Annual Financial Report

Invesco Bond Income Plus Limited

Annual Financial Report for the year ended 31 December 2021

The following text is extracted from the Annual Financial Report of the Company for the year ended 31 December 2021. All page numbers below refer to the Annual Financial Report which will be made available on the Company's website.

Financial Information and Performance Statistics

Total Return Statistics(1)(2) with dividends reinvested
	2021	2020
Net asset value	5.3%	6.9%
Share price	4.2%	1.8%
Capital Statistics
At 31 December	2021	2020	change %
Net assets (£000)(3)	326,730	197,675	+65.3
Net asset value per ordinary share(2)	193.82p	194.29p	–0.2
Share price(1)	187.25p	189.75p	–1.3
Discount(2)	(3.4)%	(2.3)%
Gearing(2):
gross gearing	12.0%	6.8%
net gearing	9.5%	5.4%
Performance Statistics
Year Ended 31 December	2021	2020
Revenue return per ordinary share	11.21p	10.27p
Capital return per ordinary share	(1.89)p	1.90p
Total return	9.32p	12.17p
Dividend per ordinary share for the year	10.75p	10.00p	+7.5%
Ongoing Charges Ratio(2)	0.87%	0.99%

(1)  Source: Refinitiv.

(2)  Alternative Performance Measure (APM). See Glossary of Terms and Alternative Performance Measures on pages 75 to 77 of the financial report for details of the explanation and reconciliations of APMs.

(3)  The change in net assets reflects the new ordinary shares issued in respect of assets received pursuant to a scheme of reconstruction of Invesco Enhanced Income Limited. Further details of this transaction are provided in note 2(a)(v) on page 57 and note 16 on page 62.

Chairman’s Statement

Highlights

• Successful merger with Invesco Enhanced Income Limited increasing net assets to £327 million, as at 31 December 2021.

• Share price increased by 4.2% and NAV up by 5.3%, both on a total return basis with dividends reinvested.

• Dividend of 10.75 pence per share for the 2021 financial year.

• Reduction in ongoing charges ratio from 0.99% to 0.87% following the merger.

Two distinct phases characterised high yield markets in 2021. For much of the year yields trended modestly lower, as confidence grew that government stimulus in response to Covid-19, combined with a successful vaccination programme, had laid a firm foundation for sustained economic recovery and the return to pre-pandemic levels of Gross Domestic Product (‘GDP’). Nevertheless in September yields started to retrace this downward path as optimism was checked by growing signs of a dramatic and persistent increase in inflation both in the UK and abroad. Confidence was also tested by the sudden emergence of the Omicron variant. The first cases of the new variant were detected in the UK in late November and within a matter of weeks Omicron had displaced Delta as the commonest form of new infections.

By year end, annual inflation in the UK reached a thirty-year high of 5.4% (as measured by the Consumer Prices Index (‘CPI’)), well in excess of the Bank of England’s target. The rise in inflation was  caused by a painful mix of production shortages, disruption to global supply chains and rising fuel costs. Demand factors also played a part, not least the impact of President Biden’s $1.9 trillion fiscal stimulus package. In the UK unemployment fell to within a fraction of pre-crisis levels although worryingly in regard to the outlook for inflation, withdrawals from the work force resulted in the tightest labour market in some fifty years.

Central banks responded to higher inflation by starting to row back from the exceptionally stimulative monetary conditions introduced in response to the start of the Covid-19 pandemic in early 2020. The Bank of England raised interest rates by 0.15 percentage points to 0.25%  in December 2021 while in the United States the Chair of the Federal Reserve, Jay Powell, adopted an increasingly hawkish tone over the turn of the year.

Performance

Despite the reversal in market fortunes late in the year I am pleased to report that the Company’s Net Asset Value (‘NAV’) total return for the year was 5.3%, compared to a total return of 4.0% for the ICE BofA European Currency High Yield Index, GBP hedged (‘the Index’) and an average return of 0.9% for funds in the Investment Association Sterling Strategic Bond Sector. The share price total return for the year was 4.2%, reflecting the fact that the discount to NAV widened slightly during the year.

The Board believes that investment performance is best assessed over a long term horizon and hence we pay particular attention to returns over three and five years. For the three and five years to the end of 2021 the Company’s NAV total return was 27.7% and 33.8% respectively (Source: Refinitiv). This is a good outcome for shareholders and it compares favourably with total returns of 20.8% and 26.9% respectively for the Index.

Merger

In May the shareholders of both City Merchants High Yield Trust Limited and Invesco Enhanced Income Limited (‘IPE’) voted overwhelmingly in favour of a proposal to merge the two companies. The combined company, named Invesco Bond Income Plus Limited (‘BIPS’), became the largest in its Association of Investment Companies (‘AIC’) sector (Debt - Loans and Bonds). The merger provided shareholders with both continuity of investment management and increased share liquidity. In addition, the Board was able to negotiate a reduction in the management fee as result of the merger, which together with the economies of scale provided by the increase in the size of the Company, resulted in a substantial proportional reduction in costs. Our key cost measure is the Ongoing Charges Ratio (‘OCR’). The OCR expresses the expenses incurred in managing your Company as a percentage of its NAV. At the end of 2021 the OCR was 0.87% (compared to 0.99% at the end of 2020).

As a result of the merger two former board members of IPE, Kate Bolsover and Christine Johnson, joined the board of BIPS and I would like to thank Stuart McMaster for his valued contribution as a non-executive director of City Merchants High Yield Trust Limited.

2021 also saw the retirement of Invesco’s Paul Read and Paul Causer. Although the ‘two Pauls’ had taken less of a day-to-day involvement in the portfolio’s management in recent times they managed the portfolio successfully for many years. I’d like to thank them on behalf of shareholders and wish them well for their well-earned retirements.

As a result of the merger with IPE the number of Board members increased from five to its current six. This expansion ensured that both sets of shareholders were fully represented during the initial stages of the merger. Our intention is to continue this approach for the two years following the merger, and then to revert to a board of five directors. Hence, while all Directors will stand for re-election at the forthcoming AGM, it is anticipated that Kate Bolsover will not seek re-election to the Board at 2023’s AGM.

Income Account

Our investment policy is to provide a high level of dividend income relative to prevailing interest rates and notwithstanding the fact that interest rates available to savers remained at rock bottom levels in 2021, the Company was able to increase its dividend for the year by 0.75 pence per share to 10.75 pence per share, compared to last year. The dividend was 97% covered by current year earnings with a total of £435,000 distributed from reserves. The Board is targeting a dividend of 11.00 pence per share each year for the three years following the merger.

The dividend was paid in four instalments, with the fourth dividend payment paid on 21 February 2022 in the form of an interim dividend payment. Paying the final instalment in the form of an interim dividend means that it can be paid earlier than would be the case had we declared a final dividend, since this would require approval at the Annual General Meeting.

Discount/Premium

On average companies within our AIC sector traded at a discount to their NAVs throughout the year. The weighted average discount for sector started the year at 4.9% and closed 2021 at a discount of 3.5%. The Company began the year with the share price at a discount to the NAV of 2.3% and closed the year at a slightly wider discount of 3.4%.

In the Board’s view the discount was a reflection of the increased macroeconomic and policy uncertainty weighing on the high yield sector, particularly the prospect of tighter monetary conditions in response to the sharp jump in inflation in 2021. Other than the shares issued as a result of the merger with IPE in May there were no shares issued in 2021.

Gearing

The Company’s policy on borrowing is set by the Board and remains unchanged following the merger. The maximum amount of borrowing is 30% of total assets. The decision to gear the portfolio within this framework rests with the Manager and is determined by the Manager’s assessment of risk and return within the high yield market. The Company maintained a geared portfolio throughout 2021 and as at 31 December 2021 gross gearing was 12.0% (6.8% as at 31 December 2020). Net gearing was 9.5% at year end compared to 5.4% at the start of the year. Our preferred method of gearing the portfolio is by the use of repurchase agreements (‘repo agreements’), which are described in more detail on pages 62 and 68.

Environmental, Social and Governance Matters (‘ESG’)

ESG considerations remained firmly on the Board’s agenda in 2021. The delayed COP 26 UN Climate Change Conference hosted by the UK in November served as an important reminder that financial markets will be impacted by economic, regulatory and social changes as governments grapple with the challenges of moving the world to a sustainable carbon path.

Our approach to ESG matters is explained on pages 18 to 20. The Board is confident that the Company is well-placed to navigate what is certain to be a period of far-reaching change in the next few years. Most importantly the Manager’s investment approach is equipped to assess the risks and opportunities which will result from accelerating ESG-driven change. Specifically, the Manager is a Tier 1 signatory of the Financial Reporting Council’s Stewardship Code and is an active member of the UK Sustainable Investment and Finance Association. In addition, the Manager has achieved a global ‘A+’ rating for the last four consecutive years from United Nations sponsored Principles of Responsible Investment (‘PRI’) for Strategy and Governance. The Manager is complying with the spirit of a new piece of EU legislation, the Sustainable Finance Disclosure Regulation (‘SFDR’) which came into effect within the European Union in March 2021 and introduces a number of sustainability-related disclosure requirements for investment managers.

Annual General Meeting (‘AGM’)

The AGM will be held on 24 June 2022 at 3pm at the Portman Square, London offices of Invesco.

This year we welcome shareholders to attend the Company’s AGM in person, subject to any government guidance in relation to Covid-19 that may be in place at the time.

Change of Registrar

During the year, a review of all the Company's service providers was carried out, and the Board has decided to change the Company’s registrar from Link Market Services (Jersey) Limited to Computershare Investor Services (Jersey) Limited. This change becomes effective at close of business on 1 April 2022 and Computershare's details will be sent to shareholders at that time.

Outlook

Russia’s invasion of Ukraine has resulted in terrible devastation and suffering. The longer term economic and political consequences of the conflict are difficult to assess at the time of writing this Statement. Clearly events in Ukraine overshadow the immediate outlook for financial markets; let us hope that a way can be quickly found to end the conflict.

Looking beyond events in eastern Europe, the direction of monetary policy is invariably a key determinant of the outlook for markets and 2022 is unlikely to provide an exception to this general rule. We are now in the early stages of a period of policy tightening prompted by economic recovery from the initial impact of the pandemic and then the sudden jump in inflation above central bank targets. Implied market rates tend to suggest that investors expect the rise in inflation to be temporary and that inflation will be heading back to within central banks’ ranges after a year or so of rate increases. An outcome whereby policymakers are able to manage inflation back to within target ranges while at the same time maintaining a steady pace of economic growth is ultimately a supportive scenario for high yield securities and for this reason it is often referred to as a ‘soft landing’.

The risk of course is that inflation proves much more vigorous and persistent than supposed. This risk cannot be lightly dismissed. After all, central banks consistently under-estimated the rise in inflation in 2021. Moreover, the tightness of labour markets and the possibility of further Covid-19 driven disruptions have the potential to push the expected peak in inflation further into the future. The going is likely to get tougher for companies, faced with rising costs on the one hand and the removal of government support measures on the other, and hence we expect profit warnings and corporate failures to increase in the next twelve months.

In the shorter term we could well see nerves tested and increasing market volatility. However, we are inclined to view this prospect as a temporary period of turbulence likely to provide attractive opportunities for our type of fundamental, longer term investment approach.

Tim Scholefield

Chairman

30 March 2022

Portfolio Managers’ Report

Portfolio Manager

Rhys Davies, CFA, Fund Manager and Senior Credit Analyst

Rhys is a fund manager and senior credit analyst for the Henley-based Fixed Interest team. He began his investment career with Invesco in 2002, moving to the Henley Fixed Interest team in 2003. He became a fund manager in 2014. He manages high yield credit portfolios. He holds a BSc (Honours) in Management Science from the University of Manchester Management School and is a CFA charterholder.

Deputy Portfolio Manager

Edward Craven, FCA, Fund Manager and Senior Credit Analyst

Edward is a fund manager and senior credit analyst for the Henley-based Fixed Interest team. He began his career with KPMG in 2003. In 2008 he moved to The Royal Bank of Scotland, where he worked in structured finance. He joined the team at Invesco in 2011 as a credit analyst and became a fund manager in 2020, managing multi-asset and high yield funds. He holds a Master’s degree in Physics from the University of Bath. He is an FCA qualified Chartered Accountant and holds a Masters Degree in Physics, MPhys, from the University of Bath.

Q&A

Q: How did the bond market evolve in 2021?

A:  The rally in high yield bonds that began in the second quarter of 2020 extended through most of 2021. The European market, as represented by the ICE BofA European Currency High Yield Index (GBP hedged), achieved a positive return in each of the first eight months of the year. For the year to 31 December 2021, the index returned 4.0%.

The two principal factors that have driven the rally since the initial Covid-19 related sell-off in March 2020 – policy support and economic recovery – are still in place and both the market’s yield and its spread ended 2021 at low levels by historical comparison. But as the recovery has extended and valuations have become more stretched, the rally has faltered a little.

Growing corporate earnings and consequent improvement in the credit fundamentals of many issuers helped high yield spreads to end the year tighter then they began. But as investors increasingly anticipated reduced quantitative easing and eventual monetary tightening, the market’s yield rose in the final quarter to end the year at 3.43%, up from a starting point of 3.29%. As a result, the fourth quarter saw the first negative quarterly return figure for the index since the first quarter of 2020, albeit only a marginal fall of –0.20%.

With price return marginally negative, 2021 was definitely a ‘coupon-clipping’ year, when the high yield market’s total return was driven by income.

Q: What level of return did different cohorts of the market see?

A:  2021 saw a compression of spreads between the different credit rating cohorts of the high yield market as investors extended their search for yield further along the credit risk spectrum. Whereas in 2020, the higher quality, more interest rate-sensitive BB sector outperformed, boosted by the rapid loosening of monetary policy, this year the best returns were in B and CCC. BB returned 2.83% for the year, with a negative –0.40% in the final quarter. B returned 5.20% while CCC and lower (the smallest and lowest quality cohort) returned no less than 12.14%. Total returns for both B and CCC were positive even in the rising yield environment of the fourth quarter.

Q:  How did the Company perform against this backdrop?

A:  Over the twelve months to 31 December 2021 the NAV per share fell from 194.29p to 193.82p, but with dividends reinvested, the Company delivered a positive total return of 5.3%.

Q: What were the key contributors and detractors of performance?

A:  The portfolio’s total return was made up of a positive contribution from credit risk and a smaller, partially offsetting, negative contribution from interest rate risk (duration).

All the main categories of credit holdings in the portfolio produced positive returns. Corporate high yield bonds and subordinated financial debt instruments, the largest asset allocations in the portfolio, made the biggest contributions but there were also significant returns from other areas, such as corporate hybrid bonds and emerging market bonds.

The portfolio has a modified duration of 3.5, slightly below that of the European high yield market. This interest rate risk was, not surprisingly, a drag on returns in a period when rate expectations and government bonds yields rose.

The individual bonds that contributed and detracted most in the portfolio’s performance ranged across a number of sectors, including retail, industrials, banks and property. Given the largely supportive environment for high yield bonds over the course of the year, many of the best performers were bonds that came into the year with some potential for a ‘recovery story’. Some of the biggest gains we had were from issuers that successfully re-structured debt in 2021. Two of these, Petra Diamonds and Codere, are covered in more detail below.

Q: Has there been any significant change in the default environment?

A:  The combination of policy support and improving credit fundamentals was reflected in falling rates of defaults and higher credit ratings. The Moody’s measure of global defaults fell from 6.8% in November 2020 to 2.0% in November 2021. Moody’s forecast a level as low as 1.6% in the first half of 2022. That would be the lowest since 2008 and helps to justify the current levels of yield and spread.

Away from the tail of defaulting and distressed debt, the wider tide of credit rating changes has turned around, with upgrades outnumbering downgrades by a relatively high margin.

Q: What defaults occurred in the Company’s portfolio?

A:  There were two issuers held in the portfolio that are listed by Moody’s as having defaulted during 2021 (down from six in 2020). Both of these, Codere and Petra Diamonds, also made the default list in 2020 before successfully restructuring in 2021.

Distressed bonds, that are likely to default, can sometimes represent a source of opportunity for us. Whilst this is not a core area of investing for the Company, it is an area in which the Invesco team has significant expertise in both assessing and managing investments that have become distressed. Petra Diamonds is a very good example of this. This is a position the team already had some exposure to at the start of 2020. As it became apparent that a default was likely, we chose to increase that exposure, but at a ‘distressed price’ of 34.5 USD versus a par price of 100 USD. Our view was that the company should survive but would require a balance sheet restructuring. Purchasing bonds at a distressed price of 34.5 USD offered significant upside because we were prepared to follow through with the restructuring, even if it did mean recording a default. March 2021 saw the company successfully restructured and bondholders received new bonds as well as taking ownership of most of the existing equity.

Although Petra Diamonds cost the portfolio 18bps (basis points) in 2020, in 2021 it added 90bps of return. Meanwhile, Codere completed its restructuring towards the end of 2021, with bondholders receiving the majority of the company’s equity in exchange for a partial debt write-down. Invesco worked closely with Codere’s management team and advisors as part of this restructuring process. Codere added 28bps to returns in both 2020 and 2021 and we anticipate additional gains once the company returns to full operations with a refreshed balance sheet and a new capital structure. Both companies are examples where our experience in assessing distressed bonds, and working with companies through restructurings, can provide additional returns for the portfolio.

Q: How did portfolio positioning evolve over the year?

A:  The high yield market has been supported by the recovery in growth and in corporate earnings and we have been happy to remain invested for income. As always, we have bought and sold bonds based on our fundamental credit analysis, with the aim of owning assets which offer an attractive level of reward for their risks. As valuations in the more interest rate sensitive and higher credit quality parts of the high yield market have risen, our security selection has reduced exposure to these areas.

We have sold some longer-dated, lower-coupon bonds. Consequently, the duration and the maturity profile of the portfolio has fallen. Modified duration (see APM on page 76 for explanation) moved from 3.8 to 3.5 over the course of the year and 84% of the portfolio is now in securities maturing or, in the case of subordinated financials, callable in less than seven years. This is up from 79% a year ago.

The credit quality profile of the portfolio has also changed. We have found more attractive opportunities in bonds in the B rating category, which now accounts for 38.4%, up from 27.9% (see Bond Rating Analysis on page 23). BB and BBB exposure has reduced (many bonds in these areas have more rate sensitivity) and we have also sold some higher credit risk bonds rated CCC and below. While we are happy to hold some of these more speculative, lower credit quality names, we are always conscious that the risk should be sufficiently compensated through yield.

Q: Did the new issue market offer attractive opportunities?

A:  2021 was a record year for high yield bond issuance. Low interest rates and rising earnings provided a highly supportive environment for the asset class and many businesses took advantage of strong demand for yield to bolster their balance sheets. Gross European high yield supply was €150bn (according to JPMorgan data), nearly 50% up from the already high level of 2020 and far higher than any previous year. Net issuance, at €88bn, was similarly record-breaking.

As the year went on, more bonds were offered to the market on terms that we felt were unattractive; however we did add select bonds from the primary market throughout the year.

Q: What is the level of gearing in the portfolio and how has that changed over the year?

A:  We have continued to use a modest amount of gearing by means of repo financing. Gearing is one of the tools we can use to adjust the level of risk in the portfolio in line with the level of opportunity we see in the market. Net gearing at the end of 2021 was 9.5%.

Q: How is Environmental, Social and Governance (‘ESG’) integrated into the investment process?

A:  Whilst we consider ESG aspects, we are not bound by any specific ESG criteria and have the flexibility to invest across the ESG spectrum from best to worst in class.

The Investment team incorporates ESG issues in their investment process as they evaluate new ideas, in their engagement with companies and as an element of ongoing portfolio monitoring. ESG ratings are part of the toolkit of both financial and ESG metrics considered as a starting point for further analysis and engagement. Where ESG issues are flagged for further research, the investment team, in partnership with the investment centre’s specialist ESG team, targets ESG research and dialogue towards those companies. The Henley Investment Centre finds working on the basis of engagement and dialogue, rather than exclusion, to be better aligned with both superior investment and improving ESG performance. Consequently, ESG elements are regularly incorporated into dialogue with companies.

Over the course of 2021, the Henley Fixed Interest team had a total 136 ESG engagements (either meetings dedicated to ESG or ESG discussions within a wider meeting). Recent engagements with companies held in the portfolio include meeting Lloyds, SSE and Charter Communications. We met the Lloyds ESG investor relations team and discussed their plans to meet their Net-Zero Banking Alliance targets, their coal financing policies and how they are integrating climate risk into their decision-making. We engaged with SSE to discuss their capital expenditure strategy, their target to eliminate biodiversity loss and their emissions targets. We engaged with Charter Communications on carbon emissions targets and energy efficiency and also on customer service (there are multiple lawsuits related to overbilling and unsolicited calls) and employee safety.

Finally, the ESG team provides formalised ESG portfolio monitoring. This is a rigorous semi-annual process and includes a meeting to go through the portfolio from an ESG perspective. It is important to note that ESG ratings can be useful as a tool or a flag. The Henley Investment Centre’s approach to ESG means that investment teams make their own subjective conclusions about the ESG characteristics of each investment held and about the overall ESG characteristics of the portfolio.

Further details on the Manager’s ESG process can be found on pages 18 to 20.

Q: What is your outlook for the year ahead?

A:  The high yield market begins 2022 still offering low yields and tight credit spreads by historical standards, notwithstanding some weakness in the final quarter of 2021. High valuations reflect the strong, ongoing demand for income and a macroeconomic background that remains supportive, with accommodative monetary policy and pent-up demand underpinning economic growth and rising corporate earnings.

However, monetary conditions have begun to tighten as the market anticipates higher interest rates and the end of quantitative easing programmes. We have already reduced the duration of our portfolio. We think that interest rate expectations could rise further, especially as inflation continues at a relatively high level.

Default expectations for the coming year are low. There is justification for this. Corporate earnings are rising and companies have been able to raise a large amount of capital in the last two years to bolster their balance sheets. This underpins relatively tight levels of credit spread.

We continue to see the high yield market as a good source of income and total return. But the key for us is careful issuer and security selection, based on fundamental analysis. In the last year the market environment has been quite benign. Demand for income has perhaps led to less discrimination between stronger and weaker credits. This won’t always be the case.

In the latter part of 2021 and in the early weeks of 2022, we have seen more volatility in the market. Investors have moved to price-in a tighter monetary environment. As we go to press, the markets have also reacted to the severe increase in geopolitical tensions following the Russian invasion of Ukraine. These events are very worrying. The exposure to Ukrainian holdings within the portfolio at year end was 0.6%. As investors, we can only watch carefully to see how conditions develop. In more volatile markets there is likely to be more discrimination between the credit risk of issuers. This will present opportunities as well as risks. We want a well-diversified portfolio of bonds which will not only provide attractive income now but will also serve our investors well in a more testing market.

Rhys Davies  Edward Craven

Portfolio Managers

30 March 2022

Business Review

Purpose, Business Model and Strategy

Invesco Bond Income Plus Limited is a Jersey domiciled investment company which is listed on the London Stock Exchange

The Company’s purpose is to generate sustainable returns for its shareholders by investing their pooled capital to achieve the Company’s investment objective through the application of its investment policy (set out below) and with the aim of spreading investment risk.

The strategy the Board follows to achieve the objective is to set investment policy and risk guidelines, together with investment limits, and to monitor how they are applied.

The business model the Company has adopted to achieve its objective has been to contract investment management and administration to appropriate external service providers, who are subject to oversight by the Board. The principal service providers are:

– Invesco Fund Managers Limited (the ‘Manager’) to manage the portfolio in accordance with the Board’s strategy; and

– JTC Fund Solutions (Jersey) Limited (the ‘Company Secretary’) to provide company secretarial, compliance and general administration services.

In addition to the management and administrative functions of the Manager and the Company Secretary, the Company has contractual arrangements with Link Market Services (Jersey) Limited to act as registrar and the Bank of New York Mellon (International) Limited (‘BNYMIL’) as depository and custodian. As noted in the Chairman’s Statement, the Board has decided to change the Company’s registrar from Link Market Services (Jersey) Limited to Computershare Investor Services (Jersey) Limited. This change becomes effective at close of business on 1 April 2022.

The Board has oversight of the Company’s service providers, and monitors them on a formal and regular basis. The Board has a collegiate culture and pursues its fiduciary responsibilities with independence, integrity and diligence, taking advice and outside views as appropriate and constructively challenging and interacting with service providers, including the Manager. The portfolio managers responsible for the day-to-day management of the portfolio are Rhys Davies, Portfolio Manager and Edward Craven, Deputy Portfolio Manager, supported by the wider fixed interest team.

The Company is an alternative investment fund for the purposes of the Alternative Investment Fund Managers Directive.

Investment Objective and Policy

Investment Objective

The Company’s investment objective is to seek to obtain capital growth and high income from investment, predominantly in high-yielding fixed-interest securities.

Investment Policy

The Company seeks to provide a high level of dividend income relative to prevailing interest rates mainly through investment in bonds and other fixed-interest securities. The Company also invests in equities and other equity-like instruments consistent with the Investment Objective.

This Investment Policy should be read in conjunction with the descriptions of Investment Style, Investment Limits, Derivatives and Currency Hedging, and Borrowings set out below.

Investment Style

The Manager seeks to ensure that the portfolio is diversified, having regard to the nature and type of securities (including duration, credit rating, performance and risk measures and liquidity) and the geographic and industry sector composition of the portfolio. The Company may hold both illiquid securities (for example, securities where trading volumes are relatively low and unlisted securities) and concentrated positions (for example, where a high proportion of the Company’s total assets are comprised of a relatively small number of investments).

Investment Limits

– the Company may invest in fixed-interest securities, including but not restricted to preference shares, loan stocks (convertible and redeemable), corporate bonds and government stocks, up to 100% of total assets;

– investments in equities may be made up to an aggregate limit of 20% of total assets;

– the aggregate value of holdings of shares and securities in a single issuer or company, including a listed investment company or trust, will not exceed 15% of the value of the Company’s investments; and

– investments in unlisted investments will not exceed 10% of the Company’s total assets for individual holdings and 25% in aggregate.

All the above limits are measured at the time a new investment is made.

Derivatives and Currency Hedging

The Company may enter into derivative transactions (including options, futures, contracts for difference, credit derivatives and interest rate swaps) for the purposes of efficient portfolio management. The Company will not enter into derivative transactions for speculative purposes.

Efficient portfolio management may include reduction of risk, reduction of cost and enhancement of capital or income through transactions designed to hedge all or part of the portfolio, to replicate or gain synthetic exposure to a particular investment position where this can be done more effectively or efficiently through the use of derivatives than through investment in securities or to transfer risk or obtain protection from a particular type of risk which might attach to portfolio investments.

The Company may hedge against exposure to changes in currency rates to the full extent of any such exposure.

Borrowings

The Company’s borrowing policy is determined by the Board, which has set a maximum of 30% of the Company’s total assets. This limit may be varied from time to time in the light of prevailing circumstances, but has not been changed since the Company’s incorporation in its current form. The Manager has discretion to borrow within the limit set by the Board. Any borrowings are covered by investments in matching currencies to manage exposure to exchange rate fluctuations.

The Board has reviewed the methods of financing available to the Company including repo financing whereby a company participates in sale and repurchase arrangements in connection with its portfolio. Under these arrangements, a company sells fixed interest securities and is contractually obliged to repurchase them at a fixed price on a fixed date, whilst retaining economic exposure to the securities sold. The difference between the (lower) sale price and the later purchase price is the cost (effectively interest) of the repo financing. Repo financing agreements are in place and may be used subject to the aggregate 30% ceiling. At the year end, the sum borrowed using this method was £39.1 million (2020: 13.5 million). This represents gross gearing of 12.0% with cash of 2.5%  giving net gearing of 9.5% (2020: gross gearing of 6.8% with cash of 1.4% giving net gearing of 5.4%).

Key Performance Indicators

The Board reviews performance by reference to a number of Key Performance Indicators which include the following:

• Performance

• Dividends

• Premium/Discount

• Ongoing Charges Ratio

Performance

As the Company’s objective is to seek to obtain capital growth and high income, the performance is best measured in terms of total return. There is no single index against which the Company’s performance may be meaningfully assessed. Therefore, the Board refers to a variety of relevant data and this is reflected in both the Chairman’s Statement and the Portfolio Managers’ Report on pages 6 to 11. The Manager has a long-term horizon and consequently the Board pays close attention to returns over three and five years in its assessment of investment performance. As explained in the Chairman’s Statement, the Board has noted the performance in the year and is satisfied with the longer term performance of the portfolio.

When considering historical returns, the terms of the reconstruction in 2012 allow direct comparison of the Company’s financial information with that of its predecessor, CMHYT plc (as defined in footnote (1) to the table on page 4). It is therefore appropriate to combine the information from both companies, and the graph that follows shows the performance of the share price and net asset value (both on a total return basis) for the last ten years.

Dividends and Dividend Payment Policy

Dividends form a key component of the total return to shareholders and after its merger with Invesco Enhanced Income Limited in May 2021 the Company has adopted a dividend policy to target an annualised dividend of 11.00p per share over a three year period following the merger transaction and will then review it. In the year under review, a first interim dividend of 2.50p was paid pre-merger and three interim dividends each of 2.75p were paid to shareholders. Dividends paid over the last ten years are shown in the table on page 4.

The Board’s Dividend Payment Policy is to pay dividends on a quarterly basis in May, August, November and February in respect of each accounting year. The timing of these regular three-monthly payments means that shareholders do not have an opportunity to vote on a final dividend. Recognising the importance of shareholder engagement, and although not required by any regulation, shareholders are given an opportunity to vote on this policy at the forthcoming AGM.

Premium/Discount

The Board monitors the price of the Company’s shares in relation to their net asset value and the premium/discount at which the shares trade. Powers are taken each year to issue and buy back shares, which can assist short term management, however the level of discount or premium is mostly a function of investor sentiment and demand for the shares, over which the Board may have limited influence. The ideal would be for the shares to trade close to their net asset value. The following graph shows the discount/premium through the year, ending with a discount of 3.4%.

Ongoing Charges Ratio

The expenses of managing the Company are carefully monitored by the Board. The standard measure of these is the ongoing charges ratio (OCR), which is calculated by dividing the sum of such expenses over the course of the year, including those charged to capital, by the average net asset value. This ongoing charges ratio provides a guide to the effect on performance of annual operating costs. The Company’s ongoing charges ratio for the current year was 0.87%, compared to 0.99% for the previous year.

Investment Process

At the core of the portfolio managers’ philosophy is a belief in active investment management. They seek to invest where they see the potential for attractive returns and to avoid risks that they do not think are well rewarded. Fundamental principles drive a genuinely active investment approach, with a strong emphasis on value.

The investment process comprises four key elements to deliver the information the portfolio managers use to make their decisions:

• top down, macroeconomic analysis – examining the factors that shape the economy;

• credit analysis using internal and external research with a view to maximising returns from acceptable and understood credit risk exposure;

• value assessment, considering the risk/return profile of any bond in relation to cash, core government bonds and the rest of the fixed interest universe; and

• risk considerations, analysing all holdings to allow for a comprehensive understanding of risks involved to ensure diversification of the portfolio.

The portfolio managers enter into the majority of positions with a view to holding them until their call or maturity date and their investment process is based on making investments where the yield to maturity or call appears to them to be at least an adequate reward for the risk. The nature of the high yield market and the Company’s mandate mean that there will be occasions when the value the portfolio managers assessed in an investment is fully realised by the market. On these occasions, they may exit the position before maturity.

The portfolio managers believe that it is good investment practice to try and keep the level of turnover low, whilst at the same time recognising that this should not at any time act as a deterrent to effective portfolio management. Turnover will generally be very low due to the long term nature of many of the holdings, and given the closed end nature of the Company, the portfolio managers are not presented with regular daily inflows and outflows which require managing.

The portfolio managers also consider the aspects of  environmental, social and governance (‘ESG’) details of which are given on pages 18 to 20.

Internal Control and Risk Management

The Directors have overall responsibility for the Company’s system of internal controls and are responsible for reviewing the effectiveness of these controls. This includes safeguarding of the Company’s assets. The Directors have carried out a robust assessment of the principal and emerging risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity.

The Audit Committee (the ‘Committee’), on behalf of the Board, has established an ongoing process for identifying and assessing the risks to which the Company is exposed by reference to a risk control summary, which maps the risks, mitigating controls in place, and monitoring and reporting of relevant information to it. The review of the risk control summary also incorporated a robust assessment of new and emerging risks for monitoring purposes.

As part of the process, the Committee has identified five risk categories: strategic; investment management; third party service providers; regulation and corporate governance; and operational. An explanation of these categories follows.

Strategic Risk

The Board sets the Company’s strategy, including setting its objective and how this should be achieved. The Board assesses the performance of the Company in the context of the market and macro conditions and gives direction to, and monitors, the Manager’s actions, and those of other third parties, on behalf of the Company.

Investment Management Risk

Investment management covers management of the portfolio together with cash management, gearing and hedging, all being areas the portfolio managers can control, and which generate the Company’s investment performance.

Third Party Service Providers Risk

The Company has no employees and its Directors are appointed on a non-executive basis. The Company is reliant on Third Party Service Providers (‘TPPs’) for its executive functions. The Company’s most significant TPPs are the Manager, to which portfolio management is delegated, fund accounting and the Company Secretary. Other significant TPPs are the corporate broker, depositary, custodian, registrar and auditor.

Regulation and Corporate Governance Risk

The Company is required to comply with many regulations. For the year under review these included but were not limited to, the provisions of the Companies (Jersey) Law 1991, the UK Listing Rules, the Alternative Investment Fund Managers Directive, the Market Abuse Regulation, the FCA’s Disclosure Guidance and Transparency Rules, the UK Corporate Governance Code and International Financial Reporting Standards.

Operational Risk

Operational risk covers the day to day operational matters mainly at the Manager, but also at other Third Party Service Providers.

A matrix of the risks, set out according to their assessed risk levels after mitigation, enables the Directors to concentrate on those risks that are most significant, and also forms the basis of the list of principal risks and uncertainties on pages 15 and 16. The ratings take into account the Directors’ risk appetite and the ongoing monitoring by the Manager.

Oversight of the control environment is based on the Company’s relationship with its TPPs, all of which have clearly defined lines of responsibility, delegated authority, and control procedures and systems. The Company’s main TPPs, the Manager, fund accounting and the Company Secretary, all have, a ‘Three Lines of Defence Model’, which is embedded into their risk management systems.

The effectiveness of the Company’s internal control and risk management system is reviewed at least twice a year by the Committee. The Committee received and considered, together with representatives of the Manager, reports in relation to operations and systems of internal controls of the Manager, Company Secretary, accounting administrator, custodian and registrar. The Committee also receives regular reports from the Company Secretary’s compliance officer and the Manager’s internal audit and compliance departments. The Committee also received a comprehensive and satisfactory report from the depositary at the year end Committee meeting. The Company’s risk management policies and procedures for financial instruments are set out in note 19 on pages 63 to 68.

Due diligence is undertaken before any contracts are entered into with any third party service provider. The Manager regularly reviews, against agreed service standards, the performance of TPPs through formal and informal meetings, and by reference to third party independently audited control reports. The results of the Manager’s reviews are reported to and reviewed by the Committee. These various reports and reviews did not identify any significant failings or weaknesses which were relevant to the Company during the year and up to the date of this Annual Financial Report. If any had been identified, the required remedial action would have been taken.

Reporting to the Board at each board meeting comprises, but is not limited to: financial reports, including any hedging and gearing; performance against relevant indices and the Company’s peers; the portfolio managers’ review, including of the market, the portfolio, transactions and prospects; revenue forecasts; and investment monitoring against investment guidelines. The portfolio managers are permitted discretion within these investment guidelines, which are set by the Board. Compliance with the guidelines is monitored daily by the Manager. Any proposed variation to these guidelines is referred to the Board for consideration and approval.

The Board, through the Management Engagement Committee, formally reviews the performance of the Manager and the Company Secretary annually. The Board has reviewed and accepted both the Manager’s and Company Secretary’s whistleblowing policy under which staff of both Invesco Fund Managers Limited and JTC Fund Solutions (Jersey) Limited can, in confidence, raise concerns about possible improprieties or irregularities in matters affecting the Company.

Principal and Emerging Risks and Uncertainties

The Board has carried out a robust assessment of the risks facing the Company, including those that would threaten its business model, future performance, solvency and liquidity. As part of this process, the Board conducted a full review of the Company’s risk control summary and considered new and emerging risks, including risks associated with merger. These are not necessarily principal risks for the Company, but may have the potential to be in the future. In carrying out this assessment, the Board considered the emerging risks facing the Company including geopolitical risks such as the invasion of Ukraine by Russia, evolving cyber threats and ESG. The principal risks that follow are those identified by the Board as the most significant after consideration of mitigating factors and not intended to cover all the risk categories as shown in the Internal Control and Risk Management section on page 14.

Category and Principal Risk Description	Mitigating Procedures and Controls
Strategic Risk
Market and Political Risk
The Company invests primarily in fixed interest securities, the majority of which are traded on global security markets. The principal risk for investors in the Company is a significant fall and/or a prolonged period of decline in these markets. This could be triggered by unfavourable developments globally and/or in one or more regions, contemporary examples being the ongoing Covid-19 pandemic. The Board cannot control the effect of such external influences on the portfolio. Market risk also arises from movements in foreign currency exchange rates and interest rates.	An explanation of market risk and how this is addressed is given in note 19.1 to the financial statements. The Portfolio Managers’ Report summarises particular macro economic factors affecting performance during the year and the portfolio managers’ views on those most relevant to the outlook for the portfolio.
Regulatory or Fiscal Changes
The Company is incorporated in Jersey which is a low tax jurisdiction subject to global scrutiny. Any adverse global regulatory or fiscal measures taken against such low tax jurisdictions, could negatively impact the Company.	The Board receives regular reports from the Manager and Company Secretary which highlight any proposed changes to the regulatory/fiscal regimes which might impact the Company. The Board has a wide knowledge of the macro economic environment and also holds a periodic strategy meeting which considers any such emerging risks.
Wide Discount leading to Shareholder Dissatisfaction
The Company’s shares are subject to market movements and can trade at a premium or discount to NAV. Should the Company's shares trade at a significant discount compared to its peers, then shareholder dissatisfaction may result if shareholders cannot realise the value of their investment close to NAV, with the ultimate risk that arbitragers join the share register.	The Board receives regular reports from both the Manager and the Company’s broker on the Company’s share price performance and level of discount (or premium), together with regular reports on marketing and meetings with shareholders and prospective investors. The Board recognises the importance of the Company’s scale in terms of the aggregate value of its shares in the market (‘market cap’) in creating liquidity and the benefit of a wide shareholder base, and has the ability to both issue and buy back shares to assist with market volatility. The foundation to this lies in solid investment performance and a high level of dividend.
Third Party Service Providers Risk
Lack of Control over, or Unsatisfactory Performance of Third Party Service Providers (‘TPPs’) Failure by any service provider to carry out its obligations to the Company in accordance with the terms of its appointment could have a materially detrimental impact on the operations of the Company and affect its ability to pursue successfully its investment policy and expose it to reputational risk. Disruption to the accounting, payment systems or custody records could prevent the accurate reporting and monitoring of the Company’s financial position.
	Details of how the Board monitors the services provided by the Manager and the other TPPs, and the key elements designed to provide effective internal control, are included in the internal control and risk management section on page 14.
Cyber Risk
The Company’s operational structure means that cyber risk (information technology and physical security) predominantly  arises at its TPPs. This cyber risk includes fraud, sabotage or crime perpetrated against the Company or any of its TPPs.	The Audit Committee on behalf of the Board regularly reviews TPPs’ service organisation control reports and meets with representatives of the Manager’s Investment Management, Compliance, Internal Audit and Investment Trust teams as well as the Company Secretary’s senior staff and Compliance team. The Board receives regular updates on the Manager’s and the Company Secretary’s information security arrangements. The Board monitors TPPs’ business continuity plans and testing – including their regular ‘live’ testing of workplace recovery arrangements.
Business Continuity Risk
Impact of a major event, such as Covid-19, on the operations of the service providers, including any prolonged disruption.	The Manager’s business continuity plans are reviewed on an ongoing basis and the Directors are satisfied that the Manager has in place robust plans and infrastructure to minimise the impact on its operations so that the Company can continue to trade, meet regulatory obligations, report and meet shareholder requirements. The Manager has mandated work from home arrangements and implemented split team working for those whose work is deemed necessary to be carried out on business premises. Any meetings are being held virtually or via conference calls. Other similar working arrangements are in place for the Company’s other third-party service providers. During the exceptional circumstances of the Covid-19 pandemic the Manager and the Company's other third party service providers were afforded an opportunity to implement their business continuity plans, all of which worked well and enabled the Company to operate as normal, and provided the Board with good evidence of the robustness of these plans. In addition, due to the nature of the Company being a closed end investment company, the portfolio managers are not presented with regular daily inflows and outflows, from or to investors, that require managing.

Viability Statement

This Company is an investment company whose business consists of investing the pooled funds of its shareholders to provide them with capital growth and a high income over the long term, predominantly from a portfolio of high yielding fixed income securities. Long term for this purpose is considered to be at least five years and the Directors have assessed the Company’s viability over that period. However, the life of the Company is not intended to be limited to that or any other period.

The main risk to the Company’s continuation is a significant fall in markets or a prolonged period of decline due to political uncertainty or other macro factors outside the Company’s control. This could lead to shareholder dissatisfaction through failure to meet the Company’s investment objective, through poor investment performance or the investment policy not being appropriate in prevailing market conditions, either of which could affect the demand for and liquidity of the Company’s shares. Accordingly, market and political/fiscal risks, are deemed by the Board to be principal risks of the Company and are given particular consideration in the continuing assessment of its long term viability.

The Company’s investment objective and policy are kept under review. In essence they are the same as they have been since the Company commenced trading in 2012. The continued relevance of the investment objective and policy are underlined by the Company’s annual continuation vote. Last year nearly 100% of the votes registered were in favour of continuation and the Board has no reason to believe that the continuation resolution will not be passed at the forthcoming and subsequent AGMs.

Performance derives from returns for risk taken. The Portfolio Managers’ Report on pages 9 to 11 sets out the current investment strategy of the portfolio managers. The portfolio contains a high level of relatively high-yielding non-investment grade bonds and these carry a higher risk of default than investment grade paper. This is discussed further in note 19 to the financial statements. The Board has adopted investment limits within which the portfolio managers operate. The Directors and the portfolio managers constantly monitor the portfolio, its ratings and default risk. A bond rating analysis of the portfolio at the year end is shown on page 23. Exposure is weighted towards higher quality issuers where the risk of default is considered to be more remote.

The terms of the Company’s corporate transition in 2012 allow direct comparison of the Company’s financial information with its UK predecessor. Taking the two together, performance has been strong for many years through different, and difficult, market cycles – as shown by the ten year total return performance graph on page 13. The investment policy has effectively been stress tested by market events in 2007/8 and earlier cycles, and in recent times by both global and domestic events such as Covid-19. These events affected performance, but at no time did they threaten the viability of the Company. Whilst past performance may not be indicative of performance in the future, the investment policy has been consistent throughout those past periods.

Performance and demand for the Company’s shares are not things that can be forecast. Indeed the Covid-19 outbreak continues to have an impact on the economy and markets. The portfolio manager and other service providers have taken steps to mitigate and control the impact on their own businesses thereby ensuring that the Company can continue to trade, report and meet shareholder needs. There are no current indications that the Company is unable to weather the continuing Covid-19 pandemic or that performance and demand for the Company’s shares may be permanently affected over the next five years so as to affect the Company’s viability.

As described in note 19.2 to the financial statements on page 67 liquidity risk is not viewed by the Directors as a significant risk. The majority of the Company’s assets are readily realisable and amount to many times the value of its short term liabilities and annual operating costs. The Company is permitted to borrow up to a maximum of 30% of the Company’s total assets and currently has no long-term debt obligations.

The Board announced on 1 March 2021 that it signed Heads of Terms with the Board of Invesco Enhanced Income Limited (‘IPE’) in respect of a proposed merger with IPE to be effected by way of a shareholder approved contractual scheme of reconstruction by IPE and a transfer of assets to the Company. This merger became effective on 19 May 2021. The Company’s shareholders now benefit from greater economies of scale resulting from the enlarged asset base of the Company through lower management fee arrangements, lower ongoing charges, improved liquidity and the potential for strong share price rating.

Based on the above analysis, the Directors confirm that they have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the five year period of their assessment. Despite the recent disruption from Covid-19 and the impact on global markets, the Directors consider that the Company’s investment strategy will continue to serve shareholders well over the longer term.

Investment Management

As noted earlier, the Manager provides investment management and certain administrative services to the Company. The agreement is terminable by either party giving no less than three months’ prior written notice and subject to earlier termination without compensation in the event of a material breach of the agreement or the insolvency of either party. The management fee is payable quarterly in arrears and is equal to 0.1625% of the value of the Company’s total assets under management less current liabilities at the end of the relevant quarter. Prior to the merger with IPE, the management fee was at a rate of 0.1875% on the same basis as the current fee. In addition, the Manager is paid a fee of £45,000 for marketing services. Following the merger with IPE on 19 May 2021, the Manager’s administration services fee, which was paid based on an initial fee of £22,500 plus RPI increases per annum, was removed.

The portfolio managers responsible for the day-to-day management of the portfolio are Rhys Davies, Portfolio Manager, and Edward Craven, Deputy Portfolio Manager.

The Manager’s Responsibilities

The Directors have delegated to the Manager the responsibility for the investment management activities of the Company, for seeking and evaluating investment opportunities and for analysing the accounts of investee companies. The Manager has full discretion to manage the assets of the Company in accordance with the Company’s stated objectives and policies as determined from time to time by the Board and approved by shareholders. Within the guidelines specified by the Board, the Manager has discretion to make purchases and sales, make and withdraw cash deposits, enter into underwriting commitments and exercise all rights over the investment portfolio. The Manager also advises on currency exposures and borrowings.

Assessment of the Manager

The performance of the Manager is reviewed continuously by the Board and the ongoing requirements of the Company and services received are assessed annually with reference to key performance indicators as set out on page 13.

The Management Engagement Committee is responsible for reviewing the Manager. Based on its recent review of activities, the Board believes that the continuing appointment of Invesco Fund Managers Limited remains in the best interests of the Company and its shareholders.

Financial Position

The Company’s balance sheet on page 54 shows the assets and liabilities at the year end. The Company has repo financing agreements in place, with an amount of £39.1 million (2020: £13.5 million) borrowed at year end, representing gross gearing of 12.0% (2020: 6.8%) and net gearing of 9.5% (2020: 5.4%), after taking cash and cash equivalents in account, as at 31 December 2021.

Performance and Future Development

The performance and future development of the Company depend on the success of the Company’s investment strategy. A review of the Company’s performance, market background, investment activity and strategy during the year, together with the investment outlook are provided in the Chairman’s Statement and Portfolio Managers’ Report on pages 6 to 11.

Annual Continuation Vote

The Articles of Association of the Company require that unless an ordinary resolution is passed at or before the Annual General Meeting (‘AGM’) each year releasing the Directors from the obligation to do so, the Directors shall convene a general meeting within six months of the AGM at which a special resolution would be proposed to wind up the Company. Having reviewed the performance of the Company, the Directors have no reason to believe that a resolution to release them from that obligation will not be passed at the AGM to be held later in the year.

Substantial Holdings in the Company

The Company has been notified of the following holdings of 3% and over of the Company’s ordinary share capital carrying unrestricted voting rights:

	As at 28 February 2022		As at 31 December 2021		As at 31 December 2020*
Fund Manager/Registered Holder	Holding	%	Holding	%	Holding	%
Hargreaves Lansdown, stockbrokers (EO)	25,295,531	15.0	25,250,348	15.0	11,573,001	11.4
Interactive Investor (EO)	18,979,475	11.3	19,036,735	11.3	8,099,750	8
Invesco**	17,892,684	10.6	17,892,684	10.6	6,881,470	6.8
Charles Stanley	11,866,770	7.0	12,172,734	7.2	10,504,578	10.3
Redmayne Bentley, stockbrokers	9,515,000	5.6	9,532,025	5.7	7,860,668	7.7
AJ Bell, stockbrokers (EO)	8,556,750	5.1	8,644,124	5.1	3,589,017	3.5
HSDL, stockbrokers (EO)	6,036,478	3.6	6,023,730	3.6	Under 3%	–
EFG Harris Allday, stockbrokers	5,917,268	3.5	5,940,127	3.5	5,512,484	5.4
Brewin Dolphin, stockbrokers	Under 3%	–	Under 3%	–	3,211,638	3.2

EO: Execution only,

*  Holding in City Merchants High Yield Trust Limited

**  Held across a number of Invesco Funds.  Invesco is not considered a related party. For further information see Related Party Transactions and Transactions with Manager Note 23 on page 69.

Board’s Duty to Promote the Success of the Company

The Directors have a fiduciary duty to act, in good faith, for the benefit of shareholders taken as a whole. In the UK, section 172 of the Companies Act 2006 seeks to codify this duty and to widen the responsibility to incorporate the consideration of wider relationships that are necessary for the Company’s sustainability. As a UK listed Company it is necessary for the Company to report against this UK statutory duty, being that the Directors have a duty to promote the success of the Company, whilst also having regard to certain broader matters, including the need to engage with employees, service providers, customers and others, and to have regard to their interests. This is reflected in the summary of the Board’s responsibilities on page 37.

In fulfilling these duties, and in accordance with the Company’s nature as an investment company with no employees and no customers in the traditional sense, the Board’s principal concern has been, and continues to be, the interests of the Company’s shareholders taken as a whole. Notwithstanding this, the Board has a responsible governance culture and also has due regard for broader matters so far as they apply. In particular, the Board engages with the Manager and Company Secretary at every Board meeting and the Management Engagement Committee also reviews the Company’s relationships with these and other service providers, such as the registrar, broker, depositary and custodian, at least annually. The assessment of the Manager consequent to these reviews is set out on page 17.

The Company communicates with its shareholders at least three times a year providing information about shareholder meetings, dividend payments and half-yearly and annual financial results. In addition, the annual general meeting of the Company is under normal circumstances held in a central London location, providing shareholders with the opportunity to attend and meet with the Directors and the Manager. The Company’s AGM will be held on 24 June 2022 at 3pm at the Portman Square, London offices of Invesco. This year shareholders are welcome to attend the AGM in person, subject to any government guidance in relation to Covid-19 that may be in place at the time. Shareholders who cannot attend in person are encouraged to submit their votes by proxy.

Board Diversity

The Company’s policy on diversity is set out on page 38, under the section Nomination and Remuneration Committee. The Board considers diversity, including the balance of skills, knowledge, experience and gender amongst other factors when reviewing its composition and appointing new directors. The Board has considered the recommendations of the Davies and Hampton-Alexander review as well as the Parker review, but does not consider it appropriate to establish targets or quotas in this regard. Following the merger with IPE on 19 May 2021, Stuart McMaster retired from the Board and Kate Bolsover and Christine Johnson joined the Board from IPE. As a result, the Board currently comprises of six Directors, four of whom are female, thereby constituting 67% female representation. Summary biographical details of the Directors are set out on page 33. The Company has no employees.

Modern Slavery Act 2015

The Company is an investment vehicle and does not provide goods or services in the normal course of business, or have customers. Accordingly, the Directors consider that the Company is not required to make any slavery or human trafficking statement under the Modern Slavery Act 2015.

Environmental, Social and Governance (ESG) Matters

In relation to the portfolio, the Company has delegated the management of the Company’s investments to the Manager, who has an ESG Guiding Framework which sets out a number of principles that are intended to be considered in the context of its responsibility to manage investments in the financial interests of shareholders. A greenhouse gas emissions statement is included in the Directors’ Report on page 34.

The Manager is committed to being a responsible investor and applies, and is a signatory to, the United Nations Principles for Responsible Investment, which demonstrates its extensive efforts in terms of ESG integration, active ownership, investor collaboration and transparency. The Manager achieved an A+ rating for its overall approach to responsible investment (Strategy and Governance) for the fourth consecutive year since 2018 as well as achieving an A or A+ across all categories in the 2021 assessment period. In addition, the Manager is an active member of the UK Sustainable Investment and Finance Association as well as a supporter of the Task Force for Climate Related Financial Disclosure (‘TCFD’) since 2019 and has published its inaugural Climate Change report in line with the TCFD in July 2020. Although TCFD does not apply directly to the Company at present, the Board confirms that it will comply with all reporting regulations as they are implemented.

The Manager is complying with the spirit of the Sustainable Finance Disclosure Regulation (‘SFDR’) which came into effect within the EU on 10 March 2021 and is disclosing in its AIFM document as well as its webpage how sustainability risks are integrated.

The Manager’s investment team incorporates ESG considerations in its investment process as part of the evaluation of new opportunities, with identified ESG concerns feeding into the final investment decision and assessment of relative value. The Portfolio Managers make their own conclusions about the ESG characteristics of each investment held and about the overall ESG characteristics of the portfolio, although third party ESG ratings may inform their view. Additionally, the Manager’s ESG team provides ESG monitoring.

Regarding stewardship, the Board considers that the Company has a responsibility as an investor towards ensuring that appropriate standards of corporate governance are maintained in the companies in which it invests. To achieve this, the Board does not seek to intervene in daily management decisions, but aims to support high standards of governance and, where necessary, will take the initiative to ensure those standards are met.

The Company’s stewardship functions have been delegated to the Manager. The Manager has adopted a clear and considered policy towards its responsibility as an investor on behalf of the Company. As part of this policy, the Manager takes steps to satisfy itself about the extent to which the companies in which it invests look after shareholders’ value and comply with local recommendations and practices, such as the UK Corporate Governance Code. A copy of the current Invesco Stewardship Policy, which is updated annually, can be found at www.invesco.co.uk.

Insight into Invesco’s ESG Framework

The Henley based Invesco Fixed Income team, of which the portfolio managers are a part, incorporates ESG considerations in its investment process as part of the evaluation of new primary and secondary market opportunities, with identified ESG concerns feeding into the final investment decision and assessment of relative value.

Invesco’s ESG approach is led globally by their Global Head of ESG and the ESG team. This team reports into the Head of Investment Specialised Services. This team is further supported by their global proxy function.

At a local level, the Henley Investment Centre’s CIO has ultimate oversight, agrees with and sponsors Invesco’s ESG approach. The Henley Investment Centre ESG investor group is chaired by a member of the global ESG team and is made up of champions from each investment team. The ESG champion is a representative of the individual investment teams that has responsibility for feeding into the overall ESG approach and areas of interest for further analysis. The role of this group is to help facilitate dialogue and share insights from across asset classes and regions within the Henley Investment Centre. The group meets quarterly.

Training is an essential part of Invesco’s commitment to ESG integration, and keeping abreast of the rapidly evolving landscape for responsible investment. Their continuing personal development (‘CPD’) training programme includes ESG modules. This is augmented by other programmes such as global sector meetings and CIO insight meetings.

ESG overview

Although ESG integration forms part of the investment process, the fund is not managed to sustainable ESG objectives, constraints or outcomes.

The portfolio managers’ approach is centred on macroeconomic and corporate credit research and focuses on fundamental valuation to support the active management of portfolios. The Manager has always incorporated ESG analysis into its investment research because it believes that non-financial risks can have a material impact on credit risk and by identifying those risks, it can improve its credit risk assessment and produce better risk-adjusted returns in portfolios.

The core objective of the Manager’s ESG approach is to assess issuers’ performance across environmental, social and governance factors and to determine where those risks are potentially material or mispriced.

The fixed income universe is broad and varied. Geographical, structural and regulatory differences mean that data availability, ESG awareness and management engagement levels can vary greatly. As a result, while the investment team’s commitment to ESG risk assessment is constant, the path to arriving at an ESG-based assessment necessarily differs to account for the constraints and challenges of different circumstances.

Common Principles for ESG Research

The Invesco team’s approach to ESG is based on a belief that incorporating material environmental, social and governance risks into a broader risk assessment, leads to better long-term risk-adjusted returns. In order to do this, the team considers materiality and momentum.

• Issuers may have myriad ESG considerations, but materiality means focussing on those particular ESG risk factors that have the potential to impact an issuer’s credit risk profile.

• Momentum means understanding the evolution of ESG risks. As with all risk, Invesco look to identify positive and negative momentum in ESG risks and assess the potential for those trends to affect creditworthiness. As a firm Invesco encourage positive momentum by engaging with companies. Invesco’s Global ESG team engages with the management of companies and provide views on matters such as corporate strategy, transparency, capital allocation and ESG concerns.

ESG analysis for corporate bonds

The Manager’s credit analysts are responsible for understanding and assessing ESG risks for the companies under their coverage alongside financial credit risk. Corporate credit research is organised around global industrial sectors, allowing the analysts to develop a comprehensive understanding of not only the ESG risks pertinent to each issuer under their coverage but also those risks prevalent in a sector.

This approach of incorporating ESG risk into the broader assessment is undertaken for all issuers of corporate bonds, for both developed or emerging market countries.

External ESG resources

Invesco has a range of third-party research and data available as an input to support the analysts in their ESG risk assessment.

Examples:

• MSCI ESG Scores, industry percentiles and weights

• CDP carbon and scoring data

• Sustainalytics Risk scores and category summary data

• Global Compact compliance or violation fields (MSCI and Sustainalytics)

• ISS Climate Solutions – Scope 1 to 3 emissions and science-based emission targets

• Controversies – MSCI & Sustainalytics data feeds

Invesco’s ESG resources

Invesco’s Global ESG team has resources in research, portfolio analytics and management engagement.

Furthermore, Invesco’s own proprietary developed ESG tool (ESGIntel) provides ESG insights, metrics, data points and momentum scores from over 50 data points and metrics. Sector differences are accommodated with each having its own tailor-made framework.

The tool provides a holistic view on how a company’s value chain is impacted in different ways by various ESG metrics, and ratings are produced both at the overall company and indicator levels to facilitate a focus on higher risk company-specific issues. In addition, momentum indicators highlight a company’s trajectory using five years of data history (longer back data in database).

While disclosure levels vary greatly by the company due to sector, size and regional factors, these data dashboards can provide a comprehensive picture of each issuer’s performance.

The importance of fundamental ESG analysis

At the issuer level, data availability, disclosure rules and management engagement levels can vary across each global sector. Raw ESG data can sometimes present a partial or even misleading picture. When placed alongside the fact that issuers themselves have unique features in terms of business models, the weighting of ESG factors in each issuer assessment must be interpreted and understood in a broader context.

In our research process, the qualitative judgement of the credit analyst is therefore central to determining whether an ESG factor is evolving in a manner that may compromise an issuer’s financial indicators and ultimately, its creditworthiness.

ESG in credit selection

Once a credit analyst has undertaken their credit assessment, including that of the materiality and momentum of ESG risks, then credit research is presented to portfolio managers.

The portfolio managers need to assess the type and materiality of any ESG risk and set that against the potential investment return in the context of the Company’s objectives.

Other than the exclusions related to certain types of munitions, there are no pre-determined rules on how securities are selected in light of any ESG risks. Each investment case is likely to have its own unique set of risks. The investment team’s credit selection emphasises fund manager judgement and each case is considered on its own merits.

Engagement with issuers

Invesco engages directly with companies to better understand their positions and their future intentions and lobby for change where Invesco believe it is necessary. Although engagement as pure debt investors can be challenging, Invesco’s ownership of both equity and debt can often be used to increase our voice as a stakeholder. Engagement is carried out on a case by case basis by relevant analysts and strategically with co-ordination through Invesco’s Global ESG team.

Investment teams at Invesco are supported on many ESG engagement activities by a centralised team of ESG professionals. Invesco’s Global ESG team is led by the Global Head of ESG. Reporting to the Global Head of ESG is the Director of ESG Research, who leads the ESG analyst team who focus on this ESG company engagement activity. Invesco has established a global process to ensure that its ESG-targeted engagements are a collaboration between its ESG team and the investment teams across Invesco who may have interest in the issuer:

i.  Internal assessment and coordination: the ESG team consults with the investment teams and reviews the ESG Engagement focus list and decides whether to: (a) gather feedback on a topic and provide that feedback to an issuer, (b) schedule a call with the issuer if it is deemed to be necessary; or (c) engage directly with the issuer and serve as a liaison. Invesco’s ESG team will arrange contact between the relevant investment teams and issuers when and if it is deemed necessary. Any ESG engagement meeting is added to a centralised calendar that investment teams can access.

ii.  Research and follow up: the ESG research team conducts in-depth ESG research in preparation for these meetings and discusses with the relevant investment teams across Invesco to ensure that companies are questioned on the key ESG topics. The ESG team produces an Engagement Report for these meetings which is shared via the Bloomberg platform for all relevant investment teams to access. Invesco is also a member of several organisations that facilitate collective dialogue with companies and continues to assess other collective engagements that we would like to work more closely with in the future:

• Invesco is a signatory to Climate Action 100+ and is taking a leading investor role on one company and a participative role on at least 6 other companies.

• Invesco joined the Investor Tailings Initiative when it was first launched in 2019. Invesco signed letters that were sent to over 600 companies and actively participated in meetings with companies and governments to ensure the development of higher standards and to evolve the tools to assess companies.

• Invesco signed the Investor statement on Covid-19, to encourage the business community to take what steps they can to mitigate the social impacts caused by the pandemic. Some of these steps include providing paid leave, prioritising health and safety, maintaining employment and maintaining supplier relationships. Invesco has engaged with companies on these topics as part of its ongoing one-to-one ESG engagements.

ESG portfolio monitoring

Dedicated ESG-focused portfolio reviews are in place to complement the existing risk-return portfolio review process. Invesco’s Global ESG team leads each review meeting which is attended by fund managers and credit research analysts. Portfolios are reviewed on the basis of a wide range of ESG metrics on an absolute basis and also relative to benchmarks where appropriate.

ESG portfolio monitoring includes measurement, based on Sustainalytics ESG research data, of total portfolio ESG risk and identification of holdings with the highest and lowest ESG risk. As of the end of 2021, holdings with the highest ESG risk were concentrated in the energy sector. The holdings with the lowest ESG risk were spread across several sectors. Invesco also carry out Carbon Footprint Analysis of the portfolio, in absolute terms and compared to the wider high yield market, using data from ISS Climate Solutions.

Investments in Order of Valuation

				Market
			Country of	Value	% of
Issuer/issue	Rating(1)	Industry	Incorporation	£000	Portfolio
Lloyds Banking Group		Financials	UK
7.875% FRN Perpetual	Baa3/BB–/BBB			5,002	1.5
7.5% FRN Perpetual	Baa3/BB–/BBB			2,785	0.8
7.625% FRN Perpetual	Baa3/BB–/BBB			641	0.2
3.5% FRN 01 Apr 2026 (SNR)	A2/BBB+/A			415	0.1
6.375% FRN Perpetual	Baa3/BB–/BBB			147	0.0
				8,990	2.6
Codere New Topco		Consumer Services	Luxembourg
11% PIK 30 Sep 2026	Caa1/CCC+/CCC			6,147	1.8
7.5% PIK 30 Nov 2027 (SUB)	NR/NR/NR			1,519	0.4
12.75% PIK 30 Nov 2027	Caa3/CCC–/CCC			787	0.2
13.625% PIK 30 Nov 2027	Caa3/CCC–/CCC			465	0.1
Common Stock	NR/NR/NR			–	0.0
				8,918	2.5
Teva Pharmaceutical Finance		Health Care	Netherlands
6.75% 01 Mar 2028 (SNR)	Ba2/BB–/BB			3,504	1.0
7.125% 31 Jan 2025 (SNR)	Ba2/BB–/BB			2,471	0.7
6% 31 Jan 2025 (SNR)	Ba2/BB–/BB			968	0.3
5.125% 09 May 2029 (SNR)	Ba2/BB–/BB			578	0.1
				7,521	2.1
Barclays		Financials	UK
7.875% FRN Perpetual	Ba2/B+/BB			5,204	1.5
6.375% FRN Perpetual	Ba2/B+/BB			1,297	0.4
8% FRN Perpetual	Ba2/B+/BB			572	0.1
2.75% FRN Perpetual	Baa3/BB+/BBB			297	0.1
				7,370	2.1
Aviva		Financials	UK
6.125% FRN Perpetual	A3/BBB+/BBB			5,296	1.5
8.875% Preference	NR/NR/NR			1,668	0.4
6.125% FRN 05 Jul 2043	A3/BBB+/BBB			218	0.1
				7,182	2.0
Vodafone Group		Telecommunications	UK
6.25% 03 Oct 2078	Ba1/BB+/BB			2,684	0.8
7% FRN 04 Apr 2079	Ba1/BB+/BB			1,518	0.4
4.875% 03 Oct 2078	Ba1/BB+/BB			1,160	0.3
1.5% Cnv 12 Mar 2022	NR/NR/NR			493	0.2
				5,855	1.7
Virgin Media O2		Telecommunications	UK
4% 31 Jan 2029 (SNR)	Ba3/BB–/BB			3,724	1.0
5% 15 Apr 2027 (SNR)	Ba3/BB–/BB			1,029	0.3
4.25% 15 Jan 2030 (SNR)	Ba3/BB–/BB			988	0.3
				5,741	1.6
Ziggo Bond Finance		Telecommunications	Netherlands
6% 15 Jan 2027 (SNR)	B3/B–/B			3,803	1.1
3.375% 28 Feb 2030 (SNR)	B3/B–/B			1,187	0.3
4.875% 15 Jan 2030 (SNR)	B1/B+/B			496	0.2
				5,486	1.6
Petroleos Mexicanos		Oil and Gas	Mexico
8.25% 02 Jun 2022 (SNR)	Ba3/BBB/BB			3,401	1.0
9.5% 15 Sep 2027 (SNR)	Ba3/BBB/BB			862	0.2
6.95% 28 Jan 2060 (SNR)	Ba3/BBB/BB			594	0.2
6.75% 21 Sep 2047 (SNR)	Ba3/BBB/BB			458	0.1
				5,315	1.5
Albion Finance		Consumer Services	Luxembourg
8.75% 15 Apr 2027 (SNR)	B3/B/B			3,002	0.9
6.125% 15 Oct 2026 (SNR)	B1/BB–/BB			2,237	0.6
				5,239	1.5
Petra Diamonds		Basic Materials	Bermuda
10.5% PIK 08 Mar 2026	Caa2/B–/CCC			3,564	1.0
Common Stock	NR/NR/NR			1,608	0.5
				5,172	1.5
Virgin Money		Financials	UK
8% FRN Perpetual	NR/B/B			4,149	1.2
9.25% Perpetual	Ba2/B/BB			923	0.2
				5,072	1.4
DKT Finance		Financials	Denmark
9.375% 17 Jun 2023 (SNR)	Caa1/CCC+/CCC			3,215	0.9
7% 17 Jun 2023 (SNR)	Caa1/CCC+/CCC			1,785	0.5
				5,000	1.4
Arqiva Broadcast Finance		Telecommunications	UK
6.75% 30 Sep 2023	B1/NR/B			4,961	1.4
Banco BPM		Financials	Italy
5% FRN 14 Sep 2030	B1/NR/B			3,138	0.9
8.75% FRN Perpetual	B3/NR/B			1,692	0.5
				4,830	1.4
Volkswagen Financial Services		Consumer Goods	Netherlands
3.5% FRN Perpetual	Baa2/BBB–/BBB			1,969	0.6
3.875% FRN Perpetual	Baa2/BBB–/BBB			1,367	0.4
4.25% 09 Oct 2025 (SNR)	A3/BBB+/BBB			1,197	0.3
				4,533	1.3
Rothschilds Continuation Finance		Financials	Guernsey
9% FRN Perpetual (SUB)	NR/NR/NR			3,224	0.9
FRN Perpetual	NR/NR/NR			1,292	0.4
				4,516	1.3
Dell International		Consumer Services	USA
6.1% 15 Jul 2027 (SNR)	Baa3/BBB/BBB			3,523	1.0
6.2% 15 Jul 2030 (SNR)	Baa3/BBB/BBB			788	0.2
5.45% 15 Jun 2023 (SNR)	Baa3/BBB/BBB			200	0.1
				4,511	1.3
Telecom Italia		Telecommunications	Italy
5.303% 30 May 2024	Ba2/BB/BB			2,716	0.8
7.721% 04 Jun 2038	Ba2/BB/BB			1,734	0.5
				4,450	1.3
Co-Operative Bank		Financials	UK
9.5% FRN 25 Apr 2029	NR/NR/NR			3,467	1.0
5.125% 17 May 2024 (SNR)	NR/BB/BB			957	0.3
				4,424	1.3
Eléctricité De France		Utilities	France
6% Perpetual	Baa3/BB–/BBB			2,824	0.8
5.875% Perpetual	Baa3/BB–/BBB			1,320	0.4
				4,144	1.2
Clarios		Basic Materials	USA
8.5% 15 May 2027 (SNR)	Caa1/CCC+/CCC			3,980	1.2
6.75% 15 May 2025 (SNR)	B1/B/B			107	0.0
				4,087	1.2
NatWest		Financials	UK
2.62788% FRN Perpetual	Ba1/BB–/BB			2,939	0.8
8% FRN Perpetual	Ba1/B+/BB			1,031	0.3
				3,970	1.1
Pension Insurance		Financials	UK
7.375% FRN Perpetual	NR/NR/BBB			3,767	1.1
Maison		Industrials	UK
6% 31 Oct 2027 (SNR)	NR/B+/B			3,569	1.0
Parts Europe		Consumer Goods	France
6.5% 16 Jul 2025	B3/B–/B			3,517	1.0
Commerzbank		Financials	Germany
6.125% FRN Perpetual	Ba2/BB–/BB			2,376	0.7
4% FRN 05 Dec 2030	Baa3/BB+/BB			548	0.2
8.125% 19 Sep 2023	Baa3/BB+/BB			488	0.1
				3,412	1.0
Neptune Energy		Oil and Gas	UK
6.625% 15 May 2025 (SNR)	B1/BB–/BB			3,242	0.9
Banco BVA		Financials	Spain
6% FRN Perpetual	Ba2/NR/BB			3,172	0.9
Frigoglass Finance		Industrials	Netherlands
6.875% 12 Feb 2025	Caa1/B–/CCC			3,026	0.9
Tereos Finance		Consumer Goods	France
7.5% 30 Oct 2025 (SNR)	NR/B+/B			1,917	0.6
4.125% 16 Jun 2023 (SNR)	NR/B+/B			1,105	0.3
				3,022	0.9
Bellis		Consumer Goods	UK
4.5% 16 Feb 2026 (SNR)	Ba3/NR/BB			2,117	0.6
4% 16 Feb 2027 (SNR)	B2/NR/B			867	0.2
				2,984	0.8
Saga		Consumer Services	UK
5.5% 15 Jul 2026 (SNR)	B1/B/B			2,893	0.8
IM Group		Consumer Services	France
6.625% 01 Mar 2025	B3/B–/B			2,892	0.8
BCP V Modular Services		Consumer Services	UK
6.125% 30 Nov 2028	B2/B/B			2,882	0.8
Nationwide		Financials	UK
5.75% FRN Perpetual	Ba1/BB+/BB			1,814	0.5
5.875% FRN Perpetual	Ba1/BB+/BB			1,020	0.3
				2,834	0.8
Banco Sabadell		Financials	Spain
5.75% FRN Perpetual	NR/B+/B			1,245	0.4
6.5% FRN Perpetual	B2/NR/B			855	0.2
5% FRN Perpetual	NR/B+/B			676	0.2
				2,776	0.8
Goodyear Tire & Rubber		Consumer Goods	USA
9.5% 31 May 2025 (SNR)	B2/BB–/BB			1,995	0.6
2.75% 15 Aug 2028 (SNR)	Ba3/BB–/BB			737	0.2
				2,732	0.8
Banco Comercial Portugues		Financials	Portugal
9.25% FRN Perpetual	B2/CCC+/B			2,680	0.8
Inspired Entertainment		Consumer Services	UK
7.875% 01 Jun 2026 (SNR)	B3/NR/B			2,667	0.8
Gatwick Airport Finance		Financials	UK
4.375% 07 Apr 2026 (SNR)	Ba3/NR/BB			2,552	0.7
Marcolin		Health Care	Italy
6.125% 15 Nov 2026 (SNR)	B3/B–/B			2,501	0.7
NGG Finance		Utilities	UK
5.625% FRN 18 Jun 2073	Ba1/BBB–/BB			2,387	0.7
Beazley		Financials	Ireland
5.875% 04 Nov 2026	NR/NR/BBB			2,365	0.7
Gamma		Consumer Services	Italy
6.25 % 15 Jul 2025	B1/B/B			1,348	0.4
5.125% 15 July 2025 (SNR)	B1/B/B			976	0.3
				2,324	0.7
Cidron Aida Finco		Health Care	Luxembourg
6.25% 01 Apr 2028 (SNR)	B3/B–/B			2,309	0.7
Signa		Consumer Goods	Luxembourg
5.5% 23 Jul 2026 (SNR)	NR/B/B			2,249	0.6
Lancashire		Financials	Bermuda
5.625% 18 Sep 2041 (FRN)	Baa3/BB+/BB			2,249	0.6
William Hill		Consumer Services	UK
4.75% 01 May 2026	B1/B/B			2,156	0.6
Pinewood		Consumer Goods	UK
3.25% 30 Sep 2025 (SNR)	NR/BB/BB			1,260	0.4
3.625% 15 Nov 2027 (SNR)	NR/BB/BB			887	0.2
				2,147	0.6
Thames Water (Kemble) Finance		Utilities	UK
4.625% 19 May 2026 (SNR)	B1/NR/B			2,057	0.6
BP Capital		Financials	UK
4.25% FRN Perpetual	Baa1/BBB/BBB			2,032	0.6
IHO Verwaltungs		Consumer Goods	Germany
6% 15 May 2027 (SNR)	Ba2/BB–/BB			1,975	0.6
Stora Enso		Basic Materials	Finland
7.25% 15 Apr 2036	Baa3/NR/BBB			1,970	0.6
Piraeus Financial		Financials	Greece
8.75% FRN Perpetual	Ca/CCC–/CC			1,927	0.5
Heathrow		Financials	UK
4.125% 01 Sep 2029 (SNR)	B1/NR/B			984	0.3
7.125% 14 Feb 2024 (SNR)	NR/BBB–/BBB			939	0.2
				1,923	0.5
Boparan Finance		Consumer Services	UK
7.625% 30 Nov 2025 (SNR)	B3/B–/B			1,906	0.5
CCO Holdings		Telecommunications	USA
5.125% 01 May 2027 (SNR)	B1/BB/BB			1,901	0.5
COTY		Consumer Goods	USA
6.5% 15 Apr 2026 (SNR)	Caa1/B/CCC			1,897	0.5
Marb Bondco		Consumer Services	UK
3.95% 29 Jan 2031 (SNR)	NR/BB/BB			1,891	0.5
TalkTalk		Telecommunications	UK
3.875% 20 Feb 2025 (SNR)	NR/B/B			1,837	0.5
Bank Of Ireland		Financials	Ireland
7.5% FRN Perpetual	Ba2/B/BB			1,833	0.5
Premier Entertainment		Consumer Services	USA
5.625% 01 Sep 2029 (SNR)	B3/CCC+/B			1,096	0.3
5.875% 01 Sep 2031 (SNR)	B3/CCC+/B			737	0.2
				1,833	0.5
DNO ASA		Oil and Gas	Norway
8.375% 29 May 2024	NR/NR/NR			1,301	0.4
7.875% 09 Sep 2026 (SNR)	NR/NR/NR			532	0.1
				1,833	0.5
Jerrold Finco		Financials	UK
5.25% 15 Jan 2027 (SNR)	NR/BB–/BB			1,817	0.5
B&M		Consumer Services	Luxembourg
3.625% 15 Jul 2025 (SNR)	Ba2/BB/BB			935	0.3
4% 15 Nov 2028 (SNR)	Ba2/BB/BB			872	0.2
				1,807	0.5
Achmea		Financials	Netherlands
6% 04 Apr 2043	NR/BBB–/BBB			1,798	0.5
Ford		Consumer Goods	USA
2.748% 14 Jun 2024 (SNR)	Ba2/BB+/BB			1,796	0.5
Trinseo		Basic Materials	Luxembourg
5.375% 01 Sep 2025 (SNR)	B2/B/B			1,774	0.5
Premier Foods Finance		Consumer Services	UK
3.5% 15 Oct 2026 (SNR)	B1/BB–/B			1,771	0.5
Ocado		Consumer Goods	UK
3.875% 08 Oct 2026 (SNR)	B2/NR/B			1,770	0.5
SSE		Utilities	UK
3.74% FRN Perpetual (SUB)	Baa3/BBB–/BBB			1,765	0.5
CPUK Finance		Financials	Jersey
6.5% 28 Aug 2050 (SNR)	NR/B–/B			1,759	0.5
Yew Grove		Financials	Ireland
Common Stock	NR/NR/NR			1,738	0.5
Deutsche Bank		Financials	Germany
7.125% Perpetual	Ba3/BB–/BB			1,707	0.5
Softbank		Telecommunications	Japan
4.625% 06 Jul 2028 (SNR)	NR/BB+/BB			1,680	0.5
TechnipFMC		Oil and Gas	UK
6.5% 01 Feb 2026 (SNR)	Ba1/BB+/BB			1,647	0.5
Unique Pub Finance		Consumer Goods	UK
7.395% 30 Mar 2024	NR/B/B			1,644	0.5
Sainsbury’s		Consumer Services	UK
6% FRN 23 Nov 2027	NR/NR/NR			1,631	0.5
Picard		Consumer Services	France
3.875% 01 Jul 2026 (SNR)	B3/B/B			1,623	0.5
Iron Mountain		Financials	UK
3.875% 15 Nov 2025	Ba3/BB–/BB			1,606	0.5
BNP Paribas		Financials	Belgium
Cnv FRN Perpetual	Baa3/BB+/BBB			1,597	0.5
XPO Logistics		Industrials	USA
6.25% 01 May 2025 (SNR)	Ba3/B+/B			1,588	0.4
Société Genérale		Financials	France
7.375% FRN Perpetual	Ba2/BB/BB			1,586	0.4
AXA		Financials	France
6.379% FRN Perpetual	Baa1/BBB/BBB			1,019	0.3
5.453% FRN Perpetual	Baa1/BBB+/BBB			563	0.1
				1,582	0.4
Sigma Holdco		Consumer Goods	Netherlands
7.875% 15 May 2026 (SNR)	Caa1/CCC+/CCC			1,566	0.4
Athora		Financials	Netherlands
6.25% Perpetual	NR/NR/BB			1,523	0.4
OSB Group		Financials	UK
6% FRN Perpetual (SUB)	NR/NR/B			1,522	0.4
UBS		Financials	Switzerland
7% FRN Perpetual	NR/BB+/BB			820	0.2
5% Perpetual	Baa3/BB/BBB			664	0.2
				1,484	0.4
Ecclesiastical Insurance Office		Financials	UK
8.625% Preference	NR/NR/NR			1,480	0.4
Wheel Bidco		Consumer Services	Jersey
6.75% 15 Jul 2026 (SNR)	B2/B/B			1,464	0.4
Aegon		Financials	Netherlands
5.625% FRN Perpetual	Baa3/BBB–/BBB			1,402	0.4
Heimstaden		Consumer Goods	Sweden
6.75% FRN Perpetual (SUB)	NR/NR/BB			1,369	0.4
FAGE International		Consumer Goods	Luxembourg
5.625% 15 Aug 2026 (SNR)	B1/B+/B			1,364	0.4
Miller Homes		Consumer Goods	UK
5.5% 15 Oct 2023 (SNR)	NR/BB–/BB			1,323	0.4
Crystal Almond		Telecommunications	Luxembourg
4.25% 15 Oct 2024 (SNR)	NR/B/B			1,299	0.4
Platin		Industrials	Germany
5.375% 15 Jun 2023 (SNR)	B3/B–/B			1,299	0.4
Stena		Consumer Services	Sweden
7% 01 Feb 2024 (SNR)	Caa1/B+/CCC			1,294	0.4
Telefonica		Telecommunications	Netherlands
5.875% FRN Perpetual (SUB)	Ba2/BB/BB			1,290	0.4
UniCredit International Bank		Financials	Italy
8% FRN Perpetual	NR/NR/BB			1,289	0.4
National Bank Of Greece		Financials	Greece
8.25% FRN 18 Jul 2029	Caa1/CCC+/CCC			1,288	0.4
Alain Afflelou		Consumer Services	France
FRN 19 May 2027	Caa1/CCC+/CCC			1,288	0.4
MHP		Industrials	Luxembourg
6.95% 03 Apr 2026 (SNR)	NR/B/B			1,286	0.4
EnQuest		Oil and Gas	UK
7% 15 Apr 2022 (SNR)	NR/B–/B			1,284	0.4
Provident Financial		Financials	UK
8.875% 13 Jan 2032	NR/NR/B			1,274	0.4
Dufry One		Consumer Services	Netherlands
3.375% 15 Apr 2028 (SNR)	B1/B+/B			1,273	0.4
Danaos		Consumer Services	Marshall Islands
8.5% 01 Mar 2028 (SNR)	B3/B+/B			1,271	0.4
Scottish Widows		Financials	UK
5.5% 16 Jun 2023	Baa1/NR/BBB			1,264	0.4
Loxam SAS		Consumer Services	France
5.75% 15 Jul 2027	NR/B–/B			1,252	0.4
Trafigura		Basic Materials	Singapore
7.5% FRN Perpetual (SUB)	NR/NR/NR			1,248	0.4
Brink’s		Industrials	USA
4.625% 15 Oct 2027	Ba3/BB–/BB			659	0.2
5.5% 15 Jul 2025 (SNR)	Ba3/BB–/BB			557	0.2
				1,216	0.4
BMW US Capital		Consumer Goods	USA
3.9% 09 Apr 2025 (SNR)	A2/A/A			1,190	0.3
Allied Universal		Consumer Services	Luxembourg
4.875% 01 Jun 2028 (SNR)	B2/B/B			1,185	0.3
Vistajet		Technology	Malta
10.5% 01 Jun 2024 (SNR)	Caa1/CCC+/CCC			1,185	0.3
Matalan Finance		Consumer Goods	UK
16.5% 25 Jul 2022 (SNR)	NR/B/B			622	0.2
9.5% 31 Jan 2024 (SNR)	Caa3/CCC–/CCC			558	0.1
				1,180	0.3
EDP – Energias de Portugal		Utilities	Portugal
4.496% 30 Apr 2079	Ba2/BB+/BB			1,166	0.3
General Motors		Consumer Goods	USA
6.8% 01 Oct 2027 (SNR)	Baa3/BBB/BBB			767	0.2
5.4% 02 Oct 2023 (SNR)	Baa3/BBB/BBB			369	0.1
				1,136	0.3
The Very Group		Consumer Services	UK
6.5% 31 Aug 2026 (SNR)	B3/NR/B			1,084	0.3
HSBC		Financials	UK
5.25% 14 Mar 2044	Baa1/BBB/BBB			585	0.2
4.25% 14 Mar 2024	Baa1/BBB/BBB			499	0.1
				1,084	0.3
Puma International		Oil and Gas	Luxembourg
5% 24 Jan 2026	B1/NR/B			1,069	0.3
Motion Finco		Financials	Luxembourg
7% 15 May 2025 (SNR)	B2/B/B			1,065	0.3
Hurricane Finance		Financials	UK
8% 15 Oct 2025 (SNR)	B3/NR/B			1,046	0.3
Energizer Gamma Acquisition		Consumer Goods	Netherlands
3.5% 30 Jun 2029 (SNR)	B2/B/B			1,026	0.3
Altice		Telecommunications	France
4.25% 15 Oct 2029 (SNR)	B2/B/B			1,006	0.3
Jupiter Fund Management		Financials	UK
8.875% 27 Jul 2030	NR/NR/BBB			1,001	0.3
Mobilux Finance		Consumer Services	France
4.25% 15 Jul 2028 (SNR)	B3/B/B			999	0.3
La Financière ATALIAN		Consumer Services	France
6.625% 15 May 2025 (SNR)	Caa1/B/CCC			989	0.3
Neinor Homes		Consumer Discretionary	Spain
4.5% 15 Oct 2026 (SNR)	NR/B+/B			964	0.3
Credit Suisse		Financials	Switzerland
4.5% FRN Perpetual	Ba2/BB–/BB			650	0.2
7.125% FRN Perpetual	Ba2/BB–/BB			303	0.1
				953	0.3
Direct Line Insurance		Financials	UK
9.25% FRN 27 Apr 2042	A3/NR/A			922	0.3
Grifols		Health Care	Spain
3.875% 15 Oct 2028 (SNR)	B3/B/B			765	0.2
4.75% 15 Oct 2028 (SNR)	B3/B/B			151	0.1
				916	0.3
Rolls Royce		Industrials	UK
5.75% 15 Oct 2027 (SNR)	Ba3/BB–/BB			906	0.2
Legal & General		Financials	UK
5.625% FRN Perpetual	Baa3/BBB/BBB			880	0.2
Metinvest		Basic Materials	Netherlands
7.65% 01 Oct 2027 (SNR)	NR/B+/B			878	0.2
AAdvantage Loyalty		Consumer Services	USA
5.5% 20 Apr 2026	Ba2/NR/BB			873	0.2
Cornwall (Jersey)		Consumer Services	Jersey
0.75% Cnv 16 Apr 2026 (SNR)	NR/NR/NR			870	0.2
CGG		Oil and Gas	France
7.75% 01 Apr 2027 (SNR)	B3/CCC+/B			868	0.2
Burger King France		Consumer Goods	France
7.75% 01 Nov 2027	NR/CCC/CCC			837	0.2
Plantronics		Telecommunications	Luxembourg
4.625% 05 Jan 2026 (SNR)	B2/B/B			818	0.2
Bupa Finance		Health Care	UK
5% 08 Dec 2026	Baa1/NR/BBB			802	0.2
Ontex		Health Care	Belgium
3.5% 15 Jul 2026 (SNR)	B1/B+/B			800	0.2
Intesa		Financials	Italy
5.148% 10 Jun 30	Ba1/BB+/BB			795	0.2
Peoplecert Wisdom Issuer		Consumer Services	UK
5.75% 15 Sep 2026	B2/B/B			771	0.2
Cedacri Mergeco		Technology	Italy
FRN 15 May 2028 (SNR)	B3/B/B			767	0.2
Motion Bondco		Financials	Ireland
4.5% 15 Nov 2027 (SNR)	Caa2/CCC/CCC			767	0.2
Tullow Oil		Oil and Gas	UK
10.25% 15 May 2026 (SNR)	B2/B–/B			767	0.2
Supermarket Income		Financials	UK
Common Stock	NR/NR/NR			761	0.2
Transcom		Consumer Services	Sweden
FRN 15 Dec 2026	B3/B–/B			758	0.2
Nyrstar		Basic Materials	Malta
0% 31 Jul 2026 (SNR)	NR/NR/NR			754	0.2
Getlink		Consumer Services	France
3.5% 30 Oct 2025 (SNR)	NR/BB–/BB			743	0.2
International Consolidated Airline		Consumer Services	Spain
3.75% 25 Mar 2029 (SNR)	B1/BB/B			738	0.2
Owens-Brockway		Industrials	USA
6.625% 13 May 2027 (SNR)	B3/B/B			713	0.2
Bayer AG		Health Care	Germany
3.125% FRN 12 Nov 2079 (SUB)	Ba1/BB+/BB			682	0.2
PGH Capital		Financials	UK
5.375% 06 Jul 2027	NR/NR/BBB			679	0.2
HSE Finance		Consumer Services	Luxembourg
5.625% 15 Oct 2026 (SNR)	B2/B/B			654	0.2
El Corte Inglés		Consumer Services	Spain
3.625% 15 Mar 2024 (SNR)	Ba1/BBB–/BB			644	0.2
VTR Finance		Telecommunications	Chile
5.125% 15 Jan 2028 (SNR)	Ba3/B+/BB			336	0.1
6.375% 15 Jul 2028 (SNR)	B1/B/B			307	0.1
				643	0.2
Rothesay Life		Financials	UK
8% 30 Oct 2025	NR/NR/BBB			601	0.2
EG Global Finance		Oil and Gas	UK
8.5% 30 Oct 2025 (SNR)	B3/B–/B			433	0.1
6.75% 07 Feb 2025 (SNR)	B3/B–/B			149	0.1
				582	0.2
CEMEX		Industrials	Mexico
7.375% 05 Jun 2027 (SNR)	NR/BB/BB			573	0.2
Peel Land & Property Investments		Financials	UK
8.375% Var 30 Apr 2040	NR/BBB/BBB			520	0.2
Via Celere Desarro		Consumer Goods	Spain
5.25% 01 Apr 2026 (SNR)	NR/B+/B			511	0.1
MPT Operating Partnership		Health Care	USA
2.5% 24 Mar 2026 (SNR)	Ba1/BBB–/BB			510	0.1
PrestigeBidCo		Consumer Services	Germany
6.25% 15 Dec 2023 (SNR)	B2/B/B			504	0.1
National Express		Consumer Services	UK
FRN Perpetual	Ba1/BB+/BB			498	0.1
Odyssey Europe		Consumer Services	Luxembourg
8% 15 May 2023 (SNR)	Caa1/CCC/CCC			481	0.1
Solvay Finance		Basic Materials	France
5.869% Var Perpetual	Ba1/BB+/BB			463	0.1
Millicom International Cellular		Telecommunications	Luxembourg
5.125% 15 Jan 2028	Ba2/NR/BB			461	0.1
Herens		Basic Materials	Luxembourg
4.75% 15 May 2028 (SNR)	B2/B/B			429	0.1
TI Automotive Finance		Consumer Goods	UK
3.75% 15 Apr 2029 (SNR)	B3/B+/B			417	0.1
Aroundtown		Consumer Goods	Luxembourg
4.75% FRN Perpetual (SUB)	NR/BBB–/BBB			409	0.1
Turk Telekomunikas		Telecommunications	Turkey
6.875% 28 Feb 2025 (SNR)	NR/BB–/BB			374	0.1
Kosmos Energy		Oil and Gas	USA
7.75% 01 May 2027 (SNR)	B3/B+/B			354	0.1
Grunenthal GMBH		Health Care	Germany
3.625% 15 Nov 2026 (SNR)	B1/B+/B			280	0.1
abrdn		Financials	UK
FRN Perpetual	Baa2/BBB–/BBB			263	0.1
Whitbread		Consumer Services	UK
3.375% 16 Oct 2025 (SNR)	NR/NR/BBB			259	0.1
IMA Group		Telecommunications	Italy
3.75% 15 Jan 2028 (SNR)	B2/B/B			246	0.1
Argentina (Republic Of)		Government Bonds	Argentina
0.125% 09 Jul 2035 (SNR)	NR/CCC+/CCC			227	0.1
1% 09 Jul 2029 (SNR)	NR/CCC+/CCC			12	0.0
				239	0.1
Cheplapharm Arzneimittel		Health Care	Germany
5.5% 15 Jan 2028 (SNR)	B2/B/B			218	0.1
Travis Perkins		Industrials	UK
4.5% 07 Sep 2023 (SNR)	NR/BB+/BB			212	0.1
John Lewis		Consumer Services	UK
4.25% 18 Dec 2034 (SNR)	NR/NR/NR			205	0.1
Expedia		Consumer Services	USA
6.25% 01 May 2025 (SNR)	Baa3/BBB–/BBB			171	0.1
Match Group		Technology	USA
3.625% 01 Oct 2031 (SNR)	Ba3/BB/BB			125	0.1
Directv Financing		Telecommunications	USA
5.875% 15 Aug 2027 (SNR)	Ba3/BB/BB			118	0.0
Adient		Consumer Goods	USA
9% 15 Apr 2025 (SNR)	Ba3/BB–/BB			107	0.0
Marriott International		Consumer Services	USA
5.75% 01 May 2025 (SNR)	Baa3/BBB–/BBB			32	0.0
M&G Finance		Financials	Luxembourg
7.5% FRN Perpetual (SUB)	NR/NR/NR			18	0.0
Helix		Financials	Luxembourg
10% 19 Apr 2026	NR/CCC–/CCC			14	0.0
Total investments				351,534	100.0

(1)  Moody’s/Standard & Poor’s (S&P)/Equivalent average rating.

Abbreviations used in the above valuation:

Cnv:  Convertible

FRN:  Floating Rate Note

SNR:  Senior

Var:   Variable

SUB NTS:  Subordinated Notes

PIK:   Payment in Kind

Directors’ Responsibilities Statement

The Directors are responsible for preparing the Company’s Annual Financial Report in accordance with applicable laws and regulations.

Company law requires the Directors to prepare financial statements for each financial period. Under that law the Directors have elected to prepare the financial statements in accordance with International Financial Reporting Standards (‘IFRS’) as adopted by the European Union. The financial statements are required by law to 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.

International Accounting Standard 1 requires that financial statements present fairly for each financial year the Company’s financial position, financial performance and cash flows. This requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the International Accounting Standards Board’s ‘Framework for the preparation and presentation of financial statements’. In virtually all circumstances, a fair presentation will be achieved by compliance with all applicable IFRSs.

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

– properly select and apply accounting policies and then apply them consistently;

– present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

– provide additional disclosures when compliance with specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance; and

– make an assessment of the Company’s ability to continue as a going concern.

The financial statements have been prepared on a going concern basis. When considering this, the Directors took into account the annual shareholders’ continuation vote (as explained in detail on page 17) and the following: the Company’s investment objective and risk management policies, the nature of the portfolio and expenditure and cash flow projections. As a result, they determined that the Company has adequate resources, an appropriate financial structure, readily realisable fixed assets to repay current liabilities and suitable management arrangements in place to continue in operational existence for the foreseeable future.

The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Company and which enable them to ensure that the accounts comply with the Companies (Jersey) Law 1991. They 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.

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

The Directors of the Company, who are listed on page 33, each confirm to the best of their knowledge that:

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

– this Annual Financial Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces;

– this Annual Financial Report, 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; and

– there is no relevant audit information of which the Company’s auditor is unaware, and each Director has taken steps that they ought to have taken as a Director to make themselves aware of any relevant audit information and to establish that the Company’s auditor is aware of that information.

Signed on behalf of the Board of Directors

Heather MacCallum

Audit Committee Chair

30 March 2022

Statement of Comprehensive Income

For the year ended 31 December

		2021			2020
		Revenue	Capital	Total	Revenue	Capital	Total
	Notes	£000	£000	£000	£000	£000	£000
(Loss)/profit on investments held at fair value	11	—	(3,477)	(3,477)	—	1,602	1,602
Profit on derivative instruments – currency hedges		—	915	915	—	628	628
Exchange differences		—	794	794	—	188	188
Income	4	17,579	—	17,579	11,922	—	11,922
Investment management fee	5	(946)	(946)	(1,892)	(897)	(483)	(1,380)
Other expenses	6	(554)	(3)	(557)	(592)	(3)	(595)
Profit before finance costs and taxation		16,079	(2,717)	13,362	10,433	1,932	12,365
Finance costs	7	23	23	46	7	3	10
Profit/(loss) before taxation		16,102	(2,694)	13,408	10,440	1,935	12,375
Taxation	8	(85)	—	(85)	(15)	—	(15)
Profit/(loss) after taxation		16,017	(2,694)	13,323	10,425	1,935	12,360
Return per ordinary share	9	11.21p	(1.89)p	9.32p	10.27p	1.90p	12.17p

The total column of this statement represents the Company’s statement of comprehensive income, prepared in accordance with International Financial Reporting Standards as adopted by the European Union. The profit after taxation is the total comprehensive income. The supplementary revenue and capital columns are both prepared in accordance with the Statement of Recommended Practice issued by the Association of Investment Companies. All items in the above statement derive from continuing operations of the Company. No operations were acquired or discontinued in the year.

The accompanying accounting policies and notes are an integral part of these financial statements.

Statement of Changes in Equity

FOR THE YEAR ENDED 31 DECEMBER

		Stated	Capital	Revenue
		Capital	Reserve	Reserve	Total
	Notes	£000	£000	£000	£000
At 31 December 2019		164,013	24,290	3,883	192,186
Profit/(loss) after taxation		—	1,935	10,425	12,360
Dividends paid	10	(50)	—	(10,092)	(10,142)
Net proceeds from issue of new shares	16	3,271	—		3,271
At 31 December 2020		167,234	26,225	4,216	197,675
Profit/(loss) after taxation		—	(2,694)	16,017	13,323
Dividends paid	10	—	—	(14,360)	(14,360)
Net proceeds from issue of new shares	16	130,236	—	—	130,236
Cost of shares issued in respect of the merger	16	(144)	—	—	(144)
At 31 December 2021		297,326	23,531	5,873	326,730

The accompanying accounting policies and notes are an integral part of these financial statements

Balance Sheet

AT 31 DECEMBER

		2021	2020
	Notes	£000	£000
Non-current assets
Investments held at fair value through profit or loss	11	351,534	202,229
Current assets
Other receivables	12	5,576	3,334
Derivative financial instruments – unrealised net profit	13	1,187	3,175
Cash and cash equivalents		8,168	2,940
		14,931	9,449
Current liabilities
Other payables	14	(640)	(463)
Securities sold under agreements to repurchase	15	(39,095)	(13,540)
		(39,735)	(14,003)
Net current liabilities		(24,804)	(4,554)
Net assets		326,730	197,675
Capital and reserves
Stated capital	16	297,326	167,234
Capital reserve	17	23,531	26,225
Revenue reserve	17	5,873	4,216
Shareholders’ funds		326,730	197,675
Net asset value per ordinary share	18	193.82p	194.29p

The financial statements were approved and authorised for issue by the Board of Directors on 30 March 2022.

Heather MacCallum
Audit Committee Chair

Signed on behalf of the Board of Directors

The accompanying accounting policies and notes are an integral part of these financial statements.

Statement of Cash Flows

FOR THE YEAR ENDED 31 DECEMBER

	2021		2020
	£000		£000
Cash flow from operating activities
Profit before finance costs and taxation	13,362		12,365
Taxation	(85)		(15)
Adjustment for:
Purchases of investments		(116,058)		(93,096)
Sales of investments		105,037		72,197
	(11,021)		(20,899)
Scrip dividend income	(7)		—
Increase from securities sold under agreements to repurchase(1)	4,955		13,540
Loss/(profit) on investments held at fair value	3,477		(1,602)
Net movement on derivative instruments – currency hedges	2,717		(1,866)
Decrease/(increase) in receivables	441		(236)
Increase in payables	181		6
Net cash inflow from operating activities	14,020		1,293
Cash flow from financing activities
Finance costs received(2)	42		2
Net proceeds from issue of new shares	—		3,466
Dividends paid – note 10	(14,360)		(10,142)
Net cash acquired following merger – note 16	5,670		—
Share issue costs associated with the merger – note 16	(144)		—
Net cash outflow from financing activities	(8,792)		(6,674)
Net increase/(decrease) in cash and cash equivalents	5,228		(5,381)
Cash and cash equivalents at start of the year	2,940		8,321
Cash and cash equivalents at end of the year	8,168		2,940
Reconciliation of cash and cash equivalents to the Balance Sheet is as follows:
Cash held at custodian	2,648		1,320
Invesco Liquidity Funds plc – Sterling	5,520		1,620
Cash and cash equivalents	8,168		2,940
Cash flow from operating activities includes:
Dividends received	260		519
Interest received	14,990		11,150

Reconciliation of net debt Cash and cash equivalents Securities sold under agreement to repurchase(1)	At 1 January 2021 £000 2,940 (13,540)	Cash flows £000 5,228 (4,955)	Non-cash movement  £000 – (20,600)	At 31 December 2021
				£000 8,168 (39,095)
Total	(10,600)	273	(20,600)	(30,927)

1. The difference between the cash increase in the securities sold under agreements to repurchase and the movement on the total amount outstanding at the year end is due to the transfer of securities sold under agreements to repurchase of £20,600,000 from Invesco Enhanced Income Limited on 19 May 2021.
2. Finance costs received relate to the negative interest rates on the Euro denominated financing of securities sold under agreements to repurchase (Repo financing).

Notes to the Financial Statements

1.  Principal Activity

The Company is a closed-end investment company incorporated in Jersey and operates under the Companies (Jersey) Law 1991. The principal activity of the Company is investment in a diversified portfolio of high-yielding fixed-interest securities as set out in the Company’s Investment Objective and Policy.

2.  Principal Accounting Policies

The principal accounting policies describe the Company’s approach to recognising and measuring transactions during the year and the position of the Company at the year end.

The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied during the current year and preceding year, unless otherwise stated. The financial statements have been prepared on a going concern basis as noted below.

(a)  Basis of Preparation

  (i)  Accounting Standards Applied

The financial statements have been prepared on an historical cost basis, except for the measurement at fair value of investments and derivatives, and in accordance with the applicable International Financial Reporting Standards (IFRS) and interpretations issued by the International Financial Reporting Interpretations Committee as adopted by the European Union. The standards are those endorsed by the European Union and effective at the date the financial statements were approved by the Board.

Where presentational guidance set out in the Statement of Recommended Practice (SORP) ‘Financial Statements of Investment Trust Companies and Venture Capital Trusts’, updated by the Association of Investment Companies in April 2021, is consistent with the requirements of IFRS, the Directors have prepared the financial statements on a basis compliant with the recommendations of the SORP. The supplementary information which analyses the statement of comprehensive income between items of a revenue and a capital nature is presented in accordance with the SORP.

  (ii)  Going Concern

As explained on page 17, the Company has an Annual Continuation Vote and the Directors believe shareholders will vote for the Company to continue. Accordingly, the Directors have determined that the financial statements should and have been prepared on a going concern basis, which does not include any adjustments that might arise from cessation of the Company.

  (iii)  Adoption of New and Revised Standards

New and revised standards and interpretations that became effective during the year had no significant impact on the amounts reported in these financial statements but may impact accounting for future transactions and arrangements.

At the date of authorising these financial statements, the following standards and interpretations which have not been applied in these financial statements were in issue but not yet effective (and in some cases had not yet been adopted by the EU). Any standards which are not yet effective and have not been early adopted, but are in existence, are considered not to have a material impact on the financial statements.

The following standards and amendments to existing standards became effective during the year:

• Amendments to IFRS 9, IAS 39 and IFRS 7 – in respect of interest rate benchmark reform Phase 2 (effective 1 January 2021). The Phase 2 amendments address issues that might affect financial reporting during the reform of an interest rate benchmark, including the effects of changes to contractual cash flows or hedging relationships arising from the replacement of an interest rate benchmark with an alternative benchmark rate (replacement issues).

The Directors do not expect the adoption of the above standards and interpretations (or any other standards and interpretations which are in issue but not effective) will have a material impact on the financial statements of the Company in future periods and there was no material impact during the current year.

  (iv)  Critical Accounting Estimates and Judgements

The preparation of the financial statements may require the Directors to make estimations where uncertainty exists. It also requires the Directors to exercise judgement in the process of applying the accounting policies. There have been no significant judgements, estimates or assumptions for the current or preceding year, except for the judgement on the accounting treatment of the merger with Invesco Enhanced Income Limited (see note 2(a)(v) and the allocation of management fee and finance costs (see note 2(h)).

  (v)   Issue of Shares Pursuant to a Scheme of Reconstruction of Invesco Enhanced Income Limited (“merger”)

On 19 May 2021, City Merchants High Yield Trust Limited (‘CMHY’) issued new ordinary shares to shareholders of Invesco Enhanced Income Limited (‘IPE’) in consideration for the receipt by CMHY of assets pursuant to a scheme of reconstruction and liquidation of IPE.

The Company was renamed Invesco Bond Income Plus Limited following the transaction.

The Directors have considered whether the merger with IPE constitutes an acquisition of a business as defined under IFRS 3 ‘Business Combinations’. They have concluded that the merger is not judged to be an acquisition of a business, and therefore has not been treated as a business combination. Note 16 to the financial statements on page 62 contains further details of the accounting treatment.

Investments, accrued income, and cash were transferred from IPE, together with the obligation to purchase securities sold under repurchase agreements (‘repo financing’), including accrued interest thereon. All assets apart from the repo  financing were transferred at fair value, with the liability associated with the repo recognised at amortised cost, being the capital amounts owing under the repo financing arrangements. The resultant proceeds from the issue of new shares have been recognised in stated capital, as disclosed in note 16 of the financial statements.

Direct costs in respect of the shares issued have been recognised in stated capital, whereas other professional costs in relation to the merger have been recognised as transaction costs included within profit/(loss) on investments held at fair value.

(b)  Foreign Currency

  (i)  Functional and Presentation Currency

The financial statements are presented in sterling, which is the Company’s functional and presentation currency and the currency in which the Company’s stated capital and expenses are denominated, as well as certain of its income, assets and liabilities.

  (ii)  Transactions and Balances

Transactions in foreign currency, whether of a revenue or capital nature, are translated to sterling at the rate of exchange ruling on the date of such transactions. Foreign currency assets and liabilities are translated to sterling at the rates of exchange ruling at the balance sheet date. All profits and losses, whether realised or unrealised, are recognised in the statement of comprehensive income and are taken to capital reserve or revenue reserve, depending on whether the gain or loss is capital or revenue in nature.

(c)  Financial Instruments

  (i)  Recognition of Financial Assets and Financial Liabilities

Financial assets and financial liabilities are recognised when the Company becomes a party to the contractual provisions of the instrument. These are offset if the Company has a legally enforceable right to set off the recognised amounts and interests and intends to settle on a net basis.

  (ii)  Derecognition of Financial Assets

Financial assets are derecognised when the contractual rights to the cash flows from the asset expire, or it transfers the right to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in the transferred financial asset that is created or retained by the Company is recognised as an asset.

  (iii)  Derecognition of Financial Liabilities

Financial liabilities are derecognised when the Company’s obligations are discharged, cancelled or expired.

  (iv)  Trade Date Accounting

Purchases and sales of financial assets are recognised on trade date, being the date on which the Company commits to purchase or sell the assets.

  (v)  Classification of Financial Assets and Financial Liabilities

Financial assets

Investments are classified as held at fair value through profit or loss as the investments are managed and their performance evaluated on a fair value basis in accordance with the Company’s documented investment strategy and this is also the basis on which information about investments is provided internally to the Board.

Financial assets held at fair value through profit or loss are initially recognised at fair value, which is taken to be their cost, with transaction costs expensed in the statement of comprehensive income, and are subsequently valued at fair value.

For investments that are actively traded in organised financial markets, fair value is determined by reference to stock exchange quoted bid prices at the balance sheet date. For investments that are not actively traded or where active stock exchange quoted bid prices are not available, fair value is determined by reference to a variety of valuation techniques including broker quotes and price modelling.

Financial Liabilities

Financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs and are subsequently measured at amortised cost using the effective interest method.

(d)   Derivatives and Hedging

Derivative instruments are valued at fair value in the balance sheet. Hedge accounting has not been adopted.

Forward currency contracts entered into for hedging purposes are valued at the appropriate forward exchange rate ruling at the balance sheet date and any profits and losses are recognised in the statement of comprehensive income and taken to capital.

(e)  Cash and Cash Equivalents

Cash and cash equivalents may comprise cash (including short term deposits which are readily convertible to a known amount of cash and are subject to an insignificant risk of change in value) as well as cash equivalents, including money market funds.

(f)  Securities Sold Under Agreements to Repurchase (‘repo financing’)

The Company participates in repo financing arrangements in connection with its investment portfolio. Under these arrangements, the Company sells fixed interest securities but is contractually obliged to repurchase them at a fixed price on a fixed date. Securities which are the subject of repo financing arrangements are included in investments in the balance sheet at their fair value and the associated liability is recognised at amortised cost, being the capital amounts owing under the repo financing arrangements. The difference between sale and repurchase prices for such transactions is reflected in the statement of comprehensive income over the lives of the transactions, within finance costs which is allocated 50% to capital and 50% to revenue (2020: 35% capital; 65% revenue). This accounting has been adopted because the repurchase price results in a lender‘s return for the transferee as the Company has retained substantially all the risks and rewards of ownership of the asset.

(g)  Income Recognition

All income is recognised in the statement of comprehensive income. Interest income arising from fixed income securities is recognised using the effective interest method. Dividend income arises from equity investments held and is recognised on the date investments are marked ‘ex-dividend’. Deposit interest is taken into account on an accruals basis.

Special dividends are considered individually to ascertain the reason behind the payment. This will determine whether they are treated as income or capital in the income statement.

(h)  Expenses and Finance Costs

All expenses are accounted for on an accruals basis and are recognised in the statement of comprehensive income. Investment management fees and finance costs are allocated 50% to capital and 50% to revenue (2020: 35% capital; 65% revenue) in accordance with the Board’s expected long-term split of returns, in the form of capital gains and income respectively, from the investment portfolio. Except for custodian dealing costs, all other expenses are charged through revenue.

(i)  Taxation

Overseas interest and dividends are shown gross of withholding tax and the corresponding irrecoverable tax is shown as a charge in the statement of comprehensive income.

3.  Segmental Reporting

No segmental reporting is provided as the Directors are of the opinion that the Company is engaged in a single segment of business of investing in debt and, to a significantly lesser extent, equity securities.

4.  Income

This note shows the income generated from the portfolio (investment assets) of the Company and income received from any other source.

		2021	2020
		£000	£000
	Income from investments
	UK investment income – interest	6,281	4,356
	UK dividends	203	318
	Overseas investment income – interest	11,008	7,160
	Overseas dividends	80	87
	Scrip dividends	7	–
		17,579	11,921
	Other income
	Deposit interest	–	1
	Total income	17,579	11,922

5.  Investment Management Fee

This note shows the fees paid to the Manager, which are calculated quarterly on the basis of the value of the assets being managed.

		2021			2020
		Revenue	Capital	Total	Revenue	Capital	Total
		£000	£000	£000	£000	£000	£000
	Investment management fee	946	946	1,892	897	483	1,380

Details of the investment management and secretarial agreement are given on page 17 in the Directors’ Report.

At 31 December 2021, £531,000 (2020: £371,000) was accrued in respect of the investment management fee.

With effect from 1 January 2021 the investment management fees and finance costs are allocated 50% capital and 50% revenue (2020: 35% to capital and 65% to revenue). Following the merger and with effect from 19 May 2021 the management fee has been reduced from an annual fee of 0.75% to 0.65% of total assets less current liabilities, which remains payable quarterly at the reduced rate of 0.1625% (previously 0.1875%) in arrears at the end of each quarter.

6.  Other Expenses

The other expenses of the Company are presented below; those paid to the Directors and the auditor are separately identified.

		2021			2020
		Revenue	Capital	Total	Revenue	Capital	Total
		£000	£000	£000	£000	£000	£000
	Directors’ fees(i)	155	–	155	141	—	141
	Auditors’ fees(ii):
	for audit of the Company’s annual financial statements	43	–	43	36	—	36
	additional fees in respect of merger audit procedures(iii)	5	–	5	–	–	–
	additional fees in respect of Covid-19 audit procedures	–	–	–	3	–	3
	Other expenses(iv)	351	3	354	412	3	415
		554	3	557	592	3	595

(i)  The maximum Directors’ fees authorised by the Articles of Association are £185,000 per annum. The Report on Directors’ Remuneration and Interests on page 42, provides further information on Directors’ fees

(ii)  Auditor’s fees include out of pocket expenses.

(iii)  Additional assurance fees paid to the Auditor in respect of merger with Invesco Enhanced Income Limited.

  In addition, the Auditor provided non-audit services related to work on the merger with Invesco Enhanced Income Limited, which amounted to £53,750 (2020: none). This amount is recognised in investment gains and losses as part of professional fees in respect of the merger.

(iv)  Other expenses include:

  • custodian transaction charges of £2,700 (2020: £3,400). These are charged to capital.

  • amounts due to JTC Fund Solutions (Jersey) Limited who acted as Administrator and Company Secretary to the Company under an agreement starting from 10 December 2019. The fee was calculated at the rate of £70,000 per annum for company secretarial and administration services up to 18 May 2021 and £110,000 per annum thereafter. Additional fees of £17,000 were also paid in 2021 in respect of the merger.

  • with effect from 19 May 2021, the Manager’s administration fee, for services which was based on an initial fee of £22,500 plus RPI increases per annum, was removed. A fixed fee of £45,000 per annum is now payable to the Manager for marketing services on behalf of the Company.

  • No premium was paid during the year on Credit Default Swaps (2020: £109,000).

7.  Finance Costs

Finance costs arise on any borrowing facilities the Company has and comprise commitment fees on any unused facility as well as interest when the facility is used.

			2021			2020
		Revenue	Capital	Total	Revenue	Capital	Total
		£000	£000	£000	£000	£000	£000
	Interest receivable under repo financing	(29)	(29)	(58)	(13)	(6)	(19)
	Overdraft interest	6	6	12	6	3	9
		(23)	(23)	(46)	(7)	(3)	(10)

The Company has repo financing arrangements in place which were used during the year. For repos that are denominated in currencies where the interest rate is negative, the interest is receivable and has been netted against repo interest payable within finance costs, as they relate to borrowing costs.

8  Taxation

As a Jersey investment company no tax is payable on capital gains and, as the Company principally invests in assets which do not result in a revenue tax, the only overseas tax arises on assets domiciled in countries with which Jersey has no double-taxation treaty.

		2021	2020
		£000	£000
	Overseas taxation	85	15

The Company is subject to Jersey income tax at the rate of 0% (2020: 0%). The overseas tax charge consists of irrecoverable withholding tax suffered.

9.  Return per Ordinary Share

Return per ordinary share is the amount of gain generated for the financial year divided by the weighted average number of ordinary shares in issue.

The basic revenue, capital and total return per ordinary share is based on each of the returns on ordinary activities after taxation and on 142,941,719 (2020: 101,553,976) ordinary shares, being the weighted average number of ordinary shares in issue throughout the year.

10.  Dividends on Ordinary Shares

Dividends are usually paid from the income less expenses. Dividends are paid as an amount per ordinary share held.

The final dividend shown below is based on shares in issue at the record date or, if the record date has not been reached, on shares in issue on the date the balance sheet is signed. The third interim and final dividends are paid after the balance sheet date.

		2021		2020
		Pence	£000	Pence	£000
	Dividends paid and recognised in the year:
	Fourth interim	2.50	2,544	2.50	2,513
	First interim	2.50	2,544	2.50	2,541
	Second interim(i)	2.75	4,636	2.50	2,544
	Third interim(i)	2.75	4,636	2.50	2,544
		10.50	14,360	10.00	10,142

Dividends paid in the year have been charged to revenue except for £nil (2020: £50,000) which was charged to stated capital. This amount is equivalent to the income accrued on the new shares issued in the year (see note 16).

Set out below are the dividends that have been declared in respect of the financial years ended 31 December:

		2021		2020
		Pence	£000	Pence	£000
	Dividends payable in respect of the year:
	First interim	2.50	2,544	2.50	2,541
	Second interim(i)	2.75	4,636	2.50	2,544
	Third interim(i)	2.75	4,636	2.50	2,544
	Fourth interim(i)	2.75	4,636	2.50	2,544
		10.75	16,452	10.00	10,173

  (i)  Following the merger with IPE, the number of shares in issue increased and as a result, the dividends paid and payable for the year have also increased. 

The fourth interim dividend for the 2021 financial year was paid on 21 February 2022 to shareholders on the register on 21 January 2022.

11.  Investments Held at Fair Value Through Profit and Loss

The portfolio is principally made up of investments which are listed and traded on regulated stock exchanges. Profits and losses are either:

• realised, usually arising when investments are sold; or

• unrealised, being the difference from cost of those investments still held at the year end.

  (a)  Analysis of investment profits in the year

		2021	2020
		£000	£000
	Opening book cost	190,180	171,675
	Opening investment unrealised gain	12,049	8,053
	Opening valuation	202,229	179,728
	Movements in year:
	Purchases at cost:
	Purchases of investments in the ordinary course of business	116,065	93,096
	Transfer of investments from the merger with IPE	141,754	–
	Total purchases	257,819	93,096
	Sales proceeds	(105,037)	(72,197)
	(Loss)/profit on investments in the year	(3,477)	1,602
	Closing valuation	351,534	202,229
	Closing book cost	343,054	190,180
	Closing investment unrealised gain	8,480	12,049
	Closing valuation	351,534	202,229

The Company received £105,037,000 (2020: £72,197,000) from investments sold in the year. The book cost of these investments when they were purchased was £104,945,000 (2020: £74,591,000) realising a profit of £92,000 (2020: loss £2,394,000). These investments have been revalued over time and until they were sold any unrealised profits/losses were included in the fair value of the investments.

  (b)  Transaction costs

  The transaction costs included in gains on investments amount to £nil (2020: £nil) on purchases and £nil (2020: £nil) for sales. Professional costs, associated with acquisition of assets from the merger with Invesco Enhanced Income Limited (‘IPE’), of £562,000 have been recognised as a transaction cost and included within (loss)/profit on investments held at fair value within the statement of comprehensive income.

  (c)  Registration of investments

  The investments of the Company are registered in the name of the Company or in the name of nominees and held to the order of the Company.

  (d)  Securities sold under agreements to repurchase

  Included in the valuation above, are securities under agreements to repurchase which had a market value of £48,588,000 (2020: £17,817,000).

  (e)  On 19 May 2021 £141,754,000 of investments were acquired in respect of the merger with IPE.

12.  Other Receivables

Other receivables are amounts which are due to the Company, such as income which has been earned (accrued) but not yet received and monies due from brokers for investments sold.

		2021	2020
		£000	£000
	Prepayments and accrued income	5,576	3,334
		5,576	3,334

13.  Derivative Financial Instruments

Derivative financial instruments are financial instruments that derive their value from the performance of another item, such as an asset or exchange rates. They are used to manage the risk associated with fluctuations in the value of certain assets and liabilities. The Company can use derivatives to manage its exposure to fluctuations in foreign exchange rates.

Derivative financial instruments comprise forward currency contracts.

		2021	2020
		£000	£000
	Forward currency contracts – net unrealised profit	1,187	3,175
		1,187	3,175

14.  Other Payables

Other payables are amounts which must be paid by the Company, and include amounts owed to suppliers, such as the Manager and auditor, and any amounts due to brokers for the purchase of investments.

		2021	2020
		£000	£000
	Accruals	640	463
		640	463

15.  Securities sold under agreements to repurchase

		2021	2020
		£000	£000
	Securities sold under agreements to repurchase	39,095	13,540

During the year, the Company entered into repo financing arrangements whereby securities are sold under agreements to repurchase. Further details are shown in note 2(f) and note 19.3. Repo financing acquired from the merger are disclosed in note 16.

16.  Stated Capital

The stated capital represents the total number of shares in issue. Stated capital can be used for distributions under Jersey law.

		2021		2020
		Number	£000	Number	£000
	Allotted ordinary shares of no par value:
	Brought forward	101,741,204	167,234	100,041,204	164,013
	Shares issued/net proceeds	–	–	1,700,000	3,271
	Shares issued/net proceeds in respect of the merger(1)	66,836,392	130,092	–	–
	Dividends paid from stated capital	–	–	–	(50)
		168,577,596	297,326	101,741,204	167,234

The Directors have considered the substance of the assets and activities of IPE in determining whether this acquisition represents the acquisition of a business. In this case the acquisition is not judged to be an acquisition of a business, and therefore has not been treated as a business combination. Rather, the cost to acquire the assets and liabilities of IPE has been allocated between the acquired identifiable assets and liabilities based on their relative fair values on the acquisition date without attributing any amount to goodwill or to deferred taxes.

On 19 May 2021 and following a contractual scheme of reconstruction, 66,836,392 new ordinary shares were issued to all shareholders of Invesco Enhanced Income Limited, in lieu of their investment in that company. The consideration received for the issue of the new ordinary shares are set out below:

		£000
	Investments	141,754
	Cash and cash equivalents	5,670
	Currency forwards contracts outstanding	729
	Other receivables	2,683
	Securities sold under agreements to repurchase (Repo financing)	(20,600)
	Net assets acquired(1)	130,236

(1)  The difference of £144,000 between net assets acquired of £130,236,000 and net proceeds from shares issued in respect of the merger of £130,092,000 relates to share issue costs.

At 31 December 2021, the Company’s stated capital consisted of 168,577,596 ordinary shares of no par value, allotted and fully paid.

At a general meeting of the Company every member has one vote on a show of hands and on a poll one vote for each share held. The notice of general meeting will specify deadlines for exercising voting rights either by proxy or in person in relation to resolutions to be passed at the meeting.

The Directors may restrict voting powers where shareholders fail to provide information with respect to interests in voting rights when so requested, may refuse to register any transfer of a share in favour of more than four persons jointly and can require certain US holders of shares to transfer their shares compulsorily.

Save for the foregoing, there are no restrictions concerning the transfer of securities in the Company; no special rights with regard to control attached to securities; no agreements between holders of securities regarding their transfer known to the Company; and no agreements which the Company is party to that might affect its control following a successful takeover bid.

For the year to 31 December 2021 no new ordinary shares were issued to the Company’s corporate broker, (2020: 1,700,000) Winterflood Securities Limited, for onward transmission to their clients. In the previous year, shares were issued in tranches of various quantities throughout the year to satisfy secondary market demand, with gross issue proceeds of £3,313,000, at an average price of 194.91p, and the net proceeds after issue costs were £3,271,000. The net proceeds included an aggregate amount of £50,000 which arose from the income accrued component of the net asset value at the date of issue of the new shares.

Subsequent to the year end no ordinary shares were bought back or issued.

Because the criteria in paragraphs 16C and 16D of IAS 32 Financial Instruments: Presentation, have been met, the stated capital of the Company is classified as equity even though there is a continuation vote.

17.  Reserves

This note explains the different reserves attributable to shareholders. The aggregate of the reserves and stated capital (see previous note) make up total shareholders’ funds.

The capital reserve includes unrealised investment holding profits and losses, being the difference between cost and market value at the balance sheet date, as well as realised profits and losses of disposals of investments. In addition, costs allocated to capital are recognised in the capital reserve. The revenue reserve shows the net revenue after payment of any dividend from the reserve. Both the capital and revenue reserves are distributable.

18.  Net Asset Value per Ordinary Share

The Company’s total net assets (total assets less total liabilities) are often termed shareholders’ funds and are converted into net asset value per ordinary share by dividing by the number of shares in issue.

The net asset value per share and the net asset values attributable at the year end were as follows:

		Net asset value per ordinary share		Net assets attributable
		2021	2020	2021	2020
		Pence	Pence	£000	£000
	Ordinary shares	193.82	194.29	326,730	197,675

Net asset value per ordinary share is based on net assets at the year end and on 168,577,596 (2020: 101,741,204) ordinary shares, being the number of ordinary shares in issue (excluding treasury) at the year end.

19.  Management, Financial Assets and Liabilities

Financial instruments comprise the Company’s investment portfolio and derivative financial instruments (for the latter see note 13) as well as any cash, borrowings (i.e. securities sold under agreements to repurchase otherwise known as ‘repo financing’), other receivables and other payables. The following note explains the risks that affect the Company’s financial instruments and looks at the Company’s exposure to these various risks.

  Risk Management Policies and Procedures

The Business Review details the Company’s approach to investment management risks on page 14 and the accounting policies in note 2 explain the Company’s valuation basis for investments and currency.

As an investment company, the Company invests in loan stocks, corporate bonds, government stocks, preference shares and equities which are held for the long-term in order to achieve the Company’s Investment Objective in accordance with its Investment Policy. In pursuing these, the Company is exposed to a variety of risks that could result in either a reduction in the Company’s net assets or a reduction in the profits available for payment as dividends.

The Company’s principal financial instruments at risk comprise its investment portfolio. Other financial instruments at risk include cash and cash equivalents, borrowings (including repo financing), other receivables and other payables that arise directly from the Company’s operations.

The Company may enter into derivative transactions, including credit default swaps, for efficient portfolio management. Derivative instruments can be highly volatile and expose investors to a high risk of loss. Where used to hedge risk there is a risk that the return on a derivative does not exactly correlate to the returns on the underlying investment, obligation or market sector being hedged against. If there is an imperfect correlation, the Company may be exposed to greater loss than if the derivative had not been entered into. During the year the only derivatives entered into were forward currency contracts. As at the year end, no credit default swaps were held.

These risks and the Directors’ approach to managing them are set out below, and have not changed from those applied in the comparative year.

Risk management is an integral part of the investment management process. The Manager controls risk by ensuring that the Company’s portfolio is appropriately diversified and the portfolio managers actively monitor both the ratings and liquidity of the fixed-interest securities taking into account the Company’s financing requirements. In-depth and continual analysis of market and security fundamentals give the portfolio managers the best possible understanding of the risks associated with a particular security. The portfolio managers assess the exposure to market risk when making each investment decision, and monitor the overall level of market risk on the whole of the portfolio on an ongoing basis.

High-yield fixed-interest securities are subject to a variety of risks, including credit risk (note 19.3).

The day to day management of the investment activities, borrowings and hedging of the Company has been delegated to the Manager, and is the responsibility of the portfolio managers to whom the Board has given discretion to operate within set guidelines. Any proposed variation outside those guidelines is referred to the Board and the guidelines themselves are reviewed at every board meeting.

19.1  Market Risk

Market risk arises from changes in the fair value or future cash flows of a financial instrument. Market risk comprises three types of risk: currency risk (note 19.1.1), interest rate risk (note 19.1.2) and other price risk (note 19.1.3).

  19.1.1  Currency Risk

The Company has assets, liabilities and income which are denominated in currencies other than sterling and movements in exchange rates will affect the sterling value of those items.

Management of the Currency Risk

The Board meets at least quarterly to assess risk and review investment performance. The portfolio managers monitor the Company’s exposure to foreign currencies on a daily basis and is reviewed by Directors at each Board meeting. The Company may use forward currency contracts to mitigate currency risk. Repo financing is matched to the currency of the underlying assets, which minimises currency risk on the movement of exchange rates affecting the underlying investments. Non-sterling investments that are not pledged under repo financing can be hedged using forward currency contracts. All borrowings and derivative contracts are limited to currencies and amounts commensurate with asset exposure to those currencies.

Income denominated in foreign currencies is converted to sterling on receipt. The Company does not use financial instruments to mitigate the currency exposure in the period between the time that income is included in the financial statements and its receipt.

Currency Exposure

The following table shows the fair values of the Company’s monetary items that have foreign currency exposure at 31 December. Where the Company’s investments (which are not monetary items) are priced in a foreign currency, they have been included separately in the analysis to show the overall level of exposure.

			US
		Euro	Dollar
		£000	£000
	31 December 2021
	Investments at fair value through profit or loss that are monetary items (fixed and floating interest)	94,716	113,781
	Forward currency contracts	(60,797)	(98,179)
	Other receivables (due from brokers and dividends)	1,757	1,497
	Cash and cash equivalents	851	756
	Securities sold under agreement to repurchase	(23,608)	(6,654)
	Foreign currency exposure on net monetary items	12,919	11,201
	Investments at fair value through profit or loss that are equities	1,738	–
	Total net foreign currency	14,657	11,201

			US
		Euro	Dollar
		£000	£000
	31 December 2020
	Investments at fair value through profit or loss that are monetary items (fixed and floating interest)	58,329	75,970
	Forward currency contracts	(39,672)	(75,940)
	Other receivables (due from brokers and dividends)	1,209	1,110
	Cash and cash equivalents	689	449
	Securities sold under agreement to repurchase	(12,121)	—
	Foreign currency exposure on net monetary items	8,434	1,589
	Investments at fair value through profit or loss that are equities	1,039	—
	Total net foreign currency	9,473	1,589

The above may not be representative of the exposure to risk during the year reported because the levels of monetary foreign currency exposure may change significantly throughout the year.

Currency Sensitivity

The effect on the Statement of Comprehensive Income and the net asset value that changes in exchange rates have on the Company’s financial assets and liabilities is based on the following currencies. These changes have been calculated by reference to the volatility of exchange rates during the period using the standard deviation of currency fluctuations against the mean.

		2021	2020
		£000	£000
	£/Euro	±1.5%	±2.7%
	£/US Dollar	±1.7%	±3.1%

The following sensitivity analysis is based on the Company’s monetary foreign currency financial instruments held at the balance sheet date, taking account of any forward foreign exchange contracts that offset the effects of changes in currency exchange rates, and the income receivable in foreign currency in the year.

If sterling had strengthened by the changes in exchange rates shown above, this would have had the following effect:

			US
		Euro	Dollar
		£000	£000
	2021
	Effect on Statement of Comprehensive Income – profit after taxation
	Revenue loss	(78)	(120)
	Capital loss	(194)	(165)
	Total return after taxation for the year	(272)	(285)
	Effect on net asset value	–0.1%	–0.1%

			US
		Euro	Dollar
		£000	£000
	2020
	Effect on Statement of Comprehensive Income – profit after taxation
	Revenue loss	(77)	(144)
	Capital loss	(223)	(15)
	Total return after taxation for the year	(300)	(159)
	Effect on net asset value	–0.2%	–0.1%

If sterling had weakened by the same amounts, the effect would have been the converse.

In the opinion of the Directors, the above sensitivity analysis is not representative of the year as a whole, since the level of exposure changes frequently as part of the currency risk management process of the Company.

  19.1.2  Interest Rate Risk

The Company is exposed to interest rate risk in a number of ways. Movements in interest rates may affect the fair value of fixed-interest rate securities, income receivable on cash deposits and floating rate securities, and interest payable on variable rate borrowings, including repo financing. Interest rate risk is related above all to long-term financial instruments.

Management of Interest Rate Risk

The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account as part of the portfolio management and borrowings processes of the Manager. The Board reviews on a regular basis the investment portfolio and borrowings. This encompasses the valuation of fixed-interest and floating rate securities.

When the Company has cash balances, they are held in variable rate bank accounts yielding rates of interest dependant on the base rate of the Custodian, the Bank of New York Mellon (International) Limited. Holdings in Invesco Liquidity Funds plc – Sterling are subject to interest rate changes.

The Company has available repo financing arrangements it can use to finance investment activity, details of which are shown in note 7. The Company uses these at levels approved and monitored by the Board.

Interest Rate Exposure

The following table shows the Company’s exposure to interest rate risk at the balance sheet date arising from its monetary financial assets and liabilities.

		Within	More than
		one year	one year	Total
		£000	£000	£000
	2021
	Exposure to floating interest rates:
	Investments held at fair value through profit or loss	–	102,067	102,067
	Cash and cash equivalents*	8,168	–	8,168
		8,168	102,067	110,235
	Exposure to fixed interest rates:
	Investments held at fair value through profit or loss	4,516	237,696	242,212
	Securities sold under agreements to repurchase	(39,095)	–	(39,095)
		(34,579)	237,696	203,117
	Net exposure to interest rates	(26,411)	339,763	313,352

		Within	More than
		one year	one year	Total
		£000	£000	£000
	2020
	Exposure to floating interest rates:
	Investments held at fair value through profit or loss	444	57,484	57,928
	Cash and cash equivalents*	2,940	—	2,940
		3,384	57,484	60,868
	Exposure to fixed interest rates:
	Investments held at fair value through profit or loss	499	139,424	139,923
	Securities sold under agreements to repurchase	(13,540)	—	(13,540)
		(13,041)	139,424	126,383
	Net exposure to interest rate	(9,657)	196,908	187,251

* Includes £5,520,000 (2020: £1,620,000) held in Invesco Liquidity Funds plc – Sterling.

The nominal interest rates on the investments at fair value through profit or loss are shown in the portfolio list on pages 24 to 31. The weighted average effective interest rate on these investments is 6.3% (2020: 6.3%). The weighted average effective interest rate on cash and cash equivalents is –0.13% (2020: 0.22%).

Interest Rate Sensitivity

The following table illustrates the sensitivity of the profit or loss after taxation for the year to a 1% increase in interest rates in regard to the Company’s financial assets and financial liabilities. As future changes cannot be estimated with any degree of certainty, the sensitivity analysis is based on the Company’s financial instruments held at the balance sheet date, with all other variables held constant.

		2021	2020
		£000	£000
	Effect on Statement of Comprehensive Income – profit after taxation
	Revenue profit	82	29
	Capital loss	(12,348)	(7,696)
	Total loss after taxation for the year	(12,266)	(7,667)
	Effect on NAV per ordinary share	(7.3)p	(4.6)p

If interest rates had decreased by 1%, this would have had an equal and opposite effect.

The above exposure and sensitivity analysis are not representative of the year as a whole, since the level of exposure changes frequently as borrowings, which are predominantly from repo financing arrangements, can vary throughout the year.

  19.1.3  Other Price Risk

Other price risk includes changes in market prices, other than those arising from currency risk or interest rate risk, which may affect the value of the investment portfolio, whether by factors specific to an individual investment or its issuer, or by factors affecting the wider market.

Management of Other Price Risk

It is the portfolio managers’ responsibility to manage the portfolio and borrowings in accordance with the investment objective and policy, and in accordance with the investment policy guidelines set by the Board. The Board manages the market price risks inherent in the investment portfolio by meeting regularly to monitor on a formal basis compliance with these. The Board also reviews investment performance. Because the Company’s portfolio is the result of the portfolio managers’ investment process, performance may not closely correlate with the markets in which the Company invests.

The Company’s exposure to other changes in market prices at 31 December on its investments is shown in the fair value hierarchy table on pages 68 and 69.

Concentration of Exposure to Other Price Risks

The Company’s investment portfolio is not concentrated in any single country of domicile, however, it is recognised that an investment’s country of domicile or listing does not necessarily equate to its exposure to the economic conditions in that country.

Other Price Risk Sensitivity

Excluding fixed interest securities and convertibles, at the year end the Company held other investments of £7,255,000 (2020: £4,378,000). The effect of a 10% increase or decrease in the fair values of these investments (including any exposure through derivatives) on the profit after taxation for the year is £726,000 (2020: £438,000). This level of change is considered to be reasonably possible based on the observation of market conditions during the financial year, taking account of the subsequent recovery of markets in the aftermath of Covid-19.

19.2  Liquidity Risk

This is the risk that the Company may encounter difficulty in meeting its obligations associated with financial liabilities i.e. when realising assets or raising/replacing repo financing to meet financial commitments. A lack of liquidity in the portfolio may make it difficult for the Company to realise assets at or near their purported value in the event of a forced sale.

Management of Liquidity Risk

Liquidity risk is not viewed by the Directors as a significant risk because a majority of the Company’s assets comprise readily realisable securities, although a lack of liquidity in non-investment grade securities may make it difficult to rebalance the Company’s investment portfolio as and when the portfolio managers believe it would be advantageous to do so. On a daily basis the portfolio managers ascertain the Company’s cash and borrowing requirements by reviewing future cash flows arising from purchases and sales of investments, interest and dividend receipts, expenses and dividend payments, and available financing (including repo financing).

Liquidity Risk Exposure

The contractual maturities of the financial liabilities at 31 December, based on the earliest date on which payment can be required, was as follows:

		2021			2020
		Less than	More		Less than	More
		three	than one		three	than one
		months	year	Total	months	year	Total
		£000	£000	£000	£000	£000	£000
	Other payables (note 14)
	Accruals	640	–	640	463	–	463
	Securities sold under agreements to repurchase (note 15)	39,095	–	39,095	13,540	–	13,540
		39,735	–	39,735	14,003	–	14,003

19.3  Credit Risk

Credit risk is the risk that the failure of the counterparty to a transaction to discharge its obligation under that transaction could result in a loss to the Company. The Company’s principal credit risk is the risk of default on the non-investment grade debt. The Company’s other main credit risk arises from the repo financing arrangements whereby, if a counterparty failed to sell the required assets to the Company on the repurchase date, the Company would be left with the claim against the defaulting counterparty for the stock and, if applicable, any margin held by the counterparty and not returned.

At the year end 78.0% (2020: 74.6%) of the Company’s portfolio consisted of non-investment grade securities. To the extent that the Company invests in non-investment grade securities, the Company may realise a higher current yield than the yield offered by investment grade securities. On the other hand, investments in such securities involve a greater volatility of price and a greater risk of default by the issuers of such securities, with consequent loss of interest payments and principal. Non-investment grade securities are likely to be subject to greater uncertainties from exposure to adverse conditions and will be speculative with respect to an issuer’s capacity to meet interest payments and repay principal in accordance with its obligations.

Investment grade and non-investment grade securities totalled 93.1% (2020: 93.4%) of the portfolio at the year end. Adverse changes in the financial position of an issuer of such high-yield fixed-interest securities or in general economic conditions may impair the ability of the issuer to make payments of principal and/or interest or may cause the liquidation or insolvency of an issuer.

The portfolio may be adversely affected if the Company’s custodian suffers insolvency or other financial difficulties. The appointment of a depositary has substantially lessened this risk. The Board reviews the custodian’s annual control report and the Manager’s management of the relationship with the custodian.

Management of and Exposure to Credit Risk

Almost all of the Company’s assets are subject to credit risk. Where the portfolio managers make an investment in a bond, corporate or otherwise, the credit rating of the issuer is also considered when assessing the risk of defaults. Investments in bonds are across a variety of industrial sectors and geographical markets to avoid concentration of credit risk. Counterparties for derivative transactions are also a source of credit risk. Transactions involving derivatives are entered into only with banks whose credit ratings are taken into account to minimise default risk. The credit ratings of the derivatives counterparties range from Aa3 through to Baa1. In addition, the Company may, and during 2020 did to a minor extent, use credit default swaps (CDSs) to offset the credit risk of the portfolio. At the year end, no credit default swaps were held by the Company (2020: none).

Details of the Company’s investments, including their credit ratings, are shown on pages 24 to 31. Credit risk for transactions involving derivatives and equity investments is minimised as the Company only uses approved counterparties.

The Company manages the credit risk inherent in repo financing by only dealing with good quality counterparties whose credit-standing is reviewed periodically by the Manager. There is a maximum limit allowed with any one counterparty, and the repo entered into must have a maturity tenor of three months or less. The Company has exposure to credit risk on securities pledged under repo financing held, with 3 counterparties, as follows (2020: 3 counterparties):

				2021			2020
					Market			Market
					value of	Net		value of	Net
				Amounts	securities	credit	Amounts	securities	credit
				borrowed	pledges	exposure	borrowed	pledges	exposure
				under	under	to	under	under	to
				repo	repo	counter	repo	repo	counter
				financing	financing	party	financing	financing	party
	Counterparty	Rating	Location	£000	£000	£000	£000	£000	£000
	Barclays	A1/A	UK	6,906	7,636	730	476	586	110
	CitiBank	Aa3/A+	UK	5,341	6,540	1,199	4,120	5,250	1,130
	Credit Suisse	A1/A	UK	26,848	34,412	7,564	8,944	11,981	3,037
				39,095	48,588	9,493	13,540	17,817	4,277
	Net credit exposure as % of net assets					2.9			2.2

Cash balances are held with approved deposit takers only and are limited to a maximum of 4% of the Company’s net asset value with any one deposit taker. Balances held with Invesco Liquidity Funds plc, a triple-A rated money market fund, are limited to a maximum of 10% of the Company’s net asset value. At the balance sheet date the Company had £2.65 million (2020: £1.32 million) held at the custodian and £5.52 million held in Invesco Liquidity Funds plc – Sterling (2020: £1.62million).

There are no financial assets that are past due or impaired at the year end (2020: none).

  Fair Values of Financial Assets and Financial Liabilities

Financial assets are either carried in the balance sheet at their fair value (investments and derivatives), or the balance sheet amount is a reasonable approximation of fair value (due from brokers, dividends receivable, accrued income, due to brokers, accruals and cash).

Financial liabilities are carried at amortised cost except for derivatives, which as stated above are carried at fair value.

20.  Classification Under Fair Value Hierarchy

The valuation techniques used by the Company are explained in the accounting policies note 2(c). The table that follows sets out the fair value of the financial instruments. The three levels set out in IFRS 7 hierarchy follow:

Level 1 – The unadjusted quoted price in an active market for identical assets or liabilities that the entity can access at the measurement date.

Level 2 – Inputs other than quoted prices included within Level 1 that are observable (i.e. developed using market data) for the asset or liability, either directly or indirectly.

Level 3 – Inputs are unobservable (i.e. for which market data is unavailable) for the asset or liability.

Categorisation within the hierarchy is determined on the basis of the lowest level input that is significant to the fair value measurement of each relevant asset/liability.

There were no transfers in the year between any of the levels.

Normally investments would be valued using stock market active prices, with investments disclosed as Level 1 and this is the case for the quoted equity investments that the Company holds. However, the majority of the Company’s investments are non-equity investment. Evaluated prices from a third party pricing vendor are used to price these securities, together with a price comparison made to secondary and tertiary evaluated third party sources. Evaluated prices are in turn based on a variety of sources including broker quotes and benchmarks. As a result, the Company’s non-equity investments have been shown as Level 2 – recognising that the fair values of these investments are not as visible as quoted equity investments and their higher inherent pricing risk. However, this does not mean that the fair values shown in the portfolio valuation are not achievable at point of sale. No Level 3 investments were held during the year or the previous year.

		Level 1	Level 2	Total
		£000	£000	£000
	2021
	Financial assets designated at fair value through profit or loss:
	Quoted Investments:
	Fixed interest securities(1)	–	341,319	341,319
	Convertibles	–	2,960	2,960
	Preference	3,148	–	3,148
	Equities	4,107	–	4,107
	Derivative financial instruments:
	Forward currency contract	–	1,187	1,187
	Total for financial assets	7,255	345,466	352,721

		Level 1	Level 2	Total
		£000	£000	£000
	2020
	Financial assets designated at fair value through profit or loss:
	Quoted Investments:
	Fixed interest securities(1)	—	195,835	195,835
	Convertibles	—	2,016	2,016
	Preference	3,339	—	3,339
	Equities	1,039	—	1,039
	Derivative financial instruments:
	Forward currency contract	—	3,175	3,175
	Total for financial assets	4,378	201,026	205,404

(1)  Fixed interest securities include both fixed and floating rate securities.

21.  Capital Management

The Company’s capital, or equity, is represented by its net assets which are managed to achieve the Company’s investment objective set out on page 12.

The main risks to the Company’s investments are shown in the Business Review under the ‘Principal Risks and Uncertainties’ section on pages 15 and 16. These also explain that the Company is able to gear and that gearing will amplify the effect on equity of changes in the value of the portfolio.

The Board can also manage the capital structure directly since it has taken the powers, which it is seeking to renew, to issue and buy-back shares and it also determines dividend payments.

The Board regularly monitors the level of borrowing used by the Company and has imposed limits within which borrowings should be managed.

Total equity at 31 December 2021, the composition of which is shown on the balance sheet on page 54, was £326,730,000 (2020: £197,675,000).

22.  Contingencies, Guarantees and Financial Commitments

Liabilities the Company is committed to honour but which are dependent on a future circumstance or event occurring would be disclosed in this note if any existed.

There were no contingencies, guarantees or other financial commitments of the Company as at 31 December 2021 (2020: nil).

23.  Related Party Transactions and Transactions with Manager

A related party is a company or individual who has direct or indirect control or who has significant influence over the Company.

Under International Financial Reporting Standards as adopted by the EU (‘IFRS’), the Company has identified the Directors and their dependents as related parties. Directors fees paid have been disclosed in the Report on Directors’ Remuneration and Interests on pages 42 and 43 with additional disclosure in note 6. Full details of Directors’ interests are set out in the Report on Directors’ Remuneration and Interests on page 43. No other related parties have been identified.

Invesco Fund Managers Limited and Invesco Asset Management Limited, both of which are wholly owned subsidiaries of Invesco Limited, provided investment management and administration services to the Company. Invesco Limited or its subsidiaries are not considered related parties as they do not have direct or indirect control nor significant influence over the Company. Details of the services and fees are disclosed in the Business Review and management fees payable are shown in note 5.

24.  Post Balance Sheet Events

Any significant events that occurred after the end of the reporting period but before the signing of the balance sheet will be shown here

Following the merger, the Board carried out a review of all service providers and decided to change Registrar from Link Market Services (Jersey) Limited to Computershare Investor Services (Jersey) Limited with effect from close of business on 1 April 2022. A separate mailing with Computershare's details will be sent to shareholders, following the change.

This annual financial report announcement is not the Company’s statutory accounts.  The statutory accounts for the period ended 31 December 2021 have been audited and approved but are not yet filed.  They received an audit report which is unqualified and does not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report. 

The audited annual financial report will be posted to shareholders shortly.  Copies may be obtained during normal business hours from the Company’s Registered Office, JTC Fund Solutions (Jersey) Limited, PO Box 1075, 28 Esplanade, St Helier, Jersey JE4 2QP or the Manager’s website via the directory found at the following link: www.invesco.co.uk/bips.  The Annual General Meeting of the Company will be held at 3pm on 24 June 2022 at the offices of Invesco, 43-45 Portman Square, London, WIH 6LY.

A copy of the annual financial report will be submitted shortly to the National Storage Mechanism ("NSM") and will be available for inspection at the NSM, which is situated at https://data.fca.org.uk/#/nsm/nationalstoragemechanism.

Hilary Jones

JTC Fund Solutions (Jersey) Limited

Company Secretary

Telephone: [phone]

30 March 2022

LEI: 549300JLX6ELWUZXCX14