Martin Currie Global Portfolio Trust Regulatory News (MNP)

Martin Currie Global Portfolio Trust plc

Legal Entity Identifier: 549300RKB85NFVSTBM94

Half-yearly report - six months to 31 July 2022

A copy of the Half-yearly report for the six months to 31 July 2022 has been submitted to the National Storage Mechanism and will shortly be available for inspection.

A copy of the Half-yearly report can be downloaded at www.martincurrieglobal.com.

FINANCIAL HIGHLIGHTS

Past performance is not a guide to future returns. All returns are total returns unless otherwise stated.

Source: Martin Currie Investment Management.

1Total return is the combined effect of the rise and fall in the share price, net asset value or benchmark together with any dividend paid. See the Half-yearly report for more details on Alternative Performance Measures.

2The net asset value per share total return is calculated using the cum income net asset value with dividends reinvested on the ex-dividend date. This is an Alternative Performance Measure, see the Half-yearly report for more details.

3Ongoing charges (as a percentage of shareholders' funds) are calculated using average net assets over the period. The ongoing charges figure has been calculated in line with the Association of Investment Companies ('AIC') recommended methodology. This is an Alternative Performance Measure, see the Half-yearly report for more details.

4For details of calculation, refer to note 3 in the Half-yearly report.

INTERIM MANAGEMENT REPORT

CHAIRMAN'S STATEMENT

Investment Performance

The first six months of our 2022/23 financial year were highly challenging for investors in global equities. Inflation, already a burgeoning problem as a result of measures to counter the pandemic, was exacerbated by the 'supply shock' caused by the Russian invasion of Ukraine. The prospect of inflation being higher, and for a longer period, than previously expected by most market commentators has led to governments and central banks raising interest rates - in some cases for the first time in many years. Geopolitical events, high inflation and rising interest rates led to a sell-off in equity markets and the share prices of the growth companies which our portfolio manager favours came under pressure, resulting in a net asset value ('NAV') total return of -8.8% and a share price total return of -7.6%. In comparison, the benchmark total return was -1.0%.

This result is naturally disappointing. The portfolio manager has remained true to an investment philosophy focused on companies selected for their potential for long-term growth, backed by a resolute focus on ESG credentials. As described in the Manager's Review, the companies in which we have invested in general, with a few exceptions, continue to perform well at the operational level.

Reduced fees

The reduction in NAV as a result of market movements and share buybacks led the Board to be concerned that the ongoing charges ratio was increasing. We agreed with the manager that, with effect from 1 July 2022, the investment management fee would be amended to 0.45% of net assets1 per annum. Previously, the investment management fee was 0.5% per annum for the first £300m of the Company's net assets1 and 0.35% for net assets1 in excess of £300m. Furthermore, with effect from 1 July 2022, there will no longer be a separate company secretarial fee1.

At the current net assets1 of circa £250m, the combined effect of the cut in ad valorem fee and removing the company secretarial fee amounts to a reduction of approximately 14% in annual fees and results in a simpler cost structure. The Board is confident that the new structure provides a competitive ongoing charge and contributes positively to increasing shareholder value. We would like to thank the manager for a helpful and constructive approach to this change.

Revenue and dividends - a flexible approach

The primary focus of the portfolio manager is on capital growth but the Board acknowledges feedback from shareholders on the importance of dividends and has maintained a consistent annual dividend since 2017.

At the annual general meeting ("AGM") held in June this year, shareholders approved amendments to the Company's Articles of Association which now allow for the distribution of realised capital profits by way of dividend. The Board believes that removing the previous restriction on distributing realised capital profits offers the Company more flexibility in its use of reserves, while facilitating the payment of an appropriate dividend and without constraining the portfolio with an income target. As I noted in the last Annual Report, there is no intention to change the current dividend policy.

Dividends are paid quarterly and in recent years the Company has paid three interim dividends of 0.9 pence per share and a fourth interim dividend of 1.5 pence per share for each financial year. The Company paid a first interim dividend for the current financial year of 0.9 pence per share on 29 July 2022 and will pay a second interim dividend of 0.9 pence per share on 28 October 2022, maintaining the same level as the last financial year. Net revenue earnings for the half-year were 1.39 pence per share.

ESG leadership and promoting the Company's shares

Your Company is recognised as a leader in ESG investing and has been awarded the highest possible 'Five Globes' from Morningstar. It is also rated in the top 1% of over 7,000 funds in Morningstar's global large cap category for ESG2. The portfolio manager's focus is on investing in the highest quality companies that will generate sustainable returns over the long term and the systematic analysis of ESG factors is essential to stock selection.

Shareholders approved an update to the Company's formal investment policy at this year's AGM. ESG analysis in the investment process is first rate and the changes to the policy were designed to reflect our approach more explicitly and to highlight our conviction in sustainability.

We believe that this distinctive approach to investing is important in stimulating demand for shares in a crowded market and against a background of increasing focus on the environment and on social and governance issues.

A key element of our approach to making the Company attractive to investors is our zero discount policy under which the Company buys back and issues shares with the objective of providing shareholders, in normal market conditions, with:

· assurance that the share price is aligned with the prevailing NAV per share; and

· liquidity so that investors can buy or sell as many shares as they wish at a price which is not significantly different from the NAV.

During the six months under review, the Company bought back 3,364,066 shares which were placed in Treasury. No shares were issued, reflecting the difficult market conditions described above and in the Manager's Review. The successful execution of this policy continues, with the share price generally remaining close to NAV.

AGM

The updates to the Company's Articles of Association and investment policy as noted above, along with all other resolutions, were approved by a large majority of votes at the AGM and I would like to record the Board's thanks for shareholders' continuing support.

Audit committee

Lindsay Dodsworth, a chartered accountant, joined the Board in November 2021. Following a review of the Board's roles we agreed that, recognising her accounting qualifications and experience, Lindsay would take over as chair of the audit committee with effect from the conclusion of the Company's AGM on 16 June 2022. Marian Glen has stepped down from that role but will remain on the Board and on the audit committee. My fellow directors and I would like to thank Marian for her outstanding diligence and commitment as chair of the audit committee over the last few years.

Stay in touch

We were pleased to welcome shareholders to the AGM in June after closed meetings during the pandemic. We recognise that not all shareholders are able to attend and if you have any questions or comments at any time, I can be contacted via email at ftcosec@franklintempleton.com or by post to the Company's registered address which is in the Half-yearly report. You can also get in touch via the broker JP Morgan.

Our manager continues to bring its resources to bear in promoting the shares, both directly to professional investors and via a variety of media through which we communicate with private investors. The website at www.martincurrieglobal.com is a comprehensive source of information and includes regular written and video commentaries from the portfolio manager, monthly performance factsheets and independent research reports. If you have not already done so, I strongly recommend that you subscribe for regular email updates.

Outlook

The outlook for economies around the world is uncertain, with inflation reaching levels not seen for a generation. Governments and central banks are faced with the dilemma of trying to control inflation by raising interest rates, balancing this with the risk of triggering a prolonged recession. Uncertainty is also driven by geopolitical events, highlighted by the continuing Ukraine-Russia conflict and the economic damage caused by China's struggle to contain Covid-19.

Against this background, continued volatility in share prices is perhaps inevitable. It is important to look beyond this noise and the Board is encouraged to note that the companies in the portfolio continue to deliver, with a few exceptions, at the operational level. As I said in the most recent Annual Report, our portfolio manager will continue to concentrate on a focused list of investments, researched in depth and selected for their long-term growth prospects and sustainable credentials. We remain of the view that over the longer term our portfolio manager's approach and strategy will continue to deliver attractive returns to investors.

Gillian Watson

Chairman

26 September 2022

Footnotes:

1 For the purposes of calculating management fees, current period net income is excluded from the calculation of net assets. The Company secretarial fee for the year to 31 January 2022 was £56,000 plus VAT.

2 Source: ©September 2022 Morningstar, Inc. All rights reserved. The information herein is not represented or warranted to be accurate, complete or timely. Past performance is no guarantee of future results.

MANAGER'S REVIEW

A challenging first six months

The first half of the financial year has been a challenging one for all main financial asset classes, including equities and bonds, and has been particularly challenging for our quality growth investment style. The result was that the NAV total return was -8.8%, which was some 7.8 percentage points below the return of our benchmark.

Volatility in the first half of the Company's financial year was elevated, as a result of the dual supply shocks hitting the market; namely the Ukraine-Russia conflict leading to a sharp increase in commodity prices and China's zero tolerance approach to Covid-19 exacerbating supply chain bottlenecks.

As a backdrop, in the first six calendar months of 2022 the S&P500 Index posted its worst first half since 1970 and its fourth worst starting six months to the year ever1. Over 35% of Nasdaq index constituents were down by more than 70%; US bonds posted their worst first half year performance since modern records began in 1900 and the 'standard' balanced portfolio of 60% equities/40% bonds was down by 17%, making it the second worst first half performance since 1900. This highlights that, for investors generally, there were very few areas of the market left unaffected.

Inflation has been stronger and longer lasting than expected

Inflation has been steadily increasing and has been more prolonged than anticipated by most economists and market commentators, leading central banks having to embark on aggressive interest rate hikes. Consumer price indices hit +8.5% year-on-year in the US, +10.1% in the UK and +9.1% in the Eurozone at the end of August. These are levels not seen since the early 1980s for most regions and specifically since 1981 for the US.

Monetary policies have rapidly shifted towards a more hawkish stance

As interest rate expectations have been rapidly increasing, the market has been shifting from favouring growth2 towards value2, based on the sensitivity of specific sectors to interest rates. This has been a headwind for our style of investing, which focuses on quality growth i.e. companies with an attractive growth profile, solid balance sheets and which generate high ROIC. We highlighted in the past that, as monetary policies transition to more 'normal' interest rates, growth2 sectors tend to sell off, while value2 sectors are temporarily favoured. We have also highlighted that the unprofitable growth part of the market is more likely to experience the sharpest sell-off, as we have indeed seen in the year to date. While the companies that we invest in typically are profitable, they have not escaped the general downturn in growth companies' share prices.

Contrasting performance in sectors and equity styles

In sharp contrast to recent years, energy has been the strongest performing sector in the first six months of our financial year, driven by the oil price spike following the Russian invasion of Ukraine. In contrast, technology and consumer discretionary were the two worst performing sectors. The Company has no direct exposure to energy and is sizeably overweight in technology and consumer discretionary, which explains a significant part of the weak performance year to date. The decision to have no direct exposure to energy stocks was driven primarily by fundamentals, given the sector's low growth prospects and weak return profiles, not aligning with our focus on companies with attractive structural growth prospects and which generate superior returns on invested capital. There was also a consideration related to environmental and social impact and the risks that the sector faces in a world transitioning towards decarbonisation.

Stock specific updates

Disappointing news flow impacted shares in medical device company Masimo, which sold-off sharply following the unexpected announcement of an acquisition in the consumer electronics space. Luxury goods stocks, in which the Company has sizeable exposure, have also been challenged by the partial lockdowns in China; which is by far the largest consumer of luxury goods in the world and accounts for almost half of such consumption. Farfetch, an online luxury platform, has been impacted by this and also affected by the Russian embargo, which is important given its relatively high exposure to Russia. (Note that overall the portfolio has very little exposure to Russia; Farfetch is an exception). Our stock selection in healthcare has also been negative relative to the broader sector, with the market favouring large pharmaceutical companies given the higher risk of recession. This is an area in which we have no exposure for fundamental reasons (low growth, declining returns, pricing pressure from governments, competitive pressures from generics and low R&D productivity that limits the drugs pipeline regeneration).

On a more positive note, medical technology company ResMed, biotechnology company CSL and healthcare development and manufacturing outsourcer Wuxi Biologics were the top three performers. All three companies delivered underlying operational performance ahead of expectations, whilst also exhibiting defensive characteristics in a market environment that has shifted its concern towards fears of a recession. They all remain high conviction long-term investments that are, in our view, well positioned to deliver a good balance between growth and ability to generate high returns on invested capital. In aggregate, these companies represent c.15% of the portfolio.

Disciplined valuation approach remains paramount

In periods of interest rate increases, as indeed always, valuation discipline is critical. It is important to highlight that we always use high discount rates when valuing companies which we consider investing in to ensure both some element of conservativeness and to anticipate the risk of higher interest rates. We have always used the assumption of a 4% long-term risk free rate, no matter where the company is quoted and no matter how low rates might have been. We believe that this is a robust approach, as it avoids us valuing companies too kindly during an abnormal period of low rates, as has been the case prior to 2022.

It also means that where we find upside in companies which we analyse, that upside is not dependent on a continuation of a low rate environment but is instead anticipating a normalisation of long-term rates towards the 4% mark. As a result, when 10 year US Treasury yields moved from less than 1% last summer to 3.5% in June, we maintained our consistent assumption of 4% long-term rates.

Stress testing our holdings for operational delivery and conviction

We systematically review all holdings that underperform to assess whether there is operational deterioration or a risk of deterioration coming up and to stress test the conviction that we have in these stocks. Generally speaking, and despite the sharp movements in share prices, most of our holdings have either been delivering or over delivering in terms of operational expectations and our conviction has remained high across most of our holdings. Some of the Company's holdings exposed to cyclical areas of the economy have been seeing recent downgrades. This is notably the case for the semiconductor stocks (Nvidia, ASML), as well as Adidas in the sports apparel segment.

This explains in large part why there has been very little activity in the portfolio year to date, only switching the holding in TSMC into another leading chipmaker ASML. This was driven by the relatively more attractive upside following a fall in ASML's share price (which triggered our decision to switch), as well as the superior positioning of ASML within the semiconductors ecosystem.

We expect inflation to remain elevated, and central banks to continue to hike

As we look forward, we believe that there are risks that inflation stays at elevated levels for a prolonged period, with the potential risk of accelerating wage inflation that could turn the frictional inflation that we have been seeing into a more structural inflation issue. As a result, we believe that central banks might have to continue to be aggressive and faster at hiking interest rates, which could continue to fuel the elevated volatility in equity markets.

Central banks being significantly more hawkish comes at a time of rapidly decelerating leading indicators globally, which creates an

unhelpful cocktail of interest rate hikes whilst economies are rapidly losing momentum. This has brought to the forefront of the market an additional risk - global recession.

Sharp slowdown in economic cycle, with increased risk of stagflation

We continue to believe that we have entered into a sharp slowdown phase of the economic cycle for 2022, but the risk of a bleaker scenario for 2023 has risen. With ongoing deterioration in leading indicators and a further upward shift in interest rate expectations since our last report, we have amended our outlook downwards. For the remainder of 2022, our assessment of the probability of a sharp slowdown is 70-75%, whilst we recently increased the probability of stagflation to 25-30%. For 2023, we estimate the probability of stagflation at the global level to be 25-30%, whilst the probability of stagflation for Europe is closer to 60-70%. This is because of the energy supply shortage risks, leading to potential rationing which would impact European economic activity negatively, whilst maintaining upward pressure on inflation. The probability of an ongoing sharp slowdown in 2023 remains our core scenario at the global level, with a probability of this at 65-70%.

As the probability of a recession has grown bond yields have been volatile, with the US 10 year yield hitting c.3.5% in June, before dropping to below 2.7% by the end of July. As a result of these bond yield gyrations, style leadership in equity markets has recently shifted away from value towards quality growth.

Earnings growth expectations are facing downside risk

As a result of the rapidly deteriorating leading indicators in the world's major economies and given our view of a sharp slowdown phase in the economic cycle, we believe that earnings growth expectations are likely to continue to be revised down. Current market expectations remain too high in our view. Our top down expectation is for no growth both at the global level and - most specifically - in Europe.

Because of this view, we expect ongoing disappointments during the next few quarters of earnings reports. Investors will however need to be highly selective and discerning, as there will be contrasting fortunes in momentum across different industries.

Given the deteriorating macroeconomic environment, the growing and persisting geopolitical risks and the stronger and longer lasting frictional inflationary pressures, we remain consistent in our long-term approach to investing with a strong focus on ESG matters. We continue to be exposed to, and focused on, companies with the following characteristics:

- consistent earnings growth profiles,

- long-term structural growth opportunities,

- solid balance sheets to be able to withstand a weakening economic cycle,

- strong pricing power in order to protect their margins during this period of stronger and longer lasting inflation,

- operating in industries with high barriers to entry and low disruption risk,

- dominant market positions,

- high returns or with the potential to generate high returns over time, and compounding cash flows,

- strong corporate culture and quality management,

- sustainable business models that are well positioned in a transitioning world.

Our approach to investing for the long term is built on our belief in three megatrends:

(i) Demographic Changes and the move to sustainable living

(ii) Future of Technology and decarbonisation

(iii) Resource Scarcity and climate change

which together provide us with opportunities to capture long-term structural growth themes which are well aligned within a world transitioning towards a more sustainable future.

Within these megatrends, there are thematic opportunities with supportive structural growth prospects, such as the eight mid-term opportunities, which are:

- Green & Alternative Energy

- Greener more energy efficient infrastructure

- Electric Transportation

- Healthcare Infrastructure

- 5G Telephony

- Cloud Computing & Cybersecurity

- Robotics & Automation and

- Metaverse & Quantum Computing.

Valuations are more supportive for quality growth stocks

Based on cyclically adjusted PE ratios2, we remain of the view that European and Asian equities are attractively valued versus history, and versus US equities. US equities, despite the pullback seen this year, are generally relatively less attractive.

We are naturally disappointed by recent investment performance. As described above, the companies which we hold in the portfolio in general continue to deliver at the operational level, but market values in the short term can at times be driven by extraneous events rather than the fundamental value of companies. It is likely that equity markets will continue to be unpredictable for some time, at least while the inflation figures come in stronger than expected, but we should look beyond the current noise. Following falls in share prices in 2022, we believe that current valuations of the stocks in our portfolio are very attractive. Past experience leads us to believe that over the long term companies of the type that we invest in should produce superior returns to investors, whilst at the same time being able to navigate through the weaker economic momentum in a more successful manner than some of the peers in their sectors. This is supported by our belief that in the long term companies with good governance and sustainable business models will be able to create more value for shareholders in a transitioning world. We strongly believe that over the longer term the portfolio has quality growth characteristics that should be re-rated as the stronger fundamentals related to more consistent growth profiles, structural growth opportunities, higher returns and solid balance sheets come through.

Zehrid Osmani

Portfolio Manager, Martin Currie Global Portfolio Trust plc

Head of Global Long-Term Unconstrained Equities, Martin Currie

26 September 2022

Footnotes:

1 Media reporting of economic data typically refers to calendar years. While the period under review is 1 February to 31 July, data for the first half of the calendar year largely overlaps this period.

2 See glossary of terms in the Half-yearly report.

PORTFOLIO SUMMARY

By sector

By asset class

Portfolio distribution by region

GOVERNANCE

Risk and mitigation

The principal long-term risks facing the Company are unchanged since the date of the Annual Report for the year to 31 January

2022, as set out on pages 34 and 35 of that report.

The Company's business model is longstanding and resilient to most of the short-term operational uncertainties that it faces. The Board believes these are effectively mitigated by the internal controls established by the Board and by the AIFM1 and their combined oversight of the investment manager. The Company's principal risks and uncertainties are therefore largely long-term and driven by the inherent uncertainties of investing in global equity markets. The Board's process seeks to mitigate known risks and to identify new risks as they emerge. The Board's planned mitigation measures are described in the most recent annual report. However, it is recognised that the likelihood and timing of crystallisation of some risks cannot be predicted in advance and the Board then relies on professional management, effective systems and communication to mitigate these risks as and when they arise.

The Board identified the following principal risks to the Company in the Annual Report:

• Pandemic risk

• Sustained investment underperformance

• Material decline in market capitalisation of the Company

• Loss of s1158-9 tax status

The Board notes that in large parts of the world restrictions on social contact and travel are being reduced or removed completely. While this is not universally the case, and there remains a risk of further outbreaks, the Board has concluded that that the recent pandemic no longer represents a principal risk for the Company.

Following the ongoing assessment of the principal and emerging risks facing the Company, and its current position, the Board is confident that the Company will be able to continue in operation and meet its liabilities as they fall due. The Board believes that the processes of internal control that the Company has adopted and oversight by the AIFM1 continue to be effective.

Footnote

1 See glossary of terms in the Half-yearly report.

Statement of directors' responsibilities

In accordance with Chapter 4 of the Disclosure and Transparency Rules and to the best of their knowledge, each director of the Company confirms that the financial statements have been prepared in accordance with the United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law) and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' issued by the AIC in July 2022.

The directors are satisfied that the financial statements give a true and fair view of the assets, liabilities, financial position and profit of the Company. Furthermore, each director certifies that the interim management report includes an indication of important events that have occurred during the first six months of the financial year and their impact on the financial statements together with a description of the principal risks and uncertainties that the Company faces. In addition, each director of the Company confirms that, with the exception of management and secretarial fees, directors' fees and directors' shareholdings, there have been no related party transactions during the first six months of the financial year. With effect from 1 July 2022, the investment management fee has been amended and the AIFM will also no longer charge a separate company secretarial fee (see Note 2 for more details).

Going concern status

The Company's business activities, together with the factors likely to affect its future development, performance and position, are set out in the Chairman's statement and Manager's Review.

The financial position of the Company as at 31 July 2022 is shown on the unaudited condensed statement of financial position. The unaudited statement of cash flow of the Company is set out below.

In accordance with the 2019 AIC Code of Corporate Governance and the 2018 UK Corporate Governance Code, the directors have undertaken a rigorous review of the Company's ability to continue as a going concern.

The Company's assets consist of a diverse portfolio of listed equity shares which, in most circumstances, are realisable within a very short timescale. The directors are mindful of the principal and emerging risks disclosed above.

They have reviewed revenue forecasts for the current and following financial year, including liabilities arising from the loan facility, and believe that the Company has adequate financial resources to continue its operational existence for the foreseeable future and for at least one year from the date of signing these financial statements. Accordingly, the directors continue to adopt the going concern basis in preparing these financial statements.

FINANCIAL REVIEW

UNAUDITED CONDENSED STATEMENT OF COMPREHENSIVE INCOME

The total columns of this statement are the profit and loss accounts of the Company.

All revenue and capital items in the above statement derive from continuing operations.

No operations were acquired or discontinued in the six months.

The notes below form part of these financial statements.

There is no other comprehensive income and therefore the return attributable to shareholders is also the total comprehensive income for the period.

UNAUDITED CONDENSED STATEMENT OF FINANCIAL POSITION

The notes below form part of these financial statements. 

Martin Currie Global Portfolio Trust plc is registered in Scotland, company number SC192761.

The financial statements were approved by the Board of directors on 26 September 2022 and signed on its behalf by

Gillian Watson

Chairman

26 September 2022

UNAUDITED STATEMENT OF CHANGES IN EQUITY

The notes below form part of these financial statements. 

UNAUDITED STATEMENT OF CASH FLOW

The notes below form part of these financial statements. 

Analysis of debt

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

Note 1: Financial statements

The financial information contained in this half-yearly report does not constitute statutory accounts as defined in s434 of the Companies Act 2006. The financial information for the six months ended 31 July 2022 has not been audited or reviewed by the Company's independent auditors.

The information for the year ended 31 January 2022 has been extracted from the latest published audited financial statements which have been filed with the Registrar of Companies. The report of the auditors on those accounts contained no qualification or statement under s498 (2), (3) or (4) of the Companies Act 2006.

Note 2: Accounting policies

For the period ended 31 July 2022 (and the year ended 31 January 2022), the Company is applying the Financial Reporting Standard applicable in the UK and Republic of Ireland ('FRS 102'), which forms part of the revised Generally Accepted Accounting Practice ('UK GAAP') issued by the Financial Reporting Council (FRC). These condensed financial statements have been prepared on a going concern basis in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority, FRS 102 issued by the FRC in September 2015, FRS 104 Interim Financial Reporting issued by the FRC in March 2015 and the revised Statement of Recommended Practice "Financial Statements of Investment Trust Companies and Venture Capital Trusts" ('SORP') issued by the AIC in July 2022.

The accounting policies applied for the condensed set of financial statements are set out in the Company's annual report for the year ended 31 January 2022.

The accounting policy 1 (j), as set out in the 31 January 2022 annual report, has been updated effective 16 June 2022 following the passing of Resolution 18 at the Company's AGM, whereby the new Articles of Association were adopted which allow the realised portion of the capital reserve to be distributable by way of dividend.

Following the passing of the Resolution referred to above, both the special distributable reserve and the realised portion of the capital reserve were able to be utilised for distribution by way of dividend in addition to continuing to be available for distribution by way of share buybacks.  To simplify the Company's reserves, the Board has elected to consolidate the special distributable reserve and the capital reserve. This has resulted in the balance of the special distributable reserve being fully transferred to the realised capital reserve. The consolidation has had no impact on the Company's cash or net assets.

With effect from 1 July 2022, the investment management fee has been amended to 0.45% of the Company's net asset value (excluding current period net income) per annum. Prior to 1 July 2022, the management fee was 0.5% per annum for the first £300 million of the Company's net asset value (excluding current period net income) and 0.35% of net assets (excluding current period net income) in excess of £300 million. In addition, with effect from 1 July 2022, the AIFM will no longer charge a separate company secretarial fee.

Note 3: Net returns per Ordinary share

Note 4: Dividends

The fourth interim dividend for the year ended 31 January 2022 and the first interim dividend for the year ended 31 January 2023 were allocated to the special distributable reserve. The fourth interim dividend for the year ended 31 January 2021 and the first interim dividend for the year ended 31 January 2022 were both allocated to the revenue reserve.

Note 5: Ordinary shares of 5p

Note 6: Capital reserve

1Refer to Note 2: Accounting policies for details on the consolidation of reserves. Prior to the consolidation, the balance of the special distributable reserve was reduced by £2,037,000, the amount of the dividends paid during the period. The realised capital reserve is distributable by way of dividend and by way of share buybacks. The unrealised investment holding gains is non-distributable.

Under FRS 102, the Company is required to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:

- Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;

- Level 2: other significant observable inputs (including quoted prices for similar investments, interest rates, prepayments, credit risk, etc);

- Level 3: significant unobservable input (including the Company's own assumptions in determining the fair value of investments).

The financial assets measured at fair value through profit and loss are grouped into the fair value hierarchy as follows:

Between 1 August and 16 September 2022, the Company had bought back into Treasury 1,868,331 ordinary shares at an average price of 322.4p per share. There were no shares issued from Treasury during this period.