Annual Financial Report

RNS Number : 3586V

BMO Managed Portfolio Trust - BMPI

06 August 2020

To: RNS

Date: 6 August 2020

From: BMO Managed Portfolio Trust PLC

LEI: 213800ZA6TW45NM9YY31

Statement of Audited Results for the year ended 31 May 2020

Income shares - financial highlights

- Annual dividend increased by 2.5% to 6.1p per Income share compared to the prior year.

- Dividend yield⁽¹⁾ of 5.2% at 31 May 2020, based on dividends at the current annual rate of 6.1p per Income share, compared to the yield on the FTSE All-Share Index of 4.8%. Dividends are paid quarterly.

- Net asset value total return per Income share of -7.3% for the financial year, outperforming the FTSE All-Share Index total return (-11.2%) by +3.9%.

- Net asset value total return per Income share of +106.9% since launch on 16 April 2008, the equivalent of +6.2% compound per year. This has outperformed the FTSE All-Share Index total return of +70.2%, the equivalent of +4.5% compound per year.

Growth shares - financial highlights

- Net asset value total return per Growth share of +1.5% for the financial year outperforming the FTSE All-Share Index total return (-11.2%) by +12.7%.

- The net asset value per Growth share has increased by +112.6% since launch on 16 April 2008, the equivalent of +6.4% compound per year. This has outperformed the FTSE All-Share Index total return +70.2%, the equivalent of +4.5% compound per year.

- The net asset value total return per Growth share has outperformed the FTSE All-Share Index total return over one year, three years, five years, ten years and from launch to 31 May 2020.

Notes:

(1) Dividend yield - based on dividends at the annual rate of 6.1 pence per Income share for the financial year to 31 May 2020 and the Income share price of 117.5p at 31 May 2020.

(2) Total return - the return to shareholders calculated on a per share basis taking into account both the reinvestment of any dividends paid in the period and the increase or decrease in the share price or NAV in the period.

Chairman's Statement

- Net asset value total return for the financial year for both the Income shares and Growth shares outperformed the benchmark index

- Dividend yield on the Income shares of 5.2% at 31 May 2020

- Ninth consecutive year of dividend increases

Before reviewing the financial year, the Board is pleased to report that, since the onset of the COVID-19 pandemic, the working arrangements put in place by our Investment Manager and the Company's other service providers have been working well and operations including the management of the investment portfolios has continued as normal.

Performance

For the Company's financial year to 31 May 2020 the NAV total return (capital performance plus the reinvestment of any dividends paid) was -7.3% for the Income shares and +1.5% for the Growth shares, both of which outperformed the -11.2% total return for the FTSE All-Share Index, the benchmark index for both share classes.

Two events dominated the environment for equity markets. In the first part of the financial year it was Brexit and the accompanying political uncertainty and then, in the last few months of the year, it was the COVID-19 pandemic. In terms of market performance, they had a very different effect. Despite the uncertainty of Brexit, the FTSE All-Share Index rose by 5.8% in the first six months but was then hit hard when the COVID-19 pandemic took hold and declined by 16.1% during the second half of the financial year. Although all markets in developed countries were badly affected, the UK market suffered the most, even including a strong recovery in April and May.

The disparity of performance between the Growth Portfolio and Income Portfolio has never been greater and although the more defensive Income Portfolio did relatively better than the benchmark index it was a remarkable performance in the second half of the financial year from the Growth Portfolio that was the outstanding feature. The principal contributors to the performance are identified in the Investment Manager's Review, which also includes additional information on the two investment portfolios.

Both share classes have also outperformed the benchmark over three years, five years, ten years and from launch to 31 May 2020.

Revenue and Dividends

For the year ended 31 May 2020, four interim dividends have now been paid, totaling 6.1p per Income share (5.95p per Income share for the previous year). The fourth interim dividend was paid after the year end on 10 July 2020.

Given the impact of COVID-19 on markets and the current uncertain outlook for income, this year's fourth interim dividend was not increased, but maintained at 1.9p per Income share. However, the total annual dividend increased by 2.5% in comparison to the prior financial year. This has been achieved while still adding £235,000 to the revenue reserve.

This is the ninth consecutive year of increase, in line with our objective. As a result, the yield on the Income shares was 5.2% on the year-end Income share price, compared with 4.8% for the FTSE All-Share Index. This represents the historic yield on the FTSE All-Share Index, but with many companies cancelling, delaying or reducing their dividends due to the impact of COVID-19, it is likely that the yield on the FTSE All-Share will also fall.

A key challenge for the Income Portfolio in the financial year ahead will be income related and there may be some further dividend disappointments from equity related investment company holdings. There may also be some holdings which utilise revenue reserves in order to sustain dividend payments. It has been heartening that a number of investees have indicated they intend to maintain dividends at current levels. Also a good portion of the Income Portfolio's revenue is generated from holdings in the "alternatives" sector which are less sensitive to economic conditions. In addition, BMO Managed Portfolio Trust now has a revenue reserve of approximately 68% of the current annual dividend cost, an important buffer for the dividend in challenging times and which can be used to support the dividend payment to Income shareholders if required. Accordingly, in the absence of unforeseen circumstances, it is the Board's current intention to at least maintain the total level of dividend to Income shareholders for the year to 31 May 2021.

Borrowing

The Board is responsible for the Company's gearing strategy and sets parameters within which the Investment Manager operates. Borrowings are not normally expected to exceed 20% of the total assets of the relevant Portfolio; in practice they have been modest and primarily used to enhance income in the Income Portfolio by investing in higher yielding alternative funds. At the time of writing, borrowings total £5.0 million (8.2% of gross assets) in the Income Portfolio and zero in the Growth Portfolio.

Management of Share Premium and Discount to NAV

In normal circumstances we aim to maintain the discount to NAV at which our shares trade at not more than 5%. In practice over the years the shares have generally traded close to NAV. During the year to 31 May 2020 we have been able to maintain an average premium of 1.2% for the Income shares and 0.0% for the Growth shares.

We are active in issuing shares to meet demand and equally buying back when this is appropriate. During the financial year 2,700,000 new Income shares and 295,000 new Growth shares were issued from the Company's block listing facilities at an average premium to NAV of 1.6% and 1.7% respectively. In addition, 200,000 Growth shares were bought back for treasury at a discount to NAV of 3% and subsequently resold from treasury at an average premium to NAV of 1.6%.

The Board is seeking shareholders' approval to renew the powers to allot shares, buy back shares and sell shares from treasury at the forthcoming Annual General Meeting ('AGM'). Specifically, the Board is seeking approval to allow the Company to issue up to 20% of its Income shares and up to 20% of its Growth shares without rights of pre-emption and in this respect there are two resolutions proposed. Each resolution is for up to 10% and therefore for an aggregate of up to 20% of each of the Income shares and Growth shares. This approach allows any shareholder who may not wish to give approval to an aggregate limit higher than that recommended by corporate governance guidelines the ability to approve the first resolution for up to 10% and to also consider the second resolution separately for a further 10%. The Board believes the ability to issue and buy back shares helps to reduce the volatility in the premium or discount of the share prices to the NAVs and the 20% overall authority with respect to both the Income shares and Growth shares is in the interests of all shareholders.

Share Conversion Facility

Shareholders have the opportunity to convert their Income shares into Growth shares or their Growth shares into Income shares annually subject to minimum and maximum conversion thresholds which may be reduced or increased at the discretion of the Board.

The ability to convert without incurring UK capital gains tax should be an attractive facility for shareholders who wish to do so and the next conversion date (subject to minimum and maximum thresholds) will be on 29 October 2020. Information is provided in the Annual Report and Financial Statements and full details will be provided on the Company's website (bmomanagedportfolio.com) from 10 August 2020.

Board Changes

As referenced in my statement last year, Alistair Stewart, David Harris and I were appointed at the launch of the Company and so have all now served on the Board for over twelve years. As part of the Board's succession plan, two new non-executive Directors (Sue Inglis and David Warnock) were appointed during the financial year to 31 May 2019 and the subsequent period has allowed for a transition to ensure continuity of knowledge and culture. Alistair Stewart will retire as a non-executive Director following the forthcoming AGM and I would like to thank him for his considerable contribution to the Board since the Company's launch in 2008. Alistair is also the Audit Committee chairman and I am pleased that Sue Inglis has agreed to fulfil this role following Alistair's retirement. The implementation of the succession plan will continue in the next year and the longer term objective will be to maintain a Board of four Directors.

AGM

The Annual General Meeting is currently scheduled to be held on 24 September 2020 at the offices of BMO Global Asset Management, Quartermile 4, 7a Nightingale Way, Edinburgh, EH3 9EG at 9.30am. Despite the easing of some lockdown measures which were put in place due to COVID-19, some restrictions remain, including guidance on social distancing and given public health concerns, the meeting will not be held in the usual format.

It will be restricted to the formal business of the meeting as set out in the Notice of the Annual General Meeting and, as explained in more detail in the Report of the Directors in the Annual Report and Financial Statements, will follow the minimum legal requirements for an AGM. On this occasion the Fund Manager will not attend the meeting and his presentation will be made available on the Company's website together with some frequently asked questions.

Should any Government restrictions and social distancing measures remain in place in September, shareholders are strongly discouraged from attending the meeting and entry may be restricted and/or refused in accordance with the Articles, the law and/or Government guidance.

Arrangements will be made by the Company to ensure that the minimum number of shareholders required to form a quorum will attend the meeting in order that the meeting may proceed and the business be concluded.

Your Board strongly encourage all shareholders to make use of the proxy form or form of direction provided in order that you can lodge your votes. Voting on all resolutions will be held on a poll, the results of which will be announced and posted on the Company's website following the meeting.

In view of the revised format this year, should shareholders have any questions or comments in advance of the AGM these can be raised with the Company Secretary ( MPTCoSec@bmogam.com ). In addition, the answers to any frequently asked questions will be posted on the Company's website after the AGM.

The Board will keep the situation under review and any changes to the meeting or the location will be notified through the Company's website and announcements to the London Stock Exchange.

If any change or postponement was to be made to the AGM, it is not currently expected that it would have a material impact on the operation of the Company. Although the Company puts forward its dividend policy for approval at each AGM (Resolution 9 in the Notice of the AGM), the Company pays four interim dividends all of which have been paid already.

Outlook

Prospects for financial markets over the coming year are uniquely uncertain. The nature of the recovery from the recession caused by the COVID-19 pandemic will be the key influence for both global and UK equity markets. That is not to discount the importance of a possible trade deal with the European Union which has significant implications for the UK equity market. Further volatility in equity markets remains highly likely given the uncertain outlook. The extent of intervention and the determination of monetary authorities across the developed world to mitigate the effects of recession should not be underestimated. The key policy of Quantitative Easing used by central banks remains very supportive of asset prices generally and equity markets in particular. Ultimately fundamentals do re-assert themselves and with valuations elevated (especially in the US) much depends on the strength of the recovery in corporate earnings and dividends in 2021. There appears little room for error.

In this environment a cautious approach is appropriate with the emphasis for both Portfolios being on selecting high quality investment companies managed by proven and experienced investment managers in the belief that this will serve shareholders' interests best.

Colin S McGill

Chairman

5 August 2020

Forward-looking statements

This document may contain forward-looking statements with respect to the financial condition, results of operations and business of the Company. Such statements involve risk and uncertainty because they relate to future events and circumstances that could cause actual results to differ materially from those expressed or implied by forward-looking statements. The forward-looking statements are based on the Directors' current views and on information known to them at the date of this document. Nothing should be construed as a profit forecast.

Investment Manager's Review

Stock Market Background

The past twelve months could be described as the most challenging since BMO Managed Portfolio Trust listed in April 2008. Two events dominated the environment for financial markets: Brexit and then in the last few months of the year under review the COVID-19 pandemic. Since neither has, yet, been resolved they will remain key features over the coming year also. The past year was also characterised by bouts of extreme volatility in equity markets, in both directions, caused by the factors mentioned above. Despite the uncertainty created by the Brexit saga, the UK equity market proved quite resilient especially in the run up to the General Election in December and in an international context was a relative outperformer. In part this was due to the strength of sterling which diluted returns from overseas markets when translated back into sterling. However, everything changed with the onset of the COVID-19 pandemic in February.

The UK equity market has been particularly hard hit as a +5.8% total return for the first half of the financial year was followed by -16.1% for the second half, even including a robust recovery in April and May. When we look at returns by region over the past twelve months the UK equity market was a notable laggard over the period.

Although most regions were negatively affected in the second half of the financial year, returns for the UK were severely impacted. Government imposed lockdowns pushed all countries into a sharp and deep recession. However, certain sectors have been disproportionally affected. The oil price collapse has hit the energy sector and very low interest rates and bond yields have piled further pressure on the profitability and margins of the banking sector. The FTSE All-Share Index has historically significantly higher weightings to both the oil and banking sectors, both of which have markedly underperformed since the turn of the calendar year.

For yet another year the stand-out market has been the US. Driving returns in the S&P Composite Index were a group of mega sized global technology companies all of which were growing strongly before the COVID-19 pandemic struck and all of which have benefitted from the lockdowns which have caused so much distress throughout many other sectors. If this narrow group of companies were excluded, returns from the rest of the US equity market were much more pedestrian.

Once again, an important factor influencing returns for a UK based investor was the level of sterling. Although the currency did appreciate in the first six months of the financial year all those gains and more were reversed in the second half such that for the twelve-month period sterling was between 2% and 3% lower against the US Dollar, Euro and Yen. This trend had the effect of boosting returns from overseas equity markets for the sterling-based investor.

Performance

For the year to 31 May 2020 the FTSE All-Share Index fell by 11.2% (in total return terms). Over the same period the NAV of the Growth Portfolio rose by 1.5% whilst that of the Income Portfolio was 7.3% lower (again both in total return terms). This represents the eighth consecutive financial year the Growth Portfolio has been ahead of the FTSE All-Share Index. For the Income Portfolio, in the twelve years since the Company's shares were listed on the London Stock Exchange it has been ahead or in line with the Benchmark Index in ten of these years.

A feature of the performance this year was the wide disparity between the Growth Portfolio and Income Portfolio. This was not apparent at the Interim stage when they both performed quite close to the benchmark index for the first six months. However, the second half was dominated by the onset of the COVID-19 pandemic with significant falls in global equity markets during February and March which was then followed by substantial recovery in April and May. In the past it has been the Income Portfolio that has proved more resilient during market downturns and in relative terms it did fall by less than the main UK equity index. During the second half of the financial year the Growth Portfolio proved to be remarkably resilient and during this period outperformed the FTSE All-Share Index by over 13%. The performance of individual holdings within both Portfolios will be examined later in the review however a bias to investment companies exposed to technology and healthcare was a key factor along with a group of defensively orientated trusts which also performed strongly.

Changes in discounts can often be a significant factor behind the performance of investment companies. Perhaps, surprisingly, given the overall uncertainty pervading financial markets and the surges in volatility that have been experienced, especially in the last few months of the financial year, the sector average discount (excluding alternatives) widened only slightly over the period to close at 5.7%. Very much within the range established over recent years.

Growth Portfolio - Leaders and Laggards

An interesting common thread between all the top contributors to the performance of the Growth Portfolio is that they have been holdings for more than ten years which highlights the genuine long-term perspective that is taken with investment selections. Two key themes of secular growth were evident amongst the better performers from both Portfolios. First is biotechnology and healthcare where two specialist investment companies Biotech Growth Trust and Worldwide Healthcare Trust had share price gains of 68% and 40% respectively. Even before the COVID-19 pandemic the sector experienced strong performance due to a raft of successful clinical trials from emerging biotech companies and a surge in merger and acquisition activity aided by a constructive regulatory environment. With minimal impact on drug sales due to COVID-19 and a heightened awareness of the attractive growth characteristics of many healthcare companies they continued to outperform whilst the wider equity market was badly affected by the COVID-19 pandemic. Both trusts are managed by Orbimed who have built and developed the resources and experience to be a leading global healthcare investor.

The second theme of secular growth is the wider technology sector. Again, many companies in this sector were doing well pre COVID-19 but the government lockdowns and widespread working from home highlighted the importance of major technology to modern economies. Whether it be Amazon with home shopping, Netflix with home entertainment or Microsoft and their cloud business, many of these companies have prospered. Not only that but new areas are being developed with substantial addressable markets in security, gaming and transportation to name but a few. Key long-term holdings in the Portfolio have once again performed strongly: Polar Capital Technology Trust +48%, Scottish Mortgage Investment Trust +45%, Edinburgh Worldwide Investment Trust +35% and Allianz Technology Trust +33%.

One other holding, worthy of mention, which was a leading contributor last year and has continued to be this year with a 41% share price gain, is BH Macro. The investment company invests in the Brevan Howard Master Fund which is a hedge fund which specialises in taking advantage of movements in interest rates, currency and bond markets. It should be viewed as a defensive holding which often does well in a bear phase in equity markets. With heightened levels of volatility, the managers have been able to construct trades with attractive pricing and return outcomes.

Of the laggards the biggest share price decline was experienced by Schroder UK Public Private Trust (formerly Woodford Patient Capital Trust) at -62%. All the decline happened quickly in the early part of the financial year as a result of a saga of corporate mismanagement which has been well covered in detail by the financial media. The investment was clearly a mistake however because it was always perceived as high risk it was never a large holding and so the impact on overall performance from the Growth Portfolio was limited. The share price remains at a significant discount and despite all that has happened there remains much potential within certain large holdings within the portfolio. Under new managers, Schroders the chances of recovery have improved.

Whilst it appeared the avoidance of a "No Deal Brexit" followed by a conclusive election result in December had removed the pervasive uncertainty that had for a protracted period affected the UK stock market the onset of the COVID-19 pandemic caused renewed underperformance for UK equities. In addition to widening discounts amongst UK investment trusts those with sizeable exposure to smaller and medium sized companies relatively underperformed. Examples in the Portfolio were Lowland Investment Company -26%, Fidelity Special Values -26% and Henderson Opportunities Trust -23%.

(All share prices are total return)

Income Portfolio - Leaders and Laggards

As with the Growth Portfolio, exposure to a sector with secular growth characteristics has been a key factor behind the relative outperformance of the Income Portfolio. In this case it has been achieved through investment companies which are specialists in biotechnology and healthcare. Underlying companies which operate in these sectors (especially biotechnology) often do not pay dividends however the ability of investment companies to pay a dividend to shareholders from capital reserves permits these trusts to offer an attractive dividend yield to investment company shareholders. From an investment management standpoint this allows assets (in this case in biotechnology and healthcare with very attractive growth characteristics) to be included in an income portfolio. This has meant that the total return characteristics of the Portfolio have been differentiated and improved. The top three holdings in the Income Portfolio are investment companies which are specialists in these sectors. The best performer has been Swiss based HBM Healthcare Investments with a 50% gain in share price. HBM has achieved very strong performance over a number of years and has about 45% of its portfolio in later stage private companies or specialist funds with the rest in listed companies. Around 20% is invested in Emerging Market healthcare companies with the balance in the US (70%) and Europe (10%). Six of its top ten holdings were held as private companies and continue to be held after listing. Its main area of focus is biotechnology, diagnostics and medical technology. BB Healthcare Trust had a 23% gain in share price and was a top performer last year as well as repeating the feat this year. It has an unconstrained approach across the wider healthcare sector through a focussed list of 35 holdings with a bias to smaller and mid cap companies.

Another holding which was a top performer last year as well as this is Assura which could be viewed as a specialist healthcare property company. It is an owner of primary care properties leased mainly to General Practitioner Partnerships across the UK, typically for between 20 and 25 years. With the NHS as the ultimate guarantor of the lease payments of which many are indexed linked, the attractions of a very secure and rising stream of dividend payments at a time of great uncertainty helped the share price to a 28% gain.

Last year Civitas Social Housing REIT was one of the laggards in the Income Portfolio. However, this year the shares recovered strongly with a 35% rise. Last year the new regulator raised concerns over the financial strength of certain Housing Associations which enter into long-term leases with Civitas as the owner of the properties. This fear has proven unfounded and the Civitas management have done much work with some of the Housing Associations to improve their reporting systems. This has been recognised in the stock market and as with Assura the characteristics of long-term indexed linked leases in a sector not directly exposed to the general economy was behind the share price recovery.

Finally, it is good to see long time holding Bankers Investment Trust contribute with a 11% share price gain. This holding was in the Portfolio at inception in April 2008 and has consistently delivered good capital and income returns. It has increased the dividend for 53 consecutive years and with revenue reserves amounting to one year of dividend payments, as the Board has indicated it is prepared to use them to support the Company's dividend policy, it is expected this will continue over the next year.

Looking at the laggards and similar to the Growth Portfolio a number of UK equity investment companies populated the list of underperformers. UK smaller company specialist Aberforth Split Level Income Trust experienced a 44% fall in share price. A value-based investment approach, which has been out of favour in the stock market, alongside gearing from a zero-dividend preference share and a focus on smaller companies combined to cause the underperformance. Perpetual Income and Growth Investment Trust was again amongst the laggards with a 28% share price decline and would have been sold however the Board opted to change the investment manager and it was decided to wait and see who the new investment manager would be before making a decision. Secure Income REIT had a 35% share price decline almost all of which happened in recent months as a result of the COVID-19 pandemic. The trust aims to buy a portfolio of assets with very long leases often with an index linked element to the rental charge. Unfortunately, one of the operators is Travelodge where Secure Income owns a portfolio of the best hotels but which under the current circumstances stopped paying rent due to the lockdown. The shares have fallen in expectation that the dividend will need to be rebased and the asset value written down.

(All share prices are total return)

Investment Strategy and Prospects

For at least the next year, and in all likelihood longer than that, economic and stock market prospects will be heavily influenced by the nature of the recovery from the COVID-19 pandemic and how long lasting the effects of the resultant recession prove to be. Another issue is whether a favourable trade deal can be struck ahead of the conclusion of the transition period before the UK's final exit from the European Union. There is also the uncertainty of a looming US presidential election. Also lurking in the background is the simmering rivalry between China and the US and whether we have a resumption of damaging trade wars or some form of accommodation which could reduce tensions. Although these issues are on the surface primarily medical and political, they will directly influence the economic outlook and also prospects for equity market returns.

The depth and rapidity of the economic contraction across the developed world is unparalleled in modern times and although economies are probably around the bottom currently it appears overly optimistic to believe that by the end of 2020 we will be back to where we were at the start of the year. From the trough, high levels of growth will be achieved in economic data but such was the extent of the decline full recovery will be some considerable time off. Once government support schemes unwind, unemployment could rise substantially and that also will impede recovery. It is uncertain how robust demand will be, particularly from the consumer, which is very important for the UK economy.

All of the above indicates that inflation will remain subdued, or even move close to negative over the next year and interest rates in the UK, Europe and the US will also remain at extremely low levels. This will be despite record levels of government spending and support which will continue for a number of years. Austerity is off the menu whereas higher levels of taxation be it corporate or personal may well be back on the agenda.

The remarkable rally in global equity markets from the lows of late March has been fuelled by Central Banks wishing to soften the effects of the inevitable recession. Quantitative Easing in the US, Europe, Japan and the UK has been substantial and has supported bond markets and indirectly equity markets. Eventually however longer term returns from financial markets tend to be determined much less by political events or by policy from monetary authorities and much more by the outlook for the fundamentals of the economy and the prospects for corporate profits and dividends.

In this regard corporate earnings reports for the second quarter/first half of this year will not make pleasant reading and although some modest recovery can be anticipated as we move through the year certain sectors, particularly consumer related, will be very badly affected with many companies loss making and some unfortunately not likely to survive. Equity markets have been focussing on 2021 and estimates appear to assume a robust recovery in profits and earnings in the UK, Europe and especially the US. It remains to be seen whether this is achieved. Valuations are elevated and require optimistic estimates to be achieved. In this environment there appears ample scope for disappointment. Nonetheless it is also important to remember the extent of monetary stimulus from Central Banks which is very supportive of both bond and equity markets.

In terms of long-term investment strategy the case for exposure to sectors which offer secular growth characteristics remains in place. When inflation and interest rates are low and growth scarce then investment companies focussed on sectors such as technology, healthcare and biotechnology are likely to continue to prosper. That may change in the future as fiscal policy becomes an important tool for governments to stimulate economic growth and a more traditional cycle is created with higher inflation and an upwards move in interest rates. Investment companies with a more "value based" investment style may then do better as more cyclical sectors such as industrials, retail, oils and banks experience a rally in their share prices.

For at least the current financial year and possibly considerably longer, the current bias to secular will remain in place for the Growth Portfolio and as far as possible for the Income Portfolio bearing in mind its requirement for income from underlying holdings. Examples of trusts with these attributes include: Monks Investment Trust, Allianz Technology Trust, Polar Capital Technology Trust, Scottish Mortgage Investment Trust, Worldwide Healthcare Trust, Biotech Growth Trust, HgCapital Trust, Impax Environmental Markets and Edinburgh Worldwide Investment Trust. These are all holdings in the Growth Portfolio. It is harder to have them in the Income Portfolio because most either do not pay a dividend or have a very low dividend yield. However, some investment companies take powers to pay a dividend to shareholders from capital reserves. This permits trusts investing in these sectors to offer reasonable dividend yields and allows the Income Portfolio to gain exposure. Examples here are the three largest holdings who have got there through strong performance BB Healthcare Trust, BB Biotech and HBM Healthcare Investments.

It is not envisaged to alter the exposure to a group of more defensive trusts or "portfolio protectors" in the Growth Portfolio. They are held to provide a degree of protection should equity markets experience a pull back. Examples are: BH Macro, Personal Assets Trust, Ruffer Investment Company, Capital Gearing Trust and RIT Capital Partners. The Income Portfolio has a number of "alternative" investment companies which are less sensitive to the direction of equity markets and have higher dividend yields which give the Portfolio an element of protection in a market downturn.

With prospects for equity markets uniquely uncertain, the focus for both Portfolios remain on holding only the highest quality investment companies with proven management who have had experience of both bull and bear markets in the belief that trusts with these characteristics should best serve shareholders.

Peter Hewitt

Investment Manager

BMO Investment Business Limited

5 August 2020

Income Statement

For the Year Ended 31 May 2020



	Notes	Revenue	Capital	Total
		£'000	£'000	£'000
Losses on investments		-	(5,376)	(5,376)
Foreign exchange losses		-	(13)	(13)
Income		3,851	-	3,851
Investment management and performance fees		(257)	(1,093)	(1,350)
Other expenses		(537)	-	(537)
Return on ordinary activities before finance costs and tax		3,057	(6,482)	(3,425)
Finance costs		(44)	(66)	(110)
Return on ordinary activities before tax		3,013	(6,548)	(3,535)
Tax on ordinary activities		(13)	-	(13)
Return attributable to shareholders		3,000	(6,548)	(3,548)
Return per Income share	3	6.69p	(17.13p)	(10.44p)
Return per Growth share	3	-	3.18p	3.18p

The total column of this statement is the Profit and Loss Account of the Company. The supplementary revenue and capital columns are prepared under guidance published by The Association of Investment Companies.

Segmental analysis, illustrating the two separate portfolios of assets, the Income Portfolio and the Growth Portfolio, is provided in note 2.

All revenue and capital items in the Income Statement derive from continuing operations.

Return attributable to shareholders represents the profit/(loss) for the year and also total comprehensive income.

Income Statement

For the Year Ended 31 May 2019



	Notes	Revenue	Capital	Total
		£'000	£'000	£'000

Losses on investments		-	(880)	(880)
Foreign exchange losses		-	(8)	(8)
Income		3,655	-	3,655
Investment management and performance fees		(252)	(940)	(1,192)
Other expenses		(495)	-	(495)
Return on ordinary activities before finance costs and tax		2,908	(1,828)	1,080
Finance costs		(44)	(65)	(109)
Return on ordinary activities before tax		2,864	(1,893)	971

Tax on ordinary activities		(24)	-	(24)
Return attributable to shareholders		2,840	(1,893)	947
Return per Income share	3	6.59p	(3.47p)	3.12p
Return per Growth share	3	-	(1.12p)	(1.12p)

Segmental analysis, illustrating the two separate portfolios of assets, the Income Portfolio and the Growth Portfolio, is provided in note 2.

All revenue and capital items in the Income Statement derive from continuing activities.

Return attributable to shareholders represents the profit/(loss) for the year and also total comprehensive income.

Balance Sheet

As at 31 May 2020


		Income shares	Growth shares	Total
	Notes	£'000	£'000	£'000
Fixed assets
Investments at fair value		57,887	72,356	130,243

Current assets
Debtors		219	79	298
Cash at bank and on deposit		1,061	3,071	4,132

		1,280	3,150	4,430

Creditors: Amounts falling due within one year		(173)	(733)	(906)

Net current assets		1,107	2,417	3,524

Creditors: Amounts falling due in more than one year		(5,206)	-	(5,206)

Net assets		53,788	74,773	128,561

Capital and reserves:
Called-up share capital		4,415	3,408	7,823
Share premium		26,909	22,006	48,915
Capital redemption reserve		252	364	616
Special Reserve		19,147	17,034	36,181
Capital reserves		240	31,961	32,201
Revenue reserve		2,825	-	2,825

Shareholders' funds		53,788	74,773	128,561

Net asset value per share (pence)	6	115.71p	208.35p

Balance Sheet

As at 31 May 2019

		Income shares	Growth shares	Total
	Notes	£'000	£'000	£'000

Fixed assets
Investments at fair value		61,321	68,943	130,264

Current assets
Debtors		292	47	339
Cash at bank and on deposit		1,256	4,571	5,827
		1,548	4,618	6,166
Creditors
Amounts falling due within one year		(241)	(191)	(432)

Net current assets		1,307	4,427	5,734
Creditors
Amounts falling due in more than one year		(5,000)	(257)	(5,257)

Net assets		57,628	73,113	130,741

Capital and reserves
Called-up share capital		4,372	3,563	7,935
Share premium		23,703	21,417	45,120
Capital redemption reserve		30	186	216
Special reserve		19,066	17,117	36,183
Capital reserves		7,919	30,830	38,749
Revenue reserve		2,538	-	2,538

Shareholders' Funds		57,628	73,113	130,741

Net asset value per share (pence)	6	131.81p	205.17p

Cash Flow Statement

Year to 31 May 2020

	Notes	Income shares	Growth shares	Total
		£'000	£'000	£'000

Net cash outflow from operations before dividends and interest		(720)	(758)	(1,478)
Dividends received		2,829	1,028	3,857
Interest received		10	18	28
Interest paid		(102)	-	(102)
Net cash inflow from operating activities		2,017	288	2,305
Investing activities
Purchases of investments		(6,668)	(3,428)	(10,096)
Sales of investments		3,617	1,111	4,728
Net cash flows from investing activities		(3,051)	(2,317)	(5,368)
Net cash flows before financing activities		(1,034)	(2,029)	(3,063)
Financing activities
Equity dividends paid Proceeds from issuance of new shares	4	(2,713) 3,466	- 594	(2,713) 4,060
Sale of shares from treasury		-	443	443
Shares purchased to be held in treasury		-	(422)	(422)
Share conversion		86	(86)	-
Net cash flows from financing activities		839	529	1,368
Net movement in cash and cash equivalents		(195)	(1,500)	(1,695)
Cash and cash equivalents at the beginning of the year		1,256	4,571	5,827
Cash and cash equivalents at the end of the year		1,061	3,071	4,132
Represented by: Cash at bank and short-term deposits		1,061	3,071	4,132

Cash Flow Statement

Year to 31 May 2019

	Income shares		Growth shares	Total
	£'000		£'000	£'000

Net cash outflow from operations before dividends and interest	(624)	(984)		(1,608)
Dividends received	2,574	1,002		3,576
Interest received	9	20		29
Interest paid	(102)	-		(102)
Net cash inflow from operating activities	1,857	38		1,895
Investing activities
Purchases of investments	(5,607)	(7,408)		(13,015)
Sales of investments	5,068	7,758		12,826
Net cash flows from investing activities	(539)	350		(189)
Net cash flows before financing activities	1,318	388		1,706
Financing activities
Equity dividends paid	(2,864)	-		(2,864)
Proceeds from issue of new shares Sale of shares from treasury	1,129 -	746 157		1,875 157
Shares purchased to be held in treasury	-		(149)	(149)
Share conversion	(232)		232	-
Net cash flows from financing activities	(1,967)	986		(981)
Net movement in cash and cash equivalents	(649)	1,374		725
Cash and cash equivalents at the beginning of the year	1,905	3,197		5,102
Cash and cash equivalents at the end of the year	1,256	4,571		5,827
Represented by: Cash at bank and short-term deposits	1,256	4,571		5,827

Statement of Changes in Equity

For the Year Ended 31 May 2020

Income shares

Share capital

£000

Share premium account

£000

Capital redemption reserve

£000

Special reserve

£000

Capital reserves

£000

Revenue reserve

£000

Total shareholders' funds

£000

As at 31 May 2019

4,372

23,703

19,066

7,919

2,538

57,628

Increase in share capital in issue, net of share issuance expenses

260

3,206

3,466

Share conversion

Cancellation of deferred shares

(222)

222

Transfer of net income from Growth to Income Portfolio

680

Transfer of capital from Income to Growth Portfolio

(680)

Dividends paid

(2,713)

Return attributable to shareholders

(6,999)

2,320

(4,679)

As at 31 May 2020

4,415

26,909

252

19,147

240

2,825

53,788

Growth shares

As at 31 May 2019

3,563

21,417

186

17,117

30,830

73,113

Increase in share capital in issue, net of share issuance expenses

566

594

Shares sold from treasury

420

443

Shares purchased for treasury

(422)

Share conversion

(5)

(81)

(86)

Cancellation of deferred shares

(178)

178

Transfer of net income from Growth to Income Portfolio

(680)

Transfer of capital from Income to Growth Portfolio

680

Return attributable to shareholders

451

680

1,131

As at 31 May 2020

3,408

22,006

364

17,034

31,961

74,773

Total Company

As at 31 May 2019

7,935

45,120

216

36,183

38,749

2,538

130,741

Increase in share capital in issue, net of share issuance expenses

288

3,772

4,060

Shares sold from treasury

420

443

Shares purchased for treasury

(422)

Share conversion

Cancellation of deferred shares

(400)

400

Dividends paid

(2,713)

Return attributable to shareholders

(6,548)

3,000

(3,548)

Total Company as at 31 May 2020

7,823

48,915

616

36,181

32,201

2,825

128,561

Statement of Changes in Equity

For the Year Ended 31 May 2019

Income shares

Share capital

£000

Share premium account

£000

Capital redemption reserve

£000

Special reserve

£000

Capital reserves

£000

Revenue reserve

£000

Total shareholders' funds

£000

As at 31 May 2018

4,306

22,597

19,371

9,414

2,562

58,250

Increase in share capital in issue, net of share issuance expenses

1,044

1,129

Share conversion

(13)

(305)

(232)

Cancellation of deferred shares

(6)

Transfer of net income from Growth to Income Portfolio

646

Transfer of capital from Income to Growth Portfolio

(646)

Dividends paid

(2,864)

Return attributable to shareholders

(849)

2,194

1,345

As at 31 May 2019

4,372

23,703

19,066

7,919

2,538

57,628

Growth shares

As at 31 May 2018

3,517

20,408

182

17,190

31,228

72,525

Increase in share capital in issue, net of share issuance expenses

712

746

Shares sold from treasury

149

157

Shares purchased for treasury

(149)

Share conversion

289

(73)

232

Cancellation of deferred shares

(1)

Transfer of net income from Growth to Income Portfolio

(646)

Transfer of capital from Income to Growth Portfolio

646

Return attributable to shareholders

(1,044)

646

(398)

As at 31 May 2019

3,563

21,417

186

17,117

30,830

73,113

Total Company

As at 31 May 2018

7,823

43,005

182

36,561

40,642

2,562

130,775

Increase in share capital in issue, net of share issuance expenses

119

1,756

1,875

Shares sold from treasury

149

157

Shares purchased for treasury

(149)

Share conversion

351

(378)

Cancellation of deferred shares

(7)

Dividends paid

(2,864)

Return attributable to shareholders

(1,893)

2,840

947

Total Company as at 31 May 2019

7,935

45,120

216

36,183

38,749

2,538

130,741

Principal Risks and Uncertainties

Most of the Company's principal risks and uncertainties that could threaten the achievement of its objective, strategy, future performance, liquidity and solvency are market related and comparable to those of other investment companies investing primarily in listed securities.

A summary of the Company's internal controls and risk management arrangements is included within the Report of the Audit Committee in the Annual Report and Financial Statements. By means of the procedures set out in that summary, the Board has established an ongoing process for identifying, evaluating and managing the significant risks faced by the Company. Any emerging risks that are identified and that are considered to be of significance would be included on the Company's risk radar with any mitigations. These significant risks, emerging risks, and other risks, including Brexit, are regularly reviewed by the Audit Committee and the Board. Most recently, consideration has been given to the impact from Coronavirus (COVID-19) and is referred to in Market Risk and Operational Risk. They have also regularly reviewed the effectiveness of the Company's risk management and internal control systems for the period.

Whilst there are ongoing uncertainties relating to the UK's continuing trade negotiations with the EU following its departure on 31 January 2020, the Board does not consider that any related outcome will have a significant impact on the operations of the Company.

The principal risks and uncertainties faced by the Company, and the Board's mitigation approach, are described below.

Market Risk. The Company's assets consist mainly of listed closed-end investment companies and its principal risks are therefore market related and include market risk (comprising currency risk, interest rate risk and other price risk), liquidity risk and credit risk. There is currently increased uncertainty in markets due to the effect of COVID-19 which has led to falls and volatility in the Company's NAV.

Mitigation: The Board regularly considers the composition and diversification of the Income Portfolio and the Growth Portfolio and considers individual stock performance together with purchases and sales of investments. Investments and markets are discussed with the Investment Manager on a regular basis. The effect of COVID-19 on markets, which has contributed to significant volatility is discussed in the Chairman's Statement and Managers Review. As a closed-end investment trust the Company is not constrained by asset sales to meet redemptions and is well suited to investors seeking longer term returns and to remain invested through volatile market conditions.

Investment Risk. Incorrect strategy, asset allocation, stock selection, inappropriate capital structure, insufficient monitoring of costs, failure to maintain an appropriate level of discount/premium and the use of gearing could all lead to poor returns for shareholders including impacting the capacity to pay dividends.

Mitigation: The investment strategy and performance against peers and the benchmark are considered by the Board at each meeting and reviewed with the Investment Manager. The Board is responsible for setting the gearing range within which the Manager may operate and gearing is discussed at every meeting and related covenant limits are closely monitored. The Income Portfolio and Growth Portfolio are diversified and comprise listed closed-end investment companies and their composition are reviewed regularly by the Board. BMO GAM's Investment Risk team provide oversight on investment risk management. The Board regularly considers ongoing charges and a discount/premium management policy has operated since the launch of the Company. Underlying dividends from investee companies and the dividend paying capacity of the Company are closely monitored.

Custody Risk. Safe custody of the Company's assets may be compromised through control failures by the Custodian.

Mitigation: The Board receives quarterly reports from the Depositary confirming safe custody of the Company's assets and cash and holdings are reconciled to the Custodian's records. The Custodian's internal controls reports are also reviewed by the Manager and key points reported to the Audit Committee. The Board also receives periodic updates from the Custodian on its own cyber-security controls. The Depositary is specifically liable for loss of any of the Company's assets that constitute financial instruments under the AIFMD.

Operational Risk. Failure of BMO GAM as the Company's main service provider or disruption to its business, or that of an outsourced or third party service provider, could lead to an inability to provide accurate reporting and monitoring, leading to a potential breach of the Company's investment mandate or loss of shareholders' confidence. The risk includes failure or disruption as a consequence of external events such as the current COVID-19 pandemic. External cyber attacks could cause such failure or could lead to the loss or sabotage of data.

Mitigation: The Board meets regularly with the management of BMO GAM and its Business Risk team to review internal control and risk reports. This includes oversight of third party service providers. The Manager's appointment is reviewed annually and the contract can be terminated with six months' notice. BMO GAM has a business continuity plan in place to ensure that it is able to respond quickly and effectively to an unplanned event that could affect the continuity of its business.

The Manager continues to benefit from the long-term financial strength and policies of its parent company, Bank of Montreal. BMO GAM has outsourced trade processing, valuation and middle office tasks and systems to State Street Bank and Trust Company ("State Street") and supervision of such third party service providers, including SS&C who administer the BMO savings plans, has been maintained by BMO GAM. This includes the review of IT security and heightened cyber threats.

As a consequence of the COVID-19 pandemic and the measures put in place by the UK government, the Manager has implemented working from home arrangements for its staff for all roles that can be performed remotely. BMO GAM has robust contingency plans to ensure it can safeguard its employees, continue serving clients and keep operations running effectively and in compliance with its regulatory obligations. The Company's other third party service providers have also implemented similar arrangements to ensure no disruption to their service. Having considered these arrangements and reviewed the service levels in recent months, the Board is confident that the Company continues to operate as normal and expected service levels are being maintained.

Viability Assessment and Statement

In accordance with the UK Corporate Governance Code, the Board is required to assess the future prospects for the Company and considered that a number of characteristics of the Company's business model and strategy were relevant to this assessment:

· The Company's investment objective and policy, which are subject to regular Board monitoring, means that the Company is invested principally in two diversified portfolios of listed closed-end investment companies and the level of borrowing is restricted.

· These investments are principally in listed securities which are traded in the UK or another Regulated Exchange and which are expected to be readily realisable.

· The Company is a listed closed-end investment company, whose shares are not subject to redemptions by shareholders.

· Subject to shareholder continuation votes, the next of which will be at the AGM in 2023 and five yearly thereafter, the Company's business model and strategy is not time limited.

Also relevant were a number of aspects of the Company's operational arrangements:

· The Company retains title to all assets held by the Custodian under the terms of a formal agreement with the Custodian and Depositary.

· The fixed term borrowing facility, which remains available until February 2022, is subject to a formal agreement, including financial covenants with which the Company complied in full during the year.

· Revenue and expenditure forecasts are reviewed by the Directors at each Board Meeting.

· The operational robustness of key service providers and the effectiveness of alternative working arrangements in particular given the current impact of COVID-19.

· That alternative service providers could be engaged at relatively short notice if necessary.

In considering the viability of the Company, the Directors carried out a robust assessment of the principal risks and uncertainties which could threaten the Company's objective and strategy, future performance and solvency, including the impact of COVID-19 and the impact of a significant fall in equity markets on the Company's investment portfolios. These risks, their mitigations and the processes for monitoring them are set out above within Principal Risks and Uncertainties and in the Report of the Audit Committee and in the notes to the financial statements within the Annual Report and Financial Statements.

The Directors also considered:

· The level of ongoing charges incurred by the Company which are modest and predictable and (at 31 May 2020) excluding the performance fee, total 1.10% and 1.03% of average net assets for the Income shares and Growth shares respectively.

· Future revenue and expenditure projections.

· Its ability to meet liquidity requirements given the Company's investment portfolios consist principally of listed investment companies which can be realised if required.

· The ability to undertake share buybacks if required.

· Whether the Company's objective and policy continue to be relevant to investors.

· Directors are non-executive and the Company has no employees and consequently the Company does not have redundancy or other employment-related liabilities or responsibilities.

· The uncertainty surrounding the potential length of the COVID-19 pandemic, its impact on the global economy and the prospects for the Company's investment portfolios.

· The uncertainties regarding the UK's continuing trade negotiations with the EU following its departure on 31 January 2020.

These matters were assessed over a three year period to August 2023, and the Board will continue to assess viability over three year rolling periods.

As part of this assessment the Board considered a number of stress tests and scenarios which considered the impact of severe stock market volatility on shareholders' funds over a three-year period. The results demonstrated the impact on the Company's net assets and its expenses and its ability to meets its liabilities over that period.

A rolling three year period represents the horizon over which the Directors believe they can form a reasonable expectation of the Company's prospects, although they do have due regard to viability over the longer term.

Based on their assessment, and in the context of the Company's business model, strategy and operational arrangements set out above, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the three year period to August 2023.

Responsibility Statement of the Directors under the Disclosure Guidance and Transparency Rules in Respect of the Annual Report and Financial Statements

We confirm that to the best of our knowledge:

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

· the Strategic Report and the Report of the Directors include 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 they face; and

· taken as a whole, the Annual Report and Financial Statements, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's position and performance, business model and strategy

On behalf of the Board

Colin S McGill

Chairman

5 August 2020

Notes

1. The financial statements of the Company, which are the responsibility of, and were approved by, the Board on 5 August 2020, have been prepared on a going concern basis in accordance with the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority, Financial Reporting Standards ("FRS 102") and the Statement of Recommended Practice (''SORP'') "Financial Statements of Investment Trust Companies and Venture Capital Trusts" issued by the Association of Investment Companies (''AIC''). The audited financial statements for the Company comprise the Income Statement and the total columns of the Balance Sheet, the Cash Flow Statement and the Statement of Changes in Equity and the Company totals shown in the notes to the financial statements.

There have been no significant changes to the Company's accounting policies during the year ended 31 May 2020.

The preparation of the Company's financial statements on occasion requires management to make judgements, estimates and assumptions that affect the reported amounts in the primary financial statements and accompanying disclosures. These assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in the current or future periods, depending on the circumstance. Management do not believe that any significant accounting judgements or estimates have been applied to this set of financial statements that have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year.

The Company's assets consist mainly of equity shares in closed-end investment companies which are traded in the UK or another Regulated Stock Exchange and in most circumstances, including in the current market environment, are expected to be readily realisable.

The Company has a fixed term loan of £5 million which is committed to the Company until 10 February 2022. The Board has set limits for borrowing and regularly reviews the Company's gearing levels and its compliance with bank covenants. If required, it is expected that a new loan could be entered into when the current arrangement expires on 10 February 2022, but if not, or should the Board decide not to renew this, any outstanding borrowing would be repaid through the use of cash and, if required, from the proceeds of the sale of the Company's investments.

The Board has considered the Company's principal risks and uncertainties and other matters, including the COVID-19 pandemic and has considered a number of stress tests and scenarios which considered the impact of severe stock market volatility on shareholders' funds and demonstrated that if required the Company had the ability to raise sufficient funds so as to remain within its debt covenants and meet its liabilities.

As such, and in light of the controls and review processes in place and bearing in mind the nature of the Company's business and assets and revenue and expenditure projections, the Directors believe that the Company has adequate resources to continue in operational existence for a period of at least twelve months from the date of approval of the financial statements. For this reason, they continue to adopt the going concern basis in preparing the financial statements.

2. Segmental Analysis

The Company carries on business as an investment trust and manages two separate portfolios of assets: the Income Portfolio and the Growth Portfolio. The Company's Income Statement can be analysed as follows. This has been disclosed to assist shareholders' understanding, but this analysis is additional to that required by FRS 102:

Year ended 31 May 2020

	Income Portfolio			Growth Portfolio			Total
	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000

(Losses)/gains on investments	-	(6,472)	(6,472)	-	1,096	1,096	-	(5,376)	(5,376)
Foreign exchange losses	-	(13)	(13)	-	-	-	-	(13)	(13)
Income	2,779	-	2,779	1,072	-	1,072	3,851	-	3,851
Investment management and performance fees	(161)	(448)	(609)	(96)	(645)	(741)	(257)	(1,093)	(1,350)
Other expenses	(241)	-	(241)	(296)	-	(296)	(537)	-	(537)
Return on ordinary activities before finance costs and tax	2,377	(6,933)	(4,556)	680	451	1,131	3,057	(6,482)	(3,425)
Finance costs	(44)	(66)	(110)	-	-	-	(44)	(66)	(110)
Return on ordinary activities before tax	2,333	(6,999)	(4,666)	680	451	1,131	3,013	(6,548)	(3,535)
Tax on ordinary activities	(13)	-	(13)	-	-	-	(13)	-	(13)
Return #	2,320	(6,999)	(4,679)	680	451	1,131	3,000	(6,548)	(3,548)

Year ended 31 May 2019

	Income Portfolio			Growth Portfolio			Total
	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000

Losses on investments	-	(465)	(465)	-	(415)	(415)	-	(880)	(880)
Foreign exchange losses	-	(8)	(8)	-	-	-	-	(8)	(8)
Income	2,635	-	2,635	1,020	-	1,020	3,655	-	3,655
Investment management and performance fees	(159)	(311)	(470)	(93)	(629)	(722)	(252)	(940)	(1,192)
Other expenses	(217)	-	(217)	(278)	-	(278)	(495)	-	(495)
Return on ordinary activities before finance costs and tax	2,259	(784)	1,475	649	(1,044)	(395)	2,908	(1,828)	1,080
Finance costs	(44)	(65)	(109)	-	-	-	(44)	(65)	(109)
Return on ordinary activities before tax	2,215	(849)	1,366	649	(1,044)	(395)	2,864	(1,893)	971
Tax on ordinary activities	(21)	-	(21)	(3)	-	(3)	(24)	-	(24)
Return #	2,194	(849)	1,345	646	(1,044)	(398)	2,840	(1,893)	947

# Any net revenue return attributable to the Growth Portfolio is transferred to the Income Portfolio and a corresponding transfer of an identical amount of capital is made from the Income Portfolio to the Growth Portfolio and accordingly the whole return in the Growth Portfolio is capital. Refer to the Statement of Changes in Equity.

3. Return per share

The return per share for the year ended 31 May 2020 is as follows:

	Income shares			Growth shares
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Return attributable to Portfolios	2,320	(6,999)	(4,679)	680	451	1,131
Transfer of net income from Growth to Income Portfolio	680	-	680	(680)	-	(680)
Transfer of capital from Income to Growth Portfolio	-	(680)	(680)	-	680	680
Return attributable to shareholders	3,000	(7,679)	(4,679)	-	1,131	1,131
Return per share	6.69p	(17.13p)	(10.44p)	-	3.18p	3.18p
Weighted average number of shares in issue during the period	44,837,359			35,573,520

The return per share for the year ended 31 May 2019 is as follows:

	Income shares			Growth shares
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Return attributable to Portfolios	2,194	(849)	1,345	646	(1,044)	(398)
Transfer of net income from Growth to Income Portfolio	646	-	646	(646)	-	(646)
Transfer of capital from Income to Growth Portfolio	-	(646)	(646)	-	646	646
Return attributable to shareholders	2,840	(1,495)	1,345	-	(398)	(398)
Return per share	6.59p	(3.47p)	3.12p	-	(1.12p)	(1.12p)
Weighted average number of shares in issue during the period	43,089,136			35,541,265

4. Dividends

				2020
				Income shares Total
Dividends on Income shares	Register date		Payment date	£'000

Amounts recognised as distributions to shareholders during the year:
For the year ended 31 May 2019
- fourth interim dividend of 1.9p per Income share	21 June 2019		12 July 2019	831
For the year ended 31 May 2020
- first interim dividend of 1.4p per Income share	20 September 2019		11 October 2019	617
- second interim dividend of 1.4p per Income share	20 December 2019		10 January 2020	628
- third interim dividend of 1.4p per Income share	20 March 2020		14 April 2020	637
				2,713

Amounts relating to the year but not paid at the year end:
- fourth interim dividend of 1.9p per Income share*		19 June 2020	10 July 2020	883

* Based on 46,485,537 Income shares in issue at the record date of 19 June 2020.

The fourth interim dividend of 1.9p per Income share was paid on 10 July 2020 to shareholders on the register on 19 June 2020, with an ex-dividend date of 20 June 2020.

The Growth shares do not carry an entitlement to receive dividends.

5. (a) Tax on ordinary activities

Year ended 31 May 2020

	Income Portfolio			Growth Portfolio			Total
	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000

Current tax charge for the year (all irrecoverable overseas tax) being taxation on ordinary activities	13	-	13	-	-	-	13	-	13

(b) Reconciliation of tax charge

	2020
	Income shares	Growth shares	Total
	£'000	£'000	£'000
(Loss)/return on ordinary activities before tax:	(4,666)	1,131	(3,535)
Corporation tax at standard rate of 19 per cent	(887)	215	(672)
Effects of:
Losses/(gains) on investments not taxable	1,232	(208)	1,024
Overseas tax suffered	13	-	13
Non taxable UK dividend income	(268)	(194)	(462)
Non taxable overseas dividend income	(210)	(7)	(217)
Expenses not utilised	133	194	327
Current year tax charge (note 5 (a))	13	-	13

6. The net asset value per Income share is calculated on net assets of £53,788,000 (2019: £57,628,000), divided by 46,485,537 (2019: 43,720,705) Income shares, being the number of Income shares in issue at the year end (excluding any shares held in treasury).

The net asset value per Growth share is calculated on net assets of £74,773,000 (2019: £73,113,000), divided by 35,888,210 (2019: 35,634,929) Growth shares, being the number of Growth shares in issue at the year end (excluding any shares held in treasury).

7. During the year, the Company issued 2,700,000 (2019: 850,000) Income shares from the block listing facility for net proceeds of £3,466,000 (2019: (£1,129,000). At 31 May 2020, the Company held no Income shares in treasury (2019: nil).

During the year, valid conversion notices were received to convert 240,482 Income shares. These were converted into 154,747 Growth shares in accordance with the Company's Articles and by reference to the ratio of the relative underlying net asset values of the Growth shares and Income shares on the conversion date. As part of the conversion process the nominal value of each Income share changed from £0.1 to £0.094976101 per Income share. The Company's Articles allow for Deferred shares to be allotted as part of the share conversion to ensure that the conversion does not result in a reduction of the aggregate par value of the Company's issued share capital. 44,280,223 Deferred shares - Income of £0.005023899 each were issued as part of the share conversion in the current year. The Deferred shares were subsequently repurchased by the Company for nil consideration (as they have no economic value) as authorised by shareholders at the September 2019 AGM.

8. During the year, the Company issued 295,000 (2019: 350,000) Growth shares from the block listing facility receiving net proceeds of £594,000 (2019: £746,000). During the year, the Company bought back 200,000 (2019: 75,000) Growth shares for treasury at a cost of £422,000 (2019: £149,000) and resold out of treasury 200,000 (2019: 75,000) Growth shares, receiving net proceeds of £443,000 (2019: £157,000). At 31 May 2020, the Company held no Growth shares in treasury (2019: nil).

During the year, valid conversion notices were received to convert 196,466 Growth shares. These were converted into 305,314 Income shares in accordance with the Company's Articles and by reference to the ratio of the relative underlying net asset values of the Growth shares and Income shares on the conversion date. As part of the conversion process the nominal value of each Growth share changed from £0.1 to £0.094976101 per Growth share. The Company's Articles allow for Deferred shares to be allotted as part of the share conversion to ensure that the conversion does not result in a reduction of the aggregate par value of the Company's issued share capital. 35,438,463 Deferred shares - Growth of £0.005023899 each were issued as part of the share conversion in the current year. The Deferred shares were subsequently repurchased by the Company for nil consideration (as they have no economic value) as authorised by shareholders at the September 2019 AGM.

9. Financial Instruments

The Company's financial instruments comprise its investment portfolios, cash balances, bank borrowings and debtors and creditors that arise directly from its operations. As an investment trust the Company holds a portfolio of financial assets in pursuit of its investment objective.

Listed and quoted fixed asset investments held are valued at fair value.

The fair value of the financial assets and liabilities of the Company at 31 May 2020 and 31 May 2019 is not materially different from their carrying value in the financial statements.

The main risks that the Company faces arising from its financial instruments are:

(i) market price risk, being the risk that the value of investment holdings will fluctuate as a result of changes in market prices caused by factors other than interest rate or currency rate movements;

(ii) interest rate risk, being the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates;

(iii) foreign currency risk, being the risk that the value of investment holdings, investment purchases, investment sales and income will fluctuate because of movements in currency rates;

(iv) credit risk, being the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company; and

(v) liquidity risk, being the risk that the Company may not be able to liquidate its investments quickly or otherwise raise funds to meet financial commitments.

Market Price Risk

The management of market price risk is part of the fund management process and is typical of equity and debt investment. The Portfolios are managed with an awareness of the effects of adverse price movements through detailed and continuing analysis with an objective of maximising overall returns to shareholders.

Interest Rate Risk

Floating Rate

When the Company retains cash balances the majority of the cash is held in variable rate bank accounts yielding rates of interest linked to the UK base rate which was 0.1% at 31 May 2020 (2019: 0.75%). There are no other assets which are directly exposed to floating interest rate risk.

Fixed Rate

Movement in market interest rates will affect the market value of fixed interest investments. Neither the Income Portfolio or the Growth Portfolio holds any fixed interest investments.

The Company has a £5 million fixed rate loan with an interest rate of 2.03% per annum.

Foreign Currency Risk

The Company may invest in overseas securities which give rise to currency risks. At 31 May 2020, the Income Portfolio had Swiss Franc denominated investments valued at £4,196,000 (2019: £3,393,000), a Euro denominated investment valued at £1,508,000 (2019: £1,698,000) and a US Dollar denominated investment valued at £1,235,000 (2019: nil).

As the remainder of the Company's investments and all other assets and liabilities are denominated in sterling there is no other direct foreign currency risk. However, although the Company's performance is measured in sterling and the Company's investments (other than the above) are denominated in sterling a proportion of their underlying assets are quoted in currencies other than sterling. Therefore movements in the rates of exchange between sterling and other currencies may affect the market price of the Company's investment portfolios and therefore the market price risk includes an element of currency exposure.

Credit Risk

Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company. The Manager has in place a monitoring procedure in respect of counterparty risk which is reviewed on an ongoing basis. The carrying amounts of financial assets best represents the maximum credit risk exposure at the Balance Sheet date.

Credit risk arising on transactions with brokers relates to transactions awaiting settlement. Risk relating to unsettled transactions is considered to be small due to the short settlement period involved and the acceptable credit quality of the brokers used. The Manager monitors the quality of service provided by the brokers used to further mitigate this risk.

All the assets of the Company which are traded on a recognised exchange are held by JPMorgan Chase Bank, the Company's Custodian. Bankruptcy or insolvency of the Custodian may cause the Company's rights with respect to securities held by the Custodian to be delayed or limited. The Board monitors the Company's risk by reviewing the Custodian's internal control reports.

The credit risk on liquid funds is controlled because the counterparties are banks with acceptable credit ratings, normally rated A or higher, assigned by international credit rating agencies. Bankruptcy or insolvency of such financial institutions may cause the Company's ability to access cash placed on deposit to be delayed, limited or lost.

Liquidity Risk

Liquidity risk is the risk that the Company will encounter difficulty in realising assets or otherwise raising funds to meet financial commitments. The risk of the Company not having sufficient liquidity at any time is not considered by the Board to be significant, given that the Company's listed and quoted securities are considered to be readily realisable.

The Company's liquidity risk is managed on an ongoing basis by the Manager in accordance with policies and procedures in place. The Company's overall liquidity risks are monitored on a quarterly basis by the Board.

The Company maintains sufficient investments in cash and readily realisable securities to pay accounts payable and accrued expenses which are settled in accordance with suppliers stated terms. The Company has a £5 million fixed term loan, maturing 10 February 2022 with The Royal Bank of Scotland International Limited. As at 31 May 2020, £5 million of the fixed term loan was drawn down (2019: £5 million). The interest rate on the fixed rate loan, which is fully drawn, is 2.03% per annum.

10. Subject to certain minimum and maximum thresholds which may be set by the Board of BMO Managed Portfolio Trust PLC from time to time, shareholders have the right to convert their Income shares into Growth shares and/or their Growth shares into Income shares upon certain dates, the next of which will be on 29 October 2020 and then annually or close to annually thereafter (subject to the Articles of Association of the Company). Under current law, such conversions will not be treated as disposals for UK capital gains tax purposes. The Conversion notice period commences on 10 August 2020 and full details will be provided on the Company's website and in the Company's Annual Report and Financial Statements.

11. The Board of Directors (the "Board") is considered a related party. There are no transactions with the Board other than aggregated remuneration for services as Directors as disclosed in the Directors' Remuneration Report within the Annual Report and Financial Statements. The beneficial interests of the Directors in the Income shares and Growth shares of the Company are disclosed in the Annual Report and Financial Statements. There are no outstanding balances with the Board at the year end. Ms SP Inglis is also a non-executive director and chairman of The Bankers Investment Trust. The Income Portfolio has a holding of 173,047 shares in this company valued at £1,653,000 at 31 May 2020. Mr D Warnock is also a non-executive director and chairman of Troy Income & Growth Trust. The Income Portfolio has a holding of 2,100,000 shares in this Company valued at £1,516,000.

Transactions between the Company and the Manager are detailed in the notes to the financial statements in the Annual Report and Financial Statements. The existence of an independent Board of Directors demonstrates that the Company is free to pursue its own financial and operating policies and therefore, under the AIC SORP, the Manager is not considered to be a related party.

12. This statement was approved by the Board on 5 August 2020. It is not the Company's full statutory accounts in terms of Section 434 of the Companies Act 2006. The statutory annual report and financial statements for the year ended 31 May 2020 has been approved and audited and received an unqualified audit report and did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying the report. This will be sent to shareholders during August and will be available for inspection at 6^th Floor, Quartermile 4, 7a Nightingale Way, Edinburgh, the registered office of the Company.

The full Annual Report and Financial Statements are available on the Company's website bmomanagedportfolio.com

The audited financial statements for the year to 31 May 2020 will be lodged with the Registrar of Companies following the Annual General Meeting to be held on 24 September 2020.

Alternative Performance Measures ("APMs")

The Company uses the following "APMs":

Discount/premium - the share price of an investment company is derived from buyers and sellers trading their shares on the stock market. This price is not identical to the net asset value (NAV) per share of the underlying assets less liabilities of the Company. If the share price is lower than the NAV per share, the shares are trading at a discount. This usually indicates that there are more sellers of shares than buyers. Shares trading at a price above NAV per share are deemed to be at a premium usually indicating there are more buyers of shares than sellers.

31 May 2020

31 May 2019

		Income	Growth	Income	Growth
		shares	shares	shares	shares
Net asset value per share	(a)	115.71p	208.35p	131.81p	205.17p
Share price	(b)	117.50p	212.00p	134.50p	206.00p
+Premium/-discount (c = (b-a)/(a))	(c)	+1.5%	+1.8%	+2.0%	+0.4%

Ongoing charges - all operating costs incurred and expected to be incurred in future and that are payable by the Company, expressed as a proportion of the average net assets of the Company over the reporting year. The costs of buying and selling investments are excluded, as are interest costs, taxation, non-recurring costs and the costs of buying back or issuing shares. Ongoing charges of the Company's underlying investments have not been included.

Ongoing charges calculation				31 May 2020
		Income Portfolio (excluding performance fee)	Income Portfolio (including performance fee)		Growth Portfolio (excluding performance fee)	Growth Portfolio (including performance fee)
		£'000	£'000		£'000	£'000
Total expenditure		644	644		774	774
Performance fee		-	206		-	263
Less non-recurring cost		(6)	(6)		(9)	(9)
Total	(a)	638	844		765	1,028
Average daily net assets	(b)	57,908	57,908		73,922	73,922
Ongoing charges (c=a/b)	(c)	1.10%	1.46%		1.03%	1.39%

The Key Information Document ('KID') on the Company's website contains a measure of costs calculated in accordance with EU PRIIPs regulations. In addition to the costs included within the Company's ongoing charges figure set out above, the cost of the Company's borrowings together with costs incurred in the period within underlying investee funds are also included and expressed as a proportion of the average daily NAV of the Company over the period.

Income Growth

Portfolio Portfolio

Ongoing charges above (excluding performance fee)	1.10%	1.03%
Loan interest	0.2%	n/a
Ongoing charges of underlying investee funds	1.44%	1.10%
Ongoing costs per per KID methodology	2.74%	2.13%

In addition, other costs, such as portfolio transaction costs and performance fees are disclosed separately on the KID.

Ongoing charges calculation				31 May 2019
		Income Portfolio (excluding performance fee)	Income Portfolio (including performance fee)		Growth Portfolio (excluding performance fee)	Growth Portfolio (including performance fee)
		£'000	£'000		£'000	£'000
Total expenditure		614	614		743	743
Performance fee		-	73		-	257
Less non-recurring cost		(2)	(2)		(8)	(8)
Total	(a)	612	685		735	992
Average daily net assets	(b)	56,481	56,481		72,738	72,738
Ongoing charges (c=a/b)	(c)	1.08%	1.21%		1.01%	1.36%

Income Growth

Portfolio Portfolio

Ongoing charges above (ex performance fee)	1.08%	1.01%
Loan interest	0.2%	n/a
Ongoing charges of underlying investee funds	1.48%	1.10%
Ongoing costs per KID methodology	2.76%	2.11%

In addition, other costs, such as portfolio transaction costs and performance fees are disclosed separately on the KID.

Total return - the return to shareholders calculated on a per share basis taking into account both any dividends paid in the period and the increase or decrease in the share price or NAV in the period. The dividends are assumed to have been re-invested in the form of shares or net assets, respectively, on the date on which the shares were quoted ex-dividend.

The effect of reinvesting these dividends on the respective ex-dividend dates and the share price total returns and NAV total returns are shown below.

	31 May 2020			31 May 2019
		Income shares	Growth shares	Income Shares	Growth Shares
NAV per share at start of financial year		131.81p	205.17p	135.29p	206.23p
NAV per share at end of financial year		115.71p	208.35p	131.81p	205.17
Change in the year		-12.2%	+1.5%	-2.6%	-0.5%
Impact of dividend reinvestments†		4.9%	n/a	5.1%	n/a
NAV total return for the year		-7.3%	+1.5%	2.5%	-0.5%

† During the year to 31 May 2020 dividends totalling 6.1p went ex dividend with respect to the Income shares. During the year to 31 May 2019 the equivalent figure was 6.65p.

	31 May 2020			31 May 2019
		Income shares	Growth shares		Income Shares	Growth Shares
Share price per share at start of financial year		134.5p	206.0p		138.0p	209.0p
Share price per share at end of financial year		117.5p	212.0p		134.5p	206.0p
Change in the year		-12.6%	+2.9%		-2.5%	-1.4%
Impact of dividend reinvestment†		4.3%	n/a		5.0%	n/a
Share price total return for the year		-8.3%	+2.9%		2.5%	-1.4%

† During the year to 31 May 2020 dividends totalling 6.1p went ex dividend with respect to the Income shares. During the year to 31 March 2019 the equivalent figure was 6.65p.

Compound Annual Growth Rate - converts the total return over a period of more than one year to a constant annual rate of return applied to the compounded value at the start of each year.

	31 May 2020			31 May 2019
		Income shares	Growth shares		Income Shares	Growth Shares
Indexed total return at launch		100.0	100.0		100.0	100.0
Indexed total return at end of financial year		206.9	212.6		223.2	209.4
Period (years)		12.125	12.125		11.125	11.125
Compound annual growth rate		6.2%	6.4%		7.5%	6.9%

Yield - the total annual dividendexpressed as a percentage of the year-end share price.

31 May 2020

31 May 2019

Annual dividend	(a)	6.1p		5.95p
Income share price	(b)	117.5p	134.5p
Yield (c = a/b)	(c)	5.2%	4.4%

For further information, please contact:

Peter Hewitt, BMO Investment Business Limited 0131 718 1244

Ian Ridge, BMO Investment Business Limited 0131 718 1010

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

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CT Global Managed Portfolio Trust Inc Shs (CMPI)

Tuesday, 16th July 2024

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