Annual Report • Oct 21, 2021
Annual Report
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Gabelli Merger Plus+ Trust plc Annual Report and Accounts For the year ended 30 June 2021
"There are many advantages to investing in risk arbitrage. Let's focus on three: risk arbitrage returns are not closely correlated with those of the stock market; they are less volatile than returns on the S&P 500; and longer term they are higher than those returns afforded by traditional investing. While these three factors provide for excellent results in the world of arbitrage, the real beauty of risk arb investing is that there is rarely a down year. Because risk arb returns are consistently positive year in and year out, they fulfill the concept of a compound return. We proclaim this source of compounded earnings as the eighth wonder of the world.
Compounding is the secret to wealth creation over a period of decades."
Mario Gabelli (Deals...Deals...and More Deals, 1999)
ENGLISH ITALIAN CHINESE JAPANESE
Deals...Deals...and More Deals - Now in four languages. Originally published in 1999 by Gabelli University Press.
The Company's primary investment objective is to seek to generate total return consisting of capital appreciation and current income.
| Strategic report | |
|---|---|
| At a glance | 2 |
| Financial Highlights | 2 |
| Chairman's Statement | 3 |
| The Search For Value – A History of Gabelli | 5 |
| The Gabelli Investment Process | 6 |
| Investment Objective and Policy | 7 |
| Portfolio Manager's Review | 8 |
| Portfolio Summary | 12 |
| Strategy | 13 |
| Our Key Performance Indicators | 13 |
| Principal Risks | 15 |
| Viability Statement | 17 |
| Governance | |
| Board of Directors | 18 |
| Directors' Report | 20 |
| Corporate Governance Report | 25 |
| Report of the Audit Committee | 29 |
| Directors' Remuneration Report | 32 |
| Statement of Directors' Responsibilities in respect of the Financial Statements | 35 |
| Financial statements | |
| Independent Auditors' Report | 36 |
| Statement of Comprehensive Income | 43 |
| Statement of Changes in Equity | 44 |
| Statement of Financial Position | 45 |
| Statement of Cash Flows | 46 |
| Notes to the Financial Statements | 47 |
| Regulatory Disclosures | 64 |
| Glossary | 65 |
| Company Information | 68 |
| Annual General Meeting | 69 |
| Notes to the Notice of the AGM | 71 |
| Appendix – AIFMD Remuneration Disclosures | 73 |
Merger investing is a highly specialised active investment approach designed to profit from corporate catalyst events such as announced mergers, acquisitions, leveraged buyouts, demergers and other types of reorganisations and corporate actions ("deals"). The Portfolio Manager, (Gabelli Funds, LLC), seeks to earn returns through a diversified portfolio of investments across such deals earning the differential or "spread" between the market price and the investment's ultimate value. Gabelli Merger Plus+ Trust plc ("GMP" or "the Company") invests globally, although it has an emphasis on securities traded in the United States, across market capitalisations and sectors.
The Company was launched in July 2017 to access this unique investment approach. The Company's shares trade on the Specialist Fund Segment of the London Stock Exchange and The International Stock Exchange under the symbol "GMP".
The Company seeks to generate total returns consisting of capital appreciation and current income through the application of this active merger investment program. A secondary objective is the protection of capital, while earning returns uncorrelated to unmanaged equity and fixed income markets.
The Portfolio Manager has invested in mergers since 1977, and created its first dedicated merger fund in 1985. The Portfolio Manager remains vigilant in the application of its investment methodology and search for opportunities, maintaining a diversified portfolio of catalyst event merger arbitrage strategies that seek to create an optimal risk/reward profile for the portfolio.
The Company provides access to Gabelli's deep history of investing in mergers. The approach is a natural extension of its longstanding research-driven investment process oriented towards undervalued assets as articulated through its proprietary Private Market Value with a CatalystTM methodology ("PMV with a CatalystTM"). PMV with a CatalystTM is the price an informed buyer would pay for an entire business in a negotiated transaction, combined with a catalyst, to earn rates of return independent of the broad markets' direction.
The Company is part of the lineage of Gabelli's fifteen listed investment companies beginning in 1986 with the Gabelli Equity Trust (NYSE:GAB). The Gabelli Funds complex currently includes fourteen U.S.-based closed-end funds, or investment companies, one UK-based Investment trust, GMP, and two actively managed ETFs. Gabelli Funds also manages twenty four open-end funds and a Luxembourg SICAV with three UCITS sub-funds.
| As at | As at | |
|---|---|---|
| Performance | 30 June 2021 | 30 June 2020 |
| Net asset value per share (cum income) | \$9.94 | \$9.33 |
| Net asset value per share (ex income) | \$10.27 | \$9.52 |
| Dividends per share paid during the year* | \$0.48 | \$0.48 |
| Share price | \$7.40 | \$7.50 |
| Discount to Net Asset Value1, 5 | 25.63% | 19.61% |
| Total returns5 | Year ended 30 June 2021 |
Year ended 30 June 2020 |
|---|---|---|
| Net asset value per share2 | 12.12% | 0.98% |
| U.S. 3-month Treasury Bill Index | 0.09% | 0.16% |
| Share price3 | 5.46% | (7.69%) |
| Revenue return per share | (\$0.14) | (\$0.08) |
|---|---|---|
| Income | Year ended 30 June 2021 |
Year ended 30 June 2020 |
| Annualised ongoing charges | 1.66% | 1.74% |
|---|---|---|
| Ongoing charges4 | Year ended 30 June 2021 |
Year ended 30 June 2020 |
Source: Portfolio Manager (Gabelli Funds, LLC), verified by the Administrator (State Street Bank and Trust Company).
1 Figures are inclusive of income and dividends paid, in line with the Association of Investment Companies (the "AIC") guidance.
2 The net asset value ("NAV") total return for the year reflects the movement in the NAV, adjusted for the reinvestment of any dividends paid.
3 The total share price return for the year to 30 June 2021 reflects the movement in the share price during the year, adjusted to reflect the reinvestment of any dividends paid and market movements.
4 Ongoing charges are calculated as a percentage of shareholders' funds using the average net assets over the year and calculated in line with the AIC's recommended methodology. Annualised ongoing charges in 2020 include 25 bps attributable to the performance fee (2021: 0 bps).
5 These key performance indicators are alternative performance measures. Further information regarding the use of alternative performance measures can be found on page 13 and in the glossary on page 65.
* The dividends paid during the year ended 30 June 2021 included the fourth quarterly dividend for the year ended 30 June 2020.
Our 2021 Annual Report encompasses the period from July 2020 through June 2021, the fourth year of operations for the Gabelli Merger Plus+ Trust Fund Plc. As noted in the Prospectus, the Company's primary objective is to seek to generate total return, consisting of capital appreciation and current income. The Company will seek a secondary objective of the protection of capital, uncorrelated to equity and fixed income markets. The Fund utilizes the Gabelli Private Market Value (PMV) with a CatalystTM investment methodology, and has built a diversified portfolio using catalyst event merger arbitrage strategies to create an optimal risk/reward profile. The investment programme is global, encompassing a broad spectrum of special situations and event driven opportunities, with an emphasis on announced merger transactions. The portfolio is a highly liquid, non-market correlated alternative to traditional equity and fixed income securities.
Merger returns are derived through the narrowing of deal spreads from time of announcement until their expected closure. The spread is a function of three primary elements: the risk free rate, the risk premium associated with the transaction fundamentals, and the time value of money. The dynamic interplay across these components is evaluated within every investment by the Manager. Position sizing will vary according to a probabilistic assessment of the risk. The inherent risk in all merger investing is a broken deal rather than the standard deviation or price variance of the market price movements over the deal timeline. Gabelli Funds LLC, the Portfolio Manager, employs an active approach to analysing the fundamentals of a merger investment and has a long history of implementing such a programme. At its core, this differentiated investment approach utilises the Gabelli PMV with a CatalystTM analytical methodology to manage risk amongst other inputs and factors. The full details of this investment programme were set out in the offering Prospectus and are found on the Company's web site: www.Gabelli.com/MergerPlus.
The Board is always receptive to feedback and is available should you have any questions or comments via the Portfolio Manager's Investor Relations group directly. We thank you, our shareholders, for your confidence entrusting a portion of your assets to our team.
The current investing environment is highly favorable for the Company's strategies. Despite the potential for inflation, the big question is whether it is simply a result of backups caused by COVID, or the beginning of a longerterm embedded cycle. Many of the price increases experienced during COVID have eased, but consumers continue to worry about the increases in food and energy prices. The New York Federal Reserve's Survey of Consumer Expectations shows that a median rate of 4.8% is expected for the next 12 months – the highest level since the survey began in 2013. The U.S. central bank position is that inflation will measure around 3% for 2021 and then settle to 2.1% in subsequent years. The cost of borrowing remains low, and the central banks of many countries maintain zero interest rates and continue to expand their balance sheets. Additionally, despite inflation worries, consumers are feeling the favorable effects of the strong stock market as well as substantial direct aid from the federal government. The market is flush with cash for potential deals, and we continue to see it deployed to acquire assets.
The bipartisan \$3.5 trillion infrastructure deal is poised to have a positive effect both on the general economy and the Company's investing environment. We anticipate a general uplift in the economy, job creation, and more economic spend. From an M&A perspective, the low interest rate environment and cash available to deploy in many areas we focus on, including chemicals, aerospace, health care, manufacturing, and the allimportant construction and engineering sector, bode well for the second half of the year and beyond.
Merger and acquisition (M&A) activity has continued to pick up momentum through the first half of 2021. As we wrote in our 2020 Annual Report, worldwide M&A activity totalled \$3.9 trillion in the year 2019, followed by a total of \$3.6 trillion in 2020, in a decline driven by COVID-related shutdowns. However, the second half of 2020 saw M&A totaling \$2.3 trillion, the strongest second half on record and an astounding 90% higher than the first half of the year. The first half of 2021 beat that record, coming in at \$2.8 trillion, with announced deals up 29% year over year. All geographic areas saw strong performance, with 47% of activity in U.S.-based transactions, 39%
in Europe, and an increase of 84% in the Asia-Pacific region to \$562 billion. The sector breakout saw Technology leading the charge, followed by Financials and Energy. Deal making shows every sign of staying robust for the rest of the year, with private equity funds as well as public companies driving activity. Our Portfolio Management team views this an opportunity for continued strong returns and an opportunity to grow shareholder wealth going forward.
The Company's net asset value (NAV) plus dividends paid delivered a total return to shareholders during the year under review of 12.12% in U.S. dollars. This performance compared to the equivalent 13-week U.S. Treasury Bill which yielded 0.09% as of 30 June, and also relative to the MNA ETF, S&P Merger Arbitrage Index, and Credit Suisse Merger Arbitrage Liquid Index, which returned 8.71%, 10.25%, and 12.30%, respectively. The share price total return with dividends reinvested was 5.46%. The discount widened during the year, exacerbated by low trading volumes.
The Company's portfolio is largely focused on merger arbitrage, with other arbitrage strategies, such as share class arbitrage and holdco arbitrage, implemented from time to time. Holding periods average approximately 120 days. In arbitrage, the culmination of a position is effectively a return of cash as the position is closed. In order to allow the Shareholders to realise a predictable, but not assured, level of cash flow and some liquidity periodically on their investment, the Company has adopted a "managed dividend policy". This policy seeks to pay Shareholders a quarterly dividend in relation to the Net Asset Value of the Company at the time, which may be changed at any time by the Board. Between inception and 30 June 2021, the Company returned \$1.79 per share to shareholders, consistent with its dividend policy. Dividends are paid only when declared by the Board subject to the Board's assessment of the Company's financial position and only if the Company has sufficient income and distributable reserves to make the dividend payment, and the level of dividend may vary over time. As such, the portfolio's managed distribution of capital through the payment of quarterly dividends is under review as we enter the new Fiscal Year.
Marc Gabelli Chairman 15 October 2021
The Gabelli organisation, of which Gabelli Funds, LLC is a major affiliate, began in the U.S. in 1976 as an institutional research firm. Gabelli's intense, research driven culture has driven its evolution into a diversified global financial services company. The basis of its success remains unchanged – a focus on fundamental, bottom-up research, a highly consistent investment process, and the commitment to superior risk adjusted returns. Now with offices in the U.S., London, Tokyo, Hong Kong and Shanghai, and employing more than 180 professionals, we offer portfolio management in our core competencies across the globe.
Gabelli Funds took the basic tenets of classic value investing and forged a PMV with a CatalystTM approach. We have built a company currently managing over \$36 billion in assets, with a track record of consistent returns over time. Gabelli is credited by the academic community for establishing the notion of PMV with a CatalystTM and applying the process in the analysis of public equity securities. Our value oriented, bottom up stock selection process is based on the fundamental investment principles first articulated in 1934 by Graham and Dodd, the founders of modern security analysis, and further enhanced by Mario Gabelli in 1977 with his introduction of the concepts of PMV with a CatalystTM into equity analysis. Our sustainable, time tested investment principles of fundamental security analysis are as valid today as they were more than eighty years ago.
Components of the Merger Arbitrage Return (Spread)
Spread = Risk Free Rate + Risk Premium
Merger Investing Process Begins with Announced Deal Terms
The Company's primary investment objective is to seek to generate total return, consisting of capital appreciation and current income. The Company will seek a secondary objective of the protection of capital, uncorrelated to equity and fixed income markets.
The Company will seek to meet its investment objective by utilising the Gabelli Private Market Value (PMV) with a CatalystTM, investment methodology, maintaining a diversified portfolio of event merger arbitrage strategies to seek to create an optimal risk/ reward profile for the portfolio.
"Event Driven Merger Arbitrage" is a highly specialised active investment approach designed principally to profit from the differences between the public market price and the price achieved through corporate catalyst events. Catalysts are utilised to earn returns independent of the broad markets' direction. This includes corporate events such as announced mergers, acquisitions, takeovers, tender offers, leveraged buyouts, restructurings, demergers and other types of reorganisations and corporate actions ("deals").
The Company will invest globally although it is expected to have an emphasis on securities traded in the United States, predominantly equity securities issued by companies of any market capitalisation. The Company is permitted to use a variety of investment strategies and instruments, including but not limited to: convertible and non-convertible debt securities; asset-backed and mortgage-backed securities; fixed interest securities, preferred stock, non-convertible preferred stock, depositary receipts; shares or units of UCIs or UCITS; rights qualifying as transferable securities; when issued, delayed delivery transferable securities; forward contracts; swaps; recently issued transferable securities; repurchase agreements, money market instruments and warrants.
The Company may invest part of its net assets in cash and cash equivalents, money market instruments, bonds, commercial paper or other debt obligations with banks or other counterparties having at least a single A (or equivalent) credit rating from an internationally recognised rating agency or government and other public securities, if the Portfolio Manager believes that it would be in the best interests of the Company and its Shareholders. This may be the case, for example, if the Portfolio Manager believes that adverse market conditions justify a temporary defensive position. Any cash or surplus assets may also be temporarily invested in such instruments pending investment in accordance with the Company's investment policy.
The Company may take both long and short positions in equity and debt securities. For shorting purposes, the Company may use indices, individual stocks, or fixed income securities.
The Company may utilise financial derivative instruments to create both long and synthetic covered short positions with the aim of maximising positive returns. The Company may use strategies and techniques consisting of options, futures contracts, and currency transactions and may enter into total rate of return, credit default, or other types of swaps and related derivatives for various purposes, including to gain economic exposure to an asset or group of assets that may be difficult or impractical to acquire.
The Company may also use derivatives for efficient portfolio management purposes including, without limitation, hedging and risk management and leverage.
The Company has broad and flexible investment authority and, accordingly, it may at any time have investments in other related or unrelated areas. Strategies and financial instruments utilised by the Company may include: (i) purchasing or writing options (listed or unlisted) of any and all types including options on equity securities, stock market and commodity indices, debt securities, futures contracts, future contracts on commodities and currencies; (ii) trading in commodity futures contracts, commodity option contracts and other commodity interests including physical commodities; (iii) borrowing money from brokerage firms and banks on a demand basis to buy and sell short investments in excess of capital; and (iv) entering into swap agreements (of any and all types including commodity swaps, interest rate swaps and currency swaps), forward contracts, currencies, foreign exchange contracts, warrants, credit default swaps, synthetic derivatives (for example, CDX), collateralised debt obligations tranches, and other structured or synthetic debt obligations, partnership interests or interests in other investment companies and any other financial instruments of any and all types which exist now or are hereafter created.
There has been no change to the investment policy since the launch of the Company on 19 July 2017. No material change will be made without shareholder approval.
Gabelli Funds would like to thank our investors for allocating a portion of their assets to the Gabelli Merger Plus+ Trust ("GMP"). We appreciate the confidence and trust you have placed in our organization through your investment in GMP. Our investment objective is to compound and preserve wealth over time while remaining noncorrelated to the broad markets. As a firm, we have invested in mergers since 1977 and created the Gabelli group's first dedicated, announced merger fund more than thirty years ago. We remain vigilant in the application of our investment philosophy and in our search for opportunities. In this context, let us outline our investment methodology and the investment environment through 30 June 2021.
Merger arbitrage is a highly specialized investment approach designed principally to profit from corporate events, including the successful completion of proposed mergers, acquisitions, takeovers, tender offers, leveraged buyouts, restructurings, demergers, and other types of corporate reorganizations and actions. As arbitrageurs, we seek to earn the differential, or "spread," between the market price of our investments and the value ultimately realized through deal consummation.
We are especially enthusiastic about the opportunities to grow client wealth in the decades to come, and we highlight below several factors that should help drive results. These include:
Global deal merger and acquisition ("M&A") activity totalled \$3.6 trillion in 2020, a 5% year over year decline driven by shutdowns related to COVID-19. However, in the second half of the year, the first half of the Company's fiscal year, merger activity recovered substantially and totalled \$2.3 trillion, as countries began phased re-openings and governments instituted accommodative monetary and fiscal policies, marking the strongest second half on record and a 90% increase over the first half of the year. The first half of 2021 saw M&A total \$2.8 trillion, a year over year increase of 131% and the best start to a year on record. The second quarter alone saw \$1.6 trillion in deals and marked the fourth consecutive quarter to pass \$1 trillion. The total number of deals worldwide increased to an all-time high, including twenty-seven deals greater than \$10 billion, compared to just 13 in the first half of 2020.
The resurgence of deal activity was largely driven by United States-based targets, which saw \$1.3 trillion in deal activity through 30 June 2021, an increase of 249% year over year. Cross-border M&A activity totalled \$863 billion during the first half of 2021, an increase of 95% and a three-year high. Similarly, the value of private equity-backed buyouts hit an all-time high of \$533 billion, an increase of 76% year over year, accounting for nearly 18% of total M&A activity.
Geographically, during the second half of 2020, Europe and Asia Pacific were bright spots for M&A, increasing 36% and 16% respectively, while deal making in the U.S. declined by 21% to \$1.4 trillion as COVID-19 battered major U.S. cities. In the first half of 2021, European M&A tallied \$581 billion of transactions, an increase of 39%. Asia Pacific saw an 84% increase, while Japan saw a 12% increase in the first half of the year.
Viewed by sector, deal making in Technology buoyed the overall M&A market in 2020, with volumes totaling \$684.3 billion, an all-time high. Financials and Energy & Power were the second and third most active sectors, respectively, accounting for 26% of all deal making. In the first half of 2021, the Technology sector was again the biggest contributor to merger activity, with deals totaling \$672 billion, more than triple 2020 levels and accounting for nearly 24% of total announced deal volume. Financials and the Energy and Power sectors were also large contributors, each accounting for 11% of M&A activity.
From a portfolio perspective, we are off to a solid start in 2021. The resurgence in the merger and acquisition market that began in the second half of 2020 has persisted into 2021, as robust deal activity provided fertile ground for merger investing, with strong performance from deals in our pipeline as well as our absolute return investments. Merger activity had its strongest first half on record, and has now surpassed \$1 trillion globally for four straight quarters. The M&A market has highlighted the scarcity value of companies with strong market positions, and accommodative capital markets and the easing of COVID-related restrictions are also providing support for would-be acquirers contemplating their strategic direction. These conditions have created something of a sellers' market, which has helped bolster performance in recent months. We have seen a number of deals benefit from improving terms, either via overbids by a third party or a "bump" in consideration by the acquirer. For an arbitrageur, these types of situations are a best-case scenario, as we are protected by the agreed upon terms, with the possibility to earn an even greater return.
After the roller coaster of 2020 ended on a high note, stocks posted their second best first half in 23 years, with the S&P 500 Index up over 15% year-to-date and up 9% for the second quarter of 2021, making for combined strong performance for the company. Optimism in the market was fuelled by a combination of government spending, aggressive monetary policy by the Fed, and improving corporate earnings. All of this is set against the backdrop of an increasingly vaccinated population—as more than half of the U.S. population has received at least one vaccine dose—who are ready to spend.
While there is never a lack of risk in the market, the drivers for a strong M&A environment persist: borrowing costs remain historically cheap, debt markets continue to be accommodative, and private equity firms and management teams have substantial dry powder and a mandate to become more competitive in an evolving global marketplace. These dynamics should continue to propel M&A for the rest of 2021 and beyond.
1 Thomson Reuters M&A Review – Second Half 2020 and First Half 2021.
While one of the main topics of conversation and concern this year has been rising inflation, the Federal Reserve has, at least for the time being, dampened those fears. In June 2021, the Fed disclosed that most of its voting members expect interest rates to rise before the end of 2023. Although the Fed maintained its \$120 billion monthly bond buying program and remained tolerant of inflation temporarily above its 2% target, commentary suggested that accommodation would one day end, avoiding a policy error that would have fanned inflation.
In recent weeks, spreads have widened on the back of what appears to be a more hawkish antitrust enforcement policy by the new Administration in the U.S., as well as some renewed concerns around China's willingness to approve certain transactions. Such volatility provides us an opportunity to add to our highest conviction positions at lower prices—the benefits of which will be apparent as these transactions close in the coming months.
We continue to find attractive investment opportunities in newly-announced deals and add to existing positions in our portfolio. We remain focused on investing in highly strategic, well-financed deals with an added focus on near-term catalysts, and are upbeat about our prospect to generate absolute returns.
• Acacia Communications, Inc. (ACIA-NASDAQ), which develops highspeed coherent optical interconnect products, saw significant spread tightening into year-end and traded through the terms as the January 8th outside date of the merger approached. Strong fundamentals and an uplift in the sector over the 18-month period since the deal was announced suggested the \$70.00 per cash terms severely undervalued the company. On January 8, Acacia decided to walk away from the transaction, while Cisco contended that it did receive all regulatory approvals before the lapsing of the agreement and looked to the Delaware courts to support its claim. Ultimately, the companies were able to agree to new terms under which Acacia shareholders received \$115.00 cash per share, valuing the transaction at approximately \$5 billion.
markets, received Chinese regulatory approval to be acquired by Marvell Technology in March, which was the final regulatory approval required to close the deal. After an April vote from shareholders, the deal closed. Inphi shareholders received \$66 cash and 2.323 shares of Marvell for each share of Inphi, valuing the transaction at roughly \$9 billion.
Aerojet Rocketdyne Holdings, Inc. (AJRD-NYSE) agreed to be acquired by Lockheed Martin Corp. (LMT-NYSE). Aerojet Rocketdyne designs, develops, manufactures, and sells aerospace and defense products and systems in the U.S. Under terms of the agreement, Aerojet shareholders will receive \$56.00 cash per share, including a \$5.00 pre-closing special dividend, valuing the transaction at approximately \$5 billion. The transaction is subject to shareholder as well as regulatory approvals, and is expected to close in the second half of 2021.
Alexion Pharmaceuticals, Inc. (ALXN-NASDAQ) agreed to be acquired by AstraZeneca plc (AZN-NASDAQ). Alexion Pharmaceuticals develops and commercializes various therapeutic products. Under terms of the agreement, Alexion shareholders will receive \$60.00 cash and 2.1243 shares of AstraZeneca common stock per share, valuing the transaction at approximately \$39 billion. The transaction is subject to approval by shareholders of both companies, as well as regulatory approval, and is expected to close in the third quarter of 2021.
Dialog Semiconductor plc (DLG GY-Frankfurt Stock Exchange) agreed to be acquired by Renesas Electronics Corp. (6723 JP-Tokyo Stock Exchange). Dialog Semiconductor develops highly integrated, mixed signal integrated circuits (ICs) for personal, portable, hand-held devices. Under terms of the agreement, Dialog shareholders will receive €67.50 cash per share, valuing the transaction at approximately €5 billion. The transaction is subject to shareholder as well as regulatory approvals, and is expected to close in the second half of 2021.
IHS Markit Ltd. (INFO-NYSE) agreed to be acquired by S&P Global, Inc. (SPGI-NYSE). IHS Markit provides critical information, analytics, and solutions for various industries and markets worldwide. Under terms of the agreement, IHS Markit shareholders will receive 0.2838 shares of S&P common stock per share, valuing the transaction at approximately \$44 billion. The transaction is subject to approval by shareholders of both companies as well as regulatory approval, and is expected to close in the second half of 2021.
Nuance Communications, Inc. (NUAN-NASDAQ) agreed to be acquired by Microsoft Corp. (MSFT-NASDAQ). Nuance Communications provides conversational and cognitive artificial intelligence innovations. Under terms of the agreement, Nuance shareholders will receive \$56.00 cash per share, valuing the transaction at approximately \$17 billion. The transaction is subject to shareholder as well as regulatory approvals, and is expected to close in the fourth quarter of 2021.
PNM Resources, Inc. (PNM-NYSE) agreed to be acquired by Avangrid, Inc. (AGR-NYSE). PNM Resources operates two regulated utilities providing electricity in the southwest United States. Under terms of the agreement, PNM shareholders will receive \$50.30 cash per share, valuing the transaction at approximately \$8 billion. The transaction is subject to shareholder as well as regulatory approvals, and is expected to close in the fourth quarter of 2021.
Proofpoint, Inc. (PFPT-\$172.11- NASDAQ) agreed to be acquired by Thoma Bravo. Proofpoint is a cybersecurity company that enables large and mid-sized organizations to defend, protect, archive, and govern their sensitive data worldwide. Under terms of the agreement, Proofpoint shareholders will receive \$176.00 cash per share, valuing the transaction at approximately \$10 billion. The transaction is subject to shareholder, as well as regulatory approvals, and is expected to close in the third quarter of 2021. Proofpoint is also permitted to solicit superior bids from parties during a 45-day "go-shop" period.
Maxim Integrated Products, Inc. (MXIM-NASDAQ) agreed to be acquired by Analog Devices, Inc. (ADI-NASDAQ). Maxim Integrated Products designs and manufactures a range of linear and mixed-signal integrated circuits. Under terms of the agreement, Maxim shareholders will receive 0.63 shares of Analog common stock per share, valuing the transaction at approximately \$20 billion. The transaction is subject to approval by shareholders of both companies, as well as regulatory approval, and is expected to close in the second half of 2021.
Slack Technologies, Inc. (WORK-NYSE) agreed to be acquired by salesforce.com, inc. (CRM-NYSE). Slack Technologies operates Slack, an international business technology software platform. Under terms of the agreement, Slack shareholders will receive \$26.79 cash and 0.0776 shares of salesforce.com common stock per share, valuing the transaction at approximately \$28 billion. The transaction is subject to shareholder as well as regulatory approvals, and closed in July 2021.
Suez SA (SEV FP-Paris Stock Exchange) agreed to be acquired by Veolia Environment SA (VIE FP-Paris Stock Exchange). Suez engages in the water cycle and waste cycle management business globally. Under terms of the agreement, Suez shareholders will receive €20.50 cash per share, valuing the transaction at approximately €27 billion. Veolia first offered to acquire Suez in April and the two companies signed the combination agreement in May. The transaction is subject to shareholder as well as regulatory approvals, and is expected to close in the fourth quarter of 2021.
Xilinx, Inc. (XLNX-NASDAQ) agreed to be acquired by Advanced Micro Devices, Inc. (AMD-NASDAQ). Xilinx designs and develops programmable devices and associated technologies worldwide. Under terms of the agreement, Xilinx shareholders will receive 1.7234 shares of Advanced Micro common stock per share, valuing the transaction at approximately \$34 billion. The transaction is subject to approval by shareholders of both companies as well as regulatory approval, and is expected to close by the end of 2021.
CoreLogic, Inc. was acquired by Stone Point Capital and Insight Partners in June 2021. CoreLogic provides property information, insight, analytics, and dataenabled solutions in North America, Western Europe, and the Asia Pacific regions. On 4 February 2021, Stone Point and Insight announced it would acquire CoreLogic for \$80.00 cash per share, valuing the transaction at approximately \$8 billion.
Cooper Tire & Rubber Co. was acquired by The Goodyear Tire & Rubber Co. in June 2021. Cooper Tire designs and manufactures replacement tires in North America, Latin America, Europe and Asia. On 22 February 2021, Goodyear announced it would acquire Cooper for \$41.75 cash and 0.907 shares of Goodyear common stock per share, valuing the transaction at approximately \$3 billion.
GW Pharmaceuticals plc was acquired by Jazz Pharmaceuticals plc in May 2021. GW Pharmaceuticals develops novel therapeutics from its proprietary cannabinoid product platform. On 3 February 2021, Jazz announced it would acquire GW for \$200.00 cash and \$20.00 worth of Jazz common stock per share, subject to a collar, valuing the transaction at approximately \$7 billon.
HMS Holdings Corp. was acquired by Gainwell Technologies in March 2021. HMS Holdings provides cost containment solutions in the U.S. healthcare marketplace. On 21 December 2020, Gainwell announced it would acquire HMS for \$37.00 cash per share, valuing the transaction at approximately \$3 billion.
Inphi Corp. was acquired by Marvell Technology Group Ltd. in April 2021. Inphi provides high-speed analog and mixed signal semiconductor solutions to the communications, datacenter, and computing markets in China, the United States, Thailand, and other regions. On 29 October 2020, Marvell announced it would acquire Inphi for \$66.00 cash and 2.323 shares of Marvell common stock per share, valuing the transaction at approximately \$9 billion.
Navistar International Corp. was acquired by TRATON SE in July 2021. Navistar manufactures and sells commercial trucks, diesel engines, school and commercial buses, and service parts for trucks and diesel engines worldwide. On 7 November 2020, TRATON announced it would acquire Navistar for \$44.50 cash per share, valuing the transaction at approximately \$5.7 billion.
Perspecta, Inc. was acquired by Veritas Capital in May 2021. Perspecta provides enterprise information technology services to government customers in the U.S. federal, state, and local markets. On 27 January 2021, Veritas announced it would acquire Perspecta for \$29.35 cash per share, valuing the transaction at approximately \$7 billion.
Pluralsight, Inc. was acquired by Vista Equity Partners in April 2021. Pluralsight operates a cloud-based technology skills platform in the U.S., Europe, the Middle East, Africa, and other regions. On 13 December 2020, Vista announced it would acquire Pluralsight for \$20.26 cash per share, which was later revised to \$22.50 cash per share in March 2021, valuing the transaction at approximately \$4 billion.
RealPage, Inc. was acquired by Thoma Bravo in April 2021. RealPage operates a real estate technology platform. On 21 December 2020, Thoma Bravo announced it would acquire RealPage for \$88.75 cash per share, valuing the transaction at approximately \$10 billion.
Tiffany & Co. was acquired by LVMH Moët Hennessy Louis Vuitton SE in January 2021. Tiffany & Co. designs, manufactures, and retails jewelry and other items internationally. On 25 November 2019, LVMH announced it would acquire Tiffany for \$135.00 cash per share, which was later revised to \$131.50 cash per share in October 2020, valuing the transaction at approximately \$17 billion.
Varian Medical Systems, Inc. was acquired by Siemens Healthineers AG in April 2021. Varian Medical Systems designs, manufactures, and services medical devices and software products for treating cancer and other medical conditions worldwide. On 2 August 2020, Siemens announced it would acquire Varian for \$177.50 cash per share, valuing the transaction at approximately \$16 billion.
Viela Bio, Inc. was acquired by Horizon Therapeutics plc in March 2021. Viela Bio engages in the research and development of treatments for severe inflammation and autoimmune diseases in the U.S. On 1 February 2021, Horizon announced it would acquire Viela for \$53.00 cash per share, valuing the transaction at approximately \$3 billion.
William Hill plc was acquired by Caesars Entertainment, Inc. in April 2021 for approximately \$4 billion. William Hill provides sports betting and gaming services in the U.K and U.S as well as internationally.
| As at 30 June 2021 | |||||
|---|---|---|---|---|---|
| Security1 | Offsetting short position2 | % of total portfolio6 (gross) |
Market value4 \$000 |
Offsetting market value5 \$000 |
% of total portfolio3 (net) |
| Alexion Pharmaceuticals Inc | AstraZeneca plc | 5.3 | 5,461 | (3,779) | 1.6 |
| Altaba Inc.* | 4.6 | 4,779 | 4.6 | ||
| PNM Resources Inc.* | 3.9 | 3,997 | 3.9 | ||
| Xilinx Inc | Advanced Micro Devices Inc. | 3.8 | 3,914 | (4,261) | (0.3) |
| Maxim Integrated Products Inc | Analog Devices Inc | 3.1 | 3,223 | (3,317) | (0.1) |
| Proofpoint Inc.* | 3.0 | 3,103 | 3.0 | ||
| IHS Markit Ltd | S&P Global Inc. | 2.9 | 2,992 | (3,087) | (0.1) |
| Talend SA* | 2.3 | 2,329 | 2.3 | ||
| Change Healthcare Inc.* | 2.3 | 2,318 | 2.3 | ||
| Liberty Media Corp-Liberty SiriusXM* |
2.2 | 2,262 | 2.2 | ||
| Luminex Corp.* | 2.2 | 2,222 | 2.2 | ||
| Shaw Communications Inc.* | 2.1 | 2,124 | 2.1 | ||
| Great Canadian Gaming Corp.* | 2.1 | 2,121 | 2.1 | ||
| Aerojet Rocketdyne Holdings Inc.* |
2.1 | 2,110 | 2.1 | ||
| Coherent Inc. | II-VI Inc. | 2.0 | 2,095 | (424) | 1.6 |
| At Home Group Inc.* | 1.8 | 1,871 | 1.8 | ||
| QTS Realty Trust Inc.* | 1.2 | 1,201 | 1.2 | ||
| Cloudera Inc.* | 1.1 | 1,132 | 1.1 | ||
| W.R. Grace & Co.* | 1.1 | 1,108 | 1.1 | ||
| Liberty Media Acquisition Corp.* |
1.0 | 1,079 | 1.0 | ||
| Sub-total | 50.0 | 51,439 | (14,870) | 35.6 | |
| Other holdings7 | 50.0 | 79,712 | (13,438) | 64.4 | |
| Total holdings | 100.0 | 131,151 | (28,307) | 100.0 |
1 Long position.
2 Short position taken, based on the acquirer of the security when acquirer stock is being offered in whole, or in part, to finance the transaction.
3 Represents the total position value (market value plus the offsetting market value) as a percentage of the total portfolio value. 4 Market value of the long position.
5 Market value of the offsetting short position.
6 Represents the market value as a percentage of the total portfolio value.
7 Including derivatives and equity short positions, and excluding U.S. Treasuries.
* At 30 June 2021, the deal terms specified an all-cash transaction and there is no offsetting short position.
A Statement of Portfolio Changes is available from the Adminstrator upon request.
The Company's strategy is to generate returns for its shareholders by pursuing its investment objective while mitigating shareholder risk, by investing in a diversified spread of equity investments. Through a process of bottom-up stock selection and the implementation of disciplined portfolio construction, we aim to create value for the Company's shareholders.
The largest holdings in the Company's portfolio are listed on page 12.
At the sole discretion of the Portfolio Manager, the Company may use leverage as part of its investment programme. It is anticipated that the Company will structurally gear and use tactical leverage or portfolio borrowings in an amount (calculated at the time of investment) of around 2 times of the Net Asset Value, subject to maximum gearing of 2.5 times the Net Asset Value. Please refer to page 65 in the Glossary for further discussion of gearing.
Please see the Methodology in Action on page 06.
The Board recognises that it is share price performance that is most important to the Company's shareholders. Fundamental to share price performance is the performance of the Company's net asset
value. The central priority is to generate returns for the Company's shareholders through net asset value and share price total return, and discount management.
For the year ended 30 June 2021, the Company's KPIs as monitored closely by the Board at each meeting, are listed below:
12.12%
Share Price Total Return Year ended 30 June 2021
5.46% (30 June 2020: (7.69%)) Year ended 30 June 2021
25.63% (30 June 2020: 19.61%)
The above table sets out the key KPIs for the Company. These KPIs fall within the definition of 'Alternative Performance Measures' (APMs) under guidance issued by the European Securities and Markets Authority (ESMA). Information explaining how these are calculated is set out in the Glossary. These KPIs including APMs have been carefully selected by the Board on discussion with the Portfolio Manager, to give the most appropriate overview of performance in the financial year to shareholders and other stakeholders.
| Performance measured against various indices |
The Company does not use a benchmark. However, at each meeting the Board reviews and compares portfolio performance in the context of the performance of the ETF MNA and Credit Suisse Merger Arb Liquid Indices. Information on the Company's performance is given in the Chairman's Statement and |
|---|---|
| the Portfolio Manager's Review. | |
| Share Price Total Return | The Company's primary investment objective is to seek to generate total return consisting of capital appreciation and current income. |
| In order to allow the Shareholders to realise a predictable, but not assured, level of cash flow and some liquidity periodically on their investment, the Company has adopted a "managed dividend policy". This policy seeks to pay Shareholders a quarterly dividend in relation to the Net Asset Value of the Company at the time, which may be changed at any time by the Board. Between inception and 30 June 2021, the Company returned \$1.79 per share to shareholders, consistent with its dividend policy. Dividends are paid only when declared by the Board subject to the Board's assessment of the Company's financial position and only if the Company has sufficient income and distributable reserves to make the dividend payment, and the level of dividend may vary over time. As such, the portfolio's managed distribution of capital through the payment of quarterly dividends is under review as we enter the new Fiscal Year. |
| Share price discount to net asset value (NAV) per share |
The NAV per share is published on a daily basis on the London Stock Exchange and The International Stock Exchange. The NAV is calculated in accordance with the Association of Investment Companies (AIC) formula. |
|---|---|
| At each Board meeting, the Board monitors the level of the Company's discount to NAV, the changes thereto and the reason for such changes. The Directors recognise the importance to investors that the shares should not trade at a significant discount to NAV. Accordingly, the Board would consider implementing a share buy back programme to ensure that the share price does not trade at a significant discount to the NAV. |
|
| In the year under review, the Company's shares have traded from a discount of 19.61% as of 30 June 2020 to a discount of 25.63% as of 30 June 2021. |
Performance is assessed on a total return basis for the NAV and share price.
| Rate (\$) | Ex-dividend date | Record date | Payment date | |
|---|---|---|---|---|
| Fourth interim 2021 | 0.12 | 14 October 2021 | 15 October 2021 | 29 October 2021 |
| Third interim 2021 | 0.12 | 15 April 2021 | 16 April 2021 | 30 April 2021 |
| Second interim 2021 | 0.12 | 14 January 2021 | 15 January 2021 | 28 January 2021 |
| First interim 2021 | 0.12 | 15 October 2020 | 16 October 2020 | 30 October 2020 |
| Total | 0.48 | |||
| Fourth interim 2020 | 0.12 | 16 July 2020 | 17 July 2020 | 31 July 2020 |
| Third interim 2020 | 0.12 | 16 April 2020 | 17 April 2020 | 30 April 2020 |
| Second interim 2020 | 0.12 | 16 January 2020 | 17 January 2020 | 30 January 2020 |
| First interim 2020 | 0.12 | 10 October 2019 | 11 October 2019 | 25 October 2019 |
| Total | 0.48 | |||
The Company continues to have exposure to a variety of risks and uncertainties, and the Audit Committee has focused attention on identifying and mitigating key risks likely to crystallise in the current economic environment. The Board continues to prioritise a robust system of controls to minimise exposure to global macro events in particular, which remains highlighted as a generic risk as in recent Annual Reports.
The Directors confirm that they have carried out a further robust assessment of the principal risks facing the Company during the year, including those that would threaten its investment objective, business model, future performance, solvency or liquidity. The Company maintains a risk matrix which sets out the risks facing the Company, the likelihood and potential impact of each risk and the controls established for mitigation. The risk matrix is reviewed by the Audit Committee on a regular basis throughout the financial year, and was specifically refreshed in 2021 to introduce more stringent risk ratings for each risk and to reflect the impact of related mitigating controls.
The core principal risks set out in the 2020 Annual Report remain largely unchanged and are set out in the following table with an explanation of how they are mitigated. On review during the year, the Board re-rated several principal risks and considered the adequacy of mitigating controls in place across the Company's operations and those of its key third party providers. The Audit Committee has also specifically considered the risks associated to the Portfolio Manager's use of Contracts for Difference within the investment strategy, which on review were felt to continue to be appropriate. The risk narrative in the table below includes a summary of the actions taken to position the Company to withstand the related effects for markets and investments:
| Risk | Mitigation |
|---|---|
| Investment Portfolio | |
| Decline in the U.S. equity markets. | By investing in a diversified portfolio and by adhering to a carefully monitored series of investment restrictions, enabled by automated pre-trade compliance features and daily review of trade tickets. These strictures mandate that no single security purchase can, at the time of investment, account for more than 15% of the gross assets of the Company. The Board meets the portfolio management team quarterly at the Board meetings to review the risk factors and their effect on the portfolio, and a thorough analysis of the investment strategy is undertaken. |
| Merger and event driven risks address the possibility that deals do not go through, are delayed beyond the original closing dates, or that the terms of the proposed transactions change adversely. |
Portfolio management team's careful selection and active monitoring of mergers and acquisitions deals, and maintaining a thorough knowledge of the selected securities in the portfolio. |
| Global Macro Event | |
| Global instability or events external to the management and controls of the Company. |
Global economic, geopolitical, and financial conditions are constantly monitored. Diversification of Company assets is incorporated into the investment strategy and, if disruptive events occur, the Manager is prepared to adopt a temporary defensive position and invest some or all of the Company's portfolio in cash or cash equivalents, money market instruments, bonds, commercial paper, or other debt obligations with banks or other counterparties, with appropriate ratings as determined by an internationally recognised rating agency and approved by the Board. Another option is the investment in "government and public securities" as defined for the purposes of the Financial Conduct Authority Handbook. |
| The COVID-19 pandemic continues to create uncertainty for economic forecasts and markets as Governments globally seek to transition communities, businesses and individuals to more normalised patterns, following 18 months of restrictions and disruption. The Manager has therefore carefully managed the Company's investments to protect shareholders' interests and to position the Company to benefit from future performance of markets in line with its key investment principle. |
|
| The pandemic has also impacted the day-to-day operational management of both the Board and the Company's third party service providers. The Board and all its third party service providers continue to successfully work and meet remotely, and regular third party briefings have kept the Board informed of how related risks are minimised through the pandemic and ongoing global recovery. |
|
| The Audit Committee have noted that it is possible that a future event may temporarily compromise the availability of an individual board member or a key representative or integral team member of a third party service provider, in turn impacting the Company's performance. |
| Risk | Mitigation |
|---|---|
| Operational | |
| The operational functions of the Company are outsourced to third parties. Systems disruptions, control failures and/or operational lockdowns caused by the COVID-19 pandemic at these companies could impact the Company. |
All third parties report to the Board on a regular basis and their reports and representations are reviewed by the Board, the AIF Manager and the Portfolio Manager. |
| Market and Share Price | |
| The market price of the Company falling below the NAV. To address a discount, the Board may consider using share buybacks, through which shares would be repurchased when trading at a discount from NAV, up to a maximum percentage of 14.99% of the issued share capital. The Company has continued its shareholder engagement programmes to increase its visibility and interaction with existing and potential investors. |
|
| Financial | |
| Comprise: (i) market price risk (comprising interest rate risk, currency risk and other price risk); (ii) liquidity risk; and (iii) credit risk. |
Further details of these risks are disclosed in Note 12 to the financial statements together with a summary of the policies for managing these risks. |
| Corporate Governance and Regulatory | |
| Damage to its reputation through poor corporate governance. |
The Board actively performs self-assessments of compliance with best governance practices. |
| Shareholder discontent due to a lack of appropriate communications and/or inadequate financial reporting. |
The Board is in contact with its major shareholders on a regular basis, and it monitors shareholder sentiment. In addition, regulatory risks, in the form of failure to comply with mandatory regulations, could have an impact on the Company's continuity. The Company receives and responds to guidance from both its external |
| and internal advisors on compliance with the Listing Rules, and Disclosure and Transparency Rules, as well as other applicable regulations. |
|
| Tax Risks | |
| In order to qualify as an investment trust, the Company must comply with Section 1158-59 of the Corporation Tax Act 2010. |
The criteria are monitored by the Administrator, AIF Manager and the Portfolio Manager and the Board receives a report on compliance at each quarterly meeting. |
| A breach of these sections could result in the Company losing investment trust status and, as a consequence, capital gains realised within the Company's portfolio would be subject to Corporation Tax. |
|
| Environmental, Social and Climate Change Risks | |
| Each of environmental, social and climate risks are gaining traction globally as key priorities, including for investment companies. The Company could be exposed by a failure to integrate these themes in its strategy and investment approach. |
The Board and Investment Manager actively consider how environmental, social and climate change risks potentially affect the Company's portfolio companies and shareholder returns. |
In accordance with the provisions of the UK Corporate Governance Code, the Directors have assessed the prospects of the Company over a longer period than the 12 months referred to in the 'Going Concern' guidelines.
The Board conducted this review focusing on a period of five years. This period was selected as it is aligned with the Company's investment objective of generating total return, consisting of capital appreciation and current income. In making this assessment the Board also considered the Company's principal risks.
Investment trusts in the UK operate in a well established and robust regulatory environment and the Directors have assumed that:
As with all investment vehicles, there is a risk that the performance of individual investments will vary and that capital may be lost, but this is not regarded as a threat to the viability of the Company.
Operationally, the Company retains title to all assets, and cash and securities are held with a custodian bank approved by the Portfolio Manager and the Board.
The nature of the Company's investments means that solvency and liquidity risks are low because:
The Board have closely monitored the impact of the COVID-19 pandemic on global markets during 2020 and 2021 year to date. Those impacts and related continuing uncertainty have short and potentially medium term implications for the Company's investment strategy. However, the Board continuously monitors the Company's investment portfolio, liquidity and gearing, along with levels of market activity, to appropriately minimise and mitigate consequential risks to capital and future income. The risks are discussed in more detail on pages [15] and [16].
Taking these factors into account, the Directors confirm that they have a reasonable expectation that the Company will continue to operate and meet its expenses as they fall due over the next five years. The Directors have also considered the fact that there will be a continuation vote at the Company's 2022 Annual General Meeting, as well as the likelihood of shareholders voting in favour of continuation, having consulted and maintained close contact with the Company's major shareholders through its advisers. In the event that shareholders take up the option of the Fifth Anniversary Tender Offer for their shares, those shares would be redeemed at NAV less expenses, and the Company would be dissolved.
The Company's portfolio consists primarily of U.S. investments. Accordingly, the Company believes that the post "Brexit" arrangements introduced by the U.K. government and market regulators will not materially affect the prospects for the Company, but the Board and Portfolio Manager will continue to keep developments under review.
This Viability Statement, and the Strategic Report for the year ended 30 June 2021 of which it forms a part, was approved by the Board of Directors.
Marc Gabelli Chairman
15 October 2021
The Directors of the Company who were in office during the year and up to the date of the signing of the financial statements were as follows:
Marc Gabelli Non-executive Director and Chairman of the Board of Directors,
Marc is a director and President of the Portfolio Manager's parent company, GGCP, a director of Associated Capital Group "ACG" and is a Senior Portfolio Manager at Gabelli. As a fund manager, his focus is global value equity investments. He has managed several Morningstar five star mutual funds, and a Lipper #1 ranked global equity mutual fund. Marc is active in a variety of charitable educational efforts in the United States and United Kingdom. He has lived and worked in the U.K. at various times, beginning in 1990. He is a graduate of the Massachusetts Institute of Technology (M.I.T.) Sloan School of Management.
Appointed on 28 April 2017.
Marco Bianconi Independent non-executive Director of the Board,
Marco is Corporate Development, M&A and Investor Relations Director at Cementir Holding N.V. an international Building Materials manufacturer quoted on the Italian Stock exchange. He has previously served for five years as CFO of its parent company Caltagirone SpA. Prior to this he worked for over eight years at Fidelity Investments in London as Portfolio Manager and Pan-European Equity Analyst. Marco has served as non-executive director on several boards, such as: ACEA S.p.A. (public utility), Banca Antonveneta (bank), MPS Leasing & Factoring (financial services), Fabrica Immobiliare (REIT). Marco holds an MBA at NYU Stern School of Business, class 1996 and he is a Chartered Accountant since 1990.
Appointed on 5 June 2017.
John Birch Non-executive Director of the Board,
Chairman of the Management Engagement and Conflicts Committees, member of the Remuneration and Nomination Committees
John is the Managing Partner of The Cardinal Partners Global S.a.r.l. Previously he was Chief Operating Officer of Sentinel Asset Management, Inc. and Sentinel Administrative Services, Inc., both members of National Life Group. He has also held senior roles in State Street, American Skandia Investment Services, Inc., Gabelli Funds, Inc. and Gabelli International. He has an MA in Tax and over 30 years experience in asset management.
Appointed on 5 June 2017.
John Newlands Independent non-executive Director.
John has served more than twenty years in the City of London, most recently with Brewin Dolphin Limited as Head of Investment Companies Research from 2007 to 2017. He was a member of the Association of Investment Companies Statistics' Committee from 2000 to 2017. He has an MBA from Edinburgh University Business School and is a Chartered Electrical Engineer. He has written four books about financial history, the most recent charting the history of Dunedin Income Growth Investment Trust. He is a non executive director of CQS New City High Yield Fund and TOC Property Backed Lending Trust PLC and a member of the Investment Committee of Durham Cathedral.
Appointed on 8 February 2018.
Yuji Sugimoto Independent non-executive Director.
Yuji has over 37 years experience in financial markets. He is a former Executive Director of Sumitomo Mitsui Banking Corporation in the US. Prior to this Yuji co-managed Japanese/Pan-Asian institutional research sales as a Managing Director at Lehman Brothers / Barclays. From 2003 to 2007 he managed a New York based Japanese equity hedge fund Sugimoto Capital Management LLC, which he founded. He started his career at Salomon Brothers working for 24 years in New York, London, Hong Kong and Tokyo in a number of institutional sales management positions as a Managing Director. He has a MBA from the University of Southern California and a B.A. in Economics from Columbia University.
Appointed on 5 June 2017.
James Wedderburn Independent non-executive Director.
James has over 40 years experience in the investment industry. From 1999 to 2017 he was Director of the family office of Sir Peter Lampl, the founder of the Sutton Trust social mobility charity, where he was responsible for all financial and investment matters and closely involved with the charity's finances. He worked previously at financial group Hamilton Lunn monitoring the global investments of ultra high net worth clients and, prior to that, he was a fund manager at Invesco MIM and Samuel Montagu responsible for UK pension fund and charity clients. James spent his early career as a UK equity research analyst at Cazenove and Laing & Cruickshank after graduating from Oxford University.
Appointed on 15 November 2017.
The Directors present the annual report and accounts of the Company for the year ended 30 June 2021. The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU and in accordance with the requirements of the Companies Act 2006.
The Company was incorporated in England and Wales on 28 April 2017 with registered number 10747219. The Company is registered as an investment company as defined by Section 833 of the Companies Act 2006 (the "Companies Act") and operates as such.
The Company was admitted to the Specialist Fund Segment of the Main Market of the London Stock Exchange and trading on the Official List of the International Stock Exchange on 19 July 2017.
The Company's Listing Sponsor on the International Stock Exchange is Ocorian Administration (Guernsey) Limited. The Company also operates an additional market quote for its ordinary shares on the London Stock Exchange, denominated in sterling.
In the opinion of the Directors, the Company has conducted its affairs during the year under review, and subsequently, so as to qualify as an investment trust for the purposes of section 1158 of the Corporation Tax Act 2010 (as amended). The Company has applied to, and obtained approval from, HMRC as an investment trust company subject to continuing to meet the eligibility requirements.
An ordinary resolution for the continuation of the Company as an investment trust will be proposed at the Annual General Meeting ("AGM") to be held following 19 July 2022, the fifth anniversary of the admission of the Company to the Specialist Fund Segment. If the resolution is not passed, the Board would be required to put proposals for the reconstruction, reorganisation or winding up of the Company to shareholders at a General Meeting to be held within six months of the date of the AGM at which the continuation resolution was proposed.
The Directors, having taken account of the continuing uncertainty around investee company valuations and implications for the Company's likely future dividend income stream of the COVID-19 pandemic, which have both improved markedly in the last 12 months, have determined that the Company's strategy, longer term asset allocation, short term liquidity and robust governance provide a sufficient basis for the Board to adopt the going concern basis for the Company as at 30 June 2021.
In forming this position, the Directors considered the Company's investment objectives, risk management policies, capital management policies and procedures, the nature of the portfolio and expenditure projections in detail.
The Company is able to meet all of its liabilities from its assets and the ongoing charges are approximately 1.63% of assets. This Going Concern statement should be read in conjunction with the Company's Viability Statement which can be found on page 17.
The Directors of the Company in office at the date of this report and their biographies are set out on pages 18 and 19. Details of Directors' interests in the shares of the Company are set out in the Directors' Remuneration Report.
Directors' retirements are subject to the Company's Articles of Association (the "Articles"). The Articles provide that the directors may appoint a person who is willing to act as a director and any director so appointed is required to retire at the next AGM after his or her appointment and is eligible for reappointment. All directors who held office at the time of the two preceding AGMs and who did not retire by rotation at either of them are also required to retire by rotation and are eligible for reappointment. In addition, each Director considered to be non-independent will retire and being eligible offer themselves for re-election on an annual basis.
The Board has agreed to follow the recommendations of the latest Corporate Governance Codes and ask all Directors of the Company to offer themselves for re-election annually. Therefore, all the Directors will retire at the forthcoming AGM and, being eligible will offer themselves for re-election.
Having considered the Directors' performance as part of the annual Board evaluation process the Board believes that it continues to be effective and that the Directors each bring an appropriate level of knowledge, experience, business, financial and asset management skills. The Board therefore recommends that shareholders vote in favour of each Director's proposed election at the AGM.
Mr Gabelli, as a Director and President of Gabelli Group Capital Partners, the parent company of Gabelli Funds, LLC (the "Portfolio Manager"), is deemed to be interested in the Company's Portfolio Management Agreement, as is Mr Birch, who serves on the Boards of other funds in the Gabelli/GAMCO group of companies.
There were no other contracts subsisting during the year under review, or up to the date of this report, in which a Director of the Company is or was, materially interested and which is, or was, significant in relation to the Company's business.
None of the Directors has a service contract with the Company. The terms of their appointment are provided to them in a letter when they join the Board. No Director is entitled to compensation for loss of office on the takeover of the Company. The powers of the Directors are set out in the Corporate Governance Statement.
Directors have a duty to avoid situations in which they have, or could have, a direct or indirect interest that conflicts, or may potentially conflict, with the Company's interests. This is in addition to the continuing duty that Directors owe the Company to disclose to the Board any transaction or arrangement under consideration by the Company in which they are interested.
Directors are required to disclose any conflicts and potential conflicts of interest upon appointment. A schedule of these is maintained by the Company Secretary and provided at each quarterly Board meeting. Directors are responsible for keeping these disclosures up to date and in particular to notify any new potential conflicts of interest, or changes to existing situations, to the Company Secretary.
In accordance with the Companies Act 2006 and the Company's Articles, the Directors can authorise such conflicts or potential conflicts of interest. In deciding whether to authorise any conflict, the Directors must consider their general duties under the Companies Act 2006, and their overriding obligation to act in a way they consider, in good faith, will be most likely to promote the Company's success.
In addition, the Directors are able to impose limits or conditions when giving authorisation to a conflict, or potential conflict of interest, if they think this is appropriate. The authorisation of any conflict matter, and the terms of any authorisation, may be reviewed by the Board at any time.
The Board believes that the procedures established to deal with conflicts of interest operated effectively during the year under review.
In accordance with the provisions of the Companies Act, the Company's Articles allow for Directors and officers of the Company to be indemnified out of the assets of the Company against all costs, losses, and liabilities incurred for negligence, default, breach of duty or trust in relation to the Company's affairs and activities. The Articles also provide that, subject to the provisions of the Companies Act 2006, the Board may purchase and maintain insurance for the benefit of Directors and officers of the Company against any liability which may incur in relation to anything done or omitted to be done, or alleged to be done or omitted to be done, as a Director or officer. The Company has taken out Directors' and Officers' Liability insurance, which covers the Directors and officers of the Company.
Full details of the Company's issued share capital are given in Note 11 to the Financial Statements on page 54. Details of the voting rights in the Company's shares as at the date of this report are also given in Note 14 to the Notice of Annual General Meeting on page 69.
The ordinary shares carry the right to receive dividends and have one voting right per share. There are no restrictions on the voting rights of the ordinary shares or any shares which carry specific rights with regard to the control of the Company.
No shares were issued during the year under review, or up to close of business on 30 June 2021.
The Company has authority to buy back shares in the market and may cancel or hold ordinary shares acquired by way of market purchase in treasury. On 6 April 2020 the Board announced its intention to commence a programme by the Company of purchases of its own shares in the market. The programme specifically utilised the authority given to the Board to purchase up to 14.99% of the issued share capital granted at the annual general meetings held in both 2019 and 2020.
The aggregate purchase price of all shares acquired under the programme was no greater than \$200,000 and the maximum number of ordinary shares to be purchased was 20,000. The programme was managed during the year by the Company's Portfolio Manager, Gabelli Funds, LLC.
During the year, the Company had purchased an additional 90,000 shares in the market to be held in treasury, for a total consideration of \$540,000. At the year end and at the date of this report there were accordingly 95,960 ordinary shares held in treasury (0.93% of the issued share capital).
The Directors will consider repurchasing shares in the market under an extension of the programme if they believe it to be in shareholders' interests. It is the Board's intention that any shares bought back by the Company will be held in treasury and will only be sold at prices at or above the prevailing NAV per share ensuring a positive overall effect for shareholders when shares are bought back at a discount and then sold at a price at or above the NAV per share.
The current authorities to buy back and sell shares from treasury and to issue shares will expire at the conclusion of the 2021 Annual General Meeting. The Directors are proposing that these authorities be renewed at the forthcoming Annual General Meeting.
The Company has the ability to make tender offers for shares and to make market purchases of shares. Any such tender offers or market purchases will be made entirely at the discretion of the Board, except in the case of the fifth anniversary tender offer.
Shortly before the fifth anniversary of admission, the Company will implement an offer to purchase shares for all registered shareholders entered into the loyalty register on admission and who continuously remains on the loyalty register at the time of the implementation of the fifth anniversary tender offer.
The Company has implemented a loyalty programme to incentivise long term share ownership. The loyalty programme is open to all shareholders, who are entered in the Loyalty Register, a separate register maintained by the registrar to allow a shareholder to increase its voting power after holding shares for a continuous period of at least five years. Each shareholder so registered will be entitled to subscribe for one special voting loyalty share in respect of each ordinary share held.
A shareholder may only exercise this right during the prescribed subscription period each calendar year, being between 1 and 14 December, by completing the appropriate subscription documentation and paying up the nominal value of the special voting loyalty shares. Subject to the receipt of valid subscriptions during the period and the satisfaction of certain requirements by the Company under the Companies Act and the Articles special voting loyalty shares would be issued on 31 December, or the preceding business day, should 31 December not be a business day.
Each ordinary shareholder and holder of special voting loyalty shares has the right to receive notice of, to attend, to speak at, and vote at general meetings of the Company. Each ordinary shareholder and holder of special voting loyalty shares who is present in person or by proxy at general meetings has one vote, whether on a show of hands or on a poll, in respect of each ordinary and special voting loyalty share held. At any general meeting ordinary shares and any special voting loyalty shares in the capital of the Company in issue would vote effectively one class.
The ordinary shares carry the right to receive dividends. The special voting loyalty shares are not entitled to participate in any dividend or distribution made or declared by the Company except for a fixed annual dividend equal to 0.00001% of their nominal value. On a winding up of the Company holders of special voting loyalty shares would be entitled to be repaid the capital paid up thereon pari passu with the repayment of the nominal amount of the ordinary shares. The special voting loyalty shares are not transferrable without the prior written consent of the Company.
There are no restrictions on the transfer of ordinary shares or on the exercise of voting rights attached to them, which are governed by the Company's Articles and relevant legislation.
There are no shares which carry specific rights with regard to the control of the Company.
A review of the business and details of research activities can be found within the Strategy section of this Annual Report.
As an investment company that is managed and marketed in the United Kingdom, the Company is an Alternative Investment Fund ("AIF") falling within the scope of, and subject to the requirements of, the Alternative Investment Fund Managers Directive ("AIFMD"). The Company has appointed Carne Global Fund Managers (Ireland) Limited ("Carne") as its Alternative Investment Fund Manager ("AIFM") pursuant to the AIFMD.
Carne is responsible for the portfolio management and risk management functions of the Company. The AIFM Agreement may be terminated by either party giving not less than 90 days' written notice to the other party.
Carne is entitled to receive from the Company such annual fees, accrued and payable at such times, as may be agreed in writing between itself and the Company from time to time. The fees are to be payable monthly and subject to a minimum monthly fee of ¤2,500. During the year under review the AIFM fees paid to Carne were \$53,475 (2020: \$54,332). Regulatory disclosures including the Key Investor Information Document are provided on the website. Disclosures on Remuneration as required under AIFMD can also be found on page 73.
Gabelli Funds, LLC ("Gabelli") was appointed as Portfolio Manager with effect from 15 June 2017 under a Portfolio Management Agreement (the "Agreement") with Carne and the Company under which portfolio management functions were delegated to Gabelli. The Agreement is terminable by Gabelli giving not less than 60 days' notice in writing and by Carne giving 24 months' notice in writing. Gabelli receives a management fee, payable monthly within 10 business days calculated at the rate of 0.85% of NAV accrued daily and calculated on each business day.
Gabelli is entitled to earn a performance fee under the Agreement in respect of each performance period, ending 30 June each year. For the year under review Gabelli was entitled to a performance fee of 20% of any outperformance of the net asset value total return, capped at 3% of the average NAV. For the year under review a performance fee of \$2,795,658 was paid (2020: \$248,101).
The arrangements for the provision of portfolio management and other services to the Company is considered by the Board on an ongoing basis and a formal review is conducted annually.
During the year, the Board considered the performance of Gabelli as Portfolio Manager by reference to the investment process, portfolio performance and how it had fulfilled its obligations under the terms of the Portfolio Management Agreement.
It is the opinion of the Board that the continuing appointment of Gabelli as Portfolio Manager, on the terms disclosed is in shareholders' interests as a whole. Among the reasons for this view is the depth, experience and investment process of Gabelli.
The Company conducts its affairs so that its shares can be recommended by independent financial advisers to ordinary retail investors in accordance with the FCA's rules in relation to non-mainstream pooled investments and intends to continue to do so for the foreseeable future.
The shares are excluded from the FCA's restrictions which apply to non-mainstream pooled investments because they are shares in an investment trust.
The Company appointed State Street Trustees Limited as its Depositary under a Depositary Agreement dated 30 June 2017 between Carne, Gabelli and the Company. The main role of the Depositary under the AIFMD is to act as a central custodian with additional duties to monitor the operations of the Company, including cash flows and to ensure that the Company's assets are valued appropriately. The Depositary receives a fee payable at 0.025% per annum of the gross assets of the Company.
Under the Depositary Agreement, custody services in respect of the Company's assets have been delegated to State Street Bank and Trust Company. The Custodian receives a custody fee payable by the Company at rates depending on the number of trades and the location of securities held subject to a minimum annual fee payable of not less than \$31,250. Custody fees of \$38,326 were paid during the year under review (2020: \$41,903).
The depositary agreement is subject to 90 days' written notice of termination by any party.
Computershare Investor Services Plc (the "Registrar") has been appointed as the Company's registrar pursuant to the Registrar Services Agreement. The Registrar is responsible for maintaining the Company's register of shareholders and also provides services in respect of the payment of dividends, provision of shareholder documentation and compliance with the Common Reporting Standard. Fees of \$15,525 were paid to the Registrar during the year under review (2020: \$10,838). Fees in respect of corporate actions will be agreed at the time of the corporate action.
On 12 July 2021 the Board announced the appointment of Derringtons Limited ("Derringtons") to take over as the Company Secretary from Maitland Administration Services Limited ("Maitland"). State Street Bank and Trust Company ("the Administrator") is responsible for the day to day administration of the Company including the maintenance of the Company's financial records and the calculation of the daily NAV. It is expected that Derringtons will work with the Administrator to perform the same functions as Maitland from the 2021/2022 financial year onwards.
The Maitland Company Secretarial agreement was for a minimum term of three years and terminable by the Company on not less than 90 days' written notice or by Maitland on not less than six months' notice. On 9 July 2021 the Company informed Maitland of its intention to terminate the agreement.
The Derringtons Company Secretarial agreement has no minimum term and is terminable by Derringtons or the Company on not less than one month's notice. Fees of \$62,299 were paid to Maitland during the year under review (2020: \$56,953).
Carne Global Fund Managers (Ireland) Limited is a related party to the Company as it is considered to have significant influence over the Company in its role as AIFM. AIFM fees of \$53,475 were paid to Carne during the year ended 30 June 2021 (2020: \$54,332).
Further details of related party transactions are provided in note 16 to the financial statements.
As at 30 June 2021, the Company had been advised by the following shareholders of their interests of 3% or more in the Company's ordinary issued share capital:
| Shareholder | % of Voting Rights |
|---|---|
| Associated Capital Group Inc* | 60.35% |
| Banca Generali SpA | 5.27% |
| Fondazione Cassa di Risparmio di Perugia | 4.83% |
| Victor Paullier & Cía | 4.68% |
| Pictet & Cie (Europe) SA Luxembourg | 4.03% |
| Banco di Desio e Della Brianza | 3.87% |
| LQH S.A. | 3.42% |
* Further information regarding Associated Capital Group, Inc and its related party status can be found on page 62.
As at the date of this report the Company had not been notified of any changes.
The Chairman's Statement and Portfolio Manager's report within this Annual Report contain details of likely future developments.
The financial risk management and internal control processes and policies, and exposure to the risks associated with financial instruments can be found in Note 12 to the financial statements.
The Company generated a revenue loss for the year ended 30 June 2021 of \$1,459,000 (2020: \$866,000).
The disclosures required by Listing Rule 9.8.4, where relevant to the Company, are discussed in more detail on page 64.
In order to allow the Shareholders to realise a predictable, but not assured, level of cash flow and some liquidity periodically on their investment, the Company has adopted a "managed dividend policy". This policy seeks to pay Shareholders a quarterly dividend in relation to the Net Asset Value of the Company at the time, which may be changed at any time by the Board. Between inception and 30 June 2021, the Company returned \$1.79 per share to shareholders, consistent with its dividend policy. Dividends are paid only when declared by the Board subject to the Board's assessment of the Company's financial position and only if the Company has sufficient income and distributable reserves to make the dividend payment, and the level of dividend may vary over time. As such, the portfolio's managed distribution of capital through the payment of quarterly dividends is under review as we enter the new Fiscal Year.
The Company declared and paid three quarterly interim dividends of US \$0.12 per ordinary share on each of 30 October 2020 and 28 January, and 30 April 2021 for the financial year ending 30 June 2021.
The Company's Articles can only be amended by special resolution at a general meeting of the shareholders. No amendments are proposed at the 2021 AGM.
There are no agreements the Company is party to that might be affected by a change in control of the Company. There are no agreements between the Company and its Directors for compensation for loss of office that occurs as a result of a takeover bid.
The exercise of voting rights attached to the Company's portfolio has been delegated to the Portfolio Manager.
During the year, the Manager voted on approximately 716 proposals at approximately 133 shareholder meetings on behalf of the Company. At these meetings, the Manager voted in favour of the majority of resolutions, but voted against the recommendations of management on approximately 15 resolutions. Most of the votes against were in respect of resolutions relating to super-dilutive stock option plans, which were deemed by the Investment Manager not to be in the best interests of shareholders.
The Company is categorised as a lower energy user under the HMRC Environmental Reporting Guidelines March 2019 and is therefore not required to make the detailed disclosures of energy and carbon information set out within the guidelines. The Company's energy and carbon information is therefore not disclosed in this report.
The Company has no greenhouse gas emissions to report from its operations, nor does it have responsibility for any other emissions producing sources under the Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2013.
The Company is an investment company and has no employees and does not provide goods and services in the normal course of business. Accordingly, the Directors consider that the Company is not required to make a slavery and human trafficking statement under the MSA.
The Company is an investment company and has no employees and accordingly it has no direct social, human rights or environmental impact from its operations. In carrying on its investment activities and relationship with suppliers the Company aims to conduct itself responsibly, ethically and fairly.
No political contributions or donations were made during the financial period ended 30 June 2021.
The following information to be discussed at the forthcoming Annual General Meeting is important and requires your immediate attention. If you are in any doubt about the action you should take, you should seek advice from your stockbroker, bank manager, solicitor, accountant or other financial adviser authorised under the Financial Services and Markets Act 2000 (as amended).
If you have sold or transferred all of your ordinary shares in the Company, you should pass this document, together with any other accompanying documents, including the form of proxy, at once to the purchaser or transferee, or to the stockbroker, bank or other agent through whom the sale or transfer was effected, for onward transmission to the purchaser or transferee.
The Directors currently anticipate that this year's Annual General Meeting will be open to shareholders, but reserve the right to change arrangements for the meeting at short notice. Therefore shareholders are strongly encouraged to vote by proxy and to appoint the Chairman as their proxy.
The Directors may only allot shares for cash if authorised to do so by shareholders in general meeting. Resolution 12 seeks authority for the Directors to allot shares for cash up to an aggregate nominal amount of US\$10,238 which represents 10% of the current issued share capital. The authority will expire at the conclusion of the 2022 Annual General Meeting unless renewed prior to that date.
Directors require specific authority from shareholders before allotting new shares or selling shares from treasury for cash without first offering them to shareholders in proportion to their existing holdings. Resolution 13 seeks to empower the Directors to allot new shares for cash or to sell shares held in treasury free from statutory pre-emption rights up to an aggregate nominal amount of US\$10,238, being 10% of the current issued share capital and equivalent to 1,023,820 ordinary shares of US\$0.01 each. The authority will expire at the conclusion of the 2022 Annual General Meeting unless renewed prior to that date.
Resolution 14 seeks to renew the authority previously granted to Directors to enable the Company to purchase up to 1,535,628 ordinary shares being 14.99% of the issued share capital.
The Directors will only consider repurchasing shares in the market if they believe it to be in shareholders' interests and as a means of correcting any imbalance between supply and demand for the Company's shares. Under the Listing Rules of the Financial Conduct Authority ("FCA"), the maximum price which can be paid is the higher of (i) 5% above the average market value of the ordinary shares for the five business days immediately preceding the date on which the purchase is made and (ii) the higher of the price quoted for (a) the last independent trade of, and (b) the highest current independent bid for, any number of ordinary shares on the trading venue where the purchase is carried out.
In making purchases, the Company will deal only with member firms of the London Stock Exchange. The authority will expire at the conclusion of the 2022 Annual General Meeting unless renewed prior to that date.
Resolution 15 seeks shareholder authority to call general meetings other than an AGM on 14 clear days' notice. The approval will be effective until the Company's next AGM, when it is intended that a similar resolution will be proposed. The Board will utilise this authority to provide flexibility when merited and would not use it as a matter of routine.
Your Board recommends all resolutions to shareholders as being in the best interests of the Company and its shareholders as a whole. The Directors therefore unanimously recommend that shareholders vote in favour of each resolution, as they intend to do in respect of their own beneficial holdings.
In accordance with the requirement and definitions under section 418 of the Companies Act 2006, the Directors at the date of approval of this report confirm that:
PricewaterhouseCoopers LLP, the independent external auditors of the Company, were appointed in 2017. Resolutions to reappoint PricewaterhouseCoopers LLP as the Company's auditors, and to authorise the Audit Committee to determine their remuneration will be proposed at the forthcoming AGM.
The Directors' Report was approved by the Board on 29 September 2021.
Chairman 15 October 2021
This Report sets out the role and activities of the Board and explains how the Company is governed.
As a company admitted to trading on the Specialist Fund Segment, the Board has considered the principles and provisions of the Association of Investment Companies' Code of Corporate Governance (the 'AIC Code'). The AIC Code addresses the Principles and Provisions set out in the 2018 version of the Financial Reporting Council's UK Corporate Governance Code (the 'UK Code'), as well as setting out additional provisions on issues that are of specific relevance to the Company as an investment company listed on the London Stock Exchange.
The Board considers that reporting against the principles and provisions of the AIC Code, which has been endorsed by the Financial Reporting Council, provides more relevant information to shareholders. The following analysis explains how the company has complied with the principles and provisions of the AIC Code during the financial year.
The Board of Directors also recognise the critical importance of effective corporate governance to investors, potential investors and the Company's stakeholders, and the directors therefore give priority to high standards of corporate governance.
The Board confirms that it complies with the recommendations of the AIC Code and the relevant provisions of the UK Code except as follows:
| Summary of AIC Code Provision | Compliance | Performance in year |
|---|---|---|
| Director and Board independence and independence from the Manager |
x | A formal policy and procedure ensure Board independence and the independence of the investment Manager. |
| The Chair should be independent on appointment |
x | Although the Chairman is not deemed independent for the purposes of the AIC Code, given his qualifications and investment experience, and the significant commitment being made by the Gabelli Group to the Company, the Board believes that his appointment as Chairman is in the best interests of the Company and the shareholders as a whole. |
| Appoint a Senior Independent Director ('SID') |
x | The Board does not deem it necessary to appoint a SID given the nature of its activities as a listed investment trust. |
| The key responsibilities of the SID under the UK Code are completed by the Non-executive Directors. The performance of the Chairman is appraised annually by the Non-executive Directors. |
||
| Monitor risk management and internal control systems |
x | The Company has delegated its operational management to third party service providers, the Board therefore receives reports from those parties to satisfy itself that an appropriate controls environment is maintained. These reports extend to any relevant instances of whistleblowing at each of the service providers. |
| Identification of remuneration consultant in the Annual Report |
x | The Remuneration Committee does not deem it necessary to appoint a remuneration consultant. |
The AIC Code is available on the AIC website (www.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 is available from the Financial Reporting Council's website at frc.org.uk.
The Board consists of six non-executive Directors. All Directors have a wide range of other interests and are not dependent on the Company itself. Their biographical details, which are set out in detail on pages 18 and 19, demonstrate a breadth of investment, commercial and professional experience with an international perspective.
The Board has a formal schedule of matters specifically reserved for its decision, which are categorised under various headings, including strategy and management, internal controls, strategy and policy considerations, transactions, and finance.
The provision of the UK Code which relates to the combination of the roles of the chairman and chief executive does not apply as the Company has no executive directors.
The Board meets quarterly to review investment performance, financial reports and other reports of a strategic nature. Board or Committee meetings are also held on an ad hoc basis to consider particular issues as they arise.
Representatives of the Portfolio Manager and Company Secretary attend each meeting. The Board, the AIFM, the Portfolio Manager and the Company Secretary operate in a cooperative and constructive relationship.
The Board is satisfied that other than his relationship with the Portfolio Manager, the Chairman, Marc Gabelli, does not have any appointments or interests which may create a conflict of interest with the Company's activities or interests.
The Nomination Committee reviewed the performance of the Chairman during the year and is comfortable that he continues to have sufficient time to commit to his duties, and that he performs effectively in role. The Board therefore recommends shareholders vote to re-elect the Chairman at the 2021 Annual General Meeting.
When recruiting a new Director, the Board's policy is to appoint individuals on merit. The Board believes diversity is important in bringing an appropriate range of skills, knowledge and experience to the Board and gives that consideration when recruiting new Directors.
As at 30 June 2021 there were six male Directors, of multiple nationalities and ethnicities, and no female Directors on the Board. Whilst all future board appointments will be made on merit, the Directors have committed to keep the Board's gender diversity under review with a view to improving the ratio over time.
The Board is collectively responsible for the long term success of the Company and is accountable to shareholders and the Company's wider stakeholders for the performance and governance of the Company. It is also ultimately responsible for setting and executing the Company's strategic aims, its purpose, culture and values. The authority of the Board in these areas is subject to the Articles and to such approval of the shareholders in general meeting as may be required from time to time.
The Board also ensures that the necessary resources are in place to enable the Company's objectives to be met in accordance with the Company's investment objective, and that shareholder value is maximised within a framework of proper controls.
The Directors exercise the powers conferred by the Company's Articles of Association and UK Company Law to manage the Company's interest for the benefit of shareholders and stakeholders. Further information regarding the proposed changes to those authorities this year can be found on pages 23 to 24.
As an investment company the Company's day to day responsibilities are delegated to third party service providers. The Company has no employees and the Directors are non-executive with the Portfolio Manager represented by the Chairman.
In performing its duties the Board applies the following key principles of section 172 of the Companies Act 2006, being only those relevant to the Company as a listed investment trust, to all of its decision making:
As the Board deepens and further evolves its decision making and activities to better integrate consideration of its stakeholder responsibilities, the following activities, policies and mitigations ensure their interests are protected:
| Stakeholder | Activity or mitigation in year |
|---|---|
| Shareholders | • The Company operates a Loyalty Programme to reward shareholders who retain their shares for at least five years. Further information regarding the Programme can be found on page [21]; |
| • As a listed investment trust, the Board operates policies designed to safeguard the value of shareholders' investment, in particular the Board may initiate a buyback programme whenever the Company's share price represents a discount of 7.5% or more; |
|
| • Shareholders' rights are also protected under the Company's Articles of Association which require any proposal that may materially change those rights to be subject to prior approval by a majority of shareholders in general meeting; and |
|
| • Shareholders are given opportunities to attend meetings with the Board and to also attend, ask questions and vote at the Annual General Meeting of the Company. |
|
| Suppliers | The Board regularly evaluates the performance of its key panel of third party professional service providers. The appraisals involve an opportunity for those third parties to provide 360° feedback. |
| Community & Environment | Whilst the Company's key investment objective targets outperformance through exposure to corporate transactions in the United States, the Investment Manager, Gabelli Funds, LLC operates a suite of investment policies designed to take account of Environmental, Social and Governance ('ESG') themes across all its investment strategies. These policies ensure that exposure to ESG risks is minimised for the Company's stakeholders. |
| Stakeholder | Activity or mitigation in year |
|---|---|
| Other Stakeholders | • The Board seeks to maintain the highest levels of corporate governance through compliance with the principles and provisions of both the AIC Code and, to the maximum extent practicable, the UK Code; and |
| • The Board is committed to responding promptly and transparently to any reputational or regulatory matter that might arise affecting the Company, its future prospects or its investment activities. |
The Board takes its responsibilities under the AIC Code seriously and has accordingly sought to identify and promote each of: a corporate purpose, distinct values and a culture for the Company.
However, as a listed investment trust, which has appointed third party service providers to operate its day to day business, the chosen purpose, values and culture are necessarily focused on the approach and activities of the Board of Directors.
Nevertheless, the Board prioritises the Company's primary investment objective, together with its proprietary Private Market Value with a Catalyst methodology, in defining its PMV with a CatalystTM purpose. The Company's values and culture primarily reflect those of its experienced, independent and diverse individual board members, combined with the approach and professionalism of its appointed third party service providers.
The Board regularly monitors both the performance of the Company against its investment objective and proprietary methodology; and its individual directors and service providers to ensure continuing strong performance and integration with the Board's values and culture.
As an investment vehicle the Company has no employees and accordingly it has no direct social or community impact and limited environmental impact from its operations. However, the Company believes that it is in shareholders' interests to consider human rights issues, together with environmental, social and governance factors when selecting and retaining investments.
The rules concerning the appointment, retirement and rotation of Directors are set out in the Directors' Report. The Board believes that it has a reasonable balance of skills and experience. It recognises the value of the progressive refreshing of, and succession planning for, company boards, including for the Chairman. The Board's tenure and succession policy seeks to ensure that it maintains the balance of skills and experience required.
Directors must be able to demonstrate their commitment, in terms of time, to the Company. The Board is of the view that length of service does not itself impair a Director's ability to act independently or exercise good judgement, rather, a long serving Director can continue to offer valuable perspectives and experience.
When Directors are appointed they go through an induction programme organised by the Portfolio Manager to familiarise them with the specifics of the portfolio. Directors are also provided with key information on the Company's policies, regulatory and statutory requirements and internal controls on a regular basis.
The Board has established an Audit Committee, Nomination Committee, Remuneration Committee, Management Engagement Committee and a Conflicts Committee. Each Committee has defined terms of reference and duties. A record of the meetings held during the year is set out in the table on page [28].
The Audit Committee is chaired by Marco Bianconi. Further details are provided in the report of the Audit Committee on pages 29 to 31.
The Nomination Committee is chaired by the Chairman of the Board (who would not chair the Committee when the Chairman's successor was being considered) and consists of Marc Gabelli, John Birch and Yuji Sugimoto. The Nomination Committee is responsible for reviewing Board succession, the policy on directors' tenure, the performance of the Board and its Committees and the appointment of new Directors. When voting on candidates for the appointment of new directors, only independent directors will vote.
The Remuneration Committee is chaired by James Wedderburn and consists of John Birch and Marco Bianconi. The Remuneration Committee is responsible for setting the Directors' remuneration in conjunction with the Chairman and will take into consideration the Company's peer group and the potential to appoint external remuneration consultants when making decisions.
The Management Engagement Committee is chaired by John Birch and consists of John Birch and Yuji Sugimoto. The Management Engagement Committee is responsible for ensuring that the provisions of the Portfolio Management Agreement remain competitive and in the best interest of shareholders and to review the performance of the Manager, Portfolio Manager and other third party service providers to the Company. Details of the management arrangements are set out on page 22.
The Conflicts Committee is chaired by John Birch and consists of Marco Bianconi and Yuji Sugimoto. The Conflicts Committee is responsible for considering the potential conflicts of interest that may arise in relation to the operation of the Company with regard to the Directors, the AIF Manager, the Portfolio Manager and other service providers of the Company.
The table below sets out the number of Board and Committee meetings held during the year under review and the number of meetings attended by each Director.
The Audit Committee will meet at least twice a year and all other Committees at least once a year and additionally as required.
| Director | Board1 | AC | Nom | Rem | MEC Conflict | |
|---|---|---|---|---|---|---|
| Marc Gabelli | 7/13 | – | 1/1 | – | – | – |
| Marco Bianconi | 13/13 | 9/9 | – | 2/2 | – | 1/1 |
| John Birch | 12/13 | – | 1/1 | 2/2 | 1/1 | 1/1 |
| John Newlands | 13/13 | 9/9 | – | – | – | – |
| Yuji Sugimoto | 12/13 | – | 1/1 | – | 1/1 | 1/1 |
| James Wedderburn | 13/13 | 9/9 | – | 2/2 | – | – |
1 The meetings held total includes dividend and other specific purpose approval meetings held by video conference call that not all directors were expected to attend.
The Board undertook an annual self-evaluation of its performance, that of its committees and individual Directors, including the Chairman. The reviews were led by the Chairman, in the case of the Board, and the Chairman of each committee otherwise.
Each Chairman, assisted by the Company Secretary, determined the scope and format for the review, which generally confirmed the directors' view that the Board and its governance continued to function well with few issues.
There were no significant actions arising from the evaluation process and it was agreed that the composition of the Board, at that time, reflected a suitable mix of skills and experience, and that the Board as a whole, the individual Directors and its committees were performing in accordance with the provisions of the AIC Code other than where explained in this Report.
During the year the Company has renewed and maintained appropriate Directors & Officers' insurance on behalf of the Board.
The Board has overall responsibility for the Company's systems of internal controls and for reviewing their effectiveness. In common with the majority of investment trusts, the Board has determined that the most efficient and effective management of the Company is achieved by the Directors determining the investment strategy, and the Portfolio Manager being responsible for the day-to-day investment management decisions on behalf of the Company.
Accounting, company secretarial and custodial services have also been delegated to third party service providers that are specialists in these areas, and which can provide, because of their size and specialisation, economies of scale, segregation of duties, and all that is required to provide proper systems of internal control within a regulated environment.
As the Company has no employees and its operational functions are undertaken by third parties, the Audit Committee does not consider it necessary for the Company to establish its own internal audit function. Instead, the Audit Committee examines internal control reports received from its principal service providers to satisfy itself as to the controls in place. The internal controls aim to ensure that assets of the Company are safeguarded, proper accounting records are maintained, and the financial information used within the business and for publication is reliable. The need for an internal audit function is reviewed annually by the Committee.
The system therefore manages rather than eliminates risk of failure to achieve the Company's business objectives and provides reasonable, but not absolute assurance against material misstatement or loss.
The primary medium by which the Company communicates with its shareholders is through the Annual and Half Yearly Reports which aim to provide shareholders with a clear understanding of the Company's activities and results in the relevant financial period. This information is supplemented by the daily calculation and publication of the NAV per share to a regulatory information service.
The Annual and other General Meetings provide an opportunity for shareholders to engage with the Board of Directors, and the individual directors and the Investment Manager regularly communicate with significant shareholders to discuss company updates and other key events.
All shareholders are ordinarily encouraged to attend and vote at the Company's Annual General Meeting. However, it is explained in the Notice of Annual General Meeting that whilst the Directors anticipate the meeting in 2021 being open to shareholders, the Directors reserve the right to change arrangements at short notice. Shareholders are strongly encouraged to vote by proxy and to appoint the Chairman as their proxy. The Board and representatives of the Portfolio Manager are similarly usually available at the Annual General Meeting to discuss issues affecting the Company. They will be happy to answer any questions provided in writing prior to the meeting this year.
The Notice of Annual General Meeting is set out on pages 69 and 70 and details the business of the meeting. Any item not of an entirely routine nature is explained in the Directors' Report on pages 23 and 24. The Notice of Annual General Meeting and any related papers are sent to shareholders at least 20 business days before the meeting.
A summary of the significant shareholders that have been notified to the Board as at the date of this report can be found on page 23.
The Company has zero tolerance towards bribery and is committed to carrying out business fairly, honestly and openly.
The Board takes its responsibility to prevent bribery seriously and its service providers are contacted to regularly confirm their anti-bribery policies and controls.
The Board has a zero tolerance approach to the facilitation of tax evasion.
By order of the Board
Chairman 15 October 2021
Chairman Marco Bianconi
Chairman of the Audit Committee Marco Bianconi
Marco Bianconi John Newlands James Wedderburn
As Chairman of the Audit Committee, I am pleased to present the Report of the Audit Committee for the year ended 30 June 2021.
The Company has established a separately chaired Audit Committee (the "Committee") that has written terms of reference and which meets at least twice a year in advance of the publication of both the annual and half yearly results, and otherwise as necessary.
The role of the Committee includes considering the contents of the Annual Report and Accounts and the Half Yearly Report and recommending them to the Board for approval having considered whether, taken as a whole, they are fair, balanced and understandable and provide shareholders with information to enable them to assess the Company's performance, strategy and business model.
The Committee consisted of three Directors during the year under review whose biographies are on pages 18 and 19 and the Committee composition was therefore unchanged.
The Committee as a whole has competence relevant to the investment trust sector and is able to discharge its responsibilities effectively and at least one member of the Committee, Marco Bianconi, has recent and relevant financial experience. John Newlands and James Wedderburn also have extensive experience of the investment trust sector and financial matters generally, and as such contribute strongly to the Committee's operation.
The Company's Auditors are invited to attend meetings of the Audit Committee on a regular basis. Representatives of the Portfolio Manager and other external advisors, including the Administrator, may also be invited to attend if deemed necessary by the Audit Committee.
In addition, the Committee Chairman maintains regular contact, meeting separately where required, with the external auditors, other service providers and the Chairman of the Board.
The key roles of the Audit Committee are to support the Board by ensuring the integrity of the Company's external reporting, including its financial results, through closely monitoring their preparation, together with overseeing the Company's system of internal controls, and finally maintaining an appropriate relationship with the Company's auditors. These responsibilities, and the Audit Committee's wider remit, are recorded in formal terms of reference which the Board last reviewed and approved in February 2021, when updated Terms more closely reflecting the model terms issued by the Chartered Governance Institute were agreed. The updated Terms are available from the Company's website at https://www.gabelli.co.uk/investment-products/gabellimerger-plus/.
During the year the principal activities of the Committee included:
During the year under review the Committee has also:
During the year, the Audit Committee also considered a number
of significant issues and areas of key audit risk in respect of the Annual Report and Accounts. The Audit Committee reviewed the external audit plan at an early stage and concluded that the appropriate areas of audit risk relevant to the Company had been put in place to obtain a reasonable assurance that the financial statements as a whole would be free of material misstatement.
The following table sets out the key areas of risk identified and explains how these were addressed.
| Significant issue | How the issue was addressed |
|---|---|
| COVID-19 and market volatility | The Board reviews the continuing risks arising from the COVID-19 pandemic, which affected market valuations during the financial year and continue to create uncertainty regarding the Company's future dividend income streams. The Audit Committee has also regularly reviewed the Company's exposure to systemic and company specific controls risks arising from the COVID-19 pandemic in 2021, as in the previous year. Related presentations were given by each of the Company's third party service providers as discussed on page 29. |
| Valuation and existence of investments | The AIFM performs the valuation of the Company's assets in accordance with its responsibilities under the AIFMD rules. Ownership of listed investments is verified by reconciliation to the Custodian's records. Ownership of CFDs is verified by reconciliation to the counterparty's records. The Directors receive reports, and an annual confirmation from the Depository who has responsibility for overseeing the operations of the Company including verification of the existence and valuation of investments. |
| Recognition of income | Income received is accounted for in line with the Company's accounting policies, as set out on pages 47 and 48, and reviewed by the Committee. |
| Compliance with Section 1158 of the Corporation Tax Act 2010 | The Committee regularly considers the controls in place to ensure the regulations for ensuring investment trust status are observed at all times receiving supporting documentation from Gabelli Funds LLC and State Street Bank and Trust Company. |
| Maintaining internal controls | The Committee receives regular reports on internal controls from State Street Bank and Trust Company and Gabelli Funds and has access to the relevant personnel of both State Street and Gabelli Funds who have a responsibility for risk management and internal audit. |
| Performance fee | The performance fee calculation is prepared by the Administrator and reviewed by the Manager and the Committee before recommendation to the Board, all with reference to the portfolio management agreement. |
| Resource Risk | The Company has no employees and its day to date activities are delegated to third party suppliers. The Board monitors the performance of third party suppliers on an ongoing basis. |
| Governance | The Company has developed a risk register which identifies the risks facing the Company, their likelihood, potential impact and the controls established for mitigation. The risk register and the operation of key controls by the Portfolio Manager and third party service providers is reviewed on a regular basis by the Committee. |
The Committee conducted a review of PricewaterhouseCoopers LLP's independence and audit process effectiveness as part of its review of the financial reporting for the year ended 30 June 2021 and separately completed a market benchmarking exercise in respect of the external audit. In considering the effectiveness, the Committee reviewed the audit plan, the level of materiality, key financial reporting risks, and the auditors' findings.
The Committee also considered the execution of the audit against the plan, as well as the auditors reporting to the Committee in respect of the financial statements for the year. Based on this, the Committee were satisfied that the quality of the external audit process had been good, with appropriate focus and challenge on the key audit risks.
The Committee advises the Board on the appointment of the external auditors and on their remuneration. It keeps under review the cost effectiveness and the independence and objectivity of the external auditors, mindful of controls in place to ensure the latter. To this end, the Committee has implemented a policy on the engagement of the external auditors to supply non-audit services.
The Committee was satisfied that the objectivity and independence of the auditors was not impaired as no non audit services were undertaken during the year. Accordingly, the Committee recommended to the Board that shareholder approval be sought at the forthcoming AGM for the appointment of PricewaterhouseCoopers LLP as the Company's auditors for the ensuing financial year, and for the Committee to determine the auditors' remuneration.
PricewaterhouseCoopers LLP was appointed as auditors with effect from the Company's launch in July 2017. The Company is required to put the external audit out to tender at least every ten years, and at least every twenty years to change the auditors. The Company will be required to put the audit out to tender, at the latest following the 2027 year end.
The Audit Committee will consider annually the need to tender as a consequence of audit quality or independence. There are no contractual obligations that restrict the Company's choice of auditors.
During the year ended 30 June 2021 £0 was paid to the auditors for non-audit services (2020: £0). The auditors are required to rotate the Company's Lead Engagement Partner every five years. Kevin Rollo was appointed as the current Audit Engagement Partner during the year whilst Colleen Local, the Audit Engagement Partner since 2017 took a period of leave. It expected that Colleen will resume her appointment on returning to PricewaterhouseCoopers LLP, having then been the Company's Audit Partner for approaching four years. Kevin Rollo has successfully overseen the engagement with the support of a strengthened audit team for the financial year under review.
As the Company has no employees and its operational functions are undertaken by third parties, the Committee does not consider it necessary for the Company to establish its own internal audit function. Instead, the Committee examines internal control reports received from its principal service providers to satisfy itself as to the controls in place.
The internal controls aim to ensure that assets of the Company are safeguarded, proper accounting records are maintained, and the financial information used within the business and for publication is reliable. The need for an internal audit function is reviewed annually by the Committee.
The Company has no employees; therefore no policies relating to whistleblowing, anti-bribery, or corruption are considered necessary. Notwithstanding this, the Company seeks at all times to conduct its business with the highest standards of integrity and honesty. Gabelli Funds, LLC is committed to complying with all applicable legal and regulatory requirements relating to accounting and auditing controls and procedures. Staff members of Gabelli Funds, LLC are encouraged to report complaints and concerns regarding accounting or auditing matters through available channels described in the Portfolio Manager's Whistleblower Policy.
Marco Bianconi Chairman of the Audit Committee 15 October 2021
The Board presents the Directors' Remuneration Report which has been prepared in accordance with the requirements of Sections 420-422 of the Companies Act 2006 and Schedule 8 to the Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013. The law requires the Company's auditors to audit certain of the disclosures provided. Where disclosures have been audited this is indicated.
This Report describes how the Board has applied the principles relating to Directors' remuneration. The Company's Remuneration Policy was originally approved by shareholders at the AGM in 2018 and shareholders approved a version of the Remuneration Policy with minor further updates at the AGMs in 2019 and last year, 2020, in accordance with section 439A of the Companies Act 2006. Such policy would therefore ordinarily remain in place until further approved by shareholders in 2023. All future amendments to the Remuneration Policy are required to be made by way of an ordinary resolution put to shareholders at a General Meeting.
Following the recommendation of the Remuneration Committee the Remuneration Policy was amended in 2019 to reflect that a portion of the annual Directors' fees would be payable in Ordinary Shares of the Company, such amount to be determined by the Board at its discretion. In 2020, the Remuneration Policy was updated to increase the overall aggregate limit on fees payable to Directors from \$150,000 to \$180,000.
The Company has established a Remuneration Committee which meets at least once a year. Further details of the membership are provided in the Corporate Governance Statement on pages 40 and 41.
| Policy Table | |
|---|---|
| Fixed fee element | Remuneration consists of a fixed fee each year and the Directors of the Company are entitled to such rates of annual fees as the Board at its discretion determines. Following approval at the 2019 Annual General Meeting, on an annual basis part of that fee, up to a monetary limit determined by the Board at its discretion, was to be paid |
| to the Directors in the form of Ordinary Shares in the Company. Owing to complexities surrounding share issuance by an investment trust, and following legal advice, the incremental compensation will be paid in cash, in the amount of \$10,000 per annum, per Director. |
|
| Discretionary element | In accordance with the Company's Articles of Association, if a Director is requested to perform extra or special services, they will be entitled to receive such additional remuneration as the Board considers appropriate. |
| Expenses | In accordance with the Company's Articles of Association the Directors are also entitled to be reimbursed for out-of-pocket expenses and any other reasonable expenses incurred in the proper performance of their duties. |
| Purpose and link to strategy | Directors' fees are set to: |
| • be sufficient to attract and retain individuals of a high calibre with suitable knowledge and experience to promote the long term success of the Company; |
|
| • reflect the time spent by the Directors working on the Company's behalf and representing the Company; |
|
| • reflect the responsibilities borne by the Directors; |
|
| • recognise the greater time commitment and responsibility required for the positions of Chairman of the Board and the Chairman of the Audit Committee through appropriate fee supplements for each role. |
|
| Operation | Fees payable to the Directors will be reviewed annually. A number of factors will be considered to ensure that the fees are set at an appropriate level. These will include the average rate of inflation during the period since the last fee increase, the level of Directors' remuneration for other investment trusts of a similar size and complexity of the Directors' responsibilities. |
| Maximum | The total remuneration paid to the non-executive Directors is subject to an annual aggregate limit of US\$180,000 in accordance with the Company's Articles of Association, following approval by shareholders at the AGM in 2020. Any further changes to this limit will require Shareholder approval by ordinary resolution. |
The Company has no employees to consult in drawing up the policy. There are no performance related elements to the Directors' fees.
To ensure fees are set at an appropriate level, the Company Secretary provides a comparison of the Directors' remuneration with other investment trusts of a similar size and/or mandate, as well as taking into account any data published by the Association of Investment Companies. This comparison, together with consideration of any alteration in non-executive Directors' responsibilities, is used to review whether any change in remuneration is necessary. The review of fees is performed on an annual basis.
The fees paid to Directors on an annual basis during the year to 30 June 2021 are set out below.
| Remuneration | Fees per annum US\$ |
|---|---|
| Director of the Board | 30,000 |
| Additional fee for the Chairman of the Board | 1,000 |
| Additional fee for the Chairman of the Audit Committee |
5,000 |
| Additional fee for the members of the Audit Committee |
1,000 |
Following a review in September 2021, the Committee agreed that the Directors' fee would not increase for the year ending 30 June 2022.
Any remuneration arrangements for new directors will be determined by the Committee in accordance with the Remuneration Policy, and would also be expected to mirror the above fee structure.
The additional fees shown in the table above paid to the Chairman of the Board (albeit Mr Gabelli waived his fee) and the Chairman and members of the Audit Committee during the year ended 30 June 2021 [also remain unchanged] for the year ending 30 June 2022.
In accordance with the requirements of the Companies Act 2006 shareholder approval for the remuneration report will be sought at the 2021 AGM. Shareholders will have the opportunity to express their views and raise any queries on the policy either at or in advance of this meeting. The AGM is currently anticipated to be open to shareholders, however, if the AGM is closed to shareholders wishing to attend in person for any reason, there will be an opportunity for questions to be lodged for a response from the Board in parallel to the meeting being held.
At the AGM held on 4 December 2020, of the votes cast, 100% were in favour of (or granted discretion to the Chairman who voted in favour of) each of the resolutions to approve the Directors' Remuneration Report and the recommended amendments to the Directors' Remuneration Policy.
Details of voting on the Remuneration Report at the 2021 AGM will be provided in the annual report for the year ending 30 June 2022.
The single total remuneration figure for each Director who served during the year to 30 June 2021 is set out below with prior comparison. As the Company has no employees the table below sets out the total remuneration costs paid by the Company.
| Year to 30 June 2021 | Year to 30 June 2020 | |||||
|---|---|---|---|---|---|---|
| Fees | Shares1 | Total | Fees | Shares1 | Total | |
| Marc Gabelli | – | – | – | – | – | – |
| Marco Bianconi | 25,000 | 11,167 | 36,167 | 24,167 | 5,000 | 29,167 |
| John Birch | 20,000 | 11,167 | 28,746 | 19,167 | 5,000 | 24,167 |
| Alexander Hammond Chambers2 |
– | – | – | 1,423 | – | 1,423 |
| Kuni Nakamura2 | – | – | – | 1,518 | – | 1,518 |
| John Newlands | 21,000 | 11,167 | 29,569 | 21,558 | 5,000 | 26,558 |
| Yuji Sugimoto | 20,000 | 11,167 | 28,746 | 19,167 | 5,000 | 24,167 |
| James Wedderburn |
21,000 | 11,167 | 29,569 | 20,167 | 5,000 | 25,167 |
| Total | 107,000 | 55,835 162,835 | 107,167 25,000 132,167 |
1 Represents the fee supplement originally to be paid in shares, on a prorata basis for the period 1 January to 30 June 2020 following shareholder approval in 2019. Owing to complexities surrounding the share issuance scheme approved at the 2019 Annual General Meeting, and following legal advice, the incremental compensation will be paid in cash, in the amount of \$10,000 per annum, per Director. The amount presented for the year ended 30 June 2021 includes cash payments equivalent to and in lieu of dividends that would have been paid between 1 January 2020 and 30 June 2021, in the amount of \$1,167 per Director. See page 32 for further details.
2 Retired 5 August 2019.
Mr Gabelli waived the entitlement to his fees as Chairman. Mr Gabelli devotes a portion of his time employed by Gabelli to serve as Chairman of the Company. An apportionment of his remuneration on a time served basis from employment by an affiliate of the Portfolio Manager would materially equate to the fees received by the other Directors of the Company for similar qualifying services.
Directors' appointments may be terminated without notice. In this event, the Director will only be entitled to fees accrued at the date of termination, together with reimbursement of any expenses properly incurred to that date.
None of the Directors are entitled to post-employment benefits or termination benefits.
No discretionary payments were made during the year to 30 June 2021.
The interests of the Directors (including their connected persons), who are not required to purchase shares, in the Company's share capital are as follows:
| Ordinary shares of \$0.01 | |||
|---|---|---|---|
| Directors | As at 30 June 2021 |
As at 30 June 2020 |
|
| Marc Gabelli | 20,000 | 10,000 | |
| Marco Bianconi | 1,200 | 1,200 | |
| John Birch | 1,000 | 1,000 | |
| John Newlands | – | – | |
| Yuji Sugimoto | – | – | |
| James Wedderburn | 1,500 | 1,500 | |
| Total | 23,700 | 13,700 |
Mr Gabelli purchased an additional 10,000 shares in August 2020, taking his aggregate interests to 20,000, between 30 June 2021 and the date of this report, Mr. Gabelli purchased an additional 100 shares, taking his aggregate interests to 20,100.
None of the Directors has been granted, or exercised, any options or rights to subscribe for the Ordinary Shares of the Company.
A graph showing the Company's NAV performance measured by total shareholder return compared with the Credit Suisse Merger Arb Liquid Index, the S&P Merger Arb Index, the 13 week US Treasury Bills, and the ETF MNA, since launch, can be found on page 14.
The table below shows the Directors' remuneration (2021: 162,835 and 2020: 132,167) in comparison with Portfolio management fees paid, dividends paid to shareholders and the Company's annual revenues.
| 2021 | 2020 | |||
|---|---|---|---|---|
| Directors' remuneration as a % of | \$000 | % | \$000 | % |
| Dividends to Shareholders | 4,936 | 3.3 | 4,960 | 2.7 |
| Portfolio management fees | 852 | 19.1 | 840 | 15.7 |
| Revenues | 327 | 49.8 | 925 | 14.3 |
The Directors confirm that the Directors' Remuneration Report set out above provides a fair and reasonable summary for the financial year ended 30 June 2021 of:
The Directors' Remuneration Report was approved by the Board on 29 September 2021 and is signed on its behalf by:
15 October 2021
The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulation.
Company Law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the financial statements in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 ('IFRS'). 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 the financial statements, the Directors are required to:
The Directors are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
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 the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006.
The Directors are responsible for the maintenance and integrity of the Company's website.
Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
The Directors consider that the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy.
In the case of each Director in office at the date the Director's Report is approved:
By order of the Board
Marc Gabelli Chairman of the Board 15 October 2021
In our opinion, Gabelli Merger Plus+ Trust plc's financial statements:
We have audited the financial statements, included within the Annual Report, which comprise: the Statement of Financial Position as at 30 June 2021; the Statement of Comprehensive Income, the Statement of Cash Flows and, the Statement of Changes in Equity for the year then ended; and the notes to the financial statements, which include a description of the significant accounting policies.
Our opinion is consistent with our reporting to the Audit Committee.
As explained in note 2(a) to the financial statements, the company, in addition to applying international accounting standards in conformity with the requirements of the Companies Act 2006, has also applied international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union.
In our opinion, the company financial statements have been properly prepared in accordance with international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union.
We conducted our audit in accordance with International Standards on Auditing (UK) ("ISAs (UK)") and applicable law. Our responsibilities under ISAs (UK) are further described in the Auditors' responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
We remained independent of the company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, which includes the FRC's Ethical Standard, as applicable to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.
To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC's Ethical Standard were not provided.
We have provided no non-audit services to the company in the period under audit.
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements.
Key audit matters are those matters that, in the auditors' professional judgement, were of most significance in the 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) identified by the auditors, including 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, and any comments we make on the results of our procedures thereon, 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.
This is not a complete list of all risks identified by our audit.
The key audit matters below are consistent with last year.
| Key audit matter | How our audit addressed the key audit matter |
|---|---|
| Valuation and existence of investments Refer to page 47 (Accounting Policies, Note 1(g)) and page 48 (Notes to the Financial Statements, Note 2). The Company's investments were US\$50m as of 30 June 2020 and have increased to US\$92m as of 30 June 2021. The investment portfolio at year-end consisted of listed equity investments and derivatives (contracts for |
We assessed the accounting policy for the valuation of investments for compliance with accounting standards and performed testing to check that investments are accounted for in accordance with this stated accounting policy. |
| We tested the valuation of the listed equity investments by agreeing the prices used in the valuation to independent third party sources. |
|
| difference). We focused on the valuation and existence of investments because investments represent the |
We tested the existence of the investment portfolio by agreeing listed equity investment holdings to an independent custodian confirmation. |
| principal element of the net asset value as disclosed in the Statement of Financial Position in the financial statements. |
For derivatives, we tested the valuation of these investments using valuation techniques. We tested existence of derivatives by obtaining a direct confirmation from the respective counterparty. |
| We also focused on the accounting policy for the valuation of investments as set out in the accounting standards as incorrect application could indicate a misstatement in the valuation of investments. |
We noted no issues to report. |
| Accuracy, occurrence and completeness of dividend income |
Refer to page 47 (Accounting Policies). The Company's dividend income for the year is US\$0.33m, down from US\$0.93 in 2020. We focused on the accuracy, occurrence and completeness of dividend income as incomplete or inaccurate income could have a material impact on the Company's net asset value and dividend cover.
We also focused on the accounting policy for income recognition and its presentation in the Statement of Comprehensive Income as set out in the requirements of The Association of Investment Companies Statement of Recommended Practice (the "AIC SORP") as incorrect application could indicate a misstatement in income recognition.
We found that the accounting policies implemented were in accordance with accounting standards and the AIC SORP, and that income has been accounted for in accordance with the stated accounting policy.
We tested the accuracy of dividend receipts by agreeing the dividend rates from investments to independent market data.
To test for occurrence, we confirmed that a sample of dividends recorded had occurred in the market, and traced a sample of cash payments to bank statements.
To test for completeness, we tested that the appropriate dividends had been received in the year by reference to independent data of dividends declared for all listed investments during the year.
We also tested the allocation and presentation of dividend income between the revenue and capital return columns of the Income Statement in line with the requirements set out in the AIC SORP by confirming reasons behind dividend distributions.
No material issues were identified.
Consideration of the impact of COVID-19
Refer to the Chairman's Statement (page 3), Principal Risks (page 15), Going Concern (page 20), Viability Statement (page 17) and the Portfolio Managers' Review (page 8), which disclose the impact of the COVID-19 coronavirus pandemic.
From a small number of cases of an unknown virus in 2019, the COVID-19 viral infection has become a global pandemic. It has caused disruption to supply chains and travel, slowed global growth and caused volatility in global markets and in exchange rates during the first half of 2020 and to date. The Company's net assets were US\$96m as of 30 June 2020 and have increased to US\$102m as of 30 June 2021.
The Directors have prepared the financial statements of the Company on a going concern basis, and believe this assumption remains appropriate. This conclusion is based on the assessment that, notwithstanding the significant market uncertainties, they are satisfied that the Company has adequate resources to continue in operational existence for the foreseeable future and that the Company and its key third party service providers have in place appropriate business continuity plans and will be able to maintain service levels through the coronavirus pandemic.
We evaluated the Directors' assessment of the impact of the COVID-19 pandemic on the Company by:
We obtained and evaluated the Directors' going concern assessment which reflects conditions up to the point of approval of the Annual Report by undertaking the following, outlined below:
Our conclusions relating to other information are set out in the 'Reporting on other information' section of our report.
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account the structure of the company, the accounting processes and controls, and the industry in which it operates.
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In particular, we looked at where the Directors made subjective judgements, for example in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain.
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
| Overall company materiality | US\$1,017,250 (2020: US\$963,640). |
|---|---|
| How we determined it | 1% of net assets |
| Rationale for benchmark applied | We believe that net assets is the primary measure used by shareholders in assessing the performance of the Company and is a generally accepted auditing benchmark for investment trust audits. |
We use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds overall materiality. Specifically, we use performance materiality in determining the scope of our audit and the nature and extent of our testing of account balances, classes of transactions and disclosures, for example in determining sample sizes. Our performance materiality was 75% of overall materiality, amounting to US\$762,938.00 for the company financial statements.
In determining the performance materiality, we considered a number of factors - the history of misstatements, risk assessment and aggregation risk and the effectiveness of controls - and concluded that an amount in the middle of our normal range was appropriate.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above \$50,863 (2020: \$48,183) as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.
Our evaluation of the directors' assessment of the company's ability to continue to adopt the going concern basis of accounting included:
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 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.
However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to the company's ability to continue as a going concern.
In relation to the directors' reporting on how they have 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.
The other information comprises all of the information in the Annual Report other than the financial statements and our auditors' report thereon. The directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon.
In connection with our audit of the financial statements, 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 audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the financial statements or a material misstatement of the other information. 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 based on these responsibilities.
With respect to the Strategic report and Director's Report, we also considered whether the disclosures required by the UK Companies Act 2006 have been included.
Based on our work undertaken in the course of the audit, the Companies Act 2006 requires us also to report certain opinions and matters as described below.
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic report and Director's Report for the year ended 30 June 2021 is consistent with the financial statements and has been prepared in accordance with applicable legal requirements.
In light of the knowledge and understanding of the company and its environment obtained in the course of the audit, we did not identify any material misstatements in the Strategic report and Director's Report.
In our opinion, the part of the Directors' Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006.
The Listing Rules require us to review the directors' statements 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. Our additional responsibilities with respect to the corporate governance statement as other information are described in the Reporting on other information section of this report.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the corporate governance statement, included within the Corporate Governance Report is materially consistent with the financial statements and our knowledge obtained during the audit, and we have nothing material to add or draw attention to in relation to:
Our review of the directors' statement regarding the longer-term viability of the group was substantially less in scope than an audit and only consisted of making inquiries and considering the directors' process supporting their statement; checking that the statement is in alignment with the relevant provisions of the UK Corporate Governance Code; and considering whether the statement is consistent with the financial statements and our knowledge and understanding of the company and its environment obtained in the course of the audit.
In addition, 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:
We have nothing to report in respect of our responsibility to report when the directors' statement relating to the company's compliance with the Code does not properly disclose a departure from a relevant provision of the Code specified under the Listing Rules for review by the auditors.
As explained more fully in the Statement of Directors' Responsibilities in respect of the Financial Statements, the directors are responsible for the preparation of the financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The directors are also 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.
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.
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 auditors' 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.
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.
Based on our understanding of the company and industry, we identified that the principal risks of non-compliance with laws and regulations related to breaches of section 1158 of the Corporation Tax Act 2010 (see page 30 of the Annual Report), and we considered the extent to which non-compliance might have a material effect on the financial statements. We also considered those laws and regulations that have a direct impact on the financial statements such as the Companies Act 2006. We evaluated management's incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls), and determined that the principal risks were related to posting of inappropriate journal entries to increase income or to overstate the value of investments and increase the net asset value of the Company.
Audit procedures performed by the engagement team included:
There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of noncompliance with laws and regulations that are not closely related to events and transactions reflected in the financial statements. Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion.
Our audit testing might include testing complete populations of certain transactions and balances, possibly using data auditing techniques. However, it typically involves selecting a limited number of items for testing, rather than testing complete populations. We will often seek to target particular items for testing based on their size or risk characteristics. In other cases, we will use audit sampling to enable us to draw a conclusion about the population from which the sample is selected.
A further description of our responsibilities for the audit of the financial statements is located on the FRC's website at: www.frc.org. uk/auditorsresponsibilities. This description forms part of our auditors' report.
This report, including the opinions, has been prepared for and only for the company's members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
Under the Companies Act 2006 we are required to report to you if, in our opinion:
We have no exceptions to report arising from this responsibility.
Following the recommendation of the Audit Committee, we were appointed by the members on 1 July 2017 to audit the financial statements for the year ended 30 June 2018 and subsequent financial periods. The period of total uninterrupted engagement is 4 years, covering the years ended 30 June 2018 to 30 June 2021.
Kevin Rollo (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors London
15 October 2021
| Year ended 30 June 2021 | Year ended 30 June 2020 | ||||||
|---|---|---|---|---|---|---|---|
| Income | Notes | Revenue \$000 |
Capital \$000 |
Total \$000 |
Revenue \$000 |
Capital \$000 |
Total \$000 |
| Investment income | 5 | 327 | – | 327 | 925 | – | 925 |
| Total investment income | 327 | – | 327 | 925 | – | 925 | |
| Gains/(losses) on investments | |||||||
| Net realised and unrealised gains on investments | 3, 14 | – | 15,435 | 15,435 | – | 2,318 | 2,318 |
| Net realised and unrealised currency (losses)/gains | – | (142) | (142) | – | 144 | 144 | |
| Net gains on investments | – | 15,293 | 15,293 | – | 2,462 | 2,462 | |
| Total income and gains on investments | 327 | 15,293 | 15,620 | 925 | 2,462 | 3,387 | |
| Expenses | |||||||
| Portfolio management fee | 6 | (852) | – | (852) | (840) | – | (840) |
| Performance fee | 6, 13 | – | (2,796) | (2,796) | – | (248) | (248) |
| Other expenses | 6 | (901) | (174) | (1,017) | (886) | (352) | (1,238) |
| Total expenses | (1,753) | (2,970) | (4,665) | (1,726) | (600) | (2,326) | |
| (Loss)/profit before taxation | (1,426) | 12,323 | 10,955 | (801) | 1,862 | 1,061 | |
| Taxation on ordinary activities | 8 | (33) | – | (33) | (65) | – | (65) |
| (Loss)/profit for the year | (1,459) | 12,323 | 10,922 | (866) | 1,862 | 996 | |
| (Loss)/Earnings per share (basic and diluted) | 9 | (\$0.14) | \$1.20 | \$1.06 | (\$0.08) | \$0.18 | \$0.10 |
The total column of this statement represents the Statement of Comprehensive Income prepared in accordance with International Financial Reporting Standards ("IFRS"). The supplementary revenue return and capital return columns are both prepared under guidance issued by the Association of Investment Companies. All items in the above statement derive from continuing operations.
No operations were acquired or discontinued during the year ended 30 June 2021.
The Company does not have any income or expense that is not included in net profit for the year. Accordingly, the net profit for the period is also the total comprehensive income for the year, as defined in IAS1 (revised).
The notes on pages 47 to 63 form part of these financial statements.
| Dividends paid | 7 | – | (4,936) | – | – | (4,936) |
|---|---|---|---|---|---|---|
| Profit/(loss) for the period after tax on ordinary activities | – | – | 12,323 | (1,459) | 10,864 | |
| Ordinary shares bought back into treasury | – | – | (543) | – | (543) | |
| Balance as at 1 July 2020 | 103 | 88,912 | 9,279 | (1,954) | 96,340 | |
| Year ended 30 June 2021 Note |
Called up Share Capital \$000 |
Special Distributable Reserve* \$000 |
Year ended 30 June 2021 Capital Reserve \$000 |
Revenue Reserve* \$000 |
Total \$000 |
| Balance as at 30 June 2020 | 103 | 88,912 | 9,279 | (1,954) | 96,340 | |
|---|---|---|---|---|---|---|
| Dividends paid | 7 | – | (4,960) | – | – | (4,960) |
| Profit/(loss) for the period after tax on ordinary activities | – | – | 1,862 | (866) | 996 | |
| Ordinary shares bought back into treasury | – | – | (42) | – | (42) | |
| Balance as at 1 July 2019 | 103 | 93,872 | 7,459 | (1,088) | 100,346 | |
| Year ended 30 June 2020 | Note | Called up Share Capital \$000 |
Special Distributable Reserve* \$000 |
Year ended 30 June 2020 Capital Reserve \$000 |
Revenue Reserve* \$000 |
Total \$000 |
* The Revenue Reserve and Special Distributable Reserve are distributable. The amount of the Revenue Reserve and Special Distributable Reserve that is distributable is not necessarily the full amount of the reserves as disclosed within these financial statements. As at 30 June 2021, the net amount of reserves that are distributable is \$80,563,000 (2020: \$86,958,000).
| As at 30 June 2021 | As at 30 June 2020 | ||||
|---|---|---|---|---|---|
| Note | \$000 | \$000 | \$000 | \$000 | |
| Non-current assets | |||||
| Investments held at fair value through profit or loss | 3 | 98,369 | 56,481 | ||
| Current assets | |||||
| Cash and cash equivalents | 10 | 12,405 | 45,074 | ||
| Receivable for investment sold | 2,622 | 3,935 | |||
| Other receivables | 15 | 147 | 68 | ||
| 15,174 | 49,077 | ||||
| Current liabilities | |||||
| Portfolio management fee payable | (82) | (67) | |||
| Offering fees payable | (52) | (52) | |||
| Performance fee payable | (2,796) | (248) | |||
| Payable for investment purchased | (1,822) | (2,265) | |||
| Other payables | 15 | (314) | (237) | ||
| Net current assets | 10,108 | 46,208 | |||
| Non-current liabilities | |||||
| Investments at fair value through profit or loss | 3 | (6,752) | (6,349) | ||
| Net assets | 101,725 | 96,340 | |||
| Share capital and reserves | |||||
| Called-up share capital | 11 | 103 | 103 | ||
| Special distributable reserve* | 83,976 | 88,912 | |||
| Capital reserve | 21,059 | 9,279 | |||
| Revenue reserve* | (3,413) | (1,954) | |||
| Total shareholders' funds | 101,725 | 96,340 | |||
| Net asset value per ordinary share | 9 | \$9.94 | \$9.33 |
* The Revenue Reserve and Special Distributable Reserve are distributable. The amount of the Revenue Reserve and Special Distributable Reserve that is distributable is not necessarily the full amount of the reserves as disclosed within these financial statements. As at 30 June 2021, the net amount of reserves that is distributable are \$80,563,000 (2020: \$86,958,000).
| Year ended Year ended 30 June 2021 30 June 2020 |
||||
|---|---|---|---|---|
| \$000 | \$000 | \$000 | \$000 | |
| Cash flows from operating activities | ||||
| Profit before tax | 10,897 | 1,061 | ||
| Adjustments for: | ||||
| Gains on investments | (15,293) | (2,462) | ||
| Cash flows from operating activities | ||||
| Purchases of investments* | (276,928) | (266,640) | ||
| Sales of investments* | 250,878 | 293,347 | ||
| Decrease/(increase) in receivables | 904 | (1,524) | ||
| Increase/(decrease) in payables | 2,197 | (1,834) | ||
| Dividend income | 330 | 651 | ||
| Foreign withholding taxes on dividends | (33) | (65) | ||
| Currency (loss)/gain on cash equivalents | (142) | 144 | ||
| Net cash flows from operating activities | (27,190) | 22,678 | ||
| Cash flows from financing activities | ||||
| Shares bought back for cash | (543) | (42) | ||
| Dividends paid | (4,936) | (4,960) | ||
| Net cash flows from financing activities | (5,479) | (5,002) | ||
| Net (decrease)/increase in cash and cash equivalents | (32,669) | 17,676 | ||
| Cash and cash equivalents at the start of the period | 45,074 | 27,398 | ||
| Cash and cash equivalents at the end of the period** | 12,405 | 45,074 |
* 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.
** As at 30 June 2021, \$11,697,439 was held as collateral at UBS Securities and is restricted.
Gabelli Merger Plus+ Trust Plc is registered in England and Wales under Company number 10747219.
The financial statements on pages 36 to 64 were approved by the Board of Directors on 15 October 2021 and signed on its behalf by
Marc Gabelli Chairman
Gabelli Merger Plus+ Trust Plc (the "Company") is a closed-ended public limited company incorporated in the United Kingdom on 28 April 2017 with registered number 10747219. The Company commenced operation on 19 July 2017 and intends to conduct its affairs so as to qualify, at all times, as an investment trust for the purposes of section 1158 of the Corporation Tax Act 2010 (as amended).
(a) Basis of preparation – The financial statements of Gabelli Merger Plus+ Trust Plc have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 ('IFRS') and international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union. The financial statements have been prepared under the historical cost convention, as modified by the revaluation of financial assets and financial liabilities (including derivative financial instruments) at fair value through profit or loss.
The principal accounting policies adopted by the Company are set out below. Where presentational guidance set out in the Statement of Recommended Practice ('SORP') for investment trusts issued by the Association of Investment Companies ('AIC') in October 2019 is consistent with the requirements of IFRS, the Directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP.
Special dividends are credited to capital or revenue, according to the circumstances. Scrip dividends are treated as unfranked investment income; any excess in value of the shares received over the amount of the cash dividend is recognised as a capital item in the Statement of Comprehensive Income.
Interest income is accounted for on an accrual basis by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset's net carrying amount.
(f) Expenses – The management fees are allocated to revenue in the Statement of Comprehensive Income. Interest receivable and payable and management expenses are treated on an accruals basis. All other expenses are charged to revenue except where they directly relate to the acquisition or disposal of an investment, in which case, they are added to the cost of the investment or deducted from the sale proceeds.
The formation and initial expenses of the Company are allocated to capital.
(g) Investments – Investments, including short sales of equities, have been designated upon initial recognition at fair value through profit or loss. Investments are recognised and de-recognised at trade date where a purchase or sale is under a contract whose terms require delivery within the time frame established by the market concerned, and are initially measured at fair value. Subsequent to initial recognition, investments are valued at fair value. Movements in the fair value of investments and gains/ losses on the sale of investments are taken to the Statement of Comprehensive Income as capital items.
The Company's investments are classified as held at fair value through profit or loss in accordance with applicable International Financial Standards.
Financial assets and financial liabilities are recognised in the Statement of Financial Position when the Company becomes a party to the contractual provisions of the instrument. The Company shall offset financial assets and financial liabilities if it has a legally enforceable right to set off the recognised amounts and interests and intends to settle on a net basis. Financial assets and liabilities are derecognised when the Company settles its obligations relating to the instrument.
Contracts for Difference (CFDs)
CFDs are recognised in the Statement of Financial Position at the accumulated unrealised gain or loss as an asset or liability, respectively. This represents the difference between the nominal book cost and market value of each position held. Movements in the unrealised gains/losses are taken to the Statement of Comprehensive Income as capital items.
The financial assets measured at fair value through profit or loss in the financial statements are grouped into the fair value hierarchy as follows:
| As at 30 June 2021* | ||||
|---|---|---|---|---|
| Level 1 \$000 |
Level 2 \$000 |
Level 3 \$000 |
Total \$000 |
|
| Financial assets at fair value through profit or loss | ||||
| Quoted equities | 92,205 | 5,498 | – | 97,703 |
| Contingent value rights | – | 278 | – | 278 |
| Derivatives – CFDs | – | 388 | – | 388 |
| Gross fair value | 98,369 | |||
| Derivatives – CFDs | – | (1,892) | – | (1,892) |
| Quoted equities - shorts | (4,860) | – | – | (4,860) |
| Net fair value | 87,345 | 4,272 | – | 91,617 |
* There were no transfers between levels during the year.
| As at 30 June 2020 | ||||
|---|---|---|---|---|
| Level 1 \$000 |
Level 2 \$000 |
Level 3 \$000 |
Total \$000 |
|
| Financial assets at fair value through profit or loss | ||||
| Quoted equities | 48,917 | 6,716 | – | 55,633 |
| Contingent value rights | – | 243 | 42 | 285 |
| Derivatives | – | 563 | – | 563 |
| Gross fair value | 56,481 | |||
| Derivatives | – | (350) | – | (350) |
| Quoted equities - shorts | (5,999) | – | – | (5,999) |
| Net fair value | 42,918 | 7,172 | 42 | 50,132 |
| Year ended | Year ended | |
|---|---|---|
| 30 June 2021 \$000 |
30 June 2020 \$000 |
|
| Opening book cost | 59,509 | 74,893 |
| Opening investment holding losses | (9,377) | (372) |
| Opening market value | 50,132 | 74,521 |
| Additions at cost | 276,928 | 266,640 |
| Disposals proceeds received | (250,878) | (293,347) |
| Gains on investments | 15,435 | 2,318 |
| Market value of investments | 91,617 | 50,132 |
| Closing book cost | 93,078 | 59,509 |
| Closing investment holding losses | (1,461) | (9,377) |
| Closing market value | 91,617 | 50,132 |
The company received \$250,878,000 (2020: \$293,347,000) from investments sold in the year. The book cost of these investments when they were purchased was \$243,359,000 (2020: \$282,024,000). Further explanation of the disposal proceeds received in the year can be found in the Net realised and unrealised gains/(losses) on investments section on page 50.
IFRS 13 requires the Company to classify its financial instruments held at fair value using a hierarchy that reflects the significance of the inputs used in the valuation methodologies. These are as follows:
The investments in contingent value rights are reviewed regularly to ensure that the initial classification remains correct given each asset's characteristics and the Company's investment policies. The contingent value rights are initially recognised using the transaction price as the best evidence of fair value at acquisition, and are subsequently measured at fair value. At 30 June 2021, the quantitative inputs used to value the level 3 contingent value rights were the last sale price and the merger price for each.
The investments in contracts for difference are marked at the price of the underlying equity. Contingent value rights in Level 2 are marked using broker quotes.
| Year ended | Year ended | |
|---|---|---|
| 30 June 2021 | 30 June 2020 | |
| \$000 | \$000 | |
| Opening valuation | 42 | 229 |
| Assets acquired during the year | 2 | 29 |
| Assets disposed during the year | – | (196) |
| Total profit or loss included in net profit/(loss) on investments in the | ||
| Statement of Comprehensive Income | (44) | (20) |
| Closing valuation | – | 42 |
| Net realised and unrealised gains on investments | 15,435 | 2,318 |
|---|---|---|
| Movement in unrealised gains/(losses) on investments | 7,916 | (9,005) |
| Realised gains on investments | 7,519 | 11,323 |
| Year ended 30 June 2021 \$000 |
Year ended 30 June 2020 \$000 |
During the year commissions and other expenses were incurred in acquiring within gains/(losses) in the Statement of Comprehensive Income. The total costs were as follows:
| Purchases | 30 June 2021 \$000 79 |
30 June 2020 \$000 88 |
|---|---|---|
| Sales | 75 | 25 |
| Total transaction costs | 154 | 113 |
| Year ended 30 June 2021 \$000 |
Year ended 30 June 2020 \$000 |
|
|---|---|---|
| Income from investments | ||
| Overseas equities | 286 | 546 |
| Income on short term investments1 | (7) | 256 |
| Other income | 48 | 123 |
| Total income | 327 | 925 |
1 Income on short term investments represents the return on cash and cash equivalents, primarily U.S. Treasury Bills. Further information can be found in Note 10 on page 54.
| Year ended 30 June 2021 \$000 |
Year ended 30 June 2020 \$000 |
|
|---|---|---|
| Revenue expenses | ||
| Portfolio Management Fee | (852) | (840) |
| Contracts for Difference | (277) | (60) |
| Directors' Remuneration | (163) | (132) |
| Audit Fees – PwC | (68) | (46) |
| Company Secretary Fees – Maitland | (62) | (57) |
| Regulatory Filing Fees – AIFMD1 | (58) | – |
| AIFM – Carne | (53) | (54) |
| Legal Fees | (45) | 2 |
| Administration Fees – State Street | (42) | (81) |
| Custodian/Depositary Fees – State Street | (38) | (42) |
| Registrar – Computershare | (16) | (11) |
| LSE RNS fees | (14) | (14) |
| Printing | (13) | (15) |
| Other | (36) | (19) |
| Ongoing LSE and UKLA Fees | (10) | (10) |
| Dividend Expense on Securities Sold Short | (7) | (275) |
| Marketing expenses | (3) | (12) |
| Directors' Expenses | – | (22) |
| Broker Retainer Fee2 | 4 | (38) |
| Total revenue expenses | (1,753) | (1,726) |
| Capital expenses | ||
| Performance Fee3 | (2,796) | (248) |
| Transaction costs on derivatives | (103) | (189) |
| Transaction Charges – State Street | (71) | (72) |
| Finance Charges (Paid) – State Street | – | (91) |
Total capital expenses (2,970) (600)
1 Includes filing fees from prior fiscal years.
2 The broker retainer fee in the year to 30 June 2021 reflects a Cantor Fitzgerald Europe retainer reimbursement.
3 Further information regarding the Performance Fee can be found in Note 13 on page 59.
Under the terms of the Portfolio Management Agreement, the Portfolio Manager will be entitled to a management fee ("Management Fee"), together with reimbursement of reasonable expenses incurred by it in the performance of its duties under the Portfolio Management Agreement, other than the salaries of its employees and general overhead expenses attributable to the provision of the services under the Portfolio Management Agreement. The Management Fee shall be accrued daily and calculated on each Business Day at a rate equivalent to 0.85% of NAV per annum.
The Company has appointed Carne Global Fund Managers (Ireland) Limited ("Carne") as its Alternative Investment Fund Manager pursuant to the AIFMD. Carne is entitled to receive from the Company such annual fees, accrued and payable at such times, as may be agreed in writing between itself and the Company from time to time. The fees are payable monthly and subject to a minimum monthly fee of €2,500.
| Dividends paid | 4,936 | \$000 4,960 |
|---|---|---|
| Year ended 30 June 2021 \$000 |
Year ended 30 June 2020 |
During the year ended 30 June 2021 dividends paid per share totalled \$0.48 (30 June 2020: \$0.48 per share). More detailed information can also be found in the Dividend History table on page 14.
| Year ended 30 June 2021 | |||
|---|---|---|---|
| Analysis of the tax charge in the year | Revenue \$000 |
Capital \$000 |
Total \$000 |
| Irrecoverable overseas tax | (33) | – | (33) |
| Total | (33) | – | (33) |
| Year ended 30 June 2020 | |||
|---|---|---|---|
| Analysis of the tax charge in the year | Revenue \$000 |
Capital \$000 |
Total \$000 |
| Irrecoverable overseas tax | (65) | – | (65) |
| Total | (65) | – | (65) |
| Year ended 30 June 2021 | |||||
|---|---|---|---|---|---|
| Factors affecting the tax charge for the year | Revenue \$000 |
Capital \$000 |
Total \$000 |
||
| (Loss)/profit before taxation | (1,426) | 12,323 | 10,897 | ||
| UK Corporation tax at effective rate of 19% | 271 | (2,341) | (2,070) | ||
| Effects of: | – | ||||
| Non taxable overseas dividends | 54 | – | 54 | ||
| Losses on investments held at fair value through profit or loss | – | 2,933 | 2,933 | ||
| Irrecoverable overseas tax | (33) | – | (33) | ||
| Expenses not deductible for tax purposes | (1) | (12) | (13) | ||
| Gains on foreign currencies | – | (27) | (27) | ||
| Movement in excess management expenses | (324) | (553) | (877) | ||
| Total | (304) | 2,341 | 2,037 | ||
| Total tax charge for the year | (33) | – | (33) |
| Year ended 30 June 2020 | |||
|---|---|---|---|
| Factors affecting the tax charge for the year | Revenue \$000 |
Capital \$000 |
Total \$000 |
| (Loss)/profit before taxation | (801) | 1,862 | 1,061 |
| UK Corporation tax at effective rate of 19% | 152 | (354) | (202) |
| Effects of: | |||
| Non taxable overseas dividends | 96 | – | 96 |
| Overseas tax expensed | 1 | – | 1 |
| Gains on investments held at fair value through profit or loss | – | 441 | 441 |
| Irrecoverable overseas tax | (65) | – | (65) |
| Expenses not deductible for tax purposes | (52) | (14) | (66) |
| Gains on foreign currencies | – | 27 | 27 |
| Movement in excess management expenses | (231) | (101) | (332) |
| Movement in deferred tax rate on excess management expenses | 34 | 1 | 35 |
| Total | (217) | 354 | 137 |
| Total tax charge for the year | (65) | – | (65) |
At the year end after offset against income taxable on receipt, there is a potential deferred tax asset of \$1,510,046 (2020: \$633,370) in relation to surplus tax reliefs. It is unlikely that the Company will generate sufficient taxable profits in the future to utilise these amounts and therefore no deferred tax asset has been recognised.
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.
Earnings per ordinary share is calculated with reference to the following amounts:
| Year ended 30 June 2021 |
Year ended 30 June 2020 |
|
|---|---|---|
| Revenue return | ||
| Revenue loss attributable to ordinary shareholders (\$000) | (1,459) | (866) |
| Weighted average number of shares in issue during year | 10,247,238 | 10,335,485 |
| Total revenue return (loss) per ordinary share | (\$0.14) | (\$0.08) |
| Capital return | ||
| Capital return attributable to ordinary shareholders (\$000) | 12,323 | 1,862 |
| Weighted average number of shares in issue during year | 10,247,238 | 10,335,485 |
| Total capital return per ordinary share | \$1.20 | \$0.18 |
| Total return per ordinary share | \$1.06 | \$0.10 |
| Net asset value per share | As at 30 June 2021 |
As at 30 June 2020 |
| Net assets attributable to shareholders (\$000) | 101,725 | 96,340 |
| Number of shares in issue at year end | 10,238,206 | 10,328,206 |
| Net asset value per share | \$9.94 | \$9.33 |
| Cash | 12,405* | 6,580 |
|---|---|---|
| U.S. Treasuries | – | 38,494 |
| Total | 12,405 | 45,074 |
* As at 30 June 2021, \$11,697,439 was held as collateral at UBS Securities LLC and is restricted.
The Board and Investment Manager oversee investments held in cash and cash equivalents in accordance with the Investment Policy.
| As at 30 June 2021 \$000 |
As at 30 June 2020 \$000 |
|
|---|---|---|
| Allotted, called up and fully paid: | ||
| 10,238,206 (2020: 10,328,206) Ordinary shares of \$0.01 each – equity | 102 | 103 |
| Treasury shares: | ||
| 95,960 (2020: 5,960) Ordinary shares of \$0.01 each – equity | 1 | * |
| Total shares | 103 | 103 |
* Less than \$500.
The Company's financial instruments comprise securities and other investments, cash balances, receivables, and payables that arise directly from its operations; for example, in respect of sales and purchases awaiting settlement, and receivables for accrued income. The Company also has the ability to enter into derivative transactions in the form of forward foreign currency contracts, futures, and options, for the purpose of managing currency and market risks arising from the Company's activities.
The main risks the Company faces from its financial instruments are (i) market price risk (comprising interest rate risk, currency risk, and other price risk), (ii) liquidity risk, and (iii) credit risk.
The Board regularly reviews, and agrees upon, policies for managing each of these risks. The Portfolio Manager's policies for managing these risks are summarised below and have been applied throughout the year. The numerical disclosures exclude short term receivables and payables, other than for currency disclosures.
The fair value or future cash flows of a financial instrument held by the Company may fluctuate because of changes in market prices. This market risk comprises three elements – interest rate risk, currency risk, and other price risk.
Interest rate movements may affect the level of income receivable and payable on cash deposits.
The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account when making investment decisions.
The interest rate risk profile of the portfolio of financial assets and liabilities at the year end date was as follows:
| As at 30 June 2021 | ||||
|---|---|---|---|---|
| Interest rate % |
Local currency 000 |
Foreign exchange rate |
US Dollar equivalent \$000 |
|
| Assets: | ||||
| US dollar | 0.00 | 12,462 | 1.00 | 12,462 |
| Australian dollar | 0.00 | 1 | 1.33 | 1 |
| Canadian dollar | 0.00 | 6 | 1.24 | 5 |
| Euro currency | (0.75) | (12) | 0.84 | (14) |
| GBP sterling | 0.00 | (39) | 0.72 | (54) |
| Hong Kong dollar | 0.00 | 1 | 7.77 | * |
| Japanese yen | (0.35) | 265 | 110.99 | 2 |
| Polish zloty | 0.00 | 1 | 3.81 | * |
| Singapore dollar | 0.00 | 4 | 1.34 | 3 |
| Swedish krona | (1.25) | 1 | 8.55 | * |
| Total | 12,405 |
* Less than \$500.
| As at 30 June 2020 | ||||
|---|---|---|---|---|
| Interest rate % |
Local currency 000 |
Foreign exchange rate |
US Dollar equivalent \$000 |
|
| Assets: | ||||
| US dollar | 0.00 | 45,035 | 1.00 | 45,035 |
| Australian dollar | 0.00 | 17 | 1.45 | 12 |
| Canadian dollar | 0.00 | 1 | 1.36 | 1 |
| Euro currency | (0.75) | 9 | 0.89 | 10 |
| GBP sterling | 0.00 | (8) | 0.81 | (10) |
| Japanese yen | (0.35) | (216) | 107.89 | (2) |
| New Israeli sheqel | (0.50) | 10 | 3.46 | 3 |
| New Zealand dollar | 0.00 | 20 | 1.55 | 13 |
| Norwegian krone | 0.00 | (10) | 9.65 | (1) |
| Singapore dollar | 0.00 | 15 | 1.40 | 11 |
| Swedish krona | (1.25) | 19 | 9.32 | 2 |
| Total | 45,074 |
The sensitivity analysis below has been determined based on the exposure to interest rates for both derivative and non-derivative instruments at the year end date and the stipulated change taking place at the beginning of the financial year and held constant throughout the reporting period in the case of instruments that have floating rates.
If interest rates had been 10 (2020: 10) basis points higher or lower and all other variables were held constant, the Company's profit or loss for the reporting year to 30 June 2021 would increase/decrease by \$12,000 (2020: \$45,000). This is mainly attributable to the Company's exposure to interest rates on its floating rate cash balances.
The Company's investment portfolio is invested predominantly in foreign securities and the year end can be significantly affected by movements in foreign exchange rates. It is not the Company's policy to hedge this risk on a continuing basis but the Company may, from time to time, match specific overseas investments with foreign currency borrowings.
The revenue account is subject to currency fluctuation arising from overseas income.
Currency risk exposure by currency of denomination:
| As at 30 June 2021 | ||||
|---|---|---|---|---|
| Net Investments \$000 |
Net monetary assets \$000 |
Total currency exposure \$000 |
||
| Australian dollar | – | (7) | (7) | |
| Canadian dollar | 4,845 | (4,851) | (6) | |
| Euro currency | 1,327 | (604) | 723 | |
| GBP sterling | – | (44) | (44) | |
| Hong Kong dollar | – | (12) | (12) | |
| Japanese yen | – | 5 | 5 | |
| Norwegian krone | – | 4 | 4 | |
| Singapore dollar | – | 2 | 2 | |
| South African rand | – | (2) | (2) | |
| Total non US Investments | 6,172 | (5,509) | 663 | |
| US dollar | 91,806 | 9,256 | 101,062 | |
| Total | 97,978 | 3,747 | 101,725 |
| As at 30 June 2020 | |||
|---|---|---|---|
| Net Investments \$000 |
Net monetary assets \$000 |
Total currency exposure \$000 |
|
| Australian dollar | 6 | 12 | 18 |
| Canadian dollar | 1,204 | (1,274) | (70) |
| Euro currency | 54 | (78) | (24) |
| GBP sterling | 1,932 | (10) | 1,922 |
| Japanese yen | 1 | (3) | (2) |
| New Israeli sheqel | – | 3 | 3 |
| New Zealand dollar | 15 | 13 | 28 |
| Norwegian krone | – | (1) | (1) |
| Singapore dollar | (1) | 10 | 9 |
| Swedish krona | – | 2 | 2 |
| Total non US Investments | 3,211 | (1,326) | 1,885 |
| US dollar | 46,921 | 47,534 | 94,455 |
| Total | 50,132 | 46,208 | 96,340 |
The following table details the Company's sensitivity to a 10% increase and decrease in US dollars against the relevant foreign currencies and the resultant impact that any such increase or decrease would have on net return before tax and equity shareholders' funds. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the year end for a 10% change in foreign currency rates.
| As at 30 June 2021 \$000 |
As at 30 June 2020 \$000 |
|
|---|---|---|
| Australian dollar | (1) | 1 |
| Canadian dollar | (1) | – |
| Euro currency | 72 | 1 |
| GBP sterling | (4) | (1) |
| Japanese yen | 1 | – |
| New Zealand dollar | – | 1 |
| Singapore dollar | – | 1 |
The relevant US dollar exchange rates as at 30 June 2021 were: Australian Dollar (1: 1.332); Canadian Dollar (1: 1.2383); Euro currency (1: 0.8432); GBP Sterling (1: 0.7239) and Japanese Yen (1: 110.99).
Other price risks, i.e., changes in market prices other than those arising from interest rate or currency risk, may affect the value of the quoted investments.
The Investment Manager actively monitors market prices throughout the year and reports to the Board, which meets regularly in order to review investment strategy. The investments held by the Company are listed on a recognised stock exchange.
If market prices at the year end date had been 15% higher or lower while all other variables remained constant, the return attributable to ordinary shareholders for the year ended 30 June 2021 would have increased/decreased by \$13,743,000. The calculations are based on the portfolio valuations as at the year end date, and are not representative of the year as a whole.
This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. All creditors are payable within 3 months.
Liquidity risk is not considered to be significant as the Company's assets comprise mainly readily realisable securities, which can be sold to meet funding commitments if necessary.
This is the risk of failure of the counterparty to a transaction to discharge its obligations under that transaction that could result in the Company suffering a loss.
The table below shows the counterparty risk as at the Balance Sheet date:
| UBS Securities, LLC – 1,504 (11,697) (10,193) State Street 4,859 – (524) 4,335 |
|---|
| Counterparty |
| Derivative Short equities exposure: CFDs Collateral posted Net exposure \$000 \$000 \$000 \$000 |
Net exposure represents the mark-to-market value of derivative contracts less any cash collateral held. Negative exposure represents the Fund's exposure to that counterparty. Positive amounts are not an exposure to the Fund.
The risk is managed as follows:
• Cash is held at State Street Bank and Trust which has a credit rating by Standard and Poor's on short term deposits of A-1+ and long term deposits AA-.
The maximum credit risk exposure as at 30 June 2021 was \$15,174,000 (2020: \$49,077,000). This was due to cash and receivables as per note (10) 'Cash & cash equivalents', note (15) 'Total other receivables' and Statement of Financial Position Receivable for investment sold.
The Company's capital management objectives are:
The Board monitors and reviews the broad structure of the Company's capital on an ongoing basis. The Board considers the Company's capital requirements in the context of both the Special Distributable and Revenue reserves being treated as distributable, as permitted by current accounting standards for listed investment trusts. The distributable reserves can be used to fund dividends and share repurchase programmes. This review includes the nature and planned level of gearing, which takes account of the Portfolio Manager's views on the market and the extent to which revenue in excess of that which is required to be distributed under the investment trust rules should be retained.
The analysis of shareholders' funds is as follows:
| As at 30 June 2021 \$000 |
As at 30 June 2020 \$000 |
|
|---|---|---|
| Called-up share capital | 103 | 103 |
| Special distributable reserve* | 83,976 | 88,912 |
| Capital reserve | 21,059 | 9,279 |
| Revenue reserve* | (3,413) | (1,954) |
| Total shareholders' funds | 101,725 | 96,340 |
* The Revenue Reserve and Special Distributable Reserve are distributable.The amount of the Revenue Reserve and Special Distributable Reserve that is distributable is not necessarily the full amount of the reserves as disclosed within these financial statements. As at 30 June 2021, the net amount of reserves that are distributable is \$80,563,000 (2020: \$86,958,000).
In accordance with the Alternative Investment Fund Managers' Directive ("AIFMD"), the Company has appointed Carne Global Fund Managers (Ireland) Limited as its Alternative Investment Fund Manager (the "AIFM") to provide portfolio management and risk management services to the Company in accordance with the investment management agreement.
For the purposes of the AIFM Directive, leverage is required to be calculated using two prescribed methods: (i) the gross method; and (ii) the commitment method, and expressed as the ratio between a fund's total exposure and its net asset value. As measured using the gross method, the level of leverage to be incurred by the Portfolio Manager on behalf of the Company is not to exceed the equivalent of a ratio of 5. The gross method calculates exposure as the absolute value of the sum of all investment positions (long and short), including derivative positions for which exposure is calculated as the equivalent position in an underlying asset. As measured using the commitment method, the level of leverage to be incurred by the Portfolio Manager on behalf of the Company is not to exceed the equivalent of a ratio of 2.5. The commitment method calculates exposure from all investment positions, including derivative positions for which exposure is calculated as the equivalent position in an underlying asset, but factors in hedging arrangements that offset exposure.
The Company's maximum leverage levels at 30 June 2021 are shown below:
| Leverage Exposure | Gross method |
Commitment method |
|---|---|---|
| Maximum permitted limit | 500% | 250% |
| Actual | 138% | 151% |
The leverage limits are set by the AIFM and approved by the Board and are in line with the maximum leverage levels permitted in the Company's Articles of Association. The AIFM is also required to comply with the gearing parameters set by the Board in relation to borrowings.
Subject to the satisfaction of the Performance Conditions, the Portfolio Manager shall be entitled under the Portfolio Management Agreement, in respect of each Performance Period, to receive 20% of the Total Return relating to such Performance Period, provided that such amount shall not exceed 3% of the Average NAV.
The Portfolio Manager's entitlement to a Performance fee in respect of any Performance Period shall be conditional on the Closing NAV per Share in respect of the Performance Period (adjusted for any changes to the NAV per Share through dividend payments, Share repurchases (howsoever effected) and Share issuances since Admission being in excess of the Performance Hurdle and High Water Mark. For the year ended 30 June 2021, a Performance fee of \$2,795,658 (2020: \$248,101) was to be paid. As at 30 June 2021, \$2,795,658 was outstanding to the Portfolio Manager in respect of the performance fee, reflecting the performance period matching the Company's financial year (2020: \$248,101).
The Company's investment policy may involve the use of derivatives (including, without limitation, forward foreign exchange contracts, equity contracts for difference ("CFDs"), securities sold short and/or structured financial instruments). The Company may use both exchange-traded and over-the-counter derivatives as part of its investment activity. The cost of investing utilizing derivatives may be higher than investing in securities (whether directly or through nominees) as the Company will have to bear the additional costs of purchasing and holding such derivatives, which could have a material adverse effect on the Company's returns. The low initial margin deposits normally required to establish a position in such instruments permit a high degree of leverage. As a result, depending on the type of instrument, a relatively small movement in the price of a contract may result in a profit or a loss which is high in proportion to the amount of funds actually placed as initial margin and may result in unquantifiable further losses exceeding any margin deposited. In addition, daily limits on price fluctuations and speculative position limits on exchanges may prevent prompt liquidation of positions resulting in potentially greater losses.
The use of derivatives may expose the Company to a higher degree of risk. These risks may include credit risk with regard to counterparties with whom the Company trades, the risk of settlement default, lack of liquidity of the derivative, imperfect tracking between the change in value of the derivative and the change in value of the underlying asset that the Company is seeking to track and greater transaction costs than investing in the underlying assets directly. Additional risks associated with investing in derivatives may include a counterparty breaching its obligations to provide collateral, or, due to operational issues (such as time gaps between the calculation of risk exposure to a counterparty's provision of additional collateral or substitutions of collateral or the sale of collateral in the event of a default by a counterparty), there may be instances where credit exposure to its counterparty under a derivative contract is not fully collateralised. The use of derivatives may also expose the Company to legal risk, which is the risk of loss due to the unexpected application of a law or regulation, or because a court declares a contract not legally enforceable.
The use of CFDs is a highly specialised activity that involves investment techniques and risks different from those associated with ordinary portfolio security transactions. In a CFD, a set of future cash flows is exchanged between two counterparties. One of these cash flow streams will typically be based on a reference interest rate combined with the performance of a notional value of shares of a stock. The other will be based on the performance of the shares of a stock. Depending on the general state of short term interest rates and the returns on the Company's portfolio securities at the time a CFD transaction reaches its scheduled termination date, there is a risk that the Company will not be able to obtain a replacement transaction or that terms of the replacement will not be as favourable as on the expiring transaction. At 30 June 2021 the Company held CFDs, as shown in the following table.
| 2021 Unrealised |
|||
|---|---|---|---|
| Security name | Trade currency |
Shares (000) |
gain/(loss) \$000 |
| Adapteo Oyj | SEK | 7 | ** |
| Advanced Micro Devices Inc | USD | (45) | (573) |
| Aggreko PLC | GBP | 68 | ** |
| Ampol Ltd | AUD | 7 | (8) |
| Analog Devices Inc | USD | (19) | (88) |
| Aon PLC | USD | (19) | 219 |
| Apollo Global Management Inc | USD | (17) | (37) |
| Arrow Global Group PLC | GBP | 47 | 1 |
| AstraZeneca PLC | USD | (63) | (71) |
| Atrium European Real Estate Ltd | EUR | 95 | (9) |
| Biotest AG | EUR | 8 | (6) |
| Boston Private Financial Holdings Inc | USD | 15 | (1) |
| Brookfield Asset Management Inc | USD | (3) | (4) |
| Canadian National Railway Co. | USD | (2) | 8 |
| Canadian Pacific Railway Ltd | USD | (6) | 19 |
| CapitaLand Ltd | SGD | 53 | (1) |
| Cerved Group SpA | EUR | 50 | ** |
| CIT Group Inc | USD | 6 | (8) |
| Crown Ltd | AUD | 5 | ** |
| Deutsche Wohnen SE | EUR | 44 | (6) |
| Dialog Semiconductor PLC | EUR | 36 | 6 |
| Distell Group Ltd | ZAR | 5 | (2) |
| EDF S.A. | EUR | 12 | (6) |
| Euskaltel S.A. | EUR | 38 | (4) |
| First Citizens BancShares Inc | USD | * | 9 |
| Gamesys Group PLC | GBP | 9 | (1) |
| Grifols S.A. | USD | (17) | 40 |
| II-VI Inc | USD | (6) | (15) |
| Inmobiliaria Co | EUR | (6) | 6 |
| John Laing Group PLC | GBP | 111 | (1) |
| Just Eat Takeaway.com NV | USD | (8) | (5) |
| Kansas City Southern PLC | USD | 9 | (102) |
| Lennar Corp | USD | (9) | (61) |
| Middleby Corp | USD | (1) | (4) |
| Natixis SA | EUR | 37 | ** |
| Naturgy Energy Group SA | EUR | 6 | (2) |
| Norwegian Finans Holding ASA | NOK | 8 | (2) |
As at 30 June
| As at 30 June 2021 |
|||
|---|---|---|---|
| Security name | Trade currency |
Shares (000) |
Unrealised gain/(loss) \$000 |
| Nuance Communications PLC | USD | 76 | (36) |
| Orange Belgium S.A. | EUR | 6 | (7) |
| PDD Inc | USD | 48 | (1) |
| Realty Income PLC | USD | (14) | 42 |
| Regal Beloit Corp | USD | * | 2 |
| Rexnord Corp | USD | 2 | (3) |
| Sparkassen Immobilien AG | EUR | 3 | (7) |
| S&P Global Inc | USD | (8) | (130) |
| Salesforce.com Inc | USD | (9) | (36) |
| Sbanken ASA | NOK | 48 | 6 |
| Siltronic AG | EUR | 8 | 2 |
| Slack Technologies Inc | USD | 123 | (22) |
| Société Foncière Lyonnaise | EUR | 1 | (6) |
| SOHO China Ltd | HKD | 363 | (12) |
| Solarpack Corp | EUR | 9 | ** |
| Spire Healthcare PLC | GBP | 49 | (1) |
| Suez S.A. | EUR | 120 | ** |
| SVB Financial Group PLC | USD | * | 2 |
| Tarkett S.A. | EUR | 7 | ** |
| Toshiba Corp | JPY | 2 | 2 |
| UDG Healthcare PLC | GBP | 32 | 10 |
| Vectura Group PLC | GBP | 116 | 1 |
| VEREIT Inc | USD | 20 | (48) |
| VMWare | USD | (3) | 13 |
| Willis Towers Watson PLC | USD | 21 | (566) |
| Total unrealised (loss) on derivatives | (1,504) |
* Less than 500 shares.
** Less than \$500.
The categories of other receivables and other payables include:
| As at 30 June 2021 \$000 |
As at 30 June 2020 \$000 |
|
|---|---|---|
| Other receivables | ||
| FX currency sold | 57 | – |
| All other receivables | 90 | 68 |
| Total other receivables | 147 | 68 |
| Other payables | ||
| FX currency purchased | 20 | 6 |
| Custodian fees | 8 | 9 |
| Accounting fees | 13 | 19 |
| Audit fees | 70 | 35 |
| All other payables | 203 | 168 |
| Total other payables | 314 | 237 |
Each of the Directors is entitled to receive a fee from the Company at such rate as may be determined in accordance with the Articles of Incorporation. The Directors' remuneration is \$30,000 per annum for each Director, other than:
Each of the Directors is also entitled to be paid all reasonable expenses properly incurred by them in connection with the performance of their duties. These expenses will include those associated with attending general meetings, Board or committee meetings and legal fees. The Board may determine that additional remuneration may be paid, from time to time, to any one or more Directors in the event such Director or Directors are requested by the Board to perform extra or special services on behalf of the Company.
The related party transactions with the Directors are set out in the Directors' Remuneration Report on pages 32 to 34.
The Portfolio Management fee and Performance fee for the year ended 30 June 2021 paid by the Company to the Portfolio Manager are presented in the Statement of Comprehensive Income. Details of Portfolio management fee paid during the year are disclosed in Note 6. Details of Performance fee paid during the year are disclosed in Note 13.
As at 30 June 2021, Associated Capital Group Inc., an affiliate of the Portfolio Manager, held 6,179,100 Ordinary Shares in the Company.
Further details of related parties and transactions, including with the Company's AIFM Carne Global Fund Managers (Ireland) Limited, are disclosed in the Directors' Report on pages 22 and 23.
All connected party transactions are carried out at arm's length. There were no such transactions during the year ended 30 June 2021.
As at 30 June 2021, the Company had no contingent liabilities or commitments (30 June 2020: nil).
Since the beginning of 2020, global financial markets have experienced and may continue to experience significant volatility resulting from the spread of COVID-19. While containment efforts were made to slow the spread of the epidemic the outbreak has now spread globally resulting in travel and border restrictions, quarantines, supply chain disruptions, lower consumer demand and general market uncertainty. The effects of COVID-19 have adversely affected the global economy and may continue to do so.
The Board is aware that global financial markets have been reacting to the outbreak. All markets have incurred increased volatility and uncertainty since the onset of the pandemic.
The Board has also noted the operational risks that are posed to the Fund and its service providers due to global and local movement restrictions that have been enacted by various governments. COVID-19 pandemic is an unprecedented event and the eventual impact on the global economy and markets will largely depend on the scale and duration of the outbreak. The Board will continue to monitor this situation.
| 30 June 2021 | 30 June 2020 | 30 June 2019 | |
|---|---|---|---|
| Total Shares | 10,238,206 | 10,328,206 | 10,334,166 |
| Total NAV (\$000) | 101,725 | 96,340 | 100,346 |
| NAV per share | \$9.94 | \$9.33 | \$9.71 |
On 12 July 2021 the Board announced the appointment of Derringtons Limited to take over as the Company Secretary from Maitland Administration Services Limited. At 30 September 2021 the NAV per share of the Company was \$9.93. From the year end to 30 September 2021 the share price decreased 18.2%, from \$7.40 to \$6.05.
The disclosures below are made in compliance with the requirements of Listing Rule 9.8.4.
9.8.4 (1) The Company has not capitalised any interest in the year under review.
9.8.4 (2) The Company has not published any unaudited financial information in a class 1 circular or prospectus or any profit forecast or profit estimate.
9.8.4 (4) The Company does not have any long term incentive schemes in operation.
9.8.4 (5) and (6) The Chairman Mr Gabelli has waived or agreed to waive any current or future emoluments from the Company.
9.8.4 (7) During the year to 30 June 2021, the Company has not issued shares.
9.8.4 (8) and 9.8.4 (9) are not applicable.
9.8.4 (10) As President of the Portfolio Manager's parent company, GGCP, and an employee of the Portfolio Manager, Mr Gabelli is/ was deemed to be interested in the Company's portfolio management agreement. There were no other contracts of significance subsisting during the year under review to which the Company is a party and in which a Director of the Company is or was materially interested; or between the Company and a controlling shareholder.
9.8.4 (11) This provision is not applicable to the Company.
9.8.4 (12) and (13) There were no arrangements under which a shareholder has waived or agreed to waive any dividends or future dividends.
9.8.4 (14) This provision is not applicable to the Company.
Agreed by the European Parliament and the Council of the European Union and adopted into UK legislation, the AIFMD classifies certain investment vehicles, including investment companies, as Alternative Investment Funds ("AIFS") and requires them to appoint an Alternative Investment Fund Manager ("AIFM") and Depositary to manage and oversee the operations of the investment vehicle.
The Board of the Company retains responsibility for strategy, operations and compliance and the Directors retain a fiduciary duty to shareholders.
Net Asset Value total return, which is calculated based on the net asset value per share at 30 June 2021, compared to the Net Asset Value per share as at 30 June 2020, adjusted for dividends paid, and assumes that dividends are reinvested.
Share price total return, which is calculated based on the share price as at 30 June 2021, compared to the share price as at 30 June 2020, adjusted for dividends paid, and assumes that all dividends are reinvested.
Discount to net asset value, which is calculated by dividing the difference between the share price and net asset value per share, by the net asset value per share.
The Company is a member of the AIC which is the trade body for investment companies and represents the industry in relation to various matters which impact the regulation of such entities.
The capital return per share is the capital profit for the year (see Statement of Comprehensive Income) divided by the weighted average number of ordinary shares in issue during the year.
A financial instrument in which a set of future cash flows is exchanged between two counterparties. One of these cash flow streams will typically be based on a reference interest rate combined with the performance of a notional value of shares of a stock. The other will be based on the performance of the shares of a stock. CFDs are open-ended with no fixed termination date, in contrast to swaps, which utilitize fixed termination dates.
The Custodian is responsible for ensuring the safe custody of the Company's assets and that all transactions in the underlying holdings are transacted in an accurate and timely manner.
From July 2014 all AIFs were required to appoint a Depositary who has responsibility for overseeing the operations of the Company including safekeeping, cash monitoring and verification of ownership and valuation of the underlying holdings and is responsible for the appointment of a custodian. The Depositary is strictly liable for the loss of any investments or other assets in its custody unless it has notified that it has discharged its liability in certain markets.
The Depositary has confirmed that it has not discharged liability in relation to any of the Company's assets.
When declared or recommended, each dividend will have three key dates applied to it. The payment date is the date on which shareholders will receive their dividend, either by BACS transfer or by receipt of a dividend cheque. The record date applied to the dividend is used as a cut-off for the Company's registrars to know which shareholders should be paid a dividend. Only shareholders on the register of members at the close of business on the record date will receive the dividend. The ex-dividend date is the business day before the record date and is the date upon which the Company's net asset value will be disclosed ex-dividend.
The annual dividend expressed as a percentage of the share price.
The net gearing percentage reflects the amount of borrowings (i.e. bank loans or overdrafts) the Company has used to invest in the market less cash and investments in cash funds, divided by net assets. Nominal gearing is the total notional amount of assets plus total notional amount of liabilities, divided by equity. Actual gearing is calculated under two methodologies: the gross method, which includes the market value of positions and the gross exposure of derivatives, and excludes cash and cash equivalents; and the commitment method, which includes the value of cash and cash equivalents. Nominal CFD gearing is the gross nominal value of CFD positions, as a percentage of shareholders' equity.
The closing Net Asset Value (NAV) per share in respect of the last performance period in respect of which a performance fee was payable to the Portfolio Manager (adjusted for any changes to the NAV per share through dividend payments, share repurchases, and share issuances from admission to the end of such performance period).
Investment trusts are public limited companies, listed on the London Stock Exchange, which provide shareholders with a professionally managed portfolio of investments. Investments trusts are exempt from tax on the capital gains arising on their investments subject to meeting certain criteria. Income, net of expenses and tax, is substantially distributed to shareholders. Investment trusts are also known as investment companies, although the tax legislation retains the reference to investment trusts.
In the context of the liquidity of shares in the stock market, this refers to the availability of buyers in the market for the share in question. Where the market in a particular share is described as liquid, that share will be in demand and holders wishing to sell their shares should find ready buyers. Conversely, where the market in a share is illiquid the difficulty of finding a buyer will tend to depress the price that might be negotiated for a sale.
The value of the Company's assets (i.e. investments, cash held and debtors) less any liabilities (i.e. bank borrowings, debt securities and creditors) for which the Company is responsible, divided by the number of shares in issue. The aggregate NAV is also referred to as total shareholders' funds on the Statement of Financial Position. The NAV is published daily.
Net Asset Value per ordinary share, total return represents the theoretical return on NAV per ordinary share, assuming that dividends paid to shareholders were reinvested at the NAV per ordinary share at the close of business on the day shares were quoted exdividend.
| 2021 | 2020 | |
|---|---|---|
| NAV at start of year | 9.33 | 9.71 |
| NAV at end of year | 9.94 | 9.33 |
| Effect of dividends* | 0.51 | 0.48 |
| NAV at end of year including effect of dividends | 10.45 | 9.81 |
| NAV total return | 12.12% | 0.98% |
* Assumed reinvested at the time of dividend going ex-dividend.
Ongoing Charges are operating expenses incurred in the running of the Company, whether charged to revenue or capital, but excluding financing costs. These are expressed as a percentage of the average net asset value during the year and this is calculated in accordance with guidance issued by the Association of Investment Companies.
| 2021 \$000 |
2020 \$000 |
||
|---|---|---|---|
| Regular recurring expenses | a | 1,644 | 1,721 |
| Average Shareholders' funds | b | 99,012 | 98,759 |
| Ongoing Charge Calculation | a/b | 1.66% | 1.74% |
A detailed explanation of the calculation methodology for the Performance Fee payable to the Investment Manager can be found in Note 13.
In relation to each performance period, the hurdle is represented by "A" multiplied by "B", where: "A" is equal to the starting NAV per share increased by two times the rate of return on 13 week Treasury Bills published by the US Department of the Treasury over the performance period, less the starting NAV per share; and "B" is the weighted average of the number of shares in issue (excluding any shares held in treasury) at the end of each day during the performance period. The Remuneration Committee has determined that this is the most appropriate means of benchmarking the Manager's performance.
The amount by which the market price per share of an investment trust is either higher premium or lower (discount) than the NAV per share, expressed as a percentage of the NAV per share.
The revenue return per ordinary share is the revenue return profit for the year divided by the weighted average number of ordinary shares in issue during the year.
Share Price Total Return is the measure of how the Company's share price has performed over a period of time, taking into account both capital returns and entitlement to dividends declared by the Company.
| 2021 | 2020 | |
|---|---|---|
| Share price at start of year | 7.50 | 8.60 |
| Share price at end of year | 7.40 | 7.50 |
| Effect of dividends* | 0.51 | 0.44 |
| Share price at end of year including effect of dividends | 7.91 | 7.94 |
| Share price total return | 5.46% | -7.69% |
* Assumed reinvested at the time of the shares going ex-dividend.
This is the return on the share price or NAV taking into account both the rise and fall of share prices and the dividends and interest paid to shareholders. Any dividends received by a shareholder are assumed to have been reinvested in either additional shares (for share price total return) or the Company's assets (for NAV total return).
Gabelli Merger Plus+ Trust Plc
3 St. James's Place, London SW1A 1NP, United Kingdom
Marc Gabelli Marco Bianconi John Birch John Newlands Yuji Sugimoto James Wedderburn
Gabelli Funds, LLC One Corporate Center Rye, NY 10580-1422 United States
Maitland Administration Services Limited (until 12 July 2021 only), and Derringtons Limited (from 13 July 2021 onwards), with registered office as follows:
Hyde Park House 5 Manfred Road London United Kingdom SW15 2RS
PricewaterhouseCoopers LLP 7 More London Riverside London SE1 2RT United Kingdom
State Street Bank and Trust Company 20 Churchill Place Canary Wharf London E14 5HJ United Kingdom
State Street Trustees Ltd 20 Churchill Place Canary Wharf London E14 5HJ United Kingdom
Carne Global Fund Managers (Ireland) Limited 2nd Floor, Block E Iveagh Court, Harcourt Road Dublin 2 Ireland
Computershare Investment Services PLC The Pavillions Bridgwater Road Bristol BS99 6ZZ United Kingdom
Dickson Minto W.S. 16 Charlotte Square Edinburgh EH2 4DF
The Company is a member of The Association of Investment Companies ("AIC"), which publishes a number of useful fact sheets and email updates for investors interested in investment trust companies.
The AIC 9th Floor 24 Chiswell Street London EC1Y 4YY 0207 282 5555 www.theaic.co.uk
With effect from 1 January 2016 new tax legislation under the OECD (Organisation for Economic Co-operation and Development) Common Reporting Standard for Automatic Exchange of Financial Account Information ("The Common Reporting Standard") has been introduced.
This legislation requires investment trust companies to provide personal information to the HMRC on certain investors who purchase shares in investment trusts. As an affected company, Gabelli Merger Plus+ Trust Plc will have to provide information annually to the local tax authority on a number of non-UK based certificated shareholders and incorporated entities.
All new shareholders, excluding those whose shares are held on CREST, who are entered onto the share register after 1 January 2016 will be sent a certification form for the purposes of collecting this information.
For further information, please see the HMRC's Quick Guide: Automatic Exchange of Information – information for account holders.
https://www.gov.uk/government/publications/exchange-ofinformationaccount-holders.
Please visit us on the internet. Our home page at www.gabelli.co.uk contains information about Gabelli Funds,. LLC and Gabelli Merger Plus+ Trust Plc.
We welcome your comments and questions at +44 02 3206 2100 or via email at [email protected].
Notice is hereby given that the fourth Annual General Meeting (the "AGM") of the Company will be held at GAMCO (UK), 3 St. James's Place London SW1A 1NP United Kingdom on Wednesday 1 December 2021 at 14:30 (GMT) to consider and, if thought fit, pass the following resolutions, of which resolutions numbered 1 to 13 will be proposed as Ordinary Resolutions, and resolutions numbered 14, 15 and 16 will be proposed as Special Resolutions.
The Directors currently anticipate that this year's Annual General Meeting will be open to shareholders, but reserve the right to change arrangements for the meeting at short notice. Therefore shareholders are strongly encouraged to vote by proxy and to appoint the Chairman as their proxy.
12 THAT, in substitution for all existing authorities, the Board of Directors be generally and unconditionally authorised in accordance with section 551 of the Companies Act 2006 (the "Act") to exercise all the power of the Company to allot relevant securities (within the meaning of section 551 of the Act) in the Company up to a maximum aggregate nominal amount of \$10,238 (being ten percent of the total number of voting rights of the Company at the latest practicable date prior to the publication of this Notice), such authority, unless previously revoked, to apply until the conclusion of next year's AGM but, in each case, during this period the Company may make offers and enter into agreements which would, or might, require shares to be allotted or rights to subscribe for or convert securities into shares to be granted after the authority ends and the Board of Directors may allot shares or grant rights to subscribe for or convert securities into shares under any such offer or agreement as if the authority had not ended.
By order of the Board
Marc Gabelli Chairman 15 October 2021
Registered Office: 3 St. James's Place London England SW1A 1NP
In accordance with the prevailing guidance issued by the UK government in response to the coronavirus pandemic, the Annual General Meeting is currently anticipated to be open to members. All members are entitled to vote at the meeting by providing a form of proxy. Members are strongly advised to appoint the Chairman of the meeting as their proxy.
4 In the case of joint holders of a share the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders, and for this purpose seniority shall be determined by the order in which the names appear in the register of members in respect of the share.
5 The right to appoint a proxy does not apply to persons whose shares are held on their behalf by another person and who have been nominated to receive communications from the Company in accordance with section 146 of the Act ("Nominated Persons"). Nominated Persons may have a right under an agreement with the member who holds the shares on their behalf to be appointed (or to have someone else appointed) as a proxy. Alternatively, if Nominated Persons do not have such a right or do not wish to exercise it, they may have a right under such an agreement to give instructions to the person holding the shares as to the exercise of voting rights.
6 Holders of Ordinary Shares are entitled to attend and vote at general meetings of the Company. The total number of issued Ordinary Shares in the Company on 27 September 2021, which is the latest practicable date before the publication of this Notice is 10,238,206.
7 Entitlement to attend and vote at the meeting, and the number of votes which may be cast at the meeting, will be determined by reference to the Company's register of members as at the close of business on 29 November 2021, or, if the meeting is adjourned, no later than 48 hours (excluding any part of a day that is not a working day) before the time fixed for the adjourned meeting (as the case may be). In each case, changes to the register of members after such time will be disregarded.
8 CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so for the meeting (and any adjournment of the meeting) by following the procedures described in the CREST Manual available on the website of Euroclear UK and Ireland Limited ("Euroclear") at www.euroclear.com. CREST Personal Members or other CREST sponsored members (and those CREST members who have appointed a voting service provider) should refer to their CREST sponsor or voting service provider, who will be able to take the appropriate action on their behalf.
In order for a proxy appointment or instruction made by means of CREST to be valid, the appropriate CREST message (a "CREST Proxy Instruction") must be properly authenticated in accordance with Euroclear's specifications and must contain the information required for such instructions, as described in the CREST Manual. The message (regardless of whether it constitutes the appointment of a proxy or an amendment to the instruction given to a previously appointed proxy) must, in order to be valid, be transmitted so as to be received by Computershare Investor Services PLC Participant ID 3RA50 by the latest time(s) for receipt of proxy appointments specified in Note 3 above. 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. After this time any change of instructions to a proxy appointed through CREST should be communicated to him by other means.
CREST members (and, where applicable, their CREST sponsors or voting service providers) should note that Euroclear 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, to procure that his CREST sponsor or voting service provider takes) 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.
9 Any corporation which is a member can appoint one or more corporate representatives who may exercise on its behalf all of its powers as a member provided that they do not do so in relation to the same shares.
10 Shareholders should note that, under section 527 of the Act, members 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 accounts (including the auditors report and the conduct of the audit) that are to be laid before the AGM for the financial year ended 30 June 2021; or (ii) any circumstance connected with auditors of the Company appointed for the financial year ended 30 June 2021 ceasing to hold office since the previous meeting at which annual accounts and reports were laid. The Company may not require the shareholders requesting any such website publication to pay its expenses in complying with sections 527 or 528 (requirements as to website availability) of the Act. Where the Company is required to place a statement on a website under section 527 of the Act, it must forward the statement to the Company's auditors not later than the time when it makes the statement available on the website. The business which may be dealt with at the AGM for the relevant financial year includes any statement that the Company has been required under section 527 of the Act to publish on a website.
11 Any member attending the AGM has the right to ask questions. The Company must cause to be answered any such question relating to the business being dealt with at the meeting but no such answer need be given if (a) to do so would interfere unduly with the preparation for the meeting or involve the disclosure of confidential information, (b) the answer has already been given on a website in the form of an answer to a question, or (c) it is undesirable in the interests of the Company or the good order of the meeting that the question be answered.
A resolution may properly be moved or a matter may properly be included in the business unless:
Such a request may be in hard copy form or in electronic form, and must identify the resolution of which notice is to be given or the matter to be included in the business, must be authorised by the person or persons making it, must be received by the Company not later than six weeks before the AGM, and (in the case of a matter to be included in the business only) must be accompanied by a statement setting out the grounds for the request.
13 A copy of this notice and other information required by section 311A of the Act can be found at www.gabelli.co.uk.
14 Members may not use any electronic address provided in either this notice of meeting or any related documents (including the enclosed form of proxy) to communicate with the Company for any purposes other than those expressly stated.
15 Copies of the letters of appointment of the non-executive Directors may be inspected during normal business hours on any weekday (Saturdays, Sundays and public holidays excepted) at the registered office of the Company at 3 St. James's Place, London SW1A 1NP, United Kingdom, up to and including the date of the AGM, and, if possible, on the date itself at the AGM venue 15 minutes before the meeting until it ends.
The Company has a Loyalty Programme in place for its long term shareholders. Please see page 21 for benefits and eligibility requirements.
www.gabelli.com/mergerplus [email protected] +44 20 3206 2100 +1 914 921 5135 +39 02 3057 8299
The European Union Directive 2011/61/EU as implemented in Ireland by S.I. No. 257/2013 European Union (Alternative Investment Fund Managers) Regulations 2013, requires alternative investment fund managers ("AIFMs") to establish and apply remuneration policies and practices that promote sound and effective risk management, and do not encourage risk taking which is inconsistent with the risk profile of the Fund.
To that effect, Carne Global Fund Managers (Ireland) Limited ("the Manager"), has implemented a remuneration policy that applies to all alternative investment funds ("AIFs") for which the Manager acts as AIFM (the "Remuneration Policy") and covers all staff whose professional activities have a material impact on the risk profile of the Manager or the AIFs it manages ("Identified Staff of the Manager"). The Remuneration Policy also applies to all UCITS funds for which the Manager acts as manager. In accordance with the Remuneration Policy, all remuneration paid to Identified Staff of the Manager can be divided into:
The Manager has designated the following persons as Identified Staff of the Manager:
The Manager has a business model, policies and procedures which by their nature do not promote excessive risk taking and take account of the nature, scale and complexity of the Manager and the Fund. The Remuneration Policy is designed to discourage risk taking that is inconsistent with the risk profile of the Fund and the Manager is not incentivised or rewarded for taking excessive risk.
The Manager has determined not to constitute a separate remuneration committee and for remuneration matters to be determined through the Manager's Operations & Compliance Committee.
The Manager's Operations & Compliance Committee is responsible for the ongoing implementation of the Manager's remuneration matters and will assess, oversee and review the remuneration arrangements of the Manager as well as that of the delegates as relevant, in line with the provisions of the applicable remuneration requirements.
The Manager's parent company is Carne Global Financial Services Limited ("Carne"). Carne operates through a shared services organisational model which provides that Carne employs all the majority of staff and enters into inter-group agreements with other Carne Group entities within the group to ensure such entities are resourced appropriately. Additionally, the Manager directly employs a limited number of staff. Each of the Identified Staff, other than one non-executive independent director, are employed and paid directly by Carne and remunerated based on their contribution to the Carne Group as a whole. In return for the services of each of the Carne Identified Staff, the Manager pays an annual staff recharge to Carne (the "Staff Recharge").
The non-executive independent director is paid a fixed remuneration and each other Identified Staff member's remuneration is linked to their overall individual contribution to the Carne Group, with reference to both financial and non-financial criteria and not directly linked to the performance of specific business units or targets reached or the performance of the Fund.
The aggregate of the total Staff Recharge and the remuneration of the independent non-executive director is €1,208,000 paid to 12 individuals for the year ended 31 December 2020. The Manager has also determined that, on the basis of number of sub-funds/net asset value of the Fund relative to the number of sub-funds/assets under management, the portion of this figure attributable to the Fund is €2,389.
The Fund does not pay any fixed or variable remuneration to identified staff of the Investment Manager.
There have been no material changes made to the Remuneration Policy or the Manager's remuneration practices and procedures during the financial year.
This announcement is neither an offer to sell nor a solicitation of an offer to buy these securities. The offer is made by the prospectus only.
10,011,100 Ordinary Shares
Price \$10 per Share
19 July 2017
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Gabelli Merger Plus+ Trust Plc www.gabelli.com/mergerplus [email protected]
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