Proposals re. Dividends & Investment Policy

RNS Number : 9196T

Midas Income & Growth Trust PLC

14 December 2011

Not for release, publication or distribution, directly or indirectly, in whole or in part, in or into the United States, Canada, Australia, Japan, New Zealand or the Republic of South Africa or any other jurisdiction in which the same would be unlawful

14 December 2011

Midas Income & Growth Trust PLC

RECOMMENDED PROPOSALS REGARDING

REBASING LEVEL OF DIVIDENDS PAID,

CHANGES TO INVESTMENT OBJECTIVE, POLICY AND BENCHMARK,

CHANGES TO MANAGEMENT FEE ARRANGEMENTS

AND

INTRODUCTION OF ANNUAL CONTINUATION VOTE

Summary

The Board recognises the importance of income to investors in the current environment. However, whilst the Company has maintained the current level of dividend payments for the past three years, this has required dividends to be paid, in part, from revenue reserves. Although the revenue account position has improved in the current year, if the current level of dividend payments is maintained, dividends paid in respect of the current year will again be uncovered by earnings.

Having regard to the challenging economic environment and following discussions with the Investment Manager, the Board has concluded that dividend growth from the current level is unlikely for several years. Furthermore, the Board believes that the constraints imposed on investment to maintain the current relatively high level of dividends have been, and will continue to be, detrimental to the total return to Shareholders. Accordingly, the Board decided that a fundamental review of the Company's strategy was necessary, the objective being to ensure that a sustainable model was identified that would be acceptable to Shareholders as a whole and enhance the Company's appeal to a broader range of investors.

Having concluded its review, which was undertaken with the assistance of the Investment Manager and the Company's financial adviser, the Board announces on 14 December 2011 that it is proposing a number of changes that it believes:

· will increase the Company's investment flexibility and offer the prospect of enhanced total returns to Shareholders, whilst still recognising the importance of income to Shareholders and maintaining an emphasis on low volatility;

· will create a closer alignment between the respective interests of the Investment Manager and Shareholders;

· will provide Shareholders with more frequent opportunities to vote on the Company's future; and

· will lead to an improvement in the Company's rating over time.

In essence, the Proposals envisage:

· rebasing dividend payments to a lower level that still remains attractive within the Global Growth and Income closed-end funds sector, is expected to be covered by earnings and offers the prospect of dividend growth;

· amending certain of the core asset allocations and asset allocation ranges specified in the Company's investment policy to increase the Company's investment flexibility;

· changing the Company's investment objective to reflect the Company's investment policy (as proposed to be amended) and the Investment Manager's investment approach;

· adapting the Company's existing absolute return benchmark so that it is a more appropriate basis of measurement of the Company's performance in all market conditions;

· amending the fee arrangements with the Investment Manager; and

· introducing an annual continuation vote with effect from the Company's annual general meeting in 2013.

The proposed changes to the Company's investment policy represent a material change to that policy and, accordingly, under the Listing Rules, require the approval of Shareholders in general meeting before they can be implemented. In addition, the introduction of annual continuation votes involves amending the Articles of Association, which also requires the approval of Shareholders in general meeting. A general meeting of the Company is expected to be convened for 4.00 p.m. on Wednesday, 18 January 2012 and will be held at the offices of Aberdeen Asset Management PLC, Bow Bells House, 1 Bread Street, London EC4M 9HH, at which the requisite resolutions will be proposed. The Board is recommending that Shareholders vote in favour of those resolutions.

Enquiries

Alan Borrows	Midas Capital Partners Limited	T: 0151 906 2450
Gordon Neilly/ Sue Inglis	Canaccord Genuity Limited	T: 020 7050 6778 020 7050 6779

Rebasing the Level of Dividends Paid

At 12 December 2011, the Shares offered a yield of 6.2 per cent.[1], compared to the 3.1 per cent.[2] and 3.6 per cent..^[2] available from the FTSE World Index and the FTSE All Share Index respectively and the Global Growth and Income sector market capitalisation weighted average yield of 4.4 per cent.[3]. As noted above, the Company has maintained the current level of dividend payments for the past three years, but this has required dividends to be paid, in part, from revenue reserves.

At a time when the yield on cash and gilts is so low, the Directors believe that the attraction of income growth is becoming increasingly apparent to the market. Having regard to the challenging economic environment and following discussions with the Investment Manager, the Board has concluded that dividend growth from the current level is unlikely for several years. Furthermore, the Board believes that maintaining the current relatively high level of dividends is inhibiting the Investment Manager from conviction investing and that this is detrimental to achieving capital growth and, accordingly, to the total return to Shareholders. Having consulted with the largest Shareholders, the Directors believe that rebasing dividend payments to a level that:

· still remains attractive within the Global Growth and Income closed-end funds sector, is sustainable and offers the prospect of dividend growth;

· increases the Company's investment flexibility to achieve capital growth; and

· as a result, offers Shareholders the prospect of an enhanced total return;

is now more attractive to Shareholders as a whole and will enhance the Company's appeal to a broader range of investors.

The annual dividend will be rebased to 5.2p per Share equivalent to 5.0 per cent. and 4.6 per cent. on the closing mid-market price per Share and net asset value per Share respectively as at 12 December 2012. Accordingly, in the absence of unforeseen circumstances, it is the Board's intention to declare third and fourth interim dividends in respect of the current financial year each of 1.3p per Share, making a total dividend of 5.86p in respect of the year ending 30 April 2012.

The Board and the Investment Manager expect that, having rebased the level of dividends paid and subject to Shareholders approving the proposed changes to the Company's investment policy, the Board will be able to adopt a progressive dividend policy of growing the level of dividends from the fourth interim dividend in respect of the year ending 30 April 2013, which is expected to be announced in May 2013.

Notwithstanding the rebasing of the level of dividend payments, the Board intends to maintain its policy of charging 50 per cent. of the management fees and finance costs and 100 per cent. of the other operating expenses to income.

Changing the Investment Objective, Policy and Benchmark

To enable the Investment Manager to take full advantage of the opportunities to grow capital, whilst continuing to focus on the enhancement of dividends from the proposed rebased level and retaining the ability to asset allocate through the investment cycle and control volatility, the Directors are proposing a number of changes to the Company's investment policy to facilitate conviction investing. The changes being proposed are as follows:

· increasing the core allocation to overseas equities from 15 per cent. to 25 per cent. to take advantage of:

- the growing number of attractive alternative sources of dividend income outside of the UK, including developing markets which are among some of the fastest growing economies in the world and demonstrating strong dividend growth potential; and

- the broader choice of high quality equity managers investing outside the UK;

which should improve the quality of the income generated from the Company's portfolio, enhance the Investment Manager's ability to take advantage of secular trends and improve the portfolio's prospective risk-adjusted returns;

· reducing the core allocation to fixed income from 25 per cent. to 15 per cent. to allow for the higher allocation to overseas equities; and

· broadening the investment ranges for various asset classes to increase the Company's investment flexibility to make asset allocation decisions, whilst retaining the Company's emphasis on low volatility in Shareholder returns compared to its peers.

At present, the Company's investment objective is to seek to achieve an absolute return with low volatility through investment in a multi-asset portfolio with the aim of achieving both income and capital returns and the Company and the Company's performance is measured against an absolute return benchmark of 8 per cent. per annum. Against a backdrop of the current low return investment environment, the Directors no longer consider that the current benchmark is an appropriate basis on which to measure the Company's performance. Having considered the Company's investment policy (as proposed to be amended) and the Investment Manager's investment approach, the Directors are proposing that the Company's investment objective be changed to that of seeking to outperform 3-month LIBOR plus 3.0 per cent. over the longer term, with low volatility and the prospect of capital and income growth, through investment in a multi-asset portfolio. Subject to Shareholders approving this proposed change to the Company's investment objective, the Directors intend to measure the Company's performance based on rolling three-year periods.

Subject to Shareholders approving the proposed changes to the Company's investment objective and policy at the General Meeting, the Investment Manager expects to make a number of changes to the composition of the Company's portfolio and that this realignment will be completed by the end of March 2012 without incurring any material cost to the Company.

Changes to the Management Arrangements

Under the terms of the Management Agreement, the Investment Manager is entitled to receive an annual management fee of 1.0 per cent. of the Company's net assets and a performance fee equivalent to 10 per cent. of the outperformance above a total return of 8 per cent. per annum from a base date of 14 February 2006. The performance fee is calculated on an annual basis and is subject to a high-watermark based on the higher of the total return of 8 per cent. per annum and the previous highest NAV on which a performance fee was paid.

The Board and the Investment Manager have agreed to change the fees payable under the Management Agreement to bring the fee arrangements in line with best practice in the investment trust industry. Accordingly, with effect from 1 January 2012, the annual management fee will be calculated by reference to the Company's market capitalisation, with the rate reduced to 0.9 per cent., and the performance fee will be terminated. For the avoidance of doubt, these changes to the management fee arrangements are not conditional on the resolutions approving the proposed changes to the Company's investment objective and policy and amending the Articles so that they require an annual continuation vote being passed at the General Meeting.

Introduction of an Annual Continuation Vote

The Articles of Association require the Directors to propose a resolution to liquidate the Company in April 2016 (and every fifth year thereafter for as long as the Company remains in existence) unless they are released from this obligation by the passing of an ordinary resolution at the Company's annual general meeting held in the immediately preceding year.

The Board believes that it is now best practice in the investment trust industry to give Shareholders a more frequent opportunity to consider the future of the Company. Accordingly, the Board is proposing that the Articles be amended to replace the current five-yearly review of the Company's future with an annual continuation vote (in the form of an ordinary resolution) with effect from the annual general meeting of the Company held in 2013. In the event that any such resolution is not passed, then the Directors will be required to bring forward proposals to liquidate, open-end or otherwise reconstruct the Company.

Principal Benefits of the Proposals

The Directors believe that the principal benefits of the Proposals can be summarised as follows:

· rebasing the dividend to 5.2p per annum will increase investment flexibility to enhance overall Shareholder returns and should offer the prospect of dividend growth from the fourth interim dividend in respect of the year ending 30 April 2013;

· the re-based dividend remains attractive relative to the other funds in the Global Growth and Income closed-end funds sector;

· the changes to the Company's investment policy should enable the Investment Manager to take full advantage of the opportunities to achieve capital growth and enhance the overall return to Shareholders whilst retaining the ability to asset allocate through the investment cycle and to control volatility;

· the changes to the Management Agreement simplify the fee arrangements with the Investment Manager and more closely align the Investment Manager's interests with those of Shareholders; and

· Shareholders will have the opportunity to vote on the future of the Company annually with effect from the annual general meeting in 2013.

The Directors believe that these benefits should enhance the Company's appeal to investors and, accordingly, should attract market support for the Shares. In turn, this should lead to an improvement in the Company's rating.

Circular

A circular to Shareholders containing details of the Proposals, and including a notice convening a general meeting of the Company at which resolutions will be proposed to approve the proposed changes to the Company's investment objective and policy and to amend the Articles so that they require an annual continuation vote, is expected to be posted to Shareholders along with the Half Yearly Report of the Company for six months ended 31 October 2011 before Christmas. The General Meeting is expected to be held on Wednesday, 18 January 2012 commencing at 4.00.p.m at the offices of Aberdeen Asset Management PLC, Bow Bells House, 1 Bread Street, London EC4M 9HH,

Expected Timetable

Commencement of calculation of management fees based
on the Company's market capitalisation (rather than net assets) 1 January 2012

Latest time and date for receipt of completed Forms of Direction
from Aberdeen Product Investors for use in connection
with General Meeting 5.00 p.m. on Wednesday, 11 January

Latest time and date for receipt of completed Forms of Proxy
and CREST electronic proxy appointments for use at
General Meeting 4.00 p.m. on Monday, 16 January

General Meeting 4.00 p.m. on Wednesday, 18 January

Third interim dividend declared for year ending 30 April 2012
(expected to be 1.25p per share; 2011: 1.63p) 16 February 2012

Ex-date for third interim dividend 22 February 2012

Third interim dividend paid 21 March 2012

First annual continuation vote AGM in September 2013

Definitions

The following definitions apply throughout this announcement unless the context otherwise requires:

"Aberdeen Product Investors"	investors in Shares through the Aberdeen Product Range
"Aberdeen Product Range"	in order to facilitate investment in the Company, the arrangements put in place for the Company to be part of Aberdeen Asset Managers Limited's product range, which includes the Share Plan and ISA
"Articles" or "Articles of Association"	the articles of association of the Company
"Board"	the board of Directors, including any duly constituted committee thereof
"Company"	Midas Income & Growth Trust PLC
"Directors"	the directors of the Company
"Form of Proxy"	the form of proxy for use by Shareholders in connection with the General Meeting
"General Meeting"	the general meeting of the Company which is expected to be convened for 4.00 p.m. on Wednesday, 18 January 2012, or any adjournment of such general meeting
"Investment Manager"	Midas Capital Partners Limited
"LIBOR"	London Interbank Offered Rate
"Listing Rules"	the listing rules made by the Financial Services Authority pursuant to section 73A of the Financial Services and Markets Act 2000
"Management Agreement"	the investment management agreement entered into between the Company and the Investment Manager dated 22 July 2005 (as amended by side letters dated 26 January 2006, 12 February 2007 and 25 August 2011)
"Proposals"	the proposals described in this announcement regarding rebasing the level of dividends paid by the Company, changes to the Company's investment objective, policy and benchmark, changes to the management fee arrangements between the Company and the Investment Manager and amending the Articles so that they include provisions for annual continuation votes
"Shareholders"	holders of Shares
"Shares"	ordinary shares of 25p each in the capital of the Company