As announced by the Company on 26 July 2023, the Board has agreed terms with the board of Shires for a combination of the assets of the Company with Shires. If approved, the combination will be implemented by way of a scheme of reconstruction and members' voluntary winding up of the Company under section 110 of the Insolvency Act 1986 (the "Scheme") and the associated transfer of the Company's cash, assets and undertaking to Shires in exchange for the issue of New SHRS Shares to Shareholders who elect, or are deemed to have elected, to roll over their investment in the Company into Shires. As noted below, Shires' participation in the Scheme will, in the context of these proposals, constitute a related party transaction (the "Related Party Transaction") and, as a result, will require the approval of Independent Shareholders. The Scheme and the Related Party Transaction are together referred to as the "Proposals".

The Scheme will be implemented by way of a members' voluntary liquidation and a scheme of reconstruction of the Company under which Shareholders will be entitled to elect to receive in respect of some or all of their Ordinary Shares:

The Proposals are conditional upon, amongst other things, the approval of Shareholders at the General Meetings and the approval by SHRS Shareholders of the issue of the New SHRS Shares.

Shareholders can make different Elections in respect of different parts of their holdings of Ordinary Shares and there is no limit on the number of Ordinary Shares which may be elected for the Cash Option. A discount of 1.5 per cent. will be applied to the Residual Net Asset Value attributable to Ordinary Shares which are elected, or deemed to be elected, to receive cash under the Cash Option (the "Cash Option Discount"). The value arising from the application of the Cash Option Discount will be allocated to the Rollover Pool for the benefit of the enlarged Shires and Shareholders electing, or who are deemed to have elected, for the Rollover Option.

The Rollover Option is the default option under the Scheme. As a result Shareholders (other than Overseas Shareholders) who, in respect of all or part of their holding of Ordinary Shares, do not make a valid election, or who do not make an election at all, under the Scheme will be deemed to have elected for New SHRS Shares in respect of such holding. As New SHRS Shares will be issued to those Shareholders who elect, or are deemed to elect, for the Rollover Option on a formula asset value ("FAV") for FAV basis as described in Part 4 of the Circular, i.e. at a 0.80 per cent. premium to the SHRS NAV per SHRS Share, Shareholders should note that such issue price may be above the market price of the SHRS Shares if the SHRS Shares continue to trade at a discount to the SHRS NAV per SHRS Share, which was 7.8 per cent. as at 13 October 2023 (being the latest practicable date prior to the publication of the Circular).

Shires is the largest beneficial owner of the Company's Ordinary Shares, holding approximately 13.6 per cent. of the Company's issued Ordinary Share capital as at 13 October 2023. Shires' entitlements as an investor in the Company under the Scheme will be satisfied on the Company's entering winding up by the transfer of the Rollover Pool to Shires, which will include the transfer of Shires' pro rata share of the Rollover Pool by way of a distribution in specie. This means that Shires will not receive any New SHRS Shares pursuant to the Scheme and will be deemed under the terms of the Scheme to receive only Reclassified Shares with "C" rights (as set out in detail in Part 4 of the Circular).

Shires' participation in the Scheme will, in the context of the proposals, constitute a related party transaction under the Listing Rules and, as a result, will require the approval of Independent Shareholders. If Independent Shareholders do not approve the Company's entry into the Related Party Transaction, the Scheme will not proceed.

In order to effect the Scheme, and the proposed amendments to the Articles of Association that will need to be made in connection with the Scheme, Shareholder approval is required at the First General Meeting. If the Scheme and the Related Party Transaction are approved at the First General Meeting, Shareholder approval is required at the Second General Meeting to wind up the Company voluntarily, and to appoint and grant authority to the Liquidators to implement the Scheme. In addition, the issue of New SHRS Shares pursuant to the Scheme is subject to the approval of the SHRS Shareholders.

The Board considers the Proposals to be in the best interests of Shareholders as a whole and recommends that Shareholders vote in favour of the Resolutions required to implement the Proposals at the General Meetings.

Background to, and rationale for, the Proposals

Despite the Company continuing to provide a high and growing dividend from a portfolio invested principally in UK smaller companies and UK fixed income securities, the Company's Ordinary Shares have continued to trade at a material discount to their net asset value for a prolonged period of time. This, coupled with the Company being of a relatively small scale, has created challenges in generating improved liquidity in the Ordinary Shares and has restricted the Company's ability to grow. As a result, on 13 February 2023, the Board announced that it was undertaking a strategic review to consider the future of the Company (the "Strategic Review Announcement").

Following the Strategic Review Announcement, the Board conducted a thorough and extensive review of options for the future of the Company with a view to maximising value for Shareholders. The Board was very pleased with the interest shown, with proposals being received from more than a dozen candidates. Most of the proposals received envisaged a combination of the Company's assets with another investment trust, an outcome the Board expected to consider as part of the Strategic Review.

Consequently, and as announced by the Company on 26 July 2023, after detailed negotiations the Board agreed, in principle, the terms for a combination of the assets of the Company with Shires by means of the Scheme, which will also provide Shareholders with the option of a full cash exit (subject to the application of the Cash Option Discount). As noted in the announcement on 26 July, during these negotiations the terms of the proposals were improved, substantially so in relation to the Cash Option, from a proposal that Shires presented to the Company in February prior to the commencement of the Strategic Review.

If the Scheme becomes effective, Shires will continue to be managed by abrdn Fund Managers Limited ("AFML"), in accordance with its existing investment objective: namely to provide a high level of income together with the potential for growth of both income and capital from a diversified portfolio, substantially invested in UK equities but also in preference shares, convertibles and other fixed income securities. Management of Shires' portfolio will continue to be led by Iain Pyle and Charles Luke. Shires will also have access to abrdn's Smaller Companies team, including drawing on the expertise of the Company's current portfolio managers Abby Glennie and Amanda Yeaman. Shires will continue to have exposure to UK smaller companies (the expectation is that UK small cap exposure will represent up to 20 per cent. of Shires' portfolio on an ongoing basis); although, following the implementation of the Scheme it will hold such assets directly rather than indirectly via its shareholding in the Company.

Further information on Shires is provided in the SHRS Prospectus which is available on the Shires website at www.shiresincome.co.uk.

Dividends

Pre-liquidation dividend

In connection with the Proposals, the Board intends, subject to the passing of all Resolutions to be proposed at the First General Meeting, to pay a pre-liquidation interim dividend of not less than 14.0 pence per Ordinary Share to reflect a distribution of substantially all of the Company's accumulated revenue reserves. This interim dividend will be paid to Shareholders prior to the Effective Date.

All Shareholders will be entitled to receive the pre-liquidation dividend, regardless of whether they elect (or are deemed to elect) for the Rollover Option or the Cash Option under the Scheme.

Future Shires' dividends

New SHRS Shares issued in connection with the Scheme will rank fully pari passu with existing SHRS Shares for all dividends declared by Shires with a record date falling after the date of the issue of those New SHRS Shares.

For the avoidance of doubt, Shareholders receiving New SHRS Shares in connection with the Scheme will not be entitled to receive Shires' first interim dividend in relation to the financial year ending 31 March 2024, which was announced by the Shires Board on 13 September 2023 and is due to be paid on 27 October 2023 to SHRS Shareholders whose names appear on Shires' register of members on 6 October 2023 (the "SHRS First Interim Dividend"). On the basis of the expected timetable, only existing SHRS Shareholders will be entitled to receive the SHRS First Interim Dividend.

Benefits of the Proposals

Under the Scheme all Shareholders can elect to receive cash, subject to the application of the Cash Option Discount of 1.5 per cent. of the Residual Net Asset Value attributable to Ordinary Shares which are elected (or deemed to be elected) to receive cash under the Cash Option, in respect of their entire holding of Ordinary Shares.

Those Shareholders who elect, or are deemed to elect, for the Rollover Option are expected to benefit[1] from, amongst other things:

· Increased dividend: An expected increase of 31.7 per cent. per annum in dividend income based on the last four quarterly dividends for each company (i.e. a full year's dividend).

· Reduced costs[2]: An expected decrease of 31.4 per cent. in the ongoing charges ratio ("OCR") based on the pro forma OCR of Shires, as enlarged, as compared with the most recent OCR of the Company as at 30 June 2023.

· Improved average rating: Over the twelve months to 24 July 2023 (being the latest practicable date prior to the release of the Strategic Review results announcement) SHRS Shares traded at an average 1.5 per cent. discount to the NAV per SHRS Share, compared to the Ordinary Shares which traded at an average 13.2 per cent. discount to the NAV per Ordinary Share. As at 13 October 2023, the discounts to NAV per share at which the Company's Ordinary Shares and the SHRS Shares traded were, respectively, 2.7 per cent. and 7.8 per cent.

· Shires' historic investment performance: Shires' NAV total return over 1, 3 and 5 years to 13 October 2023 was 9.2 per cent., 22.8 per cent. and 25.3 per cent. respectively, and its share price total return over the same periods was 2.8 per cent., 25.8 per cent. and 22.9 per cent., respectively. Further details in relation to Shires' relative returns are set out in Part 2 of the Circular.

· Continued UK smaller companies exposure: A material proportion of the Rollover Pool transferred to Shires will comprise existing investments of the Company, ensuring continued UK small cap exposure for all SHRS Shareholders, with the expectation being that UK small cap exposure will represent up to 20 per cent. of Shires' portfolio on an ongoing basis. By way of illustration, had 25 per cent. of Shareholders elected, or been deemed to have elected, for the Cash Option as at 13 October 2023 (being the latest practicable date prior to the publication of the Circular) approximately 54 per cent. of the Rollover Pool FAV would have comprised existing UK small cap assets.

Management of the Company's portfolio prior to implementation of the Scheme

Following the Strategic Review results announcement, the Board instructed the Company's AIFM and investment manager to consider the potential realignment of the Company's investment portfolio so that by the Calculation Date it contains assets that are suitable for transfer to Shires and also to ensure that the Company has sufficient cash to meet the amounts expected to be due in respect of Elections for the Cash Option, as well as meeting any remaining indebtedness and/or liabilities. This process is underway and since the Strategic Review results announcement the Company has repaid and closed its revolving credit facility and sold a number of the more illiquid holdings in the Company's portfolio.

Costs of implementing the Proposals

The Company and Shires have each agreed to bear their own costs in relation to the Proposals.

The fixed costs of the Proposals payable by the Company are expected to be approximately £724,000 inclusive of VAT (which is assumed to be irrecoverable where applicable). This estimate of costs excludes the Liquidators' retention (estimated at £100,000) to cover unknown or unascertained liabilities of the Company (the "Liquidators' Retention"), and does not take account of any dealing costs (including UK SDRT) which will be incurred by the Company in disposing of assets in order to meet Elections made or deemed to have been made and in realigning the Company's portfolio after the approval of the Scheme and prior to the Effective Date so as to result in the Rollover Pool containing assets that are suitable for transfer to Shires.

The fixed direct costs of the Proposals payable by Shires are expected to be approximately £808,000 inclusive of VAT (which is assumed to be irrecoverable where applicable). As part of Shires' fee arrangements, there is scope for an additional discretionary payment to be made to Shires' sponsor, which will be subject to the outcome of, and the extent of work required in order to implement, the Proposals. In any event, this will not exceed in aggregate £350,000. In addition, Shires, as enlarged, will also incur listing fees in respect of the listing of the New SHRS Shares and UK SDRT based on the value and constitution of the Rollover Pool.

In the event that either Shareholders or SHRS Shareholders resolve not to proceed to implement the Scheme (including if the Company's Independent Shareholders do not approve the Related Party Transaction) or the SHRS Directors or the Company's Directors decide not to implement the Scheme on the terms described in the Circular, then each party will bear its own abort costs.

For the avoidance of doubt, in any event where the Scheme is not implemented, the listing fees and UK SDRT that would have been payable by Shires, as enlarged, will not be payable, but dealing costs (including UK SDRT) may still have been incurred by the Company in disposing of assets in order to meet Elections made or deemed to have been made and in realigning the Company's portfolio in respect of the Rollover Pool to be established pursuant to the Scheme.

The Liquidators' Retention is estimated at £100,000 and will be retained by the Liquidators to meet any unknown or unascertained liabilities of the Company. This retention is in addition to any provisions made in the calculation of the ASCI FAV per Share in respect of known and ascertained liabilities of the Company. To the extent that some or all of the Liquidators' Retention remains at the conclusion of the liquidation, this will be returned to Shareholders on the Register as at the Record Date (excluding Dissenting Shareholders). If, however, any such amount payable to any Shareholder is less than £5.00, it shall not be paid to the Shareholders but instead shall be paid by the Liquidators to the Nominated Charity.

AFML, in its capacity as the AIFM of Shires, has agreed to make a contribution to the costs of the Scheme by means of a reduction in the management fee payable by Shires to AFML. The fee reduction will constitute a waiver of the management fee that would otherwise be payable by Shires to AFML in respect of the assets transferred by the Company to Shires pursuant to the Scheme for the first six months following the completion of the Scheme (the "AFML Contribution"). The financial value of this amount (which is estimated at £87,051 based on Shires' NAV as at 13 October 2023, assuming there are no Dissenting Shareholders and that 25 per cent. of Shareholders elect for the Cash Option) will be satisfied by AFML by means of a waiver of its fees for the benefit of the shareholders of the enlarged Shires. For the avoidance of doubt, this amount will not be taken into account in the calculation of either the ASCI FAV per Share or the SHRS FAV per Share. The AFML Contribution is subject to Shires not terminating its management agreement (other than for cause as provided for under such agreement) for three years from the Effective Date of the Scheme, failing which the enlarged Shires will be obliged to repay all or part (depending on the point of termination) of the AFML Contribution. In addition, a new administration fee of £120,000 plus VAT per annum, effective from the completion of the Scheme, will be payable by Shires to abrdn.

In addition, in anticipation of the Scheme becoming effective, AFML, in its capacity as the AIFM of the Company, has undertaken to waive, in full, the period of notice to which it is contractually entitled under the ASCI AIFM Agreement and has agreed that no compensation will be payable by the Company to AFML in respect of such waiver, provided that the Scheme is implemented.

Further details of the Scheme

Entitlements under the Scheme

Under the Scheme, each Shareholder on the Register on the Record Date may elect or may be deemed to have elected to receive:

· such number of New SHRS Shares as have a value (at the SHRS FAV per Share) equal to the proportion of the Rollover Pool attributable to the number of Ordinary Shares so elected, being the Rollover Option; and/or

· an amount of cash equal to the Cash NAV per Share attributable to the number of Ordinary Shares so elected, being the Cash Option.

Shareholders can make different Elections in respect of different parts of their holdings of Ordinary Shares. There is no limit on the amount of Ordinary Shares which may be elected for the Cash Option.

The default option under the Scheme is for Shareholders to receive New SHRS Shares. As a result, Shareholders who, in respect of all or part of their holding of Ordinary Shares, do not make a valid election, or who do not make an election at all, under the Scheme will be deemed to have elected for New SHRS Shares in respect of such holding. However, Overseas Shareholders should ensure they have read the section titled "Overseas Shareholders" in Part 3 and paragraph 16 of Part 4 of the Circular.

Shires' entitlements as a Shareholder under the Scheme will be satisfied on the Company's entering winding up by the transfer of the Rollover Pool to Shires, which will include the transfer of Shires' pro rata share of the Rollover Pool by way of a distribution in specie. This means that Shires will receive no New SHRS Shares pursuant to the Scheme and will be deemed under the terms of the Scheme to receive only Reclassified Shares with "C" rights (as set out in detail in Part 4 of the Circular).

Cash Entitlements payable to Shareholders who elect (or are deemed to elect) for the Cash Option (being the holders of Reclassified Shares with "B" rights under the Scheme) shall be distributed by the Liquidators, through the Receiving Agent and pursuant to the Scheme, in cash to each such Shareholder in proportion to their respective holdings of Reclassified Shares with "B" rights which shall be equal to such Shareholder's entitlement to the net realisation proceeds of the Cash Pool pursuant to the Scheme (the "Cash Entitlement") and rounded down to the nearest penny.

If a Shareholder wishes to receive cash in respect of all or part of their holding of Ordinary Shares they must complete and return a Form of Election, Form of Instruction or submit a TTE Instruction (depending on how their Ordinary Shares are held) in respect of the number of Ordinary Shares for which they wish to make an Election for the Cash Option. They will be deemed to have elected to receive New SHRS Shares in respect of the remainder of their holding.

Overseas Shareholders are entitled to participate in the Scheme. However, to the extent that Shires, and/or the Liquidators, acting reasonably, consider that any issue of New SHRS Shares to an Overseas Shareholder would or may involve a breach of the securities laws or regulations of any jurisdiction, or may violate any applicable legal or regulatory requirements or may require Shires to become subject to additional regulatory requirements (to which it would not be subject but for such issue) and Shires and/or the Liquidators, as the case may be, have not been provided with evidence reasonably satisfactory to them that the relevant Overseas Shareholder is permitted to hold New SHRS Shares under any relevant securities laws or regulations of such overseas jurisdictions (or that Shires will not be subject to any additional regulatory requirements to which it would not be subject but for such issue), such Overseas Shareholder will be deemed to have elected for the Cash Option in respect of their entire holding of Ordinary Shares. Overseas Shareholders who wish to receive New SHRS Shares under the Scheme should contact the Company directly as soon as possible and, in any event, by no later than 5.00 p.m. on 17 November 2023 if they are able to demonstrate, to the satisfaction of the Directors, the SHRS Directors and the Liquidators, that they can be issued New SHRS Shares without breaching any relevant securities laws.

If an Overseas Shareholder does not contact the Company and provide the required evidence as noted above, such Overseas Shareholder will be deemed to have elected for the Cash Option in respect of their entire holding of Ordinary Shares in accordance with paragraph 16 of Part 4 of the Circular.

After allocating cash and other assets to the Liquidation Pool to meet all known and unknown liabilities of the Company and other contingencies, including the Liquidators' Retention and the entitlements of any Dissenting Shareholders, there shall be appropriated to the Cash Pool and the Rollover Pool the remaining assets of the Company in the manner described in paragraph 3.2 of Part 4 of the Circular. Such appropriation includes the application of the Cash Option Discount. The value arising from the application of the Cash Option Discount will be allocated to the Rollover Pool for the benefit of the enlarged Shires and Shareholders electing, or who are deemed to have elected, for the Rollover Option.

The issue of New SHRS Shares under the Scheme will be effected on a FAV for FAV basis as at the Calculation Date as described in detail in Part 4 of the Circular. In determining the SHRS FAV, the SHRS NAV will (i) have applied to it a 0.80 per cent. premium and (ii) not be adjusted for the costs of the proposals incurred by Shires, so as to reduce the asset and income dilutive effect of the costs of the proposals on Shires.

The Calculation Date for determining the value of the Rollover Pool and Cash Entitlements under the Scheme is expected to be 5.00 p.m. on 27 November 2023. The Record Date for the basis of determining Shareholders' entitlements under the Scheme is 6.00 p.m. on 24 November 2023. It is expected that the Liquidators will distribute Cash Entitlements (rounded down to the nearest penny) not later than 10 Business Days following the Effective Date.

Illustrative entitlements

For illustrative purposes only, had the Calculation Date been 5.00 p.m. on 13 October 2023 and assuming that there are no Dissenting Shareholders, after deduction of the pre-liquidation interim dividend of 14.0 pence per Ordinary Share and assuming 25 per cent. of the Company's current issued Ordinary Share capital is elected or deemed to be elected for the Cash Option, the Cash NAV per Share would have been 230.514533 pence and the ASCI FAV per Share would have been 235.195032 pence. The Cash NAV per Share and the ASCI FAV per Share may be compared with the Company's share price and cum-income NAV per Share as at 13 October 2023 which, when adjusted on a pro forma basis for the deduction of the pre-liquidation interim dividend of 14.0 pence per Share, were 231.00 pence and 237.75 pence, respectively.

For illustrative purposes only, on the basis of the assumptions above, the SHRS FAV per Share would have been 243.865440 pence which, for the Rollover Option, would have produced a conversion ratio of 0.964446 and, in aggregate, 13,086,179 New SHRS Shares would have been issued to Shareholders under the Scheme, representing approximately 30.0 per cent. of the issued ordinary share capital of Shires, as enlarged, immediately following completion of the Scheme. Had the Calculation Date been 5.00 p.m. on 13 October 2023, and after taking account of Shires' costs in connection with the Scheme, the effect of Shires receiving its pro rata share of the Rollover Pool by way of a distribution in specie, the application of the AFML Contribution and the listing fees in respect of the listing of the New SHRS Shares and UK SDRT to be paid by Shires, as enlarged, Shires' pro forma cum-income NAV per SHRS Share would have been 240.74 pence. This may be compared with Shires' share price and cum-income NAV per SHRS Share as at 13 October 2023 which were 223.00 pence and 241.93 pence, respectively.

Related Party Transaction

Having sought guidance from the FCA, Shires is deemed to be a related party of the Company under the Listing Rules in the context of the proposals. Therefore, under the Listing Rules, Shires' participation in the Scheme will constitute a related party transaction for the purposes of LR11.1.5(1) and, as a result, must be approved by the Company's Independent Shareholders by way of an ordinary resolution of such Shareholders. The Company is proposing to obtain such approval of Independent Shareholders by proposing Resolution 1 at the First General Meeting.

In accordance with the Listing Rules, Shires will not vote on Resolution 1 to be proposed at the First General Meeting and has undertaken to take all reasonable steps to ensure that its associates will not vote on Resolution 1. If Independent Shareholders do not approve the entry into of the Related Party Transaction by passing Resolution 1 at the First General Meeting, the Scheme will not proceed.

The maximum potential value of the Related Party Transaction to Shires would arise in the event that all Shareholders elect, or are deemed to elect, for the Rollover Option and there are no Dissenting Shareholders. In this scenario, all of the Company's assets other than those appropriated to the Liquidation Pool, having a value equal to the Residual Net Asset Value as at the Calculation Date, would transfer to Shires. For illustrative purposes only, had the Calculation Date been 5.00 p.m. on 13 October 2023, the Residual Net Asset Value would have been £51.7 million and therefore £51.7 million of the Company's assets would have transferred to Shires pursuant to the Scheme.

Conditions of the Proposals

Implementation of the Proposals is subject to a number of conditions, including:

· the passing of the Resolutions to be proposed at the First General Meeting and the Resolution to be proposed at the Second General Meeting (or any adjournment of those General Meetings), and any conditions of such Resolutions being fulfilled;

· the SHRS Resolution being passed and becoming unconditional in all respects;

· the FCA agreeing to admit the New SHRS Shares to the Official List and the London Stock Exchange agreeing to admit the New SHRS Shares to trading on the Main Market, subject only to allotment; and

· the Directors and SHRS Directors resolving to proceed with the Scheme.

If any condition is not satisfied, the Proposals will not become effective, the Company will not proceed with the members' voluntary winding up and instead will continue in existence and will continue to be managed under its current investment policy. In such circumstances the Board will reassess the options available to the Company at that time.

General Meetings

As noted above, the Proposals are conditional, amongst other things, upon Shareholders' approval of the Resolutions to be proposed at the First General Meeting and the Second General Meeting.