M&G HIGH INCOME INVESTMENT TRUST P.L.C

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1 This document is issued by M&G Securities Limited as the alternative investment fund manager (AIFM) of M&G High Income Investment Trust PLC (the "Company") solely in order to make certain information available to investors in the Company before they invest, in accordance with the requirements of the FCA Rules implementing the EU Alternative Investment Fund Managers Directive (Directive 2011/61/EU) (the "AIFM Directive") in the United Kingdom. It is made available to investors in the Company at For investors purchasing shares via the M&G ISA, this document should be read in conjunction with the Key Features for M&G High Income Investment Trust PLC document, which is included in the Important Information for Investors document also available at M&G HIGH INCOME INVESTMENT TRUST P.L.C (incorporated in England and Wales under the Companies Act 1985 No and registered as an investment company under Section 833 of the Companies Act 2006) INVESTOR DISCLOSURE DOCUMENT Regulatory status of the Company IMPORTANT INFORMATION M&G High Income Investment Trust PLC is an 'alternative investment fund' ("AIF") for the purposes of the AIFM Directive. The Company has appointed M&G Securities Limited to act as its AIFM. M&G Securities Limited is authorised and regulated by the United Kingdom Financial Conduct Authority as a 'full-scope' UK AIFM and the Company is an 'externally-managed AIF' for the purposes of the AIFM Directive. The Company's shares are listed on the premium segment of the Official List of the UK Listing Authority and are admitted to trading on the main market of the London Stock Exchange. The Company is subject to its articles of association, the Listing Rules, the Disclosure and Transparency Rules, the UK Corporate Governance Code and the Companies Act The provisions of the Company's articles of association are binding on the Company and its shareholders. The articles of association set out the respective rights and restrictions attaching to the Company's shares. These rights and restrictions apply equally to all shareholders. All shareholders are entitled to the benefit of, and are bound by and are deemed to have notice of, the Company's articles of association. The Company's articles of association are governed by the law of England and Wales. Limited purpose of this document This document is not being issued for any purpose other than to make certain, required regulatory disclosures to investors and, except to the extent required under applicable law and regulations, the Company, the AIFM and their directors will not be responsible to persons (including the Company's shareholders) for their use of this document. This document does not constitute, and may not be used for the purposes of, an offer or solicitation to buy or sell, or otherwise undertake investment activity in relation to, the Company's shares. This document is not a prospectus and it is not intended to be an invitation or inducement to any person to engage in any investment activity. This document may not include (and it is not intended to include) all the information which investors and their professional advisers may require for the purpose of making an informed decision in relation to an investment in the Company and its shares.

2 2 For investors purchasing shares via the M&G ISA, this document should be read in conjunction with the Key Features for M&G High Income Investment Trust PLC document, which is included in the Important Information for Investors document available at No advice The Company, the AIFM and their directors are not advising any person in relation to any investment or other transaction involving shares in the Company. Recipients must not treat the contents of this document or any subsequent communications from the Company, or any of its affiliates, officers, directors, employees or agents, as advice relating to financial, investment, taxation, accounting, legal, regulatory or any other matters. Prospective investors must rely on their own professional advisers, including their own legal advisers and accountants, as to legal, tax, accounting, regulatory, investment or any other related matters concerning the Company and an investment in shares. Potential investors in the Company's shares should consult their stockbroker, bank manager, solicitor, accountant or other financial adviser before investing in the Company. Overseas investors The distribution of this document in certain jurisdictions may be restricted and accordingly persons into whose possession this document comes are required to inform themselves about and to observe such restrictions. The shares have not been, and will not be, registered under the United States Securities Act of 1933 (as amended) or under any of the relevant securities laws of Canada, Australia or Japan. Accordingly, the shares may not (unless an exemption from such Act or such laws is available) be offered, sold or delivered, directly or indirectly, in or into the USA, Canada, Australia or Japan. The Company is not registered under the United States Investment Company Act of 1940 (as amended) and investors are not entitled to the benefits of such Act. Prospective investors must inform themselves as to (a) the legal requirements within their own countries for the purchase, holding, transfer or other disposal of shares; (b) any foreign exchange restrictions applicable to the purchase, holding, transfer or other disposal of shares which they might encounter; and (c) the income and other tax consequences which may apply in their own countries as a result of the purchase, holding, transfer or other disposal of shares.

3 3 THE COMPANY Investment Objective The Company s investment objective is to achieve an above average and increasing income over the 20 year life of the Company*, while at the same time seeking to achieve capital growth. * As an investment company with a limited life, the Company will wind-up on or immediately prior to 17 March Investment Policy and Strategy The Company intends to achieve its investment objective through the following asset allocation policies: to maintain a portfolio comprising mainly high yielding ordinary shares of UK incorporated companies listed on the London Stock Exchange; to invest a significant portion of the portfolio in companies outside the FTSE 100 Index, typically between 10 per cent. and 25 per cent. of the portfolio, but at any one time such shares shall represent between 5 per cent. and 35 per cent. of the portfolio; to allow for a small proportion of the portfolio to be made up of convertible and other fixed income securities, typically around 15 per cent. of the portfolio and not exceeding 30 per cent. of the portfolio; and to invest in unquoted securities suitable for the Company s investment style, but such investments will not exceed 1 per cent. of the portfolio. Further, the Company has the following risk diversification policies: the sector weightings for the Company s equities portfolio will not usually deviate from those of the FTSE 100 Index by more than 10 per cent. but during periods of exceptional volatility this deviation may increase (whether inadvertently or advertently) by up to 5 per cent.; the equities portfolio will usually comprise between 60 and 120 holdings; the fixed income portfolio may include both corporate bonds and gilts and all or part of the exposure to these asset classes may be gained through holdings in collective investment schemes. Holdings of corporate bonds within the fixed income portfolio will be diversified by issuer, maturity, coupon, credit ratings and industrial sector; the Company would not expect its portfolio weighting in any one stock to exceed 10 per cent., except as a result of market movement and in any event such weighting shall not exceed 15 per cent.; the Company will not invest in any securities issued by split capital investment trusts or split capital investment companies; and the Company will also not invest more than 15 per cent. of its gross assets in other listed investment companies (including listed investment trusts). The Directors have regard to the social responsibilities of the companies in the portfolio of investments but place no restriction on the scope of the AIFM with respect to its remit other than achieving above average returns in line with the investment policy. Lastly, the Company intends to conduct its affairs so as to achieve and maintain approved investment trust status in the UK. Investment restrictions and guidelines If and for so long as required by the Listing Rules of the UKLA in relation to closed-ended investment companies, the Company has adopted the following investment and other restrictions:

4 4 1. the Company will at all times, invest and manage its assets in a way which is consistent with its object of spreading investment risk and in accordance with its published investment policy; 2. the Company will not conduct any trading activity which is significant in the context of the Company (or, if applicable, its group as a whole); and 3. not more than 15 per cent. in aggregate of the value of the total assets of the Company at the time the investment is made will be invested in other closed-ended investment funds which are listed on the Official List. In order to maintain its status as an investment trust pursuant to Sections 1158 to 1165 of the Corporation Tax Act 2010 the Company is required to operate under certain constraints. Loss of such status would result in capital gains becoming subject to UK corporation tax. These restrictions include the following limits on investments and operations: 1. no investment in any one company may exceed 15 per cent. of the value of the Company s total investments at the time of investment; 2. the Company may not retain (in respect of any accounting period) an amount which is greater than 15 per cent. of the income it derives from shares and securities; 3. at least 70 per cent. of the Company s gross income must be derived from shares and securities (including gilts); and 4. the Company may not distribute capital profits by way of dividend. In the event of any material breach of the investment restrictions applicable to the Company, Shareholders will be informed of the actions to be taken by the AIFM through an announcement via a Regulatory Information Service. After a period of consultation, on 9 December 2010 the UK Government set out proposals to reform and modernise the tax rules for investment trusts and, in particular, the restrictions imposed by Sections 1158 to 1165 of the Corporation Tax Act Draft legislation (which will be in the form of regulations) is not yet available, however stated aims of the reform are to remove unnecessary restrictions on the commercial activities of investment trusts and reduce costs to business. If implemented as currently proposed the amendments would, inter alia, remove the requirement that at least 70 per cent. of the Company s gross income is derived from shares and securities, permit the Company to retain up to 15 per cent. of its income in any one year measured by reference to total income rather than income from shares and securities and replace the 15 per cent. investment restriction with a more purposive spread of risk condition, modelled on provisions in the Listing Rules. Leverage The Company s investment policy does not permit it to gear its investment portfolio to enhance investment performance. Any change to this policy would represent a material change to the published investment policy which, as detailed in the section headed Changes to the Company's investment policy below would, under the Listing Rules, require the Company to seek shareholder approval. The Company s investment policy does not include gearing the portfolio but the company does however have Zero Dividend Preference and Income shares in issue which, by nature of their predetermined capital entitlements, are of a geared nature. Changes to the Company's investment policy As a closed-ended investment company whose shares are admitted to the Official List under Chapter 15 of the Listing Rules, the Company is required to obtain the prior approval of shareholders to any material change to the published investment policy. Accordingly, the Company will not make any material change to its published investment policy without the approval of its shareholders by ordinary resolution. The Company will announce any such change through a Regulatory Information Service. The Company's published investment policy is set out in the section entitled 'Investment policy' above.

5 5 Any change in investment strategy or investment policy which does not amount to a material change to the published investment policy may be made by the Company without shareholder approval. The AIFM ADMINISTRATION AND MANAGEMENT OF THE COMPANY The Company has appointed M&G Securities Limited as its AIFM with responsibility for the investment management of the Company, including portfolio management and risk management. M&G Securities Limited will act as the AIFM for the purposes of the AIFM Directive. M&G Securities Limited is a private company limited by shares and incorporated in England and Wales under the Companies Acts 1862 to 1900 on 12 November 1906 with company number The AIFM is authorised and regulated by the FCA in the conduct of its investment business in the United Kingdom and is entered on the FCA's register under number The AIFM is authorised by the FCA as a full scope AIFM. Subject to the FCA Rules and the AIFM Directive the AIFM may delegate (and authorise its delegate to sub-delegate) its duties as investment manager. The AIFM has delegated portfolio management to M&G Investment Management Limited (MAGIM). MAGIM has the authority to make investment decisions on behalf of the Company and the AIFM. Notwithstanding this delegation the AIFM will remain responsible for the proper performance of the portfolio management and risk management. The AIFM charges a fee based on the mid-market value of the Company s total assets less its current liabilities. Current liabilities does not include amounts due to any class of Shareholders on a winding up of the Company. The fee is as follows: 1% on the first 75 million 0.9% on the next 125 million 0.8% on the excess over 200 million The Depositary The AIFM has appointed National Westminster Bank Plc as the Depositary of the Company. The Depositary is a public company limited by shares incorporated in England and Wales. Subject to the FCA Rules and the AIFM Directive, the Depositary is responsible for the safekeeping of the property entrusted to it and has a duty to take reasonable care to ensure that the Company is managed in accordance with the provisions of the FCA rules, the AIFM Directive and the articles of association of the Company relating to the pricing of, and dealing in, shares of the Company and to the income of the Company. The Depositary is authorised by the PRA and regulated by the PRA and the FCA in the conduct of its investment business in the United Kingdom. The Depositary has not entered into any arrangement contractually to discharge itself of liability in accordance with Article 21(13) of the AIFM Directive. The Company or AIFM will notify shareholders of any changes with respect to the discharge by the Depositary of its liability in accordance with Article 21(13) through a Regulatory Information Service. The Depositary has appointed State Street Bank and Trust Company to act as custodian of the property of the Company. The Depositary receives for its own account a fixed fee of 30,000 per annum. In addition to the fee stated above, the Depositary shall also be entitled to receive transaction and custody charges relating to the transaction handling and safekeeping of the Company's assets as follows: Item Range Transaction Charges 4 to 75. Custody Charges % to 0.40% per annum.

6 6 This rate can be varied from time to time in accordance with the FCA Regulations. The Auditor The Auditor of the Company is currently PricewaterhouseCoopers LLP. Subject to Shareholder approval, Ernst & Young LLP will be appointed with effect from the Company s next AGM on 2 September The Auditor shall, with respect to the assets of the Company, carry out its duties in accordance with all applicable laws, rules and regulations, including the audit of the accounting information contained in the annual report of the Company. The Registrar The Registrar of the Company is Equiniti Limited, a private limited company incorporated in England and Wales with registered number , whose registered office is at Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA The duties of the registrar include: maintenance of the register of shareholders; certifying and registering transfers; dealing with routine correspondence from shareholders, the United Kingdom Listing Authority, CRESTCo and the Registrar of Companies; and maintaining dividend mandates and shareholder legal documentation. The fees charged by the registrar are based on the number of shareholders on the register of members and the number of transfers that take place among other factors. Conflicts of Interest The AIFM, the Depositary and MAGIM are or may be involved in other financial, investment and professional activities which may, on occasion, cause conflicts of interest in the management of the Company. In addition, the Company may enter into transactions at arm's length with companies in the same group as the AIFM. The Depositary may, from time to time, act as depositary of other funds. Each of the parties will, to the extent of their ability and in compliance with the FCA Regulations, ensure that the performance of their respective duties will not be impaired by any such involvement. Annual Reports and Financial Statements SHAREHOLDER INFORMATION Copies of the Company's latest annual and interim reports are available on request from the Registrar or via The Company will include within the Company s Annual Report and Financial Statements information on, amongst other things details of any changes to the Company s policy on leverage described above. Publication of Net Asset Value The latest net asset value (NAV) per share or unit of the Company may be accessed via

7 7 Valuation Policy The NAV per Share of each Share class will be calculated each business day by the AIFM. The Company s listed investments are valued on a mid-price basis at 12 noon. Where trading in the securities of an investee company is suspended, the investment is valued at the Board s estimate of its net realisable value. Any unlisted investments are valued by the AIFM. In making their valuations, the AIFM will take into account, where appropriate, latest dealing prices, valuations from reliable sources, asset values and other relevant factors. Historical performance of the Company Details of the Company's historic financial performance can be accessed at and are also provided in the Company's annual reports and accounts. Investors should note that past performance of the Company is not necessarily indicative of future performance. Investors may not get back the amount invested. Purchases and sales of shares by investors The Company's shares are admitted to the Official List of the UKLA and to trading on the main market of the London Stock Exchange. Accordingly, the Company's shares may be purchased and sold on the main market of the London Stock Exchange. The Company's shares are not redeemable. While the Company will typically have shareholder authority to buy back shares, shareholders do not have the right to have their shares purchased by the Company. Units held via the M&G ISA can be bought and sold on any business day. Please refer to the Important Information for Investors document for details of buying and selling the units via the M&G ISA. Fair treatment of investors Procedures, arrangements and policies have been put in place by the AIFM to ensure compliance with the principles of fair treatment of investors. The principles of treating investors fairly include, but are not limited to: 1. acting in the best interests of the Company and investors; 2. executing the investment decisions taken for the account of the Company in accordance with the objectives, the investment policy and the risk profile of the Company; 3. ensuring that the interests of any group of investors are not placed above the interests of any other group of investors; 4. ensuring that fair, correct and transparent pricing models and valuation systems are used for the Company; 5. preventing undue costs being charged to investors; 6. taking all reasonable steps to avoid conflicts of interests and, when they cannot be avoided, identifying, managing, monitoring and, where applicable, disclosing those conflicts of interest to prevent them from adversely affecting the interests of Shareholders; and 7. recognising and dealing with complaints fairly. No investor has a right to obtain preferential treatment in relation to their investment in the Company and the Company does not give preferential treatment to any investors.

8 8 Rights against service providers~ Investors will only be able to exercise their rights directly against the Company and the Manager and will not have any direct rights against the service providers of the Company appointed from time to time. RISK FACTORS General Investment in the Company should not be regarded as short term in nature. There can be no guarantee that any appreciation in the value of the Company s assets will occur or that the investment objective of the Company will be achieved. Investors may not get back the full amount invested. The price of Shares and any income from them may go down as well as up. Changes in general economic conditions including, for example, interest rates, rates of inflation, the availability of credit, industry conditions, competition, political and diplomatic events and trends, tax legislation and other factors can substantially and adversely affect corporate profitability, the performance of equity investments and the Company s prospects. These changes can adversely affect the prospects for dividends, particularly those paid by high yielding shares. A reduction in the Company s dividend income may result in a reduction in the dividends payable by the Company. Performance risk Investment performance may not meet the Company s objective as a result of falling markets, reduced dividend income or poor relative performance and the Shares may become unattractive to investors leading to a fall in share price and also a widening of the discount against NAV. Liquidity in the underlying portfolio may become constrained which could inhibit or delay the AIFM s or MAGIM's ability to implement investment decisions. To control risk, the AIFM and MAGIM monitor the portfolio s composition and exposure relative to the FTSE All-Share Index. Subject to income constraints, the AIFM and MAGIM keep the sector and individual stock variances within reasonable levels and normally keep cash balances to a minimum. Foreign exchange risk The Company may invest in the shares of companies which are denominated or traded in currencies other than sterling and/or whose operations are conducted in currencies other than sterling. The Company may therefore have an exposure to foreign exchange risk as a result of changes, both unfavourable and favourable, in exchange rates between those currencies and sterling. Foreign exchange risk may increase the volatility of the NAV per Share and as some companies declare dividends in currencies other than sterling the volatility of the Company s sterling income may increase. The Company does not have a policy of hedging or otherwise seeking to mitigate foreign exchange risk but reserves the right to do so from time to time. Risk factors specific to investment trusts The Company is an investment trust. Investment trusts aim to generate returns for shareholders by investing in other companies. As an investment trust may invest in a range of different companies, sectors and geographic regions, it may represent a method for investors to gain a diversified investment exposure. However, prospective investors should be aware of certain factors which apply to the

9 9 Company and to investment trusts generally. Discounts The price of shares in an investment trust is principally determined by the interaction of supply and demand for such shares in the market as well as the net asset value per share. The share price can therefore fluctuate and may generally represent a discount to the net asset value per share. This discount is itself variable as conditions for supply and demand change. This can mean that the share price can fall when the net asset value per share rises, or vice versa. The Company will seek to reduce the level and volatility of the discount to NAV at which the Shares trade by repurchasing Shares when it is considered in the best interests of Shareholders to do so. It may either cancel such shares immediately or hold them in Treasury for sale or cancellation at a later date. However, there can be no guarantee that this strategy will be successful. Liquidity Market liquidity in the shares of investment trusts is frequently limited. Zero Dividend Shares Although the Zero Dividend Shares are entitled to pence per share on the winding up of the Company, prospective investors should note that there is no guarantee that there will be sufficient assets available to cover this entitlement. Income Shares Income Shares are entitled to all the net revenue earned however whilst it is the Company s objective to achieve an above average and increasing income over the life of the Company this cannot be guaranteed as it will depend on dividend growth in the Company s underlying investment portfolio. On winding-up, holders of Income Shares will be entitled to a return of capital of 70 pence per share, subject to the prior entitlement of the Zero Dividend Preference Shareholders, plus any balance standing to the revenue reserve. This means that a large proportion of their value lies in the future dividend stream of the Company however this cannot be guaranteed as it will depend on dividend growth in the Company s underlying investment portfolio. There is no guarantee that there will be sufficient assets available to cover the final entitlement of 70 pence per Share. Capital Shares The entitlement of the Capital Shares on winding-up ranks behind that of the Zero Dividend Shares and the Income Shares. The primary investment objective of the Company is to achieve an above average and increasing income over the life of the Company. The NAV and price performance of the Capital Shares during the life of the Company are likely to represent an amplification of the market movement of the underlying investment portfolio of the Company and they will therefore be particularly volatile. Package Units Each Package Unit comprises one Zero Dividend Share, one Income Share and one Capital Share. The dividend payments in relation to the Package Units are subject to the same risk factors as apply to the Income Shares. Income and Growth Units Each Income & Growth Unit comprises one Income Share and one Capital Share. The dividend payments in relation to the Income & Growth Units are subject to the same risk factors as apply to the Income Shares. The capital return is subject to the same risk factors as the Capital Shares.

10 10 Accounting policies The Company prepares its accounts in accordance with UK GAAP (UK generally accepted accounting practice) and the SORP (Statement of Recommended Practice: Financial Statements of Investment Trust Companies and Venture Capital Trusts). Both UK GAAP and the SORP are subject to change and this may have an effect on the Company s calculation of NAV and the dividends payable and could adversely affect shareholders. Investment trust status The Board and the AIFM monitor compliance with Sections 1158 to 1165 of the Corporation Tax Act 2010 in order to ensure that the Company maintains its investment trust status. Loss of such status would result in the Company s capital gains becoming subject to UK corporation tax. Taxation Representations in this document concerning the taxation of Shareholders and the Company are based on current UK tax legislation and published HMRC practice as at the date of this document. These are, in principle, subject to change (possibly with retrospective effect) and prospective investors should be aware that such changes may affect the Company s ability to generate returns for Shareholders and/or the taxation of such returns to Shareholders. If you are in any doubt as to your tax position you should consult an appropriate independent professional adviser. RISK MANAGEMENT The AIFM employs a risk management process which enables it to identify, measure, manage and monitor at any time the relevant risks of the positions to which the Company is or may be exposed and their contribution to the overall risk profile of the Company and which includes the use of appropriate stress testing procedures. The Company will periodically disclose the current risk profile of the Company to investors. The Company will make this disclosure in the Annual Report and Financial Statements, or more frequently at its discretion. Further information regarding the risk management process and liquidity management systems and procedures, including the measures used to manage the most relevant risks to which the Company is or could be exposed, can be found in the Risk Management Process Policy which is available upon request from the AIFM. Risk management systems The Company will periodically disclose to investors the risk management systems which the AIFM employs to manage the risks which are most relevant to it. The Company will make this disclosure in the Annual Report and Financial Statements available to investors or more frequently at its discretion. Liquidity risk management The AIFM has a liquidity management policy in relation to the Company which is intended to ensure that the Company's investment portfolio maintains a level of liquidity which is appropriate to the Company's obligations. This policy involves an assessment by the AIFM of the prices or values at which it expects to be able to liquidate its assets over varying hypothetical periods in varying market conditions, taking into account the sensitivity of particular assets to particular market risks and other relevant factors. Shares in the Company are not redeemable and shareholders do not have the right to require their shares to be purchased by the Company. Accordingly, the liquidity management policy ensures that the

11 11 Company's investment portfolio is sufficiently liquid to meet the following principal obligations: the Company's operating and financing expenses: in practice, these expenses are typically covered by dividends received from the Company's investments; and the possible need to repay borrowings at short notice, which would require to be met by the sale of assets. The liquidity management policy is reviewed and updated, as required, on at least an annual basis. Investors will be notified in the event of any material changes being made to the liquidity management systems and procedures or where any new arrangements for managing the Company's liquidity are introduced. The Company will periodically disclose to investors the percentage of the Company's assets which are subject to special arrangements arising from their illiquid nature. The Company will make this disclosure in the Annual Report and Financial Statements, or more frequently at its discretion. Professional liability risks The AIFM holds sufficient own funds to cover professional liability risks. Amendment to this Document The information contained in this document will be reviewed and updated (as necessary) at least annually.