Placing and Offer for Subscription for up to 65 million C Shares at 100 pence per C Share Manager. BlackRock Fund Managers Limited

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1 THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt about the action you should take, you are recommended to seek your own financial advice immediately from an independent financial adviser who is authorised under the Financial Services and Markets Act 2000 (as amended) ( FSMA ) if you are in the United Kingdom, or from another appropriately authorised independent financial adviser if you are in a territory outside of the United Kingdom. A copy of this document, which comprises a prospectus relating to BlackRock Frontiers Investment Trust plc (the Company ) prepared in accordance with the Prospectus Rules of the Financial Conduct Authority ( FCA ) made under section 84 of FSMA, has been delivered to the FCA in accordance with Rule 3.2 of the Prospectus Rules. Applications will be made to the UKLA and the London Stock Exchange for all of the C Shares now being offered to be admitted to the premium listing segment of the Official List and to trading on the London Stock Exchange s main market for listed securities. It is expected that Admission will become effective and that dealings in the C Shares will commence on 29 February The Company and each of the Directors whose names appear on page 36 of this document, accept responsibility for the information contained in this document. To the best of the knowledge and belief of the Company and the Directors (who have taken all reasonable care to ensure that such is the case) the information contained in this document is in accordance with the facts and contains no omission likely to affect the import of such information. AIII 4.7, 6.1, AI 1.1, 1.2 AIII 1.1, 1.2 Prospective investors should read the whole of this document when considering an investment in the C Shares and, in particular, attention is drawn to the Risk Factors set out on pages 18 to 29 of this document. BLACKROCK FRONTIERS INVESTMENT TRUST PLC (A closed-ended company incorporated in England and Wales with registered number ) (An investment company under section 833 of the Companies Act 2006) Placing and Offer for Subscription for up to 65 million C Shares at 100 pence per C Share Manager BlackRock Fund Managers Limited Sponsor and Placing Agent Winterflood Securities Limited Winterflood Securities Limited, which is authorised and regulated in the United Kingdom by the FCA, acting through its division, Winterflood Investment Trusts ( Winterflood ) is acting for the Company in relation to the Issue and is not advising any other person or treating any other person as its client in relation to the matters referred to in this document and will not be responsible to anyone other than the Company for providing the protections afforded to clients of Winterflood nor for providing advice in connection with the Issue. AI 5.1.1, 5.1.2, AIII 4.4, 5.1.2, AIII 10.1 Apart from the responsibilities and liabilities, if any, which may be imposed on Winterflood by FSMA or the regulatory regime established thereunder, Winterflood does not accept any responsibility whatsoever for the contents of this document or for any statement made or purported to be made by it or on its behalf in connection with the Company, the Manager, the Investment Manager, the C Shares or the Issue. Winterflood accordingly disclaims all and any liability whether arising in tort, contract or otherwise (save as referred to above), which it might otherwise have in respect of this document or any such statement. In connection with the Issue Winterflood and any of its affiliates acting as an investor for its or their own account(s), may subscribe for C Shares and, in that capacity, may retain, purchase, sell, offer to sell or otherwise deal for its or their own account(s) in such securities of the Company, any other securities of the Company or other related investments in connection with the Issue or otherwise. Accordingly, references in this document to the C Shares being issued, offered, subscribed or otherwise dealt with, should be read as including any issue or offer to, or subscription or dealing by, Winterflood and any of its affiliates acting as an investor for its or their own account(s). Neither Winterflood nor any of its affiliates intends to disclose the extent of any such investment or transactions otherwise than in accordance with any legal or regulatory obligation to do so. The Offer for Subscription will remain open until 1.00 p.m. on 23 February 2016 and the Placing will remain open until 1.00 p.m. on 24 February 2016 (or such other time as may be notified by the Company to a particular placee). Persons wishing to participate in the Offer for Subscription should complete the Application Form set out in Appendix 1 and, if applicable, the Tax Residency Self-Certification Form set out in Appendix 2 to this document. To be valid, Application Forms and, if applicable, Tax Residency Self-Certification Forms must be completed and returned with the appropriate remittance, by post to Computershare Investor Services PLC, Corporate Actions Projects, The Pavilions, Bridgwater Road, Bristol BS99 6AH or by hand (during business hours only), to Computershare Investor Services PLC, Corporate Actions Projects, The Pavilions, Bridgwater Road, Bristol BS13 8AE so as to be received no later than 1.00 p.m. on 23 February AIII The C Shares have not been nor will be registered under the United States Securities Act of 1933 (as amended) (the Securities Act ) or with any securities or regulatory authority of any state or other jurisdiction of the United States, and the C Shares may not be offered, sold, exercised, resold, transferred or delivered, directly or indirectly within the United States or to or for the account or benefit of, US Persons (as defined in Regulation S under the Securities Act ( Regulation S )). There will be no public offer of the C Shares in the United States. The C Shares are being offered or sold only outside the United States to non US Persons in offshore transactions in reliance on the exemption from the registration requirements of the Securities Act provided by Regulation S. The Company has not been and will not be registered under the U.S. Investment Company Act of 1940, as amended, and the recipients of this document will not be entitled to the benefits of that Act. This document should not be distributed or forwarded into the United States or to US Persons. This document does not constitute an offer to sell, or the solicitation of an offer to acquire or subscribe for, C Shares in any jurisdiction where such offer or solicitation is unlawful or would impose any unfulfilled registration, qualification, publication or approval requirements on the Company, Winterflood or the Manager. The offer and sale of C Shares has not been and will not be registered under the applicable securities laws, or with any securities regulatory authority, of any member state of the EEA (other than the United Kingdom), Australia, Canada, the Republic of South Africa, Japan, New Zealand or the Kingdom of Saudi Arabia. Subject to certain exemptions, the C Shares may not be offered, sold or delivered, directly or indirectly, within or to or for the account or benefit of any national, resident or citizen of any member state of the EEA (other than the United Kingdom), Australia, Canada, the Republic of South Africa, Japan, New Zealand or the Kingdom of Saudi Arabia. The distribution of this document in other jurisdictions may be restricted by law therefore persons into whose possession this document comes should inform themselves of and observe any such regulations. Dated: 5 February 2016

2 CONTENTS SUMMARY 3 RISK FACTORS 18 IMPORTANT INFORMATION 30 EXPECTED TIMETABLE 35 ISSUE STATISTICS 35 DEALING CODES 35 DIRECTORS, MANAGEMENT AND ADVISERS 36 PART 1 THE COMPANY 37 PART 2 INVESTMENT RATIONALE AND INVESTMENT PORTFOLIO 45 PART 3 THE ISSUE 53 PART 4 DETAILS OF THE C SHARES 57 PART 5 DIRECTORS, MANAGEMENT AND ADMINISTRATION 63 PART 6 FINANCIAL INFORMATION RELATING TO THE COMPANY 72 PART 7 TAXATION 75 PART 8 GENERAL INFORMATION 78 PART 9 DEFINITIONS 104 PART 10 TERMS AND CONDITIONS OF APPLICATION UNDER THE PLACING 110 PART 11 TERMS AND CONDITIONS OF APPLICATION UNDER THE OFFER FOR SUBSCRIPTION 118 APPENDIX 1 APPLICATION FORM 129 APPENDIX 2 TAX RESIDENCY SELF CERTIFICATION FORM 134 2

3 SUMMARY Summaries are made up of disclosure requirements known as Elements. These Elements are numbered in Sections A E (A.1 E.7). This summary contains all the Elements required to be included in a summary for this type of securities and issuer. Some Elements are not required to be addressed which means there may be gaps in the numbering sequence of the Elements. Even though an Element may be required to be inserted into the summary because of the type of securities and issuer, it is possible that no relevant information can be given regarding the Element. In this case a short description of the Element is included in the summary with the mention of not applicable. Section A Introduction and warnings A.1. Warning This summary should be read as an introduction to this document. Any decision to invest in the C Shares should be based on consideration of this document as a whole by the investor. Where a claim relating to the information contained in this document is brought before a court, the plaintiff investor might, under the national legislation of the Member State, have to bear the costs of translating this document before the legal proceedings are initiated. Civil liability attaches only to those persons who have tabled the summary including any translation thereof, but only if the summary is misleading, inaccurate or inconsistent when read together with the other parts of this document or if it does not provide, when read together with the other parts of this document, key information in order to aid investors when considering whether to invest in such securities. A.2. Subsequent resale of securities or final placement of securities through financial intermediaries Not applicable. The Company is not engaging any financial intermediaries for any resale of securities or final placement of securities after publication of this document. Section B Issuer B.1. Legal and commercial name BlackRock Frontiers Investment Trust plc. B.2. Domicile and legal form The Company was incorporated in England and Wales on 15 October 2010 with registered number as a public company limited by shares under the Companies Act. The principal legislation under which the Company operates is the Companies Act. B.5. Group description Not applicable. The Company is not part of a group. B.6. Major shareholders As at 3 February 2016, (being the latest practicable date prior to the publication of this document), the Company had received the following notifications of interests, directly or indirectly, in three per cent. or more of the voting rights attaching to the Ordinary Shares: % of voting Number of rights attaching Ordinary Ordinary to the issued Shareholder Shares Ordinary Share capital BlackRock Inc.* 28,439, Investec Wealth & Investment Limited 13,481, Brewin Dolphin 8,526, Aberdeen Asset Managers Limited 7,988, South Yorkshire Pensions Authority 6,195, Rathbone Brothers plc 5,730, * BlackRock Inc. s holding represents shareholdings of investment vehicles managed by the BlackRock Group and discretionary managed money. 3

4 B.7. B.8. Historical financial information Key pro forma financial information All Ordinary Shareholders have the same voting rights in respect of the Ordinary Share capital of the Company. As at 3 February 2016 (being the latest practicable date prior to the publication of this document), the Company and the Directors are not aware of any person who, directly or indirectly, jointly or severally, exercises or could exercise control over the Company. The selected financial information set out below, which has been prepared under EU IFRS, has been extracted without material adjustment from the audited report and accounts of the Company for the financial years ended 30 September 2013, 30 September 2014 and 30 September 2015: As at or for year ended 30 September Total Assets (US$ 000) 253, , ,660 Investments (US$ 000) 239, , ,094 Total Assets less Current Liabilities (US$ 000) 242, , ,252 Net Assets (US$ 000) 242, , ,233 NAV per Ordinary Share (US cents) Net income (US$) 9,870 9,922 5,868 Ordinary Share price (sterling price) Earnings per Ordinary Share (US cents) Dividends per Ordinary Share (US cents) Total Net return to Ordinary Shareholders (US cents) (54,097) 54,288 39,870 Net return per Ordinary Share (US cents) (35.92) Save for (i) the fall in the unaudited Net Asset Value from 160,028,000 as at 30 September 2015 to 150,894,000 as at 3 February 2016 (being the latest practicable date prior to the publication of this document) and a corresponding fall in the Net Asset Value per Ordinary Share (cumincome) from pence per Ordinary Share to pence per Ordinary Share over the same period; and (ii) the proposed final dividend of 4.15 US cents per Ordinary Share in respect of the year ended 30 September 2015, there has been no significant change in the financial or trading position of the Company since 30 September 2015, being the last date in respect of which the Company has published financial information. Not applicable. No pro forma financial information is included in this document. B.9. Profit forecast Not applicable as this document does not contain profit forecasts or estimates. B.10. Description of the nature of any qualifications in the audit report on the historical financial information Not applicable. The audited financial statements of the Company contained in this document do not contain any qualifications. 4

5 B.11. Qualified working capital Not applicable. In the opinion of the Company, the Company has sufficient working capital for its present requirements, that is for at least the next twelve months from the date of this document. B.34. Investment objective and policy A resolution will be put forward at the Annual General Meeting to seek approval from Shareholders to amend the current investment policy of the Company. The current investment objective and investment policy of the Company is set out below, marked up to show the proposed changes that would come into effect on the date of the Annual General Meeting if approved by Shareholders. INVESTMENT OBJECTIVE AND INVESTMENT POLICY Investment objective The Company s investment objective is to achieve long term capital growth from investment in companies operating in Frontier Markets or whose stocks are listed on the stock markets of such countries. Investment policy The Company will seek to maximise total return and will invest globally in the securities of companies domiciled or listed in, or exercising the predominant part of their economic activity in, Frontier Markets. Investment may also be made in the securities of companies domiciled or listed in, or exercising the predominant part of their economic activity in, more developed markets with significant business operations in Frontier Markets. A Frontier Market is defined as a country which, at the time of any relevant investment,: (i) is any country that was not a constituent of the MSCI Emerging Markets Index or the MSCI Developed Markets Index as at 1 December 2015 (save for those countries specified in (ii) below); or (ii) any of Columbia, Egypt, Peru or The Philippines, each of which was a member of the MSCI Emerging Markets Index as at 1 December 2015 but which share similar charateristics to those of less developed markets (such as low per capita GDP, high growth potential and less developed capital markets). The Company will exit any investment relating to a Frontiers Market as soon as reasonably practicable following that Frontier Market becoming a constituent of the Emerging Markets Index or the Developed Markets. Investment in the securities of companies domiciled or listed in, or exercising the predominant part of their economic activity in, those countries specified in (ii) above will be limited to a maximum of 20 per cent. of the gross value of the portfolio on an ongoing basis. The Company will exit any investment as soon as reasonably practicable following that market becoming a constituent of the MSCI Developed Markets Index. In order to achieve the Company s investment objective, the Manager selects stocks by fundamental analysis of countries, sectors and companies, looking for long-term appreciation from mispriced value or growth. The Manager employs both a top-down and bottom-up approach to investing. Risk is spread through investing in a number of holdings and, typically, it is expected that the Company will invest in between 35 to 65 holdings. Where possible, investment will generally be made directly in the stock markets of Frontier Markets. Where the Manager determines appropriate, investment may be made in Frontier Markets through collective investment schemes, although such investment is not likely to be substantial. Investment in other closed-ended investment funds 5

6 admitted to the Official List will not exceed more than ten per cent., in aggregate, of the value of the Gross Assets (calculated at the time of any relevant investment). It is intended that the Company will generally be invested in equity investments, however, the Manager may invest in equity related investments such as convertibles or fixed interest securities where there are perceived advantages in doing so. The Manager may invest in bonds or other fixed income securities, including high risk debt securities. These securities may be below investment grade. Due to national and/or international regulation, excessive operational risk, prohibitive costs and/or the time period involved in establishing trading and custody accounts in certain of the Company s target Frontier Markets, the Company may temporarily, or, on an ongoing basis, be unable to invest (whether directly or through nominees) in certain of its target Frontier Markets or, in the opinion of the Company and/or the Manager, it may not be advisable to do so. In such circumstances, the Company intends to gain economic exposure to such target Frontier Markets by investing indirectly through derivatives (including contracts for difference) and/or structured financial instruments, for example P- Notes. Save as provided below, there is no restriction on the Company investing in derivatives and/or structured financial instruments in such circumstances. If the Company invests in derivatives and/or structured financial instruments for investment purposes (other than to gain access to a target Frontier Market as described above) and/or for efficient portfolio management purposes it shall only hold up to, in aggregate, 20 per cent. of its Gross Assets in derivatives and/or structured financial instruments for such purposes. The Company may take both long and short positions. The Company may short up to a limit of 10 per cent. of Gross Assets. For shorting purposes the Company may use indices or individual stocks. The maximum exposure the Company may have to derivatives and/or structured financial instruments for investment purposes (including gaining access to target Frontier Markets) and efficient portfolio management purposes, in aggregate, shall be 100 per cent. of the Company s portfolio. When investing via derivatives and/or structured financial instruments (whether for investment purposes (including gaining access to target Frontier Markets) and/or for efficient portfolio management purposes), the Company will seek to mitigate and/or spread its counterparty risk exposure by collateralisation and/or contracting with a potential range of counterparty banks, as appropriate, each of whom shall, at the time of entering into such derivatives and/or structured financial instruments, have a Standard and Poors credit rating of at least A- long-term senior unsecured. When investing via derivatives and/or structured financial instruments, the Company could have exposure to between 35 to 65 underlying companies. The Manager will invest directly in securities only in countries where it is satisfied that acceptable custodial and other arrangements are in place to safeguard the Company s investments. The Company s portfolio will frequently be overweight or underweight relative to the Reference Index. The Company may invest up to 5 per cent. of its Gross Assets (at the time of such investment) in unquoted securities. 6

7 The Company will invest so as not to hold more than 15 per cent. of its Gross Assets in any one stock or derivative position at the time of investment (excluding cash management activities). The Company may use borrowings for settlement of transactions, to facilitate share repurchases (where applicable) and to meet ongoing expenses and may be geared through borrowings and/or by entering into derivative transactions that have the effect of gearing the Company s portfolio to enhance performance. The aggregate of gearing through borrowing and the use of derivatives will not exceed 40 per cent. of the Gross Assets. It is anticipated that the aggregate of such gearing will not exceed 20 per cent. of the Gross Assets at the time of drawdown of the relevant borrowings or entering into the relevant transaction, as appropriate. No material change will be made to the investment policy without the approval of Shareholders by ordinary resolution. B.35. Borrowing limits B.36. Regulatory status B.37. Typical investor The Company may use borrowings for settlement of transactions, to facilitate share repurchases (where applicable) and to meet ongoing expenses and may be geared through borrowings and/or by entering into derivative transactions that have the effect of gearing the Company s portfolio to enhance performance. The aggregate of gearing through borrowing and the use of derivatives will not exceed 40 per cent. of the Gross Assets. It is anticipated that the aggregate of such gearing will not exceed 20 per cent. of the Gross Assets at the time of drawdown of the relevant borrowings or entering into the relevant transaction, as appropriate. As an investment trust, the Company is not regulated as a collective investment scheme by the Financial Conduct Authority. However, it is subject to the Listing Rules, Prospectus Rules, the Disclosure and Transparency Rules and the rules of the London Stock Exchange. An investment in the C Shares is only suitable for, and typical investors are expected to be, institutional investors and professionally advised or financially sophisticated non-advised private investors (including retail investors) who understand and are capable of evaluating the merits and risks of such an investment and who have sufficient resources to be able to bear any losses (which may equal the whole amount invested) that may result from such an investment. B.38. B.39. Investment of 20 per cent. or more in single underlying asset or investment company Investment of 40 per cent. or more in single underlying asset or investment company Not applicable. The Company will invest so as not to hold more than 15 per cent. of its Gross Assets in any one stock or derivative position at the time of investment. Not applicable. The Company will invest so as not to hold more than 15 per cent. of its Gross Assets in any one stock or derivative position at the time of investment. B.40. Applicant s service providers MANAGER AND INVESTMENT MANAGER The Company has appointed BlackRock Fund Managers Limited to be the alternative investment fund manager of the Company, which is an alternative investment fund, or AIF, for the purposes of the AIFM Directive. Accordingly, the Manager is responsible for the portfolio management of the Company and for exercising the risk management function in respect of the Company. 7

8 Under the Management Agreement, the Manager has discretion, subject to the control of, approvals from and review by the Directors, to invest the assets of the Company in pursuit of the investment objective in accordance with the investment policy and subject to the investment restrictions described in this document. As the alternative investment fund manager of the Company, the Manager is responsible for ensuring compliance with the AIFM Directive in respect of the Company. The Manager has delegated certain day to day portfolio and risk management services in respect of the Company s assets and other ancillary services to BlackRock Investment Management (UK) Limited, the Company s Investment Manager. The Manager is responsible for the payment of the Investment Manager s fees. The Manager receives from the Company a management fee, calculated and accrued daily but payable quarterly in arrears, equivalent to 1.10 per cent. per annum of the Gross Assets. The Manager is also (subject as below) entitled to receive a performance fee at a rate of 10 per cent. of any increase in the Net Asset Value at the end of a performance period over and above what would have been achieved had the cumulative Net Asset Value (excluding, until the Conversion Date, the proportion of the Net Asset Value attributable to the Net Proceeds) since the Ordinary Shares were admitted on the premium listing segment of the Official List and were admitted to trading on the London Stock Exchange s main market for listed securities on 17 December 2010 increased in line with the Reference Index. There will be no performance fee payable on the C Share pool and the terms of the performance fee on the existing Ordinary Share pool will be unaffected by the Issue or Conversion save for the increase in Gross Assets on which the performance fee will apply. The performance fee payable in any year will be capped at an amount equal to 2.5 per cent. of the net assets if there is an increase in the Net Asset Value per Ordinary Share at the end of the relevant performance period or 1 per cent. of the net assets if there is a decrease in the Net Asset Value per Ordinary Share at the end of the relevant performance period. No performance fee will be payable on the proportion of the Net Asset Value attributable to the Net Proceeds until the Conversion Date. Any outperformance in excess of the performance fee cap for a performance period may be carried forward to the next two performance periods, subject to the then applicable annual cap. The performance fee is also subject to a high watermark such that any performance fee payable is only payable to the extent that the cumulative relative outperformance of the Net Asset Value (excluding, until the Conversion Date, the proportion of the Net Asset Value attributable to Net Proceeds) is greater than what would have been achieved had the Net Asset Value (excluding, until the Conversion Date, the proportion of the Net Asset Value attributable to the Net Proceeds) increased in line with the Reference Index since the last date in relation to which a performance fee had previously been paid. SECRETARIAL AND ADMINISTRATIVE SERVICES BlackRock Investment Management (UK) Limited acts as the company secretary and, under a delegation agreement with the Manager, administrator of the Company. The company secretary s duties include the arrangement, co-ordination and preparation of board and committee meetings and papers and attendance and minuting of board meetings. 8

9 BlackRock Investment Management (UK) Limited is also responsible for the Company s general administrative functions such as the maintenance of the Company s accounting and statutory records. The Manager has delegated the day-to-day fund accounting administration of the Company to The Bank of New York Mellon (International) Limited. DEPOSITARY BNY Mellon Trust & Depositary (UK) Limited has been appointed as the Company s depositary in accordance with the AIFM Directive. Under the Depositary Agreement, the Safekeeping Function has been delegated to The Bank of New York Mellon (International) Limited. The Bank of New York Mellon (International) Limited receives a custody fee payable by the Company at rates depending on the number of trades effected and the location of securities held by the Depositary. The Depositary is paid an annual fee payable monthly in arrears calculated as a percentage of the Net Asset Value (being 1.15 basis points). The Depositary is entitled to debit the Company s accounts in order to be refunded all expenses properly incurred on behalf of the Company. REGISTRAR Computershare Investor Services PLC is Registrar of the Company. The Registrar maintains the register of Shareholders and provides services in relation to corporate actions (including tender offers, dividend administration and Shareholder documentation). The Registrar receives a fixed fee of 13,850 (exclusive of VAT) per annum. The fixed fee applies for the three years which commenced on 1 July Fees in respect of corporate actions are negotiated on an arising basis. The Registrar is also entitled to reimbursement of all out of pocket expenses reasonably incurred on behalf of the Company. The Registrar Agreement may be terminated on six months notice by either party, such notice not to expire prior to 1 July B.41. Regulatory status of the Manager, the Investment Manager and the Depositary AUDITOR By resolution of the Directors dated 5 May 2015, Ernst & Young LLP, whose registered address is at 25 Churchill Place, London E14 5EY, was appointed as the statutory auditor to the Company. The financial information contained in this document does not constitute full statutory accounts as referred to in section 434(3) of the Companies Act. Ernst & Young LLP is registered to perform audit work by the Institute of Chartered Accountants in England and Wales. The Manager is authorised and regulated by the Financial Conduct Authority with permission to carry on the activity of managing an AIF in the UK. As such, the Manager is subject to the AIFM Directive and the corresponding UK transposition rules. The Investment Manager is authorised and regulated by the Financial Conduct Authority and as such is subject to its rules in the conduct of investment business. The Depositary is authorised and regulated by the Financial Conduct Authority. The Safekeeping Function in respect of the Company s assets has been delegated to The Bank of New York Mellon (International) Limited. The Bank of New York Mellon (International) Limited is authorised and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. 9

10 B.42. Calculation and publication of Net Asset Value The unaudited Net Asset Value per Ordinary Share is calculated in US dollars and, based on the prevailing exchange rate, pounds sterling, and published daily by the Manager and notified to the London Stock Exchange. The unaudited Net Asset Value per C Share will also be calculated and published daily, until their conversion on the same basis. When published, Net Asset Value announcements can be found on the Company s website Applicable accounting standards require the Company s investments to be classified as held at fair value through profit or loss in accordance with IAS 39 Financial Instruments: Recognition and Measurement. The fair value of quoted financial investments is based on their quoted bid price, without deduction for the estimated future selling costs. The fair value of P-Notes is based on the quoted bid price of the underlying equity to which the P-Note relates. Derivatives are held at fair value based on the bid prices of the underlying securities in respect of long positions, and the offer prices of the underlying securities in respect of short positions, which the Company is exposed to through the use of contracts for difference. The valuation function in respect of assets held directly by the Company is performed by the Manager in accordance with the AIFM Directive. In addition to this, the Directors have an obligation under the Companies Act to present fairly the financial position, financial performance and cash flows of the Company and make judgements and estimates that are reasonable and prudent. This includes responsibility for estimating valuations for unquoted investments. In practice, the Board and the Manager both take responsibility for determining the fair valuation of unquoted investments. The Manager makes use of its pricing committee regarding the valuations for unquoted investments or investments for which the market is inactive, which ensures that the valuation function is functionally and hierarchically independent from the portfolio management function of the Manager. The pricing committee may, for example, rely on various sources to determine asset values, including the advice provided by one or more valuation advisers and/or sources that may include market quotations, recent arm s length market transactions, the current fair value of another instrument which is substantially the same, other third party valuation services and dealer quotations. The pricing committee may use a variety of methodologies, including valuation models, analytical methods, third party appraisal and systematic fair value pricing. The Board will review the recommendations of the pricing committee as adopted by the Manager in valuing unquoted investments and adopts these to the extent that the Directors consider these to be appropriate. The calculation of the unaudited Net Asset Value per Ordinary Share and, following Admission, the unaudited Net Asset Value per C Share will only be suspended in circumstances where the underlying data necessary to value the investments of the Company cannot readily, or without undue expenditure, be obtained or in other circumstances (such as a system s failure of the Company s administrator) which prevent the Company from making such calculations. Details of any suspension in making such calculations will be announced through a Regulatory Information Service, as soon as practicable. B.43. Cross liability Not applicable. The Company is not an umbrella collective investment undertaking and as such there is no cross liability between classes or investment in another collective investment undertaking. 10

11 B.44. No financial statements have been made up B.45. Portfolio Not applicable. The Company has commenced operations and historical financial information is included within this document. Please see the selected financial information at B.7. As at 3 February 2016 (being the latest practicable date prior to the publication of this document), the Company held 53 investments with an aggregate value of US$ million. As at 3 February 2016: B.46. Latest Net Asset Value and Net Asset Value per Ordinary Share the Company s 20 largest investments represented 63.3 per cent. of its Gross Assets; the Company s largest country exposure was Argentina, which represented 13.2 per cent. of its Gross Assets; the Company s largest sector exposure was to Financials, which represented 35.4 per cent. of its Gross Assets; the Company s investments in long contract for difference positions represented 22.3 per cent. of its Gross Assets; and the Company s investments in short contract for difference positions represented 1.3 per cent. of its Gross Assets. As at 3 February 2016 (being the latest practicable date prior to the publication of this document), the unaudited Net Asset Value (cum-income) was 150,894,000 and the unaudited Net Asset Value per Ordinary Share (cum-income) was pence. Section C Securities C.1. Type and class of securities The maximum size of the Issue is 65 million C Shares. The ISIN of the C Shares is GB00BZ4T7848, the SEDOL of the C Shares is BZ4T784 and the ticker of the C Shares is BRFC. C.2. Currency of the Issue The currency of the Issue is sterling and, accordingly, the Issue Price is payable in sterling. The nominal value of the C Shares is US$0.10 each. C.3. Number of securities in issue As at 3 February 2016 (being the latest practicable date prior to the publication of this document), 150,621,621 Ordinary Shares (all of which were fully paid) and 50,000 Management Shares (all of which were one quarter paid) were in issue. No C Shares were in issue. The nominal value of the Ordinary Shares and the Management Shares is 1 cent and 1.00 each respectively. C.4. Rights attaching to the C Shares C SHARES C Shares are a transient class of shares: the assets representing the net proceeds of any issue of C Shares will be maintained, managed and accounted for as a separate pool of capital of the Company until those C Shares convert into Ordinary Shares (which will occur once substantially all of the assets representing the Net Proceeds have been invested in accordance with the Company s investment policy (or, if earlier, six months after the date of issue of the C Shares)). On such conversion, each holder of C Shares will receive such number of Ordinary Shares as equals the number of C Shares held by them multiplied by the Net Asset Value per C Share and divided by the Net Asset Value per Ordinary Share, in each case as at a date shortly prior to conversion. 11

12 C.5. Restrictions on the free transferability of the securities C Shares will carry the right to receive all dividends resolved by the Directors to be paid out of the pool of assets attributable to those C Shares. On a winding-up, provided the Company has satisfied all of its liabilities, the holders of C Shares will be entitled to any surplus assets of the Company attributable to those C Shares. Holders of C Shares will be entitled to attend and vote at all general meetings of the Company and, on a poll, to one vote for each C Share held. There are no restrictions on the free transferability of the C Shares. C.6. Admission Applications will be made to the UKLA and the London Stock Exchange for all the C Shares to be issued pursuant to the Issue to be admitted to the premium listing segment of the Official List and to trading on the London Stock Exchange s main market for listed securities. No application will be made for the C Shares to be listed or dealt in on any other stock exchange or investment exchange. It is expected that Admission will occur, and that dealings in the C Shares will commence, at 8.00 a.m. on 29 February Applications will be made to the UKLA and the London Stock Exchange for all the Ordinary Shares arising on Conversion to be admitted to the premium listing segment of the Official List and to trading on the London Stock Exchange s main market for listed securities. C.7. Dividend policy Whilst the Company does not expect dividends to form a significant part of Shareholders returns, in accordance with Chapter 4 of Part 24 of the CTA 2010, the Company will not retain more than 15 per cent. of its eligible income or such other percentage which may be presribed by HMRC. The Directors present intention is to pay dividends bi-annually with dividends typically expected to be announced with the publication of the interim and final results. However, the Directors may consider paying dividends more or less frequently depending upon the future income profile of the Company. C.22. Information about the Ordinary Shares arising on Conversion Following Conversion, the investments which were attributable to the C Shares will be merged with the Company s existing portfolio of investments. The new Ordinary Shares arising on Conversion of the C Shares will rank pari passu, subject to the terms of the Articles, with the Ordinary Shares then in issue. DESCRIPTION OF THE ORDINARY SHARES AND THE RIGHTS ATTACHED TO THEM The Ordinary Shares carry the right to receive all dividends declared by the Company or the Directors, subject to the rights of any Management Shares and C Shares in issue. On a winding-up, provided the Company has satisfied all of its liabilities and subject to the rights conferred by any Management Shares and C Shares in issue at that time to participate in the winding-up, the holders of Ordinary Shares are entitled to all of the surplus assets of the Company. Holders of Ordinary Shares are entitled to attend and vote at all general meetings of the Company and, on a poll, to one vote for each Ordinary Share held. 12

13 CURRENCY The nominal value of the Ordinary Shares is US$0.01 per Ordinary Share. TRADING The Ordinary Shares are in registered form, have been admitted to the premium listing segment of the Official List and are traded on London Stock Exchange s main market for listed securities. The Company will use its reasonable endeavours to procure that, upon Conversion, the new Ordinary Shares are admitted to the premium listing segment of the Official List and admitted to trading on the London Stock Exchange s main market for listed securities. D.1. Key information on the key risks that are specific to the Company RESTRICTIONS ON TRANSFERABILITY There are no restrictions on the free transferability of the Ordinary Shares. Section D Risks Past performance cannot be relied upon as an indicator of future performance. The value of an investment in the Company and the income dervied from it, if any, may go down as well as up and an investor may not get back the amount invested. The Company may invest in a concentrated portfolio of shares and this focus may result in higher risk when compared to a portfolio that has a wider spread of diversified investment risk. The Company invests primarily in a portfolio of companies exposed to Frontier Markets which reflect the Investment Manager s convictions and the Company s portfolio may therefore bear little resemblance to the weighting or constituents of the Reference Index, and may be more volatile than more broadly based investment funds. Investments in Frontier Markets may include a higher element of risk compared to more developed markets due to greater political and economic instability which could adversely affect the economies of such countries or the value of the Company s investments in those countries. The Company may engage in short selling. A short sale creates the risk of significant losses for the Company because the price of the underlying security could increase without limit, thus increasing the cost of buying those securities to cover the short position. There can be no assurance that the security necessary to cover a short position will be available for purchase. The Company may utilise both exchange-traded and over-the-counter derivatives (including contracts for difference) as part of its investment policy. The costs of investing through derivatives may be higher than investing in securities (whether directly or through nominees) as the Company will have to bear the additional costs of purchasing and holding such derivatives and this could have a material adverse effect on the Company s returns. These instruments can be highly volatile and expose investors to a high risk of loss. The Company may gain exposure to Frontier Markets by investing indirectly through P-Notes. P-Notes are issued by certain counterparty banks, are designed to offer the holder a return linked to the 13

14 D.3. Key information on the key risks that are specific to the Shares performance of a particular underlying equity security or market, and are used where direct investment in the relevant underlying equity security or market is not possible for regulatory or other reasons. Investment in P-Notes presents additional risks to the Company: (i) as the use of P-Notes is uncollateralised, the Company will be subject to full counterparty risk via the P-Note issuer and in the event of a default by the P-Note issuer, the Company may suffer losses up to the full value of the relevant P-Note; (ii) the costs of investing through P-Notes may be higher than investing (whether directly or through nominees) in securities due to the Company having to bear the additional costs of a P-Note issuer and this could have a material adverse effect on the Company s returns compared to if the Company had invested (whether directly or through nominees) in the relevant securities; (iii) the Company, being a client of such P-Note issuer, will only be able to realise its investment through the P-Note issuer and such arrangement may have a negative impact on the liquidity of the P-Notes which does not correlate to the liquidity of the underlying security; (iv) any information request by a P-Note issuer (such as a request regarding the identity and/or residency of the beneficial holder of any Shares) which cannot be satisfied by the Company may allow the P-Note issuer to terminate its agreement with the Company which could lead to the Company being required to realise its investment earlier than intended and this could have a material adverse effect on the returns to Shareholders; and (v) the regulatory requirements governing the P-Notes may change, restricting or prohibiting the Company from holding such P-Notes. The Company will invest in US dollar and non-us dollar denominated securities and the companies in which the Company invests may conduct their operations in US dollars and/or other currencies. The Company will therefore have an exposure to foreign exchange risk as a result of changes, both unfavourable and favourable, in exchange rates between the US dollar and other currencies. The Company may invest in smaller capitalisation companies. As smaller companies do not have the financial strength, diversity and resources of larger companies, they may find it more difficult to operate in periods of economic slowdown or recession. Shares may trade at a discount to their Net Asset Value. It may be difficult for Shareholders to realise their investment and there may not be a liquid market in the Shares. The Net Proceeds will be managed as a separate pool until Conversion and will be invested as appropriate investment opportunities arise.there are a limited number of attractive investment opportunities in Frontier Markets and this may lead to delay in investment and may affect the price at which such investments may be made and reduce potential investment returns for the Company. The Shares may be subject to significant forced transfer provisions. 14

15 E.1. Net proceeds and costs of the Issue Section E Offer The net proceeds of the Issue are dependent on the level of subscriptions received pursuant to the Issue. Assuming that the Issue is fully subscribed, the Initial Gross Proceeds would be 65 million, the costs and expenses of the Issue would be circa 1.14 million and the Net Proceeds would be circa million. The costs and expenses of the Issue, up to a maximum of 1.75 per cent. of the Initial Gross Proceeds, will be borne indirectly by holders of C Shares since they will be paid out of the pool of assets attributable to the C Shares. In the event that the Issue costs and expenses exceed 1.75 per cent. of the Initial Gross Proceeds, the Manager will waive any future management fees up to the value of the excess amount. In the event that the Issue does not proceed, all costs and expenses associated with the Issue will be paid by the Company. E.2.a. Reason for offer and use of proceeds On 17 December 2015, the Company published a circular to Shareholders containing proposals to implement a tender offer for up to 100 per cent. of the Company s issued Ordinary Share capital (excluding treasury shares, if any) in accordance with its commitment to Shareholders given at the launch of the Company (the Tender Offer ). The chairman of the Board noted in the circular that (i) the Investment Manager believes that there is scope to increase the capacity of its Frontier Markets strategy and in current market conditions it could deploy an additional circa US$100 million in this strategy; (ii) as such should there be limited take up of the Tender Offer as well as sufficient demand from investors to be able to utilise this capacity, the Board, will explore options available to satisfy such demand; and (iii) given the potentially illiquid nature of the Company s investment opportunities and the time it could take to deploy any proceeds, depending on the level of demand it may be appropriate for the Company to issue C Shares to satisfy such demand. As announced on 1 February 2016 take up of the Tender Offer has been limited, as a consequence of which the Board has decided to proceed with the Issue. As at 3 February 2016 (being the latest practicable date prior to the publication of this document) funds managed or advised by the Investment Manager and members of the BlackRock Group held approximately 18.9 per cent. of the voting rights attached to the existing issued Ordinary Share capital of the Company, certain of whom may participate in the Placing. In addition, a further fund managed by the Investment Manager intends to participate in the Placing in respect of at least 20 per cent. of the C Shares issued pursuant to the Issue. The extent of the participation in the Issue by the BlackRock Investors is dependent on inter alia: the aggregate holdings of the BlackRock Investors on Admission and following Conversion and ensuring that the C Shares meet the listing eligibility criteria in respect of shares in public hands. In addition, the Board wishes to give all existing Shareholders and potential new investors the opportunity to participate in the Issue. Institutional investors may participate in the Placing, alongside the BlackRock Investors, and investors who cannot participate in the Placing will, subject to the terms and conditions of the Offer for Subscription, be able to apply for C Shares under the Offer for Subscription. In the event that the Issue is oversubscribed, it would be necessary to scale back applications under the Placing and Offer for Subscription at the discretion of Winterflood (in consultation with the Company and the Manager). In such circumstances, the BlackRock Investors will be scaled back on the same basis as existing Shareholders. 15

16 E.3. Terms and conditions of the offer The Issue, in addition to offering existing investors the opportunity to invest additional capital while allowing the Company to take advantage of opportunities in the investible universe, should also broaden the Company s share register by introducing new investors and improving liquidity for Shareholders. The increased size of the Company should mean that the fixed costs of operating the Company are spread over a larger asset base, thereby reducing the Company s ongoing charges. The issue of further equity in the form of C Shares is designed to overcome the potential disadvantages for both existing and new investors which would arise out of a conventional fixed price issue of further Ordinary Shares for cash. In particular: the assets representing the Net Proceeds will be accounted for as a separate pool of assets until the Conversion Date; by accounting for the Net Proceeds separately, holders of existing Ordinary Shares will not be exposed to a portfolio containing substantial amounts of uninvested cash nor to the costs of investing the Net Proceeds; the C Shares will not convert into Ordinary Shares until at least 85 per cent. of the Net Proceeds of the C Share issue (or such other percentage as the Directors and Manager shall agree) have been invested in accordance with the Company s investment policy (or, if earlier, six months after the date of their issue). When determining whether 85 per cent. of the Net Proceeds (or such other percentage as the Directors and Manager shall agree) have been so invested, the Directors will assume that the cash balances held within the C Share asset pool have been adjusted in respect of any market exposure obtained through contracts for difference, to represent the level of cash the C Share asset pool would have held had the equivalent market exposure been obtained instead via direct equity investment; the Net Asset Value of the existing Ordinary Shares will not be diluted by the expenses associated with the Issue which will be borne indirectly by the subscribers for C Shares and in certain circumstances, the Manager; and the basis upon which the C Shares will convert into Ordinary Shares is such that the number of Ordinary Shares to which the C Shareholders will become entitled will reflect the relative Net Asset Value per Share of the assets attributable to the C Shares and the Ordinary Shares. As a result, the Net Asset Value per Ordinary Share will not be adversely affected by Conversion. The Directors intend to use the Net Proceeds to acquire investments in accordance with the Company s investment policy. Pending full investment in accordance with the Company s investment policy, the Net Proceeds may be held in short term money market instruments (such as gilts or treasury bonds), money market funds or in cash. It is expected that the Net Proceeds will be fully invested within two to three months of Admission. The Issue, which is not underwritten, is conditional upon: Admission having become effective on or before 8:00 a.m. on 29 February 2016 or such later time and/or date as the Company and Winterflood may agree (not being later than 8:00 a.m. on 4 April 2016); 16

17 the Resolutions being passed at the Annual General Meeting; the Placing and Offer Agreement becoming wholly unconditional (save as to Admission) and not having been terminated in accordance with its terms at any time prior to Admission; and the Minimum Proceeds being raised. In circumstances in which these conditions are not fully met, the issue of C Shares pursuant to the Issue will not take place. E.4. Material interests As at 3 February 2016 (being the latest practicable date prior to the publication of this document) funds managed or advised by the Investment Manager and members of the BlackRock Group held approximately 18.9 per cent. of the voting rights attached to the existing issued Ordinary Share capital of the Company, certain of whom may participate in the Placing. In addition, a further fund managed by the Investment Manager intends to participate in the Placing in respect of at least 20 per cent. of the C Shares issued pursuant to the Issue. The extent of the participation in the Issue by the BlackRock Investors is dependent on inter alia: the aggregate holdings of the BlackRock Investors on Admission and following Conversion and ensuring that the C Shares meet the listing eligibility criteria in respect of shares in public hands. E.5. Name of person selling securities/lock-up agreements Not applicable. No person or entity is offering to sell C Shares as part of the Issue and no lock-up agreements are being entered into in connection with the Issue. E.6. Dilution The shareholding of a Shareholder who does not acquire any C Shares pursuant to the Issue will be diluted by approximately 29.8 per cent. as a result of the Issue. This assumes the Issue is fully subscribed and a Conversion Ratio using the Net Asset Value per Ordinary Share of pence (being the unaudited Net Asset Value per Ordinary Share (cum-income) as at 3 February 2016 (being the latest practicable date before the publication of this document)) and a Net Asset Value per C Share of pence (being the estimated initial Net Asset Value per C Share as at Admission) assuming the Issue is fully subscribed. Thus, a Shareholder who holds 1 per cent. of the issued Ordinary Share capital before Conversion and who does not acquire any C Shares pursuant to the Issue would hold per cent. of the Ordinary Share capital after Conversion. These percentages are provided for illustrative purposes only and the extent of such dilution will depend on the number of C Shares issued and the respective Net Asset Values of the Ordinary Shares and the C Shares on the Calculation Date, as determined in accordance with the rights attaching to the C Shares set out in Part 4 of this document. For the avoidance of doubt, the Net Asset Value of the existing Ordinary Shares will not be diluted by the expenses associated with the Issue which will be borne indirectly by the subscribers for C Shares and in certain circumstances, the Manager. E.7. Estimated expenses charged to investors by the Company The Company will not charge investors any separate costs or expenses in connection with the Issue. Assuming the Issue is fully subscribed, the costs and expenses of the Issue would be circa 1.14 million. The costs and expenses of the Issue, up to a maximum of 1.75 per cent. of the Initial Gross Proceeds, will be borne indirectly by the C Shareholders since they will be paid out of the pool of assets attributable to the C Shares. 17

18 RISK FACTORS An investment in C Shares involves a degree of risk. Prospective investors should consider carefully the risks described below, together with all the other information set out in this document and their own personal circumstances, before deciding whether to invest in the C Shares. The risks described below are those risks that the Directors considered at the date of this document to be material when deciding whether to make an investment in the Shares, but are not the only risks relating to the Company, the C Shares or the Ordinary Shares. If any of the adverse events described below actually occur, the Company s financial condition, performance and prospects and the share price of the C Shares and/or the Ordinary Shares could be materially adversely affected and Shareholders may lose all or part of their investment. Additional risks which were not known to the Directors at the date of this document, or that the Directors considered at the date of this document to be immaterial when deciding whether to make an investment in the C Shares, may also have an effect on the Company s financial condition, performance and prospects and the share price of the C Shares and/or the Ordinary Shares. If prospective investors are in any doubt as to the consequences of their acquiring, holding or disposing of C Shares, or whether an investment in the Company is suitable for them, they should consult their independent financial advisers authorised under FSMA or, in the case of prospective investors outside the United Kingdom, another appropriately authorised independent financial adviser. RISKS RELATING TO THE COMPANY The Company may not meet its investment objective There can be no guarantee that the investment objective of the Company will be achieved. The investment objective of the Company should not be treated as assurances or guarantees of performance. AI 4 AIII 2 Past performance cannot be relied upon as an indicator of future performance The past performance of the Company and other portfolios managed by the Manager and/or the Investment Manager is not a guide to the future performance of the Company. The past performance of other investments managed or advised by the Manager and/or the Investment Manager cannot be relied upon as an indicator of future performance of the Company. Investor returns will be dependent on the Company successfully pursuing its investment policy. The success of the Company will depend, inter alia, on the Investment Manager s ability to identify, acquire and realise investments in accordance with the Company s investment policy. This, in turn, will depend on the ability of the Investment Manager to apply its investment processes in a way which is capable of identifying suitable investments for the Company to invest in. There can be no assurance that the Investment Manager will be able to do so or that the Company will be able to invest its assets on attractive terms or generate any investment returns for Shareholders or indeed avoid investment losses. The effects of both normal market fluctuations and the current global economic environment may impact the Company s business, results or financial condition These are factors which are outside the Company s control and which may affect the volatility of underlying asset values and the liquidity and the value of the Company s portfolio. Changes in economic conditions in Frontier Markets where the Company invests (for example, interest rates and rates of inflation, industry conditions, competition, political and diplomatic events, the outbreak of war which impacts Frontier Markets and other factors) could substantially and adversely affect the Company s prospects and returns for Shareholders. AI Global financial markets have experienced considerable declines and volatility in valuations, an acute contraction in the availability of credit and the failure of a number of leading financial institutions in recent years. As a result, certain government bodies and central banks worldwide have undertaken intervention programmes, the effects of which remain uncertain. These macroeconomic developments could negatively affect the returns achievable by the Company, which could prejudice the Company s ability to generate returns for Shareholders. The Company may experience fluctuations in its results and investor returns will be dependent upon the performance of the portfolio The Company may experience fluctuations in its results due to a number of factors, including changes in the values of investments made by the Company, changes in the amount of distributions, dividends or interest paid by companies in the portfolio, changes in the Company s operating expenses, variations in and the timing of the recognition of realised and unrealised gains or losses, the degree to which the Company encounters competition 18

19 and general economic and market conditions. Such variability may lead to volatility in the trading price of the C Shares and the Ordinary Shares and cause the Company s results for a particular period not to be indicative of its performance in a future period. Investors contemplating an investment in the C Shares should recognise that their market value can fluctuate and may not always reflect their underlying value. Returns achieved are reliant primarily upon the performance of the Company s portfolio. No assurance is given, express or implied, that Shareholders will receive back the amount of their original investment in the C Shares. Calculation of Net Asset Value In calculating the Company s unaudited Net Asset Value, the Manager, acting on behalf of the Company, will fair value the Company s assets. In the case of quoted investments, the fair value is based on the latest quoted bid prices at the close of the relevant day s trading. However, in circumstances where such prices are not available, or the Manager believes such securities are not traded in sufficient volume for the market price to represent an accurate valuation, such holdings will be attributed a fair value. The obligations of the Directors under the Companies Act require the Directors to present fairly the financial position, financial performance and cash flows of the Company and make judgements and estimates that are reasonable and prudent. This includes responsibility for estimating valuations for unquoted investments. However the obligations of the AIFM Directive require the AIFM to take responsibility for the valuation function. In practice, the Board and the Manager both take responsibility for determining the fair valuation of unquoted investments. The Manager makes use of its pricing committee regarding the valuations for unquoted investments or investments for which the market is inactive, which ensures that the valuation function is functionally and hierarchically independent from the portfolio management function of the Manager. The Board then reviews the recommendations of the pricing committee and adopts these to the extent that the Directors consider these to be appropriate. In arriving at a recommendation for fair valuing the Company s unquoted assets, the pricing committee may rely on estimates of the values of companies or their securities in which the Company invests and such estimates may be unaudited or may be subject to little verification or other due diligence and may not comply with EU IFRS or other internationally recognised valuation principles. Accordingly, such fair valuations may not be accurate and this may impact on the accuracy of the unaudited Net Asset Value reported to Shareholders. Leverage The use of leverage, including borrowings, may increase the volatility of the Net Asset Value per C Share and the Net Asset Value per Ordinary Share and also amplify any loss in the value of the Company s assets. While the use of borrowing should enhance the total return on the C Shares and the Ordinary Shares where the return on the Company s underlying assets is rising and exceeds the cost of the borrowing, it will have the opposite effect where the return on the Company s underlying assets is falling or rising at a lower rate than the cost of borrowing, reducing the total return on the C Shares and the Ordinary Shares. As a result, the use of borrowings by the Company may increase the volatility of the Net Asset Value per C Share and the Net Asset Value per Ordinary Share. Any reduction in the value of the Company s investments may lead to a correspondingly greater percentage reduction in its Net Asset Value (which is likely to adversely affect the price of an Ordinary Share and a C Share). Any reduction in the number of Ordinary Shares in issue (for example, as a result of buy-backs or tender offers) will, in the absence of a corresponding reduction in borrowings, result in an increase in the Company s level of gearing. To the extent that a fall in the value of the Company s investments causes gearing to rise to a level that is not consistent with the Company s gearing policy or borrowing limits, the Company may have to sell investments in order to reduce borrowings. The Company will pay interest on its borrowings. As such, the Company is exposed to interest rate risk due to fluctuations in the prevailing market rates. The Company may employ hedging techniques designed to reduce the risk of adverse movements in interest rates. However, such strategies may also result in losses and overall poorer performance than if the Company had not entered into such hedging transactions. 19

20 Reliance on service providers and other third parties The Company has no employees and the Directors have all been appointed on a non-executive basis. The Company must therefore rely upon the performance of third party service providers to perform its executive functions. In particular, the Manager, the Investment Manager, the Registrar, the Depositary and their respective delegates, if any, will perform services that are integral to the Company s operations and financial performance. Failure by any service provider to carry out its obligations to the Company in accordance with the terms of its appointment, to exercise due care and skill, or to perform its obligations to the Company at all as a result of insolvency, bankruptcy or other causes could have a material adverse effect on the Company s performance and returns to Shareholders. The termination of the Company s relationship with any third party service provider or any delay in appointing a replacement for such service provider, could materially disrupt the business of the Company and could have a material adverse effect on the Company s performance and returns to Shareholders. Furthermore, the Company also relies on other third parties such as sub-custodians and global and/or local brokers and their respective delegates. Failure by any such third party to carry out its obligations in connection with the operation of the Company or to exercise due care and skill, or to perform its obligations in connection with the operation of the Company at all, as a result of insolvency, bankruptcy or other causes could have a material adverse effect on the Company s performance and returns to Shareholders. The lack of any direct contractual relationship with any third party, or any delay in a replacement for such third party being found could materially disrupt the business of the Company and could have a material adverse effect on the Company s performance and returns to Shareholders. Misconduct of employees and third party service providers Misconduct or misrepresentations by employees of the Manager, the Investment Manager or any other third party service providers could cause significant losses to the Company. Employee misconduct may include binding the Company to transactions that exceed authorised limits or present unacceptable risks and unauthorised trading activities or concealing unsuccessful trading activities (which, in any case, may result in unknown and unmanaged risks or losses) or making misrepresentations regarding any of the foregoing. Losses could also result from actions by third party service providers, including, without limitation, failing to recognise trades and misappropriating assets. In addition, employees and third party service providers may improperly use or disclose confidential information, which could result in litigation or serious financial harm, including limiting the Company s business prospects or future marketing activities. Despite the Manager s due diligence efforts, misconduct and intentional misrepresentations may be undetected or not fully comprehended, thereby potentially undermining the Manager s due diligence efforts. As a result, no assurances can be given that the due diligence performed by the Manager will identify or prevent any such misconduct. RISKS RELATING TO THE COMPANY S PORTFOLIO AND INVESTMENT STRATEGY The Company invests primarily in a portfolio of companies exposed to Frontier Markets which reflect the Investment Manager s convictions and the Company s portfolio may therefore bear little resemblance to the weighting or constituents of the Reference Index, and may be more volatile than more broadly based investment funds. Frontier Markets can be volatile and the material risks of which the Company is aware are: the Company may invest in a concentrated portfolio of shares and this focus may result in higher risk when compared to a portfolio that has a wider spread of diversified investment risk; the economies of Frontier Markets may be more dependent on relatively few industries that may be highly vulnerable to local and global changes; dependence on exports and the corresponding importance of international trade; these countries generally have less developed securities markets or exchanges, and legal and accounting systems; securities may be more difficult to sell at an acceptable price and may be more volatile than securities in countries with more mature markets; the value of the currencies of Frontier Markets may fluctuate more than the currencies of countries with more mature markets; 20

21 investments in Frontier Markets may be subject to greater risks of government restrictions, including confiscatory taxation, expropriation or nationalisation of a company s assets, restrictions on foreign ownership of local companies and restrictions on withdrawing assets from the country; investing in Frontier Markets subjects the Company to a higher level of market risk than investment in more developed markets; potentially higher rates of inflation (including hyperinflation); a potential risk of substantial deflation; arbitrary government decisions resulting from, inter alia, a lower level of democratic accountability than is typical of developed nations; less stringent laws and practices in relation to the fiduciary duties of officers and directors and protection of investors; difficulty in bringing legal proceedings to enforce contractual rights and the risk of the fraudulent appropriation of investments; the operation, performance and settlement, clearing and registration of dealing transactions by subcustodians in Frontier Markets may be less regulated than more developed markets; and the possibility of the imposition of withholding or other taxes on dividends, interest, capital gains or other income, limitations on the removal of funds or other assets of the Company, political changes, government regulation, social instability or diplomatic developments (including war) which could adversely affect the economies of such countries or the value of the Company s investments in those countries. Corruption Corruption remains a significant issue across Frontier Markets. The effect of corruption can seriously constrain the development of local economies, erode stability and trust, and its macroeconomic and social costs can be significant. These effects could have a material adverse effect on the performance of the Company s investments. There generally remains, across Frontier Markets, insufficient effective anti-corruption legislation and insufficient co-ordination of anti-corruption initiatives. AI Securities markets of Frontier Markets The securities markets of Frontier Markets are not as large as more established securities markets and have substantially less trading volume, which may result in a lack of liquidity and higher price volatility. There may be a high concentration of market capitalisation and trading volume in a small number of issuers representing a limited number of industries as well as a high concentration of investors and financial intermediaries. These factors may adversely affect the timing and price of the acquisition or disposal of these securities. In addition, an economic downturn or an increase in the real or perceived risks associated with Frontier Markets could adversely affect the market prices of securities of companies exposed to Frontier Markets even if the economies of such countries remain stable. The securities markets of Frontier Markets in which the Company invests may be less regulated than more established securities markets. In addition, market practices in relation to settlement of securities transactions and custody of assets in such markets can provide a material risk to the Company. In circumstances such as the insolvency of a sub-custodian or registrar, or retro-active application of national or international legislation, the Company may not be able to establish title to investments made and may suffer losses as a result. The Company may find it impossible to enforce its rights against third parties. Any increase in the national or international regulation or supervision of the securities markets of Frontier Markets in which the Company invests may result in additional compliance costs for any custodian or sub-custodian through which the Company invests which accordingly may result in such increased costs being passed on to the Company and/or such custodian and/or sub-custodian being unable to continue to provide such services to the Company. 21

22 Furthermore, due to the local postal and banking systems, no guarantee can be given that all entitlements attaching to securities acquired by the Company can be realised. None of the Company, the Depositary or any sub-custodian appointed, the Manager, the Investment Manager or any of their agents makes any representation or warranty about, or any guarantee of the operation, performance or settlement, clearing and registration of dealing transactions in Frontier Markets. Restrictions on foreign investment Some countries prohibit or impose substantial restrictions on investments by foreign entities such as the Company. As illustrations, certain countries require governmental approval prior to investment by foreign persons, or limit the amount of investment by foreign persons in a particular company, or limit the investment by foreign persons in a company to only a specific class of securities which may have less advantageous terms than securities of the company available for purchase by nationals. Certain countries may restrict investment opportunities in issuers or industries deemed important to national interests. The manner in which foreign investors may invest in companies in certain countries, as well as limitations on such investments, may have an adverse impact on the operations of the Company. For example, the Company may be required in certain of such countries to invest initially through a local broker or other entity and then have the share purchases re-registered in the name of the Company. Re-registration may in some instances not be able to occur on a timely basis, resulting in a delay during which the Company may be denied certain of its rights as an investor, including rights as to dividends or to be made aware of certain corporate actions. There also may be instances where the Company places a purchase order but is subsequently informed, at the time of re-registration, that the permissible allocation to foreign investors has been filled, depriving the Company of the ability to make its desired investment at the time. Substantial limitations may exist in certain countries with respect to the Company s ability to repatriate investment income, capital or the proceeds of sales of securities by foreign investors. The Company could be adversely affected by delays in, or a refusal to grant any required governmental approval for repatriation of capital, as well as by the application to the Company of any restriction on investments. Short selling The Company may engage in short selling. A short sale creates the risk of significant losses for the Company because the price of the underlying security could increase without limit, thus increasing the cost of buying those securities to cover the short position. There can be no assurance that the security necessary to cover a short position will be available for purchase. Interest rate risk The prices of equity securities in the Company s portfolio may be susceptible in the short-term to decline if interest rates rise. Rising interest rates could adversely impact the financial performance of companies in Frontier Markets by increasing their cost of capital. This may reduce their ability to execute acquisitions or expansion projects in a cost effective manner. In addition, the costs associated with any leverage used by the Company are likely to increase if interest rates rise. The Company may invest in convertible and fixed income securities. Such securities are particularly affected by trends in interest rates and inflation. If interest rates go up, the value of securities tends to fall, and vice versa. Inflation will also reduce the real value of securities over time. The value of a security will also fall if the issuer is unable to repay its debt or has a credit rating downgrade or if there is less appetite generally in the market for securities carrying credit risk. Derivatives The Company may utilise both exchange-traded and over-the-counter derivatives (including contracts for difference) as part of its investment policy. The costs of investing through derivatives may be higher than investing in securities (whether directly or through nominees) as the Company will have to bear the additional costs of purchasing and holding such derivatives and this could have a material adverse effect on the Company s returns. These instruments can be highly volatile and expose investors to a high risk of loss. The low initial margin deposits normally required to establish a position in such instruments permit a high degree of leverage. As a result, depending on the type of instrument, a relatively small movement in the price of a contract may result in a profit or a loss which is high in proportion to the amount of funds actually placed as initial margin and may result in unquantifiable further loss exceeding any margin deposited. In addition, daily limits on price fluctuations and speculative position limits on exchanges may prevent prompt liquidation of positions resulting in potentially greater losses. Transactions in over-the-counter contracts may involve additional risk as there is no exchange market on which to close out an open position. It may be impossible to liquidate an existing position, to assess 22

23 the value of a position or to assess the exposure to risk. Contractual asymmetries and inefficiencies can also increase risk, such as break clauses, whereby a counterparty can terminate a transaction on the basis of a certain reduction in Net Asset Value, incorrect collateral calls or delays in collateral being posted. P-Notes The Company may gain exposure to Frontier Markets by investing indirectly through participatory notes. P-Notes are issued by certain counterparty banks, are designed to offer the holder a return linked to the performance of a particular underlying equity security or market, and are used where direct investment in the relevant underlying equity security or market is not possible for regulatory or other reasons. Investment in P-Notes presents additional risks to the Company: (i) as the use of P-Notes is uncollateralised, the Company will be subject to full counterparty risk via the P-Note issuer and in the event of a default by the P-Note issuer, the Company may suffer losses up to the full value of the relevant P-Note; (ii) the costs of investing through P-Notes may be higher than investing (whether directly or through nominees) in securities due to the Company having to bear the additional costs of a P-Note issuer and this could have a material adverse effect on the Company s returns compared to if the Company had invested (whether directly or through nominees) in the relevant securities; (iii) the Company, being a client of such P-Note issuer, will only be able to realise its investment through the P-Note issuer and such arrangement may have a negative impact on the liquidity of the P-Notes which does not correlate to the liquidity of the underlying security; (iv) any information request by a P-Note issuer (such as a request regarding the identity and/or residency of the beneficial holder of any Shares) which cannot be satisfied by the Company may allow the P-Note issuer to terminate its agreement with the Company which could lead to the Company being required to realise its investment earlier than intended and this could have a material adverse effect on the returns to Shareholders; and (v) the regulatory requirements governing the P-Notes may change, restricting or prohibiting the Company from holding such P-Notes. Custodial services Some of the securities and other assets of the Company deposited with custodians, sub-custodians or global and/or sub-brokers in a Frontier Market may not be clearly identified as being assets (directly or indirectly) of the Company and hence the Company may be exposed to a credit risk with regard to such custodians, sub-custodians or global and/or sub-brokers in such Frontier Market. There may also be practical problems or time delays associated with enforcing rights to its assets such as in the case of an insolvency of any such party which could have a material adverse effect on returns to Shareholders. Reporting standards in Frontier Markets Accounting, auditing and financial reporting standards and practices and disclosure requirements applicable to many companies in Frontier Markets are less rigorous than those in the United Kingdom. As a result there may be less information available publicly to investors in such securities than to investors in comparable securities in the United Kingdom securities markets. Furthermore, such information which is available is often less reliable. The Investment Manager may make investment decisions in respect of such securities based on such information which may have a negative impact on the value of the Company s portfolio and returns to Shareholders. Foreign exchange rate risk The Company will invest in US dollar and non-us dollar denominated securities and the companies in which the Company invests may conduct their operations in US dollars and/or other currencies. The Company will therefore have an exposure to foreign exchange risk as a result of changes, both unfavourable and favourable, in exchange rates between the US dollar and other currencies. Foreign exchange risk may increase the volatility of the Net Asset Value per Ordinary Share and/or Net Asset Value per C Share. The Company does not have a policy of hedging or otherwise seeking to mitigate foreign exchange risk but reserves the right to do so from time-to-time as part of the Company s efficient portfolio management. Movements in the foreign exchange rate between sterling, US dollar, the reporting currency of the Company, and any other currency in which the Company invests and the currency applicable to a particular Shareholder may have an impact upon that Shareholder s returns in their own currency of account. 23

24 Smaller capitalisation companies The Company may invest in smaller capitalisation companies. As smaller companies do not have the financial strength, diversity and resources of larger companies, they may find it more difficult to operate in periods of economic slowdown or recession. In addition, the relatively small capitalisation of such companies could make the market in their shares less liquid and, as a consequence, their share price more volatile than investments in larger companies. Below investment grade securities The Company may invest in bonds or other fixed income securities, including high risk debt securities. These securities may be below investment grade and are subject to uncertainties and exposure to adverse business, financial or market conditions which could lead to the issuer s inability to make timely interest and principal payments. The market values of these securities tend to be more sensitive to individual corporate developments and general economic conditions than do higher rated securities. Unquoted securities The Company may invest up to 5 per cent. of its Gross Assets (at the time of such investment) in unquoted securities. Such investments, by their nature, involve a higher degree of risk than investments in quoted securities because unquoted securities may be more difficult to realise than quoted securities due to the potential greater difficulty in identifying willing purchasers of the unquoted securities. Default and counterparty risk A portion of the Company s assets may be invested in debt securities of private and governmental issuers, thus exposing the Company to the credit and political risk of the issuer. In addition, many of the markets in which the Company will effect its transactions are over-the-counter or interdealer markets. The participants in such markets are typically not subject to credit evaluation and regulatory oversight as are members of exchange based markets. This exposes the Company to the risk that a counterparty will not settle a transaction in accordance with its terms and conditions because of a dispute over the terms of the contract or because of a credit or liquidity problem, thus causing the Company to suffer a loss. Suspension of trading Securities and commodity exchanges typically have the right to suspend or limit trading in any instrument traded on that exchange. A suspension could render it impossible for the Company to liquidate positions and thereby expose the Company to losses. Gearing of other investment companies Should the Company invest in investment companies, investors should be aware that such investments may include holdings in the shares of investment companies which are geared by loan facilities that rank ahead of the relevant shares both for payment of interest and for capital. Investment in shares of investment companies which are geared present a higher investment risk as to their capital return. This could have a negative impact on the value of an investment company holding within the Company s portfolio and returns to Shareholders. Sanctions The Company may not be able to achieve exposure in certain markets due to Office of Foreign Asset Control and United Nations sanctions and other counterparty considerations. AI RISKS RELATING TO THE SHARES Risks relating to the C Shares General The length of time that it may take to fully invest the C Share portfolio prior to conversion, and the fact that an element of the C Share portfolio will be held in cash pending the completion of this process, may result in the Net Asset Value performance of the C Shares diverging significantly from that of the Ordinary Shares between Admission and Conversion. The Company does not have (and does not intend to seek) any authority to buy back C Shares. Accordingly, the Directors will not be able to operate any discount management policy through the use of C Share buy-backs. 24

25 Investing the Net Proceeds There are a limited number of attractive investment opportunities in Frontier Markets and this may lead to delay in investment and may affect the price at which such investments may be made and reduce potential investment returns for the Company. Risks relating to the Ordinary Shares and the C Shares Shares may trade at a discount to their Net Asset Value The value of an investment in the Company, and the income derived from it, if any, may go down as well as up and an investor may not get back the amount invested. The market price of the Ordinary Shares and C Shares, like shares in all investment trusts, may fluctuate independently of their underlying Net Asset Value and may trade at a discount or premium at different times, depending on factors such as supply and demand for the Ordinary Shares and C Shares, market conditions and general investor sentiment. There can be no guarantee that any discount control policy in relation to the Ordinary Shares (the Company will not affect repurchases of, and tender offers in relation to, C Shares) will be successful or capable of being implemented. The market value of an Ordinary Share or a C Share may vary considerably from its Net Asset Value. It may be difficult for Shareholders to realise their investment and there may not be a liquid market in the Shares The price at which the Ordinary Shares and C Shares will be traded and the price at which investors may realise their investment will be influenced by a large number of factors, some specific to the Company and its investments and some which may affect companies generally. There may not be a liquid market for the Ordinary Shares and C Shares. The market prices of the Ordinary Shares and C Shares may not reflect their underlying Net Asset Value. While the Directors retain the right to effect the repurchases of, and tender offers in relation to, Ordinary Shares in the manner described in this document, they are under no obligation to use such powers or to do so at any time and Ordinary Shareholders should not place any reliance on the willingness of the Directors so to act. Ordinary Shareholders wishing to realise their investment in the Company may therefore be required to dispose of their Ordinary Shares on the market. There can be no guarantee that a liquid market in the Ordinary Shares or C Shares will develop or that the Ordinary Shares or C Shares will trade at prices close to their underlying Net Asset Value. Accordingly, Shareholders may be unable to realise their investment at such Net Asset Value or at all. The number of C Shares to be issued pursuant to the Issue is not yet known, and there may be a limited number of holders of C Shares. Limited numbers and/or holders of C Shares may mean that there is limited liquidity in the C Shares which may affect (i) an investor s ability to realise some or all of his investment and/or; (ii) the price at which such investor can effect such realisation; and/or (iii) the price at which the C Shares trade in the secondary market. The Shares may be subject to significant forced transfer provisions The Shares have not been registered and will not be registered in the United States under the Securities Act or under any other applicable securities laws (see page 55 of this document). Moreover, under the Issue the C Shares are only being offered and sold outside the United States to non-u.s. Persons (as defined in Regulation S under the Securities Act). If at any time the holding or beneficial ownership of any shares in the Company by any person (whether on its own or taken with other shares), in the opinion of the Directors (i) would cause the assets of the Company to be treated as plan assets of any benefit plan investor under Section 3(42) of ERISA; (ii) would result in the shares being legally or beneficially held (a) other than by a non-resident foreign investor as determined by the Saudi Arabian Capital Markets Authority; or (b) by any person domiciled in the Kingdom of Saudi Arabia; (iii) would or might result in the Company and/or its shares being required to register or qualify under the United States Investment Company Act 1940 and/or the Securities Act and/or the United States Securities Exchange Act 1934 and/or the local Blue Sky laws of any State of the United States; (iv) would contravene the criteria for eligibility for investing in the Company determined by the Directors from time-to-time; or (v) creates a significant legal or regulatory issue for the Company under the U.S. Bank Holding Company Act of 1956 (as amended) or regulations or interpretations thereunder, the Directors may require the holder of such shares to dispose of such shares and, if the shareholder does not sell such shares, may dispose of such shares on their behalf. These 25

26 restrictions may make it more difficult for certain persons to hold Shares and for Shareholders generally to sell Shares and may have an adverse effect on the market value of the Shares (see paragraphs and of Part 8 of this document). RISKS ASSOCIATED WITH THE MANAGER AND THE INVESTMENT MANAGER The performance of the Company will depend on the ability and services of the Investment Manager The performance of the Company will depend on: (i) the ability of the Investment Manager to generate positive returns; and (ii) the Investment Manager s ability to advise on, and identify, investments in an optimal way. Achievement of the investment objective will also depend, in part, on the ability of the Investment Manager to provide competent, attentive and efficient services to the Company. There can be no assurance that, over time, the Investment Manager will be able to provide such services or that the Company will be able to invest its assets on attractive terms or generate any investment returns for Shareholders or indeed avoid investment losses. There can be no assurance that a replacement manager and/or investment manager will be found if the Manager or the Investment Manager resigns, is removed or otherwise no longer serves as the Manager and/or Investment Manager The Management Agreement may be terminated by the Company or the Manager giving to the other party at least six months notice in writing and in certain other circumstances. If the Management Agreement is terminated, the Directors would have to find a replacement manager and investment manager for the Company and there can be no assurance that such a replacement will be found. The management team may allocate some of their resources to activities in which the Company is not engaged, which could have a negative impact on the Company s ability to achieve its investment objective Neither the Manager nor the Investment Manager is required to commit all of its resources to the Company s affairs. Insofar as the Manager and/or the Investment Manager devotes resources to its responsibilities to other business interests, its ability to devote resources and attention to the Company s affairs will be limited. This could adversely affect the Company s ability to achieve its investment objective, which could have a material adverse effect on the Company s profitability, Net Asset Value and share price. Potential conflicts of interest The Manager, the Investment Manager and their affiliates serve as manager and investment manager to other clients and their organisational and ownership structure involves a number of relationships. For example, the Manager, the Investment Manager and/or their affiliates may have conflicts of interest in allocating their time and activity between the Company and the other clients, in allocating investments among the Company and the other clients and in effecting transactions between the Company and other clients, including ones in which the Manager, the Investment Manager and/or their affiliates may have a greater financial interest. The Manager, the Investment Manager and/or their affiliates may give advice or take action with respect to such other clients that differs from the advice given or action taken with respect to the Company. The Manager, the Investment Manager and/or their affiliates may be involved in other financial, investment and professional activities that may on occasion give rise to conflicts of interest with the Company. In particular, the Manager and/or the Investment Manager may provide investment management, investment advice or other services to a number of funds that may have similar investment policies to that of the Company or funds in which the Company invests. The ultimate holding company of the Manager and the Investment Manager is BlackRock, Inc., a company incorporated in Delaware, USA. PNC Financial Services Group, Inc. ( PNC ) has a significant economic interest in BlackRock, Inc. The Manager, the Investment Manager, BlackRock, Inc., PNC, their affiliates and their respective investment professionals and other employees may come into possession of material non-public information. The possession of such information may potentially limit the ability of the Company to participate in an investment opportunity. Please see pages 67 to 69 of this document for details on how the Manager and the Investment Manager manage these potential conflicts of interest. 26

27 U.S. Bank Holding Company Act ( U.S. BHC Act ) and the Dodd-Frank Act Each of BlackRock, Inc., the Manager and the Investment Manager is a subsidiary of PNC for the purposes of the U.S. BHC Act. PNC is a financial holding company (a FHC ) subject to supervision and regulation by the Board of Governors of the Federal Reserve System (the Federal Reserve ) under the U.S. BHC Act. This supervision and regulation includes certain investment and activities restrictions applicable to BlackRock, Inc., the Manager and the Investment Manager as FHC subsidiaries. Any failure by PNC to qualify as a FHC under the U.S. BHC Act could result in additional restrictions on activities and investments. AI It is currently anticipated that for the purposes of the U.S. BHC Act the Manager, the Investment Manager and PNC generally will be able to treat the Manager and the Investment Manager as organising, sponsoring, and managing the Company pursuant to the Federal Reserve s Regulation K. To ensure compliance with Regulation K, the shares of the Company may not be sold or distributed in the United States or to U.S. residents and neither the Manager, the Investment Manager nor the Company may generally exercise managerial control over the entities in which the Company invests. In this regard, while it is not expected that the shares of the Company will be sold or distributed in the United States or to U.S. residents, under the Articles the Directors may compulsorily transfer any U.S. Persons out of the Company should their presence create a significant legal or regulatory issue for the Company under the U.S. BHC Act. The Manager, the Investment Manager and the Company may also be able to rely on other statutory and regulatory provisions in order to maintain compliance with the U.S. BHC Act. The Manager and the Investment Manager reserve the right to rely on any such applicable authority or exemptions and to take all reasonable steps deemed necessary, advisable, or appropriate to comply with the U.S. BHC Act. The U.S. BHC Act may limit transactions, including lending, or other relationships between PNC s subsidiary banks, on the one hand, and the Company or certain Company investments on the other. Federal Reserve approval may be required for certain direct or indirect investments in companies with U.S. banking operations. Investments by the Company may also be subject to various monitoring, reporting, and other regulatory requirements under the U.S. BHC Act. The U.S. BHC Act and Federal Reserve regulations and interpretations thereunder may be amended over the life of the Company. In addition, the Volcker Rule contained in Section 619 of the Dodd-Frank Act in the United States will limit the ability of banking entities, which include BlackRock, Inc., and its affiliates by virtue of BlackRock s relationship with PNC, to sponsor or invest in certain private investment funds and to engage in certain other activities. It is not currently clear whether the activities of the Manager and/or the Investment Manager with respect to the Company will be subject to additional restrictions and conditions under the Volcker Rule. The Volcker Rule could have a significant negative impact on BlackRock, Inc., the Manager, the Investment Manager and the Company. BlackRock, Inc., the Manager and/or the Investment Manager may in the future, in their sole discretion, and without notice to or consent of Shareholders take such action as BlackRock, Inc. or the Manager or the Investment Manager determine in their sole discretion is necessary or appropriate in order to comply with the Volcker Rule, or to reduce, eliminate or otherwise modify the impact or applicability of the Volcker Rule to BlackRock, Inc., its affiliates or the Company. RISKS RELATING TO TAXATION AND REGULATION Changes in laws or regulations governing the Company s operations may adversely affect the Company s business The Company is subject to laws and regulations enacted by national and local governments. In particular, the Company is subject to and will be required to comply with certain regulatory requirements that are applicable to listed closed-ended investment companies. AI Any change in the law and regulation affecting the Company may have a material adverse effect on the ability of the Company to carry on its business and successfully pursue its investment policy and on the value of the Company and the Shares. In such event, the investment returns of the Company may be materially adversely affected. Changes in taxation legislation or practices may adversely affect the Company and the tax treatment for Shareholders investing in the Company Representations in this document concerning the taxation of Shareholders and the Company are based on law and practice as at the date of this document. These are, in principle, subject to change and prospective investors should be aware that such changes may affect the Company s ability to generate returns for Shareholders and/or the taxation of such returns to Shareholders and could also be applied retrospectively. 27

28 Frontier Markets tax risks The Company may purchase investments that will subject the Company to withholding taxes in various jurisdictions. In the event that withholding taxes are imposed with respect to any of the Company s investments, the effect will generally be to reduce the income received by the Company on such investments. Such withholding taxes may be imposed on income, gains, issue of securities or supporting documents, including the contracts governing the terms of any financial instrument and such taxes may be confiscatory in nature. The Company shall be making investments in jurisdictions where the tax regime is not fully developed or is not certain. The Company, the Manager and the Investment Manager shall not be liable to account to any Shareholder for any payment made or suffered by the Company in good faith to a fiscal authority for taxes or other charges of the Company notwithstanding that it is later found that such payments need not or ought not have been made or suffered. Conversely, where through fundamental uncertainty as to the tax liability, or the lack of a developed mechanism for practical and timely payment of taxes, the Company pays taxes relating to previous years, any related interest or late filing penalties will likewise be chargeable to the Company. Such late paid taxes will normally be debited to the Company at the point the decision to accrue the liability in the Company accounts is made. The Company s income may be reduced by exchange controls The Company may from time-to-time purchase investments that will subject the Company to exchange controls in various jurisdictions. In the event that exchange controls are imposed with respect to any of the Company s investments, the effect will generally be to reduce the income received by the Company on such investments. The Company has not registered and will not register as an investment company under the U.S. Investment Company Act The Company will seek to qualify for an exemption from the definition of investment company under the U.S. Investment Company Act and will not register as an investment company in the United States under the U.S. Investment Company Act. The U.S. Investment Company Act provides certain protections to investors and imposes certain restrictions on registered investment companies, none of which are applicable to the Company or its investors. In addition, to avoid being required to register as an investment company under the U.S. Investment Company Act and to avoid violating such act, the Company has implemented restrictions on the ownership and transfer of its Shares, which may materially affect Shareholders ability to transfer their Shares to U.S. Persons. The Company s assets could be deemed plan assets that are subject to the requirements of ERISA and/or section 4975 of the U.S. Code The purchase of C Shares or Ordinary Shares by an employee benefit plan subject to ERISA, or Section 4975 of the U.S. Code or by any entity whose assets are treated as assets of any such plan, could result in the assets of the Company being considered plan assets for the purpose of ERISA, and/or section 4975 of the U.S Code and regulations made thereunder. In such circumstances the Company, the Manager, the Investment Manager and also the fiduciaries of such an employee benefit plan could be liable for any ERISA violations by the Company, the Manager or the Investment Manager and for other adverse consequences under ERISA. Each purchaser and transferee of C Shares or Ordinary Shares will be deemed to have represented by its purchase or receipt of the C Shares or Ordinary Shares, and throughout the period that it holds the Shares, that it is not an employee benefit plan subject to ERISA or Section 4975 of the U.S. Code or an entity whose assets are treated as assets of any such employee benefit plan. The Directors are also empowered by the Articles to require the Shareholders, which they consider may, because of their shareholding, result in the assets of the Company being considered plan assets, to transfer their C Shares or Ordinary Shares in order to reduce this risk materialising. See paragraphs and of Part 8 of this document for further details. AI U.S. tax legislation may in the future impose a withholding tax on certain payments received by the Company unless the Company reports certain information about its Shareholders to the IRS. The US-UK Agreement to Improve International Tax Compliance and to Implement FATCA (the US-UK IGA ) was entered into with the intention of enabling the UK implementation of the Foreign Account Tax Compliance Act provisions of the U.S. Hiring Incentives to Restore Employment Act ( FATCA ), which impose a new reporting regime and potentially a 30 per cent. withholding tax on certain payments made from (or attributable to) US sources or in respect of US assets to certain categories of recipient including a non-us financial institution (a foreign financial institution or FFI ) that does not comply with the terms of FATCA and is not otherwise exempt. Certain financial institutions ( reporting financial institutions ) are required to provide certain 28

29 information about their US accountholders to HMRC (which information will in turn be provided to the US tax authority) pursuant to UK regulations implementing the US-UK IGA. It is expected that the Company will constitute a reporting financial institution for these purposes. The Company will not, however generally need to report any information in respect of US Shareholders on the basis that the Ordinary Shares and C Shares are expected to be treated as being regularly traded on an established securities market and should not, therefore, constitute financial accounts for FATCA purposes for so long as the Ordinary Shares and C Shares are listed on the London Stock Exchange. It is the intention of the Company, the Manager and the Investment Manager to procure that the Company is treated as complying with the terms of FATCA by complying with the terms of the reporting system contemplated by the US-UK IGA. No assurance can, however, be provided that the Company will be able to comply with FATCA and, in the event that it is unable to do so, a 30 per cent. withholding tax may be imposed on payments the Company receives from (or which are attributable to) US sources or in respect of US assets, which may reduce the amounts available to the Company to make payments to Shareholders. 29

30 IMPORTANT INFORMATION GENERAL No person has been authorised to issue any advertisement, give any information or make any representations in connection with the Issue other than the information contained in this document and, if issued, given or made, such advertisement, information or representations must not be relied on as having been authorised by or on behalf of the Company, the Manager, the Investment Manager or Winterflood. Without prejudice to any obligation of the Company to publish a supplementary prospectus pursuant to section 87G(1) of the FSMA, neither the delivery of this document nor any purchase of C Shares made pursuant to this document shall, under any circumstances, create any implication that there has been no change in the business or affairs of the Company since the date of this document or that the information contained in this document, including any forward-looking statement, is correct as of any time subsequent to the date of this document. This document should be read in its entirety before purchasing any C Shares and prospective investors should rely only on the information contained in this document when deciding whether to make such an application or purchase. However, prospective investors should not treat the contents of this document as advice relating to legal, tax, investment or any other matters. Prospective investors should inform themselves as to: i. the legal requirements within their own countries for the purchase, holding, transfer or other disposal of C Shares; ii. iii. any foreign exchange restrictions applicable to the purchase, holding, transfer or other disposal of C Shares which they might encounter; and the income and other tax consequences that may apply in their own countries as a result of the purchase, holding, transfer or other disposal of C Shares. Accordingly, prospective investors must rely on their own advisers as to legal, tax, investment or any other related matters concerning the Company and an investment in the C Shares. Subject to the final sentence of this paragraph, Winterflood does not take, and hereby excludes, any responsibility for the contents of this document pursuant to section 79(3) or 90 of the FSMA or otherwise or for any statement made or purported to be made by, or on behalf of it in relation to the Company or the Issue and has not authorised the contents of this document under Rule 5.5 of the Prospectus Rules. Accordingly, but subject to the final sentence of this paragraph, Winterflood disclaims all and any liability, whether arising in tort, contract or otherwise, which it might otherwise have in respect of this document or any such statement. Nothing in this paragraph shall serve to exclude or limit any responsibilities that Winterflood may have under the FSMA or the regulatory regime established under the FSMA. Data Protection The information that a prospective investor provides in relation to a subscription for C Shares or subsequently by whatever means which relates to the prospective investor (if it is an individual) or a third party individual (to include, in each case, sensitive personal data) will be held and processed by the Company (and any third party in the United Kingdom to whom it may delegate certain administrative functions or other functions in relation to the Company or with the provision of the services) in compliance with the relevant data protection legislation and regulatory requirements of the United Kingdom. Each prospective investor and/or Shareholder acknowledges and consents that such information will be held and processed by the Company (or any third party, functionary, or agent appointed by the Company, including the Registrar) for the following purposes: providing the services to the prospective investor/shareholder; verifying the identity of the prospective investor/shareholder to comply with statutory and regulatory requirements in relation to anti-money laundering procedures; contacting the prospective investor/shareholder with information about other products and services provided by the Manager and/or the Investment Manager, or its affiliates which may be of interest to the prospective investor/shareholder; 30

31 carrying out the business of the Company and the administering of interests in the Company in the UK or elsewhere; meeting the legal, regulatory, reporting and/or financial obligations of the Company in the UK or elsewhere; and disclosing personal data to other functionaries of, or advisers to, the Company to operate and/or administer the Company. Personal data may be retained on record for a period not exceeding six years after it is no longer used. Each prospective investor/shareholder acknowledges and consents that where appropriate it may be necessary for the Company (or any third party, functionary, or agent appointed by the Company, including the Registrar) to: disclose personal data to third party service providers, affiliates, agents or functionaries appointed by the Company or its agents to provide services to prospective invetors; and transfer personal data outside of the EEA States to countries or territories which do not offer the same level of protection of personal data as the United Kingdom. If the Company (or any third party, functionary or agent appointed by the Company, including the Registrar) discloses personal data to such a third party, functionary or agent, including the Registrar and/or makes such a transfer of personal data it will use reasonable endeavours to ensure that any third party, agent, functionary or agent to whom the relevant personal data is disclosed or transferred is contractually bound to provide an adequate level of protection in respect of such personal data. Prospective investors/shareholders are responsible for informing and obtaining any required consent of any third party individual to whom the personal data relates to the disclosure and use of such data in accordance with these provisions. By becoming registered as a holder of C shares a person becomes a data subject (as defined in the Data Protection Act 1998) and is deemed to have consented to the processing by the Company or (or any third party, functionary, or agent appointed by the Company, including the Registrar) of any personal data relating to them in the manner described above. Presentation of information Market, economic and industry data Market, economic and industry data used throughout this document is sourced from various industry and other independent sources. The Company and the Directors confirm that such data has been accurately reproduced and, so far as they are aware and are able to ascertain from information published from such sources, no facts have been omitted which would render the reproduced information inaccurate or misleading. Currency presentation Unless otherwise indicated, all references in this document to, sterling or pence and to US$, US dollars, or US cents are to the lawful currency of the UK and the United States respectively. Definitions A list of defined terms used in this document is set out in Part 9. Governing law Unless otherwise stated, statements made in this document are based on the law and practice currently in force in England and Wales and are subject to changes therein. Website The contents of the Investment Manager s website insofar as they relate to the Company do not form part of this document. Investors should base their decision whether or not to invest in C Shares on the contents of this document alone. 31

32 Forward Looking Statements This document contains forward looking statements, including, without limitation, statements containing the words believes, estimates, anticipates, expects, intends, may, will, or should or, in each case, their negative or other variations or similar expressions. Such forward looking statements involve unknown risks, uncertainties and other factors which may cause the actual results, financial condition, performance or achievement of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward looking statements. Given these uncertainties, prospective investors are cautioned not to place any undue reliance on such forward looking statements. These forward looking statements speak only as at the date of this document. Subject to its legal and regulatory obligations (including under the Prospectus Rules), the Company expressly disclaims any obligations to update or revise any forward looking statement contained herein to reflect any change in expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based unless required to do so by law or any appropriate regulatory authority, including but not limited to the FSMA, the Listing Rules, the Prospectus Rules and the Disclosure and Transparency Rules. Nothing in the preceding two paragraphs should be taken as limiting the working capital statement in paragraph 5 of Part 6 of this document. Selling Restrictions Save for the UK, no action has been taken or will be taken in any jurisdiction by the Company that would permit the offering of C Shares in any jurisdiction where action for that purpose is required. Similarly, no action has been taken to permit the distribution of this document in any jurisdiction outside the UK where such action is required to be taken. Accordingly, the distribution of this document and the offering of C Shares in jurisdictions other than the UK may be restricted. This document does not constitute, and may not be used for the purposes of, an offer or an invitation to apply for any C Shares by any person: i. in any jurisdiction in which such offer or invitation is not authorised; ii. iii. in any jurisdiction in which the person making such offer or invitation is not qualified to do so; or to any person to whom it is unlawful to make such offer or invitation. The information in this section Selling Restrictions is for general guidance only and it is the responsibility of any person in possession of this document to inform themselves about and observe any restrictions as to the offering of C Shares and the distribution of this document under the laws and regulations of any relevant jurisdiction outside the UK in connection with any purchase of C Shares, including obtaining any requisite governmental or other consent and observing any other formality prescribed in such jurisdiction. Any failure to comply with any such restrictions may constitute a violation of the securities laws of the jurisdiction concerned. For the attention of United States residents The C Shares have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state or other jurisdiction of the United States and the C Shares may not be offered, sold, exercised, resold, transferred or delivered, directly or indirectly, within the United States or to, or for the account or benefit of, U.S. Persons (as defined in Regulation S under the Securities Act). There will be no public offer of the C Shares in the United States. The C Shares are being offered or sold only outside the United States to persons who are not U.S. Persons in reliance on Regulation S under the Securities Act. The Company has not been and will not be registered under the U.S. Investment Company Act and investors will not be entitled to the benefits of the U.S. Investment Company Act. This document should not be distributed into the United States or to U.S. Persons. The C Shares have not been approved or disapproved by the U.S. Securities and Exchange Commission, any state securities commission in the United States or any other U.S. regulatory authority, nor have any of the foregoing authorities passed upon or endorsed the merits of the offering of C Shares or the accuracy or adequacy of this document. Any representation to the contrary is a criminal offence in the United States and any re-offer or resale of any of the C Shares in the United States or to U.S. Persons may constitute a violation of U.S. law or regulation. Each applicant for C Shares will be required to certify that the offer of C Shares was made to it, and 32

33 at the time its buy order was originated it was located outside the United States and that it is not a U.S. Person and is not subscribing for C Shares on behalf of a U.S. Person. Any person in the United States who obtains a copy of this document is requested to disregard it. For the attention of prospective investors in Australia, Canada, the Republic of South Africa, Japan, New Zealand or the Kingdom of Saudi Arabia The C Shares have not been, and will not be, registered under the applicable securities laws of Australia, Canada, the Republic of South Africa, Japan, New Zealand or the Kingdom of Saudi Arabia or with any securities regulatory authority of Australia, Canada, the Republic of South Africa, Japan, New Zealand or the Kingdom of Saudi Arabia. Accordingly, unless an exemption under such laws is applicable, the C Shares may not be offered, sold or delivered, directly or indirectly, within Australia, Canada, the Republic of South Africa, Japan, New Zealand or the Kingdom of Saudi Arabia (as the case may be) or to any national, resident or citizen of Australia, Canada, the Republic of South Africa, Japan, New Zealand or the Kingdom of Saudi Arabia. Unless the Company agrees otherwise in writing, each person who initially acquires C Shares pursuant to the Issue or to whom any offer of C Shares is made pursuant to the Issue will be deemed to have represented, warranted and agreed with the Company and Winterflood that they are not a national, resident or citizen of Australia, Canada, the Republic of South Africa, Japan, New Zealand or the Kingdom of Saudi Arabia, a corporation, partnership or other entity organised under the laws of Australia or Canada (or any political subdivision of either of them), the Republic of South Africa, Japan, New Zealand or the Kingdom of Saudi Arabia and that they are not subscribing for such C Shares for the account of any national, resident or citizen of Australia, Canada, the Republic of South Africa, Japan, New Zealand or the Kingdom of Saudi Arabia and will not offer, sell, renounce, transfer or deliver, directly or indirectly, any of the C Shares in or into Australia, Canada, the Republic of South Africa, Japan, New Zealand or the Kingdom of Saudi Arabia or to any national, resident or citizen of Australia, Canada, the Republic of South Africa, Japan, New Zealand or the Kingdom of Saudi Arabia. The Company, Winterflood, their respective affiliates and others will rely on the truth and accuracy of such deemed representation, warranty and agreement. For the attention of prospective investors in the European Economic Area In relation to each Relevant Member State, no C Shares have been offered or will be offered pursuant to the Issue to the public in that Relevant Member State prior to the publication of a document in relation to the C Shares which has been approved by the competent authority in that Relevant Member State, or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in accordance with the Prospectus Directive, except that offers of C Shares to the public may be made at any time under the following exemptions under the Prospectus Directive, if they are implemented in that Relevant Member State: (a) to any legal entity which is a qualified investor as defined in the Prospectus Directive; (b) to fewer than 100, or, if the Relevant Member State has implemented the relevant provision of the 2010 PD Amending Directive (as defined below), 150 natural or legal persons (other than qualified investors as defined in the Prospectus Directive) in such Relevant Member State; or (c) in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of C Shares shall result in a requirement for the publication of a document pursuant to Article 3 of the Prospectus Directive or any measure implementing the Prospectus Directive in a Relevant Member State and each person who initially acquires any C Shares or to whom any offer is made under the Issue will be deemed to have represented, acknowledged and agreed that it is a qualified investor within the meaning of Article 2(1)(e) of the Prospectus Directive. For the purposes of this provision, the expression an offer to the public in relation to any offer of C Shares in any Relevant Member State means a communication in any form and by any means presenting sufficient information on the terms of the offer and any C Shares to be offered so as to enable an investor to decide to purchase or subscribe for the C Shares, as the same may be varied in that Relevant Member State by any measure implementing the Prospectus Directive in that Relevant Member State and the expression Prospectus Directive means Directive 2003/71/EC (and the amendments thereto, including Directive 2010/73/EU) (the 2010 PD Amending Directive ), to the extent implemented in the Relevant Member State and includes any relevant implementing measure in each Relevant Member State. 33

34 In addition, C Shares will only be offered to the extent that the Company: (i) is permitted to be marketed into the relevant EEA jurisdiction pursuant to the AIFM Directive (as implemented into local law) or (ii) can otherwise be lawfully offered or sold (including on the basis of an unsolicited request from a professional investor). Non-Mainstream Pooled Investments Status As the Company is an investment trust, the C Shares will be excluded securities under the FCA s rules on nonmainstream pooled investments. Accordingly, the promotion of the C Shares is not subject to the FCA s restriction on the promotion of non-mainstream pooled investments. 34

35 EXPECTED TIMETABLE Placing and Offer for Subscription opens 5 February 2016 Annual General Meeting p.m. on 10 February 2016 (or such later time as the general meeting to approve the tender proposals concludes) Latest time and date for receipt of Application Forms 1.00 p.m. on 23 February 2016 and, if applicable, Tax Residency Self-Certification Forms under the Offer for Subscription Latest time and date for commitments under the Placing 1.00 p.m. on 24 February 2016 (or such other time as may be notified by the Company to a particular placee) Announcement of the results of the Issue 25 February 2016 Admission of the C Shares to the Official List of the UKLA 8.00 a.m. on 29 February 2016 and dealings in the C Shares commence on the main market for listed securities of the London Stock Exchange Crediting of CREST stock accounts in respect of the C Shares 29 February 2016 Share certificates despatched in respect of the C Shares week commencing 7 March 2016 (or as soon as possible thereafter) The times and dates set out in the expected timetable and mentioned throughout this document may be adjusted by the Company, in which event details of the new times and dates will be notified, as required, to the UKLA and the London Stock Exchange and, where appropriate, Shareholders and an announcement will be made through a Regulatory Information Service. All references to times in this document are to London time unless otherwise stated. AIII 5.1.3, 5.2.3(g) AIII 5.1.3, 5.2.3(g) AIII 5.1.9, AIII 4.7 AIII ISSUE STATISTICS Maximum number of C Shares available under the Issue 65,000,000 AIII Issue Price per C Share Expenses of the Issue Estimated Net Proceeds Estimated Net Asset Value per C Share at Admission 100 pence 1.6 per cent. of the Net Proceeds* circa million* 98.4 pence* AIII 8.1 * Assuming the Issue is fully subscribed. The number of C Shares to be issued pursuant to the Issue, and therefore the Initial Gross Proceeds and the Net Proceeds, is not known as at the date of this document but will be notified by the Company via a Regulatory Information Service prior to Admission. If the Issue does not proceed, subscription monies received will be returned without interest at the risk of the applicant. DEALING CODES ISIN C Shares SEDOL C Shares Ticker C Shares ISIN Ordinary Shares SEDOL Ordinary Shares Ticker Ordinary Shares GB00BZ4T7848 BZ4T784 BRFC GB00B3SXM832 B3SXM83 BRFI AIII

36 DIRECTORS, MANAGEMENT AND ADVISERS AI 1.1 AIII 1.1 Directors Registered Office Manager Investment Manager, secretary and administrator Sponsor, placing agent and financial adviser Solicitors to the Company Solicitors to the sponsor, placing agent and financial adviser Auditors Depositary Registrar and Receiving Agent Audley Twiston-Davies (Chairman) John Murray Nick Pitts-Tucker Lynn Ruddick Sarmad Zok all of the Directors are non-executive and are of the registered office below 12 Throgmorton Avenue London EC2N 2DL Tel: BlackRock Fund Managers Limited 12 Throgmorton Avenue London EC2N 2DL Tel: BlackRock Investment Management (UK) Limited 12 Throgmorton Avenue London EC2N 2DL Tel: Winterflood Securities Limited The Atrium Building Cannon Bridge House Dowgate Hill London EC4R 2GA Wragge Lawrence Graham & Co. LLP 4 More London Riverside London SE1 2AU Maclay Murray & Spens LLP One London Wall London EC2Y 5AB Ernst & Young LLP 25 Churchill Place London E14 5EY BNY Mellon Trust & Depositary (UK) Limited 160 Queen Victoria Street London EC4V 4LA Tel: Computershare Investor Services PLC The Pavilions Bridgwater Road Bristol BS13 8AE AI 14.1 AIII 10.1 AI AXV 3.4, 4.1 AIII AXV 3.4, 4.1, 4.2 AIII AI 2.1 AXV

37 PART 1 THE COMPANY INTRODUCTION The Company is a closed-ended investment company incorporated in England and Wales on 15 October The Company carries on business as an investment trust within the meaning of Chapter 4 of Part 24 of the Corporation Tax Act The Company has appointed BlackRock Fund Managers Limited (the Manager ) to be the alternative investment fund manager of the Company, which is an alternative investment fund, or AIF, for the purposes of the AIFM Directive. Accordingly, the Manager is responsible for the portfolio management of the Company and for exercising the risk management function in respect of the Company. Under the Management Agreement, the Manager has discretion, subject to the control of, approvals from and review by the Directors, to invest the assets of the Company in pursuit of the investment objective in accordance with the investment policy and subject to the investment restrictions described in this document. As the alternative investment fund manager of the Company, the Manager is responsible for ensuring compliance with the AIFM Directive in respect of the Company. The Manager has delegated certain day to day portfolio and risk management services in respect of the Company s assets and other ancillary services to BlackRock Investment Management (UK) Limited (the Investment Manager ). AI 5.1.5, 5.1.2, 5.1.3, AXV 4.1, 4.2 AXV 4.1, 4.2 The Investment Manager manages assets for open-ended and closed-ended funds, and institutional and private clients throughout the world. Eleven of these funds (including the Company) are listed closed-ended investment companies with combined assets of circa 2.4 billion (as at 31 December 2015). Further details of the management arrangements relating to the Company are set out in Part 5 of this document. BACKGROUND TO AND REASONS FOR THE ISSUE On 17 December 2015, the Company published a circular to Shareholders containing proposals to implement a tender offer for up to 100 per cent. of the Company s issued Ordinary Share capital (excluding treasury shares, if any) in accordance with its commitment to Shareholders given at the launch of the Company (the Tender Offer ). The chairman of the Board noted in the circular that (i) the Investment Manager believes that there is scope to increase the capacity of its Frontier Markets strategy and in current market conditions it could deploy an additional circa US$100 million in this strategy; (ii) as such should there be limited take up of the Tender Offer as well as sufficient demand from investors to be able to utilise this capacity, the Board will explore options available to satisfy such demand; and (iii) given the potentially illiquid nature of the Company s investment opportunities and the time it could take to deploy any proceeds, depending on the level of demand it may be appropriate for the Company to issue C Shares to satisfy such demand. As announced on 1 February 2016 take up of the Tender Offer has been limited, as a consequence of which the Board has decided to proceed with the Issue. As at 3 February 2016 (being the latest practicable date prior to the publication of this document) funds managed or advised by the Investment Manager and members of the BlackRock Group held approximately 18.9 per cent. of the voting rights attached to the existing issued Ordinary Share capital of the Company, certain of whom may participate in the Placing. In addition, a further fund managed by the Investment Manager intends to participate in the Placing in respect of at least 20 per cent. of the C Shares issued pursuant to the Issue. The extent of the participation in the Issue by the BlackRock Investors is dependent on inter alia: the aggregate holdings of the BlackRock Investors on Admission and following Conversion and ensuring that the C Shares meet the listing eligibility criteria in respect of shares in public hands. In addition, the Board wishes to give all existing Shareholders and potential new investors the opportunity to participate in the Issue. Institutional investors may participate in the Placing, alongside the BlackRock Investors, and investors who cannot participate in the Placing will, subject to the terms and conditions of the Offer for Subscription, be able to apply for C Shares under the Offer for Subscription. In the event that the Issue is oversubscribed, it will be necessary to scale back applications under the Placing and Offer for Subscription at the discretion of Winterflood (in consultation with the Company and the Manager). In such circumstances, the BlackRock Investors will be scaled back on the same basis as existing Shareholders. AIII 3.4 AIII

38 The Issue, in addition to offering existing investors the opportunity to invest additional capital while allowing the Company to take advantage of opportunities in the investible universe, should also broaden the Company s share register by introducing new investors and improving liquidity for Shareholders. The increased size of the Company should mean that the fixed costs of operating the Company are spread over a larger asset base, thereby reducing the Company s ongoing charges. The issue of further equity in the form of C Shares is designed to overcome the potential disadvantages for both existing and new investors which would arise out of a conventional fixed price issue of further Ordinary Shares for cash. In particular: AXIV 1.11 the assets representing the Net Proceeds will be accounted for as a separate pool of assets until the Conversion Date; by accounting for the Net Proceeds separately, holders of existing Ordinary Shares will not be exposed to a portfolio containing substantial amounts of uninvested cash nor to the costs of investing the Net Proceeds; the C Shares will not convert into Ordinary Shares until at least 85 per cent. of the Net Proceeds of the C Share issue (or such other percentage as the Directors and Manager shall agree) have been invested in accordance with the Company s investment policy (or, if earlier, six months after the date of their issue). When determining whether 85 per cent. of the Net Proceeds (or such other percentage as the Directors and Manager shall agree) have been so invested, the Directors will assume that the cash balances held within the C Share asset pool have been adjusted in respect of any market exposure obtained through contracts for difference, to represent the level of cash the C Share asset pool would have held had the equivalent market exposure been obtained instead via direct equity investment; the Net Asset Value of the existing Ordinary Shares will not be diluted by the expenses associated with the Issue which will be borne indirectly by the subscribers for C Shares and in certain circumstances, the Manager; and the basis upon which the C Shares will convert into Ordinary Shares is such that the number of Ordinary Shares to which the C Shareholders will become entitled will reflect the relative Net Asset Value per Share of the assets attributable to the C Shares and the Ordinary Shares. As a result, the Net Asset Value per Ordinary Share will not be adversely affected by Conversion. Following Conversion, the investments which were attributable to the C Shares will be merged with the Company s existing portfolio of investments. The new Ordinary Shares arising on Conversion of the C Shares will rank pari passu, subject to the terms of the Articles, with the Ordinary Shares then in issue. AXIV 1.11 The following resolutions which are necessary to authorise and carry out the Issue will be proposed at the Annual General Meeting to be held on 10 February 2016: (i) to authorise the allotment of up to 65 million C Shares and (ii) to disapply statutory pre-emption rights otherwise applicable to the allotment for cash of such C Shares. Application will be made to the UKLA for all of the C Shares to be issued pursuant to the Issue to be admitted to the premium listing segment of the Official List and to the London Stock Exchange for such C Shares to be admitted to trading on the London Stock Exchange s main market for listed securities. It is expected that Admission will become effective and dealings will commence on 29 February INVESTMENT OBJECTIVE AND INVESTMENT POLICY A resolution will be put forward at the Annual General Meeting to seek approval from Shareholders to amend the current investment policy of the Company. The current investment objective and investment policy of the Company is set out below, marked up to show the proposed changes that would come into effect on the date of the Annual General Meeting if approved by Shareholders. Investment objective and investment policy Investment objective The Company s investment objective is to achieve long term capital growth from investment in companies operating in Frontier Markets or whose stocks are listed on the stock markets of such countries. AXV 1.1, ESMA 29, 35, 36 AXV 1.1, 2.1 ESMA 29, 35, 36 AI

39 Investment policy The Company will seek to maximise total return and will invest globally in the securities of companies domiciled or listed in, or exercising the predominant part of their economic activity in, Frontier Markets. Investment may also be made in the securities of companies domiciled or listed in, or exercising the predominant part of their economic activity in, more developed markets with significant business operations in Frontier Markets. A Frontier Market is defined as a country which, at the time of any relevant investment,: (i) is any country that was not a constituent of the MSCI Emerging Markets Index or the MSCI Developed Markets Index as at 1 December 2015 (save for those countries specified in (ii) below); or (ii) any of Columbia, Egypt, Peru or The Philippines, each of which was a member of the MSCI Emerging Markets Index as at 1 December 2015 but which share similar characteristics to those of less developed markets (such as low per capita GDP, high growth potential and less developed capital markets). The Company will exit any investment relating to a Frontier Market as soon as reasonably practicable following that Frontier Market becoming a constituent of the Emerging Markets Index or the Developed Markets. Investment in the securities of companies domiciled or listed in, or exercising the predominant part of their economic activity in, those countries specified in (ii) above will be limited to a maximum of 20 per cent. of the gross value of the portfolio on an ongoing basis. The Company will exit any investment as soon as reasonably practicable following that market becoming a constituent of the MSCI Developed Markets Index. In order to achieve the Company's investment objective, the Manager selects stocks by fundamental analysis of countries, sectors and companies, looking for long-term appreciation from mispriced value or growth. The Manager employs both a top-down and bottom-up approach to investing. Risk is spread through investing in a number of holdings and, typically, it is expected that the Company will invest in between 35 to 65 holdings. Where possible, investment will generally be made directly in the stock markets of Frontier Markets. Where the Manager determines appropriate, investment may be made in Frontier Markets through collective investment schemes, although such investment is not likely to be substantial. Investment in other closed-ended investment funds admitted to the Official List will not exceed more than ten per cent., in aggregate, of the value of the Gross Assets (calculated at the time of any relevant investment). It is intended that the Company will generally be invested in equity investments, however, the Manager may invest in equity related investments such as convertibles or fixed interest securities where there are perceived advantages in doing so. The Manager may invest in bonds or other fixed income securities, including high risk debt securities. These securities may be below investment grade. Due to national and/or international regulation, excessive operational risk, prohibitive costs and/or the time period involved in establishing trading and custody accounts in certain of the Company s target Frontier Markets, the Company may temporarily, or, on an ongoing basis, be unable to invest (whether directly or through nominees) in certain of its target Frontier Markets or, in the opinion of the Company and/or the Manager, it may not be advisable to do so. In such circumstances, the Company intends to gain economic exposure to such target Frontier Markets by investing indirectly through derivatives (including contracts for difference) and/or structured financial instruments, for example P-Notes. Save as provided below, there is no restriction on the Company investing in derivatives and/or structured financial instruments in such circumstances. If the Company invests in derivatives and/or structured financial instruments for investment purposes (other than to gain access to a target Frontier Market as described above) and/or for efficient portfolio management purposes it shall only hold up to, in aggregate, 20 per cent. of its Gross Assets in derivatives and/or structured financial instruments for such purposes. The Company may take both long and short positions. The Company may short up to a limit of 10 per cent. of Gross Assets. For shorting purposes the Company may use indices or individual stocks. AXV 2.8 The maximum exposure the Company may have to derivatives and/or structured financial instruments for investment purposes (including gaining access to target Frontier Markets) and efficient portfolio management purposes, in aggregate, shall be 100 per cent. of the Company s portfolio. When investing via derivatives and/or structured financial instruments (whether for investment purposes (including gaining access to target Frontier Markets) and/or for efficient portfolio management purposes), the Company will seek to mitigate and/or spread its counterparty risk exposure by collateralisation and/or contracting with a potential range of counterparty banks, as appropriate, each of whom shall, at the time of entering into such derivatives and/or structured financial 39

40 instruments, have a Standard and Poors credit rating of at least A- long-term senior unsecured. When investing via derivatives and/or structured financial instruments, the Company could have exposure to between 35 to 65 underlying companies. The Manager will invest directly in securities only in countries where it is satisfied that acceptable custodial and other arrangements are in place to safeguard the Company s investments. The Company s portfolio will frequently be overweight or underweight relative to the Reference Index. The Company may invest up to 5 per cent. of its Gross Assets (at the time of such investment) in unquoted securities. The Company will invest so as not to hold more than 15 per cent. of its Gross Assets in any one stock or derivative position at the time of investment (excluding cash management activities). The Company may use borrowings for settlement of transactions, to facilitate share repurchases (where applicable) and to meet ongoing expenses and may be geared through borrowings and/or by entering into derivative transactions that have the effect of gearing the Company s portfolio to enhance performance. The aggregate of gearing through borrowing and the use of derivatives will not exceed 40 per cent. of the Gross Assets. It is anticipated that the aggregate of such gearing will not exceed 20 per cent. of the Gross Assets at the time of drawdown of the relevant borrowings or entering into the relevant transaction, as appropriate. No material change will be made to the investment policy without the approval of Shareholders by ordinary resolution. AXV 1.2 AI 10.3 AXV 1.1 CAPITAL STRUCTURE The Company s capital structure currently consists of Ordinary Shares and Management Shares. The Company s issued share capital on Admission will comprise Ordinary Shares, Management Shares and C Shares. Ordinary Shares The Ordinary Shares carry the right to receive all dividends declared by the Company or the Directors, subject to the rights of any Management Shares and C Shares in issue. AXIV 1.1 AIII 4.5 AI AXIV 1.1, 1.5 On a winding-up, provided the Company has satisfied all of its liabilities and subject to the rights conferred by any Management Shares and C Shares in issue at that time to participate in the winding-up, the holders of Ordinary Shares are entitled to all of the surplus assets of the Company. Holders of Ordinary Shares are entitled to attend and vote at all general meetings of the Company and, on a poll, to one vote for each Ordinary Share held. The Ordinary Shares are in registered form, have been admitted to the premium listing segment of the Official List and are traded on the London Stock Exchange s main market for listed securities. AXIV 1.3, 1.7 Management Shares The Management Shares carry the right to receive a fixed cumulative preferred dividend at the annual rate of 0.01 per cent. of the nominal amount of each of the shares payable on demand. On a winding up, provided the Company has satisfied all of its liabilities and subject to the rights conferred by any Deferred Shares or C Shares in issue at the time to participate in the winding-up, the holders of the Management Shares will first be paid the amount paid up (or treated as paid up) on each such share. For so long as there are shares of any other class in issue, the holders of the Management Shares do not have any right to receive notice of or vote at any general meeting of the Company. If there are no shares of any other class in issue, the holders of the Management Shares have the right to receive notice of, and to vote at, general meetings of the Company. 40

41 C Shares C Shares are a transient class of shares: the assets representing the net proceeds of any issue of C Shares will be maintained, managed and accounted for as a separate pool of capital of the Company until those C Shares convert into Ordinary Shares (which will occur once substantially all of the assets representing the Net Proceeds have been invested in accordance with the Company s investment policy (or, if earlier, six months after the date of issue of the C Shares)). On such conversion, each holder of C Shares will receive such number of Ordinary Shares as equals the number of C Shares held by them multiplied by the Net Asset Value per C Share and divided by the Net Asset Value per Ordinary Share, in each case as at a date shortly prior to conversion. AXIV 1.1 C Shares will carry the right to receive all dividends resolved by the Directors to be paid out of the pool of assets attributable to those C Shares. On a winding-up, provided the Company has satisfied all of its liabilities, the holders of C Shares will be entitled to any surplus assets of the Company attributable to those C Shares. Holders of C Shares will be entitled to attend and vote at all general meetings of the Company and, on a poll, to one vote for each C Share held. C Shares will be issued in registered form and applications will be made in conjunction with any issue of C Shares for those C Shares to be admitted to the premium listing segment of the Official List and to trading on the London Stock Exchange s main market for listed securities. DIVIDEND POLICY Whilst the Company does not expect dividends to form a significant part of Shareholders returns, in accordance with Chapter 4 of Part 24 of the CTA 2010, the Company will not retain more than 15 per cent. of its eligible income or such other percentage which may be prescribed by HMRC. AIII 4.3 AI 20.7 The Directors present intention is to pay dividends bi-annually with dividends typically expected to be announced with the publication of the interim and final results. However, the Directors may consider paying dividends more or less frequently depending upon the future income profile of the Company. The total dividends paid or to be paid by the Company in respect of the financial years ended 30 September 2013, 30 September 2014 and 30 September 2015 are set out in Part 6 of this document. FURTHER ISSUES OF SHARES Further issues of Ordinary Shares and any issue of C Shares for cash will be subject to the pre-emption rights conferred on existing shareholders by the Companies Act save to the extent that those rights have been disapplied by a special resolution of the Company. At the date of this document, the Directors have an unutilised authority to issue for cash, on a non-pre-emptive basis, up to 7,531,081 new Ordinary Shares (equivalent to 5 per cent. of the Ordinary Shares in issue at the date of this document) which will expire at the Annual General Meeting. At the Annual General Meeting, the Directors will be seeking a new authority to issue for cash, on a non-pre-emptive basis, up to 15,062,162 new Ordinary Shares (equivalent to 10 per cent. of the Ordinary Shares in issue at 17 December 2015). The Directors intend to seek annual (or, if required, more frequent) renewal of authorities to issue for cash, on a non-pre-emptive basis, new Ordinary Shares equivalent to 10 per cent. of the Ordinary Shares then in issue. At the Annual General Meeting, the Directors will be seeking authority to issue for cash, on a non-pre-emptive basis, up to 65 million C Shares and that authority, if granted, will expire on 31 July The Issue is conditional on the grant of such authority. Unless authorised by Shareholders, the Company will not issue further Ordinary Shares or new C Shares for cash on terms that would dilute the Net Asset Value per Ordinary Share and, accordingly, any such issues will not be disadvantageous to holders of Ordinary Shares. 41

42 DISCOUNT CONTROL The Directors recognise the importance to investors of ensuring that any discount to the underlying Net Asset Value per Ordinary Share at which the Ordinary Shares may be trading is as small as possible. Accordingly, the Directors have introduced discount control measures with two elements: periodic opportunities to realise the value of Ordinary Shares at the applicable Net Asset Value per Ordinary Share less costs; and use of the Company s share buy back authority where appropriate. Periodic opportunities for return of capital At the time of the Company s launch in December 2010, the Board stated that before the Company s fifth annual general meeting, it would provide Shareholders with an opportunity to elect to realise the value of their Ordinary Shares at the applicable Net Asset Value per Ordinary Share less costs. On 17 December the Company published a circular to Shareholders containing proposals to implement the Tender Offer. The Tender Offer closed on 29 January The Directors intend to offer Shareholders further opportunities to realise the value of their Ordinary Shares, at the applicable Net Asset Value per Ordinary Share less costs, at five yearly intervals. Market repurchases The Directors monitor any discount closely and will consider market share repurchases if any discount to Net Asset Value per Ordinary Share widens significantly. The Board anticipates that the facility to buy back Ordinary Shares will help maintain any discount at a consistently low level. There is, however, no guarantee or assurance that the discount control measures proposed by the Board will reduce any discount. The Directors will consider repurchasing Ordinary Shares in the market if they believe it to be in Shareholders interests and as a means of correcting any imbalance between supply of, and demand for, the Ordinary Shares. Any purchase of Ordinary Shares by the Company will be in accordance with the Articles, the Listing Rules and the rules of the London Stock Exchange in force at the time. In accordance with the Companies Act, market purchases of Ordinary Shares may only be made out of the proceeds of a fresh issue of shares made for the purpose of the repurchase or out of distributable profits. As at the date of this document, the Company has authority to repurchase up to 22,578,180 Ordinary Shares (being per cent. of the Ordinary Shares in issue). Renewal of this buy-back authority will be sought at the Annual General Meeting and the Company will seek authority to buy back up to per cent. of the issued Ordinary Share capital at each subsequent annual general meeting of the Company. Purchases of Ordinary Shares will only be made through the market at prices (after allowing for costs) below the relevant prevailing Net Asset Value per Ordinary Share and otherwise in accordance with guidelines established from time-to-time by the Board. Under the current Listing Rules, the maximum price that may be paid by the Company on the repurchase of any Ordinary Shares pursuant to a general authority is 105 per cent. of the average of the middle market quotations for the Ordinary Shares for the five Business Days immediately preceding the date of purchase or, if higher, that stipulated by Article 5(1) of the Buy-back and Stabilisation Regulation (EC No 2273/2003). The minimum price will not be below the nominal value of US$0.01 (or sterling equivalent) in respect of the Ordinary Shares. Any Ordinary Shares repurchased pursuant to the general authority referred to above may be held in treasury or cancelled. The Companies Act allows companies to hold shares acquired by way of market purchase as treasury shares, rather than having to cancel them. These shares may be subsequently cancelled or sold for cash. This would give the Company the ability to reissue Ordinary Shares quickly and cost efficiently, thereby improving liquidity and providing the Company with additional flexibility in the management of its capital base. The Board currently intends only to authorise the sale of Ordinary Shares from treasury at prices at or above the prevailing Net Asset Value per Ordinary Share (plus costs of the relevant sale) unless they are first offered pro rata to existing holders of Ordinary Shares. 42

43 NET ASSET VALUE As at 3 February 2016 (being the latest practicable date prior to the publication of this document), the unaudited Net Asset Value (cum-income) of the Company was 150,894,000 and the unaudited Net Asset Value (cumincome) per Ordinary Share was pence. CALCULATION OF NET ASSET VALUE The unaudited Net Asset Value per Ordinary Share is calculated in US dollars and, based on the prevailing exchange rate, pounds sterling, and published daily by the Manager and notified to the London Stock Exchange. The unaudited Net Asset Value per C Share will also be calculated and published daily, until their conversion on the same basis. When published, Net Asset Value announcements can be found on the Company s website AXV 8.3 AXV 3.4, 6.1 Applicable accounting standards require the Company s investments to be classified as held at fair value through profit or loss in accordance with IAS 39 Financial Instruments: Recognition and Measurement. The fair value of quoted financial investments is based on their quoted bid price, without deduction for the estimated future selling costs. The fair value of P-Notes is based on the quoted bid price of the underlying equity to which the P Note relates. Derivatives are held at fair value based on the bid prices of the underlying securities in respect of long positions, and the offer prices of the underlying securities in respect of short positions, which the Company is exposed to through the use of contracts for difference. The valuation function in respect of assets held directly by the Company is performed by the Manager in accordance with the AIFM Directive. In addition to this, the Directors have an obligation under the Companies Act to present fairly the financial position, financial performance and cash flows of the Company and make judgements and estimates that are reasonable and prudent. This includes responsibility for estimating valuations for unquoted investments. In practice, the Board and the Manager both take responsibility for determining the fair valuation of unquoted investments. The Manager makes use of its pricing committee regarding the valuations for unquoted investments or investments for which the market is inactive, which ensures that the valuation function is functionally and hierarchically independent from the portfolio management function of the Manager. The pricing committee may, for example, rely on various sources to determine asset values, including the advice provided by one or more valuation advisers and/or sources that may include market quotations, recent arm s length market transactions, the current fair value of another instrument which is substantially the same, other third party valuation services and dealer quotations. The pricing committee may use a variety of methodologies, including valuation models, analytical methods, third party appraisal and systematic fair value pricing. The Board will review the recommendations of the pricing committee as adopted by the Manager in valuing unquoted investments and adopts these to the extent that the Directors consider these to be appropriate. The calculation of the unaudited Net Asset Value per Ordinary Share and, following Admission, the unaudited Net Asset Value per C Share will only be suspended in circumstances where the underlying data necessary to value the investments of the Company cannot readily, or without undue expenditure, be obtained or in other circumstances (such as a system s failure of the Company s administrator) which prevents the Company from making such calculations. Details of any suspension in making such calculations will be announced through a Regulatory Information Service. AXV 6.2 SHAREHOLDER INFORMATION The audited accounts of the Company are prepared in US$ under EU IFRS. The estimated Net Asset Value attributable to the Ordinary Shares is, and following Admission, the C Shares will be, calculated in accordance with the guidelines set out above and published daily through a Regulatory Information Service in US dollars and, based on the prevailing exchange rate, pounds sterling. When published, Net Asset Value announcements can be found on the Company s website Monthly factsheets are published on the Company s website ( summarising the Company s performance. 43

44 The Company s annual report and accounts are prepared up to 30 September each year. Copies of the report and accounts are sent to Shareholders by the end of December each year. Shareholders also receive an unaudited half-yearly report covering the six months to 31 March each year, which is dispatched within the following two months. TAXATION Potential investors are referred to Part 7 of this document for details of the taxation of the Company and Shareholders in the UK. Investors who are in any doubt as to their tax position or who are subject to tax in jurisdictions other than the UK are strongly advised to consult their own professional advisers immediately. RISK FACTORS The Company s performance is dependent on many factors and potential investors should read the whole of this document and in particular the section entitled Risk Factors on pages 18 to

45 PART 2 INVESTMENT RATIONALE AND INVESTMENT PORTFOLIO INVESTMENT RATIONALE The Directors, as advised by the Investment Manager, believe that Frontier Markets continue to represent an attractive long-term investment opportunity. Many of the countries within the investible universe have high economic growth rates but also significant infrastructure deficits and low penetration of many goods and services. This creates an environment where certain Frontier Markets companies can thrive, experiencing high growth rates for an extended period. This is reflected in the high and growing dividend yield which has been experienced by investors in the Company. Despite these attractive characteristics, however, Frontier Markets have de-rated over the last five years and are trading at the lowest price-to-earnings ratio recorded over the period. This also represents a significant discount to both mainstream emerging and developed markets. The Directors, as advised by the Investment Manager, believe that three key factors underpin the investment case for Frontier Markets: 1. high growth, high yield and low current valuations; 2. opportunities to add value; and 3. diversification benefits of Frontier Markets. High growth, high yield and low current valuations GDP growth rates in Frontier Markets tend to be higher than in developed and emerging markets. Frontier Markets generally have lower GDP per capita (a measure of total economic output divided by total population) than more developed markets and therefore can sustain higher rates of growth as the level of development converges towards global levels. Low levels of invested capital in these countries, visible in substantial infrastructure deficits, allows for greater productivity gains from incremental investment. This creates opportunities for companies within Frontier Markets, which are able to benefit from these trends, to grow at a faster rate than would be sustainable in more developed markets. Such businesses typically see lower levels of competition, and can therefore sustainably generate higher margins than would be possible in more developed markets. This leads to higher profitability for companies which allows corporate managers to pay and increase dividends. Given the lower levels of capital market development within Frontier Markets, and therefore the reduced availability of corporate debt as a funding source, rewarding shareholders for the use of their capital and therefore paying dividends is important. Subject to shareholder approval, the Company will pay a final dividend of 4.15 US cents per Ordinary Share in respect of the financial year ended 30 September This combined with the interim dividend of 2.40 cents per Ordinary Share paid in July 2015 equates to a dividend yield of 4.5 per cent. (based on the share price of the Ordinary Shares as at 3 February 2016 (being the latest practicable date prior to the publication of this document)) and the Investment Manager has grown the dividend every year since the Company s inception in 2010 by owning companies which have seen underlying earnings growth and strong cash flow generation. 45

46 GBp) Source: BlackRock, 31 December 2015 Companies in Frontier Markets continue to trade at a discount to their counterparts in developed and emerging markets, despite the higher growth rates and dividend yields. Price / Earnings Ratio (absolute) MSCI Developed Markets MSCI EM MSCI Frontiers Source: Bloomberg, BlackRock, Citi 31 December 2015 (trailing) 46

47 Opportunities to add value Frontier Markets are less efficient than developed and emerging markets as the companies therein are under-researched and under-owned by international institutional investors. The chart below illustrates there is substantially less research being produced for Frontier Markets companies than for emerging markets companies. This lack of information flow provides the Investment Manager with an opportunity to add value through in-depth research and active fund management. Source: Bloomberg, 18 December 2015 (trailing) In approaching the investment opportunities provided by Frontier Markets, the Investment Manager adopts a highly disciplined approach to filtering the investment universe. The Investment Manager takes account of size and liquidity of investments, the macroeconomic and political background to regions, supported by rigorous stock specific research and risk analysis, individually and collectively, in constructing the portfolio. The Investment Manager conducts in-depth research, including frequent on the ground trips (the Investment Manager s Global Emerging and Frontier Markets Team conducts over 1,400 company meetings per year). The team has a wide network of business and political contacts in emerging markets and Frontier Markets which provides economic insights and enables the Investment Manager to assess potential investments in an informed and disciplined way, as well as being able to conduct regular monitoring of investments once made. The Company has outperformed broader Frontier Markets by 15.1 per cent. since the inception of the Company to 31 January 2016 demonstrating the Investment Manager s ability to take advantage of these inefficacies. (Source: Investment Manager: calculated on a US Dollar basis with income reinvested. Past performance cannot be relied upon as an indicator of future performance). Diversification benefits of Frontier Markets Frontier Markets demonstrate low correlation to traditional markets including US equities, UK equities and emerging market equities and therefore are one of the few remaining asset classes which can provide diversification in an increasingly correlated world. 47

48 The table below highlights the low correlation of Frontier Markets to more developed markets. Source: MSCI, Bloomberg, 31 st December Weekly corrections over 5 years Over the last five years, Frontier Markets have demonstrated a lower correlation to developed markets and to each other. The lower correlation has a real effect on investors experience and overall portfolio construction. The Company has 33 per cent. less volatility than the FTSE All-Share Index (Source: Bloomberg, MSCI, FTSE - Volatility of weekly returns since 17 December 2010, inception date of the BlackRock Frontiers Investment Trust, to 31 December On this measure, volatility of the Company s NAV is calculated as 1.6 per cent. in comparison to the volatility of the FTSE All-Share Index calculated as 2.4 per cent.) and the Company has demonstrated lower levels of volatility than both the MSCI Developed Markets Index and the MSCI Emerging Markets Index since inception. Investors can use Frontier Markets as a portfolio diversifier while still having the ability to earn equity-like returns through an investment cycle. Conclusion The Company has returned 11.6 per cent. since inception in 2010 to 31 January 2016, outperforming both the MSCI Frontier Markets Index and MSCI Emerging Markets Index (Source: Investment Manager: calculated on a US Dollar basis with income reinvested. Past performance cannot be relied upon as an indicator of future performance). Further, Frontier Markets are trading at a similar valuation today as they were in Additionally, the Company s dividend has grown by more than 100 per cent. over this time. Five years on from inception of the Company, the Directors, as advised by the Investment Manager, continue to see the combination of high growth, high yields, low valuations and low correlation as an attractive long term investment opportunity. In the current global environment where developed markets look increasingly growth starved, the potential within Frontier Markets increasingly stands out positively. The markets remain under owned and under researched and therefore offer a universe where it is possible to add substantial alpha. INVESTMENT PORTFOLIO As at 3 February 2016 (being the latest practicable date prior to the publication of this document), the Company held 53 investments with an aggregate value of US$221.2 million. There has been no significant change in the Company s investments since 3 February 2016 and the date of this document. Largest investments The table below shows the top 20 holdings of the Company as at 3 February 2016 (being the latest practicable date prior to the publication of this document) representing 63.3 per cent. of the value of the total portfolio. 48