M&G CREDIT INCOME INVESTMENT TRUST

Annual Report • Apr 27, 2023

M&G Credit Income Investment Trust plc Annual Report and audited Financial Statements for the year ended 31 December 2022 Company registration number: 11469317 M&G Credit Income Investment Trust An investment trust from the fixed income experts M&G Credit Income Investment Trust plc (the ‘Company’) seeks to generate high-quality, reliable income from a diversified credit portfolio, while seeking to preserve investors’ capital through low net asset value (NAV) volatility. The Company has the flexibility to invest in both public and private debt, which allows individual investors to access potential opportunities normally only available to large institutions. By investing in these specialised areas, we can construct a predominantly investment grade-quality portfolio with the potential to produce superior income to traditional bond funds without compromising on credit quality. This is thanks to M&G’s leading market position and decades of experience in private lending, which enables them to source deals unavailable to most other asset managers. Through the Company’s closed-ended structure, investors can benefit from holding these private assets to their maturity, whilst retaining access to their capital via the Company’s public listing. Why invest in the Company? 4%+ Seeks to pay dividends of 4% above cashª which move in line with interest rates and help to protect against inflation High-quality, reliable income sourced primarily from private credit, with 70%+ of the portfolio invested in investment grade- quality assets Stable capital value of private assets, which are typically held to maturity, compared to other investments that can offer similar income, such as equities and high yield bonds Higher income potential than comparably rated bond portfolios thanks to M&G’s ability to source private credit deals Investment trust structure allows investors to buy and sell the Company’s shares to suit their circumstances without affecting the underlying portfolio Zero discount policyᵇ designed to enable investors to buy and sell shares at close to NAV M&G’s track record in public and private debt £171 billion bonds AUM M&G is one of the UK’s largest credit investors, with leading positions in private lending markets, creating potential opportunities unavailable to other managers Since 1997 M&G has developed a rigorous and selective investment process based on more than two decades’ experience in private debt markets 130 analysts M&G has built one of Europe’s largest in-house credit research teams, which provides extensive resources required to identify and analyse potential deals a Based on the SONIA (Sterling Overnight Index Average) interest rate benchmark administered by the Bank of England. b Please refer to the Board's principal decisions within the Section 172 Statement on page 30 for more details on the 'zero' discount policy. 1Annual Report and audited Financial Statements • December 2022 Contents M&G Credit Income Investment Trust plc Strategic report Company highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 Chairman’s statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 Investment manager’s report . . . . . . . . . . . . . . . . . . . . . . . . .6 Portfolio analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 Strategic review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Governance Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36 Directors’ report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37 Corporate governance statement . . . . . . . . . . . . . . . . . . . .42 Directors’ remuneration report. . . . . . . . . . . . . . . . . . . . . . .55 Report of the Audit Committee . . . . . . . . . . . . . . . . . . . . . .62 Management report and Directors’ responsibilities statement . . . . . . . . . . . . . . . . . . . . . . . . . . .67 Financial Independent auditor’s report . . . . . . . . . . . . . . . . . . . . . . . 69 Income statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 Statement of financial position . . . . . . . . . . . . . . . . . . . . . .81 Statement of changes in equity . . . . . . . . . . . . . . . . . . . . . .82 Cash flow statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 Notes to the financial statements . . . . . . . . . . . . . . . . . . . 84 Additional information Notice of Annual General Meeting . . . . . . . . . . . . . . . . . .103 Administrative notes in connection with the Annual General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .105 Shareholder communications . . . . . . . . . . . . . . . . . . . . . 108 Company information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109 Alternative performance measures . . . . . . . . . . . . . . . . .110 Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112 Shareholder information and analysis . . . . . . . . . . . . . . . 116 Other regulatory disclosures . . . . . . . . . . . . . . . . . . . . . . . 118 2 Annual Report and audited Financial Statements • December 20222 Strategic report • Governance • Financial • Additional information Financial highlights Key data As at 31 December 2022 As at 31 December 2021 Net assets (£’000) 135,109 143,759 Net asset value (NAV) per Ordinary Share 94.99p 101.44p Ordinary Share price (mid-market) 92.1p 99.5p Discount to NAV a 3.0% 1.9% Ongoing charges figure a 1.22% 1.10% Return and dividends per Ordinary Share Year ended 31 December 2022 Year ended 31 December 2021 Capital return (6.0)p 1.5p Revenue return 4.2p 2.7p NAV total return a (1.7)% 4.3% Share price total return a (2.8)% 13.0% Total dividends declared b 5.35p 4.04p a Alternative performance measure. Please see pages 110 to 111 for further information. b The total dividends declared in respect of each financial year equated to a dividend yield of SONIA plus 4% (2022) and LIBOR plus 4% (2021) on the adjusted opening NAV of the relevant year. Company highlights NAV, dividend and NAV total return The Company has continued to pay a dividend yield of SONIA plus 4% (previously LIBOR plus 4%) even during periods of market instability. Cumulative NAV total return (since inception) NAV per Ordinary Share (pence) Cumulative NAV total return (percentage since inception – right hand scale) Dividend (pence) Source: M&G and State Street as at 31 December 2022 pence 104 102 100 98 96 94 92 90 88 14% 12% 10% 8% 6% 4% 2% 0% -2% 97.94p 98.70p 99.36p 98.38p 2.09p 100.08p 100.94p 100.59p 101.33p 99.61p 99.50p 99.95p 100.49p 100.98p 101.72p 102.52p 100.49p 1.65p 0.71p 1.95p 95.99p 0.85p 0.77p 101.18p 101.49p 102.08p 101.59p 102.04p 102.16p 101.77p 102.07p 102.09p 101.20p 98.96p 98.95p 98.62p 97.37p 95.77p 93.75p 94.69p 94.99p 93.03p 95.49p 97.00p 101.44p 101.36p 14.11.18 31.12.18 31.01.19 28.02.19 31.03.19 30.04.19 31.05.19 30.06.19 31.07.19 31.08.19 30.09.19 31.10.19 30.11.19 31.12.19 31.01.20 29.02.20 31.03.20 30.04.20 31.05.20 30.06.20 31.07.20 31.08.20 30.09.20 31.10.20 30.11.20 31.12.20 31.01.21 28.02.21 31.03.21 30.04.21 31.05.21 30.06.21 31.07.21 31.08.21 30.09.21 31.10.21 30.11.21 31.12.21 31.01.22 28.02.22 31.03.22 30.04.22 31.05.22 30.06.22 31.07.22 31.08.22 30.09.22 31.10.22 30.11.22 31.12.22 1.78p 0.82p 0.96p 1.14p 95.97p 97.23p 93.69p 98.34p 98.60p 99.23p 100.69p 101.40p 102.19p 98.00p 0.74p 0.76p 0.76p 3Annual Report and audited Financial Statements • December 2022 Strategic report • Governance • Financial • Additional information Total returns NAV total return decreased in 2022 as inflationary and geopolitical shocks resulted in negative credit performance. 14 November 2018 = 100 pence 90 95 100 105 110 115 120 Nov 2018 Jun 2019 Dec 2019 Jun 2020 Dec 2020 Jun 2021 Dec 2021 Jun 2022 Dec 2022 NAV total return a Benchmark b Share price total return a a Alternative performance measure. Please see pages 110 to 111 for further information. b 3 Month LIBOR +2.5% from inception to 31 December 2019, 3 Month LIBOR +4% from 1 January 2020 to December 2021, thereafter SONIA +4%. Source: M&G Ordinary Share price (mid-market) vs NAV Despite notable volatility over the course of the year, the average discount to NAV reduced significantly compared to the same measure in 2021. As at NAV per share (cum income) Share price (mid-market) 31 December 2022 94.99p 92.1p pence 68 72 76 80 84 88 92 96 100 104 108 112 Source: M&G and State Street as at 31 December 2022. NAVOrdinary Share price Nov 2018 Jun 2019 Dec 2019 Jun 2020 Dec 2020 Jun 2021 Dec 2021 Dec 2022 Jun 2022 Company highlights 4 Annual Report and audited Financial Statements • December 20224 Strategic report • Governance • Financial • Additional information Chairman’s statement Performance The opening NAV on 1 January 2022 (adjusted for the last dividend for 2021) was 99.66p per Ordinary Share and the NAV on 31 December 2022 (adjusted for the last dividend for 2022) was 92.56p per Ordinary Share. Including dividends paid, the NAV total return for the year to 31 December 2022 was -1.7%, compared to our benchmark return of 5.5%. While it is disappointing that, for the first time in a full year since its Initial Public Offering (IPO), your Company delivered a NAV total return below its benchmark, our Investment Manager firmly believes that the ground will be made up and that an annual total return since inception of SONIA (LIBOR up to 31 December 2021) plus 4% continues to be achievable. The reasons for that belief are set out in the Outlook section below. The underperformance of the NAV came principally from a widening of credit spreads rather than the well-publicised, and significant, rises in interest rates which occurred over the year. The portfolio was substantially protected from those rate rises by the use of interest rate hedges: these are an integral part of the Company’s investment strategy and were the main driver for our significant outperformance of comparably rated public indices such as the ICE BofA BBB Sterling and Collateralised Index (down by 18.87%); ICE BofA 1-3 Year BBB Sterling Corporate & Collateralized Index (down by 6.84%); and the ICE BofA European Currency Non- Financial High Yield 2% Constrained Index (down by 11.59%). While it is a little comfort to know that 2022 will be remembered as one of the worst years on record for risk assets, you will be pleased that the difficult market conditions have allowed our Investment Manager to position our portfolio for future outperformance. Share buybacks and discount management Your board remains committed to seeking to ensure that the Ordinary Shares trade close to NAV in normal market conditions through buybacks and issuance of Ordinary Shares. During the year, the Company undertook a number of share buybacks and share issuances pursuant to the ‘zero discount’ policy initially announced on 30 April 2021. Satisfactorily, issuance exceeded buybacks, resulting in a net increase for the year of 510,000 shares. The Company’s Ordinary Share price traded at an average discount to NAV of 1.6% during the period ended 31 December 2022. On 31 December 2022 the Ordinary Share price was 92.1p, representing a 3.0% discount to NAV as at that date. As at 31 December 2022, 2,512,749 shares were held in treasury with an additional 100,000 repurchased since the period end. Dividends In spite of the Company’s underperformance, your board decided that it should pay dividends in respect of the year ended 31 December 2022 in accordance with the target set at launch: these totalled 5.35p per Ordinary Share. This represented a dividend yield of SONIA plus 4% on the opening NAV as at 1 January 2022, adjusted for the dividend paid on 25 February 2022; and a dividend yield of 5.6% on the Ordinary Share price on 31 December 2022. To reflect our Investment Manager’s confidence, we have decided to increase the rate of the first three quarterly dividends in respect of each financial year to the full annual rate of SONIA plus 4%, calculated by reference to the opening NAV on 1 January of the year in question, adjusted for the payment of the last dividend in respect of the prior year. The fourth quarterly dividend will be at an equal rate. The dividend yield on the adjusted opening NAV is currently approximately 8%. 5Annual Report and audited Financial Statements • December 2022 Strategic report • Governance • Financial • Additional information Chairman’s statement Outlook As at 31 December 2022, the portfolio had a yield to maturity of 8.17%, thereby providing a good foundation for your Company’s investment objective. The capital value of the portfolio reflected credit spreads significantly above the levels typical in public investment grade debt markets. As these spreads normalise the Company’s NAV can be expected to rise again. Your Company’s portfolio (including irrevocable commitments) is now 60% invested in private (not listed) assets, with an additional investment of some 10% in illiquid publicly listed assets which are intended to be held to maturity. While our Investment Manager expects to continue to grow the private asset portion of the portfolio in line with the Company’s longer term strategy, it currently sees opportunity to add public bonds into the portfolio at yields that are attractive, relative to the target return of the Company. The Company’s £25 million revolving credit facility provides valuable flexibility to enable our Investment Manager to take advantage of the volatility and enhanced returns currently available in the public bond market. The technical backdrop in fixed income markets is much stronger now; all-in bond yields compare favourably to other asset classes, thus attracting capital back into the market. Your Investment Manager believes there is now attractive value to be found in credit, with investors being well paid to take risk. Unlike during the early part of 2022, when risks were not appropriately priced in and the compensation investors were receiving was extremely low, today’s investment grade credit investors are in a much better position. The elevated yield provides a good cushion with which to navigate volatile markets although selectivity and fundamental credit analysis will remain key to the way in which the Investment Manager shapes the portfolio in the year ahead. David Simpson Chairman 25 April 2023 6 Annual Report and audited Financial Statements • December 20226 Strategic report • Governance • Financial • Additional information Investment manager’s report We are pleased to provide commentary on the factors that have had an impact on our investment approach over the last year. In particular we discuss the performance and composition of the portfolio. We entered the year with the Company’s portfolio relatively defensively positioned. In our opinion bond valuations in early 2022 were expensive on a risk- adjusted basis when considering the prevailing economic headwinds and heightened macroeconomic uncertainty. Against this backdrop, we sold down public bonds that offered very little return over risk free rates whilst continuing to add selectively to our private asset exposure. By mid-February, investor concerns over inflation had already caused credit spreads to widen notably prior to Russia’s invasion of Ukraine, however the economic implications of the crisis shocked markets and accelerated the sell off. Inflation spiked, led by food and energy prices, which saw central banks tighten monetary policy more aggressively than investors had anticipated. The message was clear: stamping out inflation was the primary objective for central banks despite the implications for economic growth. Bond yields climbed to their highest levels in over a decade and with returns beginning to look attractive again, we rotated out of high-grade (AAA-rated) ABS and redeployed proceeds into higher yielding, BBB-rated public bonds. As we moved into the second half of the year, the growth versus inflation narrative continued to play out, leaving markets to grapple with an uncertain and fast-changing outlook for monetary policy. This created volatility, particularly in government bond markets and resulted in considerable credit-spread widening. We used episodes of volatility to reposition the portfolio, taking the opportunity to add risk and yield at levels, which in our opinion, offered attractive relative value. Hawkish central banks, intensifying fears of a recession, and disruptions to Europe’s energy supply saw credit weaken further over the summer months. We drew £4 million from the Company’s credit facility to purchase European REITs, sub insurance/financials and hybrid bonds at valuations which were yielding significantly in excess of the cost of drawings on the credit facility and in line with the Company’s target return. In the closing weeks of September, political and market turmoil in the UK saw sterling investment grade credit sell off sharply. Once again, we took advantage of this period of pronounced volatility, drawing an additional £4 million from the credit facility to purchase bonds at spreads which were extremely attractive relative to historical levels. Such was the selling pressure on pension schemes which employed Liability-Driven Investment strategies, that we were able to purchase investment grade, sterling utility paper at levels that exceeded the COVID-wides of 2020. The year finished on a positive note as signs of weakening inflation saw investors ramp up bets that central banks would slow the pace of rate hikes in 2023. In the UK, the transition to a new Prime Minister also helped to calm markets, with 10-year gilt yields falling from a peak of around 4.5% in early October to 3.7% by the end of the year. Although government bond markets remained volatile and interest rates climbed even higher, risk assets performed strongly in the final quarter as investor optimism over a ‘soft landing’ grew. We used this appetite for risk to reduce exposure to bonds which had tightened notably so as to, in our view, no longer offer attractive risk-adjusted returns. We redeployed proceeds into new issues in financials which continued to offer an attractive new issue premium and compared strongly on a relative value basis to corporate bonds. 2022 saw a slowdown in the rate of deployment into private assets as deal flow in this part of the market remained constrained given the volatility in wider public markets. Despite this we were able to add 15 new private assets to the portfolio. The funded private asset portion of the portfolio increased only marginally to 57.02% (versus 56.5% at 31 December 2021) as new private asset purchases were offset by repayments approximating 6% over the course of the year. An additional investment of 3% has been transacted in Investment manager’s report 7Annual Report and audited Financial Statements • December 2022 Strategic report • Governance • Financial • Additional information aftermath of COVID-19. However, we are starting to see signals in economic data which indicate a deterioration in macroeconomic conditions and a recession in late 2023 has reemerged as the base-case amongst market participants. Given the more challenging operating environment, fundamental credit analysis at this stage of the economic cycle becomes even more imperative and our experience in fixed income investing alongside our large in-house credit research capacity will be key in navigating markets over the next 12 months. Our bottom-up investment approach, which has been consistent since launching the Company in 2018, ensures each investment is made based on an analysis and understanding of individual credit fundamentals. We have constructed a sector agnostic, well-diversified portfolio, designed to provide protection from the type of valuation drawdowns that can occur from overexposure to any one sector, region or issuer, particularly during periods of market stress. Also, by investing predominantly in the higher quality (investment grade) part of credit markets we look to mitigate the potential impact of rising default rates which typically occur in the lower-rated (sub-investment grade) space. We maintain an overall c.23% exposure in the Company’s portfolio to sub-investment grade issuers, however half of this is in invested in private assets where we take comfort from enhanced controls and monitoring that exists in these largely bilateral transactions, with robust covenant packages designed to prevent write- downs or capital loss. 2022 witnessed a material shift for fixed income investors. After a decade of depressed bond yields and credit spreads remaining largely within a (tighter) lower range, we are now seeing an increased volume of opportunities in the public market to purchase good quality, investment grade credits which can offer returns in line with the Company’s dividend objective. Additionally, in the private space, a prolonged period of adjustment to the higher interest rate environment has meant we are seeing fewer opportunities which offer private assets after the period end, or is committed to be drawn down beyond the date of this report. This is expected to take the Company’s overall private asset exposure to approximately 60%. We actively monitor the portfolio for signs of distress and currently have holdings in two assets, amounting to 0.4% of the latest NAV, which are either in technical default or for which we foresee restructuring as a likely future outcome. Outlook After a positive start to 2023 for bonds and equities, hopes of a ‘soft landing’ have given way to recessionary fears and a ‘mini banking crisis’. Silicon Valley Bank and Credit Suisse were the first major casualties to emerge from the most synchronized and aggressive global rate hiking cycle in 40 years. The evidence so far is that the current banking episode is a crisis triggered by fear rather than fundamentals, fuelled by specific instances of idiosyncratic risk rather than something more systemic. Despite this, markets remain fragile and fears of wider contagion in the financial sector remain close to the surface. What is clear is that there has been an adjustment in the risk appetite of investors which has resulted in a notable widening in credit spreads. Additionally, increased risk aversion from lenders is causing credit conditions to tighten and in our opinion will only worsen already anaemic growth forecasts. Although the banking sector is where the first visible stresses have occurred, the viability of capital structures in the non-financial corporate bond market look set to be tested by weaker growth and tighter financial conditions in the next 12-18 months. The private sector, both corporate and consumer, has so far been largely shielded from the impact of higher interest rates because of a lag in policy rate transmission. This lag has been extended by the increased liquidity built up through corporate issuers extending maturity profiles on their debt and consumers building up savings in the Investment manager’s report Investment manager’s report (continued) 8 Annual Report and audited Financial Statements • December 20228 Strategic report • Governance • Financial • Additional information Investment manager’s report attractive relative value versus public comparators or that match the Company’s return objective. In many instances there is an insufficient illiquidity premium on offer and relative value analysis has not supported allocation of capital over a multi-year horizon, particularly considering the uncertain economic outlook. We therefore expect the ratio of private to public assets to trend lower in the short term, although as always this will remain dependent on our appraisal of where the most attractive relative value can be found. The Company is well positioned to take advantage of future episodes of market volatility. We have recently fully repaid our credit facility after increasing leverage in late 2022, which, as we move through the year, will provide us the flexibility and firepower to capitalise on opportunities as and when market conditions present them. M&G Alternatives Investment Management Limited 25 April 2023 Outlook (continued) 9Annual Report and audited Financial Statements • December 2022 Strategic report • Governance • Financial • Additional information Top 20 holdings As at 31 December 2022 Percentage of portfolio of investments a M&G European Loan Fund 11.73 Project Mercury Var. Rate 21 May 2024 1.80 Delamare Finance FRN 1.279% 19 Feb 2029 1.65 Hall & Woodhouse Var. Rate 30 Dec 2023 1.58 PE Fund Finance III Var. Rate 16 Dec 2023 1.46 RIN II FRN 1.778% 10 Sep 2030 1.45 Millshaw SAMS No. 1 Var. Rate 15 Jun 2054 1.40 Hammond Var. Rate 28 Oct 2025 1.37 Atlas 2020 1 Trust Var. Rate 30 Sep 2050 1.34 Regenter Myatt Field North Var. Rate 31 Mar 2036 1.27 Signet Excipients Var. Rate 20 Oct 2025 1.25 STCHB 7 A Var. Rate 25 Apr 2031 1.20 Gongga 5.6849% 2 Aug 2025 1.19 Dragon Finance FRN 1.3665% 13 Jul 2023 1.18 Citibank FRN 0.01% 25 Dec 2029 1.17 Finance for Residential Social Housing 8.569% 4 Oct 2058 1.13 Income Contingent Student Loans 1 2002-2006 FRN 2.76% 24 Jul 2056 1.09 Harmoney Warehouse No. 2 Var. Rate 31 Dec 2026 1.06 Zurich Finance Ireland Designated Activity 5.125% 23 Nov 2052 0.98 Luminis 4.9268% 23 Sep 2025 0.98 Total 36.28 a Including cash on deposit and derivatives. Source: State Street. Geographical exposure Percentage of portfolio of investments as at 31 December 2022 a Source: M&G and State Street as at 31 December 2022 United Kingdom 54.44% Europe 30.61% United States 8.46% Australasia 4.13% Global 2.36% a Excluding cash on deposit and derivatives. Portfolio overview As at 31 December 2022 % Cash on deposit 0.36 Public 42.01 Asset-backed securities 15.34 Bonds 26.67 Private 57.01 Asset-backed securities 5.22 Bonds 2.30 Investment funds 11.73 Loans 22.62 Private placements 2.14 Other 13.00 Derivatives 0.62 Debt derivatives 0.72 Forwards (0.10) Total 100.00 Source: State Street. Portfolio analysis 10 Annual Report and audited Financial Statements • December 202210 Strategic report • Governance • Financial • Additional information Credit rating breakdown As at 31 December 2022 % Unrated 0.62 Derivatives 0.62 Cash and investment grade 75.90 Cash on deposit 0.36 AAA 2.79 AA+ 0.32 AA 3.53 A+ 1.27 A 1.17 A- 4.64 BBB+ 12.38 BBB 18.01 BBB- 22.28 M&G European Loan Fund (ELF) (see note) 9.15 Sub-investment grade 23.48 BB+ 6.15 BB 3.07 BB- 2.99 B+ 3.89 B 3.03 B- 0.78 CCC+ 0.43 CCC- 0.34 D 0.22 M&G European Loan Fund (ELF) (see note) 2.58 Total 100.00 Source: State Street. Note: ELF is an open-ended fund managed by M&G that invests in leveraged loans issued by, generally, substantial private companies located in the UK and Continental Europe. ELF is not rated and the Investment Manager has determined an implied rating for this investment, utilising rating methodologies typically attributable to collateralised loan obligations. On this basis, 78% of the Company’s investment in ELF has been ascribed as being investment grade, and 22% has been ascribed as being sub-investment grade. These percentages have been utilised on a consistent basis for the purposes of determination of the Company’s adherence to its obligation to hold no more than 30% of its assets in below investment grade securities. Portfolio analysis 11Annual Report and audited Financial Statements • December 2022 Strategic report • Governance • Financial • Additional information Portfolio analysis Top 20 holdings % as at 31 December 2022 Company description M&G European Loan Fund 11.73% Open-ended fund managed by M&G which invests in leveraged loans issued by, generally, substantial private companies located in the UK and Continental Europe. The fund’s objective is to create attractive levels of current income for investors while maintaining relatively low volatility of NAV. (Private) Project Mercury Var. Rate 21 May 2024 1.80% Floating-rate, senior secured tranche of a real estate loan to fund the construction and development of a residential led luxury scheme in Bayswater, West London. (Private) Delamare Finance FRN 1.279% 19 Feb 2029 1.65% Floating-rate, senior tranche of a CMBS secured by the sale and leaseback of 33 Tesco superstores and 2 distribution centres. (Public) Hall & Woodhouse Var. Rate 30 Dec 2023 1.58% Bilateral loan to a regional UK brewer that manages a portfolio of 219 freehold and leasehold pubs. (Private) PE Fund Finance III Var. Rate 16 Dec 2023 1.46% Senior secured commitment providing NAV facility financing to a private equity firm investing in debt and equity special situations across Europe. (Private) RIN II FRN 1.778% 10 Sep 2030 1.45% Mixed CLO (AAA). Consists primarily of senior secured infrastructure finance loans managed by RREEF America L.L.C. (Public) Millshaw SAMS No. 1 Var. Rate 15 Jun 2054 1.40% Floating-rate, single tranche of an RMBS backed by shared-appreciation mortgages. (Public) Hammond Var. Rate 28 Oct 2025 1.37% Secured, bilateral real estate development loan backed by a combined portfolio of 2 office assets leased to an underlying roster of global corporate tenants. (Private) Atlas 2020 1 Trust Var. Rate 30 Sep 2050 1.34% Floating-rate, senior tranche of a bilateral RMBS transaction backed by a pool of Australian equity release mortgages. (Private) Regenter Myatt Field North Var. Rate 31 Mar 2036 1.27% PFI (Private Finance Initiative) floating-rate, amortising term loan relating to the already completed refurbishment and ongoing maintenance of residential dwellings and communal infrastructure in the London borough of Lambeth. (Private) Signet Excipients Var. Rate 20 Oct 2025 1.25% Fixed-rate loan secured against 2 large commercial premises in London, currently leased to 2 FTSE listed UK corporations. (Public) STCHB 7 A Var. Rate 25 Apr 2031 1.20% Floating-rate, mezzanine tranche in a regulated capital securitisation where the portfolio consists of 36 loans, secured on the undrawn Limited Partner (LP) investor capital commitments. (Private) Gongga 5.6849% 2 Aug 2025 1.19% Structured Credit trade by Standard Chartered referencing a US$2bn portfolio of loans to companies domiciled in 36 countries. (Private) Dragon Finance FRN 1.3665% 13 Jul 2023 1.18% Floating-rate, subordinated tranche of a securitisation of the sale and leaseback of 10 supermarket sites sponsored by J Sainsbury plc ('Sainsbury’s'). (Public) Citibank FRN 0.01% 25 Dec 2029 1.17% Floating-rate, mezzanine tranche of a regulatory capital transaction backed by a portfolio of loans to large global corporates, predominantly in North America. (Private) 12 Annual Report and audited Financial Statements • December 202212 Strategic report • Governance • Financial • Additional information Portfolio analysis Top 20 holdings % as at 31 December 2022 Company description Finance for Residential Social Housing 8.569% 4 Oct 2058 1.13% High grade (AA/Aa3), fixed-rate bond backed by cash flows from housing association loans. (Public) Income Contingent Student Loans 1 2002-2006 FRN 2.76% 24 Jul 2056 1.09% Floating-rate, mezzanine tranche of a portfolio comprised of income- contingent repayment student loans originally advanced by the UK Secretary of State for Education. (Public) Harmoney Warehouse No. 2 Var. Rate 31 Dec 2026 1.06% Floating-rate, junior mezzanine tranche in a securitisation providing debt financing for a portfolio of unsecured personal loans originated in New Zealand by a New Zealand and Australian marketplace lender. (Private) Zurich Finance Ireland Designated Activity 5.125% 23 Nov 2052 0.98% Zurich Finance is ultimately owned by Zurich Insurance Group, a company providing insurance-based financial services. The Company offers general and life insurance products and services for individuals, small businesses, commercial enterprises, mid-sized and large corporations, and multinational companies. (Public) Luminis 4.9268% 23 Sep 2025 0.98% Floating-rate, mezzanine tranche of a regulatory capital transaction backed by a portfolio of predominantly revolving facilities extended to blue chip corporates in the Americas and EMEA. (Private) 13Annual Report and audited Financial Statements • December 2022 Strategic report • Governance • Financial • Additional information Strategic review The Directors present the Strategic Review Report of the Company for the year ended 31 December 2022. The Strategic Report aims to provide Shareholders with the information to assess how the Directors have performed their duty to promote the success of the Company during the year under review. Business and status of the Company The Company was incorporated on 17 July 2018 and the IPO of the Company’s shares took place on 14 November 2018. The Company is registered in England and Wales as a public limited company and is an investment company within the terms of Section 833 of the Companies Act 2006. The principal activity of the Company is to carry on business as an investment trust. The Company has been approved by HM Revenue & Customs as an authorised investment trust under Sections 1158 and 1159 of the Corporation Tax Act 2010. In the opinion of the Directors, the Company is directing its affairs so as to enable it to continue to qualify for such approval. The Company’s shares have a listing on the premium segment of the Official List of the FCA and trade on the London Stock Exchange’s (LSE) main market for listed securities. Investment objective The Company aims to generate a regular and attractive level of income with low asset value volatility. Investment policy The Company seeks to achieve its investment objective by investing in a diversified portfolio of public and private debt and debt-like instruments (‘Debt Instruments’). Over the longer term, it is expected that the Company will be mainly invested in private Debt Instruments, which are those instruments not quoted on a stock exchange. The Company operates an unconstrained investment approach and investments may include, but are not limited to: ● Asset-backed securities, backed by a pool of loans secured on, amongst other things, residential and commercial mortgages, credit card receivables, auto loans, student loans, commercial loans and corporate loans; ● Commercial mortgages; ● Direct lending to small and mid-sized companies, including lease finance and receivables financing; ● Distressed debt opportunities to companies going through a balance sheet restructuring; ● Infrastructure-related debt assets; ● Leveraged loans to private equity owned companies; ● Public Debt Instruments issued by a corporate or sovereign entity which may be liquid or illiquid; ● Private placement debt securities issued by both public and private organisations; and ● Structured credit, including bank regulatory capital trades. The Company invests primarily in Sterling denominated Debt Instruments. Where the Company invests in assets not denominated in Sterling, it is generally the case that these assets are hedged back to Sterling. 14 Annual Report and audited Financial Statements • December 202214 Strategic report • Governance • Financial • Additional information Strategic review Investment restrictions There are no restrictions, either maximum or minimum, on the Company’s exposure to sectors, asset classes or geography. The Company, however, achieves diversification and a spread of risk by adhering to the limits and restrictions set out below. The Company’s portfolio comprises a minimum of 50 investments. The Company may invest up to 30% of Gross Assets in below investment grade Debt Instruments, which are those instruments rated below BBB- by S&P or Fitch or Baa3 by Moody’s or, in the case of unrated Debt Instruments, which have an internal M&G rating below BBB-. The following restrictions will also apply at the individual Debt Instrument level which, for the avoidance of doubt, does not apply to investments to which the Company is exposed through collective investment vehicles: Rating Secured Debt Instruments (% of Gross Assets) a Unsecured Debt Instruments (% of Gross Assets) AAA 5% 5% b AA/A 4% 3% BBB 3% 2% Below investment grade 2% 1% a Secured Debt Instruments are secured by a first or secondary fixed and/or floating charge. b This limit excludes investments in G7 Sovereign Instruments. For the purposes of the above investment restrictions, the credit rating of a Debt Instrument is taken to be the rating assigned by S&P, Fitch or Moody’s or, in the case of unrated Debt Instruments, an internal rating by M&G. In the case of split ratings by recognised rating agencies, the second highest rating will be used. The Company typically invests directly, but it also invests indirectly through collective investment vehicles which are managed by an M&G Entity. The Company may not invest more than 20% of Gross Assets in any one collective investment vehicle and not more than 40% of Gross Assets in collective investment vehicles in aggregate. No more than 10% of Gross Assets may be invested in other investment companies which are listed on the Official List. Unless otherwise stated, the above investment restrictions are to be applied at the time of investment. Borrowings The Company is managed primarily on an ungeared basis although the Company may, from time to time, be geared tactically through the use of borrowings. Borrowings will principally be used for investment purposes, but may also be used to manage the Company’s working capital requirements or to fund market purchases of shares. Gearing represented by borrowing will not exceed 30% of the Company’s Net Asset Value, calculated at the time of draw down, but is typically not expected to exceed 20% of the Company’s Net Asset Value. Hedging and derivatives The Company will not employ derivatives for investment purposes. Derivatives may however be used for efficient portfolio management, including for currency hedging. Cash management The Company may hold cash on deposit and may invest in cash equivalent investments, which may include short- term investments in money market-type funds (‘Cash and Cash Equivalents’). There is no restriction on the amount of Cash and Cash Equivalents that the Company may hold and there may be times when it is appropriate for the Company to have a significant Cash and Cash Equivalents position. For the avoidance of doubt, the restrictions set out above in relation to investing in collective investment vehicles do not apply to money market-type funds. Changes to the investment policy Any material change to the Company’s investment policy set out above will require the approval of Shareholders by way of an ordinary resolution at a general meeting and the approval of the Financial Conduct Authority (FCA). Investment policy (continued) 15Annual Report and audited Financial Statements • December 2022 Strategic report • Governance • Financial • Additional information Regular monitoring is carried out to ensure that continued holding of an investment remains appropriate. This includes monitoring the performance of investments by fund managers, analysts and internal control and governance processes. The Investment Manager engages with relevant stakeholders on any issues which may, potentially, affect an investment’s ability to deliver sustainable performance in line with those expectations. At some point, the Investment Manager may decide to divest from an investment (or the investment may complete in line with agreed terms, including pre- payment), although typically, private investments are held to their full maturity. Divestment can occur for a variety of reasons including; the investment being no longer suitable for the investment mandate, the outcome of engagement being unsatisfactory or as a result of the investment team’s valuation assessment. Investment decision making is only undertaken by the fund managers designated by the Investment Manager. As part of the investment process, full consideration is given to sustainability risks, as set out in more detail on pages 33 to 34. Investment process overview 5 Ongoing monitoring Analyst and Portfolio Manager 4 Portfolio Construction Portfolio Manager 3 Independent Credit Rating Credit Committee or Analyst 2 Credit Analysis Analyst 1 Source Opportunity Portfolio Manager or Analyst Investment strategy The Company seeks to achieve its investment objective by investing in a diversified portfolio of public and private debt and debt-like instruments of which at least 70% is investment grade. The Company is mainly invested in private debt instruments. This part of the portfolio generally includes debt instruments which are nominally quoted but are generally illiquid. Most of these will be floating rate instruments, purchased at inception and with the intention to be held to maturity or until prepaid by issuers; shareholders can expect their returns from these instruments to come primarily from the interest paid by the issuers. The remainder of the Company’s portfolio is invested in cash, cash equivalents and quoted debt instruments, which are more readily available and which can generally be sold at market prices when suitable opportunities arise. These instruments may also be traded to take advantage of market conditions. Fixed rate instruments will often be hedged in order to protect the portfolio from adverse changes in interest rates. Shareholders can expect their returns from this part of the portfolio to come from a combination of interest income and capital movements. Investment process The investment process for the Company consists principally of three stages: the decision to invest, monitoring and ongoing engagement and finally divestment. Investment decision-making is undertaken by the Investment Manager, based on extensive research and credit analysis by the Investment Manager’s large and experienced teams of 130 in-house analysts who specialise in public and private debt markets. This rigorous in depth analysis is fundamental to understanding the risk and return profile of potential investments. Strategic review 16 Annual Report and audited Financial Statements • December 202216 Strategic report • Governance • Financial • Additional information Strategic review Key performance indicators In order to measure the success of the Company in meeting its objectives and policy, and to evaluate the performance of the Investment Manager, the Directors take into account the following key performance indicators (KPIs): As at or year ended 31 December 2022 As at or year ended 31 December 2021 NAV per share 94.99p 101.44p Ordinary Share price (mid-market) 92.1p 99.5p Discount to NAV a 3.0% 1.9% Annualised dividend yield a 5.8% 4.1% Dividends declared per Ordinary Share 5.35p 4.04p Revenue return per Ordinary Share 4.2p 2.7p NAV total return a (1.7)% 4.3% Share price total return a (2.8)% 13.0% Ongoing charges figure a 1.22% 1.10% a Alternative performance measure. Please see pages 110 to 111 for further information. Share price discount or premium to NAV The share price discount to NAV as at 31 December 2022 was 3.0% (31 December 2021: 1.9%). During the year to 31 December 2022 the shares traded at an average discount to NAV of 1.6% (2021: 5.4%). Dividend yield The Company paid dividends during the year on a quarterly basis. The fourth dividend of 1.78p per Ordinary Share in respect of the period ended 31 December 2021 was paid on 25 February 2022. The first interim dividend in respect of the year ended 31 December 2022 of 0.82p per Ordinary Share was paid on 27 May 2022. The second interim dividend of 0.96p per Ordinary Share was paid on 26 August 2022 and the third interim dividend of 1.14p per Ordinary Share was paid on 25 November 2022. The fourth dividend of 2.43p per Ordinary Share was paid on 24 February 2023. The total dividends declared per share for the year ended 31 December 2022 were 5.35p (year ended 31 December 2021: 4.04p). The total dividends declared for the financial year represented a dividend yield of SONIA plus 4% on the adjusted opening NAV. The annualised dividend yield for the year was 5.8%, based on the closing share price on 31 December 2022 (2021: 4.1%). Portfolio performance In support of the Company’s investment objective, the Board monitors the portfolio performance against the benchmark of a NAV total return of SONIA a plus 4% per annum. In addition, performance is assessed against a number of total return indices in public investment grade and high yield markets. In addition, progress of deployment of funds into private assets is monitored alongside the balance of fixed to floating rate coupons, yield to maturity and modified duration of the portfolio. Further details are provided in the Chairman’s statement on pages 4 to 5 and Investment Manager’s report on pages 6 to 8. a LIBOR plus 4% for the year ended 31 December 2021. Ongoing charges The Board reviews the costs of running the Company calculated using the Association of Investment Companies’ (AIC) methodology for the ongoing charges. Full details are provided on page 110. 17Annual Report and audited Financial Statements • December 2022 Strategic report • Governance • Financial • Additional information Risk management Role of the Board The Directors have overall responsibility for risk management and internal control within the Company. They recognise that risk is inherent in the Company’s operation and that effective risk management is an important element in the success of the organisation. The Directors have delegated responsibility for the assurance of the risk management process and the review of mitigating controls to the Audit Committee. The Directors, when setting the risk management strategy, also determine the nature and extent of the significant risks and their risk appetite in implementing this strategy. In arriving at its judgement of what risks the Company faces, the Board has considered the Company’s operations in light of the following factors: ● the nature and extent of risks it regards as acceptable for the Company to bear in line with its overall business objective; ● the threat of such risks becoming reality; ● the Company’s ability to reduce the incidence and impact of risk on its performance; ● the cost to the Company and benefits related to the review of risk and associated controls of the Company; and ● the extent to which the third-party service providers operate the relevant controls. Principal risks The Company is exposed to a variety of risks that could cause the valuation of its assets and/or the income from the investment portfolio to fluctuate. The Board, through delegation to the Audit Committee, has undertaken a robust assessment and review of the principal and emerging risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. These risks are formally documented in the Company’s risk register, so that the risks identified and the controls in place to mitigate those risks can be monitored. The Audit Committee reviews and discusses potential new and emerging risks to the Company including those identified by the Investment Manager. Any new or emerging risks that are identified and that are considered to be of significance are also included in the Company’s risk register together with any mitigating actions required. The Board will continue to assess these risks on an ongoing basis. In relation to the UK Code, the Board is confident that the procedures that the Company has put in place are sufficient to ensure that the necessary monitoring of risks and controls has been carried out throughout the reporting period. The key risks identified by the Board, and the associated key mitigants and controls, are set on the next page. Strategic review 18 Annual Report and audited Financial Statements • December 202218 Strategic report • Governance • Financial • Additional information Key Risk Key Mitigants and Controls Market risk Market risk embodies the potential for both losses and gains and includes foreign currency risk, interest rate risk and price risk. Market risk mainly arises from uncertainty about future values of financial instruments influenced by price, currency and interest rate movements. It represents the potential gain or loss that the Company may suffer through holding market positions in investments in the face of market movements. Market risk includes the potential impact of events that are outside the Company’s control. Key mitigants and controls are set out in the sub- headings below. Foreign currency risk Foreign currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Company is exposed to risks that the exchange rate of its reporting currency relative to other currencies may change in a manner that has an effect on the value of the portion of the Company’s assets which are denominated in currencies other than its own reporting currency. The Company fully hedges non-base currency investments at time of purchase using spot and forward foreign exchange contracts which are rolled forward periodically. Non-base currency exposure is monitored on an ongoing basis via internal systems, with hedging maintained at approximately +/-20bps tolerance. Interest rate risk Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company’s investments are in some cases subject to interest rate risk. In relation to fixed-rate obligations, when interest rates decline, the values can be expected to rise, and, conversely, when interest rates rise, the value of fixed-rate obligations can be expected to decline. The Company uses gilt futures contracts to mitigate interest rate risk with portfolio duration monitored on an ongoing basis via internal systems and adjusted accordingly. Market conditions since launch have seen the Company maintain an average modified duration of between 1-1.5 years. There are no restrictions regarding the level of duration the Company can maintain however its Investment Objective outlines commitment to low asset value volatility. Risk management Strategic review 19Annual Report and audited Financial Statements • December 2022 Strategic report • Governance • Financial • Additional information Key Risk (continued) Key Mitigants and Controls (continued) Market price risk Market price risk includes changes in market prices, other than those arising from foreign currency or interest rate risk, which may affect the value of investments, such as macroeconomic and geopolitical events and trends, and sectoral influences. As the Company invests in public and private debt instruments, it is regularly exposed to market risk and the value of the Company’s portfolio fluctuates in response to developments in financial markets. The Board has put in place limits on the Company’s gearing, portfolio concentration and use of derivatives, which it believes to be appropriate to keep the Company’s investment portfolio adequately diversified and to manage risk. Credit risk Because of its investment strategy, the Company is also materially exposed to credit risk, which is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. The main concentration to which the Company is exposed arises from the Company’s investments in Debt Instruments. The Company is also exposed to counterparty credit risk on trading derivative products, Cash and Cash Equivalents, amounts due from brokers and other receivable balances. The Company’s policy to manage this risk is to invest no more than 30% of the Company’s assets in Debt Instruments that have a minimum credit rating below BBB- (or equivalent). Within the above limit, the Company may also invest in unrated assets where a rating is assigned by the Investment Manager using an internal methodology that is based on the categorisations used by rating agencies. When new investment opportunities arise, a detailed credit review is undertaken by the Investment Manager. A fundamental qualitative and quantitative assessment of both business and financial risk, supported by appropriate financial modelling, alongside a review of the corporate structure and issuance document form the basis of the credit review. On an ongoing basis, the Investment Manager monitors the Company’s investments against a variety of measures including financial performance and their progress against a variety of covenants. The Company only transacts with parties that the Investment Manager considers to be suitable from a credit risk perspective. Risk management (continued) Strategic review 20 Annual Report and audited Financial Statements • December 202220 Strategic report • Governance • Financial • Additional information Key Risk (continued) Key Mitigants and Controls (continued) Investment management performance risk Other than in respect of market risk, the performance of the Company’s portfolio of assets depends primarily on the investment strategy, asset allocation and stock selection decisions taken by the Investment Manager within the parameters and constraints imposed by the Company’s investment policy. The Investment Manager applies a ‘three lines of defence’ model for risk management, incorporating the individual fund manager and line management; independent risk and compliance functions and reporting structures; and internal audit. Measures and tools such as volatility estimation, value at risk analysis and stress testing are used in order to better understand risk concentrations within the portfolio. Liquidity risk The Company invests in public and private debt instruments. Some of these investments may be difficult to value or realise (if at all). The market price that is achievable for such investments may ultimately therefore be different than the carrying values of these assets as reflected in the Company’s reported NAV per Ordinary Share from time to time. As the Company is closed-ended, it is not exposed to the same risks of liquidity mismatch that are inherent in the management of portfolios owned by open-ended funds. This enables the Company to invest in assets that have limited or no secondary market liquidity in order to seek to capture the additional yield that is generally available compared to more liquid instruments. Before the Company’s fifth AGM in 2024, the Board will submit to Shareholders proposals to enable them to realise the value of their Ordinary Shares. The Board monitors the liquidity profile of the Company’s assets on a quarterly basis through the receipt of an asset liquidity analysis from the Investment Manager. Dividend policy risk The level of dividends that the Board will declare will be dependent largely on the performance of the Company’s investment portfolio over time and the market conditions that exist during relevant performance periods. Apart from asset selection and market conditions, factors that may also affect performance include, inter alia, the Company’s level of gearing, its accounting policies, changes in variable interest rates, the level of loan or bond prepayments and a change in the tax treatment of the interest received by the Company. The Investment Manager runs a dividend projection model that is regularly reviewed by the Board. Risk management (continued) Strategic review 21Annual Report and audited Financial Statements • December 2022 Strategic report • Governance • Financial • Additional information Key Risk (continued) Key Mitigants and Controls (continued) Operational risk (including cyber risk) In common with most other investment trusts, the Company has no executive directors, no executive management and no employees. The Company delegates key operational tasks to third-party service providers that are specialists in their fields as follows: ● Management of the Company’s investment portfolio to M&G Alternatives Investment Management Limited ● Preparation and maintenance of the Company’s Financial Statements and maintenance of its records to State Street Bank and Trust Company ● Company Secretarial Services to Link Company Matters Limited ● Registrar services to Link Group ● Worldwide custody of the Company’s assets to State Street Bank and Trust Company ● Safekeeping and depositary services to State Street Trustees Limited Failure by any service provider to carry out its obligations to the Company in accordance with the terms of its appointment could have a materially detrimental impact on the operation of the Company or administration of its investments. The termination of the Company’s relationship with any third-party service provider or any delay in appointing a replacement for such service provider could disrupt the business of the Company materially and could have a material adverse effect on the Company’s performance. Due diligence is undertaken before contracts are entered into with third-party service providers. Thereafter, service provider oversight is conducted through ongoing interaction with the Management Engagement and Audit Committees and is formalised through an annual evaluation process. Most third party service providers produce internal control reports to provide assurance regarding the effective operation of internal controls as reported on by their reporting accountants. These reports are provided to the Audit Committee for review by the Investment Manager’s Supplier Management Team. The Committee would seek further representations from the service providers if not satisfied with the effectiveness of their control environment. The Management Engagement and Audit Committees also consider the business continuity arrangements of the Company’s key service providers and review these as part of the review of the Company’s risk register. Risk management (continued) Strategic review 22 Annual Report and audited Financial Statements • December 202222 Strategic report • Governance • Financial • Additional information Key Risk (continued) Key Mitigants and Controls (continued) Regulatory, legal and statutory risk: changes in laws, government policy or regulations The Company is subject to laws, government policy and regulations enacted by national and local governments. Any change in the law, regulation or government policy affecting the Company may have a material adverse effect on the value of its investments, its ability to carry on its business and successfully pursue its investment policy and on its earnings and returns to Shareholders. In particular, the Company is required to comply with certain requirements that are applicable to listed closed- ended investment companies, including Section 1158 of the Corporation Tax Act 2010. Any failure to comply may potentially result in a loss of investment trust company status. The Company must comply with the Listing Rules, Prospectus Rules, the Disclosure Guidance and Transparency Rules, the Market Abuse Regulation (MAR) and the rules of the London Stock Exchange. Any failure in future to comply with any future changes to such rules and regulations may result in the shares being suspended from trading on the London Stock Exchange. MAR can be defined as Regulation (EU) No 596/2014 of the European Parliament on market abuse, otherwise known as the Market Abuse Regulation, or ‘MAR’. It requires the Board of the Company to adopt certain processes to ensure that, inter alia, price sensitive information must be, subject to certain exemptions, promptly disclosed to the public via a regulatory news service in order to ensure an orderly market in the Company’s shares. The Company mitigates any such failure by delegating key operational tasks to specialist third-party service providers combined with close oversight and monitoring through the Audit Committee. The Investment Manager monitors investment movements, the level and type of forecast income and expenditure and the amount of proposed dividends to ensure that the provisions of Chapter 4 of Part 24 of the Corporation Tax Act 2010 are not breached. The results are reported to the Board at each meeting. Compliance with the accounting rules affecting investment trusts is also carefully and regularly monitored. The Company Secretary, Investment Manager and the Company’s professional advisers provide regular reports to the Board in respect of compliance with all applicable rules and regulations. The Board and the Investment Manager also monitor changes in government policy and legislation which may have an impact on the Company. The risk to the Company of failure to comply with MAR is mitigated by close Board oversight and monitoring through the compliance function and controls monitoring team at the Investment Manager. Sustainability risk Sustainability risk means exposure to an environmental, social or governance (‘ESG’) event or condition that, if it occurs, could cause an actual or a potential material negative impact on the value of an investment. Please refer to the ‘Sustainability risk and investment process’ section on pages 33 to 34 for further details. Risk management (continued) Strategic review 23Annual Report and audited Financial Statements • December 2022 Strategic report • Governance • Financial • Additional information Strategic review substantial income for the foreseeable future in order to meet its liabilities. As the Directors are ultimately responsible for ensuring that the investment policy of the Company is followed by the Investment Manager, they are confident in making these assumptions about the future of the Company. The Company is an investment trust, not a trading company, and it invests in a diversified portfolio. As a closed-ended fund, it is not subject to redemptions by Shareholders other than, potentially, the 2024 value realisation opportunity. The Company’s portfolio also generates substantial levels of income to meet its expenses, which are largely fixed overheads that represent a small percentage of its net assets. Based on their assessment of the nature of the Company, its investment policy and financial resources, the Directors have a reasonable expectation that the Company will be able to continue in operation and to meet its liabilities as they fall due over the next five years. Going concern statement The activities of the Company, together with the factors likely to affect its future development, including its performance, financial position, cash flows and liquidity position, are described in the Strategic Report. In addition, the Company’s policies and processes for managing its key financial risks are described in note 13 on pages 95 to 99. As at 31 December 2022, the Company’s total assets less current liabilities were £135.11 million (31 December 2021: £143.76 million) and total current assets less current liabilities were £(2.5) million (31 December 2021: £4.3 million). Mainly attributable to drawdowns which were fully repaid after the year end. The Directors have reviewed the financial projections of the Company from the date of this report, which shows that the Company will be able to generate sufficient cash flows in order to meet its liabilities as they fall due. Viability statement Ahead of the Company’s fifth annual general meeting in 2024, the Board will formulate and submit to Shareholders proposals (which may constitute a tender offer or other method of distribution) to provide Shareholders with an opportunity to realise the value of their Ordinary Shares at NAV per Ordinary Share less costs. In all circumstances, the Board will seek to balance the interests of both continuing Shareholders and those electing to realise their investment with a view to minimising any reduction in the overall size of the Company. The Directors remain confident in the Company’s ability to achieve its investment objective. On this basis and notwithstanding the value realisation opportunity in 2024, the Directors have elected to review the viability of the Company for a five-year period. This is linked to the weighted average life of the Debt Instruments in the Company’s portfolio. In assessing the viability of the Company over this five-year period, the Directors have considered the current position of the Company and a number of factors. Most importantly, they have weighed the characteristics of a closed-ended fund and the investment policy of the Company against the principal risks the Company faces as set out in this Strategic Report. The Directors have evaluated scenarios of current and possible future circumstances and the prospects for the Company’s portfolio. The Directors regularly review the inputs such as expense and dividend forecasts, the ongoing charge, use of the revolving credit facility and investor feedback. The Directors have assumed that neither the closed ended structure of the Company, its investment policy nor the risks it faces are likely to change substantially, or for the worse with respect to the viability of the Company, over the five-year period they have selected for the purposes of this viability statement. The Directors have also assumed that the Company will continue to maintain a sufficient level of liquidity and to generate 24 Annual Report and audited Financial Statements • December 202224 Strategic report • Governance • Financial • Additional information Investment Manager The Company has appointed M&G Alternatives Investment Management Limited (the ‘Investment Manager’) to act as the Company’s Alternative Investment Fund Manager (AIFM) for the purposes of the AIFM Directive and, accordingly, the Investment Manager is responsible for providing discretionary portfolio management and risk management services to the Company. The Investment Management Agreement dated 26 September 2018 is for an initial term of five years from 14 November 2018 and thereafter subject to termination on not less than six months’ written notice by either party. The Investment Management Agreement can be terminated at any time in the event of the insolvency of the Company or the Investment Manager or in the event that the Investment Manager ceases to be authorised and regulated by the FCA (if required to be so authorised and regulated to continue to carry out its duties under the Investment Management Agreement). The Investment Manager is entitled to receive from the Company an investment management fee, which is calculated and paid quarterly in arrears at an annual rate of 0.7% per annum of the prevailing published NAV. Where the Company invests in a collective investment vehicle that is managed or advised by an M&G entity, such as the M&G European Loan Fund, the Investment Manager reduces its investment management fee by the amount of any equivalent management fee that is charged to such collective investment vehicle or such entity rebates its management fee such that the Investment Manager ensures the Company is not charged twice. The above arrangement does not apply to any other fees or expenses charged to the Company or any such entity in which it invests. The Investment Manager is also entitled to be paid half of any arrangement fee charged by the Company to the issuer of a Debt Instrument in which the Company invests. The balance of any arrangement fee is retained by the Company. As a consequence, the Directors believe that the Company continues to be well placed to manage its business risks successfully. In assessing the going concern basis of accounting, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future and for a period of 12 months from the date of the approval of this Annual Report. The outlook section of the Chairman’s statement on page 5 details the expectations for 2023. Accordingly, they continue to adopt the going concern basis in preparing this Annual Report and Accounts. Investment management and third-party service provider arrangements The Board has overall responsibility for the Company’s activities, including the review of investment activity and performance and the control and supervision of all suppliers of services to the Company, including the Investment Manager. It is also responsible for the determination of the Company’s investment policy and strategy and the Company’s system of internal and financial controls, including ensuring that commercial risks and financing needs are properly considered and that the obligations of a public limited company are adhered to. To assist the Board in the operations of the Company, arrangements have been put in place to delegate authority for the performance of day-to-day operations of the Company to the Investment Manager and other third-party service providers. The Board has appointed the Investment Manager to manage the Company’s investment portfolio within guidelines set by the Board. The Investment Manager is in frequent contact with the Board and supplies the Directors with regular updates on the Company’s activities and detailed reports at each Board meeting. Strategic review Going concern statement (continued) 25Annual Report and audited Financial Statements • December 2022 Strategic report • Governance • Financial • Additional information Strategic review Continuing appointment of Investment Manager As at the date of this Report, the Directors are of the opinion that the Investment Manager has executed the Company’s investment strategy according to the Board’s expectations. Accordingly, the Directors believe that the continuing appointment of M&G Alternatives Investment Management Limited as the Investment Manager of the Company, on the terms agreed, is in the best interests of the Company and its Shareholders as a whole. Administrator Under an Administration Agreement dated 26 September 2018, the Company has appointed State Street Bank and Trust Company to act as administrator. The administrator provides day-to-day administration of the Company and is also responsible for the Company’s general administrative functions, including the calculation and publication of the NAV and maintenance of the Company’s accounting and statutory records. The Administration Agreement is terminable, inter alia, upon not less than six months’ written notice. The Administration Agreement is also terminable immediately upon the occurrence of certain standard events, including the insolvency of the Company or the Administrator or a party committing a material breach of the Administration Agreement (where such breach has not been remedied within 30 calendar days of written notice being given). Depositary Under a Depositary Agreement dated 26 September 2018, the Company has also appointed State Street Trustees Limited as depositary to provide depositary services to the Company, which will include safekeeping of the assets of the Company. The Depositary is permitted to delegate (and authorise its delegates to sub-delegate) the safekeeping of the assets of the Company. The Administrator and Depositary are entitled to a combined fee (the ‘State Street Fee’). The State Street Fee shall be up to 0.08% of the NAV per annum. The fee is subject to a minimum rate, whereby if the NAV is less than £250 million, the fee will be calculated as if the NAV were £250 million. The State Street Fee is calculated monthly and payable monthly in arrears. Custodian The Depositary has delegated safekeeping duties as set out in the AIFM Directive and the FCA Handbook to State Street Bank & Trust Company, whom it has appointed as global sub-custodian. The fees for this are included in the State Street Fee. Registrar The Company entered into a Registrar Agreement dated 26 September 2018 with Link Group to provide registrar services in relation to the transfer and settlement of shares. In April 2021 the Company entered into a new Registrar Agreement with Link Group. Effective from 1 May 2021, under the terms of the agreement a fixed annual fee of £13,000 (exclusive of VAT) will be payable. The Registrar Agreement is for a period of three years until 30 April 2024 when the fee will increase in line with the Retail Prices Index (RPI). Company Secretary The Company entered into a Company Secretarial Services Agreement dated 26 September 2018 appointing Link Company Matters Limited (‘Company Matters’) as Company Secretary to provide the company secretarial functions required by the Companies Act. Following the initial period of 12 months the Company Secretarial Agreement automatically renewed, and continues to renew, for successive periods of 12 months unless or until terminated by either party at the end of any successive 12-month period, provided written notice is given to the other party at least six months prior to the end of such successive 12-month period. Investment management and third-party service provider arrangements (continued) 26 Annual Report and audited Financial Statements • December 202226 Strategic report • Governance • Financial • Additional information Pursuant to the terms of the Company Secretarial Services Agreement, Company Matters have applied an annual inflationary increase at the rate of the Retail Prices Index prevailing at the time. With effect from 1 June 2022, the aggregate fee payable to Company Matters was £67,753 (exclusive of VAT). Section 172 Statement: promoting the success of the Company Overview The Directors’ overarching duty is to act in good faith and in a way that is the most likely to promote the success of the Company as set out in Section 172 of the Companies Act 2006. In doing so, Directors must take into consideration the interests of the various stakeholders of the Company and the impact the Company has on the community and the environment; take a long-term view on consequences of the decisions they make; and aim to maintain a reputation for high standards of business conduct and fair treatment between the members of the Company. Fulfilling this duty naturally supports the Company in achieving its investment objective and helps to ensure that all decisions are made in a responsible and sustainable way. In accordance with the requirements of the Companies (Miscellaneous Reporting) Regulations 2018, the Company explains how the Directors have discharged their duty under Section 172 below. To ensure that the Directors are aware of and understand their duties, they are provided with the relevant information as part of their induction, as well as receiving regular and ongoing updates and training on the relevant matters. They also have continued access to the advice and services of the Company Secretary and, when deemed necessary, the Directors can seek independent professional advice. The schedule of Matters Reserved for the Board, as well as the Terms of Reference of its committees are reviewed on at least an annual basis and further describe the Directors’ responsibilities and obligations, and include any statutory and regulatory duties. The Audit Committee has the responsibility for the ongoing review of the Company’s risk management systems and internal controls and, to the extent that they are applicable, risks related to the matters set out in Section 172 are included in the Company’s risk register and are subject to periodic and regular reviews and monitoring. Decision-making The Board considers the impact that any material decision will have on all relevant stakeholders to ensure that it is making a decision that promotes the long-term success of the Company, whether this be in relation to dividends, new investment opportunities, potential future fundraisings etc. Stakeholders The Board seeks to understand the needs and priorities of the Company’s stakeholders and these are taken into account during all its discussions and as part of its decision-making. The Board has considered which parties should be deemed to be stakeholders of the Company. As the Company is an externally managed investment company and does not have any employees or customers, its key stakeholders comprise its Shareholders, regulators (including service party regulators) and service providers. The section on the following page discusses why these stakeholders are considered of importance to the Company and the actions taken to ensure that their interests are taken into account. Strategic review Investment management and third-party service provider arrangements (continued) 27Annual Report and audited Financial Statements • December 2022 Strategic report • Governance • Financial • Additional information Strategic review Importance Board engagement Shareholders Continued Shareholder support and engagement are critical to the continued existence of the Company and the successful delivery of its long-term strategy. Before the Company’s fifth Annual General Meeting in 2024, the Board will formulate and submit to Shareholders proposals (which may constitute a tender offer or other method of distribution) to provide Shareholders with an opportunity to realise the value of their Ordinary Shares at the then prevailing NAV per Ordinary Share less costs. In all circumstances, the Board will seek to balance the interests of both continuing Shareholders and those electing to realise their investment. The Company has over 200 Shareholders, including institutional and retail investors. The Board is committed to maintaining open channels of communication and to engage with Shareholders in a manner they find most meaningful in order to gain an understanding of their views. These include the channels below. AGM: The Company welcomes and encourages attendance and participation from Shareholders at its AGMs and when possible, Shareholders will have the opportunity to meet the Directors and the Investment Manager and to address questions to them directly. The Company values any feedback and questions it may receive from Shareholders ahead of and during the AGM and will take action or make changes, when and as appropriate. Publications: the Annual Report and Half Year Report are made available on the Company’s website and the Annual Report is circulated to Shareholders. This information is supplemented by the monthly calculation and publication of the NAV per share which is announced via the regulatory news service of the London Stock Exchange. In addition, a monthly factsheet and/or a quarterly newsletter is published by the Investment Manager on the Company’s website. Feedback and/or questions that the Company receives from Shareholders help the Company evolve its reporting, aiming to render the reports and updates transparent and understandable. Shareholder meetings: unlike trading companies, one-to-one Shareholder meetings usually take the form of a meeting with the Investment Manager rather than members of the Board. Feedback from all substantive meetings between the Investment Manager and Shareholders is shared with the Board. During the year there were eight meetings with Shareholders. The Chairman, the Chairman of the Audit Committee or other members of the Board are available to meet with Shareholders to understand their views on governance and the Company’s performance where they wish to do so. Section 172 Statement: promoting the success of the Company (continued) 28 Annual Report and audited Financial Statements • December 202228 Strategic report • Governance • Financial • Additional information Strategic review Importance (continued) Board engagement (continued) Shareholder concerns: in the event that Shareholders wish to raise issues or concerns with the Board, they are welcome to do so at any time by writing to the Chairman at the registered office. The Senior Independent Director is also available as an intermediary to Shareholders. Investor relations updates: at every Board meeting, the Directors receive updates from the Company’s broker on the share trading activity, share price performance and any Shareholders’ feedback, as well as an update from the Investment Manager. Other stakeholders The Investment Manager Holding the Company’s shares offers investors a publicly traded investment vehicle through which they can obtain exposure to the Company’s diversified portfolio. The Investment Manager’s performance is critical for the Company to successfully deliver its investment strategy and meet its objective. Maintaining a close and constructive working relationship with the Investment Manager is crucial, as the Board and the Investment Manager both aim to continue to achieve consistent, long-term returns in line with the Company’s investment objective. Important components in the collaboration with the Investment Manager, representative of the Company’s culture include those listed below. ● Encouraging open, honest and collaborative discussions at all levels, allowing time and space for original and innovative thinking ● Ensuring that the impact on the Investment Manager is fully considered and understood before any business decision is made ● Ensuring that any potential conflicts of interest are avoided or managed effectively The Board holds detailed and intensive discussions with the Investment Manager on all key strategic and operational topics on an ongoing basis. In addition to a monthly call their interactions have addressed a range of topics including the dividend and zero-discount policy, valuation methodology and credit risk against a background of heightened economic and geopolitical risk during the year. Beyond this, there are regular discussions by email and calls on various operational matters. Section 172 Statement: promoting the success of the Company (continued) 29Annual Report and audited Financial Statements • December 2022 Strategic report • Governance • Financial • Additional information Importance (continued) Board engagement (continued) The Administrator, the Company Secretary, the Registrar, the Depositary, the Custodian and the Broker In order to function as an investment trust with a listing on the premium segment of the official list of the FCA and trade on the London Stock Exchange’s (LSE) main market for listed securities, the Company relies on a diverse range of reputable advisors for support in meeting all relevant obligations. The Board maintains regular contact with its key external providers and receives regular reporting from them through the Board and committee meetings, as well as outside of the regular meeting cycle. Their advice, as well as their needs and views are routinely taken into account. The Management Engagement Committee formally assesses their performance, fees and continuing appointment at least annually to ensure that the key service providers continue to function at an acceptable level and are appropriately remunerated to deliver the expected level of service. The Audit Committee reviews and evaluates the control environments in place at each service provider and assesses the effectiveness through review of the annual assurance reports from each organisation. This reporting is supplemented by the view of the Investment Manager’s Supplier Management Team regarding the control environments in operation at the providers. Interactions take place at least monthly including the approval of the NAV, review of forecasts and management accounts. Regulators (including third-party service providers’ regulators) The Company can only operate with the approval of its regulators and its third- party service providers’ regulators who have a legitimate interest in how the Company operates in the market and how it treats its Shareholders. The Company regularly considers how it meets various regulatory and statutory obligations and follows voluntary and best practice guidance. It also gives full consideration to how any governance decisions it makes can have an impact on its stakeholders, both in the shorter and in the longer term. The Company’s service providers provide regular reporting to the Company in respect of their interaction with their own respective regulators. Lenders Availability of funding and liquidity are crucial to the Company’s ability to take advantage of investment opportunities as they arise. Considering how important the availability of funding is, the Company aims to demonstrate to lenders that it is a well-managed business, and in particular, that the Board focuses regularly and carefully on the management of risk. The Board has worked with the Investment Manager to agree the terms of the revolving credit facility. Strategic review Section 172 Statement: promoting the success of the Company (continued) 30 Annual Report and audited Financial Statements • December 202230 Strategic report • Governance • Financial • Additional information Examples of the Board’s principal decisions taken during the year, and how the Board fulfilled its duties under Section 172 of the Act, and the related engagement activities are set out below. Principal decision Long-term impact Stakeholder considerations and engagement The Board continued with the implementation of a ‘zero discount’ policy. Through the implementation of this policy, the Company will seek to ensure that the shares trade close to NAV where possible. In April 2021 the Board announced the decision to implement a ‘zero discount’ policy to manage the discount, or premium, to NAV. The Board believes that it is important for Shareholders to be able to benefit appropriately from the Company’s investment objective which is to generate a regular and attractive level of income with low asset value volatility. The Company therefore seeks to ensure that the Ordinary Shares trade close to NAV in normal market conditions through a combination of Ordinary Share buybacks and the issue of new Ordinary Shares, or resale of Ordinary Shares held in treasury, where demand exceeds supply. During the year, the Company has undertaken a number of share buybacks and share issuances pursuant to the ‘zero discount’ policy. The Shares were issued from treasury in order to satisfy demand in the market. Strategic review Section 172 Statement: promoting the success of the Company (continued) Importance (continued) Board engagement (continued) Institutional investors and proxy advisers The evolving practice and support of the major institutional investors and proxy adviser agencies are important to the Directors, as the Company aims to maintain its reputation for high standards of corporate governance, which contributes to its long-term sustainable success. Recognising the principles of stewardship, as promoted by the UK Stewardship Code, the Board welcomes engagement with all of its investors. The Board recognises that the views, questions from, and recommendations of many institutional investors and proxy adviser agencies provide a valuable feedback mechanism and play a part in highlighting Shareholders’ evolving expectations and concerns. These are important factors for the Board in delivering the Company’s strategy. The above mechanisms for engaging with stakeholders are kept under review by the Directors and will be discussed on a regular basis at Board meetings to ensure that they remain effective. 31Annual Report and audited Financial Statements • December 2022 Strategic report • Governance • Financial • Additional information The Board seeks to appoint appropriate third-party service providers and evaluates their services on a regular basis as described on pages 24 to 26. Their ongoing appointments are not only reflective of their performance by reference to their contractual and service level obligations, but also take into account the extent to which their individual corporate cultures align with those of the Company. The Board considers the culture of the Investment Manager and other stakeholders, including their policies, practices and behaviour, through regular reporting from these stakeholders and in particular during the annual review of the performance and continuing appointment of all service providers. Employees, human rights and social and community issues The Board recognises certain requirements under the Companies Act 2006 to detail information about human rights, employees and community issues, including information about any policies it has in relation to these matters and the effectiveness of these policies. These Culture The Directors are of the opinion that establishing and maintaining a healthy corporate culture amongst the Board and in its interaction with the Investment Manager, Shareholders and other stakeholders will support the delivery of its purpose, values and strategy. The Board seeks to promote a culture of openness, transparency and integrity through ongoing dialogue and engagement with its stakeholders, principally the Investment Manager. The Board strives to ensure that its culture is in line with the Company’s purpose, values and strategy and will consider this through its annual evaluation processes. Further information relating to the Company’s values is provided in the Corporate Governance Statement on page 42. There are also policies and procedures in place to assist with maintaining a culture of good governance that include those relating to Directors’ dealings in the Company’s shares, conflicts of interest, bribery and tax evasion. Strategic review Importance (continued) Board engagement (continued) The Company renewed the agreement for a revolving credit facility of £25 million with State Street Bank International GmbH. In line with its approach to balance sheet management, the Company has renewed its agreement for a one-year multicurrency revolving credit facility of £25 million. The Board regularly reviews the Company’s cash position and commitments taking into consideration the impact on Shareholders. The facility is used to support the long-term growth of the Company and in particular to fund investments. The facility increases the Company’s net liquid resources available for future deployment, including dividend payments to Shareholders and any repurchase of the Company’s issued share capital. The terms of the credit facility with State Street Bank International GmbH contain covenants with which the Company is regularly required to confirm to State Street Bank International GmbH that it has remained compliant. As at the year end, the Company’s drawings stood at £7m, which equated to a gearing level of 5.0%. Section 172 Statement: promoting the success of the Company (continued) 32 Annual Report and audited Financial Statements • December 202232 Strategic report • Governance • Financial • Additional information requirements are not in practice applicable to the Company as it has no employees, all the Directors are non-executive and it has outsourced all operational functions to third-party service providers. The Company has therefore not reported further in respect of these provisions. Under listing rule 15.4.29(R), the Company, as a closed- ended investment fund, is exempt from complying with the Task Force on Climate-related Financial Disclosures. Board diversity As at 31 December 2022, the Board of Directors of the Company comprised two male directors and two female directors. The Board is an enthusiastic supporter of diversity in its composition, recognising that it brings additional benefits to the Company and its stakeholders beyond specialist skills, knowledge, experience, backgrounds and perspectives. The Board welcomes the FTSE Women Leaders Review regarding the proportion of women on boards and the Parker Review with respect to ethnic representation on boards, amongst other published commentaries, although it does not feel that it is appropriate to adopt diversity targets, given its small size. The appointment process therefore includes wide consideration of diversity, taking into account gender, social and ethnic backgrounds, cognitive and personal strengths and experience. The Board notes the board diversity targets as set out in the Financial Conduct Authority’s Listing Rules, against which the Company will begin reporting for the year ending 31 December 2023. Environmental, social and governance (ESG) issues The Company has no employees, property or activities other than investments, so its direct environmental impact is minimal. In carrying out its activities and in its relationships with service providers and their employees, the Company aims to conduct itself responsibly, ethically and fairly. Strategic review The day-to-day management of the Company’s investing activities is delegated to the Investment Manager. 1. Whilst the Company does not invest with a specific ESG strategy, the Investment Manager nonetheless takes into consideration environmental, social and governance (‘ESG’) factors that have the potential to have a material financial impact. 2. The Investment Manager believes consideration of the implications for society and the environment to be part of investment stewardship and in line with its fiduciary duties to the Company. 3. The Investment Manager takes a long-term approach, keeping in mind the Company’s time horizons, the urgency of individual ESG issues and delivery of ESG priorities and commitments. 4. The Investment Manager identifies ESG themes and risk factors and incorporates them into its general investment and risk management processes. 5. The Investment Manager is an active investor and believes in active management, preferring stock selection, engagement and voting (where relevant) over exclusion. As a responsible investor it seeks to support companies transitioning towards the creation of a more sustainable economy. 6. As an investor the Investment Manager is politically neutral, does not engage in political contributions, and does not have a direct affiliation with any political party in any country. It is committed to working with our stakeholders, including our investee companies, to help fight slavery, human trafficking, child labour or any other abuse of human rights. Therefore, it takes into consideration politics where they impact human rights, the rule of law, fairness and equality, and where local and/or geopolitical risk impacts the risk return profile of an investment. 33Annual Report and audited Financial Statements • December 2022 Strategic report • Governance • Financial • Additional information Strategic review 7. Where an investment, either by the nature of its business or by the nature of the investee company’s activities or behaviours, breaches the Investment Manager’s core values, it will assess the investment under its exclusion process. Where we believe engagement and voting has been or will be ineffective in influencing positive change, it may exclude the company from our portfolios. 8. The Investment Manager reviews its ESG approach regularly in order to align with scientific and technological improvements, changes in the global economy, and the evolution of good practice, sustainability and ethics. 9. The Investment Manager aspires to produce research of the highest quality for our investment teams, generating market leading proprietary research and data, integrating ESG into the investment process across all asset classes. 10. The Investment Manager recognises the complexity in identifying and addressing the drivers of ESG issues, given the interdependence of ESG factors, some of which are inherently subjective and where available data may not be of high quality. In such cases it adopts a pragmatic approach, balancing the implications for the economy, society and the environment where available information is not objective or reliable. 11. The Investment Manager is a provider of capital to investee companies, and is not responsible for the day-to-day management of those companies. However, the Investment Manager is cognisant of the need to encourage good corporate governance and sustainable business practices and, if necessary, vote for changes to board composition where this is not the case. As a signatory member to the PRI, the Investment Manager is committed to providing detailed ESG transparency to market participants in relation to its business activities. The most recent transparency report is available at unpri.org/signatory-directory/mandg- investments/1483.article Given its commitment to responsible investment, the Investment Manager has allocated significant human and financial capital to the implementation of the PRI principles. Sustainability risk and investment process The Board believes that sustainability risk can have a material impact on long-term investment outcomes. Sustainability risk means exposure to an ESG event or condition that, if it occurs, could cause an actual or a potential material negative impact on the value of an investment. The Company’s goal is to generate the best possible risk adjusted returns for investors, taking into account all factors that influence investment performance, and therefore ESG issues are incorporated into investment decisions wherever they have a potentially meaningful impact on risk or return. ESG factors themselves are, generally, non-financial considerations that may impact the risk, volatility and long-term return of individual investments, as well as markets as a whole. Individual investments can have both a positive and negative impact on society and the environment. In certain contexts, ESG factors may be referred to as sustainability factors. Due to the nature of its stated investment strategy, the Company does not seek to actively promote ESG factors and does not seek to maximise portfolio alignment with ESG factors, but it nevertheless remains exposed to sustainability risks. Environmental, social and governance (ESG) issues (continued) 34 Annual Report and audited Financial Statements • December 202234 Strategic report • Governance • Financial • Additional information In order to ensure that sustainability risks are properly considered within the investment decision making and risk monitoring processes, to the extent that they represent potential or actual material risks and/or opportunities for maximising long-term risk-adjusted returns, the Investment Manager follows a series of environmental, social and governance investment principles described in the Investment Manager’s ESG Principles Statement, which can be accessed via the Investment Manager’s website. At its quarterly meeting held on 1 February 2022, the Company resolved to approve the implementation of M&G Investment’s Thermal Coal Investment Policy (Thermal Coal Policy). This came into effect on 27 April 2022. The Thermal Coal Policy is a forward looking policy, excluding issuers who are either unable or unwilling to transition away from thermal coal within the necessary timelines to keep the earth’s average warming within the targets set by the Paris Agreement. The portfolio of the Company does not currently have any assets that are failing the policy and require divestment. Greenhouse gas emissions All of the Company’s activities are outsourced to third parties. As such it does not have any physical assets, property, employees or operations of its own and does not generate any greenhouse gas or other emissions or consume any energy reportable under the Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013 or the Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018, implementing the UK Government’s policy on Streamlined Energy and Carbon Reporting. Strategic review Impacts on the Company following the occurrence of a sustainability risk event may be numerous and will vary depending on the specific investment risk, geographical region and asset class. In general, where a sustainability risk event occurs in respect of an individual asset, there is the potential for a negative impact on, or an entire loss of, its value. The following types of sustainability risks have the potential to materially impact the returns of the Company over time: ● Environmental factors, which include, but are not limited to, the ability of investee companies to mitigate and adapt to climate change, the potential for higher carbon prices, exposure to increasing water scarcity and potential for higher water prices, waste management challenges, and impact on global and local ecosystems. ● Social risks, which include, but are not limited to, product safety, supply chain management and labour standards, health and safety and human rights, employee welfare, data & privacy concerns and increasing technological regulation. ● Governance aspects, which include, but are not limited to, board composition and effectiveness, management incentives, management quality, ethnic and gender diversity, and stakeholder alignment. The potential impacts of sustainability risk events on the Company’s portfolio include degradation of issuer cashflow and consequent inability to meet debt servicing obligations, and inability to continue to actively and competitively participate in its chosen markets. Sustainability risks may also affect the credit quality of an issuer. The Company has exposure to higher-yielding private debt arrangements, which may include debt securities of smaller companies, some of which may be privately owned, and thus may be less transparent in respect of environmental, social and governance and sustainability-related disclosures. Sustainability risk and investment process (continued) 35Annual Report and audited Financial Statements • December 2022 Strategic report • Governance • Financial • Additional information Modern slavery The Company, as an investment vehicle, does not provide goods or services in the normal course of business and does not have customers. The Directors consider that the Company is thus not required to make a slavery or human trafficking statement under the Modern Slavery Act 2015. The Board considers the Company’s supply chains, dealing predominantly with professional advisers and service providers in the financial services industry, to be low risk in relation to this matter. Approval The Strategic Report was approved by the Board at its meeting on 25 April 2023. The Chairman’s Statement together with the Investment Manager’s Report form part of this Strategic Report. David Simpson Chairman 25 April 2023 Strategic review 36 Annual Report and audited Financial Statements • December 202236 Strategic report • Governance • Financial • Additional information Directors David Simpson, Chairman. Appointed as a non- executive Director on 18 September 2018. David Simpson is a qualified solicitor and was a partner at KPMG for 15 years until 2013, culminating as global head of M&A. Before that he spent 15 years in investment banking, latterly at Barclays de Zoete Wedd Ltd. He is chairman of Ecofin Global Utilities and Infrastructure Trust plc, a non-executive Director of abrdn New India Investment Trust plc and a non-executive Director of ITC Limited, a major listed Indian company. David graduated from the University of Cambridge with a degree in Economics and Law. Richard Boléat FCA, Audit Committee Chairman. Appointed as a non-executive Director on 18 September 2018. Richard Boléat is a Fellow of the Institute of Chartered Accountants in England & Wales, having trained with Coopers & Lybrand in Jersey and the United Kingdom. After qualifying in 1986, he subsequently worked in the Middle East, Africa and the UK for a number of commercial and financial services groups before returning to Jersey in 1991. He was formerly a Principal of Channel House Financial Services Group from 1996 until its acquisition by Capita Group plc (‘Capita’) in September 2005. Richard led Capita’s financial services client practice in Jersey until September 2007, when he left to establish Governance Partners, L.P., an independent corporate governance practice. Alongside his roles at the Company, he currently acts as Chairman of CVC Credit Partners European Opportunities Limited and is a non-executive Director of Third Point Investors Limited, both of which are listed on the London Stock Exchange. He is regulated in his personal capacity by the Jersey Financial Services Commission. Barbara Powley, appointed as a non-executive Director on 18 September 2018 and Senior Independent Director from 26 April 2023. Barbara Powley is a chartered accountant with over 30 years’ experience in the investment trust industry. Prior to her retirement in March 2018 she was a director in BlackRock’s closed- ended funds team from 2005 with responsibility for the oversight and administration of BlackRock’s stable of investment trusts. From 1996 to 2005, she had a similar role at Fidelity. Barbara graduated from the University of York with a degree in Mathematics and Economics. Barbara is currently a non-executive Director of Montanaro UK Smaller Companies Investment Trust plc. Jane Routledge, appointed as a non-executive Director on 25 October 2021. Jane Routledge has spent 30 years in marketing & communications roles in the investment management sector, communicating with pension fund, intermediary and private investor audiences. She has worked in a number of investment management businesses, including Schroders, Invesco and Hermes Fund Managers. Most recently, she spent eight years to December 2019 as a partner in Seven Investment Management, building and leading its marketing function across all channels to market. Jane is currently a non-executive director of Cumbria Education Trust and Brown Advisory US Smaller Companies PLC. She graduated from the University of Cambridge with a degree in Modern & Medieval Languages, and has a Masters degree in Organisational Psychology from the University of London. 3737Annual Report and audited Financial Statements • December 2022 Strategic report • Governance • Financial • Additional information Investment trust status The Company has received approval from HM Revenue & Customs (HMRC) as an authorised investment trust under Sections 1158 and 1159 of the Corporation Tax Act 2010, subject to the Company continuing to meet the eligibility conditions. The Directors are of the opinion that the Company has conducted its affairs in compliance with such approval and intends to continue doing so. Current share capital As at 31 December 2022 there were 142,233,022 Ordinary Shares in issue, excluding 2,512,749 Ordinary Shares held in treasury. At the date of this report, there are 142,133,022 Ordinary Shares in issue, excluding 2,612,749 held in treasury. At General Meetings of the Company, Shareholders are entitled to one vote on a show of hands and, on a poll, to one vote for every share held. The total voting rights of the Company as at 31 December 2022 were 142,233,022. There are no restrictions concerning the transfer of securities in the Company or on voting rights; no special rights with regard to control attached to securities and no agreements between holders of securities regarding their transfer known to the Company. Change of Control There are no agreements to which the Company is party that might be affected by a change of control of the Company except for the agreement in relation to the Company’s credit facility. The Company entered into a £25 million Facility Agreement with State Street Bank International GmbH, expiring on 16 October 2023. This agreement could alter or terminate on the change of control of the Company. Further information is disclosed in note 6 to the financial statements. Directors’ report The Directors are pleased to present the Annual Report and audited Financial Statements for the year ended 31 December 2022. In accordance with the Companies Act 2006 (as amended), the Listing Rules and the Disclosure Guidance and Transparency Rules, the Corporate Governance Statement, Directors’ Remuneration Report, Report from the Audit Committee and the Statement of Directors’ Responsibilities should be read in conjunction with one another and the Strategic Report. As permitted by legislation, some of the matters normally included in the Directors’ Report have instead been included in the Strategic Report, as the Board considers them to be of strategic importance. Therefore, a review of the business of the Company, recent events and outlook can be found on pages 6 to 8 and information regarding environmental, social and governance issues can be found on pages 32 to 33. Directors The Directors in office during the year and at the date of this report are shown on page 36 together with their biographical details. None of the Directors or any persons connected with them had a material interest in the transactions and arrangements of, or the agreement with, the Investment Manager during the year. Results and dividends A summary of the Company’s performance during the year ended 31 December 2022 and the outlook for the forthcoming year is set out in the Strategic Report on pages 6 to 8. The interim dividends paid for the year ended 31 December 2022 are set out in note 7 to the Financial Statements. Corporate governance The Company’s Corporate Governance Statement is set out on pages 42 to 54 and forms part of this report. 38 Annual Report and audited Financial Statements • December 202238 Strategic report • Governance • Financial • Additional information On 18 November 2020, the Company announced that it had given instructions to Winterflood Securities Limited (‘Winterflood’) to purchase the Company’s shares pursuant to the authority by Shareholders at the previous AGM. On 30 April 2021, the Company announced its intention to implement a ‘zero discount’ policy to seek to manage the discount or premium to net asset value and gave instructions to Winterflood to implement the policy on the Board’s behalf. During the year ended 31 December 2022, the Company bought back a total of 2,305,000 shares (2021: 2,882,749) to be held in treasury at an average price of 91.15p per share (2021: 97.5p) representing total consideration of £2,184,800 (2021: £2,810,635). Substantial shareholdings The Company has been informed of the following latest notifiable interests in the voting rights of the Company, in accordance with Disclosure Guidance and Transparency Rule 5.1.2, as at 31 December 2022: Number of shares held % of voting rights at 31 December 2022 M&G plc 38,830,132 27.3 Alder Investment Management Limited 7,877,039 5.5 EFG Private Bank Limited 7,226,335 5.1 Brewin Dolphin Limited 7,106,845 5.0 SG Kleinwort Hambros Bank Limited 5,732,836 4.0 The Company has not been informed of any changes to the above interests between 31 December 2022 and the date of this Report. Articles of Association The Company’s Articles of Association may only be amended by a special resolution at a General Meeting of the Shareholders. Share issues At a General Meeting of the Company held on 18 September 2018, the Directors were granted the authority to allot up to 400,000,000 Ordinary Shares and/or C Shares in aggregate, which will expire on 18 September 2023. At the forthcoming Annual General Meeting (‘AGM’) in 2023, the Directors will seek a new authority to allot Ordinary Shares and/or C Shares up to an aggregate nominal amount of £142,133 (ie up to 14,213,300 Ordinary Shares and/or C Shares, representing approximately 10% of the issued share capital of the Company (excluding treasury shares) as at the last business day before publication of the Notice of AGM). This authority will expire at the conclusion of the AGM in 2024. The Company has a block listing of 14,203,384 Ordinary Shares, as the balance of an initial application for a block listing of 20,000,000 Ordinary Shares listed and admitted to trading on the premium segment of the LSE’s main market on 17 January 2019. The shares may be issued under the block listing from time to time for cash and in accordance with the Company’s Articles of Association, provided that such issues are made at prices of not less than the prevailing net asset value per share. During the year ended 31 December 2022, no shares were issued under the block listing. A total of 2,815,000 shares at an average price of 99.38p per share were sold from treasury for cash representing a total consideration of £2,796,550. The shares were sold at a premium to the previously published net asset value per share. Purchase of own shares The current authority to repurchase up to 14.99% of the Company’s issued share capital to be held in treasury or for cancellation was granted to the Directors on 8 June 2022 and will expire at the conclusion of the 2023 AGM when a resolution for its renewal will be proposed (see page 104 for further information). Directors’ report 3939Annual Report and audited Financial Statements • December 2022 Strategic report • Governance • Financial • Additional information Financial risk management As noted on page 23, information about the Company’s financial risk management objectives and policies is set out in note 13 of the Financial Statements. Going concern and viability statement The going concern statement and viability statement can be found on pages 23 and 24 of the Strategic Report. Political donations The Company made no political donations during the year to 31 December 2022. Directors’ and Officers’ liability insurance Directors’ and Officers’ liability insurance cover is maintained by the Company, at its expense, on behalf of the Directors. AGM The Directors are pleased to invite Shareholders to attend the fourth AGM of the Company, at the offices of M&G Alternatives Investment Management Limited. The Notice of AGM (the ‘Notice’) to be held on 15 June 2023 is set out on pages 103 to 107. Shareholders are being asked to vote on various items of business as follows: ● The receipt and acceptance of the Strategic Report, Directors’ Report, Auditor’s Report and the audited Financial Statements for the year ended 31 December 2022 ● The receipt and approval of the Directors’ Remuneration Report ● The receipt and approval of the Directors’ Remuneration Policy Requirements of the listing rules Listing Rule 9.8.4 requires the Company to include certain information in a single identifiable section of the Annual Report or a cross-reference table indicating where the information is set out. The Directors confirm that there are no disclosures to be made in relation to Listing Rule 9.8.4. Directors’ indemnity Under the Company’s Articles of Association, the Directors are provided, subject to the provisions of UK legislation and at the discretion of the Board, with an indemnity in respect of liabilities owed to third parties which they may sustain or incur in connection with their appointment. This indemnity was in force during the year and remains in force as at the date of this report. Apart from this, there are no qualifying third-party indemnity provisions or qualifying pension scheme indemnity provisions that would require disclosure. Auditor The Directors who held office at the date of approval of the Directors’ Report confirm that, so far as they are aware, there is no relevant audit information of which the Company’s Auditor is unaware and each Director has taken all the steps that they ought to have taken as a Director to make themselves aware of any relevant audit information and to establish that the Company’s Auditor is aware of that information. The Audit Committee conducted a competitive tender process for the year ending 31 December 2023 and recommended the appointment of BDO LLP. Resolutions for its appointment and for the Directors to determine its remuneration will be proposed at the forthcoming AGM. Please refer to page 63 in the Report of the Audit Committee for further information. Directors’ report 40 Annual Report and audited Financial Statements • December 202240 Strategic report • Governance • Financial • Additional information Authority to allot Ordinary Shares and to sell shares from treasury for cash As explained on page 38, the authorities granted on 18 September 2018 are due to expire on 18 September 2023, and therefore the Directors will seek new authorities at the forthcoming AGM. An ordinary resolution to authorise the Directors to allot Ordinary Shares and/or C Shares up to an aggregate nominal amount of £142,133 (ie up to 14,213,300 Ordinary Shares and/or C Shares, representing approximately 10% of the issued share capital of the Company (excluding treasury shares) as at the last business day before publication of the Notice of AGM), will be proposed as Resolution 11. When shares are to be allotted for cash, Section 561 of the Companies Act 2006 provides that existing shareholders have pre-emption rights and that the new shares must be offered first to such shareholders in proportion to their existing holding of shares. However, shareholders can, by special resolution, authorise the Directors to allot shares otherwise than by a pro rata issue to existing shareholders. Resolution 12, a special resolution, is being proposed to authorise the Directors to issue Ordinary Shares and/or C Shares for cash and to disapply the pre-emption rights of existing shareholders in relation to issues of Ordinary Shares and/or C Shares under Resolution 11 (being in respect of up to 10% of the Company’s issued share capital as at the date of the Notice, as if Section 561 does not apply. Shares would only be issued at a price at or above the prevailing NAV per share. As at the date of the Notice, the Company holds 2,612,749 shares in treasury. ● Approval of the Company’s dividend policy ● The election and re-election of Directors ● The appointment of BDO LLP as Auditor and the authorisation of the Directors to determine the remuneration of the Auditor ● The authority to allot shares ● The authority for disapplication of pre-emption rights in respect of the shares the Directors are authorised to allot ● The purchase of own shares ● The holding of general meetings (other than AGMs) on not less than 14 clear days’ notice The details about the resolutions are provided on pages 103 to 107. Dividend policy By way of a resolution granted on 18 September 2018, the Directors are authorised to declare and pay all dividends as interim dividends without the need for the prior approval of the Company’s shareholders. However, regarding Corporate Governance best practices relating to the payment of interim dividends, without shareholder approval of a final annual dividend, the Board has decided to seek express approval of its dividend policy. The Company’s dividend policy remains unchanged to that disclosed in the IPO Prospectus published on 26 September 2018 which stated that the Company intends to distribute at least 85% of its distributable income earned in each financial year by way of dividends and that, from 2020, such dividends are intended to be paid quarterly. Directors’ report AGM (continued) 4141Annual Report and audited Financial Statements • December 2022 Strategic report • Governance • Financial • Additional information Purchase of own shares Resolution 13, a special resolution, will renew the Company’s authority to make market purchases of up to 21,305,739 Ordinary Shares (being 14.99% of the issued share capital as at the date of the Notice, excluding any treasury shares, or, if changed, 14.99% of the issued share capital, excluding any treasury shares, immediately following the passing of the resolution), either for cancellation or placing into treasury at the determination of the Directors. Purchases of Ordinary Shares will be made within guidelines established from time to time by the Board. Any purchase of Ordinary Shares would be made only out of the available cash resources of the Company. The maximum price which may be paid for an Ordinary Share must not be more than the higher of (i) 5.0% above the average of the mid-market value of the Ordinary Shares for the five business days before the purchase is made, or (ii) the higher of the price of the last independent trade and the highest current independent bid for the Ordinary Shares. The minimum price which may be paid is £0.01 per Ordinary Share. This authority, if approved by Shareholders, will expire at the AGM to be held in 2024, when a resolution for its renewal will be proposed. Notice period for General Meetings In terms of the Companies Act 2006, the notice period for General Meetings (other than an AGM) is 21 clear days’ notice unless the Company: (i) has gained shareholder approval for the holding of General Meetings on 14 clear days’ notice by passing a special resolution at the most recent AGM; and (ii) offers the facility for all shareholders to vote by electronic means. Directors’ report The Company would like to preserve its ability to call General Meetings (other than an AGM) on less than 21 clear days’ notice. The shorter notice period proposed by Resolution 14, a special resolution, would not be used as a matter of routine, but only where the flexibility is merited by the business of the meeting and is thought to be in the interests of Shareholders as a whole. The approval will be effective until the date of the AGM to be held in 2024, when it is intended that a similar resolution will be proposed. Directors’ recommendation The Directors consider each resolution being proposed at the AGM to be in the best interests of the Company and shareholders as a whole and they unanimously recommend that all shareholders vote in favour of them, as they intend to do in respect of their own beneficial shareholdings. By order of the Board Link Company Matters Limited Company Secretary 25 April 2023 42 Annual Report and audited Financial Statements • December 202242 Strategic report • Governance • Financial • Additional information The UK Code includes provisions relating to the role of the chief executive, executive directors’ remuneration and the need for an internal audit function. For the reasons set out in the AIC Guide, 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. The Principles of the AIC Code The AIC Code is made up of 17 principles split into five sections: ● Board leadership and purpose ● Division of responsibilities ● Composition, succession and evaluation ● Audit, risk and internal control ● Remuneration Corporate governance statement Introduction The Listing Rules and the Disclosure Guidance and Transparency Rules (Disclosure Rules) of the FCA require listed companies to disclose how they have adhered to the principles and followed the recommended provisions of the corporate governance code to which the issuer is subject. The Board has considered the Principles and Provisions of the AIC Code of Corporate Governance (AIC Code), published In February 2019. The AIC Code addresses the Principles and Provisions set out in the UK Corporate Governance Code (the UK Code) issued by the Financial Reporting Council (FRC), as well as setting out additional principles and recommendations on issues that are of specific relevance to investment trusts. 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 than the UK Code. The terms of the FRC’s endorsement mean that AIC members who report against the AIC Code fully meet their obligations under the UK Code and the related disclosure requirements contained in the Listing Rules. The AIC Code is available on the AIC website (theaic. co.uk). It includes an explanation of how the AIC Code adapts the Principles and Provisions set out in the UK Code to make them relevant for investment companies. The UK Code can be viewed at frc.org.uk Throughout the year ended 31 December 2022, the Company has complied with the principles and provisions of the AIC Code and the relevant provisions of the UK Code, except as set out below. 43Annual Report and audited Financial Statements • December 2022 Strategic report • Governance • Financial • Additional information Corporate governance statement AIC Code Principle Compliance statement Board leadership and purpose A. A successful company is led by an effective board, whose role is to promote the long-term sustainable success of the Company, generating value for shareholders and contributing to wider society. The Board considers the Company’s long-term sustainable success as its main focus and all decisions are considered from this point of view. As outlined below, the Company is run with a very clear culture and values which are embedded into everything the Company does. As part of this the opportunities and risks faced by the business are considered, monitored and assessed on a regular basis, both in terms of potential and emerging risks that the business may face. More detail regarding the principal risks and the sustainability of the Company’s business model can be found in the Strategic Report on pages 17 to 22. In addition, the Company, through the Investment Manager, has a strong, long-term commitment to a responsible investment methodology, which expressly considers the interests of wider society within the Investment Manager’s investment processes. Details can be found on pages 32 to 34 of the Strategic Report. B. The Board should establish the Company’s purpose, values and strategy, and satisfy itself that these and its culture are aligned. All directors must act with integrity, lead by example and promote the desired culture. The purpose of the Company is the investment objective which is to generate a regular and attractive level of income with low asset value volatility. It seeks to do this by investing in a diversified portfolio of public and private debt and debt-like instruments. The Company is mainly invested in private debt instruments. This part of the portfolio will generally include Debt Instruments which are nominally quoted but are generally illiquid. The strategy that the Board follows in order to execute this is outlined in the Strategic Report on pages 4 to 8. More detail regarding how the Company considers the long-term sustainable success of the Company can be found in the Section 172 statement on pages 26 to 31. The Board adopts key values that are embedded in the culture of the business and are important to any investment decision made by the Company. These values and culture also drive how the Board and its relationship with the Investment Manager proceed. These are to: ● invest in a manner consistent with the PRI Principles; ● ensure all business decisions are made once all potential impacts on relevant stakeholders are fully understood; ● encourage open, honest and collaborative discussions at all levels in Board meetings, with Shareholders and with other stakeholders; and ● seek to avoid or manage any potential conflicts of interest. The values and culture of the business are considered as part of the annual board evaluation process to ensure that they remain a key focus that all decisions are based on. The Principles of the AIC Code (continued) 44 Annual Report and audited Financial Statements • December 202244 Strategic report • Governance • Financial • Additional information Corporate governance statement AIC Code Principle Compliance statement C. The Board should ensure that the necessary resources are in place for the Company to meet its objectives and measure performance against them. The Board should also establish a framework of prudent and effective controls, which enable risk to be assessed and managed. The Board and the Management Engagement Committee regularly review the performance of the Company and the performance and resources of the Investment Manager to ensure that the Company can continue to meet its investment objective. The Board assesses the performance of the Investment Manager in a number of different ways, including through the KPIs. The Audit Committee is responsible for assessing and managing risks and further information about how this is done can be found in the Report of the Audit Committee on pages 62 to 66. D. In order for the Company to meet its responsibilities to shareholders and stakeholders, the Board should ensure effective engagement with, and encourage participation from, these parties. The Board understands its responsibilities to Shareholders and other stakeholders and considers the expressed opinions of all such parties when making any material decision. The Board considers that, other than Shareholders, their other key stakeholders are their third-party service providers and the Investment Manager in particular. The Management Engagement Committee considers the relationship with all third-party service providers on at least an annual basis and there is an ongoing dialogue with the Investment Manager to ensure views are aligned. More information regarding how the Board engages with stakeholders and considers the impact that any material decision will have on relevant shareholders can be found in the Section 172 statement on pages 26 to 31. Representatives of the Investment Manager regularly meet institutional shareholders to discuss strategy and to understand their issues and concerns and, if applicable, to discuss corporate governance issues. The results of such meetings are reported at the following Board meeting. Regular reports on investor sentiment and industry issues from the Company’s broker are submitted to the Board. Any substantive communications regarding major corporate issues would be discussed by the Board taking into account representations from the Investment Manager, the auditor, legal advisers, the broker and the Company Secretary. The Principles of the AIC Code (continued) 45Annual Report and audited Financial Statements • December 2022 Strategic report • Governance • Financial • Additional information Corporate governance statement AIC Code Principle Compliance statement Division of responsibilities F. The chair leads the Board and is responsible for its overall effectiveness in directing the Company. They should demonstrate objective judgement throughout their tenure and promote a culture of openness and debate. In addition, the chair facilitates constructive board relations and the effective contribution of all non-executive directors, and ensures that directors receive accurate, timely and clear information. There is a clear division of responsibility between the Chairman, the Directors, the Investment Manager and the Company’s other third-party service providers. The Chairman is responsible for leading the Board, ensuring its effectiveness in all aspects of its role and is responsible for ensuring that all Directors receive accurate, timely and clear information. The Board meets regularly throughout the year and representatives of the Investment Manager are in attendance, when appropriate, at each meeting and most Committee meetings. The Board has agreed a schedule of matters specifically reserved for decision by the Board. This includes establishing the investment objective, strategy and benchmarks, the permitted types or categories of investment, the markets in which transactions may be undertaken, the level of permitted gearing and borrowings, the amount or proportion of the assets that may be invested in any category of investment or in any one investment, and the Company’s treasury and share buyback policies. The Board, at its regular meetings, undertakes reviews of key investment and financial data, revenue projections and expenses, analyses of asset allocation, transactions and performance comparisons, share price and net asset value performance, gearing, marketing and shareholder communication strategies, the risks associated with pursuing the investment strategy and industry issues. The review of the performance of the Chairman was carried out during the year by Richard Boléat as Senior Independent Director. It was concluded that the Directors believed the Chairman encouraged good debate, ensured all Directors were involved in discussions and that the Board as a whole was working well. The Principles of the AIC Code (continued) 46 Annual Report and audited Financial Statements • December 202246 Strategic report • Governance • Financial • Additional information Corporate governance statement AIC Code Principle Compliance statement G. The Board should consist of an appropriate combination of directors (and, in particular, independent non-executive directors) such that no one individual or small group of individuals dominates the Board’s decision making. All of the Directors are non-executive and are independent of the Investment Manager and the other service providers. A majority of the Board will at all times be independent of the Investment Manager. The Chairman, David Simpson, was independent of the Investment Manager at the time of his appointment and remains so. Each Director is not a director of another investment company managed by the Company’s Investment Manager, nor has any Board member been an employee of the Company or any of its service providers. The Board evaluation concluded that each Director provides a valuable contribution to Board meeting discussions and exercises appropriate levels of challenge and debate. During the year under review, Richard Boléat acted as Senior Independent Director of the Company. Following a review of Director roles and the composition of Board Committees by the Nomination Committee, the Board agreed to rotate the role of Senior Independent Director and Barbara Powley has agreed to assume this role from 26 April 2023. H. Non-executive directors should have sufficient time to meet their board responsibilities. They should provide constructive challenge, strategic guidance, offer specialist advice and hold third party service providers to account. As part of the Board evaluation process, the contributions of each Director, as well as the time commitments made by each board member are considered and reviewed. Directors’ other commitments are regularly reviewed and any new appointments are considered by the other Directors to ensure there is no conflict of interest or risk of overboarding. As explained above, it was concluded that each Director provided appropriate levels of challenge and provided the Company and the Investment Manager with guidance and advice when required. The Management Engagement Committee reviews the performance and cost of the Company’s third-party service providers on an annual basis. More information regarding the work of the Management Engagement Committee can be found on pages 52 to 54. I. The Board, supported by the Company Secretary, should ensure that it has the policies, processes, information, time and resources it needs in order to function effectively and efficiently. The Directors have access to the advice and services of the Company Secretary through its appointed representative who is responsible to the Board for ensuring that Board procedures are followed and that applicable rules and regulations are complied with. The Company Secretary is also responsible for ensuring good information flows between all parties. The Principles of the AIC Code (continued) 47Annual Report and audited Financial Statements • December 2022 Strategic report • Governance • Financial • Additional information Corporate governance statement AIC Code Principle Compliance statement Composition, succession and evaluation J. Appointments to the Board should be subject to a formal, rigorous and transparent procedure, and an effective succession plan should be maintained. Both appointments and succession plans should be based on merit and objective criteria and, within this context, should promote diversity of gender, social and ethnic backgrounds, cognitive and personal strengths. The Board has established a Nomination Committee, comprising all the independent Directors. This Committee will lead the appointment process of new Directors as and when vacancies arise and as part of the Directors’ ongoing succession plans. More information regarding the work of the Nomination Committee can be found on page 53. The Board has adopted a diversity policy, as set out on page 32, which acknowledges the benefits of greater diversity and remains committed to ensuring that the Company’s Directors bring a wide range of skills, knowledge, experience, backgrounds and perspectives to the Board. Whilst the Board does not feel that it would be appropriate to set targets as all appointments are made on merit, the following objectives for the appointment of Directors have been established: ● All Board appointments will be made on merit, in the context of the skills, knowledge and experience that are needed for the Board to be effective. ● Long lists of potential non-executive Directors should include diverse candidates of appropriate merit. The Company is committed to ensuring that any board vacancies are filled by the most qualified candidates. The Principles of the AIC Code (continued) 48 Annual Report and audited Financial Statements • December 202248 Strategic report • Governance • Financial • Additional information Corporate governance statement AIC Code Principle Compliance statement K. The Board and its committees should have a combination of skills, experience and knowledge. Consideration should be given to the length of service of the Board as a whole and membership regularly refreshed. The Directors’ biographical details are set out on page 36 of this Report. These demonstrate the wide range of skills and experience that they bring to the Board. The Board carried out a skills audit during the year and will continue to do so on an annual basis concurrently with the Board evaluation. The Board has adopted a Tenure Policy for all Directors, including the Chairman, which states that the Board believes that it is an advantage to have the continuous contribution of Directors over a period of time during which they are able to develop awareness and insight of the Company and thereby be able to make a valuable contribution to the Board as a whole. The Board believes that recommendations for re-election should be on an individual basis following a rigorous review which assesses the contribution made by the Director concerned, and takes into account the need for regular refreshment and diversity. The Board believes that it is appropriate for a Director to serve for up to nine years following their initial election, and it is expected that Directors will stand down from the board by the conclusion of the AGM following that period. L. Annual evaluation of the Board should consider its composition, diversity and how effectively members work together to achieve objectives. Individual evaluation should demonstrate whether each director continues to contribute effectively. The Board has agreed to evaluate its own performance and that of its Committees, Chairman and Directors on an annual basis. For the year under review this was carried out by way of a questionnaire and subsequent individual discussions. The Chairman led the assessment, which covered the functioning of the Board as a whole, the effectiveness of the Board Committees and the independence and contribution made by each Director. The Chairman discussed the responses with each Director individually. The Chairman absented himself from the Board’s review of his effectiveness as the Company Chairman, and this review was led by Richard Boléat, the Senior Independent Director. Following this review, the Board is satisfied that the structure, mix of skills and operation of the Board is effective and relevant for the Company. The individual performance of each Director standing for election has been evaluated and it is recommended that shareholders vote in favour of their election at the AGM. Directors are subject to annual re-election by shareholders and accordingly, all Directors will submit themselves for re-election by shareholders at the forthcoming Annual General Meeting. More information regarding the proposed election of each Director can be found on page 103. The Principles of the AIC Code (continued) 49Annual Report and audited Financial Statements • December 2022 Strategic report • Governance • Financial • Additional information AIC Code Principle Compliance statement Audit, risk and internal control M. The Board should establish formal and transparent policies and procedures to ensure the independence and effectiveness of external audit functions and satisfy itself on the integrity of financial and narrative statements. The Audit Committee has put in place a non-audit services policy, which ensures that any work outside the scope of the standard audit work requires prior approval by the Audit Committee. This enables the Committee to ensure that the external auditors remain fully independent. In addition, the Audit Committee carries out a review of the performance of the external auditor on an annual basis. Feedback from other third parties, including the Investment Manager, is included as part of this assessment to ensure the Audit Committee takes into account the views of different parties who have a close working relationship with the external auditor. The Audit Committee considers the output from the FRC audit quality reviews in relation to the external auditor to ensure that any matters of concern are identified and discussed. Further information regarding the work of the Audit Committee can be found on pages 62 to 66. Corporate governance statement The Principles of the AIC Code (continued) 50 Annual Report and audited Financial Statements • December 202250 Strategic report • Governance • Financial • Additional information Corporate governance statement AIC Code Principle Compliance statement N. The Board should present a fair, balanced and understandable assessment of the Company’s position and prospects. The Audit Committee has considered the Annual Report and Accounts as a whole and believes that the document presents a fair, balanced and understandable assessment of the Company’s position and prospects. In particular, the Committee has considered the language used in the document to ensure technical terminology is avoided to the extent possible, or where used it is suitably explained. O. The Board should establish procedures to manage risk, oversee the internal control framework, and determine the nature and extent of the principal risks the Company is willing to take in order to achieve its long-term strategic objectives. The Audit Committee reviews reports from the principal service providers on compliance and the internal and financial control systems in operation and relevant independent audit reports thereon. The Audit Committee has carried out a review of the effectiveness of the Company’s systems of internal control as they have operated during the year under review and up to the date of approval of the Annual Report. Given the nature of the business, the Company is reliant on its service providers and their internal controls. The Audit Committee reviews the Investment Manager’s and Administrator’s compliance and control systems in operation insofar as they relate to the affairs of the Company. As set out in more detail in the Report of the Audit Committee on pages 62 to 66, the Company has in place a detailed system for assessing the adequacy of those controls. The Audit Committee’s internal control oversight focus is described in more detail in the Report of the Audit Committee on pages 65 to 66. The Principles of the AIC Code (continued) 51Annual Report and audited Financial Statements • December 2022 Strategic report • Governance • Financial • Additional information Corporate governance statement AIC Code Principle Compliance statement Remuneration P. Remuneration policies and practices should be designed to support strategy and promote long-term sustainable success. As outlined in the Remuneration Report on pages 55 to 61, the Company follows the recommendation of the AIC Code that non-executive Directors’ remuneration should reflect the time commitment and responsibilities of the role. The Company’s policy is that the remuneration of non-executive Directors should reflect the experience of the Board as a whole and be determined with reference to comparable organisations and appointments. Directors are not eligible for bonuses, share options, long-term incentive schemes or other performance related benefits as the Board does not believe that this is appropriate for non-executive Directors. The Remuneration Policy is therefore designed to attract and retain high quality Directors, whilst ensuring that Directors remain focused and incentivised to promote the long-term sustainable success of the Company. As at the date of this Report, all Directors own shares in the Company. All shares were purchased in the open market and using the Directors’ own resources. Directors’ fees were initially set at the time of the Company’s IPO. The Remuneration Committee annually reviews the fees paid to the Directors and compares these with the fees paid by the Company’s peer group and the investment trust industry generally, taking into account the time commitment and responsibility of each Board member. More information regarding the work of the Remuneration Committee can be found in the Remuneration Report on page 55. Q. A formal and transparent procedure for developing policy remuneration should be established. No director should be involved in deciding their own remuneration outcome. The Remuneration Policy has been developed with reference to comparable organisations and appointments. There is an agreed fee which all non- executive Directors receive (irrespective of experience or tenure) and an additional fee for the role of Audit Committee Chairman. There is also an agreed fee for the role of Chairman. Any changes to the Chairman’s fee are considered by the Remuneration Committee as a whole, with the exception of the Chairman who excuses himself from this part of the meeting. The Principles of the AIC Code (continued) 52 Annual Report and audited Financial Statements • December 202252 Strategic report • Governance • Financial • Additional information Corporate governance statement AIC Code Principle Compliance statement R. Directors should exercise independent judgement and discretion when authorising remuneration outcomes, taking account of company and individual performance, and wider circumstances. Any decision with regard to remuneration is taken after considering the performance of the Company and the current market conditions. The Remuneration Committee has reviewed the prevailing Remuneration Policy, as approved by shareholders at the 2020 AGM and no changes are proposed to the Remuneration Policy, which is due to be put to shareholders for approval at the 2023 AGM. If approved by shareholders, the Remuneration Policy will apply from the 2023 AGM until the AGM in 2026. If any significant changes to the Remuneration Policy were to be considered before then, the Remuneration Committee would consult with shareholders and seek external advice before proposing any such changes. For any changes to be effective the Remuneration Policy would be proposed for approval at a General Meeting, if necessary outside of the statutory requirement to seek shareholder consent to the Remuneration Policy on a triennial basis. Board Committees The Board has agreed a schedule of matters specifically reserved for decision by the full Board, subject to which the Board has delegated specific duties to Committees of the Board which operate within written terms of reference. Link Company Matters Limited acts as Company Secretary to each Committee. No persons other than the Committee members are entitled to attend Committee meetings unless formally invited by the Committee. Copies of the terms of reference for Board Committees are available from the Company Secretary and on the Company’s website. The Board has also adopted a procedure for Directors, in the furtherance of their duties, to take independent professional advice at the expense of the Company. At its annual meeting in February 2023, the Nomination Committee considered the roles of the Directors and recommended to the Board that Barbara Powley should become chair of the Management Engagement Committee and Senior Independent Director and Jane Routledge should chair the Remuneration Committee. The Board accepted the recommendations and resolved that these changes would become effective from 26 April 2023. Audit Committee The Audit Committee comprises Richard Boléat FCA as Chairman, Barbara Powley, David Simpson and Jane Routledge. The Audit Committee meets at least four times a year. As David Simpson was independent on appointment and provides significant input into Audit Committee meetings, the Directors believe it is appropriate for him to be a member of the Audit Committee, despite his role as Chairman of the Board. In particular, the Board considers that the Audit Committee as a whole has competence relevant to the sector and the Board is satisfied that at least one member of the Audit Committee has recent and relevant financial experience. The Board considers that the members of the Audit Committee have the requisite skills and experience to fulfil the responsibilities of the Audit Committee. The Audit Committee examines the effectiveness of the Company’s control systems. It reviews the Half Year and Annual Reports and also receives information from the Investment Manager. It reviews the scope, results, cost effectiveness, independence and objectivity of the external auditor. The Audit Committee has set out a formal Report on pages 62 to 66 of the Annual Report. The Principles of the AIC Code (continued) 5353Annual Report and audited Financial Statements • December 2022 Strategic report • Governance • Financial • Additional information Corporate governance statement Management Engagement Committee The Management Engagement Committee consists of David Simpson, Richard Boléat, Jane Routledge and is chaired by Barbara Powley. The Management Engagement Committee meets at least once a year or more often if required. Its principal duties are to consider the terms of appointment of the Investment Manager and other service providers and it will annually review those appointments and the terms of engagement. The Committee considers the quality, cost and remuneration method of the service provided by the Investment Manager against its contractual obligations and the Board receives regular reports on compliance with the Investment Restrictions it has set. It also considers the performance analysis provided by the Investment Manager. The Management Engagement Committee also reviews the arrangements with, and the services provided by, the Custodian to ensure that the safeguarding of the Company’s assets and security of the shareholders’ investment is being maintained. The Management Engagement Committee will review, at least annually, the performance of all of the Company’s third-party service providers, including the level and structure of fees payable and the length of the notice period, to ensure that they remain competitive and in the best interests of Shareholders. Nomination Committee The Company’s Nomination Committee consists of Richard Boléat, Barbara Powley and Jane Routledge and is chaired by David Simpson. The Nomination Committee meets at least once a year or more often if required. Its principal duties will be to advise the Board on succession planning bearing in mind the balance of skills, knowledge and experience existing on the Board and will make recommendations to the Board in this regard. The Nomination Committee advises the Board on its balance of relevant skills, experience, gender, race, ages and length of service of the Directors serving on the Board. All appointments to the Board will be made in a formal and transparent matter. The Nomination Committee met once during the year ended 31 December 2022 to formally recommend to the Board the re-election of all Directors at the 2022 AGM. In addition, the Nomination Committee considered the composition of the Board and agreed no new appointments were necessary at this time. It was agreed by the Committee that the Board would benefit from receiving regular ‘teach-in’ sessions from the Investment Manager, and in 2022 the Manager delivered information sessions in leveraged loans, valuations and pricing. New appointees to the Board will be provided with a full induction programme. This programme will cover the Company’s investment strategy, policies and practices. The Directors are also given key information on the Company’s regulatory and statutory requirements as they arise, including information on the role of the Board, matters reserved for its decision, the terms of reference for the Board Committees, the Company’s corporate governance practices and procedures and the latest financial information. Remuneration Committee The Company’s Remuneration Committee consists of David Simpson, Richard Boléat and Barbara Powley and is chaired by Jane Routledge. The Remuneration Committee meets at least once a year or more often if required. The Remuneration Committee’s main functions include: (i) agreeing the policy for the remuneration of the Directors and reviewing any proposed changes to the policy; (ii) reviewing and considering ad hoc payments to the Directors in relation to duties undertaken over and above normal business; and (iii) appointing independent professional remuneration advice. The Remuneration Committee met once during the year to consider whether the current level of non-executive Director fees remained appropriate. The Committee agreed that Director fees would increase in line with 54 Annual Report and audited Financial Statements • December 202254 Strategic report • Governance • Financial • Additional information Corporate governance statement Meeting attendance The number of scheduled Board and Board Committee meetings held during the year ended 31 December 2022 and the attendance of the individual Directors is shown below: Board Audit Committee Nomination Committee Management Engagement Committee Remuneration Committee David Simpson 6/6 6/6 1/1 1/1 1/1 Richard Boléat 6/6 6/6 1/1 1/1 1/1 Barbara Powley 6/6 6/6 1/1 1/1 1/1 Jane Routledge 6/6 6/6 1/1 1/1 1/1 The Board meets at least four times a year to review investment performance, financial reports and other reports of a strategic nature. Board and Board Committee meetings are also held on an ad hoc basis to consider particular issues as they arise. Key representatives of the Investment Manager attend each meeting and between these meetings there is regular contact with the Chairman and other Directors where appropriate. Link Company Matters Limited Corporate Secretary 25 April 2023 inflation since the Company’s launch, with effect from 1 January 2022. Further details can be found in the Directors’ Remuneration Report on page 55. Since the year end, the Remuneration Committee has met to consider the Remuneration Report which it recommended to be put to the shareholders at the AGM. In addition, the Committee agreed that Director fees would increase in line with inflation, with effect from 1 January 2023. Further details can be found in the Directors’ Remuneration Report on page 55. The Remuneration Report is set out on pages 55 to 61 of the Annual Report. Remuneration Committee (continued) 5555Annual Report and audited Financial Statements • December 2022 Strategic report • Governance • Financial • Additional information Directors’ remuneration report The Board presents the Directors’ Remuneration Report for the year ended 31 December 2022. This Report is prepared in accordance with Schedule 8 of the Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013. Ordinary resolutions to approve this Report and the Directors’ Remuneration Policy will be proposed at the AGM of the Company to be held on 15 June 2023. The law requires the Company’s auditor to audit certain disclosures provided. Where disclosures have been audited, they are indicated as such. The auditor’s opinion is included in their report on pages 69 to 79. Statement from the Chairman of the Remuneration Committee Directors’ remuneration is determined by the Remuneration Committee, at its discretion within an aggregate ceiling of £300,000 per annum, as set out in the Company’s Articles of Association. The Remuneration Committee’s main functions include: (i) agreeing the policy for the remuneration of the Directors and reviewing and proposing changes to the policy; (ii) reviewing and considering ad hoc payments to the Directors in relation to duties undertaken over and above normal business; and (iii) appointing independent professional remuneration advisors. The Remuneration Committee consists of myself, David Simpson, Richard Boléat and Jane Routledge. Each Director abstains from voting on his or her own individual remuneration. During the year ended 31 December 2022, the annual fees were set out at the rate of £43,000 for the Chairman, £37,500 for the Chairman of the Audit Committee and £32,250 for a Director. The Board’s remuneration is considered annually. Following a review, it was agreed that effective from 1 January 2023, the fees would be increased in line with inflation, accordingly the fees of the Chairman would increase to £47,000, the Chairman of the Audit Committee to £41,000 and the other Directors to £35,500. In accordance with the Companies Act 2006, the Company is required to obtain shareholder approval of its remuneration policy on a triennial basis. Ordinary resolutions will be put to shareholders at the forthcoming AGM to be held on 15 June 2023 to receive and approve the Directors’ Remuneration Report and to receive and approve the Directors’ Remuneration Policy. If approved by Shareholders, the Directors’ Remuneration Policy will be effective immediately upon the passing of the resolution at the AGM. There are no significant changes expected in the way the proposed Remuneration Policy, if approved, will be implemented in the next financial year. Remuneration policy The Company follows the recommendation of the AIC Code that non-executive Directors’ remuneration should reflect the time commitment and responsibilities of the role. The Company’s policy is that the remuneration of non-executive Directors should reflect the experience of the Board as a whole and be determined with reference to comparable organisations and appointments. The Board also considers the average rate of inflation during the period since the last fee increase and reviews the level of remuneration in comparison with other investment trusts of a similar size and/or mandate, as well as taking account of any data published by relevant organisations to ensure that fees are in line with industry practice. This comparison, together with consideration of any alteration in non-executive Directors’ responsibilities, is used to review whether any change in remuneration is necessary. All Directors are non-executive, appointed under the terms of letters of appointment. There are no service contracts in place. The Company has no employees. The fees for the non-executive Directors are determined within the limits (not to exceed £300,000 per annum) set out in the Company’s Articles of Association, or any greater sum that may be determined by special resolution of the Company. Directors are not eligible for bonuses, share options, long-term incentive schemes or other performance-related benefits as the Board does not believe that this is appropriate for non-executive Directors. There are no pension arrangements or retirement benefits in place for the Directors of the Company. 56 Annual Report and audited Financial Statements • December 202256 Strategic report • Governance • Financial • Additional information Under the Company’s Articles of Association, if any Director is called upon to perform or render any special duties or services outside their ordinary duties as a Director, they may be paid such reasonable additional remuneration as the Board, or any committee authorised by the Board, may from time to time determine. The Directors are entitled to be repaid all reasonable travelling, hotel and other expenses properly incurred by them in or about the performance of their duties as Director, including any expenses incurred in attending meetings of the Board or any committee of the Board or general meetings of the Company. Directors’ and Officers’ liability insurance cover is maintained by the Company on behalf of the Directors. Directors’ remuneration report Remuneration policy (continued) Directors’ remuneration components The components of the remuneration package for the Company’s non-executive Directors, which comprise the Directors’ Remuneration Policy, are set out below: Remuneration type Description and approach to determination Fixed fees Annual fees are set for each of the Directors, taking into account the wider industry and individual skills, time commitment and experience. When making recommendations for any changes in fees, the Committee will also consider wider factors such as the average rate of inflation over the period since the previous review, and the level and any change in complexity of the Directors’ responsibilities (including additional time commitments as a result of increased regulatory or corporate governance requirements). These fees shall not exceed £300,000 per annum, divided between the Directors as they may determine. Directors do not participate in discussions relating to their own fee. Additional fees If any Director, being willing and having been called upon to do so, shall render or perform extra or special services of any kind, including services on any Committee of the Board, or shall travel or reside abroad for any business or purposes of the Company, he or she shall be entitled to receive such sum as the Board may think fit for expenses, and also such remuneration as the Board may think fit, either as a fixed sum or otherwise, and such remuneration may, as the Board shall determine, be either in addition to or in substitution for any other remuneration he or she may be entitled to receive. Expenses The Directors shall be entitled to be paid all expenses properly incurred by them in attending General Meetings or separate meetings of the holders of any class of shares or meetings of the Board or Committees of the Board or otherwise in or with a view to the performance of their duties. Other Directors are not eligible for bonuses, share options or long-term incentive schemes or other performance-related benefits. There are no pension arrangements in place for the Directors of the Company. 5757Annual Report and audited Financial Statements • December 2022 Strategic report • Governance • Financial • Additional information Directors’ fee levels per annum (effective from 1 January 2023) Component Role Fee level per annum Purpose of Remuneration Annual fee Chairman £47,000 Commitment as Chairman a Annual fee Non-executive Director £35,500 Commitment as non-executive Director Additional fee Chairman of the Audit Committee £5,500 For additional responsibilities and time commitments b Additional fee All Directors n/a For extra or special services performed in their role as a Director c Expenses All Directors n/a Reimbursement of expenses incurred in the performance of duties as a Director a The Chairman of the Board is paid a higher fee than the other Directors to reflect the more onerous role. b The Chairman of the Audit Committee is paid a higher fee than the other Directors to reflect the more onerous role. c Additional fees would only be paid in exceptional circumstances in relation to the performance of extra or special services. No such fees have been paid in the current year. Fees are reviewed annually in accordance with the above policy. The fee for any new Director appointed to the Board will be determined on the same basis. The Company is committed to ongoing Shareholder dialogue and any views expressed by Shareholders on the fees being paid to Directors would be taken into consideration by the Board when reviewing the Directors’ Remuneration Policy and in the annual review of Directors’ fees. Compensation will not be made upon early termination of appointment. Directors’ remuneration report Remuneration policy (continued) 58 Annual Report and audited Financial Statements • December 202258 Strategic report • Governance • Financial • Additional information Directors’ remuneration report Annual report on remuneration The report below provides Shareholders with an understanding of how the Company has implemented the Remuneration Policy. Directors’ remuneration (audited) The remuneration paid to the Directors for the years ended 31 December 2022 and 31 December 2021 is set out in the single total figure table below: Year ended 31 December 2022 Year ended 31 December 2021 Director Fees £ Taxable benefits a £ Total £ Fees £ Taxable benefits a £ Total £ David Simpson 43,000 – 43,000 41,000 18 41,018 Richard Boléat 37,500 5,355 42,855 35,750 2,729 38,479 Mark Hutchinson b n/a n/a n/a – – – Barbara Powley 32,250 2,910 35,160 30,750 2,145 32,895 Jane Routledge c 32,250 32 32,282 5,716 – 5,716 145,000 8,297 153,297 113,216 4,892 118,108 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. There were no payments to third parties included in the fees referred to in the table above. There are no further fees to disclose as the Company has no employees, chief executive or executive directors. a Reimbursement of expenses incurred in the performance of duties as a Director. b While a Director of the Company, Mark Hutchinson was employed by M&G as Chair of Private Assets and had agreed to waive his fee. He retired on 31 August 2021. c Jane Routledge was appointed on 25 October 2021. 5959Annual Report and audited Financial Statements • December 2022 Strategic report • Governance • Financial • Additional information Directors’ remuneration report Company performance The graph below compares the total return to holders of Ordinary Shares since they were first admitted to trading on the LSE, compared to a return of 3 Month LIBOR +2.5% from inception to 31 December 2019, a return of 3 Month LIBOR +4% from 1 January 2020 until 31 December 2021 and an annual return of SONIA +4% from 1 January 2022. SONIA (which replaced LIBOR) plus target rates have been chosen for comparison purposes as these were the dividend targets for the stated periods. 14 November 2018 = 100 pence 90 95 100 105 110 115 120 Nov 18 Jun 19 Dec 19 Jun 20 Dec 20 Jun 21 Dec 21 Jun 22 Dec 22 NAV total return a Benchmark b Share price total return a a Alternative performance measure. Please see pages 110 to 111 for further information. b 3 Month LIBOR +2.5% from inception to 31 December 2019 , 3 Month LIBOR +4% from 1 January 2020 to December 2021, thereafter SONIA +4%. Source: M&G Annual report on remuneration (continued) Relative importance of spend on pay The table below shows the proportion of the Company’s income spent on pay. for the year ended 31 December 2022 £’000 2021 £’000 Change £’000 Spent on Directors’ fees a 153 118 35 Management fee and other expenses b 1,499 1,395 104 Dividend payments b 6,645 6,066 579 Costs of repurchasing Ordinary Shares 2,201 2,829 (628) a As the Company has no employees, the total spent on remuneration comprises fees and taxable benefits paid to Directors. b The items listed in the table above are as required by the Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013 ss.20 with the exception of the management fee and other expenses, which have been included because the Directors believe it will help shareholders’ understanding of the relative importance of the amount spent on pay. The figures for this measure are the same as those shown in notes 4 and 5 to the Financial Statements. Annual percentage change in Directors’ remuneration The following table sets out the annual percentage change in Directors’ fees for the years ending 31 December 2021, 31 December 2022 and 31 December 2023. Directors’ fees were unchanged in the period from inception to 31 December 2020. Director % from 2022 to 2023 % from 2021 to 2022 % from 2020 to 2021 David Simpson (Chairman) 9.3 4.9 2.5 Richard Boléat (Audit Committee Chairman) 9.3 4.9 2.1 Barbara Powley 10.0 4.9 2.5 Jane Routledge a 10.0 4.9 – Mark Hutchinson b n/a – – a Jane Routledge was appointed as a Director on 25 October 2021; the percentage shown is the increase on a full-year basis. b While a Director of the Company, Mark Hutchinson was employed by M&G as Chair of Private Assets and had agreed to waive his fee. He retired on 31 August 2021. 60 Annual Report and audited Financial Statements • December 202260 Strategic report • Governance • Financial • Additional information Directors’ interests (audited) The Company’s Articles of Association do not require a Director to own shares in the Company. The interests of the Directors and any connected persons in the Ordinary Shares of the Company at 31 December 2021 and 31 December 2022 are shown in the table below. Number of shares 31 December 2022 Number of shares 31 December 2021 David Simpson 25,000 25,000 Richard Boléat 30,000 20,000 Barbara Powley a 17,494 16,673 Jane Routledge 19,696 – a Barbara Powley purchased an additional 436 shares on 13 March 2023. The information in the above table has been audited. All of the holdings of the Directors are beneficial. None of the Directors or any person connected with them had a material interest in the Company’s transactions, arrangements or agreements during the year. Remuneration advisors The Company has not sought the advice or service of any outside person in respect of consideration of Directors’ remuneration. Consideration of shareholders’ views An ordinary resolution to approve the Remuneration Report is put to shareholders at each Annual General Meeting. An ordinary resolution to approve the Remuneration Policy is put to shareholders on a triennial basis and shareholders also have the opportunity to comment on and raise any questions in respect of the remuneration policy at each AGM meeting. To date, no shareholders have expressed an opinion on the remuneration policy. Should there be a substantial vote against any resolution proposed at the Annual General Meeting, the reasons for the vote would be sought and action taken. In the event that the vote was against resolutions in relation to the Directors’ remuneration, further details would be provided in future Directors’ Remuneration Reports. Shareholder voting The Directors’ Remuneration Report for the year ended 31 December 2022 and the Directors’ Remuneration Policy were approved by shareholders at the Annual General Meetings held on 8 June 2022 and 25 June 2020 respectively. The votes cast were as follows: Directors’ remuneration report Directors’ remuneration policy Number of votes % of votes cast Number of votes % of votes cast For 68,000,357 99.96 51,299,823 100.00 Against 26,266 0.04 – – Total votes cast 68,026,623 100.00 51,299,823 100.00 Number of votes withheld 11,770 – – – Annual report on remuneration (continued) Directors’ remuneration report 6161Annual Report and audited Financial Statements • December 2022 Strategic report • Governance • Financial • Additional information Approval 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, I confirm that the above Report on Remuneration Implementation summarises, as applicable, for the year to 31 December 2022: ● The major decisions on Directors’ remuneration. ● Any substantial changes relating to Directors’ remuneration made during the year. ● The context in which the changes, if any, occurred and decisions have been taken. The Directors’ Remuneration Report was approved by the Board and signed on its behalf by: Barbara Powley Chairman of the Remuneration Committee 25 April 2023 Directors’ remuneration report Annual report on remuneration (continued) 62 Annual Report and audited Financial Statements • December 202262 Strategic report • Governance • Financial • Additional information Report of the Audit Committee I am pleased to present the Report of the Audit Committee for the year ended 31 December 2022. Role of the Audit Committee The primary responsibilities of the Audit Committee are: ● to monitor the integrity and contents of the Company’s Half Year reports, Annual reports and audited Financial Statements and accounting policies, and to review compliance with regulatory and financial reporting requirements; ● to advise the Board, where requested, on whether the Annual Report and audited Financial Statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company’s position and performance, business model and strategy; ● to review the principal risks facing the Company that would threaten its business model, future performance, solvency or liquidity, and to review the effectiveness of the Company’s internal controls and risk management systems; ● to assess the prospects of the Company for the next 12 months and to consider its longer term viability; ● to review the Company’s internal financial controls and review the adequacy and effectiveness of the Company’s risk management systems; ● to consider annually whether there is a need for the Company to have its own internal audit function; ● to oversee the selection process of possible new appointees as external auditor; ● to make recommendations to the Board in relation to the appointment, re-appointment and removal of the Auditor, including the approval of its remuneration and terms of engagement; ● to review the adequacy and scope of the external audit; ● to consider the independence, objectivity and effectiveness of the Auditor and the effectiveness of the audit; and ● to approve any non-audit services to be provided by the Auditor and the fees paid for such services. Composition of the Audit Committee and resources All of the independent non-executive Directors of the Company are members of the Audit Committee. I am a Fellow of the Institute of Chartered Accountants in England and Wales, and have more than 30 years’ financial sector and accounting experience and therefore consider myself to have recent and relevant financial and investment experience sufficient to chair the Audit Committee. I consider that the Audit Committee as a whole has competence relevant to the investment trust sector. Details of the Committee Members’ experience are given in the biographical information on page 36. As the Company has no employees, there is no dedicated resource available to the Audit Committee. However, representatives from the Investment Manager are invited to attend and present on issues as required. The Audit Committee also has direct access to Deloitte LLP, who act as Auditor to the Company. The Independent Auditor attends Audit Committee meetings as required. The Audit Committee reviews, with the Independent Auditor, the plan and scope of the audit prior to its start, and the results after it is concluded. At least annually, the Audit Committee discusses any relevant matters with the Auditor privately without the presence of the Investment Manager. The Audit Committee is authorised to use whatever resources are required to fulfil its duties including seeking independent legal or other professional advice. 6363Annual Report and audited Financial Statements • December 2022 Strategic report • Governance • Financial • Additional information Report of the Audit Committee Terms of reference The Committee operates within defined terms of reference which are available on the Company’s website. Matters considered during the year During the year under review, the Audit Committee has ensured the effective assessment of the Company’s evolving risk environment. Rigorous evaluation and close oversight of the Company’s risk matrix has been undertaken together with the Company’s internal control systems. The monitoring of credit risk in particular has been enhanced by detailed reviews of the assets which the Investment Manager considers to have the most credit risk attached. The Committee regularly ensures that those internal control systems established at IPO are maintained and updated as necessary and receives confirmations from third party providers in this regard. In addition, the Committee has closely assessed the Company’s ability to meet its financial obligations over the next 12 months and the ongoing viability of the Company. In particular, the Committee has given close consideration to the forward-looking elements of the Company’s statements, noting the changes on the horizon and being clear on the assumptions made in regard to those. In relation to the Company’s financial statements which appear within the latter part of this Report, the key area of focus has been on the valuation of those financial instruments where there is no ready market, which comprise a material part of the Company’s portfolio of securities. The Committee regards as a key duty the obtaining of ongoing comfort that the process behind the valuation of such instruments is robust, consistent, reliable and able to withstand external scrutiny. This is particularly critical given the regular publication of the Company’s net asset value, which incorporates the output from these processes. The Committee, after due and detailed enquiry, is satisfied that these processes are fit for purpose. Following the audit for the year ended 31 December 2021, an in depth review of the effectiveness of the audit process carried out by Deloitte LLP, including an assessment of the quality of the audit, the handling of the key judgments by the auditor, and the auditor’s response to questions from the Committee was carried out, the results of which are detailed on page 64 of this report. In order to assess the year-end processes of the Company, the views and findings of all third party service providers involved in the processes were discussed, considered and later presented to the Committee. During the year, the Committee agreed to review the audit services provided by Deloitte LLP and following consultation with the auditor, agreed to re-tender the audit services in respect of the year ending 31 December 2023, as detailed further on page 64. Following a comprehensive tender process, organised by the Manager’s Financial Reporting team in conjunction with the Committee Chair, the Committee has recommended to the Board the appointment of BDO LLP as auditor with effect from the conclusion of the 2023 AGM. Significant issues The significant issues considered by the Committee in relation to the Annual Report and audited Financial Statements were: 1. Whether the analysis of principal risks faced by the Company as set out in the Strategic Report adequately captures and explains all key risks in a manner which enables Shareholders to properly understand the risks faced by the Company; 2. The determination of fair value in respect of the Company’s assets classified as levels 2 and 3 under the FRS102 fair value hierarchy; 3. The determination of the correct level of individual assets within the FRS102 fair value hierarchy; and 64 Annual Report and audited Financial Statements • December 202264 Strategic report • Governance • Financial • Additional information Report of the Audit Committee 4. A critical review and appraisal of the form and content of the Full Year Report to seek to ensure that it is fair, balanced and understandable. Audit fees and non-audit services An audit fee of £85,000 exclusive of VAT has been agreed in respect of the audit for the year ended 31 December 2022 (2021: £52,000 exclusive of VAT). In accordance with the Company’s Non-Audit Services Policy, as updated and adopted by the Company on 26 October 2020, the Audit Committee reviews the scope and nature of all proposed non-audit services before engagement, to ensure that auditor independence and objectivity are safeguarded. Pursuant to the introduction of the Revised Ethical Standard 2019, the policy includes a ‘whitelist’ of non-audit services which may be provided by the Auditor provided there is no apparent threat to independence, as well as a list of services which are prohibited. Non-audit services are capped at 70.0% of the average of the statutory audit for the preceding three years. During the year ended 31 December 2022, the Auditor provided no non-audit services (2021: £10,500, exclusive of VAT, in respect of a review of the Half Year Report for the period to 30 June 2021). Further information on the fees paid to the Auditor is set out in note 5 to the Financial Statements on page 89. Effectiveness of the external audit The Audit Committee monitors and reviews the effectiveness of the external audit carried out by the Auditor, the audit results report, and makes recommendations to the Board on the appointment, re-appointment, remuneration and terms of engagement of the Auditor. This review takes into account the experience and tenure of the audit partner and team, the nature and level of services provided, and confirmation that the Auditor has complied with independence standards. Any concerns with the effectiveness of the external audit process would be reported to the Board. Independence and objectivity of the Auditor The Committee has considered the independence and objectivity of the Auditor and has conducted a review of non-audit services which the Auditor has provided during the year under review. The Committee receives an annual assurance from the Auditor that its independence is not compromised by the provision of such non-audit services. The Committee is satisfied that the Auditor’s objectivity and independence is not impaired and that the Auditor has fulfilled its obligations to the Company and its shareholders. Appointment of the Auditor Deloitte LLP has been the Auditor to the Company since launch in 2018. During the year, the Committee considered the continuing appointment of the Auditor, and agreed with Deloitte LLP to complete the audit for the year ended 31 December 2022, however, to issue request for proposals (‘RFP’) to a selection of audit firms in respect of the year ending 31 December 2023. The Committee issued the RFP to 6 audit firms and received proposals from 3. Representatives of these firms were invited to present their proposals to the Committee during March 2023. Following consideration of the proposals and presentations provided by the firms, the Committee has recommended to the Board the appointment of BDO LLP as Auditor to the Company. In accordance with the requirements relating to the appointment of auditors, the Company would next need 6565Annual Report and audited Financial Statements • December 2022 Strategic report • Governance • Financial • Additional information Report of the Audit Committee to conduct an audit tender following a ten year tenure and, the audit partner will be subject to change at least every five years. Internal controls and risk management The Board, through the Audit Committee, is responsible for ensuring that suitable internal control systems to prevent and detect fraud and error are designed and implemented by the third-party service providers to the Company and is also responsible for reviewing the effectiveness of such controls. The Board confirms that there is an ongoing process for identifying, evaluating and managing the principal and emerging risks faced by the Company in line with the FRC’s Guidance on Risk Management, Internal Control and Related Financial and Business Reporting published in September 2014 and the FRC’s Guidance on Audit Committees published in April 2016. This process has been in place for the year under review and up to the date of approval of this report, and accords with the guidance. In particular, it has reviewed and updated the process for identifying and evaluating the significant risks affecting the Company and policies by which these risks are managed. The risks of any failure of such controls are identified in a risk matrix and a schedule of key risks, which are regularly reviewed by the Board and which identify the likelihood and severity of the impact of such risks and the controls in place to minimise the probability of such risks occurring. Where reliance is placed on third parties to manage identified risks, those risks are matched to appropriate controls reported in the relevant third-party service provider’s annual report on controls. The principal risks identified by the Board are set out in the Strategic Report on pages 17 to 22. The following are the key components which the Company has in place to provide effective internal control: ● The Board has agreed clearly defined investment criteria, which specify levels of authority and exposure limits. Reports on compliance with these criteria are regularly reviewed by the Board. ● The Board has a procedure to ensure that the Company can continue to be approved as an investment company by complying with Sections 1158/1159 of the Corporation Tax Act 2010. ● The Investment Manager and Administrator prepare forecasts and management accounts which allow the Board to assess the Company’s activities and to review its performance. ● The contractual agreements with the Investment Manager and other third-party service providers, and adherence to them, are regularly reviewed. ● The services and controls at the Investment Manager and at other third-party service providers are reviewed at least annually. ● The Audit Committee receives and reviews assurance reports on the controls of all third-party service providers, including the Administrator. Internal control systems are designed to meet the Company’s particular needs and the risks to which it is exposed. They do not eliminate the risk of failure to achieve business objectives and, by their nature, can only provide reasonable and not absolute assurance against misstatement or loss. As the Company has no employees, it does not have a whistleblowing policy and procedure in place. The Company delegates its main functions to third-party service providers, each of whom report on their policies and procedures to the Audit Committee. Internal audit function The Audit Committee believes that the Company does not require an internal audit function, principally 66 Annual Report and audited Financial Statements • December 202266 Strategic report • Governance • Financial • Additional information because the Company delegates its day-to-day operations to third parties, which are monitored by the Committee, and which provide control reports on their operations at least annually. My thanks go to all the individuals who have generously committed their time up to the publication of this report in contributing to the successful completion of the Committee’s work program to date. I would very much welcome feedback from Shareholders on the form and content of this Annual Report and audited Financial Statements. Richard Boléat Chairman of the Audit Committee 25 April 2023 Report of the Audit Committee 6767Annual Report and audited Financial Statements • December 2022 Strategic report • Governance • Financial • Additional information Management report and Directors’ responsibilities statement Management report Listed companies are required by the FCA’s Disclosure Guidance and Transparency Rules (the ‘Rules’) to include a management report in their Financial Statements. This information is included in the Strategic Report on pages 2 to 35 inclusive (together with the sections of the Annual Report and audited Financial Statements incorporated by reference) and the Directors’ Report on pages 37 to 41. Therefore, a separate management report has not been included. Statement of Directors’ responsibilities in respect of the Annual Report and audited Financial Statements The Directors are responsible for preparing the Annual Report and audited 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 they 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 judgements 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; ● assess the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and ● use the going concern basis of accounting unless they either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and 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 Corporate Governance Statement that complies 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. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. 68 Annual Report and audited Financial Statements • December 202268 Strategic report • Governance • Financial • Additional information Responsibility statement of the Directors in respect of the annual financial report The Directors listed on page 109 confirm that to the best of their knowledge ● the Financial Statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit of the Company taken as a whole; and ● the Strategic Report/Directors’ Report include a fair review of the development and performance of the business and the position of the issuer, together with a description of the principal risks that they face. The 2018 UK Corporate Governance Code also requires Directors to ensure that the Annual Report and audited Financial Statements are fair, balanced and understandable. In order to reach a conclusion on this matter, the Board has requested that the Audit Committee advise on whether it considers that the Annual Report and audited Financial Statements fulfil these requirements. The process by which the Audit Committee has reached these conclusions is set out in the Report of the Audit Committee on pages 62 to 66. As a result, the Board has concluded that the Annual Report and audited Financial Statements for the year ended 31 December 2022, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company’s position, performance, business model and strategy. On behalf of the Board David Simpson Chairman 25 April 2023 Management report and Directors’ responsibilities statement 69Annual Report and audited Financial Statements • December 2022 Strategic report • Governance • Financial • Additional information Independent auditor’s report to M&G Credit Income Investment Trust PLC (the ‘Company’) Report on the audit of the financial statements 1 Opinion In our opinion the financial statements of M&G Credit Income Investment Trust plc (the ‘Company’): ● give a true and fair view of the state of the company’s affairs as at 31 December 2022 and of its loss for the year then ended; ● have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice, including Financial Reporting Standard 102 ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland’ and the Statement of Recommended Practice issued by the Association of Investment Companies in July 2022 ‘Financial Statements of Investment Trust Companies and Venture Capital Trusts’; and ● have been prepared in accordance with the requirements of the Companies Act 2006. We have audited the financial statements, which comprise: ● the income statement; ● the statement of financial position; ● the statement of changes in equity; ● the cash flow statement; and ● the related notes 1 to 16. The financial reporting framework that has been applied in their preparation is applicable law, United Kingdom Accounting Standards, including Financial Reporting Standard 102 ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland’ (United Kingdom Generally Accepted Accounting Practice) and the Statement of Recommended Practice issued by the Association of Investment Companies (‘SORP’) in July 2022 ‘Financial Statements of Investment Trust Companies and Venture Capital Trusts’. 2 Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We confirm that we have not provided any non-audit services prohibited by the FRC’s Ethical Standard to the company. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independent auditor’s report 707070 Annual Report and audited Financial Statements • December 202270 Strategic report • Governance • Financial • Additional information Independent auditor’s report 3 Summary of our audit approach Key audit matters The key audit matters that we identified in the current year were: ● Valuation and ownership of investments Within this report, key audit matters are identified as follows: ● Newly identified ● Increased level of risk ● Similar level of risk ● Decreased level of risk Materiality The materiality that we used in the current year was £1.35 million which was determined on the basis of 1% of net assets. Scoping Audit work to respond to the risks of material misstatement was performed directly by the audit engagement team. 4 Conclusions relating to going concern In auditing the financial statements, we have concluded that the Directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the directors’ assessment of the Company’s ability to continue to adopt the going concern basis of accounting included: ● Evaluating the liquidity and the ability of the Investment Manager to trade in the investment portfolio in order to cover operational expenditure as it falls due; ● Analysing the current and forecast performance of company, by assessing management’s assumptions against the budget prepared for the next 12 months after the annual report issue date; and ● Assessing the appropriateness of the going concern disclosures included within the financial statements. Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the Company’s ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue. In relation to the reporting on how the Company has applied the UK Corporate Governance Code, we have nothing material to add or draw attention to in relation to the Directors’ statement in the financial statements about whether the directors considered it appropriate to adopt the going concern basis of accounting. Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report. Report on the audit of the Financial Statements (continued) 7171Annual Report and audited Financial Statements • December 2022 Strategic report • Governance • Financial • Additional information Independent auditor’s report 5 Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. 5.1 Valuation and ownership of investments Key audit matter description The investments held by the company, £137.6 million (2021: £139.5 million) are key to its performance and account for the majority of the total net assets, ie, 100% at 31 December 2022 (2021: 96.3%). There is a risk that the investments disclosed in the financial statements may not represent the asset of the company and/or may not be valued appropriately. The activities of the Company’s operations are outsourced to the administrator, State Street. Investments are key drivers to the net asset value of the company and materially manipulating the valuation of the company’s investments via applying the incorrect share price, units or shares owned would directly affect the net asset value of the company. Investment management fees are directly linked to performance of the net asset value. It follows that there is an incentive for the investment manager to manipulate the net asset value as, this improves the company’s performance, thereby benefiting from the higher income. The quoted investments (£68 million) are valued using independent pricing sources and there is little judgement involved. The unquoted investments (£69 million), which are classified as Level 3 within the fair value hierarchy are not traded in an active market and there is no pricing information available from markets, therefore, the investments are valued using alternative methods such as discounted cash flow valuations and by reference to broker quotes, wherein judgements and assumptions (including spread and credit rating) are used in computations. Refer to note 1b to the financial statements for the accounting policy on investments; details of the investments are disclosed in note 9 to the financial statements. Report on the audit of the Financial Statements (continued) 727272 Annual Report and audited Financial Statements • December 202272 Strategic report • Governance • Financial • Additional information How the scope of our audit responded to the key audit matter For ownership of the investments We have performed the following procedures to test the ownership of the investment portfolio at 31 December 2022: ● Obtained an understanding and tested relevant controls at the administrator, State Street; ● Agreed 100% of the portfolio of investments to confirmations received directly from the State Street depositary team; and ● Tested the recording of a sample of purchases and sales of investments by tracing the cash movements to bank statements. We have performed the following procedures to test the valuation of the investment portfolio at 31 December 2022: For valuation of quoted investments ● Obtained an understanding and tested relevant controls at the administrator, State Street; ● Agreed the valuation of 100% of investments to the closing bid prices published by an independent pricing source, including Bloomberg and Thomson Reuters. For valuation of unquoted investments ● Obtained an understanding and tested relevant controls at the Investment Manager and reviewed by the Directors; ● Obtained the company’s discounted cash flow workings and performed a walkthrough to understand the methodology applied; ● Reviewed the original term sheets setting out the terms of the agreement with the counterparty; ● With the involvement of our financial instrument specialists recalculated a sample of discounted cash flow valuations and assessed the inputs and assumptions applied with the above term sheets; ● Assessed the implications of model assumptions on the levelling of each investment for the fair value hierarchy; ● For those investments priced with reference to broker quotes, obtained independent evidence such as broker report; and ● Evaluation of the disclosures made in the financial statements. Key observations Based on the work performed we concluded that the valuation and ownership of investments and their related disclosures were appropriate. Independent auditor’s report Report on the audit of the Financial Statements (continued) 7373Annual Report and audited Financial Statements • December 2022 Strategic report • Governance • Financial • Additional information 6 Our application of materiality 6.1 Materiality We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work and in evaluating the results of our work. Based on our professional judgement, we determined materiality for the financial statements as a whole as follows: Materiality £1.35 million (2021: £1.44 million) Basis for determining materiality 1% of net assets (2021: 1% of net assets) Rationale for the benchmark applied Net assets was chosen as a benchmark as it is the main focus for investors and is a key driver of shareholder value. Source: Deloitte Net assets £135.11m Materiality £1.35m Audit Committee reporting threshold £0.07m 6.2 Performance materiality We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and undetected misstatements exceed the materiality for the financial statements as a whole. Performance materiality was set at 70% of materiality for the 2022 audit (2021: 70%). In determining performance materiality, we considered factors including: ● our risk assessment, including our assessment of the company’s overall control environment; and ● our experience from previous audits, which has indicated a low number of corrected and uncorrected misstatements identified in prior periods. 6.3 Error reporting threshold We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £0.07 million (2021: £0.07 million), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements. Independent auditor’s report Report on the audit of the Financial Statements (continued) 74 Annual Report and audited Financial Statements • December 202274 Strategic report • Governance • Financial • Additional information 7 An overview of the scope of our audit 7.1 Scoping Our audit was scoped by obtaining an understanding of the entity and its environment, including internal control and assessing the risks of material misstatement through quantitative and qualitative factors relating to each account balance, class of transactions and disclosure. Audit work to respond to the risks of material misstatement was performed directly by the audit engagement team. 7.2 Our consideration of the control environment As part of our risk assessment, we assessed the control environment in place at the administrator to the extent relevant to our audit. As part of this we relied upon the controls report of the administrator and adopted a controls reliance approach with respect to investments (valuation and ownership). 7.3 Our consideration of climate-related risks In planning our audit, we have considered the potential impact of climate change on the Company’s business and its financial statements. The Company continues to assess the potential impacts of environmental, social and governance (‘ESG’) related risks, including climate change, as outlined on page 32. As a part of our audit, we held discussions to understand the process of identifying climate-related risks, the determination of mitigating actions and the impact on the Company’s financial statements. We performed our own qualitative risk assessment of the potential impact of climate change on the Company’s financial statements. We have read the disclosures in relation to climate change made in the other information within the annual report to consider whether the disclosures are materially consistent with the financial statements and our knowledge obtained from our audit. 8 Other information The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. The Directors are responsible for the other information contained within the Annual Report. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Independent auditor’s report Report on the audit of the Financial Statements (continued) 7575Annual Report and audited Financial Statements • December 2022 Strategic report • Governance • Financial • Additional information 9 Responsibilities of Directors As explained more fully in the Directors’ responsibilities statement, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Directors are responsible for assessing the Company’s ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so. 10 Auditor’s responsibilities for the audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. 11 Extent to which the audit was considered capable of detecting irregularities, including fraud Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below. 11.1 Identifying and assessing potential risks related to irregularities In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non- compliance with laws and regulations, we considered the following: ● the nature of the industry and sector, control environment and business performance including the design of the Company’s remuneration policies, key drivers for remuneration, bonus levels and performance targets; ● results of our enquiries of the Directors about their own identification and assessment of the risks of irregularities, including those that are specific to the company’s sector; ● any matters we identified having obtained and reviewed the Company’s documentation of their policies and procedures relating to: ● identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non-compliance; Independent auditor’s report Report on the audit of the Financial Statements (continued) 76 Annual Report and audited Financial Statements • December 202276 Strategic report • Governance • Financial • Additional information ● detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud; ● the internal controls established to mitigate risks of fraud or non-compliance with laws and regulations; ● the matters discussed among the audit engagement team and relevant internal specialists including valuation specialists regarding how and where fraud might occur in the financial statements and any potential indicators of fraud. As a result of these procedures, we considered the opportunities and incentives that may exist within the organisation for fraud and identified the greatest potential for fraud in the following area: the valuation and ownership of quoted investments. In common with all audits under ISAs (UK), we are also required to perform specific procedures to respond to the risk of management override. We also obtained an understanding of the legal and regulatory framework that the Company operates in, focusing on provisions of those laws and regulations that had a direct effect on the determination of material amounts and disclosures in the financial statements. The key laws and regulations we considered in this context included the UK Companies Act, Listing Rules and UK tax legislation. In addition, we considered provisions of other laws and regulations that do not have a direct effect on the financial statements but compliance with which may be fundamental to the Company’s ability to operate or to avoid a material penalty. This included the requirements of the United Kingdom’s Financial Conduct Authority (FCA). 11.2 Audit response to risks identified As a result of performing the above, we identified valuation and ownership of investments as a key audit matter related to potential risk of fraud. The key audit matters section of our report explains the matter in more detail and also describes the specific procedures we performed in response to that key audit matter. In addition to the above, our procedures to respond to risks identified included the following: ● reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with provisions of relevant laws and regulations described as having a direct effect on the financial statements; ● enquiring of management and the audit committee concerning actual and potential litigation and claims; ● performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material misstatement due to fraud; ● reading minutes of meetings of those charged with governance and reviewing correspondence from HMRC; and ● in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other adjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business. We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members including internal specialists and remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit. Independent auditor’s report Report on the audit of the Financial Statements (continued) 77Annual Report and audited Financial Statements • December 2022 Strategic report • Governance • Financial • Additional information Report on other legal and regulatory requirements 12 Opinions on other matters prescribed by the Companies Act 2006 In our opinion the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006. In our opinion, based on the work undertaken in the course of the audit: ● the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements; and ● the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements. In the light of the knowledge and understanding of the Company and its environment obtained in the course of the audit, we have not identified any material misstatements in the Strategic Report or the Directors’ Report. 13 Corporate Governance Statement The Listing Rules require us to review the Directors’ statement in relation to going concern, longer-term viability and that part of the Corporate Governance Statement relating to the Company’s compliance with the provisions of the UK Corporate Governance Code specified for our review. Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance Statement is materially consistent with the financial statements and our knowledge obtained during the audit: ● the Directors’ statement with regard to the appropriateness of adopting the going concern basis of accounting and any material uncertainties identified set out on page 23 to 24; ● the Directors’ explanation as to its assessment of the Company’s prospects, the period this assessment covers and why the period is appropriate set out on page 23 to 24; ● the Directors’ statement on fair, balanced and understandable set out on pages 36 to 41; ● the board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on page 17; ● the section of the annual report that describes the review of effectiveness of risk management and internal control systems set out on page 65; and ● the section describing the work of the Audit Committee set out on page 62. Independent auditor’s report 78 Annual Report and audited Financial Statements • December 202278 Strategic report • Governance • Financial • Additional information Independent auditor’s report 14 Matters on which we are required to report by exception 14.1 Adequacy of explanations received and accounting records Under the Companies Act 2006 we are required to report to you if, in our opinion: ● we have not received all the information and explanations we require for our audit; or ● adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or ● the financial statements are not in agreement with the accounting records and returns. We have nothing to report in respect of these matters. 14.2 Directors’ remuneration Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of Directors’ remuneration have not been made or the part of the Directors’ remuneration report to be audited is not in agreement with the accounting records and returns. We have nothing to report in respect of these matters. 15 Other matters which we are required to address 15.1 Auditor tenure Following the recommendation of the Audit Committee, we were appointed by the Board of Directors on 18 September 2018 to audit the financial statements for year ending 31 December 2019 and subsequent financial periods. The period of total uninterrupted engagement including previous renewals and reappointments of the firm is four years, covering the years ending 31 December 2019 to 31 December 2022. 15.2 Consistency of the audit report with the additional report to the Audit Committee Our audit opinion is consistent with the additional report to the Audit Committee we are required to provide in accordance with ISAs (UK). Report on other legal and regulatory requirements (continued) 79Annual Report and audited Financial Statements • December 2022 Strategic report • Governance • Financial • Additional information 16. Use of our report This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Chris Hunter CA (Senior statutory auditor) For and on behalf of Deloitte LLP Statutory Auditor Edinburgh United Kingdom 25 April 2023 Independent auditor’s report Report on other legal and regulatory requirements (continued) 808080 Annual Report and audited Financial Statements • December 202280 Strategic report • Governance • Financial • Additional information Income statement Year ended 31 December 2022 Year ended 31 December 2021 Note Revenue £’000 Capital £’000 Total £’000 Revenue £’000 Capital £’000 Total £’000 Net losses on investments 9 – (8,044) (8,044) – (545) (545) Net (losses)/gains on derivatives 9 – (289) (289) – 2,837 2,837 Net currency gains/(losses) 294 (207) 87 (51) (145) (196) Income 3 7,530 – 7,530 5,565 – 5,565 Investment management fee 4 (964) – (964) (965) – (965) Other expenses 5 (688) – (688) (548) – (548) Net return on ordinary activities before finance costs and taxation 6,172 (8,540) (2,368) 4,001 2,147 6,148 Finance costs 6 (205) – (205) (122) – (122) Net return on ordinary activities before taxation 5,967 (8,540) (2,573) 3,879 2,147 6,026 Taxation on ordinary activities 8 – – – – – – Net return attributable to Ordinary Shareholders after taxation 5,967 (8,540) (2,573) 3,879 2,147 6,026 Net return per Ordinary Share (basic and diluted) 2 4.21p (6.03)p (1.82)p 2.70p 1.49p 4.19p The total column of this statement represents the Company’s statutory profit and loss account. The ‘Revenue’ and ‘Capital’ columns represent supplementary information provided under guidance issued by the Association of Investment Companies. All revenue and capital items in the above statement derive from continuing operations. The Company has no other comprehensive income and therefore the net return on ordinary activities after taxation is also the total comprehensive income for the year. The notes on pages 84 to 102 form an integral part of these Financial Statements. Financial statements 8181Annual Report and audited Financial Statements • December 2022 Strategic report • Governance • Financial • Additional information Financial statements Statement of financial position As at 31 December 2022 As at 31 December 2021 Note £’000 £’000 £’000 £’000 Non-current assets Investments at fair value through profit or loss 9 137,584 139,501 Current assets Derivative financial assets held at fair value through profit or loss 9 859 631 Receivables 10 2,100 1,241 Cash and cash equivalents 10 3,672 3,473 6,631 5,345 Current liabilities Payables 10 (9,106) (1,087) (9,106) (1,087) Net current (liabilities)/assets (2,475) 4,258 Net assets 135,109 143,759 Capital and reserves Called up share capital 11 1,447 1,447 Share premium 42,257 42,217 Special distributable reserve 96,198 95,670 Capital reserve 11 (6,696) 3,473 Revenue reserve 1,903 952 Total shareholders’ funds 135,109 143,759 Net Asset Value per Ordinary Share (basic and diluted) 2 94.99p 101.44p The notes on pages 84 to 102 form an integral part of these Financial Statements. Approved and authorised for issue by the Board of Directors on 25 April 2023 and signed on its behalf by: David Simpson Chairman Company registration number: 11469317 25 April 2023 828282 Annual Report and audited Financial Statements • December 202282 Strategic report • Governance • Financial • Additional information Financial statements Statement of changes in equity Year ended 31 December 2022 Note Called up Ordinary Share capital Share premium Special distributable reserve a Capital reserve a Revenue reserve a Total £’000 £’000 £’000 £’000 £’000 £’000 Balance at 31 December 2021 1,447 42,217 95,670 3,473 952 143,759 Ordinary Shares issued from treasury – 40 2,729 – – 2,769 Purchase of Ordinary Shares to be held in treasury – – (2,201) – – (2,201) Net return attributable to shareholders – – – (8,540) 5,967 (2,573) Dividends paid 7 – – – (1,629) (5,016) (6,645) Balance at 31 December 2022 1,447 42,257 96,198 (6,696) 1,903 135,109 Year ended 31 December 2021 Note Called up Ordinary Share capital Share premium Special distributable reserve a Capital reserve a Revenue reserve a Total £’000 £’000 £’000 £’000 £’000 £’000 Balance at 31 December 2020 1,447 42,217 98,499 3,349 1,116 146,628 Purchase of Ordinary Shares to be held in treasury – – (2,829) – – (2,829) Net return attributable to shareholders – – – 2,147 3,879 6,026 Dividends paid 7 – – – (2,023) (4,043) (6,066) Balance at 31 December 2021 1,447 42,217 95,670 3,473 952 143,759 a These reserves form the distributable reserves of the Company and may be used to fund distributions to investors via dividend payments. The notes on pages 84 to 102 form an integral part of these Financial Statements. 83Annual Report and audited Financial Statements • December 2022 Strategic report • Governance • Financial • Additional information Financial statements Cash flow statement Note Year ended 31 December 2022 £’000 Year ended 31 December 2021 £’000 Cash flows from operating activities Net (loss)/profit before finance costs and taxation (2,368) 6,148 Adjustments for: Net losses on investments 9 8,044 545 Net losses/(gains) on derivatives 9 289 (2,837) (Increase)/decrease in receivables (859) 104 Increase in payables 1,019 130 Purchases of investments a 9 (54,740) (42,088) Sales of investments a 9 48,096 43,210 Net cash (outflow)/inflow from operating activities (519) 5,212 Financing activities Finance costs 6 (205) (122) Ordinary Shares issued from treasury 2,769 – Proceeds from loan facility 8,000 – Repayment of loan facility (1,000) – Purchase of Ordinary Shares to be held in treasury (2,201) (2,829) Dividends paid 7 (6,645) (6,066) Net cash inflow/(outflow) from financing activities 718 (9,017) Increase/(decrease) in cash and cash equivalents 10 199 (3,805) Cash and cash equivalents at the start of the year 3,473 7,278 Increase/(decrease) in cash and cash equivalents as above 199 (3,805) Cash and cash equivalents at the end of the year 10 3,672 3,473 a Receipts from the sale of, and payments to acquire investment securities have been classified as components of cash flows from operating activities because they form part of the Company’s dealing operations. Reconciliation of net debt As at 31 December 2021 Net cash flows As at 31 December 2022 £’000 £’000 £’000 Cash and cash equivalents Cash and cash equivalents 3,473 199 3,672 Borrowings Borrowings due within one year – (7,000) (7,000) 3,473 (6,801) (3,328) The notes on pages 84 to 102 form an integral part of these Financial Statements. 84 Annual Report and audited Financial Statements • December 202284 Strategic report • Governance • Financial • Additional information Financial statements Notes to the Financial Statements 1 Significant accounting policies The Company is a public limited company incorporated in the United Kingdom and registered in England and Wales, with the registered office of 6th Floor, 65 Gresham Street, London, EC2V 7NQ. The significant accounting policies, as set out below, have all been applied consistently throughout the year and the preceding year. a) Basis of accounting The Financial Statements have been prepared on a going concern basis under the historical cost convention, modified to include certain items at fair value, and in accordance with United Kingdom Accounting Standards, including FRS 102 ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland’ (United Kingdom Generally Accepted Accounting Practice) and the Statement of Recommended Practice issued by the Association of Investment Companies (‘SORP’) in July 2022 ‘Financial Statements of Investment Trust Companies and Venture Capital Trusts’. The Directors believe that the Company has adequate resources to continue in operational existence for the foreseeable future and for at least the next 12 months from the date of approval of these financial statements. The Directors have reviewed the liquidity of the investment portfolio, financial projections, the level of income and expenses, and key service providers’ operational resilience in making their assessment. Further information is given in the Viability Statement (unaudited) on page 23 and the Going Concern Statement on pages 23 and 24. The functional and presentational currency of the Company is pound sterling because that is the currency of the primary economic environment in which the Company operates. All values are recorded to nearest thousands, unless otherwise stated. b) Financial instruments Financial assets and financial liabilities are recognised when the Company becomes a party to the contractual provisions of the instrument. Financial liabilities are classified according to the substance of the contractual arrangements entered into. Financial assets and liabilities Financial assets and liabilities are classified as at fair value through profit or loss (FVTPL) and are initially measured at fair value (which is normally the transaction price excluding transaction costs), unless the arrangement constitutes a financing transaction. If an arrangement constitutes a financing transaction, the financial asset or financial liability is measured at the present value of the future payments discounted at a market rate of interest for a similar Debt Instrument. Changes in the fair value of financial instruments held at FVTPL and gains and losses on disposal are recognised as capital. Financial assets and liabilities are offset in the statement of financial position only when there exists a legally enforceable right to set off the recognised amounts and the Company intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. With the exception of some hedging instruments, other Debt Instruments not meeting conditions of being ‘basic’ financial instruments are measured at FVTPL. 85Annual Report and audited Financial Statements • December 2022 Strategic report • Governance • Financial • Additional information Commitments to make and receive loans that meet the conditions mentioned above are measured at cost (which may be nil) less any impairment. They are recorded and disclosed at the date of the legal commitment and recognised upon funding. Financial assets are derecognised only when (a) the contractual rights to the cash flows from the financial asset expire or are settled, (b) the Company transfers to another party substantially all of the risks and rewards of ownership of the financial asset, or (c) the Company, despite having retained some, but not all, significant risks and rewards of ownership, has transferred control of the asset to another party. Financial liabilities are derecognised only when the obligation specified in the contract is discharged, cancelled or expires. Derivative financial instruments Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value at each reporting date. The resulting gain or loss is recognised in the Income Statement. Derivative returns are recognised as revenue or capital depending on their nature. Fair value measurement The best evidence of fair value is a quoted price for an identical asset in an active market. When quoted prices are unavailable, the price of a recent transaction for an identical asset provides evidence of fair value as long as there has not been a significant change in economic circumstances or a significant lapse of time since the transaction took place. If the market is not active and recent transactions of an identical asset on their own are not a good estimate of fair value, the fair value is estimated by using a valuation technique. c) Impairment of assets Assets, other than those measured at fair value, are assessed for indicators of impairment at each balance sheet date. If there is objective evidence of impairment, an impairment loss is recognised in profit or loss as described below. Non-financial assets An asset is impaired where there is objective evidence that, as a result of one or more events that occurred after initial recognition, the estimated recoverable value of the asset has been reduced. The recoverable amount of an asset is the higher of its fair value less costs to sell and its value in use. Where indicators exist for a decrease in impairment loss previously recognised for assets other than goodwill, the prior impairment loss is tested to determine reversal. An impairment loss is reversed on an individual impaired asset to the extent that the revised recoverable value does not lead to a revised carrying amount higher than the carrying value had no impairment been recognised. d) Tax Current tax is accounted for at the appropriate rate of corporation tax. The tax accounting treatment follows the principal amounts involved. Deferred tax is recognised in respect of all timing differences between the treatment of certain items for tax and accounting purposes that have originated but not reversed at the balance sheet date. Due to the Company’s status as an investment trust company and the intention to continue meeting the conditions required to obtain approval in the foreseeable future, the Company has not provided deferred tax on any capital gains and losses arising on the revaluation or disposal of investments. Financial statements Notes to the Financial Statements (continued) 86 Annual Report and audited Financial Statements • December 202286 Strategic report • Governance • Financial • Additional information e) Income and expenses Interest from Debt Instruments is recognised as revenue by reference to the coupon payable adjusted to spread any premium or discount on purchase over its remaining life. Other interest income is recognised as revenue on an accruals basis. Income from investment funds is recognised in revenue when the right to receive it is established. Expenses not incidental to the purchase or sale of investments are recognised on an accruals basis and charged to revenue. Rebate of management fees incurred by investment funds managed by M&G Alternatives Investment Management Limited are recognised on an accrual basis as revenue or capital in accordance with the underlying scheme’s distribution policy. f) Finance cost Finance costs are recognised on an accruals basis and are charged to revenue. g) Foreign currency Transactions in foreign currencies are recorded at the rate of exchange at the date of the transaction. Assets and liabilities denominated in foreign currencies at the balance sheet date are reported at the rates of exchange prevailing at that date. Other exchange differences are recognised in profit or loss in the year in which they arise. All gains and losses on the translation of foreign currency are recognised as revenue or capital in the Income Statement depending on the underlying nature of the transactions. h) Cash and cash equivalents Cash and cash equivalents are defined as cash and short-term, highly liquid investments that are readily convertible to known amounts of cash and that are subject to insignificant risk of change in value. i) Share capital and reserves Called up Ordinary Share capital Called up Ordinary Share capital represents the nominal value of Ordinary Shares issued. Share premium Share premium represents the excess over nominal value of shares issued, net of expenses of the share issue, except where amounts have been cancelled in accordance with section 610 of the Companies Act 2006 and transferred to special distributable reserve. Special distributable reserve Share premium of £99,000,001 was cancelled on 12 February 2019 and transferred to the special distributable reserve, in accordance with section 610 of the Companies Act 2006. The Company may, at the discretion of the Board, pay all or part of any future dividends out of this special distributable reserve, taking into account the Company’s investment objective. The costs of repurchasing Ordinary Shares has been debited to the special distributable reserve. Financial statements Notes to the Financial Statements (continued) 8787Annual Report and audited Financial Statements • December 2022 Strategic report • Governance • Financial • Additional information Capital reserve Capital reserve reflects any: ● gains or losses on the disposal of investments; ● exchange differences of a capital nature; ● increases and decreases in the fair value of investments held at the year end. This reserve can also be used for distributions by way of a dividend and for funding the cost of repurchasing Ordinary Shares. Revenue reserve Revenue reserve reflects all income and expenditure which are recognised in the revenue column of the Income Statement and is distributable by way of dividends. It can also be used for funding the cost of repurchasing Ordinary Shares. j) Repurchasing of Ordinary Shares for cancellation to be held in treasury The costs of repurchasing shares including the related stamp duty and transaction costs is currently charged to the special distributable reserve dealt with within the Statement of changes in equity. Share repurchase transactions are accounted for on a trade date basis. During the current year the Company reissued shares held in treasury. Where Ordinary Shares held in treasury are subsequently reissued, the sale proceeds up to the purchase price of the shares will be transferred to the special distributable reserve or capital reserve and the excess of the sale proceeds over the purchase price will be transferred to share premium. k) Investment management fees Investment management fees are recognised on an accruals basis and are charged to revenue. l) Accounting judgements, estimates and assumptions The preparation of the Financial Statements requires the Directors to make judgements, estimates and assumptions that affect the amounts recognised in the Financial Statements. However, uncertainty about these judgements, assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the asset or liability affected in future years. Whilst estimates are based on best judgement using information and financial data available the actual outcome may differ from these estimates. In relation to the valuation of level 3 investments, the Company considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary and provided by independent sources that are actively involved in the relevant market. No other significant judgements, estimates or assumptions have been required in the preparation of the accounts for the current year. Financial statements Notes to the Financial Statements (continued) 888888 Annual Report and audited Financial Statements • December 202288 Strategic report • Governance • Financial • Additional information 2 Returns and net asset value (NAV) Year ended 31 December 2022 Year ended 31 December 2021 Revenue return Revenue return attributable to Ordinary Shareholders (£’000) 5,967 3,879 Weighted average number of shares in issue during the year 141,741,337 143,757,774 Revenue return per Ordinary Share (basic and diluted) 4.21p 2.70p Capital return Capital return attributable to Ordinary Shareholders (£’000) (8,540) 2,147 Weighted average number of shares in issue during the year 141,741,337 143,757,774 Capital return per Ordinary Share (basic and diluted) (6.03)p 1.49p Net return Net return per Ordinary Share (basic and diluted) (1.82)p 4.19p NAV per Ordinary Share Net assets attributable to Ordinary Shareholders (£’000) 135,109 143,759 Number of shares in issue at year end 142,233,022 141,723,022 NAV per Ordinary Share 94.99p 101.44p 3 Income Year ended 31 December 2022 £’000 Year ended 31 December 2021 £’000 Income from investments Interest income from Debt Instruments 6,580 4,936 Distributions from investment funds 765 521 Management fee rebate 101 105 7,446 5,562 Other income Interest from cash and cash equivalents 39 3 Other income 45 – 7,530 5,565 Financial statements Notes to the Financial Statements (continued) 8989Annual Report and audited Financial Statements • December 2022 Strategic report • Governance • Financial • Additional information 4 Investment management fee Year ended 31 December 2022 £’000 Year ended 31 December 2021 £’000 Investment management fee 964 965 The amount outstanding at the year end is shown in note 10. The basis for calculating the investment management fee is set out on page 87. 5 Other expenses Year ended 31 December 2022 £’000 Year ended 31 December 2021 £’000 Revenue expenses Directors’ fees 153 118 Legal fees 24 5 Printing and postage 6 5 Registrar’s and secretarial fees 98 94 Administration fees 129 76 Broker fees 67 62 Other 109 113 586 473 Auditors’ remuneration: – Audit services a 102 62 – Non-audit services b – 13 688 548 a The audit services fees are disclosed including VAT. b There were no non-audit fees payable to the auditor as of 30 June 2022. Non-audit fees (including VAT) payable to the auditor in respect of the agreed upon procedures on the Half Year Report as of 30 June 2021 were £12,600. The agreed upon procedures did not constitute an audit engagement or a review of the Half Year Report. Financial statements Notes to the Financial Statements (continued) 909090 Annual Report and audited Financial Statements • December 202290 Strategic report • Governance • Financial • Additional information 6 Finance costs Year ended 31 December 2022 £’000 Year ended 31 December 2021 £’000 Commitment fee 66 75 Arrangement fees 13 13 Legal fees 23 34 Interest on loan facility 103 – 205 122 On 19 October 2020 the Company entered into a £25 million revolving credit facility agreement with State Street Bank International GmbH. On 18 October 2022 the Company renewed the credit facility on the existing terms, with the new credit facility expiring on 16 October 2023. During the year £4 million was drawn down from the revolving credit facility agreement on 6 July 2022, of which £1 million was subsequently repaid on 16 December 2022, £1 million was drawn down on 13 September 2022, and a further £3 million was drawn down on 17 October 2022. All three drawings were at a daily rate of SONIA plus margin of 1.25% per annum and an additional credit adjustment spread of 0.1193% per annum. 7 Dividends Year ended 31 December 2022 £’000 Year ended 31 December 2021 £’000 Revenue 2020 fourth interim interest distribution of 0.77p – 1,114 2021 first interim interest distribution of 0.63p – 911 2021 second interim interest distribution of 0.71p – 1,017 2021 third interim interest distribution of 0.70p – 1,001 2021 fourth interim interest distribution of 0.67p 941 – 2022 first interim interest distribution of 0.77p 1,085 – 2022 second interim interest distribution of 0.96p 1,368 – 2022 third interim interest distribution of 1.14p 1,622 – 5,016 4,043 Capital 2020 fourth interim dividend of 1.18p – 1,706 2021 first interim dividend of 0.11p – 159 2021 second interim dividend of 0.05p – 72 2021 third interim dividend of 0.06p – 86 2021 fourth interim dividend of 1.11p 1,558 – 2022 first interim dividend of 0.05p 71 – 1,629 2,023 Financial statements Notes to the Financial Statements (continued) 9191Annual Report and audited Financial Statements • December 2022 Strategic report • Governance • Financial • Additional information Set out below are the total dividends paid and proposed in respect of the year, which forms the basis on which the requirements of Sections 1158-1159 of the Corporation Tax Act 2010 are considered. Year ended 31 December 2022 £’000 Year ended 31 December 2021 £’000 Interest distributions paid of 2.87p (2021: 2.04p) 4,075 2,929 Dividend distributions paid of 0.05p (2021: 0.22p) 71 317 Interest distributions declared of 1.33p (2021: 0.67p) 1,892 941 Dividend distributions declared of 1.1p (2021: 1.11p) 1,565 1,558 7,603 5,745 On 24 January 2022 the Board declared a fourth interim dividend of 2.43p per Ordinary Share for the year ended 31 December 2022, which was paid on 24 February 2023 to Ordinary Shareholders on the register on 3 February 2022. The ex-dividend date was 2 February 2022. The amount shown in the table above for distributions declared is based on 142,233,022 Ordinary Shares in issue. In accordance with FRS 102, Section 32, ‘Events After the End of the Reporting Period’, the 2022 fourth interim dividend has not been included as a liability in this set of financial statements. 8 Taxation on ordinary activities Year ended 31 December 2022 Year ended 31 December 2021 Revenue £’000 Capital £’000 Total £’000 Revenue £’000 Capital £’000 Total £’000 Foreign tax – – – – – – The corporation tax rate was 19%. The tax charge for the year differs from the charge resulting from applying the standard rate of corporation tax in the UK for an investment trust company. The differences are explained below: Year ended 31 December 2022 Year ended 31 December 2021 Revenue £’000 Capital £’000 Total £’000 Revenue £’000 Capital £’000 Total £’000 Net return on ordinary activities before taxation 5,967 (8,540) (2,573) 3,879 2,147 6,026 Corporation tax at standard rate of 19% 1,134 (1,623) (489) 737 408 1,145 Effects of: Net losses on investments – 1,529 1,529 – 103 103 Net losses/(gains) on derivatives – 55 55 – (539) (539) Tax deductible interest distributions (1,134) – (1,134) (737) – (737) Net foreign currency losses – 39 39 – 28 28 Total tax charge – – – – – – Financial statements Notes to the Financial Statements (continued) 929292 Annual Report and audited Financial Statements • December 202292 Strategic report • Governance • Financial • Additional information As at 31 December 2022, the Company had unutilised management expenses of £nil (2021: £nil) carried forward. Due to the Company’s status as an investment trust and the intention to continue to meet the conditions required to obtain approval in the foreseeable future, the Company has not provided deferred tax on capital gains and losses arising on the revaluation or disposal of investments. 9 Investments held at fair value through profit or loss (FVTPL) As at 31 December 2022 £’000 As at 31 December 2021 £’000 Opening valuation 140,132 140,316 Analysis of transactions made during the year Purchases at cost 54,740 40,734 Sale proceeds (48,096) (43,210) (Losses)/gains on investments (8,333) 2,292 Closing valuation 138,443 140,132 Closing cost 145,846 139,848 Closing investment holding (losses)/gains (7,403) 284 Closing valuation 138,443 140,132 The Company received £48,096,000 (2021: £43,210,000) from investments sold in the year. The book cost of these investments when they were purchased was £48,225,000 (2021: £41,575,000). These investments have been revalued over time and until they were sold any unrealised gains/losses were included in the fair value of the investments. As at 31 December 2022 £’000 As at 31 December 2021 £’000 (Losses)/gains on investments Net losses on disposal of investments (8,044) (545) Net (losses)/gains on derivatives (289) 2,837 Net (losses)/gains on investments (8,333) 2,292 As at 31 December 2022 £’000 As at 31 December 2021 £’000 Closing valuation Investments at fair value through profit or loss 137,584 139,501 Derivative financial assets held at fair value through profit or loss 859 631 Closing valuation 138,443 140,132 Financial statements Notes to the Financial Statements (continued) 9393Annual Report and audited Financial Statements • December 2022 Strategic report • Governance • Financial • Additional information 10 Receivables, cash and cash equivalents and payables As at 31 December 2022 £’000 As at 31 December 2021 £’000 Receivables Sales for future settlement 39 – Accrued income 1,855 1,108 Prepaid expenses 26 53 Management fee rebate 180 80 Total receivables 2,100 1,241 Cash and cash equivalents Cash at bank 2,938 2,526 Amounts held at futures clearing houses 234 345 Cash on deposit 500 602 Total cash and cash equivalents 3,672 3,473 Payables Expenses payable and deferred income 239 314 Management fee payable 1,736 771 Loan facility interest payable 74 – Bank loan 7,000 – Other payables 57 2 Total payables 9,106 1,087 Financial statements Notes to the Financial Statements (continued) 949494 Annual Report and audited Financial Statements • December 202294 Strategic report • Governance • Financial • Additional information 11 Called up share capital As at 31 December 2022 As at 31 December 2021 Number of shares Nominal value £’000 Number of shares Nominal value £’000 Ordinary Shares of 1p Ordinary Shares in issue at the beginning of the year 141,723,022 1,417 144,605,771 1,446 Ordinary Shares issued from treasury during the year 2,815,000 28 – – Purchase of Ordinary Shares held in treasury (2,305,000) (23) (2,882,749) (29) Ordinary Shares in issue at the end of the year 142,233,022 1,422 141,723,022 1,417 Treasury Shares (Ordinary Shares of 1p) Treasury Shares at the beginning of the year 3,022,749 30 140,000 1 Ordinary Shares issued from treasury during the year (2,815,000) (28) – – Purchase of Ordinary Shares held in treasury 2,305,000 23 2,882,749 29 Treasury Shares at the end of the year 2,512,749 25 3,022,749 30 Total Ordinary Shares in issue and in treasury at the end of the year 144,745,771 1,447 144,745,771 1,447 The analysis of the capital reserve is as follows: Year ended 31 December 2022 Year ended 31 December 2021 Realised capital reserve £’000 Investment holding losses £’000 Total capital reserve £’000 Realised capital reserve £’000 Investment holding gains £’000 Total capital reserve £’000 Capital reserve at the beginning of the year 3,189 284 3,473 1,290 2,059 3,349 (Losses)/gains on realisation of investments at fair value (646) – (646) 4,067 – 4,067 Realised currency (losses)/gains during the year (207) – (207) (145) – (145) Movement in unrealised gains/(losses) – (7,687) (7,687) – (1,775) (1,775) Dividends paid (1,629) – (1,629) (2,023) – (2,023) Capital reserve at the end of the year 707 (7,403) (6,696) 3,189 284 3,473 The above split in capital reserve is shown in accordance with provisions of the Statement of Recommended Practice ‘Financial Statements of Investment Trust Companies and Venture Capital Trusts’, 2022. Financial statements Notes to the Financial Statements (continued) 9595Annual Report and audited Financial Statements • December 2022 Strategic report • Governance • Financial • Additional information 12 Related party transactions M&G Alternatives Investment Management Limited, as Investment Manager, is a related party to the Company. The management fee payable to the Investment Manager for the year is disclosed in the income statement, in note 4 and amounts outstanding at the year end are shown in note 10. The Company holds an investment in M&G European Loan Fund which is managed by M&G Investment Management Limited. At the year end this was valued at £16,298,109 (2021: £17,519,827) and represented 11.73% (2021: 12.45%) of the Company’s investment portfolio. The Directors of the Company are related parties. The details of the fees payable to Directors and details of Directors’ shareholdings are given in the Directors’ Remuneration Report on pages 58 and 60. 13 Financial instruments In pursuing the Company’s objectives, the Company accepts market price risk and interest rate risk, in relation to the portfolio of investments. Since the Company’s investment objectives are to deliver returns over the long term, transactions with the sole intention of realising short-term returns are not undertaken. The quantitative data disclosed is representative of the Company’s exposure to risk throughout the year. The AIFM attempts to gain the best and most consistent returns for clients via the following: ● a bottom-up approach, centred around a detailed evaluation of individual investments; and ● diversification across issuer, to minimise the impact of default. Portfolio management decisions are based on an in-house credit assessment and instrument rating which is carried out by the AIFM’s credit analysts. Market risk Market risk embodies the potential for both losses and gains and includes foreign currency risk, interest rate risk and price risk, which are discussed in detail under separate headings within this note. Market risk arises mainly from uncertainty about future values of financial instruments influenced by other price, currency and interest rate movements. It represents the potential loss the Company may suffer through holding market positions in investments in the face of market movements. Management of market risk The Board meets formally at least four times a year with the Investment Manager to review, inter alia, the Company’s strategy and performance, the composition of the investment portfolio and the management of risk. The investment management team has responsibility for monitoring the portfolio, which is selected in accordance with the Company’s investment objective and seeks to ensure that any investments meet an acceptable risk/reward profile. Financial statements Notes to the Financial Statements (continued) 969696 Annual Report and audited Financial Statements • December 202296 Strategic report • Governance • Financial • Additional information Market risk arising from foreign currency risk Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The fair values of the Company’s monetary items which have foreign currency exposure at 31 December 2022 are shown below. 2022 2021 Australian dollar £’000 Euro £’000 New Zealand dollar £’000 US dollar £’000 Australian dollar £’000 Euro £’000 New Zealand dollar £’000 US dollar £’000 Debtors 21 221 22 172 14 112 – 53 Investments 3,269 13,666 2,407 19,244 4,059 14,319 2,312 15,210 Total foreign currency exposure on net monetary items 3,290 13,887 2,429 19,416 4,073 14,431 2,312 15,263 The Company is exposed to risks that the exchange rate of its reporting currencies relative to other currencies may change in a manner which has an adverse effect on the value of the portion of the Company’s assets which are denominated in currencies other than their own currencies. Typically, the fund manager will substantially hedge these risks using foreign exchange forward contracts. The following table illustrates the sensitivity of revenue and capital return on ordinary activities after tax and net assets attributable to Shareholders to an increase of or decrease of 5% in exchange rates. A 5% increase in the value of the fund’s currency exposure would have the effect of increasing the return and net assets by £1,919,000 (2021: £1,786,000) . A 5% decrease would have an equal and opposite effect. Increase in exchange rates 2022 £’000 Decrease in exchange rates 2022 £’000 Increase in exchange rates 2021 £’000 Decrease in exchange rates 2021 £’000 Income statement Revenue return (10) 10 (9) 9 Capital return 1,929 (1,929) 1,795 (1,795) Total change to net return on ordinary activities after tax 1,919 (1,919) 1,786 (1,786) Change to net assets attributable to shareholders 1,919 (1,919) 1,786 (1,786) Financial statements Notes to the Financial Statements (continued) 9797Annual Report and audited Financial Statements • December 2022 Strategic report • Governance • Financial • Additional information Market risk arising from interest rate risk Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company’s investments may be subject to interest rate risk. When interest rates decline, the value of fixed rate obligations can be expected to rise, and conversely when interest rates rise, the value of fixed rate obligations can be expected to decline. In general, if prevailing interest rates fall significantly below the interest rates on any Debt Investments held by the Company, such investments are more likely to be the subject of prepayments than if prevailing rates remain at or above the rates borne by such investments. After the global financial crash of 2007-08 there was a sustained period of very low levels of central bank-set interest rates. Since the start of 2022, the Bank of England has been increasing interest rates. The Bank of England base rate has risen from 0.25% at the beginning of the year to 3.5% at 31 December 2022. For investments that have a fixed rate of return, any such interest rate rises may negatively impact the returns on the investments and the returns realised by the investors. The following table illustrates the sensitivity of revenue and capital return on ordinary activities after tax and net assets attributable to shareholders to an increase or decrease of 2% in interest rates. The decrease in interest rates illustrated below of 2% is reasonably possible based on observation of market conditions and historic trends. The sensitivity analysis is based on the Company’s bond holdings at each reporting date, with all other variables held constant. Decrease in interest rates 2022 £’000 Increase in interest rates 2022 £’000 Decrease in interest rates 2021 £’000 Increase in interest rates 2021 £’000 Income statement Revenue return 14 (14) 14 (14) Capital return 2,825 (2,825) 2,859 (2,859) Total change to net return on ordinary activities after tax 2,839 (2,839) 2,874 (2,874) Change to net assets attributable to shareholders 2,839 (2,839) 2,874 (2,874) Market risk arising from other price risk Market price risk includes changes in market prices, other than those arising from interest rate risk, which may affect the value of investments. The following table illustrates the sensitivity of revenue and capital return on ordinary activities after tax and net assets attributable to shareholders to an increase or decrease of 10% in the fair value of the Company’s investments. This level of change is considered to be reasonably possible based on observation of market conditions and historic trends. The sensitivity analysis is based on the Company’s investments at each reporting date, with all other variables held constant. Financial statements Notes to the Financial Statements (continued) 989898 Annual Report and audited Financial Statements • December 202298 Strategic report • Governance • Financial • Additional information Increase in fair value 2022 £’000 Decrease in fair value 2022 £’000 Increase in fair value 2021 £’000 Decrease in fair value 2021 £’000 Income statement Revenue return (69) 69 (70) 70 Capital return 13,758 (13,758) 13,950 (13,950) Total change to net return on ordinary activities after tax 13,689 (13,689) 13,880 (13,880) Change to net assets attributable to shareholders 13,689 (13,689) 13,880 (13,880) Liquidity risk Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. The Company invests in illiquid public and private Debt Instruments. Such investments may be difficult to value or realise (if at all) and therefore the market price that is achievable for such investments might be lower than the valuation of these assets and as reflected in the Company’s published NAV per Ordinary Share. The contractual maturities of the financial liabilities at the year end, based on the earliest date on which payment can be required are as follows: Three months or less 2022 £’000 More than three months but less than one year 2022 £’000 Total 2022 £’000 Three months or less 2021 £’000 More than three months but less than one year 2021 £’000 Total 2021 £’000 Creditors: amounts falling due within one year Bank loan – 7,000 7,000 – – – Other creditors 2,106 – 2,106 1,087 – 1,087 2,106 7,000 9,106 1,087 – 1,087 Credit risk Credit risk is the risk that one party to a financial instrument or contract will cause a financial loss for the other party by failing to discharge an obligation. In the case of invested assets this is the potential for the reduction in the value of investments which relates to the risk of an issuer being unable to meet its obligations, whilst for trading activities this relates to the risk that the counterparty to any contract the Company enters into being unable to meet its obligations causing loss. The Investment Manager maintains a credit risk policy and standards which set out the assessment and measurement of credit risk, compliance with which is monitored, and exposures and breaches are reported daily by the Risk team. The policy is reviewed on an annual basis to ensure that it remains fit for purpose and relevant to changes in the risk environment. Investment mandates specify explicitly the counterparty risk appetite for cash on deposit, foreign exchange and OTC trading whilst other counterparty risk is taken for the purposes of efficient portfolio management and reduction in risk. Financial statements Notes to the Financial Statements (continued) 9999Annual Report and audited Financial Statements • December 2022 Strategic report • Governance • Financial • Additional information Management of counterparty risk To mitigate counterparty risk, the AIFM follows the standards below: ● Preference for ‘high-quality’ rated counterparties, mainly banks with short-term A1/P1 ratings and banks rated A or better. ● Limited exposure to each counterparty to diversify risk. ● Collateral taken from counterparties and posted against their default where appropriate. ● Regular monitoring of counterparty rating. ● Capability to rapidly reduce exposure on adverse market intelligence. ● Trading on Delivery Versus Payment (DVP) basis. Credit risk exposure The following amounts shown in the statement of financial position represent the maximum exposure to credit risk at the year end. Balance sheet 2022 £’000 Maximum exposure 2022 £’000 Balance sheet 2021 £’000 Maximum exposure 2021 £’000 Fixed assets Investments held at fair value through profit or loss 137,584 138,062 139,501 140,321 Current assets Other receivables 2,100 2,100 1,241 3,106 Cash and cash equivalents 3,672 4,181 3,473 6,944 Cash at bank and in hand 143,356 144,343 144,215 150,371 No debtors are past their due date and none have been written down or deemed to be impaired. Fair values of financial assets and financial liabilities All financial assets and liabilities are either carried at fair value or the amount in the Statement of Financial Position is a reasonable approximation of fair value. Financial statements Notes to the Financial Statements (continued) 100100100 Annual Report and audited Financial Statements • December 2022100 Strategic report • Governance • Financial • Additional information 14 Fair value hierarchy Under FRS 102 an entity 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 shall have the levels stated below. ● 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, spread premium, credit ratings etc). ● Level 3: significant unobservable inputs (including the Company’s own assumptions in determining the fair value of investments, discounted cashflow model or single broker quote). The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the asset or liability. The determination of what constitutes ‘observable’ requires significant judgement by the Company. The Company considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary and provided by independent sources that are actively involved in the relevant market. The financial assets measured at FVTPL are grouped into the fair value hierarchy as follows: As at 31 December 2022 As at 31 December 2021 Level 1 £’000 Level 2 £’000 Level 3 £’000 Total £’000 Level 1 £’000 Level 2 £’000 Level 3 £’000 Total £’000 Financial assets at FVTPL Debt Instruments – 52,155 69,131 121,286 – 54,382 67,599 121,981 Investment in funds – 16,298 – 16,298 – 17,520 – 17,520 Derivatives 996 – – 996 – 667 – 667 Financial liabilities at FVTPL Derivatives – (137) – (137) (36) – – (36) Net fair value 996 68,316 69,131 138,443 (36) 72,569 67,599 140,132 Valuation techniques for Level 3 The debt investments within the Company utilise a number of valuation methodologies such as a discounted cash flow model, which will use the relevant credit spread and underlying reference instrument to calculate a discount rate. Unobservable inputs typically include spread premiums and internal credit ratings. Some debt instruments are valued at par and are monitored to ensure this represents fair value for these instruments. On a monthly basis these instruments are assessed to understand whether there is any evidence of market price movements, including impairment or any upcoming refinancing. Financial statements Notes to the Financial Statements (continued) 101101Annual Report and audited Financial Statements • December 2022 Strategic report • Governance • Financial • Additional information Notes to the Financial Statements (continued) In addition, some are priced by a single broker quote, which is typically the traded broker, who provides an indicative mark. Level 3 reconciliation The following table shows a reconciliation of all movements in the fair value of financial instruments categorised within Level 3 between the beginning and the end of the financial year: Level 3 31 December 2022 £’000 Level 3 31 December 2021 £’000 Financial assets at FVTPL Opening balance 67,599 35,232 Net realised gains/(losses) (1,248) (549) Purchases 20,609 25,320 Sales (18,838) (7,47 7) Transfer in/(out) Level 3 1,009 15,073 Closing balance 69,131 67,599 During the year ended 31 December 2022, following a review of M&G’s internal guidance for fair value levelling, certain portfolio constituents were transferred from Level 2 to Level 3 in recognition of the level of unobservable inputs that were necessarily applied to their valuation. 15 Capital commitments There were outstanding unfunded investment commitments of £2,118,000 (2021: £2,866,000) at the year end. As at 31 December 2022 £’000 As at 31 December 2021 £’000 Grover Group Var. Rate 30 Aug 2027 1,109 – Project Grey Var. Rate 30 Apr 2025 (Senior) 574 – Project Grey Var. Rate 30 Apr 2025 (Junior) 311 – Project Mercury Mercury Var. Rate 1 May 2024 75 173 Kaveh Ventures LLC Var. Rate 22 Mar 2024 49 – Project Mercury Mercury Var. Rate 31 May 2024 – 1,862 Intu (SGS) Finco Limited Var. Rate 31 Mar 2024 – 229 Kaveh Ventures LLC Var. Rate 16 May 2022 – 163 Valentine Senior Var. Rate 7 Mar 2022 – 133 Jamshid Ventures Var. Rate 23 Jul 2023 – 125 PE Fund Finance III Var. Rate 16 Dec 2023 – 109 Bread Holdings Var. Rate 1 Sep 2028 – 72 2,118 2,866 Financial statements 102102102 Annual Report and audited Financial Statements • December 2022102 Strategic report • Governance • Financial • Additional information Financial statements 16 Capital management policies and procedures The Company’s capital management objectives are: ● to ensure that the Company will be able to continue as a going concern; and ● to generate a regular and attractive level of income with low asset value volatility by investing in a diversified portfolio of public and private debt instruments. The capital of the Company consists of equity, comprising issued capital, reserves and retained earnings. The Board monitors and reviews the broad structure of the Company’s capital on an ongoing basis. This review includes: ● the nature and planned level of gearing, which takes account of the Investment Manager’s views on the market; ● the issue and buy back share capital within limits set by the shareholders in a general meeting; and ● the extent to which revenue in excess of that which is required to be distributed should be retained. Notes to the Financial Statements (continued) 103Annual Report and audited Financial Statements • December 2022 Strategic report • Governance • Financial • Additional information This document is important and requires your immediate attention. If you are in any doubt as to what action you should take, you are recommended to seek your own financial advice from your stockbroker or other independent adviser authorised under the Financial Services and Markets Act 2000 immediately. If you have sold or otherwise transferred all of your shares in M&G Credit Income Investment Trust plc, please forward this document as soon as possible to the purchaser or transferee or to the stockbroker, bank or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee. NOTICE IS HEREBY GIVEN that the fourth ANNUAL GENERAL MEETING (AGM) of M&G Credit Income Investment Trust plc will be held at the offices of M&G Alternatives Investment Management Limited, 10 Fenchurch Avenue, London EC3M 5AG at 11.30 am on Thursday, 15 June 2023 to consider and vote on the resolutions below. Resolutions 1 to 11 (inclusive) will be proposed as ordinary resolutions and resolutions 12 to 14 (inclusive) will be proposed as special resolutions. Ordinary business 1. To receive and, if thought fit, to accept the Strategic Report, Directors’ Report, Auditor‘s Report and the audited Financial Statements for the year ended 31 December 2022. 2. To receive and approve the Directors’ Remuneration Report (excluding the Directors’ Remuneration Policy) for the year ended 31 December 2022. 3. To receive and approve the Directors’ Remuneration Policy. 4. To approve the Company’s dividend policy that the Company intends to distribute at least 85% of its distributable income earned each financial year by way of dividends and that, until the conclusion of the next general meeting at which financial statements are laid before the Company, such dividends are intended to be paid quarterly. 5. To re-elect Mr David Simpson as a Director of the Company. 6. To re-elect Mr Richard Boléat as a Director of the Company. 7. To re-elect Mrs Barbara Powley as a Director of the Company. 8. To re-elect Ms Jane Routledge as a Director of the Company. 9. To appoint BDO LLP as Auditor to the Company, to hold office from the conclusion of this meeting until the conclusion of the next general meeting at which financial statements are laid before the Company. 10. To authorise the Audit Committee to determine the remuneration of the Auditor of the Company. 11. THAT, in substitution for all existing authorities, the Directors be and are hereby generally and unconditionally authorised in accordance with Section 551 of the Companies Act 2006 (‘the Act’) to exercise all the powers of the Company to allot shares in the Company and to grant rights to subscribe for, or to convert any security into, shares in the Company, up to an aggregate nominal amount of £142,133 (ie up to 14,213,300 Ordinary Shares and/ or C Shares, representing approximately 10% of the issued share capital of the Company (excluding treasury shares) as at 24 April 2023) during the period commencing on the date of the passing of this Resolution and expiring at the conclusion of the Annual General Meeting of the Company to be held in 2024 (unless previously renewed, varied or revoked by the Company in general meeting) (the ‘Section 551 period’), but so that the Company shall be entitled, at any time prior to the expiry of the Section 551 period, to make offers or agreements which would or might require shares to be allotted or such rights to be granted after the expiry of the Section 551 period and the Directors shall be entitled to allot shares or grant rights in pursuance of such offers or agreements as if the authority had not expired. Notice of Annual General Meeting 104 Annual Report and audited Financial Statements • December 2022104 Strategic report • Governance • Financial • Additional information Special resolutions 12. THAT, in substitution for all existing authorities and, subject to the passing of Resolution 11, the Directors be and they are hereby authorised, in accordance with Sections 570 and 573 of the Companies Act 2006 (‘the Act’), to allot equity securities (within the meaning of section 560 of the Act) for cash pursuant to the authority conferred by Resolution 11 above, and by way of a sale of treasury shares as if Section 561(1) of the Act did not apply to any such allotment or sale, up to an aggregate nominal amount of £142,133 (ie up to 14,213,300 Ordinary Shares and/ or C Shares, representing approximately 10% of the issued share capital of the Company (excluding treasury shares) as at 24 April 2023), such power to expire at the conclusion of the Annual General Meeting of the Company to be held in 2024 (unless previously renewed, varied or revoked by the Company in general meeting) save that the Company shall be entitled, at any time prior to the expiry of such power, to make an offer or enter into an agreement which would or might require equity securities to be allotted or sold after the expiry of such power and the Directors shall be entitled to allot or sell equity securities in pursuance of such an offer or agreement as if such power had not expired. 13. THAT, the Company be authorised in accordance with Section 701 of the Act to make market purchases (within the meaning of Section 693(4) of the Act) of Ordinary Shares provided that the maximum number of Ordinary Shares authorised to be purchased will be up to 14.99% of the Ordinary Shares in issue at the date of this Notice, excluding any treasury shares, or, if changed, 14.99% of the Ordinary Shares in issue, excluding any treasury shares, immediately following the passing of this resolution. The minimum price which may be paid for an Ordinary Share is £0.01. The maximum price which may be paid for an Ordinary Share must not be more than the higher of: ● 5.0% above the average of the mid-market value of the Ordinary Shares for the five business days before the purchase is made; or ● the higher of the price of the last independent trade and the highest current independent bid for the Ordinary Shares Such authority will expire at the AGM of the Company to be held in 2024, save that the Company may contract to purchase Ordinary Shares under the authority thereby conferred prior to the expiry of such authority, which contract will or may be executed wholly or partly after the expiry of such authority and may purchase Ordinary Shares in pursuance of such contract. This resolution revokes and replaces all unexercised authorities previously granted to the Directors to make market purchases of Ordinary Shares. All Ordinary Shares purchased pursuant to the above authority shall be either: ● held, sold, transferred or otherwise dealt with as treasury shares in accordance with the provisions of the Act; or ● cancelled immediately upon completion of the purchase. 14. THAT, a General Meeting, other than an AGM, may be called on not less than 14 clear days’ notice. Registered Office: Link Company Matters Limited 6th Floor, 65 Gresham Street, London, EC2V 7NQ By Order of the Board of Directors Link Company Matters Limited Company Secretary 25 April 2023 Notice of Annual General Meeting 105Annual Report and audited Financial Statements • December 2022 Strategic report • Governance • Financial • Additional information ADMINISTRATIVE NOTES IN CONNECTION WITH THE ANNUAL GENERAL MEETING 1. Entitlement to attend and vote To be entitled to attend and vote at the Meeting (and for the purposes of the determination by the Company of the votes that may be cast in accordance with Regulation 41 of the Uncertified Securities Regulations 2001), only those members registered in the Company’s register of members at close of business on 13 June 2023 (or, if the Meeting is adjourned, close of business on the date which is two business days before the adjourned Meeting) shall be entitled to attend and vote at the Meeting. Changes to the register of members of the Company after the relevant deadline shall be disregarded in determining the rights of any person to attend and vote at the Meeting. 2. Website giving information regarding the Meeting Information regarding the Meeting, including the information required by Section 311A of the Act, is available from mandg.co.uk/creditincomeinvestmenttrust 3. Attending in person If you wish to attend the Meeting in person, please bring some form of identification. Appointment of proxies 4. If you are a member of the Company at the time set out in note 1 above, you are entitled to appoint a proxy to exercise all or any of your rights to attend, speak and vote at the Meeting. You can appoint a proxy only using the procedures set out in these notes and the notes to the proxy form. 5. A proxy does not need to be a member of the Company but must attend the Meeting to represent you. If you wish your proxy to speak on your behalf at the Meeting you will need to appoint your own choice of proxy (not the Chairman) and give your instructions directly to them. 6. You may appoint more than one proxy provided each proxy is appointed to exercise rights attached to different shares. You may not appoint more than one proxy to exercise rights attached to any one share. To appoint more than one proxy, please indicate on your proxy submission how many shares it relates to. 7. A vote withheld is not a vote in law, which means that the vote will not be counted in the calculation of votes for or against the Resolution. If no voting indication is given, your proxy will vote or abstain from voting at his or her discretion. Your proxy will vote (or abstain from voting) as he or she thinks fit in relation to any other matter which is put before the Meeting. 8. Appointment of proxy using hard copy proxy form A hard copy form of proxy has not been sent to you but you can request one directly from the registrars, Link Group’s general helpline team on 0371 664 0300. Calls are charged at the standard geographic rate and will vary by provider. Calls outside the United Kingdom will be charged at the applicable international rate. Lines are open between 09:00-17:30, Monday to Friday excluding public holidays in England and Wales. You can also request via email at shareholderenquiries@linkgroup.co.uk or via postal address at Link Group, PXS1, 10th Floor, Central Square, 29 Wellington Street, Leeds, LS1 4DL. In the case of a member that is a company, the proxy form must be executed under its common seal or signed on its behalf by an officer of the company or an attorney for the company. Any power of attorney or any other authority under which the proxy form is signed (or a duly certified copy of such power or authority) must be included with the proxy form. For the purposes of determining the time for delivery of proxies, no account has been taken of any part of a day that is not a working day. 9. Appointment of a proxy online You may submit your proxy electronically using the Share Portal service at signalshares.com Shareholders can use this service to vote or appoint a proxy online. The same voting deadline of 48 hours (excluding non-working days) before the time of the meeting applies. Shareholders will need to use the unique personal identification Investor Code (‘IVC’) printed on your share certificate. If you need help with voting online, please contact our Registrar, Link Group’s portal team on 0371 664 0391. Calls are charged at the standard geographic rate and will vary by provider. Calls outside the United Kingdom will be charged at the applicable international rate. Lines are open between 09:00- 17:30, Monday to Friday excluding public holidays in England and Wales. You can also email shareholderenquiries@linkgroup.co.uk Notice of Annual General Meeting 106 Annual Report and audited Financial Statements • December 2022106 Strategic report • Governance • Financial • Additional information 10. Appointment of proxies through CREST CREST members who wish to appoint a proxy or proxies by utilising the CREST electronic proxy appointment service may do so for the Meeting and any adjournment(s) of it by using the procedures described in the CREST Manual (available from euroclear.com/site/public/EUI). CREST Personal Members or other CREST sponsored members, and those CREST members who have appointed a voting service provider(s), should refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate action on their behalf. In order for a proxy appointment made by means of CREST to be valid, the appropriate CREST message (a CREST Proxy Instruction) must be properly authenticated in accordance with Euroclear UK & International Limited’s (EUI) specifications and must contain the information required for such instructions, as described in the CREST Manual. The message must be transmitted so as to be received by the issuer’s agent (ID: RA10) by 11.30am on 13 June 2023. For this purpose, the time of receipt will be taken to be the time (as determined by the timestamp applied to the message by the CREST Applications Host) from which the issuer’s agent is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. CREST members and, where applicable, their CREST sponsors or voting service providers should note that EUI does not make available special procedures in CREST for any particular messages. Normal system timings and limitations will therefore apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member or sponsored member or has appointed a voting service provider(s), to procure that his CREST sponsor or voting service provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular time. In this connection, CREST members and, where applicable, their CREST sponsors or voting service providers are referred, in particular, to those sections of the CREST Manual concerning practical limitations of the CREST system and timings. The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5) (a) of the Uncertificated Securities Regulations 2001. 11. Proxymity If you are an institutional investor you may be able to appoint a proxy electronically via the Proxymity platform. For further information regarding Proxymity, please go to proxymity.io Your proxy must be lodged by 11.30am on 13 June 2023 in order to be considered valid. Before you can appoint a proxy via this process you will need to have agreed to Proxymity’s associated terms and conditions. It is important that you read these carefully as you will be bound by them and they will govern the electronic appointment of your proxy. 12. Appointment of proxy by joint members In the case of joint holders, where more than one of the joint holders purports to appoint a proxy, only the appointment submitted by the most senior holder will be accepted. Seniority is determined by the order in which the names of the joint holders appear in the Company’s register of members in respect of the joint holding, the first-named being the most senior. 13. Changing proxy instructions To change your proxy instructions simply submit a new proxy appointment using the methods set out above. Note that the cut-off times for receipt of proxy appointments (see above) also apply in relation to amended instructions; any amended proxy appointment received after the relevant cut-off time will be disregarded. Where you have appointed a proxy using the hard-copy proxy form and would like to change the instructions using another hard-copy proxy form, please contact Link Group as per the communication methods shown in note 8. If you submit more than one valid proxy appointment, the appointment received last before the latest time for the receipt of proxies will take precedence. 14. Termination of proxy appointments In order to revoke a proxy instruction, you will need to inform the Company by sending a signed hard copy notice clearly stating your intention to revoke your proxy appointment to Link Group, at the address shown in note 8. In the case of a member that is a company, the revocation notice must be executed under its common seal or signed on its behalf by an officer of the company or an attorney for the company. Any power of attorney or any other authority under which the revocation notice is signed, or a duly certified copy of such power or authority, must be included with the revocation notice. The revocation notice must be received by Link Group no later than 48 hours before the Meeting. If you attempt to revoke your proxy appointment but the revocation is received after the time specified then, subject to the paragraph directly below, your proxy appointment will remain valid. Appointment of a proxy does not preclude you from attending the Meeting and voting in person. If you have appointed a proxy and attend the Meeting in person, your proxy appointment will automatically be terminated. 15. Corporate representatives A corporation that is a member can appoint one or more corporate representatives who may exercise, on its behalf, all its powers as a member provided that no more than one corporate representative exercises powers over the same share. Notice of Annual General Meeting 107Annual Report and audited Financial Statements • December 2022 Strategic report • Governance • Financial • Additional information 16. Issued shares and total voting rights As at 24 April 2023, the Company’s issued share capital (excluding 2,612,749 treasury shares) comprised 142,133,022 Ordinary Shares of £0.01 each. Each Ordinary Share carries the right to one vote at a General Meeting of the Company and, therefore, the total number of voting rights in the Company on 24 April 2023 is 142,133,022. The website referred to in note 2 will include information on the number of shares and voting rights. 17. Questions at the Meeting Under Section 319A of the Act, the Company must answer any question you ask relating to the business being dealt with at the Meeting unless: ● answering the question would interfere unduly with the preparation for the Meeting or involve the disclosure of confidential information; ● the answer has already been given on a website in the form of an answer to a question; or ● it is undesirable in the interests of the Company or the good order of the Meeting that the question be answered. 18. Website publication of audit concerns Under Section 527 of the Companies Act 2006, shareholders meeting the threshold requirements set out in that section have the right to require the Company to publish on a website a statement setting out any matter relating to: (i) the audit of the Company’s financial statements (including the Auditor’s Report and the conduct of the audit) that are to be laid before the Meeting; or (ii) any circumstances connected with an auditor of the Company ceasing to hold office since the previous meeting at which annual financial statements and reports were laid in accordance with Section 437 of the Companies Act 2006 (in each case) that the shareholders propose to raise at the relevant meeting. The Company may not require the shareholders requesting any such website publication to pay its expenses in complying with Sections 527 or 528 of the Companies Act 2006. Where the Company is required to place a statement on a website under Section 527 of the Companies Act 2006, it must forward the statement to the Company’s auditor not later than the time when it makes the statement available on the website. The business which may be dealt with at the Meeting for the relevant financial year includes any statement that the Company has been required under Section 527 of the Companies Act 2006 to publish on a website. 19. Documents on display Copies of the letters of appointment of the Directors of the Company and a copy of the Articles of Association of the Company will be available for inspection at the registered office of the Company from the date of this notice until the end of the Meeting. Notice of Annual General Meeting 108 Annual Report and audited Financial Statements • December 2022108 Strategic report • Governance • Financial • Additional information The majority of shareholders choose to receive Annual Reports and Notices of meetings electronically. This has a number of advantages for the Company and its shareholders. It increases the speed of communication, saves you time and reduces print and distribution costs and our impact on the environment. Company law requires that the Company asks shareholders to consent to the receipt of communications electronically and via a website a . Please note that if you consent to website publication you will continue to be notified in writing and through the release of an announcement on the London Stock Exchange each time the Company places a statutory communication on the website. Annual Reports and other documents which are required to be sent to shareholders (‘shareholder information’) are published on our website at mandg.co.uk/creditincomeinvestmenttrust If you consent, the website will be the way in which you access all future shareholder information. Please note that you still have the right to request hard copies of shareholder information at no charge. ● If you would like to receive notifications by email, you can register your email address via the Share Portal signalshares.com or write to FREEPOST SAS, 29 Wellington Street, LS1 4DL (no stamp or further address detail is required). Please write in BLOCK CAPITALS. ● If you would like to receive shareholder information by means of a website, there is nothing more you need to do. You will be notified by post when shareholder information has been placed on the website. ● If you would like to receive shareholder information in hard copy form, you can register your request via the Share Portal signalshares.com or write to FREEPOST SAS, 29 Wellington Street, LS1 4DL (no stamp or further address detail is required). Please write in BLOCK CAPITAL. Please note that if you hold your shares corporately or in a CREST account, you are not able to use the Share Portal to inform us of your preferred method of communication and should instead write to FREEPOST SAS, 29 Wellington Street, LS1 4DL (no stamp or further address detail is required). Please write in BLOCK CAPITALS. If we do not receive a reply from you within 28 days of the date of dispatch of this notice, you will be deemed to have consented to website publication of shareholder information and you will not receive hard copies of shareholder information in the post. a The Company reserves the right to send hard copy documents to shareholders where, for example, overseas securities laws do not permit electronic communication or in other circumstances where the Company considers that electronic delivery may not be appropriate. Additional shareholder information Arrange to have your dividends paid direct into your bank account This means that: ● Your dividend reaches your bank account on the payment date. ● It is more secure – cheques can sometimes get lost in the post. ● You don’t have the inconvenience of depositing a cheque. ● Helps reduce cheque fraud. If you have a UK bank account you can sign up for this service on Signal shares (by clicking on ‘your dividend options’ and following the on screen instructions). Shareholder communications 109Annual Report and audited Financial Statements • December 2022 Strategic report • Governance • Financial • Additional information Company information Directors (all non-executive) David Simpson (Chairman) Richard Boléat (Chairman of the Audit Committee) Barbara Powley (Senior Independent Director, effective 26 April 2023) Jane Routledge AIFM and Investment Manager M&G Alternatives Investment Management Limited (MAGAIM) a 10 Fenchurch Avenue, London EC3M 5AG Website: mandg.co.uk Telephone: +44 (0) 800 390 390 Administrator State Street Bank and Trust Company a 20 Churchill Place, London E14 5HJ Company Secretary and registered office Link Company Matters Limited 6th Floor, 65 Gresham Street, London, EC2V 7NQ Telephone: 07936 332 503 Broker Winterflood Securities Limited a The Atrium, Cannon Bridge House, 25 Dowgate Hill, London EC4R 2GA Solicitors Herbert Smith Freehills LLP a Exchange House, Primrose Street, London EC2A 2EG Auditor Deloitte LLP Saltire Court, 20 Castle Street, Edinburgh EH1 2DB Registrar and transfer office Link Group Shareholder Services Department 10th Floor, Central Square, 29 Wellington Street, Leeds LS1 4DL Telephone: 0371 664 0300 (Calls are charged at the standard geographic rate and will vary by provider. Calls outside the United Kingdom will be charged at the applicable international rate. Lines are open between 09:00 – 17:30, Monday to Friday excluding public holidays in England and Wales). Email: shareholderenquiries@linkgroup.co.uk Website: linkgroup.eu Depositary State Street Trustees Limited a 20 Churchill Place, London E14 5HJ Custodian State Street Bank and Trust Company a 20 Churchill Place, London E14 5HJ Banker State Street Bank International GmbH Brienner Straße 59, 0333 Munich, Germany Association of Investment Companies (AIC) The Company is a member of the AIC, which publishes monthly statistical information in respect of member companies. The AIC can be contacted on 020 7282 5555, enquiries@theaic.co.uk or visit the website: theaic.co.uk Company website mandg.co.uk/creditincomeinvestmenttrust a Authorised and regulated by the Financial Conduct Authority. 110 Annual Report and audited Financial Statements • December 2022110 Strategic report • Governance • Financial • Additional information Alternative performance measures Net Asset Value (NAV) per Ordinary Share The NAV, also described as shareholders’ funds, is the value of the Company’s assets less its liabilities. The NAV per Ordinary Share is calculated by dividing the NAV by the number of Ordinary Shares in issue (excluding treasury shares). Ongoing charges Ongoing charges represent the total of the investment management fee and all other operating expenses (excluding non-recurring items, certain finance costs and cost of buying back or issuing shares), expressed as a percentage of the average net assets (of the Company) over the reporting year. Year ended 31 December 2022 £’000 Year ended 31 December 2021 £’000 Ongoing charges are calculated with reference to the following figures: Investment management fee 964 965 Other expenses a 754 623 Total expenses for the year 1,718 1,588 Ongoing expenses 1,666 1,605 Average net assets over the year 137,058 146,173 Ongoing charges figure 1.22% 1.10% a Includes the commitment fee on the revolving credit facility. Premium/discount to NAV The premium is the amount by which the share price of an investment trust exceeds the NAV per Ordinary Share. The discount is the amount by which the NAV per Ordinary Share exceeds the share price of an investment trust. The premium/discount is normally expressed as a percentage of the NAV per Ordinary Share. Total return Total return is the return to shareholders that measures the combined effect of any dividends paid in the period with the increase or decrease in the share price or NAV per share. Share price total return Total return to shareholders, assuming all dividends received were reinvested at the mid-market price without transaction costs into the shares of the Company at the time the shares were quoted ex-dividend. Year ended 31 December 2022 £’000 Year ended 31 December 2021 £’000 Opening share price 99.5p 92.0p Dividend paid 4.70p 4.21p Effect of dividend reinvested (0.12)p 0.26p Closing share price 92.1p 99.5p Adjusted closing share price 96.7p 104.0p Share price total return (2.8)% 13.0% 111Annual Report and audited Financial Statements • December 2022 Strategic report • Governance • Financial • Additional information Alternative performance measures NAV total return Total return on NAV per share assuming dividends paid by the Company were reinvested into the shares of the Company at the NAV per share at the time the shares were quoted ex-dividend. Year ended 31 December 2022 £’000 Year ended 31 December 2021 £’000 Opening NAV per share 101.44p 101.40p Dividend paid 4.70p 4.21p Effect of dividend reinvested (0.01)p 0.06p Closing NAV per share 94.99p 101.44p Adjusted closing NAV per share 99.68p 105.71p NAV total return (1.7)% 4.3% Dividend yield The annual dividend expressed as a percentage of the share price. Year ended 31 December 2022 £’000 Year ended 31 December 2021 £’000 Dividends declared per Ordinary Share a 5.35p 4.04p Ordinary Share price 92.1p 99.5p Dividend yield 5.8% 4.1% a Based on dividends declared in respect of the previous 12 months. 112 Annual Report and audited Financial Statements • December 2022112 Adjusted opening NAV The opening NAV, adjusted for the payment of the last dividend in respect of the previous financial year. Asset Anything having commercial or exchange value that is owned by a business, institution or individual. ABS (Asset backed security) A security whose income payments and value are derived from and collateralised by a specified pool of underlying assets. Asset class Category of assets, such as cash, company shares, fixed income securities and their sub-categories, as well as tangible assets such as real estate. Association of Investment Companies (AIC) The UK trade body that represents investment managers. It works with investment managers, liaising with government on matters of taxation and regulation, and also aims to help investors understand the industry and the investment options available to them. AUM Assets under management. Basis points (bps) A common unit of measure for interest rates and other percentages in finance. One basis point is equal to 1/100th of 1%, or 0.01%, or 0.0001, and is used to denote the percentage change in a financial instrument. Bond A loan in the form of a security, usually issued by a government or company, which normally pays a fixed rate of interest over a given time period, at the end of which the initial amount borrowed is repaid. Callable bond A bond that can be redeemed (in other words, called) by the issuer before its maturity date. The price at which the issuer buys back the bond is normally higher than its issue price. A bond is usually called when interest rates fall, so that the issuer can refinance its debt at the new, lower interest rates. Capital Refers to the financial assets, or resources, that a company has to fund its business operations. Capitalisation The total market value of all of a company’s outstanding shares. CTA Corporation Tax Act. CLO (Collateralised loan obligation) Actively managed investment vehicle which issues rated tranches of debt from AAA-B and an unrated equity tranche. Underlying assets are predominantly made up of leveraged loans and high yield bonds. Closed-ended A term used to describe an investment company whose capital is fixed and whose shares are not generally redeemable at the option of a holder. CMBS ( Commercial mortgage-backed security) A type of asset-backed security which is collateralised by a commercial real estate asset, either a single property, or – more often – a portfolio of several properties. Comparative sector A group of investment companies with similar investment objectives and/or types of investment, as classified by bodies such as the AIC or Morningstar™. Sector definitions are mostly based on the main assets an investment company should invest in, and may also have a geographic focus. Sectors can be the basis for comparing the different characteristics of similar investment companies, such as their performance or charging structure. Consumer Prices Index (CPI) An index used to measure inflation, which is the rate of change in prices for a basket of goods and services. The contents of the basket are meant to be representative of products and services we typically spend our money on. Convertible bonds Fixed income securities that can be exchanged for predetermined amounts of company shares at certain times during their life. Corporate bonds Fixed income securities issued by a company. They are also known as bonds and can offer higher interest payments than bonds issued by governments as they are often considered more risky. Credit The borrowing capacity of an individual, company or government. More narrowly, the term is often used as a synonym for fixed income securities issued by companies. Credit default swaps (CDS) Are a type of derivative, namely financial instruments whose value, and price, are dependent on one or more underlying assets. CDS are insurance-like contracts that allow investors to transfer the risk of a fixed income security defaulting to another investor. Credit rating An independent assessment of a borrower’s ability to repay its debts. A high rating indicates that the credit rating agency considers the issuer to be at low risk of default; likewise, a low rating indicates high risk of default. Standard & Poor’s, Fitch and Moody’s are the three most prominent credit rating agencies. Default means that a company or government is unable to meet interest payments or repay the initial investment amount at the end of a security’s life. Credit spread The difference between the yield of a corporate bond, a fixed income security issued by a company, and a government bond of the same life span. Yield refers to the income received from an investment and is expressed as a percentage of the investment’s current market value. Debt instrument A formal contract that a government, a business or an individual can use to borrow money. Debt instruments outline the detailed conditions of the loan, such as the amount and schedule of payment of interest, the length of Glossary 113Annual Report and audited Financial Statements • December 2022 time before the principal is paid back, or any guarantees (collateral) that the borrower offers. Any type of debt can be a debt instrument – from bonds and loans to credit cards. Default When a borrower does not maintain interest payments or repay the amount borrowed when due. Derivatives Financial instruments whose value, and price, are dependent on one or more underlying assets. Derivatives can be used to gain exposure to, or to help protect against, expected changes in the value of the underlying investments. Derivatives may be traded on a regulated exchange or traded over the counter. Developed economy or market Well-established economies with a high degree of industrialisation, standard of living and security. Dividend Dividends represent a share in the profits of the company and are paid out to a company’s shareholders at set times of the year. ECB (European Central Bank) Central bank of the 19 European Union countries which have adopted the euro. Emerging economy or market Economies in the process of rapid growth and increasing industrialisation. Investments in emerging markets are generally considered to be riskier than those in developed markets. Episode A phase during which investors allow their emotions to affect their decision making, which can cause financial markets to move irrationally. Equities Shares of ownership in a company. Ex-dividend, ex-distribution or XD date The date on which declared distributions or dividends officially belong to underlying investors. Exposure The proportion of an investment company invested in a particular share/fixed income security, sector/region, usually expressed as a percentage of the overall portfolio. Fixed income security A loan in the form of a security, usually issued by a government or company, which normally pays a fixed rate of interest over a given time period, at the end of which the initial amount borrowed is repaid. Floating rate notes (FRNs) Securities whose interest (income) payments are periodically adjusted depending on the change in a reference interest rate. Gearing Is a measure of financial leverage that demonstrates the degree to which the Investment Trust’s operations are funded by equity capital versus creditor financing. Gilts Fixed income securities issued by the UK Government. Government bonds Fixed income securities issued by governments, that normally pay a fixed rate of interest over a given time period, at the end of which the initial investment is repaid. Hard currency (bonds) Refers to bonds denominated in a highly traded, relatively stable international currency, rather than in the bond issuer’s local currency. Bonds issued in a more stable hard currency, such as the US dollar, can be more attractive to investors where there are concerns that the local currency could lose value over time, eroding the value of bonds and their income. Hedging A method of reducing unnecessary or unintended risk. High yield bonds Fixed income securities issued by companies with a low credit rating from a recognised credit rating agency. They are considered to be at higher risk of default than better quality, i.e. higher rated fixed income securities but have the potential for higher rewards. Default means that a company or government is unable to meet interest payments or repay the initial investment amount at the end of security’s life. Index An index represents a particular market or a portion of it, serving as a performance indicator for that market. Index-linked bonds Fixed income securities where both the value of the loan and the interest payments are adjusted in line with inflation over the life of the security. Also referred to as inflation-linked bonds. Inflation The rate of increase in the cost of living. Inflation is usually quoted as an annual percentage, comparing the average price this month with the same month a year earlier. Investment grade bonds Fixed income securities issued by a company with a medium or high credit rating from a recognised credit rating agency. They are considered to be at lower risk from default than those issued by companies with lower credit ratings. Default means that a company or government is unable to meet interest payments or repay the initial investment amount at the end of a security’s life. Investment trust An investment trust is a form of collective investment fund found mostly in the United Kingdom. Investment trusts are closed-end funds and are constituted as public limited companies. IRR Internal Rate of Return. IPO Initial Public Offering. The process of offering shares of a private corporation to the public. Issuer An entity that sells securities, such as fixed income securities and company shares. Glossary 114 Annual Report and audited Financial Statements • December 2022114 NAV total return is expressed as a percentage change from the start of the period. It assumes that dividends paid to shareholders are reinvested at NAV at the time the shares are quoted ex-dividend. NAV total return shows performance which is not affected by movements in share price discounts and premiums. It also takes into account the fact that different investment companies pay out different levels of dividends. Non-executive Director (NED) A non-executive Director is a member of a company’s board of directors who is not part of the executive team. A non-executive Director typically does not engage in the day-to-day management of the organisation, but is involved in policy making and planning exercises. Official List The Official List (or UKLA Official List) is the list maintained by the Financial Conduct Authority in accordance with Section 74(1) of the Financial Services and Markets Act 2000 (the Act) for the purposes of Part VI of the Act. Ongoing charges figure The ongoing charges figure includes charges for management of the fund; administration services; and services provided by external parties, which include depository, custody and audit, as well as incorporating the ongoing charges figure from funds held in the portfolio (taking into account any rebates). The ongoing charges figure (as a percentage of shareholders’ funds) is an annualised rate calculated using average net assets over the period in accordance with the Association of Investment Companies’ (AIC) recommended methodology. Options Financial contracts that offer the right, but not the obligation, to buy or sell an asset at a given price on or before a given date in the future. Ordinary Share Ordinary Share is the only class of shares issued and benefits from all the income and capital growth in the portfolio. Overweight If an investment company is ‘overweight’ in a stock, it holds a larger proportion of that stock than the comparable index or sector. Payment date The date on which dividends will be paid by the investment company to investors. Private debt instruments These instruments not traded on a stock exchange and typically issued to small groups of institutional investors. Public debt instruments These instruments refers to assets that are listed on a recognised exchange. REIT (real estate investment trust) A REIT is a company that owns, operates or finances income-producing real estate. Retail Prices Index (RPI) A UK inflation index that measures the rate of change of prices for a basket of goods and services in the UK, including mortgage payments and council tax. Leverage When referring to a company, leverage is the level of a company’s debt in relation to its assets. A company with significantly more debt than capital is considered to be leveraged. It can also refer to an investment company that borrows money or uses derivatives to magnify an investment position. LIBOR The three-month GBP London Interbank Borrowing Rate is the rate at which banks borrow money from each other (in UK pounds) for a three-month period. Liquidity A company is considered highly liquid if it has plenty of cash at its disposal. A company’s shares are considered highly liquid if they can be easily bought or sold since large amounts are regularly traded. Local currency (bonds) Refers to bonds denominated in the currency of the issuer’s country, rather than in a highly traded international currency, such as the US dollar. The value of local currency bonds tends to fluctuate more than bonds issued in a hard currency, as these currencies tend to be less stable. Long position Refers to ownership of a security held in the expectation that the security will rise in value. Macroeconomic Refers to the performance and behaviour of an economy at the regional or national level. Macroeconomic factors such as economic output, unemployment, inflation and investment are key indicators of economic performance. Sometimes abbreviated to ‘macro’. Maturity The length of time until the initial investment amount of a fixed income security is due to be repaid to the holder of the security. Mezzanine tranche A generally small layer of corporate debt positioned between the senior tranche (mostly AAA) and a junior tranche (unrated, typically called equity tranche). Modified duration A measure of the sensitivity of a fixed income security, also called a bond, or bond fund to changes in interest rates. The higher a bond or bond fund’s modified duration, the more sensitive it is to interest rate movements. Monetary policy A central bank’s regulation of money in circulation and interest rates. Morningstar™ A provider of independent investment research, including performance statistics and independent investment company ratings. Near cash Deposits or investments with similar characteristics to cash. Net asset value (NAV) An investment company’s NAV is calculated by taking the current value of its assets and subtracting its liabilities. NAV total return A measure showing how the net asset value (NAV) per share has performed over a period of time, taking into account both capital returns and dividends paid to shareholders. Glossary 115Annual Report and audited Financial Statements • December 2022 Swap A swap is a derivative contract where two parties agree to exchange separate streams of cash flows. A common type of swap is an interest rate swap to hedge against interest rate risk. Synthetic inflation-linked bonds Refers to securities created using a combination of assets to simulate the characteristics of inflation-linked bonds. By buying inflation-linked government bonds and selling protection against companies defaulting on their debts, using credit default swaps, the combined synthetic investment will behave similarly to a physical inflation-linked bond, had one been issued. Synthetic inflation-linked bonds are usually created where a company does not have any inflation-linked bonds in issue. Tap issuance programme A method of share issuance whereby the company issues shares over a period of time, rather than in one sale. A tap issue allows the company to make its shares available to investors when market conditions are most favourable. Total return The term for the gain or loss derived from an investment over a particular period. Total return includes income (in the form of interest or dividend payments) and capital gains. Treasury shares Shares that the company bought back from the marketplace and it keeps in its treasury; they do not count for the distribution of dividends or the calculation of earnings per share or net asset value per share. Also known as treasury stock. Valuation The worth of an asset or company based on its current price. Volatility The degree to which a given security, investment company, fund, or index rapidly changes. It is calculated as the degree of deviation from the norm for that type of investment over a given time period. The higher the volatility, the riskier the security tends to be. Weighted average life (WAL) The asset-weighted average number of years to final maturity of the portfolio, based on the final maturity for all assets/exposures. Yield This refers to either the interest received from a fixed income security or to the dividends received from a share. It is usually expressed as a percentage based on the investment’s costs, its current market value or its face value. Dividends represent a share in the profits of a company and are paid out to the company’s shareholders at set times of the year. Yield to maturity The total return anticipated on the portfolio if the underlying bonds are held until maturity. Revolving credit facility A line of credit (essentially a loan agreement) is established between a bank and a business from which the business can draw funds at any time as needed. The bank sets a ceiling for the loan. RMBS (Residential mortgage-backed security) A type of asset-backed security which is collateralised by a portfolio of residential properties. Securitise/securitisation The creation and issuance of tradeable securities, such as bonds, that are backed by the income generated by an illiquid asset or group of assets. By pooling a collection of illiquid assets, such as mortgages, securities backed by the mortgages’ income payments can be packaged and sold to a wider range of investors. Senior tranche The highest tranche of a debt security, i.e. the one deemed least risky. Any losses on the value of the security are only experienced in the senior tranche once all other tranches have lost all their value. For this relative safety, the senior tranche pays the lowest rate of interest. Share price total return Total return to shareholders, assuming all dividends received were reinvested at the mid-market price without transaction costs into the shares of the company at the time the shares were quoted ex-dividend. Short position A way for an Investment Manager to express his or her view that the market might fall in value. Short dated corporate bonds Fixed income securities issued by companies and repaid over relatively short periods. Short dated government bonds Fixed income securities issued by governments and repaid over relatively short periods. SMEs (Small and medium-sized enterprise) A business defined in the United Kingdom by reference to staff headcount (less than 250 employees) and annual turnover (less than £25 million). SONIA (Sterling Overnight Index Average) SONIA is an interest rate index administered by the Bank of England and based on actual transactions. It reflects the average interest rate that banks pay to borrow sterling overnight from other banks and institutional investors. Spread duration A measure of the portfolio’s sensitivity to changes in credit spreads. Sub-investment grade bonds Fixed income securities issued by a company with a low rating from a recognised credit rating agency. They are considered to be at higher risk from default than those issued by companies with higher credit ratings. Default means that a company or government is unable to meet interest payments or repay the initial investment amount at the end of a security’s life. Glossary 116 Annual Report and audited Financial Statements • December 2022116 Strategic report • Governance • Financial • Additional information Shareholder information and analysis Website The Company’s website is mandg.co.uk/ creditincomeinvestmenttrust. The site provides visitors with Company information and literature downloads. Annual and Half Year Reports Copies of the Annual and Half Year Reports may be obtained from the Company by visiting mandg.co.uk/ creditincomeinvestmenttrust Share prices and NAV information The Company’s Ordinary Shares of 1p each are quoted on the London Stock Exchange’s (LSE) main market for listed securities: Ordinary £0.01 shares SEDOL number: BFYYL32 ISIN: GB00BFYYL325 Ticker: MGCI LEI: 549300E9W63X1E5A3N24 The codes above may be required to access trading information relating to the Company on the internet. The Company’s NAV per share is released monthly to the London Stock Exchange and published on the Company’s website. Investing in the Company The Company’s shares can be bought or sold through a stockbroker or other financial intermediary. The Ordinary Shares are permissible assets for a self-invested personal pension (SIPP) and a small self-administered scheme (SSAS) and are ‘qualifying investments’ for the stocks and shares component of an Individual Savings Account (ISA). Individuals wishing to invest in shares through an ISA, SIPP or SSAS should, however, contact their professional advisers regarding their eligibility. Share register enquiries The register for the Ordinary Shares is maintained by Link Group. In the event of queries regarding your holding, please contact the Registrar on 0371 664 0300. Changes of name and/or address must be notified in writing to the Registrar, at the address shown on page 109. You can check your shareholding and find practical help on transferring shares or updating your details at signalshares.com Dividends Shareholders who wish to have dividends paid directly into a bank account rather than by cheque to their registered address can complete a mandate form for the purpose. Mandate forms may be obtained from Link Group on request from the address on page 109 or downloaded from their website signalshares.com Alternatively If you have a UK bank account you can sign up for this service on Signal Shares, if you have already registered you can log in to record your bank account details. Once logged in, click on ‘Manage your account’ at the top of the screen and then select ‘Payment Preferences’ to record your bank details. If you haven’t registered you can do so and update your bank details immediately. Go to the home screen and follow the link under ‘Register an account’. You’ll need to enter your investor code, surname and postcode. The Company operates the BACS system for the payment of dividends. Where dividends are paid directly into shareholders’ bank accounts, dividend tax vouchers are sent to shareholders’ registered addresses. Key dates Annual results April Annual General Meeting June Half Year results September Dividends declared January, April, July, October 117Annual Report and audited Financial Statements • December 2022 Strategic report • Governance • Financial • Additional information Shareholder information and analysis Association of Investment Companies The Company is a member of the AIC, which publishes monthly statistical information in respect of member companies. The AIC can be contacted on 020 7282 5555, enquiries@theaic.co.uk or visit the website: theaic.co.uk Company registration Registered in England and Wales. Company registration number 11469317. Enquiries Shareholders can contact the Company Secretary, Link Company Matters Limited at: mandg@linkgroup.co.uk Shareholder warning Many companies are aware that their shareholders have received unsolicited phone calls or correspondence concerning investment matters. These calls typically come from fraudsters operating in ‘boiler rooms’ offering investors shares that often turn out to be worthless or non-existent, or an inflated price for shares they own. While high profits are promised, those who buy or sell shares in this way usually lose their money. These fraudsters can be very persistent and extremely persuasive. Shareholders are therefore advised to be very wary of any unsolicited advice, offers to buy shares at a discount or offers of free company reports. It is very unlikely that either the Company or the Company’s Registrar would make unsolicited telephone calls to shareholders and that any such calls would relate only to official documentation already circulated to shareholders and never in respect of investment ‘advice’. If you have been contacted by an unauthorised firm regarding your shares, you can report this using the FCA helpline on 0800 111 6768 or by using the share fraud reporting form at fca.org.uk/consumers/scams 118 Annual Report and audited Financial Statements • December 2022118 Strategic report • Governance • Financial • Additional information Other regulatory disclosures Alternative Investment Fund Managers (‘AIFM’) Directive In accordance with the AIFMD, information in relation to the Company’s leverage, pre-investment disclosures and the remuneration of the Company’s AIFM are required to be made available to investors. Leverage For the purpose of the Alternative Investment Fund Manager (AIFM) Directive, leverage is any method that increases the Company’s exposure, including the borrowing of cash and the use of derivatives. It is expressed as the ratio of the Company’s exposure to its NAV. This exposure must be calculated in two ways, the ‘gross method’ and the ‘commitment method’. Under the gross method, exposure represents the sum of the absolute values of all positions, so as to give an indication of overall exposure. Under the commitment method, exposure is calculated in a similar way, but after netting off hedges which satisfy certain strict criteria. The Company’s maximum and actual leverage levels at 31 December 2022 are shown below. Gross method Commitment method Maximum permitted limit 300% 150% Actual 145% 114% Pre-investment disclosures The AIFMD requires certain information to be made available to investors in AIFs before they invest and requires that material changes to this information be disclosed in the Annual Report of each AIF. An Investor Disclosure Document, which sets out information on the Company’s investment strategy and policies, leverage, risk, liquidity, administration, management, fees, conflicts of interest and other shareholder information is available on the website at mandg.com/dam/ investments/common/gb/en/documents/funds- literature/credit-income-investment-trust/company- information-investment-disclosure-document.pdf There have been no material changes (other than those reflected in these Financial Statements) to this information requiring disclosure. Any information requiring immediate disclosure pursuant to the AIFMD will be disclosed to the London Stock Exchange through a primary information provider. 119Annual Report and audited Financial Statements • December 2022 Strategic report • Governance • Financial • Additional information Other regulatory disclosures Remuneration In line with the requirements of the Alternative Investment Fund Managers Directive (‘AIFMD’), M&G Alternatives Investment Management Limited (the ‘AIFM’) is subject to a remuneration policy which is consistent with the principles outlined in the European Securities and Markets Authority guidelines on sound remuneration policies under the AIFMD. The remuneration policy is designed to ensure that any relevant conflicts of interest can be managed appropriately at all times and that the remuneration of employees is in line with the risk policies and objectives of the alternative investment funds managed by the AIFM. Further details of the remuneration policy can be found here: mandgplc.com/our-business/mandg- investments/mandg-investments-business-policies. The remuneration policy and its implementation is reviewed on an annual basis, or more frequently where required, and is approved by the M&G plc Board Remuneration Committee. The most recent review found no fundamental issues with no material changes made to the policy. The AIFM is required under the AIFMD to make quantitative disclosures of remuneration. These disclosures are made in line with M&G’s interpretation of currently available guidance on quantitative remuneration disclosures. As market or regulatory guidance evolves, M&G may consider it appropriate to make changes to the way in which quantitative disclosures are calculated. The ‘Identified Staff’ of M&G Alternatives Investment Management Limited are those who could have a material impact on the risk profile of M&G Alternatives Investment Management Limited or the AIFs it manages (including M&G Credit Income Investment Trust plc) and generally includes senior management, risk takers and control functions. ‘Identified Staff’ typically provide both AIFMD and non-AIFMD related services and have a number of areas of responsibility. Therefore, only the portion of remuneration for those individuals’ services which may be attributable to the AIFM is included in the remuneration figures disclosed. Accordingly the figures are not representative of any individual’s actual remuneration. The information needed to provide a further breakdown of remuneration is not readily available and would not be relevant or reliable The amounts shown below reflect payments made in respect of the financial year 1 January 2022 to 31 December 2022. Fixed Remuneration £’000 Variable Remuneration (incl. carried interest) £’000 Total £’000 Benefi- ciaries Senior Management 67 186 253 12 Other Identified Staff 3,086 9,868 12,954 35 120 Annual Report and audited Financial Statements • December 2022120 Strategic report • Governance • Financial • Additional information Notes 121Annual Report and audited Financial Statements • December 2022 Strategic report • Governance • Financial • Additional information Notes 61965_LR_311223