M&G High Income Investment Trust PLC : Scheme of Reconstruction - Publication of Circular

THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED HEREIN ARE NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN OR INTO, THE UNITED STATES, AUSTRALIA, CANADA OR THE REPUBLIC OF SOUTH AFRICA

19 January 2017

M&G High Income Investment Trust P.L.C.

Scheme of Reconstruction - Publication of Circular

On 10 November 2016, M&G High Income Investment Trust P.L.C. (the "Company") announced its intentions to put forward a set of proposals to be implemented on 17 March 2017 (the "Proposals") to coincide with the end of the Company's fixed life. The Board is pleased to announce that a circular in connection with the Proposals and containing notices of the General Meetings (the "Circular") has been published today.

The Proposals

The Proposals envisage a reconstruction of the Company pursuant to a scheme of reconstruction under section 110 of the Insolvency Act under which the Company will be placed into a members' voluntary liquidation with Shareholders being offered the choice between continuing to be invested in securities by electing for one or more of the rollover options described below, and/or realising some or all of their investment for cash under the cash option.

Under the Proposals, Shareholders are being offered a choice of the following:

For those that wish to remain invested in a closed-ended investment vehicle:

• the JPMorgan Elect Managed Growth Shares Option - to receive JPMorgan Elect Managed Growth Shares; and/or
• the JPMorgan Elect Managed Income Shares Option - to receive JPMorgan Elect Managed Income Shares; and/or
• the JPMorgan Elect Managed Cash Shares Option - to receive JPMorgan Elect Managed Cash Shares.

For those that wish to be invested in an open-ended investment vehicle:

• the M&G UK Income Distribution Fund Option - to receive M&G UK Income Distribution Fund R Income Shares; and/or
• the M&G Strategic Corporate Bond Fund Option - to receive M&G Strategic Corporate Bond Fund R Income Shares; and/or
• the M&G Dividend Fund Option - to receive M&G Dividend Fund R Income Shares.

For those that no longer wish to be invested:

• the Cash Option - to receive cash in the liquidation of the Company.

The Board believes the four different options (six if you consider JPMorgan Elect plc ("JPMorgan Elect") has three distinct share classes) provide an attractive range of alternatives to cash. Further details on each of the Rollover Funds are included below.

Capital Shareholders will receive any entitlements in the liquidation of the Company as cash payments and will not be able to elect for Securities in the Rollover Funds. As at the Latest Practicable Date, being 13 January 2017, the Capital Shares have no value and it is reasonably expected that this will be the case at the Calculation Date, being 15 March 2017. As such, the Board does not consider it appropriate to offer Securities in the Rollover Funds to Capital Shareholders. Income Shareholders should note that based on the attributable value as at the Latest Practicable Date the entitlement of 70 pence per Income Share is not fully met and it is reasonably expected that this will be the case as at the Calculation Date.

Advantages of the Proposals

The Directors believe that the Proposals are in the best interests of Shareholders and Unitholders taken as a whole because they offer:

• greater choice and flexibility than if the Company were simply wound up, since the Proposals enable Electing Shareholders to roll some or all of their investment (in a tax efficient manner under current UK law and practice for UK resident Shareholders and Unitholders) into one or more of the Rollover Funds in addition to being able to realise some or all of their investment for cash under the Cash Option;
• the opportunity to elect for one or more of three classes of JPMorgan Elect Shares, enabling Electing Shareholders to maintain their investment within a listed closed-ended investment trust following, in the case of the JPMorgan Elect Managed Income Shares, a similar investment strategy to that of the Company;
• the potential to avoid certain dealing and other costs associated with a share purchase in the secondary market;
• an opportunity to invest in the M&G UK Income Distribution Fund invested in UK equities and bonds with a similar investment strategy to that of the Company (focused on achieving an above average and increasing income while also seeking to achieve capital growth), managed by the same portfolio manager as the Company, Richard Hughes. The similarities between the Company and the M&G UK Income Distribution Fund also mean that the opportunity for in-specie transfer of assets is maximised, thereby reducing transaction costs; and
• for further optionality in open-ended funds, the opportunity to elect for a total return focused fund that invests only in bonds through the M&G Strategic Corporate Bond Fund or an income focused fund that invests only in equities through the M&G Dividend Fund.

The Rollover Funds

JPMorgan Elect

JPMorgan Elect, which, as at 31 December 2016, had total net assets of approximately £324.41 million, is an investment trust company whose shares are admitted to the premium segment of the Official List and to trading on the main market for listed securities of the London Stock Exchange. Electing Shareholders will be entitled to elect for one or more of the three JPMorgan Elect share classes: JP Morgan Elect Managed Growth Shares, JP Morgan Elect Managed Income Shares and JP Morgan Elect Managed Cash Shares, each with distinct investment policies, objectives and underlying investment portfolios. Each share class is listed separately and traded on the London Stock Exchange.

• The objective of the Managed Growth portfolio is to achieve long-term capital growth from investing in a range of investment trusts and open-ended funds managed principally by JPMAM.
• The objective of the Managed Income portfolio is to achieve a growing income return with potential for long-term capital growth by investing in equities, investment companies and fixed income securities.
• The objective of the Managed Cash portfolio is to provide preservation of capital with a yield based on short-term interest rates by investing in a range of sterling liquidity funds, selected for their yield and credit rating, and short-dated AAA-rated UK or G7 government securities hedged into sterling.

Shareholders in JPMorgan Elect may convert between each class of JPMorgan Elect Shares in February, May, August and November in each year without incurring a liability for capital gains tax. In addition, JPMorgan Elect Managed Cash shareholders may also elect to have their shares repurchased by JPMorgan Elect on each quarterly conversion date at a price close to net asset value.

The M&G UK Income Distribution Fund

The M&G UK Income Distribution Fund, which, as at 31 December 2016, had a net asset value of £407.4 million, is a sub-fund of M&G Investment Funds (2), an OEIC incorporated in England and Wales, managed since May 2002 by Richard Hughes (also the fund manager with primary responsibility for the day-to-day management of the Company's portfolio), and which aims to grow its income distributions and targets a yield above that of the FTSE All-Share Index.  The M&G UK Income Distribution Fund also aims to grow capital. The fund invests in UK equities (at least 70%) and sterling-denominated corporate bonds. The securities to be issued under the Scheme will be M&G UK Income Distribution Fund R Income Shares.

Prior to 16 December 2016 the M&G UK Income Distribution Fund was known as the M&G Extra Income Fund.

The M&G Strategic Corporate Bond Fund

The M&G Strategic Corporate Bond Fund, which, as at 31 December 2016, had a net asset value of £3,807.6 million,  is an OEIC incorporated in England and Wales, which aims to deliver income and capital growth by investing mainly in investment grade, or high quality, corporate bonds issued anywhere in the world. A portion of the fund may also be invested in fixed income securities issued by governments and high yield fixed income securities. The securities to be issued under the Scheme will be M&G Strategic Corporate Bond Fund R Income Shares.

The M&G Dividend Fund

The M&G Dividend Fund, which, as at 31 December 2016, had a net asset value of £1,263.6 million, is a sub-fund of M&G Investment Funds (3), an OEIC incorporated in England and Wales, which aims to deliver growing income distributions and to provide a dividend yield above that of the FTSE All-Share Index. The M&G Dividend Fund also aims to deliver capital growth. The fund invests in UK equities (at least 70%) but may also invest in the shares of non-UK companies. The securities to be issued under the Scheme will be M&G Dividend Fund R Income Shares.

Under the Scheme, M&G are offering Electing Shareholders the R Income shares (also known as the Sterling Class R Shares) in the M&G Rollover Funds, which have a lower annual management charge than the standard Sterling Class A Shares for retail investors. Sterling Class R Shares are normally only available to intermediaries or where the deal has been arranged by a financial adviser. Shareholders should note that new investments made subsequent to the Scheme will be subject to M&G's standard terms and conditions and may only be eligible for participation in the Sterling Class A Shares. Electing Shareholders who elect for one or more M&G Rollover Funds should note that M&G's standard terms and conditions will apply to holdings in the M&G Rollover Funds, including in relation to M&G policies in respect of minimum holding amounts.

Further details on each of the Rollover Funds are set out in full in the Circular; in the Prospectus to be published by JPMorgan Elect (the "JPMorgan Elect Prospectus"); and in the key investor information documents in relation to each of the M&G UK Income Distribution Fund, the M&G Strategic Corporate Bond Fund and the M&G Dividend Fund.

Default Option

All Electing Shareholders are encouraged to make a valid Election. Electing Shareholders who do not make valid Elections for the purposes of the Proposals will be deemed to have elected for the M&G UK Income Distribution Fund Option.

In the event that the conditions to JPMorgan Elect's participation in the Scheme are not satisfied (see the section headed "Further conditions to the JPMorgan Elect Options" below), Elections made by Electing Shareholders for the JPMorgan Elect Option will instead be deemed to be Elections for the M&G UK Income Distribution Fund Option.

In nominating the default option, the Board was cognisant of the significant holding that the M&G ISA has in the Package Units and the Income & Growth Units.

Costs and expenses

The Company has limited its exposure to the costs of the Proposals by entering into arrangements with M&G Securities and JPMF. In calculating Shareholders' and Unitholders' entitlements under the Scheme an amount of £350,000 has been deducted from the Net Assets of the Company to reflect a reasonable estimate of the costs which the Company would have needed to incur had the Scheme not been put forward and the Company simply been placed into liquidation at the end of its fixed life. M&G Securities and JPMF will meet the substantial additional costs to be incurred by the Company above those of a simple liquidation as a result of putting forward the Rollover Options. In the event the Scheme does not proceed and the Company is placed into simple liquidation M&G Securities will meet any additional costs of such liquidation.

The Company, and indirectly Shareholders and Unitholders, will also bear additional sundry costs and expenses to be incurred by the Company while in liquidation as set out in Part IV of the Circular.

For the avoidance of doubt, none of the Company, M&G or JPMF shall contribute to any direct costs associated with the reinvestment or transfer in specie of the Company's portfolio into the Rollover Funds such as stamp duty, SDRT and brokers' commissions, which in each case shall be borne by the relevant Rollover Fund and in the case of the M&G OEIC Options is incorporated within the M&G OEIC Issue Price.

Share Premium on Issue of JPMorgan Elect Shares

Those Shareholders and Unitholders who choose to receive JPMorgan Elect Shares for some or all of their investment will also incur costs equal to an issue premium (the "JPMorgan Elect Issue Premium") applied to the price of JPMorgan Elect Shares issued pursuant to the Scheme. This JPMorgan Elect Issue Premium is intended to defray the costs which will be incurred by JPMorgan Elect in respect of its participation in the Scheme. The level of the JPMorgan Elect Issue Premium will depend on the value of the assets to be transferred to JPMorgan Elect under the Scheme. If the value of these assets is less than £40 million then the JPMorgan Elect Issue Premium will be set at 1.0 per cent.. However, if their value equals or exceeds £40 million, the JPMorgan Elect Issue Premium will reduce on a straight line basis such that if their value equals £70 million (or more) then the JPMorgan Elect Issue Premium will be set at 0.65 per cent.

Dividends

The Directors have declared a Second Interim Dividend of 1.55 pence per Income Share for the four-month period to the end of December 2016, expected to be paid on 24 February 2017 to Income Shareholders on the Register on 27 January 2017, including those who hold their Income Shares within Income & Growth Units and Package Units.

Furthermore, under the Proposals the Directors currently intend to declare a Third Interim Dividend for the period ending 17 February 2017, for distribution prior to the Scheme taking effect equal to the revenue profits of the Company for that period plus the accumulated revenue reserves. The Third Interim Dividend is expected to be paid on or about 15 March 2017 to Income Shareholders, including those who hold their Income Shares within Units, on the Register on 3 March 2017.

Any balance remaining in or accruing to the Company's revenue reserve after the Third Interim Dividend has been declared (if any) will be taken into account when calculating the Terminal Asset Value of the Shares. Where the Terminal Asset Value of a Zero Dividend Share is less than its final entitlement provided for under the Articles, any amount of undistributed revenue profits of the Company will be attributed to the Zero Dividend Shareholders in accordance with the Articles. To the extent any undistributed revenue reserves remain following the satisfaction of the entitlements of the Zero Dividend Shareholders, such revenue reserves shall be distributed among the Income Shareholders (including those who hold Income Shares within Income & Growth Units and Package Units).

Shareholder Meetings

Shareholders are being asked to vote on the Proposals because the Directors are required to obtain the consent of the Shareholders to the Proposals pursuant to the Articles.

At the First GM, at which all Shareholders and Unitholders are entitled to vote, a Special Resolution will be proposed to: (i) reclassify the Shares in accordance with the Elections (made or deemed to be made) and to amend the Articles of the Company for the purposes of implementing the Scheme; and (ii) sanction the Scheme and authorise its implementation by the Liquidators. The Special Resolution will require the approval of 75 per cent. or more of the votes cast at the Meeting, whether in person or by proxy.

At the Second GM, at which all Shareholders and Unitholders are entitled to vote, a Special Resolution will be proposed which, if passed, will place the Company in liquidation and instruct the Secretary to hold the books to the Liquidators' order, appoint the proposed Liquidators and provide them with appropriate powers and remuneration.  In accordance with the Articles there shall be weighted voting rights for the winding-up Special Resolution at the Second GM such that those Shareholders who vote in favour of the winding-up Special Resolution shall collectively have such total number of votes on a poll as is one more than the number of votes which are required to be cast on such poll for the winding-up Special Resolution to be carried.

The Special Resolutions to be proposed at the First GM and the Second GM will also be subject to sanctioning by Income Shareholders, Zero Dividend Shareholders and Capital Shareholders at separate class meetings of the Income Shareholders, the Zero Dividend Shareholders and the Capital Shareholders.

If any of the Special Resolutions to be proposed at the class meetings or the Special Resolution to be proposed at the First GM is not passed or if the Scheme does not become unconditional, the winding-up Special Resolution will, in any event, be put to Shareholders at the Second GM. In these circumstances, all Shareholders will receive cash distributions in the Company's liquidation to the extent they are entitled to such distributions under the Articles.

Conditions to the Proposals

The Scheme is conditional, inter alia, upon:

• the passing by the Shareholders of all Resolutions to be proposed at the class meetings, at the First GM and at the Second GM (or at any adjournments thereof);
• the UK Listing Authority consenting to the amendment to the Official List to reflect the reclassification of the Shares as Reclassified Shares; and
• the Directors not resolving to abandon the Scheme.

Further conditions to the JPMorgan Elect Options

The availability of the JPMorgan Elect Options element of the Proposals only, is additionally conditional upon inter alia, the passing of the JPMorgan Elect Resolutions. The necessary meetings of JPMorgan Elect Shareholders to pass the enabling resolutions have been convened for 27 February 2017.

In the event that the conditions to JPMorgan Elect's participation in the Scheme are not satisfied, all Elections under the Scheme for a JPMorgan Elect Option will instead be deemed to be Elections for the M&G UK Income Distribution Fund Option.

Expected Timetable

The times and dates set out in the expected timetable of events above may be adjusted by the Company, in which event details of the new times and dates will be notified, as requested, to the UK Listing Authority, the London Stock Exchange and, where appropriate, Shareholders and Unitholders.

Notes

Terms used and not defined in this announcement have the meanings given in the Circular unless the context otherwise requires.

This announcement does not contain all the information which is contained in the Circular.  Shareholders and Unitholders should read the Circular and the JPMorgan Elect Prospectus to make informed elections under the Proposals.

The Circular will shortly be available on the Company's website at http://www.mandg.co.uk/investor/funds/high-income-investment-trust/ and on the National Storage Mechanism at www.morningstar.co.uk/uk/NSM.

For further information, please contact: