Final Results - Year Ended 31 March 2000, Part 1

3i Group PLC
25 May 2000


PART 1

3i Group plc

Preliminary statement of annual results for year to 31 March 2000

www.3i.com



RESULTS HIGHLIGHTS

*  Total return of £1.6 billion, a return of 44% on opening
   shareholders' funds, outperforming the FTSE All-share Index
   (excluding investment companies) by 34%
   
*  £1.4 billion (including co-investment funds) invested in 593
   companies, an increase of 20%
   
*  Shareholders' funds increased from £3.6 billion to £5.2
   billion, up 44%
   
*  Diluted net asset value per share increased from 601p to 847p,
   up 41%
   
*  Recommended final dividend of 7.6p per share, making a total
   dividend for the year of 12.2p (1999: 11.3p), up 8%


Sir George Russell, chairman of 3i Group plc, commenting on the results, said:
'3i has made excellent progress with its strategic objectives and has achieved
very good financial results. 3i faces an exciting and challenging period
ahead, with a clear strategy to grow the business. We will continue to build
our capabilities to reinforce our position as the leading venture capital
company in Europe and increase our presence in other international markets.'


RESULTS OVERVIEW

*  3i Group plc announces today that the total return in the year
   to 31 March 2000 was £1.6 billion, a return of 44% on opening
   shareholders' funds, a record for 3i. The Group's compound
   average annual return for the five years to 31 March 2000 was
   22.1%, against the FTSE All-share compound average annual
   return of 18.9%.
   
*  A record level of investment of £1.4 billion, including co-
   investment funds, in 593 companies, the third consecutive year
   that 3i has invested over £1 billion.
   
*  Diluted net asset value per share increased from 601p to 847p,
   an increase of 41% from 31 March 1999
   
*  Profits (over carrying value) on sale of equity investments
   were £350 million, an increase of 94%. These profits
   represented an uplift over opening valuation of 83%. Profits
   over cost were £643 million
   
*  Unrealised value growth in the portfolio of £1.2 billion
   
*  Final dividend of 7.6p recommended by the Directors, making a
   total dividend for the year of 12.2p



REVIEW OF STRATEGIC OBJECTIVES

*    3i has made excellent progress against its strategic objectives:

     *    Maintain market leadership in the UK
     
       -  Invested £894 million in 354 companies
          
       -  Accounted for 42% of all technology investments made by BVCA
          members
          
       -  Total return from the UK was £1,302 million, a return of 43%
          
       -  Restructured 3i's UK network onto a stronger regional
          footing


     *    Increase investment in continental Europe to 20% of the Group's
          portfolio by 2003
     
       -  Increased investment in continental Europe to £422m from
          £241m in the year to 31 March 1999, an increase of 75%
          
       -  The continental portfolio now represents 18% of the total
          portfolio
          
       -  Opened offices in Nantes in France and in Bologna and Padua
          in Italy


     *    Increase technology assets to over 30% of the Group's portfolio
     
       -  Increased technology investment to £656m from £291m in
          the year to 31 March 1999, representing an increase of
          125%
          
       -  The technology portfolio now represents 40% of the
          portfolio


     *    Develop a significant business in the US and Asia Pacific
     
       -  Opened offices in Boston and Palo Alto in September
          1999 and have completed nine investments, investing
          US$44 million
          
       -  Increased investment in Asia Pacific and raised a
          US$400 million 3i Asia Pacific Technology fund in
          Singapore
          


     *    Grow funds under management to support our core investment
          activities

       -  Eurofund III, a Euro 2 billion pan-European buy-out
          fund was launched
          
       -  Launched a US$400 million 3i Asia Pacific Technology
          Fund
          
       -  Launched 3i Bioscience Investment Trust, a quoted
          investment trust, on the London Stock Exchange
          
       -  Increased third party quoted funds under management
          during the financial year to £0.8 billion
          
       -  Following the year end launched 3i European Technology
          Trust on the London Stock Exchange


OPERATING REVIEW

Europe

UK

The UK business is now benefiting from the restructuring of the UK network
into six regions, reporting high levels of investments and realisations. The
network provides a strong competitive advantage, combining local knowledge
with the benefit of an international network.

Returns from the UK business have been very good, particularly in technology
businesses. The UK return was £1,302 million, driven mainly by the value
growth of quoted technology and buy-out companies coming from 3i's portfolio
in which 3i has retained a stake. 3i made 202 technology investments during
the year and now has 485 UK technology businesses in the portfolio. 3i
completed 52 buy-outs during the year, investing a total of £424 million.

Continental Europe

3i in continental Europe has again had a successful year in building its
business and making significant progress towards achieving the strategic
objective of 20% of its portfolio assets in continental Europe by 2003. The
continental portfolio now totals 18% of the Group's portfolio.

Investment levels grew strongly, rising from £241 million last year to £422
million in the financial year ended 31 March 2000. Total return in continental
Europe was £221 million before currency adjustment.

3i strengthened its network, opening offices in Nantes in France and Padua and
Bologna in Italy. In addition, with the acquisition of Technologieholding, a
German venture capital company, 3i added Berlin and Leipzig to 3i's German
network. Since the year end, 3i has opened an office in Zurich, Switzerland
and has agreed to acquire SFK Finance Oy, based in Helsinki, giving 3i its
first office in the Nordic region.

US

Since 3i established its offices in September 1999, US $44 million has been
invested in nine companies. These have been achieved primarily on the strength
of 3i's ability to deliver genuine international reach to US entrepreneurs.
3i's network of 39 offices across three continents and a portfolio of around
750 technology investments is proving to be very attractive to US technology
businesses.


Asia Pacific

During the year, 3i invested in 11 companies and expects further expansion in
this region will be greatly assisted by the launch of the 3i Asia Pacific
Technology Fund.  The US $400 million fund includes a commitment of US $100
million from the Government of Singapore's Technopreneurship Investment Fund
(TIF).

In Japan, 3i's joint venture with the Industrial Bank of Japan, 3i Kogin
Buyouts, is well advanced in recruiting local expertise. The business will
take advantage of the opportunities that are expected to result from the major
structural changes taking place in the Japanese market.

Fund Management

3i currently manages around £2.3 billion of third party co-investment funds.
During the year, new unquoted funds were launched, most notable Eurofund III,
a Euro 2 billion fund, 3i's first pan-European buy-out fund. The addition of
3i Bioscience and after the year end, 3i European Technology Trust, has
increased third party quoted funds under management to £0.8 billion.

Financial Review

The Group's total return of £1,579 million for the year comprises capital
return of £1,460 million and revenue return of £119 million. Unrealised value
growth of £1,167 million made a significant contribution to the Group's total
return, as well as the realised capital return of £350 million on the sale of
investments. Revenue profit after tax was £115 million.

Summary

Commenting on the results, 3i's chief executive, Brian Larcombe, said: 'Our
strategy is to build on 3i's position as Europe's leading venture capital
company and to expand internationally to take advantage of growing markets.
Many others have recognised the potential of venture capital and are entering
the market. To stay ahead, we will continue to build our international
capabilities and use our extensive resources to support the companies in which
we invest'.


For further information, please contact:
Brian Larcombe, Chief Executive       
3i Group plc                          Tel: [phone]
Michael Queen, Finance Director       
3i Group plc                          Tel: [phone]
Liz Hewitt, Director Corporate        
Affairs                               
3i Group plc                          Tel: [phone]
Issued by:
Andrew Millington, Director           
Shandwick International               Tel: [phone]


Chairman's Statement

3i has made excellent progress with its strategic objectives and has achieved
very good financial results.

Total return for the year of £1.6 billion represents a return of 44% on
opening shareholders' funds. This is a record for 3i and demonstrates the
benefits of the Group's strategy and a strong underlying financial
performance.

During the year the share price rose from 626p to 1318p, increasing the market
capitalisation of 3i to almost £8 billion. The Board is recommending a final
dividend of 7.6p, making a total dividend of 12.2p, an increase of 8% for the
year.

We have continued to build our capabilities and grow our international
business.

In the UK, we have maintained our leadership against the background of an
increasingly competitive market. Technology based companies have performed
well while the strength of sterling against the Euro has continued to make
trading conditions difficult for traditional manufacturing and exporting
companies.

Continental European venture capital markets are growing rapidly and 3i has
added to its network and capabilities both by expanding organically and
through the acquisition of Technologieholding, a leading German early stage
venture capital company.

Our Asia Pacific teams continue to develop and are well placed to take
advantage of economic restructuring in Japan and renewed growth in the ASEAN
region.

The US remains the leading international technology market and during the year
we opened offices in Boston and Palo Alto. 3i's ability to provide
international reach to US technology businesses is proving to be a significant
competitive advantage.

I am delighted to welcome three new Directors to the Board. Rod Perry, who has
executive responsibility for Asia Pacific and Group Services, has been a
member of the Executive Committee since 1996. Danny Rosenkranz, formerly Chief
Executive of BOC, and Oliver Stocken, previously Finance Director of Barclays
Bank, have joined the Board as non-executive Directors.

I would also like to thank John Melbourn, Deputy Chairman, who will be
retiring at the conclusion of the Annual General Meeting after serving as a
Director for almost ten years. His wise counsel has made an important
contribution to 3i, especially during the flotation of 3i in 1994 and as
Chairman of the Audit & Compliance and Remuneration Committees. I am delighted
that he will be succeeded as Deputy Chairman by Sarah Hogg who has been a
Director since 1997.

Our achievements this year result from the outstanding contribution made by
our employees and reaffirm the importance of highly motivated teams to the
business. I would like to thank everyone.

3i faces an exciting and challenging period ahead, with a clear strategy to
grow the business. We will continue to build our capabilities to reinforce our
position as the leading venture capital company in Europe and increase our
presence in other international markets.


Sir George Russell CBE
24 May 2000

Chief Executive's Review

I am pleased with the progress made with our strategic objectives and the
financial results we have achieved.

In this review, I comment on market developments and the impact of these on
the competitive environment for venture capital. I then outline 3i's strategy.

We have a positive view of global economic prospects although dramatic
technological change will create greater imbalances in individual markets and
industry sectors than we have seen in recent years.

Much has been written about the divergence of growth prospects for 'old' and
'new' economies and the stock market valuation of technology companies. We are
confident that technology provides businesses with the potential for rapid
growth. Ultimately, a successful company has to provide a high quality product
or service to its customers and generate profits and cash flow. In other
words, business fundamentals have not changed. At 3i, we have and continue to
be focused on the fundamentals of management ability and market potential.

We also believe that there will be good prospects for growth in both old and
new economies as so called traditional businesses utilise new technologies to
establish competitive advantage in their markets. This change process will
create increased opportunities for all parts of our business, including the
setting up of many new companies. Buy-out activity is likely to increase as
companies restructure to meet a new challenging environment and 3i will be a
catalyst in making change happen.

Competitive background
There has been a significant increase in venture capital funds raised in
Europe targeted at both early and later stage businesses. Many new entrants to
the market have emerged. However, the market itself has also grown, with
demand for venture capital increasing greatly. Venture capital is also taking
on additional importance as a separate asset class, with both investors and
governments acknowledging the vital role that it plays in wealth creation.

3i Strategy
Our strategy is to build on 3i's position as Europe's leading venture capital
company and to expand internationally to take advantage of growing markets.

To achieve this we have been pursuing the following objectives, to:

*  maintain our market leading position in the UK;
   
*  increase investment in continental Europe to 20% of the
   Group's portfolio by 2003;
   
*  build a leading technology venture capital business that
   invests in key international technology markets, increasing
   technology assets to over 30% of the Group's portfolio;
   
*  develop a business in both the US and Asia Pacific which both
   complements our European operations and contributes
   significant returns;
   
*  grow funds under management to support our core investment
   activities.


Strategic progress
3i has maintained its leading position in the UK. We have made some
significant changes to the way we operate, increasing our specialisation,
making fewer but larger investments and re-organising the business on a
regional basis.

Investment activity in continental Europe reached record levels for the fourth
consecutive year. Our network of offices throughout Europe is now very well
developed. During the year, teams were established in Nantes in France and in
Padua and Bologna in Italy. Since the year end we have opened an office in
Zurich and agreed to acquire a venture capital business based in Helsinki. We
are ahead of our plan to have 20% of the portfolio in continental European
businesses, with 18% of our assets currently in the region.

We now have almost as many investment executives internationally as in the UK
and we expect the balance of the Group's investment assets to become
increasingly international.

Technology investment has increased this year to £656 million compared with
£291 million last year. Our technology portfolio includes a broad range of
investments in many sectors and ranges from start-ups to buy-outs and quoted
companies. Technology investment now represents 40% of the portfolio. Our
technology investment capability was enhanced by the acquisition of
Technologieholding in February. This helped to establish 3i as Germany's
leading technology venture capital investor.

The availability of highly skilled investment professionals is key to growing
our business to take advantage of increasing opportunities, particularly in
continental Europe. We now have over 100 people in Germany in seven teams
including the new locations for 3i of Leipzig and Berlin.

We are also expanding our presence in other international markets. Our teams
in Asia Pacific based in Singapore and Tokyo are seeing an increasing flow of
good opportunities.

The US is the world's leading technology market and to be a major investor in
this field requires a physical presence. We aim to build a significant
technology business there and have established offices in Silicon Valley (Palo
Alto) and Boston. Our US teams have made a flying start.

Funds under management
We have substantially increased the funds that we manage for both quoted and
unquoted investment. Our third party unquoted funds under management have
increased to £2.3 billion during the year and with the launch of 3i Bioscience
Investment Trust and 3i European Technology Trust, 3i now manages four quoted
investment companies.

These funds build our expertise in the quoted markets which is essential to
the development of our unquoted portfolio.


People
3i's greatest resource is its people and we continue to devote significant
effort to recruiting, developing and rewarding the best employees. We now have
around 350 investment executives working from 39 offices in ten countries.
They are supported by teams of dedicated professionals who are equally
important to the success of our business.

Results
3i has produced good results for the year to 31 March 2000. Total return of
£1.6 billion was a return of 44% on opening shareholders' funds, a record for
3i. All of our activities, in the UK, elsewhere in Europe and across the world
made a full contribution to this result.

Over £1 billion was invested for the third consecutive year and realisation
proceeds from equity sales of £822 million were achieved at an uplift over
valuation of 83%, again a record for 3i.

Summary
3i has performed well and we have reinforced our leadership position in
Europe. Many others have recognised the potential of venture capital and are
entering the market. To stay ahead, we will continue to build our
international capabilities and use our extensive resources to support the
companies in which we invest.


Brian Larcombe
24 May 2000

Operating Review

United Kingdom
The venture capital market in the UK is well developed and remains highly
competitive, with many new entrants and significant funds available for
investment. The market itself is also growing as demand for venture capital
continues to rise. Against this backdrop, 3i's strategic objective for the UK
is to maintain our leading market position.

Our UK business is now reaping the rewards of the groundwork laid in earlier
years, reporting high levels of both investments and realisations. Our UK
network comprises six operating regions, providing a strong competitive
advantage by combining local knowledge with the benefit of a wide
international network.

The power of this network is evidenced by some of the businesses that 3i has
invested in, companies like Virata. This start-up, backed by 3i, was spun out
from Cambridge University and Paragon Software, a winner of 3i's Technology
Catapult competition.

More importantly, we are able to harness the strength of our international
network, not just in continental Europe but also in Asia Pacific and the US.
This brings the best teams to work on each investment opportunity, sharing
ideas and drawing on appropriate expertise from across 3i to complement our
teams in local markets.

Technology is playing a key role in this process, allowing us to create
virtual teams to share knowledge and ideas around 3i. This takes several
forms. The intranet (3i's internal internet) is a powerful tool for sharing
knowledge around the Group. A message posted on the intranet draws responses
from around the network of offices across the world.

Complementing this is the launch of a new 'closed' internet site - InsideEdge.
This is a bespoke site, available only to the businesses in our technology
portfolio, which enables them to share ideas and knowledge and even forge
trading links.

UK performance
The UK return was £1,302 million, largely driven by significant returns from
the sale or IPO (Initial Public Offering or flotation) of technology
businesses and the increase in valuations of recently floated buy-outs where
3i has retained a stake. £894 million was invested in 354 businesses (1999:
£899 million in 495 businesses).

There were four IPOs from the UK technology portfolio, including Virata. The
majority of technology realisations arose from the sale of quoted shares in
companies backed by 3i prior to IPO (flotation). In addition, there were 18
sales to trade buyers in the year, including Integralis. UK technology
realisations achieved a substantial uplift over valuation.

Despite an increasingly competitive market, we are continuing to see
attractive opportunities to invest in technology companies. We made 202
technology investments during the year and now have 485 UK technology
businesses in the portfolio.

Within the buy-out sector, we have sought to balance our business within all
segments. This has involved reducing the number of investments while
increasing the average size. While our overall buy-out market share has
fallen, we have maintained leadership in the mid-market (£5 million to £250
million). Jonathan Russell has been appointed to the Executive Committee with
responsibility for European buy-outs to co-ordinate a pan-European approach to
this important market. We completed 52 UK buy-outs during the year, investing
£424 million and also achieved a number of highly successful realisations from
the buy-out portfolio, including the sale of TDL.

Managing the UK portfolio
Within the natural life cycle of venture capital backed companies which
includes start-ups, growth, buy-outs and IPOs (flotations), there is usually a
good time to invest and a good time to sell. Statistics from the British
Venture Capital Association (BVCA) confirm that this year has been good for
both. 3i has also been successful in our relationships with businesses post-
flotation.

Many investee companies, especially in the traditional manufacturing sectors
have struggled to cope with the high level of sterling and increasingly open
markets. In these circumstances, we have used our extensive resources to work
with management to strengthen these businesses.

Currently our UK portfolio comprises around 2,300 investments, including some
1,100 'smaller' investments. In order to more pro-actively manage these
smaller investments, we established a new team during the year. This
regionally based team will manage the portfolio with a set of clear
objectives: to provide consistent levels of service with good communication
channels and to generate value for all shareholders.

Continental Europe
3i has again had a successful year in building its business in continental
Europe, making significant progress towards achieving the strategic objective
of having 20% of portfolio assets there by 2003.

Investment levels grew strongly, rising from £241 million last year to £422
million. There has been an increased emphasis on technology investments and we
achieved a number of successful trade sales and IPOs from the portfolio. Total
return in continental Europe was £221 million, before currency adjustment.

Venture capital technology markets have been extremely active across
continental Europe, in line with activity in the quoted technology markets.
Technology IPOs have been prevalent, particularly in Germany where seven 3i
backed businesses joined the Neuer Markt, including Web.de and Openshop.

3i also achieved a strong performance in Spain, investing £95 million, and a
solid performance in France and Italy.

Markets are becoming increasingly competitive with significant funds being
raised for investment in venture capital. In these circumstances it is
important to have distinct competitive differentiators and we firmly believe
that our growing network of offices in continental Europe provides a major
competitive advantage to 3i. By having local people in local markets we can
gain a greater understanding of the market dynamics and develop long term
relationships with key decision makers. To achieve this, we have been building
our teams on the continent, recruiting 42 staff during the year.

3i's Technology Catapult competitions have proved an innovative way to
identify technology businesses in which to invest. These competitions aim to
identify leading technology companies in each country. Following the success
of this competition in the UK, this year we ran Catapult competitions in
Germany and France. In Germany, we received 63 entries, and 3i invested DM5
million for a 20% stake in each of the three winners: Praxisline, which
provides medical supplies over the internet; Curry, which produces work flow
management software; and Applied Security, which produces computer security
systems. In France, we received 81 entries. 3i will invest FF15 million for a
20% stake in each of the three winners.

We can also create opportunities to deliver value by working across our
network. A good example of this was the sale of the logistics business,
Transportes Gerposa to Christian Salvesen. 3i had developed a good
relationship with Christian Salvesen through the previous sale of a UK
investment.

During the year we strengthened our network, opening offices in Nantes in
France and Padua and Bologna in Italy. We will continue to open further
offices and since the year end have opened an office in Zurich and agreed to
acquire a venture capital business based in Helsinki.

In Germany we had an exceptionally good year, investing £130 million, an
increase of 56% over last year, in 113 businesses. Realisations also
flourished with seven IPOs and the sale of quoted equity investments,
achieving large uplifts over March 1999 valuations.

Our Benelux office in Amsterdam has made significant progress making seven
investments during the year. France, Spain and Italy also made a positive
contribution to the Group's results. 3i has made great progress in building
its market share in the continental markets we have chosen to enter. We are
the leading technology investor in Germany, the leading venture capitalist in
France and the leader in buy-outs in Spain.

One of the significant events for 3i in continental Europe was our acquisition
of one of Germany's most active, early stage technology investors.

The acquisition of Technologieholding for £102 million was the culmination of
more than a year of discussions and brings a new dimension to 3i. It completes
our network of offices in Germany with the addition of Leipzig and Berlin.
More importantly, it raises the number of staff we have in Germany to 100
across seven offices.

Technologieholding has made many successful early stage technology
investments, including POET software, which specialises in object oriented
database systems, and ricardo.de, the oldest internet auction channel in
Germany. Both companies listed on the Neuer Markt during the year.

One of Technologieholding's co-founders, Gert Kohler has joined 3i's
Investment Committee and has been appointed a Managing Director of 3i Europe,
responsible for developing 3i's early-stage technology investments.

We are continuing to build our network in continental Europe and are seeing
clear evidence of the success of this strategy. With investments on the
continent representing 18% of our total portfolio we are well on track to
achieve the strategic target of 20% by 2003.

United States
The US remains the world's largest technology market and we believe that to be
a leading investor in this field requires a physical presence, both to support
our technology portfolio companies in Europe and Asia Pacific and also to make
new investments in US technology businesses. Our US offices also provide a
window on the high technology market, helping 3i to identify trends that we
are likely to see in Europe in the near future.

While it is early days, the first six months of operation have been very
encouraging. In addition to establishing operations in California (Palo Alto)
and Massachusetts (Boston), 3i is already seeing a high quality deal flow that
offers significant value opportunities for us.

We have invested US $44 million in nine transactions, including the pre-
flotation financing of YET2.com. We have been the main venture capital
investor in four of these deals, primarily on the strength of our ability to
deliver genuinely international reach to US entrepreneurs. This is 3i's key
differentiator and the cornerstone of our strategy for the US. We are focusing
on the strength of our international network, bringing in effect a Silicon
Valley network outside the Silicon Valley.

3i's network of 39 offices across three continents and a portfolio of around
750 technology investments is proving extremely attractive to US technology
businesses and is being seen by US venture capitalists as complementary to
their own capabilities. The launch of InsideEdge (our 'closed' internet site
for 3i technology investments) creates further competitive advantages.

3i's presence in the US also offers significant opportunities to create value
for our wider technology portfolio. The new offices can support European based
technology investments, for example, those which need access to the US market
to expand their own networks and to achieve an IPO on a US stock market.

3i has completed the recruitment of its initial teams in Palo Alto and Boston
and is now looking to expand by recruiting locally. While recognising that the
market is very competitive, we are pleased with the progress we have made in
the US technology market and are confident of future success.

Asia Pacific
In Asia Pacific we are developing a profitable venture capital business. Our
South East Asian business continues to expand from its base in Singapore.
Investment activities are focused on the more developed markets of the region
and are split between technology and buy-outs, areas which we believe have the
greatest potential.

Throughout the region, we are anticipating a fast changing business
environment. Our experience in Europe suggests that this is an excellent time
for successful investments. Change is creating opportunity and, during the
year, we have invested in 11 companies. We expect growth in investment levels
again next year.

In Japan, our joint venture with The Industrial Bank of Japan, 3i Kogin
Buyouts, is focused on buy-outs in line with our strategy. The Japanese
economy is undergoing major structural changes and buy-outs have been
identified by the Japanese Government as one of the key methods to achieve
these changes. The business is well advanced, recruiting local expertise to
take advantage of the opportunities that are predicted to result from these
developments.

Future expansion in this region will be greatly assisted by the launch of the
3i Asia Pacific Technology Fund. This US $400 million fund, which includes an
investment of US $100 million from the Government of Singapore's
Technopreneurship Investment Fund (TIF), will focus on ambitious growing
businesses in the telecommunications, information technology, life science and
healthcare sectors.

The fund is well placed to increase our opportunities for investment in
technology companies in the region and the significant commitment by TIF is a
strong endorsement of 3i's expertise in technology investing.

The new fund completed its first investment during the year, a commitment of
S$15 million to SingaTrust, a company providing a range of services for the
semi-conductor industry.

Unquoted funds
Unquoted fund management has become integral to 3i's business and we will add
to these funds where their use can increase the returns to our own
shareholders. We currently manage around £2.3 billion of third party co-
investment funds, which are invested alongside 3i's own capital, normally on a
50:50 basis and typically where 3i would otherwise need to syndicate
investments to competitors. During the year, new funds were launched for
continental Europe and for Asia Pacific. In the UK we increased the size of
the Smaller Buy-out Plan. Most notable was the successful launch of our third
Eurofund which will focus on investments in continental Europe for the first
18 months, before widening its scope to include investments in the UK to
become our first pan European fund. The acquisition of Technologieholding also
increased our funds under management.

Quoted funds
3i Asset Management manages the Group's own £1.8 billion portfolio of quoted
assets (largely built from the IPO (flotation) of our unquoted investments)
and in addition £0.8 billion of third party quoted funds; comprising the
Group's own pension fund and several quoted investment companies, including 3i
Smaller Quoted Companies Trust and 3i UK Select, which focus on smaller UK
companies and on larger UK stocks respectively.

3i Asset Management was appointed Manager of 3i Bioscience Investment Trust
('3i Bioscience') during the year. 3i Bioscience invests in life science and
healthcare companies.

3i European Technology Trust commenced its fundraising in mid-March 2000 and
started investing on 10 April 2000, with an initial capital of £377 million.
This trust invests in quoted companies across Europe which have a significant
focus on technology oriented activities, excluding life sciences.
Financial Review

Highlights
The Group achieved a strong financial performance.

-  Total return of £1.6 billion, a return on opening
   shareholders' funds of 44% and a record for 3i;
   
-  Unrealised value growth of £1.2 billion;
   
-  Net realised profits of £350 million, up 94%;
   
-  Uplift over opening valuation on equity realisations of 83%;
   
-  Investment of £1.4 billion, up 20%;
   
-  Diluted net asset value per share of 847p, up 41%;
   
-  Final dividend of 7.6p recommended by the Directors, making a
   total dividend for the year of 12.2p.


Total return
The principal measure of the Group's financial performance is total return on
opening shareholders' funds which comprises revenue profits, realised capital
profits and unrealised value growth. The record return of 44% has been
achieved through implementing a clear strategy and by a strong performance
from technology investments.

Our UK business continues to account for the major proportion of the Group's
total return, contributing £1,302 million, representing a return of 43%. The
return from continental Europe was £221 million, a return of 46%, before an
adverse currency adjustment resulting from the strengthening of sterling. Our
returns in continental Europe were good overall, with Germany performing
particularly well. Our original joint venture in Japan investing in pre-
flotation ('IPO') businesses contributed the majority of the £109 million
total return in US and Asia Pacific.

In line with market trends, investments in technology based companies,
including those where capital has been provided for start-ups, growth
financing and buy-outs, have generated the majority of the Group's total
return. This amounted to £1.1 billion, with the return from non-technology
based companies amounting to £0.5 billion.

The number of technology investments has risen by 38% to 748 and the portfolio
increased in value from £974 million to £2,379 million. About half of the
unquoted equity technology portfolio continues to be valued at cost in line
with our stated valuation policy. The performance of our buy-out portfolio was
satisfactory given the more difficult environment for companies operating in
traditional industry sectors.

Revenue profit
Revenue profit before tax comprises mainly dividends, interest income and fees
earned less interest costs and administrative expenses.

Revenue profit after tax grew by a satisfactory 4%. Underlying revenue yields
on our investment portfolio have continued to fall as lower yielding
investments have increased. This was offset by an increase in dividends
received on realisations of investments, and by a higher allocation of costs
to the capital reserve.

Fee income was marginally higher than in 1999. Fees from unquoted funds under
management increased as more funds were raised, offset by lower fees generated
from making investments.

Interest expense on net borrowings remained at the same level as last year
with an increase in average net borrowings compensated by lower average
interest rates.

Total administrative expenditure rose by 21% to £135 million. This results
from an increase in staff from 789 to 885 to enhance our capabilities
throughout the business and higher variable remuneration following from the
strong financial performance. Net costs as a percentage of shareholders' funds
were 1.6% (1999: 1.6%).

Realised capital profits
Overall, net realised profits from the sale of quoted and unquoted investments
were strong at £350 million, 94% higher than the profit of £180 million
achieved in 1999.

It was a good year for realisations. Total equity proceeds rose by 55% to £822
million with strong trade sales and sales of quoted investments. Including the
repayment of loans and preference shares, the total cash inflow was £1,162
million. This increase in realisation activity resulted in 17% of the equity
portfolio at March 1999 being realised at an average uplift over valuation of
83%.

Unrealised value growth
The largest component of the Group's total return is unrealised value growth,
which was £1,167 million in the year. This is the change in value of the
portfolio held at the end of the year and comprises three main elements.

Value growth of the portfolio quoted throughout the year was £498 million
resulting mainly from an increase in the valuation of UK technology
investments held at 31 March 1999, which had previously achieved an IPO and
where 3i had retained part of its original investment.

There were 17 IPOs from 3i's unquoted portfolio during the year of which 12
were technology companies, seven of which were floated on the German Neuer
Markt. In addition, nine 3i unquoted companies were taken over or merged with
quoted companies. Value growth on these IPOs and takeovers during the year
amounted to £331 million.

Value growth on the unquoted portfolio, excluding those investments which were
sold, floated or taken over during the year, amounted to £252 million.
Valuation increases resulted from recent investments valued above cost for the
first time, movements in price earnings ratios and from the reported earnings
growth of portfolio companies. Such increases were offset, to a larger extent
than last year, by companies experiencing difficult trading conditions. A
reduction in valuation of £205 million has been made in respect of companies
which we consider may fail compared with an equivalent amount of £100 million
last year. Price earnings ratios used to value the unquoted portfolio
increased from an average of 8.8 to 10.1. Where investee company earnings have
been used as the basis of valuations at both 31 March 1999 and 31 March 2000,
those earnings rose by 7% on average.

Taxation
Profits on the realisations of investments held by 3i Group plc are not
subject to taxation because of its investment trust status. Tax charges for
the year reflect taxes borne by some Group undertakings outside the UK and
withholding taxes on foreign income.

Investment
Investment (including co-investment funds) was £1,376 million. More than 30%
of investment was in continental Europe. 48% of investment was in technology
businesses. Investments in Asia Pacific and the US accounted for £32 million
and £28 million respectively. In addition to Group investments of £1,376
million, £208 million was invested in FTSE 350 companies to provide a
portfolio for liquidity purposes.

Balance sheet and cash flow
There was a net cash outflow of £107 million in the year. Both investment and
realisations were strong. The valuation of the Group's portfolio has increased
by £1.6 billion to £6.2 billion. Largely as a result of this, shareholders'
funds have risen to £5.2 billion, an increase of 44%. This has resulted in the
Group's gearing falling from 29% at March 1999 to 23%. 3i has a strong balance
sheet and has the financial capacity to grow the business in line with our
strategic objectives.

Acquisitions
In February 2000, 3i acquired, for £102 million, Technologieholding GmbH and
an investment in Strategic European Technologies NV. The vendors reinvested
£51 million in 4,927,796 new shares of 3i Group plc. Goodwill, in respect of
the acquisition of Technologieholding GmbH, of £78 million, is being amortised
over its estimated useful life of five years.

Risk management
3i has a comprehensive framework to manage the risks that are inherent in its
business. The main risks comprise treasury risk, investment risk, economic
risk and people risk.

Treasury risk management
The overall funding objective of the Group continues to be that each category
of investment asset is broadly matched with liabilities and shareholders'
funds with corresponding characteristics in terms of risk and maturity. This
overall objective continued to be met during the year to 31 March 2000.

All assets and liabilities are held in a non-trading book and as a result the
Group does not have a trading book. The Group does not trade in derivatives
and does not enter into transactions of either a speculative nature or
unrelated to the Group's investment activities. Derivatives are used only to
manage the risks arising from the Group's investment activities.

The main funding risks faced by the Group are interest rate risk and exchange
rate risk. The level of these risks is mitigated by the overall objective and
the Board regularly reviews and approves policies on the approach to each of
these risks.

3i's policy on exchange rate risk is not generally to hedge its overall
portfolio in continental Europe or the US. In line with its funding policy, a
small proportion of those assets are funded by borrowings in local currency
and as a result a partial hedge exists. 3i's largest exposure is £1.0 billion
in respect of net assets in continental Europe. The level of exposure to
exchange rate risk is reviewed on a periodic basis.

Day-to-day management of treasury activities is delegated to executive
Directors and the Group Treasurer. Regular reports on the Group's funding
position have been considered during the year by a sub-committee of the Board.
In future, these will be considered by the full Board. There has been no
change during the year or since the year end to the major funding risks faced
by the Group, or to the Group's approach to such risks.

Investment risk
This includes investing in companies that may not perform as expected, being
over exposed to one sector of the economy and the portfolio valuation being
mainly based on stock market valuations.

3i's investment criteria focus on management ability and market potential. Due
diligence is undertaken with the assistance of our industry analysts who have
senior management experience in a wide range of industry sectors. All proposed
investments over £5 million are presented to the Group's Investment Committee,
a committee of senior management including all the executive Directors, for
consideration and approval.

3i invests in all sectors of the economy. Management periodically reviews the
portfolio, which is well diversified by industry sector, to ensure that there
is no undue exposure to any one sector.

The valuation of the majority of 3i's equity portfolio is based on stock
market valuations for the relevant industry sector. Quoted investments are
valued using the market price at the balance sheet date. About half of the
unquoted equity portfolio is valued using stock market price earnings ratios
for the relevant industry sector discounted for non marketability.
Accordingly, stock market valuations for individual sectors are an important
factor in determining the valuation of 3i's portfolio and the total return.

While it is not possible to protect against the risk of a downturn in stock
markets generally or in any specific sector, there are regular reviews of
holdings in quoted equities and exposure to individual sectors in order to
monitor the level of risk and mitigate exposure where appropriate.

Economic risk
3i invests mainly in European companies and is expanding its operations
internationally. However, the majority of investment is still in UK companies
and there is an element of exposure to the UK economic cycle. To mitigate
this, 3i has invested in different sectors of the UK economy with varying
economic cycles. In addition, an increasing proportion of assets is invested
in continental Europe and in other international markets, which have different
economic cycles.

People risk
The ability to recruit, develop and retain capable people is an important
factor in achieving the Group's strategic objectives. 3i recognises the need
to remunerate and develop people at all levels of the business. Accordingly,
we adopt a competitive reward structure which is in place throughout the Group
and all staff are encouraged to take advantage of both internal and external
training opportunities.

Millennium risk
The Group has experienced no problems with its systems and equipment. No
material costs were incurred during the year. Similarly, there have been no
significant effects on the Group's investment portfolio.

Change in accounting policy
There has been a change in accounting policy in the year as a result of
adopting Financial Reporting Standard 16 - Current Tax - for the first time.
Dividend income is no longer shown inclusive of attributable tax credits. As
required by Accounting Standards the comparative figures have been changed to
reflect this revised accounting policy. There has been no effect on the
comparative revenue profit after tax or reserves as adopting the revised
policy reduces dividend income and the revenue tax charge by the same amount.

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