Abrdn Di&g Regulatory News (ADIG)

ABERDEEN DIVERSIFIED INCOME AND GROWTH TRUST PLC

Legal Entity Identifier (LEI): 2138003QINEGCHYGW702

Investing across asset classes aiming to deliver dependable income and growth

ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 30 SEPTEMBER 2022

"The Board believes that the Company's strategy, which seeks to provide a dependable quarterly dividend and capital growth from a diversified portfolio, is well positioned to deliver an attractive total return with lower volatility than equities over the medium term."

Davina Walter, Chairman 

"We feel that the Company is well protected in the current environment, and ready to take advantage of growth opportunities when the outlook improves."

Nalaka De Silva, Heather McKay, Simon Fox and Nic Baddeley, abrdn Investments Limited

Performance Highlights

Financial Calendar, Dividends and Highlights

Dividends

Highlights

Strategic Report

Chairman's Statement

During the past financial year, the Company's Net Asset Value ("NAV") and share price experienced steady performance with low volatility up until the end of August, despite a challenging period for global equity and bond markets, so it is disappointing to be reporting a sharp fall in the share price for the year to 30 September 2022, before income is re-invested, all of which occurred in September. September can best be described as a 'perfect storm' for financial markets as the threat of recession combined with the spiralling cost of living crisis as inflation hit highs not seen for many years, and the war in Ukraine shows no end in sight. The final straw for UK markets at the end of September was when the new Prime Minister at the time, Liz Truss, and her Chancellor, Kwasi Kwarteng, announced the now infamous 'mini budget' which produced a sharp sell-off in sterling, UK gilts and equities. During October, following the change of Chancellor and then subsequently Prime Minister, the majority of the previously announced 'mini budget' was reversed which has helped these markets recover to prior levels despite the ongoing challenges. 

Portfolio performance

During our reporting period, which covers the year ended 30 September 2022, the Company's net asset value ("NAV") with debt at fair value, and income reinvested, was +1.2%. During September, as the events mentioned above unfolded, the Company's discount widened in the market sell-off with the result that the share price fell just over 10% over the year ended 30 September 2022; with income re-invested (total return) this still equated to a negative return to shareholders of 5.0%. Since the year end, the turbulence in stock markets has subsided and further information may be found in 'Outlook'.

Since the change of strategy in August 2020, up to 30 November 2022, the Company's NAV total return was 17.6%, with debt at fair value and dividends re-invested, which compares favourably with our return target of 6% per annum; our total return to shareholders, with income re-invested, was 18.5% over the same period. 

Earnings and dividend

A major component of the proposition to investors remains a dependable quarterly dividend; this represented a dividend yield of 6.2% based on the year end share price of 89.8 pence. The Board confirmed, as part of the strategic review, its intention to continue to pay at least the current level of dividend. In addition, during the period while the new private markets' investments continue to grow their contribution to the Company's income, the Board is prepared to use its revenue reserves which have been built up by the Company over many years to support the dividend policy as required. These reserves are the equivalent of two years of the present dividend which should give shareholders a level of comfort regarding regular income payments.

Three interim dividends of 1.40 pence per share were paid to shareholders in March, July and October 2022. The Board declared, on 15 December 2022, a fourth interim dividend of 1.40 pence per share to be paid on 19 January 2023 to shareholders on the register on 23 December 2022. The ex-dividend date is 22 December 2022. Total dividends for the year are 5.60 pence per share. As in previous years, the Board intends to put to shareholders at the Annual General Meeting ("AGM") on 28 February 2023 a resolution in respect of its current policy to declare four interim dividends each year.

Discount management

Despite the increased stability and improved NAV performance achieved since the change in strategy in August 2020, the share price discount to NAV has remained stubbornly wide and at the year end was 23.7% (calculated with debt at fair value and including income). The Board is conscious that further work is required to increase awareness of the strengths and benefits of the revised strategy, which has an increased tilt towards private markets, and is working with the Manager and the Company's broker in this regard. While the Board is unhappy with the current level of the discount, the increased focus on less liquid investments is incongruous with the previous policy which, following a reconstruction in 2017, was stated as 'seeking to maintain the Company's share price discount to NAV (excluding income, with debt at fair value) at less than 5%, subject to normal market conditions'. While market conditions could hardly be described as 'normal' at times over the past couple of years, the Company's limited share buybacks have proved largely ineffective in narrowing the discount in these more volatile markets. Substantial buybacks in pursuit of defending a 5% discount level would not only demonstrably shrink the Company but, more importantly, would have a detrimental impact on the balance sheet and portfolio construction by reducing liquidity available for the Company's unfunded commitments. The Board does not believe this to be in the best interests of shareholders as a whole and, as a consequence, considers that a refinement of the share buyback policy to being investment-led is merited following the revision of the investment strategy.

The Board has reviewed the share buyback policy, working closely with the Manager. The Manager seeks to generate attractive risk adjusted returns by investing in, or committing to, new or existing opportunities, whilst having particular regard to the Company's return target, and taking into account income, predicted cash flows, market risk and liquidity requirements. It is proposed that, subject to overall liquidity needs, available cash may be used under the Company's share buyback authority, granted annually by shareholders, to undertake share buybacks where to do so represents a better prospect of delivering the return objective and long-term shareholder value than that which could be achieved by investing in new opportunities. Shareholders are able to endorse this revised policy, which the Board believes is preferable, being investment-led, by voting in favour of Resolution 15 at the AGM, which gives the Company the authority to buy back its own shares up to a limit of 14.99% of the then issued share capital. Further details on Resolution 15, as well as on Resolution 12 relating to the continuation of the Company, may be found in the Directors' Report.

Treasury shares

The Company bought back 871,424 shares into treasury, at a cost of £864,000, during the year ended 30 September 2022. The Board has agreed that shares bought into treasury will only be re-issued in the event of the share price trading at a premium to the NAV per share as Ordinary shares can be re-issued out of treasury less expensively than new Ordinary shares can be issued. Although shares may be held in treasury indefinitely the Board has adopted a policy such that, in the event that the number of treasury shares represents more than 10% of the Company's issued share capital (excluding treasury shares) at the end of any financial year, the Company will cancel a proportion of its treasury shares such that the remaining balance will equal 7.5% of the issued share capital (excluding treasury shares).

Investment team changes

During the year the Investment Manager has made changes to the team supporting Nalaka De Silva and I am delighted to welcome Heather McKay, Head of Global Active Allocation, and Simon Fox, Senior Investment Director for Global Active Allocation, who will now be working closely with Nalaka and Nic Baddeley. Heather brings considerable experience in strategic asset allocation while Simon, with his client consulting expertise, will support the Company's interaction with shareholders.

Gearing

The Company's net gearing was 2.0% at 30 September 2022 as compared to 3.7% as at 30 September 2021, with the 6.25% 2031 Bonds priced at fair value. The Board continues to keep the overall level of gearing under review but, in the prevailing economic environment, there is no current intention to introduce further gearing.

Board review

As part of its annual board review the Board engaged an experienced board review consultancy to undertake an evaluation of the Board, its committees and individual Directors. Assessments were undertaken by each Director and then discussed by the Board. The evaluation has helped confirm that the Company's Board has in place an appropriate balance of experience, skills, corporate knowledge and gender diversity (60% male, 40% female). Through recent changes to the listing rules boards will be, in future, required to report whether specific targets are met and publish data on the composition of the board by gender and ethnic backgrounds. Currently the Board meets two of the criteria that at least 40% of Directors should be women and at least one senior board position (Chair, CEO, CFO or SID) should be a woman. The Board will use future recruitment opportunities to meet the third criteria of a board member who considers their ethnicity to be other than white or minority white.

Environmental, social and governance ("ESG")

There is no simple answer to sustainable investing and policies that accommodate climate change especially as some of the strongest returns in markets have come from fossil fuel companies on the back of soaring energy prices. It is however very clear that these factors need to be carefully considered and active engagement with companies is required in order to help drive change. Taking account of ESG factors is now an integral part of the investment process at abrdn as well as the ongoing monitoring after investments are included in the portfolio. Equally as important the investment teams undertake constructive engagement with the investments held, in both public and private markets, on ESG issues and related risks. More detail on the approach to ESG can be found in the comments on Socially Responsible Investment Policy in the Overview of Strategy as well as the comments on ESG which are set out in the Manager's Report. The Board continues to review closely the Manager's approach to, and adherence with, its ESG philosophy and policies.

Changes in the allocation of certain expenses between capital and income

The Company has, in recent years, charged the Company's management fee and loan stock financing costs 60% to capital and 40% to revenue. Further to the reshaping of the investment portfolio following the strategic review in 2020, the Board has amended the allocation of these costs to charge 50% to capital and 50% to revenue with effect from 1 October 2022.

Name change

In order to align the Company's name with that of the Manager's business, which has changed to abrdn plc, the Board has resolved to amend the Company's name to abrdn Diversified Income and Growth plc, on or around 31 March 2023. The Company's website will change to abrdndiversified.co.uk. The Company's London Stock Exchange ticker, "ADIG", will remain unchanged.

AGM

This year's AGM is scheduled to be held in the South Place Hotel, 3 South Place, London, EC2M 2AF, from 12.30 p.m. on Tuesday 28 February 2023. The AGM provides shareholders with an opportunity to receive a presentation from the Investment Manager and to ask any questions that they may have of either the Board or the Investment Manager.

The Notice of AGM, which may be found in the published Annual Report, includes Resolution 12 relating to the continuation of the Company. The Board encourages shareholders to vote in favour of the Company's continuation as it believes the Investment Manager's strategy is now well positioned to deliver a dependable quarterly dividend as well as capital growth from its genuinely diversified portfolio consisting of a wide range of assets, each with clear, fundamental performance drivers. 

Outlook

Markets continue to face considerable risks. These include higher inflation rates fuelling a cost of living crisis, economic recession in major economies, rising interest rates and the Russia/Ukraine conflict showing no resolution in sight. Although markets have adjusted to reflect the likely damage to corporate earnings, there is little good news on the horizon to encourage investors back into the markets. The Board, with the Investment Manager, regularly reviews the asset allocation taking into account these heightened risks; and the portfolio does incorporate a degree of inflation-linkage through its infrastructure assets whilst the renewable investments offer a degree of income protection. 

It is encouraging that markets have staged a recovery following the falls witnessed around the Company's year end in September. Throughout this challenging period, the Board believes that the Company's strategy, which seeks to provide a dependable quarterly dividend and capital growth from a globally diversified multi-asset portfolio, is well positioned to deliver an attractive total return with lower volatility than equities over the medium term.

Davina WalterChairman20 December 2022

Overview of Strategy

Investment Objective

The Company seeks to provide income and capital appreciation over the long term through investment in a globally diversified multi-asset portfolio.

Alongside this objective, the Board uses a Total Return (defined as dividends plus change in NAV) of 6% per annum over a rolling five year period against which to measure the returns from the portfolio.

Investment Approach

The Company is an investment trust governed by a Board of Directors with its Ordinary shares listed on the premium segment of the London Stock Exchange. It outsources its investment management and administration to an investment management group, abrdn plc, and other third party providers. The Company does not have a fixed life, but a resolution on whether the Company should continue is put to shareholders at each Annual General Meeting.

The Company invests globally using a flexible multi-asset approach via quoted and unlisted (Private Markets) investments providing shareholders with access to the kind of diversified portfolio held by large, sophisticated global investors.

It offers an attractive investment proposition characterised by:

·  a genuinely diversified portfolio with access to a wide selection of alternative asset classes;

·  an attractive income with the potential to grow;

·  volatility around half that of equities; and

·  the broad resources of abrdn plc.

An appropriate spread of risk is sought by investing in a diversified portfolio of securities and other assets. This includes, but is not limited to:

·  Private Markets, comprising private equity, private credit, real estate, infrastructure, natural resources and unlisted alternatives;

·  Listed Equities (including global equities, European green infrastructure, UK mid-cap equities as well as listed alternatives, such as royalties and litigation finance); and

·  Fixed Income and Credit, comprising global loans, asset backed lending, and emerging/frontier market debt.

Asset allocation is flexible allowing investment in the most attractive investment opportunities at any point in time whilst always maintaining a diversified portfolio. The Company leverages off the spread of capabilities and experience within abrdn plc and may invest in funds managed by the Manager where such allocation can offer requisite exposure to certain alternative asset classes in a cost effective manner.

Investment Policy

The Manager has enhanced its investment approach to meet the requirements of the new investment objective. This has involved extending the proportion of Private Markets investments in the portfolio with new vehicles being introduced. The portfolio will also adopt a core-satellite approach.

With effect from the Company's AGM on 23 February 2021, the Company's shareholders approved a change to the Investment Policy, incorporating the following investment restrictions, at the time of investment, which the Manager must adhere to:

·  no individual quoted company or transferable security exposure in the portfolio may exceed 15% of the Company's total assets, other than in treasuries and gilts;

·  no other individual asset in the portfolio (including property, infrastructure, private equity, commodities and other alternative assets) may exceed 5% of the Company's total assets;

·  the Company will not normally invest more than 5% of its total assets in the unlisted securities issued by any individual company; and

·  no more than 15% of the Company's total assets may be invested in an individual regulated pooled investment fund.

The Company may invest in exchange-traded funds provided they are quoted on a recognised investment exchange. The Company may invest in cash and cash equivalents including money market funds, treasuries and gilts.

No more than 10% of the Company's total assets may be invested in other listed closed-ended investment companies. This restriction does not apply to investments in any such listed closed-ended investment companies which themselves have published investment policies to invest no more than 15% of their total assets in other closed-ended investment companies.

The Company may use derivatives to enhance portfolio returns (of a capital or income nature) and for efficient portfolio management, that is, to reduce, transfer or eliminate risk in its investments, including protection against currency risks.

The Company may use gearing, in the form of borrowings and derivatives, to enhance income and capital returns over the long term. The borrowings may be in sterling or other currencies. The Company's articles of association contain a borrowing limit equal to the value of its adjusted total of capital and reserves. However, borrowings would not normally be expected to exceed 20% of shareholders' funds. Total gearing, including net derivative exposure, would not normally be expected to result in a net economic equity exposure in excess of 120%.

It is the policy of the Company to invest no more than 15% of its gross assets in other listed investment companies and no more than 15% of its gross assets in any one company.

Management and Delivery of the Investment Objective

The Directors are responsible for determining the Company's investment objective and investment policy. Day-to-day management of the Company's assets has been delegated to abrdn Fund Managers Limited (the "Manager"). In turn, the investment management of the Company has been delegated by the Manager to abrdn Investments Limited (the "Investment Manager"). Both companies are subsidiaries of abrdn plc.

Investment Process

The Investment Manager believes that many investors could materially improve their long-run returns and/or reduce risk by having a more diversified portfolio. The Investment Manager's aim is to build a genuinely diversified portfolio consisting of a wide range of assets, each with clear, fundamental performance drivers that will deliver an attractive return for the Company's shareholders. The Investment Manager engages all of its research capabilities, including specialist macro and asset class researchers, to identify appropriate investments. The approach, which incorporates a robust risk framework, is not constrained by a benchmark mix of assets. This flexibility ensures that the Investment Manager does not feel compelled to invest shareholders' capital in investments which they believe to be unattractive.

The Company's portfolio consists of investments from a wide range of asset classes including, but not limited to, Private Markets (such as private equity, private credit, real estate, infrastructure, natural resources and unlisted alternatives), Listed Equities (including global equities, European green infrastructure, UK mid-cap equities as well as listed alternatives, such as royalties and litigation finance) and Fixed Income and Credit (such as global loans, asset backed lending, and emerging/frontier market debt). Detailed investment research (including operational due diligence for unlisted funds managed by third parties) is carried out on each potential opportunity by specialist teams within the Investment Manager.

The weighting ascribed to each investment in the portfolio reflects the perceived attractiveness of the investment case, including the contribution to portfolio diversification. The Investment Manager also ensures that the weighting is in keeping with its overall strategic framework for the portfolio based on the return and valuation analysis of the Investment Manager's Research Institute. The fundamental and valuation drivers of each investment are reviewed on an ongoing basis.

Key Performance Indicators ("KPIs")

The Board uses a number of financial performance measures to assess the Company's success in achieving its objective and determining its progress in pursuing its investment policy. The primary KPIs, all of which are Alternative Performance Measures, are shown in the table below.

Principal Risks and Uncertainties

The Board has in place a robust process to assess and monitor the principal and emerging risks facing the Company. A core element of this is the Company's risk controls self-assessment ("RCSA"), which identifies the risks facing the Company and assesses the likelihood and potential impact of each risk and the quality of the controls in place to mitigate the risk. A residual risk rating is then calculated for each risk based on the outcome of this assessment and plotted on a risk heat-map. This approach allows the effect of any mitigating procedures to be reflected in the final assessment. The RCSA, its method of preparation and the operation of the key controls within the Manager's and third party service providers' systems of internal control are reviewed on a regular basis by the Audit Committee.

In order to gain a more comprehensive understanding of the Manager's and other third party service providers' risk management processes and how these apply to the Company's business, the Manager's internal audit department presents to the Audit Committee setting out the results of testing performed in relation to the Manager's internal control processes. The Audit Committee also periodically receives presentations from the Manager's risk and compliance and internal audit teams and reviews ISAE3402 reports from the Manager and from the Company's Depositary (The Bank of New York Mellon (International) Limited). The custodian is appointed by the Company's Depositary and does not have a direct contractual relationship with the Company.

The Board has carried out a robust assessment of these risks, which include those that would threaten its business model, future performance, solvency or liquidity. The Board is confident that the procedures which the Company has in place are sufficient to ensure that the necessary monitoring of risks and controls has been carried out throughout the year ended 30 September 2022.

The Board is monitoring the increasing political and economic uncertainty which emerged during the year ended 30 September 2022 and could affect markets, particularly the reaction to higher interest rates and the market volatility associated with the conflict in Ukraine.

The Board is also conscious of the elevated threat posed by climate change and continues to monitor, through its Investment Manager, the potential risk that its portfolio investments may fail to adapt to the requirements imposed by climate change further details may be found under 'Market Risk'.

Other than this, the Audit Committee does not consider that the principal risks and uncertainties have changed materially during the year ended 30 September 2022.

The Board regularly reviews emerging risks facing the Company, which are identified by a variety of means, including advice from the Company's professional advisors, the AIC, and Directors' knowledge of markets, changes and events. A failure to have in place appropriate procedures to assist in identifying emerging risks may cause reactive actions and, in the worst case, could cause the Company to become unviable or otherwise fail.

The principal risks associated with an investment in the Company's shares can be found in the pre-investment disclosure document ("PIDD") published by the AIFM, which is available from the Company's website: aberdeendiversified.co.uk

Gearing

As at 30 September 2022, the Company had in place structural gearing in the form of £16,096,000 6.25% Bonds 2031 (the "Bonds"). The Board is responsible for determining the gearing strategy for the Company, with day-to-day gearing decisions being made by the Manager within the remit set by the Board. The Board has set its gearing limit at a maximum of 20% of the net asset value at the time of draw down. The Board monitors the gearing position regularly and considers alternative financing options.

Board Diversity

The Board is fully supportive of all aspects of diversity and the importance of having a range of skilled, experienced individuals with relevant knowledge in order to allow it to fulfil its obligations. Further information may be found on Board Diversity may be found in the Directors' Report.

Promoting the Company

The Board recognises the importance of promoting the Company to prospective investors both for improving liquidity and enhancing the value and rating of the Company's shares. The Board believes an effective way to achieve this is through subscription to, and participation in, the promotional programme (the "Programme") run by abrdn on behalf of a number of investment trusts under its management. The Company's financial contribution to the Programme is matched by abrdn which regularly reports to the Board, including analysis of the effectiveness of the Programme as well as updates on the shareholder register and any changes in the composition of that register.

The purpose of the Programme is both to communicate effectively with existing shareholders and to gain new shareholders with the aim of improving liquidity and enhancing the value and rating of the Company's shares. Communicating the long-term attractions of the Company is key and therefore the Company also supports abrdn's investor relations programme which involves regional roadshows, promotional and public relations campaigns. 

Environmental, Social and Human Rights Issues

The Company has no employees as the Board has delegated the day to day management and administrative functions to the Manager. There are therefore no disclosures to be made in respect of employees. The Company's socially responsible investment policy is set out below and the Board maintains oversight and retains responsibility for the policy.

Socially Responsible Investment Policy

The Directors review the Manager's policy that encourages companies in which investments are made to adhere to best practice in the area of corporate governance and socially responsible investing. They believe that this can best be achieved by entering into a dialogue with company management to encourage them, where necessary, to improve their policies in both areas. The Manager's ultimate objective, however, is to deliver superior investment returns for its clients. Accordingly, whilst the Manager will seek to favour companies which pursue best practice in these areas, this should not be to the detriment of the return on the investment portfolio. Further details on the Manager's Environmental, Social and Governance ("ESG") engagement process, including a case study, can be found in the Investment Manager's Report.

UK Stewardship Code and Proxy Voting as an Institutional Shareholder

Responsibility for actively monitoring the activities of portfolio companies has been delegated by the Board to the Manager which has sub-delegated that authority to the Investment Manager. The full text of the Manager's response to the FRC's Stewardship Code 2020 may be found on its website.

Modern Slavery Act

Due to the nature of the Company's business, being an investment company that does not offer goods and services to customers, the Board considers that it is not within the scope of the Modern Slavery Act 2015 because it has no turnover. The Company is therefore not required to make a slavery and human trafficking statement.

However, the Board maintains oversight of its third party suppliers and considers that, as these comprise predominantly professional advisers and service providers in the financial services industry, the risk is likely to be low in relation to this matter.

Global Greenhouse Gas Emissions

The Company has no greenhouse gas emissions to report from its operations, nor does it have responsibility for any other emissions producing sources under the Companies Act 2006 (Strategic Report and Directors' Reports) Regulations 2013. However, at the portfolio level, the Manager engages on environmental issues with underlying investments as part of its ESG policy.

Viability Statement

In accordance with the provisions of the UKLA's Listing Rules and the FRC's UK Corporate Governance Code, the Directors have assessed the prospects of the Company over a longer period than the 12 months required by the "Going Concern" provision. The Board conducted this review for the period up to the AGM in 2028, being a five year period from the date of shareholders' approval of this Report. The five year review period was selected because it is aligned with the medium term performance period of five years over which the Company is assessed in relation to its investment objective to seek to provide income and capital appreciation over the long term through investment in a globally diversified multi-asset portfolio. The Board considers that this period reflects a balance between looking out over a long term horizon and the inherent uncertainties of looking out further than five years.

In assessing the viability of the Company over the review period, the Directors have focused upon the following factors:

·  the principal risks and uncertainties identified and the steps taken to mitigate these risks;

·  the relevance of the Company's investment objective and investment policy, in the current yield environment, which targets a truly diversified multi-asset approach to generate highly attractive long-term income and capital returns;

·  the proportion of the Company's investment portfolio is invested in securities which are realisable within a short timescale;

·  the Company's reduced cash outflows due to lower interest payments following the repurchase of the Bonds;

·  the annual continuation vote to be put to shareholders at the AGM on 28 February 2023; and

·  the level of demand for the Company's shares.

The five-year review considers the Company's cash flow, cash distributions and other key financial ratios over the period. The five-year review also makes certain assumptions about the normal level of expenditure likely to occur and considers the impact on the financing facilities of the Company.

In making this assessment, the Board has considered in particular the potential longer term impact of a large economic shock, a period of increased stock market volatility and/or markets at depressed levels, a significant reduction in the liquidity of the portfolio or changes in investor sentiment or regulation, and how these factors might affect the Company's prospects and viability in the future. The Board undertook scenario analysis in reaching its conclusions, but recognised that the Company's operating expenses are significantly lower than its total income.

The Board has also considered a number of financial metrics, including:

·  the level of current and historic ongoing charges incurred by the Company;

·  the share price discount to NAV;

·  the level of income generated by the Company;

·  future income forecasts; and

·  the liquidity of the Company's portfolio.

Considering the liquidity of the portfolio and the largely fixed overheads which comprise a small percentage of net assets, the Board has concluded that, even in exceptionally stressed operating conditions, the Company would be able to meet its ongoing operating costs as they fall due.

Taking into account the Company's current position and the potential impact of its principal risks and uncertainties, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due for a period of five years from the date of this Report, subject to shareholders' approval of the continuation vote at each AGM, noting the level of comprehensive support given at the last AGM.

Outlook

The Board's view on the general outlook for the Company can be found in the Chairman's Statement under "Outlook" while the Investment Manager's views on the outlook for the portfolio are included in its report.

On behalf of the BoardDavina WalterChairman20 December 2022

Promoting the Success of the Company

The Board is required to report how it has discharged its duties and responsibilities under section 172 of the Companies Act 2006 during the year under review. Under this requirement, the Directors have a duty to promote the success of the Company for the benefit of its members (shareholders) as a whole, taking into account the likely long term consequences of decisions, the need to foster relationships with the Company's stakeholders, and the impact of the Company's operations on the environment. In addition, the Directors must act fairly between shareholders and be cognisant of maintaining the reputation of the Company.

The Purpose of the Company and Role of the Board

The purpose of the Company is to act as a vehicle to provide, over time, financial returns (both income and capital) to its shareholders. Investment trusts, such as the Company, are long-term investment vehicles and are typically externally managed, have no employees, and are overseen by an independent non-executive board of directors.

The Board, which during the year comprised five independent non-executive Directors with a broad range of skills and experience across all major functions that affect the Company, retains responsibility for taking all decisions relating to the Company's investment objective and policy, gearing, corporate governance and strategy, and for monitoring the performance of the Company's service providers.

The Board's philosophy is that the Company should operate in a transparent culture where all parties are treated with respect as well as the opportunity to offer practical challenge and participate in positive debate which is focused on the aim of achieving the expectations of shareholders and other stakeholders alike. The Board reviews the culture and manner in which the Manager operates at its regular meetings and receives regular reporting and feedback from the key service providers. 

The Company's main stakeholders are its shareholders, the Manager, investee companies and funds, service providers and the holders of the Company's Bonds.

How the Board Engages with Stakeholders

The Board considers its stakeholders at Board meetings and receives feedback on the Manager's interactions with them

Specific Examples of Stakeholder Consideration During the Year

While the importance of giving due consideration to the Company's stakeholders is not new, and is considered as part of every Board decision, the Directors were particularly mindful of stakeholder considerations during the following decisions undertaken during the year ended 30 September 2022.

Independent evaluation of the Board

In July 2022, the Company engaged Lintstock Ltd to undertake an independent external evaluation of the effectiveness of the Board. Further information may be found in the Directors' Report.

Dividends Paid to Shareholders

The level, frequency and timing of dividends paid are key considerations for the Board, taking into account net earnings for the year and the Company's objective of providing shareholders with dependable income and capital appreciation over the long term through investment in a globally diversified multi-asset portfolio.

The total dividends per share of 5.60p in respect of the Year, representing an increase of 1.4% on the prior year, and the Company's dividend policy to make four equal to shareholders throughout the year, reflects this.

Share Buy Backs

During the Year the Company bought back 871,424 Ordinary shares to be held in treasury, providing a small accretionto the NAV and a degree of liquidity to the market at times when the discount to the NAV per share had widenedduring normal market conditions. The Board is of the view that the proposed investment-led policy around share buybacks remains in the best interests of all shareholders.

Performance and Results

Performance (total return)

Ten Year Financial Record

Investment Manager's Process

Investment Manager's Process

Risk management is embedded in the Investment Manager's process. The approach is based around four pillars: Diversification principles, Risk models, Scenario analysis and Peer review. In addition, liquidity risk is also actively monitored, both by the Investment Manager and via regular independent stress tests. 

Further detail on each of the pillars is provided below:

·  Diversification principles

The Investment Manager believes that diversification is a necessary element of any robust multi-asset portfolio, reducing portfolio volatility in the short term and reducing the reliance on any one asset class over the medium to long-term. Diversification benefits arise from the range of assets that are considered within the Company's portfolio; the longer-term modelling that is used to establish the strategic framework; and they are also actively considered as part of the day to day decision making for the portfolio. The Investment Manager seeks to ensure that there is not a disproportionate exposure or contribution to portfolio risk from any one asset class or investment.

·  Risk models

The second pillar of the risk management approach is the use of quantitative risk models. Although the Investment Manager acknowledges that risk models can have their limitations, it believes that they are a valuable input into the broader process. In particular, they can provide an efficient, clear and objective view on the portfolio's risk exposures at any given time

·  Scenario analysis

While the risk models include certain historic stress test scenarios in their analysis, it is important to also consider how investments in the portfolio might be expected to behave in various hypothetical scenarios. The scenario analysis harnesses both the experience of the investment team and the broader insights gained from across abrdn. From this analysis, the Investment Manager is seeking to gain comfort that the potential risk of, and impact from, any given scenario is acceptable. This helps to ensure that the portfolio is resilient to the wide range of scenarios that might play out over time.

·  Peer review

To ensure that the Investment Manager is capturing the best ideas within the portfolio, the investment process has been designed to source views from across the business and reflect back its own insights. On a formal basis, the peer review process also includes oversight from a monthly meeting of the Investment Manager's Diversified Asset Review Group as well as input from abrdn's independent risk team and liquidity stress tests undertaken by the dealing desk.

Investment Manager's Report

Markets over the last twelve months have been volatile and tough to navigate for many investors. This time last year, the main topic of conversation was whether inflation was transitory or more permanent. Inflation is still the number one factor driving markets, but the debate has moved on to how high for how long, and how appropriate central banks' responses have been.

Alongside rising interest rates, there have been additional shocks including a significant strengthening of the US dollar, political instability in the UK, China's zero Covid-19 policy and military conflict in Ukraine, each buffeting markets and providing little relief for investors, resulting in a traditional portfolio, comprising 60% in equities and 40% in bonds, on track for its worst performance since 1936.

As inflation continued above target, central banks had to respond fast and hard, led by the US Federal Reserve which has raised its base rate 3% in 6 months. Global government bonds have lost considerable capital value as a result, but the drive to combat inflation via higher rates has also had a significant impact on other risk assets as well.

Investors in floating rate credit (both public and private) were partly protected from the direct impact in higher rates, given their link to interest rates. But credit spreads in general have risen, and there is an indirect impact of higher yields on default risk, both of which mean capital values have still reduced.

Equity markets also provided little respite for investors, as central bank action increased the likelihood of an economic slowdown or recession. Towards year end in many sectors companies started reducing their profit forecasts for the coming years, to reflect the more pessimistic outlook. Countering this trend, of course, were energy stocks globally as countries, particularly in Europe, secured and stored supplies ahead of winter, given shutdowns in pipelines from Russia.

In Private Markets, the global economic outlook had varying impacts. While private equity deal activity declined in the second half of 2022, across Europe quarter-over-quarter deal value was down 31.6% and deal count was down by 9.6% (Source: Pitchbook, October 2022) as the external headwinds impacted private equity. However, despite this, opportunities across sectors such as IT still exist as long-term trends of digitalisation and tech innovation are still areas of growth. Within infrastructure, power generating assets and investments with inflation linked revenues provided positive returns as inflation forecasts were sequentially lifted, and power prices, particularly in Europe, spiked. The returns generated by power producing assets has brought them under the microscope of law makers, with windfall taxes and price caps mooted. In terms of transactions, we saw a slowdown in activity globally across H2 2022. Deal volume fell to $185.4bn across 701 deals from $255.1bn across 800 transactions in Q3 2021 (Source: Inframation, October 2022) . However, activity did vary across sectors as transport and telecommunication sectors proved resilient with deal count increasing across both. Overall opportunity still exists with infrastructure assets potentially offering better protection against inflation than other assets.

In real estate, the increasing cost of debt financing is impacting all sectors of the asset class, with many Real Estate Investment Trusts trading at wide discounts to NAV in anticipation of lower valuations. The speed of the cost of debt shifts have also disrupted transactional activity for commercial property, particularly in the UK. Indices of residential valuations are falling in the US, Sweden, and Australia amongst other countries, as previously red-hot housing markets cooled rapidly in response to sharp increases in mortgage costs. Given the recession starting in Q4 this year and stretching into 2023, capital values are likely to decline. It is vital to focus on quality as long-term sector fundamentals are unchanged.

A diversified, simplified strategy and a stable portfolio

Against this difficult backdrop, the Company has managed to preserve capital and pay out income, with a NAV total return (including income, with debt measured at fair value) of 1.2%. While this is below the stated return target of 6% annualised on a five year rolling basis, it demonstrates the portfolio's robustness and diversification in a highly testing environment.

Through building a well-diversified portfolio of investments, including a substantial exposure to infrastructure and real assets, the Company has responded well to the inflationary pressures that have dominated the markets during the last year. The Company has been able to take a long-term view regarding how economies will evolve, supported by the breadth of research and investment capabilities across the abrdn franchise. The goal of delivering a suite of diversified returns is achievable due to the latitude of the mandate, and it has been pleasing to see the defensive core of the portfolio play its role.

The task from here is to maintain the resilience of the portfolio to the challenges posed by the current environment. The investment strategy seeks to achieve diversification across asset classes within a simplified framework under three main headings: Private Markets, Fixed Income & Credit, and Listed Equities. Exposure to the broad expertise of abrdn across these asset classes, including approximately 350 Private Markets-focused investment professionals, allows the Company to allocate to best in class opportunities, both internally and externally.

Private markets

During the year, the Company's Private Markets exposure increased from 44% to 55%, as commitments to previously made investments were drawn by managers. The largest draw down was into Bonaccord Capital Partners I (BCP I), which buys stakes in private markets asset managers and pays out income from said managers' fee-related earnings. BCP I called 75% of the capital the Company had committed, and has a current weight of 4.1% in the portfolio vs 0.1% at the start of the year. A significant amount of capital was also called by the abrdn Andean Social Infrastructure Fund I (ASIF I) to fund the building of a new port in Colombia and two hospitals in Mexico, the latter leased to the Mexican government. This moved the ASIF I exposure up 1.9% to 3.4% of total investments over the year.

The Private Markets basket was the largest driver of positive returns, contributing +4.8% over the year. Most sub-asset classes were positive, but returns were driven mostly by Infrastructure. The core infrastructure positions in the Company's portfolio have in place long term revenue contracts with inflation linkage built in, so the current inflationary environment has been positive for their cashflows and valuations, allowing the Company to deliver steady performance through a time of inflationary and volatile markets.

The largest single driver of performance was in the Aberdeen Global Infrastructure Partners Fund II, where the value of the I-77 toll road asset in the US was up 40%. The asset uses dynamic pricing, and was able to charge a significantly higher price for use of the road than anticipated in the base case. Overall, AGIP II contributed 1.4% to the Company's NAV performance. There was also positive performance from the SL Capital Infrastructure II fund, which contributed 0.8% as Central European Renewable Investments, which is the largest portfolio of solar energy assets in Poland, increased in value in response to power prices, while the other assets including a fleet of trains in the UK, also grew in value due to their revenues' contracted linkage to inflation. Finally, within infrastructure, the BlackRock Renewable Income UK fund also grew in value, as the market price for energy in the UK increased.

While the current level of inflation was not our base case coming into the year, the Company is diversified with multiple drivers of returns, of which inflation linkage has been the largest driver this year. The Private Markets portfolio has a unique set of long-term drivers which may not be easily accessed elsewhere, and forms part of the reason why we believe the Company is well placed to generate long term attractive returns for shareholders.

In the future, we expect to maintain the proportion of the Company's portfolio in Private Market investments at around current levels as these specialist managers identify attractive opportunities which can be funded from the maturation of existing Private Market investments. We anticipate that there will be £5 million of additional net investments into the current Private Market investments over the next 12 months with future investments slightly outweighing capital returned.

Case studies

Aberdeen Global Infrastructure Partners II

AGIP II invests in public private partnerships in the US and Australia, with a portfolio of assets including Perth Stadium, a group of eight schools in Western Australia, Canberra Light Railway, and a series of express lanes on the I-77 into Charlotte, North Carolina. The Q1 2022 valuation for the I-77 toll road was marked up significantly, driving 1.4% of NAV gain at the Company level. The increase in valuation was due to a significantly higher forecast of revenue over the life of the project. The express lanes are managed travel lanes that run adjacent to the I-77 original general purpose lanes. There are 11 segments, and motorists are able to decide at each one whether they want to join or exit the lanes. The toll road has the ability to change price every 5 minutes to reflect changing demand aimed at maintaining a 48mph minimum speed at all times. The toll rates are varied based on real time traffic conditions throughout the entire corridor, and uses electric gating with ANPR cameras to monitor use and automatically bill customers. Based on driver behaviour over the first years of the asset life, the average price that can be charged per mile is $0.42, versus the previous assumption of $0.31.

SL Capital Infrastructure Fund II

SLCI II invests in core economic infrastructure projects in the UK and Europe. The portfolio contains district heating assets in Finland, a fleet of trains leased for use in the UK, a network of liquid bulk storage facilities in Germany, a growing broadband cable network in the UK, and the largest portfolio of operational solar farms in Poland. Over the last 12 months, SLCI II has contributed 0.8% to Company performance.

The largest driver of performance in this fund was the portfolio of solar farms in Poland, known as Central European Renewable Investment (CERI). The portfolio is spread throughout Poland, with a concentration in the west, and north-east of the country. Performance was driven by strong production in H1 2022, namely favourable weather conditions in March, with high levels of irradiation combined with low temperatures. Weather conditions were also supportive in May and June. The Russian invasion of Ukraine had a significant impact on energy markets, and while revenues are underpinned by Poland's contract for difference regime, CERI has been able to capture some of the upside associated with the elevated power price environment. The contract for difference regime should shield the portfolio from any adverse effects should there be a sudden reversal in power prices trends.

Fixed income & credit

Fixed Income & Credit weight was reduced over the year to fund the Private Market investments, with the allocation towards Junior ABS reduced and switched partly into Mezzanine ABS to reduce the impact of a potential recession, and a trim to Emerging Market bonds as our internal research group moved the outlook from overweight to neutral.

Fixed Income & Credit contributed -1.4% to performance. All sub-asset classes had negative contributions, with the exception of the Global Loans portfolio which was flat. The largest detractor was TwentyFour Asset Backed Opportunities. TwentyFour, which invests in UK and European residential mortgage backed securities and collateralised loan obligations, saw growth in its dividend pay-out due to the floating rate nature of its investments, however, concerns around future defaults caused by high interest costs meant that its share price declined. Other negatives in the portfolio were the Russian bonds within the Emerging Market bonds portfolio. While we had been reducing weight to this exposure at the start of 2022 due to increased military activity on the border with Ukraine, we did not have invasion as a base case, and so were left with a small position which was written down to zero value due to the sanctions applied to Russia. We were able to exit this position at the end of the year at a value above zero, clawing back some performance.

Listed equities

The proportion of the portfolio in Listed Equities (including the Listed Alternatives portfolio reported on separately in the previous Annual Report) was reduced from 45% to 38% over the year as we sold holdings to fund certain Private Markets investments. The principal funding source was the UK Mid-Cap Equity Fund, which was reduced over the year, but then fully exited in early September due to the headwinds facing the UK economy. This proved prescient, as the poorly received "mini-budget" announced by the then new Chancellor Kwasi Kwarteng at the end of September caused market turmoil which outweighed its intended growth agenda. We also reduced exposure to the global sustainable core equity sub-fund due to the pessimistic near-term economic outlook.

Listed Equities contributed -2.0% to performance. At a sub-asset class level, most sectors delivered negative performance over the last 12 months, with the exception of the listed infrastructure basket, which contributed 0.7%. The top performing names in this basket were the wind and solar energy production names as wholesale market prices increased, boosting revenue streams. There were some headwinds at the end of the year as gilts rose, reducing their valuations, but the basket ended the year in positive territory which was pleasing.

ESG factors as part of risk management

ESG considerations form a key part of our investment analysis and decision making when making new investments. In Private Markets we consider the following ESG factors: environment, social capital, human capital, business models and leadership & governance. These factors are considered throughout the investment process from the point of idea generation, through to portfolio construction, implementation, monitoring and risk management. Key issues are identified and scored over time through the use of our systematic ESG analysis framework (based on the Sustainable Accounting Standards Board Framework) which identifies key materiality issues by sector. Investments are then scored across operational and governance dimensions which encompass elements including climate change, labour management, corporate behaviour and corporate governance, and these scores then inform investment decision-making.

Expected revenue return per share versus dividends per share

As we have moved through the portfolio transition, we have made use of the Company's revenue reserves to cover the planned slight shortfall in income received versus dividends paid out this year. Revenue reserves are a feature of investment companies which allow them to withhold a proportion of annual income which can be drawn upon in the future, as required.

Outlook

The global economy continues to face many headwinds, which is likely to lead to a deeper and earlier global recession than previously forecast. The UK and EU economies are facing a commodity price induced real income squeeze, amplified by central bank actions. We expect interest rate hikes from the US Federal Reserve, the European Central Bank and the Bank of England, as they seek to control inflation. To a degree, markets have already responded to this uncertainty: equity valuations are cheaper and credit spreads wider than they were at the start of the year - as such, many asset classes look more attractive now on a 5-year view. However, the compounding effects of these various shocks will mean that the investment environment will remain volatile and we may see further weakness across asset classes in the shorter-term. In this respect, the Company should benefit from the diversified public private nature of its investment policy.

Firstly, this provides a wide universe in which to invest, meaning we are able to access niche areas where there is idiosyncratic growth. Secondly, this allows the Company to access Private Markets investments that have the potential to deliver returns in excess of those available from public markets. Finally, there is the income generation capability that we expect to be available from holdings in Fixed Income & Credit, where good quality assets are available at prices which imply a high dividend pay-out. 

While fundraising has reduced in the second half of the year, there already exists a high level of cash available to be invested in Private Markets (also known as 'dry powder'). While we expect a lower level of private equity transactions, there will still be competition for quality assets. However, the specialist managers working on behalf of the Company have a history of targeting selected direct and indirect opportunities to capture the growth potential, and have demonstrated positive performance over the volatile period of the last 12 months. Further market dislocation could also provide good entry points for the managers in the Company's portfolio who have money to invest still, boosting returns over the longer term.

Investor appetite for infrastructure remains stable, especially for social and economic infrastructure where there is potential for long-term, inflation-linked contracts providing yield and inflation protection. In addition, as the world goes through the energy transition, demand for climate and renewable infrastructure is ever increasing, remaining supportive of investment opportunities in this space.

In Private Credit, we believe that there will be opportunities for private financing as companies face a slightly tighter lending environment. However, the quality of deals remains crucial, as company earnings are reduced, the ability to cover interest payments is tested, and default levels increase. 

Within real estate, residential markets are expected to come under strain with mortgage burdens weighing on consumers. However, a reduction in mortgage affordability will mean that many people will remain in rented accommodation, to the benefit of the Build To Rent sector to which the Aberdeen European Residential Opportunities Fund is looking to sell its assets into. The focus on any further investments in this sector remains on assets with the highest conviction and long-term securely contracted income. 

The Company has a good degree of protection for the current inflationary environment as evidenced by the pockets of positive performance over the last 12 months. The Company has a reasonably high weighting to infrastructure and real estate assets, both within its Private Markets and Public exposures. Were we to see inflation continue to be persistent, we would expect these assets to keep contributing positively. In addition, the portfolio is exposed to floating rate credit instruments across Private Markets, Fixed Income & Credit with a focus on quality, which should benefit in a rising interest rate environment. That being said, we continue to monitor market conditions closely, and are prepared to rotate the portfolio as appropriate to the changing situation.

Finally, the specialist investments in vehicles such as Healthcare Royalty Partners IV and Burford Opportunity Fund (litigation finance) have demonstrated their low correlation with the business cycle and economic climate, and we expect these holdings to continue to provide steady returns with upside potential in the future. Ultimately, we feel that the Company is well protected in the current environment, and ready to take advantage of growth opportunities when the outlook improves.

Nalaka De Silva, Head of Private Markets Solutions

Heather McKay, Head of Global Active Allocation

Simon Fox, Investment Director

Nic Baddeley, Investment Manager

abrdn Investments Limited

Investment Manager20 December 2022

Portfolio

The portfolio consists of a wide range of assets managed by specialist teams within abrdn and also selected third party managers. Some of these investments are longer term in nature and are not otherwise readily available to private investors.

Ten Largest Investments

As at 30 September 2022

Private Markets Investments

Fixed Income & Credit Investments

Listed Equities

Net Assets Summary

Manager's ESG Engagement

The Manager does not judge the suitability of an investment from an ESG perspective on a purely binary basis. Instead, a dynamic approach is taken, investing in companies where the greatest alignment to mitigating the risks can be seen or pursued further through their commitment to improving their ESG profile. The Manager believes in active engagement with its investments and potential investments: from providing initial guidance on suitable metrics through to holding the company to account for delivering on its promises. It is through this filter that the Manager is comfortable investing in, for example, sectors such as mining and oil & gas, subject to the belief that a company is taking the necessary action to address the energy transition. The Manager has high expectations for these companies given that many commodities are necessary for the transition to a low carbon future.

Core beliefs: Assessing Risk, Enhancing Value

There are three core principles which underpin the Investment Manager's integrated ESG approach. Firstly, ESG factors can materially impact financial returns and the long term success of the investment strategy. Secondly, by integrating ESG factors into investment decisions the Investment Manager generates a better understanding of how well companies are managing ESG risks and opportunities and this insight supports better decision making. Finally, active engagement with company management teams is central to enhancing value and a standard part of the Investment Manager's ongoing stewardship programme.

Responsible Investing - Integration of ESG into the Investment Manager's Process

"By embedding ESG factors into the active equity investment process, we aim to reduce risk, enhance potential value for investors and foster companies that can contribute positively to the world." abrdn

"We believe that the market systematically undervalues the importance of ESG factors. We believe that in-depth ESG analysis is part of both fundamental company research and portfolio construction and will lead to better client outcomes." abrdn

Researching Companies: Deeper Company Insights for Better Investor Outcomes

The Investment Manager's portfolio managers, sector analysts, ESG equity analysts and central ESG Investment Team collaborate to generate a deep understanding of the ESG risks and opportunities associated with each company. The central ESG team also produces research into specific themes (e.g. labour relations or climate change), sectors (e.g. forestry) and ESG topics to understand and highlight best practice.

Global Networks: Working Together on Climate Change

The Investment Manager is a signatory to the UN Principles for Responsible Investment and actively collaborates on ESG issues with global asset managers and asset owners. Climate change is a particular area of focus because the physical and transition risks related to climate change have the potential to be financially material for many companies. The Investment Manager has been actively involved in initiatives such as Climate Action100+ and Institutional Investors Group on Climate Change ("IIGCC") Net Zero Framework and also supports the Task Force on Climate Related Disclosures ("TCFD") which aims to strengthen climate related reporting globally. Portfolio Management Team

ESG House Score

· Responsibility of ESG analyst

· Based on quantitative data

· Incorporates abrdn's views on materiality and sector specific risks

· Uses wide range of data sources including MSCI, Trucost, voting analysis and abrdn's investment insights

· Aims to be forward looking

ESG Investment Team

· Global insights

· Thematic research

· Co-ordination across asset classes 

Equity ESG Quality Score

· Responsibility of portfolio manager and sector analysts

· Based on fundamental bottom up analysis of individual companies by on-desk analysts

· Assesses the ESG quality of companies

· Reflective of equity analyst expertise

· Incorporates engagement with companies on ESG issues

Listed Equities

ESG Research Process: Introduction

The Investment Manager employs around 150 equity professionals globally. A systematic and globally-applied approach to evaluating stocks allows the Investment Manager to compare companies consistently on their ESG credentials - both regionally and against their peer group. The Investment Manager uses a combination of external and proprietary in-house quantitative scoring techniques to complement and cross-check analyst-driven ESG assessments. ESG analysis is peer-reviewed within the equities team, and ESG factors impacting both sectors and stocks are discussed as part of the formal sector reviews.

ESG House Score

The ESG House Score is produced by the ESG Equity Analysts. The ESG House Score framework has two main pillars which include detailed operational and governance metrics. The underlying key performance indicators are weighted according to how material they are for each sector and country and populated from proprietary and external data sources such as MSCI and Trucost. The scores are standardised to allow the Investment Manager to see how individual companies rank in a global context. These scores complement the fundamental analysis of the equity analysts and the ranking of companies from Laggards to Best in Class. 

Equity ESG Quality Score

The Investment Manager's equity sector analysts have a fully integrated approach to ESG analysis. Within the equity investment process, every company is given a proprietary Quality Rating which has five components: industry analysis, business model analysis, analysis of the company's moat or competitive advantage, consideration of ESG factors, assessment of management and analysis of financials. In considering the ESG Quality Score the analyst considers these key questions:

·  Which ESG issues are relevant for this company, how material are they, and how are they being addressed?

·  What is the assessment of the quality of this company's governance, ownership structure and management?

·  Are incentives and key performance indicators aligned with the company's strategy and the interests of shareholders?

Having considered the regional universe and peer group in which the company operates, the Investment Manager's equity team then allocates it an ESG Quality rating between one and five (see below). This is applied across every stock that the Investment Manager covers globally. To be considered 'best in class', the management of ESG factors must be a material part of the company's core business strategy; management must provide excellent disclosure of data on key risk; management must also have clear policies and strong governance structures, among other criteria.

Working with Companies: Staying Engaged, Driving Change

The Investment Manager continuously monitors and actively engages with the companies in which it invests to maintain ESG focus and improvement. This stewardship of client's assets consists of four interconnected and equally important activities by the Investment Manager to monitor, contact, engage and act. 

The Investment Manager actively and regularly engages with the management teams of companies in which they are invested in order to share examples of best practice seen in other companies and to effect positive change. The Investment Manager also actively engages with management teams to explain voting decisions at company annual general meetings.

The Investment Manager's engagement extends beyond the company's management team and can include many other stakeholders such as non-government agencies, industry and regulatory bodies, as well as activists and the company's clients.

Priorities for engagement are established by the use of the ESG House Score, in combination with bottom-up research insights from investment teams across asset classes, and areas of thematic focus from our company-level stewardship activities. What gets measured gets managed, so the Investment Manager strongly encourages companies to set clear targets or key performance indicators on all material ESG risks.

There are three core principles which underpin the Investment Manager's investment approach (shown below) and the time it dedicates to ESG analysis as part of its overall fundamental equity research process:

· ESG factors are financially material, and impact corporate performance

· Understanding ESG risks and opportunities alongside other financial metrics allows us to make better investment decisions

· Informed and constructive engagement helps foster better companies, enhancing the value of our clients' investments

As part of their company research, our stock analysts evaluate the ownership structures, governance and management quality of the companies they cover. They also assess potential environmental and social risks that the companies may face. These insights are captured in our company research notes.

Our stock analysts work closely with dedicated ESG specialists who sit within each regional investment team and provide industry-leading expertise and insight at the company level. These specialists also mediate the insights developed by our central ESG investment team to the stock analysts, as well as interpret and contextualise sector and company insights.

Our central ESG investment team provides thought leadership, thematic and global sector insights, as well as event-driven research. The team is also heavily involved in the stewardship of our investments and supports company engagement meetings where appropriate.

How the Investment Manager embeds ESG into its Investment Process

Investment Insight

· High quality fundamental and first hand research

· Assessment of ESG for all stocks under coverage

Active Ownership

· Engage and vote with aim of improving financial resilience and investment performance

· Raise standards in companies and industries we invest in, and help drive industry best practice

Risk & Monitoring

· Combine in-house and external scoring to inform view

· Active tracking of portfolio holdings against ESG objectives

Our People

· Over 130 equity professionals, and 40+ central and on-desk ESG specialists across the world

Directors' Report

The Directors present their report and the audited financial statements for the year ended 30 September 2022.

Results and Dividends

The financial statements for the year ended 30 September 2022 may be found below. The Company's revenue return was 4.99p per share for the year ended 30 September 2022 (2021 - 5.14p).

First, second and third interim dividends, each of 1.40p per Ordinary share, were paid on 31 March 2022, 14 July 2022 and 20 October 2022, respectively.

The Directors are declaring a fourth interim dividend of 1.40p per Ordinary share payable on 19 January 2023 to shareholders on the register on 23 December 2022. The ex-dividend date is 22 December 2022. The Company intends to pay four interim dividends each year and, in line with corporate governance best practice, a resolution in respect of this dividend policy will be put to shareholders at each Annual General Meeting.

Investment Trust Status

The Company is registered as a public limited company in Scotland under number SC003721 and is an investment company within the meaning of Section 833 of the Companies Act 2006. The Company has been approved by HM Revenue & Customs as an investment trust subject to it continuing to meet the relevant eligibility conditions of Section 1158 of the Corporation Tax Act 2010 and the ongoing requirements of Part 2 Chapter 3 Statutory Instrument 2011. The Directors are of the opinion that the Company has conducted its affairs for the year ended 30 September 2022 so as to enable it to comply with the ongoing requirements for investment trust status.

Individual Savings Accounts

The Company has conducted its affairs in such a way as to satisfy the requirements as a qualifying security for Individual Savings Accounts. The Directors intend thatthe Company will continue to conduct its affairs inthis manner.

Capital Structure and Voting rights

The issued Ordinary share capital at 30 September 2022 consisted of 308,447,314 Ordinary shares (2021 - 309,318,738) with voting rights and 29,304,492 Ordinary shares (2021 - 28,433,068) held in treasury. A total of 871,424 Ordinary shares were bought back into treasury during the year ended 30 September 2022 (2021 - 8,011,500). A total of 297,076 Ordinary shares were bought back into treasury between 1 October 2022 and the date of approval of this Annual Report resulting in 308,150,238 Ordinary shares in issue, with voting rights, and 29,601,568 Ordinary shares in treasury.

In the event of the share price trading at a premium to the NAV per share, Ordinary shares can be re-issued out of treasury less expensively than new Ordinary shares can be issued. Although shares may be held in treasury indefinitely the Board is mindful of the total number of shares held and has, therefore, decided to adopt a policy (the "Policy") such that, in the event that the number of treasury shares represents more than 10% of the Company's issued share capital (excluding treasury shares) at the end of any financial year, the Company will cancel a proportion of its treasury shares such that the remaining balance will equal 7.5% of the issued share capital (excluding treasury shares). The Company's policy is to cancel treasury shares, on 30 September each year, to ensure that the number of shares in treasury represents no more than 10% of the Company's issued share capital (excluding treasury shares). As the treasury shares represented 9.5% of the issued share capital (excluding treasury shares) as at 30 September 2022, no additional treasury shares were cancelled.

Each Ordinary share (excluding treasury shares) holds one voting right and shareholders are entitled to vote on all resolutions which are proposed at general meetings of the Company. The Ordinary shares, excluding treasury shares, carry a right to receive dividends. On a winding up or other return of capital, after meeting the liabilities of the Company, the surplus assets will be paid to Ordinary shareholders in proportion to their shareholdings.

There are no restrictions on the transfer of Ordinary shares in the Company other than certain restrictions which may from time to time be imposed by law.

Management Agreement

The Company has appointed the Manager, a wholly-owned subsidiary of abrdn plc, as its alternative investment fund manager.

The Manager has been appointed to provide investment management, risk management, administration and company secretarial services as well as promotional activities. The Company's portfolio is managed by the Investment Manager by way of a group delegation agreement in place between the Manager and Investment Manager. In addition, the Manager has sub-delegated administrative and secretarial services to abrdn Holdings Limited and promotional activities to abrdn Investments Limited.

The Manager charges a monthly fee at the rate of one-twelfth of 0.50% on the first £300 million of NAV and 0.45% of NAV in excess of £300 million. In calculating the NAV, the 6.25% bonds due 2031 are valued at fair value. The value of any investments in ETFs, unit trusts, open ended and closed ended investment companies and investment trusts of which the Manager, or another company within the abrdn plc group is the operator, manager or investment adviser, is deducted from net assets. Details of the management fee charged during the year are included in note 4 to the financial statements.

The management agreement has in place a six months' notice period. In the event of termination by the Company on less than the agreed notice period, compensation is payable to the Manager in lieu of the unexpired notice period.

Corporate Governance

The Statement of Corporate Governance, which forms part of the Directors' Report, may be found below.

Directors

As at the date of this Report, the Board consisted of a non-executive Chairman and four non-executive Directors, all of whom served throughout the year ended 30 September 2022. Tom Challenor was Senior Independent Director and Chairman of the Audit Committee.

Board Diversity

The Board recognises the importance of having a range of skilled, experienced individuals with the right knowledge represented on the Board in order to allow it to fulfil its obligations. The Board also recognises the benefits and is supportive of, and will give due regard to, the principle of diversity in its recruitment of new Board members. The Board will not display any bias for age, gender, race, sexual orientation, socio-economic background, religion, ethnic or national origins or disability in considering the appointment of Directors. The Board will continue to ensure that all appointments are made on the basis of merit against the specification prepared for each appointment. The Board will take account of the targets set out in the FCA's Listing Rules, which are set out below.

The Board voluntarily discloses the following information in relation to its diversity.

The FCA has identified senior board positions as comprising the chair, senior independent director ("SID"), a chief executive officer ("CEO") or a chief financial officer ("CFO"). As an externally managed investment company, the Board employs no executive staff and therefore appoints neither a CEO nor a CFO. Instead, the Board considers the Chair of the Audit Committee to be a senior board position and the following disclosure is made on this basis. Although Tom Challenor is appointed as both SID and Chairman of the Audit Committee, these positions are recognised separately resulting in three senior board positions for the Company; Chairman, SID and Chairman of the Audit Committee.

The Board has resolved that the Company's year end date be the most appropriate reference date for disclosure purposes. There have been no changes between 30 September 2022 and the date of approval of this report. The following information has been provided by each Director.

Board diversity as at 30 September 2022

The Role of the Chairman and Senior Independent Director

The Chairman is responsible for providing effective leadership to the Board, by setting the tone of the Company, demonstrating objective judgement and promoting a culture of openness and debate. The Chairman facilitates the effective contribution, and encourages active engagement, by each Director. In conjunction with the Company Secretary, the Chairman ensures that Directors receive accurate, timely and clear information to assist them with effective decision-making. The Chairman leads the evaluation of the Board and individual Directors, and acts upon the results of the evaluation process by recognising strengths and addressing any weaknesses. The Chairman also engages with major shareholders and ensures that all Directors understand shareholder views.

The Senior Independent Director acts as a sounding board for the Chairman and acts as an intermediary for other Directors, when necessary. Working closely with the Nomination Committee, the Senior Independent Director takes responsibility for an orderly succession process for the Chairman, and leads the annual appraisal of the Chairman's performance. The Senior Independent Director is also available to shareholders to discuss any concerns they may have. Tom Challenor is the Senior Independent Director.

Board Committees

The Board has appointed a number of Committees, as set out below. Copies of their terms of reference, which define the responsibilities and duties of each Committee, are available on the Company's website, or upon request from the Company. The terms of reference of each of the Committees are reviewed and re-assessed by the Board for their adequacy on an ongoing basis.

Audit Committee

The Audit Committee's Report is contained in the published Annual Report.

Management Engagement Committee

The Management Engagement Committee consists of all the Directors and was chaired by Davina Walter throughout the year. The terms and conditions of the Manager's appointment, including an evaluation of performance and fees, are reviewed by the Committee on an annual basis. The Committee also keeps under review the resources of abrdn plc, together with its commitment to the Company and its investment trust business. In addition, the Committee conducts an annual review of the performance, terms and conditions of the Company's key third party suppliers, by undertaking peer comparisons and reviewing reports from the Manager and the Depositary.

The Board conducts a formal annual evaluation of the performance of, and contractual relationship with, the Manager and those third parties appointed by the Manager. The evaluation includes consideration of the investment strategy and process of the Manager, noting performance against the benchmark over the long term and the quality of the support that the Company receives from the Manager. The Board confirms that it is satisfied that the continuing appointment of the Manager, on the terms agreed, is in the interests of shareholders as a whole.

Nomination Committee

The Nomination Committee consists of all the Directors and was chaired by Davina Walter throughout the year. The Committee reviews the effectiveness of the Board, succession planning, Board appointments, appraisals, training and the remuneration policy. As stated in the Directors' Remuneration Report, the Nomination Committee determines the level of Directors' fees and there is no separate remuneration committee.

The Directors attended scheduled meetings of the Board and Board Committees during the year ended 30 September 2022 as set out in the table (with their eligibility to attend the relevant meetings in brackets). The Directors meet more regularly when business needs require. In addition, there were ad hoc Committee meetings when not all Directors were required to attend.

The names, biographies and contribution of each of the current Directors are shown in the published Annual Report and indicate their range of skills and experience as well as their length of service.

An external evaluation was undertaken in August 2022 by Lintstock Ltd, an independent external board evaluation service provider which has no other connection with the Company.

Assisted by Lintstock Ltd, the Board has assessed that it had in place the appropriate balance of skills, experience, length of service and knowledge of the Company while recognising the advantages of diversity. Details of the individual contribution provided by each Director during the year are set out in the published Annual Report.

Potential new Directors are identified against the requirements of the Company's business and the need to have a balance of skills, experience, independence, diversity and knowledge of the Company within the Board.

Each Director has the requisite high level and range of business and financial experience which enables the Board to provide clear and effective leadership and proper governance of the Company.

In line with best practice in corporate governance, all Directors offer themselves for election or re-election at the AGM. Davina Walter, Tom Challenor, Trevor Bradley, Anna Troup and Alistair Mackintosh each retire and, being eligible, each submits themselves for re-election at the AGM. The Board believes that all current Directors remain, and all Directors during the year ended 30 September 2022 were, and continue to be, independent of the Manager and free from any relationship which could materially interfere with the exercise of their judgement on issues of strategy, performance, resources and standards of conduct. In addition, the Board confirms that each Director demonstrates commitment to the role and their performance remains effective which supports their individual contribution to the role.

The Board therefore recommends, for approval by shareholders, the resolutions for the individual re-election as Directors at the AGM of each of Davina Walter, Tom Challenor, Trevor Bradley, Anna Troup and Alistair Mackintosh. Directors' and Officers' Liability Insurance

The Company's Articles of Association indemnify each of the Directors out of the assets of the Company against any liabilities incurred by them as a Director of the Company in defending proceedings, or in connection with any application to the court in which relief is granted. In addition, the Directors have been granted qualifying indemnity provisions by the Company which are currently in force. Directors' and Officers' liability insurance cover has been maintained throughout the year at the expense of the Company.

Management of Conflicts of Interest

The Board has a procedure in place to deal with a situation where a Director has an actual or potential conflict of interest. As part of this process, each Director prepares a list of other positions held and all other conflict situations that may need to be authorised either in relation to the Director concerned or his or her connected persons. The Board considers each Director's situation and decides whether to prevent or manage any conflict, taking into consideration what is in the best interests of the Company and whether the Director's ability to act in accordance with their duties is affected. Each Director is required to notify the Company Secretary of any potential, or actual, conflict situations that will need authorising by the Board. Authorisations given by the Board are reviewed at each Board meeting.

No Director has a service contract with the Company although all Directors are issued with letters of appointment. There were no contracts during, or at the end of the year, in which any Director was interested.

The Board takes a zero-tolerance approach to bribery and has adopted appropriate procedures designed to prevent bribery. The Manager also takes a zero-tolerance approach and has its own detailed policy and procedures in place to prevent bribery and corruption.

Going Concern

The Financial Statements of the Company have been prepared on a going concern basis. This conclusion is consistent with the Company's longer term Viability Statement.

The Directors are mindful of the principal risks and uncertainties and have reviewed forecasts detailing revenue and liabilities. The Directors are satisfied that: the Company is able to meet all of its liabilities from its assets, including its ongoing charges, so possesses sufficient resources to continue in operational existence for the foreseeable future and at least 12 months from the date of approval of this Annual Report; the Company is financially sound; and the Company's key third party service providers had in place appropriate business continuity plans.

While the Company is obliged to hold a continuation vote at the 2023 AGM, as ordinary resolution 12, the Directors do not believe this should automatically trigger the adoption of a basis other than going concern in line with the Association of Investment Companies ("AIC") Statement of Recommended Practice ("SORP") which states that it is usually more appropriate to prepare financial statements on a going concern basis unless a continuation vote has already been triggered and shareholders have voted against continuation.

Substantial Interests

As at 30 September 2022, the following interests over 3% in the issued Ordinary share capital of the Company had been disclosed in accordance with the requirements of the FCA's Disclosure Guidance and Transparency Rules:

Relations with Shareholders

The Directors place great importance on communication with shareholders and regularly meet with current and prospective shareholders to discuss performance, including in the absence of the Manager. The Board receives quarterly investor relations updates from the Manager. Significant changes to the shareholder register, as well as shareholder feedback, are discussed by the Directors at each Board meeting.

Regular updates are provided to shareholders through the Annual Report, Half Yearly Report, monthly factsheets and daily net asset value announcements, all of which are available through the Company's website at: aberdeendiversified.co.uk. The Annual Report is also widely distributed to other parties who have an interest in the Company's performance. Shareholders and investors may obtain up-to-date information on the Company through its website or via abrdn Investment Trusts Customer Services Department.

The Board's policy is to communicate directly with shareholders and their representative bodies without the involvement of the management group (either the Company Secretary or abrdn) in situations where direct communication is required and representatives from the Board offer to meet with major shareholders on an annual basis in order to gauge their views. The Company Secretary acts on behalf of the Board, not the Manager, and there is no filtering of communication. At each Board meeting the Board receives full details of any communication from shareholders to which the Chairman responds, as appropriate, on behalf of the Board.

In addition, in relation to institutional shareholders, members of the Board may either accompany the Manager or conduct meetings in the absence of the Manager.

The Company's Annual General Meeting ordinarily provides a forum, both formal and informal, for shareholders to meet and discuss issues with the Directors and Investment Manager. The Notice of AGM included within the Annual Report is normally sent out at least 20 working days in advance of the meeting.

Criminal Finances Act 2017

The Criminal Finances Act 2017 introduced a corporate criminal offence of "failing to take reasonable steps to prevent the facilitation of tax evasion". The Board has confirmed that it is the Company's policy to conduct all of its business in an honest and ethical manner. The Board takes a zero tolerance approach to facilitation of tax evasion, whether under UK law or under the law of any foreign country.

Accountability and Audit

The responsibilities of the Directors and the auditor in connection with the financial statements appear below and in the published Annual Report.

Each Director confirms that, so far as they are aware, there is no relevant audit information of which the Company's auditor is unaware, and they have taken all the steps that they could reasonably be expected to have taken as Directors in order to make themselves aware of any relevant audit information and to establish that the Company's auditor is aware of that information.

Annual General Meeting

The Annual General Meeting will be held at 12.30 p.m. on 28 February 2023 at the South Place Hotel, 3 South Place, London, EC2M 2AF. The Notice of the Meeting is included in the published Annual Report. Resolutions including the following business will be proposed:

Continuation of the Company (Resolution 12)

In accordance with Article 175 of the Articles of Association of the Company adopted by shareholders on 23 February 2021, the Directors are required to propose an ordinary resolution at each AGM, that the Company continue as an investment trust. Accordingly, the Directors are proposing, as ordinary resolution 12, that the Company continues as an investment trust and recommend that shareholders support the continuation of the Company.

Allotment of Shares (Resolution 13)

Resolution 13 will be proposed as an ordinary resolution to confer an authority on the Directors, in substitution for any existing authority, to allot up to 10% of the issued Ordinary share capital of the Company (excluding treasury shares) as at the date of the passing of the resolution (up to a maximum aggregate nominal amount of £7.7m based on the number of Ordinary shares in issue as at the date of this Report) in accordance with Section 551 of the Companies Act 2006. The authority conferred by this resolution will expire at the next Annual General Meeting of the Company or, if earlier, 31 March 2024 (unless previously revoked, varied or extended by the Company in general meeting).

The Directors consider that the authority proposed to be granted by resolution 13 is necessary to retain flexibility.

Limited Disapplication of Pre-emption Provisions (Resolution 14)

Resolution 14 will be proposed as a special resolution and seeks to give the Directors power to allot Ordinary shares or to sell Ordinary shares held in treasury (see below) (a) by way of a rights issue (subject to certain exclusions); (b) by way of an open offer or other offer of securities (not being a rights issue) in favour of existing shareholders in proportion to their shareholdings (subject to certain exclusions); and (c) to persons other than existing shareholders for cash up to a maximum aggregate nominal amount representing 10% of the Company's issued Ordinary share capital as at the date of the passing of the resolution (up to an aggregate nominal amount of £7.7m based on the number of Ordinary shares in issue as at the date of this Report), without first being required to offer such shares to existing shareholders pro rata to their existing shareholding.

This power will expire at the conclusion of the next Annual General Meeting of the Company or, if earlier, 31 March 2024 (unless previously revoked, varied or extended by the Company in general meeting).

The Company may buy back and hold shares in treasury and then sell them at a later date for cash rather than cancelling them. Such sales are required to be on a pre-emptive, pro rata basis to existing shareholders unless shareholders agree by special resolution to disapply such pre-emption rights. Accordingly, in addition to giving the Directors power to allot unissued Ordinary share capital on a non pre-emptive basis, resolution 14 will also give the Directors power to sell Ordinary shares held in treasury on a non pre-emptive basis, subject always in both cases to the limitations noted above. Pursuant to this power, Ordinary shares would only be issued for cash, and treasury shares would only be sold for cash, at a premium to the net asset value per share (calculated after the deduction of prior charges at market value). Treasury shares are explained in more detail under the heading "Market Purchase of the Company's own OrdinaryShares" below.

Market Purchase of the Company's own Ordinary Shares (Resolution 15)

Resolution 15 will be proposed as a special resolution to authorise the Company to make market purchases of its own Ordinary shares. The Company may do either of the following things in respect of its own Ordinary shares which it buys back and does not immediately cancel but, instead, holds in treasury:

·  sell such shares (or any of them) for cash (or its equivalent); or

·  ultimately cancel the shares (or any of them).

Treasury shares may be resold quickly and cost effectively. No dividends will be paid on treasury shares and no voting rights attach to them.

The Manager seeks to generate attractive risk adjusted returns by investing in, or committing to, new or existing opportunities, whilst having particular regard to the Company's return target, and taking into account income, predicted cash flows, market risk and liquidity requirements. It is proposed that where such opportunities are limited due to market conditions, then subject to overall liquidity needs, available cash may be used under the Company's share buyback authority, granted annually by shareholders, to purchase Ordinary shares of the Company, where to do so represents a better opportunity to deliver long-term shareholder value without disrupting the overall portfolio. 

Shareholders have the opportunity to endorse this revised policy, which the Board believes is better being investment-led, by voting in favour of Resolution 15 which gives the Company the authority to buy Ordinary shares up to a maximum of 14.99% of the issued Ordinary share capital of the Company (excluding treasury shares) as at the date of the passing of the resolution (approximately 46 million Ordinary shares). The minimum price which may be paid for an Ordinary share is 25p (exclusive of expenses). The maximum price (exclusive of expenses) which may be paid for the shares is the higher of a) 5% above the average of the middle market quotations of the Ordinary shares (as derived from the Daily Official List of the London Stock Exchange) for the shares for the five business days immediately preceding the date of purchase; and b) the higher of the price of the last independent trade and the highest current independent bid on the main market for the Ordinary shares.

This authority, if conferred, will expire at the conclusion of the next Annual General Meeting of the Company or, if earlier, on 31 March 2024 (unless previously revoked, varied or extended by the Company in general meeting) and will be exercised only if it would result in an increase in net asset value per Ordinary share for the remaining shareholders and if it is in the best interests of shareholders as a whole.

Holding General Meetings on not less than 14 days' clear notice (Resolution 16)

Under the Companies Act 2006, the notice period for all general meetings of the Company is 21 clear days' notice. Annual general meetings will always be held on at least 21 clear days' notice but shareholders can approve a shorter notice period for other general meetings. Resolution 16, which is a special resolution, seeks the authority from shareholders for the Company to be able to hold general meetings (other than Annual General Meetings) on not less than 14 clear days' notice. The approval will be effective until the Company's next Annual General Meeting, when it is intended that a similar resolution will be proposed. The Company will also need to meet the requirements for electronic voting under the Companies Act 2006 (as amended by the Shareholders' Rights Regulations) before it can call a general meeting on not less than 14 days' clear notice.

The Board believes that it is in the best interests of Shareholders to have the ability to call meetings on not less than 14 clear days' notice should an urgent matter arise. The Directors do not intend to hold a general meeting on less than 21 clear days' notice unless immediate action is required.

This power will expire at the conclusion of the next Annual General Meeting of the Company or, if earlier, 31 March 2024 (unless previously revoked, varied or extended by the Company in general meeting).

Recommendation

The Directors consider that the resolutions to be proposed at the Annual General Meeting are in the best interests of the Company and its shareholders and recommend that shareholders vote in favour of the resolutions as they intend to do in respect of their own beneficial shareholdings, amounting to 271,202 Ordinary shares, representing 0.1% of the issued share capital (excluding treasury shares).

By order of the Boardabrdn Holdings LimitedCompany Secretary1 George StreetEdinburgh EH2 2LL

20 December 2022

Statement of Corporate Governance

Aberdeen Diversified Income and Growth Trust plc (the "Company") is committed to high standards of corporate governance. The Board is accountable to the Company's shareholders for good governance and this statement describes how the Company has applied the principles identified in the UK Corporate Governance Code as published in July 2018 (the "UK Code"), which is available on the Financial Reporting Council's (the "FRC") website: frc.org.uk, and is applicable for the Company's year ended 30 September 2022.

The Board has also considered the principles and provisions of the AIC Code of Corporate Governance as published in February 2019 (the "AIC Code"). The AIC Code addresses the principles and provisions set out in the UK Code, as well as setting out additional provisions on issues that are of specific relevance to the Company. The AIC Code is available on the AIC's website: theaic.co.uk.

The Board considers that reporting against the principles and provisions of the AIC Code, which has been endorsed by the FRC, provides more relevant information to shareholders.

The Board confirms that, during the year, the Company has complied with the principles and provisions of the AIC Code and the relevant provisions of the UK Code, except for those provisions relating to:

·  the role and responsibility of the chief executive;

·  executive directors' remuneration; and

·  the requirement for an internal audit function.

The Board considers that these provisions are not relevant to the position of the Company being an externally managed investment company. In particular, all of the Company's day-to-day management and administrative functions are outsourced to third parties. As a result, the Company has no executive directors, employees or internal operations. The Company has therefore not reported further in respect of these provisions.

Information on how the Company has applied the AIC Code, the UK Code, the Companies Act 2006 and the FCA's DTR 7.2.6 is provided in the Directors' Report and Audit Committee's Report as follows:

·  the composition and operation of the Board and its Committees are detailed in the Directors' Report and in the Audit Committee's Report;

·  the Board's policy on diversity is the Directors' Report;

·  the Company's approach to internal control and risk management is detailed in the Audit Committee's Report in the published Annual Report;

·  the contractual arrangements with, and annual assessment of, the Manager are set out in the Directors' Report;

·  the Company's capital structure and voting rights are summarised in the Directors' Report;

·  the substantial interests disclosed in the Company's shares are listed in the Directors' Report;

·  the rules concerning the appointment and replacement of Directors are contained in the Company's Articles of Association and are summarised in the Directors' Remuneration Report. There are no agreements between the Company and its Directors concerning compensation for loss of office; and

·  the powers to issue or buy back the Company's ordinary shares, which are sought annually, and any amendments to the Company's Articles of Association require a special resolution (75% majority) to be passed by shareholders and information on these resolutions may be found in the Directors' Report.

By order of the Boardabrdn Holdings LimitedCompany Secretary1 George StreetEdinburghEH2 2LL

20 December 2022

Directors' Remuneration Report

This Directors' Remuneration Report comprises three parts:

i. a Remuneration Policy, which is subject to a binding shareholder vote every three years, or sooner if varied during this interval; most recently approved by shareholders at the AGM on 26 February 2020 where 99.1% of the votes were cast in favour of the relevant resolution while 0.9% were cast against; the Remuneration Policy is due to be put to shareholders, as resolution 2, at the AGM on 28 February 2023;

ii. an Implementation Report which is subject to an advisory vote on the level of remuneration paid during the year; and

iii. an Annual Statement.

The law requires the Company's auditor to audit certain of the disclosures provided in the Directors' Remuneration Report. Where disclosures have been audited, they are indicated as such. The auditor's opinion is included in their report in the published Annual Report.

Remuneration Policy

The Directors' Remuneration Policy is determined by the full Board, chaired by Davina Walter, and a separate Remuneration Committee has not been established.

The Board's policy is that the remuneration of non-executive Directors should be sufficient to attract and retain the Directors needed to oversee the Company properly and to reflect its specific circumstances. The remuneration should also reflect the nature of the Directors' duties, responsibilities, the value of their time spent and be fair and comparable to that of other investment trusts that are similar in size, and have similar capital structures and similar investment objectives.

Fees paid to the directors of companies within the Company's peer group are also taken into account and the Company Secretary provides the Directors with relevant comparative information.

The policy also provides that the Chairman of the Board and of each Committee may be paid a fee which is proportionate to the additional responsibilities involved in that position. In order to avoid conflicts of interest, each Director absents themselves from the consideration of their own fee. There were no changes to the Directors' Remuneration Policy during the year nor are there any proposals for changes in the foreseeable future.

No communications were received from shareholders regarding Directors' remuneration during the year.

Limits on Directors' Remuneration

Directors' fees are set within the limits of the Company's Articles of Association which limit the aggregate fees payable to the Board of Directors per annum. The current limit is £300,000 per annum which may only be increased by shareholder ordinary resolution.

The level of fees for the years ended 30 September 2022 and 2021 is set out in the following table. Fees are reviewed annually and increased, if considered appropriate.

Appointment

·  The Company only intends to appoint non-executive Directors.

·  All the Directors are non-executive and are appointed under the terms of Letters of Appointment.

·  Directors must retire and be subject to election at the first Annual General Meeting after their appointment, and be subject to re-election at least every three years thereafter. Notwithstanding this, the Board has agreed that all Directors shall retire and, if eligible, stand for re-election at each AGM.

·  Any Director newly appointed to the Board will receive the fee applicable to each of the other Directors at the time of appointment together with any other fee then currently payable in respect of a specific role which the new Director is to undertake for the Company.

·  No incentive or introductory fees will be paid to encourage a person to become a Director.

·  Directors are not eligible for bonuses, pension benefits, share options, long term incentive schemes or other benefits.

·  Directors are entitled to re-imbursement of out-of-pocket expenses incurred in connection with the performance of their duties, including travel expenses, which are considered to be taxable expenses.

·  The Company indemnifies its Directors for all costs, charges, losses, expenses and liabilities which may be incurred in the discharge of duties as a Director of the Company.

Performance, Service Contracts, Compensation and Loss of Office

·  The Directors' remuneration is not subject to any performance related fee.

·  No Director has a service contract.

·  No Director was interested in contracts with the Company during the period or subsequently.

·  The terms of appointment provide that a Director may be removed without notice.

·  Compensation will not be due upon leaving office.

·  No Director is entitled to any other monetary payment or any assets of the Company.

·  Directors' and Officers' liability insurance cover is maintained by the Company on behalf of the Directors.

·  It is the Board's intention that this RemunerationPolicy applies for the three years to 30 September 2025.

Implementation Report

Review of Directors' Fees

The level of Directors' fees was last revised with effect from 1 October 2021. The Board carried out a review of Directors' annual fees during the Year by reference to inflation, as measured by the increase of 8.6% in the Consumer Prices Index (including owner occupiers housing costs) for the year to August 2022 and taking account of peer group comparisons by sector and by market capitalisation. Accordingly, it was concluded that Directors' fees would change, with effect from 1 October 2022, to the following rates per annum: £48,400 (Chairman), £35,400 (Audit Committee Chairman), £32,100 (Senior Independent Director) and £29,900 for each other Director.

Company Performance

The graph below shows the share price return (assuming all dividends are reinvested) to Ordinary shareholders compared to a 6% total return over the ten year period ended 30 September 2022 (rebased to 100 at 30 September 2012). This index was chosen for comparison purposes as it is the objective used for investment performance measurement purposes.

Statement of Voting at General Meeting

At the Company's last AGM, held on 22 February 2022, shareholders approved, as Resolution 2, the Directors' Remuneration Report (other than the Directors' Remuneration Policy) in respect of the year ended 30 September 2021. 

The proxy votes shown in the following table were received on the Resolution:

Spend on Pay

As the Company has no employees, the Directors do not consider it meaningful to present a table comparing remuneration paid to employees with distributions to shareholders. The total fees paid to Directors are shown in the table.

Audited Information

Directors' Interests in the Company

The Directors are not required to have a shareholding in the Company. The Directors (including their connected persons) at 30 September 2022 and 30 September 2021 had no interest in the share capital of the Company other than those interests, all of which are beneficial, shown in the following table. In addition, no Director had any interest in the Company's 6.25% Bonds 2031 during the year under review or up to and including the date of approval of this Report.

There have been no changes to the Directors' interests in the share capital of the Company since 30 September 2022 up to the date of approval of this Report other than the purchase by Tom Challenor of a total of 288 shares on 20 and 24 October 2022, in relation to dividend reinvestment.

Fees Payable

The Directors who served during the year received the following fees, which exclude employers' National Insurance contributions. Fees are pro-rated where a change takes place during a financial year. There were no payments to third parties included in the fees referred to in the table. All fees are at a fixed rate and there is no variable remuneration. Taxable benefits refer to travel costs associated with Directors' attendance at Board and Committee meetings.

Audited Information

Directors' Remuneration

The Directors received the following remuneration in the form of fees and taxable expenses:

Taxable expenses refer to amounts claimed by Directors for travelling to attend meetings. The above amounts exclude any employers' national insurance contributions, if applicable. Due to Covid-19, there were no taxable expenses claimed by Directors in the year ended 30 September 2021. All fees are at a fixed rate and there is no variable remuneration. Fees are pro-rated where a change takes place during a financial year. No payments were made to third parties. There are no other fees to disclose as the Company has no employees, chief executive or executive directors.

Tom Challenor succeeded Julian Sinclair as Senior Independent Director on 4 June 2021 and is paid a composite annual fee, incorporating his position as Chairman of the Audit Committee; this was equivalent to annual fees of £34,700 for the year ended 30 September 2022 (2021 - £34,000). With effect from 1 October 2022, Tom Challenor's composite annual fee will be £37,700.

Annual Percentage Change in Directors' Remuneration

The table below sets out, for the Directors who served during the Year, the annual percentage change in Directors' fees for the past three years.

Annual Statement

On behalf of the Board and in accordance with Part 2 of Schedule 8 of the Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013, it is confirmed that the above Remuneration Report summarises, as applicable, for the year ended 30 September 2022:

·  the major decisions on Directors' remuneration;

·  any substantial changes relating to Directors' remuneration made during the year; and

·  the context in which the changes occurred and decisions have been taken, including management of any potential conflicts of interest arising and reflected any feedback from shareholders.

Davina WalterChairman 20 December 2022

Statement of Directors' Responsibilities

The Directors are responsible for preparing the Annual Report and the financial statements, in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with UK Accounting Standards, including FRS 102 'The Financial Reporting Standard Applicable in the UK and Republic of Ireland'.

Under Company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. 

In preparing these financial statements, the Directors are required to: 

·  select suitable accounting policies and then apply them consistently; 

·  make judgments and estimates that are reasonable and prudent;

·  state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and 

·  prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities. 

Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Statement of Corporate Governance that comply with that law and those regulations. 

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website but not for any information on the website that has been prepared or issued by third parties. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

We confirm that to the best of our knowledge:

·  the financial statements have been prepared in accordance with applicable accounting standards and give a true and fair view of the assets, liabilities, financial position and profit of the Company;

·  in the opinion of the Directors, the Annual Report taken as a whole, is fair, balanced and understandable and it provides the information necessary to assess the Company's position and performance, business model and strategy; and

·  the Strategic Report and Directors' Report include a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that the Company faces.

On behalf of the Board,Davina WalterChairman20 December 2022

Statement of Comprehensive Income

Statement of Financial Position

Statement of Changes in Equity

Statement of Cash Flows

Notes to the Financial Statements

For the year ended 30 September 2022