Planting seeds for growth

Annual report and accounts for Hargreave Hale AIM VCT plc year ended 30 September 2019

1. Strategic report
Financial highlights	3
Chairman's statement	4
The Company and its business model	8
Investment objectives, policy and strategy	9
Key performance indicators	11
Principal risks and uncertainties	14
Long term viability statement and other policies	15
Investment manager	16
Investment manager's report	17
Investment portfolio summary	19
Top ten investments	23
2. Governance
Board of Directors	27
Directors' report	28
Directors' remuneration report	31
Corporate governance	35
Report of the Audit Committee	40
Statement of directors' responsibilities	42
3. Financial Statements
Independent Auditor's report	44
Income statement	49
Balance sheet	50
Statement of changes in equity	51
Statement of cash flows	53
Notes to the financial statements	54
Alternative performance measures	68
Glossary of terms	69
Shareholder information	70
Company information	71
Notice of Annual General Meeting	72

Coming into bloom

2 Hargreave Hale AIM VCT / Annual Report and Accounts 2019 Hargreave Hale AIM VCT / Annual Report and Accounts 2019

Strateg ic report

Financial highlights

The strategic report has been prepared by the Directors in accordance with the requirements of Section 414A of the Companies Act 2006.

Dividends paid per calendar year Discount to NAV

Pence for share

(1)

Sep 14 Sep 15 Sep 16 Sep 17 Sep 18 Sep 19

Earnings per share	2019	2018
Revenue return	(0.0 1 )p	(0.19)p
Capital return	(11.0 4 )p	11.81p
Combined return	(11. 05)p	11.62p

-10

-8

Financial Calendar
Record date for annual dividend	10 January 2020
Payment of annual dividend	11 February 2020
Annual General Meeting	4 February 2020
Announcement of half-yearly results for the six months ending 31 March 2020	June 2020
Payment of interim dividend (subject to Board approval)	July 2020

(1) Alternative performance measure defi nitions and illustrations can be found on page 68.

Chairman's statement

Introduction

Following the success of our offer for subscription which raised £25 million, I would like to welcome a large number of new shareholders.

Performance

At 30 September 2019, the net asset value (NAV) per share was 70. 60 pence which after adjusting for the dividends paid gives a NAV total return since inception of 125.7 5 pence. The earnings per share combined return for the year was a loss of 11. 05 pence (comprising a revenue loss of 0.0 1pence and a capital loss of 11.0 4pence). The NAV total return (NAV plus dividends paid) for the period was a loss of 13. 5% compared to a loss of 19.4% in the FTSE AIM All-share total return Index in the year to 30September 2019.

It is disappointing to report a negative return for the year, which started poorly amidst some challenging market conditions within the fi rst quarter of the fi nancial year. Subsequent performance was better, albeit with only modest gains posted in the quarters as many small companies traded through a highly uncertain political and economic environment.

Investments

During the year, the investment manager, Hargreave Hale Limited , invested £12. 0 million into 1 4 Qualifying Companies. The fair value of Qualifying Investments at 30 September 2019 was £79. 6 million invested in 79 AIM companies and 9 unquoted companies. £65.0 million was held in a mix of cash and nonqualifying equities; more detail can be found in the investment manager's report on page 1 7.

Dividend

In the 12 month period to 30 September 2019, the Company paid dividends totalling 5.15pence. A special dividend of 1 penny was paid on 24 October 2018, a fi nal divid end of 2.65 pence in respect of the previous fi nancial year was paid on 8 February 2019 and an interim dividend of 1.50 pence paid on 26 July 2019 (interim 2018: 1.75 pence).

On 31 October 2019, the Company announced a special dividend of 1.75 pence returning to shareholders proceeds arising from the realisation of some of the Company's underlying investments. The dividend payment was made on 28 November 2019 to shareholders on the register on 8 November 2019.

A fi nal dividend of 2. 25 pence is proposed (2018: 2.65 pence) which, subject to shareholder approval at the Annual General Meeting, will be paid on 11 February 2020 to ordinary shareholders on the register on 10 January 2020.

The Directors continue to maintain their policy of targeting a tax free dividend yield equivalent to 5% of the year end NAV. The ability to pay dividends is also dependent on the Company's available reserves and cash resources, the Companies Act and the Listing Rules. The policy is non -binding and at the discretion of the Board. Dividend payments may vary from year to year in both quantum and timing. Dividends will vary with investment performance; in good years, the Directors may consider a higher dividend payment; in poor years, the Directors may reduce or even pay no dividend.

Buybacks

In total, 4,076,170 shares (nominal value £40,762) were purchased during the year at a cost of £2,902,402 and an average price of 71.20 pence per share. A further 615,077 shares have been purchased since the year end at an average price of 66. 78 pence per share.

The Board continues to target a share price discount of 5% to the NAV per share (as measured against the mid-price) for market purchases. It should be emphasised that this target is non-binding and depends upon a range of factors, including the Company's liquidity, its shareholder permissions and market conditions.

The Company has a 5 year average share price discount of 5.37%.

Offer for subscription

The Directors of the Company announced on 19 September 2018 the launch of a new offer for subscription for shares to raise up to £20 million, together with an over-allotment facility of up to a further £10 million. The offer was approved by shareholders of the Company at a general meeting on 19 October 2018 and was open to both new and existing shareholders. On 28 November 2018, the Company announced it had received valid applications in excess of £20 million and accordingly, the Directors confi rmed they were releasing £5 million of the available £10 million over-allotment facility. On 24 January 2019, the Company announced it had received valid applications in respect of the full £5 million over-allotment facility and closed the offer for further applications at that time. On 11 April 2019, the Directors announced the offer was closed.

The offer resulted in gross funds being received of £25.0 million and the issue of 31.4 million new shares in the Company.

Cost effi ciency

Your Board reviews costs incurred by the Company on a regular basis and are focused on maintaining a competitively low ongoing charges ratio. The year end ongoing charges ratio was 2.0 5% when calculated in accordance with the AIC's "Ongoing Charges" methodology. This approach includes indirect costs

incurred by underlying investment funds held by the Company such as the Marlborough Special Situations Fund. As the investment advisor to the Marlborough Special Situations Fund, Hargreave Hale Limited makes an adjustment to its investment management fee to ensure the VCT is not charged twice for their services.

Expenses are expected to rise in the current year. Most of this is driven by changes to the investment management, administration, custody and directors fees and refl ect investments made by the Company and Canaccord Genuity Wealth Limited to strengthen the board of directors, expand the size of the fund management team working on the VCT (to support the investment into private companies) and improve the governance and administration of the Company.

Total costs as measured under the EU rules and published in the Company's Key Information Document are also monitored by the Board. This measure is calculated using a different methodology including some costs which are not treated as ongoing charges under the AIC's approach and therefore shows a higher fi gure than the published ongoing charge ratio. The current KID is published on the Company's web site www.hargreaveaimvcts.co.uk.

Hargreave Hale Limited integration with Canaccord Genuity Wealth Limited

The integration of Hargreave Hale Limited's private client business into Canaccord Genuity Wealth Limited (CGWL) was completed on 8 April 2019. The fund management business remains within Hargreave Hale Limited, a wholly owned subsidiary of CGWL. The ultimate parent company of CGWL is Canaccord Genuity Group Inc.

New agreements

Following the acquisition of Hargreave Hale Limited by CGWL the Company has entered into a series of new agreements with CGWL.

As previously announced, on 5 April 2019 the Company entered into a new custody agreement with CGWL. Under the terms of the new custody agreement the annual custody fee was increased from £10,000 to £30,000. On 25 June 2019, the Company entered into new administration and secretarial contracts with CGWL. As part of the new arrangements Stuart Brookes was replaced by CGWL as the Company's named company secretary. Under the new agreements the annual fee for administration services increased from £110,000 to £195,000. The fee for secretarial services remains unchanged at £17,000.

Investment management will continue to be provided by Hargreave Hale Limited under a new agreement which commenced on 25 June 2019. As previously disclosed the annual fee payable to the investment manager increased to 1.7% with effect from 1 April 2019. The annual fee continues at this rate under the new agreement. The investment manager's previous entitlement to earn a performance fee has been removed under the updated arrangements.

Related party transactions

As the Company's investment manager, Hargreave Hale Limited is a related party to the Company for the purposes of the Listing Rules. As Hargreave Hale Limited and CGWL are part of the CGWM group, CGWL also falls within the defi nition of a related party as they are part of the same group as the investment manager.

In addition to the new agreements set out above the Board has resolved to increase the Directors' fees. Oliver Bedford, a non-executive director of the Company is also an employee of the investment manager and the fee in respect of his position on the Board is paid to the investment manager.

The Company announced the increase in the investment manager's fees and the new custody arrangements on 16 May 2018 and 10 April 2019 respectively.

When aggregated with the commission received by the investment manager in relation to the offer agreement entered into on 19 September 2018 the increase in the annual administration fees, custody fees and the director's fee paid to Hargreave Hale Limited in respect of Oliver Bedford's appointment are classifi ed as smaller related party transactions as defi ned in LR 11.1.10R.

VCT fund management team

On 1 July 2019, Oliver Bedford assumed the role of lead manager of the Hargreave Hale AIM VCT plc. He is supported by Lucy Bloomfi eld (co-manager) with whom he works closely to deliver the investment strategy. Giles Hargreave continues to act as a co-manager to the VCT focusing primarily on supporting the delivery of the non-qualifying investment strategy through the direct investment of the Company's capital into listed equities as permitted by the VCT rules.

Board composition

As disclosed in the interim report, following a review, the Directors decided it would be benefi cial to the Company to improve diversity and to recruit another independent non-executive director with skills that are complementary to the existing directors.

I am delighted to welcome Angela Henderson to the Board as a non-executive director appointed on 29 October 2019. Angela is a non-executive director at Credit Suisse Asset Management Limited with over 20years experience in the fi nancial services sector having worked at Citco Fund Services and the equities divisions of Deutsche Bank and Barclays. Please see page 27 Board of directors for further details.

I am also delighted to welcome Louise Page who joined the Company as a Board Observer on 29 October 2019. Louise is currently chief fi nancial offi cer and director of corporate services for the National Trust for Scotland. Louise is a chartered accountant and prior to joining the National Trust for Scotland worked in the fi nancial services industry from 1999 to 2018.

I have been Chairman of your Board since the Company was founded in 2004. I will be stepping down as Chairman at the AGM on 4 February 2020, at which point David Brock will succeed me. I will take over as Chairman of the Audit Committee on an interim basis and in due course we will recruit an additional director at which time I intend to retire fully.

Given our need to appoint new directors and our wish to attract the best available talent, we felt it important to review the directors' remuneration to ensure it remained competitive with the industry. Directors remuneration was last reviewed in 2015. Having compared remuneration levels across the VCT industry and considered the increased level of engagement the Board has with the Company (in part a response to the increasingly complex regulatory environment), it was agreed that the Chairman should receive £32,000 and the other directors £25,000, with an extra £3,000 for the Chairman of the Audit Committee. These changes took effect on 1 October 2019.

Shareholder event

Both your Board and the investment manager are keen to improve interaction with our shareholders. I am pleased to report that we held one shareholder eventwithin the reporting period and another post period end. Historically, these events have only drawn a modest response, typically 20-30 shareholders. In a bid to attract wider attendance, we held our most recent event at an external venue with better facilities and more convenient transport links. We were delighted to see a much improved response with 119 shareholders joining us at Everyman Cinemaon 28 November 2019.

VCT regulatory update

There were no major changes to VCT legislation announced during the period under review.

New legislation introduced through the Finance Act 2018 came into effect for your Company from 1 October 2019. The legislation requires the Company to maintain at least 80% (previously 70%) of its investments (as measured by book cost) in Qualifying Companies. As before, the Company continues to benefi t from a 3-year disregard on new capital, which is measured from the start of the fi nancial year in which the shares were issued. The legislation also now requires 30% of funds raised to be invested in Qualifying Companies within 12 months from the end of the fi nancial year in which the shares were issued.

VCT status

I am pleased to report that we continue to perform well against the requirements of the legislation and at the period end, the investment test was 9 6.6% when measured using HMRC's methodology. The investment test dropped to 8 5.3% on 1 October 2019 as shares issued in the 2016 fi nancial year fell into the calculation for the fi rst time. The Company's investment test has consistently tracked ahead of the higher threshold, giving the Board confi dence that the Company can meet this new requirement. The Company satisfi ed all other tests relevant to its status as a Venture Capital Trust.

Key information document

I am sure most of you are all too familiar with the new EU's PRIIPs regulation which came into effect in January 2018 . The intent is to increase customer protection by improving the functioning of fi nancial markets and in this instance through the Key Information Document (KID) to provide shareholders with more information about the risks, potential returns and charges within VCTs. The regulation requires the Company to publish a KID. Retail investors must now be directed to this before buying shares in the Company. The KID is published on the Company website at www.hargreaveaimvcts.co.uk/ document-library.

The KID has been prepared using the methodology prescribed in the PRIIPS regulation. Although well intended, there are widespread concerns about the application of some aspects of the prescribed methodologies to VCTs. Specifi cally, there are concerns that:

1. the risk score may be understating the level of risk; and
1. investment performance scenarios may indicate future returns for shareholders that are too optimistic.

The Association of Investment Companies (AIC) has engaged on this matter and it is hoped that these issues will be resolved in the future. In the meantime, the Board recommends shareholders continue to classify VCTs as a high risk investment.

Outlook

Re-reading my outlook statement from last year's annual report, it struck me how little has changed in the past year. We continue to live in 'interesting times' whilst BREXIT still dominates our political, economic and corporate landscape. Shareholder s will have their own views on this most divisive of topics, although I suspect all of us welcome the clarity that springs from the resounding Conservative win.

With the substantial majority that he now has Boris Johnson can forge ahead dealing with the EU without being defl ected by any of the extremes in his party. The sooner this is resolved the sooner we can all think of something else. I am pleased to see that markets seem to have welcomed the election result and have generally started to rise.

Sir Aubrey Brocklebank Chairman

1 9 December 2019

The company and its business model

The Company was incorporated and registered in England and Wales on 16 August 2004 under the Companies Act 1985, registered number 05206425.

The Company has been approved as a Venture Capital Trust by HMRC under Section 259 of the Income Taxes Act 2007. The shares of the Company were fi rst admitted to the Offi cial List of the UK Listing Authority and trading on the London Stock Exchange on 29 October 2004 and can be found under the TIDM code "HHV". The Company is premium listed.

In common with many other VCTs, the Company revoked its status as an investment company as defi ned in Section 266 of the Companies Act 1985 on 23 May 2006 to facilitate the payment of dividends out of capital profi ts.

The Company's principal activity is to invest in a diversifi ed portfolio of qualifying small UK based companies, primarily trading on AIM, with a view to maximising tax free dividend distributions to shareholders.

The Company is registered as a small UK Alternative Investment Fund Manager (AIFM) with a Board comprising of fi ve non-executive directors, four of whom are independent. Hargreave Hale Limited acts as investment manager whilst Canaccord Genuity Wealth Limited acts as administrator and custodian and provides the company secretary.

The Board has overall responsibility for the Company's affairs including the determination of its investment policy, however, the Board exercises these responsibilities through delegation to Hargreave Hale/Canaccord Genuity Wealth Limited as it considers appropriate.

The Directors have managed and continue to manage the Company's affairs in such a manner as to comply with Section 259 of the Income Taxes Act 2007.

Investment objectives, policy and strategy

Investment objectives and policy

Investment objectives

The Company's investment objectives are:

to invest in a diversifi ed portfolio of small UK based Qualifying Companies on a high risk, medium term capital growth basis, primarily being companies which are traded on AIM and which have the opportunity for signifi cant value appreciation;
to invest in smaller companies which may not be readily accessible to private individuals and which also tend to be more risky;
to maximise distributions to shareholders from capital gains and income generated from the Company's funds ;
targeted investment in equities which are nonqualifying investments on an opportunistic basis; and
to maintain the Company's exposure to small companies through an initial investment of new capital into the Marlborough Special Situations Fund pending investment into Qualifying Companies.

Asset allocation

The Company will have a range of investments in four distinct asset classes:

equity investments in Qualifying Companies, referred to as "Qualifying Investments". Qualifying Investments will:
comprise qualifying holdings for a VCT as defi ned in Chapter 4 Part 6 of the Income Tax Act 2007;
primarily be made in AIM companies, but the Company's investment manager will also consider NEX-quoted companies and private companies that meet the investment criteria summarised below; and
vary in size typically from £250,000 to £3 million by cost;
fi xed income securities;
bank deposits that are readily realisable; and
non-qualifying equity exposure in the form of equity exposure to UK and international equities through targeted investments made on an opportunistic basis or through an investment into the Marlborough Special Situations Fund.

Portfolio weighting (by market value)

Investment manager

The Company is managed by Hargreave Hale Limited which has been managing investments in UK Small and Micro Cap companies for 21 years and VCTs for 15 years. Hargreave Hale has a long-established reputation as a substantial investor in and a supporter of small British companies through the main market of the London Stock Exchange and AIM. As well as the Venture Capital Trust, the fund management team manages 6 unit trusts including the Marlborough Special Situations Fund, the Marlborough UK Micro-Cap Growth Fund and the Marlborough Multi-Cap Income Fund. On 1 July 2019, Oliver Bedford assumed the role of lead manager of the Hargreave Hale AIM VCT plc. He is supported by Lucy Bloomfi eld, a co-manager of the VCT with whom he works closely to deliver the investment strategy. Giles Hargreave continues to act as a co-manager to the VCT, focusing primarily on supporting the delivery of the non-qualifying investment strategy through the direct investment of the Company's capital into listed equities as permitted by the VCT rules, with support from the rest of the Hargreave Hale fund management team. The breadth of the fund management team, the scale of investment into small companies and the investment manager's track record help attract deal fl ow.

Investment strategy

Qualifying investments

The investment manager will maintain a diversifi ed and fully invested portfolio of Qualifying Investments. The primary purpose of the investment strategy is to ensure the Company maintains its status as a VCT. To achieve this, within the period under review the Company was required to have at least 70% of all funds raised from the issue of shares invested in Qualifying Investments throughout accounting periods of the VCT beginning no later than three years after the date on which those shares are issued.

Looking ahead, the VCT is now required to invest and maintain a minimum of 80% of the fund in Qualifying Investments as measured by the VCT rules, it is likely that the investment manager will target a higher threshold of approximately 85% in order to provide some element of protection against an inadvertent breach of the VCT rules. The Company's maximum exposure to a single company is limited to 15% of net assets at book cost at the date of investment.

The key selection criteria used in deciding which Qualifying Investments to make include, inter alia:

the strength and credibility of the management team;
the business plan;
the risk/reward profi le of the investment opportunity;
the quality of the fi nance function and budgetary process;
the strength of the balance sheet relative to anticipated cash fl ow from operations; and
the existing balance of investments within the portfolio of Qualifying Investments.

The investment manager follows a stock specifi c, rather than sector specifi c, investment approach and is more likely to provide growth and development capital than seed capital.

The investment manager will primarily focus on investments in companies with a quotation on AIM. The investment manager will also invest in private companies or those planning to trade on AIM. The investment manager prefers to participate in secondary issues of companies with an established track record that can be more readily assessed and often have greater disclosure of fi nancial performance. Secondary issues are often priced at an attractive discount to the market price.

Non-qualifying investments

The Company will have non-qualifying direct equity exposure to UK and international equities through targeted investments made on an opportunistic basis. This will vary in accordance with the investment manager's view of the equity markets and may fl uctuate between nil and 30% (by market value) of the net assets of the Company. The investment manager will also invest in fi xed income securities and cash.

The investment manager may invest up to 75% of the net proceeds of any issue of new shares into the Marlborough Special Situations Fund subject to a maximum of 20% (7.9% as at 30 September 2019) of the gross assets of the Company. This will enable the Company to maintain its exposure to small companies indirectly, whilst the investment manager identifi es

opportunities to invest directly into small UK companies through a suitable number of Qualifying Investments.

The Marlborough Special Situations Fund has an excellent long term track record having returned 2,866% (equivalent to an average 17.5% per annum to 30 September 2019) since Giles Hargreave took responsibility for it in July 1998.

The allocation between asset classes in the nonqualifying portfolio will vary depending upon opportunities that arise with a maximum exposure of 100% of the non-qualifying portfolio to any individual asset class.

To the extent that any future changes to the Company's investment policy are considered material, shareholder consent to such changes will be sought.

Borrowings

It is not the Company's present intention to have any borrowings. The Company does, however, have the ability to borrow a maximum amount up to 15% of the "Adjusted Capital and Reserves" amount (as such term is defi ned in the Articles of Association of the Company), which is effectively the aggregate of the nominal capital of the Company issued and paid up and the amount standing to the credit of the consolidated reserves of the Company, less specifi ed adjustments, exclusions and deductions.

Key performance indicators

The Directors consider the following Key Performance Indicators (KPIs) to assess whether the Company is achieving its strategic objectives. The Directors believe these measures help shareholders assess how effectively the Company is applying its investment policy and are satisfi ed the results give a good indication of whether the Company is achieving its investment objectives and policy. The KPIs are established industry measures.

Further commentary on the performance of these KPIs has been discussed in the chairman's statement and investment manager's report on pages 4 to 7 and 1 7 to 1 8 respectively.

1. Net asset value and total return

In the fi nancial year under review, net assets decreased from £154.8m to £144.0m. This decrease of £10.8m was made up of a loss for the year of £22. 2m, buybacks of £2.9m, dividends paid of £10.2m and offset by £24. 5m from new shares issued through the subscription. The net asset value per share decreased from 87.59p to 70. 60p resulting in a loss to ordinary shareholders of 11.8 4 pence per share (-13. 5%) after adjusting for dividends paid in the year. During the same period, the total return since inception decreased by 8.6%.

It is disappointing to report a negative return for the year which resulted from a challenging market environment in the Company's fi rst quarter in which the valuation of growth stocks was under particular pressure. Performance has subsequently stabilised and whilst negative in absolute terms is some way ahead of the FTSE AIM All-Share total return for the last 12 months.

Net asset value and total return

Pence per share

2. Ongoing charges ratio

The ongoing charges of the Company for the fi nancial year under review represented 2.0 5% (2018: 1.87%) of average net assets, which remains competitive against the whole VCT industry and similar to other AIM VCTs. This ratio is calculated using the AIC's "Ongoing Charges" methodology. Cost control and effi ciency continues to be a key focus for your Board and they are satisfi ed with the result for the year.

3. Earnings per share (basic and diluted)

The Company's earnings per share for the year ended 30 September 2019, together with those of the previous fi ve fi nancial years are shown below .

It is frustrating to report a total earnings per share loss for the year of 11. 05 pence per share. The challenging market environment previously mentioned resulted in an unrealised loss on investments of £19. 5m for the year which was the predominant cause.

Earnings per share

4. Dividends per share

The Board's policy is to target a tax free dividend yield equivalent to 5% of the year end NAV. The Board remains committed to maintaining a steady fl ow of dividend distributions to shareholders; however, dividends may vary from year to year in both quantum, depending on investment performance, and timing. The ability to pay dividends is dependent on the Company's available reserves and cash resources, the Companies Act and the Listing Rules. The policy is non-binding and at the discretion of the Board.

A total of 5.15 pence per share of dividends were paid during the year, comprised of a special dividend of 1 pence paid on 24 October 2018 and 4.15 pence of ordinary dividends. Ordinary dividends paid during the year included an interim dividend of 1.50 pence and a fi nal dividend of 2.65 pence.

A fi nal dividend of 2. 25pence per share will be proposed at the Annual General Meeting which when added to the interim dividend of 1.50 pence paid on 26 July 2019 represents a yield from ordinary dividends of 5.3% of the 30September 2019 closing NAV of 70. 60pence per share .

5. Percentage invested in qualifying companies

The investment test increased from 93.2 % to 9 6.6% in the year. The Company invested £12. 0 million into 1 4 Qualifying Companies, 5 of which were investments into new Qualifying Companies. The Board is pleased with this result. The fair value of the qualifying portfolio decreased from £87.6m to £79. 6m resulting from a combination of the above additions and unrealised losses for the period. The Board believes that the Company will continue to meet the HMRC defi ned investment tests on an ongoing basis.

In addition, the Board considers peer group comparative performance whilst recognising that the relevant peer group is very small. Performance is also measured against the Company's closest benchmark the FTSE AIM All-share total return and this is shown in the graph below. The Director's consider this to be the most appropriate benchmark from a shareholder's perspective, however, due to the investment restrictions placed on a VCT it is not wholly comparable.

Within our portfolio of equity investments, 62% of the portfolio is invested in constituents of the AIM All-Share. The FTSE 250 represented 12% and the FTSE 100represented 10%. If private companies are excluded from the portfolio, the exposure to the AIM All-Share rises to 71%.

VCT vs benchmark

Source: Bloomberg For further details please refer to the investment managers report on pages 1 7 to 1 8.

Principal risks and uncertainties

The Directors acknowledge that they are responsible for the effectiveness of the Company's risk management and internal controls and periodically review the principal risks faced by the Company at board meetings. The Board may exercise these responsibilities through delegation to Hargreave Hale Limited and Canaccord Genuity Wealth Limited as it considers appropriate. The principal risks facing the Company relate to the Company's investment activities and include risks stated below:

Risk	Potential Consequence	How the Board mitigates risk
Venture Capital Trust approval risk – the Company operates in a complex regulatory environment and faces a number of related risks. A breach of Section 259 of the Income Taxes Act 2007 or the Finance Act could result in the disqualifi cation of the Company as a VCT.	Loss of VCT approval could lead to the Company losing its exemption from corporation tax on capital gains, shareholders losing their tax reliefs and in certain circumstances being required to repay the initial tax relief on their investment.	To reduce this risk, the Board has appointed the investment manager, who has signifi cant experience in venture capital trust management and reports to the Board regularly throughout the year. In addition, to provide further formal assurance, the Board has appointed Philip Hare & Associates LLP to monitor compliance with regulations and provide half yearly compliance reports to the Board.
Investment risk – Many of the Company's investments are held in small, high risk companies which are either listed on AIM or privately held.	Investment in poor quality companies could reduce the capital and income return to shareholders. Investments in small companies are often illiquid and may be diffi cult to realise.	The Board has appointed an investment manager with signifi cant experience of investing in small companies. The investment manager maintains a broad portfolio of investments, individual Qualifying Investments rarely exceed 5% of net assets, and holds regular company meetings to monitor investments and identify potential risk. The fund's liquidity is monitored on a regular basis by the investment manager.
The Company is exposed to potentially destabilising economic and political developments such as recession, sharp changes in interest rates or the UK's exit from the European Union.	Events such as these could have a negative impact on stock markets and the value of the Company's investments.	Regular dialogue with the manager provides the Board with assurance that the manager is following the investment policy agreed by the Board and appraises the Board of the portfolio's current positioning in the light of prevailing market conditions.
Compliance risk – The Company is required to comply with the rules of the UK Listing Authority, the Companies Act, Accounting Standards, the General Data Protection Regulation and other legislation. The Company is also a small registered Alternative Investment Fund Manager ("AIFM") and has to comply with the requirements of the AIFM Directive.	Failure to comply with these regulations could result in a delisting of the Company's shares, fi nancial penalties, a qualifi ed audit report or loss of shareholder trust.	Board members have considerable experience of operating at senior levels within quoted businesses. They have access to a range of advisors including solicitors, accountants and other professional bodies and take advicewhen appropriate.
Operational risk and outsourcing – Failure in the investment manager/ administrator or other appointed third party systems and controls or disruption to its business.	Failures could put the assets of the Company at risk or result in reduced or inaccurate information being passed to the Board or shareholders. Quality standards may be reduced through lack of understanding or loss of control.	The Company has in place a risk matrix and a set of internal policies which are reviewed on a regular basis. It has written agreements in place with its third party service providers. The Board receives regular reports from the investment manager, administrator and custodian to provide assurance that appropriate oversight is in place. Additionally the Board receives a control report from the Company's registrars on an annual basis. Where tasks are outsourced to other third parties, reputable fi rms are used and performance is reviewed periodically.
Political risk – The VCT scheme is brought to an end as a result of a change in government policy.	Loss of future tax incentives leading to the VCT sector as a whole becoming unattractive to investors.	The Board keeps abreast of current thinking through contact with industry associations and its advisors.
Key personnel risk – A change in the key personnel involved in the management of the portfolio.	Potential impact on investment performance.	The Board discusses key personnel risk and resourcing with the investment manager periodically. The VCT team within the investment manager has increased in size over the last eighteen months which helps to mitigate this risk.

Additional risks and further details of the above risks and how they are managed are explained in note 1 5 of the fi nancial statements. Trends affecting future developments are discussed in the chairman's statement on pages 4 to 7 and the investment manager's report on pages 1 7 to 1 8.

Long term viability statement and other policies

In accordance with provision C.2.2 of the UK Corporate Governance Code, the Directors have carried out a robust assessment of the principal risks relating to the Company. This assessment has been carried out over a longer period than the 12 months required by the 'Going Concern' provision. The Board conducted this review for a period of fi ve years, which was selected because it:

falls in line with the Company continuation vote and investors minimum holding period to retain tax relief; and
covers a suffi cient period for all funds raised to comply with HMRC investment test rules.

The Board considers the viability of the Company as part of its continuing programme of monitoring risk. The Company has a detailed risk control framework, documented procedures and forecasting model in place to reduce the likelihood and impact of risk taking that exceeds the agreed levels by the Board. These controls are reviewed by the Boardon a regular basis.

Details of the continuation vote are contained in the Company's Articles of Association. At the Annual General Meeting to be held in 202 5, the Directors shall propose an ordinary resolution that the Company should continue as a venture capital trust.

The Board has considered the Company's fi nancial position and its ability to meet its liabilities as they fall due over the next fi ve years taking into account the following factors in its assessment of the Company's future viability:

the Company maintains a broad portfolio of investments including approximately £40.4 million invested in non-qualifying investments and a further £24.6 million in cash at the year end. The Company therefore has suffi cient liquidity which is monitored quarterly;
the Company is well invested against the HMRC investment test and ended the year at 9 6.6% invested in Qualifying Companies. The Board anticipates that there will continue to be suitable Qualifying Investments available over the next fi ve years;
the ongoing charges ratio of the Company for the year end was 2.0 5%, which is competitive for the VCT sector;
the fi nancial position of the Company at 30 September 2019 was strong with no debt or gearing; and
the Company has suffi cient procedures in place to identify, monitor and control risk.

In assessing the Company's future viability, the Board has assumed that investors will wish to continue to have exposure to the Company's activities, that performance will be satisfactory and the Company will continue to have access to suffi cient capital.

Based on this assessment, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the next fi ve years.

Other policies

Diversity

The Board comprises four male non-executive directors and one female non-executive director with a diverse range of experience, skills, length of service and backgrounds. The Board considers diversity when reviewing Board composition and has made a commitment to consider diversity when making future appointments. The Board will always appoint the best person for the job. It will not discriminate on the grounds of gender, race, ethnicity, religion, sexual orientation, age or physical ability.

Environmental responsibility

The Board conducts the Company's affairs responsibly and expects the investment manager to consider environmental matters when appropriate. The Company offers electronic communications where acceptable to reduce the volume of paper it uses.

Employee, human rights, social and community issues

The Board seeks to conduct the Company's affairs responsibly and expects the investment manager to consider employee, human rights, social and community issues when fulfi lling their role. As the Company has no employees it does not maintain any specifi c policies in relation to these matters.

Prospects

The prospects and future development of the Company are discussed in detail in the outlook section of the chairman's statement on page7.

The strategic report is approved, by order of the Board of Directors.

Sir Aubrey Brocklebank

Chairman 1 9 December 2019

Investment manager

Established in 1897, Hargreave Hale has evolved into a leading UK small cap fund manager. In September 2017, the fi rm became a member of the Canaccord Genuity Wealth Limited (CGWL) group of companies and a wholly owned subsidiary of Canaccord Genuity Group Inc.

The lead manager of the VCT is Oliver Bedford. He is supported by Lucy Bloomfi eld (co-manager) who works closely with Oliver Bedford to deliver the investment strategy. Giles Hargreave continues to act as a co-manager to the VCT focusing primarily on supporting the delivery of the non-qualifying investment strategy through the direct investment of the Company's capital into listed equities as permitted by the VCT rules. The VCT management team is also supported by the rest of Hargreave Hale's fund management team of 16. The fund management team manages approximately £ 5.0 billion (30 Sep 201 9), including approximately £ 3.2 billion invested in small companies. Along with the scale of the investment in small companies and their track record, the breadth of the team and their reach into the market help attract Qualifying Investment deal fl ow.

Oliver Bedford BSc MCSI

Oliver Bedford graduated from Durham University with a degree in Chemistry. He served in the British Army for 9 years before joining Hargreave Hale in 2004. Oliver is the lead manager of the VCT and supports other unit trusts as part of the fund management team.

Lucy Bloomfi eld

Lucy joined the Hargreave Hale VCT team in August 2018. Prior to this she spent 8 years as an analyst and UK Small & Mid-cap fund manager at BlackRock before her most recent role as a European Small & Mid-cap fund manager with Ennismore Fund Management. Lucy graduated from Durham University in 2007 with a degree in Economics and is a CFA charterholder.

Giles Hargreave Giles Hargreave is the head of Hargreave Hale's fund management team and manager of the Marlborough Special Situations Fund. He also co-manages the Marlborough UK Micro Cap Growth Fund and the Marlborough

UK Nano-Cap Growth Fund.

Other members of the fund management team include David Walton, Siddarth Chand Lall, Richard Hallett, George Finlay, Guy Feld, Will Searle and Eustace Santa Barbara, (pictured from left to right below).

In fund management Assets

Invested in small companies

Track record in fund management

Meetings with

annum

companies per

Source: Hargreave Hale Limited (as at 30 September 2019).