revenue
to reflect the rights and benefits of the different classes of share
in issue.

l) Taxation: The charge for taxation is based upon the revenue for
the year and is allocated according to the marginal basis between
revenue and capital using the Company's effective tax rate of
corporation tax for the accounting period.

m) Deferred taxation: This is provided for in respect of all timing
differences. Any liability is provided at the average rate of tax
expected to apply. Deferred tax assets and liabilities are not
discounted to reflect the time value of money.

n) Foreign currency transactions: These are translated at the rate of
exchange ruling on the date of the transaction. Assets and
liabilities denominated in foreign currencies are translated into
sterling at the rate of exchange ruling at the balance sheet date.

o) Functional and presentation currency: The functional and
presentation currency of the Company is pounds sterling because that
is the currency of the primary economic environment in which the
Company operates.

p) Issue costs: These have been offset against proceeds of share
issues and are reflected in the share premium account



2. Investments: At fair value through profit or loss

2009 2008
Capital Capital
a) Net losses on investments £'000 £'000
-------------- --------------
Realised losses on sales of (5,729) (109)
investments
Increase in unrealised (2,729) (16,922)
depreciation
Capital distributions 298 215
-------------- --------------
Net losses on investments (8,160) (16,816)
-------------- --------------
-------------- --------------
b) Investments
Opening book cost 67,175 69,372
Opening unrealised appreciation 2,017 18,939
-------------- --------------
Opening valuation 69,192 88,311
Movements in the year:
Effective yield adjustments (95) (2)
Purchases - at cost [a] 171,609 12,026
- transaction 747 47
charges
Sales - proceeds (34,957) (14,367)
- transaction 36 11
charges
- realised (5,729) (109)
losses on sales of investments
Stock dividends 261 197
Increase in unrealised (2,729) (16,922)
depreciation
-------------- --------------
Closing valuation 198,335 69,192
-------------- --------------
Closing book cost 199,047 67,175
Closing unrealised (depreciation) (712) 2,017
/ appreciation
-------------- --------------
Portfolio of Investments 198,335 69,192
-------------- --------------



[a] Purchases include stock transferred under the rollover schemes of
£134,459,000.


3. Income


2009 2008
Revenue Revenue
Income from investments £'000 £'000
-------------- --------------
Interest on debt securities 839 118
Property Income dividends 40 -
Overseas dividends 33 27
Stock dividends 261 197
UK dividends 6,012 3,447
-------------- --------------
7,185 3,789
-------------- --------------
Other income
-------------- --------------
Bank interest 43 85
HM Revenue & Customs interest [a] 5 91
Underwriting commission 15 -
-------------- --------------
63 176
-------------- --------------
Total income 7,248 3,965
-------------- --------------
Total income comprises
-------------- --------------
Dividends 6,346 3,671
Interest 887 294
Other income 15 -
-------------- --------------
7,248 3,965
-------------- --------------


[a] Interest in relation to the VAT recoverable as disclosed in Note
4.



4. Investment management fee


2009 2008
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
-------------- ------------- -------------- -------------- -------------- --------------
Investment 373 758 1,131 264 537 801
management fee
Irrecoverable - - - 26 49 75
VAT thereon[a]
-------------- ------------- -------------- -------------- ------------- --------------
373 758 1,131 290 586 876
-------------- ------------- -------------- -------------- ------------- --------------
VAT - - - (248) (503) (751)
Recoverable[a]
-------------- ------------- -------------- -------------- ------------- --------------
373 758 1,131 42 83 125
-------------- ------------- -------------- -------------- ------------- --------------

The name of the investment manager and the terms and duration of its
appointment are disclosed in the Directors' Report. The basis of
allocating the investment management fee to revenue and capital is
dealt with in note 1f.

[a] Following the decision of the European Court of Justice and the
Business Brief issued by HMRC in 2007 the Company received from the
investment manager a refund in respect of a proportion of the VAT
paid on investment management fees which has therefore been
recognised as recoverable VAT. With effect from 7 November 2007, VAT
is no longer charged on the investment management fee.


5. Other expenses

2009 2008
Revenue Revenue
£'000 £'000
-------------- --------------
Annual listing fee 4 4
Auditors' fees[a] 31 24
Bank charges and safe custody 2 1
fees
Directors' remuneration 56 50
FSA fees 5 4
Registrar's fees 20 14
The Association of Investment 8 9
Companies fees
Broker fees 12 12
Legal advice 11 -
Other fees 27 12
-------------- --------------
176 130
-------------- --------------

[a] No non-audit fees were paid during the year (2008: same).
Auditors fees include VAT charged of £3,525 (2008: £4,025)


6. Finance costs: Appropriations


2009 2008
Appropriation for premium payable £'000 £'000
on redemption
-------------- --------------
Zero Dividend Preference Shares 5,779 2,495
-------------- --------------

This constitutes an appropriation of reserves in respect of the
premium to issue proceeds payable to holders of Zero Dividend
Preference Shares on redemption. The appropriation of the year
represents the increase in redemption value of the amounts originally
subscribed.


7. Finance costs: Dividends


2009 2008
Dividends (payable to Income £'000 £'000
Shareholders)
-------------- --------------
Fourth interim: 2.2p paid 22 1,178 1,178
August 2008 (2007: 2.2p)
Special Dividend: 0.6p paid 22 321 -
August 2008 (2007: nil)
First interim: 1.2p paid 25 643 643
November 2008 (2007: 1.2p)
Second interim: 2.2p paid 25 1,178 643
February 2009 (2008: 1.2p) [a]
Special Dividend interim: 0.9p
paid 25 February 2009 (2008: nil) 482 -
[a]
Third interim: 1.2p paid 22 May 1,624 643
2009 (2008: 1.2p)
Fourth interim: 1.0p payable 25 1,353 -
August 2009 (2008: 2.2p) [a]
-------------- --------------
6,779 3,107
-------------- --------------

[a] This is a change in the distribution pattern of dividend
payments, with a second quarterly dividend of 2.20p and a special
dividend of 0.90p reflecting the decision of the Board to pay out the
majority of the current revenue reserves ahead of the rollover of M&G
Income Investment Company Limited into the Company. The ex-dividend
date for both dividends was 29th October 2008 and they were paid to
Income Shareholders on the register at the close of business on 31
October 2008. Also on 19 March 2009 the Board declared a fourth
interim dividend of 1.0p per Income Share, in respect of the year
ending 31 May 2009, representing substantially all of the revenue
reserves of the Company before the rollover of M&G Recovery
Investment Company Limited completed. This dividend will be payable
on 25 August 2009 to Income Shareholders on the register at the close
of business on 27 March 2009. The ex-dividend date was 25 March 2009.


On 22 July 2009 the Board declared a fifth interim dividend of 0.25p
(2008: nil) per Income Share, totalling £492,000 (2008: nil), payable
on 25 August 2009 to Income Shareholders on the register at the close
of business on 31 July 2009. The ex-dividend date is 29 July 2009.

All dividends are payable to holders of Income Shares, Income &
Growth Units & Package Units.


8. Tax on ordinary activities


2009 2008
Revenue Capital Total Revenue Capital Total
a) Analysis of
the charge in £'000 £'000 £'000 £'000 £'000 £'000
the year
-------------- ------------- -------------- -------------- -------------- --------------
Corporation - - - - - -
tax
-------------- ------------- -------------- -------------- ------------- --------------
Total current
tax charge - - - - - -
(note 8b)
Deferred tax - - - - - -
(note 8c)
-------------- ------------- -------------- -------------- ------------- --------------
Tax on profit
on ordinary - - - - - -
activities
-------------- ------------- -------------- -------------- ------------- --------------
b) Factors affecting the tax charge for the year
-------------- ------------- -------------- -------------- ------------- --------------
Net return on
ordinary (80) (14,697) (14,777) 686 (19,394) (18,708)
activities
before tax
-------------- ------------- -------------- -------------- ------------- --------------
Corporation (22) (4,115) (4,137) 204 (5,754) (5,550)
tax [a]
Effects of:
Finance costs:
Appropriations - 1,618 1,618 - 740 740
[b]
Finance costs: 1,898 - 1,898 922 - 922
Dividends [b]
Capital - 2,285 2,285 - 4,989 4,989
returns [b]
Stock (73) - (73) (58) - (58)
dividends [b]
UK dividends (1,683) - (1,683) (1,023) - (1,023)
[b]
Income taxable
in different (2) - (2) 3 - 3
periods
Current year
expenses not - 212 212 - 25 25
utilised
Prior period
expenses (118) - (118) (48) - (48)
utilised
-------------- ------------- -------------- -------------- ------------- --------------
Current tax
charge (note - - - - - -
8a)
-------------- ------------- -------------- -------------- ------------- --------------

[a] Corporation tax charged at 30% to 31 March 2008 and at 28% from 1 April 2008
[b] As an investment trust company these items are not subject to corporation tax.

c) Provision for deferred tax

There is no provision for deferred tax at the start or end of the year (2008: same)
d) Deferred
tax asset not
recognised
-------------- ------------- -------------- -------------- ------------- --------------
Resulting from
unutilised 115 1,350 1,465 235 1,138 1,373
expenses [c]
-------------- ------------- -------------- -------------- ------------- --------------



[c] These expenses will not be utilised unless the tax treatment of
UK dividends and capital gains for an investment trust company
changes.


9. Earnings / returns per share


2009 2008
Capital Capital
a) Return per Zero Dividend £'000 £'000
Preference Share
-------------- --------------
Appropriations £5,779,000 £2,495,000
Weighted average shares in issue 110,848,036 53,552,179
throughout the year
-------------- --------------
Return per share 5.21p 4.66p
-------------- --------------


b) Revenue earnings per Income 2009 2009
Share -------------- --------------
Net revenue return on ordinary £(80,000) £686,000
activities after tax
Finance costs: Dividends £6,779,000 £3,107,000
-------------- --------------
Revenue return attributable to £6,699,000 £3,793,000
shareholders
Weighted average shares in issue 110,848,036 53,552,179
throughout the year
-------------- --------------
Revenue earnings per Income share 6.04p 7.08p
-------------- --------------
Capital return attributable to £(11,068,000) -
Income Shareholders
Weighted average shares in issue 110,848,036 53,552,179
throughout the year
-------------- --------------
Capital return per share (9.98)p -
-------------- --------------



c) Return per Capital Share 2009 2009
-------------- --------------
Net capital return on ordinary £(14,697,000) (19,394,000)
activities after tax
Losses offset against Income £11,068,000 -
Shareholders
-------------- --------------
Net capital return attributable £(3,629,000) (19,394,000)
to shareholders
Weighted average shares in issue 110,848,036 53,552,179
throughout the year
-------------- --------------
Return per share (3.27)p (36.22)p
-------------- --------------


d) Income & Growth Units and Package units

The earnings and returns per Income & Growth Unit and Package Unit
are calculated by reference to their component shares.


10. Debtors

2009 2008
£'000 £'000
-------------- --------------
Bank interest receivable - 16
Debt security interest receivable 693 114
Dividends receivable 1,652 462
Income tax recoverable 8 -
HM Revenue & Customs interest - 91
receivable
VAT Recoverable - 751
-------------- --------------
2,353 1,434
-------------- --------------

None of the Company's receivables are past due or impaired

11. Creditors: Amounts falling due within one year

2009 2008
£'000 £'000
-------------- --------------
Amounts due to brokers 232 -
Fourth interim dividend payable 1,353 -
Other fees payable 59 49
-------------- --------------
1,644 49
-------------- --------------


12. Capital and reserves attributable to shareholders

2009 2008
As at 31 May £'000 £'000
-------------- --------------
Called up share capital 5,902 1,607
Share premium account 135,743 -
Capital redemption reserve 15,606 15,555
Zero Dividend Preference Shares 23,230 18,593
appropriation reserve
Special reserve 36,716 37,170
Capital reserves - realised (16,153) (4,185)
- (712) 2,017
unrealised
Revenue reserve 2,554 2,634
-------------- --------------
Net assets attributable to 202,886 73,391
shareholders (all non-equity)
-------------- --------------

Under the terms of the Articles of Association, sums standing to the
credit of the Special Reserve are available for distribution only by
way of redemption or purchase of the Company's own shares. The
Company may only distribute accumulated 'realised' profits.

The Institute of Chartered Accountants of England and Wales has
issued guidance (TECH 01/08), stating that profits arising out of a
change in fair value of assets, recognised in accordance with the
Accounting Standards may be distributed provided the relevant assets
can be readily converted into cash. Securities listed on recognised
stock exchanges are generally regarded as being readily convertible
into cash and hence unrealised profits in respect of such securities
currently included within Capital Reserves - Unrealised may be
regarded as distributable under Company Law.




13. Share capital (all non-equity)

2009 % of total 2008 % of total
£'000 share capital £'000 share capital
Allocated,
called up ------------- -------------- -------------- --------------
and fully
paid:

196,748,306
(2008:
53,552,179)
Zero 1,967 33.33% 536 33.33%
Dividend
Preference
Shares of
1p each
196,748,306
(2008:
53,552,179)
Income 1,967 33.33% 536 33.33%
Shares of
1p each
196,748,306
(2008:
53,552,179)
Capital 1,967 33.33% 536 33.33%
Shares of
1p each
------------- -------------- ------------- --------------


During the year the Company issued a total of 144,871,127 shares as
follows:

a) In relation to the M&G Income rollover scheme, the Company issued
83,275,360 shares of each class at an issue price of 57.71p per Zero
Dividend Preference Share, 36.86p per Income Share and 5.88p per
Capital Share. The issue prices were at a premium of 0.5% to the Net
Asset Value. This premium was used to pay the issue cost as shown in
the Statement of Movement in Net Assets Attributable to Shareholders.

b) In relation to the M&G Recovery rollover scheme, the Company also
issued 61,595,767 shares of each class at an issue price of 59.55p
per Zero Dividend Preference Share, 29.60p per Income Share and 3.15p
per Capital Share. The issue prices were at par of the Net Asset
Value.

Also during the year the Company repurchased and cancelled 1,675,000
Package Units at an average cost of 95p per Package Unit costing
£1,596,000. Each class of the Company's shares meets the definition
of a liability under FRS 25 and therefore the Company has no equity
shares.

The holders of Income Shares are entitled to receive revenue profits
of the Company byway of dividends. Holders of Zero Dividend
Preference Shares and Capital Shares are not entitled to receive
dividends out of the revenue or any other profits of the Company.

On the basis that the Company is wound-up on 17 March 2017, as
planned, the holders of Zero Dividend Preference Shares will be
entitled to a capital payment of 122.83224p per share or such a
lesser sum as remains. Holders of Income Shares will become entitled
to a return of capital of 70p per share, subject to the prior
entitlement of the Zero Dividend Preference Shareholders, plus any
balance standing to the revenue reserve. Capital Shareholders will
then become entitled to the balance of net assets after payment to
Zero Dividend Preference and Income Shareholders.

Where voting rights apply, holders of Zero Dividend Preference,
Income and Capital Shares are, on a show of hands, each entitled to
one vote at general meetings of the Company and on a poll are
entitled to one vote for each share held. Voting rights are subject
to certain restrictions. Holders of Zero Dividend Preference Shares
generally have no entitlement to vote other than in the exceptional
circumstances prescribed in the Articles of Association.

The Company has an authorised share capital of £29,850,000 (2008:
£29,850,000) consisting of 995,000,000 (2008: 995,000,000) shares of
each class.


14. Revenue and capital reserves

Revenue
Capital
reserve realised unrealised
£'000 £'000 £'000
-------------- -------------- --------------
Opening balance as 2,634 (4,185) 2,017
at 31 May 2008
Net losses on - (5,431) (2,729)
investments
Income 7,248 - -
Expenses (549) (758) -
Finance costs: - (5,779) -
Appropriations
Finance costs: (6,779) - -
Dividends
-------------- ------------- --------------
Balance reported as 2,554 (16,153) (712)
at 31 May 2009
Fifth interim
dividend: 0.25p
payable to Income (492) - -
Shareholders on 25
August 2009
------------- ------------- --------------
Reserves adjusted
for dividend 2,062 (16,153) (712)
declared
------------- ------------- --------------



15. Called up share capital, capital redemption reserve and share
premium account


Called Capital Share
up share redemption premium
capital reserve account
£'000 £'000 £'000
-------------- -------------- --------------
Opening balance as 1,607 15,555 -
at 31 May 2008
Package Units issued 4,346 - 136,159
Cost of issuing - - (416)
Package Units
Package Units
repurchased and (51) 51 -
cancelled
-------------- -------------- --------------
Closing balance as 5,902 15,606 135,743
at 31 May 2009
-------------- -------------- --------------

Share premium represents the surplus of subscription monies after
expenses over the nominal value of the issued share capital. With the
shareholders' approval and confirmation of the Court, a special
reserve (see note 16) was created by the cancellation of £37,761,000
of the share premium account, with effect from 6 September 2000, to
be issued by the Company to purchase its shares.


16. Other reserves

Zero Dividend Preference Special
Share Appropriation reserve reserve
£'000 £'000
-------------- --------------
Opening balance as at 18,593 37,170
31 May 2008
Zero Dividend Preference Shares (1,142) 1,142
repurchased and cancelled
Zero Dividend
Preference Share 5,779 -
appropriation
Package Units
repurchased and - (1,596)
cancelled
-------------- ------------
Closing balance as at 23,230 36,716
31 May 2009
-------------- ------------

The Zero Dividend Preference Share appropriation reserve, together
with the amounts originally subscribed, represent the asset
entitlement for the Zero Dividend Preference Shares set out in the
Balance Sheet.

The special reserve, resulting from the cancellation of share
premium, may only be used for the purpose of the share repurchases.
On the repurchase and cancellation of Package Units a transfer is
made from the Zero Dividend Preference Share reserve to the special
reserve. This represents the appropriation contained within the Zero
Dividend Preference Share reserve relating to those Zero Dividend
Preference Shares repurchased and cancelled as part of the Package
Units.


17. Reconciliation of movement in net assets attributable to
shareholders


Zero Dividend Income Capital
Preference Shares Shares Shares
£'000 £'000 £'000
-------------- -------------- --------------
Opening balance as 29,641 40,121 3,629
at 31 May 2008
Net return on
ordinary activities - (80) (14,697)
after tax
Appropriation from 5,779 - -
Capital Reserves
Repurchase of (927) (669) -
Package Units
Issue of Package Units
in respect of 'the 84,750 48,524 6,815
schemes' [a]
Issue of Capital
Shares repaid to - 6,815 (6,815)
Income Shares
Losses offset
against Income - (11,068) 11,068
shares
-------------- ------------- --------------
Closing balance as 119,243 83,643 -
at 31 May 2009
-------------- ------------- --------------

[a] The M&G Income Investment Company Limited and the M&G Recovery
Investment Company Limited schemes of reconstruction.

18. Cash flow


2009 2008
Capital Capital
a) Reconciliation of net return on
ordinary activities before tax to
net cash inflow from operating £'000 £'000
activities:
-------------- --------------
Net return on ordinary (14,777) (18,708)
activities before tax
Net losses on investments 8,160 16,816
Finance costs: Appropriations 5,779 2,495
Finance costs: Dividends 6,779 3,107
Effective interest adjustment 95 2
Stock dividends (261) (197)
Increase in other debtors (919) (866)
Increase in other creditors 10 6
-------------- --------------
Net cash inflow from operating 4,866 2,655
activities
-------------- --------------

b) Reconciliation of net cash £'000 £'000
inflow to movements in net
debt:
-------------- --------------
Net cash inflow 1,028 2,184
Net funds brought forward 2,814 630
-------------- --------------
Closing net funds 3,842 2,814
-------------- --------------
£'000 £'000
c) Comprising:
-------------- --------------
Cash at bank and in hand 3,842 2,814
-------------- --------------


19. Financial instruments

In pursuing the Company's objectives, the Company accepts market
price risk and interest rate risk in relation to the portfolio of
investments. Since the Company's investment objectives are to deliver
returns over the long term, transactions with the sole intention of
realising short term returns are not undertaken. The risk policies
along with the Company's capital management policies have been
consistently applied throughout both this and the preceding financial
year and the quantitative data disclosed is representative of the
Company's exposure to risk throughout the year.

Fair value of financial assets and financial liabilities: All
financial assets and liabilities are either included in the balance
sheet at fair value or the carrying amount in the balance sheet is a
reasonable approximation of fair value.

Market price risk: The investment manager has the responsibility for
monitoring the existing portfolio selected in accordance with the
overall asset allocation parameters and seeks to ensure that
individual stocks also meet an appropriate risk / reward profile. The
portfolio's relative exposure to the FTSE All-Share Index is also
monitored with the sector and individual stock variances kept within
reasonable levels. At its quarterly meetings, the Board reviews the
asset allocation of the Company's portfolio having regard to the
risks associated with particular industry sectors whilst continuing
to follow the investment objectives. The Company's exposure to
changes in market prices on quoted equity investments at 31 May 2009
is £164,033,000 (2008: £58,702,000).

Price risk sensitivity: The following table illustrates the
sensitivity of revenue and capital return on ordinary activities
after tax and net assets attributable to shareholders to an increase
or decrease of 10% in the fair value of the Company's equity
investments. This level of change is considered to be reasonably
possible based on observation of market conditions and historic
trends. The sensitivity analysis is based on the Company's equities
at each balance sheet date, with all other variables held constant.



Increase in fair value Decrease in fair value
Income 2009 2008 2009 2008
Statement £'000 £'000 £'000 £'000
------------- -------------- -------------- --------------
Revenue (43) (20) 43 20
return
Capital 16,315 5,831 (16,315) (5,831)
return
------------- ------------- ------------- -------------
Total change
to net
return on 16,272 5,811 (16,272) (5,811)
ordinary
activities
after tax
------------- ------------- ------------- -------------
Change to
net assets
attributable 16,272 5,811 (16,272) (5,811)
to
shareholders
------------- -------------- ------------- --------------


Credit risk associated with the portfolio of investments: The bond
portfolio is structured so as to provide the Company with a high
level of revenue but without exposing the Company to an undue risk to
capital. This is achieved through direct investment in investment
grade corporate bonds, or those considered by the investment manager
to have an equivalent grade, with a maximum exposure including cash
balances of £38,144,000 at the 31 May 2009 (2008: £13,304,000).

The investment manager considers the credit rating of each security
together with its yield and its maturity in order to ensure that the
yield fully reflects any perceived risk and invests in bonds issued
by a broad spread of companies and institutions to reduce credit risk
and the impact of default by any one user. The credit rating of each
bond is shown on the Portfolio of Investments.

Interest rate risk associated with the portfolio of investments: The
bonds within the portfolio are mainly fixed rate securities, and
accordingly whilst changes in interest rates will not in the short
term affect earnings, both the capital value of these securities and
the ability to acquire securities on similar terms may be affected.

The level of exposure to interest risk at the year end and the
maximum and minimum exposures throughout the year are shown below.

2009 2008
31.05.09 Maximum Minimum 31.05.08 Maximum Minimum
Amount
of £'000 £'000 £'000 £'000 £'000 £'000
exposure
------------- ------------- -------------- -------------- -------------- --------------
Cash at 3,842 3,842 911 2,814 2,814 574
bank
Fixed
rate 30,968 30,968 9,446 8,814 8,814 6,428
bonds
Floating
rate 3,334 3,349 1,200 1,676 1,676 744
bonds
------------- ------------- -------------- -------------- -------------- --------------

Interest receivable on cash balances is at base rate minus 0.25%

The following table illustrates the sensitivity of revenue and
capital return on ordinary activities after tax and net assets
attributable to shareholders to an increase or decrease of 2% in
interest rates. This level of change is considered to be reasonably
possible based on observation of market conditions and historic
trends. The sensitivity analysis is based on the Company's bond
holdings at each balance sheet date, with all other variables held
constant.


Increase in interest rates Decrease in interest rates
Income 2009 2008 2009 2008
Statement £'000 £'000 £'000 £'000
------------- -------------- -------------- --------------
Revenue 6 7 (7) (11)
return
Capital (2,167) (2,112) 2,661 3,313
return
------------- ------------- ------------- -------------
Total change
to net
return on (2,161) (2,105) 2,654 3,302
ordinary
activities
after tax
------------- ------------- ------------- -------------
Change to
net assets
attributable (2,161) (2,105) 2,654 3,302
to
shareholders
------------- -------------- ------------- --------------


Currency risk: The Company's exposure to currency risk is immaterial
as the Company does not hold assets denominated in currency other
than sterling (2008: same).

Liquidity risk: The Company's assets comprise securities that can be
readily realised to meet obligations arising on the redemption of
Zero Dividend Preference Shares, Income Shares and Capital Shares on
17 March 2017, as planned. Cash balances are kept to a minimum.

A maturity analysis of financial liabilities is provided below.


Carry Value Fair Value
As at 31
May
Maturity 2009 2008 2009 2008
profile of £'000 £'000 £'000 £'000
financial
liabilities
------------- -------------- -------------- --------------
Less than 3 1,644 49 1,644 49
months
More than 3
months but
not more - - - -
than one
year
More than 202,886 73,391 210,028 72,965
one year
------------- ------------- ------------- -------------
204,530 73,440 211,672 73,014
------------- -------------- ------------- --------------


The undisclosed maturity value of financial liabilities is
£241,670,000 (2008: £65,779,000)) in relation to the Zero Dividend
Preference Shares redeeming on 17 March 2017.

Each class of the Company's shares meets the definition of a
liability and is included in the profile of the financial liabilities
above.

The fair value of the non-equity shares is determined by reference to
their market values as set put in the net asset values applicable to
each class of shareholding. Based on the Package Units, the fair
value is £188,878,000 (2008:£70,421,000).

20. Related parties

Details of related parties and transactions are included in notes 4,
5, 11 and also within the Directors' Report and Directors'
Remuneration Report of the Annual Report and Financial Statements for
the year ending 31 May 2009.

21. Contingent liability

At the balance sheet date, the Company had a contingent liability of
£250,155 (31.08.08: nil) in respect of 27,795 Lonmin nil paid shares
resulting from a rights issue whereby, two nil paid shares were
issued for every nine ordinary shares held. The nil paid shares may
be exercised on 3 June 2009 at £9.00 per share.

Also, at the balance sheet date, the Company had contingent
liabilities totaling £698,244 in respect of underwriting commitments.

Portfolio of investments

As at 31 May 2009


Oil & gas producers 15.80
BP 15,825 7.80
Royal Dutch Shell 'B' 16,238 8.00

Chemicals 0.90
Johnson Matthey 1,627 0.80
Yule Catto 205 0.10

Mining 2.52
Anglo American 3,183 1.57
Lonmin 1,786 0.88
Lonmin (Nil Paid Rights) 141 0.07

Aerospace & defence -

Construction & materials 0.60
Low & Bonar 765 0.38
Marshalls 235 0.12
Morgan Sindall 200 0.10

Electronic & electric equipment 0.86
Halma 411 0.20
Renishaw 1,343 0.66

General industrials 0.36
Smith (D.S.) 726 0.36

Industrial engineering 1.03
IMI 627 0.31
Vitec Group 1,461 0.72

Industrial transportation -

Support services 4.19
Acal 110 0.05
Bunzl 1,805 0.89
Davis Service Group 1,803 0.89
Electrocomponents 1,246 0.61
Filtrona 1,841 0.91
Hays 750 0.37
Premier Farnell 200 0.10
Smiths News 756 0.37

Automobiles & parts -

Beverages -

Food producers 4.02
Tate & Lyle 2,163 1.07
Unilever 5,987 2.95

Household goods & home construction -

Personal goods 0.72
PZ Cussons 1,462 0.72

Tobacco 3.75
British American Tobacco 6,000 2.96
Imperial Tobacco 1,602 0.79

Pharmaceuticals & biotechnology 9.86
AstraZeneca 7,837 3.86
BTG 497 0.24
GlaxoSmithKline 11,695 5.76

Food & drug retailers 0.82
Booker Group 488 0.24
Sainsbury (J.) 1,182 0.58

General retailers 3.78
Carpetright 194 0.10
Halfords Group 2,771 1.37
Home Retail Group 1,111 0.55
Kesa Electricals 988 0.49
Kingfisher 1,706 0.84
NEXT 696 0.34
Topps Tiles 179 0.09

Media 2.54
British Sky Broadcasting Group 577 0.28
Daily Mail & General Trust 'A' (non-voting) 898 0.44
Pearson 1,547 0.76
Reed Elsevier 2,150 1.06

Travel & leisure 1.63
Compass Group 787 0.39
Holidaybreak 313 0.15
Ladbrokes 1,013 0.50
William Hill 1,205 0.59

Fixed line telecommunications 1.54
BT Group 1,365 0.67
Cable & Wireless 1,760 0.87

Mobile telecommunications 5.31
Vodafone Group 10,766 5.31

Electricity 0.68
Scottish & Southern Energy 1,383 0.68

Gas, water & multi-utilities 5.24
Centrica 2,518 1.24
National Grid 2,666 1.31
Northumbrian Water Group 607 0.30
Pennon Group 214 0.11
Severn Trent 2,214 1.09
United Utilities 2,420 1.19

Banks 5.15
HSBC Holdings 10,438 5.15

Equity investment instruments 0.26
Blackrock Commodities Income Investment Trust 527 0.26

Financial services 1.41
Close Brothers Group 1,988 0.98
London Stock Exchange 154 0.08
Provident Financial 703 0.35

Life insurance 3.51
Aviva 2,579 1.27
Friends Provident 303 0.15
Legal & General Group 820 0.40
Prudential 2,370 1.17
Standard Life 1,062 0.52

Non-equity investment instruments 0.14
Ecofin Water & Power Opportunities 278 0.14
Ecofin Water & Power Opportunities (Subscription 5 -
Shares)

Non-life insurance 0.44
RSA Insurance Group (formerly Royal & Sun Alliance) 888 0.44

Real estate investment trusts 2.07
Alpha Pyrenees Trust 114 0.06
Great Portland Estates 388 0.19
Land Securities Group 1,894 0.93
Segro 1,805 0.89

Software & computer services 1.71
Sage Group 3,472 1.71

Non-convertible preference shares 2.49
Aviva 8.75% Cum. Irrd. Pref. 1,448 0.71
General Accident 8.875% Cum. Irrd. Pref. 671 0.33
Lloyds Banking Group 6.475% Non-cum. Irrd. Pref. 678 0.33
Lloyds Banking Group 9.25% Non-cum. Irrd. Pref. 1,151 0.57
Lloyds Banking Group 9.75% Non-cum. Irrd. Pref. 396 0.20
Royal & Sun Alliance 7.375% Cum. Irrd. Pref. 220 0.11
Standard Chartered 7.375% Non-cum. Irrd. Pref. 495 0.24

'AAA' credit rated bonds 8.02
Finland (Republic of) 9.375% 2010 684 0.34
Treasury 2.25% 2014 1,949 0.96
Treasury 4.75% 2010 13,642 6.72

'AA' credit rated bonds 0.78
BP Capital Markets 5.75% 2010 411 0.20
GE Capital UK Funding FRN 2010 688 0.34
Land Securities Capital Markets Var. Rate 2013 496 0.24

'A' credit rated bonds 2.36
E.ON International Finance 6.375% 2012 540 0.27
France Telecom 5% 2016 303 0.15
France Telecom 5.5% 2012 529 0.26
France Telecom 7.5% 2011 772 0.38
HSBC Holdings Var. Rate 2018 1,045 0.52
London Merchant Securities 6.5% 2026 224 0.11
National Grid Gas 6% 2017 527 0.26
RWE Finance 6.375% 2013 827 0.41

'BBB' credit rated bonds 2.30
AXA Var. Rate Perp. 364 0.18
British Telecommunications 8% 2016 712 0.35
Compass Group 7% 2014 385 0.19
Deutsche Telekom 7.125% 2012 910 0.45
DWR Cymru Financing Var. Rate 2036 741 0.37
Imperial Tobacco Finance 6.25% 2018 458 0.23
Imperial Tobacco Finance 6.875% 2012 470 0.23
Sutton Bridge Financing 8.625% 2022 302 0.15
Thames Water Utilities Finance 4.75% 2010 304 0.15

Bonds with no credit rating 0.97
Blue Circle Industries 10.75% 2013 499 0.25
Brixton 5.25% 2015 465 0.23
John Lewis 6.375% 2012 713 0.35
Shaftesbury 8.5% 2024 283 0.14

Total investments 198,335 97.76
Net other assets 4,551 2.24
Net assets attributable to shareholders(all 202,886 100.00
non-equity)



Note
The results for 2008 are based on financial statements filed with the
Registrar of Companies which carry an audit report which is
unqualified and includes no matters of adverse comment.

The 2009 figures have been extracted from the audited financial
statements which will be filed with the Registrar of Companies with
an unqualified audit report with no matters of adverse
comment.

The Annual Report and Financial Statements will be posted to
shareholders on or before 05 August 2009 and will be available on the
M&G website, www.mandg.co.uk. The Annual General Meeting will be held
at 09.15 am on 04 September 2009 at Laurence Pountney Hill, London
EC4R 0HH.

J. P. McClelland
Secretary

22 July 2009
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